AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 1, 1999
Registration No. 333-__________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
-----------------------
NEWAGECITIES.COM, INC.
(Name of Small Business Issuer in Its Charter)
Idaho 7373 91-0927532
(State or Other Jurisdiction Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Number) Identification No.)
1181 South Rogers Circle
Suite 5
Boca Raton, FL 33487
(561) 989-0808
(Address and Telephone Number of Principal Executive Offices)
-----------------------
Joseph Ardito, Jr., Chief Executive Officer
1181 South Rogers Circle
Suite 5
Boca Raton, FL 33487
(561) 989-0808
(Name, Address and Telephone Number of Agent For Service)
-----------------------
Copies of all communications to:
James M. Schneider, Esq.
Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Boulevard, Suite 1900
Fort Lauderdale, FL 33301
Telephone: (954) 763-1200
Facsimile No. (954) 766-7800
Approximate Date of Proposed Sale to the Public: As soon as practicable
after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of Each Maximum Maximum
Class of Securities Amount to be Offering Price Aggregate Amount of
to be Registered Registered Per Security Offering Price Registration Fee
- -------------------- -------------- ------------ -------------- ----------------
<S> <C> <C> <C> <C>
common stock 3,200,000 $2.50 $ 8,000,000 $2,224
common stock
issuable upon
exercise of warrants 1,800,000 $2.50 $ 4,500,000 $1,251
--------- ----- ----------- ------
Total 5,000,000 $12,500,000 $3,475
========= =========== ======
</TABLE>
Estimated solely for the purpose of computing the amount of the
registration fee in accordance with Rule 457(c) under the Securities Act of 1933
based on the average of the high and low sale price for our common stock as
reported on the OTC Bulletin Board on August 27, 1999.
Pursuant to Rule 416, there are also being registered additional shares
of common stock as may be issuable pursuant to the anti-dilution provisions of
the warrants.
Newagecities.com, inc. hereby amends this registration statement on
such date or dates as may be necessary to delay its effective date until
newagecities.com, inc. files a further amendment which specifically states that
this registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
registration statement shall become effective on such date as the Securities and
Exchange Commission, acting pursuant to said Section 8(a), may determine.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
<PAGE>
Subject to completion September 1, 1999
PROSPECTUS
NEWAGECITIES.COM, INC.
5,000,000 shares of common stock
This prospectus covers the 5,000,000 shares of common stock of
newagecities.com, inc. being offered by certain selling security holders. The
shares being offered include 1,800,000 shares reserved for issuance upon
exercise of warrants which we have granted to selling security holders.
We will not receive any proceeds from the sale of the shares by the
selling security holders. We may however receive up to $3,550,000 if all of the
warrants held by the selling security holders are exercised.
Our common stock trades on the OTC Bulletin Board under the trading
symbol "NACT". On August 27, 1999, the closing bid price for our common stock
was $2.50.
-------------------------------
This investment involves a high degree of risk. You should purchase
shares only if you can afford a complete loss of your investment. See "High Risk
Factors" beginning on page 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
-------------------------------
The date of this prospectus is _________,1999
<PAGE>
AVAILABLE INFORMATION
We file annual, quarterly and special reports and other information
with the United States Securities and Exchange Commission. You may read and copy
any document we file at the Securities and Exchange Commission public reference
rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please
call the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the public reference rooms. Our filings are also publicly
available through the Securities and Exchange Commission's website on the
Internet at http://www.sec.gov.
This prospectus does not contain all of the information set forth in
the registration statement and the exhibits thereto. Descriptions of any
contract or other document referred to in this prospectus are not necessarily
complete, and in each instance reference is made to the copy of that contract or
other document filed as an exhibit to the registration statement for a more
complete description of the matter involved, each such statement being qualified
in its entirety by this reference. At your written or telephonic request, we
will provide you, without charge, a copy of any of the information that is
incorporated by reference (excluding exhibits to the information that is
incorporated by reference unless the exhibits are themselves specifically
incorporated by reference). Please direct your request to newagecities.com, Inc.
1181 S. Rogers Circle, Suite 5, Boca Raton, FL 33487, Attention: Dr. Kenneth
Shenkman, Telephone (561) 989-0808.
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<PAGE>
PROSPECTUS SUMMARY
The following prospectus summary only highlights more detailed
information appearing elsewhere in this prospectus. To more fully understand
newagecities.com and this offering, you should read the prospectus, including
the consolidated financial statements and related notes, in their entirety. The
information in this prospectus gives effect to a 1:80 reverse stock split of our
common stock which took place on April 6, 1999.
The company
Newagecities.com, inc. is a development stage company attempting to
design and operate a World Wide Web portal focused on the New Age concept. The
New Age concept consists of a set of beliefs and practices that originated in
past centuries including aromatherapy, astrology, crystal energy, eastern
philosophy, holistic remedies, UFOs and related topics. Newagecities.com intends
to offer New Age products and interactive services through its web portal which
is currently being designed. Newagecities.com, inc. has recently entered into an
acquisition agreement with Member Net, Inc., and upon closing will acquire an
existing Web site geared towards New Age consumers known as
"www.mindbodysoul.com".
The offering
common stock offered by
selling security holders................................. 5,000,000 shares(1)
common stock outstanding:
prior to the offering .......................... 3,599,749
after the offering ............................. 7,899,749(2)
- --------------------
(1) The selling security holders are offering up to 5,000,000 shares of
common stock, including 1,800,000 shares of our common stock that are
issuable to them upon the exercise of warrants that they own. The
shares will be sold in brokerage transactions that may be effected by
them from time-to-time. We have not arranged for any underwriter to
sell the shares on behalf of the selling security holders.
(2) Assumes the acquisition of Member Net is completed and the warrants
held by the selling security holders are exercised.
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<PAGE>
Summary financial information
The following summary financial information as of May 31, 1999, and the
period beginning January 29, 1999, the date of our inception, and ending May 31,
1999, are derived from our audited consolidated financial statements and notes
included elsewhere in this prospectus. The pro forma information gives effect to
the acquisition of Member Net, Inc. This information is included under
"Consolidated Financial Statements" and "Pro Forma Financial Data."
Statements of Operations Data:
<TABLE>
<CAPTION>
From January 29, 1999
(Inception) to May 31, 1999
Actual Pro Forma
<S> <C> <C>
Revenues $ - $ 11,741
Gross profit $ - $ (13,715)
Net loss $ (668,972) $ (668,972)
Pro forma net loss (after benefit for
pro forma taxes) $ (668,972) $ (900,118)
Net loss per common share - basic $ (0.34) $ (0.20)
Weighted average common shares
outstanding 1,986,698 4,486,698
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
As of May 31, 1999
Actual Pro Forma
<S> <C> <C>
Current assets $ 447,102 $ 447,102
Working capital $ 432,306 $ 432,306
Total assets $ 1,175,524 $ 6,525,524
Total liabilities $ 14,796 $ 14,796
Stockholders' equity $ 1,160,728 $ 6,510,728
</TABLE>
The pro forma financial information reflects the acquisition of Member
Net, Inc., as if such transaction had occurred as at January 29, 1999 with
respect to the Statement of Operations Data and at May 31, 1999 with respect to
the Balance Sheet Data. The various adjustments are more fully described in the
pro forma financial data included with the financial statements in this
prospectus.
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<PAGE>
HIGH RISK FACTORS
An investment in the shares of our common stock being offered by the
selling security holders is speculative in nature and involves a high degree of
risk. In addition to the other information contained in this prospectus, the
following factors should be considered carefully in evaluating newagecities.com
and its business before purchasing the shares being offered by the selling
security holders. This prospectus contains, in addition to historical
information, forward-looking statements that involve risks and uncertainties.
Our actual results may differ materially from the results discussed in the
forward-looking statements. Factors that might cause or contribute to these
differences include those discussed below and elsewhere in this prospectus.
Newagecities.com has a very limited operating history
We only began operations in April 1999. At May 31, 1999, we had limited
cash of $312,602. Although we have began to receive limited revenues during
August 1999, we will continue to incur significant start-up costs as we build up
our business. As a result, we expect to continue to incur losses until we are
able to significantly increase our client base and revenues. Our potential for
future profitability will depend on our ability to increase our client base and
our revenues while controlling costs. If we do not begin receiving revenue when
expected or we are not able to control our start-up costs, your entire
investment in us may be lost.
Dependence on and uncertainties concerning the Internet that will significantly
effect our business
Use of the Internet by consumers is at an early stage of development,
and market acceptance of the Internet as a medium for commerce is subject to a
high degree of uncertainty. Our ability to succeed will depend on our ability to
significantly increase revenues, which will require the further development and
widespread acceptance of the Internet as a medium for commerce and advertising.
The areas of uncertainty that will have a long-term effect on the acceptance of
the Internet as a successful retailing channel many include the following:
o the potential lack of reliable network backbones or
complementary services such as high speed modems;
o delays in the development and adoption of new standards and
protocols to handle increased levels of Internet activity;
o acceptance of the Internet as an advertising medium, and,
more particularly, our ability to successfully generate
significant advertising revenues;
o our ability to anticipate, monitor and successfully respond to
rapidly changing consumer needs and preferences to attract a
sufficient number of users to our Web sites;
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o our ability to attract, retain and expand a loyal user base;
o consumer concern over Internet security through the
development of comprehensive security technologies; and
o our potential exposure for claims arising from the nature and
content of information available on our Web sites.
Since our business primarily involves selling products and providing
services over the Internet, if the Internet does not continue to evolve as a
viable commercial alternative, our ability to conduct our operations and your
investment could be materially adversely effected.
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<PAGE>
We may have difficulty expanding our network infrastructure and managing
potential growth
Further expansion of our operations will be required to address
potential growth of our customer base and market opportunities. Expansion, such
as our expected acquisition of Member Net, will place a significant strain on
our management, operational and financial resources. Currently, we have only a
limited number of employees and we will need to improve existing and implement
new transaction processing, operational and financial systems, procedures and
controls, and to expand, train and manage our employee base in order to consider
expanding. We will also be required to expand our finance, administrative and
operations staff. Further, we will need to enter into relationships with various
strategic partners, Web sites, product manufacturers and distributors, and other
online service providers. Our failure to expand our computer and network
infrastructures and manage growth effectively could have a damaging effect on
our business, results of operations and financial condition.
We will be dependent on continued growth of developing an online electronic
commerce market
For newagecities.com to be successful, consumers must accept and use
the Internet as a way of doing business and exchanging information. The market
for the sale of goods over the Internet is new and emerging market. Our future
revenues and profits will be heavily dependent on the widespread acceptance and
use of the Internet and other online services as a form of commerce by
consumers. Rapid growth in the use of and interest in the Internet and other
online
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<PAGE>
services is a recent development. We cannot assure you that this acceptance and
use will continue to develop, or that a sufficiently broad base of consumers
will adopt, and continue to use, the Internet as a method of commerce. Demand
and market acceptance for recently introduced services and products over the
Internet may not be sustained. Growth in our user base will be dependent on
obtaining consumers who have previously used traditional means of commerce to
purchase goods. If the Internet does not develop as a viable alternative through
which consumers are willing to purchase products and receive services, our
business will suffer material adverse consequences.
There are substantial risks with Internet commerce and doing business on the
Internet
The Internet may not be commercially viable in the long term for a
number of reasons including:
o potentially inadequate development of the necessary computer
network infrastructure;
o delayed development of enabling technologies;
o performance improvements; and
o security measures
If the Internet continues to experience significant growth in the
number of users, their frequency of use or their bandwidth requirements, could
effect whether the infrastructure for the Internet and other online services
will be able to support the demands placed upon them.
In addition, the Internet and other online services could lose growth
momentum. This is due to delays in the development or adoption of new standards
and procedures required to handle increased levels of Internet or other online
service activity or increased governmental regulation.
Changes in, or insufficient availability of telecommunication services
to support the Internet or other online services also could result in slower
response times and affect usage of the Internet and newagecities.com's services
in particular. If these types of problems occur, our business and financial
condition would be severely affected.
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Failure of our internal systems may also damage our operations
We use internally developed systems to provide our online services and
for transaction processing, including billing and collections processing. We
must continually improve these systems in order to meet the level of use.
Furthermore, in the future, we may add additional features and functionality to
our services that may cause us to develop or license additional technologies.
Our inability to add additional software and hardware or to develop and
upgrade existing technology, transaction processing systems or network
infrastructure to meet increased traffic on the service or increased transaction
volume through our processing systems or to provide new features or
functionality may cause system disruptions, slower response times, reductions in
levels of customer service, decreased quality of the user's experience, and
delays in reporting accurate financial information. Our inability to meet these
needs would have a negative effect on our business, results of operations and
financial condition.
Intense competition is a feature of our industry
The market for online commerce over the Internet is new, rapidly
evolving and intensely competitive. Competition will likely increase in the
future. Barriers to entry are relatively low, and current and new competitors
can launch new sites at a relatively low cost using commercially available
software.
We currently or potentially compete with a number of other companies.
We face competition from a number of large online communities and services that
have expertise in developing online commerce and online person-to-person
interaction. Certain of these potential competitors including Amazon.com,
American Online, Inc. and Microsoft Corporation, currently offer a variety of
business-to-consumer trading services and classified ad services.
Other large companies with strong brand recognition and experience in
online commerce, such as Cendant Corporation, QVC and large newspaper or media
companies may also compete in the online e-commerce market. Competitive
pressures created by any one of these companies, or by our competitors, could
have a damaging effect on our business, results of operations and financial
condition.
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Brand development is critical but difficult to achieve
We believe that establishing recognition of our brand is critical to
gaining widespread acceptance of newagecities.com. Promoting and positioning our
brand will depend largely on the success of our marketing efforts and our
ability to provide high quality services.
In order to promote our brand, we will need to financially support our
marketing program and increase our financial commitment to creating and
maintaining brand loyalty among users. Brand promotion activities may not
produce increased revenues or that these revenues will offset our expenses in
building our brand. Further, we cannot say that any new users attracted to
newagecities.com will conduct transactions on a regular basis.
Any one of these factors could damage our business, results of
operations and financial condition and therefore have a material adverse affect
on our business prospectus.
We run the risk of not being able to keep up with rapid technological changes in
the Internet industry
The market in which we compete faces rapidly changing technology,
evolving industry standards, frequent new service and product introductions and
changing customer demands. These market characteristics are heightened by the
emerging nature of the Web and the need for companies from a range of industries
to offer Web-based products and services.
Accordingly, our future success will depend on our ability to adapt to
rapidly changing technologies, to adapt our services to evolving industry
standards and to continually improve the performance, features and reliability
of our service in response to competition and the evolving demands of the
marketplace. In addition, the widespread adoption of new Internet, networking or
telecommunications technologies or other technological changes will require
substantial expenditures to modify or adapt our services or infrastructure,
which could have a negative effect on our business, results of operations and
financial condition.
There are risks related to consumer trends and the New Age market which can
change rapidly
The success of newagecities.com will be based on the continued interest
of consumers in the New Age industry. Future revenues will depend upon continued
demand for the types of goods and psychic services that are listed on
newagecities.com 's service. The popularity of certain categories of items among
consumers may vary over time due to scarcity, value, and social and consumer
trends in general.
A decline in the popularity of certain psychic services or other items
could reduce the overall volume of transactions on the psychic service,
resulting in reduced revenues. In addition, consumer interest in psychic
phenomena may temporarily inflate the volume of certain types of
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items and services listed on the newagecities.com service, placing a strain on
our infrastructure and transaction capacity. These trends may also cause major
fluctuations in our operating results from one quarter to the next.
Any decline in demand for our goods offered through the
newagecities.com service due to changes in consumer trends could have a harmful
effect on our business, results of operations and financial condition.
Risks associated with activities on newagecities.com's service could expose us
to liability
The law relating to the liability of providers of online services for
activities on the service is currently developing. We know that goods, such as
alcohol, tobacco, firearms, adult material and other goods may be regulated by
local, state or federal authorities. We may be unable to prevent the unlawful
exchange of goods on our service or avoid civil or criminal liability for
unlawful activities carried out by users through our service. This possible
liability for unlawful activities of users may require us to take measures to
reduce our exposure to this liability. This may require us to spend substantial
resources or to discontinue various service offerings. Costs incurred as a
result of these matters could have a negative effect on our business, results of
operations and financial condition.
Online commerce security risks could prove a burden to us
Secure transmission of confidential information over public networks is
a significant barrier to online commerce and communications. We rely on
encryption and authentication technology licensed from third parties to provide
security and authentication technology for secure transmission of confidential
information, including customer credit card numbers. Technological developments
could compromise or breach the technology we use to protect customer transaction
data.
We may have to spend significant capital and other resources to protect
against security breaches or to deal with problems caused by these breaches.
Concerns over the security of transactions on the Internet and other online
services and the privacy of users may limit the growth of the Internet and other
online services, and the Web in particular, especially for commercial
transactions. Since our activities involve the storage and transmission of
proprietary information, such as credit card numbers, security breaches could
damage our reputation and expose us to a risk of loss or litigation and possible
liability. We cannot be sure that our security measures will prevent security
breaches or our failure to prevent security breaches will not have a harmful
effect on our business, results of operations and financial condition.
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<PAGE>
Problems with acquisitions could be costly and disruptive to our operations
If appropriate opportunities present themselves, we will acquire
businesses, technologies, services or products that are strategic to us. We
cannot be sure that we will be able to identify, negotiate or finance future
acquisitions successfully, or to integrate any acquisitions with our current
business. The process of integrating an acquired business, technology, service
or product into our company, such as the Member Net acquisition, may result in
unforeseen operating difficulties and costs and may demand significant
management attention that could be used for ongoing development of our business.
Moreover, we do not know that any acquisition will be a benefit to
newagecities.com. Further acquisitions may cause dilution of value, issuance of
debt, contingent liabilities, expenses related to goodwill and other intangible
assets, which could negatively affect our business, results of operations and
financial condition. Any future acquisitions of other businesses, technologies,
services or products might require us to obtain additional equity or debt
financing, which might not be available on favorable terms, or at all, and any
financing, could be dilutive.
We could have liability for information carried on our service
The law relating to the liability of online services companies for
information carried on their services is not clear. Claims could be made against
online services companies such as newagecities.com under both United States and
foreign law for defamation, libel, invasion of privacy, negligence, copyright or
trademark infringement, or other theories based on the nature and content of the
materials distributed. As a result, we may have to implement measures to reduce
our exposure to this type of liability, which may require us to spend
substantial funds and/or to discontinue service offerings. We do not currently
have liability insurance.
Governmental regulation of the Internet and other legal uncertainties could
affect our business
We and other Internet related companies are not currently subject to
direct federal, state or local regulation and laws applicable to commerce on the
Internet, other than regulations applicable to businesses generally. However,
due to the increasing popularity and use of the Internet and other online
services, it is possible that a number of laws and regulations may be adopted
governing the Internet or other online services covering issues such as user
privacy, freedom of expression, pricing, content and quality of products and
services, taxation, advertising, intellectual property rights, libel, obscenity
and personal privacy. The vast majority of laws adopted prior to the Internet do
not address the unique issues of the Internet and related technologies. A state
could attempt to impose regulations on the industry in the future which could
have a damaging effect on our business, results of operations and financial
condition.
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Sales and other taxes could be costly and limit our growth
With the exception of transactions by Florida consumers, we do not
expect to collect sales or other similar taxes for goods sold by users through
the newagecities.com service. However, one or more states may impose sales tax
collection obligations on out-of-state companies which engage in online
commerce. In fact, a number of proposals have been made at the state and local
level that would require additional taxes on the sale of goods and services
through the Internet. If adopted, these could substantially limit the growth of
electronic commerce, and could affect our opportunity to profit from these
activities. If the states were successful in requiring us to collect sales or
other taxes on the exchange of merchandise on our system, this could have a
negative effect on our business, results of operations and financial condition.
We may need additional capital which may not be available
We recently received net proceeds from the sale of shares of our common
stock of approximately $1,000,000. We believe these funds will satisfy our cash
requirements for approximately 6 months. However, our operations are capital
intensive and our growth through acquisition strategy will consume a substantial
portion of our available working capital. Therefore, depending upon the timing
and rate at which we are able to produce revenues from operations, we may
require additional capital in order to fund our operations. We cannot predict
whether additional financing, if required, will be available to us on acceptable
terms.
We are dependent on certain key executive officers
We are depending greatly on Joseph Ardito and Dr. Kenneth Shenkman, who
are our key executives. While we have entered into contractual agreements with
them, the loss of either of their services would be highly damaging to us. At
this point, we do not have key-man insurance on either of their lives.
Securities and Exchange Commission rules on "penny stocks" could greatly affect
the market for our common stock
The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be any equity security that has a market
price of less than $5.00 per share, subject to certain exceptions. Depending on
market fluctuations, our common stock could be considered to be a "penny stock"
and be subject to rules that impose additional sales practice requirements on
broker/dealers who sell these securities to persons other than established
customers and accredited investors, unless the common stock is listed on The
Nasdaq SmallCap Market. For transactions covered by these rules, the
broker-dealer must make a special suitability determination for the purchase of
such securities. In addition he must receive the purchaser's written consent to
the transaction prior to the purchase. He must also provide certain written
disclosure to the purchaser. Consequently, the "penny stock" rules may restrict
the
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ability of broker/dealers to sell our securities, and may adversely affect the
ability of holders of shares of our common stock to resell them. While we intend
at some future date to list our common stock on the Nasdaq SmallCap Market when
we satisfy their various criteria, we cannot predict whether we will ever be
able to qualify.
It is not likely that we will pay dividends on our common stock for the
foreseeable future
We have no present intention of paying cash dividends on our common
stock in the foreseeable future, as we intend to follow a policy of retaining
our earnings, if any, for use in our business.
Year 2000 risk
We have implemented a Year 2000 date conversion program to ensure that
our computer systems and applications will function properly beyond 1999. We
believe that we have allocated adequate resources for this purpose and expect
our Year 2000 date conversion program to be successfully completed on a timely
basis. We cannot be sure, however, that this will be the case. We do not expect
to incur significant expenditures to address this issue. The ability of third
parties with whom we transact business to adequately address their respective
Year 2000 issues is outside of our control. We cannot be certain that our
failure or the failure of these third parties to adequately address Year 2000
issues will not have a negative effect on our business, financial condition,
cash flows and results of operations.
FORWARD LOOKING STATEMENTS
Some of the statements in this prospectus discuss further expectations
or state other forward-looking information. Those statements are subject to
known and unknown risks, uncertainties and other factors that could cause our
actual results to differ materially from those contemplated by the statements.
Factors that might cause a difference include, but are not limited to, those
discussed in "High Risk Factors" and elsewhere in this prospectus.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of May 31, 1999 as
well as our pro forma capitalization as of that date giving effect to the
completion of the acquisition of Member Net. The table does not reflect the
exercise of any of the warrants. The table should be read in conjunction with
the consolidated financial statements and related notes included elsewhere in
this prospectus. The information in this table gives effect to a 1:80 reverse
stock split of our outstanding common stock we completed on April 6, 1999.
May 31, 1999
Actual Pro Forma
------ ---------
Stockholders' equity:
Common stock, $.02 par value,
45,000,000 shares authorized,
3,599,749 shares issued
and outstanding (actual),
6,099,749 shares issued and
outstanding (pro forma) $ 71,995 $ 121,995
Additional paid-in capital 1,758,005 7,058,005
Stock subscription receivable (300) (300)
Accumulated deficit (668,972) (668,972)
----------- -----------
Total stockholders' equity $ 1,160,728 $ 6,510,728
=========== ===========
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USE OF PROCEEDS
We will not receive any proceeds upon the sale of shares by the selling
security holders. However, this prospectus relates to the sale of up to
1,800,000 shares that may be issued in the event of exercise of the warrants
held by selling security holders. In the event all the warrants are exercised,
we will receive proceeds of $3,550,000. These proceeds, if received, will be
used for working capital purposes.
PRICE RANGE OF COMMON STOCK, DIVIDEND POLICY
AND NUMBER OF RECORD HOLDERS
Our common stock is traded over-the-counter and quoted on the OTC
Electronic Bulletin Board under the symbol "NACT". The reported high and low bid
prices for the common stock are shown below for the period from April 14, 1998,
the date our common stock began trading on the OTC Electronic Bulletin Board,
through August 26, 1999. The prices do not always represent actual transactions.
The following information gives effect to a 1:80 reverse stock split of our
outstanding common stock completed on April 6, 1999. As of August 15, 1999, we
had 1,063 stockholders of record.
Period High Low
- ------ ---- ---
Quarter ended June 30, 1998 $ 3.20 $ .80
Quarter ended September 30, 1998 $ 2.48 $ .80
Quarter ended December 31, 1998 $ 4.80 $ 1.60
Quarter ended March 31, 1999 $ 5.60 $ 1.60
Quarter ended June 30, 1999 $ 8.00 $ 2.50
Period from July 1, 1999 to
August 26, 1999 $ 3.38 $ 1.81
On August 27, 1999, the closing price of our common stock was $2.50.
We have never paid cash dividends on our common stock. We intend to
keep future earnings, if any, to finance the expansion of our business. We do
not anticipate that any cash dividends will be paid in the foreseeable future.
PLAN OF OPERATION
During the 12-month period immediately following the date of this
Prospectus, our goal is to design and begin to operate a Web portal focused on
providing services and selling goods related to the New Age concept. The term
"New Age" refers to a set of beliefs and practices that originated in past time
and includes aromatherapy, astrology, crystal energy, eastern philosophy,
natural health, psychics, UFOs and a host of other topics. The Internet has
emerged as one of the
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fastest growing sectors of the economy and is becoming a major part of the lives
of a greater number of people which includes a large number of online shoppers.
Newagecities.com is creating a Web site that serves as a doorway or portal to a
range of information, products and services specifically designed with the New
Age community in mind. In order to accomplish our goal, we must create, with the
assistance of various consultants, a complex computer network and e-commerce
based system which will allow our clients to receive our services and purchase
New Age related products from their personal computers. We are developing our
computer systems and network so that they can evolve into a fully operating
system which will allow newagecities.com to provide services and market its
products on a larger scale.
Our goal is to build newagecities.com into a leading online destination
for members of the New Age community. We believe the execution of this strategy
will help newagecities.com to realize revenue growth through expanded e-commerce
offerings as well as advertising and marketing opportunities. The key to
implementing this strategy requires increasing our membership, building brand
recognition, enhancing the online features of our Web portal, maintaining fresh
content and integrating new technology.
In order to implement our business plan, newagecities.com will need to
build strategic alliances with companies that provide products and services that
are important for us to achieve our goals. To this end, newagecities.com has
completed licensing arrangements for e-commerce software and entered into an
agreement which has provided us with a Web page incorporating a "New Age Look".
To further advance our strategic plan, on July 30, 1999, newagecities.com
entered into an agreement for the acquisition of Member Net, Inc. which has an
existing Web site geared towards New Age consumers. Along with this content, the
acquisition will provide newagecities.com with access to an existing membership
base of over 60,000 people as well as approximately 500,000 paid views per
month.
Newagecities.com commenced active operations in April 1999. We began
receiving limited revenues beginning in August 1999, apart from any revenues
derived from the acquisition of Member Net, which has limited revenues, and
which is expected to be completed in the near future. For the period January 29,
1999 (inception) through May 31, 1999, newagecities.com had no revenues and
operating expenses totaling $672,070, representing essentially all of our net
loss which totaled $668,972 for that period. Operating expenses consisted of
research and development charges of $258,750, general and administrative
expenses of $113,320 and non-cash charges associated with compensation of
$300,000. We funded these research and development expenses through issuance of
150,000 shares of our common stock and warrants to purchase 75,000 shares. Our
general and administrative expenses consisted primarily of payroll and
professional fees.
For the year ended December 31, 1998, Member Net had revenues of
$26,768, income before pro forma income taxes of $14,556 and pro forma net
income of $8,734. For the five months ended May 31, 1999, Member Net had
revenues of $11,741, a loss before pro forma income taxes of $13,715 and pro
forma net loss of $8,229.
At May 31, 1999, newagecities.com had current assets of $447,102 and
working capital of $432,306, which amount will not be affected by the
acquisition of Member Net. Substantially all of the working capital was obtained
as a result of a private offering conducted in March 1999
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which resulted in the receipt of net proceeds of approximately $600,000. At May
31, 1999, the Company had a cash balance of $313,000. Our current financial
resources will not be sufficient for us to accomplish our goal. Over the next 12
months, our management estimates that we will need to raise approximately $2
million primarily to further develop our computer network infrastructure,
acquire products for sale to our New Age customers, marketing and for expanding
our organization. These funds will need to be raised through a private placement
of our securities, strategic investments or public financing. Revenues from
operations are expected to provide only limited resources during this 12-month
period.
Year 2000 Compliance
Many currently installed computer systems and software products are
coded to accept only two-digit entries to represent years in the date code
field. Computer systems and products that do not accept four-digit year entries
will need to be upgraded or replaced to accept four-digit entries to distinguish
years beginning with 2000 from prior years. Management believes that our
management information system is compliant with Year 2000 requirements. We
currently do not anticipate that we will experience any material disruption to
our operation as a result of the failure of our management information system to
be Year 2000 compliant. There can be no assurance, however, that computer
systems operated by third parties, including customers, vendors, credit card
transaction processors, and financial insitutions, with which our management
information system interfaces will continue to properly interface with our
system and will otherwise be compliant on a timely basis with year 2000
requirements. We are currently developing a plan to evaluate the Year 2000
compliance status of third parties with which our system interfaces. Any failure
of our management information system or the systems of thiird parties to timely
achieve Year 2000 compliance could have a material adverse effect on our
business, financial condition, and operating results. We have not established a
contingency plan in the event that we are unable to correct the Year 2000
problem and, as of the date of this prospectus, have no plans to do so.
OUR BUSINESS
Newagecities.com, Inc. is a development stage company whose goal is to
become a leading provider of Internet Community-building and electronic commerce
services for the New Age population and to create one of the most
demographically targeted Web sites on the Internet. The New Age population
consists of many millions of people interested in a variety of different areas,
including aromatherapy (mood changing aromas), astrology, crystal energy,
eastern philosophy, natural health, psychics, and a host of other topics.
Newagecities.com is creating a Web site that serves as a doorway, or portal, to
a range of information, products and services specifically designed with the New
Age community in mind.
Newagecities.com will feature a broad set of easy-to-use tools designed
to create an online community of members. Members represent the core audience of
newagecities.com and its most valuable users. The site also features extensive
e-commerce capabilities. We offer a large selection of New Age related products
as well as the chance for other retailers and users to sell products as well.
Newagecities.com will also offer high quality audio and video psychic readings
online.
Our background
Psychicnet.com, inc. was formed on January 29, 1999 to provide "New
Age" services and products on the Internet. On April 6, 1999, Psychicnet was
acquired by Virginia City Gold Mines, Inc., an Idaho corporation, for 2,700,000
shares of common stock. The exchange was completed through an Agreement and Plan
of Reorganization between Psychicnet and Virginia City. Virginia City had no
operations at the time of the acquisition. Subsequent to the exchange, Virginia
City changed its name to newagecities.com, Inc., its present corporate name. We
expect to reincorporate into the State of Florida in the near future.
Industry background and growth of Internet
The Internet has emerged as one of the fastest growing sectors of the
economy. International Data Corporation estimates that the number of Internet
users was approximately 56 million at the end of 1996 and will reach
approximately 320 million by the end of 2002. At that time, they also estimate
that approximate worldwide commerce on the Internet will reach
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$425 billion. The Internet is becoming a major part of the lives of millions of
people, and most online shoppers are spending 20 hours or more on the Internet
each week. The anticipated growth in the number of users is expected to be
driven by the lowering of computer prices and increasing ease of access to the
Internet.
The Internet has opened the door to new worlds for many and offers the
opportunity to reach millions of people with a product, service or idea. It
enables people to interact in ways that were not possible before with
traditional communication media. It also offers new and effective methods for
online retailers to connect with their customers and for advertisers to reach
highly targeted markets.
The New Age population and market
The term "New Age" is typically used to refer to a set of beliefs and
practices that originated in centuries past. These include aromatherapy,
astrology, crystal energy, eastern philosophy, natural health, psychics, UFOs
and a host of other topics. Although each of these areas is distinct from the
others, they are all considered within the umbrella concept of "New Age."
Although the term "New Age" has come in and out of vogue over the
years, the ideas that it represents have shown a steady growth in public
interest. Often items that fall into the New Age genre are classified within a
more mainstream category. The book sensation, The Celestine Prophecy, by James
Redfield, is a prime example. The book has sold over 7 million copies to date
and is clearly a "New Age" title, although it is commonly classified as fiction.
Other best- selling book examples include Conversations with God, by Neale
Donald Walsch, as well as the myriad of best-sellers by Deepak Chopra. These and
other New Age books are found on the shelves (and Web sites) of all major book
retailers in various sections of the store, including psychology, religion,
self-help, philosophy, UFOs, etc. Overall, it is clear that the market for New
Age products can be quite substantial. In fact, preliminary results of a
forthcoming study (New Editions New Age Consumer Survey, Sophia Tarla, Ph.D.,
New Editions Retailers) reveal the following encouraging facts about New Age
consumers:
o The average age is 44, with a majority between the
ages of 30 and 59.
o Two-thirds have college degrees and 41% have
completed post-graduate work.
o The average New Age consumer spends over $1,000
annually on New Age items.
o The New Age consumer base is estimated at over 38
million.
o New Age industry sales average over $44 billion
dollars annually.
These statistics represent values for the United States only. The
Internet offers the possibility of tapping into the larger worldwide New Age
market.
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The average New Age consumer is also very close to the average Internet
consumer. Ernst & Young recently released a survey of online shopping (The
Second Annual Ernst & Young Internet Shopping Survey; Ernst & Young, 1999) which
highlighted the following facts about online shoppers:
o 68% are over 40 years old
o 94% have had some college background
o 46% generate $50,000 plus in annual income
The need for a New Age online destination
The New Age population is a large and under served market segment that
desires interaction, communication, a sense of community and an environment that
caters to their particular needs. New Age consumers build their own communities
off-line. We believe they are interested in extending these communities onto the
Internet because of the opportunity for interaction on a larger scale.
For many in the New Age community there is also a need for access to
products and services that are not commonly available. Most New Age products are
purchased at small retail stores that specialize in this industry. However, in
many areas where these stores are not present, New Age consumers are somewhat
limited to those products available in more mainstream outlets. Even those that
have New Age stores in their vicinity are often disappointed because these
stores can only stock a small amount of products.
We believe that creating an online destination specifically designed
for New Age consumers is crucial to marketing to this population. The rapid
growth in the number of New Age consumers has created a marketplace for products
and services that outside advertisers should attempt to reach. Newagecities.com
offers a means for these advertisers to reach this market in a manner not
possible in more traditional advertising media.
The Newagecities.com solution
We believe our company can serve as the conduit between the New Age
community and the Internet. The site will be a Web portal where members of this
community can interact, be entertained and shop in an environment that caters
specifically to their needs and desires. Newagecities.com integrates community
and commerce through a network of different Web sites and features focused
primarily on the New Age devotee and by offering updated content and a forum for
community interaction.
Newagecities.com will enable site visitors to create their own place
within our Web site. We will offer users the ability to join and become involved
in what we believe will be the world's largest New Age community. They will be
provided with free disk storage space and publishing tools to quickly and easily
create their own pages within any of the site's topically
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organized categories. Members will be encouraged to keep their areas current and
interactive through the use of chat and bulletin board services to be provided
by us.
Newagecities.com is designing a broad range of e-commerce capabilities
to offer products to New Age consumers. There will be six company stores within
the site, each to be focused on a different New Age area. In addition, we will
offer people the opportunity to open mini-shops, where they can market their own
wares as well as selected products from our database of products. Mini-shops
will be easy for a user to set up and provide a marketplace for Web users to buy
and sell online to other users and visitors in an easy to navigate environment
with newagecities.com deriving a percentage of all sales.
We will also allow people who do not own Web stores to offer products
that our stores or any of the other mini-stores offers via an affiliate program.
An affiliate program will allow anyone with a Web page to list an item for sale
on their existing page. The product can then be purchased through
newagecities.com, with the Web page owner receiving a commission.
An additional unique feature of newagecities.com will be our "See and
Hear" psychics. Using the latest in "streaming" technology, users can receive an
online psychic reading complete with audio and video. The users will both see
and hear the psychic during the reading, creating a bond and ensuring a more
intimate and emotional experience during a reading. The sophistication of this
technology will set newagecities.com apart from any competition and assure
repeat business and recommendations to other clients. Following their readings,
clients will have the option to download a full audio/video copy of their
reading to their computers for free. By allowing people to share the experience
with friends, newagecities.com expects to build a strong word-of-mouth
advertising campaign.
Newagecities.com has launched an Internet-only radio station at the Web
site address "newagesound.com." The station offers continuous (24 hours a day)
New Age music and programming. Newagesound.com is available to anyone with
Internet access. We are using advanced streaming technology to provide high
quality and accessibility for all users. We have available a full audio studio
as well as the ability to broadcast large amounts of data directly through one
of our direct high-speed connections to the Internet.
Newagesound.com will generate revenues through product and advertising
sales. Advertising will be sold for both "on-air" commercials and on the Web
site. Web site advertising takes the form of banners or other graphics with
links back to the advertisers' sites.
Product sales consist of New Age CDs and cassettes.
Strategy
Our goal is to build newagecities.com into a leading online destination
for members of the New Age community. We believe that successful execution of
this strategy will help newagecities.com realize revenue growth through expanded
e-commerce offerings as well as
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advertising and marketing opportunities. We believe the key elements to our
success are as follows:
o Increasing Membership - One of the most valuable
assets of any Web site is its members. Typically
members account for a large percentage of all product
purchases. Members also offer a target demographic
category of users for us as well as other advertisers
and marketers. Membership is free and simply requires
that the user list some basic information, such as
name and e-mail address. Membership benefits include
access to areas reserved for members, special
members-only services and discounts on selected
products. It is our intention to increase membership
by actively marketing and promoting the site, as well
as constantly refreshing and updating the content and
other features.
o Building Brand Recognition - The key to attracting
increased numbers of users to our site is to build
brand recognition. Our strategy for enhancing brand
recognition consists of maximizing our exposure to
the New Age population through both on and offline
advertising and marketing opportunities.
o Enhancing Online Features - In order to encourage
more visits and increased lengths of stay, we will
constantly be updating our content, products list and
service offerings. We are continually seeking new
features to bring in user traffic and keep their
attention.
o Fresh Content - To encourage return visits, much of
the content available on newagecities.com is updated
on a regular basis. Items such as daily horoscopes,
new item reviews and updated articles keep people
coming back, offering additional opportunities for
advertising and product sales.
o New Features - New Internet technologies and
interactive Web software will be introduced all the
time. To the extent that any of these new
developments complement our existing features and
meet our strategic goals, they will be implemented on
the site.
Strategic alliances
We believe that one of the keys to our possible success will be
building strategic alliances with companies that provide products and services
that are important for us to reach our goals. To that end, we have already
entered into agreements with QSound Labs, Inc. and Virtacon Corporation as well
as an agreement for the acquisition of Member Net, Inc.
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Our alliance with QSound Labs provides us with licenses for Internet
Store and AffiliateDirect. Internet Store is the e-commerce software that will
serve as the backbone for all of our online shopping activities. Our online
stores are created using this software. In addition, Internet Store allows us to
offer other merchants the chance to open their own online stores.
AffiliateDirect is the software that allows Web page owners to sell any of our
products on their pages and earn a commission. We believe that Internet Store
and AffiliateDirect are already two of the most complete and easy-to-use
packages of their kind available. In addition, QSound has agreed to customize
the software to our specifications. QSound Labs will receive 3% of Web site
revenues generated from product sales using their software. In addition, they
received 400,000 shares of common stock and options to purchase 125,000 shares
of our common stock exercisable at $2.25 per share over a five year term.
Virtacon Corporation, formerly Virtual Financial Corp., is an Internet
development and public relations firm. Virtacon's designers and programmers are
creating our Web pages and applications. They have created a "New Age look"
specifically for us, and embedded it into an easy-to-use format. In our initial
stages of operations, all of our Web content will be housed at Virtacon.
Virtacon is also working closely with QSound to integrate our e-commerce
software into our format. In addition to Internet development work, Virtacon is
assisting us with our public relations. Virtacon received 150,000 shares of
common stock and options to purchase 75,000 shares of common stock exercisable
at $2.25 per share over a five-year term for their services and work product.
We also have entered into an Agreement and Plan of Reorganization to
acquire Member Net, Inc. of Chatsworth, California. Upon completion of the
merger, Member Net will bring with it an existing Web site geared toward New Age
consumers, "www.mindbodysoul.com." Mindbodysoul.com contains a great deal of
content that complements that of newagecities.com and would be incorporated into
our site. Along with the additional content, mindbodysoul.com has an existing
membership base of over 60,000 people as well as approximately 500,000 page
views per month. The additional members and page views should increase our
revenues by allowing us to sell product to more people and offer more page views
for advertiser and sponsor purchases. Upon completion of the merger, which is
expected to be finalized in the near future, the stockholders of Member Net will
receive 2,5000,00 shares of common stock and warrants to purchase 1,000,000
shares of common stock exercisable at $1.75 per share.
Mindbodysoul.com would also bring with it licenses for software that
will help us to bring in new visitors and keep the ones we have staying longer.
One of these licenses is for an Internet search engine, which we would cater
specifically to the New Age community. The search engine would contain a catalog
of New Age destinations on the Internet, allowing users to search by keyword or
category. Because the search engine will focus exclusively on New Age resources,
it will be easier for members of the New Age community to find relevant Web
sites and information. A second piece of software we would seek to license is
browser-based e-mail. With this software, users would be able to sign up for
their own newagecities.com e-mail address for free (i.e.
[email protected]). Users will be able to check their e-mail from any
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place in the world with Internet access, using standard Web browser software
such as Microsoft's Internet Explorer(R) or Netscape's Navigator(R). Each time
they check their newagecities.com e-mail, they need to return to the site. These
two pieces of software could ensure a constant flow of site traffic and
opportunities to present advertising banners for us and other paid sponsors.
The Newagecities.com network
Newagecities.com will consist of a number of individual sections, each
with its own theme, content and product line. Each section will include its own
set of chat rooms and discussion boards, as well as the opportunity to purchase
products directly related to the section theme. These sections include the
following.
o Crystal Warehouse - devoted to people interested in
Crystals. This section includes information about
specific crystals, their geological properties and
metaphysical uses as well as the opportunity to
purchase Crystals.
o New Age World - dedicated to the modern devotee of
the New Age. Information and products from a variety
of areas including aromatherapy, healing, meditation,
yoga and other metaphysical disciplines.
o Present Alternative - created to supply information
and products for those interested in metaphysics and
practices of other cultures including Far Eastern,
Tibetan, Egyptian, South American, Australian and
Indonesian.
o AMOS - a comprehensive Alternative, Magic and Occult
Superstore of New Age related books and music.
o Shaman's Gate - a haven for those interested in
Native American and other indigenous peoples'
practices, beliefs and ceremonial items which may be
purchased.
o Psychic Internetwork - home of our "See and Hear"
Psychics. People will prepay for blocks of time with
a psychic that they can see and hear over the
Internet using streaming technology.
Newagecities.com expects to generate revenues from a variety of
sources. Revenues will be realized directly through the sale of products listed
on our stores within the site. We also will be able to receive a percentage of
all sales generated through any of the "mini-shops" owned by others. Sales
generated via affiliates will also present an income opportunity. Additional
revenues will be generated from the sale of advertising and sponsorships
throughout our content areas.
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Advertisers and sponsors
Newagecities.com expects to be able to market to either the entire New
Age niche, or to specific sectors within that market. As a result, we are
exploring relationships with marketers who wish targeted access to these people.
Advertisers will have access to this population via standard online marketing
vehicles such as banner advertisements on Web pages. In addition, we are seeking
sponsorship relationships with advertisers that wish to increase advertising
effectiveness and brand recognition. Sponsorship arrangements are typically for
longer lengths of time and involve higher dollar values. They also usually
involve more than simple banner advertising and integration of the sponsors
brand industry into a Web site section. We are currently assembling a sales and
marketing team, one of whose tasks will be to better understand the needs of our
customers and to help market towards these needs.
Marketing and promotions
Like most Internet companies, our marketing plan calls for both on and
off-line marketing. Off-line marketing will cover a full range of media
including television, radio, print, and event sponsorships. We are currently
setting up alliances with industry specific magazines that will provide us
increased exposure to a wide audience and a cost-effective means of advertising
to our target market. Similar ventures with other media companies are also being
explored. We will also be working with mini-shop owners who own (physical)
retail stores to assist them in marketing their online stores and, by
association, newagecities.com to their existing customer base.
Online marketing includes ad placement in major search engines, keyword
based advertising in search engines as well as advertising purchases on other
relevant and popular online destinations such as America On Line, the GO Network
and the Microsoft Network. We are currently negotiating bulk discounts on
advertising rates because of the anticipated volume of our advertising needs
along with those of our strategic partners. Additionally, we hope to be able to
benefit from the marketing of individual Web pages and "mini-shops" that the
site's users house with newagecities.com. An affiliate program will offer a
unique opportunity to market our products and brand our name through other sites
on the Web.
International markets
We expect that some portion of our traffic and revenue generation will
result from markets outside of the United States. Many New Age ideas originated
outside the U.S., and now the Internet makes it easier for cultures and ideas to
spread globally. Additionally, many markets outside of the U.S. have no access
to the range of products and services offered at newagecities.com.
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Technology
Our office contains a Windows NT network made up of computers purchased
through Dell. All of our Web content is being housed on Dell computers at
Virtacon. All of our machines are Dell certified Year 2000 compliant. Our Web
servers are connected directly to an OC-12, one of the fastest possible
connections to the Internet. All of our computers and our Internet connections
have redundant systems in place to ensure reliability.
Product fulfillment
To accommodate our users' demand for products, newagecities.com has
negotiated distribution arrangements with most of our vendors. As product
distributors, we will benefit from better pricing, allowing us to offer
discounted prices to clients on the site as well as the ability to wholesale to
other retailers, both on and offline. Products will be shipped from our
warehouse facility in Boca Raton, Florida. In the future we expect to arrange
drop-shipment agreements with our major suppliers.
Competition
We have found no Web sites devoted to the New Age community that
contain the breadth and depth of information, interaction, entertainment and
merchandise available at newagecities.com. Several content areas of
newagecities.com are currently available at other sites, however, we believe
they lack the completeness of our site. The ability to offer high quality "See &
Hear" psychics appears to be unique to newagecities.com. Other sites offering
psychic readings either do so via phone, email or video with text chat.
The market for members, visitors, Internet advertising and online
product is rapidly evolving and competition is sure to increase. With the rapid
expansion of the New Age community and the limited number of barriers to entry,
we expect additional competition to arrive over time. Some of our potential
competitors may be larger, better funded and more technically capable than us.
Increased competition may lead to pricing pressures on our advertising and
product rates which could have adverse material effects on us.
Employees
Newagecities.com currently has eight full-time employees. Three persons
are in management and provide services in the areas of marketing and business
development, one person is in administration, one person is employed in sales
and marketing, two persons are in operations and technology and one person is in
warehousing and technology. No employee of newagecities.com is covered by a
collective bargaining agreement or is represented by a labor union.
Newagecities.com considers its employee relations to be good.
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Facilities
Newagecities.com currently leases facilities consisting of
approximately 2,500 square feet of office and warehouse space in Boca Raton,
Florida. The rental for 1999 is $11,339, for 2000 is $15,991, for 2001 is
$17,154 and for 2002 $4,361, plus newagecities.com's proportion share of taxes
and insurance on the building. Our lease terminates on April 1, 2002.
Litigation
Newagecities.com is not a party to any litigation nor is it aware of
any threatened litigation.
MANAGEMENT
<TABLE>
<CAPTION>
Our Executives officers and directors are as follows:
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Joseph Ardito, Jr. 41 Chairman and Chief Executive Officer
Dr. Kenneth Shenkman 34 President and Director
Stanley Siegel 66 Chief Financial Officer, Secretary,
Treasurer and Director
</TABLE>
<TABLE>
<CAPTION>
Mr. Ardito has served as a director, Chairman of the Board of Directors and Chief Executive
Officer of newagecities.com since March 1999. Mr. Ardito previously worked in the following
positions:
Dates and Position Business or Activity
- ------------------ --------------------
<S> <C>
Between 1990 and 1998-Owner Present Alternative, Boca Raton, Florida.
This retail store sold New Age products and
psychic readings.
1986 to 1991 - Vice President and Partner Professional Accounting Services Corp.
New York, New York. This is an
accounting firm where Mr. Ardito headed
the marketing and client relations
departments, oversaw bookkeeping and
income tax departments and led the
computer integration division.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Dr. Shenkman has served as a director and President of newagecities.com since March 1999.
Dr. Shenkman previously worked in the following positions:
Dates and Position Business or Activity
- ------------------ --------------------
<S> <C>
September 1997 - April 1999-Consultant As independent consultant, Dr. Shenkman
has been an independent computer and
Internet consultant and trainer.
January 1999 - March 1999-Director of Internet Arc Communications, Inc., Tinton Falls,
Marketing New Jersey. This company is engaged in
designing Web sites.
July 1995 - September 1998-Vice President Computer Coach, Inc., Boca Raton, Florida.
Operations This company engages in computer training
and Internet web design.
</TABLE>
<TABLE>
<CAPTION>
Stanley Siegel is the father-in law of Mr. Ardito. Mr. Siegel has served as a director, Chief
Financial Officer, Secretary and Treasurer of newagecities.com since March 1999. Mr. Siegel
previously worked in the following positions:
<S> <C>
1955 - 1996 Director of Human Resources, Head of
Special Accountings Department and
Accountant. United Merchants and
Manufacturers, Inc.
</TABLE>
Our directors are elected at each annual meeting of stockholders. Our
directors hold office until the next annual meeting of stockholders. Executive
officers are elected by and serve at the discretion of the Board of Directors.
Board Committees: We do not as yet have an audit committee or a
compensation committee. However, once we elect independent directors, we expect
to organize these committees.
Employment Agreements: We entered into 2 year employment agreements
with Messrs. Ardito, Shenkman and Siegel. The terms of the agreements are as
follows:
Joseph Ardito: Mr. Ardito is to receive an annual salary of $85,000
beginning April 1, 1999 and ending March 31, 2000 and $106,000 annual salary for
the period April 1, 2000 and ending March 31, 2001. Mr. Ardito is entitled to a
bonus of up to 25% of his annual salary each year, at the discretion of the
compensation committee of the Board of Directors. On April 1, 1999, Mr. Ardito
was granted options to purchase a total of 40,000 shares of common stock at an
exercise price of $2.00 per share. These options expire on March 31, 2003, and
may be exercised
28
<PAGE>
for up to 20,000 shares beginning March 31, 2000 and as to the remaining 20,000
shares beginning March 31, 2001.
Kenneth Shenkman: Dr. Shenkman is to receive an annual salary of
$60,000 beginning April 1, 1999 and ending March 31, 2000 and $75,000 annual
salary for the period April 1, 2000 and ending March 31, 2001. Dr. Shenkman is
entitled to a bonus of up to 25% of his annual salary each year, at the
discretion of the compensation committee of the Board of Directors. On April 1,
1999, Dr. Shenkman was granted options to purchase a total of 40,000 shares of
common stock at an exercise price of $2.00 per share. These options expire on
March 31, 2003, and may be exercised for up to 20,000 shares beginning March 31,
2000 and as to the remaining 20,000 shares beginning March 31, 2001.
Stanley Siegel: Mr. Siegel is to receive an annual salary of $50,000
beginning April 1, 1999 and ending March 31, 2000 and $62,500 annual salary for
the period April 1, 2000 and ending March 31, 2001. Mr. Siegel is entitled to a
bonus of up to 25% of his annual salary each year, at the discretion of the
compensation committee of the Board of Directors. On April 1, 1999, Mr. Siegel
was granted options to purchase a total of 40,000 shares of common stock at an
exercise price of $2.00 per share. These options expire on March 31, 2003, and
may be exercised for up to 20,000 shares beginning March 31, 2000 and as to the
remaining 20,000 shares beginning March 31, 2001.
Each of the employment agreements terminates on April 2001. The
officers are to devote full time and efforts to our business. Their agreements
also have non-disclosure covenants during the term of employment and for a
period of two years after the term of their employment.
We may terminate each employment agreement for cause.
Key-man life insurance
We do not have key-man life insurance on our officers or directors.
Limitation on liability and indemnification matters
The Idaho Business Corporation Act allows us to indemnify our officers
and directors from liability incurred in furtherance of their duties under
certain circumstances. In criminal proceedings, Idaho law states that we may
indemnify an officer or director if he or she acted in good faith and reasonably
believed that his or her conduct was in the best interests of the corporation if
he or she had no reasonable cause to believe his or her conduct was unlawful. In
addition, Idaho law requires us to indemnify directors, who succeed on the
merits of any defense proceeding or in any defense proceeding to which he or she
was party because he or she was a director of the corporation for reasonable
expenses incurred in connection with the proceeding. If we chose to indemnify
our officers and directors in accordance with the provisions of the Idaho
Business Corporation Act, our financial resources may be significantly affected.
29
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions, or otherwise, we have
been advised that in the opinion of the Securities and Exchange Commission, this
indemnification is against public policy as expressed in the securities laws,
and is, therefore unenforceable.
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us relating to the
beneficial ownership of shares of our common stock by each person who is known
by us to be the beneficial owner of more than five percent of the outstanding
shares of common stock, each director and all executive officers and directors
as a group.
Unless otherwise indicated, the address of each beneficial owner in the
table set forth below is care of newagecities.com, inc., 1181 South Rogers
Circle, Suite 5, Boca Raton, Florida 33487.
All persons named in the table have sole voting and investment power
with respect to all shares of common stock beneficially owned by them.
Under the securities laws, a person is considered to be the beneficial
owner of securities that can be acquired by him within 60 days from the date of
this prospectus upon the exercise of options, warrants or convertible
securities. We determine beneficial owner's percentage ownership by assuming
that options, warrants or convertible securities that are held by him, but not
those held by any other person and which are exercisable within 60 days of the
date of this prospectus have been exercise or converted.
<TABLE>
<CAPTION>
Names and Address of Number of shares Percentage of shares
Beneficial Owner Beneficially Owned(1) Beneficially Owned
---------------- --------------------- ------------------
<S> <C> <C>
Joseph Ardito 1,220,000(2) 33.9%
Kenneth Shenkman 369,500(3) 10.3%
Stanley Siegel 90,000(4) 2.5%
Q-Sound Labs 425,000(5) 11.8%
All executive officers and directors as
a group (3 persons) 1,679,500 46.7%
</TABLE>
30
<PAGE>
(1)As of August 15, 1999, there were 3,599,749 shares of our common
stock issued and outstanding. This does not include the 1,800,000 shares of our
common stock issuable to the selling security holders upon the exercise of the
warrants or 2,500,000 shares to be issued to the stockholders of Member Net upon
completion of that acquisition. We do not include in this table shares and
warrants that would be issued to Member Net shareholders if that acquisition is
completed.
(2)The number of shares owned by Joseph Ardito also includes 20,000
shares held by his wife directly and 22,000 shares held by his wife as custodian
for two minor children. Mr. Ardito does disclaim beneficial ownership of these
other shares.
(3)Does not include 26,000 shares of our common stock beneficially
owned by Mr. Shenkman's parents and 6,750 shares of our common stock issuable
upon the exercise of warrants owned by Mr. Shenkman's parents.
(4)The number of shares beneficially owned by Stanley Siegel also
includes 20,000 shares owned by his wife.
(5)Does not include warrants to purchase 15,000 shares of our common
stock issued to David Gallagher, President of Q-Sound Labs.
CERTAIN TRANSACTIONS
In connection with the organization of Psychicnet.com, Inc., Messrs.
Ardito, Shenkman and Siegel received shares of common stock in connection with
the formation of Psychicnet.com. On March 8, 1999, we acquired Psychicnet.com,
Inc., and as result of this transaction, 1,900,000 shares, 400,000 shares and
100,000 shares of our common stock were exchanged with Joseph Ardito, Kenneth
Shenkman and Stanley Siegel, respectively. Thereafter, Messrs. Ardito, Shenkman
and Siegel transferred an aggregate of 180,000, 35,000 and 30,000 shares of
common stock respectively to various family members and friends without
consideration and solely in appreciation of their relationships. Mr. Ardito also
transferred 400,000 shares of common stock to Q-Sound Labs in exchange for
Q-Sound agreeing to provide Internet product marketing systems and support
services to us. In addition to the 400,000 shares of our common stock Q-Sound
received from Mr. Ardito, Q-Sound also received warrants to purchase 125,000
shares of our common stock at $2.25 per share. Mr. David Gallagher, president of
Q-Sound, separately received warrants to purchase 15,000 shares of our common
stock at $2.25 per shares for agreeing to serve on our Board of Advisors if it
is constituted.
In February 1999, the individuals serving as officers and directors of
newagecities.com at that time purchased an aggregate of 700,000 shares of common
stock from newagecities.com at $.01 per share. The proceeds were used to pay
expenses associated with the acquisition of Psychicnet.com.
31
<PAGE>
During March and June 1999, we issued 6,000 shares of our common stock
and warrants to purchase 6,750 shares of our common stock at $2.25 per shares to
Mr. Shenkman's parents.
In April 1999, we made a $40,000 interest free loan to Mr. Joseph
Ardito, an officer and director. The loan was repaid by Mr. Ardito in June 1999.
On July 30, 1999, the Company entered into a Merger Agreement and Plan
of Reorganization dated as of June 21, 1999 with Member Net, Inc. which will
provide for the merger of Member Net into a wholly-owned subsidiary of
newagecities.com. The five stockholders of Member Net will receive from
newagecities once the merger is completed, a total of 2,500,000 shares of common
stock and warrants to purchase 1,000,000 shares of common stock exercisable at
an exercise price of $1.75 per share on or prior to June 30, 2001. The merger is
expected to be completed within the near future. This prospectus covers their
resale of 1,500,000 shares of common stock as well as an additional 1,000,000
shares underlying the warrants.
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 45,000,000 shares of common
stock, $.02 par value per share. At August 15, 1999, there are 3,599,749 shares
of common stock issued and outstanding. As of the date of this prospectus, there
are no shares of preferred stock authorized or outstanding. Also as of this
date, there are warrants to purchase 800,000 shares of common stock outstanding.
Common stock
Holders of common stock are entitled to one vote for each share on all
matters submitted to a shareholder vote. Holders of common stock do not have
cumulative voting rights. Therefore, holders of a majority of the shares of
common stock voting for the election of directors can elect all of the
directors. Holders of common stock are entitled to share in all dividends that
the board of directors, in its discretion, declares from legally available
funds. In any liquidation, dissolution or winding up of newagecities.com, Inc.,
each outstanding share entitles its holder to participate in all assets that
remain after payment of liabilities and after providing for each class of stock,
if any, having preference over the common stock.
Holders of common stock have no conversion, preemptive or other
subscription rights, and there are no redemption provisions for the common
stock. The rights of the holders of common stock are subject to any rights that
may be fixed for holders of preferred stock, when and if any preferred stock is
authorized and issued. All outstanding shares of common stock are, and the
shares underlying all option and warrants will be, duly authorized, validly
issued, fully paid an non-assessable upon our issuance of these shares.
32
<PAGE>
Warrants
Between March and June1999, we issued warrants to purchase a total of
800,000 shares of our common stock. The general terms of the warrants are as
follows:
Title
- -----
Exercise Price: $2.25 per share
Expiration Date: June 30, 2001
Voting Rights: None
First Call Right: On 30 days written notice beginning
September 1, 1999 at $0.25 per warrant, if the
common stock of newagecities.com trades at a
closing price per share of at least $3.50 for
five trading days prior to the date of notice.
Second Call Right: Beginning June 1, 2000, the call price is $.001
per warrant and the closing price is $5.50.
The transfer agent for our common stock is American Securities Transfer
& Trust Co. and its address is 938 Quail Road, Suite 101, Lakewood, Colorado
80215-5517. They have also agreed to serve as our warrant agent.
SELLING SECURITY HOLDERS
The following table sets forth (1) the name of each selling security
holder, (2) the number or shares of common stock beneficially owned by each
selling security holder as of the date of this prospectus, giving effect to the
exercise of the selling security holders' warrants into shares of common stock
and (3) the number of shares being offered by each selling security holder. The
information contained in the foregoing table is derived from our books and
records as well as from our transfer agent. The shares of common stock being
offered are being registered to permit public secondary trading, and the selling
security holders may offer all or part of the shares for resale from time to
time. All expenses of the registration of the common stock on behalf of the
selling security holder are being borne by newagecities.com. There are 1,800,000
shares of our common stock being offered by the selling security holders which
are issuable upon the exercise of warrants. We will receive no proceeds of this
offering, but we may receive up to $3,550,000 if the warrants to purchase shares
of our common stock are exercised by the selling security holders.
33
<PAGE>
<TABLE>
<CAPTION>
Shares Shares Percent of Class
Beneficially Shares Available Beneficially Beneficially
Owned Prior to Pursuant to Owned after Owned
Selling Security Holders this Offering this Prospectus Offering after Offering
- ------------------------ ---------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
Barbara Ardito 20,000 20,000 - -
John Ardito 5,000 5,000 - -
Joseph Ardito 1,220,000 470,000 750,000 0.139
Joseph and Nicoletta Ardito 50,000 50,000 - -
Rachel Ardito 11,000 11,000 - -
Sara Ardito 11,000 11,000 - -
Carolyn Bagley 6,000 6,000 - -
Leslie Cheslow 500 500 - -
Anna Maria Cracolicci 2,500 2,500 - -
Lisa Cudlipp 5,000 5,000 - -
Jill Dahne 115,000 15,000 100,000 0.019
Richard David 6,000 6,000 - -
Krissy Dove 750 750 - -
Richard Dwyer 75,000 75,000 - -
Robert Fuller 3,000 3,000 - -
David Gallagher 15,000 15,000 - -
John Gallagher 853,125 609,375 243,750 0.045
Richard Galterio 25,000 25,000 - -
Andrew Garroni 175,000 125,000 50,000 -
Linda Gelfand 10,000 10,000 - -
Austin Gleason 3,000 3,000 - -
Andrew Goldrich/Dore Perler 10,000 10,000 - -
Zachary Gomes 3,000 3,000 - -
Robert Gould 743,750 531,250 212,500 0.039
H. Eugene Graves 6,000 6,000 - -
Justin Hirsch 284,375 203,125 81,250 0.015
Lauren J. Merritt 5,000 5,000 - -
William Jackson 3,000 3,000 - -
Gad and Marlene Janay 3,000 3,000 - -
Marc Janis 1,500 1,500 - -
Michael Janis 1,500 1,500 - -
Louann LaBarbara 250 250 - -
Vincent LaBarbara 25,000 25,000 - -
Dan Lee 6,000 6,000 - -
Roni Mandel 4,000 4,000 - -
Mario Marsillo 2,000 2,000 - -
Steve McLaughlin 15,000 15,000 - -
Ilene Mirman 51,000 51,000 - -
Johnny Mitchell 10,000 10,000 - -
Bruce Muhlfeld 437,500 312,500 125,000 0.023
Mario Novogrodzky 3,000 3,000 - -
Victor Novogrodzky 3,000 3,000 - -
Danielle Pepe 250 250 - -
Ron Piasecki 6,000 6,000 - -
Robert Prager 750 750 - -
Shane Pullham 1,000 1,000 - -
Nolan Quan 1,006,250 718,750 287,500 0.053
John Ramsey 40,000 40,000 - -
Eric Rand 25,000 25,000 - -
Nicole Rodriquez 250 250 - -
34
<PAGE>
Len Schiller 3,000 3,000 - -
Phil Schiller 3,000 3,000 - -
Brian Shenkman 10,000 10,000 - -
Carole and Howard Shenkman 26,750 26,750 - -
Kenneth Shenkman 369,500 219,500 150,000 0.028
Alvin Siegel 3,000 3,000 - -
Bernice Siegel 20,000 20,000 - -
Brett Siegel 25,000 25,000 - -
Marc Siegel 80,000 80,000 - -
Stanley Siegel 70,000 70,000 - -
Zachary Siegel 25,000 25,000 - -
George Smith 3,000 3,000 - -
Ted Stern 6,000 6,000 - -
Joel Stone 6,000 6,000 - -
Michael Volpe 500 500 - -
Jodi Wanderman 1,000 1,000 - -
James Warner 25,000 25,000 - -
David Yaeger 3,000 3,000 - -
Q-Sound Labs 525,000 525,000 - -
Atlas, Pearlman, Trop & Borkson, P.A. 20,000 20,000 - -
Blue Waters Partners, Inc. 100,000 100,000 - -
Delphi Consulting Corp. 100,000 100,000 - -
First Level Capital 16,000 16,000 - -
Virtacon Corporation 200,000 200,000
River City Trading Company 50,000 50,000 - -
- -----------------
</TABLE>
*Less than one percent.
Plan of distribution
The sale of the common stock by the selling security holders may occur
from time to time in transactions (which may include block transactions by or
for the account of the selling security holders). Alternatively, the selling
security holders may offer these securities through dealers or agents. The
securities may be distributed by the selling security holders in one or more
transactions that may take place on the over-the-counter market. These include
ordinary broker's transactions, privately-negotiated transactions or through
sales to one or more broker-dealers for resale of these shares as principals, at
market prices existing at the time of sale, at prices related to existing market
prices or at negotiated prices. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the selling security holders in
connection with sales of securities. The selling security holders may sell the
securities in one or more of the following methods: (a) a block trade in which a
broker or dealer will attempt to sell the shares as agent but may position and
resell a portion of the block as principals to facilitate the transaction; (b)
purchasers by a broker or dealer as principal and resale by the broker or dealer
for its account under this prospectus; (c) ordinary brokerage transactions and
transactions which the broker
35
<PAGE>
solicits purchases; and (d) face-to-face transactions between sellers and
purchasers without a broker-dealer. In making sales, brokers or dealers used by
the selling security holders may arrange for other brokers or dealers to
participate. The selling security holders and others through whom such
securities are sold may be "underwriters" within the meaning of the Securities
Act for the securities offered, and any profits realized or commission received
may be considered underwriting compensation.
At the time a particular offer of the securities is made by or on
behalf of a selling security holder, to the extent required, a prospectus is to
distributed. The prospectus will include the number of shares of common stock
being offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, the purchase price paid by any underwriter for
the shares of common stock purchased from the selling security holder, and any
discounts, commissions or concessions allowed or reallowed or paid to dealers,
and the proposed selling price to the public.
We have told the selling security holders that the anti-manipulative
rules under the Exchange Act, including Regulation M, may apply to their sales
in the market. We will provide each of the selling security holders with a copy
of these rules. We have also told the selling security holders of the need for
delivery of copies of this prospectus in connection with any sale of securities
that are registered by this prospectus.
Sales of securities by us and the selling security holders or even the
potential of these sales may have a negative effect on the market price of the
shares of common stock offered hereby.
SHARES ELIGIBLE FOR FUTURE SALE
At the date of this prospectus, we have 3,599,749 shares of common
stock issued and outstanding of which 899,749 shares are freely tradeable
without restriction or further registration under the Securities Act. The
outstanding shares do not include 1,800,000 shares that will be received upon
exercise of warrants described in the prospectus nor the 2,500,000 shares of
common stock to be issued to the stockholders of Member Net upon completion of
the merger. They may be resold by their holders as long as they are covered by a
current registration statement.
All of the remaining 2,700,000 shares of common stock currently
outstanding are restricted securities. Of these restricted shares, 1,800,000
shares are included in this prospectus. The remaining restricted shares will
become eligible for sale commencing in March 2000.
We cannot predict the effect, if any, that market sales of common stock
or the availability of these shares for sale will have on the market price of
the shares from time to time. Nevertheless, the possibility that substantial
amounts of common stock may be sold in the public
36
<PAGE>
market could negatively damage market prices for the common stock and could
damage our ability to raise capital through the sale of our equity securities.
LEGAL MATTERS
The validity of the securities offered by this prospectus will be
passed upon for us by Atlas, Pearlman, Trop & Borkson, P.A., 200 East Las Olas
Boulevard, Suite 1900, Fort Lauderdale, Florida 33301. The law firm owns
warrants to purchase a total of 20,000 shares
which are included in this prospectus.
EXPERTS
The consolidated financial statements of newagecities.com, Inc. and
Subsidiary and Member Net, Inc. as of May 31, 1999 and December 31, 1998
respectively, have been included herein and in the Registration Statement in
reliance upon the report of Feldman Sherb Horowitz & Co., P.C., independent
certified public accountants, appearing elsewhere herein, and upon the authority
of such firms as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission the
registration statement on Form SB-2 under the Securities Act for the common
stock offered by this prospectus. This prospectus, which is a part of the
registration statement, does not contain all of the information in the
registration statement and the exhibits filed with it, portions of which have
been omitted as permitted by Securities and Exchange Commission rules and
regulations. For further information on newagecities.com, Inc. and the
securities offered by this prospectus, we refer to the registration statement
and to the exhibits filed with it. Statements contained in this prospectus as to
the content of any contract or other document referred to are not necessarily
complete. In each instance, we refer you to the copy of the contracts and/or
other documents filed as exhibits to the registration statement, and these
statements are qualified in their entirety by reference to the contract or
document. The registration statement, including all exhibits, may be inspected
without charge at the Securities and Exchange Commission's Public Reference Room
at 450 Fifth Street, N.W. Washington, D.C. 20549, and at the Securities and
Exchange Commission's regional offices located at Seven World Trade Center,
Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of these materials may also
be obtained from the Securities and Exchange Commission's Public Reference at
450 Fifth Street, N.W., Room 1024, Washington D.C. 20549, upon the payment of
prescribed fees. You may obtain information on the operation of the Public
Reference Room by calling the Securities and Exchange Commission at
1-800-SEC-0330. In addition, registration statements and other filings made with
the Securities and Exchange Commission through its Electronic Data Gathering,
Analysis and Retrieval Systems are publicly available through the Securities and
Exchange Commission's site on the World Wide Web
37
<PAGE>
located at www.sec.gov. The registration statement, including all exhibits and
schedules and amendments, has been filed with the Securities and Exchange
Commission through the Electronic Data Gathering, Analysis and Retrieval system.
Upon the closing of this offering, we will become subject to the
reporting requirements of the Exchange Act and in accordance with these
requirements, will file reports, and other information with the Securities and
Exchange Commission. We intend to furnish our stockholders with annual reports
containing audited financial statements and other periodic reports as we think
appropriate or as may be required by law.
38
<PAGE>
NEWAGECITIES.COM, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
newagecities.com, Inc.:
Independent Auditors' Report...............................................F-2
Consolidated Balance Sheet.................................................F-3
Consolidated Statement of Operations.......................................F-4
Consolidated Statement of Stockholders' Equity.............................F-5
Consolidated Statement of Cash Flows.......................................F-6
Notes to Consolidated Financial Statements..........................F-7 - F-12
Member Net, Inc.:
Independent Auditors' Report..............................................F-13
Divisional Statements of Operations.......................................F-14
Notes to Financial Statements.............................................F-15
Pro Forma Financial Data:
Introduction..............................................................F-16
Unaudited Pro Forma Consolidated Balance Sheet............................F-17
Unaudited Pro Forma Consolidated Statements of Operations.................F-18
Notes to Unaudited Pro Forma Consolidated Financial Statements............F-19
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
newagecities.com, Inc.
Boca Raton, Florida
We have audited the accompanying consolidated balance sheet of
newagecities.com, Inc. (A Development Stage Enterprise) as of May 31, 1999, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the period January 29, 1999 (Inception) through May 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amount and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
newagecities.com, Inc. (A Development Stage Enterprise) as of May 31, 1999, and
the results of its operations and its cash flows for the period January 29, 1999
(Inception) through May 31, 1999, in conformity with generally accepted
accounting principles.
/s/ Feldman Sherb Horowitz & Co., P.C.
--------------------------------------
Certified Public Accountants
New York, New York
July 2, 1999
F-2
<PAGE>
NEWAGECITIES.COM, INC.
----------------------
(A Development Stage Enterprise)
--------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
MAY 31, 1999
------------
ASSETS
------
CURRENT ASSETS:
Cash $ 312,602
Due from related parties 45,000
Inventories 89,500
----------
TOTAL CURRENT ASSETS 447,102
FURNITURE AND EQUIPMENT, net 46,465
LICENSING AGREEMENT 671,250
DEPOSITS AND OTHER ASSETS 10,707
----------
$1,175,524
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accrued expenses $ 12,796
Due to related parties 2,000
----------
TOTAL CURRENT LIABILITIES 14,796
----------
STOCKHOLDERS' EQUITY:
Common stock, $.02 par value, 45,000,000 shares
authorized; 3,599,749 shares issued and outstanding 71,995
Additional paid-in capital 1,758,005
Stock subscription receivable (300)
Accumulated deficit (668,972)
----------
TOTAL STOCKHOLDERS' EQUITY 1,160,728
----------
$1,175,524
==========
See notes to consolidated financial statements.
F-3
<PAGE>
NEWAGECITIES.COM, INC.
----------------------
(A Development Stage Enterprise)
--------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
FROM JANUARY 29,1999 (INCEPTION) TO MAY 31, 1999
------------------------------------------------
OPERATING EXPENSES:
Research and development $ 258,750
Non-cash compensation 300,000
General and administrative 113,320
----------
OPERATING LOSS (672,070)
INTEREST INCOME 3,098
----------
NET LOSS $ (668,972)
==========
BASIC LOSS PER SHARE OF COMMON STOCK $ (0.34)
==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 1,986,698
==========
See notes to consolidated financial statements.
F-4
<PAGE>
NEWAGECITIES.COM, INC.
----------------------
(A Development Stage Enterprise)
--------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
<TABLE>
<CAPTION>
Common Stock
---------------------- Additional Stock Total
Number of Paid-in Subscriptions Accumulated Stockholders'
Shares Amount Capital Receivable Deficit Equity
--------- --------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 29, 1999 (Inception) 399,749 $ 7,995 $ (7,995) $ -- $ -- $ --
Issuance of common stock pursuant
to share exchange agreement 2,200,000 44,000 (44,000) -- -- --
Issuance of shares and warrants for
licensing agreement 400,000 8,000 663,250 -- -- 671,250
Sale of common stock 300,000 6,000 594,000 (300) -- 599,700
Common stock and warrants issued for
services 300,000 6,000 552,750 -- -- 558,750
Net loss -- -- -- -- (668,972) (668,972)
----------- ----------- ----------- ----------- ----------- -----------
Balance, May 31, 1999 3,599,749 $ 71,995 $ 1,758,005 $ (300) $ (668,972) $ 1,160,728
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
NEWAGECITIES.COM, INC.
----------------------
(A Development Stage Enterprise)
--------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
FROM JANUARY 29,1999 (INCEPTION) TO MAY 31, 1999
------------------------------------------------
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net loss $(668,972)
---------
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation 2,462
Common stock and warrants issued for services 558,750
Changes in assets and liabilities:
Increase in inventories (89,500)
Increase in other assets (10,707)
Increase in accrued expenses 12,796
---------
Total adjustments 473,801
---------
NET CASH USED IN OPERATING ACTIVITIES (195,171)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (48,927)
---------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (48,927)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the sale of common stock 599,700
Increase in due from related parties (45,000)
Increase in due to related parties 2,000
---------
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 556,700
---------
NET INCREASE IN CASH 312,602
CASH - beginning of period --
---------
CASH - end of period $ 312,602
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Noncash financing activities:
Stock subscriptions receivable $ 1,300
=========
Common stock issued for services rendered in raising capital $ 80,000
=========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
NEWAGECITIES.COM, INC.
----------------------
(A Development Stage Enterprise)
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE PERIOD JANUARY 29, 1999 (Inception) THROUGH MAY 31, 1999
----------------------------------------------------------------
Pyschicnet.Com, Inc. ("Psychic") was formed on January 29, 1999 to provide "New
Age" services and products on the internet.
On April 6, 1999, Psychic was acquired by Virginia City Gold Mines, Inc.
("VCGM"), an Idaho corporation, for 2,700,000 shares of VCGM stock (the
"Exchange"). The Exchange was completed pursuant to the Agreement and Plan of
Reorganization between Psychic and VCGM. The Exchange has been accounted for as
a reverse acquisition under the purchase method for business combinations.
Accordingly, the combination of the two companies is recorded as a
recapitalization of Psychic, pursuant to which Psychic is treated as the
continuing entity. Subsequent to the Exchange, with the approval of the Board of
Directors, VCGM changed its name to newagecities.com, Inc. (the "Company").
The Company plans on adopting a December 31 year end.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A. Principles of consolidation - The financial statements include the
accounts of the Company and its wholly-owned subsidiary. All material
intercompany transactions have been eliminated.
B. Furniture and Equipment - Furniture and equipment are carried at cost.
Depreciation is computed using the straight-line method over the
estimated useful lives of the various assets.
C. Inventories - Inventories are stated at the lower of average cost or
market.
D. Income Taxes - Income taxes are accounted for under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
which is an asset and liability approach that requires the recognition
of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's
financial statements or tax returns.
E. Fair Value of Financial Instruments - The carrying amounts reported in
the balance sheet for cash, receivables, and accounts payable
approximate their fair market value based on the short-term maturity
of these instruments.
F. Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could
differ from those estimates.
F-7
<PAGE>
G. Impairment of long-lived assets - The Company reviews long-lived
assets for impairment whenever circumstances and situations change
such that there is an indication that the carrying amounts may not be
recovered. At May 31, 1999, the Company believes that there has been
no impairment of its long-lived assets.
H. Comprehensive Income - The Company has adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130) "Reporting Comprehensive
Income". Comprehensive income is comprised of net loss and all changes
to the statements of stockholders' equity, except those due to
investments by stockholders, changes in paid-in capital and
distribution to stockholders. For the period ended May 31, 1999, the
Company had deemed comprehensive income to be negligible.
I. Research and Development - Research and development costs are expensed
as incurred. These costs primarily consists of fees paid for the
development of the Company's software. Research and development costs
for the period ended May 31, 1999 were $258,750.
J. Stock Based Compensation - The Company accounts for stock transactions
in accordance with APB No. 25, "Accounting for Stock Issued to
Employees." In accordance with Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," the Company adopted the pro forma disclosure
requirements of SFAS 123.
K. New Accounting Pronouncements - The Company will adopt Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131") for the period May
31, 1999. SFAS 131 requires the Company to report selected information
about operating segments in its financial statements. It also
establishes standards for related disclosures about products and
services, geographic areas, and major customers. The application of
the new pronouncement is not expected to have a material impact on the
Company's disclosures.
The Company will adopt Statement of Financial Accounting Standards
No. 132 ("SFAS 132"), "Employers' Disclosures about Pensions and Other
Postretirement Benefits" for the period ended May 31, 1999. SFAS 132
revises employers' disclosures about pension and other postretirement
benefit plans. The application of the new pronouncement is not
expected to have a material impact on the financial statements.
L. Licensing Agreements - Licensing agreements are stated at cost, less
accumulated amortization. Amortization is computed using the
straight-line method over an estimated life of ten years based upon
management's expectations relating to the life of the technology and
current competitive market conditions. The estimated life is
reevaluated each year based upon changes in these factors.
M. Earnings Per Share - The Company has adopted the provisions of
Financial Accounting Standards No. 128, "Earnings Per Share". Basic
net loss per share is based on the weighted average number of shares
outstanding. Potential common
F-8
<PAGE>
shares included in the computation are not presented in the financial
statements as their effect would be anti-dilutive.
2. FURNITURE AND EQUIPMENT
-----------------------
Furniture and equipment are as follows:
Estimated Life
--------------
Office furniture 7 Years $10,587
Computer equipment 5 Years 27,982
Retail equipment 5 Years 9,510
Leasehold improvements 3 Years 848
-------
48,927
Less: Accumulated depreciation 2,462
=======
$46,465
=======
3. LICENSING AGREEMENT
-------------------
The Company acquired a licensing agreement from a software development
company for the use of its e-commerce software. The license was acquired
for 400,000 shares of the Company's common stock. Such shares of common
stock were valued at the fair market value of $1.60 (based on the Reg D 504
offering during April 1999 of $2.00 per share less a 20% discount for
restrictions on the resale of such shares). The Company also issued
warrants to purchase 125,000 shares of the Company's common stock
exercisable at $2.25 per share over a five year period. The warrants have
been valued at $31,250 which has been included in the value of licenses.
4. COMMITMENTS
-----------
The Company leases certain office and warehouse space under operating
leases commencing April 1999. The leases expires April 2002.
Minimum rental commitments are as follows:
1999 $ 11,339
2000 $ 15,991
2001 $ 17,154
2002 $ 4,361
F-9
<PAGE>
The Company has entered into three employment agreements with its officers
in April 1999. All three of the agreements are for two years and expire in
March 2001. The agreement with its Chief Executive Officer, provides for an
annual salary of $85,000 and $106,000 in years ended 2000 and 2001,
respectively. The agreement with the President of the Company, provides for
an annual salary of $60,000 and $75,000, respectively. The agreement with
the Company's Chief Financial Officer, calls for an annual salary of
$50,000 and $62,500, respectively. All of the above contracts provide for a
bonus of up to 25% of the prior years annual salary based on certain
performance milestones. Additionally, the above officers will receive
20,000 options to purchase shares of the Company's common stock at $2.00
per share at the end of each contract year.
5. RELATED PARTY TRANSACTIONS
--------------------------
The Company currently has receivables from related parties of $45,000 which
consists of a $40,000 short-term loan to an officer of the Company and a
$5,000 loan to a shareholder. These loans were subsequently repaid.
Additionally, the Company has $2,000 in payables due on demand to officers
of the Company.
6. INCOME TAXES
------------
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
SFAS 109 requires the recognition of deferred tax assets and liabilities
for both the expected impact of differences between the financial
statements and tax basis of assets and liabilities, and for the expected
future tax benefit to be derived from tax loss and tax credit
carryforwards. SFAS 109 additionally requires the establishment of a
valuation allowance to reflect the likelihood of realization of deferred
tax assets.
The provision (benefit) for income taxes differs from the amounts computed
by applying the statutory federal income tax rate to income (loss) before
provision for income taxes, the reconciliation is as follows:
Taxes benefit computed at statutory rate $ (235,000)
Effect of permanent differences 195,000
Income tax benefit not utilized 40,000
----------
Net income tax benefit $ --
==========
The Company has a net operating loss carryforward for tax purposes totaling
approximately $113,000 at May 31, 1999 expiring in the year 2014.
F-10
<PAGE>
Listed below are the tax effects of the items related to the Company's net
tax liability:
Tax benefit of net operating loss carryforward $ 40,000
Valuation Allowance (40,000)
=========
Net deferred tax asset recorded $ --
=========
7. STOCKHOLDERS' EQUITY
--------------------
On April 6, 1999 the Company declared a 1 for 80 reverse stock split. The
financial statements for all periods presented have been retroactively
adjusted for the stock split.
The Company has completed a private placement of 500,000 shares of its
common stock at $2.00 per share. The Company issued 300,000 of these shares
for gross proceeds of $599,700 and issued 200,000 shares (see below) for
services rendered to the Company.
In April 1999, the Company issued 150,000 shares of common stock to a
consultant which provides both website development and public relations
services. These shares were valued at the fair market value of $1.60 (based
on Reg D 504 offering during April 1999 of $2.00 per share less a 20%
discount for restrictions on the resale of such shares). The Company also
issued to the consultant warrants to purchase 75,000 shares of common stock
exercisable at $2.25 per share. Such warrants have been valued at $18,750.
The Company has expensed the total amount of $258,750 as research and
development.
In April 1999, the Company issued 50,000 shares of common stock to a broker
dealer for consulting services rendered on behalf of the Company. These
shares were also valued at the fair market value of $1.60 (based on Reg D
504 offering during April 1999 of $2.00 per share less a 20% discount for
restrictions on the resale of such shares). The Company has charged the
total amount of $80,000 to Additional Paid in Capital.
Additionally, in April 1999, the Company issued 100,000 shares to a
consultant for services rendered. These shares were valued at the fair
market value of $1.60 (based on Reg D 504 offering during April 1999 of
$2.00 per share less a 20% discount for restrictions on the resale of such
shares). Such issuance was recorded as non-cash compensation expense.
In March through May 1999, the Company granted warrants to various
consultants and employees to purchase an aggregate of 563,000 shares of
common stock at a price of $2.25 per share. Such warrants were valued at
$140,000 and recorded as non-cash compensation expense.
F-11
<PAGE>
8. STOCK WARRANTS
--------------
A summary of outstanding warrants at May 31, 1999 are as follows:
Shares
Underlying Exercise
Warrants Price
--------------- --------------
Outstanding at beginning of period -- $ --
Granted 763,000 2.25
Exercised -- --
=============== ==============
Outstanding at May 31, 1999 763,000 $ 2.25
=============== ==============
9. SUBSEQUENT EVENTS - (unaudited)
-------------------------------
In June 1999, the Company granted warrants to various consultants and
employees to purchase an aggregate of 237,000 shares of common stock at a
price of $2.25 per share.
In August 1999 the Company signed a contract to acquire Member Net, Inc.
for 2.5 million shares of its common stock and warrants to purchase
1 million shares of common stock.
F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Member Net, Inc.
Boca Raton, Florida
We have audited the accompanying divisional statement of operations of
Member Net, Inc. for the year ended December 31, 1998. This financial statement
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amount and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents
fairly, in all material respects, the results of Member Net, Inc.'s operations
for the year ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Feldman Sherb Horowitz & Co., P.C.
--------------------------------------
Certified Public Accountants
New York, New York
August 9, 1999
F-13
<PAGE>
MEMBER NET, INC.
----------------
DIVISIONAL STATEMENTS OF OPERATIONS
-----------------------------------
For the Five
Year Ended Months Ended
December 31, 1998 May 31, 1999
------------------ --------------
(unaudited)
REVENUE $ 26,768 $ 11,741
COST OF SALES 12,212 25,456
--------- ----------
INCOME BEFORE PRO FORMA INCOME TAXES 14,556 (13,715)
PRO FORMA INCOME TAXES (BENEFIT) 5,822 (5,486)
--------- ----------
PRO FORMA NET INCOME (LOSS) $ 8,734 $ (8,229)
========= ==========
See notes to financial statements.
F-14
<PAGE>
MEMBER NET, INC.
----------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
----------------------------------------
JANUARY 1, 1999 TO MAY 31, 1999
-------------------------------
Member Net, Inc. (the "Company") was formed on October 28, 1998 to provide an
internet website for the "New Age" community
On January 26, 1999, the Company acquired The Mind, Body & Soul Network
("MBSN"), a World Wide Web Internet Site, from Alchemy Communications, Inc.
("Alchemy"), a related company. The Company was assigned all copyrights,
trademarks and licensing agreements of MBSN. The acquisition was consummated
pursuant to the Transfer of Ownership Agreement between the Company and Alchemy.
Accordingly, Alchemy will receive as compensation all revenues generated by MBSN
until such date that Alchemy no longer hosts the MBSN website.
In August 1999, the Company signed a contract to be acquired by
newagecities.com, Inc. ("newage"), an Idaho corporation, for 2,500,000 shares of
newage stock (the "Exchange") and 1,000,000 warrants to purchase shares of
newage common stock. The Exchange will be completed pursuant to the Merger
Agreement and Plan of Reorganization between the Company and newage.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. Basis of Presentation - The statement of operations for the year ended
December 31, 1998 includes the results of operations of the Company and an
operating division owned by Alchemy Communications, Inc., MBSN, all
material intercompany transactions have been eliminated. The statement of
operations for the period ended May 31, 1999 includes the revenues
generated by the Company but earned by Alchemy under the Transfer of
Ownership Agreement between the Company and Alchemy. The statement of
financial position and the statements of equity and cash flows have been
omitted from this presentation due to there immateriality.
B. Income Taxes - Income taxes have been provided on a pro forma basis as
if the Company filed a separate tax return from that of its affiliates.
Income taxes were computed using an approximate composite federal and state
tax rate of 40.00%.
C. Revenues - The Company's revenues are generated by advertisements placed
on the MBSN website. Revenues are recognized at the time advertisements are
displayed on the MSBN website.
D. Research and Development - Research and development costs are being
expensed as incurred and represent the continuous development of the MSBN
website. Development expenses are being classified as cost of sales.
F-15
<PAGE>
PRO FORMA FINANCIAL DATA
Introduction
The following financial data is based upon the historical
financial statements of newagecities.com and has been prepared to
illustrate the effects on such historical data of the Member Net, Inc.
acquisition. The unaudited pro forma consolidated statements of
operations for the periods ended May 31, 1999 and December 31, 1998
give effect to the Member Net, Inc. acquisition as if it had been
completed as of January 1, 1998. The unaudited pro forma combined
balance sheet as of May 31, 1999 gives effect to the Member Net, Inc.
acquisition as if such transactions had been completed on May 31, 1999.
The Member Net, Inc. acquisition is reflected using the purchase method
of accounting for business combinations.
The pro forma financial data is provided for comparative
purposes only and does not purport to represent the actual financial
position or results of operations of the Company that actually would
have been obtained if the Member Net, Inc. acquisition had been
consummated on the dates specified, nor is it necessarily indicative of
the results of operations that may be achieved in the future.
The pro forma financial data are based on certain assumptions
and adjustments described in the notes thereto and should be read in
conjunction therewith. See "Management's Discussion and Analysis of
Financial Condition and Plan of Operations" and the financial
statements, including the notes thereto, appearing elsewhere herein.
F-16
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MAY 31, 1999
Historical Pro Forma
---------------- -------------------------------
newagecities.com Adjustments (A) As Adjusted
---------------- ---------------- -------------
<S> <C> <C>
Current assets:
Cash $ 312,602 $ 312,602
Due from related party 45,000 45,000
Inventories 89,500 89,500
----------- -----------
Total current assets 447,102 ---------- 447,102
Furniture and equipment, net 46,465 46,465
Licensing agreement 671,250 671,250
Goodwill -- $5,350,000 5,350,000
Deposits and other assets 10,707 10,707
----------- ---------- -----------
Total assets $ 1,175,524 $5,350,000 $ 6,525,524
=========== ========== ===========
Current liabilities:
Accrued expenses $ 12,796 12,796
Due to related party 2,000 2,000
----------- ---------- -----------
Total current liabilities 14,796 ---------- 14,796
----------- ---------- -----------
Stockholders' equity:
Common stock, $.02 par value; 45,000,000
shares authorized; 3,599,749 shares issued
and outstanding (historical), 6,099,749 shares
issued and outstanding (as adjusted) 71,995 $ 50,000 121,995
Additional paid-in capital 1,758,005 5,300,000 7,058,005
Stock subscription receivable (300) (300)
Accumulated deficit (668,972) (668,972)
----------- ---------- -----------
Total stockholders' equity 1,160,728 5,350,000 6,510,728
----------- ---------- -----------
Total liabilities and stockholders'
equity $ 1,175,524 $5,350,000 $ 6,525,524
=========== ========== ===========
</TABLE>
See notes to financial statements.
F-17
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
For the Period January 1, 1999 to May 31, 1999
----------------------------------------------
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------------ ---------------------------
Combined
Newagecities.com Member Net, Inc. Adjustments (B) as Adjusted
---------------- ---------------- --------------- -----------
<S> <C> <C> <C> <C>
Total revenue $ -- $ 11,741 $ -- $ 11,741
Cost of sales -- 25,456 -- 25,456
---------- --------- ------------ ---------
Gross profit -- (13,715) -- (13,715)
General and administrative expenses 672,070 -- A 222,917 894,987
Interest Income -- -- 3,098
---------- --------- ------------ ---------
Loss before pro forma tax benefit (668,972) (13,715) (222,917) (905,604)
Pro forma taxes (benefit) on income (5,486) (5,486)
---------- --------- ------------ ---------
Pro forma net loss (668,972) ($8,229) (222,917) (900,118)
========== ========= ============ =========
Net loss per common share
Basic ($0.34) ($0.20)
Weighted average common share
Basic 1,986,698 2,500,000 4,486,698
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1998
----------------------------
Historical Pro Forma
------------------------------------ ---------------------------
Combined
Newagecities.com Member Net, Inc. Adjustments (A) as Adjusted
---------------- ---------------- --------------- -----------
<S> <C> <C> <C> <C>
Total revenue $ 0 $ 26,768 $ $ 26,768
Cost of sales -- 12,212 12,212
----------- ----------- ----------- -----------
Gross profit -- 14,556 -- 14,556
General and administrative expenses -- -- A 535,000 535,000
----------- ----------- ----------- -----------
Loss before pro forma income taxes -- 14,556 (535,000) (520,444)
Pro forma taxes (benefit) on income -- 5,822 5,822
----------- ----------- ----------- -----------
Pro forma net loss $ 0 $ 8,734 (535,000) (526,266)
=========== =========== =========== ===========
Net loss per common share
Basic $ 0 ($0.21)
Weighted average common share
Basic -- 2,500,000 2,500,000
</TABLE>
See notes to financial statements.
F-18
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
A. The following unaudited pro forma adjustments are included in the unaudited
pro forma balance sheet at May 31, 1999:
To record the acquisition of all of the outstanding shares of common
stock of Member Net, Inc. for 2.5 million shares of the Company's
common stock and one million warrants to purchase shares of the
Company's common stock, with the acquisition being accounted for as a
purchase business combination. Recorded goodwill totals $5,350,000.
The computation is as follows:
Assets acquired $ --
Liabilities assumed --
------------
Net book value --
------------
Purchase price:
Common stock 5,000,000
Warrants 350,000
------------
Total purchase price 5,350,000
------------
Goodwill $ 5,350,000
============
B. The following pro forma adjustment is included in the accompanying pro
forma consolidated statements of operations for the five months ended May
31, 1999 and the year ended December 31, 1998:
(1) To amortize goodwill over 10 years.
F-19
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations other than those contained in
this prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized by the company or any of the
underwriters. This prospectus does not constitute an offer of any securities
other than those to which it relates or an offer to sell, or a solicitation of
any offer to buy, to any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this prospectus nor any
sale made hereunder shall, under any circumstances, create an implication that
the information set forth herein is correct as of any time subsequent to the
date hereof.
<TABLE>
<S> <C>
TABLE OF CONTENTS NEWAGECITIES.COM, INC.
Page
Available Information...................
Prospectus Summary .....................
High Risk Factors.......................
Forward Looking Statements..............
Capitalization..........................
Use of Proceeds......................... -------------
Price Range of Common Stock,
Dividend Policy and Number of PROSPECTUS
Record Holders.......................... -------------
Plan of Operation.......................
Our Business............................
Management..............................
Principal Stockholders .................
Certain Transactions....................
Description of Securities .............. September ___, 1999
Selling Security Holders................
Shares Eligible for Future Sale.........
Legal Matters ..........................
Experts ................................
Additional Information .................
Index to Financial Statements ..........
</TABLE>
<PAGE>
PART TWO
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Idaho Business Corporation Act allows us to indemnify our officers
and directors from liability incurred in furtherance of their duties under
certain circumstances. In criminal proceedings, Idaho law states that we may
indemnify an officer or director if he or she acted in good faith and reasonably
believed that his or her conduct was in the best interests of the corporation if
he or she had no reasonable cause to believe his or her conduct was unlawful. In
addition, Idaho law requires us to indemnify directors, who succeed on the
merits of any defense proceeding or in any defense proceeding to which he or she
was party because he or she was a director of the corporation for reasonable
expenses incurred in connection with the proceeding. If we chose to indemnify
our officers and directors in accordance with the provisions of the Idaho
Business Corporation Act, our financial resources may be significantly affected.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions, or otherwise, we have
been advised that in the opinion of the Securities and Exchange Commission, this
indemnification is against public policy as expressed in the securities laws,
and is, therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Company in connection with the
distribution of the securities being registered are as follows:
<TABLE>
<S> <C>
SEC Registration and Filing Fee.................................................. $ 3,475.00
Legal Fees and Expenses*......................................................... 30,000.00
Accounting Fees and Expenses*.................................................... 20,000.00
Financial Printing* ............................................................. 15,000.00
Transfer Agent Fees*............................................................. 1,000.00
Blue Sky Fees and Expenses*...................................................... 1,000.00
Miscellaneous*................................................................... 1,525.00
-------------
TOTAL.................................................................... $ 72,000.00
</TABLE>
*Estimated
None of the foregoing expenses are being paid by the selling security holders.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In February 1999, Psychicnet.com issued an aggregate of 10,000 shares
of common stock to three individuals, all of whom are officers and directors of
Psychicnet.com, and for entities as founders of Psychicnet.com. The 10,000
shares were later exchanged for 2,700,000 shares of common stock of
newagecities.com. Because the individuals and entities had access to all
information pertaining to Psychicnet.com, the issuance was exempt from the
registration requirements of the Securities Act of 1933, as amended (the "Act"),
pursuant to Section 4(2) of the Act.
In September 1997, Virginia Cities granted an option, exercisable at
$.0005 per share, to purchase up to 6,500,000 shares of common stock to a
consultant in consideration for bookkeeping services rendered by the consultant
to newagecities.com. The consultant exercised the option as to all 6,500,000
shares in September 1998. The consultant had access to financial and other
information concerning newagecities.com and had the opportunity to ask questions
concerning newagecities.com and its operations. Accordingly, the issuance of the
shares was exempt from the registration requirements of the Act pursuant to
Section 4(2) of the Act.
In December 1998, Virginia Cities issued granted its previous attorney
an option to purchase 1,000,000 shares of common stock exercised at $.001 per
share. The attorney had access to financial and other information concerning
newagecities.com and had the opportunity to ask questions concerning
newagecities.com and its operations. Accordingly, the issuance of the shares was
exempt from the registration requirements of the Act pursuant to Section 4(2) of
the Act.
In December 1998, Virginia Cities issued an aggregate of 220,822 shares
of common stock to its former President as repayment for debts of
newagecities.com paid personally by the President in consideration for services
rendered. Because the President had access to all information pertaining to
newagecities.com, the issuance was exempt from the registration requirements of
the Act pursuant to Section 4(2) of the Act.
In December 1998, Virginia Cities issued an aggregate of 1,207,906
shares of common stock to the officers and directors of newagecities.com as
compensation for executive services rendered. Because the officers and directors
had access to all information pertaining to newagecities.com, the issuance was
exempt from the registration requirements of the Act pursuant to Section 4(2) of
the Act.
In February 1999, Virginia Cities issued an aggregate of 700,000 shares
of common stock to its then officers and directors at a price of $.01 per share
for which newagecities.com received net proceeds of $7,000. The $7,000 was used
by newagecities.com to pay expenses associated with the transaction with
Psychicnet.com. Because the officers and directors had access to all information
pertaining to newagecities.com, the issuance was exempt from the registration
requirements of the Act pursuant to Section 4(2) of the Act.
II-2
<PAGE>
In March 1999, Virginia Cities issued 2,700,000 shares to the seven
stockholders of Psychicnet.com and in exchange acquired 100% of the issued and
outstanding common stock of Psychicnet.com. The stockholders had access to
financial and other information concerning newagecities.com and had the
opportunity to ask questions concerning newagecities.com and its operations.
Accordingly, the issuance of the shares was exempt from the registration
requirements of the Act pursuant to Section 4(2) of the Act.
In March 1999, Virginia Cities commenced a private offering of 500,000
shares of common stock at $2.00 per share. The offering was conducted in
accordance with Rule 504 of Regulation D promulgated under the Securities Act of
1933, as amended. Newagecities.com issued 300,000 shares in the offering and
received cash proceeds of approximately $600,000 from the offering and issued
the remaining 200,000 in consideration for services rendered.
In March 1999, newagecities.com granted warrants to purchase an
aggregate of 193,000 shares of common stock at $2.25 per share to a financial
and business consultant and certain employees of the consultant. The consultant
and employees had access to financial and other information concerning
newagecities.com and had the opportunity to ask questions concerning
newagecities.com and its operations. Accordingly, the issuance of the shares was
exempt from the registration requirements of the Act pursuant to Section 4(2) of
the Act.
In April 1999, newagecities.com granted warrants to purchase an
aggregate of 295,000 shares of common stock at $2.25 per share to 5 consultants
in consideration for financial advisory, industry consulting, legal services,
software development consulting, introduction referral fees and other business
related consulting services rendered to newagecities.com. The consultants had
access to financial and other information concerning newagecities.com and had
the opportunity to ask questions concerning newagecities.com and its operations.
Accordingly, the issuance of the shares was exempt from the registration
requirements of the Act pursuant to Section 4(2) of the Act.
In April 1999, newagecities.com also issued 100,000 shares of common
stock to a consultant in consideration for her agreeing to serve as a
spokesperson for newagecities. The consultant had access to financial and other
information concerning newagecities.com and had the opportunity to ask questions
concerning newagecities.com and its operations. The consultant had experience in
financial transactions and was familiar with newagecities operations and the
industry in general. Accordingly, the issuance of these shares was exempt from
the registration requirements of the Security requirements of the Securities Act
under Section 4(2) of the Securities Act.
In May 1999, newagecities.com granted warrants to purchase an aggregate
of 75,000 shares of common stock at $2.25 per share to the 5 individuals who
agreed to serve on newagecities.com's board of advisors at such time as
newagecities.com constitutes this board. The 5 individuals had access to
financial and other information concerning newagecities.com and had the
opportunity to ask questions concerning newagecities.com and its operations.
Accordingly, the issuance of the shares was exempt from the registration
requirements of the Act pursuant to Section 4(2) of the Act.
In June 1999, newagecities.com granted warrants to purchase an
aggregate of 237,000 shares of common stock at $2.25 per share to 8 individuals
and entities in consideration for services performed including development and
implementation of a computer network infrastructure, administrative services and
for commercial spokesperson services. The individuals had access to financial
and other information concerning newagecities.com and had the opportunity to ask
questions concerning newagecities.com and its operations. Accordingly,
II-3
<PAGE>
the issuance of the shares was exempt from the registration requirements of the
Act pursuant to Section 4(2) of the Act.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
Exhibit No. Description of Document
- ----------- -----------------------
<S> <C>
2 Agreement and Plan of Reorganization between Virginia City Gold Mines, Inc.
and Psychicnet.com, Inc. dated March 8, 1999
3.1 Articles of Incorporation
3.2 Articles of Amendment to the Articles of Incorporation
3.3 Articles of Amendment to the Articles of Incorporation
3.4 Bylaws
5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A.*
10.1 Employment Agreement between newagecities.com, Inc. and Joseph Ardito
10.2 Employment Agreement between newagecities.com, Inc. and Kenneth Shenkman
10.3 Employment Agreement between newagecities.com, Inc. and Stanley Siegel
10.4 Lease Agreement between newagecities.com, Inc. and R. A. La Pointe
10.5 Internet Consulting/Marketing Agreement between Psychicnet.com, Inc. and
Virtual Financial Corp.
10.6 License Agreement between newagecities, Inc. and Q Sound Labs, Inc.
10.7 Merger Agreement and Plan of Reorganization
23.1 Consent of Feldman Sherb Ehrlich & Co. Certified Public Accountants
23.2 Consent of Atlas, Pearlman, Trop & Borkson, P.A. (contained in such firm's
opinion filed as Exhibit 5.1)
27 Financial Data Schedule
</TABLE>
* To be filed by Amendment.
ITEM 28. UNDERTAKINGS.
The undersigned Registrant undertakes
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of
1933;
II-4
<PAGE>
(ii) To reflect in the prospectus any facts or
events arising after the effective date of
the registration statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the registration
statement;
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the registration
statement or any material change to such
information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission (the "Commission") such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or preceding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE>
The undersigned Registrant also undertakes that it will for determining
any liability under the Securities Act, treat each post-effective amendment that
contains a form of prospectus as a new registration statement for the securities
offered in the registration statement, and that offering of the securities at
that time as the initial bona fide offering of those securities.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Boca Raton, Florida on August 31, 1999.
NEWAGECITIES.COM, INC.
By: /s/ Joseph Ardito, Jr.
Joseph Ardito, Jr.
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Form
SB-2 registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOSEPH ARDITO, JR. Chairman of the Board, Chief August 31, 1999
- -----------------------
Joseph Ardito, Jr. Executive Officer and Director
(Principal Executive Officer)
/s/ KENNETH SHENKMAN President and Director August 31, 1999
- ---------------------
Kenneth Shenkman
/s/ STANLEY SIEGEL Chief Financial Officer, August 31, 1999
- ---------------------------
Stanley Siegel Secretary and Treasurer
(Principal Accounting and
Financial Officer)
</TABLE>
----------------------
AGREEMENT AND PLAN OF REORGANIZATION
by and among
VIRGINIA CITY GOLD MINES, INC.
as Acquiror
PSYCHICNET.COM, INC.
as Acquiree
and
the Shareholders of
PSYCHICNET.COM, INC.
as more particularly set forth herein
-----------------------
March ___, 1999
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into this _____ day of March, 1999 by and among VIRGINIA CITY GOLD
MINES, INC., an Idaho corporation (hereinafter referred to as "Virginia"),
PSYCHICNET.COM, INC., a Florida corporation (hereinafter referred to as "PCI"),
and the shareholders of PCI listed the signature page and on Exhibit A hereto
constituting all of the shareholders of PCI (hereinafter referred to as the "PCI
Shareholders").
RECITALS
--------
A. The PCI Shareholders own all of the issued and outstanding shares of
the capital stock of PCI as set forth on Exhibit A hereto.
B. Virginia is willing to acquire all of the issued and outstanding
capital stock of PCI, making PCI a wholly-owned subsidiary of Virginia, and the
PCI Shareholders desire to exchange all of their shares of PCI's capital stock
for shares of Virginia's authorized but unissued shares of Common Stock as
hereinafter provided.
C. It is the intention of the parties hereto that: (i) Virginia shall
acquire all of the issued and outstanding capital stock of PCI in exchange
solely for the number of shares of Virginia's authorized but unissued common
stock set forth below (the "Exchange"); (ii) the Exchange shall qualify as a
tax-free reorganization under Section 368(a)(1)(B) of the Internal Revenue Code
of 1986, as amended, and related sections thereunder; and (iii) the Exchange
shall qualify as a transaction in securities exempt from registration or
qualification under the Securities Act of 1933, as amended (the "Act") and under
the applicable securities laws of each state or jurisdiction where the
Shareholders reside.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties hereto
agree as follows:
SECTION 1. EXCHANGE OF SHARES
1.1 Exchange of Shares. Virginia and the PCI Shareholders hereby agree
that the PCI Shareholders shall, on the Closing Date (as hereinafter defined),
exchange all of their issued and outstanding shares of the capital stock of PCI
(the "Shares") for the shares of Virginia Common Stock, $0.02 par value (the
"Virginia Shares") set forth in Exhibit A hereto (which gives effect to
Virginia's 1 for 80 reverse stock split of its outstanding common stock to take
place prior to or simultaneously with the completion of this acquisition. The
number of shares of capital stock owned by each shareholder of PCI and the
number of shares of Virginia Common Stock which each will be entitled to receive
in the Exchange is set forth in Exhibit A hereto.
1.2 Delivery of Shares. On the Closing Date, the PCI Shareholders will
deliver to Virginia the certificates representing the Shares, duly endorsed (or
with executed stock powers) so as to make Virginia the sole owner thereof.
Simultaneously, Virginia will deliver certificates representing the Virginia
Shares to the PCI Shareholders.
2
<PAGE>
1.3 Tax-Free Reorganization. The PCI Shareholders acknowledge that, in
the event that capital stock of PCI representing at least 80% in interest of PCI
is not exchanged for shares of Virginia Common Stock pursuant hereto, the
Exchange will not qualify as a tax-free reorganization under Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended.
1.4 Investment Intent. The Virginia Shares have not been registered
under the Securities Act of 1933, as amended (the "Act") and may not be resold
unless the Virginia Shares are registered under the Act or an exemption from
such registration is available. The PCI Shareholders represent and warrant that
each of them is acquiring the Virginia Shares for his, her, or its own account,
for investment, and not with a view to the sale or distribution of the Virginia
Shares. Each certificate representing the Virginia Shares will have a legend
thereon incorporating language as follows:
"The Shares represented by this Certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"). The shares have been acquired for investment and may
not be sold or transferred in the absence of an effective
Registration Statement for the shares under the Act unless
in the opinion of counsel satisfactory to the Company,
registration is not required under the Act."
SECTION 2. REPRESENTATIONS AND WARRANTIES OF PCI AND PCI SHAREHOLDERS
- ----------------------------------------------------------------------
PCI and the PCI Shareholders (to the best of the PCI Shareholders'
knowledge and belief as to PCI, except with respect to Sections 2.2 and 2.14
hereafter as to which the representation and warranty shall be unqualified as to
each PCI Shareholder's respective interest) hereby represent and warrant as
follows:
2.1 Organization and Good Standing; Ownership of Shares. PCI is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Florida, and is entitled to own or lease its properties and to
carry on its business as and in the places where such properties are now owned,
leased or operated and such business is now conducted. PCI is duly licensed or
qualified and in good standing as a foreign corporation where the character of
the properties owned by it or the nature of the business transacted by it make
such licenses or qualifications necessary. PCI does not have any subsidiaries.
There are no outstanding subscriptions, rights, options, warrants or other
agreements obligating either PCI or the PCI Shareholders to issue, sell or
transfer any stock or other securities of PCI, except simultaneously herewith,
PCI is undertaking a limited offering of Common Stock on behalf of Virginia
pursuant to which investors in such offering will receive up to 500,000 shares
of Common Stock of Virginia upon the consummation of this acquisition.
2.2 Ownership of Shares. The PCI Shareholders are the owners of record
and beneficially of all of the shares of capital stock of PCI, all of which
Shares are free and clear of all rights, claims, liens and encumbrances, and
have not been sold, pledged, assigned or otherwise transferred their Shares
except pursuant to this Agreement.
2.3 Financial Statements, Books and Records. Inasmuch as PCI has been
recently organized, PCI has no history of operations. There has been previously
delivered to Virginia the unaudited balance sheet of PCI as at February 28, 1999
(the "Balance Sheet"). The Balance Sheet fairly represents the financial
position of PCI as at such date.
3
<PAGE>
2.4 No Material Adverse Changes. Since the date of the Balance Sheet
there has not been:
(i) any material adverse change in the assets, operations,
condition (financial or otherwise) or prospective business of PCI;
(ii) any damage, destruction or loss materially affecting the
assets, prospective business, operations or condition (financial or otherwise)
of PCI, whether or not covered by insurance;
(iii) any declaration, setting aside or payment of any dividend or
distribution with respect to any redemption or repurchase of the PCI's capital
stock;
(iv) any sale of an asset (other than in the ordinary course of
business) or any mortgage or pledge by PCI of any properties or assets; or
(v) adoption of any pension, profit sharing, retirement, stock
bonus, stock option or similar plan or arrangement.
2.5 Taxes. PCI has prepared and filed all appropriate federal, state
and local tax returns for all periods prior to and through the date hereof for
which any such returns have been required to be filed by it and has paid all
taxes shown to be due by said returns or on any assessments received by it or
has made adequate provision for the payment thereof.
2.6 Compliance with Laws. PCI has complied with all federal, state,
county and local laws, ordinances, regulations, inspections, orders, judgments,
injunctions, awards or decrees applicable to it or its business which, if not
complied with, would materially and adversely affect the business of PCI.
2.7 No Breach. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not:
(i) violate any provision of the Articles of Incorporation or
By-Laws of PCI;
(ii) violate, conflict with or result in the breach of any of the
terms of, result in a material modification of, otherwise give any other
contracting party the right to terminate, or constitute (or with notice or lapse
of time or both constitute) a default under, any contract or other agreement to
which PCI is a party or by or to which it or any of its assets or properties may
be bound or subject;
(iii) violate any order, judgment, injunction, award or decree of
any court, arbitrator or governmental or regulatory body against, or binding
upon, PCI, or upon the properties or business of PCI; or
(iv) violate any statute, law or regulation of any jurisdiction
applicable to the transactions contemplated herein which could have a materially
adverse effect on the business or operations of PCI.
2.8 Actions and Proceedings. There is no outstanding order, judgment,
injunction, award or decree of any court, governmental or regulatory body or
arbitration tribunal against or involving PCI. There is no action, suit or claim
or legal, administrative or arbitral proceeding or (whether or not
4
<PAGE>
the defense thereof or liabilities in respect thereof are covered by insurance)
pending or threatened against or involving PCI or any of its properties or
assets. There is no fact, event or circumstances that may give rise to any suit,
action, claim, investigation or proceeding.
2.9 Brokers or Finders. No broker's or finder's fee will be payable by
PCI in connection with the transactions contemplated by this Agreement, nor will
any such fee be incurred as a result of any actions by PCI or the Shareholders.
2.10 Real Estate. Except as set forth on Schedule 2.10, PCI neither
owns real property nor is a party to any leasehold agreement.
2.11 Tangible Assets. PCI has full title and interest in all machinery,
equipment, furniture, leasehold improvements, fixtures, vehicles, structures,
owned or leased by PCI, any related capitalized items or other tangible property
material to the business of PCI (the "Tangible Assets"). PCI holds all rights,
title and interest in all the Tangible Assets owned by it on the Balance Sheet
or acquired by it after the date of the Balance Sheet, free and clear of all
liens, pledges, mortgages, security interests, conditional sales contracts or
any other encumbrances except as set forth on Schedule 2.11. All of the Tangible
Assets are in good operating condition and repair and are usable in the ordinary
course of business of PCI and conform to all applicable laws, ordinances and
governmental orders, rules and regulations relating to their construction and
operation.
2.12 Liabilities. PCI does not have any direct or indirect
indebtedness, liability, claim, loss, damage, deficiency, obligation or
responsibility, known or unknown, fixed or unfixed, liquidated or unliquidated,
secured or unsecured, accrued or absolute, contingent or otherwise, including,
without limitation, any liability on account of taxes, any other governmental
charge or lawsuit (all of the foregoing collectively defined to as
"Liabilities"), which were not fully, fairly and adequately reflected on the
Balance Sheet. As of the Closing Date, PCI will not have any Liabilities, other
than Liabilities fully and adequately reflected on the Balance Sheet, except for
Liabilities incurred in the ordinary course of business.
2.13 Operations of PCI. Except as set forth on Schedule 2.13, from the
date of the Balance Sheet and through the Closing Date hereof PCI has not and
will not have:
(i) incurred any indebtedness for borrowed money;
(ii) declared or paid any dividend or declared or made any
distribution of any kind to any shareholder, or made any direct or indirect
redemption, retirement, purchase or other acquisition of any shares in its
capital stock;
(iii) made any loan or advance to any shareholder, officer,
director, employee, consultant, agent or other representative or made any other
loan or advance otherwise than in the ordinary course of business;
(iv) except in the ordinary course of business, incurred or assumed
any indebtedness or liability (whether or not currently due and payable);
(v) disposed of any assets of PCI except in the ordinary course of
business; or
5
<PAGE>
(vi) materially increased the annual legal of compensation of any
executive employee of PCI;
(vii) increased, terminated, amended or otherwise modified any plan
for the benefit of employees of PCI;
(viii) issued any equity securities or rights to acquire such
equity securities; or
(ix) except in the ordinary course of business, entered into or
modified any contract, agreement or transaction.
2.14 Capitalization. The authorized capital stock of PCI consists of
100,000 shares of common stock of which 10,000 shares are presently issued and
outstanding. Neither PCI nor the Shareholders has granted, issued or agreed to
grant, issue or make available any warrants, options, subscription rights or any
other commitments of any character relating to the issued or unissued shares of
capital stock of PCI, except for options to purchase up to 800,000 shares of
Common Stock of Virginia solely upon the completion of this acquisition.
2.15 Full Disclosure. No representation or warranty by PCI or the PCI
Shareholders in this Agreement or in any document or schedule to be delivered by
them pursuant hereto, and no written statement, certificate or instrument
furnished or to be furnished to Virginia pursuant hereto or in connection with
the negotiation, execution or performance of this Agreement, contains or will
contain any untrue statement of a material fact or omits or will omit to state
any fact necessary to make any statement herein or therein not materially
misleading or necessary to a complete and correct presentation of all material
aspects of the businesses of PCI.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF VIRGINIA
- ------------------------------------------------------
Virginia hereby represents and warrants to PCI and the Shareholders as
follows:
3.1 Organization and Good Standing. Virginia is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Idaho and is entitled to own or lease its properties and to carry on its
business as and in the places where such properties are now owned, leased, or
operated and such business is now conducted. The authorized capital stock of
Virginia consists of 45,000,000 shares of Common Stock, of which approximately
31,912,823 shares are presently issued and outstanding prior to Virginia's
contemplated reverse stock split. Virginia is duly licensed or qualified and in
good standing as a foreign corporation where the character of the properties
owned by Virginia or the nature of the business transacted by it make such
license or qualification necessary. Virginia does not have any subsidiaries.
3.2 The Virginia Shares. The Virginia Shares to be issued to the PCI
Shareholders have been or will have been duly authorized by all necessary
corporate and shareholder actions and, when so issued in accordance with the
terms of this Agreement, will be validly issued, fully paid and non-assessable.
3.3 Financial Statements; Books and Records. The unaudited balance
sheet of Virginia as at December 31, 1997 and as at December 31, 1998 and
statements of operations for the years then ended previously delivered were
prepared in accordance with generally accepted accounting principles applied
6
<PAGE>
on a consistent basis with prior periods, and such financial statements fairly
represent the financial position of Virginia as at such dates and the results of
its operations for the years then ended.
3.4 No Material Adverse Changes. Since December 31, 1998, there has not
been:
(i) any material adverse change in the assets, operations,
condition (financial or otherwise) or prospective business of Virginia;
(ii) any damage, destruction or loss materially affecting the
assets, prospective business, operations or condition (financial or otherwise)
of Virginia, whether or not covered by insurance;
(iii) any declaration, setting aside or payment of any dividend or
distribution with respect to any redemption or repurchase of Virginia's capital
stock;
(iv) any sale of an asset (other than in the ordinary course of
business) or any mortgage or pledge by Virginia of any properties or assets; or
(v) adoption of any pension, profit sharing, retirement, stock
bonus, stock option or similar plan or arrangement.
3.5 Compliance with Laws. Virginia has complied with all federal,
state, county and local laws, ordinances, regulations, inspections, orders,
judgments, injunctions, awards or decrees applicable to their businesses which,
if not complied with, would materially and adversely affect the business of
Virginia or the trading market for the shares of Virginia's Common Stock.
3.6 No Breach. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not:
(i) violate any provision of the Articles of Incorporation or
By-Laws of Virginia;
(ii) violate, conflict with or result in the breach of any of the
terms of, result in a material modification of, otherwise give any other
contracting party the right to terminate, or constitute (or with notice or lapse
of time or both constitute) a default under, any contract or other agreement to
which Virginia is a party or by or to which it or any of its assets or
properties may be bound or subject;
(iii) violate any order, judgment, injunction, award or decree of
any court, arbitrator or governmental or regulatory body against, or binding
upon, Virginia or upon the securities properties or business of Virginia; or
(iv) violate any statute, law or regulation of any jurisdiction
applicable to the transactions contemplated herein.
3.7 Actions and Proceedings. There is no outstanding order, judgment,
injunction, award or decree of any court, governmental or regulatory body or
arbitration tribunal against or involving Virginia. There is no action, suit or
claim or legal, administrative or arbitral proceeding or (whether or
7
<PAGE>
not the defense thereof or liabilities in respect thereof are covered by
insurance) pending or threatened against or involving Virginia or any of its
properties or assets. Except as set forth on Schedule 3.7, there is no fact,
event or circumstances that may give rise to any suit, action, claim,
investigation or proceeding.
3.8 Brokers or Finders. No broker's or finder's fee will be payable by
Virginia in connection with the transactions contemplated by this Agreement, nor
will any such fee be incurred as a result of any actions by Virginia.
3.9 Liabilities. Virginia does not have any direct or indirect
indebtedness, liability, claim, loss, damage, deficiency, obligation or
responsibility, known or unknown, fixed or unfixed, liquidated or unliquidated,
secured or unsecured, accrued or absolute, contingent or otherwise, including,
without limitation, any liability on account of taxes, any other governmental
charge or lawsuit (all of the foregoing collectively defined to as
"Liabilities"), which were not fully, fairly and adequately reflected on the
December 31, 1998 Balance Sheet. As of the Closing Date, Virginia will not have
any Liabilities, other than Liabilities fully and adequately reflected on the
December 31, 1998 Balance Sheet, except for Liabilities incurred in the ordinary
course of business.
3.10 OTC Bulletin Board. Virginia's shares are traded on the OTC
Bulletin Board under the symbol "VCGM". At the Closing Date, Virginia's
so-called 15c2-11 documentation shall have been updated and shall be current in
all material respects. Virginia is not subject to any periodic reporting
responsibilities under the Securities Exchange Act of 1934.
3.11 Operations of Virginia. Except as set forth on Schedule 3.11,
since December 31, 1998 and through the Closing Date hereof, Virginia has not
and will not have:
(i) incurred any indebtedness for borrowed money;
(ii) declared or paid any dividend or declared or made any
distribution of any kind to any shareholder, or made any direct or indirect
redemption, retirement, purchase or other acquisition of any shares in its
capital stock;
(iii) made any loan or advance to any shareholder, officer,
director, employee, consultant, agent or other representative or made any other
loan or advance otherwise than in the ordinary course of business;
(iv) except in the ordinary course of business, incurred or assumed
any indebtedness or liability (whether or not currently due and payable);
(v) disposed of any assets of Virginia except in the ordinary
course of business; or
(vi) incurred any compensation for any executive employee of
Virginia;
(vii) adopted, increased, terminated amended or otherwise modified
any plan for the benefit of employees of Virginia;
8
<PAGE>
(viii) issued any equity securities or rights to acquire such
equity securities except as described herein; or
(ix) except in the ordinary course of business, entered into or
modified any contract, agreement or transaction.
3.11 Authority to Execute and Perform Agreements. Virginia has the full
legal right and power and all authority and approval required to enter into,
execute and deliver this Agreement and to perform fully its obligations
hereunder. This Agreement has been duly executed and delivered and is the valid
and binding obligation of Virginia enforceable in accordance with its terms,
except as may be limited by bankruptcy, moratorium, insolvency or other similar
laws generally affecting the enforcement of creditors' rights. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby and the performance by Virginia of this Agreement, in accordance with its
respective terms and conditions will not:
(i) require the approval or consent of any governmental or
regulatory body, the Shareholders of Virginia or the approval or consent of any
other person;
(ii) conflict with or result in any breach or violation of any of
the terms and conditions of, or constitute (or with any notice or lapse of time
or both would constitute) a default under, any order, judgment or decree
applicable to Virginia or any instrument, contract or other agreement to which
Virginia is a party or by or to which Virginia is bound or subject; or
(iii) result in the creation of any lien or other encumbrance on
the assets or properties of Virginia.
3.12 Full Disclosure. No representation or warranty by Virginia in this
Agreement or in any document or schedule to be delivered by it pursuant hereto,
and no written statement, certificate or instrument furnished or to be furnished
to PCI or the PCI Shareholders pursuant hereto or in connection with the
execution or performance of this Agreement contains or will contain any untrue
statement of a material fact or omits or will omit to state any fact necessary
to make any statement herein or therein not materially misleading or necessary
to a complete and correct presentation of all material aspects of the business
of Virginia. The foregoing notwithstanding, all of the aforementioned
representations and warranties are qualified to the extent that any of the
companies or businesses acquired or to be acquired pursuant to PCI's acquisition
program may include events, conditions or circumstances involving matters
contemplated by such representations and warranties, the disclosure of which
will not be made pursuant to this Agreement.
SECTION 4. COVENANTS
- ---------------------
4.1 Corporate Examinations and Investigations. Prior to the Closing
Date, the parties acknowledge that they have been entitled, through their
employees and representatives, to make such investigation of the assets,
properties, business and operations, books, records and financial condition of
the other as they each may reasonably require. No investigation by a party
hereto shall, however, diminish or waive in any way any of the representations,
warranties, covenants or agreements of the other party under this Agreement.
9
<PAGE>
4.2 Expenses. Each party hereto agrees to pay its own costs and
expenses incurred in negotiating this Agreement and consummating the
transactions described herein.
4.3 Further Assurances. The parties shall execute such documents and
other papers and take such further actions as may be reasonably required or
desirable to carry out the provisions hereof and the transactions contemplated
hereby. Each such party shall use its best efforts to fulfill or obtain the
fulfillment of the conditions to the Closing, including, without limitation, the
execution and delivery of any documents or other papers, the execution and
delivery of which are necessary or appropriate to the Closing.
4.4 Confidentiality. In the event the transactions contemplated by this
Agreement are not consummated, each of the parties hereto agree to keep
confidential any information disclosed to each other in connection therewith for
a period of two (2) years from the date hereof; provided, however, such
obligation shall not apply to information which:
(i) at the time of disclosure was public knowledge;
(ii) after the time of disclosure becomes public knowledge (except
due to the action of the receiving party); or
(iii) the receiving party had within its possession at the time of
disclosure.
4.5 Stock Certificates. At the Closing, the PCI Shareholders shall have
delivered the certificates representing the Shares duly endorsed (or with
executed stock powers) so as to make Virginia the sole owner thereof. At such
Closing, Virginia shall issue to the PCI Shareholders the Virginia Shares as
applicable.
4.6 Investment Letters. The PCI Shareholders shall have delivered to
Virginia an "Investment Letter" agreeing that the Shares are being acquired for
investment purposes only and not with the view to public resale or distribution.
4.7. Board of Directors of Virginia. On the Closing Date, the Board of
Directors of Virginia shall include Joseph Ardito, Jr., Ken Shenkman and Stanley
Siegel or other persons designated by the PCI Shareholders. The present officers
and directors of Virginia (and any other persons) shall resign as officers and
directors of Virginia.
4.8 Action by Shareholders of Virginia. On or prior to the Closing
Date, the Board of Directors and the Shareholders of Virginia shall have
approved a 1-for-80 reverse stock split of the outstanding Common Stock of
Virginia, including the filing of any Articles of Amendment to the Articles of
Incorporation of Virginia.
4.9 Limited Offering by PCI. On or subsequent to the Closing Date,
representatives of PSI and Virginia will consummate a limited offering pursuant
to Rule 504 of Regulation D under the Act on behalf of Virginia pursuant to
which up to 500,000 shares of Virginia's Common Stock on a post-reverse stock
split basis will be undertaken. Consummation of this acquisition is not
contingent upon the completion of such offering, but up to 500,000 shares of
Virginia on a post-reverse stock split basis may be issued simultaneously with
or subsequent to the closing of this acquisition.
10
<PAGE>
SECTION 5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF VIRGINIA
- ------------------------------------------------------------------
Notwithstanding any right of PCI and the PCI Shareholders fully to
investigate the affairs of Virginia, the former shall have the right to rely
fully upon the representations, warranties, covenants and agreements of Virginia
contained in this Agreement or in any document delivered by Virginia or any of
its representatives, in connection with the transactions contemplated by this
Agreement. All such representations, warranties, covenants and agreements shall
survive the execution and delivery hereof and the Closing Date hereunder for
twelve (12) months following the Closing.
SECTION 6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF PCI AND THE PCI
- -------------------------------------------------------------------------
SHAREHOLDERS
- ------------
Notwithstanding any right of Virginia fully to investigate the affairs
of PCI, Virginia has the right to rely fully upon the representations,
warranties, covenants and agreements of PCI and the PCI Shareholders contained
in this Agreement or in any document delivered to Virginia by the latter or any
of their representatives in connection with the transactions contemplated by
this Agreement. All such representations, warranties, covenants and agreements
shall survive the execution and delivery hereof and the Closing Date hereunder
for twelve (12) months following the Closing.
SECTION 7. INDEMNIFICATION
- ---------------------------
7.1 Obligation of Virginia to Indemnify. Subject to the limitations on
the survival of representations and warranties contained in Section 5, Virginia
hereby agrees to indemnify, defend and hold harmless PCI and the PCI
Shareholders from and against any losses, liabilities, damages, deficiencies,
costs or expenses (including interest, penalties and reasonable attorneys' fees
and disbursements) (a "Loss") based upon, arising out of or otherwise due to any
inaccuracy in or any breach of any representation, warranty, covenant or
agreement of Virginia contained in this Agreement or in any document or other
writing delivered pursuant to this Agreement.
7.2 Obligation of PCI and the PCI Shareholders to Indemnify. Subject to
the limitations on the survival of representations and warranties contained in
Section 6, PCI and the PCI Shareholders agree to indemnify, defend and hold
harmless Virginia from and against any Loss, based upon, arising out of or
otherwise due to any inaccuracy in or any breach of any representation,
warranty, covenant or agreement made by any of them and contained in this
Agreement or in any document or other writing delivered pursuant to this
Agreement.
SECTION 8. THE CLOSING
- -----------------------
The Closing shall take place simultaneously with the execution of this
Agreement or at such other later time or place as may be agreed upon by the
parties hereto. At the Closing, the parties shall provide each other with such
documents as may be necessary or appropriate in order to consummate the
transactions contemplated hereby including evidence of due authorization of the
Agreement and the transactions contemplated hereby.
11
<PAGE>
SECTION 9. MISCELLANEOUS
- -------------------------
9.1 Waivers. The waiver of a breach of this Agreement or the failure of
any party hereto to exercise any right under this Agreement shall in no event
constitute waiver as to any future breach whether similar or dissimilar in
nature or as to the exercise of any further right under this Agreement.
9.2 Amendment. This Agreement may be amended or modified only by an
instrument of equal formality signed by the parties or the duly authorized
representatives of the respective parties.
9.3 Assignment. This Agreement is not assignable except by operation of
law.
9.4 Notices. Until otherwise specified in writing, the mailing
addresses of both parties of this Agreement shall be as follows:
PCI: PSYCHICNET.COM, INC.
6016 Amberwoods Drive
Boca Raton, FL 33433
Shareholders: JOSEPH ARDITO, JR.
6016 Amberwoods Drive
Boca Raton, FL 33433
Virginia VIRGINIA CITY GOLD MINES, INC.
9518 N. Chanee Lane
Spokane, WA 99218
Any notice or statement given under this Agreement shall be deemed to have been
given if sent by registered mail addressed to the other party at the address
indicated above or at such other address which shall have been furnished in
writing to the addressor.
9.5 Governing Law. This Agreement shall be construed, and the legal
relations be the parties determined, in accordance with the laws of the State of
Florida, thereby precluding any choice of law rules which may direct the
applicable of the laws of any other jurisdiction.
9.6 Publicity. No publicity release or announcement concerning this
Agreement or the transactions contemplated hereby shall be issued by either
party hereto at any time from the signing hereof without advance approval in
writing of the form and substance thereof by the other party.
9.7 Entire Agreement. This Agreement (including the Exhibits and
Schedules hereto) and the collateral agreements executed in connection with the
consummation of the transactions contemplated herein contain the entire
agreement among the parties with respect to the purchase and issuance of the
Shares and the Virginia Shares and related transactions, and supersede all prior
agreements, written or oral, with respect thereto.
9.8 Headings. The headings in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
12
<PAGE>
9.9 Severability of Provisions. The invalidity or unenforceability of
any term, phrase, clause, paragraph, restriction, covenant, agreement or other
provision of this Agreement shall in no way affect the validity or enforcement
of any other provision or any part thereof.
9.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed, shall constitute an original copy
hereof, but all of which together shall consider but one and the same document.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
VIRGINIA CITY GOLD MINES, INC.
By:
-------------------------------
Name:
-----------------------------
Its:
------------------------------
PSYCHICNET.COM, INC.
By: /s/ Joseph Ardito, Jr.
-------------------------------
Joseph Ardito, Jr., President
SHAREHOLDERS:
---------------------------------
Joseph Ardito, Jr.
VIRTUAL FINANCIAL CORP.
By:
-------------------------------
Name:
-----------------------------
Its:
------------------------------
FIRST LEVEL CAPITAL, INC.
By:
-------------------------------
Name:
-----------------------------
Its:
------------------------------
13
<PAGE>
DELPHI CONSULTING CORP.
By:
-------------------------------
Name:
-----------------------------
Its:
------------------------------
RIVER CITY TRADING CO.
By:
-------------------------------
Name:
-----------------------------
Its:
------------------------------
---------------------------------
Stanley Siegel
---------------------------------
Kenneth Shenkman
14
<PAGE>
Exhibit A
EXCHANGE WITH PSYCHICNET.COM, INC.
Shares of
Virginia to be
Shares of Received
Name of PCI to (post reverse
Shareholder be Exchanged stock split)
- ----------- ------------ ------------
Virtual Financial Corp. 370 100,000
First Level Capital 370 100,000
Delphi Consulting Corp. 185 50,000
River City Trading Co. 185 50,000
Stanley Siegel 370 100,000
Kenneth Shenkman 1,480 400,000
Joseph Ardito, Jr.(1) 7,040 1,900,000
----- ---------
Total 10,000 2,700,000
====== =========
- -----------------
1) The Shares of Mr. Ardito's stock also include reservations of 300,000
shares for a Psychic spokesman to be named at a later date, and reservation of
400,000 shares to be allocated to a strategic partner not yet secured.
15
ARTICLES OF INCORPORATION
OF
VIRGINIA CITY GOLD MINES,
INC.
We, the undersigned, being each of lawful age and citizens of the
United States of America, being residents therein, have associated ourselves
together for the purpose of forming a corporation under the laws of the State of
Idaho, and in pursuance thereof, we do hereby sign and acknowledge the following
Articles of Incorporation, in triplicate originals, and do state as follows:
I
The name of the proposed corporation is VIRGINIA CITY GOLD MINES, INC.
II
The purpose of the corporation are as follows:
(a) To purchase, locate, lease or otherwise acquire, mines, mining
claims, mining rights, and lands and any interest therein, and explore, work,
exercise, develop, and turn to account the same; to quarry, mine, mill, smelt,
refine, dress, amalgamate, and prepare for market, are metal and mineral
substances of all kinds, and to carry on any other operations or business which
may seem necessary, convenient, or incidental to any of the objects of the
company; to buy, sell, manufacture, and deal in minerals, plants, machinery,
implements, convenience, provisions, and things capable of being used in
connection with the mining or other operations of this corporation, or required
by workmen and others employed by the company; to construct, carry out,
maintain, improve, manage,work, control, and superintend, any roads, ways,
railways, bridges, reservoirs, watercourses, aqueducts, wharves, furnaces,
mills, crushing works, hydraulic works, factories, warehouses and other works
-2-
<PAGE>
and conveniences which may seem necessary, convenient or incidental to any
object of the company and to contribute to subsidize; or otherwise aid or take
part in any such operations.
(b) To the same extent as natural persons might do, to purchase or
otherwise acquire, and to hold, maintain, work develop, sell, lease, exchange,
hire, convey, mortgage, or otherwise dispose of and deal in, lands and
leaseholds, and any interest, estate and rights in real property, and say
personal or mixed property, and any franchises, rights, business or privileges
necessary, convenient and appropriate for any of the purposes herein expressed.
(c) To acquire by purchase, subscription, or otherwise, and to hold for
investment or otherwise, and to use, sell, assign, transfer, mortgage pledge, or
otherwise deal with or dispose of stocks, bonds, or obligations or securities of
any corporation or corporations, and to merge or consolidate with any
corporation in such manner as may be provided by law.
(d) To borrow money, and to make and issue notes, bonds, debentures,
obligations, and evidences of indebtedness of all kinds, whether secured by
mortgage, pledge or otherwise, without limits as to the amount, except as may be
prohibited by statute, and to secure the same by mortgage, pledge or otherwise,
and generally to make and perform agreements and contracts of every kind and
description.
(e) To do each and every thing necessary, suitable or adivisable for
the accomplished of any one or more of said objective, or which shall at any
time appear to be conducive or expedient in the benefit of said corporation or
in connection therewith.
III
The duration of the corporation shall be perpetual.
-3-
<PAGE>
IV
The location and post office address of the registered offices of the
corporation in the State of Idaho is E 118 n 7th St., Box 1116, Coeur d'Alene,
Idaho, c/o Philip E. Dolan.
V
The total authorized number of par value shares is Nine Million Shares
(9,000,000). The aggregate par value of the total number of par value shares is
Nine Hundred Thousand Dollars ($900,000.00).
VI
The stock of the corporation is divided into Nine Million Shares
(9,000,000) of non-assesable, common stock, each share having one vote. There
are no classes of stock other than common stock, and no preferential rights,
restrictions or voting power is enjoyed by any other class of stock. There are
no pre-emptive rights.
VII
The name and post office address of each of the incorporators and the
number of shares for which each subscribes, is:
NAME AND ADDRESS SHARES
Lyle L. Einhaus, 2027 E. 37th
Spokane, Washington 75,000
W. Duane Lumley, N. 6611 Greenwood
Spokane, Washington 75,000
Glenn M. Wheeler, W. 3337 Woodside,
Spokane, Washington 75,000
VIII
The number of directors of this corporation shall be not less than 3,
and the total number, qualifications, terms of office, manner of election, time
and place of meeting and the powers and duties of the directors shall be such as
are prescribed
-4-
<PAGE>
by the by-laws of the corporation. The authority to make, amend, or
repeal by-laws for this corporation is hereby expressely vested in the Board of
Directors, subject to the power of the shareholders, pursuant to the laws of the
State of Idaho, to change, amend or repeal such by-laws.
IN WITNESS WHEREOF, we have hereunto set our hands and seals this 15th
day of May, 1969.
/a/ Glenn M. Wheeler (SEAL)
---------------------------
/s/ W. Duane Lumley (SEAL)
---------------------------
/s/ Lyle Einhaus (SEAL)
---------------------------
STATE OF WASHINGTON )
) ss.
County of Spokane )
On this 15 this day of May, 1969, before me personally appeared LYLE L.
Einhaus, W. DUANE lumley AND GLENN M. WHEELER known to me to be the
persons whose names are subscribed to the within instrument, and acknowledged to
me that they executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
/s/ [ILLEGIBLE]
--------------------------------------
Notary Public in and for the State
of Washington, residing at Spokane
My commission expires:
-5-
AMENDMENT TO
ARTICLES OF INCORPORATION
OF
VIRGINIA CITY GOLD MINES, INC.
We, the undersigned, being each of lawful age and citizens of the
United States of America, being residents therein, have associated ourselves
together for the purpose of forming a corporation under the laws of the State of
Idaho, and having previously filed its Articles of Incorporation on the 3rd day
of June, 1969, and a Certificate of Incorporation having been issued by the
Secretary of the State of Idaho on the 3rd day of June, 1969, do hereby sign and
acknowledge the following amendments to the said Articles of Incorporation, in
triplicate originals, and do state as regards Articles V and VI, that they are
hereby amended as follows:
V
The total authorized number of par value shares is Forty-five million
shares (45,000,000). That the par value of each share of stock is $.02 and that
the aggregate par value of the total number of par value shares is Nine Hundred
Thousand Dollars ($900,000.00).
VI
The stock of the corporation is divided into Forty-five million shares
(45,000,000) of non-asseable, common stock, each where having one vote. There
are no classes of stock other than common stock, and no preferential rights,
restrictions or voting power is enjoyed by any other class of stock. There are
no pre-emptive rights.
That the above and foregoing amendments to the original Articles of
Incorporation are made pursuant to the unanimous agreement of all the
shareholders of VIRGINIA CITY GOLD MINES, INC., executed pursuant to Section
30-146 (5) of the General
<PAGE>
AMENDMENT TO ARTICLES OF INCORPORATION
Page 2.
Business Corporations Code of the State of Idaho, on the 26th day of July, 1971.
IN WITNESS WHEREOFF, we have hereunto set our hands and seals this 8th
day of December, 1977.
/s/ Ernest W. Erickson
---------------------------------
President
/s/ Lyle L. Einhaus
---------------------------------
Vice-President
/s/ Glenn M. Wheeler
---------------------------------
Secretary-Treasurer
STATE OF WASHINGTON ))
)) ss.
County of Spokane ))
On this 8th day of December, 1977, before me personally appeared LYLE
L. EINHAUS, ERNEST W. ERICKSON, and GLENN M. WHEELER, known to me to be the
persons whose name are subsribed to the within instrument, and acknowledged to
me that they executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day the year in this certificate first above written.
/s/ [ILLEGIBLE]
--------------------------------------
Notary Public in and for the State
of Washington, residing at Spokane
My commission expires:
July 1, 1975
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
VIRGINIA CITY GOLD MINES, INC.
Pursuant to the provisions of Idaho Code, 30-1-1006 the undersigned
corporation hereby adopts the following Articles of Amendment to its Articles of
Incorporation:
1. The name of the corporation is VIRGINIA CITY GOLD MINES, INC.
2. The text of the amendment adopted is as follows:
I
NAME OF CORPORATION
The name of the Corporation shall be:
New Age Cities.com, Inc.
3. The Amendment does not provide for an exchange, reclassification, or
cancellation of issued shares.
4. The amendment to the Articles of Incorporation was adopted on March 24,
1999. Such Amendment was adopted by the Board of Directors and approved
by the shareholders.
5. The designation, number of outstanding shares, number of votes entitled
to be cast by each voting group entitled to vote separately on the
amendment is as follows: Common Stock, par value $0.02, and 31,912,823
was the total number of outstanding share entitled to be cast on the
amendment; the total number of undiputed votes cast for the amendment
was sufficient for approval.
6. The amendment was adopted by the Board of Directors in accordance with
the provisions of IC 30-1-1006.
Dated this 29th day of March, 1999.
VIRGINIA CITY GOLD MINES, INC.
By: /s/ Arthur P. Dammarell
-----------------------------------
Arthur P. Dammarell, Jr., President
By: /s/ William H. Schnider
-----------------------------------
William H. Schnider, Secretary
[STAMPED]
IDAHO SECRETARY OF STATE
04/01/1999 09:00
CK: 3356 CT: 113436 BH: 202994
1@ 38.00 = 30.00 AMEND PROF # 2
1@ 38.00 = 20.00 EXPEDITE C # 3
C 40976
BY-LAWS
OF
VIRGINIA CITY GOLD MINES, INC.
ARTICLE 1.
MEETING OF STOCKHOLDERS
Sec. 1. ANNUAL MEETING. The annual meeting of Stockholders shall be
held in Spokane, Washington, or at such places as the Board of Directors may
from time to time determine, on the 1st day of May, of each year, at 2:00
o'clock in the P.M. of that day. If the day so designated falls upon a Sunday or
a legal holiday, then the meeting shall be held upon the first business day
there-after. The Secretary shall serve personally, or by mail, a written notice
thereof, not less than ten nor more than forty days previous to such meeting
addressed to each stockholder at his address as it appears on the stock book;
but at any meeting at which all stockholders shall be present, or of which all
stockholders not present have waived notice in writing, the giving of notice as
above required may be dispensed with.
Sec. 2. SPECIAL MEETINGS. Special Meetings of Stockholders other than
those regulated by statute, may be called at any time by a majority of the
Directors. Notice of such meeting stating the purpose for which it is called
shall be served personally or by mail, not less than 10 days before the date set
for such meeting. If mailed, it shall be directed to a stockholder at his
address as it appears on the stock book; but at any meeting at which all
stockholders shall be presents, or of which stocholders not present have waived
notice in writing, the giving as above described may be dispensed with. The
Board of Directors shall also, in like manner, call a special meeting of
stockholders when-ever so requested in writing by stockholders represented not
less than one-half of the capital stock of the company. The President may, in
his discretion, call a special meeting of stockholders upon ten days notice. No
business other than that specified in the call for the meeting shall be
transacted at any meeting of the Stockholders, except upon the unanimous consent
of all the stockholders entitled to notice thereof.
Sec. 3. VOTING. At all meetings of the Stockholders of record having
the right to vote, each stockholder of the corporation is entitled to one vote
for each share of stock having voting power standing in the name of such
stockholder on the books of the company. Vote may be cast in person or by
written authorized proxy.
Sec. 4. PROXY. Each proxy must be executed in writing by the
stockholder of the corporation or his duly authorized attorney. No proxy shall
be valid after the expiration of eleven month from the date of its execution
unless it shall have specified therein its duration.
-2-
<PAGE>
Every proxy shall be revocable at the discretion of the person
executing it or of his personal representatives or assigns.
Sec. 5. QUORUM. The presence in person or by proxy, of the holders of a
majority of the stock issued and outstanding entitled to vote shall be necessary
to constitute a quorum at all meetings of the stockholders for the transaction
of business, but a lesser number may adjourn to some future time by giving at
least 5 days' written notice to each stockholder entitled,to vote who was absent
from such meeting.
Article II
DIRECTORS
Sec. 1. NUMBER. The affairs and business of this corporation shall be
managed by a Board of Directors composed of not less then 3 nor more than 10
members v;ho need not be stockholders of record, at at least one of such
Directors shall be a resident of the State of Idaho, and a citizen of the United
States*
Sec. 2. HOW ELECTED. At the annual meeting of Stockholders, the persons
receiving a plurality of the votes cast shall be directors and shall constitute
the Board of Directors for the ensuing year.
Sec. 3. TERM OF OFFICE. The term of office of each of the Directors
shall be one year, and thereafter until his successor has been elected.
Sec. 4. DUTIES. The Board of Directors shall have the control and
general management of the affairs and business of the corporation. Such
Directors shall in all cases act as a Board, regularly convened, by a majority,
and they may adopt such rules and regulations for the conduct of their meetings
and the management of the Company, as they may deem proper, not inconsistent
with these By-Laws and the Laws of the State of Idaho.
Sec. 5. DIRECTOR'S MEETINGS, Regular meetings of the Board of Directors
shall be held immediately following the annual meeting of the stockholders, and
at such other times as the Board of Directors may determine. Special meetings of
the Board of Directors may be called by the President at any time, and shall be
called by the President or the Secretary upon the written request of 2
directors.
Sec. 6. NOTICE OF @IEE-TINGS, Notice of meetings, other than the
regular annual meeting shall be given by service upon each Director in person,
or by mailing to him at his last known post office address, at least 5 days
before the date therein designated for such meeting, including the day of
mailing, or a written or printed notice thereof specifying the time and place of
such meeting, and the business to be brought before the meeting and no business
other than that specified in such, notice shall be transacted at any special
meeting. At any meeting at which every member of the Board of Directors shall be
present, although held without notice, any business may be transacted which
might have been transacted if the meeting had been duly called. The Board of
Directors, acting in its capacity as such, shall be empowered from time to time,
to purchase property of any nature or description for cash, credit, or by
exchange of the unissued capital stock of the corporation. However, in the event
that any unissued stock shall be exchanged for property, such transfers shall be
subject to all applicable rules and regulations of the Securities & Exchange
Commission, pursuant to the Securities Act of 1933.
-3-
<PAGE>
Sec. 7. VOTING. At all meeting of the Board of Directors, each Director
is to have one vote, irrespective of the number of shares of stock that he may
hold. The Act of a majority of the Directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
Sec. 8. VACANCIES. Vacancies in the Board occurring between annual
meetings shall be filled for the unexpired portion of the terms by a majority of
the remaining Directors.
Sec. 9. REMOVAL OF DIRECTORS. Any one or more of the Directors may be
removed either with or without cause, at any time by a vote of the stockholders
holding a majority of the stock, at any special meeting called for the purpose.
Sec. 10. WAIVER OF NOTICE. Whenever by statute, the provisions of the
Certificate of Incorporation or these By-Laws the stockholders or the board of
Directors are authorized to take any action after notice, such notice of the
meeting, by the person or persons entitled to such notice, or, in the case of a
stockholder, by his attorney thereunto authorized.
Sec. 11. QUORUM. At any meeting of the Board of Directors, a majority
of the Board shall constitute a quorum for the transaction of business; but in
the event of a quorum not being present, a less number may adjourn the meeting
to some future time, not more than 10 days later.
Sec. 12. EXECUTIVE COMMITTEE. There shall be appointed by the board of
Directors an Executive Committee comprised of not less than 2 nor more than 3,
whom shall included the President and who shall meet when deemed necessary to
have and exercise and who shall meet when deemed necessary to have and exercise
all of the powers of the whole board in the general management all of the powers
of the whole board in the general management of the business affairs of the
corporation, and to have and exercise such further powers as from time in time
may be delegated to it by the whole Board.
Sec. 13. The powers and duties herein delegated to the Board of
Directors are specifically limited to and enlarged to the extent of the
statutory authority delegated to the corporation pursuant to Sec 30-139 of the
Idaho Code.
ARTICLE III
Sec. 1. NUMBER. The officers of this corporation shall be:
President
One or more but not more than 2 Vice-Presidents
Secretary
Treasurer
Any two of said offices, except the Presidency, may be
combined.
Sec. 2. ELECTIONS: All officers of the corporation shall be elected
annually by the Board of Directors at its meeting held immediately after the
meeting of stockholders,
-4-
<PAGE>
hold office for the term of one year or until their successors are duly elected.
The President and First Vice-President must be directors, but the other officers
need not be directors.
The Board may appoint such other officers, agents and employees as it
shall deem necessary who shall have such authority any shall perform such duties
as from time to time shall be prescribed by the Board.
Sec. 3. DUTIES OF OFFICERS. The duties and powers of the officers of
the company shall be as follows:
PRESIDENT
The President shall preside at all meetings of the Board of Directors
and Stockholders.
He shall present at each annual meeting of the stockholders and
directors a report of the condition of the business of the company.
He shall cause to be called regular and special meetings of the
stockholders and directors in accordance with these By-Laws.
He shall appoint and remove, employ and discharge, and fix the
compensation of all servants, agents, employees, clerks of the corporation other
than the duly appointed officers, subject to the approval of the Board of
Directors.
He shall shall sign and make all contract and agreement in the name
of the corporation.
He shall see that the books, reports, statements and certificates
required by the statutes are properly kept, made filed, according to law.
He shall sign all certificates of stock, notes, drafts or bills of
exchange, warrants or other orders for the payment of money duly drawn by the
Treasurer.
He shall enforce these By-Laws and perform all the duties incident to
the position and office, and which are required by law.
VICE-PRESIDENT
During the absence or inability of the President to render and perform
his duties or exercise his powers, as set forth in these By-Laws or in the act
under which this corporation is organized, the same shall be performed and
exercised by the Vice-President; and when so acting, he shall have all the
powers and be subject to all the responsibilities hereby given to or imposed
upon such President.
SECRETARY
The Secretary shall keep the minutes of the meetings of the
-5-
<PAGE>
Board of Directors and of the Stockholders in appropriate books.
He shall give and serve all notices of the corporation.
He shall be custodian of the records and of the seal, and affix the
latter when required.
He shall keep the stock and transfer books in the manner prescribed by
law, so as to show at all times the amount of capital stock, the manner and the
time the same was paid in, the names of the owners thereof, alphabetically
arranged, their respective places of residence, their post office addresses, the
number of shares owned by each, the itme at which each person became such owner,
and the amount paid thereof; and keep such stock and transfer books open daily
during busisness hours at the office of the corporation, subject to the
inspection of any stockholder of the corporation, and permit such stockholder to
make extracts from said books to the extent and as prescribed by law.
He shall sign all certificate of stock.
He shall present to the Board of Directors at their stated meetings all
communications addressed to him officially by the President or any officer of
shareholder of the corporation.
He shall attend to all correspondence and perform all the duties
incident to the office of Secretary.
TREASURER
The Treasurer shall have the care and custody of and be responsible for
all the funds and securities of the corporation and deposit all such funds in
the name of the corporation in such bank or banks, trus,*t" company or trust
companies, or safe deposit vaults as the Board of Directors may designate.
He shall sign, make, and endorse in the name of the corporation all
checksp draftss warrants and orders for the payment of money, and pay out and
dispose of same and receipt therefore under the direction of the President or
the Board of Directors.
He shall exhibit at all reasonable times his books and accounts to any
director or stockholder of the company upon application at the office of the
corporation during business hours.
He shall render a statement of the condition of the finances of the
corporation at each regular meeting of the Board of Directors, and at such other
times as shall be required of him, and a full financial report at the annual
meeting of the stockholders.
He shall keep at the office of the corporation correct bookst of
account of all its business and transactions and such other books of account as
the Board of Directors way require.
He shall do and perform all duties appertaining to the office of
Treasurer.
-6-
<PAGE>
ARTICLE IV
CERTIFICATES OF STOCK
Sec. 1. DESCRIPTION OF STOCK CERTIFICATES. The certificates of stock
shall be numbered and registered in the order in which they are issued. They
shall be bound in a book an shall be issued in consecutive order therefrom, and
in the margin thereof shall be entered the name of the person owning the shares
therein represented, with the number of shares and the date thereof. Such
certificates shall exhibit the holder's name and the number of shares. They
shall be signed by the President of Vice-President, and countersigned by the
Secretary or Treasurer and sealed with the seal of the corporation.
Sec. 2. TRANSFER OF STOCK. The stock of the corporation shall be
assignable and transferable on the books of the corporation only by the person
in whose name it appears on said books, his legal representative or by his duly
authorized agent. In case of transfer by attorney, the power of attorney, duly
executed and acknowledged, shall be deposited with the Secretary. In all cases
of transfer, the former certificate must be surrendered up and cancelled before
a new certificate be issued. No transfer shall be made upon the books of the
corporation within ten days next preceding the annual meeting of the
shareholders.
Sec. 3. LOST CERTIFICATES. If a stockholder shall claim to have lost or
destroyed a certficate or certficates of stock issued by the corporation, the
Board of Directors may direct at its discretion, a new certficate or certficates
issued, upon the making of an affidavit of that fact by the person claiming the
certficate of stock to be lost or destroyed, and upon the deposit of a bond or
other indemnity in such form and with such sureties???? if any as the Board may
require.
-6-
<PAGE>
Sec. 4. BOND. The Treasurer shall, if required by the Board of
Directors, give to the corporation such security for the faithful discharge of
his duties as the Board may direct.
Sec. 5. VACANCIES, HOW FILLED. All vacancies in any office, shall be
filled by the Board of Directors without undue for that purpose. In the case of
the absence of any officer of the corporation, or for any reason that the Board
of Directors may deem sufficient, the Board may, except as specifically
otherwise provided in these By-Laws, delegate the powers or duties of such
officers to any other officer or director for the time being, provided a
majority of the entire Board concur therein.
Sec. 6. COMPENSATION OF OFFICERS. The officers shall receive such
salary or compensation as may be determined by the Board of Directors.
Sec. 7. REMOVAL OF OFFICERS. The Board of Directors may remove any
officer by a majority vote, at any time with or without cause.
-7-
<PAGE>
ARTICLE V
Sec. 1. SEAL. The Seal of the corporation shall be as follows:--
ARTICLE VI
DIVIDENDS
Sec. 1. WHEN DECLARED. The Board of Directors shall by vote declare
dividends from the surplus profits of the corporation whenever, in their
opinion, the condition of the corporation's affairs will render it expedient for
such dividends to be declared.
Sec. 2. RESERVE. The Board of Directors may set aside out of the net
profits of the corporation available for dividends, such sum or sums, before
payment of any dividend, as the Board in their absolute discretion think proper
as a reservelfund, to meet contingencies, or for equalizing dividends, or for
repairing or maintaing any property of the corporation, or for such other
purposes as the Directors shall think conducive to the interests of the
corporation, and they may abolish or modify any such reserve in the manner in
which it was created.
ARTICLE VII
BILLS, NOTES, ETC.
Sec. 1. HOW MADE. All bills, payable, notes, checks, drafts, warrants,
or other negotiable instruments of the corporation shall be made in the name of
the corporation, and shall be signed by the Secretary or Treasurer and
countersigned, by the President or Vice-President. No officer or agent of the
corporation, either singly or jointly with others, shall have the power to make
any bill payable, note, check, draft or warrant or other negotiable instrument,
or endorse the same in the name of the corporation, or contract or cause to be
contracted any debt or liability in the name or in behalf of the corporation,
except as herein expressly prescribed and provided.
ARTICLE VIII
AMENDMENTS
Sec. 1. HOW AMENDED. These By-Laws may be altered, amended, repealed or
added to by the vote of the Board of Directors of this corporation at any
regular meeting of said Board, or at a special meeting of Directors called for
that purpose provided
-8-
<PAGE>
a quorum of the Directors as provided by law and by the Certficate of
Incorporation, are present at such regular or special meeting. These By-Laws,
and any amdendments thereto, and new By-laws added by the Directors, may be
amended, altered or replaced by the stockholders at any annual or special
meeting of the Stockholders.
ARTICLE IX
FISCAL YEAR
Sec. 1. The fiscal year shall begin on the 1st day of each calender
year and end on the last day of each calendar year, except that the first year
of operation shall commence on the date of the approval of the corporation, and
shall end on the last day of that calendar year.
The above and foregoing By-laws were adopted unanimously by the Board of
Directors of VIRGINIA CITY GOLD MINES, INC. at a special called meeting held at
1401 Northwest Blvd., Spokane, Wn., on the 22nd day of April, 1970.
Dated: April 22, 1970
VIRGINIA CITY GOLD MINES, INC.
By: /s/ Ernest W. Erickson
-------------------------------------
President
Attest:
/s/ Glenn M. Wheeler
- -------------------------------
Secretary-Treasurer
/s/ Ernest W. Erickson /s/ Lyle L. Einhaus
- ------------------------------- ----------------------------------
/s/ Glenn M. Wheeler /s/ W. Duane Lumley
- ------------------------------- ----------------------------------
/s/ Arthur P. Dammarell
- ------------------------------- ----------------------------------
Directors
-9-
AGREEMENT made this 1st day of April, 1999 between NewAgeCities.com, Inc.,
hereafter referred to as the "Corporation," and Joseph Ardito Jr,. hereinafter
referred to as the "Employee."
W I T N E S S E T H:
In consideration of the mutual convenants and agreements
herein contained, the parties hereto agree as follows:
1. A. The Corporation shall employ the Employee and the Employee agrees to
be employed by the Corporation as Chief Executive Officer, for a period of two
(2) years beginning April 1, 1999 and ending March 31, 2001 at a salary at the
rate of $ 85, 000.00 per annum for the period April 1, 1999 and ending March 31,
2000 and at the rate of $106, 000.00 per annum for the period April 1, 2000 and
ending March 31, 2001 payable in equal biweekly installments during the life of
this Agreement. The Employee shall perform all duties that are assigned by the
Corporation, and the Employee acknowledges that the position may be changed and
the duties may be increased, decreased, or otherwise modified at any time in the
sole discretion of the Corporation.
B. In addition to the salary set forth above, the employee shall be
paid a bonus of up to twenty-five percent (25%) of the base salary of the prior
contract year. Said amount to be determined and approved by the Corporation's
Board of Directors. Bonus is to be paid within thirty (30) days of the
completion of each contract year (March 31).
C. At the completion of each contract year (March 31), the employee
will be offered options to purchase 20,000 shares of company stock at a price of
$2.00 per share.
2. The Employee will devote full time and use best efforts in furtherance
of the business of the Corporation and will not be engaged or employed, directly
or indirectly, in any other business or enterprise which in any way conflicts
with the business interests of the Corporation. The Employee has no commitment
or obligation of any kind which is inconsistent with the performance of his or
her duties under this Agreement
3. The Employee will promptly disclose to the Corporation all inventions,
ideas, designs, methods, systems, improvements, formulae or processes conceived
by the Employee, solely or jointly with others, whether or not patentable, which
in any way concern or relate to the business of the Corporation or to the
industries of which the Corporation is a part, and to execute all instruments
necessary to effect disclosure, assignment and patent protection thereof.
4. Employee shall not during or after the expiration or termination of
this Agreement, use, divulge, furnish or make accessible to any person, firm,
corporation or other business entity, any trade secret, technical data, or
proprietary matter relating to the business, practices, methods, or any
confidential or secret aspect of the business of the Corporation.
5. A. This Agreement shall continue in full force and effect for the
period set forth in Paragraph 1, unless sooner terminated:
i. the death of the Employee, in which case the effective date
of termination shall be the Employee's date of death, on which date the
payment of compensation shall cease.
ii. for cause only, in which case the effective date of
termination shall be the date the payment of compensation shall cease;
2
<PAGE>
iii. for disability, in which case, the employee shall be paid
the regular salary for a period of up to six (6) months.
B. If the corporation does not renew the agreement after the initial
two (2) year tem, a severance payment of six (6) months salary shall be paid to
the employee in lump sum.
7. The Employee shall bear all expenses incurred in connection with the
performance of duties hereunder, without reimbursement by the Corporation,
except those expenses, if any, for which reimbursement will be expressly
authorized, it being understood and agreed that the termination fixed in this
Agreement includes all unreimbursed expenses.
8. This Agreement shall not be renewable, except in writing and signed by
both parties. In the event the Employee shall remain in the employ of the
Corporation on and after the expiration date hereof, without a written agreement
covering a definite extended period, such continuing employment shall be at the
compensation rate set forth above and shall be terminable at the will of either
party.
9. All notices under this Agreement shall be in writing and if to the
Corporation, will be duly given if sent by certified or registered mail, return
receipt requested, to it at New AgeCities.com, Inc., 1181 S. Rogers Circle,
Suite 5, Boca Raton, Florida 33487 (Attn: Stanley Siegel) and, if to the
Employee, will be duly given if sent by certified or registered mail, return
receipt requested, to the Employee's last known address, or to such other
addresses as either party may hereafter designate in writing for this purpose.
10. This Agreement, and all of the Corporation's personnel policies and
practices in effect from time to time, constitute the entire understanding
between the parties, and supersede all prior or contemporaneous verbal or
written agreements or communications. The Corporation, in its sole discretion,
shall have the right to maintain or establish, and to revise, alter, amend or
terminate any personnel policy or practice with or without prior notice to the
Employee. No modification hereof shall be valid unless in writing and signed by
the Employee and an executive officer of the Corporation, and no discharge of
the terms hereof shall be deemed valid unless by full performance or in writing
and signed by both parties. Any waiver by the Corporation of any provision or
condition of this Agreement to be performed by the Employee shall not constitute
a continuing waiver, and the Corporation shall always retain the right to insist
upon full and complete performance of all the provisions and conditions hereof.
11. This Agreement is made in the State of Florida and shall be governed
and construed exclusively and entirely in accordance with the laws of the State
of Florida. It shall inure to the benefit of, and be binding upon, the
Corporation, its successors and assigns, and upon the Employee, the Employee's
heirs, executors, administrators and legal representative. It shall not be
assignable by the Employee without the express written consent of the
Corporation, but may be readily assignable by the Corporation. All references
herein to the Corporation shall be deemed to include all subsidiaries, divisions
and affiliates of the Corporation, both presently existing and hereafter formed.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
set forth above.
NewAgeCities.com,Inc.
By _________________
____________________
Employee
2
AGREEMENT made this 1st day of April, 1999 between NewAgeCities.com, Inc.,
hereafter referred to as the "Corporation," and Kenneth D Shenkman, hereinafter
referred to as the "Employee."
W I T N E S S E T H:
In consideration of the mutual convenants and agreements
herein contained, the parties hereto agree as follows:
1. A. The Corporation shall employ the Employee and the Employee agrees to
be employed by the Corporation as President, for a period of two (2) years
beginning April 1, 1999 and ending March 31, 2001 at a salary at the rate of $
60, 000.00 per annum for the period April 1, 1999 and ending March 31, 2000 and
at the rate of $75, 000.00 per annum for the period April 1, 2000 and ending
March 31, 2001 payable in equal biweekly installments during the life of this
Agreement. The Employee shall perform all duties that are assigned by the
Corporation, and the Employee acknowledges that the position may be changed and
the duties may be increased, decreased, or otherwise modified at any time in the
sole discretion of the Corporation.
B. In addition to the salary set forth above, the employee shall be
paid a bonus of up to twenty-five percent (25%) of the base salary of the prior
contract year. Said amount to be determined and approved by the Corporation's
Board of Directors. Bonus is to be paid within thirty (30) days of the
completion of each contract year (March 31).
C. At the completion of each contract year (March 31), the employee
will be offered options to purchase 20,000 shares of company stock at a price of
$2.00 per share.
2. The Employee will devote full time and use best efforts in furtherance
of the business of the Corporation and will not be engaged or employed, directly
or indirectly, in any other business or enterprise which in any way conflicts
with the business interests of the Corporation. The Employee has no commitment
or obligation of any kind which is inconsistent with the performance of his or
her duties under this Agreement
3. The Employee will promptly disclose to the Corporation all inventions,
ideas, designs, methods, systems, improvements, formulae or processes conceived
by the Employee, solely or jointly with others, whether or not patentable, which
in any way concern or relate to the business of the Corporation or to the
industries of which the Corporation is a part, and to execute all instruments
necessary to effect disclosure, assignment and patent protection thereof.
4. Employee shall not during or after the expiration or termination of
this Agreement, use, divulge, furnish or make accessible to any person, firm,
corporation or other business entity, any trade secret, technical data, or
proprietary matter relating to the business, practices, methods, or any
confidential or secret aspect of the business of the Corporation.
5. A. This Agreement shall continue in full force and effect for the
period set forth in Paragraph 1, unless sooner terminated:
i. the death of the Employee, in which case the effective date
of termination shall be the Employee's date of death, on which date the
payment of compensation shall cease.
ii. for cause only, in which case the effective date of
termination shall be the date the payment of compensation shall cease;
2
<PAGE>
iii. for disability, in which case, the employee shall be paid
the regular salary for a period of up to six (6) months.
B. If the corporation does not renew the agreement after the initial
two (2) year tem, a severance payment of six (6) months salary shall be paid to
the employee in lump sum.
7. The Employee shall bear all expenses incurred in connection with the
performance of duties hereunder, without reimbursement by the Corporation,
except those expenses, if any, for which reimbursement will be expressly
authorized, it being understood and agreed that the termination fixed in this
Agreement includes all unreimbursed expenses.
8. This Agreement shall not be renewable, except in writing and signed by
both parties. In the event the Employee shall remain in the employ of the
Corporation on and after the expiration date hereof, without a written agreement
covering a definite extended period, such continuing employment shall be at the
compensation rate set forth above and shall be terminable at the will of either
party.
9. All notices under this Agreement shall be in writing and if to the
Corporation, will be duly given if sent by certified or registered mail, return
receipt requested, to it at New AgeCities.com, Inc., 1181 S. Rogers Circle,
Suite 5, Boca Raton, Florida 33487 (Attn: Stanley Siegel) and, if to the
Employee, will be duly given if sent by certified or registered mail, return
receipt requested, to the Employee's last known address, or to such other
addresses as either party may hereafter designate in writing for this purpose.
10. This Agreement, and all of the Corporation's personnel policies and
practices in effect from time to time, constitute the entire understanding
between the parties, and supersede all prior or contemporaneous verbal or
written agreements or communications. The Corporation, in its sole discretion,
shall have the right to maintain or establish, and to revise, alter, amend or
terminate any personnel policy or practice with or without prior notice to the
Employee. No modification hereof shall be valid unless in writing and signed by
the Employee and an executive officer of the Corporation, and no discharge of
the terms hereof shall be deemed valid unless by full performance or in writing
and signed by both parties. Any waiver by the Corporation of any provision or
condition of this Agreement to be performed by the Employee shall not constitute
a continuing waiver, and the Corporation shall always retain the right to insist
upon full and complete performance of all the provisions and conditions hereof.
11. This Agreement is made in the State of Florida and shall be governed
and construed exclusively and entirely in accordance with the laws of the State
of Florida. It shall inure to the benefit of, and be binding upon, the
Corporation, its successors and assigns, and upon the Employee, the Employee's
heirs, executors, administrators and legal representative. It shall not be
assignable by the Employee without the express written consent of the
Corporation, but may be readily assignable by the Corporation. All references
herein to the Corporation shall be deemed to include all subsidiaries, divisions
and affiliates of the Corporation, both presently existing and hereafter formed.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
set forth above.
NewAgeCities.com,Inc.
By _________________
____________________
Employee
AGREEMENT made this 3st day of April, 1999 between NewAgeCities.com, Inc.,
hereafter referred to as the "Corporation," and Stanley Siegel, hereinafter
referred to as the "Employee."
W I T N E S S E T H:
In consideration of the mutual convenants and agreements
herein contained, the parties hereto agree as follows:
1. A. The Corporation shall employ the Employee and the Employee agrees to
be employed by the Corporation as Chief Financial Officer, for a period of two
(2) years beginning April 1, 1999 and ending March 31, 2001 at a salary at the
rate of $ 50, 000.00 per annum for the period April 1, 1999 and ending March 31,
2000 and at the rate of $62, 500.00 per annum for the period April 1, 2000 and
ending March 31, 2001 payable in equal biweekly installments during the life of
this Agreement. The Employee shall perform all duties that are assigned by the
Corporation, and the Employee acknowledges that the position may be changed and
the duties may be increased, decreased, or otherwise modified at any time in the
sole discretion of the Corporation.
B. In addition to the salary set forth above, the employee shall be
paid a bonus of up to twenty-five percent (25%) of the base salary of the prior
contract year. Said amount to be determined and approved by the Corporation's
Board of Directors. Bonus is to be paid within thirty (30) days of the
completion of each contract year (March 31).
C. At the completion of each contract year (March 31), the employee
will be offered options to purchase 20,000 shares of company stock at a price of
$2.00 per share.
2. The Employee will devote full time and use best efforts in furtherance
of the business of the Corporation and will not be engaged or employed, directly
or indirectly, in any other business or enterprise which in any way conflicts
with the business interests of the Corporation. The Employee has no commitment
or obligation of any kind which is inconsistent with the performance of his or
her duties under this Agreement The Employee may perform his duties and
responsibilities from outside of the Corporate office, but will be available to
return to the office as needed.
3. The Employee will promptly disclose to the Corporation all inventions,
ideas, designs, methods, systems, improvements, formulae or processes conceived
by the Employee, solely or jointly with others, whether or not patentable, which
in any way concern or relate to the business of the Corporation or to the
industries of which the Corporation is a part, and to execute all instruments
necessary to effect disclosure, assignment and patent protection thereof.
4. Employee shall not during or after the expiration or termination of
this Agreement, use, divulge, furnish or make accessible to any person, firm,
corporation or other business entity, any trade secret, technical data, or
proprietary matter relating to the business, practices, methods, or any
confidential or secret aspect of the business of the Corporation.
5. A. This Agreement shall continue in full force and effect for the
period set forth in Paragraph 1, unless sooner terminated:
i. the death of the Employee, in which case the effective date
of termination shall be the Employee's date of death, on which date the
payment of compensation shall cease.
ii. for cause only, in which case the effective date of
termination shall be the date the payment of compensation shall cease;
<PAGE>
iii. for disability, in which case, the employee shall be paid
the regular salary for a period of up to six (6) months.
B. If the corporation does not renew the agreement after the initial
two (2) year tem, a severance payment of six (6) months salary shall be paid to
the employee in lump sum.
7. The Employee shall bear all expenses incurred in connection with the
performance of duties hereunder, without reimbursement by the Corporation,
except those expenses, if any, for which reimbursement will be expressly
authorized, it being understood and agreed that the termination fixed in this
Agreement includes all unreimbursed expenses.
8. This Agreement shall not be renewable, except in writing and signed by
both parties. In the event the Employee shall remain in the employ of the
Corporation on and after the expiration date hereof, without a written agreement
covering a definite extended period, such continuing employment shall be at the
compensation rate set forth above and shall be terminable at the will of either
party.
9. All notices under this Agreement shall be in writing and if to the
Corporation, will be duly given if sent by certified or registered mail, return
receipt requested, to it at New AgeCities.com, Inc., 1181 S. Rogers Circle,
Suite 5, Boca Raton, Florida 33487 (Attn: Stanley Siegel) and, if to the
Employee, will be duly given if sent by certified or registered mail, return
receipt requested, to the Employee's last known address, or to such other
addresses as either party may hereafter designate in writing for this purpose.
10. This Agreement, and all of the Corporation's personnel policies and
practices in effect from time to time, constitute the entire understanding
between the parties, and supersede all prior or contemporaneous verbal or
written agreements or communications. The Corporation, in its sole discretion,
shall have the right to maintain or establish, and to revise, alter, amend or
terminate any personnel policy or practice with or without prior notice to the
Employee. No modification hereof shall be valid unless in writing and signed by
the Employee and an executive officer of the Corporation, and no discharge of
the terms hereof shall be deemed valid unless by full performance or in writing
and signed by both parties. Any waiver by the Corporation of any provision or
condition of this Agreement to be performed by the Employee shall not constitute
a continuing waiver, and the Corporation shall always retain the right to insist
upon full and complete performance of all the provisions and conditions hereof.
11. This Agreement is made in the State of Florida and shall be governed
and construed exclusively and entirely in accordance with the laws of the State
of Florida. It shall inure to the benefit of, and be binding upon, the
Corporation, its successors and assigns, and upon the Employee, the Employee's
heirs, executors, administrators and legal representative. It shall not be
assignable by the Employee without the express written consent of the
Corporation, but may be readily assignable by the Corporation. All references
herein to the Corporation shall be deemed to include all subsidiaries, divisions
and affiliates of the Corporation, both presently existing and hereafter formed.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
set forth above.
NewAgeCities.com,Inc.
By _________________
____________________
Employee
2
INDUSTRIAL REAL ESTATE LEASE
----------------------------
CONDOR PLACE
------------
ARTICLE ONE: BASIC TERMS
-----------
This Article One contains the Basic Terms of this Lease between the Landlord and
Tenant named below: Other Articles, Sections, Paragraphs and Exhibits of the
Lease referred to in this Airticle One explain and define the Basic Terms and
are to be read in conjunction with the Basic Terms.
Section 1.01. Date of Lease: April 1, 1999
-------------
Section 1.02. Landlord: R. A. LaPointe, Trustee
---------
Address of Landlord: C/O Penn-Florida Capital Corp., 1515
North Federal Highway, Suite 306, Boca Raton, Florida 33432
Section 1.03. Tenant: New Age Cities. Corn, Inc. (a Florida corporation)
-------
Tenant Mailing Address: 6016 Amberwoods Drive, Boca Raton,
Florida, 33433.
Section 1.04. Property: I 1 81 South Rogers Circle - Unit #5, Boca Raton,
---------
Florida 33487-2710.
Approximately 2,326 r.s.f.. of floor area within a 78,420 sq.R.
office/warehouse type complex.
Section 1.05 Lease Term: Three (3) years (36) months, commencing on April 15,
-----------
1999 and ending on April 30, 2002.
Section 1.06. Permitted Uses: (See Article 5) Storage and distribution of
---------------
provided materials and its related services.
Section 1.07. Landlord's Broker: (See Article 14) Penn-Florida Realty Corp.
------------------
Section 1.08. Tenant's Broker: (See Article 14) Re/Max Select Boca
----------------
Section 1.09. Commission Payable to Landlord's Broker: (See Article 14)
----------------------------------------
Section 1.1O Initial Securiiy Dgposit: (See Sections 3.03 & 13.02(c) and
Exhibits "C" & Exhibit "D" (1) Three Thousand Eight Hundred
Forty-One Dollars and Seventy-Eight Cents ($3,841.78)
Section 1.11. Vehicle Parkiny Spaces Allocated to Tenant: Three (3) spaces.
-------------------------------------------
Section 1.12. Base Rent and Additional Rent:
------------------------------
(a) Base Rent: Shall be as follows: (i) One Thousand Two Hundred
Fifty-Nine Dollars and Ninety-Two Cents ($1,259.92) per month (i.e. $6.50/SF/YR
$1,259.92 (plus any applicable sales tax) during months 1 through 12, One
Thousand Three Hundred Fifty-Six Dollars and Ninety-Two Cents ($1,356.83) per
month (i.e., $7.00/SF/YR) (plus any applicable sales tax) during months 13
through 24, and One Thousand Four Hundred Fifty-Three Dollars and SeventyFive
Cents ($1,453.75) per month (i.e., $7.50/SF/YR) (plus any applicable sales tax)
during months 25 through 36, as provided in Section 3.01; and (ii) under this
Lease Term shall not be increased in accordance with the increase in the
Consumer Price Index, as provided in Section 3.02.
(b) Additional Rent: Shall be as follows: Four Hundred Sixty-Seven
Dollars and Fourteen Cents ($467.14) per month (i.e., $2.41/SF/YR) (plus any
applicable sales tax) as the initial estimated advance charge payable by Tenant
pursuant to the applicable provisions of Section 4.01 (Additional Rent); Section
4.05 (Multiple Tenant Building - Common Area Charges); Section 4.08 (Impounds
for Insurance Premiums and Property Taxes); and Section 6.04(b) (Maintenance by
Landlord).
April 5, 1999
1
<PAGE>
ARTICLE TWO: LEASE TERM.
-----------
Section 2.01. Lease of Property For Lease Term: Landlord leases the Property to
Tenant and Tenant leases the Property from Landlord for the Lease Term. The
Lease Term is for the period stated in Section 1.05 above and shall begin and
end on the dates specified in Section 1.05 above, unless the beginning or end of
the Lease Term is changed under any provision of this Lease. The "Commencement
Date" shall be the date specified in Section 1.05 above for the beginning of the
Lease Ten-n, unless advanced or delayed under any provision of this Lease.
Section 2.02. Delay in Commencement. Landlord shall not be liable to Tenant if
Landlord does not deliver possession of the Property to Tenant on the first day
specified in Section 1.05 above. Landlord's non-delivery of the Property to
Tenant on that date shall not affect this Lease or the obligations of Tenant
under this Lease. However, the Commencement Date shall be delayed until
possession of the Property is delivered to Tenant. The Lease Term shall be
extended for a period equal to the delay in delivery of possession of the
Property to Tenant, plus the number of days necessary to end the Lease Term on
the last day of a month. If landlord does not deliver possession of the Property
to Tenant within sixty (60) days after the first date specified in Section 1.05
above, Tenant may elect to cancel this Lease by giving written notice to
Landlord within ten (IO) days after the sixty (60) day period ends. If Tenant
gives such notice, the Lease shall be cancelled and neither Landlord nor Tenant
shall have any further obligations to the other. If Tenant does not give such
notice, Tenant's right to cancel the Lease shall expire and the Lease Term shall
commence upon the delivery of possession of the Property to Tenant. If delivery
of possession of the Property to Tenant is delayed, Landlord and Tenant shall,
upon such delivery, execute and amendment to this Lease setting forth the
Commencement Date and expiration date of the Lease.
Section 2.03. Early Occupancy: If Tenant occupies the Property prior to the
Commencement Date, Tenant's occupancy of the Property shall be subject to all of
the provisions of this Lease. Early occupancy of the Property shall not advance
the expiration date of this Lease. Tenant shall pay Base Rent and all other
charges specified in this Lease for the early occupancy period.
Section 2.04. Holding Qver: Tenant shall vacate the Property upon the expiration
or earlier termination of this Lease. Tenant shall reimburse Landlord for and
indemnify Landlord against all damage incurred by Landlord from any delay by
Tenant in vacating the Property. If Tenant does not vacate the Property upon the
expiration or earlier termination of the Lease and Landlord thereafter accepts
rent from Tenant, TenanVs occupancy of the Property shall be a "month-to-month"
tenancy, subject to all of the terms of this Lease applicable to month-to-month
tenancy, except that the Base Rent then in effect shall be increased in
accordance with the maximum allowed by State Law.
ARTICLE THREE: BASE RENT
---------
Section 3.01. Time and Manner of Pament: Unless this Lease provides otherwise,
Tenant agrees to pay Landlord as Base Rent, without notice or demand, the
monthly amount as stated in Paragraph 1. 12(a) (i) in advance, on or before the
first day of each and every successive calendar month during the Lease term
hereof. Rent for any period which is for less than one (1) month shall be a
prorated portion on the monthly installment herein based upon a thirty (30) day
month. Said rental shall be paid to Landlord, without deduction or offset, in
lawful money of the United States of America and payable at Landlord's address
or at such other place as Landlord may from time to time designate in writing.
Section 3.02. The Base Rent shall be increased at the times and in the amounts
specified in Paragraph 1.12(a)(ii) and Exhibit "F" (if made a part of this
Lease) in proportion to the increase in the Index which has occurred between the
first month of the Lease Term and the month in which the rent is to be
increased. For purposes of this Lease, the terms "Consumer Price Index" or
"Index" "CPI" shall refer to the "Consumer Price Index for all Urban Consumers"
- -U.S. City Average-All Items (1982-84=100) as published by the United States
Department of Labor, Bureau of Labor Statistics. Landlord shall notify Tenant of
each increase by delivering a written statement setting forth the Indices for
the appropriate months, the percentage increase between those two Indices, and
the new amount of the Base Rent. The Base Rent shall not be from the last
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previous adjusted Base Rent by reason of any decrease in the Index. Tenant shall
pay the new Base Rent from its effective date until the next periodic increase.
Landlord's notice may be given after the effective date of the increase since
the Index for the appropriate month may be unavailable on the effective date. In
such event, Tenant shall pay Landlord the necessary rental adjustment for the
months elapsed between the effective date of the increase and Landlord's notice
of such increase withinten(IO)daysafterLandlord'snotice.
IfthefonnatorcomponentsfortheIndexarematerially changed after the Date of Lease,
Landlord shall substitute and index which is published by the Bureau of Labor
Statistics or similar agency and which is most nearly equivalent to the Index in
effect on the Date of Lease. Landlord shall notify Tenant of the substituted
index, which shall be used to calculate the increase in the Base Rent unless
Tenant objects in writing within ten (10) days after receipt of Landlord's
notice. If Tenant objects, the substitute Index shall be determined in
accordance with the rules and regulations of the American Arbitration
Association. The cost of such arbitration shall'be bome equally by Landlord and
Tenant.
Section 3.03. Security Deposit and Last Months Rent Increase: Unless the Lease
provides otherwise, each time the Base Rent is increased, Tenant shall deposit
additional funds with Landlord sufficient to increase the Security Deposit and
Last Months Rent to an amount which bears the same relationship to the adjusted
Base Rent as the initial Security Deposit and Last Months Rent bore to the
initial Base Rent.
Section 3.04. Termination: Advance Payments: Upon termination of this Lease
under Article Seven (Damage or Destruction), Article Eight (Conden-mation) or
any other termination not resulting from Tenant's default, and after Tenant has
vacated the Property in the manner required by this Lease, an equitable
adjustment shall be made concerning advance rent, any other advance payments
made by Tenant to Landlord, and accrued real property taxes, and Landlord shall
refund the unused portion of the Security Deposit to Tenant or Tenant's
successor.
ARTICLE FOUR: ADDITIONAL RENT; OTHER CHARGES PAYABLE BY TENANT.
-------------------------------------------------
Section 4.01. Additional Rent. All charges payable by Tenant other than Base
Rent are called "Additional Rent". The term "Rent" shall mean Base Rent and
Additional Rent.
Additional Rent shall be based on that percent of the total operating cost as
the Tenant's total floor area bears to the gross leasable floor area of that
portion of the complex owned by Landlord.
Unless this Lease provides otherwise, all Additional Rent shall be due on or
before the first day of each month in advance. Tenant shall continue to make
said monthly payments, according to Section 1. 12(b), until notified by Landlord
of a change thereof. At the beginning of each calendar year, Landlord shall
submit to Tenant a new statement of the anticipated monthly Additional Rent for
the then current year, which statement shall be based upon the actual expenses
incurred for the previous twelve (I 2) month period, and in any year in which
resurfacing, re-roofing, repainting or other major repair or replacement is
contemplated, Landlord shall be permitted to include the anticipated cost of
same as part of the estimated monthly Additional Rent. Unless this Lease
provides otherwise, if Landlord deten-nines at any time that the anticipated
monthly Additional Rent payments being made by Tenant for the then current year
are, or will become, inadequate to pay for the Additional Rent due for such
year, for any reason, Landlord shall have the right to determine the approximate
amount of such inadequacy and to issue a supplemental estimate of Tenant's
anticipated monthly Additional Rent, and Tenant shall pay said increase in the
anticipated monthly Additional Rent as shown by such supplemental estimate.
Failure of Landlord to submit statements as called for herein shall not be
deemed to be a waiver of Tenant's requirement to pay sums as herein provided.
Section 4.02. Real Property Taxes:
--------------------
(a) Payment of Taxes. Tenant shall pay all real property taxes on
the Property during the Lease Term. Subject to Paragraph 4.02(c) and Section
4.08 below, such payment shall be considered a portion of Additional Rent and
paid according to the conditions set forth in Paragraph 4.01 above. Tenant shall
reimburse Landlord for the amount of such tax payment as Additional Rent.
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(b) Definition of "Real Prol2erty Taxes". "Real Property Tax"
means: (i) Any fee, license fee, license tax, business license fee, commercial
rental tax, levy, charge, assessment, penalty or tax imposed by any taxing
authority against the Property or land upon which the Property is located, (ii)
Any tax on the Landlord's right to receive, or the receipt of, rent or income
from the Property or against Landlord's business of leasing the Property, (iii)
Any tax or charge for fire protection, streets, sidewalks, road maintenance,
refuse or other services provided to the Property by any govemmen tal agency;
(iv) Any tax imposed upon this transaction or based upon a reassessment of the
Property due to a change in ownership or transfer of all or part of Landlord's
interest in the Property; and (v) Any charge or fee replacing any tax previously
included within the definition of real property tax. "Real Property Tax" does
not, however, include Landlord's federal or state income, franchise, inheritance
or estate taxes.
(c) Joint Assessment. If the Property is not separately assessed,
Tenant's share of the real property tax payable by Tenant under Paragraph
4.02(a) shall be determined from the assessors worksheets or other reasonably
available information. Landlord shall make a reasonable determination of
Tenant's proportionate share of such real property tax and Tenant shall pay such
share to Landlord within ten (10) days after receipt of Landlord's written
statement.
(d) Personal Property Taxes.
------------------------
(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxed separately from the Property.
(ii) If any of Tenant's personal property is taxed with the
Property, Tenant shall pay Landlord the taxes for the personal property within
ten (10) days after Tenant receives a written statement from Landlord for such
personal property taxes.
(e) Tenant's Ri2ht to Conteg Taxes. Tenant may attempt to have the
assessed valuation of the Property reduced or may initiate proceedings to
contest the real property taxes. If required by law, Landlord shall join in the
proceedings brought by Tenant. However, Tenant shall pay all costs of the
proceedings, including any costs or fees incurred by Landlord. Upon the final
determination of any proceeding or contest, Tenant shall immediately pay the
real property taxes due, together with all costs, charges, interest and
penalties incidental to the proceedings. If Tenant does not pay the real
property taxes when due and contests such taxes, Tenant shall not be in default
under this Lease for nonpayment of such taxes if Tenant deposits funds with
Landlord or opens an interest bearing account reasonably acceptable to Landlord
in the joint names of Landlord and Tenant. The amount of such deposit shall be
sufficient to pay the real property taxes plus a reasonable estimate of the
interest, costs, charges and penalties which may accrue if Tenant's action is
unsuccessful, less any applicable tax impounds previously paid by Tenant to
Landlord. The deposit shall be applied to the real property taxes due, as
deten-nined at such proceedings. The real property taxes shall be paid under
protest from such deposit if such payment under protest is necessary to prevent
the Property from being sold under a "tax sale" or similar enforcement
proceeding.
Section 4.03. Utilities: Tenant shall pay, directly to the appropriate supplier,
the cost of all natural gas, heat, light, power, sewer service, telephone,
water, refuse disposal and other utilities and services supplied to the
Property. However, if any services or utilities are jointly metered with other
property, Landlord shall make a reasonable deten-nination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within ten (1O) days after receipt of Landlord's
written statement.
Section 4.04. Insurance and Indemnity:
------------------------
(a) Insuring Party, As used in this Section 4.04, the term
"insuring party" shall mean the party who has the obligation to obtain the
Property insurance required hereunder. The insuring party under this Lease shall
be the Landlord. As the insuring party, Landlord shall also maintain the
liability insurance described in Section 4.04(b), but Landlord shall not be
required to name Tenant as an addtional insured on such policy. Whether the
insuring party is the Landlord or the Tenant,
April 5, 1999
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Tenant shall, as additional rent for the Property, pay the cost of all insurance
required hereunder, except for that portion of the cost attributable to
Landlord's liability insurance coverage in excess of $ 1,000,000 per occurrence.
Since the Landlord is the insuring party Tenant shall, within ten (IO) days
following demand by Landlord, reimburse Landlord for the cost of the insurance
so obtained.
(b) Liabiliiy Insurance, Tenant shall, at Tenant's sole cost and
expense, obtain and keep in force during the term of this Lease a policy of
Combined Single Limit, Bodily Injury and Property Damage insurance insuring
Landlord and Tenant against any liability arising out of the ownership, use,
occupancy or maintenance of the Property and all areas appurtenant thereto. Such
insurance shall be combined single limit policy in an amount not less than
$500,000 per occurrence. The policy shall insure performance by Tenant of the
indemnity provision of this Section 4.04. The limits of said insurance shall
not, however, limit the liability of Tenant hereunder. Executed copies of such
policies'of insurance or certificates thereof shall be delivered to the Landlord
within thirty (30) days after commencement of this Lease.
(c) Property Insurance.
-------------------
(i) The insuring party shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or damage
to the Property, in the amount of the full replacement value thereof, as the
same may exist from time to time, but in no event less than the total amount
required by lenders having liens on the Property, against all perils included
within the classification of fire, extended coverage, vandalism, malicious
mischief, flood (in the event same is required by a lender having a lien on the
Property), and special extended perils ("all risk" as such term is used in the
insurance industry). Said insurance shall provide for a payment of loss
thereunder to Landlord or to the holder of mortgages or deeds of trust on the
Property. The insuring party shall, in addition, obtain and keep in force during
the term of this Lease a policy of rental value insurance covering a period of
one year, with loss payable to Landlord, which insurance shall also cover all
real estate taxes and insurance costs for said period. If the insuring party
shall fail to procure and maintain said insurance the party may, but shall not
be required to, procure and maintain the same, but at the expense of Tenant. If
such insurance coverage has a deductible clause, the deductible amount shall not
exceed $1,000 per occurrence, and upon each occurrence Tenant shall be liable
for the deductible amount only to the extent of Tenant's proportional share of
the overall damage as it effects Tenant's leased Premises.
(ii) If the Property is a part of a larger building, or if the
Property is a part of a group of buildings owned by Landlord which are adjacent
to the Property, then Tenant shall pay for any increase in the property
insurance of such other building or buildings if said increase is caused by
Tenant's acts, omissions, use or occupancy of the Property.
(iii) The Landlord shall not insure Tenant's fixtures,
equipment or tenant improvements unless the tenant improvements have become a
part of the Property under Section 6.05, hereof.
(d) Insurance Policies. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of not less than "A", or such
other rating as may be required by a lender having a lien on the Property, as
set forth in the most current issue of "Best's Insurance Guide." The insuring
party shall deliver to the other party copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses as required by this Section 4.04. No such policy shall be
cancelable or subject to reduction of coverage or other modification except
after thirty (30) days prior to the expiration of such policies, furnish
Landlord with renewals or "binders" thereof, or Landlord may order such
insurance and charge the cost thereof to Tenant, which amount shall be payable
by Tenant upon demand. Tenant shall not do or permit to be done anything which
shall invalidate the insurance policies referred to in Section 4.04(c). If
Tenant does or permits to be done anything which shall increase the cost of the
insurance policies referred to in Section 4.04(c), then Tenant shall forthwith
upon Landlord's demand reimburse Landlord for any additional premiums
attributable to any act or omission or operation of Tenant causing such increase
in the cost of insurance. If Landlord is the insuring party, and if the
insurance policies maintained hereunder cover other improvements in addition to
the Property, Landlord shall deliver to Tenant a written statement setting forth
the amount of any such insurance cost increase and showing in reasonable detail
the manner in which it has been computed.
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<PAGE>
(e) Waiver of Subrogation. Tenant and Landlord each hereby release
and relieve the other, and waive their entire right of recovery against the
other for loss or damage arising out of or incident to the perils insured
against under Section 4.04(c), which perils occur in, on or about the Property,
whether due to the negligence of Landlord or Tenant or their agents, employees,
contractors and/or invitees. Tenant and Landlord shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver of subrogation is contained in this
Lease.
(f) Indemniiy. Tenant shall indemnify and hold harmless Landlord
from and against any and all claims arising from Tenant's use of the Property,
or from the conduct of Tenant's business or from any activity, work or things
done, pen-nitted or suffered by Tenant in or about the Property or elsewhere and
shall further indemnify and hold harmless Landlord from and against any and all
claims arising from any breach or default in the perfon-nance of any obligation
on Tenant's part to be performed under the terms of this Lease, or arising from
any negligence of the Tenant, or any of Tenant's agents, contractors, or
employees, and from and against all cost, attorney's fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon; and in case any action or proceeding be brought
against Landlord by reason of any such claim, Tenant upon notice from Landlord
shall defend the same at Tenant's expense by counsel satisfactory to Landlord.
Tenant, as a material part of the consideration to Landlord, hereby assumes all
risk of damages to property or injury to persons, in, upon or about the Property
arising from any cause and Tenant hereby waives all claims in respect thereof
against Landlord.
Section 4.05. Multiple Tenant Building - Common Area Charges: If the Property is
part of a larger building or group of buildings, Tenant shall pay monthly, in
advance, its pro rata share of all common area maintenance and repair costs, as
reasonably determined by Landlord. "Common Area Operating Cost" shall mean the
total cost and expense incurred in operating and maintaining the Common Area of
the complex, actually used or available for use by Tenant. Specifically all
areas, space, equipment and special services provided or caused to be provided
by Landlord for the common use and joint benefit of the tenants, including
without limitation, parking areas, access roads, walls, driveways, retaining
walls, gardening and landscaped areas, reserves for maintenance and repairs and
replacements of Common Area improvements (i.e., roof and roof membrane and
stnictural portions of the Building, etc.), property management fees, truck
service ways or tunnels, loading docks, ramps and sidewalks, line painting,
sanitary control, removal of trash and rubbish from the complex, sign pylons,
fountains and the cost of personnel to implement such services.
Section 4.06. Late Charges: Tenant's failure to pay rent promptly may cause
Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but are
not limited to, processing and accounting charges and late charges which may be
imposed on Landlord by any ground lease, mortgage or trust deed encumbering the
Property. Therefore, if Landlord does not receive any rent payment within ten
(10) days after it becomes due, Tenant shall pay Landlord a late charge equal to
ten percent (IO%) of the overdue amount. The parties agree that such late charge
represents a fair and reasonable estimate of the costs of Landlord will incur by
reason of such late payment.
Section 4.07. Interest on Past Due Obligations. Any amount owed by Tenant to
Landlord (i.e., security deposits and last months rent) which is not paid when
due shall bear a minimum interest rate of one (I %) percent per month of any
payment for each and every thirty (30) day period after the date that said
payment was originally due, and if greater, may bear interest at the maximum
legal interest rate permitted by law from the due date of such amount. However,
said interest shall not be payable on late charges, as per Section 4.06 above,
incurred by Tenant nor on any amounts upon which late charges are paid by Tenant
under this Lease. The payment of interest on such amounts shall not excuse or
cure any default by Tenant under this Lease.
Section 4.08. Impounds for Insurance Premiums and Real Property Taxes: If
requested by any ground lessor or lender to whom Landlord has granted a security
interest in the Property, or if Tenant is more than ten (10) days late in the
payment of rent more than once in any consecutive twelve (12) month period,
Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the annual real
property taxes and/or insurance premiums payable by Tenant under this Lease,
together with each payment of Base Rent. Such payments shall be held by Landlord
in a non-interest bearing impound
April 5, 1999
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<PAGE>
account. The amount of real property taxes and insurance premiums when unknown
shall be reasonably estimated by Landlord. Funds in the impound account shall be
applied by Landlord to the payment of real property taxes and insurance premiums
when due. Any deficiency of funds in the impound account shall be paid by Tenant
to Landlord upon written request. If Tenant defaults under this Lease, Landlord
may apply any funds in the impound account to any obligation then due under this
Lease.
ARTICLE FIVE: USE OF THE PROPERTY
-------------------
Section 5.01. Permitted Uses: Tenant may use the Property only for the Permitted
Uses set forth in Section 1.06 above.
Section 5.02. Manner of Use: Tenant shall not cause or permit the Property to be
used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which mmoys or interferes with the rightr. of
tonantr, of the development of which the Property is part, or which constitutes
a nuisance or waste. Tenant shall obtain and pay for all permits, including a
Certificate of Occupancy, required for Tenant's occupancy of the Property and
shall promptly take all substantial and non-substantial actions necessary to
comply with all applicable statutes, ordinances, rules, regulations, orders and
requirements regulating the use by Tenant of the Property, including the
Occupational Safety and Health Act.
Section 5.03. Uses Prohibited: Tenant shall not do or permit any thing to be
done in or about the Premises nor bring or keep anything therein which is not
within the permitted use of the Premises which will in any way increase the
existing rate on or affect any fire or other insurance upon the entire Building
or any of its contents, or cause a cancellation of any insurance policy covering
said entire Building or any part thereof or any of its contents.
Section 5.04. Signs and Auctions: Tenant shall not place any signs on the
Property without Landlord's proper written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
Section 5.05. Landlord's Access: Landlord or its agents may enter the Property
at all reasonable times to show the Property to potential buyers, investors or
tenants or other parties, or for any other purpose Landlord deems necessary.
Landlord shall give Tenant prior notice of such entry, except in the case of an
emergency. Landlord shall at all times have and retain a key with which to
unlock all of the standard entrances and exit doors in, upon and about the
Tenant's leased premises, excluding Tenant's vaults, safes and files, and
Landlord shall have the right to use any and all means which Landlord may deem
proper to open said doors in an emergency, in order to obtain entry to the
Premises without liability to Tenant except for any failure to exercise due care
for Tenant's property and any entry to the Premises obtained by Landlord by any
of said means, or otherwise, shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into, or a detainer of, the Premises,
or an eviction of Tenant from the Premises or any portion thereof. Landlord may
place customary "For Sale" or "For Lease" signs on or about the Property, but
may not place such signs in or in front of the Tenant's leased premises until
one hundred twenty (I 20) days prior to the end of the Lease term or if Tenant
vacates the premises prior to expiration of tenancy.
Section 5.06. Quiet Possession: If Tenant pays the rent and complies with all
other terms of this Lease, Tenant may occupy and enjoy quiet possession of the
Property for the full Lease Term, subject to the provisions of this Lease.
Section 5.07. Hazardous Materials: During the term of the Lease, Tenant shall
comply with all statutes, ordinances, rules, orders, regulations and
requirements of the federal, state, county and city governments and all
departments hereof applicable to the presence, storgage, use, maintenance and
removal of asbestos, PCB transformers, other toxic, hazardous or contaminated
substances, an underground storage tanks (collectively, "hazardous materials")
in, on or about the premises, which presence, storage, use, maintenance or
removal is caused or permitted by Tenant. In no event shall the aforesaid be
construed to mean that Landlord has given or will give its consent or that
Tenant need not obtain Landlord's consent prior to Tenant's storing, using,
maintaining or removing hazardous material in, or or about the Premises.
April 5, 1999
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Section 5.8. Conunon Areas and Parking Facilities: All automobile parking
facilities, driveways, entrances and exits thereto, and other facilities in the
Project furnished by Landlord, including, but not limited to, parking
facilities, truckway , or ways, loading areas, pedestrian walkways and ramps,
landscaped areas, stairways, corridors, and other areas and improvements
provided by Landlord for the general use, in common, of tenants, their officers,
agents, employees, servants, invitees, licensees, visitors, patrons and
customers (the "Common Areas"), shall be subject to the exclusive control and
management of Landlord subject to the Rules and Regulations set forth in Section
6.07 ' hereon and Landlord shall have the right from time to time to modify and
enforce the Rules; to police the same; from time to time to change the area,
level and location and arrangement of the Connnon Areas, and other facilities
hereinabove referred to; to restrict parking by and enforce parking charges (by
operation of meters or otherwise) to tenants, their officers, agents, invitees,
employees, servants, licensees, visitors, patrons and customers; to close all or
any portion of the Common Areas to such extent as Landlord may desire or as may
in the opinion of Landlord's counsel be legally sufficient to prevent a
dedication thereof or the accrual of any rights to any person or the public
therein; to close temporarily all or any portion of any public areas or Common
Areas; to discourage non-tenant parking; to charge a fee for visitor and/or
customer parking; and to do and perform such other acts in and to said areas and
improvements as, in the sole judgment of Landlord, Landlord shall determine to
be advisable. Tenant, its employees, customers and invitees shall have the
non-exclusive right to use the Common Areas in common with other tenants for the
purposes for which constructed subject to the Rules. Landlord will operate and
maintain the Common Areas, and other areas referred to above in such manner as
Landlord shall determine from time to time. Without limiting the scope of such
discretion, Landlord shall have the full right and authority to designate a
manager of the Common Areas and other areas who shall have full authority to
make and enforce rules and regulations regarding the use of the same or to
employ all personnel and to make and enforce all rules and regulations
pertaining to and necessary for the proper operation and maintenance of the
Common Areas and other areas. Reference in this paragraph to parking facilities
shall be construed as giving Tenant, its employees, invitees and customers
hereunder rights and/or privileges to the use of not more than 3 parking spaces
at the Property. Tenant, its employees, invitees and customers shall not use
more than the number of parking spaces set forth above on a regular basis,
provided however, in the event Tenant's overall parking requirement exceeds the
ratio of parking available to Tenant as set forth above and such excessive
requirement does not (i) exceed five (5) parking spaces at any one time, or (ii)
negatively impact the parking availability for other tenants in the Property as
determined by Landlord in its sole discretion, then such excessive parking shall
not constitute a default by Tenant under the Lease. To the contrary, violation
of any of the foregoing conditions or determination by Landlord that such
excessive parking is negatively impacting the parking at the Property shall
constitute a material default by Tenant under the Lease and in addition to other
remedies of default available to Landlord hereunder, Landlord shall have the
right to immediately limit Tenant's use of the parking areas by implementing
those controls Landlord deems appropriate.
ARTICLE SIX: CONDITION 0F PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS.
------------------------------------------------------------
Section 6.01. Existing Conditions: Except as set forth in any exhibit requiring
Landlord to perform work on the Property prior to the Commencement Date, Tenant
accepts the Property in its condition as of the execution of the Lease, subject
to all recorded matters, laws, ordinances, and governmental regulations and
orders. Tenant acknowledges that neither Landlord nor any agent of Landlord has
made any representation as to the condition of the Property or the suitability
of the Property for Tenant's intended use.
Section 6.02. Exemption of Landlord From Liability: Landlord shall not be liable
for any damage or injury to the person, business (or any loss of income
therefrom), goods wares, merchandise or other property of Tenant, Tenant's
employees, invites, customers or any other person in or about the Property,
whether such damage or injury is caused by or results from: (a) fire, steam,
electricity, water, gas or rain; (b) the breakage, leakage obstruction or other
defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures or any other cause; (c) conditions arising in or about the
Property or upon other portions of any building of which the Property is a part,
or from other sources or places; or (d) any act or omission of any other tenant
of any building of which the Property is a part. Landlord shall not be liable
for any such damage or injury even though the
April 5, 1999
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cause of or the means of repairing such damage or injury are not accessible to
Tenant. The provisions of this Section 6.02 shall not, however, exempt Landlord
from liability for Landlord's gross negligence or willful misconduct.
Section 6.03. Maintenance By Tenant: Tenant shall at all times during the lease
term hereof keep the leased premises (including maintenance of exterior
entrances, all glass and show window moldings) and all partitions, doors, door j
ambs, door closures, door hardware, fixtures, equipment and appurtenances
thereof (including electrical, lighting, heating and plumbing, and plumbing
fixtures, and any air conditioning systems, including leaks around ducts, pipes
vents, or other parts of the air conditioning, heating or plumbing systems which
protrude through the rooo in good order, condition and repair including
replacements (including reasonable periodic interior painting as determined by
Landlord).
Tenant shall also repair any damages to the structural portions of the roof And
leased premises resulting from Tenant's negligent acts or omissions or anyone
acting or claiming under Tenant as a result of the failure of Tenant or any one
claiming under Tenant, to perfon-n or observe the covenants or conditions in
this Lease contained or resulting from alterations, additions or improvements to
the premises made by Tenant or anyone claiming under or acting through Tenant.
Tenant shall contract with a service company for the maintenance of heating and
air conditioning equipment and/or evaporative coolers with a copy of the service
contract to be furnished to the Landlord within thirty (30) days after opening
for business, and a copy of any subsequent contracts to be furnished from time
to time during the Lease term. If Tenant refuses or neglects to furnish a copy
of a maintenance contract for said heating and air conditioning equipment and/or
evaporative coolers Landlord may contract for this maintenance and will bill
Tenant for the cost, plus twenty percent (20%) overhead, as additional rent, and
Tenant agrees to reimburse Landlord for the cost, as additional rent within ten
(10) days of Landlord's billing.
Section 6.04 Maintenance by Landlord: (a) If Tenant refuses or neglects to
maintain or repair the leased premises as required hereunder, and to the
reasonable satisfaction of Landlord as soon as reasonably possible after written
demand, Landlord may make such repairs without liability to the Tenant for any
loss or damage that may accrue to Tenant's merchandise, fixtures or property or
to Tenant's business thereof, and upon completion thereof, Tenant shall pay
Landlord's cost for making such repairs, plus twenty percent (20%) for overhead,
upon presentation of a bill therefore, as additional rent. (b) Landlord shall
maintain, repair and replace, at Tenant's expense, the roof and roof membrane,
the exterior walls, and the structural portions of the Building within which the
leased premises is located, and shall periodically paint the exterior walls of
such Building from time to time as determined to be necessary by Landlord or its
designee, and subject to the obligations of Tenant under the provisions of
Section 6.03 above, Landlord shall repair and replace plumbing, utility and/or
sewer lines and mains which service the premises of more than one (1) tenant and
which are located within or under the Building in which the leased premises are
located. Tenant shall pay in full its pro rata share of all costs and expenses
incurred or paid by Landlord pursuant to the provisions of this Section 6.04(b),
as a part of Tenant's responsibility for Tenant's estimated monthly Additional
Rent charge according to Section 1.12(b).
Section 6.05. Alterations, Additions and lmprqygmen-ts- (a) Unless this Lease
provides otherwise, Tenant shall not make any alterations, additions, or
improvements to the Property without Landlord's prior written consent, except
for non-structural alterations which do not exceed Five Thousand Dollars
($5,000.00) in cost cumulatively over the Lease Tenn and which are not visible
from the outside of any building of which the Property is part. Landlord may
require Tenant to provide demolition and/or lien and completion bonds in form
and amount satisfactory Landlord. Tenant shall promptly remove any alterations,
of this Paragraph 6.05 (a) upon Landlord's written request. All alterations,
additions, and improvements will be accomplished in a good and workmanlike
manner, in conformity with all applicable laws and regulations, and by a
contractor licensed in the State in which the Property is located and approved
by landlord. Upon completion of any such work, Tenant shall provide Landlord
with "as built" plans, copies of all construction contracts, and proof of
payment for all labor and materials. (b) Tenants shall pay when due all claims
for labor and material furnished to the Property. Tenant shall give Landlord at
least ten (10) days prior written notice of the commencement of any work on the
Property. Landlord may elect to record and post notices of non-responsibility on
the Property.
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Section 6.06. Surrender of Premises. At the expiration of the tenancy hereby
created, Tenant shall surrender the leased premises in the same condition as the
leased premises was in upon delivery of possession thereto under this Lease,
reasonable wear and tear excepted, and damage by unavoidable casualty excepted
to the extent that the same is covered by Landlord's fire insurance policy with
extended coverage endorsement, and shall surrender all keys for the leased
premises to Landlord at the place then fixed for the payment of rent and shall
infonn Landlord of all combinations on locks, safes, and vaults, if any, in the
leased premises. Tenant shall remove all its trade fixtures, and any alterations
or improvements, before surrendering the premises as aforesaid and shall repair
any damage to the leased premises caused thereby. Tenant's obligation to observe
or perform this covenant shall survive the expiration or other termination of
the term of this Lease.
Tenant shall provide Landlord with a written statement from a reputable heating,
ventilation, and air conditioning (HVAC) company that certifies that the HVAC
equipment was inspected and serviced, if necessary, within the last thirty (30)
days of the term and is in good working order. This certification is to be a
Tenant's sole expense.
Section 6.07 Rules and Reizulations: The Tenant agrees as follows:
-----------------------
(a) All loading and unloading of goods shall be done only in the areas,
and through the entrances designated for such purposes by Landlord.
(b) The delivery or shipping of merchandise, supplies and fixtures to
and from the leased premises shall be subject to such rules and regulations as
in the judgement of the Landlord are necessary for the proper operation of the
entire Property.
(c) At Tenant's sole cost and expense, Tenant shall pay for the removal
of any of Tenant's trash or rubbish from Tenant's leased premises.
(d) No aerial or any other item requiring a roof penetration shall be
erected on the roof or exterior walls of the premises, or on the grounds,
without in each instance, the written consent of the Landlord. Any aerial so
installed without such written consent shall be subject to removal without
notice at any time. Tenant shall be responsible for the cost of any removal
and/or repair of any roof penetrations caused by Tenant or Tenant's agents.
(e) No loud speakers, televisions, phonographs, radios or other devices
shall be used in a manner so as to be heard or seen outside of the premises
without the prior written consent of the Landlord.
(f) The outside areas immediately adjoining the premises shall be kept
clean and free from dirt and rubbish by the Tenant to the satisfaction of the
Landlord, and Tenant shall not place or permit any obstructions or merchandise
in such areas.
(g) The Tenant in the use of said parking areas, agrees to comply with
any such reasonable rules and regulations as the Landlord may adopt from time to
time for the orderly and proper -operation of said parking areas.
(h) The plumbing facilities shall not be used for any other purpose
than that for which they are constructed, and no foreign substance of any kind
shall be thrown therein, and the expense of any breakage, stoppage, or damage
resulting from a violation of this provision shall be bome by Tenant, who shall,
or whose employees, agents, or invitees shall, have caused it.
(i) At Tenant's sole cost and expense, Tenant shall use for pest
extermination within Tenant's leased Premises a pest extermination contractor at
such intervals as Landlord may require.
(j) Tenant shall not bum any trash or garbage of any kind in or about
the leased premises.
(k) Tenant shall, at Tenant's cost, comply with all requirements,
regarding the installation and periodic maintenance of fire extinguishers or
automatic dry chemical extinguishing system, of the insurance underwriters and
any governmental authority having jurisdiction thereover, necessary for
maintenance of reasonable fire and extended coverage insurance for the leased
premises.
(l) Tenant shall also corn I with Landlord's rules and regulations respecting
the management, care and safety of the common areas of such buildings and
grounds, including parking areas, trash bin area, landscaped areas, walkways,
hallways and other facilities provided for the common use and convenience of
other occupants.
(m) Landlord reserves the right from time to time to amend or supplement the
foreging rules and regulations, and to adopt and promulgate additional rules and
regulations and amendments and supplements thereto, if any, shall be given to
the Tenant, Tenant agrees to promptly comply with all such rules and regulations
upon notices to Tenant from Landlord.
April 5, 1999
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ARTICLE SEVEN: DAMAGE OR DESTRUCTION.
----------------------
Section 7.01 Partial Damage to Property Tenant shall notify Landlord in writing
immediately upon the occurrence of any damage to the Property. If the Property
is only partially damaged and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.04(b) are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall repair
the damage as soon as reasonably possible. Landlord shall not be required to
make repairs or replacements of any damage to fixtures, equipment, personal
property or leasehold improvements of Tenant's. If the insurance proceeds
received by Landlord are not sufficient to pay the entire cost of repair, or if
the cause or the damage is not covered by the insurance policies which Landlord
maintains under Paragraph 4.04(b), Landlord may elect either to (a) repair the
damage as soon as reasonably possible, in which case this Lease shall remain in
full force and effect, or (b) ten-ninate this Lease as of the date the damage
occurred. Landlord shall notify Tenant within thirty (30) days after receipt of
notice of the occurrence of the damage, whether Landlord elects to repair the
damage or terminate the Lease. If Landlord elects to repair the damage, Tenant
shall pay Landlord the "deductible amount" (if any) under Landlord's insurance
policies, and, if the damage was due to an act or omission of Tenant, the
difference between the actual cost of repair and any insurance proceeds received
by Landlord. If Landlord elects to terminate this Lease, Tenant may elect to
continue this Lease in full force and effect, in which case Tenant shall repair
any damage to the Property and any building in which the Property is located.
Tenant shall pay the cost of such repairs, except that, upon satisfactory
completion of such repairs, Landlord shall deliver to Tenant any insurance
proceeds received by Landlord for the damage repaired by Tenant. Tenant shall
give Landlord written notice of such election within ten (10) days after
receiving Landlord's ten-nination notice. If the damage to the Property occurs
during the last six (6) months of the Lease Term, Landlord may elect to
terminate this Lease as of the date the damage occurred, regardless of the
sufficiency of any insurance proceeds. In such event, Landlord shall not be
obligated to repair or restore the Property and Tenant shall have no right to
continue this Lease. Landlord shall notify Tenant of its election within thirty
(30) days after receipt of notice of the occurrence of the damage.
Section 7.02. Total or Substantial Destruction: If the Property is totally or
substantially destroyed by any cause whatsoever, or if the Property is in a
building which is substantially destroyed (even though the Property is not
totally or substantially destroyed), the Lease shall terminate as of the date
the destruction occurred regardless of whether Landlord receives any insurance
proceeds. However, if the Property can be rebuilt within one hundred eighty (I
80) days after the date of destruction, Landlord may elect to rebuild the
Property at Landlord's own expense, in which case, this Lease shall remain in
full force and effect. Landlord shall notify Tenant of such election within
thirty (30) days after the occurrence of total or substantial destruction. If
the destruction was caused by an act or omission of Tenant, Tenant shall pay
Landlord the difference between the actual cost of rebuilding and any insurance
proceeds received by Landlord.
Section 7.03. Temporary Reduction of Rent: If the Property is destroyed or
damaged and Landlord or Tenant repairs or restores the Property pursuant to the
provisions of this Article Seven, any Base Rent, insurance premiums and real
property taxes payable during the period of such damage, repair and/or
restoration shall be reduced according to the degree, if any, to which Tenant's
use of the Property is impaired. However, the reduction shall not exceed the sum
of one year's payment of Base Rent, insurance premiums and real property taxes
and to the extent only of those proceeds received by Landlord from Landlord's
loss of income insurance coverage. Except for such possible reduction in Base
Rent, insurance premiums and real property taxes, Tenant shall not be entitled
to any compensation, reduction, or reimbursement for Landlord as a result of any
damage, destruction, repair, or restoration of or to the Property.
Section 7.04 Waiver: Landlord and Tenant waive the provisions of any status
which relate to termination of leases when leased property is destroyed and
agree that such event shall be governed by the terms of this Lease.
ARTICLE EIGHT: CONDEMNATION.
-------------
If all or any portion of the Property is taken under the power of eminent domain
is old under the threat of that power (all of which are called "Condemnation"),
this Lease shall terminate as to the part taken or sold on the date the
condemning authority takes title or possession, whichever
April 5, 1999
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occurs first. If more than twenty percent (20%) of the floor area of the
building in which the Property is located, or which is located on the Property,
is taken, either Landlord or Tenant may terminate this Lease as of the date the
condemning authority takes title or possession by delivering written notice to
the other within ten (10) days after receipt of written notice of such taking
(or in the absence of such notice, within ten (IO) days after the condemning
authority takes possession). If neither Landlord nor Tenant terminates this
Lease, this Lease shall remain in effect as to the portion of the Property not
taken, except that the Base Rent shall be reduced in proportion to the reduction
in floor area of the Property. A Condemnation award or payment shall be
distributed in the following order: (a) first, to any ground lessor, mortgagee
or beneficiary under a deed of trust encumbering the Property, the amount of its
interest in the Property; (b) second, to Tenant, only the amount of any award
specifically designated for loss of or damage to Tenant's trade fixtures or
removable personal property; and (c) third, to Landlord, the remainder of such
award, whether as compensation for reduction in the value of the leasehold, the
taking of the fee,, or otherwise. If this Lease is not terminated, Landlord
shall repair any damage to the Property caused by the Condemnation, except that
Landlord shall not be obligated to repair any damage for which Tenant has been
reimbursed by the condemning authority. If the severance damages received by
Landlord are not sufficient to pay for such repair, Landlord shall have the
right to either terminate this Lease or make such repair at Landlord's expense.
ARTICLE NINE: ASSIGNMENT AND-SUBLETTNG.
-------------------------
Section 9.01. Landlord's Consent Required: No portion of the Property of -Qr
Tenant's interest in this Lease may be acquired by any other person or entity,
whether by assignment, mortgage, sublease, transfer, operation of law, or act of
Tenant, without Landlord's prior written consent, except as provided in Section
9.02 below. Landlord shall grant or withhold its consent as provided in Section
9.04 below. Any attempted transfer without consent shall be void and shall
constitute a noncurable breach of this Lease. If Tenant is a partnership any
cumulative transfer of more than twentyfive percent (25%) of the partnership
interests shall constitute an assigm-nent and shall require Landlord's consent.
If Tenant is a corporation, any change in a controlling interest of the voting
stock of the corporation shall constitute an assignment and shall require
Landlord's consent.
Section 9.02. Tenant Affiliate: Tenant may assign this Lease or sublease the
Property, without Landlord's consent, to any corporation which controls, is
controlled by or is under common control with Tenant, or to any corporation
resulting from the merger of or consolidation with Tenant ("Tenant Affiliate").
In such case, any of Tenant's Affiliates shall assume all of Tenant's
obligations under this Lease.
Section 9.03. No Release of Tenant: No transfer permitted by this Article Nine,
whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article Nine. Consent to one transfer
is not a consent to any subsequent transfer. If Tenant's transferee defaults
under this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the transferee. Landlord may consent to subsequent assignments
or modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability under
this Lease. If Tenant transfers Tenant's interest hereunder, then Landlord shall
receive, as Additional Rent, the difference between the rent (or any other
consideration) paid in connection with such assignment or sublease and the rent
payable by Tenant hereunder.
Section 9.04. Landlord's Election: Tenant's request for consent to any transfer
described in Section 9.01 above shall be accompanied by a written statement
setting forth the details of the proposed transfer, including the name, business
and financial condition of the prospective transferee, financial details of the
proposed transfer (e.g., the term of and rent and security deposity deposit
payable under any assignment or sublease), and any other information Landlord
deems relevant. Landlord shall have the right (a) to withhold consent, which
shall not be unreasonably withheld; (b) to grant consent; or (c) if the transfer
is a sublease of the Property or an assignment of this Lease, to terminate this
Lease as to the effective date of such sublease or assignment and enter into a
direct lease with the proposed assignee or subtenant.
Section 9.05. No Merger: No merger shall result from Tenant's sublease of the
Property under this
April 5, 1999
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Article Nine, Tenant's surrender of this Lease or the termination of this Lease
in any other manner. in any event, Landlord may terminate any or all
subtenancies or succeed to the interest of Tenant as sublandlord thereunder.
ARTICLE TEN: DEFAULTS: REMEDIES.
-------------------
Section 10.01 Covenants and Conditions- Tenant's perfon-nance of each of
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants and
conditions.
Section 10.02 Defaults: Tenant shall be in material default under this Lease:
---------
(a) If, prior to the end of the Lease term, Tenant abandons the
Property or if Tenant's vacation of the Property results in the cancellation of
any insurance described in Section 4.04.
(b) If Tenant fails to pay rent or any other charge required to be
paid by Tenant, as and when due.
(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days after written
notice from Landlord; provided that if more than thirty (30) days are required
to complete such performance, Tenant shall not be in default if Tenant commences
such performance within the thirty (30) day period and thereafter diligently
pursues its completion. However, Landlord shall not be required to give such
notice if Tenant's failure to perform constitutes a non-curable breach of this
Lease. The notice required by this Paragraph is intended to satisfy any and all
notice requirements imposed by law on Landlord and is not in addition to any
such requirement.
(d) (i) If Tenant makes a general assignment or general
arrangement for the benefit of creditors; (ii) if a petition for adjudication of
bankruptcy or for reorganization or rearrangement is filed by or against Tenant
and is not dismissed within thirty (30) days, additions or improvements
constructed in violation (iii) if a trustee or receiver is appointed to take
possession is not restored to Tenant within thirty (30) days; or (iv) if
substantially all of Tenant's assets located at the Property or of Tenant's
interest in this Lease is subjected to attachment, execution or other judicial
seizure which is not discharged within thirty (30) days. If a court of
competentjurisdiction deten-nines that any of the acts described in this
subparagraph (d) is not a default under this Lease, and a trustee is appointed
to take possession (or if Tenant remains a debtor in possession) and such
trustee or Tenant transfers Tenant's interest hereunder, then Landlord shall
receive, as Additional Rent, the difference between the rent (or any other
consideration) paid in connection with such assignment or sublease and the rent
payable by Tenant hereunder.
Section 10.03. Remedies: On the occurrence of any material default by Tenant,
Landlord may, at any time thereafter, with or without notice or demand and
without limiting Landlord in the exercise of any right or remedy which Landlord
may have:
(a) Terminate TenanVs right to possession of the Property by any
lawftil means, in which case this Lease shall be entitled to recover from Tenant
all damages incurred by Landlord by reason of Tenant's default, including (i)
the worth at the time of the award of the amount by which the unpaid Base Rent,
Additional Rent and other charges which would have been earned after
ten-nination until the time of the award exceeds the amount of such rental loss
that Tenant proves could have been reasonably avoided; (iii) the worth at the
time of the award of the amount by which the unpaid Base Rent, Additional Rent
and other charges which would have been paid for the balance of the term after
the time of award exceeds the amount of such rental loss that Tenant proves
could have been reasonabl avoided; and (iv) any other amount necessary to
compensate Landlord for all the detriment proximately caused by Tenant's failure
to perform its obligations under the Lease or which in the ordinary course of
things would be likely to result therefrom, including, but not limited to, any
cost or expenses incurred by Landlord in maintaing or preserving the Property
after such default, the cost or recovering possession of the Property, expenses
of reletting, including necessary renovation or alteration of the Property,
Landlord's reasonable attorney's fees incurred in connection therewith, and any
real estate commission paid or payable. As used in subparts (i) and (ii) above,
the "worth at the time of the award" is computed by allowing interest on the
unpaid amounts at the maximum legal interest rate permitted by law from the due
date of such amounts. As used in subpart (iii) above, the "worth at the time of
the award" is computed by discounting such
April 5, 1999
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amount at the discount rate of the Federal Reserve Bank of Atlanta at the time
of the award, plus 1%. If Tenant shall have abandoned the Property, Landlord
shall have the option of (i) retaking possession of the Property and recovering
from Tenant the amount specified in this paragraph 10.03(a), or (ii) proceeding
under Paragraph 10.03(b);
(b) Maintain Tenant's right to possession, which case this Lease
shall continue in effect whether or not Tenant shall have abandoned the
Property. In such event, Landlord shall be entitled to enforce all of Landlord's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder;
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the state in which the Property is
located.
Section 10.04. Cumulative Remedies: Landlord's exercise of any right or remedy
shall not prevent it from exercising any other right or remedy.
ARTICLE ELEVEN: PROTECTION OF LENDERS.
----------------------
Section 11.01. Subordination: Landlord shall have the right to sub-ordinate this
Lease to any ground lease, deed of trust or mortgage encumbering the Property,
any advances made on the security thereof and any renewals, modifications,
consolidations, replacements or extensions thereof, whenever made or recorded.
However, Tenant's right to quiet possession of the Property during the Lease
Term shall not be disturbed if Tenant pays the rent and performs all of Tenant's
obligations under this Lease and is not otherwise in default. If any ground
lessor, beneficiary or mortgagee elects to have this Lease prior to the lien of
its ground lease, deed of trust or mortgage and gives written notice thereof to
Tenant, this Lease shall be deemed prior to such ground lease, deed of trust or
mortgage whether this Lease is dated prior or subsequent to the date of said
ground lease, deed of trust or mortgage or the date of recording thereof.
Section 11.02. Attornment: If Landlord's interest in the Property is acquired by
any ground lessor, beneficiary under a deed of trust, mortgage, or purchaser at
a foreclosure sale, Tenant shall attom to the transferee of or successor to
Landlord's interest in the Property and recognizes such transferee or successor
as Landlord under this Lease. Tenant waives the protection of any statute or
rule of law which gives or purports to give Tenant any right to terminate the
Lease or surrender possession of the Property upon the transfer of Landlord's
interest.
Section 11.03. Signing of Documents: Tenant shall sign and deliver any
instrument or documents necessary or appropriate to evidence any such attomment
or subordination or agreement to do so. Such subordination and attomment
documents may contain such provisions as are customarily required by any ground
lessor, beneficiary under a deed of trust or mortgage. If Tenant fails to do so
within ten (10) days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord, or any transferee or successor of Landlord, the
attomey-in-fact of Tenant to execute and deliver any such instrument or document
relative to Landlord's ownership of the property.
Section 11.04. Estoppel Certificates:
----------------------
(a) Upon Landlord's written request, Tenant shall execute, acknowledge and
deliver to Landlord a written statement certifying: (i) that none of the terms
or provisions of this Lease have been changed (or if they have been changed,
stating how they have been changed); (ii) that this Lease has not been cancelled
or terminated; (iii) that the last date of payment of the Base Rent and other
charges and the time period covered by such payment; (iv) that Landlord is not
in default under this Lease (or, if Landlord is claimed to be in default,
stating why); and (v) such other matters as may be reasonably deed of trust or
lien to which the Property is or becomes subject. Tenant shall deliver such
statement to Landlord within ten (10) days after Landlord's request. Any such
statement by Tenant may be given by Landlord to any prospective purchaser or
encumbrancer of the Property. Such purchaser or encumbracer may rely
conclusively upon such statement as true and correct. Landlord within such ten
(10) day period, Landlord, and any prospective purchaser or encumbrancer, may
conclusively presume and rely upon the following facts: (i) that the terms and
provisions of this Lease have not been changed except as otherwise represented
by Landlord; (ii) that this Lease has not been cancelled or terminated except as
otherwise represented by Landlord; (iii) unless provided otherwise, that not
more that one month's Base Rent or other charges have been paid in advance; and
(iv) that Landlord is not in default under the Lease.
April 5, 1999
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In such event, Tenant shall be stopped from denying the truth of such facts.
Section 11.05. Tenant's Financial Condition: Tenant shall deliver to Landlord
such financial statements as are reasonably required by Landlord to verify the
net worth of Tenant or any assignee, subtenant, or guarantor of Tenant. In
addition, Tenant shall deliver to any lender designated by Landlord any
financial statements required by such lender to facilitate the financing or
refinancing of the Property. Tenant represents and warrants to Landlord that
each such financial statement is a true and accurate s . tatement as of the date
of such statement. All financial statements shall be confidential and shall be
used only for the purposes set forth herein.
ARTICLE TWELVE: LEGAL COSTS.
------------
Section 12.01. Legal Proceedings: Tenant shall reimburse Landlord, upon demand,
for any costs or, expenses incurred by Landlord in connection with any breach or
default of Tenant under this Lease, whether or not suit is commenced or
judgement entered. Such costs shall include legal fees and costs incurred for
the negotiation of a settlement, enforcement of rights or otherwise.
Furthermore, if any action for breach of or to enforce provisions of this Lease
is commenced, the court in such action shall award to the party in whose favor
ajudginent is entered, a reasonable sum as attorneys' fees and cost. Such
attorneys' fees and costs shall be paid by the losing party in such action.
Tenant shall also indemnify Landlord against and hold Landlord harmless from all
costs, expenses, demands and liability incurred by Landlord if Landlord becomes
or is made a party to any claim or action (a) instituted by Tenant, or by any
third party against Tenant, or by or against any person holding any interest
under or using the Property by license of or agreement with Tenant; (b) for
foreclosure of any lien for labor or material fumished to or for Tenant or such
other person; (c) otherwise arising out of or resulting from any act or
transaction of Tenant or such other person; or (d) necessary to protect
Landlord's interest under this Lease in a bankruptcy proceeding, or other
proceeding under Title I I of the United States Code, as amended. Tenant shall
defend Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant
shall reimburse Landlord for any legal fees or costs incurred by Landlord in any
such claim or action.
Section 12.02. Landlord's Consent: Tenant shall pay Landlord's reasonable
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article Nine (Assignment and Subletting), or in connection with
any other act which Tenant proposes to do and which requires Landlord's consent.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS.
-------------------------
Section 13.01 Non-Discrimination: Tenant promises, and it is a condition to the
continuance of this Lease, that there will be no discrimination against, or
segregation of, any person or group of persons on a basis of race, color, sex,
creed, national origin or ancestry in the leasing, subleasing, transferring,
occupancy, tenure or use of the Property or any portion thereof.
Section 13.02. Landlord's Liability; Certain Duties:
-------------------------------------
(a) As used in this Lease, the term "Landlord" means only the current
owner or owners of the fee title to the Property or the leasehold estate under a
ground lease of the Property at the time in question. Each Landlord is obligated
to perform the obligations of Landlord under this Lease only during the time
such Landlord owns such interest or title. Any Landlord who transfers its title
or interest is relieved of all liability with respect to the obligations of
Landlord under this Lease to be perfon-ned on or after the date of transfer.
However, each Landlord shall deliver to its transferee all funds previously paid
by Tenant if such funds have not yet been applied under the terms of this Lease.
(b) Tenant shall give written notice of any failure by Landlord to
perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor, mortgagee or Beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such
non-performance reasonably requires more than thirty (30) days to cure, Landlord
shall not be in default if such cure is commenced within such thirty (30) day
period
April 5, 1999
15
<PAGE>
and thereafter diligently pursued to completion.
(c) Unless this Lease provides otherwise, upon execution of the Lease
Tenant shall deposit with Landlord a Security Deposit and Last Months Rent in
the amounts set forth in Section 1. IO and 1. 1 3 above. Landlord may apply all
or part of the Security Deposit and Last Months Rent to any unpaid rent or other
charges due from Tenant or to cure any other defaults of Tenant. If Landlord
uses any part of the Security Deposit and Last Months Rent, Tenant shall restore
the Security Deposit and Last Months Rent to its full amount within ten (10)
days after Landlord's written request. Tenant's failure to do so shall be a
material default under this Lease. No interest shall be paid on the Security
Deposit and Last Months Rent. Landlord shall not be required to keep the
Security Deposit and Last Months Rent separate from its other accounts and no
trust relationship is created with respect to the Security Deposit and Last
Months Rent. Said Security Deposit and Last Months Rent shall not be mortgaged
assigned, transferred or encumbered by Tenant without the prior written consent
of Landlord, and any such act on the part of Tenant shall be without force and
effect and shall not be binding upon Landlord in any case.
Landlord shall deliver any security deposits, last months rent or any
other deposits made hereunder by Tenant to any party who legally acquires any of
Landlord's rights or interest in the Premises, and in the event that such
interest be sold or otherwise conveyed, thereupon Landlord shall be released
from any further liability with respect to such deposits; and this provision
shall also apply to any subsequent transferee of Landlord.
Section 13.03. Severability: A deten-nination by a court of
competentjurisdiction that any provision of this Lease or any part thereof is
illegal or unenforceable shall not cancel or invalidate the remainder of such
provision or this Lease, which shall remain in full force and effect.
Section 13.04. Intepretation: The captions of the Articles of Sections of this
Lease are to assist the parties in reading this Lease and are not a part of the
terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the ten-n "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
Section 13.05. Incorporation of Prior Agreements: Modifications: This Lease is
the only agreement between the parties pertaining to the lease of the Property
and no other agreements are effective. All amendments to this Lease shall be in
writing and signed by all parties. Any other attempted amendment shall be void.
Section 13.06. Notices: All notices required or permitted under this Lease shall
be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address specified in Section 1.03 above, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.02 above. All notices shall be effective upon delivery or attempted
delivery in accordance with this Section 13.06. Either party may change its
notice address upon written notice to the other party.
Section 13.07. Waivers: All waivers must be in writing and signed by the waiving
party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check will be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statements.
Section 13.08. No Recordation: Tenant shall not record this Lease without prior
written consent from Landlord. However, either Landlord or Tenant may require
that a "Short Form" memorandum of this Lease executed by both parties be
recorded.
Section 13.09. Binding Effect; Choice of Law: This Lease binds any party who
legally acquires any rights or interest in this Lease from Landlord or Tenant.
However, Landlord shall have no obligation
April 5, 1999
16
<PAGE>
to Tenant's successor unless the rights or interests of Tenant's successor are
acquired in accordance with the terms of this Lease. The laws of the State in
which the Property is located shall govern this Lease.
Section 13.10. Corporate Authority; Partnership Authority: If Tenant is a
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person signing this Lease for Tenant represents and warrants that he is a
general partner of the partnership, that he has full authority to sign for the
partnership and that this Lease finds the partnership and all general partners
of the partnership. Tenant shall give written notice to Landlord of any general
partner's withdrawal or addition. Within thirty (30) days after this Lease is
signed, Tenant shall deliver to Landlord a copy of Tenant's recorded statement
of partnership or certificate of limited partnership.
Section 13.1l. All parties signing this Lease as Tenant shall be jointly and
severally liable for all obligations ot Tenant. Section 13.12. Eorce Magure' if
Landlord cannot perfon-n any of its obligations due to events beyond Landlord's
control, the time provided for performing such obligating shall be extended by a
period of time equal to the duration of such events. Events beyond Landlord's
control include, but are not limited to, acts of God, war, civil commotion,
labor disputes, strikes, fire, flood or other casualty, shortages of labor or
material, government regulations or restriction and weather conditions.
Section 13.13. Execution of Lease: This Lease may be executed in counterparts,
and, when all counterpart documents are executed, the counterparts shall
constitute a single binding instrument. The delivery of this Lease by Landlord
to Tenant shall not be deemed to be an offer and shall not be binding upon
either party until executed an delivered by both parties.
Section 13.14. Radon Gas: Radon is a naturally occuring radioactive gas that,
when it has accumulated in a building in sufficient quantities, may present
health risks to persons who are exposed to it over time. Levels of radon that
exceed federal and state guidelines have been found in buildings in Florida.
Additional information regarding radon and radon testing may be obtained from
your county health unit.
ARTICLE FOURTEEN: BROKERS.
--------
Section 14.01. Broker's Fee. When this Lease is signed and delivered to both
Landlord and Tenant, Landlord shall pay a real estate commission to Landlord's
Broker named in Section 1.07 above, if any, as provided in a written agreement
between Landlord and Landlord's Broker. If there is no such written agreement,
Landlord shall pay the sum stated in Section 1.09 above for services rendered to
Landlord by Landlord's Broker in this transaction. Landlord shall Pay Landlord's
Broker a commission if Tenant exercises any option to extend the Lease Term or
to buy the Property, or any similar option or right which Landlord may grant to
Tenant, or if Landlord's Broker is the procuring cause of any other lease or
sale entered into between Landlord and Tenant covering the Property. Such
commission shall be the amount set forth in Landlord's Brokees commission
schedule in effect as of the execution of this Lease. If there is no such
written agreement, Landlord shall pay the sum stated in Section 1.09 above. If a
Tenanfs Broker is named in Section 1.08 above, Landlord's Broker shall pay an
appropiate portion of its commission to Tenant's Broker if so provided in any
agreement between Landlord's Broker and Tenant's Broker. Nothing contained in
this Lease shall impose any obligation on Landlord to pay a commission or fee to
any party other than Landlord's Broker.
Section 14.02. Protection of Broker's: If Landlord sells the Property, or
assigns Landlord's interest in this Lease, the buyer or assignee shall, by
accepting such conveyance of the Property or assignment of the Lease, be
conclusively deemed to have agreed to make all payments to Landlord's Broker
thereafter required of Landlord under this Article Fourteen. Landlord's Broker
shall have the right to bring a legal action to enforce or declare rights under
this provision. The prevailing party right to bring a legal action to enforce or
declare rights under this provision. The prevailing party
April 5, 1999
17
<PAGE>
in such action shall be entitled to reasonable attorneys' fees to be paid by the
losing party. Such attorneys' fees shall be fixed by the court in such action.
This Paragraph is included in this Lease for the benefit of Landlord's Broker.
Section 14.03. No Other Brokers: Tenant and Landlord represent and warrant to
each other that the Brokers named in Sections 1.07 and 1.08 above are the only
agents, brokers, finders or other parties with whom either party has dealt who
are or may be entitled to any commission or fee with respect to this Lease or
the Property.
ARTICLE FIFTEEN: RIDERS, EXHIBITS & ADDENDA.
---------------------------
Section 15.01. Riders, Exhibits & Addenda: All of the riders, exhibits and
addenda listed below are attached to this lease and made a part hereof. (i)
Exhibit "A" - Site Plan; (ii) Exhibit "B" - Sign Criteria; (iii) Exhibit "C" -
Security Deposit Refund & Deduction; (iv) Exhibit "D" - Miscellaneous Terms &
Conditions; (v) Exhibit "E" - Rent Abatement; (vi) Exhibit "F" - Option to Renew
Lease;' (vii) Exhibit "G" - Tenant Improvements.
ALL AGREEMENTS AND UNDERSTANDINGS CONTAFNED HEREIN, BY SIGNING BELOW WHERE
- --------------------------------------------------------------------------
INDICATED, TENANT AND LANDLQRD ACKNOWLEDGE, UNDERSTAND AND WARRANT TO EACH
- --------------------------------------------------------------------------
OTHER, THAT, OTHER THAN AS EXPRESSLY SET FORTH HEREIN IN WRITFNG, THERE ARE NO
- ------------------------------------------------------------------------------
AGREEMENTS, UNDERSTANDINGS, PROMISES, STATEMENTS REPRESENTATIONS OR
- -------------------------------------------------------------------
REPRESENTATIVES, INCLUDfNG WITHOUT LIMITATION REAL ESTATE BROKERS OR
- --------------------------------------------------------------------
SALESPERSONS, WHICH EITHER PARTY HAS HEARD AND/QR RELIED UPON IN ENTERING INTO
- ------------------------------------------------------------------------------
THIS LEASE AND THAT THIS LEASE CONTAINS ALL OF THE AGREEMENTS OF THE PARTIES
- ----------------------------------------------------------------------------
HERETO WITH RESPECT TO ANY MATTER COVERED OR MENTIONED fN THIS LEASE AND NO
- ---------------------------------------------------------------------------
PRIOR ORAL OR WRITTEN AGREEMENTS OR UNDERSTANDINGS PERTAINING TO ANY SUCH
- -------------------------------------------------------------------------
MATTERS SHALL BE EFFECTIVE FOR ANY PURPOSE.
- -------------------------------------------
Landlord and Tenant have signed this Lease at the place and on the date
specified adjacent to their signatures below and have initialed all Riders,
Exhibits and Addenda, which are attached to or incorporated by reference in this
Lease.
WITNESSES "TENANT"
/s/ Joseph Ardito, Jr. New Age Cities.Com, Inc.
- ---------------------------
By:/s/ Kenneth Shenkman
----------------------------
/s/ Roni Mandel Title: President
- --------------------------- -------------------------
Date: 9/ April, 1999
At: 1181 South Rogers Circle
#5 Boca Raton, FL 33487
WITNESSES: "LANDLORD"
R. A. LaPointe, Trustee
/s/ [ILLEGIBLE]
- --------------------------- By:/s/ Richard A. LaPointe
----------------------------
Date: 8/18/99
--------------------------
/s/ [ILLEGIBLE]
- ---------------------------
C/O Penn-Florida Capital Corp.
1515 N. Federal Highway
Suite 306
Boca Raton, Florida 33432
THE EXECUTION AND DELIVERY OF THIS LEASE INVOLVES SIGNIFICANT LEGAL CONSEQUENCES
- --------------------------------------------------------------------------------
AND THE PARTIES HERETO SHOULD CONSULT THEIR RESPECTIVE ATTORNEY'S BEFORE
- ------------------------------------------------------------------------
ENTERING INTO SAME. NO REPRESENTATIONS OR RECOMMENDATIONS ARE MADE
- ------------------------------------------------------------------
BY THE LANDLORD, ITS ACTUAL OR APPARENT AGENTS, EMPLOYEES OR REPRESENTATIVES AS
- --------------------------------------------------------------------------------
TO THE LEGAL SUFFICIENCY, LEGAL OR THE TRANSACTION RELATING THERETO.
- --------------------------------------------------------------------
April 5, 1999
18
<PAGE>
EXHIBIT "A"
-----------
SITE PLAN
- -------------------------------------------------------------PENN-FLORIDA-------
CONDOR PLACE
1181 SOUTH ROGERS CIRCLE
BOCA RATON, FLORIDA 33487
SITE PLAN
- ---------
[GRAPHIC OMITTED]
FOR INFORMATION CONTACT: RON SNEIDMAN
Penn-Florida Realty Corporation
1515 N. Federal Highway, Suit 306
Boca Raton, Florida 33432
Phone: (561) 750-1030
Fax: (561) 391-2676
- --------------------------------------------------------------------------------
The information contained herein is regarded as being reliable; however, it is
not guaranteed, and is submitted subject to corrections, omissions, errors,
change or withdrawal without notice.
April 5, 1999
19
<PAGE>
EXHIBIT "B"
-----------
SIGN CRITERIA
These criteria have been established for the purposes of assuring an outstanding
office/warehouse development and for the mutual benefit of all Tenants.
Conformance will be strictly enforced and any installed non-conforming or
unapproved signs must be brought into conformance at the expense of the Tenant,
unless otherwise approved in writing by Landlord.
General Requirements:
1. Prior to applying for sign permit, each Tenant shall submit or cause
to be submitted to the Landlord for approval before fabrication, at lease two
copies of detailed drawings indicating the location, size, layout, design and
color of the proposed signs, including all lettering and/or graphics.
2. All permits for signs and their installation shall be obtained by
the Tenant or his representative.
3. Tenant shall be responsible for the ftilfillment of all requirements
and specifications.
4. All signs shall be constructed and installed at Tenant's expense.
5. All signs shall be reviewed by the Landlord for conformance with
this criteria and overall design quality. Approval or disapproval of sign
submittals based on aesthetics of design shall remain the right of the Landlord
and the local, city or county agencies that have jurisdiction is such matters.
6. Tenant's name identification is permitted on the window adjacent to
the office entry door on units 3 through 32 and on the office entry door on
units 1, 2, 33 & 34. Lettering is to be white in color, 2 inches in height,
helvetica medium (upper case) in style, and to identify the business name only.
7. All window identification lettering shall start at a 5 foot height
off the interior finished floor.
April 5, 1999
20
<PAGE>
EXHIBIT "C"
-----------
SECURITY DEPOSIT REFUND & DEDUCTION
Per Sections 1. 10, 3.03 and 13.02(c) of this Lease:
1. Upon the vacating of the premises for expiration of the Lease, the Landlord
shall have thirty (30) days to return the Security Deposit, or to give the
Tenant written notice by certified mail to the Tenant's last known mailing
address of Landlord's intention to impose a claim on the Security Deposit and
the reason for imposing the claim.
2. If the Landlord fails to give the required notice within the thirty (30) day
period he forfeits his right to impose a claim upon the Security Deposit.
3. Unless the Tenant objects to the imposition of the Landlord's claim or the
amount thereof within thirty (30) days after receipt of Landlord's notice of
intention to impose a claim, the Landlord may then deduct the amount of his
claim and shall remit the balance of deposit to the Tenant within thirty (30)
days.
April 5, 1999
21
<PAGE>
EXHIBIT "D"
-----------
MISCELLANEOUS TERMS & CONDITIONS
1. Per Sections 1. 10, 3.03 and 13.02(c):
On or before execution of this Lease, Tenant shall deposit with Landlord
$3,841.78 as payment for the initial Security Deposit as required in this Lease.
2. Per Sections 1. 1 3, 3.03 and 13.02(c):
2. Per Section 5.02:
Tenant shall have thirty (30) days from the date on which the last party signs
this Lease to obtain all occupational and other licenses needed to operate
Tenant's business at the location as stated in Section 1.04 of this Lease.
April 5, 1999
22
<PAGE>
EXHIBIT "E"
-----------
TENANT IMPROVEMENTS
The cost of all changes to the standard space as provided by Landlord shall be
bome and performed by Tenant in accordance with the provisions set forth below.
Before any applicable alterations, additions, or improvements are made according
to Section 6.05 of this Lease, Tenant shall submit to Landlord or Landlord's
Representative four sets of fully dimensioned 1/4" scale drawings and
specifications prepared by Tenant's licensed architect at Tenant's expense,
which drawings shall indicate clearly and in detail all specific changes and
alterations of Tenant's space, including but not limited to the storefront,
interior partitions, trade fixtures plans, plumbing, lighting, electrical
outlets, floor coverings, interior walls and finishes, doors, alarm systems,
special door openers and buzzers, ceilings, air conditioning and computer,
terminals. Any and all such plans shall be subject to Landlord's or Landlord's
Representative's prior written approval. Landlord or Landlord's Representative
shall have ten (IO) days within which to approve or disapprove Tenanf s proposed
plans. In the event Landlord or Landlord's Representative approves such plans,
Tenant shall immediately commence with the permit and construction process to
completion. In the event Landlord or Landlord's Representative shall disapprove
Tenant's plans, Landlord or Landlord's Representative shall provide Tenant with
written objections, and Tenant shall have ten (I 0) days within which to amend
its proposed plans and incorporate Landlord's or Landlord's Representative's
required changes. In the event Tenant fails to do so, Landlord shall have the
right, upon ten (10) days written notice, to terminate this Lease. In no event
shall Tenant commence any work in the Premises until Landlord or Landlord's
Representative shall have approved in writing Tenant's final plans and all work
shall be in accordance with the final approved plans. In addition, Tenant shall
not have the right to enter upon the Premises to commence such construction
until it has delivered to Landlord a certificate of its liability insurance in
accordance with Section 4.04(b) of the Lease.
Tenant shall obtain at its sole cost and expense all necessary approvals and
permits from all applicable goverm-nental authorities prior to commencement of
work, and shall promptly cause to be made any and all required changes in order
to secure any and all such approvals and permits. Tenant shall supply Landlord
copies of Tenant's certificate of occupancy with respect to the completed
Premises within ten (10) days of the earlier of the following dates: (a) the
date upon which Tenant obtains such certificates of occupancy; or (b) the date
upon which Tenant commences business operations in the Premises. Failure of
Tenant to timely deliver such certificate of occupancy shall be a material
default hereunder.
All work and improvements of any kind shall be Tenant's responsibility and must
be specified and constructed in accordance with the Approved Plans. -
Tenant proposes to do the following work at Tenant's expense:
1. Expand entry to warehouse area from office area to approximately 6
feet wide with double doors instead of existing approximately 3 foot wide single
door.
2. Drop ceiling in warehouse area and provide adequate lighting.
April 5, 1999
23
<PAGE>
STATEMENT OF AGENCY DISCLOSURE
RIE: PROPERTY: Condor Place
SELLER[LESSOR: R. A. LaPointe, Trustee
BUYER/LESSEE: New Age Cities.Com, Inc.
Pursuant to Chapter 475, Florida Statutes, Rule 2 1 V- 1 0.033 A2ency
Disclosure, Penn-Florida Realty Corporation ("PFRC") hereby notifies the
undersigned that in the transaction referenced above, PFRC represents:
(x) Seller/Lessor
( ) Buyer/Lessee
( ) Both Seller/Lessor and Buyer/Lessee, which dual agency is expressly
consented to as evidenced by authorized signature below.
The undersigned hereby acknowledges receipt of this Statement prior to the
execution of the subject contract/lease.
SELLER/LESSOR: BUYER/LESSEE:
R. A. LaPointe, Trustee NewAgeCities.Com, Inc.
By: /s/ Richard A. LaPointe By:/s/ Kenneth Shenkman
---------------------------- ----------------------------
Title: Title: President
------------------------- -------------------------
Date: Date: 4/16/99
-------------------------- --------------------------
April 5, 1999
23
<PAGE>
STATEMENT OF AGENCY DISCLOSURE
RIE: PROPERTY: Condor Place
SELLER[LESSOR: R. A. LaPointe, Trustee
BUYER/LESSEE: New Age Cities.Com, Inc.
Pursuant to Chapter 475, Florida Statutes, Rule 2 1 V- 1 0.033 A2ency
Disclosure, Penn-Florida Realty Corporation ("PFRC") hereby notifies the
undersigned that in the transaction referenced above, PFRC represents:
(x) Seller/Lessor
( ) Buyer/Lessee
( ) Both Seller/Lessor and Buyer/Lessee, which dual agency is expressly
consented to as evidenced by authorized signature below.
The undersigned hereby acknowledges receipt of this Statement prior to the
execution of the subject contract/lease.
SELLER/LESSOR: BUYER/LESSEE:
R. A. LaPointe, Trustee NewAgeCities.Com, Inc.
By: /s/ [ILLEGIBLE] By:/s/ [ILLEGIBLE]
---------------------------- ----------------------------
Title: Title: President
------------------------- -------------------------
Date: 4/18/99 Date: 4/16/99
-------------------------- --------------------------
April 5, 1999
24
THIS INTERNET CONSULTING/MARKETING AGREEMENT entered this 9th day of March 1999
for software development and Internet marketing between: PSYCHICNET.COM, Inc.,
located at, 6016 Amberwoods Drive, Boca Raton, FL 33433, (hereinafter referred
to as "COMPANY"), and VIRTUAL FINANCIAL CORP. located at 750 East Sample Road,
Suite 204, Pompano Beach, Florida 33064, (hereinafter referred to as
"CONSULTANT") engaged in providing software development and Internet marketing
services.
WHEREAS: the COMPANY desires software development and Internet
marketing services and desires to employ CONSULTANT to provide such services as
an independent contractor/consultant, and CONSULTANT is agreeable to such
employment, and the parties desire a written document formalizing and defining
their relationship and evidencing the terms of their agreement.
NOW, THEREFORE, intending to be legally bound, and in consideration of
the mutual promises and covenants, the parties have agreed as follows-
1. APPOINTMENT The COMPANY hereby appoints CONSULTANT as its software
development and Internet marketing consultant and hereby retains and employs
CONSULTANT, on the terms and conditions of this Agreement.
2. TERM The term of this agreement shall begin on March 9, 1999 and shall
terminate on the e of March 2000 and can be cancelled by either party with
thirty days prior notice.
3. DUTIES OF COMPAMY
-----------------
A. COMPANY shall supply CONSULTANT, on a regular and timely basis
with all approved data and information pertaining to the public
disclosure of the COMPANY, its management, products, and/or
operations and the COMPANY shall be responsible for advising
CONSULTANT of any facts which would affect the accuracy of any
prior data and information supplied to CONSULTANT.
B. COMPANY shall promptly notify CONSULTANT of the filing of any
registration statement for the sale of securities and of any
other event which triggers any restrictions on publicity-
C. COMPANY shall notify CONSULTANT if any information or data
supplied to CONSULTANT has not been generally released or
promulgated.
4. DUTIES OF CONSULTANT
--------------------
SCOPE OF WORK
A. PHASE 1. Site Redesign ('Face Lift') Estimated time of
completion: 4 weeks
1
<PAGE>
The initial focus of the VFC team will be to redesign the
graphics, layout and user interface of the Psychichnet.com site
to make it more attractive and professional, easier to navigate,
and more fun and engaging for its users.
This will be accomplished by developing a cohesive design theme
combining professional graphics and animations with a consistent
hierarchical navigational interface.
The Psychic client user interface will be designed to run in any
recent web-browser, including Microsoft Internet Explorer,
Netscape Navigator, and others.
A second important goal in Phase I vall be to increase traffic
to the site through strategic search-engine indexing and online
advertising and promotion.
B. PHASE II. Enhanced E-Commerce System Estimated time of
completion: 10 weeks
In Phase 11, a far more powerful e-commerce system will be
implemented which will offer numerous advantages to the site's
users and to Psychic.
From the customer's perspective, the site will be easier to
navigate and more user-friendly. Users will be able to locate
the product they are looking for more quickly through a
dynamically-generated series of product categories which does
not present as many items at one time as does the current site.
Members of the Psychic discount program will be able to log on
and access the catalog, receiving the actual discounts to which
they are entitled right online.
The program will utilize streaming audio/video to enable the
user to see and hear the psychic. The psychic will have a screen
interface that will allow for product presentations to the user
throughout the Ureading". The products are purchased unless the
user specifically cancels the product purchase. The program will
also give the user the ability to store the reading as an AVI
file.
From the Company's perspective, the site will be more easily
maintained and orders more easily captured and processed. -
Instead of needing to update the product database as well as
dozens of HTML pages manually, the product database will be
automatically converted from the export of the company's
order-entry system database, with just the image file names
being added to the database. No HTML will need to be edited
because the catalog will be dynamically generated on the fly
from the content of the database. This will also allow varying
pages
2
<PAGE>
with different collections of products to be presented to users
based on the preferences and interests they have demonstrated in
navigating the site.
Orders received via the web site will be formafted in a manner,
which can be directly imported into the company's order-entry
system, saving data entry time and eliminating error.
C. PHASE Ill. Advanced Feature Development Estimated time of
completion: 12 weeks
In the third phase of the project, numerous advanced features
will be developed to enable Psychicnet.com to maximize its
initial traffic and to build repeat traffic by creating a
vibrant and loyal user community.
The following is an overview of additional features to be
implemented:
Affiliate site program- psychic/new-age sites will be targeted
to participate in an affiliate program. Technology will be
developed to track where orders originate from, with responsible
sites being compensated accordingly.
Community development- repetitive traffic will be developed by
creating a sense of community through real-time chat rooms,
message boards, and Hask-the-expert" forums.
User preference tracking- sophisticated artificial intelligence
technology will be used to build a profile of customer purchase
habits. This user profile will allow the system to proactively
market to customers by predicting the following:
o Additional products which are of likely interest
o Timing of future purchases of consumable items
5. COMPENSATION For all software development and Internet marketing
services as outlined in item #4,
A. 150,000 shares of common upon execution of this Agreement, to be
paid in Reg D rule 504 stock.
B. COMPANY shall pay CONSULTANT 75,000 options on its common stock
exercisable at $2.25 to be vested as follows: 1. 50,000 upon
completion of the software reference in 4.A.; 2. 12,500 upon
completion of the software reference in 4. B; 3. 12,500 upon
completion of the software reference in 4.C.
C. The COMPANY shall not be responsible for any other costs of
services provided by CONSULTANT unless pre-approved by the
COMPANY.
6. RELATIONSHIP OF PARTIES CONSULTANT is an independent contractor
responsible for compensation of its agents, employees and
representatives, as well as all applicable withholding therefrom and
taxes thereon ( including unemployment compensation) and all workman's
compensation insurance.
7. CONFIDENTIALITY "Confidential Information" for the purposes of this
3
<PAGE>
agreement shall include COMPANY'S proprietary and confidential
information including, without limitations, customer lists,
business plans, marketing plans, financial information, designs,
drawings, spec7ifications, models, software, source codes and
object codes. During the term of this agreement, and thereafter
for 60 months, CONSULTANT shall not, without prior written
consent of COMPANY, disclose to anyone any "Confidential
Information".
8. ATTORNEYS FEES- Should either party default in the terms of
conditions of the agreement and suit be filed as a result of
such default, the prevailing party shall be entitled to recover
all costs incurred as a result of such default including all
costs and reasonable attorney fees through trial and appeal.
9. ENTIRE AGREEMENT This instrument contains the entire agreement
of the parties and may be modified only by agreement in writing,
signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought. This
agreement shall be governed for all purposes by the laws of the
State of Florida. K any provision of this agreement is declared
void, such provision shall be deemed severed from this
agreement, which shall otherwise remain in full force and effect
11. ADDITIONAL DOCUMENTS AND ACTS Each party agrees to execute,
acknowledge, and deliver such additional documents and
instruments and to perform such additional acts as may be
necessary or appropriate to effectuate, carry out, and perform
all of the terms, provisions, and conditions of this Agreement
and the transactions contemplated hereby, and each Party agrees
to act in good faith dealing in facilitating, maintaining, and
carrying out the duties and obligations of this Agreement.
12. ARBITRATION Any controversy or claim arising out of this
Agreement, the interpretation of any of the provisions hereof,
or the action, inaction, or breach of any Party hereunder shall
be settled by arbitration in Pompano Beach, Florida. Any award
of decision obtained from any such arbitration proceeding shall
be final and binding on the Parties, and judgement upon any
award thus obtained may be entered in any court having
jurisdiction thereof. There shall be one arbitrator, mutually
agreeable to the Parties, or if the Parties cannot agree on an
arbitrator, than an arbitrator shall be appointed by a court of
competent jurisdiction. The losing Party shall pay all the
expenses of the arbitration. No action at law or in equity based
upon any claim arising out of or related to this Agreement shall
be instituted in any court by any Party except: (a) an action to
compel arbitration pursuant to this Agreement, or (b) an action
to enforce an award obtained in an arbitration proceeding in
accordance with this Agreement.
13. AUTHORITY The Parties hereto represent and warrant that they
possess the full and complete authority to covenant and agree as
provided in this Agreement and, if applicable, to release other
Parties as provided herein. If any Party hereto is not a natural
person, the signatory for any such non-natural person represents
and warrants that he or she possesses the authority and has been
authorized by
4
<PAGE>
the entity to enter into this Agreement on the entity's behalf,
whether by resolution, or upon the instruction by an authorized
officer, or as authorized in the bylaws of the entity on whose
behalf the signatory is executing this Agreement. No Party to
this Agreement will be required to determine the authority of
the individual signing this Agreement to make any commitment or
undertaking on behalf of such entity.
14. BINDING EFFECT This Agreement will be binding upon and inure to
the benefit of the Parties, and their respective heirs,
successors, and assigns. Nothing expressed or implied in this
Agreement is intended, nor shall be construed, to confer upon or
give any person, partnership, or corporation, other than the
Parties, their heirs, successors, and assigns, any benefits,
rights, or remedies under or by reason of this Agreement, nor
shall anything in this Agreement relieve or discharge the
obligation or liability of any third person to a Party to this,
Agreement, nor shall any provision give any third person any
right of subrogation or action over or against any party to this
Agreement, except to the extent of any contrary provision herein
contained.
15. CONSTRUCTION In the event of a dispute hereunder, this Agreement
shall be interpreted in accordance with its fair meaning and
shall not be interpreted for or against any Party hereto on the
ground that such Party drafted or caused to be drafted this
Agreement or any part hereof, nor shall any presumption or
burden of proof or persuasion be implied by virtue of the fact
that this Agreement may have been prepared by or at the request
of a particular Party or his or her counsel.
16. EXHIBITS All Exhibits attached hereto or mentioned herein in
this Agreement are incorporated by reference for all purposes
and shall be treated as if set forth herein.
17. FORCE MAJEURE Any party shall be released from its obligations
under this Agreement in the event of an act of God, war, riot,
fire, strike, or other labor dispute, epidemic, or other causes
beyond the control of that Party, render performance by that
Party impossible.
18. GOVERNING LAW The Parties to this Agreement agree that all
questions respecting the negotiation, execution, construction,
interpretation, or enforcement of this Agreement, or the rights,
obligations, and liabilities of the parties hereto, shall be
determined in accordance with the applicable provisions of the
laws of the state of Florida.
19. INDEMNIFICATION Each party shall indemnify the other against any
and all claims, demands, losses, costs, obligations, and
liabilities that the Party may incur or suffer as a result of
the other Party's breach of any agreement, covenant, or warranty
in this Agreement.
20. JURISDICTION Each Party hereby consents to the exclusive
jurisdiction of the state of Florida, whether such action be for
arbitration or litigation, or otherwise. Each Party further
agrees that personal jurisdiction over him or her may be
effected by service of process by registered of certified mail
addressed as
5
<PAGE>
provided in the Notice section of this Agreement, and that when
so made shall be as if served upon him or her personally within
the state of Florida.
21. MODIFICATION The provisions of this Agreement may be waived,
altered, amended, modified, or repealed, in whole or in part,
only by the written consent of all Parties to this Agreement
22. NO AUTHORITY TO BIND Nothing contained in the Agreement shall be
construed to constitute either Party as a partner, employee,
joint venture, or agent of the other party, nor shall either
Party have the authority to bind the other in any respect, it
being intended that each shall remain an independent and
responsible for his/hers/its own actions. Furthermore, each
Party shall not use the name or credit of the other party in any
manner whatsoever, nor incur any obligation in the other Party's
name.
23. NON-WAIVER The failure of any party to insist upon the prompt
and punctual performance of any term of condition in this
Agreement, or the failure of any Party to exercise any right or
remedy under the terms of this Agreement on any one or more
occasions shall not constitute a waiver of that or any other
term, condition, right, or remedy on that or any subsequent
occasion, unless otherwise expressly provided for herein.
24. NOTICES Any notices or other document to be given or to be
served upon any Party hereto in connection with this Agreement
must be in writing, (which may include facsimile) and will be
deemed to have been given and received when delivered to the
address specified in this Agreement; and if none is specified,
to the last known address by the Party to receive the notice.
Any Party may, at any time by giving five-(5) days prior written
notice to the other Parties, designate any other address in
substitution of the foregoing address to which such notice will
be given.
25. SEVERABILITY If any provision of this Agreement or the
application of such provision to any person or circumstance
shall be held invalid for any reason, the remainder of this
Agreement or the application of such provision to persons or
circumstances other than those to which it is head invalid shall
be unaffected by such holding. If the invalidation of any such
provision materially alters the Agreement of the Parties, then
the Parties shall immediately adopt new provisions to replace
those which were declared invalid,
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
executed this agreement.
/s/ [ILLEGIBLE]
- ----------------------- VIRTUAL FINANCIAL CORP.
Witness 750 East Sample Road
Suite 204
Pompano Beach, Florida
/s/ [ILLEGIBLE]
- -----------------------
Printed
By: /s/ Richard Dwyer
----------------------
Richard Dwyer
/s/ [ILLEGIBLE]
- ----------------------- Psychicnet.com, Inc.
Witness 6016 Amberwoods Drive
Boca Raton, FL 33433
/s/ [ILLEGIBLE]
- -----------------------
Printed
By: /s/ Joseph Ardito Jr.
----------------------
Joseph Ardito Jr.
7
LICENSE AGREEMENT
-----------------
This Agreement is entered into this 30th of March, 1999 by and
between QSound Labs, Inc., an Alberta corporation with principal offices at 400
- - 3115 12th Street NE, Calgary, Alberta T2E 7J2 Canada ("QSL") and New Age
Cities.com Inc., a Florida corporation with principal offices at 4910 Blue Lake
Drive, Boca Raton FL 33431 ("Licensee").
WHEREAS QSL is in the business of distributing Internet
product marketing systems consisting of proprietary Internet affiliate marketing
program and browser-based Internet store software;
AND WHEREAS Licensee is in the business of operating a World
Wide Web site relating to certain information, products and services, and
Licensee desires to obtain from QSL a non-exclusive license under QSL's
intellectual property rights to use QSL's affiliate marketing program and
Internet store software in connection with such site;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements hereinafter set forth, it is mutually covenanted
and agreed as follows:
1.00 Definitions
1.01 "Agreement" means this License Agreement and Schedules "A" and "B"
which are incorporated into and form part of this Agreement.
1.02 "Affiliate Program" means QSL's Internet Affiliate Marketing System
which is described in Schedule "A" hereto.
1.03 "Internet Store" means QSL's Virtual Spin Internet Store System which
is described in Schedule "A" hereto.
1.04 "QSL Intellectual Property" means all patents, patent applications,
copyrights, and other intellectual property rights in all countries of the world
which are owned by QSL, or licensed to QSL with the right to grant sublicenses
of the scope herein granted without payment of royalties, and which relate to
the Affiliate Program and the Internet Store and which are necessary to
implement the license granted to Licensee hereunder.
1.05 "Website" means Licensee's World Wide Web site www.newagecities.com
which is the gateway for New Age-related information, chat rooms, third party
website links, products and services.
1.06 "Software" means the software, in object code format only, provided by
QSL to Licensee relating to the Affiliate Program and the Internet Store.
1.07 "Term" means the term of this Agreement and of the rights granted
hereunder, as set out in section 2.03 hereof.
2.00 Grant of License/Upgrades/Term/Exclusivity
------------------------------------------
2.01 License. Subject to the terms and conditions of this Agreement, QSL
hereby grants to Licensee a non-exclusive, non-transferable, world-wide right
and license under the QSL Intellectual Property Rights, to use the Software,
solely in conjunction with the Website: i) to establish and operate one or more
Affiliate
<PAGE>
Programs; ii) to establish and operate one or more Internet Stores; and iii) to
distribute Internet Stores to third party customers.
2.02 Upgrades/Enhancements. QSL agrees to provide to Licensee upgrades and
enhancements developed by QSL during the term of this Agreement on the same
basis as QSL generally provides such upgrades and enhancements to its other
licensees who license the Software provided that if QSL does not license the
Software to third parties, then on terms to be negotiated in good faith by QSL
and by Licensee.
2.03 Term. The term of this Agreement shall commence on the date set forth
above and shall terminate upon termination of this Agreement as set forth in
Article 7.00 hereof.
2.04 Exclusivity. Customer agrees that during the term of this Agreement
Customer shall not enter into any agreements with any third party for technology
similar to the Software.
3.00 Customization/Support
---------------------
3.01 Customization/Implementation: QSL shall provide services to Licensee as
specified below:
a) Customization and implementation of Affiliate Program;
b) Customization and implementation of Internet Store version 4.5;
c) Implementation of new Affiliate Program and Internet Store features as
generally made available to QSL's customers, or at fees and on terms to be
negotiated in good faith, as appropriate;
d) Technical maintenance support services for Affiliate Program and Internet
Store; and
e) Credit card verification and authorization services for the Affiliate Program
and the Internet Store, if requested.
All customization shall be based upon Customer's specifications, which shall be
provided by QSL to Customer within 7 days of the date of this Agreement.
Customization, implementation and support services pursuant to a), b) and c)
shall be at no additional fees for the first aggregate 100 hours of service.
Thereafter QSL shall provide technical services as reasonably required to
operate the Affiliate Program and the Internet Store: i) for a period of 90 days
following the date of this Agreement at fifty (50%) percent (not to exceed
$50.00 US per hour) of standard industry rates; and ii) thereafter during the
term of this Agreement at standard industry rates.
4.00 Licensee Obligations
--------------------
4.01 Hosting Licensee shall host, on its equipment, all domains and files
necessary to support the Affiliate Program and the Internet Store and shall
serve banners for the Affiliate Program. If at any time during the term of this
Agreement Licensee requests and QSL agrees to host the Affiliate Program and/or
the Internet Store, QSL and Licensee will negotiate in good faith fees for such
hosting services.
4.02 Compliance Licensee shall: i) comply with all applicable present and future
federal, state and local laws, ordinances and regulations; ii) refrain from
engaging in any unfair competitive practices, including without limitation bait
and switch; and iii) immediately forward to QSL any information concerning
charges,
2
<PAGE>
complaints, or claims of damage to any of the Affiliate Program or
Internet Store service that may come to Licensee's attention.
4.03 System Requirements Licensee acknowledges and agrees that the Affiliate
Program and the Internet Store require, and Licensee will use, the system
requirements set out in Schedule "B" hereto. Such system requirements are
subject to change and upgrade at Licensee's expense within thirty (30) days of
notification of change by QSL to Licensee, and as required to accommodate new
affiliates/customers/sites added under the Affiliate Program and/or the Internet
Store. The system requirements set out Schedule "C" and as changed and upgraded
from time to time are called "System Requirements".
4.04 NT Domain Access Licensee shall provide to QSL complete access to the
NT domain on which Internet Store resides via a one-way trust relationship to
Internet Store Domain.
4.05 SSL Keys Licensee shall provide SSL keys and SSL Virtual Directory for
Licensee Checkout, Merchant administration and site administration (can be
obtained through Verisign).
4.06 Licensee/End-user Support Licensee shall provide technical support to
affiliates under the Affiliate Program, to Internet Store customers and to their
respective end-users.
5.00 License Fee/Royalties
---------------------
5.01 License Fee/Royalties. Licensee shall pay to QSL the following license
fees and royalties:
a) a license fee consisting of four hundred thousand (400,000) common
shares of Licensee ("Common Shares") issuable upon execution of this
Agreement;
b) a further license fee consisting of options, issuable upon execution
of this Agreement and exercisable for a 5 year period from date of
grant, to purchase one hundred and twenty-five thousand (125,000)
common shares ("Option Shares") of Licensee at the exercise price of
Two Dollars and Twenty-Five Cents US ($2.25 US) per share ("Options");
and
c) commissions equal to three (3%) percent of all Website Revenues. As
used herein, "Website Revenues" means gross proceeds received by
Customer during the term of this Agreement from any source as a result
of Customer's use and distribution of the Affiliate Program and the
Internet Store. Without limitation such revenues shall include revenue,
commissions and revenue share received by Customer from or in
connection with:
-sales of Customer and/or third party products and/or
services from Customer's Internet Store(s) and from
Internet Stores set up by Customer's Internet Store
customers;
-sales of Customer and/or third party products and/or
services through affiliates;
-advertising revenues;
-customer list rental revenues;
-per minute telephone charges;
-all other revenue, commission and/or revenue share
that arises as a direct or indirect result of this
Agreement.
5.02 Piggyback Registration of Common Shares and Options. If at any time
from the date of this Agreement up to the date when all of the Common Shares and
the Option Shares have been sold by QSL, Licensee proposes to register any of
its securities under the Securities Act, Licensee shall give
3
<PAGE>
written notice of its intention to do so to QSL and shall permit QSL to include
the Common Shares, the Options and the Option Shares in Licensee's registration
statement, at no cost or expense to QSL.
5.03 Quarterly Reports. Within thirty (30) days after March 31, June 30,
September 30 and December 31 of each year, Licensee shall submit to QSL an
accurate written report, setting forth the amount of Website Revenues received
by Licensee during the preceding quarter and the royalty, if any, payable. The
report shall be accompanied by full payment of the royalty, if any, payable
under section 5.01 of this Agreement. Licensee shall pay interest on overdue
royalties at the rate of one and one-half percent (1.5 %) per month.
5.05 Records. Licensee shall keep true records of account including copies
of invoices, affiliate reports and other records in sufficient detail to enable
the royalties payable hereunder to be determined, maintaining such invoices and
records for a period of three (3) years after their creation, and further agrees
that it will permit such invoices and records to be audited at any reasonable
time during business hours, no more frequently than annually, by an independent
certified public accountant selected by QSL and reasonably acceptable to
Licensee. The cost of such audit shall be paid by QSL provided that Licensee
shall pay the reasonable costs of the audit if the audit reveals any under
payment which, in the aggregate, is greater than five (5%) per cent of the
royalty actually due for the period being audited. If such audit shows
additional royalties to be due Licensee shall within thirty (30) days from the
date of the audit report pay the additional amount. If such audit shows an over
payment of royalties, QSL shall within thirty (30) days from the date of the
audit report refund the amount of the overpayment to Licensee.
6.00 Trademark and Usage
-------------------
6.01 Use of QSL Trademarks by Licensee. Subject to the terms and conditions
of this Agreement, QSL hereby grants to Licensee a non-exclusive worldwide
license to use QSL's trademarks which may be provided from time to time by QSL
in connection with use of the Affiliate Program and the Internet Store hereunder
("QSL Trademarks"). Licensee agrees to use the QSL trademarks in accordance with
QSL's trademark usage policies.
6.02 Use of Licensee Trademarks by QSL. Licensee hereby grants to QSL the
worldwide, royalty-free right to use Licensee's trademarks ("Licensee
Trademarks") in connection with advertising, marketing and public relations
relating to the Software.
7.00 Termination
-----------
7.01 Termination Due to Breach. If either party is in material breach of a
material term of this agreement and if such breach shall continue unremedied for
a period of thirty (30) days after written notice of such breach to the
breaching party, the non-breaching party may thereafter immediately terminate
this Agreement by written notice of such termination to the breaching party.
7.02 Other. Each party shall have the right to terminate this Agreement at
any time upon insolvency of the other party, or after the filing by the other
party of a petition in bankruptcy, or upon or after the filing of any petition
or answer seeking reorganization, readjustment or rearrangement of the business
of the other party under any law or any government regulations relating to
bankruptcy or insolvency, or upon or after the appointment of a receiver for all
or substantially all of the property of the other party, or upon or after the
making by the other party of any assignment or attempted assignment for the
benefit of creditors, or upon or after the institution by the other party of any
proceedings for the liquidation or winding-up of its business, or for the
determination of its corporate charter; and upon the exercise of such right,
this Agreement shall
4
<PAGE>
terminate fifteen (15) days after notice in writing to that effect has been
given. This Agreement may be terminated upon mutual agreement of the parties.
7.03 Effects of Termination.
-----------------------
a) Termination of this Agreement shall include termination of all
rights and licenses granted hereunder.
b) No failure or delay on the part of a non-breaching party hereto to
exercise its right of termination hereunder for any one or more defaults shall
be construed to prejudice its right of termination for such or any other or
subsequent default. Any termination as provided herein shall not in any way
operate to limit any of the non-breaching party's rights or remedies, either at
law or in equity, or to relieve the breaching party of any obligation accrued
prior to such termination.
7.04 Survival. Articles 8.00, 9.00 and 10.00 and section 7.04 hereof shall
survive termination of this Agreement.
8.00 Warranties
----------
8.01 QSL Warranties. QSL warrants and represents to Licensee that i) QSL has
the power and authority to enter into this Agreement; and ii) to the best
knowledge of QSL the Software as provided to Licensee and the QSL Trademarks do
not infringe the intellectual property rights of any third party.
8.02 Licensee Warranties. Licensee warrants and represents to QSL that: i)
Licensee has the power and authority to enter into this Agreement; ii) to the
best knowledge of Licensee, Licensee Trademarks do not infringe the intellectual
property rights of any third party; iii) Licensee is permitted by applicable law
and regulations to enter into this Agreement and to engage in the activities
contemplated hereunder and will remain in compliance with all applicable laws
and regulations; and iv) Licensee and any of its customers which use the
Affiliate Program and/or the Internet Store have or will have obtained all
necessary consents or authorizations required to sell or license any product,
content or service (collectively "Products"), and each such party shall warrant
to Licensee, prior to using the Affiliate Program or the Internet Store, that
the Products and distribution of same: A) will not infringe any patent,
copyright, trade secret or other proprietary right of any third party; B) are
not libelous and will not violate any rights or privacy and/or publicity of a
third party; and C) will not otherwise give rise to any claim against QSL by
Licensee, its customers or affiliates, or any third party under any law or any
theory.
8.03 No Consequential Damages. Each party hereto agrees that under no
circumstances shall the other party be liable to the other or any third party
for incidental, special or consequential or similar damages (including lost
profits) or related expenses arising out of or in connection with this Agreement
even if such other party has been notified of the possibility of such damages.
Notwithstanding any other provision of this Agreement, QSL's maximum liability
for damages shall be limited to payments made by Licensee to QSL under this
Agreement.
8.04 Limitation of Liability/Disclaimer
a) QSL MAKES NO REPRESENTATIONS THAT THE OPERATION OF THE SOFTWARE WILL
BE UNINTERRUPTED OR ERROR FREE. QSL HAS NO RESPONSIBILITY FOR THE CONTENT,
QUALITY OR ACCURACY OF THE PRODUCTS, SERVICES OR WEBSITES OF LICENSEE,
AFFILIATES USING THE AFFILIATE PROGRAM OR CUSTOMERS USING THE INTERNET STORE.
UNDER NO CIRCUMSTANCE WILL QSL BE RESPONSIBLE FOR THE TRANSACTIONS OR
5
<PAGE>
NEGLIGENCE OF LICENSEE, AFFILIATES USING THE AFFILIATE PROGRAM OR CUSTOMERS
USING THE INTERNET STORE.
b) Licensee agrees that there are no representations, warranties or
conditions (express or implied, oral or written) such as but not limited to
warranties of merchantability and fitness for a particular purpose, made by QSL
in connection with the Software.
c) QSL HEREBY DISCLAIMS ANY AND ALL LIABILITY FOR CLAIMS, ACTIONS,
DAMAGES, SETTLEMENTS, COSTS AND EXPENSES WHICH MAY ARISE AS A RESULT OF OR IN
CONNECTION WITH USE BY LICENSEE OF SYSTEMS WHICH ARE NOT IN CONFORMANCE WITH
SYSTEM REQUIREMENTS AS SET OUT IN SECTION 4.03 HEREOF.
9.00 Indemnification
---------------
9.01 Indemnification. Each party shall defend, indemnify and hold harmless
the other party, including its officers, directors, agents, technology partners
and employees from any and all third-party claims, liabilities, costs or
expenses, including reasonable attorney's fees ("Claims") resulting from the
indemnifying party's breach of any of the agreements, representations or
warranties in this Agreement. Each party agrees to : i) promptly notify the
other party in writing of any Claim or potential Claim and shall give the other
party the opportunity to defend or negotiate a settlement of any such Claim at
such other party's expense; and ii) co-operate fully with the other party, at
such other party's expense, in settling or defending such Claim. QSL reserves
the right, at its own expense, to assume the exclusive defense and control of
any matter otherwise subject to indemnification by QSL hereunder, and in such
event QSL shall have no further obligation to provide indemnification for such
matter hereunder.
10.00 Confidential Information/Ownership
----------------------------------
10.01 Proprietary Rights Notices. Licensee shall not remove, modify, obscure
or otherwise alter any copyright, patent, trademark or other similar notices
which appear on the Software.
10.02 Ownership. All right, title and interest, other than the rights and
licenses explicitly granted to Licensee in this Agreement, in and to QSL
Intellectual Property Rights shall remain with and accrue solely to QSL. Any
improvements made by Licensee to QSL Intellectual Property Rights shall be owned
by QSL
11.00 Notice
------
11.01 Notice. Any notice required to be given hereunder shall be in writing
and shall be sent by personal delivery or, except during any period when postal
service in interrupted, by prepaid registered mail, certified mail or overnight
courier or by telecopy ("other communication") addressed as follows:
If to Licensee: New Age Cities.Com Inc.
4910 Blue Lake Drive
Boca Raton, FL 33431
Attention: Kenneth Shenkman
If to QSL: 400 - 3115 12th Street NE
Calgary, AB T2E 7J2
Attention: Ms. Joanna Varvos, Legal Counsel
Fax: (403) 250-1521
6
<PAGE>
11.02 Deemed Receipt. Notices shall be deemed received as follows: I) if
given by registered mail or certified mail notice shall be deemed to have been
received by the party to whom it was addressed on the date falling seven
business days following the date upon which it was sent; ii) if personally
delivered during normal business hours, when so delivered; or iii) if sent by
courier, by next business day; and iv) if given by other communication on the
day of transmission unless such day is not a business day in which case the next
following business day. QSL and Licensee may change the address designated from
time to time, by notice in writing to the other party.
12.00 Successors and Assigns
----------------------
12.01 Assignment. This Agreement shall not be directly or indirectly
assigned, transferred or shared by Licensee to or with any individual, firm,
corporation or other entity without the prior written consent of QSL, which
consent will not be unreasonably withheld. The assignee shall expressly assume
all of the obligations and liabilities of Licensee under this Agreement, and
Licensee shall remain liable and responsible to QSL for the performance and
observance of all obligations and liabilities under this Agreement.
12.02 Enurement. This Agreement shall enure to the benefit of and shall be
binding upon the successors and assigns of QSL.
13.00 Miscellaneous Provisions
------------------------
13.01 Infringement Actions. Nothing contained in this Agreement shall be
construed as imposing an obligation upon either party to bring or prosecute
actions or suits against third parties for infringement.
13.02 Governing Law. It is the intention of the parties hereto that this
Agreement shall be construed and interpreted in accordance with the laws of the
Province of Alberta.
13.03 Partial Invalidity. If any provision of this Agreement shall be held by
a court of competent jurisdiction to be illegal, invalid or unenforceable, the
remaining provisions shall remain in full force and effect.
13.04 Waiver. The waiver of, or failure to enforce, any breach or default
hereunder shall not constitute the waiver of any other or subsequent breach or
default.
13.05 Promotion. QSL reserves the right to associate the Website in
advertising, promotion and marketing campaigns on behalf of the Software.
13.06 Successor Corporation. "Licensee" as used herein includes any successor
corporation which may be formed in connection with any merger, acquisition,
reorganization or similar transaction to which Licensee hereunder may become a
party, and any such successor shall be entitled to all of the rights and
benefits, and shall be liable for all of the obligations and liabilities, of the
Licensee hereunder.
13.07 Entire Agreement. This Agreement is the entire agreement and supersedes
all other agreements between the parties, whether oral or written, or
advertising representations, in connection with the subject matter hereof. This
Agreement shall not be subject to change or modification except by the execution
of another agreement in writing subscribed to by the parties hereto.
7
<PAGE>
13.08 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same original.
IN TESTIMONY WHEREOF, each of the parties has caused this instrument to
be duly executed on its behalf by a duly authorized officer.
QSOUND LABS, INC. NEW AGE CITIES.COM INC.
By: By:
-------------------------------- -------------------------------
David Gallagher Kenneth Shenkman
Title: President Title: President
----------------------------- ----------------------------
agreement/license/internetmarketingprogram/nact.commarch30
8
<PAGE>
SCHEDULE "A" TO LICENSE AGREEMENT
BETWEEN QSOUND LABS, INC. AND NEW AGE CITIES.COM, inc.
DATED MARCH 30, 1999.
Internet Affiliate Marketing System
-----------------------------------
Affiliate Component
- -------------------
- -real time statistics reporting of impressions, clicks, click-throughs and
sales.
- -real time performance reports (including conversion ratios) on individual,
group, product or affiliate basis -reports customizable by time period, by
product, by affiliate -affiliates can carry multiple products -scalable
commission structure -multi-tiered referral system
Banner tracking
- ---------------
- -combines with banner-serving component to enhance accuracy of statistics and
reports
- -real time reporting of impressions, clicks, click-throughs and sales
- -real time performance reports on individual, group, product, affiliate or
Merchant basis
Merchant component
- ------------------
- -real time statistics reporting of affiliate impressions, clicks, click-throughs
and sales -real time performance reports (including conversion ratios) on
individual, group, product or affiliate basis -multi-tiered referral tracking
- -allows for multiple Merchant affiliate programs
Banner Serving
- --------------
- -banner delivery service
- -incorporates into tracking system to enhance accuracy of statistics and reports
9
<PAGE>
Internet Store System
---------------------
KEY FEATURES OF INTERNET STORE 4.5
o Easy-to-use for both consumers and businesses
o Low cost (as low as $29 per month)
o Can be managed from anywhere Internet access is available
o No additional software to load (only browser and internet connection
req.)
o Fully secure merchant access for administration (voted most powerful by
PC Magazine this November)
o Drag and Drop ftp transfer of graphic images and logos
o Up to 8 "extended attributes" configurable for each item
o Fully implemented shopping cart function
o Merchant can create unlimited shipping tables by weight or value
o Individual shipping tables can be assigned by part number
o Automatically calculates shipping costs
o Transactions processed by Cybercash
o Merchant site can be updated at any time
o Seamless integration with existing web site or as a stand-alone web
site
o Fully supports HTML tags
o Full support for Java and ActiveX
o Full support for MIDI, AVI, MPG
o Automated registration of top level domain name
o Member data base
o Technical support seven-days-a-week
Merchant Activation Features
- ----------------------------
<TABLE>
<CAPTION>
<S> <C>
Merchant Selectivity for credit card authorization Can use Internet Store's credit card authorizations, your
Address Verification system, or both. When customer makes an entry error, they are
immediately notified.
Domain Name Registration Immediate online registration of your domain name.
Simple File Transfer "Drag and Drop" File transfer from local computer to Internet Store.
Multiple Product Attributes Definable by merchant, for products that have multiple selling
features.
Sales Tax Calculation* Automatically calculates sales tax according to your order/shipping
location.
Voice Access to Technical Support "live" phone technical support.
Import and export information Entering information is simplified with this Internet Store feature.
Basic Features
- --------------
On-line merchant subscription and web site setup Visit www.virtualspin.com and use an on-line form to place your
in real time subscription starting at 6 months.
Easy to learn and use and sites can be set-up in a Internet Store was designed with simplicity in mind. Easy to follow
instructions
10
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matter of hours are available at www.virtualspin.com, as well as a phone support
desk.
Low cost Since you control your web site's design, with Internet Store,
design costs are kept at a minimum.
Site maintenance anywhere Internet access exists-- On any computer platform that has an Internet connection, your site
no additional software to load--Site updates any can be modified, updated, or completely re-done, from anywhere in
time with changes made in real time the world. Your access password is all that is needed! Customers
see the changes as soon as they visit your site.
Fully secure merchant access for site maintenance-- A fully implemented security system has been designed by Internet
secure hosting by Virtual Spin(TM), merchant, or other Store to keep security tight. All ISP's who host Internet Store, are
ISP compliant to the requirements established by Virtual Spin.
Fully implemented shopping cart feature On every catalog page, the shopping cart icon lets you add items as
you shop. This "order" icon is a customizable and user selectable
Unlimited shipping table creation by weight or Your shipping tables are totally customizable. Each Internet Store
value--Individual shipping table assignment by part product can have different set of shipping options. Once the
number--Internet Store automatically calculates Internet Store item is fully designed, and a customer selects the
shipping costs item, the customer has the option of choosing which shipping method
they prefer, and can compare shipping costs, as they shop!
Secure transactions (SSL) All Internet Store sites are securely licensed, for safe
shopping with a credit card--credit card transactions are
safe over Internet Store sites.
Seamless integration with existing web site or as a The Internet Store site is so well put together, that you do not
stand alone web site need another site to supplement your on-line catalog. If you already
have a site, Internet Store enhances it!
Fully supports HTML tags, Java and activeX When you enter text in a Internet Store site you can add HTML, Java,
or ActiveX tags, which enhance the format of the characters, making
them bold, or animated, for example.
Sales information tracking for promotion Navigation reports can be generated to show you which pages are most
strategies: customer list, navigation patterns, etc. often hit, as customers purchase products, a client list is
generated for a possible sales tool.
Live phone technical support. Personal and on-line support is always available through Virtual
Spin.
</TABLE>
E-Commerce
----------
QSL provides credit card verification and authorization services in connection
with the Affiliate Program and the Internet Store.
11
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SCHEDULE "B" TO LICENSE AGREEMENT
BETWEEN QSOUND LABS, INC. AND New Age Cities.Com, INC.
DATED MARCH 30, 1999.
LICENSEE SYSTEM REQUIREMENTS
----------------------------
AFFILIATE PROGRAM REQUIREMENTS
------------------------------
Operating system software: Windows NT 4.0 SP4
Web server software: Windows llS 4.0
Server software" Microsoft SQL 6.5 or 7.0
Minimum disk space: 4.5G mirrored
Recommended disk space: 9G RAID
Minimum memory: 256 MB RAM
Recommended memory: 712 MG RAM
Internet Store Requirements
---------------------------
Internet Store Hardware Minimum Requirements:
Intel P2-350 CPU - Preferably a Dual P2 System 128 MB Ram - Highly recommend
256mb or higher 1mb PCI SVGA Card - Preferably 2mb PCI 1.44 Floppy Drive
3 4 Gig Fast SCSI Wide Drives Striped with Parity or a Hardware RAID Card. 10mb
NIC - Preferable a 100mb NIC - Recommend 3com with NT. (You are going to need at
least 3 GIG to start out, due to SQL databases, and Log Archives)
Internet Store Software Minimum Requirements:
Microsoft Windows NT 10 User minimum
Microsoft SQL Server 6.5 5 User minimum
PcAnywhere 8.0 Host Only
Most updated Service packs available
Important Notes:
Internet Store requires that no proxies be installed between it and the
Internet. Packet Filtering is fine with the exception of some ports. Internet
Store requires a static (dedicated) IP address. You will need an SSL Key from
Verisign- http://www.verisign.com . Note-You will need your company's DUNS #.
This is the most common hold back.
12
<PAGE>
Things that help out the process of an installation:
NT Server setup, with IIS 3 FTP and WWW Services installed. Gopher not
necessary.
SQL Server 6.5 setup, with a 50mb Master Database. 1 Gig Database called Cartdb,
500mb Database called Cartdb_Archive with a 300mb Log File is usually a good
place to start.
Information Necessary to complete an installation:
o Internic Mission statement, for NEW domains for internic templates.
o Internic Mission statement for domain MODIFIES for internic templates.
o DNS Server 1 name and IP address. Ex. NS1.virtualspin.com-207.173.88.1
o DNS Server 2 name and IP address. Ex. NS2.virtualspin.com-207.173.88.3
o Internic Administrative Contact NIC Handle Ex. AN23-ORG
o Internic Technical Contact NIC Handle Ex. AN23-ORG
o Network Bandwidth - T1, 256k, DS3
o Firewall - Yes/No - Type - Ex. Packet Filtering, Borderware, Firewall
1, Microsoft Proxy Server (Cannot have a proxy, or be using NAT as
noted above.)
o Technical Contact Name-Phone Number/Fax Number - and Email name. Ex.
[email protected]
o Static IP Address
o Server Name
o Mail Server FQDN
o Internet Domain Name that you are going to use. (For Virtual Sites/SSL,
etc.)
o Email Addresses need to be setup: These can change, they are just the
most common.
1. [email protected]
--------------------
2. [email protected]
-------------------
3. [email protected]
-------------------
4. [email protected]
-------------------
o Administrator Equivelant Username/password setup to be provided by host
Personnel Required
On-staff or persons expert in:
Microsoft NT 4.0 server
PCP/IP
SQL Server 6.5
hardware repair
CARTALOGU
MERGER AGREEMENT AND
PLAN OF REORGANIZATION
This MERGER AGREEMENT and PLAN OF REORGANIZATION (the "Agreement")
dated as of June 21, 1999 is by and among MEMBER NET, INC. (" MNI"), a
California corporation whose principal office is located at 9551 Irondale
Avenue, Chatsworth, California 91311 and the Shareholders of MNI set forth
on the signature page hereto, and NEWAGECITIES.COM, INC. ("NACT"), an Idaho
corporation whose principal office is located at 1181 S. Rogers Circle,
Suite 5, Boca Raton, Florida 33487, and Newagecities.com ("SUB"), a Florida
corporation, and a wholly-owned subsidiary of NACT.
RECITALS
A. NACT is scheduled to launch an Internet website with the domain name
www.newagecities.com, by August of 1999. The site is intended to be commerce
enabled merchant community and portal website, specifically targeted to a
demographic audience sometimes collectively referred to as "New Age." NACT
is authorized to issue 45,000,000 shares of Common Stock, par value $0.02
(the "NACT Shares") of which 3,599,749 shares is issued and outstanding.
B. MNI owns an Internet website with the domain name
www.mindbodysoul.com, which is marketed to the "New Age" demographic
audience. MNI owns licenses for the use of a variety of Internet tools such
as web-based e-mail, a search engine and an Internet guide.
C. NACT desires to acquire ownership of MNI by causing MNI to be
merged with and into SUB and SUB shall be the surviving corporation. NACT
will issue two million five hundred thousand (2,500,000) shares of Common
Stock, par value $.02 (the "NACT Common Stock"), to be issued to the MNI
shareholders in exchange for all of the MNI Common Stock issued and
outstanding (the "MNI Stock"), at a ratio as herein set forth. In addition,
NACT will issue one million (1,000,000) warrants to purchase up to one
million (1,000,000) shares of NACT common stock at the exercise price of
$2.25 per share, to be issued to the shareholders
<PAGE>
of MNI, at the same ratio as herein set forth for the MNI
Stock.
D. The respective Boards of Directors of MNI, NACT and SUB deem it
desirable and in the best interests of their respective corporations, and of
their respective stockholders, that MNI be merged into and with SUB in
accordance with the Florida Business Corporation Act ("FBCA") and the
California General Corporation Law ("CGCL"), as a result of which SUB, the
surviving corporation, and the holders of the outstanding capital stock of
MNI will receive the consideration hereinafter set forth.
E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code").
F. The parties have executed a Letter of Intent dated May 25, 1999 (the
"LOI") providing for the aforesaid merger.
NOW, THEREFORE, in consideration of the terms,
conditions, agreements and covenants contained herein, and
in reliance upon the representations and warranties contained in this
Agreement, the parties hereto agree as follows:
I.
MERGER OF MNI WITH AND INTO SUB
1.1 Merger and Survival of NACT: In the manner and subject to the
terms and conditions set forth herein, MNI shall be merged with and into SUB
(the "Merger") in accordance with the provisions of, and with the effect
provided in the respective corporate laws of the parties. SUB shall be the
surviving corporation after the Merger and shall continue to exist as a
corporation created and governed by the laws of the State of Florida.
1.2 Effective Date: If all of the conditions precedent to
the obligations of each of the parties hereto as hereinafter
set forth shall have been satisfied or shall have been
2
<PAGE>
waived, the Merger shall become effective on the date (the "Effective Date")
the certificate of merger, in the form set forth as Exhibit 1 hereto, will
be presented for filing with the Secretary of State of Florida and the
Secretary of State of California (the "Merger Filings"). This shall take
place on or as soon as practical after, the Closing Date as defined herein.
1.3 Shares of the Constituent and Surviving Corporations: The
manner and basis of converting the shares of MNI Stock into shares of NACT
Common Stock shall be as follows:
(a) Conversion Ratio:
(1) Each share of MNI Stock shall, by virtue of the
Merger and without any action on the part of the holder thereof, or any other
action whatsoever, be converted into two hundred and fifty (250) shares of
validly issued, fully paid and nonassessable shares of NACT Common Stock
(sometimes referred to as "NACT Merger Stock");
(2) Each issued share of SUB shall remain unchanged,
(3) NACT shall issue a maximum of 2,500,000 shares of
common stock,
(4) Each share of MNI Stock shall, by virtue of the
Merger and without any action on the part of the holder thereof, or any other
action whatsoever, be issued one hundred (100) warrants to purchase shares of
NACT common stock at the exercise price of $2.25 per share,
(5) NACT shall issue a maximum of 1,000,000 warrants.
(6) If, within the first 24 months following the Closing,
the shares of NACT common stock should fall to an average publicly traded
price of $2.25 or less, for 10 consecutive days, MNI and the Selling
Shareholders are hereby granted, pro rata, the right to receive an additional
500,000 warrants to purchase NACT common stock at the lowest publicly traded
price in that 10 day period.
3
<PAGE>
1.4 No Liability: Except as specifically provided in Section 9.3, it
is the intention of the parties, that MNI shall be debt free after giving
effect to application of MNI assets provided in Section 9.3.
1.5 Effect of Merger: As of the Effective Date, all of the following
shall occur:
(a) The separate existence and corporate organization of MNI (except
insofar as they may be continued by statute) shall cease and SUB, as the
corporation surviving the Merger, shall possess the rights, privileges,
powers and franchises, and be subject to all the restrictions, disabilities
and duties of, the constituent corporations in the manner specified in the
respective corporate laws of NACT and MNI.
(b) The Certificate of Incorporation of SUB, as in effect on the
Effective Date, shall continue in effect without change or amendment.
(c) The by-laws of SUB, as in effect on the Effective Date, shall
continue in effect without change or amendment.
(d) Upon the Effective Date, the Board of Directors of SUB and NACT
shall consist of 3 members appointed by NACT, 3 members appointed by MNI and
1 "neutral" member appointed by mutual consent of MNI and NACT. The
compensation committee of the Board of Directors shall consist of 1 Board
member appointed by MNI, 1 Board member appointed by NACT and the "neutral"
Board member.
1.6 Disclosure Schedules: Simultaneously with the execution of this
Agreement, (a) MNI shall deliver a schedule relating to MNI (the "MNI
Disclosure Schedule"), and (b) NACT shall deliver a schedule relating to
NACT (the "NACT Disclosure Schedule" and collectively with the MNI
Disclosure Schedule, the "Disclosure Schedules") setting forth the matters
required to be set forth in the Disclosure Schedules as described elsewhere
in this Agreement. The Disclosure Schedules shall be deemed to be part of
this Agreement.
II
CONDUCT OF BUSINESS PENDING CLOSING; STOCKHOLDER APPROVAL
4
<PAGE>
MNI and NACT covenant that between the date hereof and the Closing
Date (as hereinafter defined):
2.1 Access by NACT: MNI shall afford to NACT and to NACT's counsel,
accountants and other representatives full access, during normal business
hours, throughout the period prior to the Closing Date, (a) to all of the
books, contracts and records of MNI and shall furnish NACT during such
period with all information concerning MNI that NACT may reasonably request
and (b) to the properties of MNI in order to conduct inspections at NACT's
expense to determine that MNI is operating in material compliance with all
applicable federal, state and local and foreign statutes, rules and
regulations, and that MNI's assets are substantially in the condition and of
the capacities represented and warranted in this Agreement. Any such
investigation or inspection by NACT shall not be deemed a waiver of, or
otherwise limit, the representations, warranties and covenants contained
herein.
2.2 Conduct of Business: During the period from the date hereof to the
Closing Date, the business of MNI shall be operated by MNI in the usual and
ordinary course of such business and in material compliance with the terms
of this Agreement. Without limiting the generality of the foregoing:
(a) MNI shall use its reasonable efforts to (i) keep available the
services of the present agents of MNI; (ii) complete or maintain all
existing arrangements including but not limited to filings, licensing,
affiliate arrangements, transferals, leases and other arrangements referred
to in Sections 3.6(a) through 3.6(d) in full force and effect in accordance
with their existing terms; (iii) maintain the integrity of all confidential
information of MNI; (iv) comply in all material respects with all applicable
laws; and (vi) preserve the goodwill of, and MNI's business and contractual
relationship with, suppliers, customers and others having business relations
with MNI; and
(b) MNI shall not (i) sell or transfer any of its assets or property; (ii)
shall not make any distribution, whether by dividend or otherwise, to any of
its stockholders or employees except for compensation to employees and
payments to associated companies for goods and services, in the usual and
ordinary course of business; (iii) not declare any
5
<PAGE>
dividend or other distribution; (iv) redeem or otherwise acquire any shares
of its capital stock or other securities; (v) issue or grant rights to
acquire shares of its capital stock or other securities; or (vi) agree to do
any of the foregoing.
2.3 Exclusivity to NACT: MNI and its officers, directors,
representatives and agents, from the date hereof until the Closing (unless
this Agreement shall be earlier terminated as hereinafter provided), shall
not hold discussions with any person or entity, other than NACT, concerning
the Merger, or solicit, negotiate or entertain any inquiries, proposals or
offers to purchase the business of MNI or the shares of capital stock of MNI
from any person other than NACT, or, except in connection with the normal
operation of MNI's business, disclose any confidential information
concerning MNI to any person other than NACT and NACT's representatives or
agents. MNI shall promptly notify NACT of any such Third Party Inquiry.
2.4 Stockholder Approval: The Board of Directors of MNI has determined
that the Merger is fair to and in the best interests of their stockholders
and have approved and adopted this Agreement and the Merger. The approval of
MNI'S shareholders shall be sought as soon as possible. This Agreement
constitutes, and all other agreements contemplated hereby will constitute,
when executed and delivered by MNI the valid and binding obligations of MNI,
enforceable in accordance with their respective terms.
III
REPRESENTATIONS AND WARRANTIES of MNI
Except as set forth in the MNI Disclosure Schedule, MNI represents and
warrants to NACT as follows, with the knowledge and understanding that NACT
is relying materially upon such representations and warranties:
The term "Knowledge" as used in this Agreement with respect to a
party's awareness of the presence or absence of a fact, event or condition
shall mean (a) actual knowledge or, (b) the knowledge that would be obtained
if such party conducted itself faithfully and exercised a sound discretion
in the management of his own affairs.
6
<PAGE>
3.1 Organization and Standing: MNI is a corporation duly organized,
validly existing and in good standing under the laws of the State of
California. MNI has all requisite corporate power to carry on its business
as it is now being conducted and is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where such
qualification is necessary under applicable law except where the failure to
qualify (individually or in the aggregate) will not have any material
adverse effect on the business or prospects of MNI. The copies of the
Articles of Incorporation, By-laws and minute books of MNI, as amended to
date and delivered to NACT, are true and complete copies of these documents
as now in effect. The minute books of MNI are accurate in all material
respects.
3.2 Capitalization: The authorized capital stock of MNI, the number of
shares of capital stock, which are issued and outstanding, the par value
thereof and the record and beneficial holders thereof are as set forth in
the MNI Disclosure Schedule. All of such shares of capital stock that are
issued and outstanding are duly authorized, validly issued and outstanding,
fully paid and nonassessable, and were not issued in violation of the
preemptive rights of any person. There are no subscriptions, options,
warrants, rights or calls or other commitments or agreements to which MNI is
a party or by which it is bound, calling for any issuance, transfer, sale or
other disposition of any class of securities of MNI. There are no
outstanding securities convertible or exchangeable, actually or
contingently, into common stock or any other securities of MNI.
3.3 Subsidiaries: MNI owns no subsidiaries nor does it own or have an
interest in any other corporation partnership, joint venture or other
entity.
3.4 Authority: MNI's Board of Directors has determined that the Merger
is fair to and in the best interests of MNI's stockholders and has approved
and adopted this Agreement and the Merger and has adopted a resolution
recommending approval and adoption of this Agreement and the Merger by MNI's
stockholders. This Agreement constitutes, and all other agreements
contemplated hereby will constitute, when executed and delivered by MNI in
accordance herewith, the valid and binding obligations of MNI, enforceable
in accordance with their respective terms.
7
<PAGE>
3.5 Assets: MNI has good and marketable title to or licenses to all of
the assets and properties, which it purports to own as reflected on the most
recent balance sheet comprising a portion of the MNI Financial Statements
(as hereinafter defined), or thereafter acquired, or are otherwise useful in
the business of MNI. No material portion of the assets of MNI is subject to
any governmental decree or order to be sold or is being condemned,
expropriated or otherwise taken by any public authority with or without
payment of compensation therefor, nor, to their knowledge, has any such
condemnation, expropriation or taking been proposed. None of the material
assets of MNI is subject to any restriction that would prevent continuation
of the use currently made thereof or materially adversely affect the value
thereof.
3.6 Contracts and Other Commitments:
(a) Schedule A of MNI Disclosure Schedule consists of a true and
complete list of all contracts, agreements, licenses, commitments and other
instruments (whether oral or written) to which MNI is a party that (i)
involve a receipt or an expenditure by MNI or a company subsidiary or
require the performance of services or delivery of goods to, by, through, on
behalf of or for the benefit of MNI, which in each case, relates to a
contract, agreement, commitment or instrument that either (A) requires
payments or receipts in excess of $10,000 per year or (B) is not terminable
by MNI on notice of thirty (30) days or less without penalty or MNI being
liable for damages, or (ii) involve an obligation for the performance of
services or delivery of goods by MNI that involves an amount in excess of
$7,500 that cannot or in reasonable probability will not, be performed
within thirty (30) days from the dates as of which these representations are
made.
(b) All of the contracts, agreements, commitments and other
instruments described in Schedule A of MNI Disclosure Schedule
(individually, "Contract and collectively, the "Contracts") are valid and
binding upon MNI, as applicable, and to its knowledge, the other parties
thereto and are in full force and effect and enforceable, in accordance with
their terms, and neither MNI, nor to its knowledge, any other party to any
Contract has breached any provision of, and no event has occurred which,
with the lapse of time or
8
<PAGE>
action by a third party, could result in a material default under, the terms
thereof. To its knowledge, no stockholder of MNI has received any payment
from any contracting party in connection with or as an inducement for
causing MNI to enter into any Contract.
3.7 Litigation: There is no claim, action, proceeding, or
investigation pending or, to its knowledge, threatened against or affecting
MNI before or by any court, arbitrator or governmental agency or authority
which, in its reasonable judgment, could have a material adverse effect on
the operations or prospects of MNI. There is no strike or unresolved labor
dispute relating to MNI's employees who, in its judgment, could have a
material adverse effect on the business or prospects of MNI. There are no
decrees, injunctions or orders of any court, governmental department, agency
or arbitration outstanding against MNI or asserted against MNI that has not
been paid. There are no Tax liens upon the assets of MNI. There is no valid
basis, to the knowledge of MNI, except as set forth in the MNI Disclosure
Schedule, for any assessment, deficiency, notice, 30-day letter or similar
intention to assess any Tax to be issued to MNI by any governmental
authority.
3.8 Taxes: For purposes of this Agreement, (A) "Tax" (and, with
correlative meaning, "Taxes") shall mean any federal, state, local or
foreign income, alternative or add-on minimum, business, employment,
franchise, occupancy, payroll, property, sales, transfer, use, value added,
withholding or other tax, levy, impost, fee, imposition, assessment or
similar charge together with any related addition to tax, interest, penalty
or fine thereon; and (B) "Returns" shall mean all returns (including,
without limitation, information returns and other material information),
reports and forms relating to Taxes.
(a) MNI has duly filed all Returns required to be filed by it other
than Returns (individually and in the aggregate) where the failure to file
would have no material adverse effect on the business or prospects of MNI.
All such Returns were, when filed, and, to the best of MNI's knowledge, are
accurate and complete in all material respects and were prepared in
conformity with applicable laws and regulations. MNI has paid or will pay in
full or has adequately reserved against all Taxes otherwise assessed against
it through the Closing Date.
9
<PAGE>
(b) MNI is not a party to any pending action or proceeding by any
governmental authority for the assessment of any Tax, and, to the knowledge
of MNI, no claim for assessment or collection of any Tax related to MNI has
been asserted against MNI that has not been paid. There are no Tax liens
upon the assets of MNI. There is no valid basis, to the knowledge of MNI,
except as set forth in the MNI Disclosure Schedule, for any assessment,
deficiency, notice, 30-day letter or similar intention to assess any Tax to
be issued to MNI by any governmental authority.
3.9 Compliance with Laws and Regulations: To the best of its
knowledge, MNI has complied and is presently complying, in all material
respects, with all laws, rules, regulations, orders and requirements
(federal, state and local and foreign) applicable to it in all jurisdictions
where the business of MNI is conducted or to which MNI is subject,
including, without limitation, all applicable federal and state securities
laws, civil rights and equal opportunity employment laws and regulations,
and all federal, antitrust, antimonopoly and fair trade practice laws. They
do not know of any assertion by any party that MNI is in violation in any
material respect of any such laws, rules, regulations, orders, restrictions
or requirements with respect to its operations and no notice in that regard
has been received by MNI.
3.10 Hazardous Materials: To its knowledge MNI has not violated, or
received any written notice from any governmental authority with respect to
the violation of any law, rule, regulation or ordinance pertaining to the
use, maintenance, storage, transportation or disposal of "Hazardous
Materials." As used herein, the term 'Hazardous Materials` means any
substance now or hereafter designated pursuant to Section 307(a) and 311
(b)(2)(A) of the Federal Clean Water Act, 33 USC Section 1317(a),
1321(b)(2)(A), Section 112 of the Federal Clean Air Act, 42 USC Section
3412, Section 3001 of the Federal Resource Conservation and Recovery Act, 42
USC Section 6921, Section 7 of the Federal Toxic Substances Control Act, 15
USC Section 2606, or Section 101(14) and Section 102 of the Comprehensive
Environmental Response, Compensation and Liability Act, 42 USC Section
9601(14), 9602.
3.11 Regulation: MNI is not required to obtain any licenses, permits,
approvals or authorizations or make any
10
<PAGE>
filings with any federal or state regulatory agency or authority to conduct
its business as presently conducted or as presently proposed to be
conducted.
3.12 No Breaches: The making and performance of this Agreement and the
transactions contemplated hereby will not (i) conflict with or violate the
Certificate of Incorporation or the by-laws of MNI, (ii) violate any laws,
ordinances, rules, or regulations, or any order, writ, injunction or decree
to which MNI is a party or by which MNI or any of its businesses, or
operations may be bound or affected or (iii) result in any breach or
termination of, or constitute a default under, or constitute an event which,
with notice or lapse of time, or both, would become a default under, or
result in the creation of any encumbrance upon any material asset of MNI
under, or create any rights of termination, cancellation or acceleration in
any person under, any Contract.
3.13 Employees: MNI has no employees that are represented by any labor
union or collective bargaining unit.
3.14 Financial Statements: The MNI Disclosure Schedule contains
unaudited balance sheets of MNI as of June 30, 1999 and related unaudited
statements of operations, cash flows and stockholders' equity of MNI for the
periods ended at such date (collectively the "Financial Statements"). The
Financial Statements present fairly, in all material respects, the financial
position on the dates thereof and results of operations of MNI for the
periods indicated, prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied. MNI's Financial Statements are
capable of being audited in accordance with Regulation S-X, promulgated by
the Securities and Exchange Commission. There are no assets of MNI, the
value of which is materially overstated in said balance sheets.
3.15 Absence of Certain Changes or Events: Except, as set forth in the
MNI Disclosure Schedule, since June 30, 1999 (the "Balance Sheet Dates"),
there has not been:
(a) any material adverse change in the financial
condition, properties, assets, liabilities or business of MNI;
11
<PAGE>
(b) any material damage, destruction or loss of any
material properties of MNI, whether or not covered by insurance;
(c) any material adverse change in the manner in which
the business of MNI has been conducted;
(d) any material adverse change in the treatment and
protection of trade secrets or other confidential information of MNI;
and
(e) any occurrence not included in paragraph (a) through
(d) of this Section 3.15 which has resulted, or which MNI has reason
to believe, might be expected to result in a material adverse change
in the business or prospects of MNI.
3.16 Government Licenses, Permits, Authorizations: MNI has all
material governmental licenses, permits, authorizations and approvals
necessary for the conduct of its business as currently conducted ("Licenses
and Permits").
3.17 Employee Benefit Plans: MNI has no employee benefit plans.
3.18 Business Locations: MNI does not own or lease any real or
personal property in any state or country.
3.19 Intellectual Property: Schedule B of the MNI Disclosure
Schedule sets forth a complete and correct list and summary description of
all intellectual property, including computer software, trademarks, trade
names, service marks, service names, brand names, copyrights and patents,
registrations thereof and applications therefore, applicable to or used in
the business of MNI, together with a complete list of all licenses granted
by or to MNI with respect to any of the above. All such trademarks, trade
names, service marks, service names, brand names, copyrights and patents or
licenses pertaining thereto are owned by MNI, free and clear of all liens,
claims, security interests and encumbrances of any nature whatsoever. MNI is
not in violation or
12
<PAGE>
infringing, and MNI is not knowingly violating or infringing, the rights of
others in any trademark, trade name, service mark, copyright, patent, trade
secret, know-how or other intangible asset. Such Intellectual Property as
described in Schedule B, is sufficient for MNI's operations as presently and
as proposed to be conducted.
3.20 Existing Arrangements: Except as set forth in the MNI
Disclosure Schedule, MNI has no knowledge that, either as a result of the
actions contemplated hereby or for any other reason (exclusive of expiration
of a contract upon the passage of time), any entity having an arrangement
with MNI identified in Schedule A will not continue to conduct business with
NACT after the Closing Date in substantially the same manner as it has
conducted business with MNI in the past.
3.21 Governmental Approvals: Except as set forth in Section 1.2 as
to the Merger Filing, no authorization, license, permit, franchise,
approval, order or consent of, and no registration, declaration or filing by
MNI with, any governmental authority, domestic or foreign, federal, state or
local, is required in connection with MNI's execution, delivery and
Performance of this Agreement.
3.22 Transactions with Affiliates: MNI is not indebted for money
borrowed, either directly or indirectly, from any of its officers,
directors, or any Affiliate (as defined below), in any amount whatsoever;
nor are any of its officers, directors, or Affiliates indebted for money
borrowed from MNI; nor are there any transactions of a continuing nature
between MNI and any of its officers, directors, or Affiliates not subject to
cancellation which will continue beyond the Effective Date, including,
without limitation, use of the assets of MNI for personal benefit with or
without adequate compensation. For purposes of this Agreement, the term
"Affiliate" shall mean any person that, directly or indirectly, through one
or more intermediaries, controls or is controlled by, or is under common
control with, the person specified. As used in the foregoing definition, the
term (i) "control" shall mean the power through the ownership of voting
securities, contract or otherwise to direct the affairs of another person
and (ii) "person" shall mean an individual, firm, trust, association,
corporation, partnership, government (whether federal,
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state, local or other political subdivision, or any agency or bureau of any
of them) or other entity.
3.23 No Distributions: MNI has not made nor has any intention of
making any distribution or payment to any Shareholder with respect to the
MNI Stock.
3.24 Liabilities: To the best of its knowledge MNI has no material
direct or indirect indebtedness, liability, claim, loss, damage, deficiency,
obligation or responsibility, fixed or unfixed, choate or inchoate,
liquidated or unliquidated, secured or unsecured, accrued, absolute,
contingent or otherwise ("Liabilities"), whether or not of a kind required
by generally accepted accounting principles to be set forth on a financial
statement, other than (i) Liabilities fully and adequately reflected or
reserved against on the MNI Balance Sheet, (ii) Liabilities incurred since
the Balance Sheet Date in the ordinary course of the business of MNI, or
(iii) Liabilities otherwise disclosed in this Agreement, including the
exhibits hereto and Disclosure Schedule.
3.25 Employee Compensation Plans: MNI is not party to, or bound by
any currently effective employment contracts, deferred compensation
agreements, bonus plans, incentive plans, profit sharing plans, stock option
or equity incentive plans, retirement agreements or other employee
compensation agreements. Subject to applicable law, the employment of each
officer and employee of the Company is terminable at the will of the
Company.
3.26 Accounts Receivable: All accounts receivable of MNI reflected
on the Balance Sheet are valid receivables subject to no material setoffs or
counterclaims and are current and collectible (within 90 days after the date
on which it first became due and payable), net of the applicable reserve for
bad debts reflected in the Balance reflected in the financial or accounting
records of the Company that Sheet. To MNI'S knowledge, all accounts
receivable have arisen since June 30, 1999 are valid receivables subject to
no material setoffs or counterclaims and are collectible, net of a reserve
for bad debts in an amount proportionate to the reserve reflected in the
Balance Sheet.
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3.27 No Omissions or Untrue Statements: To the best of its
knowledge no representation or warranty made by MNI to NACT or in this
Agreement, the MNI Disclosure Schedule or in any certificate of a MNI
officer required to be delivered to NACT pursuant to the terms of this
Agreement contains or will contain any untrue statement of a material fact,
or omits or will omit to state a material fact necessary to make the
statements contained herein or therein not misleading as of the date hereof
and as of the Closing Date.
3.28 Title. Each MNI Shareholder hereby represents and warrants
the following for himself, herself or itself to NACT and as of the date
hereof and the Closing Date: Each Shareholder has and as of the Closing Date
shall have good and marketable title to the MNI Stock set forth opposite
such Shareholder's name on the MNI Disclosure Schedule free and clear of all
liens, security interests, claims, options, charges or encumbrances. None of
the MNI Stock is subject to any outstanding agreements of sale or rights of
third parties to acquire any interest therein. Each Shareholder has the
right and authority to execute, deliver, and perform this Agreement and all
agreements delivered in connection herewith and to sell and transfer the MNI
Stock to NACT. This Agreement and any agreements executed in connection with
this transaction constitute legal, binding and valid obligations of the
Shareholder, enforceable in accordance with their respective terms.
IV
REPRESENTATIONS AND WARRANTIES OF NACT AND SUB
Except as set forth in the NACT Disclosure Schedule, NACT and SUB
represents and warrants to, and agrees with, MNI as follows as of the date
hereof and as of the Closing Date:
4.1 Organization and Standing of NACT and SUB: NACT is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Idaho, and has the corporate power to carry on its business as now
conducted and to own its assets and is duly qualified to transact business
as a foreign corporation in each state where such qualification is necessary
except where the failure to qualify will not have a material adverse effect
on the
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business or prospects of NACT. The copies of the Certificate of
Incorporation and By-laws of NACT, as amended to date, and delivered to MNI,
are true and complete copies of those documents as now in effect. SUB is a
corporation duly organized and existing and in good standing under the laws
of the State of Florida, and has the corporate power to carry on its
businesses now conducted and to own its assets and is duly qualified to
transact business as a foreign corporation in each state where such
qualification is necessary except where the failure to qualify will not have
a materially adverse effect on the business or properties of SUB. The copies
of the certificate of incorporation and by-laws of SUB as amended to date
and delivered to MNI, are true and complete copies of those documents as now
in effect.
4.2 Stockholder Approval: The Board of Directors of NACT has
determined that the Merger is advisable and in the best interests of the
stockholders of NACT and SUB, NACT's wholly owned subsidiary. Subject to its
fiduciary obligations as advised in writing by counsel, SUB shall approve
and adopt this Agreement and the Merger and any other matters to be
submitted to SUB in connection therewith.
4.3 No Conflict: The making and performance of this Agreement will not
(i) conflict with the Certificate of Incorporation or the By-laws of NACT or
SUB, (ii) violate any laws, ordinances, rules, or regulations, or any order,
writ, injunction or decree to which NACT or SUB is a party or by which NACT
or SUB or any of their material assets, business, or operations may be bound
or affected or (iii) result in any breach or termination of, or constitute a
default under, or constitute an event which, with notice or lapse of time,
or both, would become a default under, or result in the creation of any
encumbrance upon any material asset of NACT or SUB, or create any rights of
termination, cancellation, or acceleration in any person under, any material
agreement, arrangement, or commitment, or violate any provisions of any
laws, ordinances, rules or regulations or any order, writ, injunction, or
decree to which NACT is a party or by which NACT, or any of their material
assets may be bound.
4.4 Properties: Except as set forth in the NACT Disclosure
Schedule, NACT or SUB have good and marketable title to all of the
respective partys' assets and properties
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which it purports to own as reflected on the balance sheet included in the
NACT Financial Statements (as hereinafter defined), or thereafter acquired.
4.5 Capitalization: The Authorized capital stock of NACT consists
of 45,000,000 shares of Common Stock, par value $0.02 (the "NACT Shares") of
which 3,599,749 shares is issued. Such outstanding shares of Common Stock
are duly authorized, validly issued, fully paid, and non-assessable. The
NACT Common Stock to be issued pursuant to this Agreement, when issued in
accordance with the terms of this Agreement, will be duly authorized,
validly issued, fully paid and non assessable. With the exception of 800,000
options to purchase NACT common stock referenced in the NACT Due Diligence
statement, there were no outstanding options, warrants or rights of
conversion or other rights, agreements, arrangements or commitments relating
to the capital stock of NACT or obligating NACT to issue or sell an
aggregate number of shares of Common Stock. The authorized capital stock of
SUB consists of 100,000 shares of common stock par value $.002 (the "SUB
Shares") of which no shares are issued. All such shares are owned by NACT.
Such outstanding shares of common stock are duly authorized, validly issued,
fully paid and non-assessable. As of the day hereof, there were no
outstanding options, warrants or rights of conversion or other rights,
agreements, arrangements or commitments relating to the capital stock of SUB
or obligating SUB to issue or sell an aggregate number of shares of common
stock.
4.6 Governmental Approval; Consents: Except for the reports
required to be filed in the future by NACT and those set forth in the
Disclosure Schedule, and under the Securities Act, no authorization,
license, permit, franchise, approval, order or consent of, and no
registration, declaration or filing by NACT with any governmental authority,
domestic or foreign, federal, state or local, is required in connection with
NACT's execution, delivery and performance of this Agreement. No consents of
any other parties are required to be received by or on the part of NACT to
enable NACT to enter into and carry out this Agreement.
4.7 NACT Financial Statements: The consolidated financial
statements of NACT (the "NACT Financial Statements") present fairly, in all
material respects, the
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financial position of NACT as of the respective date thereof and the results
of its operations and other information for the periods covered in
accordance with GAAP and in accordance with Regulation S-X of the SEC
(subject, in the case of unaudited interim period financial statements, to
normal and recurring year-end adjustments which, individually or
collectively, are not material).
4.8 Adverse Developments: Since June 30, 1999 there have been no
material adverse changes in the assets, liabilities, properties, operations
or financial condition of NACT, and no event has occurred other than in the
ordinary and usual course of business or as set forth in or in the NACT
Financial Statements which could be reasonably expected to have a materially
adverse effect upon NACT.
4.9 Taxes: NACT has duly filed all returns required to be filed by
it other than Returns which the failure to file would have no material
adverse effect on the business of NACT. All such returns were, when filed,
and to NACT's knowledge are, accurate and complete in all material respects
and were prepared in conformity with applicable laws and regulations. NACT
has paid or will pay in full or have adequately reserved against all Taxes
otherwise assessed against it through the Closing Date. NACT is not a party
to any pending action or proceeding by any governmental authority for the
assessment of any Tax, and, to the knowledge of NACT, no claim for
assessment or collection of any Tax has been asserted against NACT that have
not been paid. There are no Tax liens upon the assets of NACT (other than
the lien of personal property taxes not yet due and payable). There is no
valid basis, to NACT's knowledge, for any assessment, deficiency, notice,
30-day letter or similar intention to assess any Tax to be issued to NACT by
any governmental authority.
4.10 Litigation: Except as set forth on NACT Disclosure Schedule,
there is no material claim, action, proceeding, or investigation pending or,
to their knowledge, threatened against or affecting NACT before or by any
court, arbitrator or governmental agency or authority. There are no material
decrees, injunctions or orders of any court, governmental department, agency
or arbitration outstanding against NACT.
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4.11 Compliance with Laws and Regulations: To the best of their
knowledge, NACT has complied and is presently complying, in all material
respects, with all laws, rules, regulations, orders and requirements
applicable to them in all jurisdictions in which their operations are
currently conducted or to which they are currently subject.
4.12 Governmental Licenses, Permits and Authorizations: NACT has
all governmental licenses, permits, authorizations and approvals necessary
for the conduct of its business as currently conducted. All such licenses,
permits, authorizations and approvals are in full force and effect, and no
proceedings for the suspension or cancellation of any thereof is pending or
threatened.
4.13 Liabilities: To the best of its' knowledge NACT does not have
any material direct or indirect liabilities, as that term is defined in
Section 3.25 ("NACT Liabilities"), whether or not of a kind required by
generally accepted accounting principles to be set forth on a financial
statement, other than (i) NACT Liabilities fully and adequately reflected or
reserved against on the NACT Balance Sheet, (ii) NACT Liabilities incurred
in the ordinary course of the business of NACT, and (iii) NACT Liabilities
otherwise disclosed in this Agreement, including the Exhibits hereto.
4.14 No Omission or Untrue Statement: To the best of their
knowledge no representation or warranty made by NACT to MNI in this
Agreement, in the NACT Disclosure Schedule or in any certificate of a NACT
officer required to be delivered to MNI pursuant to the terms of this
Agreement contains or will contain any untrue statement of a material fact,
or omits or will omit to state a material fact necessary to make the
statements contained herein or therein not misleading as of the date hereof
and as of the Closing Date.
4.15 Restricted Transactions: NACT represents that it has not and
warrants that it shall not: (i) declare or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any
of its capital stock, or split, split-off, spin-off, combine or reclassify
any of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of NACT
capital stock, or
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repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock;
V
STOCKHOLDER APPROVALS AND CLOSING DELIVERIES
5.1 Stockholder Approvals: Subject to this Agreement and the
Merger receiving all requisite stockholder approvals and subject to the
other provisions of this Agreement, the parties shall hold a closing (the
"Closing") on the next business day (or such later date as the parties
hereto may agree) following the later of (a) receipt by MNI of consent
approving the Merger, or (b) the business day on which the last of the
conditions set forth in Articles VII and VIII hereof is fulfilled or waived
(such later date, the Closing Date), simultaneously at the offices of NACT
at 1181 S. Rogers Circle, Suite 5, Boca Raton, Florida 33487 and those of
MNI at 9551 Irondale Avenue, Chatsworth, California 91311, or such other
time and place as the parties may agree upon.
5.2 MNI's Closing Deliveries: At the Closing, in addition to
documents referred elsewhere, MNI shall deliver, or cause to be delivered,
to NACT:
(a) a certificate, dated as of the Closing Date, executed by
the Secretary of MNI, to the effect that representations and warranties
contained in this Agreement are true and correct in all material
respects at and as of the Closing Date and that MNI has complied with
or performed in all material respects all terms, covenants and
conditions to be complied with or performed by MNI on or prior to the
Closing Date;
(b) an opinion of MNI's counsel, in a form to be mutually
agreed to prior to the Closing;
(c) certificates representing MNI Stock owned by all of the
MNI Stockholders;
(d) Certified Resolutions of the Board of Directors
& a majority of the Shareholders of MNI approving the transactions set
forth herein;
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(e) The MNI Disclosure Schedule;
(f) Such other documents as NACT or its counsel may reasonably
require.
5.3 Closing Deliveries to MNI: At the Closing, in addition to
documents referred to elsewhere, NACT shall deliver to MNI:
(a) a certificate of NACT, dated as of the Closing Date,
executed by the President or Chief Executive Officer of NACT to the
effect that the representations and warranties of NACT contained in
this Agreement are true and correct in all material respects and that
NACT has complied with or performed in all material respects all terms,
covenants, and conditions to be complied with or performed by NACT or
prior to the Closing Date;
(b) an opinion of NACT's counsel, in a form to be mutually
agreed to prior to the Closing;
(c) certificates representing the NACT Merger Stock issuable
upon consummation of the Merger;
(a) the NACT Disclosure Schedule; and
(e) such other documents as MNI or it's counsel may reasonably
require.
VI
CONDITIONS TO OBLIGATIONS OF MNI
The obligation of MNI to consummate the Closing is subject to the
following conditions, any of which may be waived by it in its sole
discretion:
6.1 Compliance by NACT or SUB: NACT or SUB shall have performed and
complied in all material respects with all agreements and conditions
required by this Agreement to be performed or complied with by NACT prior to
or on the Closing Date;
6.2 Accuracy of NACT's Representations: NACT's and SUB's
representations and warranties contained in this Agreement (including the
Disclosure Schedule) or any schedule,
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certificate, or other instrument delivered pursuant to the provisions hereof
or in connection with the transactions contemplated hereby shall be true and
correct in all material respects at and as of the Closing Date (except for
such changes permitted by this Agreement) and shall be deemed to be made
again as of the Closing Date.
6.3 Documents: All documents and instruments required hereunder to be
delivered by NACT to MNI at the Closing shall be delivered in form and
substance reasonably satisfactory to MNI and its counsel.
6.4 Tax Free Reorganization: The Merger shall qualify as a tax-free
reorganization under the Internal Revenue Code.
6.5 Litigation: No litigation seeking to enjoin the transactions
contemplated by this Agreement or to obtain damages on account hereof shall
be pending or be threatened.
6.6 Material Adverse Change: No material adverse change shall have
occurred subsequent to June 30, 1999 in the financial position, results of
operations, assets, liabilities or prospects of NACT nor shall any event or
circumstance have occurred which would result in a material adverse change
in the financial position, results of operations, assets, liabilities or
prospects of NACT.
VII
CONDITIONS TO NACT'S OBLIGATIONS
NACT's obligation to consummate the Closing is subject to the
following conditions, any of which may be waived by it in its sole
discretion:
7.1 Compliance by MNI: MNI shall have performed and complied in all
material respects with all agreements and conditions required by this
Agreement to be performed or complied with by MNI prior to or on the Closing
Date.
7.2 Accuracy of Representations of MNI: The representations and
warranties of MNI contained in this Agreement (including the exhibits hereto
and the Disclosure Schedule) or any schedule, certificate, or other
instrument delivered pursuant to the provisions hereof or in connection with
the transactions contemplated hereby shall be true and
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correct in all material respects at and as of the Closing Date (except for
changes permitted by this Agreement) and shall be deemed to be made again as
of the Closing Date.
7.3 Material Adverse Change: No material adverse change shall have
occurred subsequent to May 31, 1998 in the financial position, results of
operations, assets, liabilities, or prospects of MNI, nor shall any event or
circumstance have occurred which would result in a material adverse change
in the financial position, results of operations, assets, liabilities, or
prospects of MNI.
7.4 Litigation: No litigation seeking to enjoin the transactions
contemplated by this Agreement or to obtain damages on account hereof shall
be pending or to NACT's knowledge be threatened.
7.5 Tax Free Reorganization: The Merger shall qualify as a
tax-free reorganization under the Code.
7.6 Documents: All documents and instruments required hereunder to be
delivered by MNI to NACT at the Closing shall be delivered in form and
substance reasonably satisfactory to NACT and its counsel.
7.7 Conversion of Debt: Except to the extent provided in Section 1.4,
MNI shall have no liabilities on the Closing Date.
7.8 Additional Agreements: NACT shall have received certificates from
all MNI Shareholders substantially in the form of Exhibit 1.
VIII
TERMINATION
8.1 Termination Prior to Closing:
(a) If the Closing has not occurred by July 31, 1999, any
party may terminate this Agreement at any time thereafter by giving
written notice of termination to the other, provided, however, that no
party may terminate this Agreement if such party has willfully or
materially breached any of the terms and conditions hereof.
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(b) Prior to August 15, 1999, any party may terminate this
Agreement following the insolvency or bankruptcy of the other party
hereto, or if any one or more of the conditions to Closing set forth in
Article VI or Article VII shall become incapable of fulfillment or
there shall have occurred a material breach of the LOI and either such
condition of breach shall not have been waived by the party for whose
benefit the condition was established, then either MNI (in the case of
a condition in Article VI) or NACT (in the case of a condition
specified in Article VII may terminate this Agreement.
8.2 Consequences of Termination: Upon termination of this Agreement
pursuant to this Article VIII or any other express right of termination
provided elsewhere in this Agreement, the parties shall be relieved of any
further obligation to the others except as specified in Section 12.4;
provided, however, that no termination of this Agreement, pursuant to this
Article VIII hereof or under any other express right of termination provided
elsewhere in this Agreement shall operate to release any party from any
liability to any other party incurred before the date of such termination or
from any liability resulting from any willful misrepresentation made in
connection with this Agreement or willful breach hereof.
IX
ADDITIONAL COVENANTS
9.1 Mutual Cooperation: The parties hereto will cooperate with each
other, and will use all reasonable efforts to cause the fulfillment of the
conditions to the parties' obligations hereunder and to obtain as promptly as
possible all consents, authorizations, orders or approvals from each and every
third party, whether private or governmental, required in connection with the
transactions contemplated by this Agreement.
9.2 Changes in Representations and Warranties of a Party: Between the
date of this Agreement and the Closing Date, neither party shall directly or
indirectly, enter into any transaction, take any action, or by inaction permit
an event to occur, which would result in any of the representations and
warranties of any party herein contained not being true and correct at and as of
(i) the time
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immediately following the occurrence of such transaction or event or (ii) the
Closing Date. A party shall promptly give written notice to the other party upon
becoming aware of (A) any fact which, if known on the date hereof, would have
been required to be set forth or disclosed pursuant to this Agreement and (B)
any impending or threatened breach in any material respect of any of the
representations and warranties contained in this Agreement and with respect to
the latter shall use all reasonable efforts to remedy same.
9.3 Payment Obligations:
(a) As used herein:
(i) "Pre-Transaction Liquid Assets" shall refer to an amount
equal to the sum of MNI's cash and cash equivalent and prepaid assets, such as
deposits, as of June 30,1999, plus accounts receivable (revenues due for any
service period prior to June 30, 1999 but not collected as of such date).
(ii) "Pre-Transaction Liabilities" shall include all accounts payable
and other third party liabilities of any description of MNI arising in the
ordinary course of business prior to June 30, 1999.
(b) After the Closing all Pre-Transaction Liquid Assets shall first be
applied to the payment of the pre-Transaction Liabilities and the liability
referred to in Section 9.3(d).
(c) After the Merger, the Pre-Transaction Liquid Assets shall not be
utilized for the payment of any liabilities arising in the ordinary course of
business subsequent to June 30, 1999 nor shall proceeds arising and accounts
receivables due for service periods subsequent to June 30, 1999 be applied in
connection with payment of Pre-Transaction Liabilities. The debts and
liabilities of MNI arising in the ordinary course of business subsequent to June
30, 1999 shall, after the Merger, be deemed NACT debts and shall be payable by
NACT from NACT funds.
(d) Notwithstanding anything herein to the contrary, "Pre-Transaction
Liquid Assets" shall be applied to the liability of MNI not arising in the
ordinary course of business, including expenses of this transaction, whether
incurred prior or subsequent to June 30, 1999.
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(e) Nothing herein shall be deemed a waiver of the obligations of MNI
to satisfy all debts of MNI as provided in Section 9.4.
9.4 Covenant of MNI: Except as specifically provided in Section 9.3
above, MNI covenants that MNI shall be debt free after giving effect to
application of MNI assets provided in Section 9.3 and the contribution to
capital referred to therein.
X
BROKERS
10.1 Brokers: NACT represents to MNI, and MNI represents to NACT, that
there is no broker or finder entitled to a fee or other compensation for
bringing the parties together to effect the Merger.
XI
SECURITIES
11.1 Definitions: As used in this Article, the following terms shall
have the following respective meanings:
(a) "Commission" shall mean the Securities and
Exchange Commission other Federal agency at the time administering the
Securities Act.
(b) "Person" shall mean and include an individual
corporation, a partnership, a trust, an unincorporated
organization and a government or any department, agency or
political subdivision thereof.
(c) "Holder" shall mean a MNI Stockholder or the MNI
Stockholder's permitted successors or assigns (other than pursuant to a
permitted public sale).
(d) "Restricted Securities" shall mean the shares of
NACT Merger Stock issued hereunder.
(e) "Securities Act" shall mean the Securities Act
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of 1933, as amended or any similar Federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
(f) "Transfer" shall include any disposition of any Restricted
Securities or of any interest therein which would constitute a sale thereof
within the meaning of the Securities Act.
11.2 Restriction on Transfer: Each Stockholder represents and warrants
that he is acquiring the Restricted Securities for investment and not for
distribution. Such Stockholders acknowledge that the Restricted Securities may
only be sold pursuant to an effective registration statement under the
Securities Act or an exemption therefrom. The Restricted Securities and any
shares of capital stock received in respect thereof, whether by reason of a
stock split or share reclassification thereof, a stock dividend thereon or
otherwise, shall not be transferable except upon the conditions specified
herein.
Based upon execution of the Shareholder Certificate, the
Representations herein and assuming no securities violations have occurred on
behalf of MNI or its Stockholders, NACT represents and warrants that the initial
issuance of the NACT Merger Stock to the MNI Stockholders is a private
transaction, exempt from SEC registration requirements.
11.3 Restrictive Legends: Each certificate for the Restricted
Securities and any shares of capital stock received in respect thereof, whether
by reason of a stock split or share reclassification thereof, a stock dividend
thereon or otherwise, and each certificate for any such securities issued to
subsequent transferees of any such certificate shall contain a legend to the
effect that:
"The Restricted Securities covered by a certificate have not been
registered under the Securities Act of 1933, as amended, and may not be
sold, offered for sale, assigned, transferred or otherwise disposed of,
unless registered pursuant to the provisions of that Act or an opinion
of counsel to NACT is obtained stating that such disposition is in
compliance with an available exemption from such registration. "
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11.4 Registration Rights NACT Warrants: NACT agrees to file the
appropriate registration statement, of the underlying shares of NACT Common
Stock represented by the one million warrants (1,000,000) payable under section
1.3 hereof, with the Securities and Exchange Commission within ninety (90) days
of the Closing.
11.5 Registration of NACT Common Stock:
(a) Except for an Excusable Delay as hereinafter defined, NACT
agrees to file, within ninety (90) days after the Closing, a "shelf"
Registration Statement under Rule 415 promulgated under the Act on Form
SB-2 (or such other form as counsel to NACT may reasonably determine is
appropriate) to register under Section 5 of the Act two million
(2,000,000) of the Restricted Shares. NACT shall use its reasonable
best efforts to cause such Registration Statement to become effective
six (6) months after the Closing (such date to be known as the "Outside
Date"). Thereafter, NACT will prepare and file with the SEC such
amendments and supplements to such Registration Statement and the
prospectus used in connection therewith as may be necessary to keep
such Registration Statement effective and current for at least one
hundred (120) days. If NACT fails to (1) file the Registration
Statement or (2) to keep the Registration Statement effective and
current (after it is declared effective), all as provided in this
paragraph, the Holders may pursue all available remedies at law or
equity against NACT for breach of such obligations.
(b) In connection with any Registration Statement to be filed
herein, NACT shall:
(i) furnish to each seller of the Restricted Securities
such number of copies of such registration statement and of each
such amendment or supplement thereto (in each case including all
exhibits), including a preliminary prospectus, in conformity with
the requirements of the Securities Act;
(ii) use its best efforts to register or qualify as
required the Restricted Securities covered by such registration
statement under the securities or blue sky laws of such
jurisdictions as the number of shares initially proposed to be
registered is qualified.
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(iii) notify each seller of Restricted Securities covered
by such registration statement, at any time when a prospectus
relating thereto covered by such registration statement is
required to be delivered under the Securities Act within the
appropriate period mentioned in Section 11.4, of the happening of
any event as a result of which the Registration Statement, the
prospectus or any document incorporated therein by reference,
includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary to make
the statements therein not misleading and at the request of such
seller, prepare and furnish to such seller a post-effective
amendment or supplement to the registration statement or the
related prospectus or any document incorporated therein by
reference or file any other required document so that, as
thereafter delivered to the purchasers of such shares, such
prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading;
(d) All expenses incurred by NACT in complying with its
obligations under this Section 11.5 and its subsections, including,
without limitation, all registration and filing fees, fees and expenses
of complying with securities and blue sky laws (to include California,
New York, Texas, Colorado and Florida), printing expenses and fees and
disbursements of counsel and of independent certified public
accountants of NACT shall be paid by NACT, provided, however, that all
underwriting discounts and selling commissions and stock transfer taxes
applicable to the Restricted Securities covered by the registration
effected hereof, and Holder's counsel fees, shall be borne by the
seller or sellers thereof.
10.6 NACT Stock Option Plan: Prior to or immediately following
the Closing, NACT will authorize the creation of a Stock Option Plan (the
"Plan"). The Plan will authorize the issuance of one million two hundred and
fifty thousand (1,250,000) options to purchase NACT Common Stock. The
compensation committee of the Board of Directors of NACT will determine the
distribution of the Plan. NACT agrees that two hundred thousand (200,000)
options will be issued to
29
<PAGE>
consultants of MNI, designated by MNI in its' sole discretion. NACT will issue
one hundred thousand (100,000) options, in its sole discretion.
11.7 Indemnification By MNI: MNI and the Majority Shareholders shall
jointly and severally indemnify NACT, its officers, directors, employees, agents
and representatives, and hold NACT harmless against, any and all debts,
obligations and other liabilities (whether absolute, accrued, contingent, fixed
or otherwise, or whether known or unknown, or due or to become due or
otherwise), monetary damages, fines fees, penalties, interest obligations,
deficiencies, losses and expenses (including without limitation attorneys fees
and litigation costs) incurred or suffered by NACT:
(a) resulting from any misrepresentation, breach of
warranty or failure to perform any covenant or agreement of MNI contained in
this Agreement;
(b) resulting from any employment, excess or property
taxes owing or arising on account of or in connection with the operation of MNI
prior to the Closing; and
(c) resulting from any liability of MNI incurred or
resulting from activities that took place prior to the Closing not disclosed on
the June 30, 1999 Balance Sheet and not incurred in the ordinary course of
business between June 30, 1999 and the Closing
11.8 Indemnification by NACT: NACT shall indemnify and hold harmless,
MNI its officers, directors, employees, agents and representatives from and
against, any and all debts, obligations and other liabilities (whether absolute,
accrued, contingent, fixed or otherwise, or whether known or unknown, or due or
to become due or otherwise), monetary damages, fines fees, penalties, interest
obligations, deficiencies, losses and expenses (including without limitation
attorneys fees and litigation costs) incurred or suffered by MNI Shareholders:
(a) resulting from any misrepresentation, breach of
warranty or failure to perform any covenant or agreement of NACT contained in
this Agreement;
(b) resulting from any employment, excess or
30
<PAGE>
property taxes owing or arising on account of or in connection with the
operation of NACT prior to the Closing; and
(c) resulting from any liability of NACT incurred or
resulting from activities that took place prior to the Closing not disclosed on
the June 30, 1999 Balance Sheet and not incurred in the ordinary course of
business between June 30, 1999 and the Closing.
XII
MISCELLANEOUS
12.1 Expenses: Except as otherwise provided herein, MNI and NACT shall
each pay its own expenses incident to the negotiation, preparation, and carrying
out of this Agreement, including legal and accounting and audit fees.
12.2 Survival of Representations, Warranties and Covenants: All
statements contained in this Agreement or in any certificate delivered by or on
behalf of MNI or NACT pursuant hereto, or in connection with the actions
contemplated hereby shall be deemed representations, warranties and covenants by
NACT or MNI, as the case may be, hereunder. All representations, warranties, and
covenants made by MNI or NACT in this Agreement, or pursuant hereto, shall
survive the Closing.
12.3 Publicity: NACT and MNI shall not issue any press release or make
any other public statement, in each case, relating to, in connection with or
arising out of this Agreement or the transactions contemplated hereby, without
obtaining the prior approval of the other, which shall not be unreasonably
withheld or delayed, except that prior approval shall not be required if, in the
reasonable judgment of NACT, prior approval by MNI would prevent the timely
dissemination of such release or statement in violation of applicable Federal
securities laws, rules or regulations or policies of NASDAQ OTC Bulletin Board.
12.4 Non Disclosure: MNI will not at any time after the date of this
Agreement, without NACT's consent, except in the ordinary operation of its
business, divulge, furnish to or make accessible to anyone any knowledge or
information with respect to confidential or secret processes, inventions,
discoveries, improvements, formulae, plans, material, devices or ideas or
know-how, whether patentable or not, with respect
31
<PAGE>
to any confidential or secret aspects of MNI (including, without limitation,
customer lists, supplier lists and pricing arrangements with customers or
suppliers) ("Confidential Information"). NACT will not at any time after the
date of this Agreement use, divulge, furnish to or make accessible to anyone any
Confidential Information (other than to its representatives as part of its due
diligence or corporate investigation). Any information, which (i) at or prior to
the time of disclosure by either MNI or NACT was generally available to the
public through no breach of this covenant, (ii) was available to the public on a
nonconfidential basis prior to its disclosure by either MNI or NACT or (iii) was
made available to the public from a third party provided that such third party
did not obtain or disseminate such information in breach of any legal obligation
of MNI or NACT, shall not be deemed Confidential Information for purposes
hereof, and the undertakings in this covenant with respect to Confidential
Information shall not apply thereto. The undertakings of MNI and NACT set forth
above in this Section 12.4 shall terminate upon consummation of the Closing. If
this Agreement is terminated pursuant to the provisions of Article VIII or any
other express right of termination set forth in this Agreement, NACT shall
return to MNI all copies of all Confidential Information previously furnished to
it by MNI.
12.5 Succession and Assignments and Third Party Beneficiaries: This
Agreement may not be assigned (either voluntarily or involuntarily) by any party
hereto without the express written consent of the other party. Any attempted
assignment in violation of this Section shall be void and ineffective for all
purposes. In the event of an assignment permitted by this Section, this
Agreement shall be binding upon the heirs, successors and assigns of the parties
hereto. There shall be no third party beneficiaries of this Agreement.
12.6 Notices: All notices, requests, demands, or other communications
with respect to this Agreement shall be in writing and shall be (i) sent by
facsimile transmission, (ii) sent by the United States Postal Service,
registered or certified mail, return receipt requested, or (iii) personally
delivered by a nationally recognized express overnight courier service, charges
prepaid, to the following addresses (or such other addresses as the parties may
specify from time to time in accordance with this Section)
32
<PAGE>
(a) To NACT:
newagecities.com, Inc.
1181 South Rogers Circle, Suite 5
Boca Raton, Florida 33487
Phone No: (561) 989-0808
Fax No: (561) 989-9404
Principal Contact: J. Ardito, Jr., CEO
(b) To SUB:
Newagecities.com, Inc.
4910 Blue Lake Drive
2nd Floor Mezzanine
Boca Raton, Florida 33431
(c) To MNI:
Member Net, Inc.
9551 Irondale Avenue
Chatsworth, California 91311
Phone No: (818) 718-0366
Fax No: (818) 700-2835
Principal Contact: Andrew Garroni, Secretary
Any such notice shall, when sent in accordance with the preceding
sentence, be deemed to have been given and received on the earliest of (i)
the day delivered to such address or sent by facsimile transmission, (ii)
the fifth business day following the date deposited with the United States
Postal Service, or (iii) 24 hours after shipment by such courier service.
12.7 Construction: This Agreement shall be construed and enforced in
accordance with the internal laws of the State of Florida without giving
effect to the principles of conflicts of law thereof.
12.8 Counterparts: This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which shall together constitute one and the same Agreement.
33
<PAGE>
12.9 No Implied Waiver; Remedies: No failure or delay on the part of
the parties hereto to exercise any right, power, or privilege hereunder or
under any instrument executed pursuant hereto shall operate as a waiver nor
shall any single or partial exercise of any right, power, or privilege
preclude any other or further exercise thereof or the exercise of any other
right, power, or privilege. All rights, powers, and privileges granted
herein shall be in addition to other rights and remedies to which the
parties may be entitled at law or in equity.
12.10 Entire Agreement: This Agreement, including the Exhibits and
Disclosure Schedules attached hereto, sets forth the entire understandings
of the parties with respect to the subject matter hereof, and it
incorporates and merges any and all previous communications, understandings,
oral or written as to the subject matter hereof, and cannot be amended or
changed except in writing, signed by the parties.
12.11 Headings: The headings of the Sections of this Agreement, where
employed, are for the convenience of reference only and do not form a part
hereof and in no way modify, interpret or construe the meanings of the
parties.
12.12 Severability: To the extent that any provision of this Agreement
shall be invalid or unenforceable, it shall be considered deleted hereof and
the remainder of such provision and of this Agreement shall be unaffected
and shall continue in full force and effect.
12.13 Attorneys Fees: In the event any legal action is brought to
interpret or enforce this Agreement, the party prevailing in such action
shall be entitled to recover its attorneys' fees and costs in addition to
any other relief that it is entitled.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above written.
ATTEST: NEWAGECITIES.COM, INC.
(an Idaho corporation)
34
<PAGE>
By:_________________________ By:_____________________
Name: Ken Shenkman Name: J. Ardito, Jr.
Title: President Title: CEO
ATTEST: NEWAGECITIES.COM, INC.
(a Florida corporation)
By:_________________________ By:_____________________
Name: Ken Shenkman Name: J. Ardito, Jr.
Title: President Title: CEO
ATTEST: MEMBER NET, INC.
By:_________________________ By:_____________________
Name: Andrew Garroni Name: Robert Gould
Title: Secretary Title: President
--------------------- ---------------------
John J. Gallagher Bruce K. Muhlfeld
--------------------- ---------------------
Robert Gould Nolan Quan
--------------------- ----------------------
Andrew Garroni Justin Hirsch
35
<PAGE>
DISCLOSURE SCHEDULE
-------------------
MEMBER NET, INC.
----------------
Schedule A:
-----------
Section III: Warranties and Representations.
3.6 Contracts and Commitments - Attached.
(i) Independent Consultant Agreement dated
June 1, 1999, between Eric Lowe and
Member Net, Inc.
(ii) Independent Consultant Agreement dated
June 1, 1999, between Melina Ovanessian
and Member Net, Inc.
(iii) Independent Consultant Agreement dated
June 1, 1999, between Scott Gallagher
(iv) Technology Licensing Agreement dated
January 26, 1999 between Go Hip, Inc.
and Member Net, Inc.
(v) Transfer of Ownership Agreement dated
January 26, 1999. Between Alchemy
Communications, Inc. and Member Net,
Inc.
3.14 Financial Statements - Attached.
1. Member Net, Inc. Financial Statement June 30, 1999.
Schedule B:
- -----------
3.7 Intellectual Property - Attached.
1. Technology Licensing Agreement dated
January 26, 1999 between Go Hip, Inc. and
Member Net, Inc.
36
<PAGE>
DISCLOSURE SCHEDULE
-------------------
NEWAGECITIES.COM, INC.
----------------------
Schedule A:
- -----------
3.8 Financial Statements: Attached.
37
Consent of Independent Auditors
We consent to the use in this Registration Statement on Form SB-2 of
our report dated July 2, 1999 relating to the financial statements of
newagecities.com, Inc. for the period January 29, 1999 (Inception) through May
31, 1999 and the reference to our firm under the caption `Experts' in this
Registration Statement.
/s/ Feldman Sherb Horowitz & Co., P.C.
--------------------------------------
Certified Public Accountants
New York, New York
August 31, 1999
<PAGE>
Consent of Independent Auditors
We consent to the use in this Registration Statement on Form SB-2 of
our report dated August 9, 1999 relating to the statement of operations of
Member Net, Inc. for the year ended December 31, 1998 and the reference to our
firm under the caption `Experts' in this Registration Statement.
/s/ Feldman Sherb Horowitz & Co., P.C.
--------------------------------------
Certified Public Accountants
New York, New York
August 31, 1999
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<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JAN-29-1998
<PERIOD-END> MAY-31-1999
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