As filed with the Securities and Exchange Commission on December 7, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Urban Cool Network, Inc.
(Name of Registrant in its charter)
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<S> <C> <C>
Delaware 7375 75-2753953
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
1401 Elm Street, Suite 1955
Dallas, Texas 75202
(214) 752-5818
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
Jacob R. Miles, III, Chief Executive Officer
Urban Cool Network, Inc.
1401 Elm Street, Suite 1955
Dallas, Texas 75202
(214) 752-5818
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------------------
Copies to:
Martin C. Licht, Esq. Lawrence B. Fisher, Esq.
Silverman, Collura & Chernis, P.C. Orrick, Herrington & Sutcliffe, LLP
381 Park Avenue South 666 Fifth Avenue, 18th Floor
New York, New York 10016 New York, New York 10103
Telephone: (212) 779-8600 Telephone: (212) 506-5000
Facsimile: (212) 779-8858 Facsimile: (212) 506-5151
----------------------------
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. |X|
If this Form is filed to register additional securities 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 same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
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(Cover Continued on next page)
<PAGE>
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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Proposed
Maximum Proposed
Offering Maximum
Title of Each Amount Price Aggregate Amount of
Class of Securities to be Per Offering Registration
to be Registered Registered Security (1) Price (1) Fee (2)
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<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share 2,300,000(3) $10.00 $23,000,000 $6,072.00
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Shares of Common Stock issuable
upon exercise of the Representative's
Warrants............................. 200,000(4) $12.00 $ 2,400,000 $ 633.60
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Selling Stockholders (5)............. 1,665,000 $10.00 $16,650,000 $4,395.60
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Total Registration Fee................................................................... $11,101.20
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act.
(2) Calculated in accordance with Rule 457 under the Securities Act.
(3) Includes 300,000 shares of common stock which the Representative may
purchase to cover over-allotments, if any.
(4) Pursuant to Rule 416, there are also being registered such additional
securities as may become issuable pursuant to the anti-dilution provisions
contained in the Representative's Warrants.
(5) Includes (i) 105,000 shares of common stock and 525,000 shares of common
stock underlying warrants issued in a private placement in July through
November, 1999; (ii) 150,000 shares of common stock issued to a consultant
in November, 1999; (iii) 750,000 shares of common stock underlying
warrants issued in connection with a loan in an amount up to $1,000,000 in
November, 1999; (iv) 75,000 shares of common stock issued to a consultant
in October, 1999, and (v) 60,000 shares of common stock underlying
warrants issued in connection with a loan in an amount up to $1,000,000 in
November, 1999.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
EXPLANATORY NOTE
This registration statement contains two prospectuses: one relating to
this offering of 2,000,000 shares of common stock of Urban Cool, plus 300,000
shares of common stock to cover over-allotments, if any, and one relating to the
offering of 1,665,000 shares of common stock by some of the stockholders of
Urban Cool. Following the prospectus are certain substitute pages of the selling
stockholder prospectus, including alternate front outside and back outside cover
pages, an alternate "The Offering" section of the "Summary" and sections titled
"Private Financings," "Selling Stockholders and Plan of Distribution" and "Legal
Matters." Each of the alternate pages for the selling stockholder prospectus is
labeled "Alternate Page for Selling Stockholder Prospectus." All other sections
of the prospectus other than "Use of Proceeds," "Dilution," and "Underwriting"
are to be used for the selling stockholder prospectus.
<PAGE>
PRELIMINARY PROSPECTUS DATED DECEMBER 7, 1999
SUBJECT TO COMPLETION
[LOGO]
UCN
2,000,000 Shares
URBAN COOL NETWORK, INC.
Common Stock
This is an initial public offering. No public market currently exists for
our shares. We anticipate that the initial public offering price of the common
stock will be between $9.00 and $11.00 per share. We have applied for listing of
our common stock on The American Stock Exchange under the symbol "UBN." As part
of this offering, we will sell to the underwriters, for nominal consideration,
warrants to purchase 200,000 shares of common stock.
Selling stockholders are also offering 1,665,000 shares of common stock
through an alternate prospectus dated ________, 1999.
Per Share Total
--------- -----
Initial public offering price....... $ $
Underwriting discount............... $ $
Proceeds, before expenses, to us.... $ $
Please see the risk factors beginning on page 5 to read about certain
factors you should consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
The underwriters may purchase up to 300,000 additional shares from us at
the initial public offering price less the underwriting discount.
-------------------
Delivery of the shares of common stock will be made on or about _________,
1999, in New York, New York. The underwriters are offering the shares of common
stock on a firm commitment basis.
SECURITY CAPITAL TRADING, INC.
Prospectus dated ____________________, 1999
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
As Internet use Among
urban consumers
expands, UCN
provides internet
access points,
content, and
Business-to-Consumer
and Business-to-Business Services.
The increasing value of the internet to consumers and businesses.
[Graphic omitted]
Access
- ------
E-mail Services
Net Stand Kiosks(TM)
Proprietary Content
Web Presence
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Design
Urban communities
Transactions
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E-Commerce
Kiosk Transactions
Mail List Services
Business to consumer
(B2C) transactions
Distribution of products,
services & information
Transformations
- ---------------
Internet Consulting
Business to Business
Increased B2B opportunities
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY...................................................... 3
RISK FACTORS............................................................ 7
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS.................... 14
USE OF PROCEEDS......................................................... 15
DIVIDEND POLICY......................................................... 16
DILUTION................................................................ 17
PRIVATE FINANCINGS...................................................... 18
CAPITALIZATION.......................................................... 20
SELECTED FINANCIAL DATA................................................. 22
PLAN OF OPERATION....................................................... 23
BUSINESS................................................................ 28
MANAGEMENT.............................................................. 37
PRINCIPAL STOCKHOLDERS.................................................. 42
CERTAIN TRANSACTIONS.................................................... 43
DESCRIPTION OF SECURITIES............................................... 44
SHARES ELIGIBLE FOR FUTURE SALE......................................... 47
UNDERWRITING............................................................ 48
LEGAL MATTERS........................................................... 50
EXPERTS................................................................. 50
HOW TO GET MORE INFORMATION............................................. 50
FINANCIAL STATEMENTS.................................................... F-1
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You should rely only on the information contained in this document or to which
we have referred you. We have not authorized anyone to provide you with
information that is different. This document may be used only where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
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PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. You should
carefully read the entire prospectus, including the "Risk Factors" section and
the financial statements and the notes to the financial statements. This summary
does not contain all of the information that investors should consider before
investing in our common stock.
Our business
We operate urbancoolnet.com, an online network targeted to the urban
consumer that provides a forum for communications, information and electronic
commerce. Our online network, which has been operational since January 1999,
consists of 15 channels with original content organized by subject matter, and
includes a search engine for users. The channels cover topics of interest to
urban consumers such as arts and literature, health and fitness, sports,
education, children, entertainment, finance, women's issues and travel. In
addition, our online network includes urbanmall.net, a shopping site, and
urbantrends.com, a business-to-business site. Through our search engine, our
online network of web site, is linked to more than 2,000 web sites. According to
Web Trends, page view impressions from January 1999 through October 1999
exceeded 400,000.
Our objective is to establish our online network as a leading online
destination of urban consumers and businesses who market their products to urban
consumers. We intend to provide:
o urban residents with a local competitive means of accessing
information, technology, communications and financial products and
services as well as transportation products and services such as
bus, train and airline information and ticketing; and
o businesses with access to the urban marketplace for additional sales
and customer service opportunities, while providing exposure in the
urban marketplace for their brands.
Our market
The Internet is emerging as a significant medium for communications and
commerce. Internet access has increased for all demographic groups throughout
the U.S. According to a July 1999 study published by the U.S. Department of
Commerce, approximately 42% of U.S. households own computers and approximately
26% of U.S. households have Internet access. In 1998, Internet access increased
52.8% for White households, 52% for African-American households and 48.3% for
Hispanic households.
Our target market is America's urban residents. The 1990 U.S. Census
states that approximately 160 million out of 250 million Americans live in an
urban environment. According to the Census, approximately 80% of the U.S.
minority population lives in an urban environment, which includes 24 million
African-Americans and 18 million Hispanics.
Our strategy
We plan to establish the Urban Cool brand name through advertising, and
through the use of NetStand kiosks and CyberCenters. NetStand kiosks are
individual kiosks that we intend to place in high-traffic locations, and will
contain computers that feature high-speed Internet access to use our online
network. CyberCenters are intended to be central meeting areas that will contain
between 10 and 20 computers, which will provide users with a place to access the
Internet through our online network.
We intend to utilize NetStand kiosks to supplement our Internet presence
with physical locations. Sites for the NetStand kiosks are initially planned
within six urban markets: Brooklyn and Harlem in New York City, and several
areas within Dallas, Detroit, Los Angeles, Miami and the San Francisco Bay area.
We have built seven NetStand kiosks which are fully operational and in
September, 1999 we entered into an agreement with a shopping center in Dallas,
Texas to deploy five NetStand kiosks. The CyberCenters are intended to be 1,000
to 2,000 square feet locations which will be owned and operated by urban
non-profit organizations that provide urbancoolnet.com users and visitors with a
place to socialize and access the Internet and technology-related products and
services. We currently have no CyberCenters. We intend that CyberCenters will
each have NetStand kiosks and multimedia computer stations and will also provide
technology-focused services such as
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3
<PAGE>
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computer enhanced photos, Internet telephone service, data base research and
urban research. We have leased space at 439 West 125th Street in the Harlem area
of New York City which we will operate and will be the model for the
CyberCenters. Our expansion plans include placing licensed CyberCenters and
NetStand kiosks in the top 25 urban markets. We also intend to offer Internet
access to subscribers and we have had discussions with Internet service
providers to provide such service. However, we have not entered into any
definitive agreements and we cannot assure you that a definitive agreement will
be reached.
Our business strategy also includes marketing electronic commerce capable
web sites to urban-based small businesses. In November 1999 we acquired a 662/3%
interest in e-commerce Solutions, Inc., which is developing proprietary software
to construct electronic commerce capable web sites and electronic commerce
communities. We intend to utilize a portion of the net proceeds of the offering
to make a required capital contribution to e-commerce Solutions which will be
utilized to complete development of the software and to fund the start-up costs
for e-commerce Solutions. We intend to market electronic commerce web sites
through e-commerce Solutions to urban-based small businesses.
Corporate background
We were incorporated in Delaware in January 1998. Our principal executive
office is located at 1401 Elm Street, Dallas, Texas 75202. Our telephone number
is (214) 752-5818. Our Internet address is urbancoolnet.com. Information
contained in our web sites is not intended to be part of this prospectus.
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4
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The Offering
Shares offered by us.................... 2,000,000 shares of common stock.
Shares outstanding upon completion of
this offering.......................... 5,645,000 shares of common stock. This
number excludes:
o an aggregate of 2,965,000 shares of
common stock reserved for issuance
upon the exercise of outstanding
options and warrants, including
options to purchase 530,000 shares
of common stock issuable upon the
exercise of options granted under
our stock option plans, as discussed
below;
o 200,000 shares of common stock
reserved for issuance upon the
exercise of warrants granted to the
representative of the several
underwriters of this offering;
o 500,000 shares of common stock
reserved for issuance upon the
exercise of options issuable
pursuant to our employee stock
option plan, of which options to
purchase 30,000 shares of common
stock have been granted;
o 500,000 shares of common stock
reserved for issuance upon the
exercise of options issuable under
our executive stock option plan, all
of which have been granted; and
o 300,000 shares reserved for issuance
upon exercise of the underwriters'
over-allotment option.
Use of proceeds......................... We intend to use the net proceeds from
the sale of the common stock for:
o advertising, sales and marketing;
o capital expenditures;
o development and marketing of
electronic commerce capable web
sites;
o development and licensing of content
and procurement of traffic;
o repayment of debt; and
o working capital and general
corporate purposes.
Proposed American Stock Exchange symbol. UBN
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5
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Summary Financial Data
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<CAPTION>
Period From Period From Period From
January 23, January 23, January 23,
1998 1998 1998
Nine Months (Inception) (Inception) (Inception)
Ended Through Through Through
September 30, September 30, December 31, September 30,
1999 1998 1998 1999
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Statement of operations data:
Costs and expenses:
General and administrative ......... $ 901,000 $ 153,000 $ 328,000 $ 1,229,000
----------- ----------- ----------- -----------
Operating loss .................... (901,000) (153,000) (328,000) (1,229,000)
Interest and related costs ........ 46,000 -- -- 46,000
----------- ----------- ----------- -----------
Net loss/comprehensive loss ....... $ (947,000) $ (153,000) $ (328,000) $(1,275,000)
=========== =========== =========== ===========
Loss per share -- basic and diluted $ (0.36) $ (0.07) $ (0.16)
=========== =========== ===========
Weighted average number of shares
outstanding -- basic and diluted. 2,659,082 2,060,885 2,066,082
=========== =========== ===========
</TABLE>
The following table provides a summary of our balance sheet at September
30, 1999:
o on an actual basis;
o on a pro forma basis to reflect:
o the issuance of 175,000 shares of common stock to Sea Breeze
Associates, a consultant in October 1999;
o the issuance of promissory notes in the aggregate amount of
$700,000, 70,000 shares of common stock and warrants to
purchase 350,000 shares of common stock in October and
November 1999, in connection with a private financing
transaction;
o the borrowing of $350,000, pursuant to a loan of up to
$1,000,000 with The Elite Funding Group, Inc., and the
issuance of warrants to purchase 750,000 shares of common
stock to the lender in November 1999;
o the issuance of 150,000 shares to RMH Consulting Corp., a
consultant who is an affiliate of The Elite Funding Group who
has agreed to loan to us up to $1,000,000, in November 1999,
as compensation for consulting services with respect to the
implementation of our business plan and strategies and our
right to repurchase 60,000 shares of common stock;
o the issuance of warrants to purchase 40,000 shares of common
stock to Security Capital and warrants to purchase 20,000
shares of common stock to May Davis Group in connection with
assisting the company in procuring a loan of up to $1,000,000
with The Elite Funding Group; and
o the issuance of options to purchase 100,000 shares of common
stock to an employee in November 1999.
o on a pro forma as adjusted basis to further reflect:
o the issuance of an aggregate of 15,000 shares of common stock
to three non-employee directors upon the consummation of this
offering;
o the capital contribution of $2,900,000 to e-commerce Solutions
and the resulting minority interest therein;
o the receipt of the net proceeds from our sale of 2,000,000
shares of common stock in this offering, at an estimated
initial public offering price of $10.00 per share,
representing the mid-point of the filing range, after
deducting underwriting discounts and commissions and our
estimated offering expenses and the anticipated application of
the estimated net proceeds, including repayment of debt. See
also "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
Balance sheet data: December 31, 1998 At September 30, 1999
----------------- -----------------------------------------------
(unaudited)
Actual Actual Pro Forma Pro Forma as Adjusted
---------- ---------- ----------- --------------------
<S> <C> <C> <C> <C>
Cash .................................. $ 2,000 -- $ 823,000 $16,263,000
Working capital (deficit) ............. (220,000) $ (776,000) $ 47,000 $16,018,000
Total assets .......................... 88,000 $ 251,000 $ 1,301,000 $16,326,000
Total long-term debt .................. -- $ 88,000 $ 88,000 --
Total liabilities ..................... 222,000 $ 866,000 $ 866,000 $ 247,000
Minority interest ..................... -- -- -- $ 967,000
Shares subject to repurchase .......... -- -- $ 360,000 --
Total stockholder's equity (deficiency) (134,000) $ (615,000) $ 75,000 $15,112,000
</TABLE>
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6
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully
consider the following factors and other information in this prospectus before
deciding to invest in shares of our common stock.
We have a limited operating history and will face difficulties encountered
by early stage companies in new and rapidly evolving markets.
We commenced our business in 1998 and have a limited operating history. An
investor in our common stock must consider the risks and difficulties frequently
encountered by early stage companies in new and rapidly evolving markets, such
as Internet electronic commerce and advertising. These risks include our ability
to:
o attract a larger audience to our online network;
o increase awareness of our brand;
o strengthen user loyalty;
o offer compelling content;
o maintain current and develop new strategic relationships;
o attract a large number of advertisers from a variety of industries;
o manage growth and respond effectively to competitive pressures;
o continue to develop and upgrade our technology; and
o attract, retain and motivate qualified personnel.
See "Plan of Operation" for detailed information on our limited operating
history.
The independent auditor's report contains explanatory language that
substantial doubt exists about our ability to continue as a going concern.
The independent auditor's report on our financial statements contains
explanatory language that substantial doubt exists about our ability to continue
as a going concern. The report specifies that we have incurred net losses, and
have a working capital deficiency and a capital deficiency. If we are unable to
obtain sufficient financing in the near term or achieve profitability, then we
would, in all likelihood, experience severe liquidity problems and may have to
curtail our operations.
We lack revenues, have incurred net losses since our inception and
anticipate continuing losses.
To date, we have had no revenue. We expect to continue to incur
significant operating losses and net losses for at least the next 12 months. As
of September 30, 1999, our accumulated deficit was $1,275,000 and our working
capital deficit was $776,000. We intend to expand our marketing of products and
services, and expect that our operating expenses will increase substantially as
we execute our business plan. As a result, we will need to generate substantial
revenues to achieve profitability. We may never be profitable. If profitability
is achieved, we may not be able to sustain it. We cannot predict when, or if,
profitability might be achieved.
We require substantial funds and may need to raise additional capital in
the future.
We anticipate that the net proceeds from the sale of the shares of our
common stock in this offering will be sufficient to satisfy our contemplated
cash requirements for the 12 month period following the consummation of this
offering. We may then require additional funding. We have no current
arrangements with respect to sources of additional financing. Other additional
financing may not be available on commercially reasonable terms, or at all. The
inability to obtain additional financing, when needed, would have a negative
effect on us, including possibly requiring us to curtail or cease operations. If
any future financing involves the sale of our equity securities, the shares of
our common stock held by our stockholders would be substantially diluted. If we
incur indebtedness or issue debt securities, we will be subject to risks
associated with indebtedness, including the risk that interest rates may
fluctuate and the possibility that we may not be able to pay principal and
interest on the indebtedness.
7
<PAGE>
Our planned expansion will significantly strain our resources.
The pursuit of our business strategy will place a significant strain on
our managerial, operational and financial resources. We will need to expand our
financial and management controls, reporting systems and procedures. We will
also have to expand, train and manage our work force for marketing, sales and
technical support, product development, site design, and network and equipment
repair and maintenance, and manage multiple relationships with various
customers, strategic partners and other third parties. We will need to
continually expand and upgrade our technology infrastructure and systems and
ensure continued high levels of service, speedy operation, and reliability. If
we are unable to manage our growth effectively, our business could be materially
harmed.
We are dependent on continued growth in use of the Internet.
The Internet is new and rapidly evolving. Our business would be adversely
affected if Internet usage does not continue to grow -- particularly usage by
urban consumers -- or grows more slowly than expected. A number of factors may
inhibit Internet usage, including:
o inadequate network infrastructure may create delays or service
outages for users;
o government regulation may increase;
o consumers may have concerns about the security of Internet
transactions;
o customers may return to traditional or alternative sources for
information, shopping and services; and
o lack of availability of cost-effective, high-speed service.
The market for Internet advertising is uncertain.
We expect to derive a substantial portion of our revenues from
sponsorships and advertising on our online network and our NetStand kiosks.
Demand and market acceptance for Internet advertising and sponsorship and
advertising on our NetStand kiosks is uncertain.
There are currently no widely accepted standards for the measurement of
the effectiveness of Internet advertising, and the industry may need to develop
standard measurements to support and promote Internet advertising as a
significant advertising medium. If such standards do not develop, existing
advertisers may not continue their levels of Internet advertising. Furthermore,
advertisers who have traditionally relied upon other advertising media may be
reluctant to advertise on the Internet. Our business would be adversely affected
if the market for Internet advertising fails to develop or develops more slowly
than expected.
Different pricing models are used to sell advertising on the Internet. It
is difficult to predict which, if any, will emerge as the industry standard.
This makes it difficult to project our future advertising rates and revenues.
Our advertising revenues could be adversely affected if we are unable to adapt
to new forms of Internet advertising. Moreover, software programs that limit or
prevent advertising from being delivered to an Internet user's computer are
available. Widespread adoption of this software could adversely affect the
commercial viability of Internet advertising.
Establishing and maintaining our brand recognition and reputation are
essential to our success.
We believe our success depends on our ability to successfully establish
and maintain our brand recognition and reputation with urban consumers. Growing
the popularity of our web sites and the Urban Cool brand name requires that we
are perceived as offering trendsetting and "cool" sites for urban consumers. We
presently have only two employees involved in sales and marketing. In order to
maintain a good reputation and strong brand name, we need to invest heavily in
our marketing and maintain high standards for actual and perceived quality,
usefulness, reliability, security and ease of use of our services. However, we
cannot assure you that our marketing efforts will attract urban consumers to our
web sites. Alternatively, our marketing efforts may be successful in attracting
urban consumers, but we may not be able to maintain these relationships over
time. Even if we continue to provide good service to our customers, factors
outside of our control, including actions by organizations that are mistaken for
us, could affect our brand and the perceived quality of our services, thereby
damaging our business.
8
<PAGE>
We could experience system failures that interfere with users' access to
our web sites.
Our business depends on the efficient and uninterrupted operation of our
computer and communications hardware and software systems. Substantially all of
our computer and communications hardware operations are located in Dallas,
Texas. Fire, floods, earthquakes, power loss, telecommunications failures and
similar events could damage these systems. Computer viruses, electronic
break-ins or other similar disruptive problems could also adversely affect our
web sites. Our business could be adversely affected if our systems were affected
by any of these occurrences. Our insurance policies may not adequately
compensate us for any losses that may occur due to failures or interruptions in
our systems. We do not presently have any secondary "off-site" systems or a
formal disaster recovery plan.
Internet security concerns could hinder electronic commerce and the demand
for our products and services.
A significant barrier to electronic commerce and communications over the
Internet has been the need for the secure transmission of confidential
information. We may incur significant costs to protect against the threat of
security breaches or to alleviate problems caused by breaches. Internet usage
and the demand for our services could decline if any well-publicized compromise
of security occurs. Although we are not aware of any attempts by programmers or
"hackers" to penetrate our network security, these actions could occur in the
future. A party who is able to penetrate our network security could misuse our
users' personal information or credit card information and users might sue us or
bring claims against us related to, among other things, unauthorized purchases
with credit card information, impersonation or other similar fraud claims, or
misuse of personal information.
We may be unable to respond to rapid technological changes in our
industry, which could materially harm our ability to attract and retain users.
The Internet is characterized by rapidly changing technologies, frequent
new product and service introductions and evolving industry standards. We must
respond to marketplace developments in a timely and cost-effective manner. In
this regard, we must continue to develop, enhance and improve the responsiveness
and features of our web sites and develop new features to meet users needs. We
also need to integrate the various software programs and tools required to
enhance and improve our product offerings and manage our business. Our future
success will depend on our ability to adapt to rapidly changing technologies by
continually improving the performance features and reliability of our services.
We may experience difficulties that could delay or prevent the successful
development, introduction or marketing of new products and services. We could
also incur substantial costs if we need to modify our services or infrastructure
to adapt to these changes.
We will depend upon strategic marketing relationships to generate sales.
We intend to use strategic marketing relationships to attract new
customers, including entering into relationships with membership-based groups
such as non-profit organizations, churches, alumni organizations and
fraternities. These relationships may not generate significant numbers of new
customers. Alternatively, these relationships may be successful at generating
new customers, but we may not be able to maintain these customer relationships
or enter into more of them. If any of these events were to occur, it could
materially harm our business, operating results and financial condition.
There is intense competition for Internet-based business.
The number of web sites competing for the attention and spending of users
and advertisers has increased. We expect that online competition will further
intensify since a competitor can launch a new site at a relatively low cost.
We compete for users and advertisers with the following types of
companies:
o online services or web sites targeted at urban consumers such as
bet.com, starmedia.com and quepasa.com;
o web search and retrieval and other online service companies,
commonly referred to as portals, such as AOL, Excite, Inc., Infoseek
Corporation, Lycos, Inc. and Yahoo! Inc.;
o electronic commerce companies such as AOL, Yahoo Store and
Amazon.com; and
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o publishers and distributors of traditional media, such as
television, radio and print.
Many of our competitors have longer operating histories, larger customer
bases, greater brand recognition and significantly greater financial, marketing
and other resources than we have. Increased competition could result in price
reductions, reduced margins or loss of market share, any of which could
adversely affect our business.
We must expand quickly or competitors may copy or block our strategy.
We believe we must rapidly establish Urban Cool as a leading online
destination for urban consumers in order to maximize traffic to our web sites
and increase our customer base. If we fail to do so, competitors may copy our
business strategy or take other steps to prevent us from achieving our goal. In
addition, a competing kiosk program could dilute our sales and the marketing
effectiveness of the NetStand kiosks, which are a central part of our business
strategy.
We must take the risk of introducing new services in order to compete.
We plan to introduce new and expanded services on our online network,
including electronic commerce services, in order to generate additional
revenues, attract more consumers and respond to competition. There can be no
assurance that we will be able to offer any new services in a cost-effective or
timely manner or that any efforts will be successful. Furthermore, any new
service we launch that is not favorably received by consumers could damage our
reputation or our brand name. Expansion of our services will also require
significant additional expenses and development and may strain our management,
financial and operational resources. Our inability to generate revenues from
expanded services sufficient to offset their cost could have a material adverse
effect on our business, financial condition and results of operations.
We may be unable to complete the development of our proprietary software
to construct electronic commerce capable web sites.
In November 1999 we acquired a 66 2/3% interest in e-commerce Solutions,
which is developing proprietary software to construct electronic commerce
capable web sites for small businesses. We have no experience with software
development. We cannot assure you that we will be able to complete development
of the software on a timely basis, or at all. If we do not complete development
of the software on a timely basis there would be a material adverse effect on
our business, financial condition and results of operations.
There may not be a market for low-cost electronic commerce capable web
sites.
The demand and market acceptance for low-cost electronic commerce capable
web sites is uncertain. We have no experience in marketing electronic commerce
capable web sites and we cannot predict if a market will develop, or if it will
develop more slowly than anticipated.
Our success in selling electronic commerce capable web sites depends on
developing a substantial sales force.
We currently do not have a sales force to market electronic commerce
capable web sites. Although, we intend to build a substantial sales force to
market our electronic commerce capable web sites, we cannot assure you we will
be able to build a substantial sales force. Moreover, even if we build a
substantial sales force, we cannot assure you that our sales force will be able
to attract customers and generate revenue, or that our operations will achieve
profitably.
There is intense competition for web site design services.
We expect to compete with IBM, EDS, and many other local, regional and
national competitors for web site design services that we will offer through
e-commerce Solutions. We expect this competition to persist and intensify in the
future. Our failure to establish our competitive position will limit our ability
to maintain and increase our market share, which would result in serious harm to
our business. Many of our competitors are substantially larger than we are and
have substantially greater financial, infrastructure and personnel resources
than we have. Furthermore, many of our competitors have well established, large
and experienced marketing and sales capabilities and greater name recognition
than we have. As a result, our competitors may be in a stronger position to
respond quickly to new or emerging technologies and changes in client
requirements. They
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may also develop and promote their services more effectively than we do.
Moreover, barriers to entry into our market are low. We therefore expect
additional competitors to enter our market.
We intend to license third-party content on our web sites.
We intend to license third-party content, including news reports and
features, in order to attract and retain web site users. If we are unable to
obtain desirable content, it could reduce visits to our web sites which could
materially harm our business. In addition, if we are unable to obtain content at
an acceptable cost, it could materially harm our ability to compete and our
operating results and financial condition.
The protection of our domain names is uncertain because the regulation of
domain names is subject to change.
We currently utilize various web domain names relating to our brand,
including urbancoolnet.com, urbantrends.com and urbanmall.net. Jacob R. Miles,
III our Chairman, Chief Executive Officer and majority stockholder holds the
domain name for urbantrends.com, which he intends to transfer to us prior to the
completion of this offering. The acquisition and maintenance of domain names
generally is regulated by governmental agencies and their designees. The
regulation of domain names in the United States and in foreign countries is
expected to change in the near future. As a result, we may be unable to acquire
or maintain relevant domain names in all places in which we may conduct
business. If our ability to acquire or maintain domain names is limited, it
could materially harm our business, operating results and financial condition.
We rely upon third-parties for equipment and for kiosk manufacture,
assembly, installation, maintenance and repair.
Although our computer and network hardware and our NetStand kiosks are
assembled from standard components which may be outsourced from a number of
manufacturers and distributors, we have no equipment manufacturing capacity and
we have no agreements with any manufacturers or distributors. Accordingly, we
are dependent upon the timely delivery of quality equipment by third-party
manufacturers and distributors. We also depend upon third-parties for the
timely, cost-effective, and proper installation, maintenance, and repair of our
NetStand kiosks and for the maintenance and repair of our equipment and network
infrastructure. Failure by any of these third-parties to perform as we require
could materially adversely affect our business, operations, and financial
condition.
Our operations depend on our ability to maintain favorable relationships
with third-party suppliers.
We depend on various third-parties for Internet access, software, systems
and related services. Several of the third-parties that provide software and
services to us have a limited operating history, have relatively immature
technology and are themselves dependent on reliable delivery of services from
others. As a result, our ability to deliver various services to our users may be
adversely affected by the failure of these third-parties to provide reliable
software, systems and related services to us.
We may be sued for information retrieved from the Internet.
We may be subject to claims for defamation, negligence, copyright or
trademark infringement, personal injury or other legal theories relating to the
information we publish on our web sites. These types of claims have been
brought, sometimes successfully, against online services as well as other print
publications in the past. We could also be subjected to claims based upon the
content that is accessible from our web sites through links to other web sites
or through content and materials that may be posted by users in chat rooms or
bulletin boards. We also offer e-mail services, which may subject us to
potential risks, such as liabilities or claims resulting from unsolicited
e-mail, lost or misdirected messages, illegal or fraudulent use of e-mail or
interruptions or delays in e-mail service. Our insurance may not adequately
protect us against these types of claims.
We may incur potential product liability for products sold over the
Internet.
Consumers may sue us if any of the products that we sell online are
defective, fail to perform properly or injure the user. We seek to foster
relationships with manufacturers or companies to offer products directly on our
web sites. To date, however, we have had very limited experience in the sale of
products online and the development of relationships with manufacturers or
suppliers of products. Such a strategy involves numerous risks and
uncertainties. Liability claims could require us to spend significant time and
money in litigation or to
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pay significant damages. As a result, any such claims, whether or not
successful, could seriously damage our reputation and our business.
Possible infringement of intellectual property rights could harm our
business.
Although we have filed for trademark protection for the Urban Cool brand
name, we cannot be certain that the steps we have taken to protect the Urban
Cool brand name or other intellectual property rights which we may obtain in the
future will be adequate or that third parties will not infringe or
misappropriate our proprietary rights. Any such infringement or misappropriation
could have a material adverse effect on our future financial results.
We could be subject to possible infringement actions based upon content
licensed from others.
We have established a network of links with numerous small online sites.
Many of the sites may not have licenses for the use of the intellectual property
that they display. The copyright holders of this intellectual property or their
licensees may assert infringement claims against our affiliate partner sites and
us because of our relationships with these sites. In addition, it is possible
that we could become subject to infringement actions based upon content we may
license from third parties. Any of these claims, with or without merit, could
subject us to costly litigation and the diversion of our financial resources and
technical and management personnel. Further, if such claims are successful, we
may be required to change our trademarks, alter the content, pay financial
damages or obtain licenses from others.
Government regulation and legal uncertainties could add additional costs
to doing business on the Internet.
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may be
adopted in the future that address issues such as user privacy, pricing, and the
characteristics and quality of products and services. For example, the
Telecommunications Act sought to prohibit transmitting various types of
information and content over the Internet. Several telecommunications companies
have petitioned the Federal Communications Commission to regulate Internet
service providers and online service providers in a manner similar to long
distance telephone carriers and to impose access fees on those companies. This
could increase the cost of transmitting data over the Internet. Moreover, it may
take years to determine the extent to which existing laws relating to issues
such as property ownership, libel and personal privacy are applicable to the
Internet. Any new laws or regulations relating to the Internet could adversely
affect our business.
Our management has broad discretion over the use of proceeds raised in
this offering and may not apply them effectively.
Management will have significant flexibility in applying the net proceeds
of this offering and may apply the proceeds in ways with which you do not agree.
The failure of management to apply these funds effectively could materially harm
our business. See "Use of Proceeds" for a discussion of our intended uses of the
net proceeds of this offering.
The representative of the underwriters will continue to have influence
over us following the completion of this offering.
Security Capital, the representative of the several underwriters, has been
given the right, for a period of five years from the completion of this
offering, to designate a person to our board of directors. Upon completion of
this offering, the representative will also receive, for nominal consideration,
warrants to purchase 200,000 shares of our common stock. Accordingly, the
representative of the underwriters will continue to have influence over our
operations following the completion of this offering.
Several members of senior management have only recently joined us.
Several members of our senior management joined us in 1999, including our
Chief Operating Officer and Chief Financial Officer. These individuals have not
previously worked together and are becoming integrated as a management team. As
a result, our senior managers may not work together effectively as a team to
successfully manage our growth.
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Our business depends on our key personnel.
Our future success depends to a significant extent on the continued
services of our senior management and other key personnel, particularly, Jacob
R. Miles, III, Chairman and Chief Executive Officer, Terrence B. Reddy,
President and Chief Operating Officer, and Stanley Wolfson, the President of
e-commerce Solutions. The loss of the services of Mr. Miles, Mr. Reddy, Mr.
Wolfson or other key employees would likely have a significantly detrimental
effect on our business. We do not maintain "key person" life insurance for any
of our personnel. We currently have employment agreements with each of Mr. Miles
and Mr. Reddy, and Mr. Wolfson has entered into an employment agreement with
e-commerce Solutions. Although, if Mr. Miles, Mr. Reddy or Mr. Wolfson becomes
unable or unwilling to continue in their current positions, it would be
significantly more difficult to operate our business, which would hurt our
financial condition and results of operations.
Our future success also depends on our continuing to attract, retain and
motivate highly skilled employees. There is significant competition for
qualified employees in the Internet industry. As a result, we may incur
increased salaries, benefits and recruiting expenses. If we do not succeed in
attracting new personnel or retaining and motivating our current personnel, our
business will be adversely affected.
Management will control approximately 40% of Urban Cool after completion
of this offering; management's interests may differ and conflict with yours.
Upon completion of this offering, our directors and executive officers
will own approximately 40% of the then outstanding shares of our common stock.
Accordingly, these stockholders will possess substantial control over our
operations. This control may allow them to amend corporate filings, elect all of
our board of directors, other than the director to be designated by the
representative, and substantially control all matters requiring approval by our
stockholders, including approval of significant corporate transactions.
Management will also have the ability to delay or prevent a change in our
control and to discourage a potential acquirer for us or our securities. If you
purchase our common stock, you may have no effective voice in our management.
You will incur immediate and substantial dilution.
The initial public offering price per share of our common stock is
substantially higher than the net tangible book value per share of our
outstanding common stock. You will suffer immediate and substantial dilution of
$7.32 per share, or approximately 73.2% of the estimated initial public offering
price of $10.00 per share. Further, the exercise of options and warrants
currently outstanding could cause additional, substantial dilution to you. See
"Dilution" for more detailed information regarding the potential dilution you
may incur.
Unless a public market develops for our securities, you may not be able to
sell your shares.
Prior to this offering, there has been no public market for our common
stock. Although we have applied for listing on The American Stock Exchange,
there can be no assurance that an active trading market will develop or be
maintained. Failure to develop or maintain an active trading market could
negatively effect the price of our securities, as well as effect your ability to
sell your shares.
Shares eligible for public sale after this offering could adversely affect
our stock price.
Sales of substantial amounts of our common stock in the public market
after this offering, or the perception that these sales may occur, could
materially and adversely affect the market price of the common stock or our
ability to raise capital through an offering of equity securities. Assuming no
exercise of outstanding options or warrants, 2,000,000 of the 5,645,000 shares
of common stock to be outstanding upon completion of this offering (2,300,000 of
5,945,000 shares if the underwriters' over-allotment option is exercised in
full), will be immediately tradeable without restriction under the Securities
Act, unless purchased by one of our affiliates. The 1,665,000 shares offered by
selling stockholders through an alternate prospectus will also be immediately
tradeable without restriction under the Securities Act, of which 765,000 shares
of common stock will be subject to the lock-up agreements described below.
"Affiliates," as defined in the Securities Act, must always sell their
shares in accordance with the terms, including volume limitations, of Rule 144
under the Securities Act.
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The remaining 3,645,000 of the 5,645,000 shares to be outstanding upon the
completion of the offering (or 5,945,000 shares if the underwriters'
over-allotment option is exercised in full), will be "restricted securities" as
defined in Rule 144. 2,121,475 of these restricted securities have been held for
more than one year as of the date of this prospectus. Therefore, 2,121,475 of
these shares will be eligible for public sale beginning 90 days after the date
of this prospectus in accordance with the requirements of Rule 144, subject to
the lock-up agreements described below. Except for RMH Consulting Corp., a
consultant and an affiliate of The Elite Funding Group, and The Elite Funding
Group, our lender and a principal stockholder of ours, who will hold up to
150,000 shares of common stock and warrants to purchase up to 750,000 shares of
common stock, respectively, all of our stockholders, our warrant holders and our
officers and directors, have agreed to not directly or indirectly, offer, sell,
pledge, grant any option to purchase, or otherwise sell or dispose of any of our
shares for a period of at least 13 months after the offering without the prior
written consent of Security Capital. However, Security Capital has agreed to
release the lock-up after six months with respect to 105,000 shares of common
stock and 525,000 shares of common stock underlying certain warrants issued in
connection with a private financing transaction in July through November, 1999,
if Security Capital has not agreed otherwise with The American Stock Exchange or
any other national securities exchange.
Failure of computer systems and software products to be Year 2000
compliant could negatively impact our business.
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results causing disruptions to our
computer operations. We believe that our products and internal systems are year
2000 compliant. However, the failure of products or systems maintained by third
parties or our products and systems to be year 2000 compliant could cause us to
incur significant expenses to remedy any problems and seriously damage our
business. We have not incurred significant year 2000 compliance costs and we do
not believe that we will incur significant costs for these purposes in the
foreseeable future. We have no contingency plan to deal with any year 2000
problems.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These forward-looking
statements are not historical facts, but rather are based on our current
expectations, estimates and projections about our industry, our beliefs and
assumptions. Words including "may," "could," "would," "will," "anticipates,"
"expects," "intends," "plans," "projects," "believes," "seeks," "estimates" and
similar expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and other factors, some of which are beyond our control,
are difficult to predict and could cause actual results to differ materially
from those expressed or forecasted in the forward-looking statements. These
risks and uncertainties are described in "Risk Factors" and elsewhere in this
prospectus. We caution you not to place undue reliance on these forward-looking
statements, which reflect our management's view only as of the date of this
prospectus. We are not obligated to update these statements or publicly release
the result of any revisions to them to reflect events or circumstances after the
date of this prospectus or to reflect the occurrence of unanticipated events.
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USE OF PROCEEDS
We will receive net proceeds from the sale of the shares of common stock
in this offering of approximately $17,250,000, or $19,950,000 if the
underwriters' over-allotment option is exercised in full, based upon an
estimated initial offering price of $10.00 per share, representing the midpoint
of the filing range. These numbers take into account underwriting discounts and
commissions, and other estimated offering expenses that we will pay.
We intend to use the net proceeds as follows:
<TABLE>
<CAPTION>
Approximate
Amount of Percentage of
Application of Net Proceeds Net Proceeds Net Proceeds
- ------------------------ ------------- ------------
<S> <C> <C>
Advertising, sales and marketing ................................. $ 5,250,000 30.4%
Capital expenditures ............................................. 4,000,000 23.2%
Development and marketing of electronic commerce capable web sites 2,900,000 16.8%
Development and licensing of content and procurement of traffic .. 2,200,000 12.8%
Repayment of debt ................................................ 1,985,000 11.5%
Working capital and general corporate purposes ................... 915,000 5.3%
----------- -----
Total .......................................................... $17,250,000 100.0%
=========== =====
</TABLE>
Advertising, sales and marketing. We intend to utilize outdoor, radio,
print, Internet and television advertising in order to promote the Urban Cool
brand name and increase traffic on our web sites. We also intend to open
regional sales offices to market our products and services.
Capital expenditures. We intend to deploy NetStand kiosks in major urban
areas.
Development and marketing of electronic commerce capable web sites. We
intend to sell electronic commerce capable web sites to urban-based small
businesses through e-commerce Solutions. We intend to utilize a portion of the
net proceeds of the offering to make our required capital contribution in the
aggregate amount of $3,000,000 to e-commerce solutions, which will be utilized
to complete the development of proprietary software to construct these web sites
and to set up a sales and marketing organization for the sale of electronic
commerce capable web sites.
Development and licensing of content and procurement of traffic. We intend
to develop original content, license third-party content, including financial
information, news reports, entertainment reports, features, and enter into
content agreements to increase and maintain traffic on our web sites.
Repayment of debt. We intend to repay:
o $1,050,000 in promissory notes issued during July through November
in a private financing transaction plus accrued interest, at the
rate of 10% per annum
o a promissory note in the amount of approximately $400,000 payable to
Analysts International Corporation plus accrued interest at the rate
of 18% per annum,
o a loan in the amount of up to $1,000,000 from The Elite Funding
Group, of which $350,000 has been drawn as of the date of this
prospectus plus accrued interest at the rate of 10% per annum and
o accrued salary in the amount of $131,000 payable to Jacob R. Miles,
III, our Chairman, Chief Executive Officer and majority stockholder.
We anticipate that the net proceeds from this offering and cash provided
by operations will be sufficient to fund our operations and cash requirements
for at least the 12 months following the date of this prospectus. We cannot
assure you, however, that such funds will not be expended earlier due to
unanticipated changes in economic conditions or other circumstances that we
cannot foresee. In the event our plans or assumptions change or prove to be
inaccurate, we might seek additional financing sooner than currently
anticipated. Any net proceeds from the sale of the underwriters' over-allotment
option will be allocated to working capital and
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general corporate purposes. We will not receive any of the proceeds from the
sale of shares by the selling stockholders.
The proposed allocation of the net proceeds represents our management's
best estimate of its current intentions concerning the expected use of funds to
finance our activities in accordance with our management's current objectives
and current market conditions. Our management and board of directors may
allocate the funds in significantly different proportions, depending on their
needs at the time.
Pending use of the net proceeds of this offering, we intend to invest the
net proceeds in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never paid any dividends on our common stock. We do not intend to
declare or pay dividends on our common stock; rather, we intend to retain our
earnings, if any, for the operation and expansion of our business. Dividends
will be subject to the discretion of our board of directors and will be
contingent on future earnings, if any, our financial condition, capital
requirements, general business conditions and other factors as our board of
directors deems relevant.
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DILUTION
Purchasers of our shares of common stock will experience immediate and
substantial dilution in the net tangible book value of their investment. The
difference between the initial public offering price per share of common stock
and the pro forma net tangible book value per share of common stock after this
offering constitutes the dilution per share of common stock to investors in this
offering. Pro forma net tangible book value per share represents Urban Cool's
total tangible assets less total liabilities, divided by the number of issued
and outstanding shares of common stock at September 30, 1999, after giving
effect to:
o the issuance of 175,000 shares of common stock to Sea Breeze
Associates, a consultant in October 1999;
o the issuance of promissory notes in the aggregate amount of
$700,000, 70,000 shares of common stock and warrants to purchase
350,000 shares of common stock in October and November 1999, in
connection with a private financing transaction;
o the borrowing of $350,000, pursuant to a loan of up to $1,000,000,
and the issuance of warrants to purchase 750,000 shares of common
stock to the lender, The Elite Funding Group, Inc., in November
1999;
o the issuance of 150,000 shares to RMH Consulting Corp., a consultant
who is an affiliate of The Elite Funding Group who has agreed to
loan us up to $1,000,000, in November 1999, as compensation for
consulting services with respect to the implementation of our
business plan and strategies, including our right to repurchase
60,000 shares of common stock;
o the issuance of warrants to purchase 40,000 shares of common stock
to Security Capital and warrants to purchase 20,000 shares of common
stock to May Davis Group in connection with assisting the company in
procuring a loan of up to $1,000,000 with The Elite Funding Group;
and
o the issuance of options to purchase 100,000 shares of common stock
to an employee in November 1999.
As of September 30, 1999, we had a pro forma net tangible book value of
$(340,000), $(.09) per share of common stock. Giving effect to the sale of
2,000,000 shares of common stock at the estimated initial public offering price
of $10.00 per share, representing the midpoint of the filing range, and after
deducting underwriting discounts and commissions and estimated offering
expenses, our pro forma as adjusted net tangible book value on September 30,
1999 would have been $15,112,000 or $2.68 per share. This represents an
immediate increase in the net tangible book value of approximately $2.77 per
share to existing stockholders and an immediate and substantial dilution of
$7.32 per share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ........................... $10.00
Pro forma net tangible book value per share as of September 30, 1999 ...... $(.09)
Increase per share attributable to new investors .......................... $2.77
------
Pro forma as adjusted net tangible book value per share after this offering $ 2.68
------
Dilution per share to new investors ....................................... $ 7.32
======
</TABLE>
Giving effect to the sale of 2,300,000 shares of our common stock, which
assumes the underwriters exercise the over-allotment option in full, at the
estimated initial public offering price of $10.00 per share, representing the
midpoint of the filing range, the pro forma adjusted net tangible book value on
September 30, 1999 would have been $3.00 per share. This represents an immediate
increase in the net tangible book value of approximately $3.09 per share to
existing stockholders and an immediate and substantial dilution of $7.00 per
share to new investors.
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The following table summarizes, on a pro forma basis, as of September 30,
1999, the number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by existing
stockholders and by new investors. The following table excludes the deduction of
underwriting discounts and commissions and other estimated expenses payable by
us.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------- ---------------------- Price per
Number Percent Amount Percent Share
--------- ------- ----------- ------- ------
<S> <C> <C> <C> <C> <C>
Existing stockholders 3,630,000 64% $ 3,336,000 14% $ .92
New investors ....... 2,000,000 36% $20,000,000 86% $10.00
--------- --- ----------- --- ------
Total ............... 5,630,000 100% $23,336,000 100%
========= === =========== ===
</TABLE>
PRIVATE FINANCINGS
From July through November 1999, we completed the sale of 105 units at a
price of $10,000 per unit in a private financing transaction. Each unit in the
private financing consisted of a promissory note in the principal amount of
$10,000, 1,000 shares of common stock and warrants to purchase 5,000 shares of
common stock. The warrants are exercisable at an exercise price of $2.00 per
share commencing January 2000 through May 2000 and expire July 2004 through
November 2004. The notes bear interest at the rate of 10% per annum and are
payable on the earlier of 24 months from the date of issuance or upon the
closing of an initial public offering of our securities. We have agreed to
register the shares of common stock and the shares of common stock underlying
the warrants issued in the private financing. These shares are included in this
registration statement of which this prospectus forms a part and are being
offered by the selling stockholders under an alternate prospectus.
In addition, the holders of at least 50% of the shares of common stock and
the shares of common stock underlying the warrants issued in the private
financing have the right to demand the registration of their shares on one
occasion. The holders of the shares of common stock and the warrants have agreed
not to sell, transfer, assign or otherwise dispose of the shares of common
stock, the warrants and the shares of common stock underlying the warrants for a
period of 13 months from the date of this prospectus without the prior written
consent of Security Capital Trading, Inc. However, Security Capital has agreed
to release the lock-up after six months if Security Capital has not agreed
otherwise with The American Stock Exchange or any other national securities
exchange.
Security Capital acted as the placement agent for the private financing.
We paid Security Capital a fee of $105,000, which was equal to 10% of the
aggregate purchase price of the units sold, a portion of which was re-allowed to
a sub-placement agent, and a non-accountable expense allowance of $31,500 which
was equal to 3% of the aggregate purchase price of the units sold.
On November 23, 1999, we entered into a loan agreement with The Elite
Funding Group, Inc. which provides for a loan in an amount of up to $1,000,000
at an interest rate of 10% per annum, payable monthly. On the date we entered
into the agreement, we received an initial advance of $350,000 and we issued to
the lender common stock purchase warrants for the purchase of up to 750,000
shares of common stock with an exercise price of $2.00 per share. The warrants
are exercisable by the lender at any time for a period of ten years. To secure
the repayment of advances under the loan agreement, we have pledged
substantially all of our assets to the lender. We must prepay any outstanding
advances under the loan agreement to the extent of any proceeds available to us
from the sale of our assets outside of the ordinary course of business, the
issuance of any indebtedness or the sale of any equity securities. We must pay
the full amount of all outstanding advances under the loan agreement on the
earlier of April 14, 2000 or the closing of this offering. We may draw down up
to $150,000 against the balance of the loan every 30 days.
We have also granted certain registration rights to the lender for the
registration of the shares of common stock underlying the warrants, including
demand and "piggy-back" registration rights. The shares of common stock
underlying the lender's warrant are included in this registration statement of
which this prospectus forms a part, are being offered under an alternate
prospectus and are not subject to a lock-up agreement. In addition, we have
agreed to utilize our best efforts to enable the lender or its designee to
purchase the number of shares of common stock in this offering in an amount
equal to $1,000,000 divided by the initial public offering price.
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We have also entered into a consulting agreement with RMH Consulting
Corp., an affiliate of The Elite Funding Group, a principal stockholder and our
lender. The consulting agreement is for a period of two years commencing as of
November 1, 1999 and requires us to pay the consultant a fee of $6,250 per
month. Pursuant to the consulting agreement we issued 150,000 shares of common
stock to the consultant and we will be required to issue additional shares of
common stock to the consultant if we commence an initial public offering at a
price of $9.00 or less per share, so that the total number of shares issued to
the consultant will be equal to the number of shares which could have been
purchased in the initial public offering for $1,500,000. We may repurchase an
aggregate of 60,000 shares of common stock in four monthly installments of
15,000 shares of common stock from the consultant at a cash price of $2,000 for
each installment commencing in December 1999 through March 2000. In the event
that we do not repurchase the shares of common stock in a given month, then such
repurchase right expires. However, upon the completion of the offering our right
to repurchase any shares of common stock for which our repurchase right is still
outstanding will be accelerated. We have also granted certain registration
rights to the consultant for the registration of the shares of common stock,
including demand and "piggy-back" registration rights. The shares of common
stock issued to RMH Consulting are included in this registration statement of
which this prospectus forms a part, are being offered under an alternate
prospectus and are not subject to a lock-up agreement. See
"Management--Consulting Agreements" and "Certain Transactions."
Security Capital and MayDavis Group assisted us in procuring the loan from
The Elite Funding Group and as compensation for such services received warrants
to purchase 40,000 shares of common stock and 20,000 shares of common stock,
respectively.
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CAPITALIZATION
The following table sets forth our capitalization as of September 30,
1999:
o on an actual basis;
o on a pro forma basis to reflect:
o the issuance of 175,000 shares of common stock to Sea Breeze
Associates, a consultant in October 1999;
o the issuance of promissory notes in the aggregate amount of
$700,000, 70,000 shares of common stock and warrants to
purchase 350,000 shares of common stock in October and
November 1999, in connection with a private financing
transaction;
o the borrowing of $350,000, pursuant to a loan of up to
$1,000,000, and the issuance of warrants to purchase 750,000
shares of common stock to the lender, The Elite Funding Group,
Inc., in November 1999;
o the issuance of 150,000 shares to RMH Consulting Corp., a
consultant who is an affiliate of The Elite Funding Group, who
has agreed to loan us up to $1,000,000, in November 1999, as
compensation for consulting services with respect to the
implementation of our business plan and strategies and our
right to repurchase 60,000 shares of common stock;
o the issuance of warrants to purchase 40,000 shares of common
stock to Security Capital and warrants to purchase 20,000
shares of common stock to May Davis Group in connection with
assisting the company in procuring a loan of up to $1,000,000
from The Elite Funding Group; and
o the issuance of options to purchase 100,000 shares of common
stock to an employee in November 1999.
o on a pro forma as adjusted basis to further reflect:
o the issuance of an aggregate of 15,000 shares of common stock
to three non-employee directors upon the consummation of this
offering;
o the capital contribution of $2,900,000 to e-commerce Solutions
and the resulting minority interest therein; and
o the receipt of the net proceeds from our sale of common stock
in this offering, at an estimated initial public offering
price of $10.00 per share, representing the midpoint of the
filing range, and the anticipated application of the net
proceeds, including repayment of debt. See also "Use of
Proceeds."
The pro forma as adjusted table does not give effect to the following:
o 300,000 shares of our common stock issuable upon exercise of the
underwriters' over-allotment option;
o 200,000 shares of our common stock reserved for issuance upon the
exercise of the warrants granted to the representative of the
underwriters of this offering exercisable during the four-year
period commencing one year from the date of this prospectus at an
exercise price of 120% of the public offering price; and
o 500,000 shares of our common stock reserved for issuance upon the
exercise of options pursuant to our employee stock option plan, of
which options to purchase 30,000 shares of common stock have been
granted and 500,000 shares of common stock reserved for issuance
upon the exercise of options pursuant to our executive stock option
plan, all of which have been granted.
You should read this table in conjunction with our financial statements,
including the notes to our financial statements, which appear elsewhere in this
prospectus.
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<TABLE>
<CAPTION>
As of September 30, 1999
------------------------
Pro Forma
Actual Pro Forma as adjusted
------------ ------------ ------------
<S> <C> <C> <C>
Notes payable (face value--$350,000, actual,
$1,050,000, pro forma) ....................... $ 88,000 $ 88,000 $ --
------------ ------------ ------------
Minority interest .............................. 967,000
------------
Shares subject to repurchase ................... 360,000
------------
Stockholders equity (deficiency): ..............
Preferred stock--authorized 3,000,000 shares,
$.01 par value: none outstanding,
actual, pro forma and pro forma as adjusted
Common stock--authorized 30,000,000 shares,
$.01 par value: 3,235,000 outstanding(actual),
3,630,000 outstanding (pro forma), 5,645,000
outstanding (pro forma as adjusted) .......... 32,000 36,000 56,000
Additional paid-in capital ..................... 1,328,000 9,073,000 26,638,000
Unearned compensation .......................... (700,000) (2,650,000) (2,650,000)
Deficit accumulated during the development stage (1,275,000) (1,625,000) (8,932,000)
Unamortized debt discount in excess of
notes payable ................................ (4,759,000)
------------ ------------ ------------
Total stockholders equity (deficiency) ......... $ (615,000) $ 75,000 $ 15,112,000
------------ ------------ ------------
Total capitalization ........................... $ (527,000) $ 523,000 $ 16,079,000
============ ============ ============
</TABLE>
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SELECTED FINANCIAL DATA
The following table sets forth our selected financial information as of
and for the periods indicated. We derived the statement of operations data for
the period January 23, 1998 through December 31, 1998 and the balance sheet data
as of December 31, 1998 from our audited financial statements included elsewhere
in this prospectus. The statement of operations data presented for the nine
month period ended September 30, 1999 and the periods from January 23, 1998
through September 30, 1998 and 1999, and the balance sheet data at September 30,
1999, are unaudited and were prepared by management of Urban Cool on the same
basis as the audited financial statements of Urban Cool included elsewhere
herein and, in the opinion of management, include all adjustments consisting of
normal recurring adjustments, necessary to present fairly the information set
forth therein. The financial data for the interim periods presented are not
necessarily indicative of the results to be expected for the full year. You
should read the selected financial information in conjunction with our financial
statements, the notes to our financial statements, and the discussion under
"Plan of Operation" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period From Period From Period From
January 23, January 23, January 23,
1998 1998 1998
Nine Months (Inception) (Inception) (Inception)
Ended Through Through Through
September 30, September 30, December 31, September 30,
1999 1998 1998 1999
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Statement of operations data:
Costs and expenses:
General and administrative ........ $ 901,000 $ 153,000 $ 328,000 $ 1,229,000
----------- ----------- ----------- -----------
Operating loss .................... (901,000) (153,000) (328,000) (1,229,000)
Interest and related costs ........ 46,000 -- -- 46,000
----------- ----------- ----------- -----------
Net loss/comprehensive loss ....... $ (947,000) $ (153,000) $ (328,000) $(1,275,000)
=========== =========== =========== ===========
Loss per share -- basic and diluted $ (0.36) $ (0.07) $ (0.16)
=========== =========== ===========
Weighted average number of shares
outstanding -- basic and diluted. 2,659,082 2,060,885 2,066,082
=========== =========== ===========
<CAPTION>
Balance sheet data: December 31 1998 September 30, 1999
---------------- -----------------
(unaudited)
<S> <C> <C>
Cash........................................................... $2,000 --
Working capital (deficit)...................................... (220,000) $(776,000)
Total assets................................................... 88,000 $ 251,000
Total long-term debt........................................... -- $ 88,000
Total liabilities.............................................. 222,000 $ 866,000
Shares subject to repurchase................................... -- --
Total stockholder's equity (deficiency)........................ (134,000) $(615,000)
</TABLE>
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<PAGE>
PLAN OF OPERATION
You should read the following discussion and analysis of our financial
condition and results of operations in conjunction with our financial
statements, the notes to our financial statements and the other financial
information contained elsewhere in this prospectus.
Overview
We are a development stage company. We operate urbancoolnet.com, an online
network targeted to the urban consumer that provides a forum for communications,
information and electronic commerce. Our online network, which has been
operational since January 1999, consists of 15 channels with original content
organized by subject matter. The channels cover topics of interest to urban
consumers such as arts and literature, health and fitness, sports, education,
children, entertainment, finance, women's issues and travel. In addition, our
online network includes urbanmall.net, a shopping site and urbantrends.com, a
business-to-business site.
We were incorporated in January 1998, and have not generated any revenues
in offering products or services for sale. Since our inception, we have
primarily been engaged in the initial planning and development of our web sites
and operations, negotiating agreements with content providers and raising
capital. As a result, there has not been any operating revenue generated by our
web sites through December 31, 1998 and the nine months ended September 30,
1999.
We believe that the minority segment of the urban population has not been
meaningfully targeted for Internet access. Accordingly, we believe there is a
significant opportunity for Urban Cool to capitalize upon the demand for
Internet access in the urban market. Our objective is to establish Urban Cool as
a leading online destination of the urban consumer and businesses who market
their products to urban consumers. Our strategy is to establish the Urban Cool
brand name and utilize our urbancoolnet.com online network, NetStand kiosks and
CyberCenter locations to reach our target market of urban consumers and
businesses who market their products to urban consumers. Our strategy also
includes marketing electronic commerce capable web sites to urban-based small
businesses. We intend to provide:
o urban residents with a local competitive means of accessing
information, technology, communications and financial products and
services as well as transportation products and services such as
bus, train and airline information and ticketing; and
o businesses with access to the urban marketplace to increase their
sales and customer service opportunities, while providing exposure
in the urban marketplace for their brands.
We plan to derive a substantial portion of our revenue from advertising
and sponsorships. We believe that a major portion of our revenue will be derived
from corporate sponsorship of our NetStand kiosks, including billboard treatment
of the NetStand kiosks. We initially plan to charge an annual sponsorship fee of
$10,000 per sponsored NetStand kiosk. We also plan to offer corporate
sponsorship and advertising packages for the CyberCenters. In addition we plan
to offer other advertising sponsorship packages for our online network including
banner advertising, e-mail advertising, outdoor advertising, live and broadcast
events and contest promotions.
In November 1999 we acquired a 66 2/3% interest in e-commerce Solutions,
Inc., in exchange for warrants to purchase up to 1,000,000 shares of common
stock, which is developing proprietary software to construct electronic commerce
capable web sites and electronic commerce communities. We intend to utilize a
portion of the net proceeds of the offering to complete development of the
software and to fund the start-up costs for e-commerce Solutions. We intend to
market electronic commerce web sites through e-commerce Solutions to small
businesses. We initially believe that a basic electronic commerce capable web
site can be marketed to small business owners at a reasonable price. In
addition, we believe that the sales of electronic commerce web sites will
provide us with additional opportunities to increase revenue.
Results of operations
From inception, operations have been in the early stages of development.
We had no revenues for the period ended December 31, 1998, and for the nine
month period ended September 30, 1999. We incurred
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<PAGE>
expenses of $328,000 and $947,000, respectively, for those periods, in
connection with web site development costs and other general and administrative
expenses.
As of September 30, 1999 we had net operating loss carryforwards for
federal income tax purposes of approximately $983,000. There can be no assurance
that we will realize the benefit of the net operating loss carryforwards. The
federal net operating loss carryforward will expire in 2019. We have established
a valuation allowance with respect to these federal net operating loss
carryforward.
For the period commencing on September 30, 1999 through the completion of
the offering, we will incur non-cash compensatory charges in the aggregate
amount of approximately $8,800,000 attributable to debt issuance costs and
original issue discount incurred in connection with the sale of $1,050,000 of
our promissory notes, the issuance of shares of common stock to a consultant,
the loan agreement with respect to The Elite Funding Group loan in an amount up
to $1,000,000, our capital contribution to e-commerce Solutions, the issuance of
shares of common stock to directors and the grant of options to an employee. In
addition, upon the vesting of warrants to purchase up to 1,000,000 shares of
common stock issued to Stanley Wolfson in connection with the acquisition of a
662/3% interest in e-commerce Solutions we will record a charge equal to the
fair value of such warrants upon such vesting in accordance with performance
criteria.
We expect operating results to fluctuate significantly in the future as a
result of a variety of factors, many of which are outside our control. These
factors include:
o our ability to derive sponsorship and advertising revenue for our
online network;
o obtaining licenses of third-party content;
o consumers' acceptance of electronic commerce;
o the development of our software to market electronic commerce
capable web sites;
o the level of traffic on our web sites;
o the amount and timing of the deployment of NetStand kiosks and other
capital expenditures and other costs relating to the expansion of
our operations;
o the success of our efforts to market electronic commerce capable web
sites;
o the introduction of new or enhanced services by us or our
competitors, including low-cost electronic commerce capable web
sites;
o the availability of desirable products and services for sale through
our web site;
o the loss of a key affiliation or relationship by us;
o changes in our pricing policy or those of our competitors;
o technical difficulties with our web site;
o incurrence of costs relating to general economic conditions; and
o economic conditions specific to the Internet or all or a portion of
the technology market.
As a strategic response to changes in the competitive environment, we may
from time to time make certain pricing, service or marketing decisions or
business combinations that could have a material adverse effect on our business,
results of operations and financial condition. In addition, in order to
accelerate the promotion of our brand name, we intend to significantly increase
our sales and marketing budget, which could materially and adversely affect our
business, results of operations and financial condition.
Liquidity and capital resources
We have funded our requirements for working capital to support operations
primarily from private placements of our securities, credit from our web site
developer, Analysts International Corp., and borrowings under a loan agreement.
As of September 30, 1999, we had a working capital deficit of ($776,000) and a
capital deficiency of ($615,000).
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<PAGE>
The independent auditor's report on our financial statements contains
explanatory language that substantial doubt exists about our ability to continue
as a going concern. The report specifies that we have incurred net losses, and
have a working capital deficiency and a capital deficiency. If we are unable to
obtain sufficient financing in the near term or achieve profitability, then we
would, in all likelihood, experience severe liquidity problems and may have to
curtail our operations.
For the period ended December 31, 1998, net cash provided by operating
activities was $60,000, which was primarily attributable to increases in
accounts payable and accrued expenses of $209,000, offset by our net loss of
$328,000 and increased by non-cash expenses in the amount of $175,000. For the
nine month period ended September 30, 1999 and the comparable 1998 period, cash
used in operating activities was $376,000 and $4,000, respectively. The cash
used by operating activities for the nine month period ended September 30, 1999
was attributable to a net loss of $947,000 and offset by non-cash expenses and
an increase in accounts payable and accrued expenses.
For the period ended December 31, 1998, net cash used in investing
activities was $86,000, which was attributable to the purchase of computer
equipment and software and web site development. For the nine month period ended
September 30, 1999, there was no net cash used in investing activities. In the
comparable 1998 period, $5,000 was used in investing activities, which was
attributable to web site development.
For the period ended December 31, 1998, net cash provided by financing
activities was $28,000, which was attributable to the sale of common stock and
an advance from a stockholder. For the nine month period ended September 30,
1999 and the comparable 1998 period, net cash provided by financing activities
was $374,000 and $9,000, respectively. The increase in net cash provided by
financing activities was primarily attributable to proceeds from the sale of our
common stock and proceeds from a private financing transaction.
In November 1999, we delivered a promissory note to Analysts
International, our web site developer, in the amount of $400,432, representing
the amount of the accounts payable plus accrued interest owed to Analysts
International. The note bears interest at the rate of 18% per annum, requires
monthly payments of $25,000 and is payable on the earlier of the closing of this
offering or June 1, 2000.
In November 1999, we agreed to contribute $100,000 to e-commerce
Solutions, Inc. in connection with our acquisition of a 66 2/3% interest in
e-commerce Solutions. We have not yet made such contribution. We have also
agreed to contribute an additional $2,900,000 to e-commerce Solutions upon the
closing of this offering.
In July through November, 1999, we completed the sale of 105 units at a
price of $10,000 per unit in a private financing transaction. Each unit in the
private financing consisted of a promissory note in the amount of $10,000, 1,000
shares of common stock and warrants to purchase 5,000 shares of common stock.
The warrants are exercisable at an exercise price of $2.00 per share commencing
January 2000 through November 2000 expiring in July 2004 through November 2004.
The notes bear interest at the rate of 10% per annum and are payable on the
earlier of 24 months from the date of issuance or upon the closing of this
offering.
On November 23, 1999, we entered into a loan agreement with The Elite
Funding Group, Inc. which provides for a loan in an amount of up to $1,000,000
at an interest rate of 10% per annum, payable monthly. On the date we entered
into the agreement, we received an initial advance of $350,000 and issued to the
lender common stock purchase warrants for the purchase of up to 750,000 shares
of common stock at an exercise price of $2.00 per share. The warrants are
exercisable by the lender at any time for a period of ten years. We must prepay
any outstanding advances under the loan agreement to the extent of any proceeds
available to us from the sale of our assets outside of the ordinary course of
business, the issuance of any indebtedness or the sale of any equity securities.
We must pay the full amount of all outstanding advances under the loan agreement
on the earlier of April 14, 2000 or the closing of this offering. We may draw
down up to $150,000 against the balance of the loan every 30 days. To secure the
repayment of advances under the loan agreement, we have pledged substantially
all of our assets to the lender. We have also granted certain registration
rights to the lender for the registration of the shares of common stock
underlying the warrants, including demand and "piggy-back" registration rights.
The shares of common stock underlying the lender's warrant are included in this
registration statement of which this prospectus forms a part, are being offered
under an alternate prospectus and are not subject to a lock-up agreement. In
addition, we have agreed to utilize our best efforts to enable the lender or its
designee to purchase the number of shares of common stock in this offering in an
amount equal to the quotient of $1,000,000 divided by the initial public
offering price.
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<PAGE>
In November 1999, Jacob R. Miles, III, our Chairman, Chief Executive
Officer and majority stockholder entered into a deferred compensation agreement
with us which provides that Mr. Miles shall receive accrued salary in the amount
of $131,250, payable out of the net proceeds of this offering, which amount was
accrued from January 1, 1999 through September 30, 1999. As of September 30,
1999 we owed Mr. Miles approximately $11,000 for expenses he paid on our behalf
which has been recorded as a non-interest bearing loan.
We have also entered into a consulting agreement with RMH Consulting
Corp., an affiliate of The Elite Funding Group, a principal stockholder and our
lender. The consulting agreement is for a period of two years commencing as of
November 1, 1999 and requires us to pay the consultant a fee of $6,250 per
month. Pursuant to the consulting agreement we issued 150,000 shares of common
stock to the consultant and we will be required to issue additional shares of
common stock to the consultant if we commence an initial public offering at a
price of $9.00 or less per share, so that the total number of shares issued to
the consultant will be equal to the number of shares which could have been
purchased in the initial public offering for $1,500,000. We may repurchase an
aggregate of 60,000 shares of common stock in four monthly installments of
15,000 shares of common stock from the consultant at a cash price of $2,000 for
each installment commencing in December 1999 through March 2000. In the event
that we do not repurchase the shares of common stock in a given month then such
repurchase right expires. However, upon the completion of the offering our right
to repurchase any shares of common stock for which our repurchase right is still
outstanding will be accelerated. We have also granted certain registration
rights to the consultant for the registration of the shares of common stock,
including demand and "piggy-back" registration rights. The shares of common
stock issued to RMH Consulting included in this registration statement of which
this prospectus forms a part are being offered under an alternate prospectus and
are not subject to a lock-up agreement. See "Management--Consulting Agreements"
and "Certain Transactions."
Our capital requirements depend on numerous factors, including, market
acceptance of our products and services, the resources we devote to marketing
and selling our services and our brand promotions, capital expenditures and
other factors. We have experienced a substantial increase in our capital
expenditures since our inception consistent with the growth in our operations
and staffing. We anticipate this increase will continue for the foreseeable
future particularly relating to our development of NetStand kiosks, creation of
CyberCenters and systems infrastructure. We believe that, together with the
proceeds of the offering and anticipated revenues from operations, our current
cash will be sufficient to meet our anticipated needs for working capital,
capital expenditures and business expansion for the next 12 months. After 12
months, if cash generated from operations is insufficient to satisfy our
liquidity requirements, we may seek to sell additional equity or debt securities
or to obtain a credit facility. The sale of additional equity or convertible
debt securities could result in additional dilution to our stockholders. There
can be no assurance that financing will be available in amounts or on terms
acceptable to us, if at all.
Year 2000 compliance
Many currently installed computer systems and software products use two
digits rather than four to define the applicable year, which means that
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. Our failure to address potential year 2000 malfunctions in
our computer and non-information technology equipment and systems and those of
our business partners could result in our suffering business interruptions,
financial loss, harm to our reputation and legal liability.
We do not anticipate year 2000 problems with our web sites although we can
give no assurance to this effect. The hardware in our systems are standard,
off-the-shelf products. Year 2000 compliance of equipment and software provided
by third-party vendors is not within our control. We plan to obtain assurances
from our vendors that any hardware and software that we use in connection with
our web sites will be year 2000 compliant. However, in the event that this
hardware or software is not year 2000 compliant, our web sites may not operate
properly. If a year 2000 problem should develop, we may have to overhaul our
hardware and software, which could materially reduce our revenues.
We are in the process of making oral and written inquiries to
manufacturers of our equipment and to obtain certification of their year 2000
compliance. We have only received a small percentage of responses to our
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<PAGE>
inquiries thus far. As a result, we have not received year 2000 compliance
assurances from many of these parties nor do we expect to. We anticipate that
some entities with whom we have or will have third-party relationships may not
respond to our request for year 2000 assurances because they have not completed
their year 2000 compliance efforts or they may lack sufficient incentive to
respond to our inquiries. We do not plan to independently verify any of the
assurances we receive. In addition, these parties are reliant upon other
companies' applications, some of which may contain or rely upon software that is
not year 2000 compliant and that may not be revealed through our inquiries.
We have acquired a 66 2/3% interest in e-commerce Solutions, which is
developing proprietary software to construct electronic commerce capable web
sites. We intend to develop year 2000 compliant software; however, there can be
no assurance that we will be able to do so. In the event that the software to
construct electronic commerce capable web sites is not year 2000 compliant,
there could be a material adverse effect on our business, prospects, results of
operations and financial condition.
We do not have any material contracts with external contractors to assist
us in completing our year 2000 compliance effort. In addition, no employees have
been hired or reassigned to complete our year 2000 compliance.
We do not have any contingency plans in place in the event that our
computer or non-information technology and equipment, or that of our business
partners, is not year 2000 compliant. If our software or systems or those of our
business partners are not year 2000 compliant, there could be a material adverse
effect on our business, prospects, results of operations and financial
condition.
Recent accounting pronouncements
In March 1998, the Accounting Standards Executive Committee issued AICPA
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities."
This statement provides guidance on the financial reporting of start-up costs
and organization costs. It requires that the cost of start-up activities and
organization costs be expensed as incurred. This statement of position is
effective for financial statements for fiscal years beginning after December 15,
1998. We do not expect adoption of this statement to have a material impact on
our financial statements.
We are required to adopt Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information."
Statement No. 131 superseded statement No. 14, "Financial Reporting for Segments
of a Business Enterprise" and is effective for years beginning after December
31, 1997. Statement 131 establishes standards for the way that public business
enterprises report selected information about operating segments in financial
reports. Statement 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The addition of
statement 131 will not affect our results of operations or financial position,
but may affect the disclosure of the segment information in the future.
In June 1998, the Financial Accounting Standards Board or "FASB," issued
statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement changes the previous accounting definition of
derivative, which focused on freestanding contracts such as options and
forwards, including futures and swaps, expanding it to include embedded
derivatives and many commodity contracts. Under the statement, every derivative
is recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. Statement No. 133 is effective for fiscal years beginning after June
15, 2000. Earlier application is allowed as of the beginning of any quarter
beginning after issuance. We do not anticipate that the adoption of statement
No. 133 will have a material impact on our financial position or results of
operations.
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<PAGE>
BUSINESS
General
We operate urbancoolnet.com, an online network targeted to urban consumers
that provides a forum for communications, information and electronic commerce.
Our online network, which has been operational since January 1999, consists of
15 channels with original content organized by subject matter, and includes a
search engine for users. The channels cover topics of interest to urban
consumers such as arts and literature, health and fitness, sports, education,
children, entertainment, finance, women's issues and travel. In addition, our
online network includes urbanmall.net, a shopping site and urbantrends.com, a
business-to-business site. Through our search engine, our online network of web
sites is linked to more than 2,000 web sites. According to Web Trends, page view
impressions from January 1999 through October 1999 exceeded 400,000.
Our objective is to establish our online network as a leading online
destination of urban consumers and businesses who market their products to urban
consumers. We plan to establish the Urban Cool brand name through advertising,
and through the use of NetStand kiosks and CyberCenters. NetStand kiosks are
individual kiosks that we intend to place in high-traffic locations, and we
intend that they will contain computers that feature high-speed Internet access
to use our online network. CyberCenters are central meeting areas that we intend
will contain between 10 and 20 computers, which will provide users with a place
to access the Internet through our online network. We currently have no
CyberCenters. Our business strategy also includes marketing electronic commerce
capable web sites to urban-based small businesses.
The Internet
Internet access among U.S. households is increasing at a rapid rate.
According to a July 1999 study published by the U.S. Department of Commerce,
approximately 42% of U.S. households own computers. Approximately 26% of U.S.
households now have Internet access, and Internet access has increased for all
demographic groups in all locations. In 1998, Internet access increased 52.8%
for White households, 52% for African American households and 48.3% for Hispanic
households.
We believe that the rapid increase in Internet usage by U.S. households
represents a substantial opportunity for companies to conduct business online.
The functionality and accessibility of the Internet have made it an attractive
commercial medium by providing features that historically have been unavailable
through traditional distribution channels. Applications that allow consumers to
comparison shop or choose from a large selection of goods or services have
flourished on the Internet. Because of these advantages, an increasingly broad
base of products and services is sold online, including consumer goods such as
automobiles, books and CDs, and a variety of services, including travel,
securities trading and other financial services. Forrester Research estimates
that revenues from electronic commerce consumer spending in the U.S. will
increase from approximately $20.2 billion in 1999 to approximately $184 billion
in 2004.
Advertisers and direct marketers are also increasingly using the Internet
to locate and market to customers. Forrester Research estimates that U.S.
Internet advertising will grow from approximately $2.8 billion in 1998 to
approximately $22 billion in 2004.
Urban consumer market segment
Our target audience for our web sites is America's urban residents. The
1990 U.S. Census states that approximately 160 million out of 250 million
Americans live in an urban environment. Within this urban market, we believe the
minority population will be attracted to Urban Cool as one of its primary online
destinations since we believe it has not been meaningfully and directly targeted
for Internet access.
According to the Census, approximately 80% of the U.S. minority population
lives in an urban environment, which includes 24 million African Americans and
18 million Hispanics. Minorities trail whites in computer ownership and usage.
The U.S. Department of Commerce report states that African American and Hispanic
households have far lower ownership levels of computers (at 23% and 26%) and
Internet access levels (11% and 13%) as compared to White household computer
ownership of 47% and Internet access of 30%.
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However, both African American and Hispanic households are twice as likely to
own computers as they were in 1994 and this rate of increase is greater than the
rate of increase for White ownership of computers. Because minorities are
increasing their use of computers, we believe there is a significant opportunity
for Urban Cool to capitalize on new urban minority demand for Internet access.
Business strategy
General
Our objective is to establish our online network as a leading online
destination for the urban consumer. Our strategy is to attract urban consumers
to our online network, NetStand kiosks and CyberCenter locations for
information, products and services and to develop revenue generating
relationships with businesses which desire to reach urban consumers. Our
strategy also includes marketing electronic commerce capable web sites to
urban-based small businesses. The key elements of our strategy are described
below.
Create brand recognition
We believe creating brand recognition is critical to attracting urban
consumers to our web sites, NetStand kiosks and CyberCenters. We intend to
differentiate our business from other online networks through our focus on
America's inner city residents and our use of NetStand kiosks and CyberCenters
which are intended to introduce and promote our web sites to urban consumers. We
intend to utilize outdoor, television, print, Internet and radio advertising as
well as displays, events, direct mail, telemarketing and public relations
efforts to promote the Urban Cool brand name. We plan to co-market our services
through strategic alliances with major corporations and to utilize celebrities,
primarily on a volunteer basis, to promote technology within our urban markets.
Our advertising and marketing efforts will also include radio giveaways and
in-house promotions. We have retained McCann-Erickson to develop and manage our
brand building campaign.
Develop NetStands
We intend to use a portion of the net proceeds of this offering to place
PC-based NetStand kiosks in at least 100 locations in urban markets. We intend
to locate the NetStand kiosks in high-traffic locations such as shopping malls,
community centers, bus terminals and multi-family housing developments. We have
built seven NetStand kiosks which are fully operational. We believe that the
NetStand kiosks will be an integral part of our network. The NetStand kiosks are
designed to be easily operated by people with no previous Internet or computer
experience.
Individuals will be able to use the NetStand kiosks to visit our web
sites, search the Internet, purchase tickets, send money, access local
information and engage in electronic commence transactions. We intend to rely on
independent third parties to manufacture, install and service the NetStand
kiosks. We anticipate that the cost of each NetStand kiosk will be approximately
$5,000. The NetStand kiosks will be networked, designed and programmed for the
local urban market in which they are deployed. The users of the NetStand kiosks
will be provided with high-speed Internet access and charged fees for certain
functions. The NetStand kiosks are designed to accept cash as well as major
credit and debit cards. We also plan to offer corporate sponsorship programs and
advertising on the NetStand kiosks, which we believe will constitute a major
portion of our revenue.
Build CyberCenters
We intend to open a model CyberCenter at 439 West 125th Street in Harlem,
New York in the first quarter of 2000. The CyberCenters are intended to provide
users with a place to socialize and access the Internet. The CyberCenters will
be 1,000 to 2,000 square feet and will contain 10 to 20 computers that provide
Internet access through our online network. We currently have no CyberCenters.
We also intend to provide technology focused business services at the
CyberCenters, such as computer enhanced photos, Internet telephone service,
database research, urban research and to offer telecommunication products and
services.
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We intend to license future CyberCenters to urban non-profit
organizations, which will own and operate the CyberCenters. Our cost for each
CyberCenter is anticipated to range from $50,000 to $100,000. We anticipate the
non-profit organization will have capital expenditures of between $20,000 to
$40,000 in connection with opening the CyberCenter. We plan to offer corporate
sponsorships of the CyberCenter in order to derive sponsorship revenue. We
intend to charge users a fee for the use of the Internet access stations at the
CyberCenters and charge a management fee to the non-profit organizations which
will own and operate the CyberCenters. We plan to offer introductory classes at
the CyberCenters on the use of computers and the Internet.
Generate sponsorship and advertising revenues
We plan to derive a substantial portion of our revenue from advertising
and sponsorships. We believe that a major portion of our revenue will be derived
from corporate sponsorship of our NetStand kiosks, including billboard treatment
of the NetStand kiosks. We initially plan to charge an annual sponsorship fee of
$10,000 per sponsored NetStand kiosk. We also plan to offer corporate
sponsorship and advertising packages for the CyberCenters. In addition we plan
to offer other advertising sponsorship packages including banner advertising,
e-mail advertising, outdoor advertising, live and broadcast events and contest
promotions.
Promote electronic commerce
We also offer links to major Internet retailers and service providers who
have agreed to revenue sharing agreements with us based on either a percentage
of sales or a set fee basis. Currently, through our electronic commerce
partnerships, we sell gifts, flowers, travel, computer hardware and software,
video game hardware and software, fine art, music, videos and film,
entertainment and sports branded clothing and products, health products and
haircare and beauty products. We also plan to offer telecommunications products
and services, Internet services, financial services, transportation information
and tickets. We intend to offer merchandise through our online network including
Urban Cool branded and co-branded merchandise. Products anticipated to be
offered include t-shirts and caps, gift products, music and music video
products, video game products, posters, stickers and other printed merchandise
and low cost computers.
Pursue strategic acquisitions and alliances
We plan to pursue relationships with membership-based groups such as
non-profit organizations, churches, alumni organizations, fraternities and other
similar organizations for brand building and membership acquisitions. We also
plan to pursue relationships with local and national businesses for content,
products, services and the sponsoring of our NetStand kiosks. Additionally, we
plan to pursue strategic acquisitions of Internet-related companies, other web
sites and local urban weekly newspapers that have viewers/subscribers that reach
our target market segment and generate advertising revenue. We may utilize a
portion of the net proceeds of this offering to make strategic acquisitions.
We have entered into a non-binding letter of intent with Bloomberg, L.P.
Pursuant to the letter of intent, Bloomberg will provide content for our web
sites and promote our web sites and, in return, we will pay Bloomberg $66,666
per month. The proposed term of the agreement is three years. However, we have
not reached a definitive agreement with Bloomberg and we cannot assure you that
an agreement will be reached. As of the date of this prospectus, we do not have
any other understandings, commitments or agreements concerning these types of
transactions.
Create web site design services
We have recently acquired a 66 2/3% interest in e-commerce Solutions in
exchange for warrants to purchase up to 1,000,000 shares of common stock, which
is developing proprietary software to construct electronic commerce capable web
sites and electronic commerce communities. We intend to utilize a portion of the
net proceeds of the offering to make a required capital contribution to
e-commerce Solutions which will be utilized to complete development of the
software and to set up a sales and marketing organization. We intend to market
electronic commerce web sites to small urban-based businesses at a relatively
low cost. Our goal is to develop a substantial sales force to market the web
sites.
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In addition, we believe that the sales of electronic commerce web sites
will provide us with additional opportunities to increase revenue. We intend to
offer purchasers of web sites various services including:
o web hosting services;
o additional sophisticated web site development services; and
o specialized marketing into the African-American and Hispanic
markets.
We intend to enter into agreements with purchasers of web sites to provide
direct links to urbancoolnet.com and to our other web sites.
Provide other services
Urban Cool, together with non-profit organizations, intends to participate
in providing introductory computer training programs in select cities. By
providing introductory classes, we intend to build a client base familiar with
our services. Other services which we plan to offer through our online network,
NetStand kiosks and CyberCenters include money transfer, transportation tickets
and public transportation information.
In addition, we intend to offer via urbancoolnet.com, NetStand kiosks and
CyberCenters financial services such as bill paying and a full line of
telecommunication products and services including prepaid local and long
distance phone usage, prepaid cellular phones, pagers, prepaid home and business
phone services. We also plan to enter into an agreement with an Internet service
provider to provide Internet access to subscribers.
Urban Cool Online Network
Our online network is organized around 15 content specific channels and
three Urban Cool web sites. Our channels, web sites and special features are
described below.
Arts & literature channel
The Arts & Literature channel provides original content and links to web
sites related to the arts, culture, dance, genealogy, literature, performing
arts and theatre.
Health and fitness channel
The Health and Fitness channel provides news stories on health and fitness
topics as well as links to web sites related to medicine and drugs, diseases,
fitness, medical references, insurance, mental health, natural health,
organ-tissue donation, health organizations and vision.
Sports channel
The Sports channel provides original content, sports news and stories as
well as links to sports magazines and numerous professional and amateur sports
and sporting events.
Education channel
The Education channel provides links to web sites related to education,
including careers, college guides, curriculum, scholarships, educational
organizations and educational references.
U' Cool kids channel
The U' Cool Kids channel provides links to web sites related to books and
stories, clubs, education, games, girls only, holiday fun, museums and
television.
Stylin' & profilin' channel
The Stylin' & Profilin' channel provides links to web sites related to
autos, auctions, toys, fashion and beauty, men's topics, hip hop and shopping
destinations.
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Entertainment channel
The Entertainment channel provides special interest stories and interviews
as well as links to web sites related to entertainment awards, celebrities,
music, entertainment magazines, movies, films, television, games, history,
entertainment organizations, comics, radio and hobbies.
Living and family channel
The Living and Family channel provides top news stories and features as
well as links to web sites related to religions, adoption, gardening, home
improvement, real estate, parenting, environment, organizations, pets,
inspirational stories, seniors, singles, insurance, spiritual well-being and
time management.
Cool technology channel
The Cool Technology channel contains news stories as well as links to web
sites related to computers, stereo and television, telecommunications,
magazines, museums, technology-related organizations and video games.
Food and beverage channel
The Food and Beverage channel provides links to web sites related to food
and beverage, recipes, food and beverage magazines and restaurants.
Mo' money channel
The Mo' Money channel provides links to web sites related to financial
news, careers, financial topics and business, consumer and professional
organizations.
Travel and events channel
The Travel and Events channel provides links to web sites related to city
guides, travel, state guides, events and holidays.
Street watch channel
The Street Watch channel provides links to web sites related to law
enforcement agencies, drugs and crime.
News and government channel
The News and Government channel provides top news stories, as well as
links to web sites related to government, legal information, magazines, news
services, newspapers and organizations.
For women channel
The For Women channel provides original content and links to web sites for
women, related to health issues, business, careers, magazines, organizations and
weddings.
Urbancoolnet.com
The urbancoolnet.com site is our main web site which is our home page and
contains links to our 15 content specific channels and our other web sites.
Urbanmall.net
The urbanmall.net site is a shopping site which offers software, videos,
books, music, CDs, Urban Cool caps, t-shirts and backpacks.
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Urbantrends.com
The urbantrends.com site is a business-to-business site that provides
information about trends in the urban community and links to urban magazines,
advertising agencies and research about the urban community.
Future web sites
We intend to develop Urban Cool Magazine, a print and online technology
lifestyle magazine focused on the urban consumer. We intend to develop
urbanjobs.com, an employment and career development focused web site, and
urbancities.com, a collection of web pages focused on local urban communities.
U' Cool Crew
We intend that each channel will be hosted by one of our 12 proprietary
fictional characters known as part of the U' Cool Crew, presenting original
content, link recommendations and acting as salespersons for electronic-commerce
products and services. Our web sites contain a computer-generated likeness and
description of each of the characters, including their favorite food, dessert,
sport and other interests. We intend to further develop the personalities of
each of these characters, including animating and casting for the characters and
providing scripts for the characters. We also intend to utilize the characters
in television, radio and print advertising, to make personal appearances and to
promote the Urban Cool brand name and electronic commerce products. Network
users are able to send e-mail to the characters and to vote for their favorite
characters. We believe that the U' Cool Crew will build brand awareness and
brand loyalty for the Urban Cool brand name.
Sales and marketing
We intend to establish a direct sales organization consisting of national,
regional and local sales representatives. Our sales organization will provide
input on design and placement of our Internet-based advertising and the content
on local web sites. The sales representatives' objective will be to provide a
high level of customer service and satisfaction to business customers. We also
intend to have our sales representatives focus on selling sponsorship packages
and banner advertising programs.
We intend to utilize a number of methods to promote the Urban Cool brand
name including outdoor advertising, advertising on other Internet sites,
targeted publications, radio stations, cable television and cross promotional
arrangements to secure advertising and other promotional considerations. We have
distributed promotional material at select targeted events such as Black expo,
cinco de mayo events, concerts and other community events. To further promote
the Urban Cool brand name, we intend to enter into strategic alliances with
consumer products and technology companies.
We intend to develop relationships with urban non-profit groups and with
other urban consumer membership based groups, such as churches, alumni
organizations, fraternities and similar organizations, for brand building and
membership acquisitions. We plan to meet with urban non-profit organizations and
other urban consumer membership based groups to identify sponsorship and grass
roots marketing opportunities. We also intend to utilize events, concerts and
other community activities for sponsorships.
Distribution - internet service provider
We intend to enter into an agreement with an Internet service provider to
provide Internet access to our users. We intend to promote Internet service
access by distributing Urban Cool co-branded software via direct mail, magazine
insertions, at concerts, seminars and events as well as through our CyberCenters
and NetStand kiosk locations. We also will distribute our software in computer
stores, record stores, discount stores, grocery stores and through churches,
community events and other community-based organizations and membership based
groups.
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Web site design services
In November 1999, we acquired 66 2/3% of the capital stock of e-commerce
Solutions, Inc. from Stanley Wolfson in exchange for warrants to purchase up to
1,000,000 shares of common stock at an exercise price of $1.00 per share for a
period of five years, exercisable as follows:
o warrants to purchase 200,000 shares of common stock are exercisable
provided that e-commerce Solutions has gross sales of at least
$2,500,000 within 24 months of our contribution of $3,000,000 to
e-commerce Solutions;
o warrants to purchase an additional 200,000 shares of common stock
are exercisable provided that e-commerce Solutions has gross sales
of at least $7,500,000 within 24 months of our contribution of
$3,000,000 to e-commerce Solutions;
o warrants to purchase an additional 200,000 shares of common stock
are exercisable provided that e-commerce Solutions has gross sales
of at least $15,000,000 within 24 months of our contribution of
$3,000,000 to e-commerce Solutions;
o warrants to purchase an additional 200,000 shares of common stock
are exercisable provided that e-commerce Solutions has gross sales
of at least $25,000,000 within 24 months of our contribution of
$3,000,000 to e-commerce Solutions;
o warrants to purchase an additional 200,000 shares of common stock
are exercisable provided that e-commerce Solutions has gross sales
of at least $25,000,000 within 12 months of our contribution of
$3,000,000 to e-commerce Solutions, or e-commerce Solutions has
gross sales of at least $50,000,000 within 24 months of our
contribution of $3,000,000 to e-commerce Solutions.
In addition, we agreed to advance $100,000 of capital to e-commerce
Solutions and have agreed to contribute an additional $2,900,000 of capital to
e-commerce Solutions upon the completion of the offering. e-commerce Solutions
has entered into a three-year employment agreement with Stanley Wolfson to serve
as the president. Mr. Wolfson shall receive a salary of $175,000 per annum plus
2% of gross sales commencing as of November 1, 1999.
e-commerce Solutions is developing proprietary software to construct
electronic commerce capable web sites and electronic commerce communities. We
intend to utilize a portion of the net proceeds of the offering to complete
development of the software and to fund the start-up costs for e-commerce
Solutions. We intend to market electronic commerce web sites through e-commerce
Solutions to urban-based small businesses. We believe that a basic electronic
commerce capable web site can be marketed to urban-based small business owners
at a relatively low cost. We plan to develop a substantial telemarketing effort
and a dedicated sales force to market the web site design services. We cannot
assure you that we will be able to develop such a sales force or develop web
site design services. We intend to offer competitive performance-based
compensation packages to our sales representatives and telemarketers.
We believe that the sales of electronic commerce web sites will provide us
with additional opportunities to increase revenues. We intend to offer
purchasers of web sites web hosting services, specialized marketing into the
African American and Hispanic markets, advertising programs and more
sophisticated web site development services. We intend to enter into agreements
with purchasers of web sites to provide direct links to urbancoolnet.com and to
our other web sites.
Revenue sharing agreements
We have entered into revenue sharing agreements with Music Boulevard/CD
Now, car prices.com, electronics.net, Yahoo store, and buydirect.com. We intend
to enter into agreements to offer Internet links to other Internet retailers,
including telecommunications and Internet services, financial services, and
transportation services.
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Web site management and development
We engaged Analysts International to help provide web site support
technology and web site design services. Analysts International was also
involved in the initial development of our web sites. We presently develop,
manage and maintain our network of web sites. Our web site management and
development is supervised by our Vice President of Technology and Internet
Services and is assisted by employees and subcontractors including Analysts
International.
Technology
Technology is a critical part of our business and affects our business in
a variety of ways. We intend to upgrade and modify our network hardware systems
and software in order to provide faster, more robust and more reliable
communications, entertainment and Internet services to our customers. We intend
to have servers in multiple locations in order to provide back-up of our
computer systems, quicker access to our online network and the ability to handle
the anticipated increased use of our online network.
Competition
The market for Internet products and services is highly competitive and
competition is expected to continue to increase significantly. There are no
substantial barriers to entry in these markets, and we expect that competition
will continue to intensify. We compete with many other providers of information
and community services such as AOL, Excite, Inc. Infoseek Corporation, Lycos,
Inc., and Yahoo Inc. as well as other web sites including bet.com,
starmedia.com, and quepasa.com. As we expand the scope of our Internet services,
we will compete directly with a greater number of Internet sites and other media
companies. A large number of web sites and online services also offer electronic
commerce products, informational and community features. There can be no
assurance that we will be able to compete successfully or that the competitive
pressures faced by us will not have a material adverse effect on our business.
We compete with IBM and EDS for web site design services as well as other
local, regional and national web site designers. As we expand our web site
design services we will compete directly with other web site design services
offering similar products. In addition, other web site designers may offer
reasonably priced electronic commerce capable web sites or develop similar or
superior software. We cannot assure you that we will be able to compete
successfully.
There are other web sites that attract segments of our potential market.
We believe that we will be able to differentiate Urban Cool from competitors by
promoting the Urban Cool brand name and through access to our online network
through NetStand kiosks and CyberCenters.
Many of our existing competitors, as well as a number of potential new
competitors, have significantly greater financial, technical, marketing and
distribution resources. In addition, other web sites and online networks may be
acquired by, receive investments from, or enter into other commercial
relationships with larger, well-established and well financed companies. Greater
competition resulting from these types of strategies relationships could have a
material adverse effect on our business, operating results and financial
condition.
Government regulation
Due to the increasing popularity and use of the Internet, it is possible
that a number of laws and regulations may be adopted with respect to the
Internet, covering issues such as user privacy, defamation, pricing, taxation,
content regulation, quality of products and services, and intellectual property
ownership and infringement. Such legislation could dampen the growth in use of
the Internet generally, decrease the acceptance of the Internet as a
communications and commercial medium and require us to incur expense in
complying with any new regulations. Other nations have taken actions to restrict
the free flow of material deemed to be objectionable on the Internet. In
addition, several telecommunications carriers are seeking to have
telecommunications over the Internet regulated by the Federal Communications
Commission in the same manner as other telecommunications services. Such laws
and regulations if enacted in the United States or
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abroad could have a material adverse effect on our business. Moreover, the
applicability to the Internet of the existing laws governing issues such as
property ownership, copyright, defamation, obscenity, and personal privacy is
uncertain, and we may be subject to claims that our services violate these laws.
Any new legislation or regulation in the United States or abroad or the
application of existing laws and regulations to the Internet could have a
material adverse effect on our business.
Due to the global nature of the Internet, it is possible that, although
transmissions by us over the Internet originate primarily in the State of Texas,
the governments of other states and foreign countries might attempt to regulate
our transmissions or prosecute us for violations of their laws. There can be no
assurance that violations of local laws will not be alleged or charged by state
or foreign governments, that we might not unintentionally violate such law or
that such laws will not be modified, or new laws enacted, in the future. Any of
the foregoing developments could have a material adverse effect on our business.
Trademarks and proprietary rights
We regard our copyrights, trademarks, trade names, trade dress, trade
secrets, and similar intellectual property as critical to our success, and we
intend to rely on trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with our employees, customers,
independent contractors, partners and others to protect our proprietary rights.
We pursue the registration of our trademarks and service marks in the United
States, and have applied for and obtained registration in the United States for
the Urban Cool brand name. We are in the process of filing for additional
protection. Effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which our products and
services are made available online.
There can be no assurance that the steps taken by us to protect our
proprietary rights will be adequate or that third parties will not infringe or
misappropriate our copyrights, trademarks, trade dress and similar proprietary
rights. In addition, there can be no assurance that other parties will not
assert claims of infringement of intellectual property or alter proprietary
rights against us.
We may be required to obtain licenses from others to refine, develop,
market and deliver new services. There can be no assurance that we will be able
to obtain any license on commercially reasonable terms, or at all or that rights
granted pursuant to any licenses will be valid and enforceable.
Jacob R. Miles, III our Chairman, Chief Executive Officer and majority
stockholder holds the domain name for urbantrends.com, which he intends to
transfer to us prior to the completion of this offering.
Employees
We have six full-time employees, two of which are involved in marketing
and sales and two in general management, technology and administration. We also
have two part time employees. We have no collective bargaining agreement with
our employees. We believe that our relationship with our employees is
satisfactory.
Legal proceedings
Urban Cool is not currently involved in any material legal proceedings. We
may from time to time become a party to various legal proceedings arising in the
ordinary course of our business.
Properties
Our Internet hosting and co-location servers are located at 1950 Stemmons
Freeway, Dallas Texas. Our lease is month to month at a monthly rate of $1,200
per month. We also have leased 1,350 square feet at 1401 Elm Street, Dallas,
Texas at a monthly rental of $1,635. We lease space at 439 West 125th Street in
the Harlem area of New York City at a monthly rate of $880 per month, for our
model CyberCenter. We are in the process of locating additional space for our
expanded operations. However, no definitive agreements have been executed.
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MANAGEMENT
Directors and executive officers
The following table sets forth information concerning our directors and
executive officers as of the date of this prospectus. Sir Brian Wolfson has
agreed to serve as a director of Urban Cool upon the completion of the offering.
Name Age Position
----- ---- --------
Jacob R. Miles, III* .... 45 Chairman, Chief Executive Officer and
Director
Terrence B. Reddy ....... 55 President, Chief Operating Officer and
Director
Barry M. Levine ......... 56 Secretary, Treasurer and Chief Financial
Officer
Tony Winston ............ 33 Vice President of Technology and Internet
Services
Rosalind Bell ........... 41 Director
Rex Cumming* ............ 36 Director
Sir Brian Wolfson* ...... 64 Director Nominee
- ----------
* We intend to elect such individuals to the audit and compensation committees.
The following is a brief summary of the background of each executive
officer and director:
Jacob R. Miles, III, our founder, has been Chairman and Chief Executive
Officer since inception. From 1996 to 1998, Mr. Miles was President of Miles
Companies, an entertainment- and technology-focused consulting firm. From 1993
to 1996, he was Chairman and Chief Executive Officer of Cultural Exchange
Entertainment Corp., a developer and marketer of entertainment properties, toys
and electronic learning aids targeted at urban markets, which filed for
protection from its creditors under Chapter 7 of the Bankruptcy Code in United
States Bankruptcy Court for the Southern District of New York in January 1998
and was discharged in July 1998. Prior to 1993, Mr. Miles held engineering
operations and senior management positions with Tonka Corp. and General Mills
Toy Group. He received an engineering management certificate from Xavier
University in 1980. Mr. Miles is the husband of Rosalind Bell, a director of
ours.
Terrence B. Reddy became our President, Chief Operating Officer in
September 1999 and a director in November 1999. From 1993 to August 1999, he
served as President of TransMedia Resources, a media research company that
services the broadcasting industry in markets in the state of Texas. Prior to
1993, Mr. Reddy held sales and general manager positions with various television
and cable network companies.
Barry M. Levine became our Secretary, Treasurer and Chief Financial
Officer in November 1999. From October 1996 to August 1999, Mr. Levine was a
director and the President and Chief Executive Officer of Millennium Sports
Management, Inc., a publicly-traded stadium management company. From April 1996
through September 1996 Mr. Levine was unemployed. From December 1991 through
March 1996, Mr. Levine held various offices and was a director of Sports Heroes,
Inc., a publicly-traded sports memorabilia company. Mr. Levine resigned from
Sports Heroes in March 1996, and subsequently, in May 1996, Sports Heroes, Inc.
filed a voluntary petition for reorganization under Chapter 11 of the United
States Bankruptcy Code; in October 1996, this case was converted to a proceeding
under Chapter 7 of the United States Bankruptcy Code. Mr. Levine is also a
certified public accountant. Mr. Levine received a B.B.A. in accounting from
Pace University in 1967.
Rosalind Bell became a director in November 1999. Ms. Bell has been Vice
President of Marketing for Optel, a telecommunications cable and Internet
company, from May 1999 to the present. From April 1998 to April 1999, Ms. Bell
was a Vice President of Marketing for the Don Pablo division of Avado
Corporation. From October 1997 to April 1998, she served as Vice
President-Marketing for Time Warner's Six Flags Amusement Parks. From 1994 to
1997, Ms. Bell was Group Marketing Director at Pillsbury Company. Ms. Bell
received a B.A. in Business from Washington University in 1980 and an M.B.A.
from Northwestern
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University in 1981. Ms. Bell is the wife of Mr. Miles, the Chairman and Chief
Executive Officer, and majority stockholder of Urban Cool.
Rex Cumming became a director in November 1999. Mr. Cumming, a co-founder
of Worksoft Inc., an enterprise productivity solutions company that builds
software testing tools, has been Worksoft's Chief Financial Officer since 1998.
From 1994 to 1998, Mr. Cumming was a co-founder and director of Silicon Reef,
Inc., an Internet service company. From 1992 to the present, Mr. Cumming has
been the President of Hytec Data System, Inc., a consulting firm which provides
investment, development and financial advisory services to start-up companies.
Sir Brian Wolfson has agreed to become a director of ours upon completion
of the offering. Sir Brian served as Chairman of Wembley, PLC from 1986 to 1995.
Sir Brian is currently a director of Fruit of the Loom, Inc., Kepner-Tregoe,
Inc., Playboy Enterprises, Inc., Autotote Corporation, Inc., and Natural Health
Trends Corp. for which he presently serves as Chairman.
Tony Winston has been Vice President of Technology and Internet Services
since August 1999. From 1994 to 1999, Mr. Winston was the founder and President
of Software Developers and Systems Integrations, Inc., a technology and services
firm, implementing applications for telecommunications, and financial services
companies. Mr. Winston received a Bachelors Degree in Business, with a
concentration in Management Information Systems, from Boston University School
of Business in 1988.
Board composition
Upon the consummation of this offering our board of directors will consist
of five directors. At each annual meeting of our stockholders, all of our
directors are elected to serve from the time of election and qualification until
the next annual meeting following election. In addition, our bylaws provide that
the maximum authorized number of directors, which is currently five, may be
changed by resolution of the stockholders or by resolution of the board of
directors.
We have granted to the representative the right, for a period of five
years from the closing of this offering, to nominate a designee of the
representative for election to our board of directors. The representative has
not indicated who they intend to designate to our board. If in the future the
representative elects not to exercise this right, then the representative may
designate one person to attend meetings of our board of directors.
Each officer is elected by, and serves at the discretion of, our board of
directors. Each of our officers and directors, other than independent directors,
devotes his full time to our affairs. Our independent directors devote such time
to our affairs as is necessary to discharge their duties. There are no family
relationships among any of our directors, officers or key employees, except for
Mr. Miles and Ms. Bell, who are husband and wife.
Board committees
Prior to the completion of this offering, we intend to establish an audit
committee and a compensation committee and that Jacob R. Miles, III, Rex
Cumming, and Sir Brian Wolfson will be members of the audit committee and
compensation committee. The audit committee will make recommendations to the
board of directors regarding the independent auditors for us, approve the scope
of the annual audit activities of our independent auditors, review audit results
and will have general responsibility for all of our auditing related matters.
The compensation committee will review and recommend to the board of directors
the compensation structure of our officers and other management personnel,
including salary rates, participation in incentive compensation and benefit
plans, fringe benefits, non-cash perquisites and other forms of compensation. No
interlocking relationships exist between Urban Cool's board of directors or
compensation committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past.
Directors' compensation
Independent directors will receive 5,000 shares of common stock and
options to purchase 10,000 shares of common stock at the initial public offering
price upon completion of the offering. Independent directors will also receive
an annual director's fee of $10,000. Employee directors will not receive
additional compensation for serving on the board of directors. All directors
will be reimbursed for out-of-pocket expenses incurred in attending meetings of
the board of directors and committee meetings.
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<PAGE>
Executive compensation
Summary Compensation Table
The following table provides a summary of cash and non-cash compensation
for the year ended December 31, 1998 with respect to the following officer of
Urban Cool:
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------- ------------------------
Awards
---------
Securities
Restricted Underlying
Other Annual Stock Options LTIP All Other
Name and Principal Positions Year Salary($) Bonus($) Compensation Award(s)($) SARs(#) Payouts($) Compensation
- ---------------------------- ---- --------- ------------ ------------ ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jacob R. Miles, III 1998 0 0 0 0 0 0 0
</TABLE>
There were no option grants during 1998 for the officer listed in the Summary
Compensation Table. No options were exercised in 1998.
Employment agreements
Urban Cool has entered into a three-year employment agreement, commencing
as of July 1, 1999, with Jacob R. Miles, III, our Chairman, President and Chief
Executive Officer, which provides for an annual salary of $175,000. The
employment agreement provides that Mr. Miles is eligible to receive incentive
bonus compensation, at the discretion of the board of directors based on his
performance and contributions to our success. The employment agreement provides
for termination based on death, disability or voluntary resignation and for
severance payments upon termination in the event that he is terminated without
cause, as described in the agreement, or he terminates his employment for good
reason as described in the agreement, or in the event of a change in control of
Urban Cool as described in the agreement. If the employment agreement is
terminated without cause, as a result of a change of control, or terminated by
Mr. Miles for good reason the amount of the severance payment shall be equal to
three times the average annual compensation payable under the employment
agreement.
Urban Cool has entered into one-year employment agreements, effective upon
completion of the offering, with Barry M. Levine, our Chief Financial Officer,
and Terrence B. Reddy, our President and Chief Operating Officer, which each
provide for an annual salary of $125,000. In addition, we have entered into a
one-year employment agreement with Tony Winston, our Vice President of
Technology and Internet Services, which provides for an annual salary of
$100,000. Each employment agreement provides that the executive is eligible to
receive short-term incentive bonus compensation at the discretion of the board
of directors based on his performance and contributions to our success. Each
employment agreement provides for termination based on death, disability or
voluntary resignation and for severance payments upon termination in the event
that the executive is terminated without cause, as described in the agreement,
or he terminates his employment for good reason as described in the agreement.
In the event the employment agreement is terminated other than for good cause by
us, then the executive shall receive severance payments equal to the
compensation payable through the balance of the term.
In November 1999, Stanley Wolfson entered into a three-year employment
agreement with e-commerce Solutions pursuant to which Mr. Wolfson shall receive
an annual salary of $175,000 plus an amount equal to 2% of the gross sales of
e-commerce Solutions. The agreement commences as of November 1, 1999. Mr.
Wolfson will be entitled to receive short term incentive bonus compensation at
the discretion of the board of directors based on his performance and
contribution to the company's success. The employment agreement provides for
termination based on death, disability or voluntary resignation and for
severance payments upon termination in the event that Mr. Wolfson is terminated
without cause.
Consulting Agreements
In November 1999 we entered into a consulting agreement with RMH
Consulting Corp., an affiliate of The Elite Funding Group, a lender to us and a
principal stockholder of ours, to provide us with consulting services, including
assisting us with implementation of our business plans and strategies. The
consulting agreement is for a period of two years commencing as of November 1,
1999 and requires us to pay the consultant a fee of $6,250 per month. Pursuant
to the consulting agreement, we have issued 150,000 shares of common stock to
the consultant and we will be required to issue additional shares of common
stock to the consultant if we commence an initial
39
<PAGE>
public offering at a price of $9.00 or less per share, so that the total number
of shares issued to the consultant will be equal to the number of shares which
could have been purchased in the initial public offering for $1,500,000. The
shares of common stock issued to the consultant are not subject to a lock-up
agreement. We may repurchase an aggregate of 60,000 shares of common stock in
four monthly installments of 15,000 shares of common stock from the consultant
at a cash price of $2,000 for each installment commencing in December 1999
through March 2000. In the event that we do not repurchase the shares of common
stock in any given month, then such repurchase right expires. However, upon the
completion of the offering our right to repurchase any shares of common stock
for which our repurchse right is still outstanding will be accelerated.
In September 1999, we entered into a three-year consulting agreement with
Surrey Associates, Inc. and issued 200,000 shares of common stock to Surrey.
Pursuant to the consulting agreement, Surrey will assist us in developing a
marketing plan for the deployment of NetStand kiosks in shopping centers. In
September 1999, we entered into a consulting agreement with Upway Enterprises,
Inc. and issued 150,000 shares of common stock to Upway. Pursuant to the
agreement, Upway will consult with us with regard to marketing and mergers and
acquisitions. In October 1999, we entered into a two-year consulting agreement
with Sea Breeze Associates, Inc., and issued 175,000 shares of common stock to
Sea Breeze. Pursuant to the agreement, Sea Breeze will consult with us with
regard to corporate development and mergers and acquisitions.
Stock option plan
In November 1999, we adopted the 1999 Stock Option Plan. The purpose of
the plan is to enable us to attract, retain and motivate key employees,
directors, and consultants, by providing them with stock options. Options
granted under the plan may be either incentive stock options, as defined in
Section 422A of the Internal Revenue Code of 1986, or non-qualified stock
options. We have reserved 500,000 shares of common stock for issuance under the
plan. As of the date of this prospectus, 30,000 options have been granted
pursuant to the plan.
Our board of directors will administer the plan. Our board has the power
to determine the terms of any options granted under the plan, including the
exercise price, the number of shares subject to the option, and conditions of
exercise. Options granted under the plan are generally not transferable, and
each option is generally exercisable during the lifetime of the holder only by
the holder. The exercise price of all incentive stock options granted under the
plan must be at least equal to the fair market value of the shares of common
stock on the date of the grant. With respect to any participant who owns stock
possessing more than 10% of the voting power of all classes of our stock, the
exercise price of any incentive stock option granted must be equal to at least
110% of the fair market value on the grant date. Our board of directors approves
the terms of each option. These terms are reflected in a written stock option
agreement.
The board of directors has the right to grant options pursuant to the plan
whereby the holder, under the conditions of exercise, may, in lieu of payment of
the exercise price in cash, surrender the option and receive a net amount of
shares. Such number of shares will be based upon the fair market value of Urban
Cool's common stock at the time of the exercise of the option, after deducting
the aggregate exercise price.
Executive stock option plan
In November 1999, we adopted the 1999 Executive Stock Option Plan. We have
reserved 500,000 shares of common stock for issuance under the plan. Pursuant to
the plan, we granted options to purchase an aggregate of 500,000 shares of
common stock to Jacob R. Miles, III, our Chairman and Chief Executive Officer.
Of these options, options to purchase 250,000 shares of common stock are
exercisable immediately at an exercise price equal to the initial public
offering price. The balance of these options are exercisable for a period of
five years from the date of grant at an exercise price equal to 110% of the
initial public offering price. Such options are exercisable only if Urban Cool
achieves the annual audited gross revenue as outlined in the table below and
will become exercisable immediately following the fiscal year indicated.
Years Ending Number of Options Exercisable Gross Revenue
------------ ----------------------------- -------------------
2001 125,000 $17,500,000
2002 125,000 $25,000,000
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<PAGE>
These options have net exercise provisions under which Mr. Miles may, in
lieu of payment of the exercise price in cash, surrender the option and receive
a net amount of shares, based on the fair market value of Urban Cool's common
stock at the time of the exercise of the option, after deducting the aggregate
exercise price.
Limitations of liability and indemnification of directors and officers
Our certificate of incorporation, as amended, and bylaws, as amended,
limit the liability of directors and officers to the maximum extent permitted by
Delaware law. We will indemnify any person who was or is a party, or is
threatened to be made a party to, an action, suit or proceeding, whether civil,
criminal, administrative or investigative, if that person is or was a director,
officer, employee, consultant or agent of us or serves or served any other
enterprise at our request.
In addition, our certificate of incorporation provides that generally a
director shall not be personally liable to us or our stockholders for monetary
damages for breach of the director's fiduciary duty. However, in accordance with
Delaware law, a director will not be indemnified for a breach of its duty of
loyalty, acts or omissions not in good faith or involving intentional misconduct
or a knowing violation or any transaction from which the director derived
improper personal benefit.
We intend to purchase and will maintain directors' and officers'
insurance, the amount of which has not yet been determined. This insurance will
insure directors against any liability arising out of the director's status as
our director, regardless of whether we have the power to indemnify the director
against the liability under applicable law.
The underwriting agreement also contains provisions whereby we agree to
indemnify the underwriters, each officer and director of the underwriters, and
each person who controls the underwriters within the meaning of Section 15 of
the Securities Act, against any losses, liabilities, claims or damages arising
out of alleged untrue statements or alleged omissions of material facts
contained in the registration statement or prospectus.
We have been advised that it is the position of the Commission that
insofar as the indemnification provisions referenced above may be invoked to
disclaim liability for damages arising under the Securities Act, these
provisions are against public policy as expressed in the Securities Act and are,
therefore, unenforceable.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of November 30, 1999, and as adjusted
for the 2,000,000 shares of our common stock offered by this prospectus, the
number and percentage of outstanding shares of common stock beneficially owned
by:
o each person who we know beneficially owns more than 5% of the
outstanding shares of our common stock;
o each of our officers and directors; and
o all of our officers and directors as a group.
Except as otherwise noted, the persons named in this table, based upon
information provided by these persons, have sole voting and investment power
with respect to all shares of common stock beneficially owned by them. The
number of shares of common stock outstanding used in calculating the percentage
for each listed person includes the shares of common stock underlying options or
warrants held by such person that are exercisable within 60 days of November 30,
1999, but excludes shares of common stock underlying options or warrants held by
any other person. Unless otherwise indicated, the address of each beneficial
owner is c/o Urban Cool, 1401 Elm Street, Dallas, Texas 75202.
<TABLE>
<CAPTION>
Percentage of
Percentage of common
common stock stock
Name and address of Number of beneficially beneficially
beneficial owner shares owned owned
- ------------------- ------------- ----------------- ----------------
(Before Offering) (After Offering)
<S> <C> <C> <C>
Jacob R. Miles, III .................................... 2,336,493(1) 60.2% 39.7%
Terrence B. Reddy ...................................... -- * *
Rosalind Bell .......................................... 2,336,493(2)(3) 60.2% 39.7%
Rex Cumming ............................................ 5,000(3) * *
Sir Brian Wolfson ...................................... 5,000(3) * *
The Elite Funding Group, Inc. .......................... 900,000(4) 20.5% 14.1%
All executive officers and directors as a group
(7 persons) .......................................... 2,446,493 61.5% 40.8%
</TABLE>
- ----------
(1) Includes (a) 20,608 shares of common stock owned by Rosalind Bell, Mr.
Miles' wife, at an exercise price equal to the initial public offering
price, (b) 5,000 shares of common stock issuable to Rosalind Bell upon the
consummation of this offering and (c) 250,000 shares of common stock
issuable upon the exercise of options that are currently exercisable at an
exercise price equal to the initial public offering price.
(2) Includes 2,315,885 shares of common stock beneficially owned by Ms. Bell's
husband, Jacob R. Miles, III.
(3) Includes 5,000 shares of common stock issuable to non-employee directors
upon the consummation of this offering.
(4) Includes (a) warrants to purchase 750,000 shares of common stock
connection with a loan in an amount of up to $1,000,000 which are
presently exercisable, and (b) 150,000 shares of common stock owned by RMH
Consulting Corp., a consultant and an affiliate of The Elite Funding
Group. Pursuant to the consulting agreement, we are required to issue
additional shares of common stock in the event that the initial public
offering price is less than $9.00 per share.
* Represents less than 1% of the applicable number of shares of common stock
outstanding.
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<PAGE>
CERTAIN TRANSACTIONS
In November 1999, Jacob R. Miles, III, our Chairman, Chief Executive
Officer and majority stockholder entered into a deferred compensation agreement
with us which provides that Mr. Miles shall receive accrued salary in the amount
of $131,250, payable out of the net proceeds of this offering, which amount was
accrued from January 1, 1999 through September 30, 1999. As of September 30,
1999 we owed Mr. Miles approximately $11,000 for expenses he paid on our behalf
which has been recorded as a non-interest bearing loan.
In November 1999 we entered into a consulting agreement with RMH
Consulting Corp., an affiliate of The Elite Funding Group, a lender to us and a
principal stockholder of ours, to provide us with consulting services, including
assisting us with implementation of our business plans and strategies. The
consulting agreement is for a period of two years commencing as of November 1,
1999 and requires us to pay the consultant a fee of $6,250 per month. Pursuant
to the consulting agreement, we have issued 150,000 shares of common stock to
the consultant and we will be required to issue additional shares of common
stock to the consultant if we commence an initial public offering at a price of
$9.00 or less per share, so that the total number of shares issued to the
consultant will be equal to the number of shares which could have been purchased
in the initial public offering for $1,500,000. The shares of common stock issued
to the consultant are not subject to a lock-up agreement. We may repurchase an
aggregate of 60,000 shares of common stock in four monthly installments of
15,000 shares of common stock from the consultant at a cash price of $2,000 for
each installment commencing in December 1999 through March 2000. In the event
that we do not repurchase the shares of common stock in a given month, then such
repurchase right expires. However, upon the completion of the offering our right
to repurchase any shares of common stock for which our repurchase right is still
outstanding will be accelerated.
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<PAGE>
DESCRIPTION OF SECURITIES
The following section does not purport to be complete and is qualified in
all respects by reference to the detailed provisions of our certificate of
incorporation and bylaws, copies of which have been filed with our registration
statement of which this prospectus forms a part. Our capital stock is also
governed by the provisions of applicable Delaware law.
General
Our authorized capital stock consists of 30,000,000 shares of common
stock, $.01 par value and 3,000,000 shares of preferred stock, $.01 par value.
As of November 30, 1999, 3,630,000 shares of common stock were issued and
outstanding. As of the date of this prospectus, we have approximately 60 holders
of our common stock. No shares of preferred stock are outstanding.
Common stock
Each holder of common stock is entitled to one vote per share, either in
person or by proxy, on all matters that may be voted upon by the owners of our
shares at meetings of our stockholders. There is no provision for cumulative
voting with respect to the election of directors by the holders of common stock.
Therefore, the holders of more than 50% of our shares of outstanding common
stock can, if they choose to do so, elect all of our directors and approve
significant corporate transactions. In this event, the holders of the remaining
shares of common stock will not be able to elect any directors.
Pursuant to the consulting agreement with RMH Consulting Corp., an
affiliate of The Elite Funding Group, a principal stockholder of ours and our
lender, we have issued 150,000 shares of common stock to the consultant and we
will be required to issue additional shares of common stock to the consultant if
we commence an initial public offering at a price of $9.00 or less per share, so
that the total number of shares issued to the consultant will be equal to the
number of shares which could have been purchased in the initial public offering
for $1,500,000. We may repurchase an aggregate of 60,000 shares of common stock
in four installments of 15,000 shares of common stock from the consultant at a
cash price of $2,000 for each monthly installment commencing in December 1999
through March 2000. In the event that we do not repurchase the shares of common
stock in a given month, then such repurchase right expires. However, upon the
completion of the offering our right to repurchase any shares of common stock
for which our repurchase right is still outstanding will be accelerated.
The holders of common stock:
o have equal rights to dividends from funds legally available
therefor, when and if declared by our board of directors;
o are entitled to share ratably in all of our assets available for
distribution to holders of common stock upon liquidation,
dissolution or winding up of our affairs; and
o do not have preemptive rights, conversion rights, or redemption of
sinking fund provisions.
All outstanding shares of our common stock are, and the shares of common
stock offered by us in this offering, when issued and paid for, will be duly
authorized, validly issued, fully paid and nonassessable. The rights,
preferences and privileges of the holders of common stock may be adversely
affected by the rights of the holders of shares of any series of preferred stock
that we designate in the future.
Preferred Stock
The board of directors is authorized, without stockholder approval, from
time to time to issue up to an aggregate of 3,000,000 shares of preferred stock
in one or more series. The board of directors can fix the rights, preferences
and privileges of the shares of each series and any qualifications, limitations
or restrictions. Issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third-party to
acquire, or of discouraging a third-party from attempting to acquire a majority
of our outstanding voting stock. We have no present plans to issue any shares
of preferred stock.
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<PAGE>
Outstanding options and warrants
Upon the consummation of this offering, up to 2,965,000 shares of common
stock will be issuable pursuant to outstanding options and warrants. Of such
options and warrants, excluding the 200,000 shares of common stock reserved for
issuance upon the exercise of warrants granted to the representative:
o 1,275,000 shares of common stock are issuable at an exercise price
of $2.00 per share;
o 1,000,000 shares of common stock are issuable at an exercise price
of $1.00 per share;
o 310,000 shares of common stock are issuable at an exercise price of
equal to 110% of the initial public offering price.
o 280,000 shares of common stock are issuable at an exercise price
equal to the initial public offering price per share; and
o 100,000 shares of common stock are issuable at an exercise price of
$2.50 per share;
These options and warrants generally have net exercise provisions under
which the holder may, in lieu of payment of the exercise price in cash,
surrender the option or warrant and receive a net amount of shares, based on the
fair market value of Urban Cool's common stock at the time of the exercise of
the warrant, after deducting the aggregate exercise price. These warrants expire
on dates ranging from July 2004 to November 2009.
Representative's Warrants
We have agreed to issue to the representative of the underwriters, for a
total of $20.00, warrants to purchase an aggregate of 200,000 shares of common
stock exercisable for a period of four years commencing one year after the
effective date of the registration statement of which this prospectus is a part,
at a price equal to 120% of the initial public offering price of the shares of
common stock. The representative's warrants contain anti-dilution provisions
providing for automatic adjustments of the exercise price and number of shares
issuable on exercise price and number of shares issuable on exercise of the
representative's warrants upon the occurrence of some events, including stock
dividends, stock splits, mergers, acquisitions and recapitalizations.
The representative's warrants contain demand and piggyback registration
rights relating to the issuance of 200,000 shares of common stock. For the life
of the representative's warrants, the representative will have the opportunity
to profit from a rise in the market price for the 200,000 shares of common
stock. The holders of the representative's warrants will have no voting,
dividend or other stockholder rights with respect to those warrants. The holders
of shares of common stock issued upon exercise of those warrants will have the
voting, dividend and other stockholder rights of holders of shares of common
stock. The representative's warrants are restricted from sale, transfer,
assignment or hypothecation for the one year period from the date of this
prospectus, except to officers or partners of the underwriters and members of
the selling group and/or their officers or partners.
Registration Rights
In July through November, 1999, we completed the sale of 105 units at a
price of $10,000 per unit in a private financing transaction. Each unit in the
private financing consisted of a promissory note in the amount of $10,000, 1,000
shares of common stock and warrants to purchase 5,000 shares of common stock.
These shares are included in this registration statement of which this
prospectus forms a part and are being offered by the selling stockholders under
an alternate prospectus. In addition, the holders of at least 50% of the shares
of common stock and the shares of common stock underlying the warrants issued in
the private financing have the right to demand the registration of their shares
on one occasion and such holders have "piggyback registration rights" commencing
12 months from the date of this prospectus.
We entered into a loan agreement with The Elite Funding Group, Inc. which
provides for a loan in an amount of up to $1,000,000 at an interest rate of 10%
per annum, payable monthly. On the date we entered into the agreement, we
received an initial advance of $350,000 and we issued to the lender common stock
purchase warrants for the purchase of up to 750,000 shares of common stock at an
exercise price of $2.00 per share. We have granted certain registration rights
to the lender for the registration of the shares of common stock underlying the
warrants in this offering, including demand registration rights, and certain
additional "piggy-back" registration rights. The shares of common stock
underlying the lender's warrant are included in this registration statement of
which this prospectus forms a part and offered under an alternate prospectus. We
have
45
<PAGE>
granted similar registration rights to RMH Consulting Corp., a consultant who is
an affiliate of the lender with respect to 150,000 shares of common stock. The
shares of common stock issued to RMH Consulting and the shares of common stock
underlying the warrant issued to The Elite Funding Group are not subject to a
lock-up agreement.
Security Capital and May Davis Group assisted us in procuring the
$1,000,000 loan from The Elite Funding Group and received warrants to purchase
40,000 shares of common stock and warrants to purchase 20,000 shares of common
stock, respectively. The shares of common stock underlying the these warrants
are included in this registration statement of which this prospectus forms a
part and are being offered under an alternate prospectus.
We have agreed to issue to the representative of the underwriters, for a
total of $20.00, warrants to purchase an aggregate of 200,000 shares of common
stock exercisable for a period of four years commencing one year after the
effective date of the registration statement of which this prospectus is a part,
at a price equal to 120% of the initial public offering price of the shares of
common stock. The representative's warrants contain demand and piggyback
registration rights relating to the issuance of 200,000 shares of common stock.
We have also agreed to register 75,000 shares of common stock in this
registration statement held by Sea Breeze Associates, a consultant. These shares
of common stock are included in this registration statement of which this
prospectus forms a part and offered under an alternate prospectus.
Delaware law and certificate of incorporation and bylaw provisions
Urban Cool is subject to Section 203 of the Delaware General Corporation
Law regulating corporate takeovers. This section prevents Urban Cool from
engaging, under some circumstances, in a business combination, which includes a
merger or sale of more than 10% of its assets, with any interested stockholder,
defined as a stockholder who owns 15% or more of its outstanding voting stock,
as well as affiliates and associates of any such persons, for three years
following the date such stockholder became an interested stockholder unless:
o the transaction in which the stockholder became an interested
stockholder is approved by the board of directors prior to the date
the interested stockholder attained that status;
o upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of Urban Cool's voting stock
outstanding at the time the transaction commenced, excluding shares
owned by persons who are directors or officers and shares owned by
employee stock plans; or
o the business combination is approved by the board of directors and
authorized by the affirmative vote of at least two-thirds of the
outstanding voting stock not owned by the interested stockholder.
Some of the provision of our certificate of incorporation and bylaws could
discourage, delay or prevent an acquisition of Urban Cool at a premium price.
Our bylaws provide that any vacancy on the board of directors may be filled by a
majority of the directors then in office. Our bylaws provide that special
meetings of stockholders may be called only by a majority of the directors of
our board or the President or by at least 25% of the holders of shares of common
stock.
In addition, the certificate of incorporation also authorizes the board of
directors to issue preferred stock with voting or other rights or preferences
that could impede the success of any attempt to change control of Urban Cool.
Transfer agent
We intend to appoint Continental Stock Transfer & Trust Company as the
transfer agent and registrar for our shares of common stock.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of common stock in the public market,
or the availability of shares for sale, could adversely affect the prevailing
market price of our common stock and our ability to raise capital through an
offering of equity securities.
Upon completion of this offering, we will have 5,645,000 shares of common
stock outstanding, assuming no exercise of outstanding options or warrants or
the underwriters' over-allotment option. After the offering, the 2,000,000
shares sold in this offering will be immediately tradeable without restriction
under the Securities Act, except for any shares purchased by an "affiliate" of
ours, as that term is defined in the Securities Act. Affiliates will be subject
to the resale limitations of Rule 144 under the Securities Act. The 1,665,000
shares of common stock which are being offered by selling stockholders pursuant
to an alternate prospectus will be freely transferable subject to the lock-up
agreements described below.
We issued the remaining 3,645,000 shares of common stock in private
transactions in reliance upon one or more exemptions contained in the Securities
Act. These shares will be deemed "restricted securities" as defined in Rule 144.
Of these restricted securities 2,121,475 shares have been held for more than one
year as of the date of this prospectus. Therefore, 2,121,475 of these shares
will be eligible for public sale beginning 90 days after the date of this
prospectus in accordance with the requirements of Rule 144, subject to the
lock-up agreements described below.
In general, under Rule 144, a stockholder, or stockholder whose shares are
aggregated, who has beneficially owned "restricted securities" for at least one
year will be entitled to sell an amount of shares within any three month period
equal to the greater of:
o 1% of the then outstanding shares of common stock; or
o the average weekly trading volume in the common stock during the
four calendar weeks immediately preceding the date on which notice
of the sale is filed with the Commission, provided certain
requirements are satisfied.
In addition, our affiliates must comply with additional requirements of
Rule 144 in order to sell shares of common stock, including shares acquired by
affiliates in this offering. Under Rule 144, a stockholder who had not been our
affiliate at any time during the 90 days preceding a sale by him, would be
entitled to sell those shares without regard to the Rule 144 requirements if he
owned the restricted shares of common stock for a period of at least two years.
The foregoing summary of Rule 144 is not a complete description. Non-affiliates
may resell our securities issued under Rule 701 in reliance upon Rule 144
without having to comply with Rule 144's public information holding, volume and
notice requirements
Except for RMH Consulting Corp., a consultant and an affiliate of The
Elite Funding Group, and The Elite Funding Group, our lender and a principal
stockholder of ours, who will hold up to 150,000 shares of common stock and
warrants to purchase up to 750,000 shares of common stock, respectively, all of
our stockholders, our warrant holders and our officers and directors, have
agreed to not directly or indirectly, offer, sell, pledge, grant any option to
purchase, or otherwise sell or dispose of any of our shares for a period of at
least 13 months after the offering without the prior written consent of Security
Capital. However, Security Capital has agreed to release the lock-up after six
months with respect to 105,000 shares of common stock and 525,000 shares of
common stock underlying certain warrants issued in connection with a private
financing transaction in July through November, 1999, if Security Capital has
not agreed otherwise with The American Stock Exchange or any other national
securities exchange.
47
<PAGE>
UNDERWRITING
The underwriters named below, for whom Security Capital Trading, Inc. is
acting as representative, have severally agreed, subject to the terms and
conditions contained in the underwriting agreement, to purchase from us, and we
have agreed to sell to the underwriters on a firm commitment basis, the
respective number of shares of common stock set forth opposite their names:
Number of
Underwriters Shares
------------ ---------
Security Capital Trading, Inc. ............................
Total ................................................... 2,000,000
The underwriters are committed to purchase all the securities offered by
this prospectus, if any of the securities are purchased. The underwriting
agreement provides that the obligations of the several underwriters are subject
to the conditions specified in the underwriting agreement.
The representative has advised us that it initially proposes to offer the
common stock to the public at the public offering price set forth on the cover
page of this prospectus, and to certain dealers concessions not in excess of
$____ per share of common stock. The dealers may reallow a concession not in
excess of $____ per share of common stock to other dealers. After completion of
the offering, the public offering price, concessions and reallowances may be
changed by the representative. The representative has informed us that it does
not expect sales to discretionary accounts by the representative to exceed five
percent of the shares of common stock offered by us in this prospectus.
We have granted to the underwriters an over-allotment option, exercisable
during the 45-day period from the date of this prospectus, to purchase from us
up to an additional 300,000 shares of common stock at the initial public
offering price, less underwriting discounts and the non-accountable expense
allowance. This option may be exercised only for the purpose of covering
over-allotments, if any, incurred in the sale of the shares of common stock. To
the extent this option is exercised in whole or in part, each underwriter will
have a firm commitment, subject to some conditions, to purchase the number of
the additional shares of common stock proportionate to its initial commitment.
We have agreed to pay to the representative a non-accountable expense
allowance equal to three percent of the gross proceeds derived from the sale of
the shares of common stock underwritten, of which $70,000 has been paid to date.
We have agreed to indemnify the underwriters against some liabilities, including
liabilities under the Securities Act. We have also agreed to pay all expenses in
connection with qualifying the securities under the laws of those states the
underwriter may designate, including fees and expenses of counsel retained for
such purposes by the representative and the costs and disbursements in
connection with qualifying the offering with the National Association of
Securities Dealers, Inc.
Except for RMH Consulting Corp., a consultant and an affiliate of The
Elite Funding Group, and The Elite Funding Group, our lender and a principal
stockholder of ours, who will hold up to 150,000 shares of common stock and
warrants to purchase up to 750,000 shares of common stock, respectively, all of
our stockholders, our warrant holders and our officers and directors, have
agreed to not directly or indirectly, offer, sell, pledge, grant any option to
purchase, or otherwise sell or dispose of any of our shares for a period of at
least 13 months after the offering without the prior written consent of Security
Capital. However, Security Capital has agreed to release the lock-up after six
months with respect to 105,000 shares of common stock and 525,000 shares of
common stock underlying certain warrants issued in connection with a private
financing transaction in July through November, 1999, if Security Capital has
not agreed otherwise with The American Stock Exchange or any other national
securities exchange. An appropriate legend shall be placed on the certificates
representing the securities. Except for the release of the lock-up after six
months with respect to 105,000 shares of common stock and 525,000 shares of
common stock issued in a private financing transaction, the representative has
no general policy with respect to the release of shares prior to the expiration
of the lock-up period and has no present intention to waive or modify any of
these restrictions on the sale of our securities.
48
<PAGE>
Security Capital acted as the placement agent for the private financing in
July through November, 1999. We paid Security Capital a fee of $105,000, which
was equal to 10% of the aggregate purchase price of the units sold, a portion of
which was reallowed to a sub-placement agent, May Davis Group, and a
non-accountable expense allowance of $31,500, which was equal to 3% of the
aggregate purchase price of the units sold.
Security Capital and May Davis Group also assisted us in procuring the
$1,000,000 loan with The Elite Funding Group, Inc. and received warrants to
purchase 40,000 shares of common stock and warrants to purchase 20,000 shares of
common stock at an exercise price equal to 110% of the initial public offering
price, respectively.
In connection with this offering, we have agreed to sell to the
representative, and/or its designees, for nominal consideration, five-year
representative's warrants to purchase up to 200,000 shares of our common stock.
The representative's warrants are initially exercisable at any time during a
period of four years beginning one year from the date of the prospectus at a
price equal to 120% of the initial public offering price per share. The shares
of common stock underlying the warrants are identical to those offered to the
public. The representative's warrants provide for adjustment in the number of
securities issuable upon their exercise as a result of certain subdivisions and
combinations of the common stock. The representative's warrants grant to the
holders rights of registration for the securities issuable upon exercise of the
warrants. In addition, the representative's warrants may not be sold,
transferred, assigned, hypothecated or otherwise disposed of, in whole or in
part, for a period of one year from the date of the prospectus, except to
officers of the representative.
We have also granted to the representative, the right, for a period of
five years from the closing of the offering, to nominate a designee of the
representative for election to our board of directors. Our officers, directors
and principal stockholders have agreed to vote their shares in favor of this
designee.
In connection with this offering, certain underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the securities. The
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which the persons may bid for or purchase
our common stock for the purpose of stabilizing their respective market prices.
The underwriters also may create a short position for the account of the
underwriters by selling more shares of common stock in connection with the
offering than they are committed to purchase from us. In that case they may
purchase shares of common stock in the open market following completion of the
offering to cover all or a portion of the short position. The underwriters may
also cover all or a portion of the short position, up to 300,000 shares of
common stock, by exercising the over-allotment option referred to above. In
addition, the representative may impose "penalty bids" under contractual
arrangements with the underwriters whereby it may reclaim from an underwriter,
or dealer participating in the offering, for the account of other underwriters,
the selling concession with respect to the shares of common stock that are
distributed in the offering but subsequently purchased for the account of the
underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the prices of the shares of common
stock at a level above that which might otherwise prevail in the open market.
None of the transactions described in this paragraph is required, and, if they
are undertaken, they may be discontinued at any time.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price of the common stock has
been determined by negotiation between us and the representative and does not
necessarily bear any relationship to our asset value, net worth or other
established criteria of value. The factors considered in these negotiations, in
addition to prevailing market conditions, included the history of and prospects
for the industry in which we compete, an assessment of our management, our
prospects, our capital structure and other factors as were deemed relevant.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each agreement that is filed as an exhibit to the registration statement of
which this prospectus is a part.
49
<PAGE>
LEGAL MATTERS
The validity of the common stock being offered in this prospectus will be
passed upon for us by Silverman, Collura & Chernis, P.C., New York, New York.
Orrick, Herrington & Sutcliffe LLP, New York, New York is acting as counsel for
the underwriters in connection with this offering.
EXPERTS
The financial statements of Urban Cool as of December 31, 1998 and for the
period January 23, 1998 through December 31, 1998, appearing in this prospectus
and registration statement have been audited by Richard A. Eisner & Company,
LLP, independent auditors, as set forth in their report thereon which contains
an explanatory paragraph with respect to the substantial doubt about our ability
to continue as a going concern, as discussed in Note A to the Financial
Statements appearing in the registration statement, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
HOW TO GET MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the securities
offered by this prospectus. This prospectus, which forms a part of the
registration statement, does not contain all the information set forth in the
registration statement, as permitted by the rules and regulations of the
Commission. For further information with respect to us and the securities
offered by this prospectus, reference is made to the registration statement.
Statements contained in this prospectus as to the contents of any contract or
other document that we have filed as an exhibit to the registration statement
are qualified in their entirety by reference to the to the exhibits for a
complete statement of their terms and conditions. The registration statement and
other information may be read and copied at the Commission's Public Reference
Room at 450 Fifth Street N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices located at 7 World Trade Center, Suite 1300, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The
public may obtain information on the operation of the Public Reference Room by
calling the Commission at 1-800-SEC-0330. The Commission maintains a web site at
http://www.sec.gov that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the
Commission.
Upon effectiveness of the registration statement, we will be subject to
the reporting and other requirements of the Securities Exchange Act of 1934 and
we intend to furnish our stockholders annual reports containing financial
statements audited by our independent auditors and to make available quarterly
reports containing unaudited financial statements for each of the first three
quarters of each year.
We have applied for the listing of our common stock on The American Stock
Exchange under the symbol "UBN." After this offering is effective, you may
obtain certain information about us on The American Stock Exchange's Internet
site (http://www.Nasdaq-Amex.com).
50
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Contents
Page
Financial Statements
Independent auditor's report F-2
Balance sheets as of December 31, 1998 and September 30, 1999 (unaudited) F-3
Statements of operations for the period from January 23, 1998 (inception)
through December 31, 1998 and the nine month period ended September 30,
1999 (unaudited) and for the periods from January 23, 1998 (inception)
through September 30, 1998 and 1999 (unaudited) F-4
Statements of changes in capital deficiency for the period from January 23,
1998 (inception) through December 31, 1998 and the nine month period
ended September 30, 1999 (unaudited) F-5
Statements of cash flows for the period from January 23, 1998 (inception)
through December 31, 1998, the nine month period ended September 30,
1999 (unaudited) and for the periods from January 23, 1998 (inception)
through September 30, 1998 and 1999 (unaudited) F-6
Notes to financial statements F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Urban Cool Network, Inc.
Dallas, Texas
We have audited the accompanying balance sheet of Urban Cool Network, Inc.
(a development stage company) as of December 31, 1998 and the related statements
of operations, changes in capital deficiency and cash flows for the period from
January 23, 1998 (inception) through December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the financial position of Urban Cool Network, Inc. as
of December 31, 1998 and the results of its operations and its cash flows for
the period from January 23, 1998 (inception) through December 31, 1998, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has experienced net losses, has a working
capital deficiency, and a capital deficiency that raises substantial doubt about
the ability of the Company to continue as a going concern. Management's plans in
regard to these matters are also described in Note A. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
RICHARD A. EISNER & COMPANY, LLP
New York, New York
November 23, 1999
F-2
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash ........................................................... $ 2,000
Other current assets ........................................... $ 2,000
----------- -----------
Total current assets ......................................... 2,000 2,000
----------- -----------
Computer equipment and software ................................... 23,000 23,000
Website development costs ......................................... 63,000 63,000
----------- -----------
86,000 86,000
Less accumulated depreciation ..................................... (28,000) --
----------- -----------
58,000 86,000
----------- -----------
Debt issuance costs, net .......................................... 118,000
Deferred offering costs ........................................... 70,000
Other assets ...................................................... 3,000
----------- -----------
$ 251,000 $ 88,000
=========== ===========
LIABILITIES
Current liabilities:
Bank overdraft ................................................. $ 49,000
Note Payable ................................................... 400,000
Accounts payable and accrued expenses .......................... 187,000 $ 209,000
Payable to officer/stockholder ................................. 142,000 13,000
----------- -----------
Total current liabilities .................................... 778,000 222,000
Notes payable (face value -- $350,000) ............................ 88,000 --
----------- -----------
866,000 222,000
----------- -----------
Commitments and other matters
CAPITAL DEFICIENCY
Preferred stock -- authorized 3,000,000 shares, $.01 par value;
none outstanding
Common stock -- authorized 30,000,000 shares, $.01 par value;
3,235,000 and 2,121,475 shares outstanding at September 30, 1999
and December 31, 1998, respectively ............................ 32,000 21,000
Additional paid-in capital ........................................ 1,328,000 173,000
Unearned compensation ............................................. (700,000) --
Deficit accumulated during the development stage .................. (1,275,000) (328,000)
----------- -----------
(615,000) (134,000)
----------- -----------
$ 251,000 $ 88,000
=========== ===========
</TABLE>
See notes to financial statements
F-3
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Statements of Operations
<TABLE>
<CAPTION>
Period From Period From Period From
January 23, January 23, January 23,
1998 1998 1998
Nine Months (Inception) (Inception) (Inception)
Ended Through Through Through
September 30, September 30, December 31, September 30,
1999 1998 1998 1999
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Costs and expenses:
General and administrative .... $ 901,000 $ 153,000 $ 328,000 $ 1,229,000
----------- ----------- ----------- -----------
Operating loss .................... (901,000) (153,000) (328,000) (1,229,000)
Interest and related costs ........ 46,000 46,000
----------- ----------- ----------- -----------
Net loss/comprehensive loss ....... $ (947,000) $ (153,000) $ (328,000) $(1,275,000)
=========== =========== =========== ===========
Loss per share -- basic and diluted $ (0.36) $ (0.07) $ (0.16)
=========== =========== ===========
Weighted average number of shares
outstanding -- basic and diluted 2,659,082 2,060,885 2,066,082
=========== =========== ===========
</TABLE>
See notes to financial statements
F-4
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Statements of Changes in Capital Deficiency
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
------------------------- Paid-in Unearned Development
Shares Amount Capital Compensation Stage Total
----------- --------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Shares issued to founder .......... 2,060,885 $ 20,000 $ (15,000) $ 5,000
Issuance of common stock for
cash ($.23 per share)
-- November .................... 13,602 3,000 3,000
-- December .................... 30,501 1,000 6,000 7,000
Issuance of common stock for
consulting services -- November . 16,487 4,000 4,000
Value of services contributed
by an officer/ stockholder ...... 175,000 175,000
Net loss/comprehensive loss for the
period from January 23, 1998
(inception) through
December 31, 1998 ............... $ (328,000) (328,000)
----------- --------- ----------- --------- ----------- -----------
Balance -- December 31, 1998 ...... 2,121,475 21,000 173,000 (328,000) (134,000)
Issuance of common stock for cash
($.24 per share) -- March ..... 637,844 6,000 149,000 155,000
-- June ...... 8,245 2,000 2,000
-- July ...... 82,436 1,000 19,000 20,000
Issuance of common stock and
warrants in private placement ... 35,000 289,000 289,000
Issuance of common stock for
consulting services -- September 350,000 4,000 696,000 $(700,000) --
Net loss/comprehensive loss
for the nine month period
ended September 30, 1999 ........ (947,000) (947,000)
----------- --------- ----------- --------- ----------- -----------
Balance -- September 30, 1999
(unaudited) ..................... 3,235,000 $ 32,000 $ 1,328,000 $(700,000) $(1,275,000) $ (615,000)
=========== ========= =========== ========= =========== ===========
</TABLE>
See notes to financial statements
F-5
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Period From Period From Period From
January 23, 1998 January 23, 1998 January 23, 1998
Nine Months (Inception) (Inception) (Inception)
Ended Through Through Through
September 30, September 30, December 31, September 30,
1999 1998 1998 1999
----------- ----------- ------------- -------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ............................................ $ (947,000) $(153,000) $ (328,000) $(1,275,000)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Value of services contributed by an officer/
stockholder charged as compensation and
treated as additional paid-in capital ......... 131,000 175,000 175,000
Depreciation and amortization ................... 28,000 28,000
Issuance of stock for services rendered ......... 4,000 4,000
Amortization of debt discount and
issuance costs ................................ 39,000 39,000
Accrued interest ................................ 7,000 7,000
Accrued salary to officer/stockholder ........... 131,000 131,000
Changes in:
Accounts payable and accrued
expenses .................................... 371,000 18,000 209,000 580,000
Other assets .................................... (5,000) (5,000)
----------- --------- ----------- -----------
Net cash (used in) provided by
operating activities ...................... (376,000) (4,000) 60,000 (316,000)
----------- --------- ----------- -----------
Cash flows from investing activities:
Purchase of computer equipment and
software .......................................... (23,000) (23,000)
Costs of developing website and related
software .......................................... (5,000) (63,000) (63,000)
----------- --------- ----------- -----------
Net cash used in investing
activities ................................ (5,000) (86,000) (86,000)
----------- --------- ----------- -----------
Cash flows from financing activities:
Bank overdraft ...................................... 49,000 49,000
Proceeds from sale of common stock .................. 177,000 15,000 192,000
Loan proceeds from officer/stockholder .............. (2,000) 9,000 13,000 11,000
Proceeds from private placement, net ................ 220,000 220,000
Financing costs ..................................... (70,000) (70,000)
----------- --------- ----------- -----------
Net cash provided by financing
activities ................................ 374,000 9,000 28,000 402,000
----------- --------- ----------- -----------
Net (decrease) increase in cash ....................... (2,000) -- 2,000 --
Cash at beginning of period ........................... 2,000 --
----------- --------- ----------- -----------
Cash at end of period ................................. $ -- $ -- $ 2,000 $ --
=========== ========= =========== ===========
Supplemental disclosures of cash investing
and financing activity:
Note payable issued to vendor for accounts
payable ........................................... $ 400,000 $ 400,000
</TABLE>
See notes to financial statements
F-6
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1998
(Unaudited with respect to September 30, 1999 and September 30, 1998)
NOTE A - THE COMPANY AND BASIS OF PRESENTATION
Urban Cool Network, Inc. (the "Company") was incorporated in Delaware in
January 1998. The Company operates an online network that became operational in
January 1999, and provides a forum for communications, information and
electronic commerce. The online network has 15 channels with original content
and includes a search engine for users. The Company intends to derive its
revenue primarily from sponsorship and advertising. The Company has not yet
generated any revenue. Through September 30, 1999, the Company is in the
development stage.
The Company's primary market is residents of inner city or urban areas.
The Company's strategy is to utilize its online network to reach its target
market of urban consumers and businesses that market their products to urban
consumers. The Company intends to utilize NetStands, which are PC-based kiosks,
which will be located throughout selected inner cities. The Company also intends
to license Cyber Centers which are central meeting areas that will contain
between ten and twenty computers, to urban nonprofit organizations.
As reflected in the accompanying financial statements, the Company has not
generated any revenues, has incurred substantial losses since inception and such
losses are expected to continue in the near future. As of December 31, 1998, the
Company had a working capital deficiency of $220,000 and a capital deficiency of
$134,000. These factors raise substantial doubt about the Company's ability to
continue as a going concern. The Company's continued existence is dependent on
its ability to obtain additional debt or equity financing. The Company is
attempting to raise additional financing through a proposed public offering.
(See Note F)
There is no assurance that the proposed financing can be accomplished or
that profitable operations can be achieved. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
[1] PURCHASED COMPUTER EQUIPMENT AND SOFTWARE:
Computer equipment and software are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over
their estimated useful lives of the assets which range from three to five
years.
[2] WEB SITE DEVELOPMENT COSTS:
Costs of designing, software configuration, coding, installation to
hardware and testing expenses incurred during application development
stage activities are capitalized. Costs incurred during the preliminary
software project stage activities and post-implementation/operation stage
activities are expensed. The capitalized costs will be amortized using the
straight-line method over an estimated useful life of two years beginning
when the web site is ready for its intended use.
[3] INCOME TAXES:
The Company accounts for income taxes using the liability method. Deferred
income taxes are measured by applying enacted statutory rates to net
operating loss carryforwards and to the differences between the financial
reporting and tax bases of assets and liabilities. Deferred tax assets are
reduced, if necessary, by a valuation allowance for any tax benefits which
are not expected to be realized.
F-7
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1998
(Unaudited with respect to September 30, 1999 and September 30, 1998)
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[4] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
[5] LOSS PER COMMON SHARE:
Basic loss per share is calculated by dividing net loss by the weighted
average number of outstanding common shares during the period. No effect
has been given to potential issuances of common stock including
outstanding options and warrants in the diluted computation as their
effect would be antidilutive.
The supplemental basic and diluted loss per share for the nine months
ended September 30, 1999 would have been $(.35) giving effect to 40,500
shares that would need to be issued to raise the net proceeds to repay the
debt on consummation of the proposed initial public offering.
[6] INTERIM FINANCIAL STATEMENTS:
The financial statements as of September 30, 1999 and for the nine-month
period ended September 30, 1999 and for the period from January 23, 1998
(inception) through September 30, 1998 and 1999 are unaudited, but in the
opinion of management the financial statements include all adjustments
consisting of normal recurring accruals necessary for a fair presentation
of the Company's financial position and results of operations. Results of
operations for interim periods are not necessarily indicative of those to
be achieved for full fiscal years.
[7] STOCK-BASED COMPENSATION:
The Company has adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). The
provisions of SFAS No. 123 allow companies to either expense the estimated
fair value of stock options or to apply the intrinsic value method set
forth in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25") but disclose the pro forma effects on net
income (loss) had the fair value of the options been expensed. The Company
has elected to apply APB 25 in accounting for its employee stock option
incentive plans.
NOTE C - COMMITMENTS AND OTHER MATTERS
[1] LEASES:
During 1999, the Company entered into operating lease agreements for a
Cyber Center Facility, and administrative offices expiring in March 2014
and March 2003, respectively. As of September 30, 1999, future monthly
minimum rental payments under these leases are as follows:
Year
Ending
September 30,
-------------
2000 $ 34,000
2001 39,000
2002 42,000
2003 27,000
2004 12,000
2005 and Thereafter 136,000
--------
$290,000
========
Rent expense amounted to approximately $4,000 for the nine month period
ended September 30, 1999.
F-8
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1998
(Unaudited with respect to September 30, 1999 and September 30, 1998)
NOTE C - COMMITMENTS AND OTHER MATTERS (CONTINUED)
[2] EMPLOYMENT AGREEMENTS:
On July 1, 1999, the Company entered into a three-year employment
agreement with its Chief Executive Officer ("CEO") who is also a principal
stockholder. The agreement is automatically renewable on an annual basis
for an additional year unless terminated. The agreement provides for an
annual base salary of $175,000 and an incentive bonus and stock options to
purchase shares of common stock to be determined by the Board of
Directors.
In November 1999, the Company entered into employment agreements
commencing on the consummation of the proposed public offering with its
President and Chief Operating Officer, Chief Financial Officer ("CFO") and
Vice President of Technology and Internet services. The agreements are for
a period of one year. The agreements provide for a total annual base
compensation aggregating $350,000 plus incentive bonuses to be determined
by the Board of Directors. Each of the officers received options to
purchase 10,000 shares of common stock at an exercise price of $10.00 per
share expiring in November 2004 and vest one year from date of grant.
[3] CONSULTING AGREEMENTS:
In April 1999, the Company entered into an agreement with a marketing firm
whereby the Company has agreed to pay a fee based upon certain benchmarks
and to grant options to purchase 2,060 shares of restricted common stock
with the opening of each Cybercenter and 412 shares with the placement and
live operation of a cyber station in a single location at an exercise
price of $0.24 per share. The agreement is in effect until terminated by
either party for cause. In connection therewith the Company will record a
charge equal to the fair value of the option on the opening of each
CyberCenter and operation of each CyberStation.
In September 1999, the Company entered into two consulting agreements each
for a period of three years. In connection with these agreements, the
Company issued 150,000 and 200,000 shares of common stock which are valued
at $2.00 per share and will be amortized over a period of three years. The
consultants are to provide consulting services with respect to marketing
and mergers and acquisitions.
[4] RELATED PARTY TRANSACTIONS:
The Company's CEO served without pay from inception through December 31,
1998. The Company, based on the employment agreement effective July 1,
1999, valued such services at $175,000 per year. In this connection, the
Company recognized a compensation expense and a credit to paid-in capital.
At September 30, 1999 the Company has accrued salary of $131,000 to the
CEO/stockholder. In addition from inception through September 30, 1999,
the CEO paid certain expenses on behalf of the Company. These amounts have
been recorded as noninterest bearing loans with no fixed date of
repayment.
NOTE D - CAPITAL DEFICIENCY
[1] STOCK SPLIT:
The Board of Directors approved a 8.24354 for one stock split effective in
July 1999. All information regarding shares of common stock have been
restated to give retroactive recognition to the stock split for all the
periods presented, including all references to number of shares and per
share amounts.
F-9
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1998
(Unaudited with respect to September 30, 1999 and September 30, 1998)
NOTE D - CAPITAL DEFICIENCY (CONTINUED)
[2] STOCK OPTIONS:
In November 1999, the Board of Directors and the stockholders of the
Company approved a Stock Option Plan (the "1999 Plan") which provides for
the granting of options to purchase up to 500,000 shares of common stock,
pursuant to which key employees, directors and consultants are eligible to
receive incentive and/or nonqualified stock options. The exercise period
and price of options granted under the 1999 Plan are determined by the
Board of Directors. The exercise price for incentive stock options must
not be less than the fair market value of the shares of common stock on
the date of the grant, except that the exercise price of options granted
to a stockholder owning more than 10% of the outstanding capital stock may
not be less than 110% of the fair value of the common stock at date of
grant.
In November 1999, the Company had granted 30,000 options to purchase
common shares. (See Note C[2])
In November 1999, the Board of Directors and stockholders approved the
1999 Executive Stock Option Plan (the "Executive Plan") which provides for
the granting of up to 500,000 options to purchase shares of common stock
to the CEO of the Company. The Company granted 250,000 options which are
exercisable immediately at an exercise price equal to the proposed public
offering price. The balance of such options are exercisable for a period
of five years at an exercise price equal to 110% of the proposed public
offering price. Such options are exercisable 125,000 options each provided
that in the year 2001 and 2002 gross sales revenue in each year reach
$17,500,500 and $25,000,000, respectively.
[3] WARRANTS:
In connection with certain units sold in a private placement (see Note E)
the Company has the following warrants outstanding at September 30, 1999:
Number
of Exercise Expiration
Shares Price Date
--------------- --------------- -----------------
162,500 $2.00 July, 2004
12,500 2.00 August, 2004
---------
175,000
=========
The above warrants are exercisable commencing January, 2000. In connection
with additional proceeds of bridge financing received in October and
November 1999, the Company issued additional warrants to purchase 350,000
shares of common stock at an exercise price of $2.00 per share expiring
five years from the issue date.
NOTE E - PRIVATE PLACEMENT
In July and September 1999, the Company sold 32.5 and 2.5 units,
respectively aggregating $350,000. Each unit consists of a $10,000 promissory
note, 1,000 shares of common stock and a warrant to purchase 5,000 shares of
common stock (see Note D[3]). The promissory notes bear interest at 10% per
annum and are due the earlier of 24 months from date of issuance or the closing
of the proposed initial public offering. The common stock and warrants have been
valued at $2.00 and $1.25, respectively by application of the Black-Scholes
model and will be accounted for as debt discount which will be amortized over
the life of the loan.
In October and November 1999, the Company sold an aggregate of 70 units on
the same terms as the units sold in July and September. These shares of common
stock and warrants have been valued at $6.00 and $4.38, respectively. Through
November 23, 1999 the Company incurred costs in connection with obtaining the
financing of approximately $232,000 which will be amortized over the life of the
loans. The effective interest rate on the notes is 115% excluding debt issuance
costs.
F-10
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1998
(Unaudited with respect to September 30, 1999 and September 30, 1998)
NOTE F - PROPOSED PUBLIC OFFERING
The Company signed a letter of intent with an underwriter with respect to
a proposed public offering of shares of common stock. There is no assurance that
such offering will be consummated. The Company anticipates incurring substantial
expenses in connection with the proposed public offering which, if the offering
is not consummated, will be charged to expense.
NOTE G - INCOME TAXES
At September 30, 1999, the Company had available federal net operating
loss carryforward to reduce future taxable income of approximately $983,000. The
net operating loss carryforwards expire in 2019. The Company's ability to
utilize its net operating loss carryforwards may be subject to annual
limitations pursuant to Section 382 of the Internal Revenue Code if future
changes in ownership occur.
At December 31, 1998 and September 30, 1999, the Company has a deferred
tax asset of approximately $83,000 and $404,000, respectively, representing the
benefits of its net operating loss carryforwards and certain start up costs
capitalized for tax purposes. The Company has not recorded a benefit from its
net operating loss carryforward because realization of the benefit is uncertain
and therefore a valuation allowance has been fully provided against the deferred
tax asset. The difference between the statutory rate of 34% and the Company's
effective tax rate of 0% is due to an increase in the valuation allowance of
$83,000 and $321,000 in 1998 and 1999.
NOTE H - NOTE PAYABLE
In November 1999, the Company issued a note payable for $400,000 to its
website developer for accounts payable. The note bears interest at 18% per
annum, payable in monthly installments of $25,000 beginning December 1, 1999,
with the outstanding balance due at the earlier of a public offering of the
Company's securities resulting in gross proceeds of at least $10,000,000 or June
1, 2000.
NOTE I - SUBSEQUENT EVENTS
In October 1999, the Company issued 175,000 shares of common stock to a
consultant to provide corporate development consulting services over a period of
two years which the company valued at $6.00 per share.
In November 1999, the Company entered into a loan agreement with a lender
pursuant to which the lender has agreed to loan advances up to $1,000,000. The
loan matures on the earlier of consummation of the proposed public offering or
April 14, 2000 and bears interest at 10% per annum. In connection with the loan
agreement the Company issued to the lender warrants to purchase 750,000 shares
of common stock at an exercise price of $2.00 per share which has been valued at
$4.90 per warrant by application of the Black-Scholes model and will be treated
as debt discount and amortized over the term of the loan. The warrants are
exercisable by the lender at any time for a period of ten years. The loan is
secured by all of the assets of the Company, including intangibles, intellectual
property and internet websites. In November 1999, the Company drew down $350,000
under the loan agreement.
In November 1999, the Company entered into a consulting agreement with an
affiliate of the lender to implement its business plans and strategies for a
period of two years with a right to terminate by either party upon written
notice as of the end of the first year. Under the agreement, the Company will
pay a fee of $6,250 per month and the consultant is to receive 150,000 shares of
common stock valued at $6.00 per share. The consultant will receive additional
shares if the offering price in the contemplated public offering is $9.00 or
less. Except for the breach of this agreement, beginning December 27, 1999 and
each of the following three months the Company has a noncumulative right to
repurchase an aggregate of 60,000 shares in four equal monthly installments of
15,000 shares of common stock for an aggregate purchase price of $8,000.
In connection with the loan agreement, the company issued warrants to
purchase 40,000 and 20,000 shares of common stock at an exercise price equal to
110% of the initial public offering price each expiring in 2004 to brokerage
firms.
F-11
<PAGE>
URBAN COOL NETWORK, INC.
(a development stage company)
Notes to Financial Statements
December 31, 1998
(Unaudited with respect to September 30, 1999 and September 30, 1998)
NOTE I - SUBSEQUENT EVENTS (continued)
In November 1999, the Company entered into a shareholders' agreement with
e-commerce Solutions, Inc., ("ESI"), a newly formed corporation and Stanley
Wolfson ("SW") to acquire 66 2/3% of the common stock of ESI. At the same time
ESI entered into a sale of technology agreement with SW. SW has transferred to
ESI a computer software platform engine in development that will attempt to
create an ability to mass produce e-commerce websites, manage and administer
said sites. Under the agreements the Company has granted warrants to SW for
purchase of up to 1,000,000 shares of common stock at an exercise price of $1.00
per share expiring on the fifth anniversary of the date of issuance. The
warrants become exercisable upon ESI achieving certain gross sales within 24
months of a capital contribution by the Company aggregating $3,000,000. The
Company will record a charge equal to the fair value of the warrants upon
achieving the sales targets. The Company has agreed to contribute $2,900,000 to
ESI upon the completion of the proposed public offering.
ESI also entered into an employment agreement with SW for a period of
three years commencing November 1, 1999 an annual salary of $175,000 per year
and plus an amount equal to 2% of the gross sales of ESI.
F-12
<PAGE>
[Photos of Web Pages]
[Lists of domain names]
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 7, 1999
URBAN COOL NETWORK, INC.
----------
2,000,000 Shares of Common Stock
----------
,1999
----------
Security Capital Trading, Inc.
We have not authorized any dealer, salesperson or other person to give any
information or represent anyting not contained in this prospectus. You must not
rely on any unauthorized information. This prospectus does not offer to sell or
buy any shares in any jurisdiction where it is unlawful. The information in this
prospectus is currently only as of the date of this prospectus.
<PAGE>
ALTERNATE PAGE OF SELLING STOCKHOLDER PROSPECTUS
SUBJECT TO COMPLETION, DATED DECEMBER 7, 1999
URBAN COOL NETWORK, INC.
----------
1,665,000 Shares of Common Stock
Selling stockholders may sell the shares of common stock using this
prospectus.
Using an alternate prospectus, Urban Cool is also offering 2,000,000
shares of common stock plus up to an additional 300,000 shares of common stock
to cover over-allotments, if any, in an underwritten public offering.
No public market currently exists for the common stock. We anticipate that
the initial public offering price of the underwritten public offering will be
between $9.00 and $11.00 per share. We have applied to list the common stock on
The American StockExchange under the symbol "UBN."
Before buying the Shares, carefully read this prospectus, especially the
risk factors beginning on page _. The purchase of our securities involves a high
degree of risk.
----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is ,1999.
<PAGE>
ALTERNATE PAGE OF SELLING STOCKHOLDER PROSPECTUS
TABLE OF CONTENTS
PROSPECTUS SUMMARY ........................................................ 3
RISK FACTORS .............................................................. 7
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS ...................... 14
USE OF PROCEEDS ........................................................... 15
DIVIDEND POLICY ........................................................... 16
DILUTION .................................................................. 17
PRIVATE FINANCINGS ........................................................ 18
CAPITALIZATION ............................................................ 20
SELECTED FINANCIAL DATA ................................................... 22
PLAN OF OPERATION ......................................................... 23
BUSINESS .................................................................. 28
MANAGEMENT ................................................................ 37
PRINCIPAL STOCKHOLDERS .................................................... 42
CERTAIN TRANSACTIONS ...................................................... 43
DESCRIPTION OF SECURITIES ................................................. 44
SHARES ELIGIBLE FOR FUTURE SALE ........................................... 47
UNDERWRITING .............................................................. 48
LEGAL MATTERS ............................................................. 50
EXPERTS ................................................................... 50
HOW TO GET MORE INFORMATION ............................................... 50
FINANCIAL STATEMENTS ...................................................... F-1
2
<PAGE>
ALTERNATE PAGE OF SELLING STOCKHOLDER PROSPECTUS
The Offering
Securities offered ................. This prospectus relates to the offering of
1,665,000 shares of common stock which are
being offered for sale by selling
stockholders including 1,335,000 shares of
common stock which we will issue to them
if they exercise the warrants currently
held by them. See "Description of
Securities" and "Selling Stockholders and
Plan of Distribution."
Common stock outstanding
after the offering ................. 5,645,000 shares; assumes that the shares
of common stock registered under the
concurrent underwritten public offering
have been sold by Urban Cool; excludes
outstanding options and warrants, and the
underwriters' over-allotment option.
Proceeds ........................... We will not receive any of the proceeds
from the sale of shares by the selling
stockholders.
Risk factors ....................... You should read the "Risk Factors" section
as well as the other cautionary statements
throughout the entire prospectus, so that
you understand the risks associated with
an investment in our securities.
Proposed American Stock Exchange
for common stock ................... UBN.
PRIVATE FINANCINGS
From July through November, 1999, we completed the sale of 105 units at a
price of $10,000 per unit in a private financing transaction. Each unit in the
private financing consisted of a promissory note in the principal amount of
$10,000, 1,000 shares of common stock and warrants to purchase 5,000 shares of
common stock. The warrants are exercisable at an exercise price of $2.00 per
share commencing January 2000 through May 2000 and expire July 2004 through
November 2004. The notes bear interest at the rate of 10% per annum and are
payable on the earlier of 24 months from the date of issuance or upon the
closing of an initial public offering of our securities. We have agreed to
register the shares of common stock and the shares of common stock underlying
the warrants issued in the private financing. These shares are included in this
registration statement of which this prospectus forms a part and are being
offered by the selling stockholders under this prospectus.
In addition, the holders of at least 50% of the shares of common stock and
the shares of common stock underlying the warrants issued in the private
financing have the right to demand the registration of their shares on one
occasion. The holders of the shares of common stock and the warrants have agreed
not to sell, transfer, assign or otherwise dispose of the shares of common
stock, the warrants and the shares of common stock underlying the warrants for a
period of 13 months from the date of this prospectus without the prior written
consent of Security Capital Trading, Inc. However, Security Capital has agreed
to release the lock-up after six months if Security Capital has not agreed
otherwise with The American Stock Exchange or any other national securities
exchange.
Security Capital acted as the placement agent for the private financing.
We paid Security Capital a fee of $105,000, which was equal to 10% of the
aggregate purchase price of the units sold, a portion of which was re-allowed to
a sub-placement agent, and a non-accountable expense allowance of $31,500 which
was equal to 3% of the aggregate purchase price of the units sold.
On November 23, 1999, we entered into a loan agreement with The Elite
Funding Group, Inc. which provides for a loan in an amount of up to $1,000,000
at an interest rate of 10% per annum, payable monthly. On the date we entered
into the agreement, we received an initial advance of $350,000 and we issued to
the lender common stock purchase warrants for the purchase of up to 750,000
shares of common stock with an exercise price of $2.00 per share. The warrants
are exercisable by the lender at any time for a period of ten years. To secure
the repayment of advances under the loan agreement, we have pledged
substantially all of our
3
<PAGE>
ALTERNATE PAGE OF SELLING STOCKHOLDER PROSPECTUS
assets to the lender. We must prepay any outstanding advances under the loan
agreement to the extent of any proceeds available to us from the sale of our
assets outside of the ordinary course of business, the issuance of any
indebtedness or the sale of any equity securities. We must pay the full amount
of all outstanding advances under the loan agreement on the earlier of April 14,
2000 or the closing of this offering. We may draw down up to $150,000 against
the balance of the loan every 30 days.
We have also granted certain registration rights to the lender for the
registration of the shares of common stock underlying the warrants, including
demand and "piggy-back" registration rights. The shares of common stock
underlying the lender's warrant are included in this registration statement of
which this prospectus forms a part, are being offered under an alternate
prospectus and are not subject to a lock-up agreement. In addition, we have
agreed to utilize our best efforts to enable the lender, or its designee, to
purchase the number of shares of common stock in this offering in an amount
equal to $1,000,000 divided by the initial public offering price.
We have also entered into a consulting agreement with RMH Consulting
Corp., an affiliate of The Elite Funding Group, a principal stockholder and our
lender. The consulting agreement is for a period of two years commencing as of
November 1, 1999 and requires us to pay the consultant a fee of $6,250 per
month. Pursuant to the consulting agreement we issued 150,000 shares of common
stock to the consultant and we will be required to issue additional shares of
common stock to the consultant if we commence an initial public offering at a
price of $9.00 or less per share, so that the total number of shares issued to
the consultant will be equal to the number of shares which could have been
purchased in the initial public offering for $1,500,000. We may repurchase an
aggregate of 60,000 shares of common stock in four monthly installments of
15,000 shares of common stock from the consultant at a cash price of $2,000 for
each installment commencing in December 1999 through March 2000. In the event
that we do not repurchase the shares of common stock in a given month, then such
repurchase right expires. However, upon the completion of the offering our right
to repurchase any shares of common stock for which our repurchase right is still
outstanding will be accelerated. We have also granted certain registration
rights to the consultant for the registration of the shares of common stock,
including demand and "piggy-back" registration rights. The shares of common
stock issued to RMH Consulting are included in this registration statement of
which this prospectus forms a part are being offered under this prospectus and
are not subject to a lock-up agreement. See "Management--Consulting Agreements"
and "Certain Transactions."
Security Capital and May Davis Group assisted us in procuring the loan
from The Elite Funding Group and as compensation for such services received
warrants to purchase 40,000 shares of common stock and 20,000 shares of common
stock, respectively.
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
The registration statement, of which this prospectus forms a part, also
relates to our registration, for the account of the selling stockholders, of:
o an aggregate of 105,000 shares of common stock and 525,000 shares of
common stock underlying warrants issued in a private placement
between July and November 1999;
o 150,000 shares of common stock issued to RMH Consulting Group, an
affiliate of The Elite Funding Group, in November 1999;
o 750,000 shares of common stock underlying warrants issued in
connection with a loan from The Elite Funding Group of an amount up
to $1,000,000 in November, 1999;
o 75,000 shares of common stock issued to a consultant in November
1999; and
o an aggregate of 60,000 shares of common stock underlying warrants
issued for assisting the company in placing the $1,000,000 loan from
The Elite Funding Group to Security Capital and May Davis Group in
November 1999. The representative is not underwriting the selling
stockholders' shares. Urban Cool will not receive any of the
proceeds from the sale of these shares.
Except for The Elite Funding Group, Inc., with respect to 750,000 shares
of common stock underlying warrants, and RMH Consulting Corp., an affiliate of
The Elite Funding Group, with respect to 150,000 shares of common stock, the
selling stockholders have agreed not to directly or indirectly offer, sell,
transfer or otherwise
4
<PAGE>
ALTERNATE PAGE OF SELLING STOCKHOLDER PROSPECTUS
encumber or dispose of any of their common stock for a period of 13 months after
the date of this prospectus. However, Security Capital has agreed to release the
lock-up after six months, with respect to 105,000 shares of common stock and
525,000 shares of common stock underlying warrants issued in a private financing
transaction in July through November 1999, if Security Capital has not agreed
otherwise with the American Stock Exchange or other national securities
exchange. See "Shares Eligible for Future Sale".
The sale of the selling stockholders' shares by the selling stockholders
may be effected from time to time in transactions, which may include block
transactions by or for the account of the selling stockholders on The American
StockExchange, in the over-the-counter market or in negotiated transactions, or
through the writing of options on the selling stockholders' shares, a
combination of these methods of sale, or otherwise. Sales may be made at fixed
prices which may be changed, at a market prices prevailing at the time of sale,
or at negotiated prices.
The selling stockholders may effect the transactions by selling their
shares directly to purchasers, through broker\dealers acting as agents for the
selling stockholders, or to broker\dealers who may purchase shares as principals
and thereafter sell the selling stockholders' shares from time to time in the
over-the-counter market, in negotiated transactions, or otherwise. These
broker\dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders and/or the purchaser
for whom which broker-dealers may act as agents or to whom they may sell as
principals or both, which compensation as to a particular broker-dealer may be
in excess of customary commissions.
The selling stockholders and broker-dealers, if any, acting in connection
with these sales might be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act. Any commission they receive and any profit
upon the resale of the securities might be deemed to be underwriting discounts
and commissions under the Securities Act.
Sales of any shares of common stock by the selling stockholders may
depress the price of the common stock in any market that may develop for the
common stock.
At the time a particular offer of the shares is made by or on behalf of a
selling stockholder, to the extent required, a prospectus supplement will be
distributed which will set forth the number of shares 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 shares purchased from
the selling stockholder and any discounts commissions, or concessions allowed or
reallowed or paid to dealers, and the proposed selling price to the public.
Under the Exchange Act and its regulations, any person engaged in the
distribution of shares of common stock, or securities convertible into common
stock, offered by this prospectus may not simultaneously engage in market-making
activities with respect to the common stock during the applicable "cooling off"
period prior to the commencement of this distribution. In addition, and without
limiting the foregoing, the selling stockholders will be subject to applicable
provisions of the Exchange Act and its rules and regulations, including without
limitation Regulation M promulgated under the Exchange Act, in connection with
transactions in the shares, which provisions may limit the timing of purchases
and sales of shares of common stock by the selling stockholders.
The following table sets forth information known to us regarding ownership
of our common stock by each of the selling stockholders as of November 30, 1999
and as adjusted to reflect the sale of shares offered by this prospectus. Other
than the following persons, none of the selling stockholders has had any
position with, held any office of, or had any other material relationship with
us during the past three years.
o The Elite Funding Group has agreed to advance us up to $1,000,000
pursuant to a loan agreement.
o RMH Consulting Corp., an affiliate of The Elite Funding Group, has
agreed to provide us with consulting services.
o Sea Breeze Associates is a consultant to the Company.
o Security Capital is the representative of the underwriters.
o May Davis Group assisted Security Capital in placing the private
financing in July through November 1999 and The Elite Funding Group
loan.
5
<PAGE>
ALTERNATE PAGE OF SELLING STOCKHOLDER PROSPECTUS
We believe, based on information supplied by the following persons, that
the persons named in this table have sole voting and investment power with
respect to all shares of common stock which they beneficially own. The last
column in this table assumes the sale of all of our shares offered in this
prospectus.
<TABLE>
<CAPTION>
Common Stock
Names of Shares Owned Offered by Shares Owned After Offering
Selling Prior to Beneficial ---------------------------
Stockholders Offering Owner Number Percent
------------ ------------- ------------- ------ -------
<S> <C> <C> <C> <C>
Jeffrey Levine .............................. 120,000(1) 120,000 0 0
Michael Kessler ............................. 30,000(2) 30,000 0 0
Jay Konesey ................................. 60,000(3) 60,000 0 0
Julius Smith Young, Jr. ..................... 90,000(4) 90,000 0 0
Gerald and Kathleen Holland ................. 30,000(5) 30,000 0 0
Charles P. Atkins ........................... 30,000(6) 30,000 0 0
Bella Figura, LLC ........................... 18,000(7) 18,000 0 0
Tom Hogan ................................... 18,000(8) 18,000 0 0
Arnold Eisenstadt ........................... 12,000(9) 12,000 0 0
Jeffrey George .............................. 12,000(10) 12,000 0 0
Henry Volquardsen ........................... 12,000(11) 12,000 0 0
Morton Mower ................................ 12,000(12) 12,000 0 0
Jeffret Hrutkay ............................. 12,000(13) 12,000 0 0
John and Sherri Kroening .................... 12,000(14) 12,000 0 0
Keith Ganzer ................................ 9,000(15) 9,000 0 0
Insurance Planing Consultants Pension Plan .. 6,000(16) 6,000 0 0
Kenneth W. Forbes ........................... 6,000(17) 6,000 0 0
International Premium Associates, Inc. ...... 6,000(18) 6,000 0 0
Fran and Alan Bader ......................... 6,000(19) 6,000 0 0
E.H. Tepe Co., Inc. ......................... 6,000(20) 6,000 0 0
Sigma Services Corp. ........................ 12,000(21) 12,000 0 0
Howard B. Culang ............................ 9,000(22) 9,000 0 0
Russell P. Truitt ........................... 6,000(23) 6,000 0 0
Rodney Grebe ................................ 6,000(24) 6,000 0 0
Michael Spindel ............................. 12,000(25) 12,000 0 0
Loni Spurkeland ............................. 30,000(26) 30,000 0 0
Lennart Dahlgren ............................ 15,000(27) 15,000 0 0
Gregory Tucker .............................. 18,000(28) 18,000 0 0
Phelps Hoyt ................................. 15,000(29) 15,000 0 0
RMH Consulting Corp. ........................ 900,000(30) 900,000 0 0
The Elite Funding Group, Inc, ............... 900,000(31) 900,000 0 0
Sea Breeze Associates, Inc. ................. 175,000 75,000 100,000 *
Security Capital Trading, Inc. .............. 40,000(32) 40,000 0 0
May Davis Group ............................. 20,000(33) 20,000 0 0
</TABLE>
- ----------
(1) Includes 100,000 shares of common stock underlying a warrant exercisable
during the period January, 2000 through July, 2004.
(2) Includes 25,000 shares of common stock underlying a warrant exercisable
during the period January, 2000 through July, 2004.
(3) Includes 50,000 shares of common stock underlying a warrant exercisable
during the period March, 2000 through September, 2004.
(4) Includes 75,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(5) Includes 25,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(6) Includes 25,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(7) Includes 15,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
6
<PAGE>
ALTERNATE PAGE OF SELLING STOCKHOLDER PROSPECTUS
(8) Includes 15,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(9) Includes 10,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(10) Includes 10,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(11) Includes 10,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(12) Includes 10,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(13) Includes 10,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(14) Includes 10,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(15) Includes 7,500 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(16) Includes 5,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(17) Includes 5,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(18) Includes 5,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(19) Includes 5,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(20) Includes 5,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(21) Includes 10,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(22) Includes 7,500 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(23) Includes 5,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(24) Includes 5,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(25) Includes 10,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(26) Includes 25,000 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(27) Includes 12,500 shares of common stock underlying a warrant exercisable
during the period May, 2000 through November, 2004.
(28) Includes 15,000 shares of common stock underlying a warrant exercisable
during the period May, 2000 through November, 2004.
(29) Includes 12,500 shares of common stock underlying a warrant exercisable
during the period April, 2000 through October, 2004.
(30) Includes 750,000 shares of common stock underlying a warrant owned by The
Elite Funding Group, Inc., an affiliate of RMH Consulting Group.
(31) Includes (i) 150,000 shares of common stock owned by RMH Consulting Corp.,
an affiliate of The Elite Funding Group and (ii) 750,000 shares of common
stock underlying a warrant exercisable commencing November 1999 through
November 2009.
(32) Represents 40,000 shares of common stock underlying warrants exercisable
during the period November, 2000 through November, 2004.
(33) Represents 20,000 shares of common stock underlying warrants exercisable
during the period November, 2000 through November, 2004.
* less than one percent.
7
<PAGE>
ALTERNATE PAGE OF SELLING STOCKHOLDER PROSPECTUS
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon
for Urban Cool by Silverman, Collura & Chernis, P.C., 381 Park Avenue South, New
York, New York 10016.
8
<PAGE>
ALTERNATE PAGE OF SELLING STOCKHOLDER PROSPECTUS
SUBJECT TO COMPLETION, DATED DECEMBER 7, 1999
URBAN COOL NETWORK, INC.
----------
1,665,000 Shares of Common Stock
----------
,1999
----------
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must not
rely on any unauthorized information. This prospectus does not offer to sell or
buy any shares in any jurisdiction where it is unlawful. The information in this
prospectus is currently only as of the date of this prospectus.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses (other than
underwriting commissions and discounts payable to the underwriters) payable by
Urban Cool in connection with the issuance and distribution of the securities
being registered. With the exception of the registration fee, the NASD filing
fee and The American Stock Exchange listing fees, all amounts shown are
estimates.
Registration fee ................................................. $ 11,101
The American Stock Exchange listing fees ......................... 32,500
NASD filing fee .................................................. 4,705
Printing and engraving expenses .................................. 125,000
Legal fees and expenses (other than Blue Sky) .................... 300,000
Accounting fees and expenses ..................................... 175,000
Blue Sky fees and expenses (including legal and filing) .......... 25,000
Transfer agent fees and expenses ................................. 5,000
Miscellaneous expenses ........................................... 71,694
--------
Total ........................................................ $750,000
Item 14. Indemnification of officers and directors.
Section 145 of the Delaware General Corporation Law ("DGCL") permits, in
general, a Delaware corporation to indemnify any person made, or threatened to
be made, a party to an action or proceeding by reason of the fact that he or she
was a director or officer of the corporation, or served another entity in any
capacity at the request of the corporation, against any judgment, fines, amounts
paid in settlement and expenses, including attorney's fees actually and
reasonably incurred as a result of such action or proceeding, or any appeal
therein, if such person acted in good faith, for a purpose he or she reasonably
believed to be in, or, in the case of service for another entity, not opposed
to, the best interests of the corporation and, in criminal actions or
proceedings, in addition had no reasonable cause to believe that his or her
conduct was unlawful. Section 145(e) of the DGCL permits the corporation to pay
in advance of a final disposition of such action or proceeding the expenses
incurred in defending such action or proceeding upon receipt of an undertaking
by or on behalf of the director or officer to repay such amount as, and to the
extent, required by statute. Section 145(f) of the DGCL provides that the
indemnification and advancement of expense provisions contained in the DGCL
shall not be deemed exclusive of any rights to which a director or officer
seeking indemnification or advancement of expenses may be entitled.
Urban Cool's certificate of incorporation provides, in general, that we
shall indemnify, to the fullest extent permitted by Section 145 of the DGCL, any
and all persons whom it shall have power to indemnify under said section from
and against any and all of the expenses, liabilities or other matters referred
to in, or covered by, said section. The certificate of incorporation also
provides that the indemnification provided for therein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to actions taken in his or her official capacity and as to
acts in another capacity while holding such office.
In accordance with that provision of the certificate of incorporation,
Urban Cool shall indemnify any officer or director (including officers and
directors serving another corporation, partnership, joint venture, trust, or
other enterprise in any capacity at Urban Cool's request) made, or threatened to
be made, a party to an action or proceeding (whether civil, criminal,
administrative or investigative) by reason of the fact that he or she was
serving in any of those capacities against judgments, fines, amounts paid in
settlement and reasonable expenses (including attorney's fees) incurred as a
result of such action or proceeding. Indemnification would not be
II-1
<PAGE>
available if a judgment or other final adjudication adverse to such director or
officer establishes that (i) his or her acts were committed in bad faith or were
the result of active and deliberate dishonesty or (ii) he or she personally
gained in fact a financial profit or other advantage to which he or she was not
legally entitled.
The Form of Underwriting Agreement filed as Exhibit 1.1 hereto also
contains, among other things, provisions whereby the underwriters agree to
indemnify Urban Cool, each officer and director of Urban Cool who has signed the
registration statement, and each person who controls Urban Cool within the
meaning of Section 15 of the Securities Act, against any losses, liabilities,
claims or damages arising out of alleged untrue statements or alleged omissions
of material facts with respect to information furnished to Urban Cool by the
underwriters for use in the registration statement or prospectus.
The Underwriting Agreement also contains provisions whereby Urban Cool
agrees to indemnify the underwriters, each officer and director of the
underwriters, and each person who controls the underwriters within the meaning
of Section 15 of the Securities Act, against any losses, liabilities, claims or
damages arising out of alleged untrue statements or alleged omissions of
material facts contained in the registration statement or prospectus.
Urban Cool has been advised that it is the position of the Commission that
insofar as the indemnification provisions referenced above may be invoked to
disclaim liability for damages arising under the Securities Act, these
provisions are against public policy as expressed in the Securities Act and are,
therefore, unenforceable.
Item 26. Recent Sales of Unregistered Securities.
Unless otherwise noted, the sale of the securities were exempt from
registration under the Securities Act under Section 4(2) and/or Regulation D
promulgated thereunder. All such sales being made to sophisticated investors
and/or accredited investors who had access to information about Urban Cool and
were able to bear the risk of loss of their investment.
(1) On January 23, 1998, Jacob R. Miles was issued 2,040,276 shares of
common stock upon our formation.
(2) On November 4, 1998, Rosalind Bell was issued 4,122 shares of common
stock for a purchase price of $1,000.
(3) On November 4, 1998, Bettye Bell was issued 412 shares of common
stock for an aggregate purchase price of $100.
(4) On November 4, 1998 Rosalind Bell was issued 16,487 shares of common
stock for services rendered.
(5) On November 30, 1998, Omni Source Events was issued 8,244 shares of
common stock for an aggregate purchase price of $2,000.
(6) On November 30, 1998, Crystal R. Smith was issued 412 shares of
common stock for an aggregate purchase price of $100.
(7) On November 30, 1998, Jennifer L. Smith was issued 412 shares of
common stock for an aggregate purchase price of $100.
(8) On December 7, 1998, Robert A. and Jacqueline M. Smith were issued
1,649 shares of common stock for an aggregate purchase price of
$400.
(9) On December 7, 1998, Karen Miles was issued 1,649 shares of common
stock for an aggregate purchase price of $400.
(10) On December 7, 1998, Venture Partners was issued 4,122 shares of
common stock for an aggregate purchase price of $1,000.
(11) On December 7, 1998, James Hurley, Jr. was issued 20,609 shares of
common stock for an aggregate purchase price of $5,000.
II-2
<PAGE>
(12) On November 4, 1998 Jacob R. Miles was issued 20,609 shares of
common stock for an aggregate purchase price of $5,000.
(13) On March 3, 1999, James and Gloria Austin were issued 164,871 shares
of common stock for an aggregate purchase price of $40,000.
(14) On March 1, 1999, Geraldine Miles was issued 1,649 shares of common
stock for an aggregate purchase price of $400.
(15) On December 7, 1998, Eva G. Miles was issued 824 shares of common
stock for an aggregate purchase price of $200.
(16) On March 3, 1999, Gary Fargusson was issued 82,435 shares of common
stock for an aggregate purchase price of $20,000.
(17) On March 3, 1999, the Brannon-Cottrell Group was issued 61,826
shares of common stock for an aggregate purchase price of $15,000.
(18) On March 9, 1999, Black Urban Investors of Arlington were issued
163,840 shares of common stock for an aggregate purchase price of
$39,750.
(19) On March 9, 1999, Teddy Bosey, Jr. was issued 41,218 shares of
common stock for an aggregate purchase price of $10,000.
(20) On March 10, 1999, Monte E. Ford was issued 41,218 shares of common
stock for an aggregate purchase price of $10,000.
(21) On March 10, 1999, Paul R. Martinez was issued 41,218 shares of
common stock for an aggregate purchase price of $10,000.
(22) On March 4, 1999, Larry D. Whiting was issued 41,218 shares of
common stock for an aggregate purchase price of $10,000.
(23) On August 3, 1999, Debra Perk Haynes and Frederick D. Haynes were
issued 8,244 shares of common stock for an aggregate purchase price
of $2,000.
(24) On July 1, 1999, Bertram Denson was issued 41,218 shares of common
stock for an aggregate purchase price of $10,000.
(25) On July 1, 1999, H. Ron and Rita White were issued 41,218 shares of
common stock for an aggregate purchase price of $10,000.
(26) On September 17, 1999, Upway Enterprises, Inc. was issued an
aggregate of 150,000 shares of common stock for consulting services.
(27) On September 19, 1999, Surrey Associates, Inc. was issued an
aggregate of 200,000 shares of common stock for consulting services.
(28) On October 31, 1999, Sea Breeze Associates, Inc. was issued an
aggregate of 175,000 shares of common stock for consulting services.
(29) As of November 1, 1999, RMH Consulting Corp. was issued an aggregate
of 150,000 shares of common stock for consulting services.
(30) In November, 1999, Stanley Wolfson was issued warrants to purchase
up to 1,000,000 shares of common stock in connection with the
acquisition of e-commerce Solutions, Inc.
(31) On November 23, 1999 we issued warrants to purchase 750,000 shares
of common stock to the Elite Funding Group, Inc. in connection with
a loan in the amount up to $1,000,000.
(32) From July through November 1999, in connection with a private
financing transaction, the Company sold 105 units at a price of
$10,000 per unit to the individuals listed below. Each unit in the
private financing consisted of a promissory note in the amount of
$10,000, 1,000 shares of common stock and warrants to purchase 5,000
shares of common stock. The warrants are exercisable at an exercise
II-3
<PAGE>
price of $2.00 per share commencing January, 2000 through November,
2004. The notes bear interest at the rate of 10% per annum and are
payable on the earlier of 24 months from the date of issuance or
upon the closing of this offering.
Security Capital acted as the placement agent for the private
financing. We paid Security Capital a fee of $105,000, which was
equal to 10% of the aggregate purchase price of the units sold, a
portion of which was re-allowed to other registered broker-dealers,
and a non-accountable expense allowance of $31,500 which was equal
to 3% of the aggregate purchase price of the units sold.
Number of
Date of Closing Name Units
- --------------- ---- ---------
July 21, 1999 Jeffrey E. Levine 20
July 21, 1999 Michael Kessler 5
July 21, 1999 Jay Konesey 10
October 1, 1999 Julius Smith Young, Jr. 15
October 5, 1999 Gerald Holland, Kathleen Holland, JTWROS 5
October 29, 1999 Charles P. Atkins 5
October 29, 1999 Bella Figura, LLC 3
October 29, 1999 Tom Hogan 3
October 29, 1999 Arnold Eisenstadt 2
October 29, 1999 Jeffrey George 2
October 29, 1999 Henry Volquardsen 2
October 29, 1999 Morton Mower 2
October 29, 1999 Jeffrey Hrutkay 2
October 29, 1999 John C. Kroening and Sherri L. Kroening 2
October 29, 1999 Keith M. Ganzer 1.5
October 29, 1999 Insurance Planning Consultants Pension Plan 1
October 29, 1999 Kenneth W. Forbes 1
October 29, 1999 International Premium Associates, Inc. 1
October 29, 1999 Fran Bader & Allan Bader 1
October 29, 1999 E.H. Tepe Co., Inc. 1
November 16, 1999 Sigma Services Corp. 2
November 16, 1999 Howard B. Culang 1.5
November 16, 1999 Russell P. Truitt 1
November 16, 1999 Rodney Grebe 1
November 16, 1999 Michael Spindel 2
November 16, 1999 Loni Z. Spurkeland 5
November 16, 1999 Lennart Dahlgren 2.5
November 23, 1999 Greg Tucker 3
November 23, 1999 Phelps Hoyt 2.5
Total 105
II-4
<PAGE>
Item 27. Exhibits.
The following documents (unless indicated) are filed herewith and made a
part of this Registration Statement.
Number Description of Exhibit
- ------ ----------------------
1.1 Form of Underwriting Agreement.(1)
3.1 Certificate of Incorporation.
3.2 By-laws.
4.1 Specimen Certificate of the Common Stock.(1)
4.2 Form of Representative's Warrants.(1)
5.1 Opinion of Silverman, Collura & Chernis, P.C., counsel to Urban Cool.(1)
10.1 Employment agreement dated November 22, 1999 between Urban Cool Network,
Inc. and Jacob R. Miles, III.
10.2 Employment agreement dated November 22, 1999 between Urban Cool Network,
Inc. and Barry Levine.
10.3 Employment agreement dated November 22, 1999 between Urban Cool Network,
Inc. and Terrence B. Reddy.
10.4 Employment agreement dated November 22, 1999 between Urban Cool Network,
Inc. and Anthony Winston.
10.5 Executive Stock Option Plan.
10.6 1999 Stock Option Plan.
10.7 Common Stock Purchase Warrant Agreement dated November 21, 1999 between
Stanley Wolfson and Urban Cool Network, Inc.
10.8 Shareholders' Agreement, dated November 21, 1999, between Urban Cool
Network, Inc. and Stanley Wolfson.
10.9 Sale of Technology Agreement, dated November 21, 1999, between
e-commerce Solutions, Inc. and Stanley Wolfson.
10.10 Employment agreement, dated November 21, 1999, between e-commerce
Solutions, Inc. and Stanley Wolfson.
10.11 Promissory Note, dated November 18, 1999, between Urban Cool Network,
Inc. and Analysts International, Inc.
10.12 Loan Agreement, dated November 23, 1999, between Urban Cool Network,
Inc. and The Elite Funding Group, Inc.
10.13 Subscription Agreement and Investment Representation, dated November 23,
1999, between Urban Cool Network, Inc. and The Elite Funding Group, Inc.
10.14 Common Stock Purchase Warrant Agreement dated November 23, 1999 between
The Elite Funding Group, Inc. and Urban Cool Network, Inc.
10.15 Security Agreement, dated November 23, 1999, between The Elite Funding
Group, Inc. and Urban Cool Network, Inc.
10.16 Subscription Agreement and Investment Representation, dated as of
November 1, 1999, between Urban Cool Network, Inc. and RMH Consulting
Group.
10.17 Consulting agreement dated as of November 1, 1999 between Urban Cool
Network, Inc. and RMH Consulting Corp.
10.18 Consulting agreement dated September 17, 1999 between Urban Cool
Network, Inc. and Upway Enterprises.
10.19 Consulting agreement dated September 19, 1999 between Urban Cool
Network, Inc. and Surrey Associates, Inc.
II-5
<PAGE>
10.20 Consulting agreement dated October 31, 1999 between Urban Cool Network,
Inc. and Sea Breeze Associates, Inc.
10.21 Letter Agreement between Urban Cool Network, Inc. and The Elite Funding
Group, Inc.
10.22 Letter of Intent, dated October 12, 1999, by Bloomberg, L.P. to Urban
Cool Network, Inc.
10.23 Network Access Agreement dated August 16, 1998 between Urban Cool
Network, Inc. and ConnectTen LLC.
10.24 Form of Common Stock Purchase Warrant Agreement between Urban Cool
Network, Inc. and the investors in the private financing transaction.
10.25 Form of Promissory Note between Urban Cool Network, Inc. and the
investors in the private financing transaction.
10.26 Form of Subscription Agreement and Investment Representation between
Urban Cool Network, Inc. and the investors in the private financing
transaction.
10.27 Sublease Agreement, dated August 13, 1999, between Urban Cool Network,
Inc. and Focus Communications, Inc.
10.28 Sublease Agreement and Rider, dated February 8, 1999, between Urban Cool
Network, Inc. and Ecumenical Community Development Organization.
10.29 Deferred Compensation Agreement dated November 22, 1999 between Urban
Cool Network, Inc. and Jacob R. Miles III.
21.1 List of Subsidiaries.
23.1 Consent of Richard A. Eisner & Company, LLP.
23.2 Consent of Silverman, Collura & Chernis, P.C. (contained in Exhibit
5.1).
24.1 Power of Attorney (included on the signature page of this Registration
Statement).
27.1 Financial Data Schedule
99.1 Consent to Identification as Director Nominee of Sir Brian Wolfson.
- ----------
(1) To be filed by amendment
Item 28. Undertakings.
1. Urban Cool hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment(s) to this Registration Statement:
(1) To include any prospectus required by Section 10(a)(3) of
the Securities Act;
(2) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the Registration Statement; and
(3) To include any additional or changed 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;
(b) 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; and
(c) To provide to the underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to
each purchaser.
(d) That, for the purpose of determining any liability under the
Securities Act, 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.
2. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of Urban
Cool pursuant to the foregoing provisions, or otherwise, Urban Cool
II-6
<PAGE>
has been advised that in the opinion of 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 Urban Cool of expenses incurred or paid
by a director, officer or controlling person of Urban Cool in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, Urban
Cool 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 of 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.
3. If Urban Cool relies on Rule 430A under the Securities Act, Urban Cool
will:
(a) For determining any liability under the Securities Act, treat
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by Urban Cool under Rule 424(b)(1), or (4), or 497(h)
under the Securities Act as part of this Registration Statement as of the
time the Commission declared it effective; and
(b) 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 treat the offering of such securities at that time as the
initial bona fide offering of those securities.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing this Form S-1 and has authorized this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Dallas, Texas on December 3, 1999.
URBAN COOL NETWORK, INC.
By: /s/ Jacob R. Miles, III
--------------------------------------
Jacob R. Miles, III
Chairman and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints JACOB R. MILES, III his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or either of them or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Jacob R. Miles, III Chairman, Chief Executive Officer December 3, 1999
- ------------------------ and Director
Jacob R. Miles, III
/s/ Terrence B. Reddy President, Chief Operating Officer December 3, 1999
- ------------------------ and Director
Terrence B. Reddy
/s/ Barry M. Levine Chief Financial Officer and December 3, 1999
- ------------------------ Treasurer
Barry M. Levine (principal accounting officer)
/s/ Rosalind Bell Director December 3, 1999
- ------------------------
Rosalind Bell
/s/ Rex Cumming Director December 3, 1999
- ------------------------
Rex Cumming
II-8
<PAGE>
EXHIBIT INDEX
Number Description of Exhibit
- ------ ----------------------
1.1 Form of Underwriting Agreement.(1)
3.1 Certificate of Incorporation.
3.2 By-laws.
4.1 Specimen Certificate of the Common Stock.(1)
4.2 Form of Representative's Warrants.(1)
5.1 Opinion of Silverman, Collura & Chernis, P.C., counsel to Urban Cool.(1)
10.1 Employment agreement dated November 22, 1999 between Urban Cool Network,
Inc. and Jacob R. Miles, III.
10.2 Employment agreement dated November 22, 1999 between Urban Cool Network,
Inc. and Barry Levine.
10.3 Employment agreement dated November 22, 1999 between Urban Cool Network,
Inc. and Terrence B. Reddy.
10.4 Employment agreement dated November 22, 1999 between Urban Cool Network,
Inc. and Anthony Winston.
10.5 Executive Stock Option Plan.
10.6 1999 Stock Option Plan.
10.7 Common Stock Purchase Warrant Agreement dated November 21, 1999 between
Stanley Wolfson and Urban Cool Network, Inc.
10.8 Shareholders' Agreement, dated November 21, 1999, between Urban Cool
Network, Inc. and Stanley Wolfson.
10.9 Sale of Technology Agreement, dated November 21, 1999, between
e-commerce Solutions, Inc. and Stanley Wolfson.
10.10 Employment agreement, dated November 21, 1999, between e-commerce
Solutions, Inc. and Stanley Wolfson.
10.11 Promissory Note, dated November 18, 1999, between Urban Cool Network,
Inc. and Analysts International, Inc.
10.12 Loan Agreement, dated November 23, 1999, between Urban Cool Network,
Inc. and The Elite Funding Group, Inc.
10.13 Subscription Agreement and Investment Representation, dated November 23,
1999, between Urban Cool Network, Inc. and The Elite Funding Group, Inc.
10.14 Common Stock Purchase Warrant Agreement dated November 23, 1999 between
The Elite Funding Group, Inc. and Urban Cool Network, Inc.
10.15 Security Agreement, dated November 23, 1999, between The Elite Funding
Group, Inc. and Urban Cool Network, Inc.
10.16 Subscription Agreement and Investment Representation, dated as of
November 1, 1999, between Urban Cool Network, Inc. and RMH Consulting
Group.
10.17 Consulting agreement dated as of November 1, 1999 between Urban Cool
Network, Inc. and RMH Consulting Corp.
10.18 Consulting agreement dated September 17, 1999 between Urban Cool
Network, Inc. and Upway Enterprises.
10.19 Consulting agreement dated September 19, 1999 between Urban Cool
Network, Inc. and Surrey Associates, Inc.
10.20 Consulting agreement dated October 31, 1999 between Urban Cool Network,
Inc. and Sea Breeze Associates, Inc.
<PAGE>
Number Description of Exhibit
- ------ ----------------------
10.21 Letter Agreement between Urban Cool Network, Inc. and The Elite Funding
Group, Inc.
10.22 Letter of Intent, dated October 12, 1999, by Bloomberg, L.P. to Urban
Cool Network, Inc.
10.23 Network Access Agreement dated August 16, 1998 between Urban Cool
Network, Inc. and ConnectTen LLC.
10.24 Form of Common Stock Purchase Warrant Agreement between Urban Cool
Network, Inc. and the investors in the private financing transaction.
10.25 Form of Promissory Note between Urban Cool Network, Inc. and the
investors in the private financing transaction.
10.26 Form of Subscription Agreement and Investment Representation between
Urban Cool Network, Inc. and the investors in the private financing
transaction.
10.27 Sublease Agreement, dated August 13, 1999, between Urban Cool Network,
Inc. and Focus Communications, Inc.
10.28 Sublease Agreement and Rider, dated February 8, 1999, between Urban Cool
Network, Inc. and Ecumenical Community Development Organization.
10.29 Deferred Compensation Agreement dated November 22, 1999 between Urban
Cool Network, Inc. and Jacob R. Miles III.
21.1 List of Subsidiaries.
23.1 Consent of Richard A. Eisner & Company, LLP.
23.2 Consent of Silverman, Collura & Chernis, P.C. (contained in Exhibit
5.1).
24.1 Power of Attorney (included on the signature page of this Registration
Statement).
27.1 Financial Data Schedule
99.1 Consent to Identification as Director Nominee of Sir Brian Wolfson.
- ----------
(1) To be filed by amendment
----------------------------------------
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
URBAN COOL NETWORK, INC.
----------------------------------------
Pursuant to the provisions of Sections 242 and 245 of the General Corporation
Law of the State of Delaware, the undersigned hereby certifies as follows:
1. The name of the corporation is URBAN COOL NETWORK, INC. (the
"Corporation").
2. The Certificate of Incorporation of the Corporation was filed in the
office of the Secretary of State on January 28, 1998 under the original
name of Urban Cool Network Inc.
3. The Certificate of Incorporation, as heretofore amended, is hereby amended
or changed as follows to effect one or more of the amendments or changes
authorized by the Delaware General Corporation Law:
(a) To delete Articles ONE through THIRTEEN in their entirety and to
amend the Certificate of Incorporation as set forth below.
(b) To change Article FOURTH: to change 3,000,000 authorized shares of
common stock, par value per share (the "Common Stock"), 345,725 of
which are issued into 2,850,000 issued shares, par value $.01 per
share, said change to be at the rate of 8.24354 shares of Common
Stock, par value $.01 per share, for each share of Common Stock
outstanding, to increase the number of shares authorized of Common
Stock from 3,000,000 to 30,000,000, par value $.01 per share, and to
increase the number of authorized shares of Preferred Stock from
100,000 to 3,000,000, par value $.01 per share.
4. The restatement of the Certificate of Incorporation of the Corporation
herein certified was duly adopted, pursuant to the provisions of Sections
242 and 245 of the General Corporation Law of the State of Delaware and
has been approved pursuant to the provisions of Section 228 of the General
Corporation Law of the State of Delaware, notice having been given as
provided in said Section.
5. The text of the Certificate of Incorporation of the Corporation is hereby
restated as further amended or changed herein to read in full as follows:
<PAGE>
FIRST: The name of the corporation is Urban Cool Network, Inc. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the State of
Delaware is 9 East Loockerman Street, City of Dover, County of Kent, 19901, and
its registered agent at such address is National Registered Agents, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activities for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is thirty three million (33,000,000) which shall consist
of (i) thirty million (30,000,000) shares of common stock, $.01 par value per
share (the ACommon Stock), and (ii) three million (3,000,000) shares of
preferred stock, $.01 par value per share (the "Preferred Stock").
PART A
COMMON STOCK
1. Each share of Common Stock issued and outstanding shall be identical in all
respects one with the other, and no dividends shall be paid on any shares of
Common Stock unless the same dividend is paid on all shares of Common Stock
outstanding at the time of such payment.
2. Except for and subject to those rights expressly granted to the holders of
the Preferred Stock, or except as may be provided by the General Corporation Law
of the State of Delaware, the holders of Common Stock shall have exclusively all
other rights of stockholders including, but not by way of limitation, (i) the
right to receive dividends, when, as and if declared by the Board of Directors
out of assets lawfully available therefor, and (ii) in the event of any
distribution of assets upon liquidation, dissolution or winding up of the
Corporation or otherwise, the right to receive ratably and equally all the
assets and funds of the Corporation remaining after payment to the holders of
the Preferred Stock of the specific amounts which they are entitled to receive
upon such liquidation, dissolution or winding up of the Corporation as herein
provided.
3. Each holder of shares of Common Stock shall be entitled to one vote for each
share of such Common Stock held by such holder, and voting power with respect to
all classes of securities of the Corporation shall be vested solely in the
Common Stock, other than as specifically provided in the Corporation's
Certificate of Incorporation, as it may be amended, or any resolutions adopted
by the Board of Directors pursuant thereto, with respect to the Preferred Stock.
PART B
PREFERRED STOCK
Authority is hereby vested in the Board of Directors of the Corporation to
provide for the issuance of Preferred Stock and in connection therewith to fix
by resolution providing for the issue of such series, the number of shares to be
included and such of the preferences and relative participating, optional or
other special rights and limitations of such series, including, without
limitation, rights of redemption or
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conversion into Common Stock, to the fullest extent now or hereafter permitted
by the General Corporation Law of the State of Delaware.
Without limiting the generality of the foregoing paragraph, the authority
of the Board of Directors with respect to each series of Preferred Stock shall
include, without limitation, the determination of any of the following matters:
A. the number of shares constituting such series and the designation
thereof to distinguish the shares of such series from the shares of all
other series;
B. the rights of holders of shares of such series to receive dividends
thereon and the dividend rates, the conditions and time of payment of
dividends, the extent to which dividends are payable in preference to, or
in any other relation to, dividends payable on any other class or series
of stock, and whether such dividends shall be cumulative or noncumulative;
C. the terms and provisions governing the redemption of shares of such
series, if such shares are to be redeemable;
D. the terms and provisions governing the operation of retirement or
sinking funds, if any;
E. the voting power of such series, whether full, limited or none;
F. the rights of holders of shares of such series upon the liquidation,
dissolution or winding up of, or upon distribution of the assets of, the
Corporation;
G. the rights, if any, of holders of shares of such series to convert such
shares into, or to exchange such shares for, any other class of stock, or
of any series thereof, and the prices or rates for such conversions or
exchanges, and any adjustments thereto; and
H. any other preferences and relative, participating, optional or other
special rights, qualifications, limitations or restrictions of such
series.
The shares of each series of Preferred Stock may vary from the shares of
any other series of Preferred Stock as to any of such matters.
FIFTH: No owner or holder of a security of the Corporation shall be
entitled as a matter of right to purchase or receive any security of the
Corporation now or hereafter authorized except as and to the extent that the
Board of Directors in its absolute discretion may determine. Any security of the
Corporation may be disposed of by the Corporation to such persons and upon such
terms as may be specified by the Board of Directors or as may be specified
pursuant to authority granted by the Board of Directors. The word "security"
means a share of any class, any evidence of indebtedness, any right to purchase
or receive any such share or evidence of indebtedness, or any instrument
convertible into or containing a right to purchase or receive any such share or
evidence of indebtedness, or, without limiting the generality of the foregoing,
any instrument commonly known at the time as a "security".
SIXTH: In furtherance and not in limitation of the power conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend or
repeal the By-Laws of the Corporation,
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provided that any By-Laws made, altered, amended or repealed by the Board of
Directors may be altered, amended or repealed, and any By-Laws may be made, by
the stockholders of the Corporation.
SEVENTH: A director of the Corporation shall not in the absence of fraud
be disqualified by his office from dealing or contracting with the Corporation
either as a vendor, purchaser or otherwise nor in the absence of fraud shall a
director of the Corporation be liable to account to the Corporation for any
profit realized by him from or through any transaction or contract of the
Corporation by reason of the fact that he, or any firm of which he is a member
or any corporation of which he is an officer, director or stockholder, was
interested in such transaction or contract if such transaction or contract has
been authorized, approved or ratified in the manner provided in the General
Corporation Law of Delaware for authorization, approval or ratification of
transactions or contracts between the Corporation and one or more of its
directors or officers, or between the Corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest.
EIGHTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of ss.291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of ss.279 of Title 8 of the Delaware Code order
a meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this Corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
NINTH: The Corporation shall, to the fullest extent permitted by Section
145 of the Delaware General Corporation Law, as amended from time to time and
supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expense,
liabilities, or other matters referred to in or covered by said sections, and
the indemnification provided for herein shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any By-Law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his or her official capacity and as to acts in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
TENTH: The directors of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
any improper personal benefit. Any repeal or modification of the foregoing
sentence by
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the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification with respect to acts or omissions occurring prior to such repeal
or modification.
ELEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned has subscribed this document on the
date set forth below and does hereby affirm, under the penalties of perjury,
that the statements contained therein have been examined by the undersigned and
are true and correct.
Date: July ___, 1999
URBAN COOL NETWORK, INC.
----------------------------------------
Name: Jacob R. Miles, III
Title: President
Exhibit 3.2
BY-LAWS
OF
URBAN COOL NETWORK INC.
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of the stockholders of the
Corporation shall be held on such date, at such time and at such place within or
without the State of Delaware as may be designated by the Board of Directors,
for the purpose of electing Directors and for the transaction of such other
business as may be properly brought before the meeting.
SECTION 2. Special Meetings. Except as otherwise provided in the
Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors or the President
and shall be called by the President or the Secretary at the request in writing
of stockholders holding together at least twenty-five percent (25%) of the
number of shares of stock outstanding and entitled to vote at such meeting. Any
special meeting of the stockholders shall be held on such date, at such time and
at such place within or without the State of Delaware as the Board of Directors
or the officer calling the meeting may designate. At a special meeting of the
stockholders, no business shall be transacted and no corporate action shall be
taken other than that stated in the notice of the meeting unless all of the
stockholders are present in person or by proxy, in which case any and all
business may be transacted at the meeting even though the meeting is held
without notice.
SECTION 3. Notice of Meetings. Except as otherwise provided in these
By-Laws or by law, a written notice of each meeting of the stockholders shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of the Corporation entitled to vote at such
meeting at his address as it appears on the records of the Corporation. The
notice shall state the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
SECTION 4. Quorum. At any meeting of the stockholders, the holders of a
majority in number of the total outstanding shares of stock of the Corporation
entitled to vote at such meeting, present in person or represented by proxy,
shall constitute a quorum of the stockholders for all purposes, unless the
representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these By-Laws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for purposes of such class vote unless the representation of a larger number of
shares of such class shall be required by law, by the Certificate
<PAGE>
of Incorporation or by these By-Laws.
SECTION 5. Adjourned Meetings. Whether or not a quorum shall be present in
person or represented at any meeting of the stockholders, the holders of a
majority in number of the shares of stock of the Corporation present in person
or represented by proxy and entitled to vote at such meeting may adjourn from
time to time; provided, however, that if the holders of any class of stock of
the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the stockholders, or the holders of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been transacted by them at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. Organization. The President or, in his absence, a Vice
President shall call all meetings of the stockholders to order, and shall act as
Chairman of such meetings. In the absence of the President and all of the Vice
Presidents, the holders of a majority in number of the shares of stock of the
Corporation present in person or represented by proxy and entitled to vote at
such meeting shall elect a Chairman.
The Secretary of the Corporation shall act as Secretary of all meetings of
the stockholders; but in the absence of the Secretary, the Chairman may appoint
any person to act as Secretary of the meeting. It shall be the duty of the
Secretary to prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held, for the ten (10) days
next preceding the meeting, to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours, and shall be
produced and kept at the time and place of the meeting during the whole time
thereof and subject to the inspection of any stockholder who may be present.
SECTION 7. Voting. Except as otherwise provided in the Certificate of
Incorporation or by law, each stockholder shall be entitled to one vote for each
share of the capital stock of the Corporation registered in the name of such
stockholder upon the books of the Corporation. Each stockholder entitled to vote
at a meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or persons to
act for him by proxy, but no such proxy shall be voted or acted upon after three
(3) years from its date, unless the proxy provides for a longer period. When
directed by the presiding officer or upon the demand of
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any stockholder, the vote upon any matter before a meeting of stockholders shall
be by ballot. Except as otherwise provided by law or by the Certificate of
Incorporation, Directors shall be elected by a plurality of the votes cast at a
meeting of stockholders by the stockholders entitled to vote in the election
and, whenever any corporate action, other than the election of Directors is to
be taken, it shall be authorized by a majority of the votes cast at a meeting of
stockholders by the stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
SECTION 8. Inspectors. When required by law or directed by the presiding
officer or upon the demand of any stockholder entitled to vote, but not
otherwise, the polls shall be opened and closed, the proxies and ballots shall
be received and taken in charge, and all questions touching the qualification of
voters, the validity of proxies and the acceptance or rejection of votes shall
be decided at any meeting of the stockholders by two (2) or more Inspectors who
may be appointed by the Board of Directors before the meeting, or if not so
appointed, shall be appointed by the presiding officer at the meeting. If any
person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
SECTION 9. Consent of Stockholders in Lieu of Meeting. Unless otherwise
provided in the Certificate of Incorporation, any action required to be taken or
which may be taken at any annual or special meeting of the stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of any such corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE II
Board of Directors
SECTION 1. Number and Term of Office. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of Directors,
none of whom need be stockholders of the Corporation. The number of Directors
constituting the Board of Directors shall be fixed from time to time by
resolution passed by a majority of the Board of Directors. The Directors shall,
except as hereinafter otherwise provided for filling vacancies, be elected at
the annual meeting of stockholders, and shall hold office until their respective
successors are elected and qualified or until their earlier resignation or
removal.
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SECTION 2. Removal, Vacancies and Additional Directors. The stockholders
may, at any special meeting the notice of which shall state that it is called
for that purpose, remove, with or without cause, any Director and fill the
vacancy; provided that whenever any Director shall have been elected by the
holders of any class of stock of the Corporation voting separately as a class
under the provisions of the Certificate of Incorporation, such Director may be
removed and the vacancy filled only by the holders of that class of stock voting
separately as a class. Vacancies caused by any such removal and not filled by
the stockholders at the meeting at which such removal shall have been made, or
any vacancy caused by the death or resignation of any Director or for any other
reason, and any newly created directorship resulting from any increase in the
authorized number of Directors, may be filled by the affirmative vote of a
majority of the Directors then in office, although less than a quorum, and any
Director so elected to fill, any such vacancy or newly created directorship
shall hold office until his successor is elected and qualified or until his
earlier resignation or removal.
When one or more Directors shall resign effective at a future date, a
majority of the Directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
Director so chosen shall hold office as herein provided in connection with the
filling of other vacancies.
SECTION 3. Place of Meeting. The Board of Directors may hold its meetings
in such place or places in the State of Delaware or outside the State of
Delaware as the Board from time to time shall determine.
SECTION 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times and places as the Board from time to time by
resolution shall determine. No notice shall be required for any regular meeting
of the Board of Directors; but a copy of every resolution fixing or changing the
time or place of regular meetings shall be mailed to every Director at least
five (5) days before the first meeting held in pursuance thereof.
SECTION 5. Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by direction of the President, or by any two (2)
of the Directors then in office.
Notice of the day, hour and place of holding of each special meeting shall
be given by mailing the same at least two (2) days before the meeting or by
causing the same to be transmitted by telecopy, cable or wireless at least one
day before the meeting to each Director. Unless otherwise indicated in the
notice thereof, any and all business other than an amendment of these By-Laws
may be transacted at any special meeting, and an amendment of these By-Laws may
be acted upon if the notice of the meeting shall have stated that the amendment
of these By-Laws is one of the purposes of the meeting. At any meeting at which
every Director shall be present, even though without any notice, any business
may be transacted, including the amendment of these By-Laws.
SECTION 6. Quorum. Subject to the provisions of Section 2 of this Article
II, a majority of the members of the Board of Directors in office (but in no
case less than one-third of the total
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number of Directors nor less than two (2) Directors) shall constitute a quorum
for the transaction of business and the vote of the majority of the Directors
present at any meeting of the Board of Directors at which a quorum is present
shall be the act of the Board of Directors. If at any meeting of the Board there
is less than a quorum present, a majority of those present may adjourn the
meeting from time to time.
SECTION 7. Organization. The President shall preside at all meetings of
the Board of Directors. In the absence of the President, a Chairman shall be
elected from the Directors present. The Secretary of the Corporation shall act
as Secretary of all meetings of the Directors; but in the absence of the
Secretary, the Chairman may appoint any person to act as Secretary of the
meeting.
SECTION 8. Committees. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the Directors of the Corporation. The Board may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided by resolution
passed by a majority of the whole Board, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and the affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers that may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending these By-Laws; and unless such resolution, these By-laws, or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 9. Conference Telephone Meetings. Unless otherwise restricted by
the Certificate of Incorporation or by these By-Laws, the members of the Board
of Directors or any committee designated by the Board, may participate in a
meeting of the Board or such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
shall constitute presence in person at such meeting.
SECTION 10. Consent of Directors or Committee in Lieu of Meeting. Unless
otherwise restricted by the Certificate of Incorporation or by these By-Laws,
any action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
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writing and the writing or writings are filed with the minutes of proceedings of
the Board or committee, as the case may be.
ARTICLE III
Officers
SECTION 1. Officers. The officers of the Corporation may be a President,
one or more Vice Presidents, a Secretary and a Treasurer, and such additional
officers, if any, as shall be elected by the Board of Directors pursuant to the
provisions of Section 6 of this Article III. The President, one or more Vice
Presidents, the Secretary and the Treasurer shall be elected by the Board of
Directors at its first meeting after each annual meeting of the stockholders.
The failure to hold such election shall not of itself terminate the term of
office of any officer. All officers shall hold office at the pleasure of the
Board of Directors. Any officer may resign at any time upon written notice to
the Corporation. Officers may, but need not, be Directors. Any number of offices
may be held by the same person.
All officers, agents and employees shall be subject to removal, with or
without cause, at any time by the Board of Directors. The removal of an officer
without cause shall be without prejudice to his contract rights, if any. The
election or appointment of an officer shall not of itself create contract
rights. All agents and employees other than officers elected by the Board of
Directors shall also be subject to removal, with or without cause, at any time
by the officers appointing them.
Any vacancy caused by the death of any officer, his resignation, his
removal, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the Corporation as
set forth in these By-Laws, the officers shall have such authority and shall
perform such duties as from time to time may be determined by the Board of
Directors.
SECTION 2. Powers and Duties of the President. The President shall be the
chief executive officer of the Corporation, unless another individual is
appointed to serve as Chief Executive Officer, and, subject to the control of
the Board of Directors, shall have general charge and control of all its
business and affairs and shall have all powers and shall perform all duties
incident to the office of President. He shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors and shall have such
other powers and perform such other duties as may from time to time be assigned
to him by these By-Laws or by the Board of Directors.
SECTION 3. Powers and Duties of the Vice Presidents. Each Vice President
shall have all powers and shall perform all duties incident to the office of
Vice President and shall have such other powers and perform such other duties as
may from time to time be assigned to him by these By-
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Laws or by the Board of Directors or the President.
SECTION 4. Powers and Duties of the Secretary. The Secretary shall keep
the minutes of all meetings of the Board of Directors and the minutes of all
meetings of the stockholders in books provided for that purpose; he shall attend
to the giving or serving of all notices of the Corporation; he shall have
custody of the corporate seal of the Corporation and shall affix the same to
such documents and other papers as the Board of Directors or the President shall
authorize and direct; he shall have charge of the stock certificate books,
transfer books and stock ledgers and such other books and papers as the Board of
Directors or the President shall direct, all of which shall at all reasonable
times be open to the examination of any Director, upon application, at the
office of the Corporation during business hours; and he shall have all powers
and shall perform all duties incident to the office of Secretary and shall also
have such other powers and shall perform such other duties as may from time to
time be assigned to him by these By-Laws or by the Board of Directors or the
President.
SECTION 5. Powers and Duties of the Treasurer. The Treasurer shall have
custody of, and when proper shall pay out, disburse or otherwise dispose of, all
funds and securities of the Corporation that may have come into his hands; he
may endorse on behalf of the Corporation for collection checks, notes and other
obligations and shall deposit the same to the credit of the Corporation in such
bank or banks or depositary or depositories as the Board of Directors may
designate; he shall sign all receipts and vouchers for payments made to the
Corporation; he shall enter or cause to be entered regularly in the books of the
Corporation kept for such purpose full and accurate accounts of all moneys
received or paid or otherwise disposed of by him and whenever required by the
Board of Directors or the President shall render statements of such accounts; he
shall, at all reasonable times, exhibit his books and accounts to any Director
of the Corporation upon application at the office of the Corporation during
business hours; and he shall have all powers and shall perform all duties
incident of the office of Treasurer and shall also have such other powers and
shall perform such other duties as may from time to time be assigned to him by
these By-Laws or by the Board of Directors or the President.
SECTION 6. Additional Officers. The Board of Directors may from time to
time elect such other officers (who may but need not be Directors), including a
Controller, Assistant Treasurers, Assistant Secretaries and Assistant
Controllers, as the Board may deem advisable and such officers shall have such
authority and shall perform such duties as may from time to time be assigned to
them by the Board of Directors or the President.
The Board of Directors may from time to time by resolution delegate to any
Assistant Treasurer or Assistant Treasurers any of the powers or duties herein
assigned to the Treasurer; and, may similarly delegate to any Assistant
Secretary or Assistant Secretaries any of the powers or duties herein assigned
to the Secretary.
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SECTION 7. Giving of Bond by Officers. All officers of the Corporation, if
required to do so by the Board of Directors, shall furnish bonds to the
Corporation for the faithful performance of their duties, in such penalties and
with such conditions and security as the Board shall require.
SECTION 8. Voting Upon Stocks. Unless otherwise ordered by the Board of
Directors, the President or any Vice President shall have full power and
authority on behalf of the Corporation to attend and to act and to vote, or in
the name of the Corporation to execute proxies to vote, at any meeting of
stockholders of any corporation in which the Corporation may hold stock, and at
any such meeting shall possess and may exercise, in person or by proxy, any and
all rights, powers and privileges incident to the ownership of such stock. The
Board of Directors may from time to time, by resolution, confer like powers upon
any other person or persons.
SECTION 9. Compensation of Officers. The officers of the Corporation shall
be entitled to receive such compensation for their services as shall from time
to time be determined by the Board of Directors.
ARTICLE IV
Indemnification of Directors and Officers
Section 1. Nature of Indemnity. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was or has
agreed to become a director or officer of the Corporation, or is or was serving
or has agreed to serve at the request of the Corporation as a Director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action alleged to have been taken or omitted in
such capacity, and may indemnify any person who was or is a party or is
threatened to be made a party to such an action, suit or proceeding by reason of
the fact that he is or was or has agreed to become an employee or agent of the
Corporation, or is or was serving or has agreed to serve at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful; except that in the case of
an action or suit by or in the right of the Corporation to procure a judgment in
its favor (1) such indemnification shall be limited to expenses (including
attorneys' fees) actually and reasonably incurred by such person in the defense
or settlement of such action or suit, and (2) no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper.
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The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner that he reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 2. Successful Defense. To the extent that a Director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section 1
of this Article IV or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
Section 3. Determination that Indemnification is Proper. Any
indemnification of a Director or officer of the Corporation under Section 1 of
this Article IV (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the Director or officer
is not proper in the circumstances because he has not met the applicable
standard of conduct set forth in Section 1. Any indemnification of an employee
or agent of the Corporation under Section 1 (unless ordered by a court) may be
made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 1. Any such determination
shall be made (1) by the Board of Directors by a majority vote of a quorum
consisting of Directors who were not parties to such action, suit or proceeding,
or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested Directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
Section 4. Advance Payment of Expenses. Unless the Board of Directors
otherwise determines in a specific case, expenses incurred by a Director or
officer in defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the Director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article IV.
Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate. The
Board of Directors may authorize the Corporation's legal counsel to represent
such Director, officer, employee or agent in any action, suit or proceeding,
whether or not the Corporation is a party to such action, suit or proceeding.
Section 5. Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect, and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit, or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a contract right may not
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be modified retroactively without the consent of such Director, officer,
employee or agent.
The indemnification provided by this Article IV shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person. The
Corporation may enter into an agreement with any of its Directors, officers,
employees or agents providing for indemnification and advancement of expenses,
including attorneys' fees, that may change, enhance, qualify or limit any right
to indemnification or advancement of expenses created by this Article IV.
Section 6. Severability. If this Article IV or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article IV that shall not have been invalidated and to the
fullest extent permitted by applicable law.
Section 7. Subrogation. In the event of payment of indemnification to a
person described in Section 1 of this Article IV, the Corporation shall be
subrogated to the extent of such payment to any right of recovery such person
may have and such person, as a condition of receiving indemnification from the
Corporation, shall execute all documents and do all things that the Corporation
may deem necessary or desirable to perfect such right of recovery, including the
execution of such documents necessary to enable the Corporation effectively to
enforce any such recovery.
Section 8. No Duplication of Payments. The Corporation shall not be liable
under this Article IV to make any payment in connection with any claim made
against a person described in Section 1 of this Article IV to the extent such
person has otherwise received payment (under any insurance policy, by-law or
otherwise) of the amounts otherwise indemnifiable hereunder.
ARTICLE V
Stock; Seal; Fiscal Year
SECTION 1. Certificates For Shares of Stock. The certificates for shares
of stock of the Corporation shall be in such form, not inconsistent with the
Certificate of Incorporation, as shall be approved by the Board of Directors.
All certificates shall be signed (in original form or by facsimile) by the
President or a Vice President and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer, and shall not be valid unless so
signed.
In case any officer or officers who shall have signed any such certificate
or certificates shall
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cease to be such officer or officers of the Corporation, whether because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by the Corporation, such certificate or certificates may
nevertheless be issued and delivered as though the person or persons who signed
such certificate or certificates had not ceased to be such officer or officers
of the Corporation.
All certificates for shares of stock shall be consecutively numbered as
the same are issued. The name of the person owning the shares represented
thereby with the number of such shares and the date of issue thereof shall be
entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be cancelled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and cancelled.
SECTION 2. Lost. Stolen or Destroyed Certificates. Whenever a person
owning a certificate for shares of stock of the Corporation alleges that such
certificate has been lost, stolen or destroyed, he shall file in the office of
the Corporation an affidavit setting forth, to the best of his knowledge and
belief, the time, place and circumstances of the loss, theft or destruction,
and, if required by the Board of Directors, a bond of indemnity or other
indemnification sufficient in the opinion of the Board of Directors to indemnify
the Corporation and its agents against any claim that may be made against it or
them on account of the alleged loss, theft or destruction of any such
certificate or the issuance of a new certificate in replacement therefor.
Thereupon the Corporation may cause to be issued to such person a new
certificate in replacement for the certificate alleged to have been lost, stolen
or destroyed. Upon the stub of every new certificate so issued shall be noted
the fact of such issue and the number, date and the name of the registered owner
of the lost, stolen or destroyed certificate in lieu of which the new
certificate is issued.
SECTION 3. Transfer of Shares. Shares of stock of the Corporation shall be
transferred on the books of the Corporation by the holder thereof, in person or
by his attorney duly authorized in writing, upon surrender and cancellation of
certificates for the number of shares of stock to be transferred, except as
provided in Section 2 of this Article V.
SECTION 4. Regulations. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting or to receive payment of any dividend or other distribution or
allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
as the case may be, the Board of Directors may fix, in advance, a record date,
which shall not be (i) more than sixty (60) nor less than ten (10) days before
the date of such meeting, or (ii) in the case of corporate
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action to be taken by consent in writing without a meeting, prior to, or more
than ten (10) days after, the date upon which the resolution fixing the record
date is adopted by the Board of Directors, or (iii) more than sixty (60) days
prior to any other action.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held; the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day on
which the first written consent is delivered to the Corporation; and the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 6. Dividends. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 7. Corporate Seal. The Board of Directors shall provide a suitable
seal, containing the name of the Corporation, which seal shall be kept in the
custody of the Secretary. A duplicate of the seal may be kept and be used by any
officer of the Corporation designated by the Board of Directors or the
President.
SECTION 8. Fiscal Year. The fiscal year of the Corporation shall be such
fiscal year as the Board of Directors from time to time by resolution shall
determine.
ARTICLE VI
Miscellaneous Provisions.
SECTION 1. Checks, Notes, Etc. All checks, drafts, bills of exchange,
acceptances, notes or other obligations or orders for the payment of money shall
be signed and, if so required by the Board of Directors, countersigned by such
officers of the Corporation and/or other persons as the Board of Directors from
time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the
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Corporation with a duly authorized depository by the Treasurer and/or such other
officers or persons as the Board of Directors from time to time may designate.
SECTION 2. Loans. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized to do so, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank, trust company or
other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the Corporation. When authorized so to do,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
SECTION 3. Contracts. Except as otherwise provided in these By-Laws or by
law or as otherwise directed by the Board of Directors, the President or any
Vice President shall be authorized to execute and deliver, in the name and on
behalf of the Corporation, all agreements, bonds, contracts, deeds, mortgages
and other instruments, either for the Corporation's own account or in a
fiduciary or other capacity, and the seal of the Corporation, if appropriate,
may be affixed thereto by any of such officers or the Secretary or an Assistant
Secretary. The Board of Directors, the President or any Vice President
designated by the Board of Directors may authorize any other officer, employee
or agent to execute and deliver, in the name and on behalf of the Corporation,
agreements, bonds, contracts, deeds, mortgages and other instruments, either for
the Corporation's own account or in a fiduciary or other capacity, and, if
appropriate, to affix the seal of the Corporation thereto. The grant of such
authority by the Board or any such officer may be general or confined to
specific instances.
SECTION 4. Waivers of Notice. Whenever any notice whatever is required to
be given by law, by the Certificate of Incorporation or by these By-Laws to any
person or persons, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
SECTION 5. Offices Outside of Delaware. Except as otherwise required by
the laws of the State of Delaware, the Corporation may have an office or offices
and keep its books, documents and papers outside of the State of Delaware at
such place or places as from time to time may be determined by the Board of
Directors or the President.
ARTICLE VII
Amendments
These By-Laws and any amendment thereof may be altered, amended or
repealed, or new By-Laws may be adopted, by the Board of Directors at any
regular or special meeting by the
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affirmative vote of a majority of all of the members of the Board, provided in
the case of any special meeting at which all of the members of the Board are not
present, that the notice of such meeting shall have stated that the amendment of
these By-Laws was one of the purposes of the meeting; but these By-Laws and any
amendment thereof may be altered, amended or repealed or new By-Laws may be
adopted by the holders of a majority of the total outstanding stock of the
Corporation entitled to vote at any annual meeting or at any special meeting,
provided, in the case of any special meeting, that notice of such proposed
alteration, amendment, repeal or adoption is included in the notice of the
meeting.
Date of By-Laws: February ___, 1999
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CERTIFICATE OF SECRETARY
The undersigned does hereby certify that: (i) he is the duly elected and
qualified Secretary of Urban Cool Network Inc., a Delaware corporation (the
"Company"), and (ii) the foregoing is a true and correct copy of the Bylaws of
the Company reviewed and adopted by the Board of the Company as of January 28,
1998.
/s/ Jacob R. Miles
-------------------------------
Jacob R. Miles, Secretary
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EMPLOYMENT AGREEMENT
AGREEMENT made and entered into as of this 22nd day of November, 1999,
between Urban Cool Network, Inc., a Delaware corporation (the "Corporation")
having an address at 1401 Elm Street, Dallas, Texas 75226 and Jacob R. Miles,
III (the "Executive"), residing at 3416 Hightimber Drive, Grapevine, Texas
76051.
W I T N E S S E T H:
WHEREAS, Executive is presently employed by the Corporation; and
WHEREAS, the Corporation and the Executive desire to set forth the terms
of Executive's employment with the Corporation, pursuant to the terms and
conditions hereof.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto agree with each other as follows:
1. Term of Employment. The Corporation agrees to and does hereby employ
Executive, and Executive agrees to and does hereby accept employment by
the Corporation, as the Founder, Chairman, and Chief Executive Officer
of the Corporation, subject to the supervision and direction of its
Board of Directors, for the three (3) year period commencing on July 1,
1999, and ending at midnight on the thirtieth day of June, 2002 (the
"Term"). The Term shall be automatically renewed on an annual basis
(each such period, a "Renewal Period") for an additional year (the
"Renewal Term"), unless this Agreement is terminated in writing by the
Executive or the Corporation (the "Notice of Nonrenewal") not less than
one hundred eighty
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(180) days prior to the expiration of the Term or any Renewal Period,
unless otherwise terminated pursuant to the provisions of this
Agreement.
2. Duties of Executive. Executive shall devote such time, attention and
energy to the affairs of Corporation as shall be reasonably required to
perform his duties hereunder, and, in pursuance of the policies and
directions of the Board of Directors, Executive shall use his best
efforts to promote the business and affairs of the Corporation.
3. Base Compensation. In consideration of the Executive's services pursuant
to this Agreement, Corporation shall pay to Executive, during the period
of Executive's employment under this Agreement, (i) a salary at the rate
of One Hundred Seventy-Five Thousand Dollars ($175,000.00) per year for
the first year of this Agreement (the "Base Compensation); and (ii) for
each year thereafter, annual compensation shall be determined by the
Board of Directors, but in no event less than $175,000.00. The Base
Compensation shall be payable in equal installments, in accordance with
the Corporation's customary procedures for executive employees (but in
no event less frequently than semi-monthly), subject to applicable tax
and payroll deductions. The Board of Directors of the Corporation may
increase Executive's Base Compensation at such time or times and in such
amount or amounts as it may in its sole discretion determine.
4. Incentive Compensation. (a). Provided Executive has duly performed his
obligations pursuant to this Agreement, Executive will receive, as
additional compensation for the services to be rendered by Executive
under this Agreement, cash incentive compensation, the amount of which
shall be determined by the Board of Directors based on the Executive's
performance and contributions to the Corporation's success.
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(b). Provided Executive's employment continues during the term hereof
and he is in good standing, Executive shall receive stock options to
purchase shares in accordance with both the Corporation's 1999 Stock
Option Plan and its 1999 Executive Stock Option Plan.
5. Other Benefits. During the term of this Agreement the Executive shall be
entitled to participate in any benefit plans adopted by the Corporation
for the general and overall benefit of all employees and/or for key
executives of the Corporation such as health care, life insurance,
disability, stock option plans, tax, legal and financial planning
services, pension, profit sharing and savings. Executive shall be
entitled to receive at no cost full family coverage health care
insurance.
6. Vacation. Executive shall be entitled to a fully paid vacation of four
(4) weeks per calendar year, which vacation shall be scheduled at such
time or times as the Corporation in consultation with Executive may
reasonably determine.
7. Expenses.
(a) The Corporation shall pay or reimburse Executive for all reasonable
and necessary expenses incurred by him in connection with his duties
hereunder, upon submission by Executive to the Corporation of such
reasonable evidence of such expenses as the Corporation may require.
(b) Throughout the term of this Agreement, the Corporation will provide
Executive with the use of a motor vehicle of a class equivalent to that
currently utilized by the Executive for purposes within the scope of his
employment with Corporation and shall pay all expenses for fuel,
maintenance, parking, and insurance in connection with such use of the
motor vehicle.
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8. Insurance. The Corporation may from time to time apply for policies of
life, health and accident insurance or disability insurance upon the
Executive in such amounts as the Corporation deems appropriate. The
Executive agrees to aid the Corporation in procuring such insurance,
including submitting to a physical examination, if required, and
completing any and all forms required for application for any insurance
policy.
9. Support. The Executive shall be provided by the Corporation at its
expense with office space, furnishings and facilities, reserved parking,
secretarial and administrative assistance, supplies and other support
equipment (including a computer, mobile phone, facsimile machine and
photocopier).
10. No Forced Relocation. The executive shall not be required to move his
principal place of residence from the greater Dallas/ Fort Worth area or
to perform regular duties that could reasonably be expected to require
either such move against his wish or to spend amounts of time each week
outside the greater Dallas/ Fort Worth area which are unreasonable in
relation to his duties and responsibilities of the Executive hereunder,
and the Corporation agrees that, if it requests the Executive to make
such a move and the Executive declines the request, (i) that declination
shall not constitute any basis for a determination that Cause exists,
and (ii) no animosity or prejudice will be held against Executive.
11. Disclosure of Information. The Executive shall, during his employment
under this Agreement and thereafter, keep confidential and refrain from
disclosing to any unauthorized persons all data and information relating
to the respective businesses
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of the Corporation or any of its subsidiaries.
12. Intellectual Property Rights.
(a) The Executive shall promptly disclose to the Corporation in writing,
any and all charts, layouts, maps, inventions, improvements, techniques,
markets, sales and advertising plans, processes, concepts and plans,
whether or not copyrightable or patentable, secret processes and
"know-how," conceived by the Executive during the term of his employment
by the Corporation (the "Executive's Work Product"), whether alone or
with others and whether during regular working hours and through the use
of facilities and property of the Corporation or otherwise, which
directly relates to the present business of the Corporation. Upon the
Corporation's request at any time or from time to time during the Term
of the Executive's employment, the Executive shall (i) deliver to the
Corporation copies of the Executive's Work Product that may be in his
possession or otherwise available to him; and (ii) execute and deliver
to the Corporation such applications, assignments and other documents as
it may reasonably require in order to apply for and obtain copyrights or
patents in the United States of America and other countries with respect
to any Executive's Work Product that it deems to be copyrightable or
patentable, and/or otherwise to vest in itself full title thereto.
(b) All documents that pertain to the Corporation, including but not
limited to the Executive's Work Product, shall be the sole and exclusive
property of the Corporation. Upon the termination of the Executive's
employment, all such documents that may be in his possession or
otherwise available to him or shall
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thereafter come into his possession or control shall be promptly
returned to the Corporation without the necessity of a request therefor.
13. Non-Competition Covenant.
(a) The Executive shall not, during his employment by the Corporation,
engage, directly or indirectly, in any business competitive with the
business of the Corporation without the consent of the Board of
Directors.
(b) For a period of one (1) year after the termination of the
Executive's employment hereunder (the "Non-Competition Period"), for any
reason whatsoever, other than a termination by the Corporation without
Good Cause, the Executive shall not (i) engage, directly or indirectly,
as an officer, director, shareholder, owner, partner, joint venturer or
in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative in any
business relating to Internet products and services, and directly
related activities as presently conducted by the Corporation throughout
the United States (the "Territory"), without the permission of the Board
of Directors, which permission shall not be unreasonably withheld or
delayed or (ii) induce or actively attempt to influence any other
employee or consultant of the Corporation to terminate his or her
employment or consultancy with the Corporation. Nothing herein contained
shall be deemed to prevent ownership by Executive (as said term is
defined in regulation 14(A) promulgated under the Securities Exchange
Act of 1934 as in effect on the date hereof), collectively, of not more
than 5% of the outstanding capital stock of a
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corporation listed on a national securities exchange.
(1) The parties to this Agreement consider the restrictions
contained herein reasonable as to the duration of the Non-Competition
Period and the extent of the Territory. However, if the duration if the
Non-Competition Period or the extent of the Territory herein specified
should be judged unreasonable by any Court or arbitration proceeding,
the validity and effect of the remaining provisions of this Agreement
shall not be affected thereby and, the duration of the Non- Competition
Period shall be reduced by such number of months and/or the area of the
Territory shall be reduced such that, the Territory and the
Non-Competition Period shall be deemed reasonable so that the foregoing
covenant not to compete may be enforced.
(2) Executive agrees and recognizes that in the event of a
breach of threatened breach by Executive of the provisions of the
aforegoing covenants, the Corporation may suffer irreparable harm, and
that money damages may not be an adequate remedy. Therefore, the
Corporation shall be entitled as a matter of right to specific
performance of the covenants of Executive contained herein by way of
temporary or permanent injunctive relief in a Court of competent
jurisdiction.
14. Termination. This Agreement and Executive's employment may be terminated
in any one of the following ways:
(a) Termination of Employment by the Corporation. The
Corporation shall be entitled, if acting at the direction of the
Required Board Majority, to terminate the Executive's employment at any
time with or without Good Cause. The
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Corporation's termination of the Executive's employment will be
effective on the date the Corporation delivers a notice of termination
to the Executive pursuant to this Section 14(a) (together with any
required certified Board resolution). If the Corporation terminates the
Executive's employment for Good Cause, the Corporation shall, within
thirty (30) business days thereafter, pay the Executive an amount equal
to the Accrued Benefits plus severance pay and, when that payment is
made, the Corporation shall have no further obligation hereunder to
compensate the Executive. If the Corporation terminates the Executive's
employment without Good Cause, or elects not to renew Executive's
employment upon expiration of the original term or any renewal term, the
Corporation shall, within thirty (30) business days thereafter, pay the
Executive an amount equal to the sum of Accrued Benefits, plus the
Severance Payment, and shall continue to provide health insurance
benefits for the Executive, his spouse and minor children, if any (on
the same terms in effect on the Termination date) for a period of three
(3) years after the termination date.
(b) Termination of Employment by the Executive. The Executive
shall be entitled to terminate his Employment, by delivery of a notice
of termination to the Corporation: (1) for Good Reason at any time
within one hundred eighty (180) days after the facts or circumstances
constituting that Good Reason first exist and are known to the
Executive, (ii) in the event of his Disability, as provided in Section
14(c), or (iv) without Good Reason and other than for Disability at any
time. If the Executive terminates his Employment for Good Reason, the
Corporation shall pay to the Executive in a cash lump sum within five
(5) business days after the date the
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Corporation receives the Executive's notice of termination, an amount
equal to the sum of Accrued Benefits plus the Severance Payment, and
shall continue to provide health insurance benefits for the Executive,
his spouse and minor children (on the same terms in effect on the
Termination date) for a period of three (3) years after the termination
date. If the Executive terminates his Employment without Good Reason and
other than for Disability, the Corporation shall pay to the Executive,
in a cash lump sum within five (5) business days after the termination
date, the Accrued Benefits.
(c) Termination by Reason of Disability. If the Executive incurs
any Disability prior to termination of this Agreement, either the
Executive or the Corporation may terminate the Executive's Employment
effective on the date the Nonterminating Party receives a notice of
termination from the Terminating Party pursuant to this Section 14(c);
provided, however that the Corporation shall, within five (5) business
days thereafter, pay the Executive an amount equal to the sum of Accrued
Benefits plus the Termination Payment, and the Corporation shall
continue to provide health insurance benefits for the Executive, his
spouse and minor children (on the same terms in effect on the
Termination date) for a period of three (3) years after the Termination
date.
(d) Termination of Employment by Death. The Executive's
Employment shall terminate automatically at the time of his death. If
the Executive's Employment is terminated by reason of the Executive's
death, the Corporation shall pay to the Executive's estate, in a cash
lump sum within thirty (30) days after the
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Termination date, an amount equal to the sum of the Accrued Benefits
plus the Termination Payment, and shall continue to provide health
insurance benefits for the Executive's spouse and minor children (on the
same terms in effect on the Termination date) for a period of three (3)
years after the Termination date.
(e) Return of Property. On termination of the Executive's
Employment, however brought about, the Executive (or his
representatives) shall promptly deliver and return to the Corporation
all the Corporation's property that is in the possession or under the
control of the Executive.
(f) Stock Options. Notwithstanding any provision of this
Agreement to the contrary: (i) except in the case of a termination of
the Executive's Employment for Cause, all stock options previously
granted to the Executive under Incentive Plans that have not been
exercised and are outstanding as of the time immediately prior to the
Termination date shall, notwithstanding any contrary provision of any
applicable Incentive Plan, automatically become vested and immediately
exercisable, and remain outstanding until exercised or the expiration of
their term, whichever is earlier; and (ii) in the case of a termination
of the Executive's Employment for Cause, all stock options previously
granted to Executive under Incentive Plans that have not been exercised
and are outstanding as of the Termination date shall automatically be
terminated, unless the Compensation Committee determines otherwise in
its discretion, notwithstanding any contrary provision of any applicable
Incentive Plan.
(g) Change in Control of the Corporation. In the event of a
"Change in Control" (as defined below) of the Corporation during the
Term, Executive may
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<PAGE>
terminate this Agreement as provided herein.
Upon termination of this Agreement for any reason provided
above, Executive shall be entitled to receive all compensation earned
and all benefits and reimbursements due through the effective date of
termination. Additional compensation subsequent to termination, if any,
will be due and payable to Executive only to the extent and in the
manner expressly provided above or in paragraph 5 hereof.
If termination of Executive's employment arises out of the
Corporation's failure to pay Executive on a timely basis the amounts to
which he is entitled under this Agreement or as a result of any other
breach of this Agreement by the Corporation, the Corporation shall pay
all amounts and damages to which Executive may be entitled as a result
of such breach, including interest thereon and all reasonable legal fees
and expenses and other costs incurred by Executive to enforce his rights
hereunder. Further, none of the provisions of paragraph 11 hereof shall
apply in the event this Agreement is terminated as a result of a breach
by the Corporation.
15. Change in Control.
(a) Unless Executive elects to terminate this Agreement pursuant
to subparagraph (c) below, Executive understands and acknowledges that
the Corporation may be merged or consolidated with or into another
entity and that such entity shall automatically succeed to the rights
and obligations of the Corporation
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<PAGE>
hereunder or that the Corporation may undergo another type of Change in
Control. In the event such a merger of consolidation or other Change in
Control is initiated prior to the end of the Term, then the provisions
of this paragraph shall be applicable.
(b) In the event of a pending Change in Control wherein the
Corporation and Executive have not received written notice at least five
(5) business days prior to the anticipated closing date of the
transaction giving rise to the Change in Control from the successor to
all or a substantial portion of the Corporation's business and/or assets
that such successor is willing as of the closing to assume and agree to
perform obligations under this Agreement in the same manner and to the
same extent that the Corporation is hereby required to perform, then
such Change in Control shall be deemed to be a termination of this
Agreement by the Corporation without Good Cause during the Term and the
applicable portions herein will apply; however, under such
circumstances, the amount of the lump-sum severance payment due to
Executive shall be twice the amount of the Severance Payment and the
non-competition provisions herein shall not apply whatsoever.
(c) In any Change in Control situation, Executive may, at his
sole discretion, elect to terminate this Agreement by providing written
notice to the Corporation at least five (5) business days prior to the
anticipated closing of the transaction giving rise to the Change in
Control. In such case, the Corporation shall pay to Executive the amount
of the Severance Payment and the non-competition provisions herein shall
all apply for a period of one (1) year from the effective date of
termination.
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<PAGE>
(d) For purposes of applying paragraph 12 hereof under the
circumstances described in (b) and (c) above, the effective date of
termination will be the closing date of the transaction giving rise to
the Change in Control and all compensation, reimbursements and lump-sum
payments due Executive must be paid in full by the Corporation at or
prior to such closing. Further, Executive will be given sufficient time
and opportunity to elect whether to exercise all or any of his options
to purchase shares of common stock of the Corporation, such that he may
convert the options to shares prior to the closing of the transaction
giving rise to the Change in Control, if he so desires.
(e) A "Change in Control" shall mean a change in control of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended, as in effect on the date of this Agreement, or
if Item 6(c) is no longer in effect, any regulations issued by the
United States Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended, which serve similar
purposes; provided further that, without limitation, a Change in Control
shall be deemed to have occurred if and when:
(i) the following individuals no longer constitute a majority of
the members of the Board of Directors of (A) the individuals who, as of
the day after the closing date of the Corporation's initial public
offering, constitute the Board of Directors of the Corporation (the
"Original Directors"); (B) the individuals who thereafter are elected to
the Board of Directors of the Corporation and whose
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election, or nomination for election, to the Board of Directors of the
Corporation was approved by a vote of at least two-thirds (2/3) of the
Original Directors then still in office (such directors becoming
"Additional Original Directors" immediately following their election);
and (c) the individuals who are elected to the Board of Directors of the
Corporation and whose election, or nomination for election, to the Board
of Directors of the Corporation was approved by a vote of at least
two-thirds (2/3) of the Original Directors and Additional Original
Directors then still in office (such directors also becoming "Additional
Original Directors" immediately following their election);
(ii) a tender offer or exchange offer is made whereby the effect
of such offer is to take over and control the Corporation, and if such
offer is consummated for the equity securities of the Corporation
representing twenty percent (20%) or more of the combined voting power
of the Corporation's then outstanding voting securities;
(iii) the stockholders of the Corporation shall approve a
merger, consolidation, recapitalization, or reorganization of the
Corporation, a reverse stock split of outstanding voting securities, or
consummation of any such transaction if stockholder approval is not
obtained, other than any such transaction which would result in at least
seventy-five percent (75%) of the total voting power represented by the
voting securities of the surviving entity outstanding immediately after
such transaction being beneficially owned by at least seventy-five
percent (75%) of the holders of outstanding voting securities of the
Corporation immediately prior to the
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<PAGE>
transaction, with the voting power of each such continuing holder
relative to other such continuing holders not substantially altered in
the transaction; or
(iv) the stockholders of the Corporation shall approve a plan of
complete liquidation of the Corporation or an agreement for the same or
disposition by the Corporation of all or a substantial portion of the
Corporation's assets to another person or entity which is not a
wholly-owned subsidiary of the Corporation (i.e., fifty percent (50%) or
more of the total assets of the Corporation).
(f) Sales of the Corporation's Common Stock beneficially owned
or controlled by the Corporation shall not be considered in determining
whether a Change in Control has occurred.
(g) Executive shall be notified in writing by the Corporation at
any time that the Corporation or any member of its Board anticipates
that a Change in Control may take place.
(h) In the event that a Change in Control occurs and the
aggregate amount of any payments made to Executive hereunder, or
pursuant to any plan, program or policy of the Corporation in connection
with, on account of, or as a result of, such Change in Control
constitutes "excess parachute payments" as defined in Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code"), subject to
the excise tax imposed by Section 4999 of the Code, or any successor
sections thereof, Executive shall receive from the Corporation, in
addition to any other amounts payable under this Agreement, a lump sum
payment equal to the amount of (i) such excise tax, and (ii) the federal
and state income taxes payable by the Executive with
15
<PAGE>
respect to any payments made to Executive under this subparagraph (h).
Such amount will be due and payable by the Corporation or its successor
within ten (10) days after executive delivers a written request for
reimbursement accompanied by a copy of his tax return(s) showing the
excise tax actually incurred by Executive.
16. Indemnification. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action
by the Corporation against Executive), by reason of the fact that he is
or was performing services under this Agreement, then the Corporation
shall indemnify Executive against all expenses (including attorney's
fees), judgments, fines and amounts paid in settlement, as actually and
reasonably incurred by Executive in connection therewith to the maximum
extent permitted by applicable law. The advancement of expenses shall be
mandatory. In the event that both Executive and the Corporation are made
a party to the same third-party action, complaint, suit or proceeding,
the Corporation agrees to engage competent legal representation, and
Executive agrees to use the same representation, provided that if
counsel selected by the Corporation shall have a conflict of interest
that prevents such counsel from representing Executive, Executive may
engage separate counsel and the Corporation shall pay all attorneys'
fees of such separate counsel. Further, while Executive is expected at
all times to use his best efforts to faithfully discharge his duties
under this Agreement, Executive cannot be held liable to the Corporation
for errors or omissions made in good faith where Executive has not
exhibited gross,
16
<PAGE>
willful and wanton negligence and misconduct or performed criminal and
fraudulent acts which materially damage the business of the Corporation.
17. Effect of Waiver. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach thereof.
18. Notices. Any notice permitted, required, or given hereunder shall be in
writing and shall be personally delivered; or delivered by any prepaid
overnight courier delivery service then in general use; or mailed,
registered or certified mail, return receipt requested, to the addresses
designated herein or at such other address as may be designated by
notice given hereunder:
If to: Jacob R. Miles, III
1401 Elm Street
Dallas, Texas 75626
With a copy to: Lawrence B. Fisher, Esq.
Orrick, Herrington & Sutcliffe, LLP
666 Fifth Avenue
New York, New York 10103
If to: Urban Cool Network, Inc.
1401 Elm Street
Dallas, Texas 75626
With a copy to: Martin C. Licht, Esq.
Silverman, Collura & Chernis, P.C.
381 Park Avenue South
New York, New York 10016
Delivery shall be deemed made when actually delivered, or if mailed,
three days after delivery to a United States Post Office.
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<PAGE>
19. Assignment. Executive shall not be entitled to assign his rights, duties
or obligations under this Agreement.
20. Amendments. The terms and provisions of this Agreement may be amended or
modified only by a written instrument executed by the party to be
charged by such amendment or modification.
21. Governing Law. The terms and provisions herein contained and all the
disputes or claims relating to this Agreement shall be governed by,
interpreted and construed in accordance with the internal laws of the
State of Texas, without reference to its conflict of laws principles.
22. Captions. The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the
scope or substance of any section of this Agreement.
23. Merger and Severability. This Agreement shall constitute the entire
Agreement between the Corporation and Executive with respect to the
subject matter hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability
of any other provision.
24. Counterparts; Facsimile. This Agreement may be executed by facsimile and
in two (2) or more counterparts, each of which shall be deemed an
original and all of which together shall constitute but one and the same
instrument.
25. Definitions A. "Accrued Benefits" means an amount equal to the sum of
(a) the portion of the Base Salary payable through and including the
Termination date which
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<PAGE>
has not yet been paid, (b) all compensation previously deferred
by the Executive (together with any accrued interest and
earnings thereon) which has not yet been paid, and (c) any
accrued but unpaid expense reimbursements and vacation pay.
B. Good Cause. "Good Cause," shall mean any one or more of the
following: (1) Executive's willful, material and irreparable
breach of this Agreement; (2) Executive's gross negligence in
the performance or intentional nonperformance (continuing for
ten (10) days after receipt of written notice of need to cure)
of any of Executive's material duties and responsibilities
hereunder; (3) Executive's willful dishonesty, fraud or
misconduct with respect to the business or affairs of the
Corporation which materially and adversely affects the
operations or reputation of the Corporation; (4) Executive's
conviction of a felony crime; or (5) confirmed positive illegal
drug test result.
C. "Good Reason" for the Executive's termination of his Employment
means: (a) any violation hereof in any material respect by the
Company; (b) without approval of 5/7 of the Board either (1) a
failure of the Company to continue in effect any Compensation
Plan in which the Executive was participating, or (2) the taking
of any action by the Company which would adversely affect the
Executive's participation in or materially reduce the
Executive's benefits under, any such Compensation Plan; or (c)
the assignment to the Executive of duties inconsistent in any
material respect with the Executive's then current
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<PAGE>
positions (including status, offices, titles and reporting
requirements), authority, duties or responsibilities or any
other action by the Company which results in a material
diminution in those positions, authority, duties or
responsibilities.
D. "Required Board Majority" means at any time a majority of the
members of the entire Board then in office which shall include
at least a majority of the Outside Directors then in office.
E. "Severance Payment" means at any time an amount equal to three
(3) times the Executive's Average Annual Compensation during the
term of this Agreement.
F. "Termination Payment" means at any time an amount equal to one
and one-half (1.5) times the Executive's Average Annual
Compensation during the term of this Agreement.
IN WITNESS WHEREOF, the parties hereto have affixed their signatures the
day and year first above written.
Urban Cool Network, Inc.
By:_______________________________________
Name:
Title:
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/s/ Jacob R. Miles, III
----------------------------------
Jacob R. Miles, III
Chief Executive Officer
21
EMPLOYMENT AGREEMENT
AGREEMENT made and entered into as of this 22nd day of November, 1999
between Urban Cool Network, Inc., a Delaware corporation (the "Corporation")
having an address at 1401 Elm Street, Dallas, Texas 75626 and Barry Levine (the
"Executive"), residing at 18 Ramapo Trail, Harrison, New York 10528.
W I T N E S S E T H:
WHEREAS, Executive is presently employed by the Corporation; and
WHEREAS, the Company and the Executive desire to set forth the terms of
Executive's employment with the Company, pursuant to the terms and conditions
hereof.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto agree with each other as follows:
1. Term of Employment. The Corporation agrees to and does hereby employ
Executive, and Executive agrees to and does hereby accept employment by the
Corporation, as the Treasurer and Chief Financial Officer of the Corporation,
subject to the supervision and direction of its Chief Executive Officer and its
Board of Directors, for the one (1) year period commencing on the consummation
of the initial public offering of the Corporation's securities (the "Term").
2. Duties of Executive. Executive shall devote such time, attention and
energy to the affairs of Corporation as shall be reasonably required to perform
his duties hereunder, and, in pursuance of the policies and directions of the
Board of Directors, Executive shall use his best efforts
<PAGE>
to promote the business and affairs of the Corporation.
3. Base Compensation. In consideration of the Executive's services
pursuant to this Agreement, Corporation shall pay to Executive, during the
period of Executive's employment under this Agreement (the "Base Compensation"),
(i) a salary at the rate of One Hundred Twenty Five Thousand Dollars ($125,000)
per year during the first year of this Agreement; and (ii) for each year
thereafter, annual compensation shall be determined by the Chief Executive
Officer and its Board of Directors, but not less than $125,000 per year. The
Base Compensation shall be payable in equal installments, in accordance with the
Corporation's customary procedures for executive employees, subject to
applicable tax and payroll deductions.
4. Incentive Compensation.
(a) Provided Executive has duly performed his obligations pursuant
to this Agreement, Executive shall be eligible to receive, as additional
compensation for the services to be rendered by Executive under this Agreement,
incentive compensation. The amount of such incentive compensation, if any, shall
be determined by the Board of Directors in its sole discretion based on the
Executive's performance and contributions to the Corporation's success.
(b) Provided Executive's employment continues during the term hereof
and he is in good standing with the Company, Executive shall be eligible to
receive, as additional compensation for the services to be rendered by Executive
under this Agreement, 10,000 options to purchase shares of the Company's common
stock pursuant to the Company's 1999 Stock Option Plan. Such options shall vest
one year from the date hereof.
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5. Other Benefits. (a) During the term of this Agreement the Executive
shall be entitled to participate in any benefit plans adopted by the Corporation
for the general and overall benefit of all employees and/or for key executives
of the Corporation such as health care, life insurance, disability, stock option
plans, tax, legal and financial planning services, pension, profit sharing and
savings.
(b) During the term of this Agreement, Executive shall be entitled
to a monthly car allowance of $400.00.
6. Vacation. Executive shall be entitled to a fully paid vacation of
three (3) weeks per calendar year, which vacation shall be scheduled at such
time or times as the Corporation in consultation with Executive may reasonably
determine.
7. Expenses. The Corporation shall pay or reimburse Executive for all
reasonable and necessary expenses incurred by him in connection with his duties
hereunder, upon submission by Executive to the Corporation of such reasonable
evidence of such expenses as the Corporation may require.
8. Insurance. The Corporation may from time to time apply for policies
of life, health and accident insurance or disability insurance upon the
Executive in such amounts as the Corporation deems appropriate. The Executive
agrees to aid the Corporation in procuring such insurance, including submitting
to a physical examination, if required, and completing any and all forms
required for application for any insurance policy.
9. Disclosure of Information. The Executive shall, during his
employment under this Agreement and thereafter, keep confidential and refrain
from disclosing to any unauthorized persons all data and information relating to
the respective businesses of the Corporation or any of its
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<PAGE>
subsidiaries.
10. Intellectual Property Rights. (a) The Executive shall promptly
disclose to the Corporation in writing, any and all charts, layouts, maps,
inventions, improvements, techniques, markets, sales and advertising plans,
processes, concepts and plans, whether or not copyrightable or patentable,
secret processes and "know-how," conceived by the Executive during the term of
his employment by the Corporation (the "Executive's Work Product"), whether
alone or with others and whether during regular working hours and through the
use of facilities and property of the Corporation or otherwise, which directly
relates to the present business of the Corporation. Upon the Corporation's
request at any time or from time to time during the Term of the Executive's
employment, the Executive shall (i) deliver to the Corporation copies of the
Executive's Work Product that may be in his possession or otherwise available to
him, and (ii) execute and deliver to the Corporation such applications,
assignments and other documents as it may reasonably require in order to apply
for and obtain copyrights or patents in the United States of America and other
countries with respect to any Executive's Work Product that it deems to be
copyrightable or patentable, and/or otherwise to vest in itself full title
thereto.
(b) All documents that pertain to the Corporation, including but not
limited to the Executive's Work Product, shall be the sole and exclusive
property of the Corporation. Upon the termination of the Executive's employment,
all such documents that may be in his possession or otherwise available to him
or shall thereafter come into his possession or control shall be promptly
returned to the Corporation without the necessity of a request therefor.
11. Non-Competition Covenant. (a) The Executive shall not, during his
employment by the Corporation, engage, directly or indirectly, in any business
competitive with the business of
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<PAGE>
the Corporation without the consent of the Board of Directors.
(b) For a period of one (1) year after the termination of the
Executive's employment hereunder (the "Non-Competition Period"), for any reason
whatsoever, other than a termination by the Corporation without good cause, or
by Executive for good reason (as hereinafter defined) the Executive shall not
(i) engage, directly or indirectly, as an officer, director, shareholder, owner,
partner, joint venturer or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales representative in
any business related to Internet products and services, and related activities
throughout the United States (the "Territory"), without the permission of the
Board of Directors, which permission shall not be unreasonably withheld or
delayed or (ii) induce or actively attempt to influence any other employee or
consultant of the Corporation to terminate his or her employment or consultancy
with the Corporation. Nothing herein contained shall be deemed to prevent
ownership by Executive and his associates (as said term is defined in regulation
14(A) promulgated under the Securities Exchange Act of 1934 as in effect on the
date hereof), collectively, of not more than 5% of the outstanding capital stock
of a corporation listed on a national securities exchange.
(c) (i) The parties to this Agreement consider the restrictions
contained herein reasonable as to the duration of the Non-Competition Period and
the extent of the Territory. However, if the duration of the Non-Competition
Period or the extent of the Territory herein specified should be judged
unreasonable by any Court or arbitration proceeding, the validity and effect of
the remaining provisions of this Agreement shall not be affected thereby and,
the duration of the Non-Competition Period shall be reduced by such number of
months and/or the area of the Territory shall be reduced such that, the
Territory and the Non-Competition Period shall be deemed
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<PAGE>
reasonable so that the foregoing covenant not to compete may be enforced.
(ii) Executive agrees and recognizes that in the event of a
breach or threatened breach by Executive of the provisions of the foregoing
covenants, the Corporation may suffer irreparable harm, and that money damages
may not be an adequate remedy. Therefore, the Corporation shall be entitled as a
matter of right to specific performance of the covenants of Executive contained
herein by way of temporary or permanent injunctive relief in a Court of
competent jurisdiction.
12. Termination. This Agreement and Executive's employment may be
terminated in any one of the followings ways:
(a) Death. The death of Executive shall immediately terminate this
Agreement with no severance compensation due to Executive's estate.
(b) Disability. If, as a result of incapacity due to physical or
mental illness or injury, Executive shall have been absent from his full-time
duties hereunder for three (3) consecutive months, then thirty (30) days after
receiving written notice (which notice may occur before or after the end of such
three (3) month period, but which shall not be effective earlier than the last
day of such three (3) month period), the Corporation may terminate Executive's
employment hereunder provided Executive is unable to resume his full-time duties
at the conclusion of such notice period. Also, Executive may terminate this
employment hereunder if his health should become impaired to an extent that
makes the continued performance of his duties hereunder hazardous to his
physical or mental health or his life, provided that Executive shall have
furnished the Corporation with a written statement from a qualified doctor to
such effect and provided, further, that, at the Corporation's request made
within thirty (30) days of the date of such written statement, Executive
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<PAGE>
shall submit to an examination by a doctor selected by the Corporation who is
reasonably acceptable to Executive or Executive's doctor and such doctor shall
have concurred in the conclusion of Executive's doctor. In the event this
Agreement is terminated as a result of Executive's disability, Executive shall
(i) receive from the Company, in a lump-sum payment due within thirty (30) days
of the effective date of termination, the base salary for one (1) year and (ii)
the Corporation shall make the insurance premium payments contemplated by COBRA
for a period of eighteen (18) months after such termination.
(c) Good Cause. The Corporation may terminate this Agreement ten
(10) days after written notice to Executive for "Good Cause," which shall mean
any one or more of the following: (1) Executive's willful, material and
irreparable breach of this Agreement; (2) Executive's gross negligence in the
performance or intentional nonperformance (continuing for ten (10) days after
receipt of written notice of need to cure) of any of Executive's material duties
and responsibilities hereunder; (3) Executive's willful dishonesty, fraud or
misconduct with respect to the business or affairs of the Corporation which
materially and adversely affects the operations or reputation of the
Corporation; (4) Executive's conviction of a felony crime; or (5) confirmed
positive illegal drug test result. In the event of a termination for Good Cause,
as enumerated above, Executive shall have no right to any severance
compensation.
(d) Without Good Cause. At any time after the commencement of
employment, Executive may, without cause, terminate this Agreement and
Executive's employment, effective thirty (30) days after written notice is
provided to the Corporation. Executive may only be terminated without Good Cause
by the Corporation during the Term hereof if such termination is approved by a
majority of the members of the Board of Directors of the Corporation and
provided
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<PAGE>
that the Executive receives at least one (1) month written notice. Should
Executive terminate with Good Reason or in the event that Executive is
terminated without Good Cause during the Term, Executive shall receive from the
Corporation, on such dates as would otherwise be paid by the Corporation, the
lesser of the base salary at the rate then in effect for a period of one (1)
year, or the base salary then in effect for the balance of the Term. Further, if
Executive is terminated without Good Cause or terminates his employment
hereunder with Good Reason, (a) the Corporation shall make the insurance premium
payments contemplated by COBRA for a period of six (6) months after such
termination, (b) the Executive shall be entitled to receive a prorated portion
of any annual bonus and other incentive compensation to which the Executive
would have been entitled for the year during which the termination occurred had
the Executive not been terminated, (c) all options to purchase the Corporation's
Common Stock based upon the schedule set forth in paragraph 4(b) shall vest
thereupon, and (d) the Executive shall be entitled to receive all other unpaid
benefits due and owing through Executive's last day of employment. If Executive
resigns or otherwise terminates his employment without Good Reason, rather than
the Corporation terminating his employment pursuant to this paragraph 12,
Executive shall receive no severance compensation.
(e) Corporation's Failure to Execute Initial Public Offering. In
the event that the Corporation does not complete an initial public offering of
the Corporation's securities which does not result in the gross proceeds of at
least $15,000,000 by March 15, 2000, the Corporation hereunder shall have the
right to terminate the employment agreement without any liability.
13. Indemnification. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the
Corporation against Executive), by reason of the fact that he is or was
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<PAGE>
performing services under this Agreement, then the Corporation shall indemnify
Executive against all expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement, as actually and reasonably incurred by Executive in
connection therewith to the maximum extent permitted by applicable law. The
advancement of expenses shall be mandatory. In the event that both Executive and
the Corporation are made a party to the same third-party action, complaint, suit
or proceeding, the Corporation agrees to engage competent legal representation,
and Executive agrees to use the same representation, provided that if counsel
selected by the Corporation shall have a conflict of interest that prevents such
counsel from representing Executive, Executive may engage separate counsel and
the Corporation shall pay all attorneys' fees of such separate counsel. Further,
while Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Corporation for errors or omissions made in good faith where Executive has
not exhibited gross, willful and wanton negligence and misconduct or performed
criminal and fraudulent acts which materially damage the business of the
Corporation.
14. Effect of Waiver. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach thereof.
15. Notices. Any notice permitted, required, or given hereunder shall
be in writing and shall be personally delivered; or delivered by any prepaid
overnight courier delivery service then in general use; or mailed, registered or
certified mail, return receipt requested, to the addresses designated herein or
at such other address as may be designated by notice given hereunder:
If to : Barry Levine
18 Ramapo Trail
Harrison, New York 10528
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<PAGE>
If to : Urban Cool Network, Inc.
1401 Elm Street
Dallas, Texas 75626
With a copy to: Marc G. Rosenberg, Esq.
Silverman, Collura & Chernis, P.C.
381 Park Avenue
New York, New York 10016
Delivery shall be deemed made when actually delivered, or if mailed,
three days after delivery to a United States Post Office.
16. Assignment. Executive shall not be entitled to assign his rights,
duties or obligations under this Agreement.
17. Amendments. The terms and provisions of this Agreement may be
amended or modified only by a written instrument executed by the party to be
charged by such amendment or modification.
18. Governing Law. The terms and provisions herein contained and all
the disputes or claims relating to this Agreement shall be governed by,
interpreted and construed in accordance with the internal laws of the State of
New York, without reference to its conflict of laws principles.
19. Arbitration. (a) In the event of a dispute between the parties
arising out of or relating to this Agreement, or the breach thereof, the parties
shall make every effort to amicably resolve, reconcile, and settle such dispute
between them. Should an amicable resolution not be possible, either party may
invoke arbitration.
(b) Subject to the provisions of Section 11(c)(ii) hereof, all
claims, disputes and other matters in controversy arising out of or related to
this Agreement or the performance or breach
- 10 -
<PAGE>
hereof, shall be decided by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (the "AAA
Rules"), by a panel of three (3) arbitrators, in New York, New York. One (1)
such arbitrator shall be appointed by each of the parties within three (3) weeks
after being requested by the other party to make such appointment and the third
arbitrator shall be appointed by the two (2) arbitrators appointed by the
parties. In the event that a party does not appoint its arbitrator within such
three (3) week period, or the two (2) arbitrators appointed by the parties shall
fail to agree on the third arbitrator, such appointed arbitrator or arbitrators
shall be appointed by the American Arbitration Association in accordance with
the AAA Rules. The award shall state the facts and findings and shall be
rendered with reasons in writing. The arbitrators shall have no authority or
power to alter or modify any express condition or provision of this Agreement,
or to render any award which by its terms shall have the effect of altering or
modifying any express conditions or provisions of this Agreement. The award
rendered by the arbitrators shall be final and judgement may be entered upon it
in any court having jurisdiction thereof. The successful party to the
arbitration shall be entitled to an award for reasonable attorney's fees, as
determined by the arbitrators.
20. Captions. The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
21. Merger and Severability. This Agreement shall constitute the entire
Agreement between the Corporation and Executive with respect to the subject
matter hereof. The invalidity or unenforceability of any provision hereof shall
in no way affect the validity or enforceability of any other provision.
- 11 -
<PAGE>
22. Counterparts; Facsimile. This Agreement may be executed by
facsimile and in two (2) or more counterparts, each of which shall be deemed an
original and all of which together shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have affixed their signatures
the day and year first above written.
Urban Cool Network, Inc.
By: /s/ Jacob R. Miles, III
------------------------------
Name: Jacob R. Miles, III
Title: Chief Executive Officer
/s/ Barry Levine
------------------------------
Barry Levine
- 12 -
EMPLOYMENT AGREEMENT
AGREEMENT made and entered into as of this 22nd day of November, 1999
between Urban Cool Network, Inc., a Delaware corporation (the "Corporation")
having an address at 1401 Elm Street, Dallas, Texas 75226 and Terrence B. Reddy
(the "Executive"), residing at 5948 McFarland Drive, Plano, Texas 75093.
W I T N E S S E T H:
WHEREAS, Executive is presently employed by the Corporation; and
WHEREAS, the Company and the Executive desire to set forth the terms of
Executive's employment with the Company, pursuant to the terms and conditions
hereof.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto agree with each other as follows:
1. Term of Employment. The Corporation agrees to and does hereby employ
Executive, and Executive agrees to and does hereby accept employment by the
Corporation, as the President and Chief Operating Officer of the Corporation,
subject to the supervision and direction of the Chief Executive Officer and the
Board of Directors, for the one (1) year period commencing on the consummation
of the initial public offering of the Corporation's securities (the "Term").
2. Duties of Executive. Executive shall devote such time, attention and
energy to the affairs of Corporation as shall be reasonably required to perform
his duties hereunder, and, in pursuance of the policies and directions of the
Chief Executive Officer, the Corporation and its
<PAGE>
Board of Directors, Executive shall use his best efforts to promote the business
and affairs of the Corporation.
3. Base Compensation. In consideration of the Executive's services
pursuant to this Agreement, Corporation shall pay to Executive, during the
period of Executive's employment under this Agreement (the "Base Compensation"),
(i) a salary at the rate of One Hundred Twenty Five Thousand Dollars ($125,000)
per year during the first year of this Agreement; and (ii) for each year
thereafter, annual compensation shall be determined by the Chief Executive
Officer and its Board of Directors, but not less than $125,000 per year. The
Base Compensation shall be payable in equal installments, in accordance with the
Corporation's customary procedures for executive employees, subject to
applicable tax and payroll deductions.
4. Incentive Compensation.
(a). Provided Executive has duly performed his obligations pursuant
to this Agreement, Executive shall be eligible to receive, as additional
compensation for the services to be rendered by Executive under this Agreement,
incentive compensation. The amount of such incentive compensation, if any, shall
be determined by the Board of Directors in its sole discretion based on the
Executive's performance and contributions to the Corporation's success.
(b). Provided Executive's employment continues during the term
hereof and he is in good standing with the Company, Executive shall be eligible
to receive, as additional compensation for the services to be rendered by
Executive under this Agreement, 10,000 options to purchase shares of the
Company's common stock pursuant to the Company's 1999 Stock Option Plan. Such
options shall vest one year from the date hereof.
- 2 -
<PAGE>
5. Other Benefits.
(a) During the term of this Agreement the Executive shall be
entitled to participate in any benefit plans adopted by the Corporation for the
general and overall benefit of all employees and/or for key executives of the
Corporation such as health care, life insurance, disability, stock option plans,
tax, legal and financial planning services, pension, profit sharing and savings.
(b) During the term of this Agreement, Executive shall be entitled
to a monthly car allowance in the amount of $400.
6. Vacation. Executive shall be entitled to a fully paid vacation of
three (3) weeks per calendar year, which vacation shall be scheduled at such
time or times as the Corporation in consultation with Executive may reasonably
determine.
7. Expenses. The Corporation shall pay or reimburse Executive for all
reasonable and necessary expenses incurred by him in connection with his duties
hereunder, upon submission by Executive to the Corporation of such reasonable
evidence of such expenses as the Corporation may require.
8. Insurance. The Corporation may from time to time apply for policies
of life, health and accident insurance or disability insurance upon the
Executive in such amounts as the Corporation deems appropriate. The Executive
agrees to aid the Corporation in procuring such insurance, including submitting
to a physical examination, if required, and completing any and all forms
required for application for any insurance policy.
9. Disclosure of Information. The Executive shall, during his
employment under this Agreement and thereafter, keep confidential and refrain
from disclosing to any unauthorized persons all data and information relating to
the respective businesses of the Corporation or any of its
- 3 -
<PAGE>
subsidiaries.
10. Intellectual Property Rights. a. The Executive shall promptly
disclose to the Corporation in writing, any and all charts, layouts, maps,
inventions, improvements, techniques, markets, sales and advertising plans,
processes, concepts and plans, whether or not copyrightable or patentable,
secret processes and "know-how," conceived by the Executive during the term of
his employment by the Corporation (the "Executive's Work Product"), whether
alone or with others and whether during regular working hours and through the
use of facilities and property of the Corporation or otherwise, which directly
relates to the present business of the Corporation. Upon the Corporation's
request at any time or from time to time during the Term of the Executive's
employment, the Executive shall (i) deliver to the Corporation copies of the
Executive's Work Product that may be in his possession or otherwise available to
him, and (ii) execute and deliver to the Corporation such applications,
assignments and other documents as it may reasonably require in order to apply
for and obtain copyrights or patents in the United States of America and other
countries with respect to any Executive's Work Product that it deems to be
copyrightable or patentable, and/or otherwise to vest in itself full title
thereto.
b. All documents that pertain to the Corporation, including but not
limited to the Executive's Work Product, shall be the sole and exclusive
property of the Corporation. Upon the termination of the Executive's employment,
all such documents that may be in his possession or otherwise available to him
or shall thereafter come into his possession or control shall be promptly
returned to the Corporation without the necessity of a request therefor.
11. Non-Competition Covenant. a. The Executive shall not, during his
employment by the Corporation, engage, directly or indirectly, in any business
competitive with the business of
- 4 -
<PAGE>
the Corporation without the consent of the Board of Directors.
b. For a period of one (1) year after the termination of the
Executive's employment hereunder (the "Non-Competition Period"), for any reason
whatsoever, other than a termination by the Corporation without good cause, or
by Executive for good reason (as hereinafter defined) the Executive shall not
(i) engage, directly or indirectly, as an officer, director, shareholder, owner,
partner, joint venturer or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales representative in
any business competitive with the business of the corporation without the
permission of the Board of Directors, which permission shall not be unreasonably
withheld or delayed or (ii) induce or actively attempt to influence any other
employee or consultant of the Corporation to terminate his or her employment or
consultancy with the Corporation. Nothing herein contained shall be deemed to
prevent ownership by Executive and his associates (as said term is defined in
regulation 14(A) promulgated under the Securities Exchange Act of 1934 as in
effect on the date hereof), collectively, of not more than 5% of the outstanding
capital stock of a corporation listed on a national securities exchange.
c. (i) The parties to this Agreement consider the restrictions
contained herein reasonable as to the duration of the Non-Competition Period and
the extent of the Territory. However, if the duration of the Non-Competition
Period or the extent of the Territory herein specified should be judged
unreasonable by any Court or arbitration proceeding, the validity and effect of
the remaining provisions of this Agreement shall not be affected thereby and,
the duration of the Non-Competition Period shall be reduced by such number of
months and/or the area of the Territory shall be reduced such that, the
Territory and the Non-Competition Period shall be deemed reasonable so that the
foregoing covenant not to compete may be enforced.
- 5 -
<PAGE>
(ii) Executive agrees and recognizes that in the event of a
breach or threatened breach by Executive of the provisions of the foregoing
covenants, the Corporation may suffer irreparable harm, and that money damages
may not be an adequate remedy. Therefore, the Corporation shall be entitled as a
matter of right to specific performance of the covenants of Executive contained
herein by way of temporary or permanent injunctive relief in a Court of
competent jurisdiction.
12. Termination. This Agreement and Executive's employment may be
terminated in any one of the followings ways:
a. Death. The death of Executive shall immediately terminate this
Agreement with no severance compensation due to Executive's estate.
b. Disability. If, as a result of incapacity due to physical or
mental illness or injury, Executive shall have been absent from his full-time
duties hereunder for three (3) consecutive months, then thirty (30) days after
receiving written notice (which notice may occur before or after the end of such
three (3) month period, but which shall not be effective earlier than the last
day of such three (3) month period), the Corporation may terminate Executive's
employment hereunder provided Executive is unable to resume his full-time duties
at the conclusion of such notice period. Also, Executive may terminate this
employment hereunder if his health should become impaired to an extent that
makes the continued performance of his duties hereunder hazardous to his
physical or mental health or his life, provided that Executive shall have
furnished the Corporation with a written statement from a qualified doctor to
such effect and provided, further, that, at the Corporation's request made
within thirty (30) days of the date of such written statement, Executive shall
submit to an examination by a doctor selected by the Corporation who is
reasonably acceptable
- 6 -
<PAGE>
to Executive or Executive's doctor and such doctor shall have concurred in the
conclusion of Executive's doctor. In the event this Agreement is terminated as a
result of Executive's disability, Executive shall (i) receive from the Company,
in a lump-sum payment due within thirty (30) days of the effective date of
termination, the base salary for one (1) year and (ii) the Corporation shall
make the insurance premium payments contemplated by COBRA for a period of
eighteen (18) months after such termination.
c. Good Cause. The Corporation may terminate this Agreement ten
(10) days after written notice to Executive for "Good Cause," which shall mean
any one or more of the following: (1) Executive's willful, material and
irreparable breach of this Agreement; (2) Executive's gross negligence in the
performance or intentional nonperformance (continuing for ten (10) days after
receipt of written notice of need to cure) of any of Executive's material duties
and responsibilities hereunder; (3) Executive's willful dishonesty, fraud or
misconduct with respect to the business or affairs of the Corporation which
materially and adversely affects the operations or reputation of the
Corporation; (4) Executive's conviction of a felony crime; or (5) confirmed
positive illegal drug test result. In the event of a termination for Good Cause,
as enumerated above, Executive shall have no right to any severance
compensation.
d. Without Good Cause. At any time after the commencement of
employment, Executive may, without cause, terminate this Agreement and
Executive's employment, effective thirty (30) days after written notice is
provided to the Corporation. Executive may only be terminated without Good Cause
by the Corporation during the Term hereof if such termination is approved by a
majority of the members of the Board of Directors of the Corporation and
provided that the Executive receives at least one (1) month written notice.
Should Executive terminate with
- 7 -
<PAGE>
Good Reason or in the event that Executive is terminated without Good Cause
during the Term, Executive shall receive from the Corporation, on such dates as
would otherwise be paid by the Corporation, the lesser of the base salary at the
rate then in effect for a period of one (1) year, or the base salary then in
effect for the balance of the Term. Further, if Executive is terminated without
Good Cause or terminates his employment hereunder with Good Reason, (a) the
Corporation shall make the insurance premium payments contemplated by COBRA for
a period of six (6) months after such termination, (b) the Executive shall be
entitled to receive a prorated portion of any annual bonus and other incentive
compensation to which the Executive would have been entitled for the year during
which the termination occurred had the Executive not been terminated, (c) all
options to purchase the Corporation's Common Stock based upon the schedule set
forth in paragraph 4(b) shall vest thereupon, and (d) the Executive shall be
entitled to receive all other unpaid benefits due and owing through Executive's
last day of employment. If Executive resigns or otherwise terminates his
employment without Good Reason, rather than the Corporation terminating his
employment pursuant to this paragraph 12, Executive shall receive no severance
compensation.
(e).Corporation's Failure to Execute Initial Public Offering. In
the event that the Corporation does not complete an initial public offering of
the Corporation's securities which does not result in the gross proceeds of at
least $15,000,000 by March 15, 2000, the Corporation hereunder shall have the
right to terminate the employment agreement without any liability.
13. Indemnification. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the
Corporation against Executive), by reason of the fact that he is or was
performing services under this Agreement, then the Corporation shall indemnify
Executive against
- 8 -
<PAGE>
all expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Executive in connection
therewith to the maximum extent permitted by applicable law. The advancement of
expenses shall be mandatory. In the event that both Executive and the
Corporation are made a party to the same third-party action, complaint, suit or
proceeding, the Corporation agrees to engage competent legal representation, and
Executive agrees to use the same representation, provided that if counsel
selected by the Corporation shall have a conflict of interest that prevents such
counsel from representing Executive, Executive may engage separate counsel and
the Corporation shall pay all attorneys' fees of such separate counsel. Further,
while Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Corporation for errors or omissions made in good faith where Executive has
not exhibited gross, willful and wanton negligence and misconduct or performed
criminal and fraudulent acts which materially damage the business of the
Corporation.
14. Effect of Waiver. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach thereof.
15. Notices. Any notice permitted, required, or given hereunder shall
be in writing and shall be personally delivered; or delivered by any prepaid
overnight courier delivery service then in general use; or mailed, registered or
certified mail, return receipt requested, to the addresses designated herein or
at such other address as may be designated by notice given hereunder:
If to : Terrence B. Reddy
5948 McFarland Drive
Plano, Texas 75093
If to : Urban Cool Network, Inc.
- 9 -
<PAGE>
1401 Elm Street
Dallas, Texas 75626
With a copy to: Marc G. Rosenberg, Esq.
Silverman, Collura & Chernis, P.C.
381 Park Avenue
New York, New York 10016
Delivery shall be deemed made when actually delivered, or if mailed,
three days after delivery to a United States Post Office.
16. Assignment. Executive shall not be entitled to assign his rights,
duties or obligations under this Agreement.
17. Amendments. The terms and provisions of this Agreement may be
amended or modified only by a written instrument executed by the party to be
charged by such amendment or modification.
18. Governing Law. The terms and provisions herein contained and all
the disputes or claims relating to this Agreement shall be governed by,
interpreted and construed in accordance with the internal laws of the State of
New York, without reference to its conflict of laws principles.
19. Arbitration. a. In the event of a dispute between the parties
arising out of or relating to this Agreement, or the breach thereof, the parties
shall make every effort to amicably resolve, reconcile, and settle such dispute
between them. Should an amicable resolution not be possible, either party may
invoke arbitration.
b. Subject to the provisions of Section 11(c)(ii) hereof, all
claims, disputes and other matters in controversy arising out of or related to
this Agreement or the performance or breach hereof, shall be decided by binding
arbitration in accordance with the Commercial Arbitration Rules
- 10 -
<PAGE>
of the American Arbitration Association (the "AAA Rules"), by a panel of three
(3) arbitrators, in New York, New York. One (1) such arbitrator shall be
appointed by each of the parties within three (3) weeks after being requested by
the other party to make such appointment and the third arbitrator shall be
appointed by the two (2) arbitrators appointed by the parties. In the event that
a party does not appoint its arbitrator within such three (3) week period, or
the two (2) arbitrators appointed by the parties shall fail to agree on the
third arbitrator, such appointed arbitrator or arbitrators shall be appointed by
the American Arbitration Association in accordance with the AAA Rules. The award
shall state the facts and findings and shall be rendered with reasons in
writing. The arbitrators shall have no authority or power to alter or modify any
express condition or provision of this Agreement, or to render any award which
by its terms shall have the effect of altering or modifying any express
conditions or provisions of this Agreement. The award rendered by the
arbitrators shall be final and judgement may be entered upon it in any court
having jurisdiction thereof. The successful party to the arbitration shall be
entitled to an award for reasonable attorney's fees, as determined by the
arbitrators.
20. Captions. The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
21. Merger and Severability. This Agreement shall constitute the entire
Agreement between the Corporation and Executive with respect to the subject
matter hereof. The invalidity or unenforceability of any provision hereof shall
in no way affect the validity or enforceability of any other provision.
22. Counterparts; Facsimile. This Agreement may be executed by
facsimile and in two
- 11 -
<PAGE>
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have affixed their signatures
the day and year first above written.
Urban Cool Network, Inc.
By: /s/ Jacob R. Miles, III
------------------------------
Name: Jacob R. Miles, III
Title: Chief Executive Officer
/s/ Terrence B. Reddy
------------------------------
Terrence B. Reddy
- 12 -
EMPLOYMENT AGREEMENT
AGREEMENT made and entered into as of this 22nd day of November, 1999
between Urban Cool Network, Inc., a Delaware corporation (the "Corporation")
having an address at 1401 Elm Street, Dallas, Texas 75226 and Anthony Winston
(the "Executive"), residing at 2729 Wild Creek Trail, Keller, Texas 76248.
W I T N E S S E T H:
WHEREAS, Executive is presently employed by the Corporation; and
WHEREAS, the Company and the Executive desire to set forth the terms of
Executive's employment with the Company, pursuant to the terms and conditions
hereof.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto agree with each other as follows:
1. Term of Employment. The Corporation agrees to and does hereby employ
Executive, and Executive agrees to and does hereby accept employment by the
Corporation, as the Vice President of Technology and Internet Services of the
Corporation, subject to the supervision and direction of its Chief Executive
Officer and Board of Directors, for the one (1) year period commencing on the
consummation of the initial public offering of the Corporation's securities (the
"Term").
2. Duties of Executive. Executive shall devote such time, attention and
energy to the affairs of Corporation as shall be reasonably required to perform
his duties hereunder, and, in
<PAGE>
pursuance of the policies and directions of the Board of Directors, Executive
shall use his best efforts to promote the business and affairs of the
Corporation.
3. Base Compensation. In consideration of the Executive's services
pursuant to this Agreement, Corporation shall pay to Executive, during the
period of Executive's employment under this Agreement (the "Base Compensation"),
(i) a salary at the rate of One Hundred Thousand Dollars ($100,000) per year
during the first year of this Agreement; and (ii) for each year thereafter,
annual compensation shall be determined by theChief Executive Officer, but not
less than $100,000 per year. The Base Compensation shall be payable in equal
installments, in accordance with the Corporation's customary procedures for
executive employees, subject to applicable tax and payroll deductions.
4. Incentive Compensation.
(a). Provided Executive has duly performed his obligations pursuant
to this Agreement, Executive shall be eligible to receive, as additional
compensation for the services to be rendered by Executive under this Agreement,
incentive compensation. The amount of such incentive compensation, if any, shall
be determined by the Board of Directors in its sole discretion based on the
Executive's performance and contributions to the Corporation's success.
(b). Provided Executive's employment continues during the term
hereof and he is in good standing with the Company, Executive shall be eligible
to receive, as additional compensation for the services to be rendered by
Executive under this Agreement, 10,000 options to purchase shares of the
Company's common stock pursuant to the Company's 1999 Stock Option Plan. Such
options shall vest one year from the date hereof.
- 2 -
<PAGE>
5. Other Benefits. (a) During the term of this Agreement the Executive
shall be entitled to participate in any benefit plans adopted by the Corporation
for the general and overall benefit of all employees and/or for key executives
of the Corporation such as health care, life insurance, disability, stock option
plans, tax, legal and financial planning services, pension, profit sharing and
savings.
(b) During the term of this Agreement, Executive shall be entitled
to a monthly car allowance in the amount of $400.
6. Vacation. Executive shall be entitled to a fully paid vacation of
three (3) weeks per calendar year, which vacation shall be scheduled at such
time or times as the Corporation in consultation with Executive may reasonably
determine.
7. Expenses. The Corporation shall pay or reimburse Executive for all
reasonable and necessary expenses incurred by him in connection with his duties
hereunder, upon submission by Executive to the Corporation of such reasonable
evidence of such expenses as the Corporation may require.
8. Insurance. The Corporation may from time to time apply for policies
of life, health and accident insurance or disability insurance upon the
Executive in such amounts as the Corporation deems appropriate. The Executive
agrees to aid the Corporation in procuring such insurance, including submitting
to a physical examination, if required, and completing any and all forms
required for application for any insurance policy.
9. Disclosure of Information. The Executive shall, during his
employment under this Agreement and thereafter, keep confidential and refrain
from disclosing to any unauthorized persons all data and information relating to
the respective businesses of the Corporation or any of its
- 3 -
<PAGE>
subsidiaries.
10. Intellectual Property Rights. (a) The Executive shall promptly
disclose to the Corporation in writing, any and all charts, layouts, maps,
inventions, improvements, techniques, markets, sales and advertising plans,
processes, concepts and plans, whether or not copyrightable or patentable,
secret processes and "know-how," conceived by the Executive during the term of
his employment by the Corporation (the "Executive's Work Product"), whether
alone or with others and whether during regular working hours and through the
use of facilities and property of the Corporation or otherwise, which directly
relates to the present business of the Corporation. Upon the Corporation's
request at any time or from time to time during the Term of the Executive's
employment, the Executive shall (i) deliver to the Corporation copies of the
Executive's Work Product that may be in his possession or otherwise available to
him, and (ii) execute and deliver to the Corporation such applications,
assignments and other documents as it may reasonably require in order to apply
for and obtain copyrights or patents in the United States of America and other
countries with respect to any Executive's Work Product that it deems to be
copyrightable or patentable, and/or otherwise to vest in itself full title
thereto.
(b) All documents that pertain to the Corporation, including but
not limited to the Executive's Work Product, shall be the sole and exclusive
property of the Corporation. Upon the termination of the Executive's employment,
all such documents that may be in his possession or otherwise available to him
or shall thereafter come into his possession or control shall be promptly
returned to the Corporation without the necessity of a request therefor.
11. Non-Competition Covenant. (a) The Executive shall not, during his
employment by the Corporation, engage, directly or indirectly, in any business
competitive with the business of
- 4 -
<PAGE>
the Corporation without the consent of the
Board of Directors.
(b) For a period of one (1) year after the termination of the
Executive's employment hereunder (the "Non-Competition Period"), for any reason
whatsoever, other than a termination by the Corporation without good cause, or
by Executive for good reason (as hereinafter defined) the Executive shall not
(i) engage, directly or indirectly, as an officer, director, shareholder, owner,
partner, joint venturer or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales representative in
any business competitive with the business of the Corporation, without the
permission of the Board of Directors, which permission shall not be unreasonably
withheld or delayed or (ii) induce or actively attempt to influence any other
employee or consultant of the Corporation to terminate his or her employment or
consultancy with the Corporation. Nothing herein contained shall be deemed to
prevent ownership by Executive and his associates (as said term is defined in
regulation 14(A) promulgated under the Securities Exchange Act of 1934 as in
effect on the date hereof), collectively, of not more than 5% of the outstanding
capital stock of a corporation listed on a national securities exchange.
(c) (i) The parties to this Agreement consider the restrictions
contained herein reasonable as to the duration of the Non-Competition Period and
the extent of the Territory. However, if the duration of the Non-Competition
Period or the extent of the Territory herein specified should be judged
unreasonable by any Court or arbitration proceeding, the validity and effect of
the remaining provisions of this Agreement shall not be affected thereby and,
the duration of the Non-Competition Period shall be reduced by such number of
months and/or the area of the Territory shall be reduced such that, the
Territory and the Non-Competition Period shall be deemed reasonable so that the
foregoing covenant not to compete may be enforced.
- 5 -
<PAGE>
(ii) Executive agrees and recognizes that in the event of a
breach or threatened breach by Executive of the provisions of the foregoing
covenants, the Corporation may suffer irreparable harm, and that money damages
may not be an adequate remedy. Therefore, the Corporation shall be entitled as a
matter of right to specific performance of the covenants of Executive contained
herein by way of temporary or permanent injunctive relief in a Court of
competent jurisdiction.
12. Termination. This Agreement and Executive's employment may be
terminated in any one of the followings ways:
(a) Death. The death of Executive shall immediately terminate this
Agreement with no severance compensation due to Executive's estate.
(b) Disability. If, as a result of incapacity due to physical or
mental illness or injury, Executive shall have been absent from his full-time
duties hereunder for three (3) consecutive months, then thirty (30) days after
receiving written notice (which notice may occur before or after the end of such
three (3) month period, but which shall not be effective earlier than the last
day of such three (3) month period), the Corporation may terminate Executive's
employment hereunder provided Executive is unable to resume his full-time duties
at the conclusion of such notice period. Also, Executive may terminate this
employment hereunder if his health should become impaired to an extent that
makes the continued performance of his duties hereunder hazardous to his
physical or mental health or his life, provided that Executive shall have
furnished the Corporation with a written statement from a qualified doctor to
such effect and provided, further, that, at the Corporation's request made
within thirty (30) days of the date of such written statement, Executive shall
submit to an examination by a doctor selected by the Corporation who is
reasonably acceptable
- 6 -
<PAGE>
to Executive or Executive's doctor and such doctor shall have concurred in the
conclusion of Executive's doctor. In the event this Agreement is terminated as a
result of Executive's disability, Executive shall (i) receive from the Company,
in a lump-sum payment due within thirty (30) days of the effective date of
termination, the base salary for one (1) year and (ii) the Corporation shall
make the insurance premium payments contemplated by COBRA for a period of
eighteen (18) months after such termination.
(c) Good Cause. The Corporation may terminate this Agreement ten
(10) days after written notice to Executive for "Good Cause," which shall mean
any one or more of the following: (1) Executive's willful, material and
irreparable breach of this Agreement; (2) Executive's gross negligence in the
performance or intentional nonperformance (continuing for ten (10) days after
receipt of written notice of need to cure) of any of Executive's material duties
and responsibilities hereunder; (3) Executive's willful dishonesty, fraud or
misconduct with respect to the business or affairs of the Corporation which
materially and adversely affects the operations or reputation of the
Corporation; (4) Executive's conviction of a felony crime; or (5) confirmed
positive illegal drug test result. In the event of a termination for Good Cause,
as enumerated above, Executive shall have no right to any severance
compensation.
(d) Without Good Cause. At any time after the commencement of
employment, Executive may, without cause, terminate this Agreement and
Executive's employment, effective thirty (30) days after written notice is
provided to the Corporation. Executive may only be terminated without Good Cause
by the Corporation during the Term hereof if such termination is approved by a
majority of the members of the Board of Directors of the Corporation and
provided that the Executive receives at least one (1) month written notice.
Should Executive terminate with
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<PAGE>
Good Reason or in the event that Executive is terminated without Good Cause
during the Term, Executive shall receive from the Corporation, on such dates as
would otherwise be paid by the Corporation, the lesser of the base salary at the
rate then in effect for a period of one (1) year, or the base salary then in
effect for the balance of the Term. Further, if Executive is terminated without
Good Cause or terminates his employment hereunder with Good Reason, (a) the
Corporation shall make the insurance premium payments contemplated by COBRA for
a period of six (6) months after such termination, (b) the Executive shall be
entitled to receive a prorated portion of any annual bonus and other incentive
compensation to which the Executive would have been entitled for the year during
which the termination occurred had the Executive not been terminated, (c) all
options to purchase the Corporation's Common Stock based upon the schedule set
forth in paragraph 4(b) shall vest thereupon, and (d) the Executive shall be
entitled to receive all other unpaid benefits due and owing through Executive's
last day of employment. If Executive resigns or otherwise terminates his
employment without Good Reason, rather than the Corporation terminating his
employment pursuant to this paragraph 12, Executive shall receive no severance
compensation.
(e).Corporation's Failure to Execute Initial Public Offering. In
the event that the Corporation does not complete an initial public offering of
the Corporation's securities which does not result in the gross proceeds of at
least $15,000,000 by March 15, 2000, the Corporation hereunder shall have the
right to terminate the employment agreement without any liability.
13. Indemnification. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the
Corporation against Executive), by reason of the fact that he is or was
performing services under this Agreement, then the Corporation shall indemnify
Executive against
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<PAGE>
all expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Executive in connection
therewith to the maximum extent permitted by applicable law. The advancement of
expenses shall be mandatory. In the event that both Executive and the
Corporation are made a party to the same third-party action, complaint, suit or
proceeding, the Corporation agrees to engage competent legal representation, and
Executive agrees to use the same representation, provided that if counsel
selected by the Corporation shall have a conflict of interest that prevents such
counsel from representing Executive, Executive may engage separate counsel and
the Corporation shall pay all attorneys' fees of such separate counsel. Further,
while Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Corporation for errors or omissions made in good faith where Executive has
not exhibited gross, willful and wanton negligence and misconduct or performed
criminal and fraudulent acts which materially damage the business of the
Corporation.
14. Effect of Waiver. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach thereof.
15. Notices. Any notice permitted, required, or given hereunder shall
be in writing and shall be personally delivered; or delivered by any prepaid
overnight courier delivery service then in general use; or mailed, registered or
certified mail, return receipt requested, to the addresses designated herein or
at such other address as may be designated by notice given hereunder:
If to : Anthony Winston
2729 Wild Creek Trail
Keller, Texas 76248.
If to : Urban Cool Network, Inc.
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<PAGE>
1401 Elm Street
Dallas, Texas 75626
With a copy to: Marc G. Rosenberg, Esq.
Silverman, Collura & Chernis, P.C.
381 Park Avenue
New York, New York 10016
Delivery shall be deemed made when actually delivered, or if mailed,
three days after delivery to a United States Post Office.
16. Assignment. Executive shall not be entitled to assign his rights,
duties or obligations under this Agreement.
17. Amendments. The terms and provisions of this Agreement may be
amended or modified only by a written instrument executed by the party to be
charged by such amendment or modification.
18. Governing Law. The terms and provisions herein contained and all
the disputes or claims relating to this Agreement shall be governed by,
interpreted and construed in accordance with the internal laws of the State of
New York, without reference to its conflict of laws principles.
19. Arbitration. (a) In the event of a dispute between the parties
arising out of or relating to this Agreement, or the breach thereof, the parties
shall make every effort to amicably resolve, reconcile, and settle such dispute
between them. Should an amicable resolution not be possible, either party may
invoke arbitration.
(b) Subject to the provisions of Section 11(c)(ii) hereof, all
claims, disputes and other matters in controversy arising out of or related to
this Agreement or the performance or breach hereof, shall be decided by binding
arbitration in accordance with the Commercial Arbitration Rules
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<PAGE>
of the American Arbitration Association (the "AAA Rules"), by a panel of three
(3) arbitrators, in New York, New York. One (1) such arbitrator shall be
appointed by each of the parties within three (3) weeks after being requested by
the other party to make such appointment and the third arbitrator shall be
appointed by the two (2) arbitrators appointed by the parties. In the event that
a party does not appoint its arbitrator within such three (3) week period, or
the two (2) arbitrators appointed by the parties shall fail to agree on the
third arbitrator, such appointed arbitrator or arbitrators shall be appointed by
the American Arbitration Association in accordance with the AAA Rules. The award
shall state the facts and findings and shall be rendered with reasons in
writing. The arbitrators shall have no authority or power to alter or modify any
express condition or provision of this Agreement, or to render any award which
by its terms shall have the effect of altering or modifying any express
conditions or provisions of this Agreement. The award rendered by the
arbitrators shall be final and judgement may be entered upon it in any court
having jurisdiction thereof. The successful party to the arbitration shall be
entitled to an award for reasonable attorney's fees, as determined by the
arbitrators.
20. Captions. The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
21. Merger and Severability. This Agreement shall constitute the entire
Agreement between the Corporation and Executive with respect to the subject
matter hereof. The invalidity or unenforceability of any provision hereof shall
in no way affect the validity or enforceability of any other provision.
22. Counterparts; Facsimile. This Agreement may be executed by
facsimile and in two
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<PAGE>
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
23. Superceding Agreement. This Agreement supercedes and replaces any
other Employment Agreement between the Corporation and the Executive.
IN WITNESS WHEREOF, the parties hereto have affixed their signatures
the day and year first above written.
Urban Cool Network, Inc.
By: /s/ Jacob R. Miles, III
------------------------------
Name: /s/ Jacob R. Miles, III
Title: Chief Executive Officer
/s/ Anthony Winston
------------------------------
Anthony Winston
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URBAN COOL NETWORK, INC.
EXECUTIVE STOCK OPTION PLAN
1. Purpose. The purpose of this Plan is to provide a means whereby Urban Cool
Network, Inc. (the "Company") may, through the grant of options to purchase
Common Stock of the Company, attract and retain as Chief Executive Officer an
individual whose employment by the Company is deemed to be crucial to the
success of the Company.
2. Shares Subject to the Plan. Options may be granted by the Company from
time to time to the Chief Executive Officer to purchase an aggregate of 500,000
shares of Common Stock (no par value) of the Company and 500,000 of such shares
shall be reserved for options granted under the Plan (subject to adjustment as
provided in Section 5(h)). The shares issued upon exercise of options granted
under the Plan may be authorized and unissued shares or shares held by the
Company in its treasury. If any option granted under the Plan shall terminate or
expire, new options covering such shares may thereafter be granted to other
eligible individuals.
3. Eligibility. Options may be granted under this Plan to the Chief Executive
Officer of the Company.
4. Administration of the Plan. The Plan shall be administered by the Stock
Option Committee of the Board of Directors of the Company (the "Committee"). The
Committee shall consist of two members of the Board of Directors chosen by the
Board.
Subject to the provisions of the Plan, the committee shall have the authority
to:
(a) determine the time or times and the manner in which each
option shall be exercisable and the duration of the exercise period;
(b) extend the term of any option (including extension by
reason of any
<PAGE>
optionee's death, permanent disability or retirement); and
(c) issue options under this Plan either as incentive stock
options in accordance with the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") or as nonstatutory options.
The Committee may interpret the Plan, prescribe, amend and rescind any
rules and regulations necessary or appropriate for the administration of the
Plan, and make such other determinations and take such other action as it deems
necessary or advisable. Any interpretation, determination or other action made
or taken by the Committees shall be final, binding and conclusive.
5. Terms and Conditions of Options. Each option granted under the Plan shall
be evidenced by an agreement, in form approved by the Committee, which shall be
subject to the following express terms and conditions and to such other terms
and conditions as the Committee may deem appropriate:
(a) Option Period. Each option agreement shall specify the period for
which the option thereunder is granted and shall provide that the option
shall expire at the end of such period. No option granted under this Plan may
be exercisable after the expiration of ten years from the date the option is
granted; provided, however, that any incentive option granted to the
President (if he shall then own more than 10 percent of the voting power of
all classes of the Company's Stock) shall not be exercisable after the
expiration of five years from the date such option is granted.
(b) Option Price. The option price per share shall be $10.00, provided
that, to the extent any options are intended to qualify as incentive stock
options, the option price per
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<PAGE>
share shall not be less than the fair market value of the Common Stock of the
Company on the date the option is granted, as determined by the Committee.
(c). Stock Option Plan. Pursuant to the Plan, options to purchase an
aggregate of 500,000 shares of common stock have been granted to Jacob R.
Miles, III, the Chairman and Chief Executive Officer of the Company. Of such
options, options to purchase 250,000 shares of common stock shall be
exercisable immediately at an exercise price equal to the initial public
offering price. The balance of such options shall be exercisable for a period
of five years at an exercise price equal to 110% of the initial public
offering price. Such options are exercisable only if the Company achieves the
annual audited gross revenue as outlined in the table below and will become
exercisable immediately following the fiscal year indicated.
(d). Payment of Purchase Price upon Exercise. The purchase price of the
shares as to which an option shall be exercised shall be paid to the Company
in full at the time of exercise.
(e). Termination of Employment. Any option agreement under this Plan
shall provide that:
(1). If prior to the expiration date of the option (the "expiration
date") the employee shall for any reason whatever, other than (i) his
authorized retirement as defined in (2) below, or (ii) his death, cease
to be employed by the Company, any unexercised portion of the option
granted shall, after three months from such expiration date,
automatically terminate;
(2). If prior to the expiration date, the employee shall (i) retire
upon or after reaching the age which at the time of retirement is
established as the
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<PAGE>
normal retirement age for employees of the Company (such normal retirement
age not being greater than 65 years) or (ii) with the written consent of
the Company retire prior to such age on account of physical or mental
disability (such retirement pursuant to (i) or (ii) being deemed an
authorized retirement") any unexercised portion of the option shall expire
at the end of three months after such authorized retirement provided that
if such authorized retirement is due to physical or mental disability,
then any unexercised portion of the option shall expire at the end of one
year after such authorized retirement, and during such three months' or
one year period (as the case may be) the employee may exercise all or any
part of the then unexercised portion of the option; and (iii) if prior to
the expiration date, the employee shall die (at a time when he is an
employee of the Company or within three months after his authorized
retirement), the legal representatives of his estate or a legatee or
legatees shall have the privilege, for a period of twelve months after his
death, of exercising all or any part of the then unexercised portion of
the option. Nothing in (ii) or (iii) shall extend the time for exercising
any option granted pursuant to the Plan beyond the expiration date.
(f) Transferability of Options. No option granted under the Plan and no
right arising under any such option shall be transferable other than by will or
by the laws of descent and distribution. During the lifetime of the optionee an
option shall be exercisable only by him.
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<PAGE>
(g) Investment Representation. Each option agreement may contain an
undertaking that, upon demand by the committee for such a representation, the
optionee (or any person acting under Section 5(e) shall deliver to the Committee
at the time of any exercise of an option a written representation that the
shares to be acquired upon such exercise are to be acquired for investment and
not for resale or with a view to the distribution thereof. Upon such demand,
delivery of such representation prior to the delivery of any shares issued upon
exercise of an option and prior to the expiration of the option period shall be
a condition precedent to the right of the optionee or such other person to
purchase any shares.
(h) Adjustment in Event of Change in Common Stock. In the event of any
change in the Common Stock of the Company by reason of any stock dividend,
recapitalization, reorganization, merger, consolidation, split-up, combination
or exchange of shares, or rights offering to purchase Common Stock at a price
substantially below fair market value, or of any similar change affecting the
Common Stock, the number and kind of shares which thereafter may be optioned and
sold under the Plan and the number and kind of sharers subject to option in
outstanding option agreements and the purchase price per share thereof shall be
appropriately adjusted consistent with such change in such manner as the
Committee may deem equitable to prevent substantial dilution or enlargement of
the rights granted to, or available for, participants in the Plan.
(i) Optionees to Have No Rights as a Stockholder. No optionee shall have
any rights as a stockholder with respect to any shares subject to his option
prior to the date on which he is recorded as the holder of such shares on the
records of the Corporation.
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<PAGE>
(j) Plan and Option Not to Confer Rights with Respect to Continuance of
Employment. The Plan and any option granted under the Plan shall not confer upon
any optionee any right with respect to continuance of employment by the Company,
nor shall they interfere in any way with the right of the Company to terminate
his employment at any time.
6. Purchase Price. The purchase price for a shares of the stock subject to
any option granted hereunder shall be not less than the fair market value of the
stock on the date of grant of the option, said fair market value to be
determined in good faith at the time of grant of such option by decision of the
Committee; provided, however, that in the case of an incentive option granted to
any person then owning more than 10 percent of the voting power of all classes
of the Company's stock, the purchase price per share of the stock subject to
option shall be not less than 110 percent of the fair market value of the stock
on the date of grant of the option, determined in good faith as aforesaid.
7. Compliance with Laws and Regulations. The Plan, the grant and exercise of
options thereunder, and the obligation of the Company to sell and deliver shares
under such options, shall be subject to all applicable federal and state laws,
rules and regulations and to such approvals by any government or regulatory
agency as may be required. The Company shall not be required to issue or deliver
any certificates for shares of Common Stock prior to (i) the listing of such
shares on any stock exchange on which the Common Stock may then be listed and
(ii) the completion of any registration or qualification of such share under any
federal or state law, or any ruling or regulation of any government body which
the Company shall, in its sole discretion, determine to be necessary or
advisable.
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<PAGE>
8. Effective Date of the Plan and Jurisdiction. The effective date of the
Plan shall be the date of its adoption by the Board of Directors, subject to its
approval by the shareholders within twelve months of the date of its adoption.
Notwithstanding the foregoing, if the Plan shall have been approved by the Board
prior to such stockholder approval, options may be granted by the Committee as
provided herein subject to such subsequent stockholder approval. This Plan shall
be governed by the laws of the State of New York.
9. Name. The Plan shall be known as the "Urban Cool Network, Inc. Executive
Stock Option Plan."
URBAN COOL NETWORK, INC.
1999 STOCK OPTION PLAN
1. Purpose. The purpose of this Urban Cool Network, Inc. 1999 Stock
Option Plan (the "Plan") is to provide a means whereby Urban Cool Network, Inc.
and any present or future subsidiaries (collectively referred to as the
"Company") may, through the grant of options to purchase shares of the Company's
common stock, $.01 par value per share (the "Common November 22, 1999 Stock"),
attract and retain persons of ability as key employees, members of the Board of
Directors and consultants and motivate such individuals to exert their best
efforts on behalf of the Company.
2. Shares Subject to the Plan. Options may be granted by the Company
from time to time to eligible individuals to purchase an aggregate of 500,000
shares of Common Stock and 500,000 of such shares shall be reserved for options
granted under the Plan (subject to adjustment as provided in Section 5(h)
hereof). The shares issued upon exercise of options issued under the Plan may be
authorized and unissued shares or shares held by the Company in its treasury. If
any option granted under the Plan shall terminate or expire, new options
covering such shares may thereafter be granted to other eligible individuals.
3. Eligibility. Options may be granted under the Plan to employees
of the Company, including officers, who are designated as key employees by the
Committee (as defined in Section 4 hereof). Members of the Board of Directors
and consultants of the Company selected by the Committee shall also be eligible
to receive options under the Plan.
1
<PAGE>
4. Administration of the Plan. This Plan shall be administered by a
committee (the "Committee") of at least two members of the Board of Directors,
as appointed from time to time. Any action of the Committee with respect to
administration of the Plan shall be taken pursuant to (i) a majority vote at a
meeting of the Committee (to be documented by minutes), or (ii) the unanimous
written consent of its members.
Subject to the provisions of the Plan, the Committee shall have the
authority to:
(a) determine and designate from time to time those eligible
individuals to whom options are to be granted and the number of
shares to be optioned to each individual; provided, however, that no
option shall be granted after the expiration of the period of ten
years from the effective date of the Plan specified in Section 10
hereof;
(b) determine the time or times and the manner in which each
option shall be exercisable and the duration of the exercise period;
(c) extend the term of any option (including extension by
reason of any optionee's death, permanent disability or retirement);
and
(d) issue options under the Plan either as incentive stock
options in accordance with the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or as
nonstatutory options.
The Committee may interpret the Plan, prescribe, amend and rescind
any rules and regulations necessary or appropriate for the administration of the
Plan, and make such other determinations to take such other action as it deems
necessary or advisable. Any interpretation, determination or other action made
or taken by the Committee shall be final, binding and conclusive.
5. Terms and Conditions of Options. Each option granted under the
Plan shall be evidenced by an agreement, in form and substance approved by the
Committee from time to time, which shall
2
<PAGE>
be subject to the following express terms and conditions and to such other terms
and conditions as the Committee may deem appropriate:
(a) Option Period. Each option agreement shall specify the
period for which the option thereunder is granted and shall provide
that the option shall expire at the end of such period. No option
granted under this Plan may be exercisable after the expiration of
ten years from the date the option is granted; provided, however,
that any incentive option granted to any person owning more than 10
percent of the voting power of all classes of any member of the
Company's stock shall not be exercisable after the expiration of
five years from the date such option is granted.
(b) Option Price. The option price per share shall be
determined by the Committee at the time any option is granted,
provided that, to the extent that any options are intended to
qualify as incentive stock options, the option price per share shall
not be less than the fair market value of a share of Common Stock on
the date the option is granted, as determined by the Committee.
(c) Exercise of Option.
(1) In the case of an optionee who is an employee, no
part of any option may be exercised until the optionee shall
have remained in the employ of the Company for such period
after the date on which the option is granted as the Committee
may specify in the option agreement, and until such other
conditions as specified in the option agreement shall have
been satisfied. Subject in each case to the provisions of
paragraphs (a) through
(c) and (e) of this Section 5, any option may be exercised, to
the extent exercisable by its terms, at such time or times as
may be determined by the Committee at the time of grant.
(2) In the case of an optionee who is a Member of the
Board of Directors or a consultant, the Committee may specify
in the option agreement any requirement as to the period of
time after the grant of the option that the optionee is
required to be a member of the Board of Directors or a
consultant to the Company or other conditions which shall be
3
<PAGE>
satisfied before the option is exercisable, in whole or in
part. Any option may be exercised, to the extent exercisable
by its terms, at such time or times as may be determined by
the Committee at the time of grant. The option agreement may
also specify the extent to which the option is exercisable in
the event of the death or disability of the optionee, by whom
the option is exercisable, and the requirements for exercise
of the option in either of such events.
(d) Payment of Purchase Price upon Exercise. The purchase
price of the shares as to which an option shall be exercised shall
be paid to the Company in full at the time of exercise.
(e) Termination of Employment. Any option agreement with an
employee under this Plan shall provide that:
(1) If prior to the expiration date of the option (the
"expiration date") the employee shall for any reason
whatsoever, other than (i) his authorized retirement as
defined in (2) below, (ii) his permanent and total disability
as defined in (3) below, or (iii) his death, cease to be
employed by the Company, any unexercised portion of the option
granted shall automatically terminate;
(2) If prior to the expiration date, the employee shall
(i) retire upon or after reaching the age which at the time of
retirement is established as the normal retirement age
for employees of the Company (such normal retirement age now
being 65 years) or (ii) with the written consent of the
Company retire prior to such age on account of physical or
mental disability (such retirement pursuant to (i) or (ii)
hereof being deemed an "authorized retirement") any
unexercised portion of the option shall expire at the end of
three months after such authorized retirement, and during such
three month period the employee may exercise all or any part
of the then unexercised portion of the option;
4
<PAGE>
(3) If prior to the expiration date, the employee shall
become permanently and totally disabled (within the meaning of
Section 22 (e)(3) of the Code) any unexercised portion of the
option shall expire at the end of twelve months after
termination of employment from the Company due to such
permanent and total disability; and
(4) If prior to the expiration date, the employee shall
die (at a time when he is an employee of the Company or within
three months after his (i) authorized retirement or (ii)
termination due to permanent and total disability), the legal
representatives of his estate or a legatee or legatees shall
have the privilege, for a period of six months after his
death, of exercising all or any part of the then unexercised
portion of the option. Nothing in (2), (3) or (4) shall extend
the time for exercising any option granted pursuant to the
Plan beyond the expiration date.
(f) Transferability of Options. To the extent required by
applicable law including the Code, no option granted under the Plan
and no right arising under any such option shall be transferable
other than by will or by the laws of descent and distribution and
during the lifetime of the optionee an option shall be exercisable
only by him.
(g) Investment Representation. Each option agreement may
contain an undertaking that, upon demand by the Committee for such a
representation, the optionee (or any person acting
under Section 5(e) hereof) shall deliver to the Committee at the
time of any exercise of an option a written representation that the
shares to be acquired upon such exercise are to be acquired for
investment and not for resale or with a view to the distribution
thereof. Upon such demand, delivery of such representation prior to
the delivery of any shares issued upon exercise of an option and
prior to the expiration of the option period shall be a condition
precedent to the right of the optionee of such other person to
purchase any shares.
5
<PAGE>
(h) Adjustments in Event of Change in Common Stock. In the
event of any change in the Common Stock by reason of any stock
dividend, recapitalization, reorganization, merger, consolidation,
split-up, combination or exchange of shares, or rights offering to
purchase Common Stock at a price substantially below fair market
value, or of any similar change affecting the Common Stock, the
number and kind of shares which thereafter may be optioned and sold
under the Plan and the number and kind of shares subject to option
in outstanding option agreements and the purchase price per share
thereof shall be appropriately adjusted consistent with such change
in such manner as the Committee may deem equitable to prevent
substantial dilution or enlargement of the rights granted to, or
available for, participants in the Plan.
(i) Optionees to Have No Rights as a Stockholder. No optionee
shall have any rights as a stockholder with respect to any shares
subject to his option prior to the date on which he is recorded as
the holder of such shares on the records of the Company.
(j) Plan and Option Not to Confer Rights with Respect to
Continuance of Employment. The Plan and any option granted under the
Plan shall not confer upon any optionee any right with respect to
continuance of employment by the Company, nor shall they interfere
in any way with the right of the Company to terminate his employment
at any time.
6. Limitation. Incentive stock options shall not be granted under
the Plan, which first become exercisable in any calendar year and which permit
the optionee to purchase shares of the Company having an aggregate value in
excess of $100,000, determined at the time of the grant of the options. No
optionee may exercise incentive stock options during a calendar year for the
purchase of shares having an aggregate fair market value (determined at the time
of the grant of the options) exceeding $100,000, except and to the extent that
such options were first exercisable in preceding calendar years.
6
<PAGE>
7. Purchase Price. The purchase price for a share of the stock
subject to any option granted hereunder shall be determined by the Committee at
the time the option is granted, provided that, to the extent that any options
are intended to qualify as incentive stock options, the option price per share
shall not be less than the fair market value of the stock on the date of grant
of the option, said fair market value to be determined in good faith at the time
of grant of such option by decision of the Committee; and, further provided,
that in the case of an incentive option granted to any person then owning more
than 10 percent of the voting power of all classes of the Company's stock, the
purchase price per share of the stock subject to option shall be not less than
110 percent of the fair market value of the stock on the date of grant of the
option, determined in good faith as aforesaid.
8. Compliance with Laws and Regulations. The Plan, the grant and
exercise of options thereunder, and the obligation of the Company to sell and
deliver shares under such options, shall be subject to all applicable federal
and state laws, including any withholding tax requirements, rules and
regulations and to such approvals by any government or regulatory agency as may
be required. The Company shall not be required to issue or deliver any
certificates for shares of Common Stock prior to (i) the collection of an amount
from the optionee sufficient to satisfy any withholding tax requirements; (ii)
the listing of such shares on any stock exchange on which the Common Stock may
then be listed; and (iii) the completion of any registration or qualification of
such shares under any federal or state law, or any ruling or regulation of any
government body which the Company shall, in its sole discretion, determine to be
necessary or advisable.
9. Amendment or Discontinuance of the Plan. The Board of Directors
of the Company may at any time amend, suspend or terminate the Plan; provided
however, that, subject to the provisions of Section 5(h) hereof, no action of
the Board may (i) increase the number of shares reserved for
7
<PAGE>
options pursuant to Section 2 hereof, and (ii) permit the granting of any option
at an option price less than that determined in accordance with Section 5(b)
hereof. Without the written consent of an optionee, no amendment, discontinuance
or termination of the Plan shall alter or impair any option previously granted
to him under the Plan.
10. Effective Date of the Plan and Jurisdiction. The effective date
of the Plan shall be the date of its adoption by the Board of Directors, subject
to its approval by the shareholders within twelve months of the date of its
adoption. Notwithstanding the foregoing, if the Plan shall have been approved by
the Board prior to such stockholder approval, options may be granted by the
Committee as provided herein subject to such subsequent stockholder approval.
The Plan shall be governed by the laws of the State of Delaware.
11. Name. The Plan shall be known as the "Urban Cool Network, Inc.
1999 Stock Option Plan."
8
NEITHER THE SECURITIES REPRESENTED HEREBY NOR THE SECURITIES ISSUABLE UPON THE
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE
OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN
OPINION OF COUNSEL TO THE HOLDER OF THIS WARRANT OR SUCH SECURITIES, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THIS
WARRANT OR SUCH SECURITIES, AS APPLICABLE, MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED, OR OTHERWISE TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR APPLICABLE STATE
SECURITIES LAWS.
THE TRANSFER OF THIS WARRANT IS RESTRICTED AS DESCRIBED HEREIN.
URBAN COOL NETWORK, INC.
Warrants for the Purchase of 1,000,000 Shares
of Common Stock, Par Value $ 0.01 per share
No. ______ , 1999
THIS CERTIFIES that, for value received Stanley Wolfson. (together
with all permitted assigns, the "Holder") is entitled to subscribe for, and
purchase from, Urban Cool Network, Inc., a Delaware corporation (the "Company"),
upon the terms and conditions set forth herein, 1,000,000 shares of common stock
of the Company, par value $.01 per share ("Common Stock").
This Warrant shall become exercisable as follows:
(i) warrants to purchase 200,000 shares of Common Stock shall be
exercisable upon e-Commerce Solutions, Inc., achieving gross
sales of at least $2,500,000 within 24 months of the Funding
Date, as defined below;
(ii warrants to purchase an additional 200,000 shares of Common Stock
shall be exercisable upon e-Commerce Solutions, Inc., achieving
gross sales of at least $7,500,000 within 24 months of the
Funding Date, as defined below;
(iii warrants to purchase an additional 200,000 shares of Common Stock
shall be exercisable upon e-Commerce Solutions, Inc., achieving
gross sales of at least $15,000,000 within 24 months of the
Funding Date, as defined below;
(iv) warrants to purchase an additional 200,000 shares of Common Stock
shall be exercisable upon e-Commerce Solutions, Inc., achieving
gross sales of at least $25,000,000 within 24 months of the
Funding Date, as defined below; and
(v) warrants to purchase an additional 200,000 shares of Common Stock
shall be exercisable upon e-Commerce Solutions, Inc., achieving
gross sales of at least $25,000,00 within 12 months of the
Funding Date, as defined below or e-
<PAGE>
Commerce Solutions achieving gross sales of at least $50,000,000
within 24 months of the funding date, as defined below.
The determination of gross sales of e-Commerce Solutions, Inc. shall be
made by the independent certified public accountants employed by e-Commerce
Solutions, Inc. The Funding Date shall mean the date that the Company has
provided funding to e-Commerce Solutions, Inc. of at least $3,000,000, or such
lesser amount as agreed to by Holder.
The rights to subscribe for and purchase shares of Common Stock pursuant
to this Warrant shall terminate at 5:00 p.m., New York City local time, on the
date which is the fifth anniversary of the date hereof (such five year term, the
"Exercise Period") or in the event that this Warrant is to be canceled pursuant
to the terms of the Shareholders= Agreement dated the date hereof between the
Company, the Holder and e-Commerce Solutions, Inc.
During the Exercise Period, this Warrant is exercisable at an exercise
price of $1.00 per share (the AExercise Price@); provided, however, that upon
the occurrence of any of the events specified in Section 5 hereof, the rights
granted by this Warrant, including the number of shares of Common Stock to be
received upon such exercise, shall be adjusted as therein specified.
Section 1 Exercise of Warrant.
(a) This Warrant may be exercised during the Exercise Period, either in
whole or in part, by the surrender of this Warrant (with the election at the end
hereof duly executed) to the Company, at Urban Cool Network, Inc., 1401 Elm
Street, Dallas, Texas 75226, or at such other place as is designated in writing
by the Company, together with a certified or bank cashier's check payable to the
order of the Company in an amount equal to the product of the Exercise Price and
the number of Warrant Shares for which this Warrant is being exercised.
(b) At any time during the term, the Holder may, at its election, exchange
these Warrants, in whole or in part (an "Warrant Exchange"), into the number of
shares determined in accordance with this paragraph 1(b) by surrendering these
Warrants at the principal office of the Company, accompanied by a notice stating
the Holder's intent to effect such exchange, the number of shares to be
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
shares issuable upon such Warrant Exchange and, if applicable, a new Warrant of
like tenor evidencing the balance of the shares remaining subject to this
Warrant, shall be issued as of the Exchange Date and delivered to the Holder
within five (5) business days following the Exchange Date. In connection with
any Warrant Exchange, this Warrant shall represent the right to subscribe for
and acquire the number of shares (rounded to the next highest integer) equal to
(i) the number of shares specified by the Holder in its Notice of Exchange (the
"Total Number") less (ii) the number of shares equal to the quotient obtained by
dividing (A) the product of the Total Number and the then existing exercise
price by (B) the closing bid price of a share of the Company's Common Stock.
Section 2 Rights Upon Exercise; Delivery of Securities.
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<PAGE>
Upon each exercise of the Holder's rights to purchase Warrant Shares, the
Holder shall be deemed to be the holder of record of the Warrant Shares,
notwithstanding that the transfer books of the Company shall then be closed or
certificates representing the Warrant Shares with respect to which this Warrant
was exercised shall not then have been actually delivered to the Holder. As soon
as practicable after each such exercise of this Warrant, the Company shall issue
and deliver to the Holder a certificate or certificates representing the Warrant
Shares issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a Warrant
evidencing the right of the Holder to purchase the balance of the aggregate
number of Warrant Shares purchasable hereunder as to which this Warrant has not
been exercised or assigned.
Section 3 Registration of Transfer and Exchange.
Any Warrants issued upon the transfer or exercise in part of this Warrant
shall be numbered and shall be registered in a warrant register (the "Warrant
Register") as they are issued. The Company shall be entitled to treat the
registered holder of any Warrant on the Warrant Register as the owner in fact
thereof for all purposes, and shall not be bound to recognize any equitable or
other claim to, or interest in, such Warrant on the part of any other person,
and shall not be liable for any registration or transfer of Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration of transfer, or
with the knowledge of such facts that its participation therein amounts to bad
faith. This Warrant shall be transferable on the books of the Company only upon
delivery thereof duly endorsed by the Holder or by his duly authorized attorney
or representative, or accompanied by proper evidence of succession, assignment,
or authority to transfer. In all cases of transfer by an attorney, executor,
administrator, guardian, or other legal representative, duly authenticated
evidence of his, her, or its authority shall be produced. Upon any registration
of transfer, the Company shall deliver a new Warrant or Warrants to the person
entitled thereto. This Warrant may be exchanged, at the option of the Holder
thereof, for another Warrant, or other Warrants of different denominations, of
like tenor and representing in the aggregate the right to purchase a like number
of Warrant Shares (or portions thereof), upon surrender to the Company or its
duly authorized agent. Notwithstanding the foregoing, the Company shall have no
obligation to cause Warrants to be transferred on its books to any person if, in
the opinion of counsel to the Company, such transfer does not comply with the
provisions of the Securities Act and the rules and regulations thereunder.
Section 4 Reservation of Shares.
The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of the Warrants, such number of shares of Common Stock as shall,
from time to time, be sufficient therefor. The Company represents that all
shares of Common Stock issuable upon exercise of this Warrant are duly
authorized and, upon receipt by the Company of the full payment for such Warrant
Shares, will be validly issued, fully paid, and nonassessable, without any
personal liability attaching to the ownership thereof and will not be issued in
violation of any preemptive or similar rights of stockholders.
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<PAGE>
Section 5 Antidilution.
(a) In the event that the Company shall at any time after the Initial
Exercise Date: (i) declare a dividend on the outstanding Common Stock payable in
shares of its capital stock; (ii) subdivide the outstanding Common Stock; (iii)
combine the outstanding Common Stock into a smaller number of shares; or (iv)
issue any shares of its capital stock by reclassification of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), then, in each case,
the Exercise Price per Warrant Share in effect at the time of the record date
for the determination of stockholders entitled to receive such dividend or
distribution or of the effective date of such subdivision, combination, or
reclassification shall be adjusted so that it shall equal the price determined
by multiplying such Exercise Price by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
action, and the denominator of which shall be the number of shares of Common
Stock outstanding after giving effect to such action. Such adjustment shall be
made successively whenever any event listed above shall occur and shall become
effective at the close of business on such record date or at the close of
business on the date immediately preceding such effective date, as applicable.
(b) All calculations under this Section 5 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be.
(c) In any case in which this Section 5 shall require that an adjustment
in the number of Warrant Shares be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, issuing to the Holder, if the Holder exercised this Warrant after such
record date, the Warrant Shares, if any, issuable upon such exercise over and
above the number of Warrant Shares issuable upon such exercise on the basis of
the number of shares of Common Stock in effect prior to such adjustment;
provided, however, that the Company shall deliver to the Holder a due bill or
other appropriate instrument evidencing the Holder's right to receive such
additional shares of Common Stock upon the occurrence of the event requiring
such adjustment.
(d) Whenever there shall be an adjustment as provided in this Section 5,
the Company shall within 15 days thereafter cause written notice thereof to be
sent by registered mail, postage prepaid, to the Holder, at its address as it
shall appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares issuable and
the Exercise Price thereof after such adjustment and setting forth a brief
statement of the facts requiring such adjustment and the computation thereof,
which officer's certificate shall be conclusive evidence of the correctness of
any such adjustment absent manifest error.
(e) The Company shall not be required to issue fractions of shares of
Common Stock or other capital stock of the Company upon the exercise of this
Warrant. If any fraction of a share of Common Stock would be issuable on the
exercise of this Warrant (or specified portions thereof), the Company shall pay
lieu of such fraction an amount in cash equal to the same fraction of the
average closing sale price (or average of the closing bid and asked prices, if
closing sale price is not
- 4 -
<PAGE>
available) of Common Stock for the 10 trading days ending on and including the
date of exercise of this Warrant.
(f) No adjustment in the Exercise Price per Warrant Share shall be
required if such adjustment is less than $.01; provided, however, that any
adjustments which by reason of this Section 5 are not required to be made shall
be carried forward and taken into account in any subsequent adjustment.
(g) Whenever the Exercise Price payable upon exercise of this Warrant is
adjusted pursuant to subsection (a) above, the number of Warrant Shares issuable
upon exercise of this Warrant shall simultaneously be adjusted by multiplying
the number of Warrant Shares issuable upon exercise of this Warrant on the date
hereof by the Exercise Price in effect on the date hereof and dividing the
product so obtained by the Exercise Price, as adjusted.
Section 6 Reclassification; Reorganization; Merger.
(a) In case of any capital reorganization, other than in the cases
referred to in Section 5(a) hereof, or the consolidation or merger of the
Company with or into another corporation (other than a merger or consolidation
in which the Company is the continuing corporation and which does not result in
any reclassification of the outstanding shares of Common Stock or the conversion
of such outstanding shares of Common Stock into shares of other stock or other
securities or property), or in the case of any sale, lease, or conveyance to
another corporation of the property and assets of any nature of the Company as
an entirety or substantially as an entirety (such actions being hereinafter
collectively referred to as "Reorganizations"), there shall thereafter be
deliverable upon exercise of this Warrant (in lieu of the number of Warrant
Shares theretofore deliverable) the number of shares of stock or other
securities or property to which a holder of the respective number of Warrant
Shares which would otherwise have been deliverable upon the exercise of this
Warrant would have been entitled upon such Reorganization if this Warrant had
been exercised in full immediately prior to such Reorganization. In case of any
Reorganization, appropriate adjustment, as determined in good faith by the Board
of Directors of the Company, shall be made in the application of the provisions
herein set forth with respect to the rights and interests of the Holder so that
the provisions set forth herein shall thereafter be applicable, as nearly as
possible, in relation to any shares or other property thereafter deliverable
upon exercise of this Warrant. Any such adjustment shall be made by, and set
forth in, a supplemental agreement between the Company, or any successor
thereto, and the Holder, with respect to this Warrant, and shall for all
purposes hereof conclusively be deemed to be an appropriate adjustment. The
Company shall not effect any such Reorganization unless, upon or prior to the
consummation thereof, the successor corporation, or if the Company shall be the
surviving corporation in any such Reorganization and is not the issuer of the
shares of stock or other securities or property to be delivered to holders of
shares of the Common Stock outstanding at the effective time thereof, then such
issuer, shall assume by written instrument the obligation to deliver to the
Holder such shares of stock, securities, cash, or other property as such Holder
shall be entitled to purchase in accordance with the foregoing provisions. In
the event of sale, lease, or conveyance or other transfer of all or
substantially all of the assets of the Company as part of a plan for liquidation
of the Company, all rights to exercise this Warrant
- 5 -
<PAGE>
shall terminate 30 days after the Company gives written notice to the Holder
that such sale or conveyance or other transfer has been consummated.
(b) In case of any reclassification or change of the shares of Common
Stock issuable upon exercise of this Warrant (other than a change in par value
or from a specified par value to no par value, or as a result of a subdivision
or combination, but including any change in the shares into two or more classes
or series of shares), or in case of any consolidation or merger of another
corporation into the Company in which the Company is the continuing corporation
and in which there is a reclassification or change (including a change to the
right to receive cash or other property) of the shares of Common Stock (other
than a change in par value, or from no par value to a specified par value, or as
a result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), the Holder or holders of this
Warrant shall have the right thereafter to receive upon exercise of this Warrant
solely the kind and amount of shares of stock and other securities, property,
cash, or any combination thereof receivable upon such reclassification, change,
consolidation, or merger by a holder of the number of Warrant Shares for which
this Warrant might have been exercised immediately prior to such
reclassification, change, consolidation, or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 5.
(c) The above provisions of this Section 6 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
Section 7 Notice of Certain Events.
In case at any time the Company shall propose:
(a) to pay any dividend or make any distribution on shares of Common Stock
in shares of Common Stock or make any other distribution (other than regularly
scheduled cash dividends which are not in a greater amount per share than the
most recent such cash dividend) to all holders of Common Stock; or
(b) to issue any rights, warrants, or other securities to all holders of
Common Stock entitling them to purchase any additional shares of Common Stock or
any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of outstanding shares of
Common Stock or any consolidation, merger, sale, lease, or conveyance of
property, as described in Section 6; or
(d) to effect any liquidation, dissolution, or winding-up of the
Company; or
(e) to take any other action which would cause an adjustment to the
Exercise Price per Warrant Share;
- 6 -
<PAGE>
then, and in any one or more of such cases, the Company shall give written
notice thereof by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 15
days prior to: (i) the date as of which the holders of record of shares of
Common Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined; (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up; or (iii) the date of such action which would require
an adjustment to the Exercise Price per Warrant Share.
Section 8 Charges and Taxes.
The issuance of any shares or other securities upon the exercise of this
Warrant and the delivery of certificates or other instruments representing such
shares or other securities shall be made without charge to the Holder for any
tax or other charge in respect of such issuance. The Company shall not, however,
be required to pay any tax which may be payable in respect of any transfer
involved in the issue and delivery of any certificate in a name other than that
of the Holder and the Company shall not be required to issue or deliver any such
certificate unless and until the person or persons requesting the issue thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid.
Section 9 Periodic Reports.
The Company agrees that until all the Warrant Shares shall have been sold
pursuant to Rule 144 under the Securities Act or a Registration Statement under
the Securities Act, it shall keep current in filing all reports, statements, and
other materials required to be filed with the Commission to permit holders of
the Warrant Shares to sell such securities under Rule 144 under the Securities
Act.
Section 10 Legend.
Until sold pursuant to the provisions of Rule 144 or otherwise registered
under the Securities Act, the Warrant Shares issued on exercise of the Warrants
shall be subject to a stop transfer order and the certificate or certificates
representing the Warrant Shares shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR
OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT
THERETO IS EFFECTIVE UNDER THE
- 7 -
<PAGE>
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY
RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF THE SECURITIES, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE
TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS.
Section 11 Loss; Theft; Destruction; Mutilation.
Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction, or mutilation of any Warrant (and upon surrender of any Warrant if
mutilated), and upon receipt by the Company of reasonably satisfactory
indemnification, the Company shall execute and deliver to the Holder thereof a
new Warrant of like date, tenor, and denomination.
Section 12 Stockholder Rights.
The Holder of any Warrant shall not have, solely on account of such
status, any rights of a stockholder of the Company, either at law or in equity,
or to any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this Warrant.
Section 13 Governing Law.
This Warrant shall be construed in accordance with the laws of the State
of New York applicable to contracts made and performed within such State,
without regard to principles of conflicts of law.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the
date first above written.
URBAN COOL NETWORK, INC.
By: /s/ Jacob R. Miles, III
------------------------------
Name: Jacob R. Miles, III
Title: Chief Executive Officer
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<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, ______________________ hereby sells, assigns, and
transfers unto _________________ a Warrant to purchase __________ shares of
Common Stock, par value $.01 per share, of Urban Cool Network, Inc., a Delaware
corporation (the "Company"), and does hereby irrevocably constitute and appoint
___________ attorney to transfer such Warrant on the books of the Company, with
full power of substitution.
Dated: _________________
Signature_______________________
NOTICE
The signature on the foregoing Assignment must correspond to the name as
written upon the face of this Warrant in every particular, without alteration or
enlargement or any change whatsoever.
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<PAGE>
ELECTION TO EXERCISE
To: Urban Cool Network, Inc.
The undersigned hereby exercises his, her, or its rights to purchase
shares of common stock, par value $.01 per share ("the Common Stock"), of Urban
Cool Network, Inc., a Delaware corporation (the "Company"), covered by the
within Warrant and tenders payment herewith in the amount of $_____ in
accordance with the terms thereof, and requests that certificates for the
securities constituting such shares of Common Stock be issued in the name of,
and delivered to:
(Print Name, Address, and Social Security or Tax Identification Number)
and, if such number of shares of Common Stock shall not constitute all such
shares of Common Stock covered by the within Warrant, that a new Warrant for the
balance of the shares of Common Stock covered by the within Warrant shall be
registered in the name of, and delivered to, the undersigned at the address
stated below.
Dated: __________________ Name________________________
(Print)
Address:
________________________
(Signature)
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SHAREHOLDERS' AGREEMENT
SHAREHOLDERS' AGREEMENT, dated as of November 21, 1999 by and between
Urban Cool Network, Inc., a Delaware corporation ("UCN") having an office at
1401 Elm Street, Dallas, Texas 75202 and Stanley Wolfson ("Wolfson") having an
address at 1030 Fifth Avenue New York, New York 10022 and e-commerce Solutions,
Inc., a New York corporation (the "Company"), having an address at West 23rd
Street, New York, New York. UCN and Wolfson are hereinafter sometimes
collectively referred to as the "Shareholders" and individually as a
"Shareholder."
W I T N E S S E T H:
WHEREAS, UCN is hereby acquiring sixty six and two thirds percent of
the common stock of the Company; and
WHEREAS, the Shareholders are the owners of all of the issued and
outstanding shares of common stock $.01 par value of the Company as set forth on
Exhibit A (the "Shares"); and
WHEREAS, the Shareholders desire to express their agreement
regarding the organization and management of the Company and to establish
procedures relating to the sale or other disposition of the Company's capital
stock, all in the manner and upon the terms and conditions hereinafter provided;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein set forth, the parties hereby agree as follows:
<PAGE>
1. Governance. (a) The Board of Directors of the Company shall consist of
three members. Each Shareholder agrees that during the term of this Agreement
such Shareholder shall select and vote for one director and the two elected
directors shall select a third director.
(b) Each of the Shareholders agree that the individuals set forth below
shall hold the offices set forth opposite their respective names until such time
as the Board of Directors designate others individuals:
Jacob R. Miles, III Chairman of the Board
Stanley Wolfson President and Chief Executive Officer
Barry M. Levine Secretary and Treasurer
2. Capital Contributions.
(a) UCN agrees to contribute (i) the sum of $100,000 to the Company within
two (2) days of the date hereof and $2,900,000 upon the consummation of a public
offering of UCN's securities provided that Wolfson has completed the items set
forth on Schedule 2(a) to the reasonable satisfaction of UCN. In the event that
Wolfson has not completed the items on Schedule 2(a) to the reasonable
satisfaction of UCN, then (i) UCN shall have no obligation to contribute any
additional amounts to the Company (ii) the Warrant to purchase 1,000,000 shares
of common stock of UCN shall be canceled and (iii) UCN shall have the right to
purchase Wolfson's shares for an aggregate purchase price of $1.00.
(b) Wolfson agrees to contribute the sum of $50,000 to the Company within
two (2) days of the date hereof.
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<PAGE>
3. Management of the Company. The Company and each Shareholder agree that
the following matters shall require not less than a 70% affirmative vote of all
outstanding Shares owned by the Shareholders for approval:
(a) any amendment to or restatement of the certificate of incorporation
or by-laws of the Company;
(b) any change to the number of directors of the Company;
(c) the liquidation or dissolution of the Company;
(d) except as otherwise expressly permitted by this Agreement, any
recapitalization, restatement of assets, redemption of shares, reduction of
capital or other change in the capitalization of the Company;
(e) except as otherwise expressly permitted by this Agreement, the
authorization, issuance, reassurance or sale, or the entering into of any
material agreement providing for the issuance or sale (contingent or otherwise)
of any equity securities of the Company or the issuance, sale or grant of any
security, option, warrant or right to acquire, convert into or otherwise dispose
of any equity securities of the Company (collectively, "Securities"), in any
case, whether or not authorized, issued or held in treasury;
(f) except as otherwise permitted by this Agreement, the direct or
indirect redemption, purchase or sale or other acquisition or disposition of any
of the Company's Securities;
(g) the entering into any business unrelated to the business purpose of
the Company as it is presently conducted if such business would have a material
affect on the Company, its business, operations or financial condition
notwithstanding the foregoing, the Company may
-3-
<PAGE>
pursue related businesses and the Company may make investments in related
businesses once every 12 months provided that such investment singly or in the
aggregate does not exceed $250,000;
(h) any change in the name of the Company or the use of another name by
the Company to carry on its business;
(i) any change in the salary of Wolfson or any amendment to any
employment agreement between the Company and Wolfson;
(j) except as expressly otherwise permitted by this Agreement, the
declaration or payment of any dividends or distributions in excess of $10,000 in
cash, property, securities or otherwise, upon any of the securities of the
Company;
(k) except for short-term borrowings in the ordinary course of business
and the incurrence, renewal, refinancing or nonscheduled payment or other
similar optional discharge of indebtedness for borrowed money in excess of the
aggregate amount of $50,000 during any calendar year by the Company other than
in the ordinary course of business.
(l) any change in the Company's independent certified public
accountant.
4. Transfers of Shares. Except as specifically permitted or required by this
Agreement, the Shareholders agree that they will not, directly or indirectly,
sell, assign, exchange or otherwise dispose of or transfer, including, without
limiting the generality of the foregoing, by gift, bequest, pledge,
hypothecation or otherwise, the Shares, whether presently owned or hereafter
acquired by stock dividend, split up, exchange, combination, reclassification,
reorganization, consolidation, merger or otherwise (collectively, a
"disposition"). Each Shareholder hereby agrees that he shall make no disposition
of the Shares otherwise than in compliance with the Securities Act of 1933, as
amended (the "Act").
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<PAGE>
(a) The Company shall effect no transfer of Shares on its books and
records in violation of this Agreement.
(b) If any Shareholder (a "Shareholder Offeree") receives a bona fide
written offer ("Offer") from a potential transferee (the "Offeror") to purchase
any or all of the Shares owned by the Shareholder Offeree and such Shareholder
Offeree shall propose to accept such Offer, the Shareholder Offeree shall comply
with the appropriate provisions of this Paragraph 4 prior to taking any such
action.
(c) The Shareholder Offeree shall give a notice (the "Notice") to the
Company and the other Shareholders (the "Other Shareholders") stating that he
proposes to effect such transaction, the name and address of the Offeror, the
amount of Shares to be sold and the price to be paid by the Offeror (the
"Offeror Price"). The Notice shall be accompanied by copies of the documents or
other evidence hereinafter specified and no Shareholder Offeree shall have any
right to give Notice pursuant to this Paragraph 4(c) unless all of the following
conditions shall be met:
(i) The Offeror shall have delivered to the Shareholder Offeree
a copy of the Offer signed by the Offeror, offering to effect the
proposed transaction on or before a date ninety (90) days from the
date of the Offer;
(ii) The Offeror shall agree to execute a counterpart of this
Agreement and to be bound by the provisions hereof; and
(iii) The Offeror shall furnish reasonable evidence as to the
Offeror's financial ability to consummate the proposed purchase.
(d) The Company shall have a period of thirty (30) days after the
giving of the Notice (the "Company's Election Period") within which to exercise
its right to purchase all (but not
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<PAGE>
less than all) of the Shares of the Shareholder Offeree at the Offeror Price and
on the terms and conditions set forth in the Offer. In the event that the
Company declines to exercise such right the Other Shareholders shall have a
period ending forty-five (45) days after the giving of the Notice (the "Election
Period") within which to exercise the options set forth in Paragraph 4(e).
(e) Each of the Other Shareholders shall, at its option, by so
notifying the Shareholder Offeree in writing during the Election Period, have
the right to purchase from such Shareholder Offeree all (but not less than all)
of the Shares of the Shareholder Offeree as provided in this Paragraph 4(e).
Such written notification shall operate as a binding commitment on such Other
Shareholders to purchase all (but not less than all) of the Shares covered by
the Offer. If more than one Other Shareholder elects to purchase such Shares
under this Paragraph 4, such Other Shareholders shall purchase such Shares in
proportion to the amount of Shares owned by such Other Shareholders at the time
the Notice was given, unless otherwise agreed among such Other Shareholders.
(f) Subject to Paragraph 4(g), if no effective election prior to the
expiration of the Election Period is made to purchase all (but not less than
all) of the Shares of the Shareholder Offeree under Paragraph 4(e), the
Shareholder Offeree may sell such Shares subject to the Offer at the Offeror
Price and on the other terms and conditions of the Offer within ninety (90) days
after the giving of the Notice. If such Shares are not sold in accordance with
the terms of the Offer within ninety (90) days of the date of the Offer, any
such sale shall again be subject to the terms and conditions of this Paragraph
4.
(g) Notwithstanding anything to the contrary in this Paragraph 4
with respect to any proposed sale of Shares by the Shareholder Offeree each of
the Other Shareholders shall have
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<PAGE>
the right to participate in such sale by requiring the Offeror to purchase from
it as a part of the amount of Shares subject to the Offer either all such Other
Shareholder's Shares or, if the Offeror is not willing to purchase all such
Shares, an amount thereof owned by each such Other Shareholder equaling the
amount derived by multiplying the amount of each such Other Shareholder's Shares
by a fraction, the numerator of which is the total amount of the Shares of all
Shareholder Offeree's and each of the Other Shareholders to be purchased by the
Offeror and the denominator of which is the total amount of the Shares owned by
all Shareholder Offerees and each of the Other Shareholders exercising their
rights pursuant to this Paragraph 4(g). In the event a Participation Notice is
delivered during the time period required above, the Offeror shall purchase the
Shares subject thereto at the same time and on the same terms and conditions as
the Shareholder Offerees Shares are purchased pursuant to Paragraph 4(f). In the
event that the Offeror does not purchase the Other Shareholder's Shares on the
same terms and conditions, then the sale by the Shareholder Offeree to such
third party shall be invalid.
(h) The foregoing provision of this Paragraph 4 shall apply to any
direct or indirect sale of the Shares, but shall not apply to a transfer,
assignment of sale or Shares by any Shareholder to (A) another Shareholder (B) a
corporation wholly-owned by such Shareholder, (C) any successor of any of the
foregoing, (D) members of the immediate families of such individuals (E) any
trust (whether testamentary or inter vivos), the beneficiary of which is any
such individual or a member of his immediate family, (F) a transfer of shares by
UCN or Wolfson to a limited partnership of which UCN or Wolfson, as the case may
be, is a general partner; provided, however, that any such transferee, assignee
or purchaser shall take such Shares subject to all the limitations of this
Agreement.
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<PAGE>
5. Legally Binding Obligation. The giving of any notice under Paragraph 4 and
the making or failing to make an election within the stated period, in each case
as provided in Paragraphs 4, shall create a legally binding obligation to buy or
sell, as the case may be, the subject Shares pursuant hereto.
6. Legends. Upon the execution of this Shareholders' Agreement each of the
Shareholders shall present to the Company the certificate or certificates
representing the Shares issued by the Company to them and the Company shall
affix upon the face or upon the reverse side thereof legends to the following
effect:
"The sale, assignment, transfer, pledge, encumbrance, hypothecation
or other disposition of the shares represented by this certificate
are subject to the terms of a Shareholders' Agreement dated as of
____________ 1999, a copy of which is on file at the office of the
Company."
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may be
transferred only (a) pursuant to an effective registration statement
under the Act, or (b) in accordance with the Act and subject to
receipt of an opinion of counsel reasonably acceptable to the
Company that the proposed transaction is exempt from registration
under the Act."
7. Financial Information. The Company will furnish the following reports to
the Shareholders.
(a) As soon as practicable after the end of each calendar year, and in any
event within sixty (60) days thereafter, consolidated balance sheets of the
Company, as of the end of each twelve consecutive calendar month period ending
on December 31 of any year ("Fiscal Year"), and consolidated statements of
income and consolidated statements of changes in financial position of the
Company, for such year, prepared in accordance with generally accepted
accounting principles ("GAAP") and setting forth in each case in comparative
form the figures for the previous Fiscal
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<PAGE>
Year, all in reasonable detail and certified by an independent accounting firm
approved by the directors of the Company;
(b) As soon as practicable after the end of each quarter and in any event
within thirty (30) days thereafter, consolidated and consolidating financial
statements of the Company, as at the end of such quarter, for the period
commencing at the beginning of the applicable Fiscal Year and ending with the
end of such quarter, (including a balance sheet, statements of income and
retained earnings and a cash flow statement) prepared in accordance with GAAP
(except for the absence of accompanying notes and subject to normal year end
adjustments).
(c) Such budgets, forecasts, projections and other information respecting
the business of the Company as any of the Shareholders may from time to time
reasonably request;
(d) All reports delivered to the Company by its accountants.
8. Covenants.
(a) The Company will keep proper books of record and account in which
full, true and correct entries shall be made of all dealings and transactions in
relation to its business and activities and will permit the Shareholders and
representatives of the Shareholders to visit and inspect any of its properties,
to examine and make abstracts from any of its books and records and to discuss
its affairs, finances and accounts with its officers, employees and independent
public accountants, all at such reasonable times and as often as may reasonably
be desired.
(b) The Company will pay and discharge at or before maturity, all of its
material obligations and liabilities, including, without limitation, tax
liabilities, except where the same may be contested in good faith by appropriate
proceedings, and will maintain, in accordance with generally accepted accounting
principles, appropriate reserves for the accrual of any of the same.
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<PAGE>
(c) The Company will comply in all material respects with all applicable
laws, ordinances, statutes, rules, regulations, and requirements of governmental
authorities except where the necessity of compliance therewith is contested in
good faith by appropriate proceedings.
(d) The Company shall maintain insurance with financially sound and
reputable insurance companies or associations in such amounts and covering such
risks as may be required by law, or any other agreements to which it is a party,
and such other insurance to such extent and against such hazards and liabilities
as is comparable in amount and coverage (including, but not limited to, personal
injury, workmen's compensation, natural disaster, fire, liability and business
interruption) as is reasonable and customary.
9. Newly Formed Company. Wolfson hereby represents that the company was
formed in October, 1999 and except for the software in development enabling the
Company to construct e-commence capable web sites, the Company has no other
assets and has no other liabilities as of the date hereof.
10. Additional Shares. This Shareholders' Agreement shall apply equally to any
additional shares of common stock of the Company acquired by the Shareholders
whether by stock dividend, stock split, reverse stock split, or recapitalization
or reorganization of any type or otherwise. All such shares shall be issued
bearing the endorsement set forth in Section 8.
11. Notices. All notices pursuant to this Agreement shall be given in writing
by registered or certified mail or overnight courier service or, if promptly
confirmed in writing so given, by telecopy or other electronic means. Each such
notice shall be delivered or sent to the addresses set forth above, or to such
other address as the person to whom such notice is to be given may have
indicated by notice given pursuant hereto to the person giving such notice at
least five calendar days
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<PAGE>
prior thereto. All such notices shall be deemed to have been given on the third
calendar day after being deposited in the mail, if given by registered or
certified mail, on the next business day, if given by overnight courier or when
given or transmitted, if given by telecopier or other electronic means and
confirmed in the manner set forth above.
12. Amendment. This Agreement can be amended only by an instrument in writing
signed by all the Shareholders and the Company.
13. Binding Effect. This Agreement shall be binding upon all the parties
hereto, their heirs, legal representatives, successors and assigns.
14. Termination. This Agreement shall be effective as of the date hereof and
shall terminate upon the occurrence of any of the following events:
(a) Upon the registration of any of the Company's securities under the
Securities Act of 1933, as amended;
(b) The merger or consolidation of the Company into or with any other
corporation on terms and conditions which provide that the Company shall not be
the corporation surviving such merger or consolidation;
(c) The sale of all or substantially all of the assets of the Company;
(d) Bankruptcy of the Company, appointment by a court of a permanent
receiver for the Company, or dissolution of the Company;
(e) The acquisition of all of the outstanding capital stock of the Company
by any of the Shareholders.
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<PAGE>
15. Governing Law. Except to the extent required by the certificate of
incorporation of the Company or otherwise under applicable law, this Agreement
shall be governed by and construed in accordance with the laws of the State of
New York.
16. Assignment. This Agreement and all the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto, but this Agreement is not
intended to benefit any other person or party whatsoever including, without
limitation, any creditors of the Company or any liquidator or trustee in
bankruptcy and all rights and obligations hereunder may not be assigned without
the prior written consent of all the other parties hereto.
17. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original and which together shall be deemed to be
one and the same instrument.
18. Severability. The invalidity or unenforceability of any one or more
phrases, sentences, clauses or paragraphs contained in this Agreement shall not
affect the validity or enforceability of the remaining portions of this
Agreement, or any part thereof.
19. Specific Performance. If any Shareholder breaches or threatens to breach,
a provision of this Agreement, the other Shareholders shall have the right and
remedy of specific performance, to the extent permitted by applicable law, it
being agreed that any breach or threatened breach of a provision of this
Agreement would cause irreparable injury to the other Shareholders and that
money damages would not provide an adequate remedy to such Shareholders.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Shareholders' Agreement
as of the day and year first above written.
URBAN COOL NETWORK, INC.
By: /s/ Stanley Wolfson
-----------------------------
Name: Stanley Wolfson
Title:
EXHIBIT A
No. of
Shares Percentage
------ ----------
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<PAGE>
Schedule 2(a)
1. Open a checking account for the Company.
2. Hire at least 2 employees.
3. Open an office for the Company.
4. Prepare the infrastructure necessary to market e-commerce capable web
sites including, the capacity to sell 200-300 web sites per user by hiring
key personnel to execute the business plan.
5. Prepare a detailed business plan including, operating budges, sales
forecasts and a use of proceeds for $3,050,000 capital contribution.
6. Establish detailed procedures for training personnel.
7. Contribute $50,000 to the Company.
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SALE OF TECHNOLOGY AGREEMENT
This Sale of Technology Agreement ("Agreement") is made and effective this
21 day of November 1999, by and between e-commerce Solutions, Inc. ("Buyer"),
and Stanley Wolfson ("Seller").
Seller has developed and owns all rights to certain computer software in
development as more fully described on Schedule A.
Buyer wishes to purchase, and Seller wishes to sell, such software, the
related goodwill and all other associated property rights, including all
copyrights and all rights to enhanced, modified and updated versions and
derivative works related thereto.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties agree as follows:
1. Transfer. (a). Software. Seller hereby sells, assigns, conveys and
transfers to Buyer all of Seller's right, title and interest in and to the
following described computer software (the "Software"): A software platform
engine in development that will create an ability to mass produce e-commerce web
sites, manage said sites and administration.
The Software shall include, but is not limited to :
(i) The Software in development in all versions and all forms of
expression thereof, including but not limited to proprietary rights and
intellectual property contained therein or connected therewith.
(b) Delivery.
(i) The Software in development shall be delivered to Buyer upon the
execution of this Agreement. Seller shall from time to time, but without further
consideration, execute and deliver such instruments or documents and take such
other action as is reasonably necessary which Buyer may request in order to more
effectively carry out this Agreement and to vest in Buyer the Software and title
thereto.
2. Representations and Warranties of Seller. Seller represents, warrants
and covenants as follows:
(a) Title; Infringement. Seller has good and marketable title to the
Software in development, and has all necessary rights to enter into this
Agreement without violating any other agreement or commitment of any sort.
Seller does not have any outstanding agreements or understandings, written or
oral, concerning the Software. The Software does not infringe or constitute a
misappropriation of any trademark, patent, copyright, trade secret, proprietary
right or similar property right. Seller agrees to defend, indemnify and hold
Buyer, its subsidiaries, affiliates and licensees harmless against any action,
suit, expense, claim, loss, liability or damage based on a claim that the
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<PAGE>
Software infringes or constitutes a misappropriation of any trademark, patent,
copyright, trade secret, proprietary right or similar property right. Buyer
shall give Seller prompt written notice of any such claim. Seller shall assume
responsibility for defending any suit or proceeding brought against Buyer based
on any claim that the Software infringes or constitutes a misappropriation of
any trademark, patent, copyright, trade secret, proprietary right or similar
property right; provided, however, that Buyer shall give Seller prompt notice in
writing of the assertion of any such claim and of the threat or institution of
any such suit or proceeding, and all authority, information and assistance
required for the defense of the same. Seller shall pay all costs awarded against
Buyer, but shall not be responsible for any cost, expense or compromise incurred
without Seller's consent.
(b) No Liens. The Software is not subject to any lien, encumbrance,
mortgage or security interest of any kind. Seller's conveyance of the Software
shall be free of any such interest.
(c) Authority Relative to this Agreement. This Agreement is a legal,
valid and binding obligation of Seller. The execution and delivery of this
Agreement by Seller and the performance of and compliance by Seller with the
terms and conditions of this Agreement will not result in the imposition of any
lien or other encumbrance on any of the Assets, and will not conflict with or
result in a breach by Seller of any of the terms, conditions or provisions of
any order, injunction, judgment, decree, statute, rule or regulation applicable
to Seller, the Software, or any note, indenture or other agreement, contract,
license or instrument by which any of the Software may be bound or affected. No
consent or approval by any person or public authority is required to authorize
or is required in connection with, the execution, delivery or performance of
this Agreement by Seller.
(d) No Default. There is no outstanding default by the Seller in
connection with the Software.
4. No Brokers. All negotiations relative to this Agreement have been
carried on by Buyer directly with Seller, without the intervention of any person
as the result of any act of Buyer or Seller (and, so far as known to either
party, without the intervention of any such person) in such manner as to give
rise to any valid claim against the parties hereto for brokerage commissions,
finder's fees or other like payment.
5. Consents, Further Instruments and Cooperation. Seller represents no
consent or approval by any person is required in order to permit it to
consummate the transactions contemplated hereby. Seller agrees to execute and
deliver such instruments and to take such other action as may be required to
carry out the transaction contemplated by this Agreement. Seller shall execute,
or cause its employees and agents to execute, any patent or copyright
application or other similar document or instrument, following Buyer's
reasonable request.
6. Limitation of Liability. OTHER THAN AS SET FORTH IN SECTION 3.A. OR
UPON THE BREACH OF ANY WARRANTY, NEITHER BUYER NOR SELLER SHALL BE LIABLE TO THE
OTHER FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT
OF OR RELATED TO THIS AGREEMENT OR ANY PERFORMANCE
2
<PAGE>
HEREUNDER, EVEN IF SUCH PARTY HAS ADVANCE NOTICE OF THE POSSIBILITY OF SUCH
DAMAGES, WHETHER BASED ON A THEORY OF CONTRACT, TORT, STRICT LIABILITY OR
OTHERWISE.
7. Buyer's Use of the Software. Buyer may, at its sole discretion, market,
license and sell the Software under names and trade names of its own choosing,
and may develop updated and modified versions and derivative works of the
Software without attribution of authorship to Seller. Buyer shall own all rights
and title, including copyrights, in and to updated and modified versions and
derivative works of the Software without requiring permission from Seller and
without incurring payment obligations in addition to those provided herein.
Buyer may market or use the Software in whatever manner and at whatever prices
it sees fit.
8. Seller's Non-Use of the Assets. Seller retains no rights whatsoever in
the Software and does not retain the right to use the Software or any material
relating to the Software for any purpose, personal, commercial, or otherwise.
Seller furthermore shall maintain all information relating to the Software or
use of the Software in short confidence and shall not disclose any aspect of the
Software to any third party without the prior written consent of Buyer.
9. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of New York.
10. Assignment. Seller may not assign this Agreement or any obligation
herein without the prior written consent of Buyer. This Agreement shall be
binding upon and inure to the benefit of the parties named herein and their
respective heirs, executors, personal representatives, successors and assigns.
11. Entire Agreement. This Agreement contains the entire understanding of
the parties, and supersedes any and all other agreements presently existing or
previously made, written or oral, between Buyer and Seller concerning its
subject matter. This Agreement may not be modified except by a writing signed by
both parties.
12. Severability. If any provision of this Agreement is declared by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions of this Agreement nevertheless will continue in full force
and effect without being impaired or invalidated in any way.
13. Notices. All notices, requests, demands, and other communications
hereunder shall be deemed to have been duly given if delivered or mailed,
certified or registered mail with postage prepaid:
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<PAGE>
If to Buyer:
E-Commerce Solutions, Inc.
c/o Urban Cool Network, Inc.
1401 Elm Street
Dallas, Texas 75226
with a copy to:
Martin Licht, Esq.
Silverman, Collura & Chernis, P.C.
381 Park Avenue South
New York, New York 10016
If to Seller:
S. Wolfson
1030 Fifth Avenue
New York, New York 10022
14. Relationship of the Parties. The relationship between Buyer and Seller
under this Agreement is intended to be that of buyer and seller, and nothing in
this Agreement is intended to be construed so as to suggest that the parties
hereto are partners or joint venturers, or either party or its employees are the
employee or agent of the other. Except as expressly set forth herein, neither
Buyer nor Seller has any express nor implied right or authority under this
Agreement to assume or create any obligations on behalf of or in the name of the
other or to bind the other to any contract, agreement or undertaking with any
third party.
15. Headings. Headings used in this Agreement are provided for convenience
only and shall not be used to construe meaning or intent.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
[Buyer] _____________________ [Seller] _______________________
4
EMPLOYMENT AGREEMENT
AGREEMENT made and entered into as of this 21 day of November, 1999
between e-commerce Solutions, Inc., a New York corporation (the "Corporation")
having an address at 600 West 57th Street, New York, New York 10019 and Stanley
Wolfson (the "Executive"), residing at 1030 Fifth Avenue, New York, New York
10022.
W I T N E S S E T H:
WHEREAS, Executive is presently employed by the Corporation; and
WHEREAS, the Company and the Executive desire to set forth the terms
of Executive's employment with the Company, pursuant to the terms and conditions
hereof.
NOW, THEREFORE, in consideration of the covenants and agreements
herein contained, the parties hereto agree with each other as follows:
1. Term of Employment. The Corporation agrees to and does hereby employ
Executive, and Executive agrees to and does hereby accept employment by the
Corporation, as the President and Chief Executive Officer of the Corporation,
subject to the supervision and direction of its Board of Directors, for the
three (3) year period commencing November 1, 1999 (the "Term").
2. Duties of Executive. Executive shall devote such time, attention and
energy to the affairs of Corporation as shall be reasonably required to perform
his duties hereunder, and, in pursuance of the policies and directions of the
Board of Directors, Executive shall use his best efforts to promote the business
and affairs of the Corporation.
3. Base Compensation. In consideration of the Executive's services
pursuant to this
<PAGE>
Agreement, Corporation shall pay to Executive, during the period of Executive's
employment under this Agreement (the "Base Compensation"), (i) a salary at the
rate of One Hundred Seventy Five Thousand Dollars ($175,000) per year during the
first year of this Agreement; and (ii) for each year thereafter, annual
compensation shall be determined by the Board of Directors, but not less than
$175,000 per year. The Base Compensation shall be payable in equal installments,
in accordance with the Corporation's customary procedures for executive
employees, subject to applicable tax and payroll deductions.
4. Incentive Compensation.
(a) As additional compensation, the Executive shall be paid an
amount equal to 2% of the gross sales of the Company.
(b) Provided Executive has duly performed his obligations pursuant
to this Agreement, Executive shall be eligible to receive, as additional
compensation for the services to be rendered by Executive under this Agreement,
incentive compensation. The amount of such incentive compensation, if any, shall
be determined by the Board of Directors in its sole discretion based on the
Executive's performance and contributions to the Corporation's success.
5. Other Benefits. During the term of this Agreement the Executive shall
be entitled to participate in any benefit plans adopted by the Corporation for
the general and overall benefit of all employees and/or for key executives of
the Corporation such as health care, life insurance, disability, stock option
plans, tax, legal and financial planning services, pension, profit sharing and
savings.
6. Vacation. Executive shall be entitled to a fully paid vacation of three
(3) weeks per calendar year, which vacation shall be scheduled at such time or
times as the Corporation in
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<PAGE>
consultation with Executive may reasonably determine.
7. Expenses. (a) The Corporation shall pay or reimburse Executive for all
reasonable and necessary expenses incurred by him in connection with his duties
hereunder, upon submission by Executive to the Corporation of such reasonable
evidence of such expenses as the Corporation may require.
(b) Throughout the term of this Agreement, the Corporation will
provide Executive with the use of a motor vehicle of a class equivalent to that
currently utilized by the Executive for purposes within the scope of his
employment with Corporation and shall pay all expenses for fuel, maintenance,
and insurance in connection with such use of the motor vehicle.
8. Insurance. The Corporation shall apply for policies of life, health and
accident insurance or disability insurance upon the Executive in such amounts as
the Corporation deems appropriate which life insurance as key man insurance
shall designate the Corporation as the beneficiary. The Executive agrees to aid
the Corporation in procuring such insurance, including submitting to a physical
examination, if required, and completing any and all forms required for
application for any insurance policy.
9. Disclosure of Information. The Executive shall, during his employment
under this Agreement and thereafter, keep confidential and refrain from
disclosing to any unauthorized persons all data and information relating to the
respective businesses of the Corporation or any of its subsidiaries.
10. Intellectual Property Rights. (a) The Executive shall promptly
disclose to the Corporation in writing, any and all charts, layouts, maps,
inventions, improvements, techniques, markets, sales and advertising plans,
processes, concepts and plans, whether or not copyrightable or
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<PAGE>
patentable, secret processes and "know-how," conceived by the Executive during
the term of his employment by the Corporation (the "Executive's Work Product"),
whether alone or with others and whether during regular working hours and
through the use of facilities and property of the Corporation or otherwise,
which directly relates to the present business of the Corporation. Upon the
Corporation's request at any time or from time to time during the Term of the
Executive's employment, the Executive shall (i) deliver to the Corporation
copies of the Executive's Work Product that may be in his possession or
otherwise available to him, and (ii) execute and deliver to the Corporation such
applications, assignments and other documents as it may reasonably require in
order to apply for and obtain copyrights or patents in the United States of
America and other countries with respect to any Executive's Work Product that it
deems to be copyrightable or patentable, and/or otherwise to vest in itself full
title thereto.
(b) All documents that pertain to the Corporation, including but not
limited to the Executive's Work Product, shall be the sole and exclusive
property of the Corporation. Upon the termination of the Executive's employment,
all such documents that may be in his possession or otherwise available to him
or shall thereafter come into his possession or control shall be promptly
returned to the Corporation without the necessity of a request therefor.
11. Non-Competition Covenant.
(a) The Executive shall not, during his employment by the
Corporation, engage, directly or indirectly, in any business competitive with
the business of the Corporation without the consent of the Board of Directors,
except for those businesses in which the Executive is currently involved.
(b) For a period of one (1) year after the termination of the
Executive's
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<PAGE>
employment hereunder (the "Non-Competition Period"), for any reason whatsoever,
other than a termination by the Corporation without good cause, the Executive
shall not (i) engage, directly or indirectly, as an officer, director,
shareholder, owner, partner, joint venturer or in a managerial capacity, whether
as an employee, independent contractor, consultant or advisor, or as a sales
representative in any competitive businesses which competes directly or
indirectly with the Corporation, and related activities throughout the United
States (the "Territory"), without the permission of the Board of Directors,
which permission shall not be unreasonably withheld or delayed or (ii) induce or
actively attempt to influence any other employee or consultant of the
Corporation to terminate his or her employment or consultancy with the
Corporation. Nothing herein contained shall be deemed to prevent ownership by
Executive and his associates (as said term is defined in regulation 14(A)
promulgated under the Securities Exchange Act of 1934 as in effect on the date
hereof), collectively, of not more than 5% of the outstanding capital stock of a
competitive corporation listed on a national securities exchange.
(c) (i) The parties to this Agreement consider the restrictions
contained herein reasonable as to the duration of the Non-Competition Period and
the extent of the Territory. However, if the duration of the Non-Competition
Period or the extent of the Territory herein specified should be judged
unreasonable by any Court or arbitration proceeding, the validity and effect of
the remaining provisions of this Agreement shall not be affected thereby and,
the duration of the Non-Competition Period shall be reduced by such number of
months and/or the area of the Territory shall be reduced such that, the
Territory and the Non-Competition Period shall be deemed reasonable so that the
foregoing covenant not to compete may be enforced .
(ii) The Company and the Executive agrees and recognizes that in the
event
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<PAGE>
of a breach or threatened breach by either of the provisions of the foregoing
covenants, either party may suffer irreparable harm, and that money damages may
not be an adequate remedy. Therefore, either party shall be entitled as a matter
of right to specific performance of the covenants of Executive contained herein
by way of temporary or permanent injunctive relief in a Court of competent
jurisdiction.
12. Termination. This Agreement and Executive's employment may be
terminated in any one of the followings ways:
(a) Death. The death of Executive shall immediately terminate this
Agreement with no severance compensation due to Executive's estate.
(b) Disability. If, as a result of incapacity due to physical or
mental illness or injury, Executive shall have been absent from his full-time
duties hereunder for three (3) consecutive months, then thirty (30) days after
receiving written notice (which notice may occur before or after the end of such
three (3) month period, but which shall not be effective earlier than the last
day of such three (3) month period), the Corporation may terminate Executive's
employment hereunder provided Executive is unable to resume his full-time duties
at the conclusion of such notice period. Also, Executive may terminate his
employment hereunder if his health should become impaired to an extent that
makes the continued performance of his duties hereunder hazardous to his
physical or mental health or his life, provided that Executive shall have
furnished the Corporation with a written statement from a qualified doctor to
such effect and provided, further, that, at the Corporation's request made
within thirty (30) days of the date of such written statement, Executive shall
submit to an examination by a doctor selected by the Corporation who is
reasonably acceptable to Executive or Executive's doctor and such doctor shall
have concurred in the conclusion of
- 6 -
<PAGE>
Executive's doctor. In the event this Agreement is terminated as a result of
Executive's disability, Executive shall (i) receive from the Corporation, in a
lump-sum payment due within thirty (30) days of the effective date of
termination, the base salary for one (1) year and (ii) the Corporation shall
make the insurance premium payments contemplated by COBRA for a period of
eighteen (18) months after such termination.
(c) Good Cause. The Corporation may terminate this Agreement ten
(10) days after written notice to Executive for "Good Cause," which shall mean
any one or more of the following: (1) Executive's material failure of
performance; (2) Executive's willful, material and irreparable breach of this
Agreement; (3) Executive's gross negligence in the performance or intentional
nonperformance (continuing for ten (10) days after receipt of written notice of
need to cure) of any of Executive's material duties and responsibilities
hereunder; (4) Executive's willful dishonesty, fraud or misconduct with respect
to the business or affairs of the Corporation which materially and adversely
affects the operations or reputation of the Corporation; (5) Executive's
conviction of a felony crime; or (6) confirmed positive illegal drug test
result. In the event of a termination for Good Cause, as enumerated above,
Executive shall have no right to any severance compensation.
(d) Without Good Cause. At any time after the commencement of
employment, Executive may, without cause, terminate this Agreement and
Executive's employment, effective thirty (30) days after written notice is
provided to the Corporation pursuant to paragraph three of the shareholder
agreement between the parties of even date. Executive may only be terminated
without Good Cause by the Corporation during the Term hereof if such termination
is approved by a majority of the members of the Board of Directors of the
Corporation in accordance with paragraph three of
- 7 -
<PAGE>
the Shareholder Agreement of even date, and provided that the Executive receives
at least one (1) month written notice. In the event that Executive is terminated
without Good Cause during the Term, Executive shall receive from the
Corporation, on such dates as would otherwise be paid by the Corporation, the
compensation due pursuant to paragraphs 3 and 4. Further, if Executive is
terminated without Good Cause, the Corporation shall make the insurance premium
payments contemplated by COBRA for a period of eighteen (18) months after such
termination. Further, any termination without Good Cause by the Corporation
shall operate to shorten the period set forth in paragraph 11 hereof to one (1)
year from the date of termination of employment. If Executive resigns or
otherwise terminates his employment rather than the Corporation terminating his
employment pursuant to this paragraph 12, Executive shall receive no severance
compensation.
13. Indemnification. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the
Corporation against Executive), by reason of the fact that he is or was
performing services under this Agreement, then the Corporation shall indemnify
Executive against all expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement, as actually and reasonably incurred by Executive in
connection therewith to the maximum extent permitted by applicable law. The
advancement of expenses shall be mandatory. In the event that both Executive and
the Corporation are made a party to the same third-party action, complaint, suit
or proceeding, the Corporation agrees to engage competent legal representation,
and Executive agrees to use the same representation, provided that if counsel
selected by the Corporation shall have a conflict of interest that prevents such
counsel from representing Executive, Executive may engage separate counsel and
the Corporation shall pay all attorneys' fees of such separate counsel. Further,
while
- 8 -
<PAGE>
Executive is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Executive cannot be held liable to
the Corporation for errors or omissions made in good faith where Executive has
not exhibited gross, willful and wanton negligence and misconduct or performed
criminal and fraudulent acts which materially damage the business of the
Corporation.
14. Effect of Waiver. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach thereof.
15. Notices. Any notice permitted, required, or given hereunder shall be
in writing and shall be personally delivered; or delivered by any prepaid
overnight courier delivery service then in general use; or mailed, registered or
certified mail, return receipt requested, to the addresses designated herein or
at such other address as may be designated by notice given hereunder:
If to : Stanley Wolfson
1030 Fifth Avenue
New York, N.Y. 10022
If to : e-commerce Solutions, Inc.
West 23rd Street
New York, N.Y. and
600 West 57th Street
2nd Floor
New York, NY 10014
With a copies to: Silverman, Collura & Chernis, P.C.
381 Park Avenue
New York, New York 10016
Attn: Marc G. Rosenberg, Esq.
and Urban Cool Network, Inc.
1401 Elm Street
Dallas, Texas 75626
- 9 -
<PAGE>
Delivery shall be deemed made when actually delivered, or if mailed, three
days after delivery to a United States Post Office.
16. Assignment. Executive shall not be entitled to assign his rights,
duties or obligations under this Agreement.
17. Amendments. The terms and provisions of this Agreement may be amended
or modified only by a written instrument executed by the party to be charged by
such amendment or modification.
18. Governing Law. The terms and provisions herein contained and all the
disputes or claims relating to this Agreement shall be governed by, interpreted
and construed in accordance with the internal laws of the State of New York,
without reference to its conflict of laws principles.
19. Arbitration. (a) In the event of a dispute between the parties arising
out of or relating to this Agreement, or the breach thereof, the parties shall
make every effort to amicably resolve, reconcile, and settle such dispute
between them. Should an amicable resolution not be possible, either party may
invoke binding arbitration.
(b) Subject to the provisions of Section 11(c)(ii) hereof, all
claims, disputes and other matters in controversy arising out of or related to
this Agreement or the performance or breach hereof, shall be decided by binding
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA Rules"), by a panel of three (3) arbitrators,
in New York, New York. One (1) such arbitrator shall be appointed by each of the
parties within three (3) weeks after being requested by the other party to make
such appointment and the third arbitrator shall be appointed by the two (2)
arbitrators appointed by the parties. In the event that a party does
- 10 -
<PAGE>
not appoint its arbitrator within such three (3) week period, or the two (2)
arbitrators appointed by the parties shall fail to agree on the third
arbitrator, such appointed arbitrator or arbitrators shall be appointed by the
American Arbitration Association in accordance with the AAA Rules. The award
shall state the facts and findings and shall be rendered with reasons in
writing. The arbitrators shall have no authority or power to alter or modify any
express condition or provision of this Agreement, or to render any award which
by its terms shall have the effect of altering or modifying any express
conditions or provisions of this Agreement. The award rendered by the
arbitrators shall be final and judgement may be entered upon it in any court
having jurisdiction thereof. The successful party to the arbitration shall be
entitled to an award for reasonable attorney's fees, as determined by the
arbitrators.
20. Captions. The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
21. Merger and Severability. This Agreement shall constitute the entire
Agreement between the Corporation and Executive with respect to the subject
matter hereof. The invalidity or unenforceability of any provision hereof shall
in no way affect the validity or enforceability of any other provision.
22. Counterparts; Facsimile. This Agreement may be executed by facsimile
and in two (2) or more counterparts, each of which shall be deemed an original
and all of which together shall constitute but one and the same instrument.
- 11 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have affixed their signatures the
day and year first above written.
E-COMMERCE SOLUTIONS, INC.
By:
------------------------------------
Name:
Title:
----------------------------------------
STANLEY WOLFSON
- 12 -
PROMISSORY NOTE
$400,431.93 November 18, 1999
FOR VALUE RECEIVED, URBAN COOL NETWORK, INC., a Delaware corporation
(the "Maker") having an office at 2929 Elm Street, Dallas, Texas 75226, hereby
promises to pay to the order of ANALYSTS INTERNATIONAL CORP. (the "Payee") at
3030 LBJ Freeway, Suite 820, Dallas, Texas 75234, or at such other place as the
Payee of this Note may designate in writing from time to time, the principal sum
of ($400,431.93) Four Hundred Thousand Four Hundred Thirty One Dollars and 93
Cents together with interest thereon at the rate of 18 (eighteen) percent per
annum payable $25,000 on the first day of each month commencing on December 1,
1999 until June 1, 2000, at which time the principal sum and the interest
thereon shall be paid in full. The principal sum and the interest thereon shall
immediately become due and payable upon the closing of an initial public
offering of the Maker's securities which results in gross proceeds to the Maker
of at least $10,000,000.
The following shall be deemed events of default hereunder:
(a) If any payment shall not be made as and when the same shall
become due and payable;
(b) If the Maker shall (i) apply for or consent to the appointment
of a receiver, trustee or liquidator of a substantial part of its assets or
property; (ii) make a general assignment for the benefit of creditors; (iii) be
adjudicated a bankrupt; (iv) file a voluntary petition in bankruptcy or petition
or an answer seeking reorganization, or make a plan with creditors or take
advantage of any bankruptcy, reorganization, insolvency, readjustment of debt,
dissolution or liquidation law or statute now or hereafter in effect or an
answer admitting the material allegations of any petition filed against it in
any proceeding under any such law or statute; or (v) admit in writing the
Maker's inability to pay the Maker's debts as they become due;
(c) If any proceeding against the Maker seeking reorganization,
arrangement, composition, adjustment, liquidation, dissolution or similar relief
under the present or any future Federal Bankruptcy Act or other applicable
Federal or state statute, law or regulation shall remain undismissed or continue
unstayed and in effect for a period of forty-five (45) days; and
(d) If a court of competent jurisdiction shall enter an order,
judgment or decree appointing a receiver for a substantial part of the assets or
properties of the Maker and such order, judgment or decree shall continue
unvacated or unstayed and in effect for a period of forty-five (45) days.
Nothing contained in this Note shall require the Maker to pay
interest at a rate exceeding the maximum rate permitted by applicable law. If
the amounts payable to the Payee on any date shall exceed the maximum
permissible amount, such amounts shall be automatically reduced to the maximum
permissible amount, and the payments for any subsequent period, to the extent
less
-1-
<PAGE>
than that permitted by applicable law, shall, to that extent, be increased by
the amount of such reduction. In the event that the period from the due date of
such payment is not long enough to cause the payments due hereunder not to
exceed the maximum amount permitted by applicable law, then the Payee at its
option shall have the right (i) to extend the amount of time for such payment
such that the payments shall not be deemed to exceed the maximum amount
permitted by applicable law or (ii) to reduce the amounts payable under this
Note.
At the option of the Maker, the unpaid balance of this Note may be
prepaid in whole or in part, from time to time, without penalty or premium.
Except as otherwise expressly provided herein, Maker hereby waives
presentment, demand for payment, dishonor, notice of dishonor, protest and
notice of protest, and any and all other requirements necessary to hold Maker
liable hereunder.
The liability of Maker hereunder shall be unconditional. No act,
failure or delay by the holder hereof to declare a default as set forth herein
or to exercise any right or remedy it may have hereunder, or otherwise, shall
constitute a waiver of its rights to declare such default or to exercise any
such right or remedy at such time as it shall determine in its sole discretion.
Maker agrees to pay all costs of collection, including a reasonable
attorney's fee and all costs of levy or appellate proceedings or review, or
both, in case the principal or any interest thereon is not paid at the
respective maturity thereof.
Any and all notices or other communications required or permitted to
be given under this Note shall be in writing and shall be deemed to have been
duly given upon personal delivery or the mailing thereof by certified or
registered mail (a) if to the Maker, addressed to it at its address set forth
above; and (b) if to Payee, addressed to it or at such other address any person
or entity entitled to receive notices may specify by written notice given as
aforesaid.
This Note may not be changed or terminated orally.
This Note shall be binding upon Maker, its legal representatives,
successors or assigns.
This Note shall be governed by and construed in accordance with the
laws of the State of Texas, without giving effect to principles of conflicts of
law. By signing below, the Maker hereby irrevocably submits to the jurisdiction
of such state and to service of process by certified or registered mail at the
Maker's last known address. No provision of this Note may be changed unless in
writing signed by the Payee.
IN WITNESS WHEREOF, the Maker has caused this Note to be executed by
its duly authorized representative as of the date and year first above written.
URBAN COOL NETWORK, INC.
By: /s/ Jacob R. Miles, III
------------------------------
Name: Jacob R. Miles, III
Title: Chief Executive Officer
-2-
$1,000,000
LOAN AGREEMENT
by and between
URBAN COOL NETWORK, INC.,
as Borrower,
and
THE ELITE FUNDING GROUP, INC.,
as Lender
Dated as of November 23, 1999
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. AMOUNT AND TERMS OF THE CREDIT............................1
1.1 Recitals; Commitment......................................1
1.2 Procedure for Borrowing...................................1
1.3 Notes.....................................................1
1.4 Interest..................................................2
1.5 Warrants..................................................2
1.6 Maturity Date.............................................2
1.7 Prepayments...............................................2
1.8 Security..................................................3
1.9 Default Rate Of Interest..................................3
1.10 Form and Terms of Payment.................................3
SECTION 2. REPRESENTATIONS AND WARRANTIES............................4
2.1 Organization, Standing, etc. of the Borrower..............4
2.2 Subsidiaries..............................................4
2.3 Qualification.............................................4
2.4 Financial Information; Disclosure; Projections etc........4
2.5 Licenses; Permits; Franchises, etc........................5
2.6 Material Agreements.......................................5
2.7 Tax Returns and Payments..................................5
2.8 Indebtedness; Liens and Investments; etc..................6
2.9 Real Estate Owned and Leased; Title to
Properties; Liens.......................................6
2.10 Litigation; etc...........................................6
2.11 Authorization; Enforceability Compliance with
Other Instruments.......................................6
2.12 Governmental and Other Third Party Consents...............7
2.13 Employee Retirement Income Security Act of 1974...........7
2.14 Ownership of Borrower; Outstanding Options or Warrants....7
2.15 Environmental Matters.....................................7
2.16 Intellectual Property.....................................8
2.17 Chief Executive Offices Principal Place of
Business; Real Property Owned or Leased.................8
2.18 Trade and Other Names.....................................9
2.19 Securities Laws...........................................9
2.20 Security Agreement........................................9
2.21 Depository and Other Accounts.............................9
2.22 Insurance Policies........................................9
2.23 Employment and Labor Agreements...........................9
2.24 Year 2000 Issues..........................................9
2.25 Initial Public Offering..................................10
(i)
<PAGE>
Page
SECTION 3. CONDITIONS OF CLOSING/LENDING............................11
3.1 Conditions Precedent to Closing and to the
Initial Advance. ......................................11
3.2 Conditions Precedent to Making Additional Advances.......12
3.3 No Default; Representations and Warranties, etc..........12
SECTION 4. AFFIRMATIVE COVENANTS....................................12
4.1 Financial Statements; Field Audits etc...................13
4.2 Legal Existence; Licenses; Compliance with Laws..........15
4.3 Insurance................................................16
4.4 Payment of Taxes.........................................17
4.5 Payment of Other Indebtedness, etc.......................17
4.6 Further Assurances.......................................17
4.7 Communication with Accountants...........................17
4.8 Management...............................................17
4.9 Real Estate..............................................18
4.10 Compliance with ERISA....................................18
4.11 Filing of the Registration Statement.....................18
SECTION 5. NEGATIVE COVENANTS.......................................18
5.1 Indebtedness.............................................18
5.2 Liens, etc...............................................19
5.3 Loans, Guarantees and Investments........................19
5.4 Collection Policies and Procedures.......................19
5.5 Restricted Payments......................................19
5.6 Capital Expenditures.....................................20
5.7 Subsidiaries, Mergers and Consolidations;
Changes in Business 20
5.8 Sale of Assets...........................................20
5.9 Leases...................................................20
5.10 Compliance with ERISA....................................21
5.11 Transactions with Affiliates.............................21
5.12 Observance of Subordination Provisions, etc..............21
5.13 Environmental Liabilities................................21
5.14 Fiscal Year..............................................21
5.15 Agreed Upon Accounting Procedures........................21
5.16 Permitted Acquisitions; Conditions Precedent.............21
SECTION 6. DEFAULTS; REMEDIES.......................................22
6.1 Events of Default; Acceleration..........................22
6.2 Remedies on Default, etc.................................24
(ii)
<PAGE>
Page
SECTION 7. DEFINITIONS; CERTAIN RULES OF CONSTRUCTION................25
SECTION 8. SETOFFS...................................................29
SECTION 9. EXPENSES; INDEMNIFICATION.................................29
SECTION 10. AMENDMENTS AND WAIVERS, ETC...............................30
SECTION 11. ASSIGNMENT AND PARTICIPATION..............................31
11.1 Counterparts, etc.........................................31
11.2 New Notes.................................................31
11.3 Participation.............................................31
11.4 Miscellaneous Assignment Provisions.......................31
SECTION 12. JURISDICTION; WAIVER OF JURY TRIAL........................32
SECTION 13. MISCELLANEOUS.............................................32
13.1 Notices, etc..............................................32
13.2 Calculations, etc.........................................33
13.3 Governmental Approval.....................................33
13.4 Survival of Agreements, etc...............................33
13.5 Counterparts, etc.........................................34
13.6 Entire Agreement, etc.....................................34
13.7 Governing Law, etc.; Construction.........................34
SCHEDULES AND EXHIBITS
Exhibit A - Form of Notice
Exhibit B - Compliance Certificate
Exhibit C - Note
Exhibit D - Opinion of Silverman, Collura & Chernis, P.C.
Schedule 1.2 - Additional Advances
Schedule 2.2 - Subsidiaries
Schedule 2.4 - Financial Statements; Disclosure, etc.
Schedule 2.5 - Licenses; Permits; Franchises; etc.
Schedule 2.6 - Material Agreements
(iii)
<PAGE>
Schedule 2.8 - Indebtedness; Liens and Investments; etc.
Schedule 2.9 - Real Estate Owned and Leased
Schedule 2.10 - Litigation; etc.
Schedule 2.13 - ERISA
Schedule 2.14 - Ownership of the Borrower; Outstanding Options or Warrants
Schedule 2.15 - Environmental Matters
Schedule 2.16 - Patents, Trademarks; Intellectual Property
Schedule 2.18 - Trade and Other Names
Schedule 2.21 - Depository and Other Accounts
Schedule 2.25 - Registration Statement
Schedule 3.23 - Insurance Policies
Schedule 3.24 - Employment and Labor Agreements
Schedule 4.10 - Management
Schedule 6.1 - Use of Proceeds
(iv)
<PAGE>
THIS AGREEMENT dated as of November 23, 1999 by and between URBAN COOL
NETWORK, INC., a Delaware corporation (the "Borrower") and THE ELITE FUNDING
GROUP, INC., a Florida corporation (the "Lender"). Certain other terms used
herein are defined in Section 7.
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Borrower and the Lender hereby agree as
follows:
SECTION 1. AMOUNT AND TERMS OF THE CREDIT
1.1 Recitals; Commitment. Subject to the terms and conditions hereof,
and in reliance upon the representations and warranties contained herein, Lender
is willing to make the loan advances described in Section 1.2 (collectively, the
"Advances"), in the maximum aggregate principal amount not to exceed ONE MILLION
DOLLARS AND NO/100 ($1,000,000.00) (the "Commitment").
1.2 Procedure for Borrowing.
(a) Initial Advance. Simultaneously with the execution of this
Agreement, Lender shall make an initial Advance to the Borrower in the aggregate
principal amount of Three Hundred and Fifty Thousand Dollars ($350,000.00) (the
"Initial Advance").
(b) Additional Advances. Lender may make an additional Advance
to the Borrower on the dates (each date, an "Advance Date") and in the aggregate
principal amounts as shown on Schedule 1.2 (each such advance, an "Additional
Advance"); provided, however, if any Advance Date is not a Business Day, then
the Additional Advance shall be made on the next succeeding Business Day;
provided, further, that Borrower shall four Business Days prior to each Advance
Date give to Lender an irrevocable notice in the form of Exhibit A of its
request of Lender to make an Additional Advance on the applicable Advance Date
(which must be received by Lender by 12:00 Noon, eastern standard time).
(c) Mechanics of Advances. On each Advance Date, the Borrower
shall provide Lender with a certificate in the form of Exhibit B ("Compliance
Certificate"). Each Advance shall be made either by wire transfer of immediately
available funds to an account designated by the Borrower in writing to Lender or
a check drawn on an account with a United States bank or other United States
financial institution payable to Borrower as determined by the Lender in its
sole discretion.
1.3 Notes. The Borrower agrees that upon the request of Lender,
Borrower will execute and deliver to Lender a promissory note of the Borrower
evidencing any amount owed under any Advance, substantially in the form of
Exhibit C ("Note"), with appropriate insertions as to date and amount.
<PAGE>
1.4 Interest.
(a) Each Advance shall bear interest (computed on the basis of
the actual number of days elapsed over a 360-day year) on the unpaid principal
amount thereof until paid in full at the rate per annum equal to ten percent.
(b) Interest on any Advance shall be payable monthly in
arrears on the first day of each month, commencing on the first such date next
succeeding the date hereof. Notwithstanding anything contained herein or in any
other Loan Document to the contrary, in no event shall the amount paid or agreed
to be paid by the Borrower as interest on the Advances exceed the highest lawful
rate permissible under any law applicable thereto.
1.5 Warrants. As additional consideration, the Borrower shall issue,
and the Lender shall receive, simultaneously with the signing of this agreement
common stock purchase warrants ("the Warrants") covering 750,000 shares of
common stock of the Borrower, par value $.01 per share ("Common Stock"). All of
the warrants and the Common Stock purchasable upon the exercise of the Warrants,
shall be subject to the Subscription Agreement (as defined herein) between
Lender and Borrower.
1.6 Maturity Date. Subject to acceleration pursuant to Section 6, the
full outstanding balance of principal and accrued but unpaid interest on the
Advances shall be due on the earlier to occur of: (a) the consummation of an
initial public offering of securities of the Borrower, or (b) April 14, 2000
(the "Maturity Date").
1.7 Prepayments.
(a) Voluntary Prepayment. Subject to Section 1.10, on at least
two Business Days' prior written notice to Lender, the Borrower may, at its
option, prepay the amount of Advances then outstanding in whole or in part at
any time without a premium or penalty of any kind attributable to such
prepayment.
(b) Mandatory Prepayment of Advances Upon Certain Corporate
Events. Without limiting or impairing the provisions of subsections 5.1 or 5.8,
the Borrower shall, upon the occurrence of any of the following, prepay the
outstanding balance of the Advances directly from, and to the extent of (but not
to exceed the amounts owed), the proceeds from: (i) the sale of any of the
Borrower's assets other than those assets sold in the ordinary course of the
Borrower's businesses; (ii) the issuance of any Indebtedness by the Borrower;
and (iii) the issuance of any equity interests by the Borrower, including but
not limited to, any public offering of the securities of the Borrower.
(c) Order of prepayments. Any prepayment of sums owed
hereunder shall be made together with accrued interest on the amount prepaid to
the date of such prepayment and all other fees and expenses due the Lender under
the Loan Documents. Such prepayment shall be applied first to fees or other
expenses owing under the Loan Documents, then to accrued but unpaid interest,
and finally to any outstanding Advance.
2
<PAGE>
1.8 Security. The Advances and all other obligations of the Borrower
hereunder and/or under the other Loan Documents shall be secured by and entitled
to the benefits of the Security Agreement dated as of the date hereof between
the Borrower and Lender (the "Security Agreement").
1.9 Default Rate Of Interest. Immediately in the event of a Payment
Default and twenty days after notification by the Lender of the occurrence of
any other Default or Event of Default, interest on the full outstanding balance
of principal and (to the extent permitted by applicable law) interest on the
Advances shall, during the continuance of such Event of Default or Default, be
payable at a rate per annum equal to the highest lawful rate permissible under
New York law.
1.10 Form and Terms of Payment.
(a) All payments by the Borrower pursuant to the Loan
Documents shall be made to the Lender by wire transfer in immediately available
funds to an account or accounts designated by Lender from time to time in
writing to the Borrower, free of any counterclaim, set-off or charge. If any
payment due to the Lender shall become due on a day which is not a Business Day,
such payment may be made on the next succeeding Business Day and such extension
shall be included in computing interest in connection with such payment.
(b) Subject to subsection 1.10(c), Borrower shall repay the
outstanding principal amount of all Advances together with accrued but unpaid
interest on such Advances and all other fees and expenses due the Lender under
the Loan Documents on the Maturity Date.
(c) [INTENTIONALLY OMITTED]
3
<PAGE>
SECTION 2. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lender to enter into this Agreement and to make
the Advances provided for hereunder, the Borrower makes the following
representations and warranties which shall survive the execution and delivery
hereof, and which shall be deemed re-made by the Borrower each time the Borrower
submits a borrowing request to the Lender.
2.1 Organization, Standing, etc. of the Borrower. Borrower is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own and operate its properties, to carry on its business as now conducted and
proposed to be conducted, to enter into this Agreement, the Security Agreement
and all other Loan Documents to be executed by it in connection with the
transactions contemplated hereby, to grant the Lender a security interest in the
Collateral (as defined in the Security Agreement), to issue any Note, and to
carry out the terms hereof and thereof.
2.2 Subsidiaries. Schedule 3.2 attached hereto correctly sets forth as
to each Subsidiary, its name, the jurisdiction of its incorporation, the number
of shares of its capital stock of each class outstanding. Each such Subsidiary
is a corporation duly organized, validly existing and, in good standing under
the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to own and operate its properties, to carry on its
business as now conducted and now proposed to be conducted. All of the
outstanding capital stock of each Subsidiary is validly issued, fully-paid and
nonassessable, and is owned by the Borrower as specified in Schedule 3.2, in
each case free of any mortgage, pledge, lien, security interest, charge, option
or other encumbrance.
2.3 Qualification. The Borrower and its Subsidiaries are duly qualified
or licensed and in good standing as foreign corporations duly authorized to do
business in each jurisdiction in which the character of the properties owned or
the nature of the activities conducted makes such qualification or licensing
necessary.
2.4 Financial Information; Disclosure; Projections etc.
(a) Borrower has furnished the Lender with the financial
statements and other reports, including but not limited to a list of all
off-balance sheet items, listed in Schedule 3.4 hereto. Such financial
statements have been prepared in accordance with GAAP applied on a consistent
basis and fairly present the financial position and results of operations of the
Borrower and the other Persons, if any, to which they relate as of the dates and
for the periods indicated. Since December 31, 1998, there has not occurred any
event, circumstance or condition has had or could have a Material Adverse Effect
on the business, operations, properties or financial position of either of the
Borrower or of the other Persons to which such financial statements purport to
relate.
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(b) Neither this Agreement nor any financial statements,
reports or other documents or certificates furnished to the Lender by the
Borrower contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements herein or therein contained not
misleading, in light of the circumstances under which they are made, except to
the extent that such financial statements, reports or other documents or
certificates expressly relate to an earlier date or are affected by the
consummation of the transactions contemplated by this Agreement.
(c) None of the Advances will render the Borrower unable to
pay its debts as they become due. Borrower is not contemplating either the
filing of a petition by it under any state or federal bankruptcy or insolvency
laws or the liquidation of all or a major portion of its property and Borrower
has no knowledge of any person contemplating the filing of any such petition
against it. Borrower (both before and after the making of the Advances and the
granting of security interests in favor of the Lender) is solvent (within the
meanings of all applicable fraudulent transfer or fraudulent conveyance statutes
and acts, the federal bankruptcy code and all other applicable laws) and has
assets having a fair value in excess of the amount required to pay its probable
liabilities on its existing debts (including the Advances and contingent debts)
as they become absolute and matured, and has, and will have, access to adequate
capital for the conduct of its business and the ability to pay its debts from
time to time incurred therewith as such debts mature.
(d) The Borrower has, or will have within 10 days of the date
hereof, furnished to the Lender certain financial projections of the Borrower
and its Subsidiaries (collectively, the "Projections"). The Projections present
fairly the expected financial condition and expected results of operations of
the Borrower for the dates or periods indicated thereon. To the Borrower's
knowledge, the Projections contain no information which, or omits any
information the omission of which, makes such Projections materially misleading.
2.5 Licenses; Permits; Franchises, etc.. Except as set forth in
Schedule 2.5, Borrower has obtained all material authorizations, licenses,
permits, approvals and franchises of any public or governmental regulatory body
("Licenses") necessary to conduct its business as currently conducted.
2.6 Material Agreements. Schedule 2.6 attached hereto accurately and
completely lists each material agreement and instrument including but not
limited to (a) leases; (b) employment agreements or other agreements with
management of either of the Borrower or any Subsidiary; (c) stockholder
agreements; and (d) all other material agreements which, as of the date hereof,
will be in effect in connection with the conduct of the businesses of the
Borrower and its Subsidiaries. Each of the Borrower and its Subsidiaries and, to
the best of the Borrower's knowledge, all third parties to such material
agreements, are in substantial compliance with the terms thereof, and no default
or event of default by the Borrower or, to the Borrower's knowledge, any other
party thereto, exists thereunder.
2.7 Tax Returns and Payments. Each of the Borrower and its Subsidiaries
have filed all tax returns required by law to be filed and have paid all taxes,
assessments and other governmental charges levied upon any of their respective
properties, assets, income or franchises,
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other than those not yet delinquent and those, not substantial in aggregate
amount, being or about to be contested as provided in subsection 4.4. The
charges, accruals and reserves on the books of the Borrower and its Subsidiaries
in respect of their respective taxes are adequate, and Borrower knows of no
unpaid assessment for additional taxes or of any basis therefor.
2.8 Indebtedness; Liens and Investments; etc. Schedule 2.8 attached
hereto correctly describes, as of the date or dates indicated therein, (a) all
outstanding Indebtedness of either of the Borrower or its Subsidiaries in
respect of borrowed money, Capital Leases and the deferred purchase price of
property; (b) all existing mortgages, liens and security interests in respect of
any property or assets of either of the Borrower or its Subsidiaries; (c) all
outstanding investments, loans and advances of the Borrower and its
Subsidiaries; and (d) all existing guarantees by either of the Borrower or its
Subsidiaries.
2.9 Real Estate Owned and Leased; Title to Properties; Liens. Each of
the Borrower and its Subsidiaries have good and marketable title to all of their
respective properties and assets, and none of such properties or assets is
subject to any mortgage, pledge, lien, security interest, charge or encumbrance
except the existing mortgages and security interests, if any, referred to in
Schedule 2.8 attached hereto. The real property owned by the Borrower and/or its
Subsidiaries and the real property leased by the Borrower and/or its
Subsidiaries (collectively, the "Real Estate Leases") are listed on Schedule 2.9
hereto. True, correct and complete copies of the Real Estate Leases, together
with all amendments and supplements thereto, have been furnished to the Lender.
Each of the Borrower and its Subsidiaries enjoy quiet possession under all Real
Estate Leases to which they are parties as lessees, and all of such Real Estate
Leases are valid, subsisting and in full force and effect. None of such Real
Estate Leases contains any provision restricting the incurrence of indebtedness
by the lessee or any unusual or burdensome provision materially adversely
affecting the current and proposed operations of the Borrower and its
Subsidiaries.
2.10 Litigation; etc. Except as may be set forth on Schedule 2.10,
there is no action, proceeding or investigation pending or threatened (or any
basis therefor known to the Borrower) which questions the validity of this
Agreement, the Security Agreement, or the other Loan Documents executed in
connection herewith, or any action taken or to be taken pursuant hereto or
thereto, or which could have, either in any case or in the aggregate, a Material
Adverse Effect on the business operations, affairs or condition of either of the
Borrower or any Subsidiary or any of their respective properties or in any
material liability on the part of either of the Borrower or any Subsidiary.
2.11 Authorization; Enforceability Compliance with Other Instruments.
The execution, delivery and performance of this Agreement, the Security
Agreement and the other Loan Documents executed in connection herewith have been
duly authorized by all necessary corporate action on the part of the Borrower,
will not result in any violation of or be in conflict with or constitute a
default under any term of the charter or by-laws of the Borrower or any
Subsidiary, or of any material agreement, or any instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to the Borrower or
any Subsidiary or to which the Borrower or any Subsidiary is a party, as the
case may be, or result in the creation of any mortgage, lien, charge or
encumbrance upon any of the properties or assets of the Borrower or
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any Subsidiary pursuant to any such term (except pursuant to the Security
Agreement). Each of the Loan Documents to which either of the Borrower or any
Subsidiary is a party has been duly executed and delivered by a duly authorized
officer of such party, and each such Loan Document constitutes the legal, valid
and binding obligation of such party, enforceable in accordance with the terms
thereof. No consent of stockholders of either of the Borrower or the
Subsidiaries is necessary in order to authorize the execution, delivery or
performance of this Agreement or the Security Agreement, or the issuance of any
Note. Neither the Borrower nor any Subsidiary is in violation of any term of its
charter or by-laws, or of any material term of any agreement or instrument to
which it is a party, or, of any judgment, decree, order, statute, rule or
governmental regulation applicable to it.
2.12 Governmental and Other Third Party Consents. Except for such
filings and notices as have already been made, none of the Borrower or its
Affiliates which is a party to any of the Loan Documents is required to obtain
any order, consent, approval or authorization of (collectively, the "Consents"),
or required to make any declaration or filing with, any governmental unit or
other regulatory agency or authority in connection with the execution and
delivery of Loan Documents, except for the Consents required with respect to the
Warrants, if any.
2.13 Employee Retirement Income Security Act of 1974. Neither the
Borrower or its Affiliated Companies have any pension, profit sharing or similar
plans providing for a program of deferred compensation to any employee subject
to the provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). The terms used in this subsection and in other provisions of
this Agreement shall have the meanings assigned thereto in the applicable
provisions of ERISA and the Internal Revenue Code of 1986, as amended (the
"Code"), and the term "Affiliated Company" shall mean the Borrower and all
corporations, partnerships, trades or businesses (whether or not incorporated)
which constitute a controlled group of corporations with the Borrower, a group
of affiliated service group or other affiliated group, within the meaning of
Section 414(b), Section 414(c), Section 414(m) or Section 414(o), respectively,
of the Code, or Section 4001 of ERISA.
2.14 Ownership of Borrower; Outstanding Options or Warrants. Schedule
2.14 attached hereto correctly sets forth the number of shares authorized and
outstanding of each class of stock for the Borrower and the Subsidiaries. All of
said outstanding shares are validly issued, fully paid and nonassessable. There
are no outstanding rights, options, warrants or agreements for the purchase
from, or sale or issuance by, the Borrower or any Subsidiary of any of its
capital stock or any securities convertible into or exchangeable for such stock
and neither the Borrower nor any Subsidiary is obligated in any manner to issue
any additional shares of capital stock, except as may be set forth on Schedule
2.14 hereto. All of the Borrower's and each Subsidiaries' capital stock was
issued in compliance with all applicable securities laws.
2.15 Environmental Matters. To the knowledge of the Borrower, no facts
or circumstances exist which could give rise to liabilities with respect to the
violation (whether by the Borrower or any other Person) of any Environmental Law
and/or Hazardous Materials, which could have any Material Adverse Effect.
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2.16 Intellectual Property.
(a) Schedule 2.16 contains a true, correct and complete list
of all Intellectual Property. Except as set forth in the Schedule 2.16, (i) the
Borrower is the owner of, or otherwise has the free and unrestricted right to
use, each of the Intellectual Property, free and clear of all Liens, (ii) the
Borrower's use of the Intellectual Property has not and will not conflict with,
infringe upon or violate any proprietary right of any other Person, (iii) the
Borrower has no knowledge of any third party infringement upon the Intellectual
Property, (iv) all Intellectual Property purported to be owned by Borrower held
by any employee, officer or consultant is owned by Borrower by operation of law
or has been validly assigned to Borrower, and (v) the Borrower has taken all
reasonable and customary steps to maintain its interest in the Intellectual
Property and to protect its interests in the Intellectual Property from
infringement by third parties. No claims or demands have been asserted against
the Borrower with respect to any items of Intellectual Property (whether or not
scheduled) and no action, suit or other proceeding have been instituted, are
pending or, to the knowledge of the Borrower, have been threatened which
challenge the rights of the Borrower with respect to any items of Intellectual
Property. There are no facts known to the Borrower which might reasonably serve
as the basis of any claim that the any part of the Business infringes on the
rights of any other Person, or of any claim that the Borrower has not performed
its obligations required to be performed by it, or of any claim that the
Borrower is in default with respect to any of such items of Intellectual
Property. The Intellectual Property and the rights thereunder are sufficient to
carry on the business of the Borrower and its Subsidiaries as conducted as of
the date hereof.
(b) Borrower has taken all reasonable measures to protect and
preserve the security and confidentiality of its trade secrets and other
confidential information. All employees and consultants of Borrower involved in
the design, review, evaluation or development of the business of the Borrower,
or other products for or on behalf of Borrower, or Intellectual Property have
executed nondisclosure and assignment of inventions agreements sufficient to
protect the confidentiality of Borrower's trade secrets and other confidential
information and to vest in Borrower exclusive ownership of such Intellectual
Property. To the knowledge of Borrower, all trade secrets and other confidential
information of Borrower are not part of the public domain or knowledge, nor, to
the knowledge of Borrower, have they been misappropriated by any person having
an obligation to maintain such trade secrets or other confidential information
in confidence for Borrower. To the knowledge of Borrower, no employee or
consultant of Borrower has used any trade secrets or other confidential
information of any other Person in the course of their work for Borrower without
the written consent of such other person.
2.17 Chief Executive Offices Principal Place of Business; Real Property
Owned or Leased. As of date hereof, the chief executive offices and principal
place of business of the Borrower is located at 1401 Elm Street, Dallas, Texas
75626. At all times prior to the date hereof, the chief executive offices and
principal place of business of the Borrower was located at 1401 Elm Street,
Dallas, Texas 75626. The Borrower shall not make any change in the locations of
their chief executive offices or principal place of business or any of the
Collateral without giving the Lender at least 15 days' prior written notice
thereof.
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2.18 Trade and Other Names. The exact legal name of the Borrower when
initially formed was Urban Cool Network, Inc. Except as set forth on Schedule
2.18 attached hereto, during the last five years ending on the date hereof, the
Borrower have not conducted any business under any other names (including any
d/b/a, trade or assumed name) other than as set forth on Schedule 2.18.
2.19 Securities Laws. Borrower is not a "holding company" or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940.
2.20 Security Agreement. The representations and warranties of the
Borrower and its Subsidiaries contained in the Security Agreement, are true and
correct in all material respects, and the Borrower is in compliance in all
material respects with the terms of the Security Documents.
2.21 Depository and Other Accounts. Schedule 2.21 attached hereto lists
all banks and other financial institutions and depositories at which the
Borrower maintains (or has caused to be maintained) or will maintain deposit
accounts, operating accounts, trust accounts, tax or trust receivable accounts
or other accounts of any kind or nature into which funds of the Borrower
(including funds in which the Borrower maintains a contingent or residual
interest) are from time to time deposited, and such Schedule 2.21 correctly
identifies the name and address of each depository, the name in which each
account is held, the purpose of the account and the complete account number. The
Borrower will notify the Lender and thereby supplement such Schedule 2.21, as
new accounts are established. The Borrower hereby authorize the Lender to attach
such supplements to Schedule 2.21 from time to time delivered by the Borrower.
2.22 Insurance Policies. Schedule 2.22 lists all insurance policies of
any kind or nature maintained by or on behalf of the Borrower or the
Subsidiaries, as well as a summary of the principal terms of such insurance. All
such insurance policies are in full force and effect and provide coverage of
such risks and in such amounts as is customarily maintained for businesses of
the scope and size of the Borrower and the Subsidiaries.
2.23 Employment and Labor Agreements. Schedule 2.23 accurately and
completely describes each employment agreement, agreement for the payment of
deferred compensation, severance or so-called change in control agreement
covering officers, managers or other Affiliates of the Borrower, as well as all
collective bargaining agreements or other labor agreements covering any
employees of the Borrower. A true and correct copy of each such agreement has
been furnished to the Lender.
2.24 Year 2000 Issues.
(a) All software programs or applications (in both source and
object code form) currently being manufactured, published or marketed by the
Borrower or currently under development for possible future manufacturing,
publication, marketing or other use by the
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Borrower will be "Year 2000 Compliant" which shall mean that they (i) correctly
accomplish date data century recognition and calculations that accommodate same
century and multi-century formulas and date values, including leap years; and
(ii) shall not end abnormally or provide invalid or incorrect results of date
data, specifically including date data that represents or references different
centuries or more than one century; provided, however, that the Borrower makes
no representation regarding the functionality of its products when combined with
third party software, hardware or peripheral items on the event that such third
party software, hardware or peripheral items are not Year 2000 Compliant.
(b) For purposes of this Section, "Internal MIS Systems" means
any computer software and systems (including hardware, firmware, operating
system software, utilities, and applications software) used in the ordinary
course of business by or on behalf of the Borrower, including the Borrower's
payroll, accounting, billing/receivables, inventory, asset tracking, customer
service, human resources, and e-mail systems. All the Internal MIS Systems and
its facilities are Year 2000 Compliant.
(c) To the knowledge of the Borrower, all material vendors of
products or services to the Borrower will continue to furnish their products or
services to the Borrower, without material interruption or delay, on and after
January 1, 2000.
(d) The design of the products, services and other item(s) at
issue to ensure compliance with the foregoing warranties and representations
includes proper date/time data century recognition and recognition of 1999 and
2000, calculations that accommodate single century and multi-century formulas
and date/time values before, or, after, and spanning January 1, 2000, and
date/time date interface values that reflect the centuries 1999 and 2000. In
particular, (i) no value for current date/time will cause any error,
interruption, or decreased performance in or for such product(s), service(s),
and other item(s), (ii) all manipulations of date and time related data
(including calculating, comparing, sequencing, processing and outputting) will
produce correct results for all valid dates and times when used independently or
in combination with other products, services, and/or items actually tested by
the Borrower, (iii) date/time elements in interfaces and data storage will
specify the century to eliminate date ambiguity without human intervention,
including leap year calculations, (iv) where any date/time element is
represented without a century, the correct century will be unambiguous for all
manipulations involving that element, (v) authorization codes, passwords and
zaps (purge functions) will function normally and in the same manner during,
prior to, on and after January 1, 2000, including the manner in which they
function with respect to expiration dates and CPU serial numbers, and (vi) the
Borrower's supply of the product(s), service(s), and other item(s) will not be
interrupted, delayed, decreased, or otherwise affected by the advent of the year
2000.
2.25 Initial Public Offering. The Borrower has entered into a
letter of intent with Security Capital Trading, Inc. ("Security Capital")which
confirms Security Capital's interest in underwriting the initial public offering
of the Common Stock (the "Letter of Intent"). The Letter of Intent is in full
force and effect and there exists no event or occurrence which with the passage
of time or the giving of notice or both would constitute a default or breach of
the Letter of Intent. The Borrower anticipates consummating the initial public
offering in or about January 2000. Attached hereto as Schedule 2.25 is a
preliminary draft of the registration statement on a Form S-1 ("Registration
Statement") which the Borrower intends to file with the SEC within 10 days of
the date hereof.
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Form S-1 ("Registration Statement") which the Borrower intends to file with the
SEC within 10 days of the date hereof.
SECTION 3. CONDITIONS OF CLOSING/LENDING.
3.1 Conditions Precedent to Closing and to the Initial Advance. The
obligation of the Lender to execute this Agreement and to make the Initial
Advance hereunder is subject to the following conditions precedent:
(a) The Lender shall have received the Notes duly completed,
executed and delivered, as provided in Section 1;
(b) All related Schedules, the Security Agreement, and such
other Loan Documents, instruments, schedules, exhibits or certificates as shall
be designated by the Lender shall have been executed by the Borrower and the
other parties thereto and delivered to the Lender;
(c) The Lender shall have received the Borrower's and the
Subsidiaries' audited consolidated balance sheets, statements of income, surplus
and cash flows as of and for the fiscal years ended December 31, 1998 and as of
and for the nine months ended September 31, 1999, together with unqualified
opinions from the Borrower's independent public accountant relating to such
audits and related management letters;
(d) The Lender shall have received a pro forma balance sheet
and income statement for the Borrower dated as of a current date, giving effect
to the consummation of this Agreement (including the Initial Advance);
(e) The Lender shall have received (i) satisfactory evidence
of the filing of such financing statements and instruments securing the Lender's
first priority security interests in the Collateral; and (ii) satisfactory
evidence of the termination of such prior financing statements and other
encumbrances or agreements as the Lender shall designate;
(f) The Lender shall have received the favorable opinion of
Silverman, Collura & Chernis, P.C., general counsel for the Borrower, in the
form attached hereto as Exhibit D and dated as of the date hereof and such
opinions of local counsel as the Lender may require;
(g) The Lender shall have received a completed Compliance
Certificate signed by the chief executive officer of the Borrower, dated as of
the date hereof;
(h) The Borrower shall have paid the fees specified in
subsection 9(a) and all other amounts (including reimbursement for legal fees)
owing from the Borrower to the Lender as of the date hereof;
(i) All other information and documents which the Lender or
their counsel may reasonably have requested in connection with the transactions
contemplated by this
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Agreement, such information and documents where appropriate to be certified by
the proper officers of the Borrower's or governmental authorities.
3.2 Conditions Precedent to Making Additional Advances. The obligation
of the Lender to make any Additional Advance hereunder is subject to the
following conditions precedent:
(a) The Lender shall have received a Compliance Certificate
dated as of such date signed by the chief executive officer of the Borrower;
(b) All other information, and documents which the Lender or
their counsel may reasonably have required in connection with the transactions
contemplated by this Agreement, such information and documents where appropriate
to be certified by the proper officers of the Borrower or governmental
authorities;
(c) No Default or Event of Default exists or will result from
the Additional Advance being made on that Advance Date.
Without limiting any other provision of this Agreement, each of the opinions,
agreements, certificates, and other condition precedent listed above must be
satisfactory in all respects to the Lender and their counsel in order for such
condition precedent to be deemed satisfied.
3.3 No Default; Representations and Warranties, etc. On the date hereof
and on the date of each Advance hereunder: (i) the representations and
warranties of the Borrower contained in Section 2 of this Agreement shall be
true and correct in all material respects on and as of such dates as if they had
been made on such dates (except to the extent that such representations and
warranties expressly relate to an earlier date or are affected by the
consummation of transactions permitted under this Agreement); (ii) the Borrower
shall be in compliance in all material respects with all of the terms and
provisions set forth herein on their part to be observed or performed on or
prior to such dates; (iii) after giving effect to the Advances to be made on
such dates, no Default or Event of Default shall have occurred and be
continuing; and (iv) since the date of this Agreement, there shall have been no
material adverse change in the assets or liabilities or in the financial or
other condition or prospects of the Borrower or any Subsidiary. Each request for
an Advance hereunder shall constitute a representation and warranty by the
Borrower to the Lender that all of the conditions specified in this Section 3,
have been and continue to be satisfied in all material respects as of the date
of each such Loan.
SECTION 4. AFFIRMATIVE COVENANTS.
So long as any of the Advances shall remain available to the Borrower,
and until the principal of and interest on the Advances and all fees due
hereunder and all of the Borrower's obligations to the Lender shall have been
paid in full, the Borrower agrees that:
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4.1 Financial Statements; Field Audits etc. The Borrower will furnish
or cause to be furnished to the Lender:
(a) Within ninety days after the end of each fiscal year of
the Borrower, (i) the audited consolidated balance sheets of the Borrower and
its Subsidiaries as of the year end, and (ii) the related audited consolidated
statements of income and surplus and cash flows for such year, setting forth in
comparative form with respect to such consolidated financial statements figures
for the previous fiscal year, all in reasonable detail, together with the
opinion thereon of independent public accountants selected by the Borrower with
an established national or regional reputation, which opinion shall be in a form
generally recognized as unqualified and shall state that such financial
statements have been prepared in accordance with GAAP applied on a basis
consistent with that of the preceding fiscal year and that the audit by such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards related to reporting;
(b) Promptly upon receipt thereof but in any event within
ninety days of fiscal year end, copies of all audit reports and management
letters, if any, submitted to the Borrower by independent public accountants in
connection with each interim or special audit of the books of the Borrower made
by such accountants and, upon request by the Lender, copies of all financial
statements, reports, notices and proxy statements, if any, sent by the Borrower
to their shareholders;
(c) within forty-five days after the end of each quarterly
accounting period in each fiscal year of the Borrower, (i) the unaudited
consolidated balance sheets of the Borrower and its Subsidiaries as of the end
of such quarter; and (ii) the related unaudited consolidated statements of
income and surplus and cash flows for such period and for the period from the
beginning of the current fiscal year to the end of such period, all in
reasonable detail and signed by the chief financial officers of the Borrower in
the name and on behalf of the Borrower;
(d) As soon as available, but in any event within 30 days
after the end of each month (i) the unaudited consolidated balance sheets of the
Borrower and its Subsidiaries as of the end of such month; (ii) the related
unaudited consolidated statements of income and surplus and cash flows for such
month and for the period from the beginning of the current fiscal year to the
end of such month, setting forth in comparative form with respect to such
consolidated financial statements the corresponding figures from the Borrower's
budget for such period and portion of such fiscal year; (iii) reports
summarizing each of the Borrower's year-to-date backlog, if any; (iv) reports
providing a complete and accurate description of the use of proceeds from any
Advance provided hereunder together with all reasonable documentation of such
use as the Lender may require, and (v) a monthly accounts receivable aging
report for each of the Borrower. All of the reports listed in the foregoing
clauses (i) through (iv) shall be in reasonable detail and current through at
least the close of business for the immediately preceding month and certified by
the chief executive officer or the chief financial officer or such other officer
of the Borrower as may be acceptable in the sole discretion of the Lender;
(e) On or before December 15th of each fiscal year (commencing
December 15, 1999), an annual budget prepared on a monthly basis for the
Borrower and for the
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Subsidiaries for the next succeeding fiscal year, (displaying anticipated
balance sheets and statements of income and surplus and cash flows) and promptly
upon preparation thereof, any amendments or revisions thereto or any other
significant budgets which the Borrower prepare;
(f) Promptly upon their becoming available, copies of all
periodic or special reports filed by the Borrower or any Subsidiary with, and
all communications from or to, the SEC, the National Association of Securities
Dealers or the Amex-Nasdaq Market Group, or any such other periodic or special
reports or other communications filed with or communicated to or from any other
federal, state or local governmental agency or authority;
(g) Forthwith upon any officer of either of the Borrower
obtaining knowledge of any condition or event which constitutes a Default or
Event of Default, a certificate signed by such officer in the name and on behalf
of the Borrower specifying in reasonable detail the nature and period of
existence thereof and what action the Borrower have taken or propose to take
with respect thereto;
(h) Five Business Days' prior notice of any meeting of the
board of directors of the Borrower (telephonic, special or otherwise), including
the time and place of such meeting, and the Borrower shall permit the
representatives of the Lender to attend (by telephone or in person) such
meetings;
(i) Immediately, notice of (i) the institution or commencement
of any action, suit, proceeding or investigation by or against or affecting the
Borrower or any of their assets which, if determined adversely to the Borrower,
could have a Material Adverse Effect; (ii) any litigation or proceeding
instituted by or against the Borrower, or any judgment, award, decree, order or
determination relating to any litigation or proceeding involving the Borrower
which could have a Material Adverse Effect; (iii) the imposition or creation of
any lien against any asset of the Borrower except those in favor of the Lender
and those permitted by this Agreement; (iv) any reportable event under ERISA,
together with a statement of the Borrower's chief executive officer, chief
financial officer and/or controller in the name and on behalf of the Borrower as
to the details thereof and a copy of their notice thereof to the PBGC; (v) any
known release or threat of release of Hazardous Materials on or onto any site
owned or operated by the Borrower or the incurrence of any expense or loss in
connection therewith or upon the Borrower's obtaining knowledge of any
investigation, action or the incurrence of any expense or loss by any
governmental authority in connection with the containment or removal of any
Hazardous Materials for which expense or loss the Borrower may be liable or
potentially responsible;
(j) Prompt notice of any material adverse change in either of
the Borrower's or any Subsidiary's financial condition, the financial condition
of any Affiliates or of any condition or event which constitutes a breach or
Event of Default under this Agreement or any other Loan Document;
(k) The Borrower will permit the Lender to inspect and audit
the books and records and any of the properties or assets of the Borrower and
its Subsidiaries, as often as deemed necessary by the Lender and in any event at
least once per year prior to the occurrence of
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an Event of Default, and after any such occurrence, once per fiscal quarter,
each such inspection to be at the Borrower's expense;
(l) Within 10 days of the date hereof, the Borrower will
provide Lender with the Borrower's and the Subsidiaries' audited consolidated
balance sheets, statements of income, surplus and cash flows as of and for the
fiscal years ended December 31, 1998 and as of and for the nine months ended
September 31, 1999, together with unqualified opinions from the Borrower's
independent public accountant relating to such audits and related management
letters and a pro forma balance sheet and income statement for the Borrower
dated as of a current date, giving effect to the consummation of this Agreement
(including the Initial Advance);
(m) Within 5 Business Days of the date hereof, the Borrower
shall make the appropriate filings with the United States Copyright Office with
respect to each and every copyrightable work (original and/or derivative)
including text, graphics, audio components, audio-visual components, computer
software (source and object code formats), compilations, collective works and
all other works performed and or fixed in tangible format comprising elements of
the Borrwer's Website or which are used to operate the Website, the form and
substance of which filing shall be reasonably satisfactory to the Borrower and
its counsel, and the Borrower shall execute such additional security documents
to perfect the Lender's interest in such filing;
(n) Immediately upon receipt or issuance by the Borrower,
copies of all reports, covenant compliance certificates, budgets, projections,
requests for waivers, notices of default, requests for amendments or other
material correspondence issued by or to the Borrower in connection with or
relating to any Subordinated Debt; and
(o) Promptly upon request therefor, all such other information
regarding the business, affairs and condition of the Borrower and the
Subsidiaries as the Lender may from time to time reasonably request.
4.2 Legal Existence; Licenses; Compliance with Laws. Borrower will, and
will cause each Subsidiary to: maintain its corporate existence and business;
maintain all properties which are reasonably necessary for the conduct of such
business, now or hereafter owned, in good repair, working order and condition;
take all actions necessary to maintain and keep in full force and effect its
rights and franchises, including the Licenses; maintain at all times proper
books of record and account in which full, true and correct entries shall be
made of its transactions in accordance with generally accepted accounting
principles and set aside on its books from its earnings for each fiscal year all
such proper reserves as shall be required in accordance with generally accepted
accounting principles in connection with its business; and comply with all
applicable statutes, rules, regulations and orders of, and all applicable
restrictions imposed by, all governmental authorities in respect of the conduct
of its business and the ownership of its properties in states in which the
Borrower desire to continue business operations.
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4.3 Insurance.
(a) Business Interruption Insurance. Each of the Borrower and
its Subsidiaries shall maintain with financially sound and reputable insurers,
insurance related to interruption of business, either for loss of revenues or
for extra expense, in the manner customary for businesses of similar size
engaged in similar activities.
(b) Property Insurance. Each of the Borrower and its
Subsidiaries shall keep their assets which are of an insurable character insured
by financially sound and reputable insurers against theft and fraud and against
loss or damage by fire, explosion and hazards insured against
by extended coverage to the extent, in amounts and with deductibles at least as
favorable as those generally maintained by businesses of similar size engaged in
similar activities.
(c) Liability Insurance. The Borrower shall maintain with
financially sound and reputable insurers insurance against liability for
hazards, risks and liability to persons and property, including errors and
omission insurance of not less than Five Million Dollars ($5,000,000) per
occurrence, to the extent, in amounts and with deductibles at least as favorable
as those generally maintained by businesses of similar size engaged in similar
activities.
(d) Key-Man Insurance. The Borrower shall maintain with
financially sound and reputable insurers "key-man" insurance covering losses or
damages to the Company as a result of the death of, or disability or casualty
with respect to, Jacob R. Miles, III, to the extent, in amounts and with
deductibles at least as favorable as those generally maintained by businesses of
similar size engaged in similar activities.
(e) Requirements; Proceeds. Each insurance policy maintained
pursuant to this subsection 5.3 pertaining to any of the Collateral shall: (i)
name the Lender, as an additional insured and loss payee and provide that all
proceeds shall be payable to the Lender; and (ii) provide that the Lender shall
be notified of any proposed cancellation of such policy at least thirty days in
advance of such proposed cancellation. The Lender will be named as an additional
insured under all policies of liability insurance. Copies of all such policies
shall be delivered to the Lender. In the event of a casualty loss, the Borrower
may apply up to $100,000 of proceeds of any insurance to the restoration or
replacement of the property or asset which was the subject of such loss,
provided that there is no Default or Event of Default, and provided further that
if the Borrower desire to apply proceeds in excess of $100,000 then the Borrower
shall first have demonstrated to the reasonable satisfaction of the Lender that
such property or asset will be restored to substantially its previous condition
or will be replaced by a substantially identical property or asset, without
material interruption in the Borrower's business and without Default of any
nature under this Agreement. As further assurance for the payment and
performance of the Advances and all other obligations hereunder, the Borrower
hereby assign to the Lender (for the benefit of the Lender) all sums, including
any returned or unearned premiums, which may become payable under any policy of
insurance in respect of the Collateral and the Borrower hereby direct each
insurer issuing any such policy to make such payment of such sums directly to
the Lender. No loss or claim shall be settled for an amount in excess of
$100,000 without prior written notice to the Lender.
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4.4 Payment of Taxes. The Borrower will, and will cause each Subsidiary
to, pay and discharge promptly as they become due and payable all taxes,
assessments and other governmental charges or levies imposed upon them or their
income or upon any of their properties or assets, or upon any part thereof, as
well as all lawful claims of any kind (including claims for labor, materials and
supplies) which, if unpaid, might by law become a lien or a charge upon their
property; provided that neither of the Borrower nor any Subsidiary shall be
required to pay any such tax, assessment, charge, levy or claim if the amount,
applicability or validity thereof shall currently be contested in good faith by
appropriate proceedings promptly initiated and diligently conducted and if such
Borrower or such Subsidiary, as the case may be, shall have set aside on its
books such reserves, if any, with respect thereto as are required by GAAP and
deemed appropriate by the Borrower and their independent public accountants.
4.5 Payment of Other Indebtedness, etc. Except as to matters being
contested in good faith and by appropriate proceedings, and subject to the
provisions of subsection 6.5 (Restricted Payments) hereof, the Borrower will,
and will cause each Subsidiary to, pay promptly when due, or in conformance with
customary trade terms, all other Indebtedness and obligations incident to the
conduct of their businesses.
4.6 Further Assurances. From time to time hereafter, the Borrower will
execute and deliver, or will cause to be executed and delivered, such additional
instruments, certificates or documents, and will take all such actions, as the
Lender may reasonably request, for the purposes of implementing or effectuating
the provisions of this Agreement, the Security Agreement or any Note or any
other Loan Document, or of more fully perfecting or renewing the rights of the
Lender with respect to the Collateral pursuant hereto or thereto. Upon the
exercise by the Lender of any power, right, privilege or remedy pursuant to this
Agreement or the Security Agreement or any other Loan Document which requires
any consent, approval, registration, qualification or authorization of any
governmental authority or instrumentality, the Borrower will execute and
deliver, or will cause the execution and delivery of, all applications,
certifications, instruments and other documents and papers that the Lender may
be required to obtain for such governmental consent, approval, registration,
qualification or authorization. In the event the Borrower or any Subsidiary
shall at any time hereafter own or lease any additional real property, the
Borrower will, if requested by the Lender, promptly execute and deliver, and
will use their best efforts to cause to be executed and delivered by the
Borrower's landlord, to the Lender, such mortgages, leasehold mortgages and,
landlords consents, in form and substance satisfactory to the Lender and their
counsel, as may be required by the Lender.
4.7 Communication with Accountants. The Borrower authorizes the Lender
to communicate directly with the Borrower's independent certified public
accountants and have instructed those accountants in writing to disclose to the
Lender any and all prepared financial statements and all other supporting
financial documents and schedules delivered to the Lender by the Borrower or the
Subsidiaries.
4.8 Management. Schedule 4.9 attached hereto sets forth the names and
titles of each officer and director of each of the Borrower as of the date
hereof. The Borrower will notify the Lender in writing of any change in or
addition to such officers and directors of the Borrower within fifteen days of
any such change or addition.
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4.9 Real Estate. The Borrower shall, and shall cause each Subsidiary
to, make available to the Lender and, if requested, provide the Lender with,
copies of all leases of real property or similar agreements (and all amendments
thereto) entered into by the Borrower or any Subsidiary after the date hereof,
whether as lessor or lessee. The Borrower shall, and shall cause each of its
Subsidiaries to, comply with all of their obligations under all leases now
existing or hereafter entered into by it or them with respect to real property
including, without limitation, all leases listed on any schedule hereto, if the
failure to so comply could have a Material Adverse Effect. The Borrower shall,
and shall cause each Subsidiary to, (i) make available to the Lender and, if
requested, provide the Lender with, a copy of each notice of any default
received by the Borrower or any Subsidiary under any such lease, and make
available to the Lender and, if requested, provide the Lender with, a copy of
each notice of default sent by the Borrower or any Subsidiary under any such
lease; and (ii) notify the Lender, on or before the 15th day of each month, of
any new leased premises or lease the Borrower or any Subsidiary plan to take
possession of during the following thirty day period or has become liable for
during the preceding thirty day period.
4.10 Compliance with ERISA. The Borrower will make, and will cause all
Affiliated Companies to make, all payments or contributions to employee benefit
plans required under the terms thereof and in accordance with applicable minimum
funding requirements of ERISA and the Code and applicable collective bargaining
agreements. The Borrower will cause all employee benefit plans sponsored by any
Affiliated Company to be maintained in material compliance with ERISA and the
Code.
4.11 Filing of the Registration Statement. The Borrower will file the
Registration Statement substantially in the form of Schedule 2.25 with the SEC
within 10 days of the date hereof.
SECTION 5. NEGATIVE COVENANTS.
So long as any of the Advances shall remain available to the Borrower,
and until the principal of and interest on the Advances and all fees due
hereunder and all of the Borrower's obligations to the Lender shall have been
paid in full, the Borrower agrees that:
5.1 Indebtedness. The Borrower will not, and will not permit any
Subsidiary to, create, incur, assume or become or remain liable in respect of
any Indebtedness, except:
(a) Indebtedness to the Lender hereunder;
(b) Unsecured Liabilities of the Borrower and Subsidiaries
(other than for borrowed money) incurred in the ordinary course of their
businesses and in accordance with customary trade practices;
(c) Indebtedness of the Borrower or any Subsidiary secured as
permitted by, and subject to the proviso to subparagraph (c) of subsection 5.2;
and
(d) Up to $100,000 of additional unsecured subordinated debt,
provided that the terms and conditions of such debt is approved in advance in
writing by the Lender.
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5.2 Liens, etc. The Borrower will not, and will not permit any
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist,
any mortgage, lien, charge or encumbrance on, or security interest in, or pledge
of, or conditional sale or other title retention agreement (including any
Capital Lease) with respect to, any real or personal property (tangible or
intangible, now existing or hereafter acquired)(each being a "Lien") including
but not limited to the Collateral, except:
(a) Any Lien securing Indebtedness to the Lender;
(b) Liens for taxes not yet delinquent or being contested in
good faith as provided in subsection 4.4;
(c) Purchase money mortgages, liens and other security
interests, including Capital Leases created in respect of property acquired by
the Borrower after the date hereof or existing in respect of property so
acquired prior to the date hereof, provided that (i) each such lien shall at all
times be confined solely to the item of property so acquired, and (ii) the
aggregate principal amount of indebtedness secured by all such liens (whether
incurred prior to or after the date hereof) shall at no time exceed $50,000; and
(d) Subordinated liens securing the Indebtedness permitted
pursuant to subsection 5.1(d) (each of clauses (a) - (c) being a "Permitted
Lien").
5.3 Loans, Guarantees and Investments. The Borrower will not, and will
not permit any Subsidiary to, make or permit to remain outstanding any loan or
advance to, or guarantee or endorse or otherwise assume or agree to purchase or
otherwise remain liable with respect to any obligation of, or enter into any
indemnification agreement for the benefit of, or make or own any investment in,
or acquire (except in the ordinary course of business) the properties or assets
of, any Person, except:
(a) Extensions of credit by the Borrower and the Subsidiaries
in the ordinary course of business in accordance with customary trade practices;
(b) Such Indebtedness as is shown on the Schedules to this
Agreement;
(c) Cash Equivalents; and
(d) Capital Expenditures, to the extent permitted by
subsection 5.6.
5.4 Collection Policies and Procedures. The Borrower will not implement
any material change in their collection policies and procedures without first
delivering written notice of such change and the reason therefor to the Lender.
5.5 Restricted Payments. Except as expressly provided below, the
Borrower shall not, and shall not permit any Subsidiary to, directly or
indirectly (i) declare, order, pay or make any Restricted Payment or (ii) set
aside any sum or property therefor or exercise any set-off or similar rights of
the Borrower, if any, with respect to any Subordinated Debt.
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As used herein, the term "Restricted Payment" means (i) any cash
dividend or other cash distribution or payment, direct or indirect, on or on
account of any shares of any class of stock of the Borrower or the Subsidiaries
now or hereafter outstanding; (ii) any dividend or other distribution in respect
of, or redemption, purchase or other acquisition, direct or indirect, of any
shares of any class of stock of the Borrower or the Subsidiaries now or
hereafter outstanding or of any warrants, options or rights to purchase any such
stock (including, without limitation, the repurchase of any such stock, warrant,
option or right or any refund of the purchase price thereof in connection with
the exercise by the holder thereof of any right of rescission or similar
remedies with respect thereto); (iii) any direct salary, non-salary managerial
fees, fee (consulting, management or other), fringe benefit, allowance or other
expense directly or indirectly paid or payable by the Borrower or any Subsidiary
(as compensation or otherwise) to any shareholder or Affiliate of the Borrower
(other than to an employee, to the extent of such employee's normal
compensation) or any partner, shareholder or Affiliate thereof; (iv) any loan or
advance of any kind or nature to any Affiliate; and (v) any payment in respect
of Subordinated Debt.
Notwithstanding the foregoing, provided that each of the Borrower and
the Subsidiaries are in compliance with the terms of this Agreement and that
there is no Default or Event of Default hereunder, the Borrower may make
regularly scheduled (but not accelerated) payments of principal and interest on
Subordinated Debt, provided that in no event shall the interest rate relating
thereto exceed twelve percent (12%) per annum; and
5.6 Capital Expenditures. Except with respect to capital expenditures
related to the construction of kiosks, the Borrower will not, and will not
permit any Subsidiary to, make any Capital Expenditure during any fiscal year of
the Borrower if, after giving effect thereto, the aggregate amount of all
Capital Expenditures made by the Borrower and its Subsidiaries during such
period would exceed One Hundred Thousand Dollars ($100,000).
5.7 Subsidiaries, Mergers and Consolidations; Changes in Business. The
Borrower will not, and will not permit any Subsidiary to, create any additional
Subsidiaries or enter into any merger or consolidation (or any agreement
relating to any merger or consolidation) without the prior written consent of
the Lender. The Borrower will not, without the prior written consent of the
Lender, which shall not be unreasonably withheld, engage in any business other
than the business of maintaining a website on the Internet and other related
businesses.
5.8 Sale of Assets. The Borrower will not, and will not permit any
Subsidiary to, sell, lease or otherwise dispose of any of their properties or
assets, except for sales or other dispositions in the ordinary course of
business of obsolete or unusable property or assets (it being understood that
customer lists, contracts, inventory and accounts receivable are excluded from
this exception).
5.9 Leases. The aggregate amount of payments made by the Borrower and
its Subsidiaries during any fiscal year, whether for rental payments, principal
payments, interest payments, service charges or otherwise, under all Leases,
including, without limitation, Operating Leases, lease-purchase agreements,
conditional sales contracts and other similar agreements, shall not exceed
$100,000.
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5.10 Compliance with ERISA. The Borrower will not engage, and will not
permit or suffer any Affiliated Company or any Person entitled to
indemnification or reimbursement from the Borrower or any Affiliated Company to
engage, in any prohibited transaction for which an exemption is not available.
No Affiliated Company will terminate, or permit the PBGC to terminate, any
employee benefit plan or withdraw from any multiemployer plan, in any manner
which could result in material liability of any Affiliated Company.
5.11 Transactions with Affiliates. The Borrower will not, and will not
permit any Subsidiary to, directly or indirectly, enter into any lease or other
transaction after the date hereof with any shareholder or with any Affiliate of
the Borrower or such shareholder, on terms that are less favorable to the
Borrower or such Subsidiary than those which might be obtained at the time from
Persons who are not such a shareholder or Affiliate, provided that the loans
described in subsection 6.1(g) shall not be prohibited by this subsection.
5.12 Observance of Subordination Provisions, etc.. The Borrower will
not make, or cause or permit to be made, any payments in respect of any
Subordinated Debt, in contravention of the subordination provisions contained in
any affiliate subordination agreement, subordination agreement, or any other
written agreement from time to time pertaining thereto, nor will the Borrower
amend, modify or change any of such subordination provisions or any other
provisions of such agreements except as permitted thereby.
5.13 Environmental Liabilities. The Borrower will not, and will not
permit any Subsidiary to, violate any Environmental Laws or other requirement of
law, rule or regulation regarding Hazardous Materials; and, without limiting the
foregoing, the Borrower will not, and will not permit any Subsidiary or any
other Person to dispose of any Hazardous Material into or onto, or (except in
accordance with applicable law) from, any real property owned, leased or
operated by the Borrower or any Subsidiary or in which the Borrower or any
Subsidiary holds, directly or indirectly, any legal or beneficial interest or
estate, nor allow any lien imposed pursuant to any law, regulation or order
relating to Hazardous Materials or the disposal thereof to be imposed or to
remain on such real property, except for liens being contested in good faith by
appropriate proceedings and for which adequate reserves have been established
and are being maintained on the books of the Borrower and its Subsidiaries.
5.14 Fiscal Year. The Borrower will not change their fiscal year end
without prior written notice to the Lender.
5.15 Agreed Upon Accounting Procedures. The Borrower will not change
the Agreed Upon Accounting Procedures without the prior written consent of the
Lender. The Lender shall receive at least thirty days notice of any proposed
changes to the Agreed Upon Accounting Procedures and the reasons therefor.
5.16 Permitted Acquisitions; Conditions Precedent. The Borrower will
not, and will not permit any Subsidiary to, acquire or enter into any agreement
requiring either of the Borrower or any Subsidiary to acquire all or
substantially all of the assets or stock of any Person without the prior written
consent of the Lender. The Borrower acknowledge and agree that the granting or
withholding of such consent shall be in the sole discretion of the Lender and
shall be
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conditioned upon, among other things, satisfactory completion of all legal,
financial and other due diligence reviews as the Lender shall deem advisable.
Each such transaction consented to in writing by the Lender shall be referred to
as a "Permitted Acquisition".
SECTION 6. DEFAULTS; REMEDIES.
6.1 Events of Default; Acceleration. If any of the following events
(each an "Event of Default") shall occur:
(a) The Borrower shall default in the payment of principal of
or interest on the Advances or any other fee due hereunder when the same becomes
due and payable, whether at maturity or at a date fixed for the payment of any
installment or prepayment thereof or by declaration, acceleration or otherwise
(a "Payment Default"); or
(b) The Borrower shall default in the performance of or
compliance with any term contained in Section 4 or Section 5 and, with respect
to terms contained in Section 4 or 5, to the extent any default is susceptible
of remedy or cure, the Borrower have failed to remedy or cure any such default
within twenty days after written notice thereof shall have been given to the
Borrower by the Lender, provided further that if such default cannot be remedied
or cured, then such default shall be deemed an Event of Default as of the date
of its occurrence; or;
(c) The Borrower shall default in the performance of or
compliance with any term contained herein other than those referred to above in
this Section 6 and such default shall not have been remedied within twenty days
after written notice thereof shall have been given to the Borrower by the
Lender, provided that if such default cannot be remedied or cured, then such
default shall be deemed an Event of Default as of the date of its occurrence; or
(d) The Borrower, any Subsidiary, shareholder or other
Affiliate of the Borrower which is a party to the Security Agreement shall
default in the performance of or compliance with any term contained in the
Security Agreement or in the performance of or compliance with any term or
provision contained in any other Loan Document, the Subscription Agreement and
Investment Representation Agreement entered into as of the date hereof (the
"Subscription Agreement") or any other written agreement with the Lender, and
such default shall continue for more than the period of grace, if any, specified
therein and shall not have been waived pursuant thereto; or
(e) Any representation or warranty made by the Borrower herein
(including representations and warranties remade by the Borrower by submission
of a borrowing request) or by the Borrower or any other party to the Security
Agreement or any other Loan Document therein or pursuant hereto or thereto shall
prove to have been false or incorrect in any material respect when made; or
(f) The Borrower or any Subsidiary shall default in any
payment due on any Indebtedness in respect of any Subordinated Debt, or any
other borrowed money where the aggregate exceeds $50,000 or any lesser aggregate
balance where such failure to pay could result in a Material Adverse Effect, or
any Capital Lease or the deferred purchase price of property with
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a principal balance, lease balance or purchase price (as the case may be) in
excess of $50,000 outstanding as of the date of such default, and such default
shall continue for more than the period of grace, if any, applicable thereto, or
in the performance of or compliance with any term of any evidence of such
Indebtedness or of any mortgage, indenture or other agreement relating
thereto,and any such default shall continue for more than the period of grace,
if any, specified therein and shall not have been waived pursuant thereto; or
(g) Either of the Borrower or any Subsidiary shall cease to be
solvent or shall discontinue their businesses or either of the Borrower or any
Subsidiary shall make an assignment for the benefit of creditors, or shall fail
generally to pay their debts as such debts become due, or shall apply for or
consent to the appointment of or taking possession by a trustee, receiver or
liquidator (or other similar official) of the Borrower or such Subsidiary or any
substantial part of the property of the Borrower or such Subsidiary, or shall
commence a case or have an order for relief entered against it under the federal
bankruptcy laws, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency or other similar law, or if the Borrower
or any Subsidiary shall take any action to dissolve or liquidate the Borrower or
any Subsidiary; or
(h) An involuntary proceeding shall be commenced against
either of the Borrower or any Subsidiary under the federal bankruptcy laws, as
now or hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency or other similar law, or a decree shall be entered
appointing a trustee, receiver or liquidator (or other similar official) of
either of the Borrower or any Subsidiary or any substantial part of the property
of either of the Borrower or any such Subsidiary; or
(i) A final judgment which, with other outstanding final
judgments against either of the Borrower and/or its Subsidiaries, exceeds
insurance coverage, if any, acknowledged in writing by the insurer, by an
aggregate of $50,000 shall be rendered against either Borrower or any Subsidiary
and if, within the earlier of 30 days after entry thereof, such judgment shall
not have been discharged or execution thereof stayed pending appeal, or if,
within 30 days after the expiration of any such stay, such judgment shall not
have been discharged, or if any such judgment shall not be discharged forthwith
upon the commencement of proceedings to foreclose any lien, attachment or charge
which may attach as security therefor and before any of the property or assets
of either Borrower or any Subsidiary shall have been seized in satisfaction
thereof; or
(j) If the Borrower shall use the proceeds of any Advance
hereunder for any purpose other than as described in Schedule 6.1; or
(k) If either of the Borrower is enjoined, restrained, or in
any way prevented by the order of any court or any administrative or regulatory
agency from conducting all or any material part of its business which event
could have a Material Adverse Effect and such order is not stayed or revoked
within five days; or
(l) This Agreement, any Note or the Security Agreement or any
other Loan Document shall be canceled, terminated, revoked, rescinded or
declared invalid or unenforceable
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in whole or in any material respect, otherwise than pursuant to its terms by
virtue of the expiration of its term or otherwise than in accordance with the
express prior written agreement, consent or approval of the Lender, or any
action at law, suit in equity or other legal proceeding to cancel, revoke or
rescind this Agreement, any Note or the Security Agreement or any other Loan
Document shall be commenced by or on behalf of the Borrower or any other Person
bound thereby or party thereto or by any governmental or regulatory authority or
agency of competent jurisdiction; or any court or any other governmental or
regulatory authority or agency of competent jurisdiction shall make a
determination that, or shall issue a judgment, order, decree or ruling to the
effect that the Security Agreement or any other Loan Document or any one or more
of the material obligations of the Borrower under the Security Agreement or any
other Loan Document are illegal, invalid or unenforceable in accordance with the
terms thereof; or
(m) Any License is lost, terminated, suspended, revoked or
amended and such loss, termination, suspension, revocation or amendment could
have a Material Adverse Effect; or
(n) Lender shall have determined that (i) Borrower is or will
be unable to meet its commitments under this Agreement or under any other Loan
Document or any other material agreement of the Borrower, or (ii) a material
adverse change shall have occurred in the business, operations, prospects,
properties or condition (financial or otherwise) of Borrower; or
(o) Without limiting any provision set forth above, if
Borrower shall fail to perform or observe any of their obligations under any of
the Loan Documents and such failure continues beyond any applicable grace or
cure period and could have a Material Adverse Effect on either of the Borrower
or such Subsidiary, or if the validity of this Agreement, any Note or the
Security Agreement or any other Loan Document, shall be challenged or
disaffirmed by any party hereto or thereto, or shall in any manner cease to be
in full force and effect (other than pursuant to its expiration or termination
in accordance with its terms); then, and in any such event, and at any time
thereafter, either or both of the following actions may be taken: the Lender may
by written notice to the Borrower, (i) declare the principal of and accrued
interest in respect of the Advances to be forthwith due and payable, whereupon
the principal of and accrued interest in respect of the Advances shall become
forthwith due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby expressly waived by the Borrower; provided
that, in the case of an Event of Default arising by reason of the occurrence of
any event described in subsections 6.1(g) or 6.1(h), both such actions shall be
deemed to have been automatically taken by the Lender and all obligations of the
Borrower to the Lender shall forthwith automatically become due and payable
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived by the Borrower. Without limiting any provision of this
Agreement or the Security Agreement or any other Loan Document, a Default or
Event of Default hereunder shall also constitute a Default or Event of Default
under the Security Agreement.
6.2 Remedies on Default, etc. In case any one or more Events of Default
shall occur and be continuing, the Lender may proceed to protect and enforce
their rights by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein or in any Note or the Security Agreement (including but not limited to
the provisions of the Security Agreement concerning the appointment of a
receiver for the
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Borrower and their assets) or any other Loan Document, or for an injunction
against a violation of any of the terms hereof or thereof, or in aid of the
exercise of any power granted hereby or thereby or by law. In case of a default
in the payment of any principal of or interest on the Advances, or in the
payment of any fee due hereunder or under any other Loan Document, the Borrower
will pay to the Lender such further amount as shall be sufficient to cover the
costs and expenses of collection, including, without limitation, reasonable
attorneys' fees, expenses and disbursements. No course of dealing and no delay
on the part of the Lender in exercising any right shall operate as a waiver
thereof or otherwise prejudice the rights of the Lender. No right conferred
hereby or by any Note or the Security Agreement or other Loan Document upon the
Lender shall be exclusive of any other right referred to herein or therein or
now or hereafter available at law, in equity, by statute or otherwise.
SECTION 7. DEFINITIONS; CERTAIN RULES OF CONSTRUCTION.
Certain capitalized terms are used in this Agreement and in the other
Loan Documents with the specific meanings defined below in this Section 8.
Except as otherwise explicitly specified to the contrary or unless the context
clearly requires otherwise, (i) the capitalized term "Section" refers to Section
of this Agreement; (ii) the capitalized term "Exhibit" refers to exhibits to
this Agreement; (iii) the term "subsection" includes particular Sections
included in subsections thereof; (iv) the word "including" shall be construed as
"including without limitation"; (v) accounting terms not otherwise defined
herein have the meanings provided under GAAP; (vi) terms defined in the UCC and
not otherwise defined herein have the meaning provided under the UCC; (vii)
references to particular statute or regulation include all rules and regulations
thereunder and any successor statute, regulation or rules, in each case as from
time to time in effect; and (viii) references to a particular Person include
such Person's successors and assigns to the extent not prohibited by this
Agreement and the other Loan Documents.
Additional Advances: shall have the meaning set forth in subsection
1.2(b).
Advance: shall have the meaning set forth in subsection 1.1.
Affiliate: shall mean, as applied to any Person, a spouse or relative
of such Person, any member, director or officer of such Person, any corporation,
association, firm or other entity of which such Person is a member, director or
officer, and any other Person directly or indirectly controlling, controlled by
or under direct or indirect common control with such Person.
Affiliated Company: shall have the meaning specified in subsection
2.13.
Agreed Upon Accounting Procedures: shall mean the accounting principles
or practices followed by the Borrower, and the methods of application of those
principles or practices, in connection with the Borrower's audited financial
statements for the fiscal year ended December 31, 1998.
Business Day: any day excluding Saturday and Sunday and excluding any
other day which shall be in New York, New York,a legal holiday or a day on which
banking institutions are authorized by law to close.
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Borrower: shall have the meaning specified at the beginning of this
Agreement.
Capital Expenditure: shall mean as of any date of determination means
(i) the aggregate amount of payments made by the Borrower and its Subsidiaries
for the lease, purchase construction or use of any property, the value or cost
of which, under GAAP, would appear on the Borrower's balance sheet in the
category of property, plant or equipment or intangible assets, less (ii)
capitalized transaction costs related to this Loan Agreement.
Capital Lease: shall mean any lease of property (real, personal or
mixed) which, in accordance with GAAP, should be capitalized on the lessee's
balance sheet.
Cash Equivalents: shall mean (i) negotiable certificates of deposit,
time deposits (including sweep accounts), demand deposits and bankers'
acceptances having a maturity of nine months or less and issued by any United
States financial institution having capital and surplus and undivided profits
aggregating at least $100,000,000 and rated Prime-1 by Moody's Investors
Service, Inc. or A-1 by Standard & Poor's Ratings Group or issued by the Lender;
(ii) corporate obligations having a maturity of nine months or less and rated
Prime-1 by Moody's Investors Service, Inc. or A-1 by Standard & Poor's Ratings
Group or issued by the Lender; (iii) any direct obligation of the United States
of America or any agency or instrumentality thereof, or of any state or
municipality thereof, (A) which has a remaining maturity at the time of purchase
of not more than one year or which is subject to a repurchase agreement with the
Lender (or any other financial institution referred to in clause (a) above)
exercisable within one year from the time of purchase and (B) which, in the case
of obligations of any state or municipality, is rated Aa or better by Moody's
Investors Services, Inc. or AA or better by Standard & Poor's Ratings Group; and
(d) any mutual fund or other pooled investment vehicle rated AA or better by
Moody's Investors Service, Inc. or AA or better by Standard & Poor's Ratings
Group which invests principally in obligations described above.
Code: shall have the meaning specified in subsection 2.13.
Collateral: shall have the meaning specified in subsection 2.1.
Commitment Fee: shall have the meaning specified in subsection 1.5.
Compliance Certificate: shall have the meaning specified in subsection
1.2(c).
Consents: shall have the meaning specified in subsection 2.12.
Default: shall mean any event or condition which, with the giving
of notice or the expiration of any applicable grace period, or both, would
constitute an Event of Default.
Environmental Laws: collectively, shall mean the Resource Conservation
and Recovery Act, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization
Act of 1986, the Federal Water Pollution Control Act, the Federal Clean Water
Act, the Federal Clean Air Act, the Toxic Substances Control Act and any other
federal, state or local statute, regulation, ordinance, order or decree relating
to the environment, as now or hereafter in effect.
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ERISA: shall have the meaning specified in subsection 2.13.
Event of Default: shall have the meaning specified in Section 6.
GAAP: shall mean generally accepted accounting principles,consistently
applied.
Hazardous Material: shall mean (a) any asbestos or insulation or other
material composed of or containing asbestos and (b) any petroleum product and
any hazardous, toxic or dangerous waste, substance or material defined as such
in (or for purposes of) the Comprehensive Environmental Response, Compensation
and Liability Act, any so-called "Superfund" or "Superlien" law, or any other
applicable federal, state, local or other statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to, or imposing liability or
standards of conduct concerning, any hazardous, toxic or dangerous waste,
substance or material, as now or at any time hereafter in effect.
Indebtedness: shall mean as applied to any Person, (a) all items
(except items of capital or surplus or of retained earnings) which in accordance
with GAAP would be included in determining total liabilities as shown on the
liability side of the balance sheet of such Person as of the date of which
Indebtedness is to be determined, including without limitation Subordinated Debt
and any Capital Lease; (b) all indebtedness secured by any mortgage, pledge,
lien or conditional sale or other title retention agreement to which any
property or asset owned or held by such Person is subject, whether or not the
indebtedness secured thereby shall have been assumed; and (c) all indebtedness
of others which such Person has directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business),
discounted or sold with recourse or agreed (contingently or otherwise) to
purchase or repurchase or otherwise acquire, or in respect of which such Person
has agreed to supply or advance funds (whether by way of loan, stock purchase,
capital contributions or otherwise) or otherwise to become directly or
indirectly liable.
Initial Advance: shall have the meaning specified in subsection 1.2(a).
Intellectual Property shall mean collectively, all worldwide industrial
and intellectual property rights, including, without limitation, patents, patent
applications, rights to file for patent applications (including but not limited
to continuations, continuations-in-part, divisionals and reissues), trademarks,
logos, service marks, trade names and service names (in each case whether or not
registered) and applications for and the right to file applications for
registration thereof, Internet domain name or application for an Internet domain
name, Internet and World Wide Web URLs or addresses, copyrights (whether or not
registered) and applications for and the right to file applications for
registration thereof, moral rights, mask work rights, mask work registrations
and applications therefor, franchises, licenses, inventions, trade secrets,
trade dress, know-how, customer lists, supplier lists, proprietary processes and
formulae, software source code and object code, algorithms, net lists,
architectures, structures, screen displays, layouts, inventions, development
tools, designs, blueprints, specifications, technical drawings (or similar
information in electronic format), publicity and privacy rights and any other
intellectual property rights arising under the laws of the United States of
America, any State thereof, or any country or province, and all documentation
and media (in whatever form) constituting, describing or
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relating to the foregoing, including, without limitation, manuals, programmers'
notes, memoranda and records.
Lender: shall have the meaning specified at the beginning of this
Agreement.
Licenses: shall have the meaning specified in subsection 1.2(a).
Loan Documents: shall mean collectively, this Agreement, any Note
issued pursuant hereto, the Security Agreement, the Warrant, the Subscription
Agreement and any and all financing statements, agreements, instruments and
certificates now or hereafter related thereto or executed in connection
therewith, all as amended from time to time.
Material Adverse Effect: shall mean any event, matter or condition
which could have a material adverse effect on (a) the financial performance or
condition, assets, operations or financial or other condition of either of the
Borrower and/or either of the Borrower and any Subsidiaries taken as a whole;
(b) the Borrower's ability to pay and perform all of the Advances and other
material obligations owing by it to the Lender in accordance with the terms
thereof; and/or (c) the Collateral (or any portion thereof) or the security
interests of the Lender in the Collateral (or any portion thereof), or the
priority of such security interests.
Maturity Date: shall have the meaning specified in subsection 1.6.
Note or Notes: shall have the meanings specified in subsection 1.3.
Obligations: shall mean the sums evidenced by any Note and any and all
other liabilities, loans, advances, sums due or to become due and all
Indebtedness of Borrower to Lender of every kind, nature and description
(whether or not evidenced by any note or other instrument), direct or indirect,
absolute or contingent, primary or secondary, joint or several, secured or
unsecured, due or to become due, now existing or hereafter arising, regardless
of how they arise or were acquired, any liability of Borrower to Lender
including but not limited to all interest, fees, charges, expenses and
attorneys' fees, paid or incurred by Lender at any time in connection with the
commitment for, preparation, execution, delivery, amendment, review, perfection,
administration and/or enforcement of any of the Loan Documents and any and all
obligations of Borrower to the Lender pursuant to the Loan Documents.
Payment Default: shall have the meaning specified in subsection 6.1(a).
PBGC: shall have the meaning specified in subsection 2.13.
Permitted Lien: shall have the meaning specified in subsection 5.2.
Person: a corporation, an association, a partnership, a limited
liability company, an owner, grantor or master trust, a joint venture, an
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
Projections: the meaning specified in subsection 2.4(d).
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Registration Statement: the meaning specified in subsection 2.25.
Restricted Payment: the meaning specified in subsection 5.5.
SEC: the Securities and Exchange Commission or any governmental
authority succeeding to any of its functions.
Subordinated Debt: shall mean any debt other than Senior Debt that has
been approved in writing by the Lender and which is subordinated to the Senior
Debt on terms and conditions acceptable to the Lender.
Subsidiary: any corporation of which more than 50% of the outstanding
Voting Stock (other than director's qualifying shares) is at the time owned or
controlled by the Borrower or by one or more Subsidiaries or by the Borrower and
one or more Subsidiaries.
UCC: the Uniform Commercial Code, as from time to time in effect in the
State of New York or any other applicable jurisdiction.
Voting Stock: stock having ordinary voting power to elect a majority of
the board of directors of the corporation in question, irrespective of whether
or not at the time stock of any class or classes of such corporation shall have
or might have which by its terms permits accrued voting power by reason of the
happening of any contingency.
SECTION 8. SETOFFS.
If the Borrower becomes insolvent, howsoever evidenced, or any Default
or Event of Default occurs and is continuing, any Indebtedness from the Lender
to the Borrower or any Subsidiary may, without regard to the value or adequacy
of the Collateral, be offset and applied toward the payment of any Indebtedness
from the Borrower to the Lender, whether or not such Indebtedness, or any part
thereof shall then be due. The Borrower has no rights of set-off hereunder or
under any of the other Loan Documents, and therefore, no amounts owing from the
Borrower hereunder or under any other Loan Document, or otherwise, may be
applied against any amounts owed by the Lender hereunder or under any other Loan
Document, if any.
SECTION 9. EXPENSES; INDEMNIFICATION.
(a) Whether or not the transactions contemplated hereby shall
be consummated, the Borrower agree (i) to pay all reasonable expenses, including
reasonable fees and disbursements of counsel for the Lender and reasonable
expenses incurred with respect to Lender's due diligence, which the Lender have
incurred or may hereafter incur in connection with the preparation of this
Agreement and all other Loan Documents (including any amendment, consent or
waiver hereof and/or thereof) and the transactions contemplated hereby or the
protection, preservation and/or enforcement of the rights of the Lender
hereunder or under any Note or the Security Agreement or in the event of a
Default hereunder or thereunder (including without limitation amounts incurred
with respect to any so-called "workout" of the Advances) and (ii) to pay all
taxes (other than the Lender' income taxes) and fees (including interest and
penalties), including without limitation all recording and filing fees, transfer
and documentary
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stamp and similar taxes, which may be payable in respect of the execution and
delivery of this Agreement, the Security Agreement, any Note, and all other
documents related hereto and thereto (including any amendment, consent or waiver
hereafter requested by the Borrower hereunder or thereunder) and to indemnify
the Lender and hold the Lender harmless against any loss or liability resulting
from non-payment or delay in payment of any such tax.
(b) The Borrower hereby agree to indemnify the Lender, and
their directors, officers, employees, agents, attorneys and each other Person,
if any, who controls the Lender, and will hold the Lender and such other Persons
harmless from and against any and all claims, damages, losses, liabilities,
judgments and expenses (including without limitation all reasonable fees and
expenses of counsel and all expenses of litigation or preparation therefor)
which the Lender or such other Persons may incur or which may be asserted
against the Lender or such other Persons in connection with or arising out of
any investigation, litigation or proceeding involving the Borrower or any
shareholder or any Affiliate of the Borrower or any such shareholder (including
compliance with or contesting of any subpoenas or other process issued against
the Lender, or any director, officer or employee of the Lender, or any Person,
if any, who controls the Lender in any proceeding involving the Borrower or any
shareholder or any Affiliate of the Borrower or any such shareholder), whether
or not the Lender are party thereto, other than claims, damages, losses,
liabilities or judgments with respect to any matter as to which the Lender or
such other Person seeking indemnity shall have been finally adjudicated not to
have acted in good faith or to have been grossly negligent in their actions or
inactions. Promptly upon receipt by any indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the Borrower hereunder, notify the
Borrower in writing of the commencement thereof.
(c) The Borrower acknowledge and agree that their agreements
and obligations under this Section 9 shall survive the termination of this
Agreement and repayment in full of the Advances. The Lender shall be entitled to
retain Collateral or require substitution therefor to the extent required to
reasonably assure the Lender of satisfaction of the Borrower's obligations under
this Section 9 and any Collateral not so required or, if sufficient cash
collateral is substituted, then all of the Collateral, shall be released to the
Borrower.
SECTION 10. AMENDMENTS AND WAIVERS, ETC.
(a) Any term of this Agreement, the Security Agreement, any
Note or the other Loan Documents may be amended and the observance of any term
of this Agreement or of the Security Documents or any Note may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only with the written consent of the Borrower and the Lender. Once a Default or
Event of Default has occurred, such Default or Event of Default shall be deemed
to exist and be continuing for all purposes of this Agreement and the other Loan
Documents until the Lender shall have waived such Default or Event of Default in
writing, stated in writing that the same has been remedied or cured to the
Lender's reasonable satisfaction or entered into an Amendment to this Agreement
which by its express terms cures or waives such Default or Event of Default, at
which time such Default or Event of Default shall no longer be deemed to exist
or to have continued.
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(b) The failure of the Lender to insist upon the strict
performance of any term, condition or other provision of this Agreement or the
Security Agreement or any Note or any other Loan Document or to exercise any
right or remedy hereunder or thereunder shall not constitute a waiver by the
Lender of any such term, condition or other provision or Default or Event of
Default in connection therewith; and any waiver of any such term, condition or
other provision or of any such Default or Event of Default shall not affect or
alter this Agreement or the Security Agreement or any Note or any other Loan
Document, and each and every term, condition and other provision of this
Agreement, the Security Agreement and any Note or any other Loan Document shall,
in such event, continue in full force and effect and shall be operative with
respect to any other then existing or subsequent Default or Event of Default in
connection therewith.
SECTION 11. ASSIGNMENT AND PARTICIPATION.
11.1 Assignment by Lender Except as provided herein, Lender may assign
all or a portion of its interests, rights and obligations under this Agreement
and any Note held by it; provide, however, notwithstanding the foregoing, Lender
shall not assign its rights or obligations under this Agreement, without the
written consent of the Borrower, to any member or affiliate of the National
Association of Securities Dealers, Inc. Upon such assignment, (x) the assignee
thereunder shall be a party hereto and have the rights and obligations of a
lender hereunder, and (y) the Lender shall be released from its obligations
under this Agreement.
11.2 New Notes. Upon an assignment of by Lender pursuant to this
Section, the Borrower shall execute and deliver to the new lender, in exchange
for each surrendered Note, a new Note to the order of such new lender in an
amount equal to the amount assumed by such new lender pursuant to such
assignment and, if Lender has retained some portion of its obligations
hereunder, a new Note to the order of Lender in an amount equal to the amount
retained by it hereunder. Such new Notes shall provide that they are
replacements for the surrendered Notes, shall be in an aggregate principal
amount equal to the aggregate principal amount of the surrendered Notes, shall
be dated the effective date of such assignment and shall otherwise be in
substantially the form of the assigned Notes. Within seven Business Days of
issuance of any new Notes pursuant to this subsection, if so requested by
Lender, the Borrower shall deliver an opinion of counsel, addressed to Lender,
relating to the due authorization, execution and delivery of such new Notes and
the legality, validity and binding effect thereof, substantially in the same
form as the corresponding portion of the legal opinion delivered on the date
hereof. The surrendered Notes shall be canceled and returned to the Borrower.
The Borrower shall be reimbursed for reasonable expenses incurred in connection
with obtaining such opinion of counsel.
11.3 Participation. Lender may sell participations to one or more banks
or other entities in all or a portion of Lender's rights and obligations under
this Agreement and the other Loan Documents.
11.4 Miscellaneous Assignment Provisions. Lender shall retain its
rights to be indemnified pursuant to Section 9 with respect to any claims or
actions arising prior to the date of such assignment. If any new lender is not
incorporated under the laws of the United States of
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America or any state thereof, it shall, prior to the date on which any interest
or fees are payable hereunder or under any of the other Loan Documents for its
account, deliver to the Borrower certification as to its exemption from
deduction or withholding of any United States federal income taxes.
SECTION 12. JURISDICTION; WAIVER OF JURY TRIAL.
THE BORROWERS, TO THE EXTENT THAT THEY MAY LAWFULLY DO SO, HEREBY
CONSENT TO SERVICE OF PROCESS, AND TO BE SUED, IN THE STATE OF NEW YORK AND
CONSENTS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK LOCATED IN
NEW YORK, NEW YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK, AS WELL AS TO THE JURISDICTION OF ALL COURTS TO WHICH AN
APPEAL MAY BE TAKEN FROM SUCH COURTS, FOR THE PURPOSE OF ANY SUIT, ACTION OR
OTHER PROCEEDING ARISING OUT OF ANY OF THEIR OBLIGATIONS HEREUNDER OR UNDER THE
NOTES OR ANY OF THE OTHER LOAN DOCUMENTS OR WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, AND EXPRESSLY WAIVES ANY AND ALL OBJECTIONS IT
MAY HAVE AS TO VENUE IN ANY SUCH COURTS. THE BORROWER FURTHER AGREES THAT A
SUMMONS AND COMPLAINT COMMENCING AN ACTION OR PROCEEDING IN ANY OF SUCH COURTS
SHALL BE PROPERLY SERVED AND SHALL CONFER PERSONAL JURISDICTION IF SERVED
PERSONALLY OR BY CERTIFIED MAIL TO IT AT ITS ADDRESS PROVIDED IN SUBSECTION 13.1
OR AS OTHERWISE PROVIDED UNDER THE LAWS OF THE STATE OF NEW YORK. THE BORROWERS
IRREVOCABLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY PROCEEDING HEREAFTER
INSTITUTED IN RESPECT OF THIS AGREEMENT, THE NOTES, THE SECURITY AGREEMENT, OR
ANY OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH OR THEREWITH. The Borrower
hereby certify that neither the Lender nor any of its representatives, agents or
counsel have represented, expressly or otherwise, that the Lender would not, in
the event of any such suit, action or proceeding, seek to enforce this waiver of
right to trial by jury. The Borrower acknowledge that the Lender have been
induced to enter into this Agreement by, among other things, this waiver. The
Borrower acknowledge that they have read the provisions of this Agreement and in
particular this paragraph; have consulted legal counsel; understand the rights
they are granting in this Agreement and are waiving under this Section in
particular; and make the above waiver knowingly, voluntarily and intentionally.
SECTION 13. MISCELLANEOUS.
13.1 Notices, etc. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be delivered both by
regular United States mail (first class postage prepaid) and certified or
registered mail (first class postage prepaid), guaranteed overnight delivery, or
facsimile transmission if such transmission is confirmed by United States mail
(first class postage prepaid) or guaranteed overnight delivery, to the following
addresses and facsimile numbers (or to such other addresses or facsimile numbers
which such party shall designate in writing to the other party):
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If to the Lender: The Elite Funding Group, Inc.
P.O. Box 403303
Miami Beach, Florida 33140
Facsimile: (305) 673-6575
Attn: President
with copy to: Greenberg Traurig, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Facsimile: (305) 579-0783
Attn: Phillip J. Kushner, Esq.
If to the Company: Urban Cool Network, Inc.
1401 Elm Street
Dallas, Texas 75202
Facsimile: (214) 752-5801
Attn: Jacob R. Miles, III,
Chief Executive Officer
with copy to: Silverman, Collura & Chernis, P.C.
381 Park Avenue South
New York, New York 10016
Facsimile: (212) 779-8858
Attn: Martin C. Licht, Esq.
13.2 Calculations, etc. Calculations hereunder shall be made and
financial data required hereby shall be prepared, both as to classification of
items and as to amounts, in accordance with GAAP and practices which principles
and practices shall be consistently applied and in conformity with those used in
the preparation of the financial statements referred to herein.
13.3 Governmental Approval. The Borrower agree to take any action which
the Lender may reasonably request in order to obtain and enjoy the full rights
and benefits granted to the Lender by this Agreement and the Security Documents,
including specifically, at the Borrower's own cost and expense, the use of their
best efforts to assist in obtaining approval of any applicable governmental or
regulatory authority or court for any action or transaction contemplated by this
Agreement or the Security Documents which is then required by law.
13.4 Survival of Agreements, etc. This Agreement shall inure to the
benefit of the Lender and their successors and assigns including any subsequent
holder or holders of the Notes, and the terms "Lender" shall include any such
subsequent holder. In the event of a sale or assignment by the Lender of all or
any part of the Advances or any of the Secured Obligations (as defined in the
Security Documents) held by it, the Lender may assign or transfer its rights and
interests under this Agreement, the Notes and any one or more of the Security
Documents in whole or in part to the purchaser or purchasers thereof, whereupon
such purchaser or purchasers shall become vested with all of the powers and
rights of the Lender hereunder and thereunder, and the Lender shall thereafter
be forever released and fully discharged from any liability or
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responsibility hereunder or thereunder accruing or arising after the effective
date of the assignment with respect to the rights and interests so assigned. All
agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement and the making of the Advances
hereunder. Notwithstanding the generality of the foregoing, the agreements in
Section 1.10 shall survive the execution and delivery of this Agreement and
shall survive the termination of this Agreement for the applicable period as
specified therein.
13.5 Counterparts, etc. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all the
counterparts shall together constitute one and the same instrument.
13.6 Entire Agreement, etc. This Agreement constitutes the entire
contract between the parties hereto and shall supersede and take the place of
any other instrument purporting to be an agreement of the parties hereto
relating to the transactions contemplated hereby. This Agreement may not be
changed orally but only by an agreement in writing signed by the party against
whom any waiver, change, modification or discharge is sought.
13.7 Governing Law, etc.; Construction.
(a) This Agreement and the Notes, including the validity
hereof and thereof and the rights and obligations of the parties hereunder and
thereunder, shall be construed in accordance with and governed by the internal
laws of the State of New York (without reference to conflicts of laws
principles) and is intended to take effect as a sealed instrument. Except as
prohibited by law which cannot be waived, the Borrower hereby waive any right
that they may have to claim or recover in any litigation involving the Lender
any special, exemplary, punitive or consequential damages or any damages other
than, or in addition to, actual damages. The provisions of this Agreement are
severable; the unenforceability of any provision of this Agreement shall not
affect the validity, binding effect and enforceability of any other provision or
provisions of this Agreement.
(b) Any reference to this Agreement, the Notes, the Security
Agreement and the other Loan Documents contained herein or in any other Loan
Document shall (unless otherwise expressly indicated) be deemed to refer to such
writing as the same may be amended, extended and/or restated from time to time
in accordance with the terms thereof. The words "herein", "hereof", "hereunder"
and words of like import shall refer to this Agreement as a whole and not to any
particular Section or paragraph of this Agreement. In the event of any conflict
between the provisions of this Agreement (on the one hand) and the provisions of
any of the other Loan Documents (on the other hand), the provisions of this
Agreement shall prevail.
(c) This Agreement and any documents or instruments delivered
pursuant hereto or in connection herewith shall be construed without regard to
the identity of the person who drafted the various provisions of the same. Each
and every provision of this Agreement and such other documents and instruments
shall be construed as though all of the parties participated equally in the
drafting of the same. Consequently, the parties acknowledge and agree that any
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rule of construction that a document is to be construed against the drafting
party shall not be applicable either to this Agreement or such other documents
and instruments.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
a sealed instrument as of the date first above written.
URBAN COOL NETWORK, INC.
By: /s/ Jacob R. Miles, III
---------------------------
Jacob R. Miles, III
Chief Executive Officer
THE ELITE FUNDING GROUP, INC.
By: /s/ Robert Herskowitz
-------------------------
Name: Robert Herskowitz
Title:
* Schedules intentionally omitted.
36
NAME OF SUBSCRIBER: The Elite Funding Group, Inc.
To: URBAN COOL NETWORK, INC.
URBAN COOL NETWORK, INC.
SUBSCRIPTION AGREEMENT AND INVESTMENT REPRESENTATION
SECTION 1
1.1 Subscription. The undersigned hereby irrevocably subscribes for
and agrees to lend Urban Cool Network, Inc., a Delaware corporation (the
"Company"), up to $1,000,000 pursuant to the Loan Agreement, as hereinafter
defined, a promissory note executed in connection therewith and shall be issued
one or more common stock purchase warrants (collectively, the "Warrant")
exercisable for an aggregate of 750,000 shares of Common Stock at an exercise
price of $2.00 per share or as adjusted in the Warrant (collectively, the
"Units").
SECTION 2
2.1 Closing
The closing (the "Closing") of the purchase and sale of Units,
following the acceptance by the Company of the undersigned's subscription, as
evidenced by the Company's execution of this Subscription Agreement, shall take
place at the offices of Silverman, Collura & Chernis, P.C., at 381 Park Avenue
South, New York, New York, 10016 or such other place as is mutually agreed to by
the Company and the undersigned.
SECTION 3.
3.1 Investor Representations and Warranties.
The undersigned hereby acknowledges, represents and warrants to, and
agrees with, the Company and its affiliates as follows:
(a) The undersigned is acquiring the Units for its own account as
principal, not as a nominee or agent, for investment purposes only, and not with
a view to, or for, resale, distribution or fractionalization thereof in whole or
in part and no other person has a direct or indirect beneficial interest in such
Units or any of the components of the Units. Further, the undersigned does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to any of the Units for
<PAGE>
which the undersigned is subscribing or any of the components of the Units.
(b) The undersigned has full power and authority to enter into this
Agreement, the execution and delivery of this Agreement have been duly
authorized and this Agreement constitutes a valid and legally binding obligation
of the undersigned.
(c) The undersigned acknowledges its understanding that the offering
and sale of the Units is intended to be exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act") by virtue of Section
4(2) of the Securities Act and/or the provisions of Regulation D promulgated
thereunder ("Regulation D"). In furtherance thereof, the undersigned represents
and warrants to and agrees with the Company and its affiliates as follows:
(i) The undersigned realizes that the basis for the exemption
may not be present if, notwithstanding such representations, the
undersigned has in mind merely acquiring Units for a fixed or
determinable period in the future, or for a market rise, or for sale
if the market does not rise. The undersigned does not have any such
intention;
(ii) The undersigned has the financial ability to bear the
economic risk of its investment, has adequate means for providing
for its current needs and personal contingencies and has no need for
liquidity with respect to its investment in the Company; and
(iii) The undersigned has such knowledge and experience in
financial and business matters as to be capable of evaluating the
merits and risks of the prospective investment in the Units. The
undersigned also represents it has not been organized for the
purpose of acquiring the Units.
(d) The information in the Accredited Investor Questionnaire (the
"Accredited Investor Questionnaire") is accurate and true in all respects and
the undersigned is an "accredited investor," as that term is defined in Rule 501
of Regulation D.
(e) The undersigned:
(i) Has been provided an opportunity for a reasonable period
of time prior to the date hereof to obtain additional information
concerning the Company to the extent the Company possesses such
information or can acquire it without unreasonable effort or
expense;
(ii) Has been given the opportunity for a reasonable period of
time prior to the date hereof to ask questions of, and receive
answers from, the Company or its representatives concerning the
terms and conditions of the offering of the Units and other matters
pertaining to this investment;
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(iii) Has not been furnished with any oral representation or
oral information in connection with the Company other than as set
forth in the Loan Agreement between the Company and the undersigned
and the documents executed in connection therewith; and
(iv) Has determined that the Units are a suitable investment
for the undersigned and that at this time the undersigned could bear
a complete loss of such investment.
(f) The undersigned is not relying on the Company, or its affiliates
with respect to economic considerations involved in this investment. The
undersigned is capable of evaluating the merits and risks of an investment in
the Units.
(g) The undersigned represents, warrants and agrees that it will not
sell or otherwise transfer the Units or the components of the Units without
registration under the Securities Act or an exemption therefrom and fully
understands and agrees that it must bear the economic risk of its purchase
because, among other reasons, the Units, the Warrants and the shares of Common
Stock underlying the Warrants have not been registered under the Securities Act
or under the securities laws of any state and, therefore, cannot be resold,
pledged, assigned or otherwise disposed of unless they are subsequently
registered under the Securities Act and under the applicable securities laws of
such states or an exemption from such registration is available. In particular,
the undersigned is aware that the Units and the components of the Units are
"restricted securities," as such term is defined in Rule 144 promulgated under
the Securities Act ("Rule 144"), and they may not be sold pursuant to Rule 144
unless all of the conditions of Rule 144 are met. The undersigned also
understands that, except as otherwise provided herein and in the certificates
for the Warrants and the shares of Common Stock underlying the Warrants, the
Company is under no obligation to register the Units or any of the components of
the Units on its behalf or to assist it in complying with any exemption from
registration under the Securities Act or applicable state securities laws. The
undersigned further understands that sales or transfers of the Units and the
components of the Units are further restricted by state securities laws and the
provisions of this Agreement.
(h) No representations or warranties have been made to the
undersigned by the Company other than those contained in the Loan Agreement by
and between the Company and the undersigned, or any officer, employee, agent,
affiliate or subsidiary of the Company, other than the representations of the
Company contained herein and in the documents executed by the Company in
connection with this Agreement.
(i) Any information which the undersigned has heretofore furnished
to the Company with respect to its financial position and business experience is
correct and complete as of the date of this Agreement and if there should be any
material change in such information it will immediately furnish such revised or
corrected information to the Company.
(j) The undersigned understands and agrees that the certificates for
the Common Stock and Warrants shall bear the following legend until (i) such
securities shall have been registered
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<PAGE>
under the Securities Act and effectively been disposed of in accordance with a
registration statement that has been declared effective; or (ii) in the opinion
of counsel for the Company such securities may be sold without registration
under the Securities Act as well as any applicable "Blue Sky" or state
securities laws:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED,
SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i)
PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH
HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE
SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF
FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE
CORPORATION, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE
CORPORATION, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL
APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY
APPLICABLE "BLUE SKY" OR SIMILAR SECURITIES LAW."
(k) The undersigned understands that an investment in the Units is a
speculative investment which involves a high degree of risk and the potential
loss of its entire investment.
(l) The undersigned's overall commitment to investments which are
not readily marketable is not disproportionate to the undersigned's net worth,
and an investment in the Units will not cause such overall commitment to become
excessive.
(m) The undersigned represents that neither the undersigned nor any
affiliate of the undersigned within the last 12 months has purchased any
securities pursuant to Section 4(2) under the Act or Regulation D promulgated
thereunder of any company which consummated an initial public offering of its
securities during such period.
(n) The undersigned agrees not to sell the Units or the securities
contained therein to a member of the NASD prior to the consummation of an
initial public offering of the Company's securities.
(o) The foregoing representations, warranties and agreements shall
survive the Closing.
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<PAGE>
SECTION 4.
4.1 Piggyback Registration.
If at any time commencing on the date hereof and expiring five (5)
years thereafter, the Company proposes to register any of its securities under
the Securities Act (other than in connection with a transaction contemplated by
Rule 145(a) promulgated under the Securities Act or pursuant to Form S-8 or
successor forms) it will give written notice by regular mail and by registered
or certified mail, at least thirty (30) days prior to the filing of each such
registration statement, to the holder (the "Holder") of the Warrant and shares
of Common Stock underlying the Warrant underlying the Units of its intention to
do so. Upon the written request of the Holder as represented by Mark Herskowitz
or Robert Herskowitz given within ten (10) days after receipt of any such notice
of its desire to include any Common Stock in such proposed registration
statement, the Company shall afford the Holder the opportunity to have any such
Common Stock registered under such registration statement.
Notwithstanding the provisions of this Section 4.1, the Company
shall have the right at any time after it shall have given written notice
pursuant to this Section 4.1 (irrespective of whether a written request for
inclusion of any such securities shall have been made) to elect not to file any
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date thereof.
4.2 Demand and Mandatory Registration.
(a) The Company agrees to register the shares of Common Stock
underlying the Warrant in connection with the registration statement which the
Company files in connection with the Company's initial public offering.
(b) At any time during the five-year period commencing 12 months
after the issuance of the Units, if the Company is subject to the reporting
requirements of Section 13 or Section 15(g) under the Exchange Act of 1934, as
amended (the "Exchange Act"), the Holder as represented by Mark Herskowitz or
Robert Herskowitz shall have the right (which right is in addition to the
registration rights under Section 4.1 hereof), exercisable by written notice to
the Company, to have the Company prepare and file with the Securities and
Exchange Commission (the "Commission"), on one occasion, a registration
statement and such other documents, including a prospectus, as may be necessary
in the opinion of both counsel for the Company and counsel for the Underwriter,
if any, and the Holder, in order to comply with the provisions of the Securities
Act, so as to permit a public offering and sale of its Common Stock for
twenty-four (24) consecutive months by the Holder.
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<PAGE>
4.3 Covenants of the Company With Respect to Registration.
In connection with any registration under Sections 4.1 or 4.2
hereof, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to cause any registration
statement to be declared effective at the earliest possible time, and shall
furnish the Holder such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding transfer taxes, if
any, fees and expenses of Holder's counsel, if any, and any underwriting or
selling commissions), fees and expenses in connection with all registration
statements filed pursuant to Sections 4.1 or 4.2 hereof including, without
limitation, the Company's legal and accounting fees, printing expenses and blue
sky fees and expenses.
(c) The Company will take all necessary action which may be required
in qualifying or registering the Common Stock included in the registration
statement for offering and sale under the securities or blue sky laws of such
states as are requested by the Holder, provided that the Company shall not be
obligated to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(d) The Company shall indemnify the Holder and each person, if any,
who controls the Holder within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), against any and all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Securities Act, the Exchange Act or any other statute, common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained (x) in such registration statement (as
from time to time amended and supplemented), (y) in any post-effective amendment
or amendments or (z) in any application or other document or written
communication (in this Section 4 collectively called an "application") executed
by the Company or based upon written information furnished by the Company filed
in any jurisdiction in order to qualify the Common Stock under the securities
laws thereof or filed with the Securities and Exchange Commission, any state
securities commission or agency, the NASD, NASDAQ or any securities exchange or
the omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading, unless such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company by the undersigned
expressly for use in such registration statement, any amendment or supplement
thereto or any application, as the case may be. If any action is brought against
the undersigned or any controlling person of the undersigned in respect of which
indemnity may be sought against the Company pursuant to this Section 4, the
undersigned or such controlling person shall within thirty (30) days after the
receipt thereby of a summons or complaint notify the Company in writing of the
institution of such action and the Company shall assume the defense of such
action, including the employment and payment of reasonable fees and expenses of
counsel (reasonably
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<PAGE>
satisfactory to the undersigned or such controlling person) but the failure to
give such notice shall not affect such indemnified person's right to
indemnification hereunder except to the extent that the Company's defense of
such action was materially adversely affected thereby. The undersigned or such
controlling person shall have the right to employ its or their own counsel in
any such case, but the fees and expenses of such counsel shall be at the expense
of the undersigned or such controlling person unless (i) the employment of such
counsel shall have been authorized in writing by the Company in connection with
the defense of such action, (ii) the Company shall not have employed counsel to
have charge of the defense of such action or (iii) such indemnified party or
parties shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to the
Company (in which case the Company shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events the fees and expenses of not more than one additional firm of
attorneys for the undersigned and/or such controlling person shall be borne by
the Company. Except as expressly provided above, in the event that the Company
shall not previously have assumed the defense of any such action or claim, the
Company shall not thereafter be liable to the undersigned or such controlling
person in investigating, preparing or defending any such action or claim. The
Company agrees promptly to notify the undersigned of the commencement of any
litigation or proceedings against the Company or any of its officers, directors
or controlling persons in connection with the offering and sale of the Common
Stock or in connection with such registration statement.
(e) The Holder of the Common Stock to be sold pursuant to a
registration statement, and its successors and assigns, shall severally, and not
jointly, indemnify the Company, its officers and directors and each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Exchange Act, against all loss, claim, damage or
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Securities Act, the Exchange Act or otherwise,
arising from written information furnished by or on behalf of the Holder, or
their successors or assigns, for specific inclusion in such registration
statement.
(f) The Company shall furnish to the Holder and to each underwriter,
if any, a signed counterpart, addressed to the Holder or underwriter, if any, of
(i) an opinion of counsel to the Company, dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, an opinion dated the date of the closing under the underwriting
agreement), and (ii) a "cold comfort" letter dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, a letter dated the date of the closing under the underwriting
agreement) signed by the independent public auditors who have issued a report on
the Company's financial statements included in such registration statement, in
each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
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<PAGE>
SECTION 5.
5.1 Indemnity. The undersigned agrees to indemnify and hold harmless
the Company, its officers and directors, employees and its affiliates and each
other person, if any, who controls any thereof, against any loss, liability,
claim, damage and expense whatsoever (including, but not limited to, any and all
expenses whatsoever reasonably incurred in investigating, preparing or defending
against any litigation commenced or threatened or any claim whatsoever) arising
out of or based upon any false representation or warranty or breach or failure
by the undersigned to comply with any covenant or agreement made by the
undersigned herein or in any other document furnished by the undersigned to any
of the foregoing in connection with this transaction.
5.2 Modification. Neither this Agreement nor any provisions hereof
shall be modified, discharged or terminated except by an instrument in writing
signed by the party against whom any waiver, change, discharge or termination is
sought.
5.3 Notices. Any notice, demand or other communication which any
party hereto may be required, or may elect, to give to anyone interested
hereunder shall be sufficiently given if (a) deposited, postage prepaid, in a
United States mail letter box, by regular mail and registered or certified mail,
return receipt requested, addressed to such address as may be given herein, or
(b) delivered personally at such address.
5.4 Counterparts. This Agreement may be executed through the use of
separate signature pages or in any number of counterparts, and each of such
counterparts shall, for all purposes, constitute one agreement binding on all
parties, notwithstanding that all parties are not signatories to the same
counterpart.
5.5 Binding Effect. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties and
their heirs, executors, administrators, successors, legal representatives and
assigns. If the undersigned is more than one person, the obligation of the
undersigned shall be joint and several and the agreements, representations,
warranties and acknowledgments herein contained shall be deemed to be made by
and be binding upon each such person and its heirs, executors, administrators
and successors.
5.6 Entire Agreement. This Agreement, the Loan Agreement and the
Loan Documents, as defined therein, and the documents referenced herein contain
the entire agreement of the parties and there are no representations, covenants
or other agreements except as stated or referred to herein and therein.
5.7 Assignability. This Agreement is assignable by the undersigned
only in accordance with Section 3.1(g).
5.8 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to conflicts of law principles.
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IN WITNESS WHEREOF, the undersigned has executed this Agreement on
the ___ day of , 1999. ---------------
THE ELITE FUNDING GROUP, INC.
By: /s/ Robert Herskowitz
---------------------------------
Name: Robert Herskowitz
Title:
URBAN COOL NETWORK, INC.
By: /s/ Jacob R. Miles, III
---------------------------------
Name: Jacob R. Miles, III
Title: Chief Executive Officer
9
THE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND THEY MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED
OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT
WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR
(ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY
UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE
COMPANY, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY, THAT THE
PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE ACT AS
WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR STATE SECURITIES LAW.
November 23, 1999
URBAN COOL NETWORK, INC.
COMMON STOCK PURCHASE WARRANT
The Transferability of this Warrant is
Restricted as Provided in Section 3
W- 7 Warrants to Purchase 750,000 Shares of Common Stock
For good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged by Urban Cool Network, Inc., a Delaware corporation (the
"Company"), The Elite Funding Group, Inc. is hereby granted the right to
purchase, at the initial exercise price of $2.00 per share (subject to
adjustment as provided herein) (the "Purchase Price"), at any time commencing on
the date hereof until 5:00 p.m., New York City time, on November 23, 2009,
750,000 shares of common stock of the Company, $.01 par value per share (the
"Shares").
<PAGE>
This Common Stock Purchase Warrant (each, a "Warrant") is initially
exercisable at a price of $2.00 per Share, payable in cash or by certified or
official bank check in New York Clearing House funds or as provided in paragraph
1(b), subject to adjustments as provided in Section 5 hereof. Upon surrender of
this Warrant, with the annexed Subscription Form duly executed, together with
payment of the Purchase Price (as hereinafter defined) for the Shares purchased
at the offices of the Company, the registered holder of this Warrant (the
"Holder") shall be entitled to receive a certificate or certificates for the
Shares so purchased.
1. Exercise of Warrant.
(a) The purchase rights represented by this Warrant are exercisable at the
option of the Holder, in whole or in part (but not as to fractional Shares
underlying this Warrant), during any period in which this Warrant may be
exercised as set forth above. In the case of the purchase of less than all the
Shares purchasable under this Warrant, the Company shall cancel this Warrant
upon the surrender hereof and shall execute and deliver a new Warrant of like
tenor for the balance of the Shares purchasable hereunder.
(b) At any time during the term, the Holder may, at its election, exchange
this Warrant, in whole or in part (a "Warrant Exchange"), into the number of
Shares determined in accordance with this paragraph 1(b) by surrendering this
Warrant at the principal office of the Company, accompanied by a notice stating
the Holder's intent to effect such exchange, the number of Shares to be
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the
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<PAGE>
"Exchange Date"). Certificates for the Shares issuable upon such Warrant
Exchange and, if applicable, a new Warrant of like tenor evidencing the balance
of the Shares remaining subject to this Warrant, shall be issued as of the
Exchange Date and delivered to the Holder within five (5) business days
following the Exchange Date. In connection with any Warrant Exchange, this
Warrant shall represent the right to subscribe for and acquire the number of
Shares (rounded to the next highest integer) equal to (i) the number of Shares
specified by the Holder in its Notice of Exchange (the "Total Number") less (ii)
the number of Shares equal to the quotient obtained by dividing (a) the product
of the Total Number and the then existing exercise price by (b) the closing
price on the trading date immediately preceding the Exchange Date of a share of
the Company's Common Stock as reported on NASDAQ or other national securities
exchange.
2. Issuance of Certificates.
Upon the exercise of this Warrant and payment in full for the Shares, the
issuance of certificates for Shares underlying this Warrant shall be made
forthwith (and in any event within five (5) business days thereafter) without
charge to the Holder, including, without limitation, any tax which may be
payable in respect of the issuance thereof, and such certificates shall (subject
to the provisions of Section 3 hereof) be issued in the name of, or in such
names as may be directed by, the Holder; provided, however, that the Company
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holder, or its affiliates or loan participants and
the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to
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<PAGE>
the satisfaction of the Company that such tax has been paid. The certificates
representing the Shares underlying this Warrant shall be executed on behalf of
the Company by the manual or facsimile signature of the present or any future
Chairman, Vice Chairman, President or Vice President and Secretary or Assistant
Secretary of the Company.
3. Restriction on Transfer; Registration Under the Securities Act of 1933,
as amended.
3.1 Restriction on Transfer. (a) Neither this Warrant nor any Shares issuable
upon exercise hereof has been registered under the Securities Act of 1933, as
amended (the "Act"), and none of such securities may be offered, sold, pledged,
hypothecated, assigned or transferred except (i) pursuant to a registration
statement under the Act which has become effective and is current with respect
to such securities or (ii) pursuant to a specific exemption from registration
under the Act but only upon a Holder hereof first having obtained the written
opinion of counsel to the Company, or the written opinion of Greenberg, Trauris,
LLP, or other counsel reasonably acceptable to the Company, that the proposed
disposition is consistent with all applicable provisions of the Act as well as
any applicable "Blue Sky" or similar state securities law. Upon exercise, in
part or in whole, of this Warrant, each certificate issued representing the
Shares underlying this Warrant shall bear a legend to the foregoing effect.
(b) Notwithstanding anything contained herein to the contrary, this
Warrant and the Shares may be assigned in compliance with Section 3.1(a).
3.2 Demand and Mandatory Registration.
(a) The Company agrees to register the Shares underlying the Warrant in
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<PAGE>
connection with the registration statement which the Company files in connection
with the Company's initial public offering and include such Shares in an
alternate prospectus to be included in the registration statement which the
Company files in connection with the initial public offering.
(b) At any time during the five-year period commencing 12 months after the
date hereof, if the Company is subject to the reporting requirements of Section
13 or Section 15(g) under the Exchange Act of 1934, as amended (the "Exchange
Act"), the Holder as represented by Mark Herskowitz or Robert Herskowitz shall
have the right (which right is in addition to the registration rights under
Section 3.3 hereof), to have the Company prepare and file with the Securities
and Exchange Commission (the "Commission"), on one occasion at the Company's
expense, a registration statement and such other documents, including a
prospectus, as may be necessary in the opinion of counsel for the Company, and
counsel for the Holder, if any, and the Holder, in order to comply with the
provisions of the Securities Act, so as to permit a public offering and sale of
the Holder's Shares for nine (9) consecutive months.
(c) The Company shall use its best efforts to file a registration
statement within thirty (30) days of receipt of any demand therefor and to have
any registration statement declared effective at the earliest possible time. The
Company shall furnish each Holder desiring to sell Shares such number of
prospectuses as shall reasonably be requested.
3.3 Piggyback Registration.
(a) If, at any time during the five-year period commencing on the date
hereof, the Company proposes to register any of its securities under the
Securities Act (other than in connection
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with the merger, acquisition or exchange offer on Form S-4 or pursuant to Form
S-8 or successor forms) it will give written notice by regular mail and
registered or certified mail, at least thirty (30) days prior to the filing of
each such registration statement, to the Holder of its intention to do so. Upon
the written request of the Holder given within ten (10) days after receipt of
any such notice of its desire to include any Shares in such proposed
registration statement, the Company shall afford the Holder the opportunity to
have any such Shares registered under such registration statement.
(b) Notwithstanding the provisions of this Section 3.3 the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 3.3 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
3.4 Certain Covenants with Respect to Registration. In connection with any
registration under Sections 3.2 or 3.3 hereof, the Company covenants and agrees
as follows:
(a) The Company shall use its best efforts to cause any registration
statement to be declared effective at the earliest possible time, and shall
furnish the Holder desiring to sell Warrant Securities such number of
prospectuses as shall be reasonably required.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder's counsel and any underwriting or selling commissions or other charges of
any broker-dealer acting on behalf of the Holder), fees and expenses in
connection with all registration statements filed pursuant to Sections 3.2 and
3.3 hereof including, without limitation, the Company's legal and
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<PAGE>
accounting fees, printing expenses, blue sky fees and expenses.
(c) The Company will take all necessary action which may be required in
qualifying or registering the Shares or (the "Warrant Securities") included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder, provided that the
Company shall not be obligated to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder of the Warrant Securities to be
sold pursuant to any registration statement and each person, if any, who
controls the Holder within the meaning of Section 15 of the Act or Section 20(a)
of the Securities Exchange Act of 1934, as amended ("Exchange Act"), against all
loss, claim, damage, expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which any of them may become subject under the Act, the Exchange Act or any
other statute, common law or otherwise, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement executed by the Company or based upon written information
furnished by the Company filed in any jurisdiction in order to qualify the
Warrant Securities under the securities laws thereof or filed with the
Securities and Exchange Commission (the "Commission"), any state securities
commission or agency, the National Association of Securities Dealers, Inc., The
Nasdaq Stock Market, Inc. or any securities exchange, or the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
to make the statements contained therein not misleading, unless such statement
or omission was made in reliance upon and in conformity with written information
furnished to the
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Company by the Holder expressly for use in such registration statement, any
amendment or supplement thereto or any application, as the case may be. If any
action is brought against the Holder or any controlling person of the Holder in
respect of which indemnity may be sought against the Company pursuant to this
Section 3.4(d), the Holder or such controlling person shall within thirty (30)
days after the receipt thereby of a summons or complaint notify the Company in
writing of the institution of such action and the Company shall assume the
defense of such action, including the employment and payment of reasonable fees
and expenses of counsel (which counsel shall be reasonably satisfactory to the
Holder or such controlling person), but the failure to give such notice shall
not affect such indemnified person's right to indemnification hereunder except
to the extent that the Company's defense of such action was materially adversely
affected thereby. The Holder or such controlling person shall have the right to
employ its own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of the Holder or such controlling person unless
the employment of such counsel shall have been authorized in writing by the
Company in connection with the defense of such action, the Company shall not
have employed counsel to have charge of the defense of such action or such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to the Company (in which case the Company shall not have the right to
direct the defense of such action on behalf of the indemnified party or
parties), in any of which events the fees and expenses of not more than one
additional firm of attorneys for the Holder and/or such controlling person shall
be borne by the Company. Except as expressly provided in the previous sentence,
in the event that the Company shall not previously have assumed the defense of
any such action or claim, the Company shall not thereafter be liable to the
Holder or such controlling person in investigating,
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preparing or defending any such action or claim. The Company agrees promptly to
notify the Holder of the commencement of any litigation or proceedings against
the Company or any of its officers, directors or controlling persons in
connection with the resale of the Warrant Securities or in connection with such
registration statement. The Company further agrees that upon demand by an
indemnified person, at any time or from time to time, it will promptly reimburse
such indemnified person for any loss, claim, damage, liability, cost or expense
actually and reasonably paid by the indemnified person as to which the Company
has indemnified such person pursuant hereto. Notwithstanding the foregoing
provisions of this Section 3.4(d), any such payment or reimbursement by the
Company of fees, expenses or disbursements incurred by an indemnified person in
any proceeding in which a final judgment by a court of competent jurisdiction
(after all appeals or the expiration of time to appeal) is entered against the
Holder or such indemnified person as a direct result of the Holder's or such
person's gross negligence or willful misfeasance will be promptly repaid to the
Company.
(e) The Holder of the Warrant Securities to be sold pursuant to a
registration statement, and its successors and assigns, shall severally, and not
jointly, indemnify the Company, its officers and directors and each person, if
any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished in writing by or on behalf of the Holder, or its successors or
assigns, for specific inclusion in such registration statement. The Holder
further agrees that upon demand by an indemnified person, at any time or from
time to time, it will
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promptly reimburse such indemnified person for any loss, claim, damage,
liability, cost or expense actually and reasonably paid by the indemnified
person as to which the Holder has indemnified such person pursuant hereto.
Notwithstanding the foregoing provisions of this Section 3.3(e), any such
payment or reimbursement by the Holder of fees, expenses or disbursements
incurred by an indemnified person in any proceeding in which a final judgment by
a court of competent jurisdiction (after all appeals or the expiration of time
to appeal) is entered against the Company or such indemnified person as a direct
result of the Company or such person's gross negligence or willful misfeasance
will be promptly repaid to the Holder.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder to exercise its Warrant prior to the initial filing of any
registration statement or the effectiveness thereof.
(g) The Company shall furnish to the Holder participating in the offering
and to each underwriter, if any, a signed counterpart, addressed to the Holder
or underwriter, if any, of (i) an opinion of counsel to the Company, dated the
effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public auditors who have issued a report on the Company's financial statements
included in such registration statement, in each case covering substantially the
same matters with respect to such registration statement (and the prospectus
included therein) and, in the case of such accountants'
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letter, with respect to events subsequent to the date of such financial
statements, as are customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public offerings
of securities.
4. Price.
4.1 Initial and Adjusted Purchase Price. The initial purchase price shall be
$2.00 per Share. The adjusted purchase price shall be the price which shall
result from time to time from any and all adjustments of the initial purchase
price in accordance with the provisions of Section 4.3 and Section 5 hereof.
4.2 Purchase Price. The term "Purchase Price" herein shall mean the initial
purchase price or the adjusted purchase price, depending upon the context.
4.3 Initial Public Offering Price Adjustment. In the event that the initial
public offering price of the Common Stock is less than $9.00 per share, then the
Purchase Price shall be reduced by an amount equal the difference between $9.00
and the initial public offering price per share, but in no event shall the
Purchase Price be less than $.01 per share.
5. Adjustments of Purchase Price and Number of Shares.
The Purchase Price in effect at any time and the number of shares of
Common Stock purchasable upon the exercise of this Warrant shall be subject to
adjustment from time to time upon the happening of certain events hereinafter
described.
(a) In case the Company shall (i) declare a dividend or make a
distribution on its
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outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide or
reclassify its outstanding shares of Common Stock into a greater number of
shares, or (iii) combine or reclassify its outstanding shares of Common Stock
into a smaller number of shares, or (iv) the outstanding shares of Common Stock
of the Company are at any time changed into or exchanged for a different number
or kind of shares or other security of the Company or of another corporation
through reorganization, merger, consolidation, liquidation or recapitalization,
then appropriate adjustments in the number of shares subject to this Warrant
shall be made and the Purchase Price in effect at the time of the record date
for such dividend or distribution or of the effective date of such subdivision,
combination, reclassification, reorganization, merger, consolidation,
liquidation or recapitalization shall be proportionately adjusted so that the
Holder of this Warrant shall be entitled to receive the aggregate number and
kind of securities which, if this Warrant had been exercised by such Holder
immediately prior to such date, it would have owned upon such exercise and been
entitled to receive upon such dividend, distribution, subdivision, combination,
reclassification, reorganization, merger, consolidation, liquidation or
recapitalization. Such adjustment shall be made successively whenever any event
listed above shall occur. The issuance of a cash dividend paid out of current
earnings shall not trigger any adjustment in the Purchase Price or in the number
and kind of security purchasable upon the exercise of this Warrant.
(b) In case the Company shall hereafter distribute without consideration
to all holders of its Common Stock evidence of its indebtedness or assets
(excluding cash dividends or distributions and dividends or distributions
referred to in Section 5(a)), or subscription rights or warrants, then in each
such case the Purchase Price in effect thereafter shall be determined by
multiplying the Purchase Price in effect immediately prior thereto, by a
fraction, the numerator of
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which shall be the total number of shares of Common Stock then outstanding
multiplied by the current Purchase Price, less the fair market value (as
determined by the Company's Board of Directors) of said assets, or evidence of
indebtedness so distributed or of such rights or warrants, and the denominator
of which shall be the total number of shares of Common Stock outstanding
multiplied by the current Purchase Price. Such adjustment shall be made whenever
any such distribution is made and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
distribution.
(c) In case the Company shall issue shares of its Common Stock excluding
shares issued (i) in any of the transactions described in Sections 5(a) or 5(b),
(ii) in connection with a public offering of the Company's securities, (iii)
upon conversion or exchange of securities convertible into or exchangeable for
Common Stock outstanding on the date hereof, (iv) upon exercise of options
granted under the Company's Stock Option Plan, as amended to date, if such
shares would otherwise be included in this Section 5(c), (v) upon exercise of
this Warrant, (vi) upon the exercise of other rights or warrants outstanding on
the date hereof, (vii) upon exercise of rights or warrants issued to the holders
of the Common Stock, but only if no adjustment is required pursuant to this
Section 5 (without regard to Section 5(h) or (viii) upon the issuance of
securities to the officers or directors of the Company for a consideration per
share less than the market price of a share of Common Stock as quoted on NASDAQ
(or other national securities exchange), Purchase Price shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying the Purchase Price in effect immediately prior thereto by a
fraction, of which the numerator shall be the total number of shares of Common
Stock outstanding immediately prior to the issuance of such additional shares
plus the number of shares of Common Stock which the aggregate consideration
received (determined
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<PAGE>
as provided in Section 5(g)) for the issuance of such additional shares would
purchase at the current Purchase Price, and of which the denominator shall be
the number of shares of Common Stock outstanding immediately after the issuance
of such additional shares. Such adjustment shall be made successively whenever
such an issuance is made.
(d) In case the Company shall issue an securities convertible into or
exchangeable for its Common Stock (excluding securities issued in transactions
described in Section 5(b) for a consideration per share of Common Stock,
initially deliverable upon conversation or exchange of such securities
(determined as provided in Section 5(g)), less than the market price of a share
of Common Stock as quoted on NASDAQ (or other national securities exchange), the
Purchase Price shall be adjusted immediately thereafter so that it shall equal
the price determined by multiplying the Purchase Price in effect immediately
prior thereto by a fraction, of which the numerator shall be the number of
shares of Common Stock outstanding immediately prior to the issuance of such
securities plus the number of shares of Common Stock which the aggregate
consideration received (determined as provided in Section 5(g)) for such
securities would purchase at the current Purchase Price, and of which the
denominator shall be the number of shares of Common stock outstanding
immediately prior to such issuance plus the maximum number of shares of Common
Stock of the Company deliverable upon conversion of or in exchange for such
securities at the initial conversion or exchange price or rate. Such adjustment
shall be made successively whenever such in issuance is made.
(e) In case the Company shall issue, or agree to issue pursuant to a stock
option, warrants or otherwise, any shares of its Common Stock or any securities
convertible for its Common
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Stock (excluding securities issued in transactions described in Section 5(b) for
a consideration per share of Common Stock or consideration initially deliverable
upon conversion or exchange of such securities (determined as provided in
Section 5(g)) that is less than the then current Purchase Price in effect
immediately prior to the issuance of, or the agreement to issue, such Common
Stock, or convertible securities, the Purchase Price shall be adjusted
immediately thereafter so that it shall equal such consideration paid or to be
delivered. Such adjustment shall be made successively whenever such an issuance
or agreement to issue is made.
(f) Whenever the Purchase Price payable upon exercise of the Warrant
is adjusted pursuant to Sections 5(a), 5(b), 5(c), 5(d) or 5(e), the number of
shares of Common Stock purchasable upon exercise of this Warrant shall
simultaneously be adjusted by multiplying the number of shares of Common Stock
issuable upon exercise of this Warrant by the Purchase Price in effect on the
date hereof and dividing the product so obtained by the Purchase Price, as
adjusted.
(g) For purposes of any computation respecting consideration received
pursuant to Sections 5(c), 5(d) and 5(e), the following shall apply:
(i) in the case of the issuance of shares of Common Stock for cash, the
consideration shall be the amount of such cash, provided that in no case
shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors of the Company
(irrespective of the accounting treatment thereof), whose determination
shall be conclusive; and
(iii) in the case of the issuance of securities convertible into or
exchangeable for shares of Common Stock, the aggregate consideration
received therefor shall be
15
<PAGE>
deemed to be the consideration received by the Company for the issuance of
such securities plus the additional minimum consideration, if any, to be
received by the Company upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as provided
in clauses (i) and (ii) of this Section 5 (g).
(h) No adjustment in the Purchase Price shall be required (i) in the event
of the sale of the Company's securities in a future bona fide underwritten
public offering; or (ii) unless such adjustment would require an increase or
decrease of at least one cent ($0.01) in such price; provided, however, that any
adjustments which by reason of this Section 5(h) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment
required to be made hereunder. All calculations under this Section 5 shall be
made to the nearest cent or to the nearest one-hundredth of a share, as the case
may be. Anything in this Section 5 to the contrary notwithstanding, the Company
shall be entitled, but shall not be required, to make such changes in the
Purchase Price, in addition to those required by this Section 5, as it shall
determine, in its sole discretion, to be advisable in order that any dividend or
distribution in shares of Common Stock, or any subdivision, reclassification or
combination of Common Stock, hereafter made by the Company shall not result in
any federal income tax liability to the holders of Common Stock or securities
convertible into Common Stock.
6. Merger or Consolidation.
In case of any consolidation of the Company with, or merger of the Company
with, or merger of the Company into, another corporation (other than a
consolidation or merger which does not result in any reclassification or change
of the outstanding Common Stock of the Company), the corporation formed by such
consolidation or merger shall execute and deliver to the Holder a
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<PAGE>
supplemental warrant agreement providing that the Holder shall have the right
thereafter (until the expiration of such Warrant) to receive, upon exercise of
this Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger by a holder of the number
of shares of Common Stock of the Company for which this Warrant might have been
exercised immediately prior to such consolidation, merger, sale or transfer. The
above provisions of this Section 6 shall similarly apply to successive
consolidations or mergers.
7. Exchange and Replacement of Warrant.
This Warrant is exchangeable without expense, upon the surrender hereof by
the registered Holder at the principal executive office of the Company for one
or more new Warrants of like tenor and date representing in the aggregate the
right to purchase the same number of Shares as are purchasable hereunder in such
denominations as shall be designated by the Holder hereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant.
8. Elimination of Fractional Interests.
The Company shall not be required to issue certificates representing
fractions of Shares on the exercise of this Warrant, nor shall it be required to
issue scrip or pay cash in lieu of
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fractional interests, it being the intent of the parties that all fractional
interests shall be eliminated.
9. Reservation of Securities.
The Company shall at all times reserve and keep available out of its
authorized common stock, solely for the purpose of issuance upon the exercise of
this Warrant, such number of Shares as shall be issuable upon the exercise
hereof. The Company covenants and agrees that, upon exercise of this Warrant and
payment of the Purchase Price therefor, or as provided in Section 5, all Shares
issuable upon such exercise shall be duly and validly issued, fully paid and
nonassessable. The Shares issuable upon the exercise of this Warrant shall be
free and clear of all liens and encumbrances.
10. Notices to Warrant Holders.
Nothing contained in this Warrant shall be construed as conferring upon
the Holder hereof the right to vote or to consent or to receive notice as a
stockholder in respect of any meetings of stockholders for the election of
directors or any other matter, or as having any rights whatsoever as a
stockholder of the Company.
11. Notices.
All notices, requests, demands, claims, and other communications hereunder
shall be in writing and shall be delivered both by regular United States mail
(first class postage prepaid) and certified or registered mail (first class
postage prepaid), guaranteed overnight delivery, or facsimile transmission if
such transmission is confirmed by United States mail (first class postage
prepaid) or guaranteed overnight delivery, to the following addresses and
facsimile numbers (or to such other addresses or facsimile numbers which such
party shall designate in writing to the other party):
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If to the Lender: The Elite Funding Group, Inc.
P.O. Box 403303
Miami Beach, Florida 33140
Facsimile: (305) 673-6575
Attn: President
with copy to: Greenberg Traurig, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Facsimile: (305) 579-0783
Attn: Phillip J. Kushner, Esq.
If to the Company: Urban Cool Network, Inc.
1401 Elm Street
Dallas, Texas 75202
Facsimile: (214) 752-5801
Attn: Jacob R. Miles, III, Chief
Executive Officer
with copy to: Silverman, Collura & Chernis, P.C.
381 Park Avenue South
New York, New York 10016
Facsimile: (212) 779-8858
Attn: Martin C. Licht, Esq.
12. Successors.
All the covenants, agreements, representations and warranties contained in
this Warrant shall bind the parties hereto and their respective heirs,
executors, administrators, distributees, successors and assigns.
13. Headings.
The headings in this Warrant are inserted for purposes of
convenience only and shall have no substantive effect.
14. Law Governing.
This Warrant is delivered in the State of New York and shall be construed
and enforced in accordance with, and governed by, the laws of the State of New
York, without giving effect to conflicts of law principles.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its corporate name by, and such signature to be attested to by, a duly
authorized officer and has caused its corporate seal to be affixed hereto on the
date first above written.
URBAN COOL NETWORK, INC.
[SEAL]
By: /s/ Jacob R. Miles, III
--------------------------------------
Jacob R. Miles, III
Chairman
Attest:
- -----------------------------
Name:
Title:
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SUBSCRIPTION FORM
(To be Executed by the Registered Holder
in order to Exercise the Warrant)
The undersigned hereby irrevocably elects to exercise the right to
purchase ______ Shares represented by this Warrant in accordance to the
conditions hereof and herewith makes payment of the Purchase Price of such
Shares in full.
---------------------------------------
Signature
---------------------------------------
Address
---------------------------------------
Social Security Number or Taxpayer's
Dated:_____________
Identification Number ________________
21
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant).
FOR VALUE RECEIVED, _______________________ hereby sells, assigns, and
transfers unto __________ a Warrant to purchase __________ shares of Common
Stock, without par value, of URBAN COOL NETWORK, INC., a Delaware corporation
(the "Company"), and does hereby irrevocably constitute and appoint
________________ attorney to transfer such Warrant on the books of the Company,
with full power of substitution.
DATED: _________________________
------------------------------------
Signature
------------------------------------
Print Name
22
Execution copy
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement") is dated as of November 23,
1999 and entered into by and between URBAN COOL NETWORK, INC., a ______
corporation ("Grantor"), and THE ELITE FUNDING GROUP, INC. a Florida corporation
("Secured Party").
PRELIMINARY STATEMENTS
A. Grantor and Secured Party are party to that certain Loan Agreement
dated as of November 23, 1999 ("Loan Agreement"). Unless otherwise defined
herein, all capitalized terms used herein shall have the meanings ascribed to
them in the Loan Agreement.
B. In connection with the Loan Agreement, Secured Party has agreed to make
certain Advances to the Grantor.
C. It is a condition precedent to the Secured Party's willingness to make
any Advance under the Loan Agreement that Grantor shall have granted the
security interests and undertaken the obligations contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
Secured Party to extend credit under the Loan Agreement and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Grantor hereby agrees with Secured Party as follows:
SECTION 1. Security Interest. Grantor hereby grants and assigns to Secured
Party, as of the Effective Date, and to the extent so assignable, a security
interest, to secure payment and performance of all of the Secured Obligations
(as defined below), in all of the following described personal property, if any,
in which Grantor now or at any time hereafter has any interest, but only to the
extent of Grantor's interest therein (collectively, the "Collateral"):
All goods, building and other materials, supplies, work in process,
equipment, machinery, fixtures, furniture, furnishings, signs and other
personal property, wherever situated, which are or are to be incorporated
into, used in connection with, or appropriated for use in the business of
Grantor or any business now or hereafter conducted by Grantor (the
"Business"); together with all rents, issues, deposits and profits owed to
Grantor; all inventory, accounts, cash receipts, deposit accounts,
accounts receivable, contract rights, general intangibles, judgments,
chattel paper, instruments, documents, notes, drafts, letters of credit,
insurance policies, insurance and condemnation awards and proceeds, any
other rights to the payment
<PAGE>
of money, trade names, trademarks and service marks arising from or
related to the Business; all permits, consents, approvals, licenses,
authorizations and other rights granted by, given by or obtained from, any
governmental entity with respect to the Business; all deposits or other
security now or hereafter made with or given to utility companies by
Grantor with respect to the Business; all advance payments of insurance
premiums made by Grantor with respect to the Business; all plans, drawings
and specifications relating to the Business; all loan funds held by
Secured Party, whether or not disbursed; all reserves, deferred payments,
deposits, accounts, refunds, cost savings and payments of any kind related
to the Business; all other items of personal property (of whatever kind or
nature) used in the operation of the Business; all of the rights and
interest of Grantor in and under all management agreements, franchise
agreements and leasing agreements affecting all or any portion of the
Business; all of the rights and interest of Grantor in and to accounts
that have been (or may hereafter be) established with any other financial;
all property, whether tangible or intangible, now or hereafter maintained
or held in or identified to any of such accounts, including, without
limitation, all securities, bonds, documents, instruments, money, master
notes, repurchase agreements, general intangibles and other rights to
payment, whether certificated or uncertificated, and any collateral
therefor and/or guaranties thereof; all of the rights and interest of
Grantor in and to any interest rate protection agreement that may have
been (or may hereafter be) entered into by Grantor in connection with any
loan; all rents, revenues, issues, profits and income generated from the
operation of the Business; all rights of Grantor as lessee under all
chattel leases relating to furniture, fixtures, equipment or any other
item used in connection with the operation of the Business;; together with
all replacements and proceeds of, and additions and accessions to, any of
the foregoing; together with all books, records and files relating to any
of the foregoing.
SECTION 2. Security for Obligations. This Agreement secures, and the
Collateral is collateral security for, the prompt payment or performance in full
when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise (including the payment of amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. ss.362(a)), of all obligations and liabilities of
every nature of Grantor now or hereafter existing under or arising out of or in
connection with the Loan Agreement and all extensions or renewals thereof,
whether for principal, interest (including without limitation interest that, but
for the filing of a petition in bankruptcy with respect to Grantor, would accrue
on such obligations), fees, expenses, indemnities or otherwise, whether
voluntary or involuntary, direct or indirect, absolute or contingent, liquidated
or unliquidated, whether or not jointly owed with others, and whether or not
from time to time decreased or extinguished and later increased, created or
incurred, and all or any portion of such obligations or liabilities that are
paid, to the extent all or any party of such payment is avoided or recovered
directly or indirectly from Secured Party as a preference, fraudulent transfer
or otherwise (all such obligations and liabilities being the "Underlying Debt"),
and all obligations of
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<PAGE>
every nature of Grantor now or hereafter existing under this Agreement (all such
obligations of Grantor, together with the Underlying Debt, being the "Secured
Obligations").
SECTION 3. No Assumption. Notwithstanding any of the foregoing, this
Agreement shall not in any way be deemed to obligate Secured Party or any
purchaser at a foreclosure sale under this Agreement to assume any of Grantor's
obligations, duties, expenses or liabilities under any other agreements now
existing or hereafter drafted or executed (collectively, the "Grantor
Obligations") unless Secured Party or any such purchaser otherwise expressly
agrees to assume any or all of said Grantor Obligations in writing. In the event
of foreclosure by Secured Party, Grantor shall remain bound and obligated to
perform the Grantor Obligations and Secured Party shall not be deemed to have
assumed any of such Grantor Obligations except as provided in the preceding
sentence.
SECTION 4. Representations and Warranties. Grantor represents and
warrants as follows:
(a) Ownership of Collateral. Grantor is the legal and beneficial owner of
the Collateral free and clear of any lien except for the security interest
created by this Agreement and any Permitted Lien. No effective financing
statement or other instrument similar in effect covering all or any part of the
Collateral is on file in any filing or recording office except such as may have
been filed in favor of Secured Party relating to this Agreement.
(b) Office Locations; Other Names. The chief place of business, the chief
executive office and the office where Grantor keeps its records regarding the
Collateral is, and has been for the four month period preceding the date hereof,
located at 1401 Elm Street, Dallas, Texas 75626. Grantor has not in the past
done, and does not now do, business under any other name (including trade-name
or fictitious business name).
(c) Consents or Governmental Authorizations. No consent of any other
Person (including, without limitation, any voting shareholder or any creditor of
Grantor), and no authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for
either (i) the grant by Grantor of the security interest granted hereby, (ii)
the execution, delivery or performance of this Agreement by Grantor, or (iii)
the perfection of or the exercise by Secured Party of its rights and remedies
hereunder (except as may have been taken by or at the direction of Grantor).
(d) Perfection. This Agreement, together with the registration of the
security interest of Secured Party hereunder on the books and records of Company
and the filing of a financing statement describing the Collateral with the
Secretary of State of [Florida], which registration and filing have been made,
creates a valid and perfected first-priority security interest in the
Collateral, securing the payment of the Secured Obligations.
(e) Other Information. All information heretofore, herein or hereafter
supplied to Secured Party by or on behalf of Grantor with respect to the
Collateral is accurate and complete in all respects.
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<PAGE>
SECTION 5. Further Assurances.
(a) Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or desirable, or that Secured
Party may request, in order to perfect and protect any security interest granted
or purported to be granted hereby or to enable Secured Party to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, Grantor will: (i) execute and
file such financing or continuation statements, or amendments thereto, and such
other instruments or notices, as may be necessary or desirable, or as Secured
Party may request, in order to perfect and preserve the security interests
granted or purported to be granted hereby, and (ii) at Secured Party's request,
appear in and defend any action or proceeding that may affect Grantor's title to
or Secured Party's security interest in all or any part of the Collateral.
(b) Grantor hereby authorizes Secured Party to file one or more financing
or continuation statements, and amendments thereto, relative to all or any part
of the Collateral without the signature of Grantor. Grantor agrees that a
carbon, photographic or other reproduction of this Agreement or of a financing
statement signed by Grantor shall be sufficient as a financing statement and may
be filed as a financing statement in any and all jurisdictions.
(c) Grantor will furnish to Secured Party from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Secured Party may reasonably
request, all in reasonable detail.
SECTION 6. Certain Covenants of Grantor. Grantor shall:
(a) not, without the prior written consent of the Secured Party which
consent shall not be unreasonably withheld, sell, assign (by operation of law or
otherwise) or otherwise dispose of any part of the Collateral;
(b) at its expense maintain and protect the Collateral and take no action
which would have a detrimental effect on the Collateral;
(c) not create or suffer to exist any lien upon or with respect to any of
the Collateral to secure the indebtedness or other obligations of any Person;
(d) not enter into any transaction of merger or consolidation, or
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution);
(e) notify Secured Party of any change in Grantor's name, identity or
corporate structure within 15 days of such change;
(f) give Secured Party 30 days' prior written notice of any change in
Grantor's chief place of business, chief executive office or residence or the
office where Grantor keeps its records regarding the Collateral; and
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(g) pay promptly when due all taxes, assessments and governmental charges
or levies imposed upon, and all claims against, the Collateral, except to the
extent the validity thereof is being contested in good faith; provided that
Grantor shall in any event pay such taxes, assessments, charges, levies or
claims not later than five days prior to the date of any proposed sale under any
judgment, writ or warrant of attachment entered or filed against Grantor or any
of the Collateral as a result of the failure to make such payment.
SECTION 7. Secured Party Appointed Attorney-in-Fact. Grantor hereby
irrevocably appoints Secured Party as Grantor's attorney-in-fact, with full
authority in the place and stead of Grantor and in the name of Grantor, Secured
Party or otherwise, from time to time in Secured Party's discretion to take any
action and to execute any instrument that Secured Party may deem necessary or
advisable to accomplish the purposes of this Agreement, including without
limitation:
(a) to ask, demand, collect, sue for, recover, compound, receive and give
acquittance and receipts for moneys due and to become due under or in respect of
any of the Collateral;
(b) to receive, endorse and collect all instruments made payable to
Grantor representing any payment of profits, dividends, capital proceeds or any
other distribution in respect of any of the Collateral;
(c) to file any claims or take any action or institute any proceedings
that Secured Party may deem necessary or desirable for the collection of any of
the Collateral or otherwise to enforce the rights of Secured Party with respect
to any of the Collateral; and
(d) to do, at Secured Party's option and Grantor's expense, at any time or
from time to time, all acts and things that Secured Party deems necessary to
protect, preserve or realize upon the Collateral and Secured Party's security
interest therein in order to effect the intent of this Agreement, all as fully
and effectively as Grantor might do.
SECTION 8. Secured Party May Perform. If Grantor fails to perform any
agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the reasonable expenses of Secured Party
incurred in connection therewith shall be payable by Grantor under Section 12
hereof.
SECTION 9. Standard of Care. The powers conferred on Secured Party
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the exercise of
reasonable care in the custody of any Collateral in its possession and the
accounting for monies actually received by it hereunder, Secured Party shall
have no duty as to any Collateral or as to the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining to any
Collateral. Secured Party shall be deemed to have exercised reasonable care in
the custody and preservation of any Collateral in its possession if such
Collateral is accorded treatment substantially equal to that which Secured Party
accords its own property of a similar nature.
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SECTION 10. Remedies. If any Event of Default shall have occurred and be
continuing, Secured Party may exercise in respect of the Collateral, in addition
to all other rights and remedies provided for herein or otherwise available to
it, all the rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "Code") (whether
or not the Code applies to the affected Collateral), and Secured Party may also
in its sole discretion, without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private sale,
at any exchange or broker's board or at any of Secured Party's offices or
elsewhere, for cash, on credit or for future delivery, at such time or times and
at such price or prices and upon such other terms as Secured Party may deem
commercially reasonable, irrespective of the impact of any such sales on the
market price of the Collateral. Secured Party may be the purchaser of any or all
of the Collateral at any such sale and Secured Party shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase price for
all or any portion of the Collateral sold at any such public sale, to use and
apply any of the Secured Obligations as a credit on account of the purchase
price for any Collateral payable by Secured Party at such sale. Each purchaser
at any such sale shall hold the property sold absolutely free from any claim or
right on the part of Grantor, and Grantor hereby waives (to the extent permitted
by applicable law) all rights of redemption, stay and/or appraisal which it now
has or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. Grantor agrees that, to the extent notice of sale
shall be required by law, at least ten days' notice to Grantor of the time and
place of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. Secured Party shall not be obligated
to make any sale of Collateral regardless of notice of sale having been given.
Secured Party may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
Grantor hereby waives any claims against Secured Party arising by reason of the
fact that the price at which any Collateral may have been sold at such a private
sale was less than the price which might have been obtained at a public sale,
even if Secured Party accepts the first offer received and does not offer such
Collateral to more than one offeree. If the proceeds of any sale or other
disposition of the Collateral are insufficient to pay all the Secured
Obligations, Grantor shall be liable for the deficiency and the fees of any
attorneys employed by Secured Party to collect such deficiency.
SECTION 11. Application of Proceeds. Except as expressly provided
elsewhere in this Agreement, all proceeds received by Secured Party in respect
of any sale of, collection from, or other realization upon all or any part of
the Collateral may, in the discretion of Secured Party, be held by Secured Party
as Collateral for, and/or then, or at any other time thereafter, applied in full
or in part by Secured Party against, the Secured Obligations in the following
order of priority:
FIRST: To the payment of all costs and expenses of such sale,
collection or other realization, including reasonable compensation to
Secured Party and its agents and counsel, and all other expenses,
liabilities and advances made or incurred by Secured Party in connection
therewith, and all amounts for which Secured Party is entitled to
indemnification hereunder and all advances made by Secured Party hereunder
for the account of Grantor, and to the payment of all costs and expenses
paid or incurred by
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Secured Party in connection with the exercise of any right or remedy
hereunder, all in accordance with Section 12;
SECOND: To the payment of all other Secured Obligations in
such order as Secured Party shall elect; and
THIRD: To the payment to or upon the order of Grantor, or to
whosoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct, of any surplus then remaining from such
proceeds.
SECTION 12. Indemnity and Expenses.
(a) Grantor agrees to indemnify Secured Party from and against any and all
claims, losses and liabilities in any way relating to, growing out of or
resulting from this Agreement and the transactions contemplated hereby
(including, without limitation, enforcement of this Agreement), except to the
extent such claims, losses or liabilities result solely from Secured Party's
gross negligence or willful misconduct as finally determined by a court of
competent jurisdiction.
(b) Grantor shall pay to Secured Party upon demand the amount of any and
all costs and expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, that Secured Party may incur in
connection with (i) the administration of this Agreement, (ii) the custody or
preservation of, or the sale of, collection from, or other realization upon, any
of the Collateral, (iii) the exercise or enforcement of any of the rights of
Secured Party hereunder, or (iv) the failure by Grantor to perform or observe
any of the provisions hereof.
(c) Anything contained in this Agreement to the contrary notwithstanding,
the obligations of Grantor set forth in this Section 12 are included herein
solely for the purpose of including such obligations within the Secured
Obligations, and such obligations shall in all respects be limited by the
provisions of Section 23; accordingly, nothing in this Section 12 shall be
construed in a manner which shall obligate Grantor to make any payment, or
provide any security, to Secured Party with respect to such obligations apart
from the grant of the security interest in the Collateral as set forth in
Section 1 hereof.
SECTION 13. Continuing Security Interest; Transfer of Notes. This
Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until the payment in full of the
Secured Obligations, (b) be binding upon Grantor, its successors and assigns,
and (c) inure, together with the rights and remedies of Secured Party hereunder,
to the benefit of Secured Party and its successors, transferees and assigns.
Without limiting the generality of the foregoing clause (c), Secured Party may
assign or otherwise transfer any Note held by it to any other Person, and such
other Person shall thereupon become vested with all the benefits in respect
thereof granted to Secured Party herein or otherwise. Upon the payment in full
of all Secured Obligations, the security interest granted hereby shall terminate
and all rights to the Collateral shall revert to Grantor. Upon any such
termination Secured Party will, at Grantor's expense, execute and deliver to
Grantor such documents as Grantor shall reasonably request to evidence such
termination.
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SECTION 14. Amendments; Etc. No amendment, modification, termination or
waiver of any provision of this Agreement, and no consent to any departure by
Grantor therefrom, shall in any event be effective unless the same shall be in
writing and signed by Secured Party and, in the case of any such amendment or
modification, by Grantor. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given.
SECTION 15. Notices. Any notice or other communication herein required or
permitted to be given shall be in writing and may be personally served, telexed
or sent by telefacsimile or United States mail or courier service and shall be
deemed to have been given when delivered in person or by courier service, upon
receipt of telefacsimile or telex, or three Business Days after depositing it in
the United States mail with postage prepaid and properly addressed. For the
purposes hereof, the address of each party hereto shall be as set forth in the
Loan Agreement or, as to either party, such other address as shall be designated
by such party in a written notice delivered to the other party hereto.
SECTION 16. Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof or of any other power, right or privilege. All
rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
SECTION 17. Severability. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
SECTION 18. Headings. Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
SECTION 19. Governing Law: Terms. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT
THE CODE PROVIDES THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST
HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless
otherwise defined herein or in the Asset Purchase Agreement, terms used in
Articles 8 and 9 of the Uniform Commercial Code in the State of New York are
used herein as therein defined.
SECTION 20. Consent to Jurisdiction and Service of Process. ALL JUDICIAL
PROCEEDINGS BROUGHT AGAINST GRANTOR ARISING OUT OF OR RELATING TO
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THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE OF NEW YOR, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT GRANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO
BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT.
Grantor hereby agrees that service of all process in any such proceeding in any
such court may be made by registered or certified mail, return receipt
requested, to Grantor at its address provided in Section 15, such service being
hereby acknowledged by Grantor to be sufficient for personal jurisdiction in any
action against Grantor in any such court and to be otherwise effective and
binding service in every respect. Nothing herein shall affect the right to serve
process in any other manner permitted by law or shall limit the right of Secured
Party to bring proceedings against Grantor in the courts of any other
jurisdiction.
SECTION 21. Waiver of Jury Trial. GRANTOR AND SECURED PARTY HEREBY AGREE
TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is
intended to be all-encompassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this transaction, including
without limitation contract claims, tort claims, breach of duty claims, and all
other common law and statutory claims. Grantor and Secured Party each
acknowledge that this waiver is a material inducement for Grantor and Secured
Party to enter into a business relationship, that Grantor and Secured Party have
already relied on this waiver in entering into this Agreement and that each will
continue to rely on this waiver in their related future dealings. Grantor and
Secured Party further warrant and represent that each has reviewed this waiver
with its legal counsel, and that each knowingly and voluntarily waives its jury
trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement
may be filed as a written consent to a trial by the. court.
SECTION 22. Counterparts. This Agreement may be executed in one or more
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
SECTION 23. No Recourse. Notwithstanding anything to the contrary in this
Agreement, no recourse shall be had, whether by levy or execution, or under any
law, or by the enforcement of any assessment or penalty or otherwise, for the
payment of any of the Secured Obligations, against Grantor individually or
personally, any successor or Affiliate of Grantor, or any of the assets of the
aforesaid persons, it being expressly understood that the sole remedies
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available to Secured Party pursuant to this Agreement with respect to the
Secured Obligations shall be against the Collateral; provided that nothing in
this Section 23 shall (i) constitute a waiver, release or discharge of any of
the Secured Obligations, but the same shall continue until fully paid,
discharged, observed or performed, or (ii) in any way limit or restrict any
right of Secured Party to foreclose the liens and security interests granted
pursuant to Agreement or otherwise realize upon any of the Collateral.
SECTION 24. Construction. This Agreement and any documents or instruments
delivered pursuant hereto or in connection herewith shall be construed without
regard to the identity of the person who drafted the various provisions of the
same. Each and every provision of this Agreement and such other documents and
instruments shall be construed as though all of the parties participated equally
in the drafting of the same. Consequently, the parties acknowledge and agree
that any rule of construction that a document is to be construed against the
drafting party shall not be applicable either to this Agreement or such other
documents and instruments
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, Grantor and Secured Party have caused this Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
URBAN COOL NETWORK, INC., a Delaware
corporation
/s/ Jacob R. Miles, III
--------------------------------------------
Jacob R. Miles, III
Chief Executive Officer
THE ELITE FUNDING GROUP, INC., a Florida
corporation
By: /s/ R. Herskowitz
-----------------------------------------
Name:
Title:
NAME OF SUBSCRIBER: RMH CONSULTING CORP.
To: URBAN COOL NETWORK, INC.
URBAN COOL NETWORK, INC.
SUBSCRIPTION AGREEMENT AND INVESTMENT REPRESENTATION
SECTION 1
1.1 Subscription. The undersigned consultant (the "Consultant"), intending
to be legally bound, hereby irrevocably subscribes for and agrees to purchase
150,000 shares of common stock, $.01 par value (the "Common Stock"), of Urban
Cool Network, Inc., a Delaware corporation (the "Company"), in consideration of
services to be performed for the Company by the Consultant pursuant to a
consulting agreement between the Consultant and the Company of even date
herewith (the "Consulting Agreement"). Such number of shares of Common Stock
subscribed for hereunder shall be adjusted as hereinafter provided
(collectively, the "Shares").
SECTION 2
2.1 Closing
The closing (the "Closing") of the purchase and sale of the shares of
Common Stock, following the acceptance by the Company of the Consultant's
subscription, as evidenced by the Company's execution of this Subscription
Agreement, shall take place at the offices of Silverman, Collura & Chernis,
P.C., at 381 Park Avenue South, New York, New York, 10016 or such other place as
is mutually agreed to by the Company and the Consultant simultaneously with the
execution of this Agreement.
SECTION 3.
3.1 Investor Representations and Warranties.
The Consultant hereby acknowledges, represents and warrants to, and agrees
with, the Company and its affiliates as follows:
(a) The Consultant is acquiring the Shares for its own account as
principal, not as a nominee or agent, for investment purposes only, and not with
a view to, or for, resale, distribution or fractionalization thereof in whole or
in part and no other person has a direct or indirect beneficial interest in such
Shares. Further, the Consultant does not have any contract, undertaking,
<PAGE>
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Shares for which the Consultant is subscribing.
(b) The Consultant has full power and authority to enter into this
Agreement, the execution and delivery of this Agreement have been duly
authorized and this Agreement constitutes a valid and legally binding obligation
of the Consultant.
(c) The Consultant acknowledges its understanding that the offering and
sale of the Shares is intended to be exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act") by virtue of Section
4(2) of the Securities Act and/or the provisions of Regulation D promulgated
thereunder ("Regulation D"). In furtherance thereof, the Consultant represents
and warrants to and agrees with the Company and its affiliates as follows:
(i) The Consultant realizes that the basis for the exemption may not
be present if, notwithstanding such representations, the Consultant has in
mind merely acquiring Shares for a fixed or determinable period in the
future, or for a market rise, or for sale if the market does not rise. The
Consultant does not have any such intention;
(ii) The Consultant has the financial ability to bear the economic
risk of its investment, has adequate means for providing for its current
needs and personal contingencies and has no need for liquidity with
respect to its investment in the Company; and
(iii) The Consultant has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks
of the prospective investment in the Shares. The Consultant also
represents it has not been organized for the purpose of acquiring the
Shares.
(d) The information in the Accredited Investor Questionnaire (the
"Accredited Investor Questionnaire") is accurate and true in all respects and
the Consultant is an "accredited investor," as that term is defined in Rule 501
of Regulation D.
(e) The Consultant:
(i) Has been provided an opportunity for a reasonable period of time
prior to the date hereof to obtain additional information concerning the
Company to the extent the Company possesses such information or can
acquire it without unreasonable effort or expense;
(ii) Has been given the opportunity for a reasonable period of time
prior to the date hereof to ask questions of, and receive answers from,
the Company or its representatives concerning the terms and conditions of
the offering of the Shares and other matters pertaining to this
investment; and
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(iii) Has determined that the Shares are a suitable investment for the
Consultant and that at this time the Consultant could bear a complete loss
of such investment.
(f) The Consultant is not relying on the Company, or its affiliates with
respect to economic considerations involved in this investment. The Consultant
is capable of evaluating the merits and risks of an investment in the Shares.
(g) The Consultant represents, warrants and agrees that he will not sell
or otherwise transfer the Shares without registration under the Securities Act
or an exemption therefrom and fully understands and agrees that he must bear the
economic risk of its purchase because, among other reasons, the Shares have not
been registered under the Securities Act or under the securities laws of any
state and, therefore, cannot be resold, pledged, assigned or otherwise disposed
of unless they are subsequently registered under the Securities Act and under
the applicable securities laws of such states or an exemption from such
registration is available. In particular, the Consultant is aware that the
Shares are "restricted securities," as such term is defined in Rule 144
promulgated under the Securities Act ("Rule 144"), and they may not be sold
pursuant to Rule 144 unless all of the conditions of Rule 144 are met. The
Consultant also understands that, except as otherwise provided herein and in the
certificates for the Shares, the Company is under no obligation to register the
Shares on its behalf or to assist it in complying with any exemption from
registration under the Securities Act or applicable state securities laws. The
Consultant further understands that sales or transfers of the Shares are further
restricted by state securities laws and the provisions of this Agreement.
(h) No representations or warranties have been made to the Consultant by
the Company, or any officer, employee, agent, affiliate or subsidiary of the
Company, other than the representations of the Company contained herein and in
the Consulting Agreement.
(i) Any information which the Consultant has heretofore furnished to the
Company with respect to its financial position and business experience is
correct and complete as of the date of this Agreement and if there should be any
material change in such information he will immediately furnish such revised or
corrected information to the Company.
(j) The Consultant understands and agrees that the certificates for the
Shares shall bear the following legend until (i) such securities shall have been
registered under the Securities Act and effectively been disposed of in
accordance with a registration statement that has been declared effective; or
(ii) in the opinion of counsel for the Company such securities may be sold
without registration under the Securities Act as well as any applicable "Blue
Sky" or state securities laws:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME
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EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (ii)
PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN
OPINION OF COUNSEL TO THE CORPORATION, OR OTHER COUNSEL REASONABLY
ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED DISPOSITION IS CONSISTENT
WITH ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY
APPLICABLE "BLUE SKY" OR SIMILAR SECURITIES LAW."
(k) The Consultant understands that an investment in the Shares is a
speculative investment which involves a high degree of risk and the potential
loss of its entire investment.
(l) The Consultant's overall commitment to investments which are not
readily marketable is not disproportionate to the Consultant's net worth, and an
investment in the Shares will not cause such overall commitment to become
excessive.
(m) The foregoing representations, warranties and agreements shall survive
the Closing.
(n) The Consultant represents that neither the Consultant nor any
affiliate of the Consultant within the last 12 months has purchased any
securities pursuant to Section 4(2) under the Act or Regulation D promulgated
thereunder of any company which consummated an initial public offering of its
securities during such period.
(o) The Consultant agrees not to sell the Shares to a member of the NASD
prior to the consummation of an initial public offering of the Company's
securities.
SECTION 4.
4.1 Piggyback Registration.
If at any time commencing on the date hereof and expiring five (5) years
thereafter, the Company proposes to register any of its securities under the
Securities Act (other than in connection with a transaction contemplated by Rule
145(a) promulgated under the Securities Act or pursuant to Form S-8 or successor
forms) it will give written notice by regular mail and by registered or
certified mail, at least thirty (30) days prior to the filing of each such
registration statement, to the Consultant of its intention to do so. Upon the
written request of the Consultant given within ten (10) days after receipt of
any such notice of its desire to include any Common Stock in such proposed
registration statement, the Company shall afford the Consultant the opportunity
to have any such Common Stock registered under such registration statement.
Notwithstanding the provisions of this Section 4.1, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 4.1 (irrespective of
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whether a written request for inclusion of any such securities shall have been
made) to elect not to file any such proposed registration statement, or to
withdraw the same after the filing but prior to the effective date thereof.
4.2 Demand and Mandatory Registration.
(a) The Company agrees to register the Shares in connection with the
registration statement which the Company files in connection with the Company's
initial public offering.
(b) At any time during the five-year period commencing 12 months after the
issuance of the Shares, if the Company is subject to the reporting requirements
of Section 13 or Section 15(g) under the Exchange Act of 1934, as amended (the
"Exchange Act"), the Consultant shall have the right (which right is in addition
to the registration rights under Section 4.1 hereof), exercisable by written
notice to the Company, to have the Company prepare and file with the Securities
and Exchange Commission (the "Commission"), on one occasion, a registration
statement and such other documents, including a prospectus, as may be necessary
in the opinion of both counsel for the Company and counsel for the Underwriter,
if any, and the Consultant, in order to comply with the provisions of the
Securities Act, so as to permit a public offering and sale of its Common Stock
for twenty-four (24) consecutive months by the Consultant.
4.3 Covenants of the Company With Respect to Registration.
In connection with any registration under Sections 4.1 or 4.2 hereof, the
Company covenants and agrees as follows:
(a) The Company shall use its best efforts to cause any registration
statement to be declared effective at the earliest possible time, and shall
furnish the Consultant such number of prospectuses as shall reasonably be
requested.
(b) The Company shall pay all costs (excluding transfer taxes, if any,
fees and expenses of Consultant's counsel, if any, and any underwriting or
selling commissions), fees and expenses in connection with all registration
statements filed pursuant to Sections 4.1 or 4.2 hereof including, without
limitation, the Company's legal and accounting fees, printing expenses and blue
sky fees and expenses.
(c) The Company will take all necessary action which may be required in
qualifying or registering the Common Stock included in the registration
statement for offering and sale under the securities or blue sky laws of such
states as are requested by the Consultant, provided that the Company shall not
be obligated to qualify as a foreign corporation to do business under the laws
of any such jurisdiction.
(d) The Company shall indemnify the Consultant and each person, if any,
who controls the Consultant within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), against any and all loss,
5
<PAGE>
claim, damage, expense or liability (including all expenses reasonably incurred
in investigating, preparing or defending against any claim whatsoever) to which
any of them may become subject under the Securities Act, the Exchange Act or any
other statute, common law or otherwise, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained (x) in such
registration statement (as from time to time amended and supplemented), (y) in
any post-effective amendment or amendments or (z) in any application or other
document or written communication (in this Section 4 collectively called an
"application") executed by the Company or based upon written information
furnished by the Company filed in any jurisdiction in order to qualify the
Common Stock under the securities laws thereof or filed with the Securities and
Exchange Commission, any state securities commission or agency, the NASD, NASDAQ
or any securities exchange or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
contained therein not misleading, unless such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company by the Consultant expressly for use in such registration statement, any
amendment or supplement thereto or any application, as the case may be. If any
action is brought against the Consultant or any controlling person of the
Consultant in respect of which indemnity may be sought against the Company
pursuant to this Section 4, the Consultant or such controlling person shall
within thirty (30) days after the receipt thereby of a summons or complaint
notify the Company in writing of the institution of such action and the Company
shall assume the defense of such action, including the employment and payment of
reasonable fees and expenses of counsel (reasonably satisfactory to the
Consultant or such controlling person) but the failure to give such notice shall
not affect such indemnified person's right to indemnification hereunder except
to the extent that the Company's defense of such action was materially adversely
affected thereby. The Consultant or such controlling person shall have the right
to employ its or their own counsel in any such case, but the fees and expenses
of such counsel shall be at the expense of the Consultant or such controlling
person unless (i) the employment of such counsel shall have been authorized in
writing by the Company in connection with the defense of such action, (ii) the
Company shall not have employed counsel to have charge of the defense of such
action or (iii) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them which are different
from or additional to those available to the Company (in which case the Company
shall not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events the fees and expenses of
not more than one additional firm of attorneys for the Consultant and/or such
controlling person shall be borne by the Company. Except as expressly provided
above, in the event that the Company shall not previously have assumed the
defense of any such action or claim, the Company shall not thereafter be liable
to the Consultant or such controlling person in investigating, preparing or
defending any such action or claim. The Company agrees promptly to notify the
Consultant of the commencement of any litigation or proceedings against the
Company or any of its officers, directors or controlling persons in connection
with the offering and sale of the Common Stock or in connection with such
registration statement.
(e) The Consultant of the Common Stock to be sold pursuant to a
registration statement, and its successors and assigns, shall severally, and not
jointly, indemnify the Company, its officers and directors and each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Exchange Act, against all loss, claim, damage
6
<PAGE>
or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Securities Act, the Exchange Act or otherwise,
arising from written information furnished by or on behalf of the Consultant, or
their successors or assigns, for specific inclusion in such registration
statement.
(f) The Company shall furnish to the Consultant and to each underwriter,
if any, a signed counterpart, addressed to the Consultant or underwriter, if
any, of (i) an opinion of counsel to the Company, dated the effective date of
such registration statement (and, if such registration includes an underwritten
public offering, an opinion dated the date of the closing under the underwriting
agreement), and (ii) a "cold comfort" letter dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, a letter dated the date of the closing under the underwriting
agreement) signed by the independent public auditors who have issued a report on
the Company's financial statements included in such registration statement, in
each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(g) Notwithstanding the foregoing, if the Company commences an initial
public offering of the Common Stock at a price less than $10.00 per share, then
the Company shall issue to the Consultant the number of additional shares of
Common Stock equal to $1,500,000, (ii) divided by the price per share of such
offering, (iii) less the number of shares issued in Section 4(g).
SECTION 5.
5.1 Indemnity. The Consultant agrees to indemnify and hold harmless the
Company, its officers and directors, employees and its affiliates and each other
person, if any, who controls any thereof, against any loss, liability, claim,
damage and expense whatsoever (including, but not limited to, any and all
expenses whatsoever reasonably incurred in investigating, preparing or defending
against any litigation commenced or threatened or any claim whatsoever) arising
out of or based upon any false representation or warranty or breach or failure
by the Consultant to comply with any covenant or agreement made by the
Consultant herein or in any other document furnished by the Consultant to any of
the foregoing in connection with this transaction.
5.2 Modification. Neither this Agreement nor any provisions hereof shall
be modified, discharged or terminated except by an instrument in writing signed
by the party against whom any waiver, change, discharge or termination is
sought.
5.3 Notices. Any notice, demand or other communication which any party
hereto may be required, or may elect, to give to anyone interested hereunder
shall be sufficiently given if (a) deposited, postage prepaid, in a United
States mail letter box, by regular mail and registered or certified mail, return
receipt requested, addressed to such address as may be given herein, or (b)
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<PAGE>
delivered personally at such address.
5.4 Counterparts. This Agreement may be executed through the use of
separate signature pages or in any number of counterparts, and each of such
counterparts shall, for all purposes, constitute one agreement binding on all
parties, notwithstanding that all parties are not signatories to the same
counterpart.
5.5 Binding Effect. Except as otherwise provided herein, this Agreement
shall be binding upon and inure to the benefit of the parties and their heirs,
executors, administrators, successors, legal representatives and assigns. If the
Consultant is more than one person, the obligation of the Consultant shall be
joint and several and the agreements, representations, warranties and
acknowledgments herein contained shall be deemed to be made by and be binding
upon each such person and its heirs, executors, administrators and successors.
5.6 Entire Agreement. This Agreement and the documents referenced herein
contain the entire agreement of the parties and there are no representations,
covenants or other agreements except as stated or referred to herein and
therein.
5.7 Assignability. This Agreement is assignable by the Consultant only in
accordance with Section 3.1(g).
5.8 Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of law principles.
IN WITNESS WHEREOF, the Consultant has executed this Agreement on the day
of , 1999.
RMH CONSULTING CORP.
By: /s/ R. Herskowitz
------------------------------------
Name:
Title:
URBAN COOL NETWORK, INC.
By: /s/ Jacob R. Miles, III
------------------------------------
Name: Jacob R. Miles, III
Title: Chief Executive Officer
Execution Copy
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is dated as of November 1,
1999, by and between URBAN COOL NETWORK, INC., a Delaware corporation (the
"Company") and RMH CONSULTING CORP., a Florida corporation (the "Consultant").
R E C I T A T I O N S
A. The Company recognizes that the Consultant possesses knowledge and
experience regarding the business and operations of the Company. The Company
believes that the Consultant's business advice will be beneficial to the Company
and wishes to obtain such advice and the benefit of the Consultant's knowledge
and experience.
B. The Company desires to retain the services of the Consultant and the
Consultant desires to provide services to the Company, subject to the terms and
conditions set forth in this Agreement.
O P E R A T I V E P R O V I S I O N S
In consideration of the foregoing recitations, the mutual promises
hereinafter set forth and other good and valuable consideration, the receipt and
sufficiency of which are acknowledged hereby, the parties hereto, intending
legally to be bound, hereby covenant and agree as follows:
ARTICLE I
ENGAGEMENT OF SERVICES
1.1 Engagement of Consultant. The Company hereby engages the Consultant
and the Consultant hereby agrees to provide consulting services as set forth in
Section 1.2 of this Agreement.
1.2 Services to be Provided.
(a) Services. During the term of this Agreement, the Consultant
shall make itself available to consult with Jacob R. Miles, III (the "CEO"),
upon reasonable notice from the Company, during the Consultant's normal business
hours. The Consultant shall report exclusively to the CEO and shall perform such
consulting services as shall be requested from time to time by the CEO,
including but not limited to, assisting the Company implement its business plans
and strategies (except that the Consultant shall not provide services with
respect to mergers,
<PAGE>
acquisitions, financing or recapitalizations unless the CEO and the Consultant
reach an agreement with respect thereto) (collectively referred to herein as the
"Services").
(b) Performance of Services. The Consultant is responsible for
reasonably determining the method, details and means of performing the Services
required under this Agreement. Such consultation may be by telephone, in writing
or by other method of communication selected in the reasonable exercise of the
Consultant's discretion. Unless otherwise agreed to in writing by the
Consultant, the Consultant shall provide the Services required hereunder at
Miami, Florida or New York, New York or at such other location or locations
which the Consultant and the Company mutually agree. The Consultant shall not be
responsible for submitting any oral or written reports as to its methods or
progress in performing its duties hereunder; however, the Consultant shall
consult with the CEO as reasonably required as to the progress of any matters on
which the Consultant may be consulting.
(c) Extent of Services. During the Term of this Agreement, it is
acknowledged and agreed that the Consultant shall provide its services solely on
a part-time basis.
1.3 Term of Agreement. The term of this Agreement shall commence on and
be effective as of November 1, 1999 ("Commencement Date") and shall continue for
two years after the Commencement Date (the "Term"), unless either party provides
to the other written notice terminating this Agreement as of the end of the
first year of this Agreement, which notice must be delivered at least 15 days
prior to the first anniversary of this Agreement. In addition, if the Company
breaches or otherwise terminates this Agreement (other than as provided in the
immediately preceding sentence) prior to the end of the Term, the Company
acknowledges and agrees to pay to the Consultant, immediately upon such breach
or termination, the Compensation which would have otherwise been payable to
Consultant for the entire Term less any amounts previously paid.
1.4 Nature of Consulting Relationship. It is agreed and understood by
the parties to this Agreement that, for all purposes, during the term of this
Agreement, the Consultant shall serve solely as an independent contractor of the
Company, reporting only to the CEO, and shall not be an employee of the Company
in any capacity. Nothing in this Agreement shall be interpreted or construed as
creating or establishing the relationship of employer and employee between the
Consultant and Company. As an independent contractor, the Consultant shall
accept any directions issued by the CEO pertaining to the goals to be attained
and the results to be achieved by it, but shall be solely responsible for the
manner and hours in which it will perform its services under this Agreement.
1.5 Other Business Activities of Consultant. The Company acknowledges
and agrees that the Consultant is an independent contractor who may market and
make its services available to a variety of business clients. The rendering of
services by the Consultant to the Company hereunder is not to be deemed
exclusive, and the Consultant shall be permitted to provide consultation,
advice,
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<PAGE>
assistance and/or other services to other business clients while the Consultant
is retained by the Company pursuant to this Agreement.
ARTICLE II
COMPENSATION
2.1 Fees. In consideration for the performance of the Services to be
provided by the Consultant, the Company shall pay a fee to the Consultant equal
to $6,250 per month, payable in advance on the first day of each month (the
"Compensation") during the Term of this Agreement, commencing on the
Commencement Date. Notwithstanding the foregoing, no amount of the Compensation
shall be currently payable as provided in the foregoing sentence until the
earlier of (i) the consummation of the initial public offering of the securities
of the Company or (ii) May 1, 2000 (the "Payment Date"). On the Payment Date,
the Consultant shall receive, without interest, from the Company all
Compensation that was otherwise due and payble through the Payment Date and
shall begin to receive the monthly Compensation as otherwise provided in this
Agreement.
2.2 Additional Compensation.
(a) In addition to the consideration set forth in Section 2.1,
simultaneously with the execution of this Agreement, the Consultant shall
receive from the Company stock certificates representing 150,000 shares of
common stock, $.01 par value, of the Company (the "Common Stock"). All of the
Common Stock shall be subject to a registration rights agreement between the
Company and the Consultant, which shall be executed simultaneously with the
execution of this Agreement. Any default under such registration rights
agreement shall also be a default and breach hereunder. The Company represents
and warrants that as of the Commencement Date, the Common Stock has a negative
book value per share.
(b) Notwithstanding the foregoing, if the Company commences an
initial public offering of the Common Stock at a price of $9.00 or less per
share, then the Company shall issue to the Consultant the number of additional
shares of Common Stock equal to (i) $1,500,000, (ii) divided by the price per
share of such offering, (iii) less the number of shares issued in subsection
2.2(a).
(c) So long as the Company has not breached this Agreement,
beginning on December 27, 1999 and on the twentieth-seventh day of each of the
following three months (ending on March 27, 1999), the Company shall have the
right, upon five business days' notice to the Consultant, to repurchase 15,000
shares of the Common Stock granted to Consultant under this Section for an
aggregate purchase price of $2,000. Simultaneously with such repurchase, the
Company shall pay the purchase price to the Consultant in immediately available
funds. The rights to repurchase granted hereunder are separate and distinct and
are not cumulative. If purchase price is not received by the Consultant on the
date of repurchase, then the repurchase rights granted hereunder are forever
forfeited and waived.
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<PAGE>
(d) From time to time, the Company may also pay to the Consultant
additional compensation, including but not limited to, bonuses, stock options or
other similar compensation, at such times and in such amounts as its board of
directors may determine.
2.3 Expense Reimbursement. The Company shall reimburse the Consultant
for all reasonable business expenses actually paid or incurred by the Consultant
during the Term in the course of and pursuant to the business of the Company,
upon proper submission of reasonable supporting documentation (not to include
documentation for de minimis amounts) by the Consultant. In addition, the
Company shall promptly reimburse the Consultant for all costs and expenses,
including, without limitation, reasonable attorney's fees and costs, incurred by
the Consultant in connection with the preparation, negotiation and execution of
this Agreement, as well as the recovery of expenses pursuant to Section 4.7
below.
ARTICLE III
NON DISCLOSURE
The Consultant shall not at any time disclose, directly or indirectly,
to any person, firm, corporation, partnership, association or other entity, any
confidential information relating to the Company or any of its subsidiaries or
affiliates, or any information concerning the financial condition, assets,
personnel, procedures, techniques, customers, sources of leads and methods of
obtaining new businesses or the methods generally of doing and operating the
respective businesses of the Company and its subsidiaries and affiliates, except
to the extent that such information is a matter of public knowledge or is
required to be disclosed by law or judicial or administrative process or to the
extent that the Company has approved such disclosure.
ARTICLE IV
MISCELLANEOUS
4.1 Entire Agreement; Amendment. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements, understandings, negotiations and
discussions, both written and oral, among the parties hereto. This Agreement may
not be amended or modified in any way except by a written instrument executed by
the Company and the Consultant.
4.2 Notice. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be delivered both by
regular United States mail (first class postage prepaid) and certified or
registered mail (first class postage prepaid), guaranteed overnight delivery, or
facsimile transmission if such transmission is confirmed by United States mail
(first class postage prepaid) or guaranteed overnight delivery, to the following
addresses and facsimile
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<PAGE>
numbers (or to such other addresses or facsimile numbers which such party shall
designate in writing to the other party):
If to the Consultant: RMH Consulting Corp.
P.O. Box 403303
Miami Beach, Florida 33140
Facsimile: (305) 673-6575
Attn: President
with copy to: Greenberg Traurig, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Facsimile: (305) 579-0783
Attn: Phillip J. Kushner, Esq.
If to the Company: Urban Cool Network, Inc.
1401 Elm Street
Dallas, Texas 75202
Facsimile: (214) 752-5801
Attn: Jacob R. Miles, III, Chief
Executive Officer
with copy to: Silverman, Collura & Chernis, P.C.
381 Park Avenue South
New York, New York 10016
Facsimile: (212) 779-8858
Attn: Martin C. Licht, Esq.
4.3 Governing Law. The provisions of this Agreement shall be governed
by and construed in accordance with the laws of the State of Florida (excluding
any conflict of law rule or principle that would refer to the laws of another
jurisdiction). Each party hereto irrevocably submits to the jurisdiction of the
Circuit Court of the State of Florida, Miami-Dade County and the Federal
District Court for the Southern District of Florida, in any action or proceeding
arising out of or relating to this Agreement, and each party hereby irrevocably
agrees that all claims in respect of any such action or proceeding must be
brought and/or defended in such court. Each party hereto consents to service of
process by any means authorized by the applicable law of the forum in any action
brought under or arising out of this Agreement and each party irrevocably
waives, to the fullest extent each may effectively do so, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
4.4 Assignment: Successors and Assigns. Neither the Consultant nor the
Company may make an assignment of this Agreement or any interest herein (except
any interest of the
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<PAGE>
Consultant in the common stock granted in Article II), by operation of laws or
otherwise, without the prior written consent of the other party. If the Company
assigns this Agreement without such consent by the Consultant or if the Company
sells all or substantially all of its assets or enters into a merger or
consolidation, then this Agreement shall immediately terminate and the
Consultant shall immediately be paid by the Company the entire Compensation
which would have otherwise been payable to the Consultant for the entire Term,
less any amounts previously paid to the Consultant. This Agreement shall inure
to the benefit of and be binding upon the Company and the Consultant, their
respective heirs, personal representatives, executors, legal representatives,
successors and assigns.
4.5 Waiver. The waiver by any party hereto of the other party's prompt
and complete performance or breach or violation of any provision of this
Agreement shall not operate nor be construed as a waiver of any subsequent
breach or violation, and the waiver by any party hereto to exercise any right or
remedy which it may possess shall not operate nor be construed as the waiver of
such right or remedy by such party or as a bar to the exercise of such right or
remedy by such party upon the occurrence of any subsequent breach or violation.
4.6 Severability. The invalidity of any one or more of the words,
phrases, sentences, clauses, sections or subsections contained in this Agreement
shall not affect the enforceability of the remaining portions of this Agreement
or any part thereof, all of which are inserted conditionally on their being
valid in law, and, in the event that any one or more of the words, phrases,
sentences, clauses, sections or subsections contained in this Agreement shall be
declared invalid by a court of competent jurisdiction, then this Agreement shall
be construed as if such invalid word or words, phrase or phrases, sentence or
sentences, clause or clauses, section or sections, or subsection or subsections
had not been inserted.
4.7 Attorneys Fees. In the event that any enforcement action or
proceeding, including but not limited to litigation, shall arise between the
Company and the Consultant based, in whole or in part, upon this Agreement or
any provisions contained herein, the prevailing party in such action or
proceeding shall be entitled to recover from the non-prevailing party, and shall
be awarded by a court of competent jurisdiction, any and all reasonable fees and
disbursements of counsel paid, incurred or suffered by such prevailing party as
the result of, arising from, or in connection with, any such action or
proceeding.
4.8 Section Headings. The section or other headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of any or all of the provisions of this Agreement.
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<PAGE>
4.9 No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person,
firm, corporation, partnership, association or other entity, other than the
parties hereto and each of their respective heirs, personal representatives,
legal representatives, successors and assigns, any rights or remedies under or
by reason of this Agreement.
4.10 No Authority to Bind Company. The Consultant does not and shall
not have any authority to enter into any contract or agreement for, on behalf of
or in the name of the Company, or to legally bind the Company to any commitment
or obligation.
4.11 Construction. This Agreement and any documents or instruments
delivered pursuant hereto or in connection herewith shall be construed without
regard to the identity of the person who drafted the various provisions of the
same. Each and every provision of this Agreement and such other documents and
instruments shall be construed as though all of the parties participated equally
in the drafting of the same. Consequently, the parties acknowledge and agree
that any rule of construction that a document is to be construed against the
drafting party shall not be applicable either to this Agreement or such other
documents and instruments.
4.12 Indemnification. To the maximum extent permitted by law, the
Company shall indemnify, hold harmless, protect and defend (with counsel
reasonably acceptable to Consultant) Consultant and all others who could be
liable for the obligations of any of them from and against any and all claims,
demands, actions, fines, penalties, liabilities, losses, damages, injuries and
[balance of page left blank intentionally]
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<PAGE>
expenses (including without limitation, actual attorneys', consultant's and
expert witness' fees and costs at the pre trial, trial and appellate levels and
in bankruptcy proceedings) related to, arising out of or resulting from the
performance by the Consultant of its obligations and duties hereunder in
accordance with the terms hereof, provided, however, that the Company does not
hereby agree, and shall not be obligated to, so indemnify the Consultant from
any such loss, cost, damage, liability or expense arising out of any act or
omission of the Consultant or any of its agents, officers, employees,
independent contractors or representatives, which act or omission constitutes
gross negligence, willful misconduct or fraud or is in material breach of this
Agreement. In addition, the Company shall provide similar coverage for the
Consultant under its applicable directors and officers insurance policies and
other policies as it provides for its executives performing similar functions
and duties. Notwithstanding any other provisions of this Agreement to the
contrary, the Company's obligations under this Section shall survive the
expiration, termination or cancellation of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
THE COMPANY:
URBAN COOL NETWORK, INC.
a Delaware corporation
By: /s/ Jacob R. Miles, III
---------------------------------
Jacob R. Miles, III
Chief Executive Officer
THE CONSULTANT:
RMH CONSULTING CORP.,
a Florida corporation
By: /s/ R. Herskowitz
----------------------------------
Name:
Title:
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<PAGE>
AMENDMENT NO. 1 TO CONSULTING AGREEMENT
Amendment No. 1 dated December 3, 1999 to the Consulting Agreement
(the "Consulting Agreement") dated as of the 1st day of November, 1999 by Urban
Cool Network, Inc. (the "Company") and RMH Consulting Corp. (the "Consultant").
W I T N E S S E T H
WHEREAS, the parties hereto hereby agree that it would be in their
mutual best interest to amend the Consulting Agreement in the manner set forth
herein;
NOW, THEREFORE, in consideration of the above premises and the
mutual promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree that the Consulting Agreement is amended as follows:
I. Modifications.
A. The following shall be added to the end of paragraph 2.2(c):
"Notwithstanding anything contained herein to the contrary, in
the event that the Company completes an initial public
offering (the "IPO") of the Company's securities, the
Consultant agrees (i) not to sell any shares of Common Stock
which the Company has the right to repurchase as of the date
of the consummation of such initial public offering until 60
days after the effective date of the registration statement in
connection with the IPO and (ii) the Company's right to
repurchase shares of Common Stock may be exercised by the
Company with respect to all of such shares of Common Stock
commencing forty five (45) days after the effective date of
the registration statement in connection with the initial
public offering and terminating 15 days thereafter. The
Consultant agrees to the placing of a legend on the shares of
Common Stock to reflect the foregoing. In the event that we
waive our right to repurchase any of such shares of Common
Stock, then the restriction on sale described in 2.2(c)(i)
shall also be deemed waived with respect to such shares. The
foregoing shall not affect any shares of Common Stock owned by
the Consultant as to which the Company's right to repurchase
has expired, been waived or that the Company agrees to waive
in the future.
II. Confirmation. Except as expressly specified herein, all other terms,
conditions and provisions of the Consulting Agreement are hereby confirmed and
shall remain in full force and effect without modification.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
URBAN COOL NETWORK, INC.
By:
-------------------------------------
Name:
Title:
RMH CONSULTING CORP.
By:
-------------------------------------
Name:
Title:
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CONSULTING AGREEMENT
This Agreement is entered into and is effective this 17th day of September,
1999 is by and between Urban Cool Network, Inc. a corporation, having its
principle place of business at _______________ (the "Company"), and Upway
Enterprises, Ltd. a New York corporation having its principle place of business
at 826 Broadway, 9th Floor, New York, NY 10003 (the "Consultant")
WHEREAS, the Company desires to retain Consultant to provide services which
are related to implementing the Company's business plan in a cost-effective
manner;
NOW THEREFORE, in consideration of the premises and the mutual covenants and
agreements herein contained, the parties hereto do covenant and agree, as
follows:
1. Retention. The Company hereby retains Consultant to render certain
advisory services (the "Services"), to consult with the Chairman of the board of
Directors and the Board of Directors, from time to time, as requested by the
Company. The Services shall include, but not be limited to the services
enumerated in Schedule A hereto. Consultant agrees to use its best efforts to
supply the Services in a professional and diligent manner.
1. Term. The Term of this Agreement shall be thirty-six (36) months from the
date hereof, but within the 36-month period, either party may, without cause,
elect to terminate the Agreement by giving thirty (30) days notice to the other.
Upon such termination, each will be relieved of any further obligation of
performance to the other; provided, however that all obligations of
confidentiality, non-disclosure and non-competition will continue in full force
and effect for one (1) year from the effective date of any termination. If this
agreement shall be terminated prior to the end of the Term, the Consultant shall
not, in any event, be liable to return any pre-payment. The parties hereby agree
that any pre-payment made to Consultant shall be fully earned by Consultant at
the time such pre-payment is made and shall be in consideration of Consultant's
agreement to expend time, effort and energy on behalf of Company to the
exclusion of other clients.
2. Compensation.
a. The Company shall pay the Consultant for the Services that have already
been provided and the Services to be provided by the Consultant. The Company
acknowledges that it does not currently have the financial ability to pay for
Consultant's Services in cash. Therefore, the Company shall, in consideration of
Services heretofore rendered, and for other good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged by the Company, the
company, concurrently with the execution hereof, shall pay to the Consultant a
total of 150,000 shares of the common stock (the "Shares") of the Company.
3. Assignability of Shares. Consultant represents and warrants to the Company
that it is not acquiring the Shares with a view to, or for resale in connection
with, any distribution in violation of the Securities Act of 1933, as amended.
The Shares have not been registered
<PAGE>
under the Securities Act or any state securities law and shall not be
transferred, sold, assigned or hypothecated in violation thereof. If permitted
by law, any such transfer, sale, assignment or hypothecation shall be effected
by Consultant only by surrendering the Shares for assignment at the office of
the Company, accompanied by an opinion of counsel satisfactory to the Company,
and its counsel, stating that such transfer does not violate the Securities Act
or any applicable state securities law.
4. Registration Rights
The shares to be issued pursuant to subsection 4 of this Agreement shall
contain unlimited piggyback registration rights. Consultant's piggyback
registration rights shall commence one (1) year from the date hereof and shall
terminate three (3) years after the Company shall register any of its shares of
common stock for sale pursuant to the Securities Act of 1933, as amended (the
"Act"). The Company shall bear the costs of such registrations. In the event of
the sale of the shares contemplated hereunder, Consultant shall pay any and all
underwriting commissions and non-accountable expenses of any underwriter
selected by Consultant to sell the common stock (the "Registrable Securities"),
together with the expenses of any legal counsel selected by Consultant to
represent Consultant in connection with the sale of the Registrable Securities.
The Company agrees to use its prompt best efforts to cause the filing required
herein to become effective and to qualify or register the Registrable Securities
in such states as are reasonably requested by the Consultant. As to Consultant's
piggyback registration rights, the Company agrees to qualify or register the
Registrable Securities in such additional states as are reasonably requested by
Consultant and the Company shall bear all costs and expenses, including
reasonable counsel fees and expenses, of the qualification of registration of
the Registrable Securities in such additional states as are reasonably requested
by the Consultant. In no event shall the Company be required to register the
Registrable Securities in more than five (5) states or in a state in which such
registration would cause (i) the Company to be obligated to do business in such
state, or (ii) the principal stockholders of the Company to be obligated to
escrow any of their securities. In the event that Consultant shall request that
the Company register the Registrable Securities in more than 5 states, the
Company agrees to cooperate with such request, but at the sole cost of the
Consultant.
5. Company Disclosure of Information. The Company hereby agrees to timely
provide the Consultant with the documents and the information enumerated below.
The Consultant agrees that it shall keep all such information and the contents
of such documents confidential and shall utilize such information solely for the
purpose of performing the Services, and for no other purpose. The information
and/or documents that Company shall provide are:
a) all of the Company's current filings with the SEC or other
regulatory bodies with jurisdiction over the Company's activities;
b) copies of any meetings of the Company's shareholders, directors or
committees of its board of directors;
c) the Company's current audited financial statement and any unaudited
2
<PAGE>
financial statements produced currently by the Company's auditors;
and
d) all public releases of information.
Anything to the contrary notwithstanding, in the event the Company shall make
any materially false filing or representation to any regulatory authority of
competent jurisdiction, or to the Consultant or to the public, the Consultant
may terminate this Agreement, for cause upon three (3) days' written notice.
6. Consultant's Non-Disclosure of Information/Non-Competition.
a. The Consultant acknowledges that in the course of its engagement it may
become familiar with trade secrets and other confidential information
(collectively, "Confidential Information") concerning the Company and Consultant
shall hold in a fiduciary capacity for the benefit of the Company all secret,
confidential proprietary information, knowledge or data relating to the Company
that shall have been obtained by the Consultant during its engagement by the
Company and that shall have not been or now or hereafter have become public
knowledge (other than by acts by the Consultant or its representatives in
violation of this Agreement). Consultant agrees that it shall not disclose to
any third party any Confidential Information for any purpose other than the
performance of its duties under this Agreement. During the Term and at all times
thereafter, regardless of the reason for the termination of this Agreement,
Consultant shall not, without the prior written consent of the Company or as
otherwise may be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by the Company.
b. Upon completion of the Term or earlier termination of this Agreement for
any reason, Consultant will return to the Company any confidential materials or
information which the Company may have supplied to the Consultant. Consultant
may retain a copy of such materials or information for Consultant's own due
diligence file. However, Consultant hereby agrees not to distribute or release
such confidential materials or information without giving the Company at least
five (5) days' written notice so that Company shall have the opportunity, at
Company's sole cost and expense, to move to prevent Consultant's distribution or
release of the confidential material or information.
c. Subject to the limitations set forth herein, Consultant agrees that during
the Term and for a period of one year thereafter it shall not directly or
indirectly, own, manage, control, participate in, consult with, render services
for, or in any manner engage in any business competing with the business of the
Company as such business exists within any geographical area in which the
Company conducts its business. In addition, Consultant shall not solicit,
interfere with or conduct business with any vendors, customers or employees of
the Company during the term of this Agreement or for a period of one year after
the termination hereof. In the event the Company breaches any of its duties or
obligations under this Agreement, the Company agrees that Consultant shall not
be bound by the provisions of this Agreement, except for the
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<PAGE>
provisions concerning Confidential Information.
7. Indemnification. The Company agrees to indemnify and hold harmless
Consultant and its directors, officers, and affiliates against any and all
losses, claims, damages, obligations, penalties, judgment, awards, liabilities,
costs, expenses, and disbursements (and all actions, suits, proceedings and
investigations in respect thereof and any and all legal or other costs, expenses
and disbursements in giving testimony or furnishing documents in response to a
subpoena or otherwise), including, without limitation, the costs, expenses, and
disbursements, as and when incurred, of investigating, preparing or defending
any such action, proceeding or investigation (wither or not in connection with
litigation to which Consultant is a party), directly or indirectly, caused by,
relating to, based upon, arising out of or in connection with information
provided by the Company which contains a material misrepresentation or material
omission in connection with the provision of services by Consultant under this
Agreement; provided, however, such indemnity agreement shall not apply to any
portion of any such loss, claim, damage, obligation, penalty, judgement, award,
liability, cost, expense or disbursements, to the extent that it is found by a
court of competent jurisdiction to have resulted from the gross negligence or
willful misconduct of Consultant. The Company also agrees Consultant shall not
have any liability (whether direct or indirect in contract or tort or otherwise)
to the Company or to any person (including, with limitation, Company
shareholders) claiming through the Company for or in connection with the
engagement of Master Holdings, Inc., except to the extent that any such
liability result from Consultant gross negligence or willful misconduct. This
indemnification shall survive the termination of this Agreement.
Each party entitled to indemnification under this agreement (the "Indemnified
Party"), shall give notice to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified Party has actual knowledge
of any claim as to which indemnify may be sought, and shall permit the
Indemnifying party to assume the defense of any such claim or any litigation
resulting therefrom, provided that counsel for the Indemnifying Party (whose
approval shall not be unreasonably withheld), and the Indemnified Party may
participate in such defense at such party's expense, and provided further that
the failure of any Indemnified party to give notice as provided herein shall not
relieve the Indemnified party of its obligations under this Section 8. Each
Indemnified party shall furnish such information regarding itself or the claim
in question as an Indemnifying party may reasonably request in writing and as
shall be reasonably required in connection with the defense of such claim and
any litigation resulting therefrom.
8. Arbitration. Any dispute, controversy or claim between the Company and the
Consultant arising out of or related to this Agreement shall be conducted solely
in a proceeding held in accordance with the rules of the American Arbitration
Association then in effect. This Agreement, or beach thereof, shall be settled
by arbitration, and any award shall be binding and conclusive for all purposes
thereof, may include injunctive relief (but only as ordered by a Court of
competent jurisdiction), as well as orders for specific performance and may be
entered as a final judgment in any court of competent jurisdiction. No
arbitration arising out of or relating the this Agreement shall include, by
consolidation or joinder or in any other manner, parties other
4
<PAGE>
than the Company and the Consultant and other persons substantially involved in
common question of fact or law whose presence is required if complete relief is
to be afforded in arbitration. The cost and expenses of such arbitration shall
be borne in accordance with the determination of the arbitrator and may include
reasonable attorney's fees, provided, however, that if either party shall
commence any action or proceeding against the other in order to enforce the
provisions hereof, or to recover damages resulting from the alleged breach of
any of the provisions hereof, the prevailing party therein shall be entitled to
recover all reasonable costs incurred in connection therewith, including, but
not limited to, reasonable attorneys' fees. Each party hereby further agrees
that service of process may be made upon it by registered or certified mail,
express delivery or personal service at the address provided for herein.
9. Remedies. In the event of the actual or threatened breach of the
provisions of this Agreement by a party, the other party shall have the right to
obtain injunctive relief and/or specific performance and to seek any other
remedy available to it.
10. Law, Venue, Jurisdiction. This agreement and all matters and issued
collateral thereto shall be governed by the laws and the courts of the State of
New York without regard to the principles of conflicts of laws.
11. Severability. If any provisions of this Agreement becomes or is found to
be illegal or unenforceable for any reason, such clause or provision must first
be modified to the extent necessary to make this Agreement legal and enforceable
and then if necessary, second, severed from the remainder of the Agreement to
allow the remainder of the Agreement to remain in full force and effect.
12. Counterparts. This Agreement may be executed in several counterparts, and
all of such counterparts taken together shall be deemed to be one Agreement.
13. Attorneys' Fees. If either party shall commence any action or proceeding
against the other in order to enforce the provisions hereof, or to recover
damages resulting from the alleged breach of any of the provisions hereof, the
prevailing party therein shall be entitled to recover all reasonable costs
incurred in connection therewith, including, but not limited to, reasonable
attorneys' fees.
14. Waiver of Breach. The waiver by any party of a breach of any provision of
this Agreement shall not operate be construed as a waiver of any subsequent
breach by any party.
15. Notices. Each notice, demand, request, approval or communication
("Notice") which is or may be required to be given by any party to any other
party in connection with this Agreement and the transactions contemplated
hereby, shall be in writing, and given by personal delivery, certified mail,
return receipt requested, prepaid, or by overnight express mail delivery and
properly addressed to the party to be served at such address as set forth above.
5
<PAGE>
Notices shall be effective on the date delivered by overnight express mail or
three days after the date mailed by certified mail.
16. Entire Agreement. This Agreement contains the entire agreement between
Consultant and Company, and correctly sets forth the rights and duties of each
of the parties to each other concerning such matter as of this date. Any
agreement or representation concerning the subject matter of this Agreement or
the duties of Consultant in relation to Company not set forth in this Agreement
is null and void.
17. Binding Effect. The rights created by this Agreement shall inure to the
benefit of, and the obligations created hereby shall be binding upon the
parties, their heirs, successors, assigns and personal representatives.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first hereinabove written.
URBAN COOL NETWORK, INC.
By: /s/ Jacob R. Miles III
----------------------
Jacob R. Miles III
UPWAY ENTERPRISES, LTD.
By: /s/ Andrew L. Jaloza
--------------------
Andrew L. Jaloza
6
CONSULTING AGREEMENT
THIS AGREEMENT (the "Agreement") made this 17th day of September, 1999, by
and between SURREY ASSOCIATES, LTD., with an address at 124 North Ardmore Road,
Columbus, Ohio 43209 (hereinafter referred to as the "Consultant") and URBAN
COOL NETWORK, INC., a Delaware corporation with its principal offices located at
1401 Elm Street, Dallas, Texas 75202 (hereinafter referred to as "Urban Cool").
W I T N E S S E T H
WHEREAS, Consultant is engaged in the business of consultanting to
companies with regard to its business development and strategic planning; and
WHEREAS, Consultant has experience and expertise in the sourcing of real
estate location; and
WHEREAS, Urban Cool and Consultant desire to continue Consultant's
relationship with Urban Cool and make provision for the continued availability
of Consultant's business talent and expertise; and
WHEREAS, Urban Cool deems it in its best interests to continue
Consultant's relationship with Urban Cool as that of a Consultant.
NOW, THEREFORE, it is mutually agreed by and between the parties hereto as
follows:
1. Engagement/Duties.
1.1 Engagement of Consultant. As of the effective date provided in
Section 5 hereof (the "Effective Date"), Consultant shall be engaged
by Urban Cool to render consulting and advisory services to Urban
Cool, as provided for herein, for a term of 36 months commencing the
Effective Date through a date which is 36 months next ensuing (the
"Consulting Term").
<PAGE>
1.2 Duties of Consultant. During the Consulting Term, Consultant shall,
as an independent contractor, utilize his best efforts and devote
such time as is reasonably necessary to render the following
consulting and advisory services as may, from time to time, be
requested by Urban Cool:
(a) To render strategic advice to Urban Cool's Chief Executive
Officer;
(b) To conduct on behalf of Urban Cool and participate in the
developing of a marketing plan for the deployment of NetStand
kiosks in shopping centers and other leased locations;
(c) To render assistance to Urban Cool in the development and
design of its NetStand kiosks;
(d) To consult and advise Urban Cool concerning the marketing and
sale of its products through the NetStand kiosks system
network;
(e) To arrange for and assist in the developing and maintaining
relationships with real estate operations and shopping center
developers; and
(f) To render such additional consulting services as may be from
time to time requested by the Chief Executive Officer of Urban
Cool.
1.3 Relationship of Parties. Urban Cool and Consultant acknowledge and
agree that Consultant is an independent contractor and that
Consultant is not an employee of Urban Cool, and the relationship
between Consultant and Urban Cool is not intended to be that of
employer and employee, joint venture or partnership.
-2-
<PAGE>
Notwithstanding the foregoing, Urban Cool hereby agrees that nothing
contained in this Agreement shall require Consultant to devote any set amount of
time or specific hours in rendering his duties hereunder.
2. Compensation.
2.1 The Company acknowledges that it does not currently have the
financial ability to pay for Consultant's Services in cash.
Therefore, the Company shall, in consideration of Services to be
performed, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the
Company, concurrently with the execution hereof, pay to the
Consultant a total of 200,000 shares of the common stock (the
"Shares") of the Company.
2.2 Restricted Stock. Consultant acknowledges that the Consultant's
Shares have not been registered pursuant to the Securities Act of
1933, as amended, and therefore may not be sold by Consultant except
in the event that such Consultant's Shares are subject to a
registration statement or, in the opinion of counsel for Urban Cool,
are exempt from such registration provisions. Consultant
acknowledges that the Consultant's Shares shall be acquired for
investment purposes only and not with a view to the resale or
redistribution of same, unless such Shares have been registered.
Consultant further consents to the following legend being placed on
all certificates for the Shares of Common Stock representing the
Consultant's Shares:
-3-
<PAGE>
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED."
3. Non-Disclosure. Consultant shall not, at any time during or after
the termination of his consulting engagement with Urban Cool or any
of its affiliates, except when acting on behalf of and with the
authorization of Urban Cool make use of or disclose to any person,
corporation, or other entity, for any purpose whatsoever, any trade
secret or other confidential information of Urban Cool, including
without limitation information concerning Urban Cool's business,
methods, operations, finances, marketing information, or channels of
distribution or information. For the purposes of this Agreement,
trade secrets and confidential information shall mean information
disclosed to the Consultant or known by him and not generally known
(other than as disclosed by any person in breach of any obligation
of confidentiality to Urban Cool) in the industry. Consultant
acknowledges that trade secrets and other items of confidential
information, as they may exist from time to time, are valuable and
unique assets of Urban Cool and that disclosure of any such
information would cause substantial injury to Urban Cool. Consultant
agrees that upon termination of his consulting engagement, he will
return to Urban Cool immediately all memoranda, books, papers,
plans, information, letters and other data, and all copies thereof
or therefrom, in any way relating to the business of Urban Cool and
its affiliates.
-4-
<PAGE>
4. Effective Date; Term and Termination. This Agreement shall be
effective on and as of September 17, 1999 and shall continue for a
term of 24 months then ensuing.
5. Notices. Any notice to be given by either party to the other
hereunder shall be sufficient if in writing and personally delivered
or sent by registered or certified mail, return receipt requested,
addressed to such party at the address specified on the first page
of this Agreement or such other address as either party may have
given to the other party in writing.
6. Entire Agreement. This Agreement contains the entire agreement and
understanding between the parties and supersedes all prior
negotiations, agreements, and discussions pursuant to the subject
matter hereof.
7. Modification and Waiver. This Agreement may not be altered or
modified except by writing signed by each of the respective parties
hereof. No breach or violation of this Agreement shall be waived
except in writing executed by the party granting such waiver. No
waiver of a breach or violation shall be deemed a waiver of a
subsequent breech or violation of the same or any other nature.
8. Law to Govern. This Agreement and all of the rights and obligations
of the parties provided shall be governed by and in accordance with
the substantive laws of the State of Texas, without regard to
principles of conflicts of law.
9. Non-Assignment. This Agreement shall not be assigned by either party
hereto except upon the prior written consent of the other.
10. Arbitration. Any dispute arising out of the interpretation,
application and/or performance of this Agreement shall be settled
through final and binding arbitration before a single arbitrator in
the County of Dallas, the State of Texas in accordance with the
rules of the American
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<PAGE>
Arbitration Association. The arbitrator shall be selected by the
Association and shall be an attorney at law experienced in the field
of corporate law. Any judgment upon any arbitration award may be
entered in any court, federal or state, having competent
jurisdiction of the parties. Each party shall bear his or its own
costs and expenses, including fees of counsel, with respect to such
arbitration proceedings.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first written above.
URBAN COOL NETWORK, INC.
By: /s/ Jacob R. Miles, III
------------------------------
Name:Jacob R. Miles, III
Title: CEO
SURREY ASSOCIATES, LTD.
By: /s/ Gary Stein
------------------------------
Name: Gary Stein
Title: President
-6-
CONSULTING AGREEMENT
--------------------
This Agreement is entered into and is effective this 31st day of October,
1999 by and between Urban Cool Network, Inc, a New York corporation, having its
principal place of business at 1401 Elm Street, Dallas, Texas 75202 (the
"Company"), and Seabreeze Associates, Inc., a New York corporation, having its
principal place of business at 19-10 Parsons Blvd., Whitestone, N.Y. 11703.
WHEREAS, the Company desires to retain Consultant to provide services to
the Company.
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereto do covenant and agree, as
follows:
1. Retention. The Company hereby retains Consultant to render certain
advisory services (the "Services") with regard to corporate development and
mergers and acquisitions and such other related activities as the Board of
Directors of the Company may from time to time direct, and consulting with the
Board of Directors from time to time as requested by the Company. Consultant
agrees to use its best efforts to supply the Services in a professional and
diligent manner.
2. Term. The Term of this Agreement shall be twenty-four (24) months from
the date hereof, but within the 24-month period, the Company may, without cause,
elect to terminate the Agreement by giving thirty (30) days' written notice.
Upon such termination, Consultant shall be relieved of any further obligation of
performance to the Company; provided, however, that all obligations of
confidentiality, non-disclosure and non-competition will continue in full force
and effect for one (1) year from the effective date of any termination. If this
agreement shall be terminated prior to the end of the Term, the Consultant shall
not, in any event, be liable to return any pre-payment. The parties hereby agree
that any pre-payment made to Consultant shall be fully earned by Consultant at
the time such pre-payment is made and shall be in consideration of Consultant's
agreement to expend time, effort and energy on behalf of Company to the
exclusion of other clients.
3. Compensation. The Company acknowledges that it does not currently have
the financial ability to pay for Consultant's Services in cash. Therefore, the
Company shall, in consideration of Services to be performed, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the Company, concurrently with the execution hereof, pay to the
Consultant a total of 175,000 shares of the common stock (the "Shares") of the
Company. Seventy-Five Thousand Shares shall be registered with the Securities
and Exchange Commission and shall be unrestricted and freely tradable with the
remaining 100,000 shares subject to Rule 144.
4. Consultant's Non-Disclosure of Information/Non-Competition.
a. The Consultant acknowledges that in the course of its engagement it
may
<PAGE>
become familiar with trade secrets and other confidential information
(collectively, "Confidential Information" ) concerning the Company and
Consultant shall hold in a fiduciary capacity for the benefit of the Company all
secret, confidential proprietary information, knowledge or data relating to the
Company that shall have been obtained by the Consultant during its engagement by
the Company and that shall have not been or now or hereafter have become public
knowledge (other than by acts by the Consultant or its representatives in
violation of this Agreement). Consultant agrees that it shall not disclose to
any third party any Confidential Information for any purpose other than the
performance of its duties under this Agreement. During the Term and at all times
thereafter, regardless of the reason for the termination of this Agreement,
Consultant shall not, without the prior written consent of the Company or as
otherwise may be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by the Company.
b. Upon completion of the Term or earlier termination of this Agreement
for any reason, Consultant will return to the Company any confidential materials
or information which the Company may have supplied to the Consultant. Consultant
may retain a copy of such materials or information for Consultant's own due
diligence file. However, Consultant hereby agrees not to distribute or release
such confidential materials or information without giving the Company at least
five (5) days' written notice so that Company shall have the opportunity, at
Company's sole cost and expense, to move to prevent Consultant's distribution or
release of the confidential material or information.
c. Subject to the limitations set forth herein, Consultant agrees that
during the Term and for a period of one year thereafter it shall not directly or
indirectly, own, manage, control, participate in, consult with, render services
for, or in any manner engage in any business competing with the business of the
Company as such business exists within any geographical area in which the
Company conducts its business. In addition, Consultant shall not solicit,
interfere with or conduct business with any vendors, customers or employees of
the Company during the term of this Agreement or for a period of one year after
the termination hereof. In the event the Company breaches any of its duties or
obligations under this Agreement, the Company agrees that Consultant shall not
be bound by the provisions of this Agreement, except for the provisions
concerning Confidential Information.
5. Arbitration. Any dispute, controversy or claim between the Company and
the Consultant arising out of or related to this Agreement shall be conducted
solely in a proceeding held in accordance with the rules of the American
Arbitration Association then in effect. This Agreement, or breach thereof, shall
be settled by arbitration, and any award shall be binding and conclusive for all
purposes thereof, may include injunctive relief (but only as ordered by a Court
of competent jurisdiction), as well as orders for specific performance and may
be entered as a final judgment in any court of competent jurisdiction. No
arbitration arising out of or relating to this Agreement shall include, by
consolidation or joinder or in any other manner, parties other than the Company
and the Consultant and other persons substantially involved in common question
of fact or law whose presence is required if complete relief is to be afforded
in arbitration. The cost and expenses of such
2
<PAGE>
arbitration shall be borne in accordance with the determination of the
arbitrator and may include reasonable attorney's fees, provided, however, that
if either party shall commence any action or proceeding against the other in
order to enforce the provisions hereof, or to recover damages resulting from the
alleged breach of any of the provisions hereof, the prevailing party therein
shall be entitled to recover all reasonable costs incurred in connection
therewith, including, but not limited to, reasonable attorneys' fees. Each party
hereby further agrees that service of process may be made upon it by registered
or certified mail, express delivery or personal service at the address provided
for herein.
6. Remedies. In the event of the actual or threatened breach of the
provisions of this Agreement by a party, the other party shall have the right to
obtain injunctive relief and/or specific performance and to seek any other
remedy available to it.
7. Law, Venue, Jurisdiction. This agreement and all matters and issued
collateral thereto shall be governed by the laws and the courts of the State of
New York without regard to the principles of conflicts of laws.
8. Severability. If any provision of this Agreement becomes or is found to
be illegal or unenforceable for any reason, such clause or provision must first
be modified to the extent necessary to make this Agreement legal and enforceable
and then if necessary, second, severed from the remainder of the Agreement to
allow the remainder of the Agreement to remain in full force and effect.
9. Counterparts. This Agreement may be executed in several
counterparts, and all of such counterparts taken together shall be deemed to
be one Agreement.
10. Attorneys' Fees. If either party shall commence any action or
proceeding against the other in order to enforce the provisions hereof, or to
recover damages resulting from the alleged breach of any of the provisions
hereof, the prevailing party therein shall be entitled to recover all reasonable
costs incurred in connection therewith, including, but not limited to,
reasonable attorneys' fees.
11. Waiver of Breach. The waiver by any party of a breach of any provision
of this Agreement shall not operate be construed as a waiver of any subsequent
breach by any party.
12. Notices. Each notice, demand, request, approval or communication
("Notice") which is or may be required to be given by any party to any other
party in connection with this Agreement and the transactions contemplated
hereby, shall be in writing, and given by personal delivery, certified mail,
return receipt requested, prepaid, or by overnight express mail delivery and
properly addressed to the party to be served at such address as set forth above.
Notices shall be effective on the date delivered personally, the next day if
delivered by overnight express mail or three days after the date mailed by
certified mail.
3
<PAGE>
13. Entire Agreement. This Agreement contains the entire agreement between
Consultant and Company, and correctly sets forth the rights and duties of each
of the parties to each other concerning such matter as of this date. Any
agreement or representation concerning the subject matter of this Agreement or
the duties of Consultant in relation to Company not set forth in this Agreement
is null and void.
14. Binding Effect. The rights created by this Agreement shall inure to
the benefit of, and the obligations created hereby shall be binding upon the
parties, their heirs, successors, assigns and personal representatives.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first hereinabove written.
URBAN COOL NETWORK, INC.
By: /s/ Jacob R. Miles, III
------------------------
Name:Jacob R. Miles, III
Title: CEO
SEABREEZE ASSOCIATES, INC.
By: Eugenia Aversano
----------------------
Name: Eugenia Aversano
Title: President
URBAN COOL NETWORK, INC.
1401 Elm Street, Suite 1955
Dallas, Texas 75202
Telephone: 214-752-5818
Facsimile: 214-752-5801
urbancoolnet.com
December 3, 1999
The Elite Funding Group, Inc.
P. O. Box 403303
Miami Beach, Florida 33140
Gentlemen:
Urban Cool Network, Inc., a Delaware corporation ("Urban") and The Elite
Funding Group, Inc., a Florida corporation ("Elite"), acknowledge that Elite has
indicated its interest in participating in a future initial public offering of
Urban=s common stock, $.01 par value, (the "Common Stock").
1. Proposed Initial Public Offering. Elite hereby indicates its interest
in participating in a future initial public offering of Urban=s shares of Common
Stock (the "IPO") although Elite is under no obligation to so participate. Elite
is interested in purchasing that number of shares (the "Urban IPO Shares") of
Common Stock equal the quotient of (i) $1,000,000 (the "Intended Investment
Amount") divided by (ii) the per share IPO Price (as defined below). Urban
hereby agrees to use its best efforts, which shall include, but not be limited
to, providing the applicable notice and instructions to any underwriter or
underwriters of such offering, to enable and facilitate such intended
participation. The per share IPO Price will be the same price as the per share
purchase price to the public in the IPO less any underwriting discounts,
commissions and/or allowances on said sale (the "IPO Price"). Elite shall have
the right to assign its rights under this agreement to a designee or designees
that meet the underwriters' customer qualification standards provided that any
such designee purchases at least 500 shares of common stock.
2. Right to Review. Elite shall have the right to review and reject any
references to Elite that appear in any registration statements filed with the
Securities and Exchange Commission by Urban; provided that Elite shall not
unreasonably reject such references (and if Elite does reasonably reject any
such reference, Elite shall cooperate with Urban to modify such reference so
that it is acceptable to Elite), and provided further that this review right
shall not impede Urban in meeting its disclosure obligations under applicable
securities laws, as reasonably interpreted by its counsel.
3. Miscellaneous. This letter and all other writings referred to herein
sets forth the entire agreement and supersedes any and all prior agreements of
the parties with respect to the transactions set forth in paragraphs 1 and 2
above. No change, amendment or modification of any provision of this agreement
shall be valid unless set forth in a written instrument signed by the party
subject to enforcement of such amendment. Each party shall take such action
(including, but not limited to, the execution, acknowledgment and delivery of
documents) as may reasonably be requested by any other party for
<PAGE>
the implementation or continuing performance of this agreement. This agreement
shall be interpreted, construed and enforced in all respects in accordance with
the laws of the State of New York, except for its conflicts of laws principles.
In the event that any provisions of this letter conflicts with the law under
which this letter is to be construed or if any such provision is held invalid by
a court with jurisdiction over the parties to this letter, (i) such provision
shall be deemed to be restated to reflect as nearly as possible the original
intentions of the parties in accordance with applicable law, and (ii) the
remaining terms, provisions, covenants and restrictions of this letter shall
remain in full force and effect. Without the consent of the other party, except
as may be required to be disclosed by applicable law, governmental authorities
or judicial and administrative proceedings or in connection with due diligence
investigations of Urban as part of the IPO, the parties shall keep the terms of
this agreement confidential. In the event of a dispute under this agreement, the
prevailing party shall be entitled to attorney=s fees. This letter shall
constitute a binding agreement between Elite and Urban.
REMAINDER OF PAGE INTENTIONALLY BLANK.
-2-
<PAGE>
If the foregoing conforms to your understanding of our agreement, please
sign one copy of this letter agreement and return it to us.
Very truly yours,
URBAN COOL NETWORK, INC
By:
Name:
Title:
ACCEPTED AND AGREED TO:
THE ELITE FUNDING GROUP, INC.
By:
Name:
Title:
-3-
[LOGO]
October 12, 1999
Jacob R. Miles III
Urbancoolnet.com
1401 Elm Street, Ste. 1955
Dallas, TX 75202
Jacob,
We are excited about the opportunity to provide Urbancoolnet.com access to our
award-winning news and the country's premier urban radio network. As we work to
develop a formal agreement, please accept this letter of intent for the services
that Bloomberg L.P. will commit to this partnership.
I have summarized the Internet data and advertising objecives we discussed.
Currently, our attorneys are drafting a formal agreement which should be
completed no later than October 15th. As you look over this description of
services, please remember these deal points are being reviewed by our legal
staff. While we do not anticipate any major changes, some elements may be
altered.
Thank you for your time and attention. We look forward to a fruitful partnership
with urbancoolnet.com. If you have any questions or comments, I can be reached
at 212-318-2988 or call Burton Waddy at 212-318-2188.
Thanks again,
Sincerely,
/s/Artie Smallwood
- -----------------------
Multimedia Syndication Manager
<PAGE>
Bloomberg will provide three pages of co-branded Internet content. Each page
will consist of the following:
Page One
o Four headlines from NI Diversity
NI Diversity is a real-time, news wire created by Blooomberg and is solely
dedicated to news of interest to African-Americans, Hispanics and
minorities.
o Bloomberg Quote Box
The quote box will allow your visitors to enter ticker symbols to receive
up to the minute price quotes and news on their companies of interest. When
accessing company news they will be linked back to Bloomberg.com
o BAPI (Bloomberg Amalgamated Publishers Index): last, change, % change, high,
low, open
The BAPI (created by Bloomberg) is the first index to track the performance
of African-American owned, publicly traded companies. Your visitors can
monitor the performance of these companies and access company news.
**Note--Bloomberg will reserve the right to sell advertising adjacent to this
content.
o BAPI three month graph
o Market Snapshot: DOW, NASDAQ
Your visitors can monitor the performance of these indices via graphs,
directional and percent changes, as well as high, low and opening numbers.
These figures are updated every three minutes.
o Bloomberg On-Demand Audio: The Urban Business Report & Top Business Stories
**Note--Bloomberg will reserve the right to sell advertising adjacent to this
content.
o Bloomberg Market Monitor
Page Two
o Short form quote result page
Results from the quote box will post on this page. This data will include
the latest numbers, graphs, company profile, and key data (earnings,
historical pricing, etc.).
o Company news headlines w/link back to Bloomberg.com
Page Three
o Full news stories from NI Diversity
<PAGE>
Agreement Terms
Urbancoolnet.com will agree to pay $66,666 per month ($800,000 per year) to
Bloomberg L.P. Because this cost includes both Internet data and advertising,
this cost is net to Bloomberg (specific network advertising schedule to be
provided).
Term is three years. Both parties will commit to two years with the option to
terminate during the third year.
EXHIBIT 10.23
ConnecTen, L.L.C. Network Access Agreement
2929 Elm Street
Dallas, Texas 75226
Urban Cool Network. Inc. (hereafter referred to as "Customer") wishes to obtain
access to certain networks using a network connection (hereafter referred to as
Connection) described in Attachment A, and Connecten, L.L.C. (hereafter referred
to as Connecten) wishes to provide access to the Internet to Customer via the
Connection for the charges as described in Attachment A, pursuant to the terms
and conditions of the Agreement. Attachment A is incorporated into this
agreement as fully as if stated herein.
1. CONNECTEN'S DUTIES AND OBLIGATIONS: During the term hereof, Connecten
shall provide Customer with access to the Internet through Connecten's
network. Any and all access to other networks via Connecten's network must
be in compliance with all policies and rules of those networks. Connecten
exercises no control whatsoever over the content of any information
passing through Connecten's network. Stated bandwidths apply only to the
Customer to Connecten router port attachment described in Attachment A. No
guarantee or representation of end-to-end bandwidth on the Internet is
made. In the event that any telecommunication link supplied by telephone
service provider as described in Attachment A suffers a disruption in
service to Customer or Connecten, Connecten shall have no liability to
Customer.
2. CUSTOMER'S DUTIES AND RESTRICTIONS: Customer shall provide all necessary
preparations required to comply with Connecten's installation, maintenance
and operational specifications; and will be responsible for all costs of
relocation of services once installed by Connecten and/or its vendors; and
will provide Connecten and/or its vendors reasonable access to Customer's
premises to perform any acts as required by this Agreement.
Connecten's services are only to be used for lawful purposes. Any
transmission or re-transmission of material in violation of any Federal or
State laws and or regulations is expressly prohibited. Customer is further
bound by the terms of Connecten's Policies and Procedures, which may be
amended from time to time at Connecten's sole discretion, and may be
reviewed on Connecten's Web Page at www.connecten.net. Customer hereby
acknowledges receipt of Connecten's current Policies and Procedures.
As a Connecten customer you may not sell, assign, or transfer your service
order without prior written consent of Connecten which consent will not be
unreasonably withheld by Connecten. Connecten may at any time sell,
assign, or transfer this agreement with no notice to Customer.
The provision of Connecten's services and/or products is subject to
Connecten's continuing approval of Customer's credit-worthiness. All
Connecten customers shall furnish financial information as Connecten may
from time to time request to re-determine credit-worthiness.
3. NON-CONNECTEN SUPPLIED HARDWARE/SOFTWARE: The installation and maintenance
of all equipment and/or software products that are NOT provided by
Connecten, are the responsibilities of Customer. Connecten will not be
responsible for the installation and/or service on equipment and/or
software that was not provided by Connecten. Customer is responsible for
the use and compatibility of hardware and software not provided by
Connecten. In the event that Customer uses hardware and/or software that
impairs Customer's use of Connecten's services, Customer shall nonetheless
be liable to continue making payments to Connecten. Upon notice from
Connecten that hardware and/or software not provided by Connecten is
causing, or, in the sole opinion of Connecten, is likely to cause hazard,
interference or service obstruction, Customer shall eliminate the hazard,
interference or service obstruction at once at Customer's sole cost and
expense. Customer will, if necessary, pay Connecten to troubleshoot
problems caused by such equipment and/or software not provided by
Connecten. Connecten will not be responsible if any changes in hardware,
software or services cause equipment not provided by Connecten to become
obsolete, require modification or alteration, or in any other way affect
the total performance of Connecten on an end-to-end basis and protect the
Connecten backbone network and those networks attached to the Connecten
network. In the case of Customer owned hardware and/or software connected
to the Connecten network, Customer is totally responsible for any and all
service of that equipment. Connecten, at its option, can supply technical
services in the form of consulting and/or service to Connecten's
<PAGE>
customers at their request. Such services are billed out at rates set on
the Connecten pricing sheet and/or at rates that are in effect at the time
such services are requested. Connecten has the right to refuse such
technical services at its sole option. ON LEASED TELEPHONE LINES, NO
MATTER WHO THE LEASING PARTY IS, Connecten MUST HAVE FREE AND OPEN ACCESS
TO SUCH LINES. This will allow Connecten's operations staff to test and
isolate any troubles the Customer and Connecten might experience.
4. TERM: The term of this Agreement is set forth in Attachment A.
5 RATES: The monthly rates for services are set forth Attachment A.
6. SUCCESSFUL INSTALLATION: Successful installation is defined as the point
in time when Connecten can send and receive a "ping" from Connecten's
router to Customer's router.
7. PAYMENT: Any installation charges and an amount equal to the Total Monthly
Fee, as described in Attachment A, is required to be paid at the time
services are ordered. THESE CHARGES ARE NON-REFUNDABLE. Upon successful
installation of the connection, the pro-rated amount of the current
month's usage and the next month's usage will be due. Thereafter, payments
shall be due on the first of each month. Payments are due in full no later
than twenty (20) days after the first of each month. There is a five-(5)
day grace period. Upon expiration of the five-(5) day grace period,
Customer's service is subject to interruption. If service is interrupted
for non-payment, a restoration fee of an amount equal to the Total Monthly
Fee as described in Attachment A, shall be required for service to be
restored. In the event that service is interrupted for non-payment,
Customer's service shall not be restored until all current charges,
including restoration fees, are paid in full. This policy shall be
strictly enforced.
8. TERMINATION: Internet Access Service that is provided on a month to month
basis may be canceled by either Connecten or Customer with one months
notice in writing. Only a written request to terminate service relieves
Customer from the obligation to pay your charges AT THE CONCLUSION OF
THIRTY (30) DAYS. Internet Access Service that is provided for one year
terms or longer, as described in Attachment A, may not be canceled by
either Connecten or Customer unless such cancellation is agreed to by both
parties in writing.
In the event of termination of this Agreement, Connecten may:
A. Accelerate all payments due under this agreement and declare
them due immediately.
B. Enter Customer's premises and repossess all hardware and/or
software it loaned to Customer. Customer will provide
Connecten full and free access to the hardware and/or software
for this purpose; and,
C. Deny Customer further access to the Internet hereunder without
liability on the part of Connecten to Customer.
9. PAYMENT TERMS: A late payment charge at no more than 1 1/2% per month or
fraction thereof may be assessed on payments not received by Connecten
within 30 calendar days after due. The payment schedule is described in
Attachment A.
10. CANCELLATION: If this Agreement is canceled by Connecten because of
Customer's default, the total of payments described in Attachment A shall
be accelerated and the total amount due shall be payable upon demand.
11. TAXES: Prices and fees are exclusive of all federal, state, municipal, or
other government excise, duties, sales, use, occupational, or like taxes
now or hereafter in force, and are therefore subject to increase in an
amount equal to any tax Connecten may be required to collect or pay upon
sale, licensing, or delivery of any services, other than federal, state,
and local taxes based on Connecten's income. Customer agrees to pay
Connecten for all such taxes upon receipt of the invoice therefor.
12. MODIFICATIONS: Customer shall not add to, delete from, or otherwise modify
any router configuration without Connecten's prior written consent, and
any unauthorized modifications shall void Connecten's warranty obligations
in Section 5 hereof and terminate any obligation of Connecten to furnish
support or revisions.
<PAGE>
13. LIMITED WARRANTY; EQUIPMENT: All Connecten supplied Equipment is warranted
against defects in materials and workmanship, under normal use and
service, for a period of thirty (30) calendar days from the date of
delivery and Successful Installation. In addition to the Connecten Limited
warranty, Connecten passes through any applicable manufacturer's
warranties to Customer.
Connecten's sole obligation and liability under the above warranties shall
be, at Connecten's option, either to repair or correct errors or defects.
or to replace any defective Product or parts thereof. The above warranties
are contingent upon Customer's promptly advising Connecten of any errors
or defects. Connecten may require Customer to return any warranted Product
to Connecten for inspection and/or repair. The above warranties are
contingent upon proper use in the application for which the Products were
intended and are not applicable to Products which have been modified
without Connecten's approval, or errors/defects due to Customer neglect or
misuse, accident, electrical power failure, or causes other than ordinary
use.
EXCEPT FOR THE FOREGOING, Connecten SHALL HAVE NO LIABILITY TO
Customer OR ANY OTHER PARTY FOR ANY GENERAL, SPECIAL, OR
CONSEQUENTIAL DAMAGES RESULTING FROM USE OR PERFORMANCE OF THE
PRODUCTS OR SERVICES. NO OTHER WARRANTY IS EXPRESSED AND NONE SHALL
BE IMPLIED. ANY AND ALL IMPLIED WARRANTIES INCLUDING, BUT NOT
LIMITED TO INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, ARE EXPRESSLY DISCLAIMED.
14. GENERAL:
a) Connecten shall not be liable for delays in any of its performance
hereunder resulting from act of God, war, civil disturbance, court
order, labor dispute or other cause beyond its reasonable control.
b) In the event that any action or proceeding is brought in connection
with this Agreement, the prevailing party herein shall be entitled
to recover its costs and reasonable attorney's fees.
c) SERIAL NUMBERS. Customer releases Connecten from any and all
responsibility for maintaining serial number integrity with respect
to replaced and replacement equipment. Customer shall be solely
responsible for notifying its lessors, secured creditors, and other
similar parties of any equipment replacement and corresponding
serial number changes, and shall hold Connecten harmless from all
liability, loss, damage, cost, or expense arising from Connecten's
furnishing of replacement equipment bearing serial numbers different
from replaced equipment. Customer understands that the serial
number(s) of any replacement equipment furnished by Connecten under
the warranty provisions hereof, or any Equipment Replacement
Agreement between Customer and Connecten, will differ from the
serial number(s) of the equipment being replaced.
Connecten, L.L.C.
2929 Elm Street
Dallas, Texas 75226
By: /s/ Fred W. Hogan By: /s/ Jacob R. Miles III
--------------------------- -------------------------------
Title: Vice President Title: CEO
------------------------ ----------------------------
Date: 10/15/98 Date: 8/16/98
------------------------- -----------------------------
Name: Fred W. Hogan Name: Jacob R. Miles III
------------------------- -----------------------------
<PAGE>
Attachment A
This Agreement is for a term of 1 year, This Agreement shall automatically renew
at the end of the term unless either party notifies the other party in writing
of its intention not to renew the Agreement at least 45 days before the end of
the term. The renewal pricing shall be at Connecten's current pricing at the
time of renewal as stated in Connecten's pricing literature.
Connecten shall provide Customer with a na circuit (hereafter referred to as
"circuit") from Customer's network to Connecten's network. The circuit is being
purchased from na and installed by na and/or their vendors. The circuit shall be
installed at Customer's premises as shown below.
Customer's Premises for' location of circuit
The circuit shall provide a network connection with a bandwidth of na.
This stated bandwidth is only for the Connecten from Customer's router port to
Connecten's router port. No guarantee or representation of end-to-end bandwidth
on the Internet is made or implied.
The following Products and/or Services are included in this Agreement:
Description Installation Monthly Fee
10 megabit connection to Connecten network 1200.00 1200.00
with 1 meg available co-location services
including: rack space, power, air, 24hr
access, monitor, keyboard, and mouse
Dedicated use of the following servers:
Server A -- Intel P200. 128mb ram, 9 gig scsi
disk, Dat tape drive
Server B -- Intel p200, 128mb ram, 4.5 gig
scsi disk
Total Monthly Fee 1200.00
<PAGE>
[LETTERHEAD OF ALLEGIANCETELECOM,INC.]
June 2, 1999
To Our Customers at Connecten:
On March 31, 1999, our assets were acquired by Allegiance Telecom and our key
team members accepted positions with Allegiance. Our team will continue to
provide the same level of service for our customer base. They may contacted at
Allegiance at the following numbers:
Fred Hogan 214-261-7759
Bruce Goldstein 214-261-7758
Roy Mers 214-261-7471
Based in Dallas, Allegiance is developing a world class network in 24 markets
within the United States. With more than $1 billion in cash, Allegiance was
picked as the number one technology company in the Metroplex by the Dallas
Business Journal. We believe our customers now have access to finest network,
facilities and financial resources available in the United States.
Our facility at 2929 Elm will remain open for an interim period. It is
anticipated that all facilities will be consolidated with the Allegiance network
located at the Infomart in Dallas over the next few months. An open house for
all of customers will be scheduled in June and we strongly encourage you to
visit our new facilities.
Please continue to mail your payments to 2929 Elm as shown on the invoice with
checks payable to Connecten. We anticipate changing the billing system to
Allegiance on your next invoice.
Thank you for your business and we appreciate your support as a customer of
Connecten.
/s/ Roy Mers /s/ Bruce Goldstein /s/ Fred Hogan
- ----------------------- ------------------------- --------------------------
Roy Mers Bruce Goldstein Fred Hogan
EXHIBIT 10.24
THE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND THEY MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED
OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT
WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR
(ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY
UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE
COMPANY, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY, THAT THE
PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE ACT AS
WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR STATE SECURITIES LAW.
_____________, 1999
URBAN COOL NETWORK, INC.
COMMON STOCK PURCHASE WARRANT
The Transferability of this Warrant is
Restricted as Provided in Section 3
W-__ Warrants to Purchase _______________ (_____) Shares of Common
Stock
For good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged by Urban Cool Network, Inc., a Delaware corporation (the
"Company), ____________ is hereby granted the right to purchase, at the initial
exercise price of $2.00 per share (subject to adjustment as provided herein), at
any time from ___________, 2000 until 5:00 p.m., New York City time, on
__________, 2004, ___________________ (_______) shares of common stock of the
Company, $0.01 par value per share (the "Shares").
Each Common Stock Purchase Warrant (each, a "Warrant") is initially
exercisable at a price of $2.00 per Share, payable in cash or by certified or
official bank check in New York Clearing House funds, subject to adjustments as
provided in Section 5 hereof. Upon surrender of
<PAGE>
this Warrant, with the annexed Subscription Form duly executed, together with
payment of the Purchase Price (as hereinafter defined) for the Shares purchased
at the offices of the Company, the registered holder of this Warrant (the
"Holder") shall be entitled to receive a certificate or certificates for the
Shares so purchased.
1. Exercise of Warrant.
The purchase rights represented by this Warrant are exercisable at
the option of the Holder, in whole or in part (but not as to fractional Shares
underlying this Warrant), during any period in which this Warrant may be
exercised as set forth above. In the case of the purchase of less than all the
Shares purchasable under this Warrant, the Company shall cancel this Warrant
upon the surrender hereof and shall execute and deliver a new Warrant of like
tenor for the balance of the Shares purchasable hereunder.
2. Issuance of Certificates.
Upon the exercise of this Warrant and payment in full for the
Shares, the issuance of certificates for Shares underlying this Warrant shall be
made forthwith (and in any event within five (5) business days thereafter)
without charge to the Holder, including, without limitation, any tax which may
be payable in respect of the issuance thereof, and such certificates shall
(subject to the provisions of Section 3 hereof) be issued in the name of, or in
such names as may be directed by, the Holder; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holder and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid. The certificates
2
<PAGE>
representing the Shares underlying this Warrant shall be executed on behalf of
the Company by the manual or facsimile signature of the present or any future
Chairman, Vice Chairman, President or Vice President and Secretary or Assistant
Secretary of the Company.
3. Restriction on Transfer; Registration Under the Securities Act of
1933, as amended.
3.1 Restriction on Transfer. Neither this Warrant nor any Shares
issuable upon exercise hereof has been registered under the
Securities Act of 1933, as amended (the "Act"), and none of such
securities may be offered, sold, pledged, hypothecated, assigned or
transferred except (i) pursuant to a registration statement under
the Act which has become effective and is current with respect to
such securities or (ii) pursuant to a specific exemption from
registration under the Act but only upon a Holder hereof first
having obtained the written opinion of counsel to the Company, or
other counsel reasonably acceptable to the Company, that the
proposed disposition is consistent with all applicable provisions of
the Act as well as any applicable "Blue Sky" or similar state
securities law. Upon exercise, in part or in whole, of this Warrant,
each certificate issued representing the Shares underlying this
Warrant shall bear a legend to the foregoing effect.
3.2 Demand Registration.
(a) At any time during the five-year period commencing 12 months
after the date of original issuance of the Warrants, if the
Company is subject to the reporting requirements of Section 13
or Section 15(g) under the Exchange Act of 1934, as amended
(the "Exchange Act"), the Holders of the Warrants and/or
Shares representing a "Majority" (as hereinafter defined)
3
<PAGE>
of such securities shall have the right (which right is in
addition to the registration rights under Section 3.3 -------
hereof), to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), on one
occasion, a registration statement and such other documents,
including a prospectus, as may be necessary in the opinion of
counsel for the Company, and counsel for the Holders, if any,
and the Holders, in order to comply with the provisions of the
Securities Act, so as to permit a public offering and sale of
their respective Shares for nine (9) consecutive months by
such Holders and any other Holders of the Warrants and/or
Shares who notify the Company within ten (10) days after
receiving notice from the Company of such request. The Company
covenants and agrees to give written notice of any
registration request under this Section 3.2 by any Holders or
Holders to all ------- other Holders of Warrants and Shares
within ten (10) days of the receipt of any such registration
request.
(b) The Company shall use its best efforts to file a registration
statement within thirty (30) days of receipt of any demand therefor and to have
any registration statement declared effective at the earliest possible time. The
Company shall furnish each Holder desiring to sell Shares such number of
prospectuses as shall reasonably be requested.
3.3 Piggyback Registration.
(a) If, at any time during the five-year period commencing 12 months
after the date of original issuance of the Warrants, the Company proposes to
register any of its securities under the Securities Act (other than in
connection with the merger, acquisition or
4
<PAGE>
exchange offer on Form S-4 or pursuant to Form S-8 or successor forms) it will
give written notice by registered mail, at least thirty (30) days prior to the
filing of each such registration statement, to the Holder(s) of the Warrants
and/or the Shares of its intention to do so. Upon the written request of any
Holder of the Warrants and/or the Shares given within ten (10) days after
receipt of any such notice of his desire to include any Shares in such proposed
registration statement, the Company shall afford such Holder(s) of the Warrants
and/or the Shares the opportunity to have any such Shares registered under such
registration statement.
(b) Notwithstanding the provisions of this Section 3.3 the Company
shall have the right at any time after it shall have given written notice
pursuant to this Section 3.3 (irrespective of whether a written request for
inclusion of any such securities shall have been made) to elect not to file any
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date thereof.
3.4 Certain Covenants with Respect to Registration. In connection with
any registration under Sections 3.2 or 3.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to cause any
registration statement to be declared effective at the
earliest possible time, and shall furnish each Holder desiring
to sell Warrant Securities such number of prospectuses as
shall be reasonably required.
(b) The Company shall pay all costs (excluding fees and expenses
of Holder(s)' counsel and any underwriting or selling
commissions or other charges of any broker-dealer acting on
behalf of Holder(s)), fees and
5
<PAGE>
expenses in connection with all registration statements filed
pursuant to Sections 3.2 and 3.3 hereof including, without
limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrants and Shares
or New Warrants and New Warrant Shares, as defined in Section
6 hereof, (collectively, the "Warrant Securities") included in
a registration statement for offering and sale under the
securities or blue sky laws of such states as reasonably are
requested by the Holder(s), provided that the Company shall
not be obligated to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
The Company shall indemnify the Holder(s) of the Warrant Securities
to be sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
against all loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or any other statute, common law or otherwise, arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement executed by the Company or based upon written
information furnished by the Company filed in any jurisdiction in order to
qualify the Warrant Securities under the securities laws thereof or filed with
the Securities and Exchange Commission (the "Commission"), any state securities
commission or agency, the National Association of Securities Dealers, Inc., The
Nasdaq Stock
6
<PAGE>
Market or any securities exchange, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements contained therein not misleading, unless such statement or omission
was made in reliance upon and in conformity with written information furnished
to the Company by the Holder(s) expressly for use in such registration
statement, any amendment or supplement thereto or any application, as the case
may be. If any action is brought against the Holder(s) or any controlling person
of the Holder(s) in respect of which indemnity may be sought against the Company
pursuant to this Section 3.4(c), the Holder(s) or such controlling person shall
within thirty (30) days after the receipt thereby of a summons or complaint
notify the Company in writing of the institution of such action and the Company
shall assume the defense of such action, including the employment and payment of
reasonable fees and expenses of counsel (which counsel shall be reasonably
satisfactory to the Holder(s) or such controlling person), but the failure to
give such notice shall not affect such indemnified person's right to
indemnification hereunder except to the extent that the Company's defense of
such action was materially adversely affected thereby. The Holder(s) or such
controlling person shall have the right to employ its or their own counsel in
any such case, but the fees and expenses of such counsel shall be at the expense
of the Holder(s) or such controlling person unless the employment of such
counsel shall have been authorized in writing by the Company in connection with
the defense of such action, the Company shall not have employed counsel to have
charge of the defense of such action or such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to the Company (in
which case the Company shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
the fees and expenses of not more than one additional firm of attorneys for the
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Holder(s) and/or such controlling person shall be borne by the Company. Except
as expressly provided in the previous sentence, in the event that the Company
shall not previously have assumed the defense of any such action or claim, the
Company shall not thereafter be liable to the Holder(s) or such controlling
person in investigating, preparing or defending any such action or claim. The
Company agrees promptly to notify the Holder(s) of the commencement of any
litigation or proceedings against the Company or any of its officers, directors
or controlling persons in connection with the resale of the Warrant Securities
or in connection with such registration statement. The Company agrees to notify
promptly the Holder(s) of the commencement of any litigation or proceedings
against the Company or any of its officers, directors or controlling persons in
connection with the resale of any of the Warrant Securities in connection with
such registration statement. The Company further agrees that upon demand by an
indemnified person, at any time or from time to time, it will promptly reimburse
such indemnified person for any loss, claim, damage, liability, cost or expense
actually and reasonably paid by the indemnified person as to which the Company
has indemnified such person pursuant hereto. Notwithstanding the foregoing
provisions of this Section 3.4(c), any such payment or reimbursement by the
Company of fees, expenses or disbursements incurred by an indemnified person in
any proceeding in which a final judgment by a court of competent jurisdiction
(after all appeals or the expiration of time to appeal) is entered against any
Registration Rights Holder or such indemnified person as a direct result of any
Registration Rights Holder or such person's gross negligence or willful
misfeasance will be promptly repaid to the Company.
(d) The Holder(s) of the Warrant Securities to be sold pursuant to
a registration statement, and their successors and assigns,
shall severally, and not jointly, indemnify the Company, its
officers and directors and
8
<PAGE>
each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim
whatsoever) to which they may become subject under the Act,
the Exchange Act or otherwise, arising from information
furnished in writing by or on behalf of such Holders, or their
successors or assigns, for specific inclusion in such
registration statement. The Holder(s) further agree(s) that
upon demand by an indemnified person, at any time or from time
to time, they will promptly reimburse such indemnified person
for any loss, claim, damage, liability, cost or expense
actually and reasonably paid by the indemnified person as to
which the Holder(s) have indemnified such person pursuant
hereto. Notwithstanding the foregoing provisions of this
Section 3.3(d), any such payment or reimbursement by the
Holder(s) of fees, expenses or disbursements incurred by an
indemnified person in any proceeding in which a final judgment
by a court of competent jurisdiction (after all appeals or the
expiration of time to appeal) is entered against the Company
or such indemnified person as a direct result of the Company
or such person's gross negligence or willful misfeasance will
be promptly repaid to the Holder(s).
(e) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants or New
Warrants prior to the initial filing of any registration
statement or the effectiveness thereof.
9
<PAGE>
(f) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, and the Placement Agent, a signed
counterpart, addressed to such Holder or underwriter, if any, and the Placement
Agent, of (i) an opinion of counsel to the Company, dated the effective date of
such registration statement (and, if such registration includes an underwritten
public offering, an opinion dated the date of the closing under the underwriting
agreement), and (ii) a "cold comfort" letter dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, a letter dated the date of the closing under the underwriting
agreement) signed by the independent public auditors who have issued a report on
the Company's financial statements included in such registration statement, in
each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(g) For the purposes of this Agreement, the term "Majority" in
reference to the Registration Rights Holders of Shares and/or Warrant Shares
shall mean in excess of fifty percent (50%) of the then outstanding Shares
and/or Warrant Shares (assuming the exercises of all Warrants) that (i) are not
held by the Company, an affiliate (excluding, if applicable, the Placement Agent
and its affiliates, officers and directors), officer, creditor, employee or
agent thereof or any of their respective affiliates, member of their family,
persons acting as nominees or in conjunction therewith and (ii) have not been
resold to the public pursuant to a registration statement filed with the
Commission under the Securities Act.
4. Price.
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<PAGE>
4.1 Initial and Adjusted Purchase Price. The initial purchase price
shall be $2.00 per Share. The adjusted purchase price shall be the
price which shall result from time to time from any and all
adjustments of the initial purchase price in accordance with the
provisions of Section 5 hereof.
4.2 Purchase Price. The term "Purchase Price" herein shall mean the
initial purchase price or the adjusted purchase price, depending
upon the context.
5. Adjustments of Purchase Price and Number of Shares.
In the event that, prior to the issuance by the Company of all the
Shares issuable upon exercise of this Warrant, there shall be any change in the
outstanding common stock of the Company by reason of the declaration of stock
dividends, or through stock splits or combinations, the remaining Shares still
subject to this Warrant and the purchase price thereof shall be appropriately
adjusted (but without regard to fractions) by the Board of Directors of the
Company to reflect such change.
6. Merger or Consolidation.
In case of any consolidation of the Company with, or merger of the
Company with, or merger of the Company into, another corporation (other than a
consolidation or merger which does not result in any reclassification or change
of the outstanding common stock of the Company), the corporation formed by such
consolidation or merger shall execute and deliver to the Holder a supplemental
warrant agreement providing that the Holder shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of this
Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such
11
<PAGE>
consolidation or merger by a holder of the number of shares of common stock of
the Company for which this Warrant might have been exercised immediately prior
to such consolidation, merger, sale or transfer. The above provisions of this
Section 6 shall similarly apply to successive consolidations or mergers.
7. Exchange and Replacement of Warrant.
This Warrant is exchangeable without expense, upon the surrender
hereof by the registered Holder at the principal executive office of the Company
for a new Warrant of like tenor and date representing in the aggregate the right
to purchase the same number of Shares as are purchasable hereunder in such
denominations as shall be designated by the Holder hereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant, and, in case
of loss, theft or destruction, of indemnity or security reasonably satisfactory
to it, and reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant.
8. Elimination of Fractional Interests.
The Company shall not be required to issue certificates representing
fractions of Shares on the exercise of this Warrant, nor shall it be required to
issue scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated.
12
<PAGE>
9. Reservation of Securities.
The Company shall at all times reserve and keep available out of its
authorized common stock, solely for the purpose of issuance upon the exercise of
this Warrant, such number of Shares as shall be issuable upon the exercise
hereof. The Company covenants and agrees that, upon exercise of this Warrant and
payment of the Purchase Price therefor, all Shares issuable upon such exercise
shall be duly and validly issued, fully paid and nonassessable.
10. Notices to Warrant Holders.
Nothing contained in this Warrant shall be construed as conferring
upon the Holder hereof the right to vote or to consent or to receive notice as a
stockholder in respect of any meetings of stockholders for the election of
directors or any other matter, or as having any rights whatsoever as a
stockholder of the Company.
11. Notices.
All notices, requests, consents and other communications required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed or sent by certified, registered, or express mail, postage prepaid,
and shall be deemed given when so delivered personally, telegraphed or, if
mailed, five days after the date of deposit in the United States mails, as
follows:
(a) If to the Company, to:
Urban Cool Network, Inc.
2929 Elm Street
Dallas, Texas 75226
Attn: Jacob R. Miles III, Chairman
13
<PAGE>
(b) If to the registered Holder, to the address of such Holder as
shown on the books of the Company.
12. Supplements and Amendments. The Company and the Placement Agent may
from time to time supplement or amend the Warrant Certificates without the
approval of any Holders of the Warrant Certificates (other than the Placement
Agent) in order to cure any ambiguity, to correct or supplement any provision
contained herein which may be defective or inconsistent with any provisions
herein, or to make any other provisions in regard to matters or questions
arising hereunder which the Company and the Placement Agent may deem necessary
or desirable and which the Company and the Placement Agent deem shall not
adversely affect the interests of the Holders of Warrant Certificates. This
Warrant Agreement may otherwise be amended, modified, superseded, renewed or
extended only by a written instrument signed by the Company and the holders of
at least a majority of the Warrants.
13. Successors.
All the covenants, agreements, representations and warranties
contained in this Warrant shall bind the parties hereto and their respective
heirs, executors, administrators, distributees, successors and assigns.
14. Headings.
The headings in this Warrant are inserted for purposes of
convenience only and shall have no substantive effect.
15. Law Governing.
14
<PAGE>
This Warrant is delivered in the State of New York and shall be
construed and enforced in accordance with, and governed by, the laws of the
State of New York, without giving effect to conflicts of law principles.
15
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
in its corporate name by, and such signature to be attested to by, a duly
authorized officer and has caused its corporate seal to be affixed hereto on the
date first above written.
URBAN COOL NETWORK, INC.
[SEAL]
By: /s/ Jacob R. Miles, III
---------------------------------
Jacob R. Miles, III
Chairman
Attest:
- -----------------------------
Name:
Title:
16
<PAGE>
SUBSCRIPTION FORM
(To be Executed by the Registered Holder
in order to Exercise the Warrant)
The undersigned hereby irrevocably elects to exercise the right to
purchase ______ Shares represented by this Warrant in accordance to the
conditions hereof and herewith makes payment of the Purchase Price of such
Shares in full.
---------------------------------------
Signature
--------------------------------------
Address
---------------------------------------
Social Security Number or Taxpayer's
Dated:_____________
Identification Number_____________
17
EXHIBIT 10.25
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION
STATEMENT UNDER THE ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT
TO THESE SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION
UNDER THE ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN
OPINION OF COUNSEL TO THE CORPORATION, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO
THE CORPORATION, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE
PROVISIONS OF THE ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR STATE
SECURITIES LAW.
URBAN COOL NETWORK, INC.
PROMISSORY NOTE
The Transferability of this Note
is Restricted as Provided in Section 3
No-_____ Dated: ____________, 1999
$_______ New York, New York
FOR VALUE RECEIVED, Urban Cool Network, Inc., a Delaware corporation (the
"Company"), promises to pay to ______________ or assigns (the "Holder") the
principal amount of _________________ ($_____) (the "Principal Amount"), in such
coin or currency of the United States of America as at the time of payment shall
be legal tender for the payment of public and private debts, together with
simple interest thereon at the rate of ten percent (10%) per annum (calculated
on the basis of a 360-day year of 30-day months), at the principal office of the
Company, upon the earlier of (a) the closing of an initial public offering of
the Company's securities or (b) _____________, 2001, two years from the date of
this note. No payments of principal and/or interest shall be due until maturity.
Notwithstanding anything to the contrary herein contained, the Principal
Amount of this Note or any interest hereon may be prepaid at any time or from
time to time, prior to the maturity of this Note, in whole or in part, without
prior notice and without penalty or premium. Prepayments shall be applied first
to interest due and then to principal.
1. The Notes: This Note is one of several promissory notes made and issued
by the Company which may aggregate to a maximum principal amount of one million
and fifty thousand dollars ($1,050,000) (individually, a "Note," and together,
the "Notes") assuming all Units are sold, pursuant to the terms and subject to
the conditions of Subscription Agreements and Investment Representations (the
"Subscription Agreements"), by and among the Company and certain investors.
Reference is made to the Subscription Agreements for agreements of the parties
applicable to this Note.
<PAGE>
2. Covenants: The Company covenants and agrees that, so long as any of the
Notes shall be outstanding and unpaid:
2.1 Payment of Notes. The Company will punctually pay or cause to be
paid the Principal Amount and interest on this Note. Any sums required to be
withheld from any payment of Principal Amount or interest on this Note by
operation of law or pursuant to any order, judgment, execution, treaty, rule or
regulation may be withheld by the Company and paid over in accordance therewith.
Nothing in this Note or in any other agreement between the Holder and the
Company shall require the Company to pay, or the Holder to accept, interest in
an amount which would subject the Holder to any penalty or forfeiture under
applicable law. In the event that the payment of any charges, fees or other sums
due under this Note or provided for in any other agreement between the Company
and the Holder are or could be held to be in the nature of interest and would
subject the Holder to any penalty or forfeiture under applicable law, then ipso
facto the obligations of the Company to make such payment to the Holder shall be
reduced to the highest rate authorized under applicable law and, in the event
that the Holder shall have ever received, collected, accepted or applied as
interest any amount in excess of the maximum rate of interest permitted to be
charged by applicable law, such amount which would be excess interest under
applicable law shall be applied first to the reduction of principal then
outstanding, and, second, if such principal amount is paid in full, any
remaining excess shall forthwith be returned to the Company.
2.2 Maintenance of Corporate Existence; Merger and Consolidation.
The Company will at all times cause to be done all things necessary to preserve
and keep in full force and effect its corporate existence and all of its rights
and franchises and shall not be consolidated with or merge into any other
corporation or transfer all or substantially all of its assets to any person
unless (i) the survivor of such consolidation or merger is the Company, (ii) the
corporation formed by such consolidation or into which the Company is merged or
to which the assets of the Company are transferred is a corporation which
expressly assumes all of the obligations of the Company under the Notes, and
(iii) after giving effect to such transaction, no Event of Default (as
hereinafter defined), and no event which, after notice or lapse of time, or
both, would become an Event of Default, shall have occurred and be continuing.
2.3 Maintenance of Properties. The Company will reasonably maintain
in good repair, working order and condition its properties and other assets, and
from time to time make all reasonably necessary or desirable repairs, renewals
and replacements thereto.
2.4 Payment of Taxes. The Company will cause to be paid, set aside
for payment, or cause to be discharged, before the same shall become delinquent,
all taxes, assessments and governmental charges levied or imposed upon the
Company or upon its income, profits or property; provided, however, that the
Company shall not be required to cause to be paid or discharged any such tax,
assessment or charge whose amount, applicability or validity is being contested
in good faith by appropriate proceedings.
2
<PAGE>
2.5 Compliance with Statutes. The Company will comply in all
material respects with all applicable statutes and regulations of the United
States of America and of any state or municipality, and of any agency of any
thereof, in respect of the conduct of business, and the ownership of property by
the Company; provided, however, that nothing contained in this Section 2.5 shall
require the Company to comply with any such statute or regulation so long as its
legality or applicability shall be contested in good faith; and provided further
that an unintentional violation of this covenant done in good faith or
inadvertently shall not be deemed an Event of Default under Section 4 hereof.
2.6 Restrictions on Dividends, Redemptions, etc. The Company will
not (i) declare or pay any dividend or make any other distribution on any equity
securities of the Company, except dividends or distributions payable in equity
securities of the Company, (ii) purchase, redeem or otherwise acquire or retire
for value any equity securities of the Company, except equity securities
acquired upon conversion thereof into other equity securities of the Company, or
(iii) permit a subsidiary of the Company to purchase, redeem or otherwise
acquire or retire for value any equity securities of the Company, if, upon
giving effect to such dividend, distribution, purchase, redemption, or other
acquisition or retirement, the net worth of the Company would be reduced to less
than an amount equal to the remaining indebtedness outstanding under the Notes.
2.7 Transactions with Affiliates. The Company will not itself, and
will not permit any subsidiary to, engage in any transaction of any kind or
nature with any affiliate (as such term is used in Rule 405 under the Act) of
the Company, other than a wholly-owned subsidiary, unless such transaction is
upon terms which are fair to the Company or such subsidiary, as the case may be,
and which are reasonably similar to, or more beneficial to the Company or such
subsidiary than the terms deemed likely to occur in similar transactions with
unrelated persons under the same circumstances.
3. Restrictions Upon Transferability. This Note has not been registered
under the Act, and may not be offered, sold, pledged, hypothecated, assigned or
transferred except (i) pursuant to a registration statement under the Act which
has become effective and is current with respect to this Note, or (ii) pursuant
to a specific exemption from registration under the Act but only upon a Holder
hereof first having obtained the written opinion of counsel to the Company, or
other counsel reasonably acceptable to the Company, that the proposed
disposition is consistent with all applicable provisions of the Act as well as
any applicable "blue sky" or other state securities law.
4. Events of Default and Remedies. An "Event of Default" shall occur if:
4.1 Payment of Notes. The Company defaults in the payment of
Principal Amount or interest of this Note, when and as the same shall become due
and payable whether at maturity thereof, or by acceleration or otherwise, which
default shall continue uncured for a period of thirty (30) days from the date
thereof; or
4.2 Performance of Covenants, Conditions or Agreements. The Company
fails to comply with any of the covenants, conditions or agreements set forth in
this Note and
3
<PAGE>
such default shall continue uncured for a period of thirty (30) days after
receipt of written notice to the Company from any Holder stating the specific
default or defaults; or
4.3 Bankruptcy, Insolvency, etc. The Company shall file or consent
by answer or otherwise to the entry of an order for relief or approving a
petition for relief, reorganization or arrangement or any other petition in
bankruptcy for liquidation or to take advantage of any bankruptcy or insolvency
law of any jurisdiction, or shall make an assignment for the benefit of its
creditors, or shall consent to the appointment of a custodian, receiver, trustee
or other officer with similar powers of itself or of any substantial part of its
property, or shall be adjudicated a bankrupt or insolvent, or shall take
corporate action for the purpose of any of the foregoing, or if a court or
governmental authority of competent jurisdiction shall enter an order appointing
a custodian, receiver, trustee or other officer with similar powers with respect
to the Company or any substantial part of its property or an order for relief or
approving a petition for relief or reorganization or any other petition in
bankruptcy or for liquidation or to take advantage of any bankruptcy or
insolvency law, or an order for the dissolution, winding up or liquidation of
the Company, or if any such petition shall be filed against the Company and such
petition shall not be dismissed within sixty (60) days.
4.4. Remedies. In case an Event of Default (other than an Event of
Default resulting from the Company's failure to pay the Principal Amount of, or
any interest upon, this Note, when the same shall be due and payable in
accordance with the terms hereof (after giving affect to applicable "cure"
provisions herein) and an Event of Default resulting from bankruptcy, insolvency
or reorganization) shall occur and be continuing, the Holders of the Notes
representing at least fifty-one percent (51%) in the aggregate of the Principal
Amount of all Notes then outstanding, may declare by notice in writing to the
Company all unpaid Principal Amount and accrued interest on all of the Notes
then outstanding to be due and payable immediately. In case an Event of Default
resulting from the Company's nonpayment of Principal Amount of, or interest
upon, this Note shall occur, the Holder may declare all unpaid Principal Amount
and accrued interest on this Note held by such Holder to be due and payable
immediately. In case an Event of Default resulting from bankruptcy, insolvency
or reorganization shall occur, all unpaid principal and accrued interest on the
Notes held by each Holder shall be due and payable immediately without any
declaration or other act on the part of such Holders. Any such acceleration may
be annulled and past defaults (except, unless theretofore cured, a default in
payment of Principal Amount or interest on the Notes) may be waived by the
Holders of a majority in Principal Amount of the Notes then outstanding.
5. Costs of Collection. Should the indebtedness represented by this Note
or any part thereof be collected in any proceeding, or this Note be placed in
the hands of attorneys for collection after default, the Company agrees to pay
as an additional obligation under this Note, in addition to the Principal Amount
and interest due and payable hereon, all costs of collecting this Note,
including reasonable attorneys' fees.
6. Waiver and Amendments. This Note may be amended, modified, superseded,
canceled, renewed or extended, and the terms hereof may be waived only by a
written instrument signed by the Company and Holders of at least fifty-one
percent (51%) in Principal Amount of the Notes at the time outstanding;
provided, however, that the consent of a Holder shall be
4
<PAGE>
required to modify the terms of this Note affecting the payment of Principal
Amount of, or interest on, such Holder's Note or the term of such Holder's Note.
No delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver hereof, nor shall any waiver on the part of
any party of any right, power or privilege or privilege hereunder preclude any
other or further exercise hereof or the exercise of any other right, power or
privilege hereunder. The rights and remedies provided herein are cumulative and
are not exclusive of any rights or remedies which any party may otherwise have
at law or in equity.
7. Loss, Theft, Destruction or Mutilation of Note. Upon receipt by the
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note, and of indemnity or security reasonably
satisfactory to the Company, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Note, if mutilated, the Company will make and deliver a new Note of like
tenor, in lieu of this Note. Any Note made and delivered in accordance with the
provisions of this Section 7 shall be dated as of the date to which interest has
been paid on this Note, or if no interest has theretofore been paid on this
Note, then dated the date hereof.
8. Notice. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed or
sent by certified, registered, or express mail, postage prepaid, and shall be
deemed given when so delivered personally, telegraphed or, if mailed, five (5)
days after the date of deposit in the United States mails, as follows:
(i) if to the Company, to:
Urban Cool Network, Inc.
2929 Elm Street
Dallas, Texas 75226
Attention: Jacob R. Miles III, Chairman
(ii) if to the Holder, to the address of such Holder as shown on the books
of the Company.
9. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to its
conflicts of law principles. The Company agrees that any dispute or controversy
arising out of this Note shall be adjudicated in a court located in New York
City, and hereby submits to the exclusive jurisdiction of the courts of the
State of New York located in New York, New York and of the federal courts in the
Southern District of New York, and irrevocably waives any objection it now or
hereafter may have respecting the venue of such action or proceeding brought in
such a court or respecting the fact that such court is an inconvenient forum,
and consents to the service of process in any such action or proceeding by means
of registered or certified mail, return receipt requested.
10. Successors and Assigns. All the covenants, stipulations, promises and
agreements in this Note contained by or on behalf of the Company shall bind its
successors and assigns, whether or not so expressed.
5
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed in its
corporate name by a duly authorized officer and to be dated as of the date first
above written.
URBAN COOL NETWORK, INC.
By: /s/ Jacob R. Miles, III
----------------------------------
Name: Jacob R. Miles, III
Title: Chief Executive Officer
6
EXHIBIT 10.26
NAME OF SUBSCRIBER:__________________
To: URBAN COOL NETWORK, INC.
Security Capital Trading, Inc.
520 Madison Avenue
10th Floor
New York, New York 10038
URBAN COOL NETWORK, INC.
SUBSCRIPTION AGREEMENT AND INVESTMENT REPRESENTATION
SECTION 1.
1.1 Subscription. The undersigned, intending to be legally bound,
hereby irrevocably subscribes for and agrees to purchase the amount of units
("Units") of Urban Cool Network, Inc., a Delaware corporation (the "Company"),
indicated on page 12 hereof, on the terms and conditions described herein and in
the Confidential Private Offering Memorandum, dated July 16, 1999 as amended by
Amendment No. 1 to the Confidential Private Offering Memorandum dated September
24, 1999 and as further amended by Amendment No. 2 to the Memorandum dated
September 28, 1999 (such memorandum, together with all amendments thereof and
supplements and exhibits thereto, the "Memorandum"), copies of which have been
received by the undersigned. Each Unit consists of (i) a promissory note of the
Company in the principal amount of $10,000, (ii) 1,000 shares of the Company's
Common Stock and (iii) one warrant exercisable for 5,000 shares of Common Stock
(the "Warrant Shares") at $2.00 per share beginning six months after the Closing
(as defined herein) until five years from the Closing. Security Capital Trading,
Inc. (the "Placement Agent") has been retained by the Company as exclusive
placement agent for the offer and sale of one hundred (100) Units on a "best
efforts" basis. The minimum number of Units which may be purchased is 2 Units.
Partial Units may be accepted at the discretion of the Placement Agent. Unless
otherwise indicated all terms shall have the same meanings and definitions as
set forth in the Memorandum.
1.2 Purchase of Units.
The undersigned understands and acknowledges that the purchase price
to be remitted to the Company in exchange for the Units, if any, shall be ten
thousand dollars ($10,000) per Unit. Payment for the Units shall be made by
check or wire transfer in
<PAGE>
accordance with the instructions of the Placement Agent, together with an
executed copy of this Agreement and any other required documents.
SECTION 2.
2.1 Acceptance or Rejection.
(a) The undersigned understands and agrees that the Company reserves
the right to reject this subscription for the Units in whole or part in any
order, if, in its reasonable judgment, it deems such action in the best interest
of the Company, at any time prior to the Closing, notwithstanding prior receipt
by the undersigned of notice of acceptance of the undersigned's subscription.
(b) The undersigned understands and agrees that subscriptions may be
revoked provided that written notice of revocation is sent by certified or
registered mail, return receipt requested, and is received by the Placement
Agent at least two business days prior to the Closing.
(c) In the event of rejection of this subscription, or in the event
the sale of the Units subscribed for by the undersigned is not consummated by
the Company for any reason (in which event this Subscription Agreement shall be
deemed to be rejected), this Subscription Agreement and any other agreement
entered into between the undersigned and the Company relating to this
subscription shall thereafter have no force or effect and the Company shall
promptly return or cause to be returned to the undersigned the purchase price
remitted to the Company by the undersigned, without interest thereon or
deduction therefrom, in exchange for the Units.
2.2 Closing
The closing (the "Closing") of the purchase and sale of Units,
following the acceptance by the Company of the undersigned's subscription, as
evidenced by the Company's execution of this Subscription Agreement, shall take
place at the offices of Orrick, Herrington & Sutcliffe LLP, counsel to the
Placement Agent, at 666 Fifth Avenue, New York, New York, or such other place as
determined by the Placement Agent, on such date as is mutually agreed to by the
Company and the Placement Agent. The Company expects to hold the first Closing
after subscriptions for at least 20 Units have been received and accepted by the
Company. Subsequent Closings, if any, will be held at the offices of Orrick,
Herrington & Sutcliffe LLP at such times as are agreed by the Company and
Placement Agent. At the Closing of the purchase and sale of the Units subscribed
to by the undersigned, the Company shall prepare for delivery to the undersigned
the certificate(s) for the securities to be issued and sold to the undersigned,
duly registered in the undersigned's name against payment in full by the
undersigned of the aggregate purchase price of the Units.
2
<PAGE>
SECTION 3.
3.1 Investor Representations and Warranties.
The undersigned hereby acknowledges, represents and warrants to, and
agrees with, the Company and its affiliates as follows:
(a) The undersigned is acquiring the Units for his own account as
principal, not as a nominee or agent, for investment purposes only, and not with
a view to, or for, resale, distribution or fractionalization thereof in whole or
in part and no other person has a direct or indirect beneficial interest in such
Units or any of the components of the Units. Further, the undersigned does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to any of the Units for which the undersigned is subscribing or any
of the components of the Units.
(b) The undersigned has full power and authority to enter into this
Agreement, the execution and delivery of this Agreement has been duly
authorized, if applicable, and this Agreement constitutes a valid and legally
binding obligation of the undersigned.
(c) The undersigned acknowledges his understanding that the offering
and sale of the Units is intended to be exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act") by virtue of Section
4(2) of the Securities Act and the provisions of Regulation D promulgated
thereunder ("Regulation D"). In furtherance thereof, the undersigned represents
and warrants to and agrees with the Company and its affiliates as follows:
(i) The undersigned realizes that the basis for the
exemption may not be present if, notwithstanding such
representations, the undersigned has in mind merely acquiring Units
for a fixed or determinable period in the future, or for a market
rise, or for sale if the market does not rise. The undersigned does
not have any such intention.
(ii) The undersigned has the financial ability to bear the
economic risk of his investment, has adequate means for providing
for his current needs and personal contingencies and has no need for
liquidity with respect to his investment in the Company;
(iii) _________________________ (insert name of Purchaser
Representative: if none, so state) has acted as the undersigned's
Purchaser Representative for purposes of the private placement
exemption under the Securities Act. If the undersigned has appointed
a Purchaser Representative (which term is used herein with the same
meaning as given in Rule 501(h) of Regulation D), the undersigned
has been advised by his Purchaser
3
<PAGE>
Representative as to the merits and risks of an investment in the
Company in general and the suitability of an investment in the Units
for the undersigned in particular; and
(iv) The undersigned (together with his Purchaser
Representative(s), if any) has such knowledge and experience in
financial and business matters as to be capable of evaluating the
merits and risks of the prospective investment in the Units. If
other than an individual, the undersigned also represents it has not
been organized for the purpose of acquiring the Units.
(d) The information in the Accredited Investor Questionnaire
completed and executed by the undersigned is substantially in the form of the
Accredited Investor Questionnaire included as an exhibit to the Memorandum (the
"Accredited Investor Questionnaire") and is accurate and true in all respects
and the undersigned is an "accredited investor," as that term is defined in Rule
501 of Regulation D.
(e) The undersigned and his Purchaser Representative, if any:
(i) Have been furnished with the Memorandum, including all
exhibits thereto and any documents which may have been made
available upon request for a reasonable period of time prior to the
date hereof and the undersigned or his Purchaser Representative(s)
have carefully read the Memorandum and understand and have evaluated
the risks set forth under "Risk Factors" and the considerations
described in the Memorandum and have relied solely (except as
indicated in subsections (ii) and (iii) below) on the information
contained in the Memorandum (including all exhibits thereto);
(ii) Have been provided an opportunity for a reasonable
period of time prior to the date hereof to obtain additional
information concerning the offering of the Units, the Company and
all other information to the extent the Company possesses such
information or can acquire it without unreasonable effort or
expense;
(iii) Have been given the opportunity for a reasonable period
of time prior to the date hereof to ask questions of, and receive
answers from, the Company or its representatives concerning the
terms and conditions of the offering of the Units and other matters
pertaining to this investment, and have been given the opportunity
for a reasonable period of time prior to the date hereof to obtain
such additional information necessary to verify the accuracy of the
information contained in the Memorandum or that which was otherwise
provided in order for him to evaluate the merits and risks of
purchase of the Units to the extent the Company possesses such
information or can acquire it without unreasonable effort or
expense;
(iv) Have not been furnished with any oral representation or
oral information in connection with the offering of the Units which
is not contained
4
<PAGE>
in the Memorandum; and
(v) Have determined that the Units are a suitable investment
for the undersigned and that at this time the undersigned could bear
a complete loss of such investment.
(f) The undersigned is not relying on the Company, or its affiliates
with respect to economic considerations involved in this investment. The
undersigned has relied on the advice of, or has consulted with only those
persons, if any, named as Purchaser Representative(s) herein and in the
Accredited Investor Questionnaire. Each Purchaser Representative is capable of
evaluating the merits and risks of an investment in the Units on the terms and
conditions set forth in the Memorandum and each Purchaser Representative has
disclosed to the undersigned in writing (a copy of which is annexed to this
Agreement) the specific details of any and all past, present or future
relationships, actual or contemplated, between himself and the Company or any
affiliate or subsidiary thereof.
(g) The undersigned represents, warrants and agrees that he will not
sell or otherwise transfer the Units or the components of the Units without
registration under the Securities Act or an exemption therefrom and fully
understands and agrees that he must bear the economic risk of his purchase
because, among other reasons, the Units, the Notes, the Warrants and the shares
of Common Stock underlying the Warrants have not been registered under the
Securities Act or under the securities laws of any state and, therefore, cannot
be resold, pledged, assigned or otherwise disposed of unless they are
subsequently registered under the Securities Act and under the applicable
securities laws of such states or an exemption from such registration is
available. In particular, the undersigned is aware that the Units and the
components of the Units are "restricted securities," as such term is defined in
Rule 144 promulgated under the Securities Act ("Rule 144"), and they may not be
sold pursuant to Rule 144 unless all of the conditions of Rule 144 are met. The
undersigned also understands that, except as otherwise provided herein and in
the certificates for the Warrants and the shares of Common Stock underlying the
Warrants, the Company is under no obligation to register the Units or any of the
components of the Units on his behalf or to assist him in complying with any
exemption from registration under the Securities Act or applicable state
securities laws. The undersigned further understands that sales or transfers of
the Units and the components of the Units are further restricted by state
securities laws and the provisions of this Agreement.
(h) No representations or warranties have been made to the
undersigned by the Company, or any officer, employee, agent, affiliate or
subsidiary of the Company, other than the representations of the Company
contained herein and in the Memorandum, and in subscribing for Units the
undersigned is not relying upon any representations other than those contained
herein or in the Memorandum.
(i) Any information which the undersigned has heretofore furnished
to the Company with respect to his financial position and business experience is
correct and complete as of the date of this Agreement and if there should be any
material change in such information he will immediately furnish such revised or
corrected information to the Company.
5
<PAGE>
(j) The undersigned understands and agrees that the certificates for
the Common Stock and Warrants shall bear the following legend until (i) such
securities shall have been registered under the Securities Act and effectively
been disposed of in accordance with a registration statement that has been
declared effective; or (ii) in the opinion of counsel for the Company such
securities may be sold without registration under the Securities Act as well as
any applicable "Blue Sky" or state securities laws:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED,
SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i)
PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH
HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE
SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF
FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE
CORPORATION, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE
CORPORATION, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL
APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY
APPLICABLE "BLUE SKY" OR SIMILAR SECURITIES LAW."
(k) The undersigned understands that an investment in the Units is a
speculative investment which involves a high degree of risk and the potential
loss of his entire investment.
(l) The undersigned's overall commitment to investments which are
not readily marketable is not disproportionate to the undersigned's net worth,
and an investment in the Units will not cause such overall commitment to become
excessive.
(m) Notwithstanding Section 4 below, if the undersigned purchases
any Units, the undersigned hereby agrees that for a period commencing on the
date hereof and ending thirteen (13) months following the effective date of the
registration statement (the "Registration Statement") relating to the Company's
public offering of securities, the undersigned will not without the prior
written consent of the Placement Agent, directly or indirectly, issue, offer to
sell, grant an option for the sale of, transfer, assign, hypothecate, pledge,
distribute or otherwise dispose of or encumber (either pursuant to Rule 144 of
the regulations under the Securities Act or otherwise) the Common Stock, or any
securities that may be issued in exchange therefor, registered in the name of or
beneficially owned by the undersigned. Notwithstanding the foregoing, the
Placement Agent has agreed to consent to the sale of the securities underlying
the Units after a period of six (6) months from the effective date of the
Registration Statement relating to the Company's public offering of securities
provided that the Placement Agent has not agreed with The Nasdaq Stock Market,
Inc. or other national securities exchange to withhold such consent. In
addition, the undersigned agrees that for a period of twenty-four (24) months
following the effective date of the Registration Statement, any sales of the
Common Stock, or any securities that may be issued in exchange
6
<PAGE>
therefor, shall be made through the Placement Agent. The undersigned further
consents to the placing of legends and stop-transfer orders with the transfer
agent of the Company's securities with respect to any of the Common Stock
registered in the name of the undersigned or beneficially owned by the
undersigned.
(n) The foregoing representations, warranties and agreements shall
survive the Closing.
SECTION 4.
4.1 Piggyback Registration.
If, at any time commencing on the Final Closing and expiring five
(5) years thereafter, the Company proposes to register any of its securities
under the Securities Act (other than in connection with a transaction
contemplated by Rule 145(a) promulgated under the Securities Act or pursuant to
Form S-8 or successor forms) it will give written notice by registered or
certified mail, at least thirty (30) days prior to the filing of each such
registration statement, to the Placement Agent and to the holder(s) (the
"Holders") of the shares of Common Stock and Warrant Shares of its intention to
do so. Upon the written request of any Holder of Common Stock or Warrant Shares
given within ten (10) days after receipt of any such notice of his desire to
include any Common Stock and/or Warrant Shares in such proposed registration
statement, the Company shall afford such Holder(s) of the shares of Common Stock
and Warrant Shares including the opportunity to have any such Common Stock and
Warrant Shares registered under such registration statement.
By execution hereof, the undersigned hereby waives the notice
requirements under Section 4.1 with respect to a registration filed in
connection with an initial public offering of the Company's securities and the
Holder hereby elects to have the Common Stock and the Warrant Shares included in
such registration statement.
Notwithstanding the provisions of this Section 4.1, the Company
shall have the right at any time after it shall have given written notice
pursuant to this Section 4.1 (irrespective of whether a written request for
inclusion of any such securities shall have been made) to elect not to file any
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date thereof.
4.2 Demand Registration.
At any time during the five-year period on the Final Closing, if the
Company is subject to the reporting requirements of Section 13 or Section 15(g)
under the Exchange Act of 1934, as amended (the "Exchange Act"), the Holders of
Warrant Shares and Common Stock representing a "Majority" (as hereinafter
defined) of such securities shall have the right (which right is in addition to
the registration rights under Section 4.1 hereof), exercisable by written notice
to the Company, to have the Company prepare and file with the Securities and
Exchange Commission (the "Commission"), on one occasion, a registration
statement and such other documents, including a prospectus, as may be necessary
in the opinion of both counsel for the
7
<PAGE>
Company and counsel for the Underwriter, if any, and the Holders, in order to
comply with the provisions of the Securities Act, so as to permit a public
offering and sale of their respective Common Stock and Warrant Shares for
twenty-four (24) consecutive months by such Holders and any other Holders of the
Common Stock and/or Warrant Shares who notify the Company within ten (10) days
after receiving notice form the Company of such request. By execution hereof,
the undersigned hereby waives the notice requirements under Section 4.1 with
respect to a registration statement filed in connection with an initial public
offering of the Company's securities and the Holder hereby elects to have the
Common Stock and the Warrant Shares included in such registration statement.
4.3 Covenants of the Company With Respect to Registration.
In connection with any registration under Sections 4.1 or 4.2
hereof, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to cause any registration
statement to be declared effective at the earliest possible time, and shall
furnish each Holder desiring to sell Common Stock and/or Warrant Shares such
number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding transfer taxes, if
any, fees and expenses of Holder(s)' counsel and any underwriting or selling
commissions), fees and expenses in connection with all registration statements
filed pursuant to Sections 4.1 or 4.2 hereof including, without limitation, the
Company's legal and accounting fees, printing expenses and blue sky fees and
expenses.
(c) The Company will take all necessary action which may be required
in qualifying or registering the Common Stock and Warrant Shares included in the
registration statement for offering and sale under the securities or blue sky
laws of such states as are requested by the Placement Agent or Holder(s),
provided that the Company shall not be obligated to qualify as a foreign
corporation to do business under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Common Stock
and Warrant Shares to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), against any and all loss, claim, damage, expense
or liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them may
become subject under the Securities Act, the Exchange Act or any other statute,
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained (x) in such registration
statement (as from time to time amended and supplemented); (y) in any
post-effective amendment or amendments or (z) in any application or other
document or written communication (in this Section 4 collectively called an
"application") executed by the Company or based upon written information
furnished by the Company filed in any jurisdiction in order to qualify the
Common Stock and Warrant Shares
8
<PAGE>
under the securities laws thereof or filed with the Securities and Exchange
Commission, any state securities commission or agency, the National Association
of Securities Dealers, Inc., The Nasdaq Stock Market or any securities exchange
or the omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading, unless such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company by the undersigned
expressly for use in such registration statement, any amendment or supplement
thereto or any application, as the case may be. If any action is brought against
the undersigned or any controlling person of the undersigned in respect of which
indemnity may be sought against the Company pursuant to this Section 4, the
undersigned or such controlling person shall within thirty (30) days after the
receipt thereby of a summons or complaint notify the Company in writing of the
institution of such action and the Company shall assume the defense of such
action, including the employment and payment of reasonable fees and expenses of
counsel (reasonably satisfactory to the undersigned or such controlling person)
but the failure to give such notice shall not affect such indemnified person's
right to indemnification hereunder except to the extent that the Company's
defense of such action was materially adversely affected thereby. The
undersigned or such controlling person shall have the right to employ its or
their own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of the undersigned or such controlling person unless (i)
the employment of such counsel shall have been authorized in writing by the
Company in connection with the defense of such action; (ii) the Company shall
not have employed counsel to have charge of the defense of such action or (iii)
such indemnified party or parties shall have reasonably concluded that there may
be defenses available to it or them which are different from or additional to
those available to the Company (in which case the Company shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events the fees and expenses of not more than one
additional firm of attorneys for the undersigned and/or such controlling person
shall be borne by the Company. Except as expressly provided above, in the event
that the Company shall not previously have assumed the defense of any such
action or claim, the Company shall not thereafter be liable to the undersigned
or such controlling person in investigating, preparing or defending any such
action or claim. The Company agrees promptly to notify the undersigned of the
commencement of any litigation or proceedings against the Company or any of its
officers, directors or controlling persons in connection with the offering and
sale of the Common Stock and/or Warrant Shares or in connection with such
registration statement.
(e) The Holder(s) of the Common Stock and Warrant Shares to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Securities Act or Section 20(a) of the Exchange Act, against all loss,
claim, damage or expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which they may become subject under the Securities Act, the Exchange Act or
otherwise, arising from written information furnished by or on behalf of such
Holders, or their successors or assigns, for specific inclusion in such
registration statement.
(f) The Company shall furnish to each Holder participating in the
offering
9
<PAGE>
and to each underwriter, if any, and the Placement Agent, a signed counterpart,
addressed to such Holder or underwriter, if any, and the Placement Agent, of (i)
an opinion of counsel to the Company, dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, an opinion dated the date of the closing under the underwriting
agreement), and (ii) a "cold comfort" letter dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, a letter dated the date of the closing under the underwriting
agreement) signed by the independent public auditors who have issued a report on
the Company's financial statements included in such registration statement, in
each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
SECTION 5.
5.1 Indemnity. The undersigned agrees to indemnify and hold harmless
the Company, its officers and directors, employees and its affiliates and each
other person, if any, who controls any thereof, against any loss, liability,
claim, damage and expense whatsoever (including, but not limited to, any and all
expenses whatsoever reasonably incurred in investigating, preparing or defending
against any litigation commenced or threatened or any claim whatsoever) arising
out of or based upon any false representation or warranty or breach or failure
by the undersigned to comply with any covenant or agreement made by the
undersigned herein or in any other document furnished by the undersigned to any
of the foregoing in connection with this transaction.
5.2 Modification. Neither this Agreement nor any provisions hereof
shall be modified, discharged or terminated except by an instrument in writing
signed by the party against whom any waiver, change, discharge or termination is
sought.
5.3 Notices. Any notice, demand or other communication which any
party hereto may be required, or may elect, to give to anyone interested
hereunder shall be sufficiently given if (a) deposited, postage prepaid, in a
United States mail letter box, registered or certified mail, return receipt
requested, addressed to such address as may be given herein, or (b) delivered
personally at such address.
5.4 Counterparts. This Agreement may be executed through the use of
separate signature pages or in any number of counterparts, and each of such
counterparts shall, for all purposes, constitute one agreement binding on all
parties, notwithstanding that all parties are not signatories to the same
counterpart.
5.5 Binding Effect. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties and
their heirs, executors, administrators, successors, legal representatives and
assigns. If the undersigned is more than one person, the obligation of the
undersigned shall be joint and several and the agreements,
10
<PAGE>
representations, warranties and acknowledgments herein contained shall be deemed
to be made by and be binding upon each such person and his heirs, executors,
administrators and successors.
5.6 Entire Agreement. This Agreement and the documents referenced
herein contain the entire agreement of the parties and there are no
representations, covenants or other agreements except as stated or referred to
herein and therein.
5.7 Assignability. This Agreement is not transferable or assignable
by the undersigned.
5.8 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to conflicts of law principles.
5.9 Pronouns. The use herein of the masculine pronouns "him" or
"his" or similar terms shall be deemed to include the feminine and neuter
genders as well and the use herein of the singular pronoun shall be deemed to
include the plural as well.
11
<PAGE>
ALL SUBSCRIBERS MUST COMPLETE THIS PAGE
IN WITNESS WHEREOF, the undersigned has executed this Agreement on the _______
day of _________,1999.
______________________ X $10,000 Per Unit = $_______________________
Units Subscribed for Purchase Price
Manner in which Title is to be held (Please Check One):
1. [ ] Individual 7. [ ] Trust/Estate/Pension or
Profit Sharing Plan
Date Opened:_______________
2. [ ] Joint Tenants with Right 8. [ ] As a Custodian for
of Survivorship ___________________________
Under the Uniform Gift to
Minors Act of the State of
___________________________
3. [ ] Community Property 9. [ ] Married with Separate
Property
4. [ ] Tenants in Common 10. [ ] Keogh
5. [ ] Corporation/Partnership/ 11. [ ] Tenants by the Entirety
Limited Liability Company
6. [ ] IRA
- -------------------------------------------------------------------------------
IF MORE THAN ONE SUBSCRIBER, EACH SUBSCRIBER MUST SIGN.
INDIVIDUAL SUBSCRIBERS MUST COMPLETE PAGES 13 AND 15
SUBSCRIBERS WHICH ARE ENTITIES MUST COMPLETE PAGES 14 AND 16
12
<PAGE>
EXECUTION BY NATURAL PERSONS
- -------------------------------------------------------------------------------
Exact Name in Which Title is to be Held
- ------------------------------ ---------------------------------
Name (Please Print) Name of Additional Purchaser
- ------------------------------ ---------------------------------
Residence: Number and Street Address of Additional Purchaser
- ------------------------------ ---------------------------------
City, State and Zip Code City, State and Zip Code
- ------------------------------ ---------------------------------
Social Security Number Social Security Number
- ------------------------------ ---------------------------------
(Signature) (Signature of Additional Purchaser)
ACCEPTED this day of , 1999 on behalf of the Company.
------ ---------------
BY:
----------------------------------
Name:
Title:
13
<PAGE>
EXECUTION BY SUBSCRIBER WHICH IS AN ENTITY
(Corporation, Partnership, Trust, Etc.)
- -------------------------------------------------------------------------------
Name of Entity (Please Print)
Date of Incorporation or Organization:
----------------------------------------
State of Principal Offices:
---------------------------------------------------
Federal Taxpayer Identification Number:
---------------------------------------
BY:
---------------------------------
TITLE:
------------------------------
[seal]
Attest:
--------------------------- ------------------------------------
(If Entity is a Corporation)
------------------------------------
Address
------------------------------------
Taxpayer Identification Number
ACCEPTED this day of , 1999 on behalf of the Company.
---- -----------
BY:
--------------------------------
Name:
Title:
14
<PAGE>
ACKNOWLEDGMENT FOR INDIVIDUAL
STATE OF _____________________)
) ss.:
COUNTY OF_____________________)
The foregoing instrument was acknowledged before me this ______ day
of _______________, 1999, by __________________.
(SEAL) _______________________________________
Notary Public
My Commission expires: Residing at:
_____________________________ _______________________________________
15
<PAGE>
ACKNOWLEDGMENT FOR CORPORATION OR OTHER ENTITY
STATE OF _________________)
) ss.:
COUNTY OF ________________)
The foregoing instrument was acknowledged before me this _______ day of
__________, 1999, by _______________________, a _______________________of
_____________________, a ________________________.
(SEAL) __________________________________
Notary Public
My Commission expires: Residing at:
__________________________ __________________________________
16
EXHIBIT 10.27
OFFICE LEASE
Elm Place
1401 Elm Street
Dallas, Texas
Landlord: Metropolitan Life Insurance Company
Tenant: Focus Communications, Inc.
Date: March 3, 1998
This Lease consists of four parts:
Part I Cover Sheet
Part II Standard Lease Provisions
Part III Additional Provisions (if any) and
Part IV Exhibits
EXHIBIT A - Floor Plan of Premises
EXHIBIT B - Legal Description of Land
EXHIBIT C - Landlord's Notice of Lease Term Dates
EXHIBIT D - Tenant Improvements
EXHIBIT E - Rules and Regulations
<PAGE>
PART I
COVER SHEET
The terms listed below shall have the following meanings throughout this Lease:
DATE OF LEASE: March 3, 1998, the date on which Landlord has signed this
Lease
LANDLORD: Metropolitan Life Insurance Company, a New York corporation
TENANT: Focus Communications, Inc., a Texas corporation
TENANT'S ADDRESS: 1401 Elm Place, Suite 1900
Dallas, Texas 75202
MANAGING AGENT: Insignia Commercial Group of Texas, Inc.
MANAGING AGENT'S
ADDRESS: 1401 Elm Street, Suite 1833
Dallas, Texas 75202
PREMISES: The area consisting of approximately 2,195 rentable square
feet located on the 19th floor of the Building, as shown on
Exhibit A attached. The Premises are a portion of Interfirst
One Condominium (the "Condominium").
BUILDING: Floors 10 and above of the building in which the Premises
are located, known as Elm Place, with a street address of
1401 Elm Street, Dallas, Texas, and the common areas of Elm
Place that are available for use by the occupants of the
Building (the "Common Areas").
PROPERTY: The Building, the Common Areas and other Improvements and
the tract of land on which they are located. A legal
description of the land is attached hereto as Exhibit B
TENANT'S The percentage determined by dividing the number of rentable
PROPORTIONATE square feet of space in the Premises by the number of
SHARE: rentable square feet of space in the Building
PERMITTED USES: Office purposes
2
<PAGE>
TENANT
IMPROVEMENTS: See Exhibit D attached hereto
SCHEDULED
COMMENCEMENT DATE: March 16, 1998
TERM: Five (5) years
BASE RENT: Tenant shall pay Base Rent for the Premises in accordance
with the following schedule;
Annual
Rent Annual Rent
Months Per Month Rent p.r.s.f.
------------------------------------------------------------
1-36 $2,195.00 $26,340.00 $12.00
------------------------------------------------------------
37-60 $2,560.83 $30,730.00 $14.00
------------------------------------------------------------
------------------------------------------------------------
Tenant's Base Rent as set forth above includes normal use of
electricity.
Tenant's Base Rent for months 2 and 3 of the Term shall be
entirely abated.
SECURITY DEPOSIT: $2,195.00
PARKING SPACES: One space in the parking garage associated with the
Building. Current monthly rate is $110.00 per space per
month subject to periodic changes in the rate
PUBLIC LIABILITY
INSURANCE AMOUNT: $3,000,000 Combined Single Limit
BROKER(S): Transwestern Property Company and Bradford Realty
GUARANTOR(S): None
3
<PAGE>
TABLE OF CONTENTS OF STANDARD LEASE PROVISIONS
Page
ARTICLE I: PREMISES
1.1 Premises ............................................................. 6
1.2 Common Areas; Parking ................................................ 6
ARTICLE II: TERM
2.1 Commencement Without Tenant Improvements ............................. 7
2.2 Commencement With Tenant Improvements ................................ 7
ARTICLE III: RENT
3.1 Base Rent ............................................................ 7
3.2 Additional Rent for Operating Expenses and Taxes ..................... 8
ARTICLE IV: DELIVERY OF PREMISES AND TENANT IMPROVEMENTS
4.1 Condition of Premises ................................................ 10
4.2 Delay In Possession .................................................. 10
4.3 Delivery and Acceptance of Possession ................................ 10
4.4 Early Occupancy ...................................................... 10
ARTICLE V: ALTERATIONS AND TENANT'S PERSONAL PROPERTY
5.1 Alterations .......................................................... 11
5.2 Tenant's Personal Property ........................................... 11
ARTICLE VI: LANDLORD'S COVENANTS
6.1 Services Provided by Landlord ........................................ 12
6.2 Repairs and Maintenance .............................................. 13
6.3 Quiet Enjoyment ...................................................... 13
6.4 Insurance ............................................................ 13
ARTICLE VII: TENANT'S COVENANTS
7.1 Repairs, Maintenance and Surrender ................................... 14
7.2 Use .................................................................. 14
7.3 Assignment; Sublease ................................................. 15
7.4 Indemnity ............................................................ 15
7.5 Tenant's Insurance ................................................... 15
7.6 Payment of Taxes ..................................................... 15
7.7 Environmental Assurances ............................................. 16
7.8 Americans With Disabilities Act ...................................... 17
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ARTICLE VIII: DEFAULT
8.1 Default .............................................................. 17
8.2 Remedies of Landlord and Calculation of Damages ...................... 18
ARTICLE IX: CASUALTY AND EMINENT DOMAIN
9.1 Casualty ............................................................. 19
9.2 Eminent Domain ....................................................... 21
ARTICLE X: RIGHTS OF PARTIES HOLDING SENIOR INTERESTS
10.1 Subordination ........................................................ 21
10.2 Mortgagee's Consent .................................................. 22
ARTICLE XI: GENERAL
11.1 Representations by Tenant ............................................ 22
11.2 Notices .............................................................. 22
11.3 No Waiver or Oral Modification ....................................... 22
11.4 Severability ......................................................... 22
11.5 Requests by Tenant ................................................... 22
11.6 Estoppel Certificate and Financial Statements ........................ 22
11.7 Waiver of Liability .................................................. 23
11.8 Execution; Prior Agreements and No Representations ................... 23
11.9 Brokers .............................................................. 23
11.10 Successors and Assigns ............................................... 23
11.11 Applicable Law and Lease Interpretation .............................. 24
11.12 Costs of Collection, Enforcement and Disputes ........................ 24
11.13 Holdover ............................................................. 24
11.14 Force Majeure ........................................................ 24
11.15 Limitation On Liability .............................................. 24
11.16 Notice of Landlord's Default ......................................... 25
11.17 Lease not to be Recorded ............................................. 25
11.18 Security Deposit ..................................................... 25
11.19 Guaranty of Lease .................................................... 25
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PART II STANDARD LEASE PROVISIONS
ARTICLE I PREMISES
1.1 Premises.
(a) Demise of Premises. This Lease (the "Lease") is made and entered into
by and between Landlord and Tenant and shall become effective as of the Date of
Lease. In consideration of the mutual covenants made herein, Landlord hereby
leases to Tenant, and Tenant hereby leases from Landlord, the Premises, on all
of the terms and conditions set forth in this Lease.
(b) Measurement. If, as a result of any subsequent measurement by
Landlord (which measurement shall be completed in accordance with standard
office building measurement practices utilized in the area in which the Building
is located), the areas of the Building or the Premises are determined to be more
or less than the areas described in the Lease, then all computations of rent and
other matters described in the Lease where area is a factor shall be recomputed.
All payments required after the date of computation shall be based on the new
computations. Until Landlord remeasures the Building and the Premises, all
measurements of area contained in the Lease shall be deemed to be correct and
binding upon the Landlord and Tenant.
(c) Relocation. Landlord reserves the right to relocate the Premises
to comparable space within the Building but not lower than the 18th floor by
giving Tenant prior written notice of such intention to relocate; provided,
however, that Landlord shall pay all reasonable costs of moving Tenant to such
other space.
(d) Access to Premises. Landlord shall have reasonable access to the
Premises, at any time during the Term, to inspect Tenant's performance hereunder
and to perform any acts required of or permitted to Landlord herein, including,
without limitation, (i) the right to clean and to make any repairs or
replacements Landlord deems necessary, (ii) the right to show the Premises to
prospective purchasers and mortgagees, and (iii) during the last twelve (12)
months of the Term, the right to show the Premises to prospective tenants.
Landlord shall at all times have a key to the Premises, and Tenant shall not
change any existing lock(s), nor install any additional lock(s) without
Landlord's prior consent.
1.2 Common Areas; Parking. Tenant shall have the right to use, in common
with other tenants, the Common Areas. Use of the Common Areas shall be only upon
the terms set forth at any time by Landlord. Landlord may at any time and in any
manner make any changes, additions, improvements, repairs or replacements to the
Common Areas that it considers desirable and for such purposes may enter the
Premises and, during the continuance of any such work, may temporarily close
doors, corridors and other parts of the Common Areas, interrupt or temporarily
suspend services to the Building, and change the arrangement and location of
entrances or passageways, doors and doorways, corridors, elevators, stairs,
toilets or other public parts of the Building, provided that Landlord shall use
reasonable efforts to minimize interference with Tenant's normal activities. No
such actions by Landlord shall constitute constructive eviction or give rise to
any rent abatement or liability of Landlord to Tenant.
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Tenant shall be permitted to use the Parking Spaces, at such monthly
rental rate per space as may be established from time to time by Landlord as the
rate for similar parking spaces in such garage. Such monthly rent for parking
shall be paid in advance by Tenant to Landlord, or to such other party or
parties as Landlord may from time to time designate as the operator of the
garage, such parking rent to be paid monthly in advance on the first day of the
month. Any default by Tenant in the payment of such monthly parking rent shall
constitute a default of Tenant's obligations with respect to payment of other
forms of rent hereunder. Landlord's failure or inability for any reason to
provide one or more of the Parking Spaces to Tenant at any time during the Term
shall not constitute a default by Landlord under this Lease, provided, however,
that Tenant's obligation to pay rent for any Parking Space which Landlord fails
or is unable to provide shall be abated for such period of time as Tenant does
not have the use of such Parking Space, and such abatement shall be Tenant's
only remedy for such failure or inability by Landlord to provide such Parking
Space.
ARTICLE II TERM
2.1 Commencement Without Tenant Improvements. If Landlord is not obligated
to construct Tenant Improvements pursuant to Exhibit D, the Term shall begin on
the Scheduled Commencement Date and shall continue for the length of the Term,
unless sooner terminated as provided in this Lease.
2.2 Commencement With Tenant Improvements. If Landlord is required to
construct Tenant Improvements to the Premises pursuant to Exhibit D, the
Scheduled Commencement Date shall be only an estimate of the beginning of the
Term of this Lease and the actual Commencement Date ("Commencement Date") shall
be the first to occur of (i) the date the Premises are offered by Landlord for
occupancy following substantial completion of the Tenant Improvements to be
constructed by Landlord pursuant to Exhibit D, as reasonably determined by
Landlord, and any certificate or approval required by local governmental
authority for occupancy of the Premises has been obtained, or (ii) the date
Tenant enters into occupancy of the Premises.
If Landlord is obligated to construct Tenant Improvements pursuant to
Exhibit D, the dates upon which the Term shall commence and end shall be
confirmed in Landlord's Notice of Lease Term Dates ("Notice"), substantially in
the form attached as Exhibit C. Landlord shall deliver the Notice to Tenant
after Landlord offers possession of the Premises to Tenant or Tenant enters into
occupancy of the Premises. Tenant shall promptly return to Landlord a
countersigned original of the Notice, provided that Landlord's failure to
deliver the Notice shall not delay the Commencement Date.
ARTICLE III RENT
3.1 Base Rent
(a) Payment of Base Rent. Tenant shall pay the Base Rent each month
in advance on the first day of each calendar month during the Term. If the
Commencement Date is other than the first day of the month, Tenant shall pay a
proportionate part of such monthly installment on the Commencement Date. An
adjustment in the Base Rent for the last month of the Term shall be made if the
Term does not end on the last day of the month. All payments shall be made to
Managing Agent at Managing Agent's Address or to such other party or to such
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other place as Landlord may designate in writing, without prior demand and
without abatement, deduction or offset. All charges to be paid by Tenant
hereunder, other than Base Rent, shall be considered additional rent for the
purposes of this Lease, and the words "rent" or Rent" as used in this Lease
shall mean both Base Rent and additional rent unless the context specifically or
clearly indicates that only Base Rent is referenced.
(b) Late Payments. Tenant acknowledges that the late payment by
Tenant to Landlord of any rent or other sums due under this Lease will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of such
costs being extremely difficult and impracticable to ascertain. Therefore, if
any rent or other sum due from Tenant is not received when due, Tenant shall pay
to Landlord no later than ten (10) calendar days after the rental due date an
additional sum equal to five percent (5%) of such overdue payment. In addition
to such late charge, all such delinquent rent or other sums due to Landlord,
including the late charge, shall bear interest beginning on the date such
payment was due at the then maximum lawful rate permitted to be charged by
Landlord. The notice and cure period provided in Paragraph 8.1(a) does not apply
to the foregoing late charges and interest. If payments of any kind are returned
for any reason, Tenant shall pay to Landlord an additional handling charge of
$50.00.
3.2 Additional Rent for Operating Expenses and Taxes
(a) Additional Rent. For each Comparison Year, Tenant shall pay to
Landlord as additional rent the sum of (1) the difference between Comparison
Year Operating Expenses and the Base Year Operating Expenses, times Tenant's
Proportionate Share and (2) the difference between the Comparison Year Taxes and
the Base Year Taxes, times Tenant's Proportionate Share ("Tenant's Share of
Expenses")
(b) Definitions. As used herein, the following terms shall have the
following meanings:
(i) Base Year. The calendar year in which the lease term
commences.
(ii) Comparison Year. Each calendar year of the Term after the
Base Year.
(iii) Lease Year. Each successive 12 month period following
the Commencement Date.
(iv) Operating Expenses. The total cost of operation of the
Property, including, without limitation, (1) premiums and
deductibles for insurance carried with respect to the Property; (2)
all costs of supplies, materials, equipment, and utilities (other
than electricity) used in or related to the operation, maintenance,
and repair of the Property or any part thereof (excluding utilities
which are paid for separately by the Tenant pursuant to Paragraph
6.1(b)); (3) all labor costs, including without limitation,
salaries, wages, payroll and other taxes, unemployment insurance
costs, and employee benefits; and (4) all maintenance, management,
janitorial, inspection, legal, accounting, and service agreement
costs related to the operation, maintenance, and repair of the
Property or any part thereof, including, without limitation, service
contracts with independent contractors. Any of the
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above services may be performed by Landlord or its affiliates,
provided that fees for the performance of such services shall be
reasonable and competitive with fees charged by unaffiliated
entities for the performance of such services in comparable
buildings in the area. Operating Expenses shall not include Taxes;
leasing commissions; repair costs paid by insurance proceeds or by
any tenant or third party; the initial construction cost of the
Building or any depreciation thereof; any debt service or costs
related to sale or financing of the Property; tenant improvements
provided for any tenant; any special services rendered to tenants
(including Tenant) for which a separate charge is made; or costs of
capital improvements, except the amortization or appreciation of
capital improvements which are primarily for the purpose of reducing
Operating Expenses, or which are required by governmental
authorities.
(v) Base Year Operating Expenses. Operating Expenses Incurred
during the Base Year, provided that if any extraordinary expenses
are incurred during the Base Year which typically are not
operations, maintenance, or repair costs of a stabilized property,
as reasonably estimated by Landlord, then such expenses shall be
excluded from the calculation of Operating Expenses during the Base
Year.
(vi) Comparison Year Operating Expenses. Operating Expenses
incurred during the Comparison Year, provided that if any
extraordinary expenses are incurred during the Comparison Year which
typically are not operations, maintenance, or repair costs of a
stabilized property, as reasonably estimated by Landlord, then such
expenses shall be excluded from the calculation of Operating
Expenses for that Comparison Year.
(vii) Taxes. Any form of assessment, rental tax, license tax,
business license tax, levy, charge, tax or similar imposition
imposed by any authority having the power to tax, including any
city, county, state or federal government, or any school,
agricultural, lighting, library, drainage, or other improvement or
special assessment district, as against the Property or any part
thereof or any legal or equitable interest of Landlord therein, or
against Landlord by virtue of its interest therein, and any
reasonable costs incurred by Landlord in any proceedings for
abatement thereof, including, without limitation, attorneys' and
consultants' fees, and regardless of whether any abatement is
obtained. Landlord's income and franchise taxes are excluded from
Taxes.
(viii) Base Year Taxes. Taxes incurred during the Base Year.
(ix) Comparison Year Taxes. Taxes incurred during the
Comparison Year.
(c) Estimate of Tenant's Share of Expenses. Before each Comparison
Year, and from time to time as Landlord deems appropriate, Landlord shall give
Tenant estimates for the coming Comparison Year of Operating Expenses and Taxes
and Tenant's Share of Expenses. Landlord shall make reasonable efforts to
provide estimates fifteen (15) days before the beginning of each Comparison
Year. Tenant shall pay one twelfth (1/12) of the estimated amount of
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Tenant's Share of Expenses with each monthly payment of Base Rent during the
Comparison Year. Each Comparison Year, Landlord shall give Tenant a statement
(the "Share of Expenses Statement") showing the Operating Expenses and Taxes for
the prior Comparison Year, a calculation of Tenant's Share of Expenses due for
the prior Comparison Year, and a summary of amounts already paid by Tenant for
the prior Comparison Year. Landlord shall make reasonable efforts to provide the
Share of Expenses Statement within one hundred twenty (120) days after the end
of the prior Comparison Year. Any underpayment by Tenant shall be paid to
Landlord within thirty (30) days after delivery of the Share of Expenses
Statement; any overpayment shall be credited against the next installment of
Base Rent due, provided that any overpayment shall be paid to Tenant within
thirty (30) days if the Term has ended. No delay by Landlord in providing any
Share of Expenses Statement shall be deemed a waiver of Tenant's obligation to
pay Tenant's Share of Expenses. Notwithstanding anything contained in this
paragraph, the total rent payable by Tenant shall in no event be less than the
Base Rent.
ARTICLE IV DELIVERY OF PREMISES AND TENANT IMPROVEMENTS
4.1 Condition of Premises. Landlord shall deliver the Premises to Tenant
in its "as is" condition unless Landlord is required to construct tenant
improvements pursuant to and in accordance with the terms set forth in Exhibit D
of this Lease ("Tenant improvements"). If Landlord is required to construct
Tenant Improvements, such Tenant Improvements shall become and remain the
property of the Landlord.
4.2 Delay in Possession. If Landlord is required to construct Tenant
Improvements pursuant to Exhibit D, and Landlord is unable to deliver possession
of the Premises to Tenant on or before the Scheduled Commencement Date for any
reason whatsoever, Landlord shall not be liable to Tenant for any loss or damage
resulting therefrom and this Lease shall continue in full force and effect;
provided, however, that if Landlord shall not deliver the Premises within one
hundred eighty (180) days after the Scheduled Commencement Date and the reasons
for such delay are under the control of Landlord, then Tenant may cancel this
Lease by notice in writing to Landlord within ten (10) days thereafter.
4.3 Delivery and Acceptance of Possession. Tenant shall accept possession
and enter in good faith occupancy of the entire Premises and commence the
operation of its business therein within thirty (30) days after the Commencement
Date. Tenant's taking possession of any part of the Premises shall be deemed to
be an acceptance and an acknowledgment by Tenant that (i) Tenant has had an
opportunity to conduct, and has conducted, such inspections of the Premises as
it deems necessary to evaluate its condition, (ii) except as otherwise
specifically provided herein, Tenant accepts possession of the Premises in its
then existing condition, "as-is", including all patent and latent defects, (iii)
Tenant improvements have been completed in accordance with the terms of this
Lease, except for defects of which Tenant has given Landlord written notice
prior to the time Tenant takes possession, and (iv) neither Landlord, nor any of
Landlord's agents, has made any oral or written representations or warranties
with respect to such matters other than as set forth in this Lease.
4.4 Early Occupancy. If Landlord agrees in writing to allow Tenant or its
contractors to enter the Premises prior to the Commencement Date, Tenant (and
its contractors) shall do so upon all of the provisions of this Lease (including
Tenant's obligations regarding indemnity and insurance), except those provisions
regarding Tenant's obligation to pay Base Rent, which
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obligation shall commence on the Commencement Date.
ARTICLE V ALTERATIONS AND TENANT'S PERSONAL PROPERTY
5.1 Alterations.
(a) Landlord's Consent. Tenant shall not make any alterations,
additions, installations, substitutes or improvements ("Alterations") in and to
the Premises without first obtaining Landlord's written consent. Landlord shall
not unreasonably withhold or delay its consent; provided, however, that Landlord
shall have no obligation to consent to Alterations of a structural nature or
Alterations that would violate the certificate of occupancy for the Premises or
any applicable law, code or ordinance or the terms of any superior lease or
mortgage affecting the Property. No consent given by Landlord shall be deemed as
a representation or warranty that such Alterations comply with laws, regulations
and rules applicable to the Property ("Laws"). Tenant shall pay Landlord's
reasonable costs of reviewing or inspecting any proposed Alterations and any
other costs that may be incurred by Landlord as a result of such Alterations.
(b) Workmanship. All Alterations shall be done at reasonable times
in a first-class workmanlike manner, by contractors approved by Landlord, and
according to plans and specifications previously approved by Landlord. All work
shall be done in compliance with all Laws, and with all regulations of the Board
of Fire Underwriters or any similar insurance body or bodies. Tenant shall be
solely responsible for the effect of any Alterations on the Building's structure
and systems, notwithstanding that Landlord has consented to the Alterations, and
shall reimburse Landlord on demand for any costs incurred by Landlord by reason
of any faulty work done by Tenant or its contractors. Upon completion of
Alterations, Tenant shall provide Landlord with a complete set of "as-built"
plans.
(c) Mechanics and Other Liens. Tenant shall keep the Property and
Tenant's leasehold Interest therein free of any liens or claims of liens, and
shall discharge any such liens within ten (10) days of their filing. Before
commencement of any work, Tenant's contractor shall provide payment, performance
and lien indemnity bonds required by Landlord, and Tenant shall provide evidence
of such insurance as Landlord may require, naming Landlord as an additional
insured. Tenant shall indemnify Landlord and hold it harmless from and against
any cost, claim, or liability arising from any work done by or at the direction
of Tenant.
(d) Removal of Alterations. All Alterations affixed to the Premises
shall become part thereof and remain therein at the end of the Term. However, if
Landlord gives Tenant notice, at least thirty (30) days before the end of the
Term, to remove any Alterations, Tenant shall remove the Alterations, make any
repair required by such removal, and restore the Premises to its original
condition.
5.2 Tenant's Personal Property.
(a) In General. Tenant may provide and install, and shall maintain
in good condition, all trade fixtures, personal property, equipment, furniture
and moveable partitions required in the conduct of its business in the Premises.
All of Tenants personal property, trade fixtures, equipment, furniture, movable
partitions, and any Alterations not affixed to the Premises shall remain Tenants
property.
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(b) Landlord's Lien. Tenant hereby pledges and conveys to Landlord a
security Interest ("Landlord's Lien") in all of tenants property as collateral
security for the full and prompt payment of Base Rent and any additional rent as
and when due and the full and faithful performance of Tenant's covenants herein
contained. Upon Landlord's request, Tenant will execute and deliver financing
statements and other documents reasonably required by Landlord to perfect
Landlord's Lien. Tenant also agrees that Landlord's Lien may be enforced by
distress sale, foreclosure, or by any other method, and that any and all costs
incurred by Landlord by enforcement of this Landlord's Lien shall be payable to
Landlord by Tenant. Tenant may not remove Tenant's property from the Premises
prior to the end of the Term without Landlord's prior written consent.
(c) Payment of Taxes. Tenant shall pay before delinquency all taxes
levied against Tenant's personal property or trade fixtures in the Premises and
any Alterations installed by or on behalf of Tenant. if any such taxes are
levied against Landlord or its property, or if the assessed value of the
Premises is increased by the inclusion of a value placed on Tenant's property,
Landlord may pay such taxes, and Tenant shall upon demand repay to Landlord the
portion of such taxes resulting from such Increase.
ARTICLE VI LANDLORD'S COVENANTS
6.1 Services Provided by Landlord.
(a) Services. Landlord shall provide services, utilities, facilities
and supplies equal in quality to those customarily provided by landlords in
buildings of a similar design in the area in which the Property is located.
Without limiting the foregoing, Landlord shall furnish and install replacement
Building standard lighting tubes and ballasts. Landlord shall provide reasonable
additional Building operation services upon reasonable advance request of Tenant
at reasonable rates from time to time established by Landlord. Landlord shall
furnish space heating and cooling as normal seasonal changes may require to
provide reasonably comfortable space temperature and ventilation for occupants
of the Premises under normal business operation, daily from 7:00 a.m. to 6:00
p.m. (Saturdays from 8:00 a.m. to 1:00 p.m.), Sundays and national holidays
excepted. if Tenant shall require space heating or cooling outside the hours and
days above specified, Landlord shall provide service (including reasonable costs
and management expenses) upon notice given by Tenant in writing at least two (2)
hours before the end of normal business hours. Landlord shall provide the
services described in this Paragraph 6.1(a) and Tenant shall pay for such
services as set forth in Paragraph 3.2.
(b) Utilities. The Premises will not be separately metered or
submetered as of the Commencement Date. Building standard electrical power shall
be sufficient for normal lighting and for typewriters, voicewriters, calculating
machines and other machines of similar low electrical consumption, but not for
computer and/or electronic data processing equipment, special lighting in excess
of Building standard, and other items of electrical equipment which, singly,
consume more than .5 kilowatts per hour of electricity at rated capacity or
require a nominal voltage of more than 120 volts single phase. If Tenant's
requirements for electrical service are in excess of Building standard,
Landlord, at Tenant's expense, will make reasonable efforts to supply such
service through the then-existing feeders servicing the Building and will bill
Tenant periodically for such additional service. Landlord shall have the right,
at Tenant's expense, to submeter the Premises for such additional service.
Landlord shall not be liable to Tenant in any
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way for any failure or defect in the supply or character of electrical energy
furnished to the Premises by reason of any requirement act or omission of the
public utility supplying the Building with electricity. All installations of
electrical fixtures, appliances and equipment within the Premises shall be
subject to Landlord's prior approval. Whenever heat-generating machines or
equipment (other than general office machines as described above) which affect
the temperature otherwise maintained by the air-conditioning system are used by
Tenant in the Premises, Landlord shall have the right to install supplemental
air-conditioning units in the Premises, and the cost thereof, including the cost
of installation, operation, use and maintenance, shall be paid by Tenant to
Landlord on demand. The obligation of Landlord to furnish electrical service
shall be subject to the rules and regulations of the public utility supplying
the Building with electricity and of any municipal or other governmental
authority regulating the business of providing electrical utility service.
(c) Graphics and Signs. Landlord shall provide, at Tenants expense,
identification of Tenants name and suite numerals at the main entrance door to
the Premises. All signs, notices, graphics and decorations of every kind or
character which are visible in or from the Common Areas or the exterior of the
Premises shall be subject to Landlord's prior written approval, which Landlord
shall have the right to withhold in its absolute and sole discretion.
(d) Right to Cease Providing Services. in case of Force Majeure or
in connection with any repairs, alterations or additions to the Property or the
Premises, or any other acts required of or permitted to Landlord herein,
Landlord may reduce or suspend service of the Building's utilities, facilities
or supplies, provided that Landlord shall use reasonable diligence to restore
such services, facilities or supplies as soon as possible. No such reduction or
suspension shall constitute an actual or constructive eviction or disturbance of
Tenant's use or possession of the Premises.
6.2 Repairs and Maintenance. Landlord shall repair and maintain (i) the
Common Areas, (ii) the structural portions of the Building, (iii) the exterior
walls of the Building (including exterior windows and glazing), (iv) the roof,
and (v) the basic plumbing, electrical, mechanical and heating, ventilating and
air-conditioning systems serving the Premises, in the manner and to the extent
customarily provided by landlords in similar buildings in the area. Tenant shall
pay for such repairs and maintenance as set forth in Paragraph 3.2. If any
maintenance, repair or replacement is required because of any act, omission or
neglect of duty by Tenant or its agents, employees, invitees or contractors, the
cost thereof shall be paid by Tenant to Landlord as additional rent within
thirty (30) days after billing.
6.3 Quiet Enjoyment. Upon Tenant's paying the rent and performing its
other obligations, Landlord shall permit Tenant to peacefully and quietly hold
and enjoy the Premises, subject to the provisions of this Lease.
6.4 Insurance. Landlord shall insure the Property, including the Building
and Tenant Improvements and approved Alterations, if any, against damage by fire
and standard extended coverage perils, and shall carry public liability
insurance, all in such reasonable amounts as would be carried by a prudent owner
of a similar building in the area. Landlord may carry any other forms of
insurance as it or its mortgagee may deem advisable. Insurance obtained by
Landlord shall not be in lieu of any Insurance required to be maintained by
Tenant. Landlord shall not carry any Insurance on Tenant's Property, and shall
not be obligated to repair or replace any of
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Tenants Property.
ARTICLE VII TENANT'S COVENANTS
7.1 Repairs, Maintenance and Surrender.
(a) Repairs and Maintenance. Tenant shall keep the Premises in good
order and condition, and shall promptly repair any damage to the Premises
excluding glass in exterior walls. Tenant shall also repair any damage to the
rest of the Property, including glass in exterior walls, if such damage is
attributable to Tenant's negligence or misuse caused by Tenant or its agents,
employees, or invitees, licensees or independent contractors. All repairs shall
be made in a workmanlike manner and any replacements or substitutions shall be
of a quality, utility, value and condition similar to or better than the
replaced or substituted item.
(b) Surrender. At the end of the Term, Tenant shall peaceably
surrender the Premises in good order, repair and condition, except for
reasonable wear and tear, and Tenant shall remove Tenant's Property and (if
required by Landlord) any Alterations, repairing any damage caused by such
removal and restoring the Premises and leaving them clean and neat. Any property
not so removed shall be deemed abandoned and may be retained by Landlord or may
be removed and disposed of by Landlord in such manner as Landlord shall
determine. Tenant shall be responsible for costs and expenses incurred by
Landlord in removing any Alterations and disposing any such abandoned property,
making any incidental repairs and replacements to the Premises, and restoring
the Premises to its original condition.
7.2 Use.
(a) General Use. Tenant shall use the Premises only for the
Permitted Uses, and shall not use or permit the Premises to be used in violation
of any law or ordinance or of any certificate of occupancy issued for the
Building or the Premises, or of the Rules and Regulations. Tenant shall not
cause, maintain or permit any nuisance in, on or about the Property, or commit
or allow any waste in or upon the Property. Tenant shall not use utility
services in excess of amounts reasonably determined by Landlord to be within the
normal range of demand for the Permitted Uses.
(b) Obstructions and Exterior Displays. Tenant shall not obstruct
any of the Common Areas or any portion of the Property outside the Premises, and
shall not, except as otherwise previously approved by Landlord, place or permit
any lighting, signs, decorations, curtains, blinds, shades, awnings, aerials or
flagpoles, or the like, that may be visible from outside the Premises. If
Landlord designates a standard window covering for use throughout the Building,
Tenant shall use this standard window covering to cover all windows in the
Premises.
(c) Floor Load. Tenant shall not place a load upon the floor of the
Premises exceeding the load per square foot such floor was designed to carry, as
determined by applicable building code.
(d) Compliance with Insurance Policies. Tenant shall not keep or use
any article in the Premises, or permit any activity therein, which is prohibited
by any insurance policy covering the Building, or would result in an increase in
the premiums thereunder.
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(e) Rules and Regulations. Tenant shall observe and comply with the
rules and regulations attached as Exhibit E (the "Rules and Regulations"), and
all modifications thereto as made by Landlord and put into effect from time to
time. Landlord shall not be responsible to Tenant for the violation or
non-performance by any other tenant or occupant of the Building of the Rules and
Regulations. Any rights reserved to Landlord in the Rules and Regulations may be
exercised by Landlord at any time, without notice to any tenant and without
liability to any tenant for damage or injury to property persons or business,
and without effecting an eviction, constructive or actual, or a disturbance of
Tenant's use or possession or giving rise to any claim for set-off or abatement
of rent.
7.3 Assignment; Sublease. Tenant shall not assign its rights under this
Lease nor sublet the whole or any part of the Premises without Landlord's prior
written consent. in the event that Landlord grants such consent, Tenant shall
remain primarily liable to Landlord for the payment of all rent and for the full
performance of the obligations under this Lease and any excess rents collected
by Tenant shall be paid to Landlord. Any assignment or subletting which does not
conform with this Paragraph 7.3 shall be void and a default hereunder.
7.4 Indemnity. Tenant, at its expense, shall defend (with counsel
satisfactory to Landlord), indemnify and hold harmless Landlord and its agents,
employees, invitees, licensees and contractors from and against any cost, claim,
action, liability or damage of any kind arising from (i) Tenant's use and
occupancy of the Premises or the Property or any activity done or permitted by
Tenant in, on, or about the Premises or the Property. (ii) any breach or default
by Tenant of its obligations under this Lease, or (iii) any negligent, tortious,
or illegal act or omission of Tenant, its agents, employees, invitees, licensees
or contractors. Landlord shall not be liable to Tenant or any other person or
entity for any damages arising from any act or omission of any other tenant of
the Building. The obligations of Tenant in this Paragraph 7.4 shall survive the
expiration or termination of this Lease.
7.5 Tenant's Insurance. Tenant shall maintain in responsible companies
qualified to do business, in good standing in the state in which the Premises
are located and otherwise acceptable to Landlord and at its sole expense the
following insurance: (i) comprehensive general liability insurance covering the
Premises insuring Landlord, Managing Agent, and such other agents as Landlord
may designate from time to time, as well as Tenant, with limits which shall, at
the commencement of the Term, be at least equal to the Public Liability
Insurance Amount and from time to time during the Term shall be for such higher
limits, if any, as are customarily carried in the area in which the Premises are
located with respect to similar properties, (ii) workers' compensation insurance
with statutory limits covering all of Tenant's employees working in the
Premises, (iii) property insurance insuring Tenants Property for the full
replacement value of such items and (iv) business interruption insurance. There
shall be no deductible for liability policies and a deductible not greater than
$5,000 for property insurance policies. Tenant shall deposit promptly with
Landlord certificates for such insurance, and all renewals thereof, bearing the
endorsement that the policies will not be canceled until after thirty (30) days'
written notice to Landlord. All policies shall be taken out with insurers with a
rating of A-IX by Best's and otherwise acceptable to Landlord.
7.6 Payment of Taxes. If at any time during the Term, any political
subdivision of the state in which to Property is located, or any other
governmental authority, levies or assesses against Landlord a tax or excise on
rents or other tax (excluding income tax), however described,
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including but not limited to assessments charges or fees required to be paid, by
way of substitution for or as a supplement to real estate taxes, or any other
tax on rent or profits in substitution for or as a supplement to a tax levied
against the Property, Building or Landlord's personal property, then Tenant will
pay to Landlord as additional rent Tenant's Proportionate Share of said tax or
excise.
7.7 Environmental Assurances.
(a) Covenants.
(i) Tenant shall not cause any Hazardous Materials to be used,
generated, stored or disposed of on, under or about, or transported
to or from, the Premises unless the same is specifically approved in
advance by Landlord in writing other than small quantities of
retail, household, and office chemicals customarily sold
over-the-counter to the public and which are related to Tenant's
Permitted Uses.
(ii) Tenant shall comply with all obligations imposed by
Environmental Laws, and all other restrictions and regulations upon
the use, generation, storage or disposal of Hazardous Materials at,
to or from the Premises.
(iii) Tenant shall deliver promptly to Landlord true and
complete copies of all notices received by Tenant from any
governmental authority with respect to the use, generation, storage
or disposal by Tenant of Hazardous Materials at, to or from the
Premises and shall immediately notify Landlord both by telephone and
in writing of any unauthorized discharge of Hazardous Materials or
of any condition that poses an imminent hazard to the Property, the
public or the environment.
(iv) Tenant shall complete fully, truthfully and promptly any
questionnaire sent by Landlord with respect to Tenant's use of the
Premises and its use, generation, storage and disposal of Hazardous
Materials at, to or from the Premises.
(v) Tenant shall permit entry onto the Premises by Landlord or
Landlord's representatives at any reasonable time to verify and
monitor Tenant's compliance with its covenants set forth in this
Paragraph 7.7 and to perform other environmental inspections of the
Premises.
(vi) If Landlord conducts any environmental inspections
because it has reason to believe that Tenant's activities have or
are likely to result in a violation of Environmental Laws or a
release of Hazardous Materials on the Property, then Tenant shall
pay to Landlord, as additional rent the costs Incurred by Landlord
for such Inspections.
(vii) Tenant shall cease immediately upon notice from Landlord
any activity which violates or creates a risk of violation of any
Environmental Laws.
(viii) After notice to and approval by Landlord, Tenant shall
promptly
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remove, clean-up, dispose of or otherwise remediate, in accordance
with Environmental Laws and good commercial practice, any Hazardous
Materials on, under or about the Property resulting from Tenant's
activities on the Property.
(b) Indemnification. Tenant shall indemnify, defend with counsel
acceptable to Landlord and hold Landlord harmless from and against any claims,
damages, costs, liabilities or losses (including, without limitation, any
decrease in the value of the Property, loss or restriction of any area of the
Property, and adverse impact of the marketability of the Property or Premises)
arising out of Tenant's use, generation, storage or disposal of Hazardous
Materials at, to or from the Premises.
(c) Definitions. Hazardous Materials shall include but not be
limited to substances defined as "hazardous substances", "toxic substances", or
"hazardous wastes" in the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended; the federal Hazardous
Materials Transportation Act, as amended; and the federal Resource Conservation
and Recovery Act, as amended; those substances defined as "hazardous
substances", "materials", or "wastes" under the law of the state in which the
Premises are located; and as such substances are defined in any regulations
adopted and publications promulgated pursuant to said laws ("Environmental
Laws"); materials containing asbestos or urea formaldehyde; gasoline and other
petroleum products; flammable explosives; radon and other natural gases; and
radioactive materials.
(d) Survival. The obligations of Tenant in this Paragraph 7.7 shall
survive the expiration or termination of this Lease.
7.8 Americans With Disabilities Act. Tenant shall comply with the
Americans with Disabilities Act of 1990 ("ADA") and the regulations promulgated
thereunder. Tenant hereby expressly assumes all responsibility for compliance
with the ADA relating to the Premises and the activities conducted by Tenant
within the Premises. Any Alterations to the Premises made by Tenant for the
purpose of complying with the ADA or which otherwise require compliance with the
ADA shall be done in accordance with this Lease; provided, that Landlord's
consent to such Alterations shall not constitute either Landlord's assumption,
in whole or in part, of Tenant's responsibility for compliance with the ADA, or
representation or confirmation by Landlord that such Alterations comply with the
provisions of the ADA.
ARTICLE VIII DEFAULT
8.1 Default. The occurrence of any one or more of the following events
shall constitute a default hereunder by Tenant:
(a) The failure by Tenant to make any payment of Base Rent or
additional rent or any other payment required hereunder, as and when due, where
such failure shall continue for a period of five (5) days after written notice
thereof from Landlord to Tenant; provided, that Landlord shall not be required
to provide such notice more than twice during the Term with respect to
non-payment of Rent, the third such non-payment constituting a default without
requirement of notice:
(b) The vacating or abandonment of the Premises. Tenant shall be
deemed
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to have abandoned the Premises if the Premises remain substantially vacant or
unoccupied for a period of thirty (30) days;
(c) The failure by Tenant to observe or perform any of the express
or implied covenants or provisions of this Lease to be observed or performed by
Tenant, other than as specified in clauses (a) and (b) above, where such failure
shall continue for a period of more than thirty (30) days after written notice
thereof from Landlord to Tenant; provided, however, that if the nature of
Tenant's default is such that more than thirty (30) days are reasonably required
for its cure, then Tenant shall not be deemed to be in default if Tenant
commences such cure within said thirty (30) day period, diligently prosecutes
such cure to completion, and completes such cure no later than sixty (60) days
from the date of such notice from Landlord;
(d) The failure by Tenant, Guarantor (if any), or any present or
future guarantor of all or any portion of Tenant's obligations under this Lease
to pay its debts as they become due, or Tenant or any such Guarantor (if any)
becoming insolvent, filing or having flied against it a petition under any
chapter of the United States Bankruptcy Code, 11 U.S.C. Paragraph 101 et seq.
(or any similar petition under any insolvency law of any jurisdiction) and such
petition is not dismissed within sixty (60) days thereafter, proposing any
dissolution, liquidation, composition, financial reorganization or
recapitalization with creditors, making an assignment or trust mortgage for the
benefit of creditors, or if a receiver, trustee, custodian or similar agent is
appointed or takes possession with respect to any property or business of Tenant
or Guarantor (if any); or
(e) If the leasehold estate under this Lease or any substantial part
of the property or assets of Tenant or of Guarantor of this leasehold is taken
by execution, or by other process of law, or is attached or subjected to any
involuntary encumbrance if such attachment or other seizure remains undismissed
or undischarged for a period of ten business (10) days after the levy thereof.
8.2 Remedies of Landlord and Calculation of Damages.
(a) Remedies. In the event of any default by Tenant, whether or not
the Term shall have begun, in addition to any other remedies available to
Landlord at law or in equity, Landlord may, at its option and without further
notice exercise any or all of the following remedies:
(i) Terminate the Lease and upon notice to Tenant of
termination of the Lease all rights of Tenant hereunder shall
thereupon come to an end as fully and completely as if the date such
notice is given were the date originally fixed for the expiration of
the Term, and Tenant shall then quit and surrender the Premises to
Landlord and Landlord shall have the right, without judicial
process, to re-enter the Premises. No such expiration or termination
of the Lease shall relieve Tenant of its liability and obligation
under the Lease,
(ii) Enter the Premises and cure any default by Tenant and in
so doing, Landlord may make any payment of money or perform any
other act. All sums so paid by Landlord, and all incidental costs
and expenses, including reasonable attorneys' fees, shall be
considered additional rent under this Lease and shall be payable to
Landlord immediately on demand, together with interest from the date
of demand to the date of payment at the maximum lawful rate
permitted to be
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charged by Landlord.
(b) Calculation of Damages. If this Lease is terminated as provided
in Paragraph 8.2 or otherwise, Tenant, until the end of the Term, or what would
have been such Term in the absence of any such event, shall be liable to
Landlord, as damages for Tenant's default, for the amount of the Base Rent and
all additional rent and other charges which would be payable under this lease by
Tenant if this Lease were still in effect, less the net proceeds of any
reletting of the Premises actually collected by Landlord after deducting all
Landlord's expenses in connection with such reletting, Including, without
limitation, all repossession costs, brokerage and management commissions,
operating expenses, legal expenses, reasonable attorneys' fees, alteration costs
and expenses of preparation of the Premises for such reletting. Tenant shall pay
such damages to Landlord monthly on the days on which the Base Rent would have
been payable as if this Lease were still in effect, and Landlord shall be
entitled to recover from Tenant such damages monthly as the same shall arise. In
lieu of the foregoing computation of damages, Landlord may elect, at its sole
option, to receive liquidated damages in one payment equal to the total amount
of Base Rent and additional rent reserved in this Lease from the date of default
to the date of expiration of the Term discounted at a fixed annual interest rate
equal to the Prime Rate plus 2%. The Prime Rate shall be the prime rate
published in the Wall Street Journal on the date of Landlord's election to
accelerate the rents hereunder. Whether or not the Lease is terminated, Landlord
shall in no way be responsible or liable for any failure to relet the Premises
or for any failure to collect any rent upon such reletting.
(c) No Limitations. Nothing contained in this Lease shall limit or
prejudice the right of Landlord to prove for and obtain in proceedings for
bankruptcy or insolvency by reason of the termination of this Lease, an amount
equal to the maximum allowed by any statute or rule of law in effect at the time
when, and governing the proceedings in which, the damages are to be provided,
whether or not the amount be greater, equal to, or less than the amount of the
loss or damages referred to above.
(d) Cumulative Remedies. Landlord's remedies under this Lease are
cumulative and not exclusive of any other remedies to which Landlord may be
entitled in case of Tenant's default or threatened default under this Lease,
including, without limitation, the remedies of injunction and specific
performance.
ARTICLE IX CASUALTY AND EMINENT DOMAIN
9.1 Casualty.
(a) Casualty in General. If, during the Term, the Premises or the
Property, or any part thereof, is wholly or partially damaged or destroyed by
fire or other casualty, and the casualty renders the Premises totally or
partially Inaccessible or unusable by Tenant in the ordinary conduct of Tenant's
business, then Landlord shall, within thirty (30) days of the date of the
damage, give Tenant a notice ("Damage Notice") stating whether, according to
Landlord's good faith estimate, the damage can be repaired within one hundred
eighty (180) days from the date of damage ("Repair Period"), without the payment
of overtime or other premiums. The parties' rights and obligations shall then be
governed according to whether the casualty is an Insured Casualty or an
Uninsured Casualty as set forth in the following Paragraphs.
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(b) Insured Casualty. If the casualty results from a risk, the loss
to Landlord from which is fully covered by insurance maintained by Landlord or
for Landlord's benefit (except for any deductible amount), it shall be an
"Insured Casualty" and governed by this Paragraph 9.1(b). In such event, if the
Damage Notice states that the repairs can be completed within the Repair Period
without the payment of overtime or other premiums, then Landlord shall promptly
proceed to make the repairs, this Lease shall remain in full force and effect,
and Base Rent shall be reduced, during the period between the casualty and
completion of the repairs, in proportion to the portion of the Premises that is
inaccessible or unusable during that period and which is, in fact, not utilized
by Tenant Base Rent shall not be reduced by reason of any portion of the
Premises being unusable or inaccessible for a period of five (5) business days
or less. If the Damage Notice states that the repairs cannot, in Landlord's
estimate, be completed within the Repair Period without the payment of overtime
or other premiums, then either party may, terminate this Lease by written notice
given to the other within thirty (30) days after the giving of the Damage
Notice. If either party elects to terminate this Lease, the lease shall
terminate as of the date of the occurrence of such damage or destruction and
Tenant shall vacate the Premises five (5) business days from the date of the
written notice terminating the Lease. if neither party so terminates, then this
Lease shall remain in effect, Landlord shall make repairs, and Base Rent shall
be proportionately reduced as set forth above during the period when the
Premises is inaccessible or unusable and is not used by Tenant.
(c) Uninsured Casualty. If the casualty is not an Insured Casualty
as set forth in the previous Paragraph, it shall be an "Uninsured Casualty"
governed by this Paragraph 9.1(c). In such event, if the Damage Notice states
that the repairs can be completed within the Repair Period without the payment
of overtime or other premiums, Landlord may elect, by written notice given to
Tenant within thirty (30) days after the Damage Notice, to make the repairs, in
which event this Lease shall remain in effect and Base Rent shall be
proportionately reduced as set forth above. If Landlord does not so elect to
make the repairs, or if the Damage Notice states that the repairs cannot be made
within the Repair Period, this Lease shall terminate as of the date of the
casualty and Tenant shall vacate the Premises five (5) business days from the
date of Landlord's written notice to Tenant terminating the Lease.
(d) Casualty Within Final Six Months of Term. Notwithstanding
anything to the contrary contained in this Paragraph 9.1, if the Premises or the
Building is wholly or partially damaged or destroyed within the final six (6)
months of the Term of this Lease, Landlord shall not be required to repair such
casualty and either Landlord or Tenant may elect to terminate this Lease.
(e) Tenant Improvements and Alterations. If Landlord elects to
repair after a casualty in accordance with this Paragraph 9.1, Landlord shall
cause Tenant Improvements and Alterations which Landlord has approved, to be
repaired and restored at Landlord's sole expense. Landlord shall have no
responsibility for any personal property placed or kept in or on the Premises or
the Building by Tenant or Tenant's agents, employees, invitees or contractors
and Landlord shall not be required to repair any damage to, or make any repairs
to or replacements of, Tenant's personal property.
(f) Exclusive Remedy. This Paragraph 9.1 shall be Tenants sole and
exclusive remedy in the event of damage or destruction to the Premises or the
Building. No damages, compensation or claim shall be payable by Landlord for any
inconvenience, any
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interruption or cessation of Tenant's business, or any annoyance, arising from
any damage to or destruction of all or any portion of the Premises or the
Building.
(g) Waiver of Subrogation. Landlord and Tenant shall use reasonable
efforts to cause each insurance policy obtained by each of them to provide that
the insurer waives all right of recovery by way of subrogation against either
Landlord or Tenant in connection with any loss or damage covered by such policy.
9.2 Eminent Domain.
(a) Eminent Domain In General. If the whole of the Premises, or so
much of the Premises as to render the balance unusable by Tenant, shall be taken
or appropriated under the power of eminent domain or condemnation (a "Taking"),
either Landlord or Tenant may terminate this Lease and the termination date
shall be the date of the Order of Taking, or the date possession is taken by the
Taking authority, whichever is earlier. If any part of the Property is the
subject of a Taking and such Taking materially affects the normal operation of
the Building or Common Areas, Landlord may elect to terminate this Lease. A sale
by Landlord under threat of a Taking shall constitute a Taking for the purpose
of this Paragraph 9.2. No award for any partial or entire Taking shall be
apportioned. Landlord shall receive (subject to the rights of Landlord's
mortgagees) and Tenant hereby assigns to Landlord any award which may be made
and any other proceeds in connection with such Taking, together with all rights
of Tenant to such award or proceeds, including, without limitation, any award or
compensation for the value of all or any part of the leasehold estate; provided
that nothing contained in this Paragraph 9.2(a) shall be deemed to give Landlord
any interest in or to require Tenant to assign to Landlord any separate award
made to Tenant for (i) the taking of Tenant's personal property, or (ii)
interruption of or damage to Tenant's business, or (iii) Tenant's moving and
relocation costs.
(b) Reduction in Base Rent. In the event of a Taking which does not
result in a termination of the Lease, Base Rent shall be proportionately reduced
based on the portion of the Premises rendered unusable, and Landlord shall
restore the Premises or the Building to the extent of available proceeds or
awards from such Taking. Landlord shall not be required to repair or restore any
damage to Tenant's personal property or any Alterations.
(c) Sole Remedies. This Paragraph 9.2 sets forth Tenants and
Landlord's sole remedies for Taking. Upon termination of this Lease pursuant to
this Paragraph 9.2, Tenant and Landlord hereby agree to release each other from
any and all obligations and liabilities with respect to this Lease except such
obligations and liabilities which arise or accrue prior to such termination.
ARTICLE X RIGHTS OF PARTIES HOLDING SENIOR INTERESTS
10.1 Subordination. This Lease shall be subject and subordinate to any and
all mortgages, deeds of trust and other instruments in the nature of a mortgage,
ground lease or other matters or record ("Senior interests") which now or at any
time hereafter encumber the Property and Tenant shall, within twenty (20) days
of Landlord's request, execute and deliver to Landlord such recordable written
instruments as shall be necessary to show the subordination of this Lease to
such Senior Interests. Notwithstanding the foregoing, if any holder of a Senior
Interest succeeds to the interest of Landlord under this Lease, then, at the
option of such holder,
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this Lease shall continue in full force and effect and Tenant shall attorn to
such holder and to recognize such holder as its landlord.
This Lease is also subject to the Declaration of the Condominium
dated March 29, 1985, amended March 21, 1989, and to the Rules and Regulations
of the Condominium Association.
10.2 Mortgagee's Consent. No assignment of the Lease and no agreement to
make or accept any surrender, termination or cancellation of this Lease and no
agreement to modify so as to reduce the Rent, change the Term, or otherwise
materially change the rights of Landlord under this Lease, or to relieve Tenant
of any obligations or liability under this Lease, shall be valid unless
consented to by Landlord's mortgagees of record, if any.
ARTICLE XI GENERAL
11.1 Representations by Tenant. Tenant represents and warrants that any
financial statements provided by it to Landlord were true, correct and complete
when provided, and that no material adverse change has occurred since that date
that would render them inaccurate or misleading. Tenant represents and warrants
that those persons executing this Lease on Tenant's behalf are duly authorized
to execute and deliver this Lease on its behalf, and that this Lease is binding
upon Tenant in accordance with its terms, and simultaneously with the execution
of this Lease, Tenant shall deliver evidence of such authority to Landlord in
form satisfactory to Landlord.
11.2 Notices. Any notice required or permitted hereunder shall be in
writing. Notices shall be addressed to Landlord c/o Managing Agent at Managing
Agent's Address and to Tenant at Tenant's Address. Any communication so
addressed shall be deemed duly given when delivered by hand, one day after being
sent by Federal Express (or other guaranteed one day delivery service) or three
days after being sent by registered or certified mail, return receipt requested.
Either party may change its address by giving notice to the other.
11.3 No Waiver or Oral Modification. No provision of this Lease shall be
deemed waived by Landlord or Tenant except by a signed written waiver. No
consent to any act or waiver of any breach or default, express or implied, by
Landlord or Tenant, shall be construed as a consent to any other act or waiver
of any other breach or default.
11.4 Severability. If any provision of this Lease, or the application
thereof in any circumstances, shall to any extent be invalid or unenforceable,
the remainder of this Lease shall not be affected thereby, and each provision
hereof shall be valid and enforceable to the fullest extent permitted by law.
11.5 Requests by Tenant. Tenant shall pay, on demand, all costs incurred
by Landlord, including without limitation reasonable attorneys' fees, in
connection with any matter requiring Landlord's review or consent or any other
requests made by Tenant under this Lease, regardless of whether such request is
granted by Landlord.
11.6 Estoppel Certificate and Financial Statements.
(a) Estoppel Certificate. Within ten (10) days after written request
by Landlord,
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Tenant shall execute, acknowledge and deliver to Landlord a written statement
certifying (i) that this Lease is unmodified and in full force and effect, or is
in full force and effect as modified and stating the modifications; (ii) the
amount of Base Rent and the date to which Base Rent and additional rent have
been paid in advance; (iii) the amount of any security deposited with Landlord;
and (iv) that Landlord is not in default hereunder or, if Landlord is claimed to
be in default, stating the nature of any claimed default, and (v) such other
matters as may be reasonably requested by Landlord. Any such statement may be
relied upon by a purchaser, assignee or lender. Tenant's failure to execute and
deliver such statement within the time required shall be a default under this
Lease and shall also be conclusive upon Tenant that this Lease is in full force
and effect and has not been modified except as represented by Landlord; and
there are no uncured defaults in Landlord's performance and Tenant has no right
of offset, counterclaim or deduction against rent
(b) Financial Statements. Tenant shall, without charge therefor, at
any time, within ten (10) days following a request by Landlord, deliver to
Landlord, or to any other party designated by Landlord, a true and accurate copy
of Tenant's most recent financial statements. All requests made by Tenant
regarding renewals or expansions must be accompanied by Tenant's most recent
financial statements. All requests made by Tenant regarding subleases, or
assignments must be accompanied by Tenant's prospective subtenant's and
prospective assignee's most recent financial statements.
11.7 Waiver of Liability. Landlord and Tenant each hereby waive all rights
of recovery against the other and against the officers, employees, agents, and
representatives of the other, on account of loss by or damage to the waiving
party or its property or the property of others under its control, to the extent
that such loss or damage is insured against under any insurance policy that
either may have in force at the time of the loss or damage. Each party shall
notify its insurers that the foregoing waiver is contained in this Lease.
11.8 Execution, Prior Agreements and No Representations. This Lease shall
not be binding and enforceable until executed by authorized representatives of
Landlord and Tenant. This Lease contains all of the agreements of the parties
with respect to the subject matter hereof and supersedes all prior dealings,
whether written or oral, between them with respect to such subject matter. Each
party acknowledges that the other has made no representations or warranties of
any kind except as may be specifically set forth in this Lease.
11.9 Brokers. Each party represents and warrants that it has not dealt
with any real estate broker or agent in connection with this Lease or its
negotiation except Broker. Each party shall indemnify the other and hold it
harmless from any cost, expense, or liability (including costs of suit and
reasonable attorneys' fees) for any compensation, commission or fees claimed by
any other real estate broker or agent in connection with this Lease or its
negotiation by reason of any act or statement of the indemnifying party.
11.10 Successors and Assigns. This Lease shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that only the original Landlord named herein shall
be liable for obligations accruing before the beginning of the Term, and
thereafter the original Landlord named herein and each successive owner of the
Premises shall be liable only for obligations accruing during the period of
their respective ownership.
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11.11 Applicable Law and Lease Interpretation. This Lease shall be
construed, governed and enforced according to the laws of the state in which the
Property is located. In construing this Lease, Paragraph headings are for
convenience only and shall be disregarded. Any recitals herein or exhibits
attached hereto are hereby incorporated into this Lease by this reference. Time
is of the essence of this Lease and every provision contained herein. The
parties acknowledge that this Lease was freely negotiated by both parties, each
of whom was represented by counsel; accordingly, this Lease shall be construed
according to the fair meaning of its terms, and not against either party.
11.12 Costs of Collection, Enforcement and Disputes. Tenant shall pay all
costs of collection, including reasonable attorneys' fees, incurred by Landlord
in connection with any default by Tenant. If either Landlord or Tenant
institutes any action to enforce the provisions of this Lease or to seek a
declaration of rights hereunder, the prevailing party shall be entitled to
recover its reasonable attorneys' fees and court costs as part of any award.
Landlord and Tenant hereby waive trial by jury in any action, proceeding or
counterclaim brought by either of the parties hereto against the other, on or in
respect to any matter whatsoever arising out of or in any way connected with
this Lease, the relationship of Landlord and Tenant hereunder, Tenant's use or
occupancy of the Premises, and/or claim of injury or damage.
11.13 Holdover. If Tenant holds over in occupancy of the Premises after
the expiration of the Term, Tenant shall, at the election of Landlord (i) become
a tenant at sufferance only on a month-to-month basis subject to the terms and
conditions herein specified, so far as applicable; or (ii) be deemed to have
renewed this Lease for a one year period under the terms and conditions herein
specified, so far as applicable. In either case, Tenant shall pay rent during
the holdover period, at a base rental rate equal to twice the Base Rent in
effect at the end of the Term. Tenant shall also be liable for all damages
sustained by Landlord on account of such holding over.
11.14 Force Majeure. If Landlord or Tenant is prevented from or delayed in
performing any act required of it hereunder, and such prevention or delay is
caused by strikes, labor disputes, inability to obtain labor, materials, or
equipment, inclement weather, acts of God, governmental restrictions,
regulations, or controls, judicial orders, enemy or hostile government actions,
civil commotion, fire or other casualty, or other causes beyond such party's
reasonable control ("Force Majeure"), the performance of such act shall be
excused for a period equal to the period of prevention or delay. A party's
financial inability to perform its obligations shall in no event constitute
Force Majeure. Nothing in this Paragraph 11.14 shall excuse or delay Tenant's
obligation to pay any rent or other charges due under this Lease.
11.15 Limitation On Liability. Landlord, and its partners, directors,
officers, shareholders, trustees or beneficiaries, shall not be liable to Tenant
for any damage to or loss of personal property in, or to any personal injury
occurring in, the Premises, unless such damage, loss or injury is the result of
the gross negligence of Landlord or its agents as determined by a final
non-appeal judicial proceeding. The obligations of Landlord under this Lease do
not constitute personal obligations of the individual partners, directors,
officers, shareholders, trustees or beneficiaries of Landlord, and Tenant shall
not seek recourse against the partners, directors, officers, shareholders,
trustees or beneficiaries of Landlord, or any of their personal assets for
satisfaction of any liability with respect to this Lease. In the event of any
default by Landlord under this Lease, Tenant's sole and exclusive remedy shall
be against the Landlord's interest in
24
<PAGE>
the Property.
11.16 Notice of Landlord's Default. The failure by Landlord to observe or
perform any of the express or implied covenants or provisions of this Lease to
be observed or performed by Landlord shall not constitute a default by Landlord
unless such failure shall continue for a period of more than thirty (30) days
after written notice thereof from Tenant to Landlord specifying Landlord's
default; provided, however, that if the nature of Landlord's default as such
that more than thirty (30) days are reasonably required for its cure, then
Landlord shall not be deemed to be in default if Landlord commences such cure
within said thirty (30) day period and diligently prosecutes such cure to
completion. Tenant shall, simultaneously with delivery to Landlord, provide
written notice specifying the Landlord default to the holder of any first
mortgage or deed of trust covering the Premises whose name and address have been
furnished to Tenant in writing.
11.17 Lease not to be Recorded. Tenant agrees that it will not record this
Lease. Both parties shall, upon the request of either, execute and deliver a
notice or short form of this Lease in such form, if any, as may be permitted by
applicable statute. If this Lease is terminated before the Term expires the
parties shall execute, deliver and record an instrument acknowledging such fact
and the actual date of termination of this Lease, and Tenant hereby appoints
Landlord its attorney-in-fact, coupled with an interest, with full power of
substitution to execute such instrument.
11.18 Security Deposit. Upon the execution and delivery of this Lease,
Tenant shall pay to Landlord the Security Deposit, which shall be held as
security for Tenant's performance as herein provided and refunded to the Tenant
at the end of the Term subject to the Tenant's satisfactory compliance with the
conditions hereof. The Security Deposit may be commingled with other funds of
Landlord and no interest shall accrue thereon or be payable by Landlord with
respect to the Security Deposit. If all or any part of the Security Deposit is
applied to an obligation of Tenant hereunder, Tenant shall immediately upon
request by Landlord restore the Security Deposit to its original amount.
11.19 Guaranty of Lease. INTENTIONALLY OMITTED.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease, which
includes the cover sheet, the foregoing Standard Provisions, Additional
Provisions, if any, and Exhibits attached to this Lease, with the intent that
each of the parties shall be legally bound thereby and that this Lease shall
become effective as of the Date of Lease.
TENANT;
By: /s/ Kenneth W. Carter
-----------------------------
Name: KENNETH W. CARTER
-----------------------------
Title: PRESIDENT
-----------------------------
Date: 2/27/98
-----------------------------
25
<PAGE>
LANDLORD
METROPOLITAN LIFE INSURANCE COMPANY, by
AEW Real Estate Advisors, Limited
Partnership, its duly authorized
investment manager
By: /s/ Iphigenia Demetricole
-----------------------------
Name: Iphigenia Demetricole
-----------------------------
Title: Vice President
-----------------------------
Date: March 3, 1998
-----------------------------
26
<PAGE>
FIRST AMENDMENT TO LEASE
This First Amendment to Lease is entered into as of the 13th day of
August, 1999 (being the date of Landlord's execution of this Amendment) by and
between Metropolitan Life Insurance Company ("Landlord") and Focus
Communications, Inc. ("Tenant"). Any capitalized terms not defined herein shall
have the same meanings as are prescribed therefor in the Lease, as hereinafter
defined.
Whereas Tenant and Landlord entered into a certain Lease dated March 3,
1998 (the "Lease"), pursuant to which Tenant occupies the leased premises in Elm
Place, Dallas, Texas known as Suite 1900; and
Whereas Tenant wishes to expand the leased premises to include the
premises known as Suite 1955 and extend the term of the Lease, all subject to
the terms and conditions set forth in this Amendment;
Now therefore, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Landlord and Tenant hereby agree as follows:
1. The expiration date of the Term of the Lease with respect to Suite
1900 is hereby extended from March 15, 2003 to March 31, 2003.
2. Effective as of the Suite 1955 Commencement Date, as hereinafter
defined, the Premises under the Lease is expanded to include Suite
1955, containing approximately 1,353 rentable square feet of space
and the first sentence of the definition of "Premises" as set forth
in Part I of the Lease shall be amended to read as follows: "The
area consisting of approximately 3,548 rentable square feet (being
Suites 1900 and 1955) located on the 19th floor of the Building, as
shown on Exhibits A and A-1 attached." Also effective as of the
Suite 1955 Commencement Date, Exhibit A-1 as attached to this
Amendment shall be inserted after Exhibit A in the Lease.
Except as otherwise set forth herein, the terms and provisions of
the Lease shall apply to Suite 1955.
3. The term of the Lease with respect to Suite 1955 shall commence on
the date the Tenant improvements (as hereinafter defined) are
completed (the "Suite 1955 Commencement Date"), and shall expire on
March 31, 2003.
1
<PAGE>
4. Effective as of the Suite 1955 Commencement Date, Tenant shall pay
(in addition to and simultaneously with Tenant's payment of Base
Rent under the Lease for Suite 1900), Base Rent for Suite 1955
pursuant to the following schedule:
- --------------------------------------------------------------------------------
Months Monthly Base Rent Annualized Base Rent Base Rent p.s.f.
- --------------------------------------------------------------------------------
1st - 03/2003 $1,634.88 $19,618.50 $14.50
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In addition to the foregoing, effective as of the Suite 1955
Commencement Date, Tenant shall pay Tenant's Share of Expenses for
Suite 1955 in accordance with the provisions of Section 3.2 of the
Lease, provided, however, that with respect to Suite 1955, the Base
Year shall be calendar year 1999.
5. In addition to the foregoing, effective as of the Suite 1955
Commencement Date, Tenant shall pay Tenant's Pro-Rata Share of
Electricity Costs for Suite 1955, as hereinafter defined.
For purposes of this Paragraph 5, "Tenant's Pro-Rata Share of
Electricity Costs for Suite 1955" shall mean the cost of electricity
to the Building times a fraction the numerator of which shall be
equal to the number of rentable square feet of space in Suite 1955
and the denominator of which shall be the total number of rentable
square feet of space leased in the Building. Landlord shall deliver
to Tenant monthly, in arrears, an invoice for Tenant's Pro-Rata
Share of Electricity Costs for Suite 1955, and Tenant shall make
payment of such amount to Landlord within fifteen (15) days of
delivery of such invoice. Tenant shall be responsible for payment of
Tenant's Pro-Rata Share of Electricity Costs for Suite 1855 up to
and including the termination of Tenant's lease of Suite 1955,
regardless of whether the same has been billed to Tenant at the time
of such termination, provided that Landlord shall deliver to Tenant
within sixty (60) days of such termination an invoice for Tenant's
Pro-Rata Share of Electricity Costs for Suite 1955 up to and
including the date of such termination.
6. Tenant and Landlord hereby acknowledge that this Amendment
constitutes Tenant's exercise of its Right of First Refusal pursuant
to AP2 of the Lease.
7. Effective as of the Suite 1955 Commencement Date, Tenant shall be
entitled to use one (1) additional Parking Space, pursuant to
Section 1.2 of the Lease, and the first sentence of the definition
of "Parking Spaces" as set forth in Part I of the Lease shall be
amended to read as follows:
2
<PAGE>
"Two spaces in the parking garage associated with the Building."
8. Upon the execution and delivery of this Amendment, Tenant shall pay
to Landlord, as an additional security deposit with respect to Suite
1955, the sum of $1,634.88, which shall be added to and treated as
part of the Security Deposit pursuant to Section 11.18 of the Lease,
whereupon the definition of "Security Deposit" as set forth in Part
I of the Lease shall be amended to read as follows: "$3,829.88".
9. Tenant hereby accepts possession of Suite 1955 in its "AS-IS"
condition, except as follows:
Landlord will, at its expense, construct the following tenant
improvements (the "Tenant Improvements") in Suite 1955, using
building standard materials:
o Recarpet and repaint Suite 1955.
o Install a passage door between Suites 1900 and 1955.
Notwithstanding the foregoing, Landlord's payment of expenses in
connection with the Tenant improvements shall not exceed $6,765.00.
If the cost of the Tenant improvements exceeds $6,765.00, Tenant
shall reimburse Landlord for any excess, and if Tenant requests any
improvements other than those listed above, Tenant shall pay for
such improvements.
10. The Term of the Lease, with respect to the entire Premises, is
hereby extended for a one-year term commencing on April 1, 2003 and
ending on March 31, 2004 (the "Extended Term").
11. During the Extended Term, Tenant shall pay Base Rent for the entire
Premises pursuant to the following schedule:
- --------------------------------------------------------------------------------
Months Monthly Base Rent Annualized Base Rent Base Rent p.s.f.
- --------------------------------------------------------------------------------
03/2003 - 03/2004 $4,287.17 $51,446.00 $14.50
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In addition to the foregoing, during the Extended Term, Tenant shall
pay Tenant's Share of Expenses for the entire Premises in accordance
with the provisions of Section 3.2 of the Lease, provided, however,
that with respect to Suite 1955, the Base Year shall be calendar
year 1999, and with respect to Suite 1900, the Base Year continue to
be calendar year 1998.
12. In addition to the foregoing, during the Extended Term, Tenant shall
pay Tenant's Pro-Rata Share of Electricity Costs, as hereinafter
defined, for the
3
<PAGE>
entire Premises.
For purposes of this Paragraph 12, "Tenant's Pro-Rata Share of
Electricity Costs" shall mean the cost of electricity to the
Building times a fraction the numerator of which shall be equal to
the number of rentable square feet of space in the entire Premises
and the denominator of which shall be the total number of rentable
square feet of space leased in the Building. Landlord shall deliver
to Tenant monthly, in arrears, an invoice for Tenant's Pro-Rata
Share of Electricity Costs, and Tenant shall make payment of such
amount to Landlord within fifteen (15) days of delivery of such
invoice. Tenant shall be responsible for payment of Tenant's
Pro-Rata Share of Electricity Costs up to and including the
termination of Tenant's lease of the Premises, regardless of whether
the same has been billed to Tenant at the time of such termination,
provided that Landlord shall deliver to Tenant within sixty (60)
days of such termination an invoice for Tenant's Pro-Rata Share of
Electricity Costs up to and including the date of such termination.
13. Tenant and Landlord hereby acknowledge that Tenant's rights pursuant
to the Option to Extend set forth in AP1 of the Lease are not
affected by this Amendment, except that, effective as of April 1,
2003, the phrase "Initial Term" as used in AP1 shall mean the
Extended Term.
14. Except as amended hereby, the terms and conditions of the Lease are
hereby ratified and confirmed, and shall remain in full force and
effect.
This Amendment contains the entire agreement of the parties with respect
to the matters contained herein and supersedes any and all prior dealings
between the parties with respect to such matters.
IN WITNESS WHEREOF, Landlord and Tenant have executed this First Amendment
to Lease as of the date first above set forth.
TENANT:
FOCUS COMMUNICATIONS, INC.
By: /s/ Kenneth W. Carter
-------------------------------
Name: Kenneth W. Carter
Title: President & CEO
Date: 8/13/99
4
<PAGE>
LANDLORD:
METROPOLITAN LIFE INSURANCE COMPANY
By: /s/ David G. Rogers
-------------------------------
Name: David G. Rogers
Title: Assistant Vice President
Date: 9-20-99
5
<PAGE>
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT (the "Sublease") is made and entered this 13th day
of August, 1999, by and between FOCUS COMMUNICATIONS, INC., a Texas corporation
(the "Tenant") and URBAN COOL NETWORK, INC., a Delaware corporation.
RECITALS
WHEREAS, FOCUS COMMUNICATIONS, INC., is the Tenant of certain office
leasehold premises located at 1401 Elm Place, Suite 1900, Dallas, Texas 75202
(the "Leased Premises"), leased from Metropolitan Life Insurance Company, a New
York corporation (the "Landlord"), under that certain Lease dated March 3, 1998
(the "Lease").
WHEREAS, pursuant to that certain First Amendment to Lease dated _____ __,
1999 (the "First Amendment") by and between Tenant and Landlord, Tenant expanded
the Leased Premises to include adjacent office space currently referred to as
Suite 1955 ("Suite 1955") and extended the term of the Lease, all subject to the
terms and conditions of the Lease as amended by the First Amendment.
WHEREAS, URBAN COOL NETWORK, INC. (hereinafter the "Sublessee"), desires
to sublease from FOCUS COMMUNICATIONS, INC. (hereinafter the "Sublessor"), the
area referred to as Suite 1955 and has requested Sublessor amend its Lease and
acquire said additional space to in turn sublease to Sublessee.
WHEREAS, but for Sublessee's request, Sublessor would not acquire the
additional space herein described as Suite 1955, but, is willing to acquire and
sublease said premises to Sublessee pursuant to the terms and conditions of this
Sublease, subject to the Lease and First Amendment thereof.
NOW THEREFORE, for and in consideration of the mutual promises and
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
Sublessor and Sublessee agree as follows:
1. Recitals. Recitals form, constitute and shall be considered a material
part of this Sublease between Tenant, as Sublessor, and URBAN COOL NETWORK,
INC., as Sublessee.
2. Term of Sublease and Premises. The Term of this Sublease will begin on
the date Tenant Improvements for Suite 1955 (as defined in the First Amendment)
are completed and shall end on March 30, 2003. The sublease premises shall be
the area referred to as Suite 1955 containing approximately 1,353 rentable
square feet of space, as more particularly described in the First Amendment (the
"Sublease Premises").
3. Use of Premises. These Sublease Premises may be used for only such
purposes as set forth in the Lease or such purpose not set forth therein that is
first approved by the Landlord and then approved by Sublessor, in writing.
Page 1
<PAGE>
4. Rent, Costs and Expenses. Sublessee agrees to pay Sublessor or directly
to Landlord, as may be determined by Sublessor, the monthly base rent as set
forth in the First Amendment. In addition, Sublessee hereby agrees to pay
Sublessor or directly to Landlord, as may be determined by Sublessor, its
pro-rata share of costs and common area maintenance expenses, if any, associated
with the Sublease Premises as set forth in the Lease and First Amendment
thereto.
5. Security Deposit. Sublessee has deposited One thousand six hundred
thirty four & eighty eight cents. Dollars ($1634.88) with Sublessor, to secure
Sublessee's performance under this Sublease. This Security Deposit will be held
by Sublessor, or directly by Landlord, as may be required under the original
Lease except that (a) the Term of the Lease shall refer to the Term of this
Sublease and (b) the term "Tenant" shall refer to "Sublessee."
6. Notice. All notices between Sublessor and Sublessee are to be sent by
certified or registered mail, return receipt requested.
7. Original Lease and First Amendment. This Sublease is subject to the
terms and conditions of the original Lease and First Amendment thereto between
Tenant and Landlord. In the event of a conflict between this Sublease and the
Lease and First Amendment, the Lease and First Amendment shall control.
8. Original Landlord's Duties. Should Landlord fail to perform under the
original Lease, Sublessor shall not be required, obliged, or be under any duty
to perform. Sublessee must notify Sublessor of Landlord's failure to perform,
and Sublessor shall demand of Landlord that the agreements in the original
Lease, as amended, be carried out.
9. Landlord's Consent. Landlord's consent to this Sublease must be
received in writing prior to Sublessor/Tenant's execution of the First
Amendment. Failure to obtain such consent shall automatically, ipso facto,
render this Sublease void, releasing all parties and refunding all payments to
Sublessee.
10. Sublessee' Indemnification. From and after the effective date hereof,
Sublessee agrees to indemnify, defend and hold harmless the Tenant/Sublessor,
its subsidiaries, affiliates, officers, directors, employees, agents,
representatives, attorneys and each of their respective successors, heirs and
assigns, from and against any and all demands, claims, causes of action, losses,
damages, liabilities, penalties, costs and expenses (including attorney's fees)
arising from the acts, failures to act, omissions, or breach of this Sublease,
the Lease or amendment thereto, or arising from conduct of Sublessee, its
officers, directors, employees, agents, representatives, invitees, visitors,
guests, patrons or customers with respect to the Sublease Premises, the Lease or
the First Amendment which occurred or were caused on or after the effective date
hereof, whether or not the matters subject to this indemnity arise in contract
or tort, or are caused by the sole negligence, concurrent negligence, gross
negligence or intentional conduct of Sublessee, or strict operation of law
without regard to fault. Sublessee's indemnity of Sublessor/Tenant set forth
herein shall survive until one year from the expiration hereof.
11. Defined Terms. Except as otherwise defined herein, all capitalized
terms in this Sublease shall have the same meaning that was given to such terms
in the Lease.
Page 2
<PAGE>
12. Telecopies. A telecopied facsimile of a duly executed counterpart of
this Sublease shall be sufficient to evidence the binding agreement of each
party to the terms herein, and delivery of this Sublease shall be deemed to
occur upon transmission of a facsimile of a fully executed counterpart of this
Sublease to the intended recipient. However, each party agrees to promptly
return an original, duly executed counterpart of this Sublease following the
delivery of a telecopied facsimile hereof.
IN WITNESS WHEREOF, the parties hereto have caused their authorized
officers to execute this Sublease effective as of the day, month and year first
mentioned hereinabove.
SUBLESSOR: Focus COMMUNICATIONS, INC.
By: /s/ Kenneth W. Carter
------------------------------
Name: KENNETH W. CARTER
------------------------------
Title: PRESIDENT & CEO
------------------------------
Tax ID No.: 75-2484427
------------------------------
SUBLESSEE: URBAN COOL NETWORK, INC.
By: /s/ Jacob R. Miles
------------------------------
Name: JACOB R. MILES
------------------------------
Title: CEO
------------------------------
Tax ID No.:
------------------------------
LANDLORD APPROVAL:
Metropolitan Life Insurance Company,
a New York corporation
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
Date: August __, 1999
Page 3
<PAGE>
SUBLESSOR'S ACKNOWLEDGMENT
STATE OF Texas ss.
ss.
COUNTY OF Dallas ss.
BEFORE ME, the undersigned authority, on this day personally appeared Ken
Carter, President of FOCUS COMMUNICATIONS, INC., a Texas corporation, who
acknowledged that he was duly authorized to execute this Sublease on behalf of
said corporation.
GIVEN under my hand and seal of office this 30th day of August, 1999.
/s/ Pier Y. Crenshaw
------------------------------
Notary Public in and for the
State of Texas
Pier Y. Crenshaw
------------------------------
Notary's Printed Name
My Commission Expires: 2/28/00
SUBLESSEE'S ACKNOWLEDGMENT
STATE OF Texas ss.
ss.
COUNTY OF Dallas ss.
BEFORE ME, the undersigned authority, on this day personally appeared
Jacob R. Miles, III, President of URBAN COOL NETWORK, INC., a Delaware
corporation, who acknowledged that he was duly authorized to execute this
agreement on behalf of said corporation.
GIVEN under my hand and seal of office this 30th day of August, 1999.
/s/ Pier Y. Crenshaw
------------------------------
Notary Public in and for the
State of Texas
Pier Y. Crenshaw
------------------------------
Notary's Printed Name
My Commission Expires: 2/28/00
Page 4
<PAGE>
EXHIBIT "A" to Sublease
Description of Sublease Premises
[To be attached]
Page 5
<PAGE>
ELM PLACE
- --------------------------------------------------------------------------------
1401 Elm Street, Dallas, Texas 75202
Suite 1955 EXHIBIT A-1
1,177 U
1,353 R
[GRAPHIC OMITTED]
19TH FLOOR
Scale: 1/8" = 1'-0"
All dimensions and square footages are approximate.
July 14, 1994
- --------------------------------------------------------------------------------
[LOGO] THOMPSON CONSULTING SERVICES 2714 W. Kingsley, Suite D1 Garland, Texas
75041 (214) 271-8498
RIDER OF AGREEMENT OF SUBLEASE
MADE AS OF FEBRUARY 8, 1999
BY AND BETWEEN ECUMENICAL COMMUNITY DEVELOPMENT ORGANIZATION
INC. ("ECDO") as OVERTENANT OR ("LANDLORD")
AND URBAN COOL NETWORK, INC.
AS ("TENANT") or ("UNDERTENANT") or ("SUBTENANT")
THIS SUBLEASE RIDER IS INTENDED TO BE AFFIXED TO THE SUBLEASE. IN THE EVENT OF
ANY INCONSISTENCY BETWEEN THE PROVISIONS OF THIS RIDER AND THE PRINTED PORTION
OF THE SUBLEASE AGREEMENT, THE PROVISIONS OF THIS RIDER SHALL CONTROL.
1. FIXED RENT/PARTIAL PAYMENT/HOLDING OVER
Undertenant shall pay to Overtenant fixed rent during the first twelve (12)
months of the term an amount of fixed rent per year, payable in equal monthly
installments in advance no later than the fifth business day of each and every
calendar month.
For the purpose of this Sublease the fixed rent shall be as follows. Payable in
equal monthly installments:
Period Year/Term Monthly Installments Annual
YR 1 Mar 1, 1999 to Feb 28, 2000 $816.66 $9,800*
YR 2 Mar 1, 2000 to Feb 28, 2001 $849.33 $10,192
YR 3 Mar 1, 2001 to Feb 28, 2002 $883.33 $10,600
YR 4 Mar 1, 2002 to Feb 28, 2003 $918.66 $11,024
YR 5 Mar 1, 2003 to Feb 28, 2004 $955.41 $11,465
YR 6 Mar 1, 2004 to Feb 28, 2005 $993.66 $11,924
YR 7 Mar l, 2005 to Feb 28, 2006 $1,033.41 $12,401
YR 8 Mar 1, 2006 to Feb 28, 2007 $1,074.75 $12,897
YR 9 Mar 1, 2007 to Feb 28, 2008 $1,117.75 $13,413
YR 10 Mar 1, 2008 to Feb 28, 2009 $1,162.50 $13,950
YR 11 Mar 1, 2009 to Feb 28, 2010 $1,209.00 $14,508
YR 12 Mar 1, 20l0 to Feb 28, 2011 $1,257.33 $15,088
YR 13 Mar 1, 2010 to Feb 28, 20l2 $1,307.66 $15,692
YR 14 Mar 1, 2012 to Feb 28, 2013 $1,360.00 $16,320
YR 15 Mar 1, 20l3 to Feb 28, 2014 $1,414.41 $16,973
RENTAL ABATEMENT
*Fixed rent for the first three (3) equal monthly installments, shall be reduced
to $0.00 to give effect to a Rent Abatement. No part of the Rent Abatement shall
be granted unless no event or default exists under the Sublease.
Page 1 of 18
<PAGE>
RENTAL PAYMENTS IN FULL
Undertenant shall make rental payments in full: Payment or receipt of rental
payment of less than the amount stated in the Sublease shall be deemed to be
nothing more than partial payment on that month's account. Under no
circumstances shall Overtenants acceptance of a partial payment constitute
accord and satisfaction. Nor will Overtenant's acceptance of a partial payment
forfeit Overtenant's right to collect the balance due on the account, despite
any endorsement, stipulation, or other statement on any check.
If Undertenant holds over in possession after the expiration or sooner
termination of the original term or of any extended term of this Sublease, such
holding over shall not be deemed to extend the Term or renew the Sublease, but
such holding over hereafter shall continue upon the covenants and conditions
herein set forth, except that the charge for use and occupancy of such holding
over for each calendar month or part thereof (even if such part shall be a small
fraction of a calendar month) shall be the sum of:
1/12 of the highest annual rent rate set forth in this Sublease, times 2.5 plus
1/12 of annual Additional Rent, which annual Additional Rental would have been
payable pursuant to this Sublease and this Sublease not expired, plus
Those other times of Additional Rent (not annual Additional Rent) which would
have been payable monthly pursuant to this Sublease, had this Sublease not
expired, which total sum Undertenant agrees to pay to Overtenant promptly upon
demand, in full, without set-off or deduction. Neither the billing or the
collection of use and occupancy charge shall be deemed a waiver of any right of
Overtenant to collect damages for Undertenant's failure to vacate the Demised
Premises after the expiration or sooner termination of this Sublease. The
aforesaid provisions of this Article shall survive the expiration of this
Sublease.
2. NOTICES
In accordance with paragraph twelve of the Lease all notices provided herein
shall be forwarded to the following address:
UNDERTENANT (TENANT)
Urban Cool Network, Inc.
3416 Hightimber Road
Grapevine, Texas 76051
Attn: Jacob R. Miles, III. President
OVERTENANT (LANDLORD)
Ecumenical Community Development Organization
475 Riverside Drive - Room 1940
Page 2 of 18
<PAGE>
New York, New York 10115-1940
Attn: Janice Berthoud, Executive Director
3. EXCULPATION
If Landlord or any successor in interest is an individual, joint venture,
tenancy-in-common, general or limited partnership, unincorporated association or
other unincorporated aggregate of individuals (collectively, "unincorporation
Owner") and shall at any time have any liability under, pursuant to or in
connection with this Lease, neither Tenant nor any other party shall seek any
personal or money judgement against unincorporated Landlord or such individuals
who are agents or employees or serves as Board members at ECDO or James Van Der
Vee Houses LLP Associates or in any other way under or pursuant to this Lease.
4. BROKER
Tenant shall indemnify and hold Landlord harmless from and against any and all
loss, liability claims or expenses (including, without limitation attorneys'
fees) that Landlord may incur by reason of the breach of the foregoing
representation or by reason of the claims of brokers in connection with this
transaction or arising out of any assignment of this Sublease of all or a part
of the Demised Premises by Tenant. The Landlord understands Tenant represents
that "no broker" has or shall participate in this conveyance of a leasehold
interest.
5. LATE CHARGES
If Tenant fails to pay an installment of Fixed Rent or Additional Rent by the
tenth (10) day of each month, Tenant shall be required to pay a late charge of
two (2) cents for each dollar unpaid. Which amount shall increase to eight (8)
cents for each dollar unpaid in the event any installment of fixed rent is paid
after the tenth (10) day of each month more than (3) times in any 12 month
period. Such charge is to be computed retroactively to the date on which Fixed
Rent or Additional Rent became due and payable. The late charge is intended to
compensate Landlord for additional expenses incurred in processing such late
payments and is not intended to prevent Landlord from exercising any other
available remedies against Tenant.
6. TENANT COVENANTS
Tenant shall not make any claim against Landlord for any injury or damage to
Tenant or to any other person or for any damage (by water, malicious mischief or
otherwise) to, or loss of, or loss or use of, (by theft, mysterious
disappearance or otherwise) any property of Tenant or of any other person, or
property regardless of the cause of such injury, damage or loss, unless caused
by the negligence of Landlord, its agents, servants or employees, in the
operation or maintenance of the Demised Premises or the building. No property
other than such as might normally be brought upon or kept in the Demised
Page 3 of 18
<PAGE>
Premises as incidental to the reasonable and intended use of the Demised
Premises for the purposes herein specified shall be brought upon or kept in the
Demised Premises.
Tenant shall, at its sole cost and expense:
Maintain the Demised Premises and the sidewalk frontage in a clean and sanitary
manner. If Tenant uses a cleaning service, such service shall be first approved
and designated by the Landlord.
Remove all rubbish and other debris from the Demised Premises to such locations
in the Building as may be reasonably specified by Landlord from time to time and
under conditions approved by Landlord. Tenant shall pay all fines, taxes and
levis which may be imposed by reason of Tenant's failure to keep sidewalk
frontage clean and free of snow, rubbish or debris.
Obtain and maintain a service contract (or contracts) with a person or company
reasonably acceptable to Landlord for the extermination of vermin, rats, mice,
flies, roaches, and other insects in the Demised Premises and use all reasonable
diligence in accordance with the best prevailing methods for doing so in the
Borough of Manhattan to prevent and exterminate vermin, rats, mice, flies,
roaches and other insects in, on or about the Demised Premises.
Tenant shall, as its sole cost and expense, place and maintain machines and
mechanical equipment located in the Demised Premises that cause noise or
vibration that may be transmitted to the structure of the Building (to such a
degree as to be reasonably objectionable to Landlord or any occupant of the
Building) in settings of cork, rubber, or spring type vibration eliminator
sufficient to eliminate noise of vibration.
Undertenant has inspected the Demised Premises and agrees to take them as they
are in an "as is" condition. Undertenant agrees to bear all expenses of making
nonstructural repairs to the Demised Premises including without limitation,
plumbing, electrical work and fixtures servicing the Demised Premises only in a
good workman like manner.
7. INSURANCE
Tenant shall, at its sole cost and expense, obtain and at all times during the
Term maintain with responsible insurance carriers acceptable to Landlord
licensed to do business in the State of New York, insurance covering the Demised
Premises for the mutual benefit of Landlord and Tenant as follows:
Fire Insurance with broad form extended coverage endorsement from time to time
available, for an amount not less than the full replacement value of Tenant's
Improvements and Tenant's personal property located in the Demised Premises.
"Full replacement value" shall be determined at the request of the Landlord by
an architect, appraiser, appraisal company or one of the insurer's selected by
Landlord and paid for by Tenant, but such determination shall not be required by
made more frequently than once every two (2) years. No omission on the part of
the Landlord to request any such determination shall relieve Tenant of any of
its obligation under this Lease.
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Comprehensive General Liability Insurance, with such limits as may be reasonably
requested by Landlord from time to time, but not less than a combined single
limit of $1,000,000.00.
All required insurance policies shall name Landlord as an additional insured or
loss payee, as the case may be, and shall include a provision that they shall
not be canceled without thirty (30) days prior written notice to Landlord.
Tenant shall deliver copies of all required insurance policies or certificates
evidencing such coverage prior to the Commencement Date and renewal policies
prior to the expiration of the existing policies together with evidence of the
payment of premiums therefore.
Tenant shall not be responsible to pay any insurance premium increase which
would have occurred because of the operation of tenant's business within the
building, but only because of some particularly hazardous use by Undertenant in
excess of normal business use. Landlord and undertenant hereby each release the
other from all liability, whether for negligence or otherwise, in connection
with loss covered by fire and/or extended coverage insurance policies, which the
Landlord or Undertenant carries with respect to the Demised Premises, or any
interest or property therein or thereon, whether or not such insurance is
required to be carried under this Lease. Such release is also conditioned upon
the inclusion in the policy or policies of insurance whereby any such release
shall not adversely affect said policies, or prejudice any right of the releasor
to recover thereunder. Each party agrees that its insurance policies will
include such provision so long as the same shall be obtainable without extra
cost, or if extra cost should be charged therefore, so long as the party for
whose benefit the clause or endorsement is obtained shall pay such extra cost.
If extra cost shall be chargeable therefore, each party shall advise the other
of the amount of the extra cost, and the other party, at its election, may pay
the same, but shall not be obligated to do so. Notwithstanding the foregoing,
each party shall look first to any insurance in its favor before making any
claim against the other party for recovery for loss or damage resulting from
fire or casualty, and to the extent that such insurance is in force and
collectible shall waive all rights and recovery against the other or anyone
claiming thereunder or claiming by or under each of them by way of subrogation
or otherwise.
8. EVENT OF DEFAULT/ADDITIONAL REMEDIES
Undertenant shall not be deemed in default under this Lease and Landlord shall
not pursue any of the remedies otherwise provided in this Lease, or at law or in
equity, unless and until an "Event of Default" shall have occurred. For the
purposes of this Lease an "Event of Default" shall be deemed to mean: (a) with
respect to a default in the payment of money, that Undertenant has not timely
paid the amount due, Landlord has given Undertenant written notice that
Undertenant has failed to timely make such payment, and Underienant has failed
to cure such monetary default within ten (10) days after receipt of such written
notice of default from Landlord; (b) with respect to any other default, that
Undertenant has failed to cure such default within thirty (30) days after
receipt of written notice of default from Landlord, or, if such default cannot
be cured with reasonable diligence within such period of time, that Undertenant
has failed to commence such cure within such thirty (30) day period of time and
thereafter failed to pursue completion of such cure with reasonable diligence."
If the Term shall terminate pursuant to this Lease by reason of Tenant's Default
then:
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Tenant shall pay to Landlord all Fixed Rent and Additional Rent required to be
paid by Tenant to the date upon which the Term shall have terminated or to the
date of re-entry upon the Demised Premises by Landlord, as the case may be.
Landlord shall be entitled to retain all moneys, if any, paid by Tenant to
Landlord, whether as advance rent, security or otherwise.
Tenant shall be liable for and shall pay to Landlord, as damages, any deficiency
between the Fixed Rent and Additional Rent payable for the period which
otherwise would have constituted the unexpired portion of the Term (conclusively
presuming the Additional Rent to be the same as was payable for the twelve (12)
month period immediately preceding such termination or re-entry) and the net
amount, if any, of rents collected under any reletting effected pursuant to the
provisions of this Lease for any part of such period (first deducting from the
rents collected under any such reletting all of Landlord's expenses in
connection with the termination of this Lease or Landlord's re-entry upon the
Demised Premises and, in connection with such reletting, all repossession costs,
brokerage commission, legal expenses, attorney's fees, alteration costs and
other reasonable expenses); and
Any such deficiency shall be paid in monthly installments by Tenant on the days
specified in the lease for the payments of installment of Fixed Rent. Landlord
shall be entitled to recover from Tenant each monthly deficiency as the same
shall arise and no suit to collect the amount of the deficiency for any month
shall prejudice Landlord's right to collect the deficiency for any subsequent
month by a similar proceeding. Alternatively a suit or suits for the recovery of
such deficiencies may be brought by Landlord from time to time at its election.
9. LEGAL REQUIREMENTS
Tenant's business shall be and remain in compliance with all laws, statutes,
codes, acts, ordinances, orders, judgments, decrees, injunctions, rules,
regulations, permits, licenses, authorizations, directions and requirements of
all governments, departments, commissions, boards, courts, authorities,
agencies, officials and officers, foreseen or unforeseen, ordinary or
extraordinary, which now or at any time hereafter may be applicable to the
Demised Premises or any part thereof, or the improvements now or hereafter
located thereon, or the facilities or equipment therein, or any of the adjoining
sidewalks, curbs, vaults or vault space, if any, street or ways, or the
appurtenances to the Demised Premises or the franchises and privileges connected
therewith, or any use or condition of the Demised Premises or any part thereof.
Legal Requirements shall include but not limited to the Comprehensive
Environmental Response Compensation and Liability Act, 42 U.S.C. Section 9601 et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et
seq., and particularly all other applicable environmental laws and regulations,
and all requirements to be complied with pursuant to any certificate of
occupancy affecting the Demised Premises.
If at any time during the Term of this Sublease, the fire safety law
requirements of the City of New York pursuant to Local Law #5 of 1973 or
otherwise ("Fire Requirements") or the masonry or exterior wall requirements of
the City of New York pursuant to Local Law #10 of 1980 or otherwise ("Masonry
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Requirements") or life safety requirements of the City of New York pursuant to
Local Law #16 of 1984 or otherwise ("Safety Requirements") or any other laws or
requirements of the City of New York or any agency having jurisdiction ("Other
Requirements") impose any obligations or requirements upon Landlord to perform
any alteration, installations, changes or improvements (collectively "changes")
to the Demised Premises, then Tenant shall comply with the Fire Requirements, or
Other Requirements to the extent such requirements relate solely to improvements
made by Undertenant to the Demised Premises. Tenant shall provide Landlord with
notice of any such violations received by Undertenant promptly upon receipt of
same. The obligation of Tenant in respect of such Additional Rent shall survive
the expiration of this Lease. Notwithstanding anything to the contrary in this
Paragraph, should Tenant's use, occupancy, or installations require specific
compliance under such Requirements above, then Tenant shall be responsible for
100% of the costs of said Charges.
Landlord shall be obligated to comply with all other Fire, Safety or Other
Requirements which are not expressly Tenant's obligation under this Lease.
10. ALTERATIONS
Anything in the Sublease to the contrary notwithstanding, Landlord shall not
unreasonably withhold or delay approval of written requests by Tenant to make
non-structural interior alterations, decorations, additional and improvements
(herein referred to as "alterations") in the Demised Premises, provided that
such alterations do not affect utility services or plumbing and electrical lines
or other systems of the building, and provided that all such alterations shall
be performed in accordance with the following conditions:
All alterations costing more than $2,500.00 shall be performed in accordance
with plans and specifications first submitted to Landlord for its prior written
approval.
All alterations shall be done in a good and workman like manner. Alterations
shall be done in compliance with all other applicable provisions of this Lease
and with all governmental authorities having jurisdiction and Tenant shall,
prior to the commencement of any such alterations, as its sole and exclusive
expense, obtain and exhibit to Landlord any governmental permit required in
connection with such alterations.
All work in connection with alterations shall be performed with bonded
contractors having the proper professional qualifications under the laws of the
State of New York.
Tenant shall keep the building and the Demised Premises free and clear of all
liens for any work or material claimed to have been furnished to Tenant or to be
Demised Premises.
Prior to the commencement of any work by or for Tenant, Tenant shall furnish to
Landlord Certificates of Insurance evidencing the existence of the following
insurance:
Workman's compensation insurance covering all persons employed for such work and
with respect to whom death or bodily injury claims could be asserted against
Landlord.
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General liability insurance naming Landlord, and or its assigns as co-insured,
and Tenants as insured, with limits of not less than $1,000,000 in the event of
bodily injury to one person and not less than $1,000,000, in the event of bodily
injury to any number of persons in any one occurrence and with limits of not
less than $500,000 for property damage. Tenant, at its sole cost and expense,
shall cause all such insurance to be maintained at all times when the work to be
performed for or by Tenant is in progress. All such insurance shall be issued by
a company authorized to do business in New York and all policies, or
certificates therefore, issues by the insured and bearing notations evidencing
the payment of premiums, shall be delivered to Landlord.
All work to be performed by Tenant shall be done in a manner which will not
unreasonably interfere with or disturb other Tenants and occupants of the
building.
Any alterations to be made by Tenant (other than plumbing and electrical work)
may be performed by any licensed and bonded contractor or mechanic (collectively
"Contractor") selected by Tenant and approved by Landlord, which approval
Landlord agrees it will not unreasonably withhold or delay, provided the
Contractor's performance of the alterations would not result in any discord or
disturbance in the Building.
Tenant may with the prior written approval of Landlord, which shall not
unreasonably be withheld at any time during the Term, remove any alterations
made by Tenant, solely at its expense, provided Tenant promptly repairs any
damage resulting from such removal.
Any restoration or repair which Tenant is required to make (whether structural
or non-structural) shall be of a quality or class equal to the then Building
Standard. Tenant shall pay to Landlord the sum of TWO HUNDRED AND FIFTY DOLLARS
($250.00) as a processing fee in connection with any of Tenant's Changes or
Alterations which must be approved of by Landlord in accordance with the terms
of this Lease. This provision shall apply only to such changes or alterations
made after the Tenant's initial remodeling of the Demised Premises upon
occupancy.
The time during which the Landlord may make Landlord's elections pursuant to the
terms of this Sublease shall be extended to include a period commencing thirty
(30) days prior to the expirations or other termination of this Lease or any
renewal or extension thereof and termination ninety (90) days thereafter. Tenant
agrees that Landlord's rights hereunder shall survive the expiration of this
Lease or any renewal or extension thereof.
Nothing in this Sublease shall be construed in any way as constituting the
permission, consent or request of the Landlord, express or implied, through act
or omission to act by interference or otherwise, to any contractor,
subcontractor, laborer, or materialman for the performance of any labor or the
furnishing of any materials for any specific improvement, installation,
additional decoration, alteration, or repair of Demised Premises or as giving
the Tenant the right, power, or authority to contract for or permit the
rendering of any service or the furnishing of any material that would give rise
to the filing of any mechanic's lien against the fee of the Demised Premises.
Any non-structural interior change, alteration and/or improvement which costs
less than $10,000.00 and which does not adversely affect utility services or
plumbing and electrical lines or
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other systems of the building may be made by Undertenant without the requirement
of any consent or approval by Landlord and without requirement of the
preparation of plans or specifications unless required by law, All other
changes, alterations and/or improvements shall be subject to Landlord's prior
written approval, which Landlord agrees shall not be unreasonably withheld or
delayed.
11. CONTRACTORS
Contractors hired by Sub-tenant to make alterations and/or repairs in excess of
$25,000.00 must be bonded and insured. Undertenant shall provide Landlord with
proof of such bond and insurance prior to commencement of such repairs and/or
alterations. Tenant shall discharge any liens which result in the hiring and use
of any such contractor within thirty (30) days after receipt of notice of such
lien and the Sub-tenant's obligations to discharge such liens shall survive the
termination of this Sublease Agreement.
12. SQUARE FOOTAGE
Tenant acknowledges that no representations have been made by the Landlord as to
the amount of square footage in the Demised Premises, irrespective of any
reference in this Lease to square footage for any computation. The tenant has
inspected the Demised Premises and relies upon Tenant's own judgment in
computing the square footage.
13. PLATE GLASS
Tenant, at its own cost and expense, shall replace all damaged or broken plate
glass or other windows in or about the Demised Premises in a prompt and timely
manner.
14. ADDITIONAL RENT
All payments other than Fixed Rent to be made by Tenant pursuant to this
Sublease shall be deemed Additional Rent and, in the event of any non-payment,
Landlord shall have all rights and remedies provided for herein by law for
non-payment of rent.
15. GAS, WATER AND ELECTRIC
Tenant shall make its own arrangements with the public utility company or
companies or such New York City agencies servicing the Demised Premises for the
furnishing of and payment of charges for gas and water. In no event shall
Landlord be responsible for charges of any such service. If gas is used in the
Demised Premises, Tenant covenants to install the appropriate gas cutoff devices
(manual and automatic) and meters for such service at Tenant's own cost and
expense. Landlord shall cause an appropriate water meter to be installed in the
Demised Premises to monitor tenants water usage
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and consumption. Tenant shall pay Landlord a one time charge of $675.00 in
consideration therefore. Tenant shall pay for all water usage and consumption
directly to water company.
16. LANDLORD'S COSTS BY TENANTS DEFAULTS
If Landlord, as a result of a default by Tenant of any of the provision of this
Sublease, including the covenants to pay rent and/or Additional Rent, makes any
expenditure or incurs any obligations for the payment of money, including but
not limited to attorney's fees, in instituting, prosecuting or defending any
action or proceeding, such sums so paid or obligations so incurred with interest
and costs shall be deemed to be Additional Rent hereunder and shall be paid by
Tenant to Landlord within five (5) days of rendition of any bill or statement to
Tenant therefore, and if any expenditure is incurred in collecting such
obligations, such sum shall be recoverable by Landlord as additional damages.
17. DEPOSIT OF CHECKS
Landlord's deposit of any checks delivered by Tenant simultaneously with
Tenant's execution and delivery of this Sublease shall not constitute Landlord's
execution and delivery of this Sublease.
18. FULL INTEGRATION OF SUBLEASE AGREEMENT
This Sublease embodies the entire agreement between Landlord and Tenant. Any
change, addition, waiver, release or discharge of this Lease shall be
ineffective unless the party against whom such change, addition, waiver, release
or discharge is sought to be enforced. Each right, power and remedy of Landlord
provided for in this Lease or now or hereafter existing at law, in equity, by
statute or otherwise, and the exercise or beginning of the exercise by Landlord
of any one or more of such rights, powers or remedies shall not preclude the
simultaneous or later exercise by Landlord of any or all such other rights,
power or remedies.
19. PURCHASE OF ELECTRIC BY TENANT
If electric currently being supplied to Tenant is by the public utility
corporation serving the part of the city where the building is located, Tenant
agrees to purchase same directly from such public utility corporation. Tenant
shall at its own cost and expense cause a separate meter to be installed to
monitor Tenant's electrical usage and shall maintain said meter in good working
condition and permit access by authorized personnel from utility company to be
read. Any rise or risers to supply Tenant's electrical requirements, upon
written request of Tenant, will be installed by Landlord, at the sole cost and
expense of Tenant, if in Landlord's sole judgment, the same are necessary and
will not cause permanent damage or injury to the building or Demised Premises or
cause or create a dangerous or hazardous condition or entail excessive or
unreasonable alterations, repairs or expense or interfere with or disturb other
tenants or occupants. In addition to the installation of such riser or risers
Landlord will also, at the sole cost and expense of Tenant, install all other
equipment proper and necessary in connection
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therewith subject to the aforesaid terms and conditions. Tenant covenants and
agrees that at all times its use of electric current shall never exceed the
capacity of existing feeders to the building or the risers or wiring
installations. It is further covenanted and agree by Tenant that all the
aforesaid costs and expenses shall be paid by Tenant to Landlord within five (5)
days after rendition of any bill or statement to Tenant therefore. Tenant shall
make no alterations or additions to the electrical equipment and/or appliances
without the prior consent of the Landlord.
20. DRUGS AND ALCOHOL
Should Anthony Maestri be convicted for possession, solicitation or use of drugs
in and/or about the Demised Premises the Overtenant shall then have the right to
terminate this Sublease Agreement and evict Undertenant from the Demised
Premises. Should any employee of Anthony Maestri and/or Undertenant be arrested
in the Demised Premises for possession, solicitation or use of drugs in and/or
about the Demised Premises such employee shall be discharged by Undertenant upon
Overtenant's request. Should the Undertenant refuse or fail to discharge such
employee Overtenant shall then have the right to terminate this Sublease
Agreement and evict the Undertenant from the Demised Premises. Should the same
customer or patron of the Undertenant's business be arrested on the Premises
three (3) times for the possession, solicitation and/or use of drugs in and or
about the Demised Premises Overtenant shall have the right to terminate this
Sublease Agreement and evict the Undertenant from Demised Premises.
21. WINDOW OBSTRUCTIONS
The windows to the Demised Premises shall not be blocked or otherwise obstructed
as to hamper the visibility of the interior of the Demised Premises from the
street such that police surveillance will not be unreasonably impeded.
22. UTILITIES
The Landlord will not provide any utilities to the premises and the Tenant will
arrange for and pay all the costs associated with any utilities including but
not limited to the installation of water, gas, electric and other meters.
23. USE/OCCUPATION
Subtenant shall use the premises as an internet access, computer learning center
and sales of technology, audio and video products, related softgoods, hardware
and telecommunications equipment and services store, and for all other
operations necessary or incidental to the conduct of its business, or for any
other purpose permitted under applicable zoning ordinances and restrictive
covenants.
23a) SUBSEQUENT USE AND OCCUPATION
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Should the Demised Premises not be used by Tenant as aforestated hereinabove
during the term of this Sublease, then the Landlord's written permission and
authorization for such subsequent use and occupancy shall be required, but
Landlord agrees such permission of authorization by Landlord shall not be
unreasonably withheld with respect to any other lawful use or occupation.
24. BASEMENT ACCESS/PARKING/BACKYARD
The appurtenant basement and/or cellar in the building wherein the Demised
Premises is situated is included in the Sublease and the Tenant shall have
access thereto. This agreement does not afford Tenant parking facilities or
parking spaces in or appurtenant to the Demised Premises or use and/or occupancy
of the backyard appurtenant thereto. However, Undertenant shall have access to
backyard for ingress and egress to the Demised Premises.
25. HOURS OF OPERATION
The Tenant agrees that the Demised Premises hours of operation shall not be
earlier than 7 am or later than 2 am without the prior written consent of the
Landlord.
26. COMMENCEMENT OF LEASE
The Landlord and the Tenant agree that the Sublease will begin on the date of
execution. The Tenant will not be given a grace period and its obligations
herein shall commence at this time.
27. SECURITY DEPOSIT AND FIRST MONTH'S RENT
Subtenant shall deposit with Overtenant a security deposit which is equivalent
to two (2) months fixed rent and pay the first month's rent upon signing this
Sublease. Failure to make such payments shall be deemed an event of default.
28. REAL ESTATE TAX ESCALATION
In addition to the base rent the Tenant agrees to pay any increase to real
estate taxes (but only Tenant's pro rata portion) thereof to Landlord starting
on July 16th, 2007 over to the taxes from the 1998/1999 tax year which shall be
paid by Tenant within five (5) days of receipt of invoice therefore and service
of a copy of such tax payment due by Tenant.
29. LIMITED RIGHT OF ASSIGNMENT OR SUBLET
Notwithstanding anything in this Sublease or Rider except Paragraph 31(a) herein
this Sublease is not assignable, nor shall the Tenant sublet any of the space
included in the Demised Premises without the Landlord's express written
permission which shall not unreasonably be withheld.
30. VAULT TAX
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The Tenant shall pay any Vault Taxes or charges which may be attributable to the
Premises on a pro rata basis.
31. TENANT'S CORPORATE AUTHORITY
Urban Cool Network, Inc., the Tenant herein, shall provide the Landlord with a
corporate resolution authorizing Jacob R. Miles, III. as its President to enter
into this Lease and to bind Urban Cool Netwrok, Inc., to the terms and
obligations under this Lease.
32. ADVERTISEMENT ON SIDE OF BUILDING
Tenant shall have the right to affix an Urban Cool Network, Inc. logo on the
building wherein the Premises is situated. However said right shall be upon the
Landlord's written approval after a review of a sketch of such logo which shall
be painted or affixed on said building in a workman like and professional
manner. Upon termination of the Lease, Tenant shall remove said logo in a
workmanlike and professional manner. Tenant shall deposit the sum of $500.00
with the Landlord to be held in a separate interest bearing account to assume
the Tenant's performance.
33. STANDARD SIGNAGE
Tenant has the right to install the customary and usual display and pole-type
signs of Urban Cool Network, Inc., on and adjacent to the Premises subject to
applicable zoning ordinances and restrictive covenants, rules, regulations by
the City of New York or the State of New York.
34. AMERICANS WITH DISABILITIES ACT
Tenant shall be responsible for complying with the Americans with Disabilities
Act only within the leased and not including any demising walls, doors, or entry
points or other access to the Demised Premises.
35. PERCENTAGE OF SALES AS RENT
Nothing herein shall be construed as rent or Additional Rent based upon a
percentage of Tenant's sales.
36. NOISE
Undertenant shall not permit noise to emanate from the premises at a sound level
which shall in any way disturb other tenants of the building or a level that
exceeds the level of sound emanating from other floors for the building. This
Article shall directly bind any successors in interest to the Undertenant.
Undertenant agrees that if at any time Undertenant violates any of the
provisions of this Article such violation shall be deemed a breach of a
substantial obligation of the terms of this Sub-Lease.
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37. PORNOGRAPHY
Undertenant agrees that the value of the Demised Premises will be substantially
diminished and the reputation of Overtenant and the partners of the Owner will
be seriously injured if the premises are used for any obscene or pornographic
purposes or any sort of commercial sex establishment. Undertenant agrees that
Undertenant will not bring or permit any obscene or pornographic material on the
premises, and shall not conduct or permit any obscene, nude or semi-nude live
performances on the premises, nor permit use of the premises for nude modeling,
rap sessions, or as a massage parlor. Undertenant also agrees that it will not
permit the production or processing of any video tape, film, or photography on
the premises which depict explicit sexual acts. Undertenant agrees further that
it will not permit any of the herein mentioned uses by any subleases or assignee
of the premises. This Paragraph shall bind successors in interest to the
Undertenant. Undertenant agrees that any violation of the term of this Paragraph
shall be deemed a breach of a substantial obligation of the Undertenant under
this Sublease. Pornographic material, for purposes of this Paragraph, is defined
as any written or pictorial matter with prurient appeal or any object or
instrument primarily used for lewd or prurient sexual activity.
38. ODORS
Undertenant shall not cause or permit any unusual or objectionable odors, by
rodents or waste material to emanate from the Demised Premises. Undertenant
covenants that it will hold Overtenant harmless against all claims, damages or
causes of action for damages arising after the commencement of the term of this
Sublease and will indemnity the Overtenant from any suits, orders or decrees and
judgments entered there, brought on account of any such emanation from the
Demised Premises of unusual or objectionable odors, by-products or waste
material. Undertenant covenants to pay any attorney's fees and other legal
expenses incurred by Overtenant in connection with any claim or suit as
described in this Paragraph.
39. LANDLORD'S REASONABLE CONSENT
Wherever in this Lease Landlord's consent or approval is required, or Landlord's
judgment or discretion is to be exercised in any way (no matter how designated),
Landlord agrees to act and make its determination reasonably in all such
circumstances and to make all discretionary determinations, however designated,
with reasonable promptness.
40. LANDLORD'S FURTHER COVENANTS
Landlord represents, warrants and covenants that (a) attached hereto as Exhibit
A is a true and complete copy of the Certificate of Occupancy currently in
effect for the building; (b) attached hereto as Exhibit B is a true and complete
copy of the Lease pursuant to which Landlord has right to use and occupy space
within the building (the "Overlease"), which Over-lease is in full force and
effect and has not been amended or modified in any way; and (c) there are no
other leases or rights of use or occupancy which affect the Demised Premises.
Landlord represents warrants and covenants that no default by either party has
occurred under the Overlease which
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remains uncured. Landlord further represents warrants and covenants that to the
extent Landlord is obligated under this Sublease to perform an obligation with
respect to any portion of the building which is not Demised to Landlord that
such obligation will be performed by the Overlandlord pursuant to the Overlease.
Simultaneously herewith Landlord has delivered to Tenant a non-disturbance
agreement which has been executed, acknowledged, and delivered by said
Overlandlord pursuant to which said Overlandlord has agreed, among other things
that in the event of a termination of the Overlease for any reason the rights of
Tenant under this Sublease will be recognized by the Overlandlord and this
Sublease shall become a direct Lease between Tenant and said Overlandlord upon
all of the terms contained in this Sub-Lease.
41. LANDLORD'S ESTOPPLE LETTER
Landlord, at any time, and from time to time, upon at least fifteen days prior
notice by Undertenant, shall execute, acknowledge and deliver to Undertenant
and/or any other person, firm or corporation specified by Undertenant, a
statement certifying that the Lease is unmodified and is in full force and
effect (or if there have been modifications, that the same is in full force and
effect as modified and stating the modification), stating the dates to which the
rent and additional rents have been paid, and stating whether or not there
exists any defaults by Undertenant under the Lease, and, if so, specify each
such default.
42. LANDLORD'S APPROVAL UPON SALE
Subtenant may sell, assign mortgage or transfer this Sublease and underlet the
Demised Premises to be used by others in connection with the sale of the
Sub-Tenant's business with the prior written consent and approval of ECDO. If
ECDO is no longer Overtenant such approval in connection with sale of business
shall not be required.
43. MUTUAL COVENANTS TO REPAIR IN EVENT OF FIRE OR CASUALTY LOSS
Landlord and tenant shall each use reasonable diligence to promptly complete all
repairs and restorations to the Demised Premises required of Landlord and
Undertenant in the event of fire or other casualty and Landlord agrees to use
reasonable diligence to promptly complete (or cause completion) of all repairs
and restorations to all other parts of the building so that the Demised Premises
shall be fully usable by Undertenant in the event of fire casualty thereto
(including, but not limited to, repairs of the roof and all mechanical and
utility systems) (b) Landlord may only terminate Undertenant's lease in the
event Landlord similarly terminates all other leases in the building of which
the Demised Premises are a part; (c) in the event Landlord begins to rebuild or
restore the building within three (3) years after termination of this Lease,
Landlord shall notify Undertenant in writing upon the commencement of the
building or restoration work and upon the completion of the Building or
restoration work, and in such event this Lease shall, at Undertenant's option,
to be exercised within ninety (90) days after the later to occur of the
commencement of the rebuilding or restoration work or the date Landlord notifies
Undertenant of such commencement, be deemed reinstated for the term which
remained immediatey prior to the termination (plus any remaining right of
extension or renewal) upon the terms and conditions set forth in this Lease; (d)
in the event this Lease is reinstated in accordance with the foregoing,
Page 15 of 18
<PAGE>
Landlord shall restore the Demised Premises to their condition immediately
prior to the fire or other casualty and shall deliver possession to the
Undertenant no sooner than ninety (90) days after written notice of intent to
deliver possession is given to Undertenant and no later than the date
restoration of the remainder of the Building is completed by Landlord; (e) the
reinstated term of this Lease shall commence on the sooner to occur of thirty
(30) days after the date possession is delivered in accordance with the
foregoing or the date Undertenant opens the Demised Premises for business with
the public (f) upon the termination of this Lease by Landlord pursuant to the
provisions of this Paragraph FOURTH, Undertenant shall have the right to record
a memorandum of Undertenant's rights hereunder for recording purposes and
Landlord shall execute, acknowledge and deliver same to Undertenant upon
request therefore by Tenant, failing which, Undertenant may, as Landlord's
attorney-in-fact, execute and acknowledge same on Landlord's behalf, which power
of attorney shall be irrevocable and deemed coupled with an interest (g) If
Landlord is obligated to restore all or part of the Demised Premises and/or
building pursuant to the provisions of this paragraph Fourth, and if such
restoration cannot be completed with reasonable diligence within one (1) year
after the occurrence of the fire or other casualty (as estimated by a licensed
architect selected by Undertenant), then Undertenant shall have the right to
terminate this Lease by giving thirty (30) days written notice of termination to
Landlord.
44. SUB-TENANTS RIGHT OF CLAIM UPON EMINENT DOMAIN
Notwithstanding the foregoing, Undertenant may nevertheless claim for the value
of its trade fixtures, equipment, moving expenses, and for the unamortized
portion of any leasehold improvements in the event of a taking of the Demised
Premises by eminent domain.
45. SUBTENANTS RIGHT TO EFFECT EMERGENCY REPAIRS
Tenant may give Landlord notice of any repair which Landlord must make or any
other default on the part of Landlord and Landlord shall upon ten (10) days
written notice promptly remedy the condition with due diligence. If Landlord
fails to remedy same with due diligence after notice is given thereof to
Landlord and in an emergency at any time, then anything in this Lease to the
contrary notwithstanding, Undertenant may cause such condition to be remedied
at a fair and reasonable cost and may deduct the cost thereof upon providing
Landlord with proof of payment therefore, plus interest thereon at the maximum
rate permitted by law from the rents and additional rents accruing.
46. LANDLORD'S RULES AND REGULATIONS
Overlord shall have the right to promulgate and enforce rules and regulations
with respect to the use of common areas in the Building which shall be
reasonable, non-discriminating and shall be enforced in a non-discriminatory
manner.
47. ATTORNEY FEE AND COST
Page 16 of 18
<PAGE>
Overtenant and subtenant shall have a reciprocal obligation to pay attorney's
fees, disbursements and costs in the event of a default of their obligation
under the Sublease. Such payments shall be made within thirty (30) days of
written notice and proof of payment thereof. In the event Overtenant and
Subtenant do not dispute the same Subtenant may deduct same from the next months
rent due and Overtenant may charge the same as additional rent due on the next
month rental.
48. LANDLORDS COVENANT UPON TRANSFER OF TITLE
Overtenant shall only be released from further liability from this Sublease
accruing after a transfer of title provided the transferee first executes,
acknowledges and delivers to Sub-tenant an assumption of Overtenant's
obligations under this Sublease.
49. LANDLORD COVENANT OF REASONABLENESS
Wherever in this Sublease Overtenant's consent or approval is required, or
Overtenant's judgment is to be exercised in any way, no matter how designated,
Overtenant agrees to act and make its determination reasonably in all such
circumstances and to make all discretionary determinations, however designated,
with reasonable promptness.
50. INSTALLATION OF SECURITY SURVEILLANCE CAMERA(S)
Tenant at its own cost and expense shall have the right to install and maintain
security surveillance cameras throughout the Demised Premises.
51. SIGNAGE
Tenant, at its own cost and expense shall have the right to affix a sign baring
its logo in, on or around the building wherein the Demised Premises are
situated. However, such right shall be subject to the Landlord's consent which
shall not be unreasonably withheld. Tenant shall affix a sign or logo consistent
with the provisions hereinabove.
ACCEPTED AND AGREED THIS 8th DAY 0F Feb, 1998.
OVERTENANT: ECDO
475 RIVERSIDE DRIVE, ROOM 1940
NEW YORK, NEW YORK 10115-1940
BY: /s/ Janice Berthoud
-------------------
JANICE BERTHOUD
EXECUTIVE DIRECTOR
Page 17 of 18
<PAGE>
UNDERTENANT: URBAN COOL NETWORK, INC.
3416 HIGHTIMBER ROAD
GRAPEVINE, TEXAS 76051
BY: /s/ Jacob R. Miles, III
-----------------------
JACOB R. MILES, III
PRESIDENT
WITNESSED AND ACKNOWLEDGED
JAMES VAN DER ZEES HOUSES
ASSOCIATES L.P.
c/o ECUMENICAL COMMUNITY
DEVELOPMENT ORGANIZATION
475 RIVERSIDE DRIVE - ROOM 1940
NEW YORK, NEW YORK 10115-1940
BY:____________________________
PRINT NAME
-------------------------------
AUTHORIZED SIGNATURE
Page 18 of 18
<PAGE>
URBAN COOL NETWORK INC. 1106
www.urbancoolnet.com
2929 ELM ST
DALLAS, TX 75226 32-115/1110
817-329-6259 BRANCH 864
DATE 2/08/99
PAY
TO THE
ORDER OF ECDO $1633.32
-----------------------------------------------
One thousand six hundred and thirty three & 32/100 cts.
- ------------------------------------------------DOLLARS
[LOGO] CHASE Chase Bank of Texas, N.A.
5000 Colleyville Blvd.
Colleyville, TX 76034
FOR 439 West 125th St. /s/ [ILLEGIBLE]
------------------
DEFERRED COMPENSATION AGREEMENT
AGREEMENT made and entered into as of this 22nd day of November, 1999,
between Urban Cool Network, Inc., a Delaware corporation (the "Corporation")
having an address at 1401 Elm Street, Dallas, Texas 75202 and Jacob R. Miles,
III (the "Executive"), residing at 3416 Hightimber Drive, Grapevine, Texas
76051.
W I T N E S S E T H:
WHEREAS, Executive is presently employed by the Corporation; and
WHEREAS, the Corporation has accrued the Executive's salary for the period
commencing January 1, 1999 through September 30, 1999.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto agree with each other as follows:
1. Term of Employment. The Corporation agrees to pay to Executive the
Executive's accrued salary from January 1, 1999 through September 30, 1999
in the amount of $131,250 upon the consummation of an initial public
offering of the Corporation's securities which results in gross proceeds
of at least $10,000,000.
2. Effect of Waiver. The waiver by either party of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach thereof.
3. Notices. Any notice permitted, required, or given hereunder shall be in
writing and shall be personally delivered; or delivered by any prepaid
overnight courier delivery service then in
1
<PAGE>
general use; or mailed, registered or certified mail, return receipt
requested, to the addresses designated herein or at such other address as
may be designated by notice given hereunder:
If to: Jacob R. Miles, III
1401 Elm Street
Dallas, Texas 75202
If to: Urban Cool Network, Inc.
1401 Elm Street
Dallas, Texas 75202
With a copy to: Martin C. Licht, Esq.
Silverman, Collura & Chernis, P.C.
381 Park Avenue South
New York, New York 10016
Delivery shall be deemed made when actually delivered, or if mailed, three
days after delivery to a United States Post Office.
4. Assignment. Executive shall not be entitled to assign his rights, duties
or obligations under this Agreement.
5. Amendments. The terms and provisions of this Agreement may be amended or
modified only by a written instrument executed by the party to be charged
by such amendment or modification.
6. Governing Law. The terms and provisions herein contained and all the
disputes or claims relating to this Agreement shall be governed by,
interpreted and construed in accordance with the internal laws of the
State of Texas, without reference to its conflict of laws principles.
7. Captions. The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the
scope or substance of any section of this
2
<PAGE>
Agreement.
8. Merger and Severability. This Agreement shall constitute the entire
Agreement between the Corporation and Executive with respect to the
subject matter hereof. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision.
9. Counterparts; Facsimile. This Agreement may be executed by facsimile and
in two (2) or more counterparts, each of which shall be deemed an original
and all of which together shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have affixed their signatures the
day and year first above written.
URBAN COOL NETWORK, INC.
By:
------------------------------------
Name:
Title:
------------------------------------
Jacob R. Miles, III
3
Exhibit 21.1
Subsidiaries
e-commerce Solutions, Inc.
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this Registration Statement on Form S-1 of our
report dated November 23, 1999, on our audit of the financial statements of
Urban Cool Network, Inc. as of December 31, 1998 and for the period January 23,
1998 (inception) through December 31, 1998 and to the reference of our firm
under the caption "Experts".
/s/ Richard A. Eisner & Company, LLP
New York, New York
December 3, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-23-1998
<PERIOD-END> Dec-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,000
<PP&E> 86,000
<DEPRECIATION> 28,000
<TOTAL-ASSETS> 251,000
<CURRENT-LIABILITIES> 778,000
<BONDS> 0
0
0
<COMMON> 32,000
<OTHER-SE> (647,000)
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (328,000)
<EPS-BASIC> (.16)
<EPS-DILUTED> (.16)
</TABLE>
CONSENT TO IDENTIFICATION AS DIRECTOR NOMINEE
The undersigned hereby consents to his identification as a director
nominee of Urban Cool Network, Inc. in the within Registration Statement on Form
S-1.
Dated: November 22, 1999
/s/ Brian Wolfson
-----------------
Sir Brian Wolfson
