<PAGE>
As filed with the Securities and Exchange Commission on October 7, 1999.
Registration No. 333-_____
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NET VALUE HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
7319
(Primary Standard Industrial Classification Code Number)
65-0867684
(I.R.S. Employer Identification Number)
Two Penn Center Plaza, Suite 605
Philadelphia, PA 19102
(215) 564-9190
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
Andrew P. Panzo
President and Chief Executive Officer
Two Penn Center Plaza, Suite 605
Philadelphia, PA 19102
(215) 564-9190
(Name, Address Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
Michael C. Forman, Esquire
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
260 South Broad Street
Philadelphia, PA 19102
(215) 568-6060
Approximate date of commencement 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 for an offering
pursuant to Rule 462(b) 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(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,
check the following box. [_]
___________________________________
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================================
Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Securities Amount To Be Offering Price Aggregate Registration
to be Registered Registered Per Share Offering Price Fee
==============================================================================================================
<S> <C> <C> <C> <C>
Common Stock, $.001 par value 3,722,560 $4.375 $16,286,200 $4,527.56
==============================================================================================================
</TABLE>
. This registration statement registers the resale of 3,722,560 shares of
common stock offered by selling stockholders, as follows:
. 2,358,160 shares issuable upon conversion of 4,824 shares of our
Series B Convertible Preferred Stock;
. 295,040 shares issuable upon exercise of the warrants held by the
holders of shares of our Series B Convertible Preferred Stock; and
. 1,069,360 shares of common stock presently held by the other selling
stockholders.
In addition to the number of shares set forth above, the amount to be
registered includes an indeterminate number of shares of our common stock
issuable upon conversion of our Series B Convertible Preferred Stock, the
related warrants and the shares of our common stock held by such other selling
stockholders, as such number may be adjusted as a result of stock splits, stock
dividends and similar transactions in accordance with Rule 416.
The Proposed Maximum Offering Price Per Share and the Proposed Maximum
Aggregate Offering Price in the table above are estimated solely for the purpose
of calculating the registration fee pursuant to Rule 457(c) promulgated under
the Securities Act of 1933. These estimates were calculated based on the average
of the bid and ask prices for our common stock on the NASDAQ Over-the-Counter
Bulletin Board Trading System on October 6, 1999.
We hereby amend this registration statement on such date or dates as may be
necessary to delay its effective date until we 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
Securities and Exchange Commission, acting pursuant to said Section 8(a), may
determine.
<PAGE>
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.
Dated October 7, 1999
SUBJECT TO COMPLETION
PROSPECTUS
3,722,560 SHARES
NET VALUE HOLDINGS, INC.
COMMON STOCK
Selling stockholders are offering and selling up to 3,722,560 shares of our
common stock. The selling stockholders may offer the shares of common stock
through public or private transactions, on the NASDAQ Over-the-Counter Bulletin
Board Trading System, at prevailing market prices, or at privately negotiated
prices.
Our common stock is listed on the NASDAQ Over-the-Counter Bulletin Board
Trading System under the symbol "NETV." On October 6, 1999, the closing sale
price for our common stock, as quoted on the NASDAQ Over-the-Counter Bulletin
Board Trading System was $4.375 per share.
Investing in the common stock involves risks. See "Risk Factors" beginning
on page 7.
The Securities and Exchange Commission and state securities regulators have
not 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 October _____, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ABOUT THIS PROSPECTUS................................................................... 3
SUMMARY................................................................................. 3
FORWARD-LOOKING STATEMENTS.............................................................. 7
RISK FACTORS............................................................................ 7
MARKET PRICE AND DIVIDEND INFORMATION................................................... 20
CAPITALIZATION.......................................................................... 21
SELECTED CONSOLIDATED FINANCIAL DATA.................................................... 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS... 25
BUSINESS................................................................................ 35
MANAGEMENT.............................................................................. 47
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................... 51
SELLING STOCKHOLDERS.................................................................... 53
PLAN OF DISTRIBUTION.................................................................... 56
CERTAIN TRANSACTIONS.................................................................... 57
DESCRIPTION OF CAPITAL STOCK............................................................ 60
SHARES ELIGIBLE FOR FUTURE SALE......................................................... 63
PRINCIPAL UNITED STATES TAX CONSEQUENCES TO NON-U.S. HOLDERS............................ 64
EXPERTS................................................................................. 67
LEGAL MATTERS........................................................................... 67
WHERE YOU CAN FIND MORE INFORMATION..................................................... 67
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.............................................. F-1
</TABLE>
<PAGE>
ABOUT THIS PROSPECTUS
In October 1998, we acquired a majority ownership interest of
BrightStreet.com, Inc. Prior to this acquisition, we did not have any
operations. Accordingly, all financial information presented in this prospectus
for periods prior to October 1998 relates to the financial position and the
results of operations of BrightStreet. This financial information is included in
the Summary, Capitalization, Selected Consolidated Financial Data, Management's
Discussion and Analysis of Financial Condition and Results of Operation, and the
Consolidated Financial Statements.
Although we refer to the companies in which we have acquired an ownership
interest as our "partner companies" and that we have a "partnership" with these
companies, other than our partner companies which are our majority-owned
subsidiaries, we do not act as an agent or legal representative for any of our
partner companies, we do not have the power or authority to legally bind any of
our partner companies and we do not have the types of liabilities in relation to
our partner companies that a general partner of a partnership would have.
You should rely only on the information contained in this prospectus. We
have not authorized any other person to provide you with different information.
If anyone provides you with different or inconsistent information, you should
not rely on it. We are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
We intend to furnish our stockholders with annual reports containing
consolidated financial statements audited by an independent accounting firm.
SUMMARY
This summary is not complete and may not contain all of the information
that may be important to you. You should read the entire prospectus carefully,
including the financial data and related notes, before making an investment
decision. Unless otherwise specifically stated, the information in this
prospectus assumes that holders of our securities have not exercised any options
or warrants which are currently outstanding.
Net Value Holdings, Inc.
We are an Internet holding company actively engaged in e-commerce through
our partner companies. Our goal is to serve as an Internet business incubator.
We primarily engage in the conception and ongoing nurturing of development stage
Internet businesses. All of our partner companies are currently in the
development stage. We currently have ownership interests in five Internet
businesses, each of which we consider to be a partner company. Our approximate
ownership interest in each of our current partner companies is as follows:
BrightStreet.com, Inc. (www.BrightStreet.com) 66%
Metacat.com, Inc. (www.metacat.com) 100%
AsiaCD, Inc. (www.asiacd.com) 12%
College 411.com, Inc. (www.college411.com) 29%
AssetExchange.com, Inc. (www.AssetExchange.com) 20%
We are a Delaware corporation. Our principal executive office is located at
Two Penn Center Plaza, Suite 605, Philadelphia, Pennsylvania 19102 and our
telephone number is (215) 564-9190. We also maintain an office in San Francisco,
California. We maintain an Internet website at www.nvholdings.com. The
information on our Internet website is not part of this prospectus.
BrightStreet.com, Inc. provides the technology that enables portals,
retailers and manufacturers to deliver Internet-based promotions to consumers.
BrightStreet licenses its turnkey platform directly to customers' Internet
websites, providing them with the capability to distribute branded promotions
with consumer targeting, lower cost, and real-time monitoring of the
effectiveness of such promotions. BrightStreet also plans to launch a network of
affiliated Internet websites that distribute the promotions of its manufacturer
and retail customers in December 1999.
3
<PAGE>
metacat.com, Inc. is an Internet-based e-commerce superstore that
aggregates and searches the product offerings of thousands of catalog and mail
order businesses and allows consumers to purchase these products through its
Internet website. metacat anticipates that its Internet website will be fully
operational by November 1999. As of September 30, 1999, metacat had not
recognized any revenues and had minimal assets.
Asia CD, Inc. is a 24-hour online music and video store targeted to
individuals of Asian descent living throughout the world and individuals who
enjoy Asian popular culture. Asia CD provides these individuals with easy access
to a broad range of media titles at competitive prices which include local
rather than international shipping costs. AsiaCD's Internet website is fully
functional and in 1999, it has generated over $1,000,000 (unaudited) in
revenues.
College411.com, Inc. is an online community for college students featuring
functional academic resources, comparison shopping for student items, as well as
social features such as chat rooms, message centers and customized news and
information sites. College411 anticipates that its Internet website will be
fully functional in October 1999. As of September 30, 1999, College411 had not
generated any revenues and had minimal assets.
AssetExchange, Inc. provides banks and other financial institutions with an
Internet-based listing service which allows them to more efficiently trade loan
portfolio assets. AssetExchange launched its Internet website in August 1999. As
of September 30, 1999, AssetExchange had not generated any revenues and had
minimal assets.
Thirteen selling stockholders are offering and selling up to 3,722,560
shares of common stock. The selling stockholders may offer the shares of common
stock through public or private transactions, at prevailing market prices, or at
privately negotiated prices.
Our common stock is listed on the NASDAQ Over-the-Counter Bulletin Board
Trading System. Our ticker symbol is "NETV." On October 6, 1999, the closing bid
price for our common stock, as quoted on the NASDAQ Over-the-Counter Bulletin
Board Trading System was $4.375 per share.
Summary of Consolidated Financial Data
The following summary of historical and pro forma consolidated financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our audited Consolidated
Financial Statements and related notes thereto included elsewhere in this
prospectus. We have presented this pro forma information for comparative
purposes only. This pro forma information is not indicative of the results of
operations or financial position which we actually would have achieved if we
completed the following transactions as of June 30, 1999. The Pro Forma
Consolidated Balance Sheet Data reflects the following transactions as if they
occurred as of June 30, 1999:
. Our merger with Strategicus Partners, Inc., which closed on July 30,
1999. As a result of this merger, we now own Strategicus' investments
in metacat.com, Inc., AsiaCD, Inc. and College411.com, Inc. In
connection with this merger, we issued 601,030 shares of our common
stock and 184,627 shares of our Series A Preferred Stock to the
stockholders of Strategicus in exchange for all of the outstanding
capital stock of Strategicus. In addition, we issued 6,923,598 shares
of our common stock and 2,126,833 shares of our Series A Preferred
Stock to the stockholders of Strategicus. They were to earn these
shares according to a vesting schedule on a ratable basis over a 48
month period. We have recorded this transaction using an ascribed
value of $2.50 per share for our common stock and zero value for the
Series A Preferred Stock.
4
<PAGE>
. To facilitate the acquisition of the ownership interests in AsiaCD,
Inc. and College411.com, Inc., we made a loan to Strategicus in the
aggregate principal amount of $1,555,000 in June 1999. Strategicus
used $1,000,000 of these proceeds to acquire approximately 12% of
AsiaCD, Inc., and $100,000 to acquire approximately 14% of College
411.com. The remaining proceeds were primarily used as loans to
Strategicus' stockholders.
. Our initial investments in metacat.com, Inc., AsiaCD, Inc. and
College411.com, Inc. have been recorded at a total value of
$2,702,573. This amount consists of an allocation of the value of the
securities we issued to acquire Strategicus and the principal amount
of our loans advanced to Strategicus to acquire these ownership
interests.
. Our agreement which we entered into in August 1999 with three members
of our management team to issue them options to purchase 6,256,056
shares of our common stock at an exercise price of $1.00 per share in
exchange for their cancellation of 6,256,056 shares of our common
stock. This transaction remains subject to the approval of our
stockholders.
. In September 1999, we exchanged 2,898,787 shares of our common stock
for all 4,831,312 issued and outstanding shares of our Series A
Preferred Stock.
. In September 1999, we sold 4,824 shares of Series B Preferred Stock at
an offering price of $1,000 per share. We received net proceeds of
$4,582,800 in this offering after paying commissions equal to 5% of
the gross proceeds.
. Our agreement to grant options to purchase 900,000 shares of our
common stock at an exercise price of $1.00 per share to Lee Hansen,
our new chief operating officer, in September 1999. We have recorded
$1,350,000 of deferred compensation for the granting of options to
purchase our common stock at an exercise price that was less than the
market value of our stock at the date of our grant. Concurrently with
this transaction, the remaining members of our management team
collectively agreed to surrender their right to receive options to
purchase an aggregate of 720,000 shares of our common stock and to
cancel 180,000 shares of our common stock.
. Our additional investment of $150,000 in College411.com in October
1999.
. Our investment of $420,000 in AssetExchange, Inc. in September and
October 1999.
. In October 1999, we sold a total of 676,374 shares of our common stock
to The RS Orphan Fund, LP and The RS Orphan Offshore Fund, LP for
$676,374. These funds are managed by Paul H. Stephens, a founder and
former managing director of Robertson Stephens & Company. Mr. Stephens
has agreed to join our Board of Advisors and has entered into a
consulting agreement with our company pursuant to which he has agreed
to provide financial advisory and consulting services to our company.
5
<PAGE>
Year Ended December 31,
-----------------------
<TABLE>
<CAPTION>
Six Months Ended December 16, 1994
June 30, (inception) through
(Unaudited) June 30, 1999
1996 1997 1998 1998 1999 (Unaudited)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data
Revenues $ 0 $ 0 $ 1,330,367 $ 74,667 $ 62,500 $ 1,392,867
Operating expenses 3,316,522 9,364,898 9,255,776 4,599,310 3,619,201 26,320,484
----------- ------------ ------------ ----------- ----------- ------------
Loss from operations (3,316,522) (9,364,898) (7,925,409) (4,524,643) (3,556,701) (24,927,617)
Other income (expense) 2,428 (1,870,339) (3,474,700) (1,649,604) (3,036,255) (8,379,481)
-----------
Net loss $(3,314,094) $(11,235,237) $(11,400,109) $(6,174,247) $(6,592,956) $(33,307,098)
=========== ============ ============ =========== =========== ============
Net loss per common
share outstanding, basic
and diluted (3.55) (6.88) (5.66) (7.89) (0.74)
----------- ------------ ------------ ----------- -----------
Weighted average shares
outstanding, basic and
diluted 934,810 1,804,700 4,711,351 2,715,085 8,960,098
----------- ------------ ------------ ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999 (Unaudited)
-------------------------
Pro Forma
Actual Transactions
------ ------------
<S> <C> <C>
Balance Sheet Data
Cash and cash equivalents $ 1,984,794 $ 5,418,968
Working capital (deficit) (328,373) 3,115,801
Total assets 3,907,672 10,669,419
Total liabilities 9,709,214 9,709,214
Notes payable and accrued interest 8,157,528 8,157,528
Stockholders' equity (deficit) $(5,801,542) $ 960,205
</TABLE>
6
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about us and about our partner companies,
including, among other things:
. development of an e-commerce market;
. our ability to identify trends in our markets and the markets of
our partners companies and to offer new solutions that address
the changing needs of these markets;
. our ability to successfully execute our business model;
. the ability of each of our partner companies to compete
successfully against direct and indirect competitors;
. our ability to acquire interests in additional companies;
. growth in demand for Internet products and services;
. adoption of the Internet as an advertising medium; and
. other risks which may be described in our future filings with the
Securities and Exchange Commission.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
RISK FACTORS
The shares of common stock which are the subject of this registration
statement involve a high degree of risk and represent a highly speculative
investment. You should not purchase these shares of common stock if you cannot
afford the loss of your entire investment. In addition to the other information
contained in this prospectus, you should carefully consider the following risk
factors in evaluating our corporation, its business prospects and an investment
in the shares of common stock.
RISKS PARTICULAR TO NET VALUE HOLDINGS, INC.
- --------------------------------------------
We Have A Very Limited Operating History And No Earnings History Upon Which You
- -------------------------------------------------------------------------------
May Evaluate An Investment In Our Corporation
- ---------------------------------------------
We have a very limited operating history and have not generated any
earnings or significant revenues since our inception. Accordingly, the financial
statements included in this prospectus only provide you with limited operating
results upon which you must evaluate our corporation and its business prospects.
We will, in all likelihood, sustain operating expenses without corresponding
revenues, at least until either (i) our majority-owned partner companies become
profitable, (ii) our minority-owned partner companies issue dividends, or (iii)
we sell our investments in our minority-owned partner companies at a gain. All
of our current partner companies are development stage companies that have
limited operating histories and have generated very limited, if any, revenues or
earnings from operations since inception. We are not certain that any of our
current partner companies will ever generate substantial earnings or that we
will generate corresponding revenues from our investments in these partner
companies.
7
<PAGE>
We Have Had A History Of Losses And Expect Continued Losses In The Foreseeable
- ------------------------------------------------------------------------------
Future
- ------
For the six months ended June 30, 1999, we realized a net loss of
$6,592,956 (unaudited). For the year ended December 31, 1998, we realized a net
loss of $11,400,109. From our inception through June 30, 1999, we have realized
a cumulative net loss of $33,307,098 (unaudited). We expect to continue to incur
losses for the foreseeable future and, if we ever have profits, we may not be
able to sustain them.
Our expenses will increase as we build an infrastructure to implement our
business model. For example, we expect to hire additional employees. In
addition, we plan to significantly increase our operating expenses to:
. broaden our partner company support capabilities;
. explore acquisition opportunities and alliances with other companies;
and
. facilitate business arrangements among our partner companies.
Expenses may also increase due to the potential effect of goodwill
amortization and other charges resulting from future acquisitions. In addition,
BrightStreet and IQ Value, LLC agreed to terminate a licensing agreement
effective June 30, 1999. Over 90% of our revenues since inception were derived
from this licensing agreement. If any of these and other expenses are not
accompanied by increased revenue, then our losses will be greater than we
anticipate.
There Is Substantial Doubt Regarding Our Ability To Continue As A Going Concern.
- -------------------------------------------------------------------------------
From inception through the date of this prospectus, we have generated our
operating funds primarily through the sale of our equity and debt securities.
Our dependence on outside financing, negative working capital and losses since
inception raise substantial doubt about our ability to continue as a going
concern. Our financial condition may have a negative effect on our ability to
raise additional funds through the sale of our debt and equity securities as
well as our ability to complete investments in and acquisitions of additional
partner companies using cash or our common stock. We are not certain that we
will be able to sell additional debt or equity securities to generate the
necessary proceeds to continue to finance our operations. If we fail to generate
revenues and/or fail to sell additional securities, then we will not have
sufficient cash to meet the requirements of our business plan and will cease to
continue as a going concern. If we cease to continue as a going concern, then
investors in our common stock will lose all or a substantial portion of their
investment.
Our Proposed Operations Are Speculative In Nature
- -------------------------------------------------
We are not certain that our proposed plan of operation, even if successful,
will result in operating revenues or profits. Our success depends upon the
performance of our partner companies, which is uncertain. While we intend to
seek business combinations with and investment opportunities in entities that
have established operating histories, we are not certain that we will be
successful in locating candidates meeting this criteria. Economic, governmental,
regulatory, industry and internal company factors outside our control affect
each of our partner companies. If our partner companies do not successfully
implement their business plans, then they will not be profitable and we will not
receive dividends from our partner companies or have the ability to sell our
investments in our partner companies at a gain. Accordingly, if these events
occur, then we will not generate any revenues and the value of our assets and
the market price of our common stock will decline. There are material risks
relating to the businesses of our partner companies. For a complete discussion
of these risks, see "RISK FACTORS--RISKS RELATED TO OUR PARTNER COMPANIES."
Accordingly, the success of our operations may be dependent upon management of
our partner companies and numerous other factors beyond our control.
8
<PAGE>
We Are Subject To Certain Risks Due To Our Status As A Holding Company
- ----------------------------------------------------------------------
We expect to operate as a holding company. As a holding company without
significant income from operations, we expect to derive our revenue from any
dividends which we may receive from our partner companies and the gains which we
realize on the disposal of our investments in our partner companies. If our
partner companies are unable to pay dividends or otherwise distribute amounts to
us or we are unable to sell our investments in our partner companies at gains
which are sufficient to cover our operating expenses, then we may not be able to
pay our expenses, even if, on a consolidated basis, our operating subsidiaries
are profitable.
There Is A Scarcity Of And Competition For Investment Opportunities And Business
- --------------------------------------------------------------------------------
Combinations
- ------------
There are a limited number of Internet-based businesses seeking investment
capital which we deem to be desirable target candidates and there is a very high
level of competition among companies seeking to make investments in these
entities. We are and will continue to be an insignificant participant in the
business of seeking mergers with, investments in and acquisitions of small
private and public entities. A large number of established and well-financed
entities, including venture capital firms, are active in mergers and
acquisitions with and investments in companies which we may find to be desirable
target candidates. Many such entities have significantly greater financial
resources, technical expertise and managerial capabilities than us and,
consequently, we will be at a competitive disadvantage in identifying possible
business opportunities and successfully completing business combinations with,
or investments in, these entities. Moreover, we will also compete in seeking
merger or acquisition candidates or investment opportunities with numerous other
public companies. We may not be able to identify companies that complement our
strategy, and even if we identify a company that complements our strategy, we
may be unable to acquire an interest in the company for many reasons, including:
. a failure to agree on the terms of acquisition or investment, such as
the amount or price of our acquired interest;
. incompatibility between our corporation and management of the partner
company;
. competition from other acquirors of e-commerce companies;
. a lack of capital to acquire an interest in a potential partner
company; and
. the unwillingness of a potential partner company to partner with our
corporation.
If we are unable to successfully compete with other entities in identifying
possible business opportunities and successfully complete business combinations
with or investments in these entities, then we will not be able to successfully
implement our strategy.
We Have Established Limited Criteria For Future Investments in Partner Companies
- --------------------------------------------------------------------------------
Although we have focused our acquisition and investment efforts on
businesses whose operations are focused in the Internet industry and meet
certain limited criteria, we are not obligated to follow any particular
operating, financial, geographic or other criteria in evaluating candidates for
potential business combinations or investments. In addition, we are not required
to complete any number of investments or business combinations in any calendar
year. We will determine which potential partner companies provide the best
potential investment return for our stockholders and we will determine the
amount of our investment in each potential partner company's business. Once you
purchase our securities, you will not have the opportunity to evaluate the
relevant economic, financial and other information that our management team will
use and consider in deciding whether or not to enter into a particular business
combination or make an investment in a particular partner company. We are not
certain that we will be successful in identifying and evaluating suitable
business opportunities and consummating business combinations with or
investments in additional partner companies. We do not anticipate that our
partner companies' operations will have a short-term positive impact
9
<PAGE>
on our operations. Thus, we will continue to seek candidates for additional
business combinations and investments. These candidates may include businesses
from industries in which our management has little or no prior experience.
Accordingly, we may enter into business combinations with or make investments in
businesses that have some or all of the following characteristics:
. no significant operating history;
. a high level of operating losses;
. minimal assets; and
. limited potential for short-term earnings.
We May Have To Take Certain Actions To Avoid Registration Under The Investment
- ------------------------------------------------------------------------------
Company Act of 1940
- -------------------
We believe that we are actively engaged in the business of e-commerce
through our network of partner companies. However, because three of our partner
companies are not majority-owned subsidiaries and we may not retain a majority
ownership interest in our other two partner companies, changes in the value of
our ownership interests in our partner companies and the income/loss and revenue
attributable to our partner companies could require us to register as an
investment company under the Investment Company Act of 1940 unless we take
action to avoid registration requirements. For example, we may be unable to sell
our minority ownership interests in some of our partner companies we would
otherwise want to sell and may need to sell some assets which are considered to
be investment securities, including interests in partner companies. We may also
have to ensure that we retain at least a 25% ownership interest in our majority-
owned partner companies after their initial public offerings, if any. In
addition, we may have to acquire additional income or loss generating assets
that we might not otherwise have acquired or may have to forego opportunities to
acquire interests in companies that we would otherwise want to acquire in
connection with executing our business strategy. It is not feasible for us to
register as an investment company because the regulations promulgated under the
Investment Company Act of 1940 are inconsistent with our business strategy of
actively managing, operating and promoting collaboration among our network of
partner companies.
Our Success Could Be Impaired By Valuations Placed On Internet-Related Companies
- --------------------------------------------------------------------------------
By The Investment Community
- ---------------------------
Our strategy involves creating value for our stockholders by helping our
partner companies grow and access the capital markets. We are therefore
dependent on the market for Internet-related companies in general and for
initial public offerings of those companies in particular. To date, there has
been a substantial number of Internet-related initial public offerings and
additional offerings are expected to be made in the future. If the market for
Internet-related companies and initial public offerings were to weaken for an
extended period of time, then the ability of our partner companies to grow and
access the capital markets will be impaired and we may need to provide
additional capital to our majority-owned partner companies and make additional
investments in our minority-owned partner companies in order to protect our
previous investments. If we are unable to provide additional capital to our
partner companies in these circumstances, then our partner companies' operations
may suffer and the value of our securities may decrease.
Our Partner Companies Are Growing Rapidly And We May Have Difficulty Assisting
- ------------------------------------------------------------------------------
Them In Managing Their Growth
- -----------------------------
Our partner companies may experience rapid growth as they introduce new
products and services and hire additional employees. Since such growth may not
be accompanied by immediate increases in revenues, this growth is likely to
place significant strain on their resources and on the resources we allocate to
assist our partner companies. In addition, our management may be unable to
convince our partner companies to adopt our ideas for effectively and
10
<PAGE>
successfully managing their growth. If we are unable to effectively assist our
partner companies in managing their growth, then they may not sustain profitable
operations and the value of our common stock may decrease.
We May Be Unable To Obtain Maximum Value For Our Partner Company Interests
- --------------------------------------------------------------------------
While we generally anticipate holding our interests in our partner
companies on a long-term basis, if we are required to divest all or part of
them, we may not receive maximum value for these positions. If our partner
companies were to have publicly traded stock, we may be unable to sell our
interest at then-quoted market prices. Furthermore, since our partner companies
do not currently have publicly traded stock, the realizable value of our
interests may ultimately prove to be lower than the carrying value currently
reflected in our consolidated financial statements. If we are unable to obtain
maximum value when we sell our ownership interests in our partner companies,
then the value of our common stock may decrease.
Our Resources And Our Ability To Manage Newly Acquired Partner Companies May Be
- -------------------------------------------------------------------------------
Strained As We Acquire More Interests In E-Commerce Companies
- -------------------------------------------------------------
We have acquired, and plan to continue to acquire, interests in e-commerce
companies that complement our business strategy. In the future, we may also
acquire larger percentages or larger interests in companies than we have in the
past. These acquisitions may place a significantly greater strain on our
resources, our ability to manage such companies and our ability to integrate
them into our collaborative network. Future acquisitions are subject to numerous
risks, including the following:
. our acquisitions may cause a disruption in our ongoing support of our
partner companies, distract our management and other resources and
make it difficult to maintain our standards, controls and procedures.
. we may acquire interests in companies in e-commerce markets in which
we have little experience.
. we may not be able to facilitate collaboration between our partner
companies and the new companies that we acquire.
. to fund future acquisitions, we may be required to incur debt or issue
equity securities, which may be dilutive to our existing stockholders.
We Have A Need For Additional Financing
- ---------------------------------------
We may need to raise substantial additional financing in the future to
support our or our partner companies' working capital needs and to provide us
with sufficient funding to complete additional investments and acquisitions. We
are not certain that the funds we have will, in fact, be sufficient to satisfy
our short term financing needs or that we will be able to complete additional
financing transactions within the short-term, if necessary. If we are unable to
secure additional financing on acceptable terms, then we may not be able to
complete additional investments or acquisitions, or continue to operate as a
going concern.
Our Success Is Dependent On Our Key Personnel And The Key Personnel Of Our
- --------------------------------------------------------------------------
Partner Companies
- -----------------
We believe that our success will depend on continued employment by us and
our partner companies of senior management and key technical personnel. If one
or more members of our management team or the management teams of any of our
partner companies are unable or unwilling to continue in their present
positions, then our business and operations could be disrupted.
As of September 30, 1999, our entire management team has worked for us for
less than one year. Andrew P. Panzo joined our management team in January 1999.
Other than Lee Hansen, our chief operating officer who joined
11
<PAGE>
us on October 1, 1999, the remainder of our management joined our company in
July 1999 in connection with our merger with Strategicus Partners, Inc. Our
efficiency may be limited while these employees and future employees are being
integrated into our operations. In addition, we may be unable to identify and
hire additional qualified management and professional personnel to help lead us
and our partner companies.
The success of some of our partner companies also depends on their having
highly trained technical and marketing personnel. Our partner companies will
need to continue to hire additional personnel as their businesses grow. A
shortage in the number of trained technical and marketing personnel could limit
the ability of our partner companies to increase the sales of their existing
products and services and launch new product offerings.
We Have Significant Indebtedness
- --------------------------------
We currently have indebtedness to third parties in the aggregate amount of
approximately $10,400,000. A significant portion of this indebtedness consists
of convertible debentures which are not current liabilities. In addition, if we
acquire at least 80% of BrightStreet.com, Inc.'s common stock, then we can
automatically convert convertible debentures in the aggregate principal amount
of $5,917,500 into shares of our common stock at conversion prices ranging from
$2.00 to $2.50 per share. The holders of all of our convertible debentures may
elect at any time to convert the principal amount of their convertible
debentures plus all accrued interest thereon into shares of our common stock at
conversion prices ranging from $2.00 to $2.50 per share. If such convertible
debentures are converted into shares of our common stock, then we will no longer
have a cash liability related to these convertible debentures. However, the
presence of this indebtedness may have a negative effect on our ability to
obtain additional financing. In addition, if we do not have adequate funds on
hand at the maturity dates of these convertible debentures and are obligated to
repay these convertible debentures, then we will require significant additional
funding if we are unable to restructure or otherwise delay our obligation to
satisfy this indebtedness. We are not certain that alternative financing will
be available to us on acceptable terms or at all.
Our Systems And Those Of Our Partner Companies And Third Parties May Not Be Year
- --------------------------------------------------------------------------------
2000 Compliant, Which Could Disrupt Our Operations And The Operations Of Our
- ----------------------------------------------------------------------------
Partner Companies
- -----------------
Many computer programs have been written using two digits rather than four
digits to define the applicable year. This poses a problem at the end of the
century because these computer programs may recognize a date using "00" as the
year 1900, rather than the year 2000. This in turn could result in major system
failures or miscalculations and is generally referred to as the Year 2000 issue.
We could be exposed to various risks if our systems and the systems on which our
partner companies are dependent to conduct their operations are not Year 2000
compliant. Our potential areas of exposure include products purchased from
third parties, computers, software, telephone systems and other equipment used
internally. If our present efforts and the efforts of our partner companies to
address the Year 2000 compliance issues are not successful, or if distributors,
suppliers and other third parties with which we and our partner companies
conduct business do not successfully address such issues, then our business and
the businesses of our partner companies may not be operational for a period of
time. If the Web-hosting facilities of our partner companies are not Year 2000
compliant, then their production websites may become unavailable in the Year
2000. This may impair our partner companies' ability to deliver services to
their users. For a full discussion of our Year 2000 issues, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Year
2000."
Fluctuations In Our Quarterly Results May Adversely Affect Our Stock Price
- --------------------------------------------------------------------------
We expect that our quarterly results will fluctuate significantly due to
many factors, including:
. the operating results of our majority-owned partner companies;
. the sale of any of our investments in our partner companies;
12
<PAGE>
. changes in our methods of accounting for our ownership interests in
partner companies, which may result from changes in our ownership
percentages of our partner companies;
. sales of equity securities by our partner companies, which could cause
us to recognize gains or losses under applicable accounting rules;
. the pace of development or a decline in growth of the e-commerce
market;
. intense competition from other potential acquirors of e-commerce
companies, which could increase our cost of acquiring interests in
additional companies and competition for the goods and services
offered by our partner companies; and
. our ability to effectively manage our growth and the growth of our
partner companies during the anticipated rapid growth of the e-
commerce market.
We believe that period-to-period comparisons of our operating results are
not meaningful. Additionally, if our operating results in one or more quarters
do not meet securities analysts' or investors' expectations, the price of our
common stock could decrease.
Future Securities Offerings Will Dilute The Ownership Interest Of Current
- -------------------------------------------------------------------------
Stockholders
- ------------
We expect to complete securities offerings in the future. Our primary plan
of operation involves making investments in and consummating business
combinations with partner companies. We may issue securities to stockholders of
target companies in any of these business combinations. We may also issue
additional securities in order to raise the funds necessary to make investments
in partner companies. Any such financing will involve the issuance of our
previously authorized and unissued securities and will result in the dilution of
the ownership interests of our present stockholders.
We May Experience Considerable Taxation Consequences
- ----------------------------------------------------
Federal and state tax consequences will, in all likelihood, be major
considerations in our decision to make any investment in a partner company or to
undertake any business combination. Currently, pursuant to various federal and
state tax provisions, such transactions may be structured so as to result in a
tax-free treatment to both companies participating in the transaction. While we
intend to structure any investment or business combination so as to minimize the
federal and state tax consequences to both us and the target entity, we cannot
be certain that such investment or business combination will meet the statutory
requirements of a tax-free reorganization or that the parties will obtain the
intended tax-free treatment upon a transfer of stock or assets. A non-
qualifying reorganization could result in the imposition of both federal and
state taxes which may adversely affect us and our stockholders.
RISKS RELATED TO THE OFFERING
- -----------------------------
Shares Eligible For Future Sale By Current Holders Of Our Securities May
- ------------------------------------------------------------------------
Decrease The Price Of Our Common Stock
- --------------------------------------
If holders of our securities sell substantial amounts of our common stock,
including shares issued upon the exercise of outstanding options and warrants
and shares issued upon conversion of convertible debentures, then the market
price of our common stock could decrease. We currently have issued and
outstanding convertible debentures in the aggregate principal amount of
approximately $7,956,469 which are convertible at any time into shares of common
stock by the holders thereof at conversion prices ranging from $2.00 to $2.50
per share. In addition, we currently have issued and outstanding warrants to
purchase approximately 1,161,272 shares of our common stock. The holders of
these warrants may exercise them at any time at exercise prices ranging from
$2.50 per share to $6.00 per share. We have also issued and outstanding 4,824
shares of our Series B Preferred Stock which are presently convertible at a
price of
13
<PAGE>
$4.0875 per share into 1,180,184 share of our common stock. In addition, at any
time prior to the first anniversary of the effective date of this registration
statement, the holders of our Series B Preferred Stock may elect to reset their
conversion price to the closing sales price of our common stock, provided that
they may not reset their conversion below $2.50 per share. If the holders of our
Series B Preferred Stock were to reset their conversion price to the conversion
floor price of $2.50 per share, then they would be entitled to receive 1,929,600
shares of our common stock upon full conversion of their shares of our Series B
Preferred Stock. Although restrictions under federal securities laws limit the
ability of the shares of our common stock issuable upon conversion of these
securities to be resold in the public market upon issuance, these restrictions
may only apply for a period of one year from the date on which these securities
are converted into shares of common stock. In addition, upon the effective date
of this registration statement, all shares of common stock issuable upon
conversion of the Series B Preferred Stock and the exercise of the related
295,040 warrants will no longer be subject to any restrictions on transfer or
resale. For a more complete discussion of contingently issuable securities and
their ability to be resold into the market, see "Shares Eligible for Future
Sale."
There Is No Significant Trading Market For The Common Stock
- -----------------------------------------------------------
Our common stock is not eligible for trading on any national or regional
exchange. Our common stock is eligible for trading in the over-the-counter
market in the "Pink Sheets" or on the NASDAQ Over-the-Counter Bulletin Board
Trading System pursuant to Rule 15c2-11 of the Securities Exchange Act of 1934.
This market tends to be highly illiquid, in part because there is no national
quotation system by which potential investors can trace the market price of
shares except through information received or generated by certain broker-
dealers that make a market in that particular stock. The National Association
of Securities Dealers has enacted new eligibility requirements for issuers whose
securities are quoted on the NASDAQ Over-the-Counter Bulletin Board Trading
System. Pursuant to these rules, no issuer's securities may be quoted on the
NASDAQ Over-the-Counter Bulletin Board Trading System unless the issuer files
periodic reports with the Securities and Exchange Commission pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934. Although we are not subject
to these new eligibility requirements until February 2000, we intend to comply
with these requirements as soon as possible. If we do not comply with these
eligibility requirements on a timely basis, then our common stock will be
ineligible for quotation on the NASDAQ Over-the-Counter Bulletin Board Trading
System until we are in compliance with these requirements. There are currently
no plans, proposals, arrangements or understandings with any person with regard
to the development of a trading market in the common stock. We are not certain
that an active trading market in the common stock will develop, or if such a
market develops, that it will be sustained. In addition, there is a greater
chance for market volatility for securities that trade in the Pink Sheets or on
the NASDAQ Over-the-Counter Bulletin Board Trading System as opposed to a
national exchange or quotation system. This volatility may be caused by a
variety of factors, including:
. the lack of readily available price quotations;
. the absence of consistent administrative supervision of "bid" and
"ask" quotations;
. lower trading volume; and
. market conditions.
In a volatile market, we may experience wide fluctuations in the market
price of our securities. These fluctuations may have an extremely negative
effect on the market price of our securities and may prevent you from obtaining
a market price equal to your purchase price when you attempt to sell our
securities in the open market. In these situations, you may be required to
either sell our securities at a market price which is lower than your purchase
price, or to hold your investment in our securities for a longer period of time
than you planned to hold this investment.
Our Common Stock Price Is Likely To Be Highly Volatile
- ------------------------------------------------------
The market price for our common stock is likely to be highly volatile as the
stock market in general, and the market for Internet-related stocks in
particular, has been highly volatile. The trading prices of many technology and
14
<PAGE>
Internet-related company stocks have reached historical highs within the last
year and have reflected relative valuations substantially above historical
levels. During the same period, the stock of these companies have also been
highly volatile and have recorded lows well below such historical highs. We
cannot assure you that our common stock will trade at the same levels of other
Internet stocks or that Internet stocks in general will sustain their current
market prices.
The following factors will add to our common stock price's volatility:
. actual or anticipated variations in our quarterly operating results
and those of our partner companies;
. new sales formats or new products or services offered by us, our
partner companies and their competitors;
. conditions or trends in the Internet industry in general and the
e-commerce industry in particular;
. announcements by our partner companies and their competitors of
technological innovations;
. announcements by us or our partner companies or our competitors of
significant acquisitions, strategic partnerships or joint ventures;
. changes in the market valuations of our partner companies and other
Internet companies;
. our capital commitments;
. additions or departures of our key personnel and key personnel of our
partner companies; and
. sales of our common stock.
Many of these factors are beyond our control. These factors may decrease
the market price of our common stock, regardless of our operating performance.
Anti-Takeover Provisions And Our Right To Issue Preferred Stock Could Make A
- ----------------------------------------------------------------------------
Third Party Acquisition Of Our Corporation Difficult.
- -----------------------------------------------------
Our Amended and Restated Certificate of Incorporation and Bylaws and the
Delaware General Corporation Law include provisions that could delay, defer or
prevent a takeover attempt that stockholders may consider to be in their best
interests. These include:
Staggered Board of Directors. Our Board of Directors is divided into three
----------------------------
classes serving terms currently expiring in 1999, 2000 and 2001 and directors
may only be removed for cause. These provisions may limit the ability of
holders of common stock to remove our Board of Directors through a proxy
contest.
Stockholder Proposals. Our stockholders must give advance notice, generally
---------------------
60 days prior to the relevant meeting, for stockholder nominations of candidates
for our Board of Directors and for certain other business to be conducted at any
stockholders' meeting. This limitation on stockholder proposals could inhibit a
change of control by delaying action on any proposed change in control until the
annual meeting of stockholders.
Preferred Stock. Our certificate of incorporation authorizes our Board of
---------------
Directors to issue up to 10,000,000 shares of preferred stock having such rights
as may be designated by our Board of Directors, without stockholder approval.
This issuance of preferred stock could inhibit a change in control by making it
more difficult to acquire the majority of our voting stock.
15
<PAGE>
Delaware Anti-takeover Statute. The Delaware General Corporation law
------------------------------
restricts certain business combinations with interested stockholders. This
statute may have the effect of inhibiting a non-negotiated merger or other
business combination.
We Do Not Anticipate Paying Dividends
- -------------------------------------
We have not paid any cash dividends since our inception and we do not
anticipate paying cash dividends in the foreseeable future. Any dividends which
we may pay in the future will be at the discretion of our Board of Directors and
will depend on our future earnings, our financial requirements and other
similarly unpredictable factors. For the foreseeable future, we anticipate that
we will retain any earnings which we may generate from our operations to finance
and develop our growth and that we will not pay cash dividends to our
stockholders.
RISKS PARTICULAR TO OUR PARTNER COMPANIES
- -----------------------------------------
Some of Our Partner Companies May Be Unable to Protect Their Proprietary Rights
- -------------------------------------------------------------------------------
and May Infringe On The Proprietary Rights Of Others
- ----------------------------------------------------
Proprietary rights are important to the success and competitive position of
many of our partner companies. Although our partner companies seek to protect
their proprietary rights, their actions may be inadequate to protect any
trademarks, copyrights and other proprietary rights. For example,
BrightStreet.com, Inc. filed its initial patent application in 1995 and the
United States Patent and Trademark Office has not yet issued a patent covering
BrightStreet's technology. In addition, effective copyright and trademark
protection may be unenforceable or limited in certain countries and the global
nature of the Internet makes it impossible for some of our partner companies to
control the dissemination of their work. Our partner companies may be subject
to claims that their products or services infringe on patents or trademarks of
third parties. Any of these claims, with or without merit, could subject our
partner companies to costly litigation and divert the attention of their
technical and management personnel. BrightStreet is currently named as a
defendant in two lawsuits in which each of the plaintiffs have alleged that
BrightStreet's technology infringes upon its patents. For a more complete
discussion of these lawsuits, see "BUSINESS-- Legal Proceedings." If our partner
companies incur significant expenses in connection with litigation and their
personnel are not operationally productive, then the expenses and losses
incurred by our partner companies will increase and their profits, if any, will
decrease.
The Success Of Our Partner Companies Depends On The Development Of The
- ----------------------------------------------------------------------
E-commerce Market, Which Is Uncertain
- -------------------------------------
All of our partner companies rely on the Internet for the success of their
businesses. The development of the e-commerce market is in its early stages.
If widespread commercial use of the Internet does not develop, or if the
Internet does not develop as an effective medium for the provision of products
and services, then our partner companies may not succeed.
Our long-term success depends on widespread market-acceptance of e-commerce.
A number of factors could prevent such acceptance, including the following:
. the unwillingness of businesses to shift from traditional business
processes to e-commerce processes;
. the necessary network infrastructure for substantial growth in usage
of e-commerce may not be adequately developed;
. increased government regulation or taxation may adversely affect the
viability of e-commerce;
. insufficient availability of telecommunication services or changes in
telecommunication services could result in slower response times for
the users of e-commerce; and
16
<PAGE>
. concern and adverse publicity about the security of e-commerce
transactions.
Our Partner Companies May Fail If Their Competitors Provide Superior Internet-
- -----------------------------------------------------------------------------
Related Products Or Continue To Have Greater Resources Than Our Partner
- -----------------------------------------------------------------------
Companies.
- ---------
Competition for Internet products and services is intense. As the market
for e-commerce grows, we expect that competition will intensify. Barriers to
entry are minimal and competitors can offer products and services at a
relatively low cost. Our partner companies compete for a share of a customer's:
. purchasing budget for services, materials and supplies with other
online providers and traditional distribution channels;
. advertising budget with online services and traditional off-line
media, such as print and trade associations.
Many of our partner companies' competitors have greater brand recognition
and greater financial, marketing and other resources than our partner companies.
This may place our partner companies at a competitive disadvantage in responding
to other companies' pricing strategies, technological advances, advertising
campaigns, strategic partnerships and other initiatives.
In addition, our partner companies compete to attract and retain a critical
mass of buyers and sellers. Our partner companies' competitors may develop
Internet products or services that are superior to, or have greater market
acceptance than, those offered by our partner companies. If our partner
companies are unable to compete successfully against their competitors, then our
partner companies may fail.
Our Partner Companies' Computer and Communications Systems May Fail, Which May
- ------------------------------------------------------------------------------
Discourage Content Providers from Using Our Partner Companies' Systems
- ----------------------------------------------------------------------
Some of our partner companies' businesses depend on the efficient and
uninterrupted operation of their computer and communications hardware systems.
Any system interruptions that cause our partner companies' Internet websites to
be unavailable to Internet browsers may reduce the attractiveness of our partner
companies' Internet websites to third party content providers. If third party
content providers are unwilling to use our partner companies' Internet websites,
then our business, financial condition and operating results could be adversely
affected. Interruptions could result from natural disasters as well as power
loss, telecommunications failure and similar events.
Our Partner Companies' Businesses May Be Disrupted If They Are Unable to Upgrade
- --------------------------------------------------------------------------------
Their Systems to Meet Increased Demand
- --------------------------------------
Capacity limits on some of our partner companies' technology, transaction
processing systems and network hardware and software may be difficult to project
and they may find it difficult to expand and upgrade their systems to meet
increased use. If our partner companies are unable to appropriately upgrade
their systems and network hardware and software, then the operations and
processes of our partner companies may be disrupted.
Our Partner Companies May Not Be Able to Attract a Loyal Base of Users to Their
- -------------------------------------------------------------------------------
Internet Websites
- -----------------
While content is important to all our partner companies' Internet websites,
our partner companies are particularly dependent on content to attract business.
Our success depends upon the ability of these partner companies to deliver
compelling Internet content to their targeted users. If our partner companies
are unable to develop Internet content that attracts a loyal user base, then the
revenues and profitability of our partner companies could be impaired. Internet
users can freely navigate and instantly switch among a large number of Internet
websites. Thus, our partner companies may have difficulty distinguishing the
content on their Internet websites in order to attract a loyal base of users.
17
<PAGE>
Our Partner Companies That Publish Or Distribute Content Over The Internet May
- ------------------------------------------------------------------------------
Be Subject To Legal Liability
- -----------------------------
Some of our partner companies may be subject to legal claims relating to the
content on their Internet websites, or the downloading and distribution of this
content. Claims could involve matters such as defamation, invasion of privacy
and copyright infringement. Providers of Internet products and services have
been sued in the past, sometimes successfully, based on the content of material
contained on their Internet websites. In addition, some of the content provided
by our partner companies on their Internet websites is drawn from data compiled
by other parties, including governmental and commercial sources, and our partner
companies re-enter the data. This data may have errors. If any of our partner
companies' Internet website content is improperly used or if any of our partner
companies supply incorrect information, it could result in unexpected liability.
Any of our partner companies that incur this type of unexpected liability may
not have insurance to cover the claim or, if coverage is in place, it may not be
adequate. If our partner companies incur substantial costs because of this type
of unexpected liability, then the expenses incurred by our partner companies
will increase and their profits, if any, will decrease.
RISKS RELATING TO THE INTERNET INDUSTRY
- ---------------------------------------
Concerns Regarding Security Of Transactions And Transmitting Confidential
- -------------------------------------------------------------------------
Information Over The Internet May Have An Adverse Impact On Our Business
- ------------------------------------------------------------------------
We believe that concerns regarding the security of confidential information
transmitted over the Internet discourage many potential customers from engaging
in online transactions. If our partner companies that depend on such
transactions do not add sufficient security features to their future product
releases, then our partner companies' products and services may not gain market
acceptance or there may be additional legal exposure to them.
Despite the measures some of our partner companies have taken, the
infrastructure of each of them is potentially vulnerable to physical or
electronic break-ins, viruses or similar problems. If a person circumvents the
security measures imposed by any one of our partner companies, then he or she
could misappropriate proprietary information or cause interruption in operations
of the partner company. Security breaches that result in access to confidential
information could damage the reputations of our partner companies and expose the
affected partner company to a risk of loss or liability. Some of our partner
companies may be required to make significant investments and efforts to protect
against or remedy security breaches. Additionally, as e-commerce becomes more
widespread, our partner companies' customers will become more concerned about
security. If our partner companies are unable to adequately address these
concerns, then they may be unable to sell their products.
Rapid Technological Changes May Prevent Our Partner Companies From Remaining
- ----------------------------------------------------------------------------
Current With Their Technical Resources And Maintaining Competitive Product And
- ------------------------------------------------------------------------------
Service Offerings
- -----------------
The markets in which our partner companies operate are characterized by
rapid technological change, frequent new product and service introductions and
evolving industry standards. Significant technological changes could render
their existing Internet website technology or other products and services
obsolete. The e-commerce market's growth and its intense competition only
intensify these conditions. If our partner companies are unable to successfully
respond to these developments or do not respond in a cost-effective manner, then
our business, financial condition and operating results will be adversely
affected. To be successful, our partner companies must adapt to their rapidly
changing markets by continually improving the responsiveness, services and
features of their products and services and by developing new features to meet
the needs of their customers. Our success will depend, in part, on our partner
companies' ability to enhance their existing products and services and develop
new offerings and technology that address the needs of their customers. Our
partner companies will also need to respond to technological advances and
emerging industry standards in a cost-effective and timely manner.
18
<PAGE>
Government Regulations And Legal Uncertainties May Impose Financial Burdens On
- ------------------------------------------------------------------------------
The Businesses Of Our Partner Companies
- ---------------------------------------
As of September 30, 1999, there were few laws or regulations directed
specifically at e-commerce. However, because of the Internet's popularity and
increasing use, new laws and regulations may be adopted. These laws and
regulations may cover issues such as the collection and use of data from
Internet website visitors and related privacy issues, pricing, content,
copyrights, taxation of revenues related to transactions conducted over the
Internet and the distribution and quality of goods and services. The enactment
of any additional laws or regulations may impede the growth of the Internet and
e-commerce, which could decrease the revenue of our partner companies and place
additional financial burdens on our business and the businesses of our partner
companies.
19
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
As of the date of this prospectus, our common stock is traded through the
NASDAQ Over-the-Counter Bulletin Board Trading System under the symbol "NETV."
The market for our common stock on the NASDAQ Over-the-Counter Bulletin Board
Trading System is sporadic and the quarterly average daily volume of shares
traded since inception ranged from a low of 31,539 shares to a high of 55,695
shares. The following table presents the range of the high and low bid and
average daily volume information for our common stock for the periods indicated,
which information was provided by NASDAQ Trading and Market Services. The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
<TABLE>
<CAPTION>
Average Daily
High Low Volume (Shares)
---- --- ---------------
<S> <C> <C> <C>
Year Ended December 31, 1999
Fourth Quarter 5.7500 4.0000 31,539
Year Ending December 31, 1999
First Quarter 6.3750 4.7500 38,393
Second Quarter 7.6875 4.5000 55,695
Third Quarter 6.3125 3.8125 49,461
</TABLE>
Our common stock has only been traded on the NASDAQ Over-the-Counter
Bulletin Board Trading System since November 24, 1998. Records of our stock
transfer agent indicate that as of October 4, 1999, there were approximately 172
record holders of our common stock. We have not paid any cash dividends to date
and do not anticipate or contemplate paying cash dividends in the foreseeable
future. We plan to retain any earnings for use in the operation of our business
and to fund future growth.
20
<PAGE>
CAPITALIZATION
The following table sets forth the total capitalization of Net Value
Holdings on an actual basis as of June 30, 1999 and on a pro-forma basis as if
the following transactions occurred on June 30, 1999:
. Our merger with Strategicus Partners, Inc., which closed on July 30,
1999. As a result of this merger, we now own Strategicus' investments
in metacat.com, Inc., AsiaCD, inc. and College411.com, Inc. In
connection with this merger, we issued 601,030 shares of our common
stock and 184,627 shares of our Series A Preferred Stock to the
stockholders of Strategicus in exchange for all of the outstanding
capital stock of Strategicus. In addition, we issued 6,923,598 shares
of our common stock and 2,126,833 shares of our Series A Preferred
Stock to the stockholders of Strategicus. Deferred compensation was
recorded in connection with this part of the transaction. They were to
earn these shares according to a vesting schedule on a ratable basis
over a 48 month period. We have recorded this transaction using an
ascribed value of $2.50 per share for our common stock and zero value
for the Series A Preferred Stock.
. To facilitate the acquisition of the ownership interests in AsiaCD,
Inc. and College411.com, Inc., we made a loan to Strategicus in the
aggregate principal amount of $1,555,000 in June 1999. Strategicus
used $1,000,000 of these proceeds to acquire approximately 12% of
AsiaCD, Inc., and $100,000 to acquire approximately 14% of College
411.com. The remaining proceeds were primarily used as loans to
Strategicus' stockholders.
. Our initial investments in metacat.com, Inc., AsiaCD, Inc. and
College411.com, Inc. have been recorded at a total value of
$2,702,573. This amount consists of an allocation of the value of the
securities we issued to acquire Strategicus and the principal amount
of our loans advanced to Strategicus to acquire these ownership
interests.
. Our agreement which we entered into in August 1999 with three members
of our management team to issue them options to purchase 6,256,056
shares of our common stock at an exercise price of $1.00 per share in
exchange for their cancellation of 6,256,056 shares of our common
stock. This transaction remains subject to the approval of our
stockholders.
. In September 1999, we exchanged 2,898,787 shares of our common stock
for all 4,831,312 issued and outstanding shares of our Series A
Preferred Stock.
. In September 1999, we sold 4,824 shares of Series B Preferred Stock at
an offering price of $1,000 per share. We received net proceeds of
$4,582,800 in this offering after paying commissions equal to 5% of
the gross proceeds.
. Our agreement to grant options to purchase 900,000 shares of our
common stock at an exercise price of $1.00 per share to Lee Hansen,
our new chief operating officer, in September 1999. We have recorded
$1,350,000 of deferred compensation for the granting of options to
purchase our common stock at an exercise price that was less than the
market value of our stock at the date of our grant. Concurrently with
this transaction, the remaining members of our management team
collectively agreed to surrender their right to receive options to
purchase an aggregate of 720,000 shares of our common stock and to
cancel 180,000 shares of our common stock.
. In October 1999, we sold a total of 676,374 shares of our common stock
to The RS Orphan Fund, LP and The RS Orphan Offshore Fund, LP for
$676,374. These funds are managed by Paul H. Stephens, a founder and
former managing director of Robertson Stephens & Company. Mr. Stephens
has agreed to join our Board of Advisors and has entered into a
consulting
21
<PAGE>
agreement with our company pursuant to which he has agreed to provide
financial advisory and consulting services to our company.
<TABLE>
<CAPTION>
June 30, 1999
----------------------------------
Actual Pro-Forma
----------------------------------
<S> <C> <C>
Debt: (See Notes 8, 11 and 12 of Notes to Consolidated
Financial Statements)
Short-term, including current portion of long-term plus
accrued interest $ 2,083,510 $ 2,083,510
Long-term, net of current portion 6,074,018 6,074,018
Stockholders' equity (deficit):
Preferred stock, Net Value Holdings, Inc., $.001 par
value per share. At June 30, 1999, 2,519,852 shares
issued and outstanding; 4,824 shares issued and
outstanding on a pro-forma basis 2,520 5
Common stock, BrightStreet, Inc., $.001 par value per
share. At June 30, 1999, 1,037,338 shares issued and
outstanding; 1,037,338 shares issued and outstanding on
a pro-forma basis 1,038 1,038
Common stock, Net Value Holdings, Inc., $.001 par
value per share. At June 30, 1999, 9,042,606 shares
issued and outstanding; 13,886,519 shares issued and
outstanding as adjusted 9,042 13,886
Additional paid-in capital 48,482,754 70,320,100
Deferred compensation (4,558,048) (19,635,977)
Deficit accumulated during the development stage (49,738,848) (49,738,848)
Total Stockholders' Equity (Deficit) (5,801,542) 960,205
------------ ------------
Total Capitalization $ 2,355,986 $ 9,117,733
============ ============
</TABLE>
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
December
16, 1994
Six Months Ended (inception)
June 30, through
-------
Years Ended December 31, (unaudited) June 30, 1999
----------------------- -------------
(unaudited)
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues $ - $ - $ 1,330,367 $ 74,667 $ 62,500 $ 1,392,867
Operating Expenses:
Compensation and related
expenses 742,545 3,589,616 4,073,060 1,785,457 1,645,462 10,181,857
Professional fees 399,356 405,193 1,146,077 278,540 715,620 2,704,682
Advertising 219,760 832,340 287,222 198,656 118,435 1,694,532
Consulting 869,693 984,590 934,162 213,994 188,895 2,986,832
Research and development
expenses 809,491 2,588,748 1,694,498 1,540,529 260,124 5,495,085
Depreciation and
amortization 13,148 179,304 228,033 115,812 115,767 543,822
Selling, general and
administrative 262,529 785,107 892,724 466,322 574,898 2,713,674
----------- ------------ ------------ ------------ ----------- ------------
Total Operating Expenses 3,316,522 9,364,898 9,255,776 4,599,310 3,619,201 26,320,484
----------- ------------ ------------ ------------ ----------- ------------
Loss from Operations (3,316,522) (9,364,898) (7,925,409) (4,524,643) (3,556,701) (24,927,617)
Other Income (Expense)
Interest income 4,953 5,627 10,493 6,396 6,340 28,818
Interest expense (2,525) (1,805,470) (3,167,480) (1,430,538) (2,617,305) (7,594,800)
Financing fees (70,496) (317,713) (225,462) (425,290) (813,499)
----------- ------------ ------------ ------------ ----------- ------------
Total Other Income
(Expense) 2,428 (1,870,339) (3,474,700) (1,649,604) (3,036,255) (8,379,481)
----------- ------------ ------------ ------------ ----------- ------------
Net Loss $(3,314,094) (11,235,237) (11,400,109) (6,174,247) (6,592,956) (33,307,098)
=========== ============
Preferred Stock Dividend (1,181,250) (15,250,500) (15,250,500) -
------------ ------------ ------------ -----------
Net Loss to Common
Stockholders $(12,416,487) $(26,650,609) $(21,424,747) $(6,592,956)
============ ============ ============ ===========
Basic and Diluted Net Loss
Per Common Share $ (6.88) $ (5.66) $ (7.89) $ (0.74)
============ ============ ============ ===========
Basic and Diluted Weighted
Average Number of
Common Shares
Outstanding 1,804,700 4,711,351 2,715,085 8,960,098
============ ============ ============ ===========
Pro forma Information
(Unaudited):
Net Loss $(3,314,094)
Pro forma Tax Provision ---
-----------
Pro forma Net Loss $(3,314,094)
===========
Net Loss Per Share Data:
Basic and Diluted Net
Loss Per Common
Share $ (3.55)
===========
Basic and Diluted
Weighted Average
Number of Common
Shares Outstanding 934,810
===========
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
December 31, December 31, December 31, June 30,
1996 1997 1998 1999
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents 299,351 671,508 223,630 1,984,794
Working capital (Deficit) (792,841) (3,427,635) (7,978,234) (328,373)
Total Assets 794,592 1,800,402 1,428,665 3,907,672
Total Liabilities 1,099,684 4,227,058 9,666,768 9,709,214
Notes payable and accrued interest - 1,882,591 7,885,563 8,157,528
Stockholders' deficit (305,092) (2,426,656) (8,238,103) (5,801,542)
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BrightStreet.com, Inc. was formed in July 1996 and is the successor by
merger to Coupons Online, L.L.C., a New Jersey limited liability company formed
in December 1994. We acquired a majority ownership interest in BrightStreet in
October 1998. Accordingly, the following discussion describes the results of
operations for BrightStreet and Coupons Online in 1996, the results of
operations for BrightStreet in 1997 and the six months ended June 30, 1998, and
the results of operations for our corporation on a consolidated basis for 1998
and the six months ended June 30, 1999. The discussion regarding changes in
financial condition, liquidity and capital resources relates to our corporation
on a consolidated basis. The following discussion should be read in conjunction
with our audited consolidated financial statements and related notes thereto
contained in this prospectus.
Twelve Months Ended December 31, 1997 Compared to the Twelve Months Ended
December 31, 1996. BrightStreet did not generate any revenues in 1997 or 1996.
BrightStreet started to build its infrastructure in October 1996 when its
operations were established in Connecticut. Comparisons of operating results
for the twelve months ended December 31, 1997 and 1996 can be misleading given
our limited operating activities prior to October 1996.
BrightStreet incurred a net loss of $11,235,237 in 1997, compared to a net
loss of $3,314,094 in 1996, an increase of $7,921,143. Approximately $1,300,000
of this increase was due to additional non-cash compensation expense in 1997 due
to grants of stock options with exercise prices which were less than the fair
value of BrightStreet's common stock at the date of grant. Approximately
$1,900,000 of this increase was due to additional interest expense in 1997. The
remaining approximate $4,700,000 increase reflects primarily the change in focus
from concept development to actual product and business development. In
addition, during 1997 BrightStreet granted a preferred stock dividend of
$1,181,250 related to the issuance of shares of Series A Convertible Preferred
Stock pursuant to the terms of a preferred stock purchase agreement.
Compensation and related expenses increased from $742,545 in 1996 to
$3,589,616 in 1997, an increase of $2,847,071. Approximately $1,262,000 of this
increase was due to a non-cash charge resulting from grants of stock options
with exercise prices which were less than the fair value of the common stock at
the date of grant. The remainder of this increase was due to the hiring of
additional employees in anticipation of commencing commercial operations and the
payment of a full year of compensation to employees hired during the fourth
quarter of 1996. BrightStreet began hiring additional full-time employees in
October 1996, primarily to commence product development, as well as marketing
and sales activities, and had 17 full-time employees at December 31, 1996. As
of December 31, 1997 BrightStreet had 24 full-time employees, representing 7 new
hires during 1997, primarily in the areas of sales and marketing.
Advertising expenses increased from $219,760 in 1996 to $832,340 in 1997, an
increase of $612,580. This increase was due to the development of sales
collateral and the initiation of advertising and promotional campaigns to
support the introduction of BrightStreet's products.
Consulting expenses were $869,693 in 1996 and $984,590 in 1997. The
increase of $114,897 was primarily attributable to a $265,000 expense related to
the settlement of a consulting agreement between BrightStreet and Promunicom,
Inc., offset by BrightStreet's conversion of consultants to full-time employees
to manage its day-to-day operations, sales and marketing activities.
Research and development expenses increased from $809,491 in 1996 to
$2,588,748 in 1997, an increase of $1,779,257. This increase was due to
increased development activities related to BrightStreet's Coupons Online(SM)
and i-Value(SM) products and an approximate $240,000 use tax expense related to
BrightStreet's retention of consultants located outside of the State of
Connecticut to perform development activities for BrightStreet. BrightStreet's
use tax obligation related to the procurement of such services was immaterial
and no use tax expense was recorded in 1996. BrightStreet intends to continue to
devote significant resources to research and development activities and believes
that
25
<PAGE>
incurring these expenses will be necessary in order for its products and
services to successfully compete in its markets, each of which is characterized
by rapid technological change.
Depreciation and amortization expenses increased from $13,148 in 1996 to
$179,304 in 1997. The increase of $166,156 was attributable to BrightStreet's
increased capital equipment base consisting primarily of computer equipment.
Other general and administrative expenses increased from $262,529 in 1996 to
$785,107 in 1997, an increase of $522,578. The increase was attributable to
higher operating costs such as travel, rent, telephone and other costs required
to support BrightStreet's growth.
Interest expense was $2,525 in 1996 and $1,805,470 in 1997. The increase of
$1,802,945 was attributable to interest expense related to various debt
obligations which BrightStreet incurred throughout 1997.
Financing fees increased by $70,496 in 1997. The fees were primarily
expenses associated with the issuance of common stock as additional
consideration pursuant to a financing agreement.
Twelve Months Ended December 31, 1998 Compared to the Twelve Months Ended
December 31, 1997. Our revenues increased to $1,330,367 in 1998 from $0 in
1997. In June 1998, BrightStreet recruited a new management team to refocus its
efforts and develop additional products. The increase in revenues was
predominantly the result of a licensing agreement with IQ Value, LLC.
BrightStreet continued to modify and develop its products and commenced a
transition of its operations to Mountain View, California during the fourth
quarter of 1998.
In 1998, BrightStreet commenced commercial operation of its first product
and service, Coupons Online(SM) and recognized revenues related to this product
from test marketing efforts with certain clients. As BrightStreet is in the
early stage of commercial operations with respect to its products, our
management team does not believe it is possible to draw conclusions from these
results with respect to future revenue potential of its products. We incurred a
net loss of $11,400,109 in 1998, compared to a net loss of $11,235,237 in 1997,
an increase of $164,872. The increase in the 1998 net loss as compared to 1997
was primarily due to an $740,884 of increased 1998 professional fees, $483,444
of increased 1998 compensation and related expenses, additional 1998 interest
and financing fee expense of $1,604,361, with corresponding decreases in 1998
research and development expense of $894,250, advertising expenses of $545,118
and increased 1998 revenue of $1,330,367.
Compensation and related expenses increased from $3,589,616 in 1997 to
$4,073,060 in 1998, an increase of $483,444. The increase was primarily due to
an increase in stock based compensation of $147,857 in 1998, an increase in
severance costs to the former chief executive officer of BrightStreet of
approximately $245,000, and bonuses approximating $75,000 accrued to the new
chief executive officer of BrightStreet in 1998.
Advertising expenses decreased from $832,340 in 1997 to $287,222 in 1998, a
decrease of $545,118. This decrease was largely due to the nonrecurring
promotional costs of Coupons Online(SM) and the test marketing of I-Value(SM) in
1997. In 1998 BrightStreet discontinued its practice of retaining consulting
firms to perform extensive marketing and public relations services and instead
concentrated on less costly promotional efforts that focused on targeted
consumer groups.
Consulting expenses were $984,590 in 1997 and $934,162 in 1998. Although
consulting expense did not change significantly in the aggregate from 1997 to
1998, the consulting costs which BrightStreet incurred in each of those
respective years were, for the most part, nonrecurring in nature. In 1998,
BrightStreet incurred:
. $301,220 of stock based consulting costs related to services
performed by IQ Value LLC;
. $80,083 for outsourcing BrightStreet's chief financial officer
responsibilities;
26
<PAGE>
. sales consultation services of $290,200 primarily for the
services of two outside sales consultants;
. $210,590 for operational consultants that provided nonrecurring
network programming, design and maintenance services;
. $52,089 for business developments consulting services.
In 1997, BrightStreet incurred nonrecurring, primarily stock based,
consulting expense of $265,000 for services performed in connection with
obtaining the IQ Value LLC licensing agreement, and $554,000 of stock based
consulting expense for advisory services performed by American Maple Leaf
Corporation.
Research and development expenses decreased from $2,588,748 in 1997 to
$1,694,498 in 1998, a decrease of $894,250. This decrease was due to
BrightStreet's reduction of development activities on its Coupons Online(SM)
product in 1998 and BrightStreet's cessation of development of its i-Value(SM)
product during 1998. Related to these product development decisions,
BrightStreet reduced its activity with DMR Consulting Group, Inc.
BrightStreet's expenses related to services provided by DMR Consulting Group
decreased from approximately $1,927,000 in 1997 to $242,000 in 1998 when the
services of DMR Consulting Group were discontinued. This significant decrease
in research and development activity in 1998 of DMR Consulting Group was
partially offset by BrightStreet's retention of three other vendors, Task
Management Inc., Interactive Technology Cons, LLC and Ramworks, to continue the
development of its products.
Professional fees increased by $740,884 in 1998 primarily because of
BrightStreet's failed attempt to complete an initial public offering of its
common stock. As of December 31, 1997, BrightStreet had recorded approximately
$585,000 of deferred offering costs, consisting primarily of legal and
accounting costs, that were to be reflected as a reduction of offering proceeds
upon the successful completion of its contemplated initial public offering.
Upon the withdrawal of the initial public offering in 1998, the deferred
offering costs were recorded as professional fee expense. In addition,
BrightStreet incurred approximately $100,000 in expenses related to the
recruitment of its new chief executive officer in 1998, and $130,000 of legal
and accounting fees in connection with our contemplated merger with
BrightStreet.
Depreciation and amortization expenses increased from $179,304 in 1997 to
$228,033 in 1998. The increase of $48,729 was attributable to the increased
capital equipment base consisting primarily of computer equipment.
Other general and administrative expenses increased from $785,107 in 1997 to
$892,724 in 1998, an increase of $107,617. The increase was attributable to
higher operating costs such as travel, rent, telephone and other costs required
to fund BrightStreet's anticipated growth.
Interest expense was $1,805,470 in 1997 and $3,167,480 in 1998. The
increase of $1,362,010 was primarily attributable to additional 1998 interest
expense and debt discount amortization, a non-cash expense, related to
promissory notes which BrightStreet issued in October, November and December of
1997, as well as additional interest and debt discount amortization related to
the convertible debentures which we issued during the fourth quarter of 1998.
Financing fees, a non-cash expense, increased by $247,217 in 1998. The
increase in financing fees was primarily due to the amortization of loan costs
related to promissory notes which BrightStreet issued in October, November and
December of 1997, as well as the amortization of loan costs related to
convertible debentures which we issued during the fourth quarter of 1998.
Six Months Ended June 30, 1999 Compared to the Six Months Ended June 30,
1998. During the six months ended June 30, 1999, our revenues decreased to
$62,500 verses $74,667 for the six months ended June 30, 1998. The decrease in
revenues is a result of the expiration of our licensing agreement with IQ Value,
LLC during 1999.
27
<PAGE>
Accordingly, BrightStreet will not generate any additional revenues from this
relationship. During this period, BrightStreet redefined the focus of its
efforts to its TrafficBuilder product and rebuilt other products on an NT
platform. BrightStreet is currently offering four products designed to provide
online promotions management solutions for creating, targeting, publishing and
tracking coupons and promotional incentives via the Internet. As BrightStreet is
in the early stage of commercial operations with respect to these products, we
believe it is not possible to draw conclusions from these results with respect
to future revenue potential of BrightStreet.
We incurred net losses of $6,592,956 and $6,174,247 in the six months ended
June 30, 1999 and the six months ended June 30, 1998, respectively, an increase
of $418,709. The increase in our June 30, 1999 loss as compared to our June 30,
1998 loss was primarily due to a $1,186,767 increase in interest expense, a
$437,080 increase in professional fees, a $199,828 increase in financing fees
and a $108,576 increase in selling, general and administrative expenses, with
corresponding decreases in research and development expense of $1,280,405,
compensation and related expenses of $139,995, advertising expense of $80,221,
consulting expense of $25,099.
Compensation and related expenses decreased to $1,645,462 during the six
months ended June 30, 1999 from $1,785,457 during the six months ended June 30,
1998, a decrease of $139,995. This decrease was primarily due to the
elimination of operational employees at BrightStreet's Fairfield, Connecticut
location which resulted in a decrease in payroll expense of $504,189, and
nonrecurring severance payments in 1998 of $310,300, partially offset by an
increase of $683,447 in stock based compensation.
Professional fees were $715,620 during the six months ended June 30, 1999
and $278,540 during the six months ended June 30, 1998, an increase of $437,080.
We incurred additional professional fees during the six months ended June 30,
1999 related to costs of preparing this registration statement, the pending
merger between our corporation and BrightStreet and our merger with Strategicus
Partners.
Advertising expenses decreased to $118,435 during the six months ended June
30, 1999 from $198,556 during the six months ended June 30, 1998, a decrease of
$80,221. During the six months ended June 30, 1998, BrightStreet had incurred
significant costs in connection with hiring an outside marketing firm to develop
and initiate advertising and promotional campaigns to support the introduction
of its Coupons Online(SM) product. In 1999, BrightStreet discontinued its
practice of retaining marketing firms to promote its products and focused its
advertising efforts on less costly promotional efforts that focus on targeted
consumer groups.
Consulting expenses decreased to $188,895 during the six months ended June
30, 1999 from $213,994 during the six months ended June 30, 1998, a decrease of
$25,099. In 1999, BrightStreet incurred $14,976 of stock based consulting
costs related to services performed by IQ Value, LLC, $45,600 for outsourcing
its chief financial officer responsibilities, $46,665 for investment banking
services, $43,924 for business development services and $37,730 for sales
consultants. In 1998, BrightStreet incurred $126,973 of sales consulting
expense, $69,098 of stock based consulting expense and $17,923 for outsourcing
its chief financial officer responsibilities.
Research and development expenses decreased to $260,124 during the six
months ended June 30, 1999 from $1,540,529 during the six months ended June 30,
1998, a decrease of $1,280,405. The decrease is primarily due to progress
BrightStreet has attained in the development of its products, and its decision
to internally develop its products and reduce its reliance on outside system
developers. During 1999, BrightStreet discontinued using the development
services of Task Management, Inc., with whom it incurred system development
costs of approximately $1,233,000 during the six months ended June 30, 1998. In
1999, BrightStreet incurred less development costs because its products were
either being actively marketed, had successfully completed product testing, or
were at the point that insignificant product testing was required prior to
commence marketing.
Other general administrative expense increased to $574,898 during the six
months ended June 30, 1999 from $466,322 during the six months ended June 30,
1998, an increase of $108,576. Prior to August 31, 1998, the date on which we
entered into the letter of intent to merger with BrightStreet, we were a public
shell that did not engage in
28
<PAGE>
business or operations of any kind. The increase was primarily attributable to
additional general corporate expenses and the relocation of BrightStreet's
corporate headquarters from Connecticut to California and recruitment fees which
BrightStreet incurred to locate and hire employees for its California office.
Interest expense, which was primarily a non-cash expense, increased to
$2,617,305 during the six months ended June 30, 1999 from $1,430,538 during the
six months ended June 30, 1998, an increase of $1,186,767. The increase was
primarily attributable to additional 1999 interest and debt discount
amortization on the convertible promissory notes issued in January 1999, as well
as additional interest and debt discount amortization on the convertible
debentures that took place in the fourth quarter of 1998 and the first six
months of 1999.
Financing fees, a non-cash expense, increased by $199,828 during the six
months ended June 30, 1999. The increase in financing fees was primarily from
the amortization of loan costs related to our offerings of convertible
debentures that took place in the fourth quarter of 1998 and the first six
months of 1999, and the convertible debentures which we issued to Founders
Equity Group and its affiliates in March 1999.
As of June 30, 1999, we had an accumulated deficit of $49,738,848. We
believe that approximately $20,662,000 of this amount will be available to
offset future taxable income, if any.
Changes in Financial Position, Liquidity and Capital Resources
We are an Internet holding company actively engaged in e-commerce through a
network of partner companies. Our goal is to service as an Internet business
incubator. We primarily engage in the conception and ongoing nurturing of
development stage Internet businesses. We currently have ownership interests in
five Internet businesses, each of which we consider to be a partner company. Due
to our significant ownership interests in development stage Internet companies
which have generated substantial operating losses, we have experienced, and
expect to continue to experience, significant volatility in our quarterly
financial results. We do not know if we will report net income in any period and
we expect that we will report operating losses for the foreseeable future.
Although we believe our investment strategy and investment process will enable
us to identify high-quality potential transaction opportunities, our operations
will remain highly speculative. For a more complete discussion of our investment
strategy and investment process, a listing of our partner companies and our
current investments, see "BUSINESS." For a more complete description of the
risks associated with our operations, see "RISK FACTORS" beginning on page 7.
Our net losses and the need for additional financing to implement our
business plan and continue our operations raise substantial doubt about our
ability to continue as a going concern unless additional financing can be
obtained from alternative sources. If we do not generate revenues sufficient to
provide us with enough cash to fund our operations during the period in which we
attempt to fully implement our business plan, we will require additional
financing. For a more complete description of our financial condition, see
"Consolidated Audited Financial Statements."
We have funded our operations with the proceeds from the sales of our debt
and equity securities and licensing fees which BrightStreet received pursuant to
a licensing agreement with IQ Value, LLC. During the period from January 1,
1998 through December 31, 1998, we received an aggregate of $590,000 in gross
proceeds through the sale of 2,950,000 shares of our common stock and
BrightStreet received $2,362,000 in gross proceeds from the sale of shares of
its Series A Preferred Stock.
During the period from January 1, 1998 through December 31, 1998, we
received gross proceeds of $4,075,500 from the sale of our debt securities to
various related and independent third parties, including $1,402,500 in proceeds
from the sale of our convertible debentures in the fourth quarter of 1998. The
convertible debentures accrue interest at the simple rate of 8% per annum. The
holders may convert the convertible debentures at any time. We may force the
mandatory conversion of the convertible debentures into shares of our common
stock at a conversion price of $2.00 per share upon the occurrence of (i) the
completion of our merger with BrightStreet (ii) our acquisition of at least 80%
of the issued and outstanding capital stock of BrightStreet; or (iii) the
effective date of a registration statement registering
29
<PAGE>
the resale of all shares of common stock issuable upon conversion of the
convertible debentures. The maturity date of the convertible debentures is the
earlier of (i) the date on which the holder elects to convert all of the
outstanding unpaid principal and accrued interest on the note into shares of
common stock; (ii) the date upon which we elect to cause a mandatory conversion
of all of the outstanding principal and accrued interest on the note into shares
of common stock; or (iii) two years from the date of the issuance of the
convertible debentures. During the six months ended June 30, 1999, we issued
additional convertible debentures in the aggregate principal amount of
$6,455,000 having conversion prices ranging from $2.00 to $2.50 per share.
Through September 30, 1999, holders of these convertible debentures converted an
aggregate of $2,840,000 of principal and approximately $37,608 of accrued
interest into 1,175,667 shares of our common stock. We used the funds received
from the sale of these convertible debentures to pay commercial accounts payable
and to fund both our operations and the continuing operations of BrightStreet.
During October, November and December 1997, BrightStreet issued promissory
notes in the aggregate principal amount of $4,025,000. These promissory notes
matured on the one-year anniversary of their dates of issuance. BrightStreet did
not repay these promissory notes on their maturity dates. Accrued interest on
these promissory notes at December 31, 1998 was $495,646. Effective January 1,
1999, we issued convertible promissory notes in the aggregate principal amount
of $4,270,125 to the holders of BrightStreet's promissory notes in exchange for
their agreement to cancel BrightStreet promissory notes in the aggregate
principal amount of $3,800,000 plus $470,125 of accrued interest thereon and to
release our corporation, BrightStreet and the present and future officers and
directors of each corporation from any claims related to the BrightStreet
promissory notes. The holders of these convertible promissory notes have the
right to convert the principal balance plus all accrued interest related to
these convertible promissory notes into shares of our common stock at a
conversion price of $2.00 per share at any time. We may convert the principal
and accrued interest on these convertible promissory notes into shares of common
stock at a rate of $2.00 per share, upon our common stock's achievement of
certain market price targets. These convertible promissory notes accrue interest
at the simple rate of 12% per annum and have a maturity date of the earlier of
(i) the date on which the convertible promissory notes are converted into shares
of our common stock; or (ii) the one-year anniversary of the closing of our
merger with BrightStreet. We are required to issue warrants to purchase one-half
of one share of our common stock for each share issued to the holders upon any
conversion of the convertible promissory notes. The warrants are exercisable
over a period of three years from the date of issuance at an exercise price of
$6.00 per share. The holders of the remaining BrightStreet promissory notes did
not participate in this exchange offering. Therefore, BrightStreet anticipates
repaying the outstanding principal balance and accrued interest on the remaining
promissory notes, which amounted to $250,521 at December 31, 1998 and $275,764
at September 30, 1999. Interest continues to accrue on these BrightStreet
promissory notes at the default rate of 15% per annum. Through October 5, 1999,
holders converted these convertible promissory notes in the aggregate principal
amount of $2,231,156 plus accrued interest of $113,753 into 1,172,456 shares of
our common stock and received warrants to purchase an additional 586,232 shares
of our common stock.
In March and April 1998, BrightStreet received licensing fees in the
aggregate amount of $1,250,000 from IQ Value L.L.C. pursuant to the terms of a
Distribution and License Agreement which the parties entered into on April 7,
1998. BrightStreet used these funds to pay commercial accounts payable and to
fund continuing operations. This fee represented approximately 90% of
BrightStreet's revenues from its inception through June 30, 1999. The parties
mutually agreed to terminate this agreement as of June 30, 1999. Accordingly,
BrightStreet will not generate any additional revenues from this relationship.
As of June 30, 1999, we had cash of $1,984,794 available to fund our
operating expenses and the operating expenses of our majority-owned partner
companies. However, at that date, we had accounts payable of $1,068,262, short-
term indebtedness net of discounts of $1,656,711 and accrued expenses of
$903,766.
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In June 1999, pursuant to a loan agreement, we advanced an aggregate total
of $1,555,000 to Strategicus Partners, Inc. Strategicus used these funds as
follows:
. $1,000,000 to purchase an approximate 13% equity interest in AsiaCD,
Inc.;
. $100,000 to purchase an approximate 14% equity interest in
College411.com, Inc.;
. $60,000 to extend a short term loan to Cowboys and Robots;
. $85,000 for general corporate purposes; and
. $310,000 to extend a loan to Douglas Spink, the president of
Strategicus.
In June 1999, we also extended a loan in the principal amount of $267,000
to Darr Aley, who was a stockholder of Strategicus at the time of the loan. In
July 1999, we completed a merger with Strategicus. For a complete description of
this transaction, see "CERTAIN TRANSACTIONS - Loan and Merger Agreements with
Strategicus Partners, Inc." As a result of the merger, we now own Strategicus'
investments in AsiaCD and College411 and 100% of the capital stock of
metacat.com, Inc. Since Strategicus was merged into Net Value Holdings, Inc.
pursuant to the merger agreement, it is no longer a legal entity and its
obligations under the loan agreement with Net Value Holdings, Inc. have been
discharged. In connection with this merger, we entered into an employment
agreement with Mr. Spink and a consulting agreement with Mr. Aley. For a more
complete discussion of the terms of these agreements, see "MANAGEMENT -
Employment Agreements" and "MANAGEMENT - Consulting Agreements." Pursuant to
each of these agreements, we will forgive the repayment of each of Messrs.
Spink's and Aley's loans if they remain employed or engaged by us for certain
periods of time. For a more complete description of these terms, see "CERTAIN
TRANSACTIONS - Forgiveness of Certain Loans to Members of Our Management Team."
In September and October 1999, we sold 4,824 shares of our Series B
Preferred Stock and warrants to purchase up to 295,040 shares of our common
stock for an aggregate purchase price of $4,824,000. In October 1999, we sold
676,374 shares of our common stock for $676,374. We intend to utilize the net
proceeds from these offerings of $5,259,174 to fund our operations and the
operations of some of our partner companies and to make strategic acquisitions
of or investments in start-up Internet companies.
During the period from October 1, 1998 through September 30, 1999, we have
satisfied debts and other obligations of BrightStreet.com, Inc. and have
provided funding to BrightStreet in the aggregate amount of approximately
$10,750,000. If BrightStreet is unable to locate an independent source of
financing, then we may need to continue to fund BrightStreet's operations and
satisfy its obligations in order to avoid losing the value of our investment in
this partner company.
Cowboys and Robots is the code name for a potential partner company. We
are presently negotiating the conversion of the $60,000 loan made by Strategicus
into an equity investment in Cowboys and Robots.
In August 1999, we made a $20,000 loan to AssetExchange, Inc. In September
and October 1999 we purchased a 20% equity ownership interest from AssetExchange
for $400,000 plus the cancellation of the promissory note evidencing the August
1999 loan.
In September and October 1999, in two installments, we exercised our
warrant to purchase 2,250,000 shares of College411's common stock for an
aggregate exercise price of $150,000.
During the period from June 1999 through October 1999, BrightStreet has
failed to make required rent payments in the aggregate amount of approximately
$75,000 pursuant to the lease agreement for its Fairfield, Connecticut office.
The landlord is currently holding a security deposit of $79,711. The landlord
has not currently taken
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any legal action against BrightStreet regarding this matter and management is
currently discussing a potential settlement and release of its obligations
pursuant to this lease. This settlement may require BrightStreet to forfeit its
security deposit and make additional payments. If BrightStreet is unable to
reach a settlement agreement with the landlord, then it may be subject to legal
action which may result in a judgment equal to the remaining lease payments
through the expiration of the lease in December 2000 plus additional damages.
BrightStreet is currently named as a defendant in two lawsuits alleging
that BrightStreet has infringed on patents held by the plaintiffs. If
BrightStreet is unsuccessful in its defense of each of these lawsuits, then it
may be subject to significant damages and/or injunctions from further acts of
infringement on these patents. This may result in a material adverse effect on
BrightStreet's liquidity and financial condition. Even if BrightStreet
successfully resolves these lawsuits, it may still be required to pay large
settlement amounts to the plaintiffs and incur significant legal fees. Either
of these results may delay BrightStreet's implementation of its business plan.
For a more complete discussion of these lawsuits, see "BUSINESS - Legal
Proceedings."
On October 6, 1998, BrightStreet entered into a settlement agreement with
DMR Consulting Group, Inc. Pursuant to this agreement, DMR agreed to accept
$270,000 as full payment of BrightStreet's obligation of approximately $745,000
in consulting fees incurred in connection with consulting services which DMR
provided to BrightStreet. BrightStreet was unable to make the required payments
under this settlement agreement. On December 3, 1998, the parties amended this
settlement agreement to provide for a payment schedule whereby BrightStreet paid
$50,000 upon executing the agreement and agreed to repay the remaining balance
upon the earlier of (i) the closing of its private placement of convertible
debentures or (ii) if BrightStreet is unable to close its private placement in
1999, then in quarterly installments throughout 1999. The amended settlement
agreement states that if BrightStreet breaches any of its payment obligations,
then the amended settlement agreement is terminated and BrightStreet remains
liable for the full amount of its original obligation. Accordingly, DMR may at
any time assert a claim for the $170,000 due under the amended settlement
agreement and the $475,000 which constitutes the difference between the original
obligation and the agreed upon settlement amount. If DMR asserts this claim,
then BrightStreet will experience an extremely negative effect on its liquidity
and financial position.
Year 2000
Net Value Holdings, Inc.
Many computer programs have been written using two digits rather than four
digits to define the applicable year. This poses a problem at the end of the
century because these computer programs may recognize a date using "00" as the
year 1900, rather than the year 2000. This in turn could result in major system
failures or miscalculations and is generally referred to as the Year 2000 issue.
We utilize a small number of computer software programs and operating
systems. Accordingly, our exposure to Year 2000 issues is low. The exposure
that does exist resides primarily in computer systems used for administrative
functions and embedded microprocessors in telephone systems.
The vendor of our telephone system has verified that the system has been
tested and certified as Year 2000 compliant. In addition, in order to obviate
any potential Year 2000 issues with computer systems, we have replaced all
desktop personal computers, servers and software with new, Year 2000 compliant
products which we have purchased from well-known vendors. Moreover, because
these capital improvements were necessary and timely, no extraordinary costs
have been incurred for Year 2000 remediation.
We therefore do not believe that Year 2000 issues will materially affect
our operations and have not implemented any further contingency plan.
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The Year 2000 readiness of BrightStreet and metacat are described below.
Our other partner companies are in varying stages of assessing, remediating and
testing their internal systems and assessing year 2000 readiness of their
vendors, business partners and customers. Our partner companies are also in
varying stages of developing contingency plans to operate in the event of a Year
2000 problem. The total cost and time which will be incurred by our partner
companies on the Year 2000 readiness effort has not been determined. We are not
certain that all necessary work will be completed in time, or that such costs
will not materially adversely impact one or more of such partner companies.
BrightStreet.com, Inc.
BrightStreet has identified all of its important technology systems and for
each system has assessed both the level of risk that the system is not Y2K
complaint and the importance of the continued operation of the system to its
business. BrightStreet has begun to test all of its systems with an emphasis on
the systems which possess both the highest level of importance to its business
and the greatest risk of noncompliance. In October 1998, BrightStreet's network
operations and information technology team began analyzing the corporation's
computer systems and software to determine its Y2K readiness. BrightStreet
entered the remediation phase in February 1999 and expects to complete all
remediation and testing of its computer systems by November 1999.
BrightStreet's testing consists of both running automated problem detection
software and real world tests in which it sets all system dates to December 31,
1999 and monitors the transition as the computer systems move into the new year.
BrightStreet is also performing regression tests in which it enters values that
are before, during, bridging and after in all date sensitive fields and tests
the functionality of the computer systems at each phase.
As of the date of the prospectus, BrightStreet has completed its testing
and has verified the Y2K readiness of its most critical applications and
infrastructure components consisting of the following:
. Live production servers, including:
. third party hardware such as servers, hard drives and power
supplies;
. third party software such as operating systems and databases;
. internally developed application software;
. Key infrastructure vendors, such as:
. co-location facility;
. co-location connectivity;
. Local Area Network connectivity;
. office electric system; and
. office phone systems.
As of the date of this prospectus, BrightStreet is in the process of
testing the following systems which are much less critical to the operation of
its business.
. Local Area Network servers:
. demonstration servers;
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. quality assurance servers;
. development servers;
. e-mail servers; and
. DNS servers;
. Local Area Network workstations including all hardware and software
associated with personal desktop computers.
. Other systems:
. office Local Area Network peripheral equipment, such as printers
and scanners;
. embedded systems, such as postage meters, photocopiers, fax
machines; and
. non-critical outsource vendor systems.
metacat.com, Inc.
metacat will use a significant number of computer software programs and
operating systems across its entire organization, including applications used in
operating its Internet websites, financial systems, customer relations
management and decision support. However, since metacat.com is in its early
stages of development, it has developed very few of these systems.
The software programs and operating systems which metacat.com has
established are new, Year 2000 compliant products which it purchased from
reputable vendors. Additionally, all embedded systems, including its
telephones, have been tested and certified as Year 2000 compliant by their
manufacturer.
metacat is currently building many of the key systems that support its
business and operations. Year 2000 compliance will be an integral feature and
requirement for all hardware and software which metacat.com purchases or
develops internally.
Although metacat.com has not identified any internal risks from the Year
2000 issues, it intends to establish relationships with many potential vendors,
including some who may have Year 2000 issues. At this time metacat does not
have the capability to determine the Year 2000 readiness of its vendors,
however, the vendor evaluation process and associated agreement will include
Year 2000 compliance as a condition of this relationship.
Additional risks may arise due to Year 2000 issues outside of the direct
control of metacat.com. The primary risks are Year 2000 related outages of
electricity service, Internet connectivity, or hardware and software failure at
the customer's location. Since the customer in this case is the individual
consumer who may be unable to access or purchase products from metacat's
Internet website, it is impossible to predict the actual effect on metacat's
operations. In general, metacat believes that the majority of these consumer-
specific Year 2000 issues will last several days to several weeks at the maximum
and should not cause material losses in sales, especially given metacat's
anticipated market position at the turn of the century.
metacat does not believe that Year 2000 issues will unduly affect its
operations. For this reason, it has not implemented an official Year 2000
contingency plan, however, as stated above, metacat intends to pursue growth and
business relationships with Year 2000 readiness as an integral part of planning
and implementing its business plan.
34
<PAGE>
BUSINESS
History
We were formed as a Florida Corporation on December 20, 1991. In 1992, we
failed to file our annual report with the State of Florida and were
administratively dissolved on October 9, 1992. On June 15, 1998, we filed all
required reports and paid all deficient annual fees and penalties and were
reinstated as a corporation in the State of Florida. Accordingly, from October
9, 1992 through June 15, 1998, we had no operations and generated no revenues or
expenses. In October 1998, we redomesticated in the State of Delaware and we
are presently a Delaware corporation.
Pursuant to share exchange transactions completed during October 1998
through December 1998 with 20 BrightStreet stockholders, we acquired
approximately 66% of the issued and outstanding shares of BrightStreet's common
stock and 100% of the issued and outstanding shares of BrightStreet's Series A
Preferred Stock. We currently intend to merge with BrightStreet on or before
December 31, 1999. Subsequent to the completion of our merger with BrightStreet,
we will own 100% of BrightStreet's capital stock.
On July 30, 1999, we merged with Strategicus Partners, Inc., an Oregon
corporation. For a complete discussion of this merger, see "CERTAIN
TRANSACTIONS-Loan and Merger Agreements with Strategicus Partners, Inc." As a
result of our merger with Strategicus, we now own interests in metacat.com,
Inc., Asia CD, Inc. and College411.com, Inc. In addition, we have a new
management team. For a complete description of our management team, see
"MANAGEMENT."
General
We are an Internet business incubator. We primarily engage in the
conception and ongoing nurturing of start-up Internet businesses. Our operating
strategy is to develop a series of Internet businesses into a collaborative
network that leverages our collective financial experience, strategic ability
and industry relationships. We currently have ownership interests in five
Internet businesses, each of which we consider to be a partner company, in
various stages of development and are presently evaluating strategic investments
in several other partner companies. We have offices in San Francisco and
Philadelphia.
Our mission is to develop Internet start-up companies into highly
successful businesses. Our management team strongly believes that to succeed in
the digital economy, Internet start-up companies need to work with a team of
hands-on, experienced entrepreneurs who can help firms build management teams,
raise capital, create operational excellence and manage processes in diverse
areas such as customer service, marketing, logistics management and technology.
Our current partner companies include:
BrightStreet.com, Inc. (www.brightstreet.com). Founded in 1996,
---------------------------------------------
BrightStreet develops and distributes online promotional campaigns. Based in
Mountain View, California, BrightStreet currently has 14 employees.
metacat.com, Inc. (www.metacat.com). Founded in 1998, metacat is an
------------------ ----------------
Internet-based e-commerce superstore that aggregates and searches the product
offerings of thousands of catalog and mail order businesses. Based in Portland,
Oregon, metacat currently has six employees.
Asia CD, Inc. (www.asiacd.com). Founded in 1998, Asia CD is a leading e-
------------------------------
commerce company for the Asian community in the United States. Based in San
Francisco, California, Asia CD currently has 13 employees.
College 41l.com, Inc. (www.college4ll.com). Founded in 1998, College 411
------------------------------------------
is an online college community featuring functional academic resources,
comparison shopping for student items, as well as chat, personalized news and
message centers. Based in San Francisco, California, College 411 currently has
13 employees.
AssetExchange, Inc. (www.AssetExchange.com). Founded in 1999,
-------------------------------------------
AssetExchange provides banks and other financial institutions with an Internet-
based listing service which allows them to purchase and sell loan portfolio
assets in an efficient manner. Based in Portland, Oregon, AssetExchange
currently has three employees.
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Investment Strategy
We actively seek to partner with Internet companies that possess the
following characteristics:
. Development stage companies with valuations of $ 10 million or less. Both
--------------------------------------------------------------------
the size and the number of venture capital deals in the Internet industry
have increased dramatically over the last four years. Of the 208 Internet
transactions completed in the first quarter of 1999, the average investment
size was $10.0 million, up from an average of $7.9 million in 1998 and $5.8
million in 1997 (source: Ventureone, 1999). Increasingly, traditional
venture capital firms seek to invest approximately $2 million to $5 million
in the early stage financing of start-up companies. These investments
significantly increase the market capitalization of the issuing company,
which may make subsequent rounds of financing cost prohibitive to potential
sources of capital. These investments may also significantly dilute the
ownership interest of the founders of the issuing company. As a result, for
companies that require only $250,000 to $1 million in capital to build the
foundation of a new business, most venture capital firms are an
unattractive source of capital. Accordingly, entrepreneurs must turn to a
patchwork of friends, family and angel investors for funding, a process
which can be both laborious and add little value to the entrepreneur. These
sources of capital do not provide additional business relationships,
strategic advice or an exit strategy to the entrepreneur. The current
market environment creates significant opportunities for our business model
which brings entrepreneurs a flexible source of capital as well as a group
of hands-on partners to assist in navigating the critical early steps in a
development stage enterprise.
. Business models that focus on creating loyal consumer relationships
-------------------------------------------------------------------
through electronic content, commerce and community. Both Internet and
--------------------------------------------------
bricks and mortar businesses reward brands that command a loyal consumer
following and whose recognition and loyalty can be converted into sales
transactions. Unless Internet businesses add enough value to legitimately
claim the consumers or the Internet traffic as their own, the customers of
these businesses and their associated revenue streams will choose other
brands.
. Opportunities rooted in the transition of industry segments to the
------------------------------------------------------------------
Internet. The Internet is still in its infancy. Only a few industries,
--------
such as the retail securities brokerage industry, the travel industry and
the publishing and recorded music industries, have significantly
transitioned to the Internet as a medium for sales and distribution of
products. We believe that there are many more industries which will begin
to use the Internet as a medium for sales and the distribution of products.
We intend to focus our efforts on locating partner companies that service
industries that are likely candidates to begin or increase use of the
Internet to sell their products and services. Internet companies that
capitalize on these transition industries can acquire a competitive
advantage and create significant business value to their customers.
. Business models that facilitate the formation of communities. One step
-------------------------------------------------------------
in building an Internet business is to create communities of value where
the host facilitates content created by the community and provides a forum
that supports transactions among members. Communities in diverse areas such
as health care, personal finance, cooking and pets have already emerged on
the Internet and there are many more new communities that will emerge in a
widening array of areas in the near future.
. Driven management team whose values mirror our belief in the importance of
--------------------------------------------------------------------------
passion, commitment and highly effective performance. We seek long-term
----------------------------------------------------
partnerships with eager entrepreneurs who recognize that it takes more than
capital to develop successful business ventures. We seek entrepreneurs who
recognize that creating an Internet business requires the entrepreneur to
focus on building teams, creating operational excellence, developing
partnerships and managing processes in areas as diverse as brand
development, sales, marketing, management and technology.
Competition
Competition for Internet products and services is intense. As the market
for commerce products and services grows, we expect that competition will
intensify. Barriers to entry are minimal, and competitors can offer products
and services at a relatively low cost. Our partner companies compete for a
share of a customer's:
. purchasing budget for services, materials and supplies with other
online providers and traditional distribution channels; and
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<PAGE>
. advertising budget with online services and traditional off-line
media, such as print and trade associations.
In addition, some of our partner companies compete to attract and retain a
critical mass of buyers and sellers. Several companies offer competitive
solutions that compete with one or more of our partner companies. We expect
that additional companies will offer competing solutions on a stand-alone or
combined basis in the future. Furthermore, our partner companies' competitors
may develop Internet products or services that are superior to, or have greater
market acceptance than, the solutions offered by our partner companies. If our
partner companies are unable to compete successfully against their competitors,
then our partner companies may fail.
Many of our partner companies' competitors have greater brand recognition
and greater financial, marketing and other resources than our partner companies.
This may place our partner companies at a disadvantage in responding to their
competitors' pricing strategies, technological advances, advertising campaigns,
strategic partnerships and other initiatives.
We face competition from other capital providers including publicly-traded
Internet companies, venture capital companies, consulting firms and large
corporations. Many of these competitors have greater financial resources and
brand name recognition than we do. These competitors may limit our opportunity
to acquire interests in new partner companies. If we cannot acquire interests
in promising companies, our strategy to build a collaborative network of partner
companies may not succeed.
Benefits Of Our Services
We offer our partner companies the following positive elements of venture
capital firms, business incubators and consultancies:
. Hands-on strategic, operational and technology expertise. Our
--------------------------------------------------------
management team has assisted numerous Internet companies in the areas
of strategic planning, sales, marketing, partnership strategy, capital
planning, brand development, management, technology implementation,
negotiations and divestiture/acquisition planning. By sharing the
lessons learned as part of these experiences, we believe that we can
help companies efficiently implement their business plans.
. Early stage investment capital. The market environment created by the
------------------------------
massive amount of capital raised by the traditional venture capital
community, combined with its generally rigid focus on making large
scale investments as early as possible in the evolution of new
companies, provides us with the opportunity to present what we believe
is an attractive alternative to development stage companies. As a
result of having a well-networked management team and our willingness
to provide smaller investments to development stage companies, we
combine the advantages of a traditional venture capital firm with the
funding flexibility of friends and family and angel investors.
. Speed and flexibility. As experienced entrepreneurs who have raised
---------------------
capital on numerous occasions, our management team recognizes the
importance of rapid yet prudent funding decisions. With this in mind,
our goal is to make funding decisions and to deliver funds (in
instances of choosing to fund a company) within two weeks of receiving
a business plan and completing our due diligence review of a
prospective partner company. In addition to acting quickly and
prudently, we believe in providing a high degree of flexibility to our
partner companies. For example, unlike many other business incubators
which require their partner companies to co-locate, we intend to
provide entrepreneurs with a choice. Partner companies can co-locate
with us in San Francisco, California or choose to locate elsewhere.
. Network of companies and people. In a time where marketing, capital,
-------------------------------
technology and partnerships are critical, we believe that people and
relationships remain the most important elements of success for
development stage enterprises. Collectively, our management team,
which sits on either the board of directors or board of advisers of
numerous public and private Internet companies, has participated in
many Internet strategic partnerships/transactions and possesses a
contact list of hundreds of people in the Internet industry. Through
this extensive network of relationships and experiences, our
management team believes that it can provide superior business
assistance to our partner companies.
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. Generation vision and business acumen. Members of our management team
-------------------------------------
are part of a generation that has spent its entire professional career
using computers and technology. We believe that the Internet and the
digital economy are not disruptive, but rather an evolutionary way of
life. This vision helps in identifying business models and areas of
opportunity on the Internet. At the same time, members of our
management team are seasoned in fundamental business principles from
years of experience at firms such as Goldman Sachs & Co.,Venture
Partners, Booz-Allen and Hamilton, The Boston Consulting Group and
Diamond Technology Partners, Inc. We believe that this unique
combination of vision and business acumen will enable us to
efficiently develop an understanding of the seemingly chaotic digital
economy and capitalize upon significant opportunities presented by the
Internet.
Investment Process
We intend to follow a four-step investment process: (1) sourcing and
evaluating potential partner companies to identify development stage Internet
companies that meet our criteria, strategy and return objectives; (2) performing
due diligence on each target opportunity and its senior management team, and
developing an operating plan with that team, (3) providing post-closing support
both at an operational advisory level and from a board of directors level,
particularly in the areas of strategic relationship development, planning,
senior management staffing, capital structure advice and budgeting, and (4)
determining the appropriate timing for an exit event.
1. Transaction Sourcing
We believe that the following factors will enable us to identify high-
quality potential transaction opportunities:
. Industry Partners/Relationships. We intend to maintain and
-------------------------------
develop successful partnerships with industry leaders in the high
technology and Internet communities. Our management team has
successfully utilized these working relationships in many joint-
venture partnerships in the Internet industry.
. Executives. Our management team has extensive relationships with
----------
senior executives at successful high technology, private equity
and investment banking companies who we believe will refer
opportunities to us and provide us with perspectives and market
intelligence on the Internet industry.
. Industry Consultants. Our management team has and will continue
--------------------
to have active working relationships with many specialized
industry consultants that will be uniquely positioned to refer
opportunities to us.
. Our Internally Generated Opportunities. Members of our
--------------------------------------
management team have been responsible for the organization and
development of many successful Internet businesses. We intend to
continue to pursue internally generated business concepts and to
leverage these opportunities through the recruitment of talented
executives to execute the operating strategies.
2. Due Diligence and Development of Operating Plan
Once we have identified transaction opportunities, we will perform an
extensive due diligence review of the target company and verify that it has
developed a viable business plan.
Due Diligence
Throughout the due diligence process our management team will interact
extensively with the management and/or ownership of the potential partner
company to analyze its business and the ability of its management to partner
with our management team.
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. Rigorous Analysis. We use a team-oriented, extensive and
-----------------
analytical approach to all aspects of the due diligence process,
including management, commercial, financial, legal and
operational due diligence.
. Operating Assessment. An important component to our due
--------------------
diligence process is to assess the underlying factors that drive
the potential partner company's business model and growth
strategy through the Internet. We evaluate each strategy both
from fundamental business viability perspective and the
implications of the business model as it applies to the unique
characteristic of e-commerce.
. Utilizing Management's Network. Our management team's extensive
------------------------------
relationships with high-technology executives, Internet industry
consultants and financial institutions will enable us to access
independent information and knowledge of the management,
technology and competitive environment to analyze each potential
investment opportunity.
Development of the Operating Plan
Concurrent with our due diligence review, we will begin to develop a
working relationship with the management team of the potential partner company
and to develop an operating plan for the partner company.
. Value Added Partners with Management. We intend to pursue
------------------------------------
transactions in which we can develop a close working relationship
with the management team of the potential partner company during
the due diligence process. In conjunction with the management
team of the potential partner company, we expect to develop
realistic budgets and operating assumptions and to design and
develop an operating plan based on our extensive experience with
Internet start-up companies in areas such as marketing,
technology, financial, partnership and operations.
. Equity Participation. We intend to take an active role in the
--------------------
development of the structure of equity incentives and
distribution of equity to members of the management team of
partner companies. We intend to provide senior management of all
partner companies with the opportunity to own significant equity
in their company. We believe that it is crucial for all members
---
of the partner company's senior management to have an equity
stake in their company in order to support a team approach to the
project.
3. Development and Ongoing Support
Following our decision to make a financial commitment to a partner company,
our management team will work closely with the senior management of the partner
company in the implementation of the operating plan. With our extensive
operational, industry and financial strengths, we expect that this mentoring
partnership process will be integral to the success of each partner company.
This process will consist of the following components:
. Broaden and Develop Management Teams. We intend to actively support
------------------------------------
partner companies in the recruitment and acquisition of additional
management and personnel needed to execute an agreed upon operating
plan and to pursue target opportunities. As the partner companies
graduate from the development stage to mature operating businesses,
their management teams must be expanded and solidified. Our management
team believes that it will be able to assist the partner companies in
finding and developing qualified personnel to manage their companies.
. Focus Operating Plan Objectives. A well-developed operating plan is
-------------------------------
crucial to the execution of a promising business concept and will
significantly increase the probability of success within any start-up
organization. Our management will work closely to assist partner
companies in implementing their operating plans and refining and
focusing the detailed components of these plans as the partner
companies develop.
. Developing Strategic Industry Relationships. Like all industries, the
-------------------------------------------
development of strategic partnerships and value added relationships
can be crucial to the success of a business model. This is
39
<PAGE>
particularly acute in the Internet industry. We plan to utilize our
strong relationships across many fields to advance the business plans
of our partner companies.
4. Exit Strategies
The decision to divest of a partner company will be driven by internal and
external factors, which will influence the timing and form of our divestiture.
Due to the typical rapid development of Internet businesses, our target holding
period for a partner company will be approximately 18-24 months. Prior to
divestiture, we anticipate that we will assist the partner companies in the
completion of at least one additional round of financing.
Although divestiture is the final stage of an investment, we intend to
focus on this aspect from the outset when evaluating potential business
combinations and investment opportunities. In most cases, we expect to complete
the divestiture of our ownership interest in a partner company through (i) the
sale of our ownership interest in the partner company in the public market
subsequent to the initial public offering of the partner company's securities;
(ii) the private sale of our ownership interest in a partner company to an
existing company; or (iii) the merger of the partner company with an existing
company.
Our Partner Companies
We have begun to implement our investment process and currently own equity
in each of the following partner companies:
<TABLE>
<CAPTION>
Approximate
% of Amount of
Date(s) of Equity Capital Stock
Partner Company Location Investment Acquired Purchased
- --------------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C>
METACAT.COM, INC. PORTLAND, OR June 1999 100% $ 250,000
ASIA CD, INC. SAN FRANCISCO, CA June 1999 12% $1,000,000
COLLEGE 411.COM, INC. SAN FRANCISCO, CA June 1999 and 29% $ 250,000
September 1999
ASSETEXCHANGE, INC. PORTLAND, OR September 1999 20% $ 400,000
</TABLE>
In addition, we are in the process of merging with BrightStreet.com, Inc.,
a partner company located in Mountain View, California. We own approximately 66%
of the issued and outstanding common stock and 100% of the issued and
outstanding Series A Preferred Stock of BrightStreet. We acquired this ownership
interest through a series of share exchange transactions with stockholders of
BrightStreet. As of September 30, 1999, we have satisfied debts and other
obligations of BrightStreet and have provided funding to BrightStreet in the
aggregate amount of approximately $10,750,000.
In addition, from time to time, we may extend short term secured and
unsecured loans to potential partner companies to satisfy their short term
financing needs while we perform our due diligence review of the candidate
company.
BrightStreet.com, Inc.
BrightStreet enables its customers to deliver, track, and analyze
promotions targeted to Internet users. BrightStreet licenses its services
directly to manufacturers, retailers, and web portals. BrightStreet also offers
a network of affiliated Internet websites that distributes promotional offers
for manufacturers and retailers.
BrightStreet markets a technology platform to manufacturers, retailers, and
web portals that allows these businesses to deliver customized promotions such
as coupons and free samples via their Internet websites. In doing so, these
businesses develop a rich consumer database, built from registration data that
consumers provide in order to receive these valuable promotions.
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In addition to allowing consumers to register and download offers via its
customers' Internet websites, BrightStreet intends to create the BrightStreet
Network, a promotional network of affiliated Internet websites. The BrightStreet
Network will offer customers who want a wider distribution of their offers the
ability to place the offers on web portals. In these situations, BrightStreet
serves as an intermediary. Manufacturers and retailers experience broader
distribution of their promotions and the portals get the Internet website
content and revenues which they need, with a high perceived value to the
consumer.
BrightStreet intends to generate revenues from two sources: (i) licensing
fees from licensing its technology platform and promotion services, and (ii)
network fees from transactions, sponsorships, and other marketing programs on
affiliate Internet websites.
Service Licensing
- -----------------
BrightStreet allows licensees to easily create their own proprietary,
branded promotional service. Manufacturers, retailers and web portals are
particularly interested in targeting promotional offers and serving their own
customers. BrightStreet's technology allows them to deliver what consumers want
most from the Internet: free offers, coupons, and promotional incentives. By
creating their own branded "Savings Club," manufacturers, retailers, and portal
websites can develop a consumer database that can be easily segmented to target
individual, customized offers. BrightStreet's customers, especially
manufacturers and retailers, can effectively expand their marketing efforts on
the Internet while supporting their existing brick-and-mortar marketing
channels. Using the Internet as a targeted incentive medium, BrightStreet's
customers can drive consumers into traditional store outlets with securely
printed, trackable coupons, certificates, and sales notifications.
BrightStreet's services can also be used as an Internet-based, promotional sales
channel for issuing digital discounts to affiliated e-Commerce websites.
Media Network Opportunity
- -------------------------
Customers can also choose to join the BrightStreet Network. BrightStreet
delivers a turnkey promotion service to BrightStreet Network members from any
Internet website and then populates the website with national and local offers.
Customers earn incremental revenues generated from the promotional offers that
BrightStreet places on the Internet website or sends via e-mail to their
registered members.
Other key strengths of Brightstreet's services include:
Security: BrightStreet's technology is capable of delivering highly secure,
--------
serialized coupons that are cross-referenced against individual consumer
data. BrightStreet believes that this feature is especially important to
consumer packaged goods manufacturers, as they experience a high level of
fraud related to their coupons and promotions.
Targeting and Tracking: The BrightStreet system uses databases and
----------------------
targeting methodologies to create and deliver highly targeted and trackable
promotional campaigns. BrightStreet's closed-loop system tracks individual
consumer behavior on an offer-by-offer basis. By serially coding every
printed coupon with user identification data, BrightStreet provides a high
degree of measurability that allows its customers to evaluate the
effectiveness of their promotions.
Database: BrightStreet's customers can build a consumer database from
--------
registration data that consumers provide in exchange for receiving valuable
promotional offers.
Simplicity: The BrightStreet solution is a turnkey, hosted application. A
----------
customer simply approves a set of visual templates and places a link or
links on its Internet website. Consumers are then seamlessly and
transparently routed to BrightStreet's promotion servers, where offer
delivery functions occur.
Customer Branding: As an infrastructure provider, BrightStreet helps its
------------------
customers maintain their own branded presence while using its services.
While BrightStreet provides the promotion-enabling technology, its
customers' brands are always the central focus of all promotions delivered
to consumers. BrightStreet simply provides a seamless, integrated, consumer
experience from its customers' Internet websites.
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<PAGE>
Total Commerce Solutions: Most Internet commerce services are designed to
------------------------
focus exclusively on commerce transactions. BrightStreet's solution helps
drive online consumers to complete transactions at retail locations in
front of sales clerks, where the vast majority of consumer purchases occur.
Our platform is also capable of issuing digital discounts, thereby offering
a complete commerce solution.
BrightStreet has developed strategic relationships with the following
businesses.
Nando Media: Nando is a one-stop solution provider for creating and
-----------
maintaining Internet websites, along with providing content and technology
solutions for newspaper industry clients. Nando Media has agreed to market
and sell BrightStreet's services to its client base.
Freeshop.com: BrightStreet has entered into an agreement with
------------
FreeShop.com, a highly regarded e-commerce website. BrightStreet will
incorporate FreeShop's offers into the BrightStreet Network for its
affiliates to use as content on their Internet websites. BrightStreet
anticipates that this service will begin in December 1999.
From inception through June 30, 1999, Brightstreet.com generated revenues
of $1,392,867. However, for the quarter ended September 30, 1999, Brightstreet
generated minimal revenues.
We currently own approximately 66% of the issued and outstanding shares of
BrightStreet's common stock and 100% of the issued and outstanding shares of
BrightStreet's Series A Preferred Stock.
In order to maximize the value of our ownership interest in BrightStreet
and to reduce our future funding obligations, we are presently exploring a
number of strategic alternatives which we believe will enable both BrightStreet
and our company to more efficiently implement their business plans. Among these
strategic alternatives is the potential sale of BrightStreet's assets to a newly
formed corporation pursuant to which we will maintain a minority ownership
interest. While we are not certain that we will be able to complete any of the
transactions which we are presently considering, this strategy will allow us to
continue to make investments in and complete acquisitions of additional partner
companies and will reduce our funding obligations to BrightStreet.
metacat.com, Inc.
metacat is an online superstore for small catalogs. It offers a one-stop
shopping site that allows consumers to browse and purchase a wide variety of
items by putting the combined inventory of as many as 15,000 catalogs at their
fingertips. metacat brings a burgeoning $57 billion catalog sales market to the
Internet in a unique way, offering a rich and diverse variety of goods at a
single, searchable database. metacat believes that by pairing the penetration
and specialization of the catalog industry with the Internet's unique retailing
power, metacat provides consumers with a convenient and useful way to browse or
shop over the Internet.
metacat is building an online store by aggregating the content of thousands
of small, print-based mail order catalogs into a commerce-enabled database.
Forming strategic partnerships with many different catalogs, metacat leverages
the pre-established distribution and inventory expertise of individual catalogs
to market products in a manner that would otherwise be impossible due to the
lack of established distribution channels and the high fixed costs of entry into
Internet commerce. Management believes that metacat will offer small catalogs
the high Internet profile that they could not otherwise afford, serving as a
front-end marketing organization for their products. As an infomediary between
catalog retailers and Internet customers, metacat is building a "super brand"
consisting of many other brand name catalogs to capitalize on the economies of
scale possible in Internet retailing, relying on pre-existing distribution
channels for the many product categories too small, specialized, or diffuse to
be exploited by distributor-enabled "category killers" such as Amazon.com.
Through a user-friendly interface, excellent customer service and a concerted
branding campaign, our management team anticipates that metacat will establish
itself as an important shopping destination on the Internet for specialized and
unique products. metacat anticipates launching its Internet website by November
1999, at which point consumers will be able to purchase a variety of consumer
goods from catalogs and mail order services that are linked to its website.
We currently own 100% of the issued and outstanding common stock of
metacat. As of September 30, 1999, metacat has not recognized any revenues and
has minimal assets.
42
<PAGE>
AsiaCD, Inc.
AsiaCD is a leading 24-hour online music store for individuals of Asian
descent located throughout the world who either lack easy access to a broad
range of media titles when living outside their native country or who simply
enjoy media from other cultures. AsiaCD is focused on delivering the highest
quality service and best prices to a growing list of customers. Management
believes that AsiaCD is poised to leverage its proven United Stated based e-
commerce business model into new international markets and to take advantage of
the rapidly growing Asian online presence in the United States and worldwide.
AsiaCD was founded in January 1998 and launched its Internet website,
ww.asiacd.com, in May 1998. AsiaCD currently has 13 employees working in two
- --------------
offices located in San Francisco, California and Hong Kong.
Since launching its Internet website in May 1998, Asia CD has enjoyed
strong revenue and customer growth. Asia CD also earned recognition from the
marketplace including several awards from online communities and magazines
including Web Magazine, Sinanet and Whatsite. Since the fiscal quarter beginning
April 1, 1998, Asia CD's business has experienced consistent revenue growth in
each fiscal quarter (all amounts are unaudited):
<TABLE>
<CAPTION>
Fiscal Quarter Ending Revenues
--------------------- --------
<S> <C>
June 30, 1998 $ 9,207
September 30, 1998 $ 50,217
December 31, 1998 $138,215
March 31, 1999 $258,591
June 30, 1999 $398,472
September 30, 1999 $355,007 (through August 31, 1999)
</TABLE>
Asia CD has approximately 10,000 customers who have purchased products from its
Internet website and has experienced a repeat customer rate of approximately
44%. The average order size for each Asia CD customer is approximately $40. Asia
CD expects continued sales growth through aggressive marketing in the United
States plus expansion into other Asian markets where it plans to apply its
concept of "cross-cultural sales." By providing convenient, inexpensive access
to a broad range of titles "foreign" to a given market, Asia CD taps into the
increasingly global nature of mass media and leverages the Internet to fulfill a
need not adequately serviced in the "bricks and mortar" world. In the United
States, Asia CD's Internet website already offers access to Cantonese, Mandarin,
Japanese and Korean products. In Hong Kong and Taiwan, it intends to offer
convenient access to European, Japanese and American titles, at competitive
prices which include local rather than international shipping costs. Asia CD
intends to utilize its presence in multiple nations to leverage distribution and
purchasing power.
We currently own 1,000,000 shares of AsiaCD's Series A Preferred Stock
which we are entitled to convert into 1,000,000 shares of AsiaCD's common stock
at any time. As of the date of this prospectus, if we were to elect to exercise
this conversion option, then we would own approximately 12% of AsiaCD's issued
and outstanding shares of common stock. We also own a warrant which entitles us
to purchase 300,000 shares of AsiaCD's common stock at an exercise price of
$1.00 per share. In addition, we have appointed Stephen George to serve on
AsiaCD's board of directors.
College 411.com, Inc.
According to the U.S. Department of Education, there are over 16 million
college students in America and this number is predicted to increase steadily by
4-5% during the next several years. College students have significant buying
power and influence in our economy. Roper Starch estimates that United States
college students spend $100 billion annually. In 1996, college students spent
$500 million online and, according to Jupiter Communications, this spending is
expected to rise to $3.9 billion by 2002. Although there is tremendous value in
creating a sticky user base of consumers who return to an Internet website on
numerous occasions, no Internet company has succeeded to date with this
demographic group.
College41l's goal is to be the complete college student portal, offering
the largest collection of student-oriented resources on the Internet. With an
intuitive interface merged with personalized, local information, College 411
intends to be a comprehensive, useful student resource. College 411 intends to
provide a wide array of information, products and services that are useful to a
college student. Its Internet website is expected to include, for example,
customizable
43
<PAGE>
news, research information, academic research, career suggestions, online radio,
travel guides, dating tips, movie tickets, textbook finder, online tutoring,
chat, procrastination tools, student classifieds, auctions and game resources.
College 411 is building a high quality academic channel on the Internet for
college students, loaded with proprietary information sharing and communication
applications, proprietary search techniques, OEM and co-branded academic
partnerships, and one of the most comprehensive academics guide on the Internet.
While portions of its Internet website are currently operational, College 411
believes that its Internet website will be fully operational in October, 1999.
College411 plans to generate cash flow from five sources: affiliate programs,
general/targeted advertising, firm branding, chargeable services and rental fees
for prominent partnerships on its Internet website.
We currently own 3,750,000 of College411's common stock. This represents
approximately 29% of College411's issued and outstanding common stock. As of
September 30, 1999, College411 has not generated any revenues and had minimal
assets.
AssetExchange, Inc.
AssetExchange, Inc. has created a network which allows financial
institutions to buy and sell loan portfolios and other assets among themselves.
AssetExchange supports this network by providing an Internet-based listing
service of financial assets that are currently traded in a less efficient
manner. AssetExchange's network will initially focus on loan portfolios and,
more specifically, credit card portfolios. AssetExchange's Internet website,
which was launched in August 1999, has been well received by customers and now
has approximately 100 registered members and two portfolio listings.
Banks and other financial institutions regularly buy and sell a variety of
loan portfolios from each other. These loan portfolios consist of credit card
accounts, automobile loans, mortgages, small business loans, student loans, and
other types of loans. Banks purchase and sell these assets for both strategic
and tactical purposes. The volume of these transactions among banks and other
financial institutions has been increasing. This increase in transaction volume
has been driven by the banking industry's trend toward specialization,
consolidation and increased risk management goals.
The markets for the purchase and sale of these assets are currently
fragmented and inefficient. Many transactions are completed based on personal
contacts made by brokers or investment bankers. Transaction costs are
substantial and matches between buyers and sellers are unlikely to be the best
available matches in the financial markets. Since search and transaction costs
can prevent deals and limit marketing efforts, medium and small sized banks are
deterred from participating in these markets.
AssetExchange is currently focusing on transactions of credit card
portfolios. Credit card portfolios generally consist of the accounts associated
with a particular bank's credit card program. These portfolios typically include
total outstanding balances ranging from less than $1 million to over $1 billion.
In 1998, credit card portfolio transactions totaled approximately $40 billion in
asset value. This represented a 40% increase over 1997 transactions. Of this
amount, AssetExchange believes that transactions valued at approximately $5
billion are well suited to its network. Other classes of loan portfolios, such
as mortgage loans, auto loans and student loans, create an overall accessible
loan portfolio transaction market of approximately $50 billion.
AssetExchange addresses the inefficiencies which are inherent in these
markets by providing a secure and confidential Internet-based listing and e-mail
notification service for financial institutions. AssetExchange's Internet
website supports posting, browsing and searching for assets. E-mail notification
alerts buyers of new listings of loan portfolios. AssetExchange's primary role
is "matchmaking" between sellers and buyers of loan portfolios. Outside vendors
provide valuations of loan portfolios, legal advice and credit analysis.
AssetExchange may later elect to provide these services based on customer
demand. These vendors currently may purchase advertising and links to their own
Internet websites from AssetExchange. AssetExchange's goal is to provide an
efficient conduit for transacting a broad range of financial assets among
financial institutions.
AssetExchange is well positioned in the burgeoning Internet market.
Business-to-business Internet sales are now five to ten times greater than
retail sales and this relationship is expected to continue (Forrester, Aberdeen
Group).
AssetExchange anticipates that its primary customers will include banks,
finance companies thrifts, community bank, credit unions and other financial
institutions. Brokers and investment bankers may also use AssetExchange's
services to expand their transaction base and reduce their transaction costs.
AssetExchange is unaffiliated with existing
44
<PAGE>
market participants. This practice allows AssetExchange to provide an impartial
and powerful tool for gaining market exposure. The benefits of AssetExchange's
network include:
. Broad exposure to buyers and sellers of loan portfolios;
. A forum that permits users to ascertain market prices of loan
portfolios in an efficient manner;
. Inexpensive, efficient, confidential and convenient service; and
. Access to better market information which supports improved
acquisition and sales strategies.
AssetExchange anticipates that its primary revenue stream will consist of
commissions on transactions. In today's market, commissions typically range from
50 to 300 basis points, which is approximately 0.50% to 3% of a transaction's
value, depending on the level of services provided by the finder or broker.
AssetExchange currently charges 30-50 basis points of a transaction's value and
this fee is divided between the buyer and seller equally. This pricing structure
may be adjusted to meet the practices of other industries as AssetExchange
expands into other classes of loan portfolios. AssetExchange anticipates that it
will generate additional revenues by providing links to its Internet website and
selling advertising space on its Internet website to vendors of related
services. AssetExchange believes that a possible future revenue stream may be
subscription fees paid by users of its network.
AssetExchange's initial marketing efforts will focus on aggressively
pursuing market-share and building the AssetExchange.com brand recognition. As
of September 30, 1999, AssetExchange had not generated any revenues and had
minimal assets.
We currently own 258,065 shares of AssetExchange's Series A Preferred Stock
which we are entitled to convert into 258,065 shares of AssetExchange's common
stock at any time. As of the date of this prospectus, if we were to elect to
exercise this conversion option, then we would own approximately 20% of Asset
Exchange's issued and outstanding shares of common stock.
Employees
As of September 30, 1999, excluding our partner companies, we had four
full-time employees. None of our employees are currently covered by collective
bargaining agreements and we consider our relations with our employees to be
satisfactory.
Facilities
We currently sublease office space at Two Penn Center Plaza, Suite 605,
Philadelphia, Pennsylvania at a rate of $2,000 per month. We also share office
space in San Francisco, California with XCHANGES CORPORATION, a corporation
owned by Stephen George, a director of Net Value Holdings, Inc., at no expense.
In November 1997, BrightStreet entered into a lease for its executive
offices located at 1960 Bronson Road, Building No. 2, Fairfield, Connecticut.
The office space consists of approximately 8,800 square feet. Pursuant to the
terms of this lease, BrightStreet is required to pay rent of $13,284 per month
plus utilities, general liability insurance premiums for up to $5,000,000 of
coverage and the amount of any increases in operating expenses and real estate
taxes up to 5% over the amounts paid for these expenses during the year ended
June 30, 1998. This lease expires on December 31, 2000. BrightStreet vacated
this office space and ceased making rent payments under this lease in June 1999.
BrightStreet is currently attempting to negotiate a settlement agreement with
the landlord to terminate this lease.
In July 1999, BrightStreet entered into a lease agreement for its new
executive offices located at 480 San Antonio Road, Mountain View, California.
The office space consists of approximately 2,606 square feet. Pursuant to this
lease agreement, BrightStreet is required to pay monthly rent of $6,472. This
lease expires on August 26, 2000.
In April 1999, Strategicus Partners, Inc. and Douglas Spink entered into a
lease agreement with Q-19, Incorporation, an Oregon corporation, for office
space for metacat.com, Inc. located at 1526 N.W. 19th Avenue, Portland, Oregon.
The office space consists of approximately 1,200 square feet. This lease
agreement terminates on
45
<PAGE>
April 30, 2001. Pursuant to this lease agreement, monthly rent is $1,200 through
April 30, 2000 and $1,248 for the remaining lease term, plus all costs for
electricity and janitorial services.
Legal Proceedings
Net Value Holdings is not currently involved in any material legal
proceedings.
In March 1999, Response Reward Systems L.C. filed an action against
BrightStreet in the United States District Court of Connecticut alleging that
BrightStreet had infringed upon certain patents held by Response Reward Systems.
In May 1999, BrightStreet filed an answer to this complaint which included a
counterclaim against Response Reward Systems seeking a declaratory judgment of
invalidity, unenforceability and noninfringement of the asserted patents. Formal
discovery in this action commenced on June 21, 1999, and is currently required
to be completed by January 14, 2000. Although the court has not set a trial
date, the parties are to be prepared for trial by September 18, 2000.
BrightStreet believes that Response Reward Systems' claims are without merit and
intends to vigorously defend the claims asserted in this litigation. However,
BrightStreet cannot estimate the amount of damages that it may incur if the
court issues a final judgment concluding that BrightStreet has infringed on
Response Reward Systems' patents. In addition, based on its estimate of the cost
of defending this type of litigation, BrightStreet may decide to settle this
case for an amount that, although substantially less than the damages sought by
Response Reward Systems, may be significant.
On August 23, 1999, coolsavings.com, Inc. filed an action against
BrightStreet in the United States District Court for the Northern District of
Illinois, Eastern Division, alleging that BrightStreet had infringed upon a
patent held by coolsavings. The complaint seeks both a preliminary and permanent
injunction prohibiting BrightStreet from further acts of infringement, as well
as damages. BrightStreet has not yet filed an answer to this complaint.
BrightStreet believes that coolsavings' claims are without merit and intends to
vigorously defend the claims asserted in this litigation. However, BrightStreet
cannot estimate the amount of damages that it may incur if the court issues a
final judgment concluding that BrightStreet has infringed on coolsavings'
patent. In addition, based on its estimate of the cost of defending this type of
litigation, BrightStreet may decide to settle this case for an amount that,
although substantially less than the damages sought by coolsavings, may be
significant.
Independent Accountants
In June 1998, subsequent to Net Value Holdings' reinstatement as a
corporation in the State of Florida, we retained Barry L. Friedman, P.C. to
audit Net Value Holdings' financial statements for the period from January 1,
1998 through June 15, 1998 and for the years ended December 31, 1997 and
December 31, 1996. In December 1996, we determined that it would be beneficial
to have the same independent accounting firm audit both BrightStreet's financial
statements and Net Value Holdings' financial statements. Accordingly, we did not
reappoint Barry L. Friedman, P.C. as our independent accounting firm. Barry L.
Friedman, P.C. has confirmed that it did not have any disputes or disagreements
with Net Value Holdings or its management regarding accounting principles or
practices, financial statement disclosure or auditing scope or procedures.
In January 1999, subsequent to the consummation of the share exchange
transactions with the stockholders of BrightStreet, we engaged LJ Soldinger
Associates as our independent accountant. LJ Soldinger Associates has completed
the audit of our consolidated financial statements for the years ended December
31, 1998, 1997 and 1996. To review our consolidated audited financial
statements, see "Consolidated Audited Financial Statements."
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<PAGE>
MANAGEMENT
Directors and Executive Officers
Our directors and executive officers, their ages and positions are set
forth below:
Barry Uphoff 32 Chairman of the Board of Directors
Andrew P. Panzo 35 President, Chief Executive Officer and Director
Douglas Spink 28 Chief Technology Officer and Director
Lee Hansen 32 Chief Operating Officer
Darr Aley 34 Executive Vice President for Business Development
and Director
Stephen George 32 Director
Barry Uphoff has served as Chairman of our Board of Directors since July
1999. Mr. Uphoff is also a partner at Diamond Technology Partners, Inc., a
leading e-business consulting firm. Prior to joining Diamond Technology Partners
in July 1994, Mr. Uphoff was a management consultant with Booz, Allen and
Hamilton from June 1991 to July 1994 where he provided strategic and technology
consulting services to a variety of clients. Mr. Uphoff received an MBA from The
University of Chicago and also read for degrees in law and medicine under the
auspices of a Rhodes Scholarship at Oxford University.
Andrew P. Panzo has served as one of our directors and as our President and
Chief Executive Officer since January 1999. Prior to joining our management team
and during the first six months of his employment with Net Value Holdings, from
October 1993 to June 1999, Mr. Panzo was a managing director at American Maple
Leaf Financial Corporation, a boutique investment banking firm located in
Philadelphia, Pennsylvania. Mr. Panzo currently serves on BrightStreet's board
of directors. Mr. Panzo received a masters degree in International Business and
Finance from Temple University.
Douglas B. Spink has served as our Chief Technology Officer and as one of
our directors since July 1999. Prior to joining our management team, Mr. Spink
was President and founder of Strategicus Partners Inc., a technology consulting
firm and e-commerce business incubator, from March 1999 to July 1999, where he
was responsible for the formation of metacat.com, inc. Prior to forming
Strategicus, Mr. Spink served as the Vice-President of Direct Marketing of G.I.
Joe's, a sporting goods retailer based in Portland, Oregon, from September 1998
through March 1999. Mr. Spink founded and operated Timberline Direct, Inc., a
direct marketing company, and Athletica.com, Inc., a sports nutritional portal,
from July 1997 until September 1998, when he sold these companies to G.I. Joe's.
From April 1996 to July 1997, Mr. Spink served as the Western Region Director of
Tessera Enterprise Systems. Mr. Spink also served as the Director of Technical
Controls and Vice-President of Financial and Analytical Services of Ideon
Technology Group, Inc. from December 1994 to April 1996. Mr. Spink also served
as a strategic consultant with the Boston Consulting Group from September 1994
to December 1994, and served as a database marketing consultant with Leo Burnett
from September 1993 to September 1994, where he consulted in marketing with
Fortune l00 companies. Mr. Spink received an MBA from The University of Chicago.
Lee Hansen has served as our Chief Operating Officer since October 1, 1999.
Prior to joining our management team, Mr. Hansen was Senior Vice President of
Corporate Strategy and Development at Bank of America Corporation from May 1997
to September 1999, where he managed strategy projects and merger and acquisition
activities. From July 1993 to April 1997, Mr. Hansen served as an associate in
the Lease Finance and the Private Placement and High Yield Groups and as Vice
President in the International Capital Raising Group at Banc of America
Securities, where he originated, structured and executed over $2 billion of
private placements and bond offerings. Mr. Hansen received an MBA from the J.L.
Kellogg Graduate School of Management.
Darr Aley has served as our Executive Vice President for Business
Development and as one of our directors since July 1999. Prior to joining our
management team, Mr. Aley was Vice President of Corporate Development at Lycos,
Inc. from August 1998 to August 1999, where he was responsible for developing
Internet joint ventures and strategic alliances. Some of the strategic alliances
that Mr. Aley established at Lycos, Inc. included relationships with firms such
as: NBC, CBS, Time Warner, News Corp., Viacom, Rolling Stone (Wenner Media),
TCI, ATT, Microsoft, Amazon.com, Who/Where, AngelFire, Tripod, Wired,
TicketMaster, CitySearch and HSN. From December 1997 to August 1998, Mr. Aley
worked at Who/Where, a search engine that enables users to locate a person's
home and e-mail
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address. From December 1996 to December 1997, Mr. Aley worked at Zip Two, a
venture capital firm. From December 1994 to December 1996, Mr. Aley worked at
Soft Bank, a venture capital firm. Mr. Aley received a BA from the University of
New Hampshire.
Stephen George has served as a member of our Board of Directors since July
1999. Mr. George is also the chief executive officer of XCHANGES CORPORATION, a
business to business San Francisco Bay-area e-commerce company. Prior to forming
XCHANGES CORPORATION, Mr. George was a Vice President in the San Francisco
office of Goldman Sachs & Co., from January 1996 to May 1999 where he provided a
broad range of financial services to emerging technology companies,
entrepreneurs, management teams and venture capitalists with a specialization in
the Internet industry. From April 1992 through January 1996, Mr. George worked
as an investment banker for Merrill Lynch, Pierce, Fenner & Smith, Inc. Mr.
George currently serves on AsiaCD's board of directors. Mr. George received a BA
in Economics from Cornell University.
Executive Compensation
During the period from March 31, 1992 through September 4, 1998, Marc A.
Kuperman served as our sole officer and director. During this period, Mr.
Kuperman did not receive any compensation in exchange for his services. From
September 4, 1998 through January 6, 1999, Alexis Christodoulou served as our
sole officer and director. During this period, Mr. Christodoulou did not receive
any compensation in exchange for his services.
Employment Agreements
In June 1999, Net Value Holdings entered into three year employment
agreements with each of Messrs. Panzo and Spink. In addition to an annual salary
of $150,000, the employment agreements provide for bonus compensation at the
discretion of the Board of Directors. Pursuant to the employment agreements,
each of Messrs. Panzo and Spink are entitled to certain fringe benefits,
including participation in pension, profit sharing and bonus plans, as
applicable, and life insurance, hospitalization, major medical, paid vacation
and expense reimbursement. Mr. Spink's employment agreement also provides for
the forgiveness of a loan in the principal amount of $310,000 which Strategicus
Partners had previously provided to Mr. Spink. Net Value Holdings has agreed not
to take any actions to demand repayment or to collect this loan during the term
of the employment agreement so long as we do not terminate Mr. Spink's
employment for "cause," death or disability (as such terms are defined in the
employment agreement). Net Value Holdings also agreed to forgive Mr. Spink's
obligation to repay (i) 50% of the principal amount plus accrued interest of
this loan if Mr. Spink remains an employee of Net Value Holdings on January 1,
2000 and the remaining 50% of the principal amount plus accrued interest of this
loan if Mr. Spink remains an employee Net Value Holdings on May 28, 2000, (ii)
the entire principal amount plus accrued interest of this loan if his employment
is terminated in breach of the employment agreement or (iii) the entire
principal amount plus accrued interest of this loan in the event of a "Change in
Control," as that term is defined in the employment agreement.
The unvested shares of our capital stock which we issued to Mr. Spink in
connection with our merger with Strategicus Partners vest in equal increments
over a period of 24 months as long as he remains an employee of our corporation
during this vesting period. If we terminate Mr. Spink's employment agreement due
to his death, disability or for "cause" as such terms are defined in his
employment agreement or if Mr. Spink terminates his employment agreement without
any cause, then he shall forfeit all of his unvested shares of our capital
stock.
Mr. Panzo's employment agreement provides that he will be awarded options
to purchase 1,200,000 shares of common stock pursuant to a stock option plan
which Net Value Holdings intends to implement in 1999. Options to purchase
120,000 shares of common stock will vest immediately and the remainder of the
options will vest over a three year period. Mr. Panzo may exercise these options
for five years following their vesting date at an exercise price of $1.00 per
share. In September 1999, Mr. Panzo agreed to reduce his option award pursuant
to his employment agreement. Mr. Panzo is now entitled to receive options to
purchase 1,080,000 shares of our common stock.
In September 1999, Net Value Holdings entered into a three year employment
agreement with Lee Hansen pursuant to which Mr. Hansen will serve as Net Value
Holdings' chief operating officer. In addition to an annual salary of $150,000,
Mr. Hansen's employment agreement provides for bonus compensation at the
discretion of the Board of Directors. Pursuant to his employment agreement, Mr.
Hansen is entitled to certain fringe benefits, including participation in
pension, profit sharing and bonus plans, as applicable, and life insurance,
hospitalization, major medical, paid vacation and expense reimbursement. Net
Value Holdings has agreed to award Mr. Hansen options to purchase
48
<PAGE>
900,000 shares of common stock pursuant to a stock option plan that it intends
to implement in 1999. Options to purchase 90,000 shares of common stock will
vest immediately and the remainder of the options will vest over a three year
period. As long as he is employed by Net Value Holdings, Inc., Mr. Hansen may
exercise these options at an exercise price of $1.00 per share until the later
of (i) the fifth anniversary of their vesting date or (ii) one year after the
effective date of a registration statement registering the resale of the shares
of common stock issuable upon exercise of the options. If Mr. Hansen's
employment is terminated, then the exercise period of his options may be
reduced.
Consulting Agreements
We have entered into consulting agreements with each of Messrs. Uphoff,
Aley and George. Pursuant to the terms of the consulting agreements, each of
Messrs. Uphoff, Aley and George will be paid a monthly retainer of $500. The
options to purchase shares of our common stock which we have agreed to issue to
Messrs. Uphoff, Aley and George in exchange for their cancellation of the
unvested shares of our capital stock which we issued to each of them in
connection with our merger with Strategicus Partners will vest in equal
increments over a period of 48 months provided each remains engaged as a
consultant to our company. For a detailed discussion of the issuance and
cancellation of these shares of our common stock, see "CERTAIN TRANSACTIONS." We
may terminate their consulting agreements at any time and for any reason. If we
terminate either of Mr. Aley's or Mr. George's consulting agreements, then the
respective consultant shall forfeit all unvested stock options. If we terminate
Mr. Uphoff's consulting agreement, then Mr. Uphoff shall forfeit all options
which have not vested within 60 days of the termination date of his consulting
agreement.
Mr. Aley's consulting agreement also provides for the forgiveness of a loan
in the principal amount of $267,000 which we have provided to Mr. Aley. We will
forgive (i) one-third of the principal amount of this loan, plus accrued
interest thereon, if Mr. Aley remains engaged by us on the first anniversary of
the effective date of the merger with Strategicus Partners; (ii) one-third of
the principal amount of these loans, plus accrued interest thereon, if Mr. Aley
remains engaged by us on the second anniversary of the effective date of the
merger with Strategicus Partners, Inc.; and (iii) one-third of the principal
amount of this loan, plus accrued interest thereon, if Mr. Aley remains engaged
by us on the third anniversary of the effective date of the merger with
Strategicus Partners, Inc.
On October 1, 1999 we entered into a consulting agreement with Paul H.
Stephens, a founder and formerly a principal of the investment banking firm of
Robertson Stephens & Company. Under the consulting agreement, Mr. Stephens has
been appointed to our newly created Board of Advisors. In this capacity, Mr.
Stephens will review and advise us regarding our business and prospects and the
business and prospects of our partner companies. He will also assist us in
completing acquisitions of and making investments in other businesses and will
assist us in obtaining additional rounds of financing. Mr. Stephens led
Robertson Stephens' research and institutional sales effort in the late 1970's
and early 1980's and then transitioned into its new business corporate finance
department where he worked until 1985. He then restructured the firm's venture
capital group, managing it until 1990, when he formed The RS Orphan Fund, LP, a
limited partnership focused on investing globally in undiscovered or neglected
growth companies. In June 1993, Mr. Stephens launched The Contrarian Fund, a
public mutual fund that also has a global focus on developing companies.
In exchange for rendering these consulting services, we sold a total of
676,374 shares of our common stock to The RS Orphan Fund, LP and The RS Orphan
Offshore Fund, LP for a total purchase price of $676,374. These funds also
purchased a total of 1,324 shares of our Series B Preferred Stock and warrants
to purchase 80,976 shares of our common stock in our October 1999 private
placement offering. These funds are managed by Mr. Stephens. No additional
compensation will be paid to Mr. Stephens pursuant to the consulting agreement.
We will reimburse Mr. Stephens for reasonable business expenses which he incurs
in performing his duties pursuant to the consulting agreement. This consulting
agreement has a three year term and either we or Mr. Stephens may terminate this
agreement upon one month's notice to the other party.
Board of Directors
Our bylaws currently provide that the authorized number of directors that
serve on our Board of Directors at any time will be a variable number ranging
from one to nine with the exact number to be fixed by the Board of Directors.
Our Board of Directors currently consists of five members. Members of our Board
of Directors hold office for a period of three years. The terms of the current
directors are staggered as follows:
49
<PAGE>
Class of 2001: Mr. Panzo
Class of 2000: Messrs. Spink and Uphoff
Class of 1999: Messrs. Aley and George
Each director holds office until his successor is elected and qualified at
the Annual Meeting of Stockholders held during the year in which his term
expires. Our Board of Directors has an audit committee which consists of Messrs.
Panzo, Uphoff and George. Our Board of Directors has a compensation committee
which consists of Messrs. Panzo and Spink.
Our directors who are also officers, employees, consultants or principal
stockholders of our company do not currently receive additional compensation for
their services to the board of directors. We intend to award stock options to
our non-employee directors following implementation of a stock option plan.
Liability and Indemnification of Officers and Directors
Our Amended and Restated Certificate of Incorporation provides that our
directors will not be liable for monetary damages for breach of their fiduciary
duty as directors, other than the liability of a director (i) for a breach of
the director's duty of loyalty to our corporation or its stockholders, (ii) for
acts or omissions by the director not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for a willful or negligent
declaration of an unlawful dividend, stock purchase or redemption or (iv) for
transactions from which the director derived an improper personal benefit. These
provisions are consistent with the applicable provisions of Delaware law.
Our Amended and Restated Certificate of Incorporation requires us to
indemnify all persons whom we may indemnify pursuant to the Delaware General
Corporation Law to the full extent permitted by Delaware Law.
In addition, our bylaws require us to indemnify our officers and directors
and other persons against expenses, judgments, fines and amounts incurred or
paid in settlement in connection with civil or criminal claims, actions, suits
or proceedings against such persons by reason of serving or having served as
officers, directors, or in other capacities, if such person acted in good faith
and in a manner such person reasonably believed to be in or not opposed to our
best interests and, in a criminal action or proceeding, if he had no reasonable
cause to believe that his/her conduct was unlawful. 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 which he
or she reasonably believed to be in or not opposed to our best interests or that
he or she had reasonable cause to believe his or her conduct was unlawful.
Indemnification as provided in our bylaws shall be made only as authorized in a
specific case and upon a determination that the person met the applicable
standards of conduct. Insofar as the limitation of, or indemnification for,
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers, or persons controlling us pursuant to the foregoing, or
otherwise, we have been advised that, in the opinion of the Securities and
Exchange Commission, such limitation or indemnification is against public policy
as expressed in the Securities Act of 1933 and is therefore, unenforceable.
50
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of our common stock owned, as of October 4, 1999, by (i) the holders
of more than 5% of our common stock, (ii) each of our directors, (iii) our
executive officers and (iv) all directors and executive officers of our company
as a group. Prior to this offering, as of October 4, 1999, an aggregate of
12,421,802 shares of our common stock were issued and outstanding. Assuming the
consummation of this offering, as of October 4, 1999, an aggregate of 12,421,802
shares of our common stock will remain issued and outstanding. For purposes of
computing the percentages under this table, it is assumed that all options and
warrants to acquire our common stock which have been issued to the directors,
executive officers and the holders of more than 5% of our common stock and are
fully vested or will become fully vested within 60 days of the date of this
Prospectus have been exercised by these individuals and the appropriate number
of shares of our common stock have been issued to these individuals.
<TABLE>
<CAPTION>
Shares of Common Stock Beneficially Owned
-----------------------------------------
Amount and Nature of
Name of Beneficial Owner Position Beneficial Ownership (1) Percentage of Class
------------------------ -------- ------------------------ -------------------
<S> <C> <C> <C>
Sven Behrendt Beneficial 827, 644 6.7
10 Gilston Road Owner
London, United Kingdom
Rozel International Holdings, Ltd. Beneficial 2,950,950 23.8
Whitehill House Owner
Newby Road, Industrial Estate
Hazel Grove, Stockport
Cheshire, United Kingdom
SK7 5DA
Andrew P. Panzo Officer, 141,663 1.2
8 Pennsford Lane Director
Media, PA 19063
Barry Uphoff Director 142,584 1.1
4080 Winberie Avenue
Naperville, IL 60564
Douglas Spink Officer,
15455 NW Greenbrier Pkwy, Director 578,027 4.6
Suite 210
Beaverton, OR 97006
Darr Aley Director 142,584 1.1
615 Howard Avenue
Brulingame, CA 94010
Stephen George Director 142,584 1.1
5 Morning Sun Avenue
Mill Valley, CA 94941
Lee Hansen Director -0- *
1475 Vallejo Street, #3
San Francisco, CA 94109
Tonga Partners, L.P. Beneficial 824,963 6.2
c/o Cannell Capital Management Owner
600 California Street
14th Floor
San Francisco, CA 94108
Attn: J. Carlo Cannell
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Shares of Common Stock Beneficially Owned
-----------------------------------------
<S> <C> <C>
RS Orphan Fund, LP 983,458 7.6
388 Market Street
Suite 200
San Francisco, CA 94111
Attn: Paul H. Stephens
All directors and executive 1,147,442 9.1
officers as a group
(6 people)
</TABLE>
_________________
* Less than one percent.
(1) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934. Unless otherwise noted, we
believe that all persons named in the table have sole voting and investment
power with respect to all shares of our common stock beneficially owned by
them.
(2) Includes 146,986 shares of common stock. Mr. Spink's ownership of these
shares will vest within 60 days of September 30, 1999. Does not include
1,469,849 shares of common stock. Mr. Spink's ownership of these shares
will not vest within 60 days of September 30, 1999 in accordance with the
terms of the Merger Agreement and Plan of Reorganization dated as of June
21, 1999 between Net Value Holdings, Inc., Strategicus Partners, Inc. and
Douglas Spink, as amended. Mr. Spink does not have voting or investment
power with respect to these shares of common stock.
(3) Does not include stock options which we have agreed to grant to our
officers and directors as our stock option plan remains subject to approval
by our Board of Directors and our stockholders. We have agreed to grant the
following stock options to our officers and directors upon adoption and
approval of our stock option plan:
Grantee Number of Options
------- -----------------
Darr Aley 1,905,292
Stephen George 1,905,292
Lee Hansen 900,000
Andrew Panzo 1,080,000
Barry Uphoff 1,905,292
52
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth the names of the selling stockholders, the
number of shares of our common stock beneficially owned by the selling
stockholders as of October 4, 1999 and the number of shares of our common stock
which may be offered for sale pursuant to this prospectus by the selling
stockholders.
Other than the shares listed for Messrs. Behrendt, Joeckel and Markman, the
number of shares set forth in this table represents an estimate of the number of
shares of our common stock to be offered for resale by the selling stockholders.
We cannot determine the actual number of our shares of common stock issuable
upon conversion of our Series B Preferred Stock and the exercise of the related
warrants. This number will change based on the election by the holders of the
Series B Preferred Stock to reset the conversion price. This number of shares of
our common stock could be significantly less or more than these estimates
depending on factors which we cannot predict at this time including, among other
factors, the future market price of our common stock.
If the holders had converted all of the shares of the Series B Preferred
Stock on October 4, 1999, then the conversion price per share would have been
$4.0875 and the Series B Preferred Stock would have been converted into
approximately 1,180,184 shares of our common stock. The related warrants are
exercisable into 295,040 shares of our common stock. Each holder may only
convert its shares of Series B Preferred Stock to the extent that the number of
shares of our common stock issuable upon conversion, together with the number of
shares of our common stock owned by the holder and its affiliates would not
exceed 4.99% of the issued and outstanding shares of our common stock as
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934. This calculation of shares of common stock owned by a holder does not
include shares of our common stock underlying unconverted shares of our Series B
Preferred Stock owned by the holder. Accordingly, the number of shares of our
common stock set forth in this table for each selling stockholder exceeds the
number of shares of our common stock that each selling stockholder could own
beneficially at any given time through their ownership of our Series B Preferred
Stock. In this regard, beneficial ownership of each selling stockholder set
forth in the table is not determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934.
These shares may be offered from time to time by the selling stockholders
named below. However, the selling stockholders are under no obligation to sell
all or any portion of these shares of our common stock. In addition, the selling
stockholders are not obligated to sell such shares of our common stock
immediately under this prospectus. Since the selling stockholders may sell all
or part of the shares of common stock offered in this prospectus, we cannot
estimate the number of shares of our common stock that will be held by the
selling stockholders upon termination of this offering.
<TABLE>
<CAPTION>
Number of Shares Percentage Number of Shares of
of Common Stock Before Common Stock After Percentage After
Name Before Offering Offering (1) Offering Offering
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sven Behrendt
10 Gilston Road
London, U.K. SW1695R 827,644 6.7 20,000 *
Juergen Joekel
51 Valley Road
Athenton, CA 94027 222,533 1.8 20,000 *
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Percentage Number of Shares of
of Common Stock Before Common Stock After Percentage After
Name Before Offering Offering (1) Offering Offering
<S> <C> <C> <C> <C>
Gary E. Markman
424 Charles Lane
Wynnewood, PA 19096 59,183 * -0- *
Tonga Partners, L.P.
c/o Cannell Capital
Management
600 California Street
14th Floor
San Francisco, CA 94108 824,963 6.2 -0- *
Attn: J. Carlo Cannell
Yeoman Ventures, Ltd.
P.O. Box 146
Road Town, Tortola
British Virgin Islands
Attn: Giora Lavie 137,449 1.1 -0- *
Lightline Limited
P.O. Box 146
Road Town, Tortola
British Virgin Islands
Attn: Giora Lavie 137,449 1.1 -0- *
Little Wing LP
c/o Quilcap Corp.
375 Park Avenue
Suite 1404
New York, NY 10152
Attn: Parker Quillen 247,568 2.0 -0- *
Little Wing Too LP
c/o Quilcap Corp.
375 Park Avenue
Suite 1404
New York, NY 10152 82,523 * -0- *
Attn: Parker Quillen
Tradewinds Fund, LLC
c/o Quilcap Corp.
375 Park Avenue
Suite 1404
New York, NY 10152
Attn: Parker Quillen 82,523 * -0- *
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Percentage Number of Shares of
of Common Stock Before Common Stock After Percentage After
Name Before Offering Offering (1) Offering Offering
<S> <C> <C> <C> <C>
JDN Partners, L.P.
2420 Camino Ramon, Suite 222
San Raman, CA 94583 371,220 2.9 -0- *
Attn: John Nguyen
Bayhill Fund, Ltd.
2420 Camino Ramon, Suite 222
San Raman, CA 94583
Attn: John Nguyen 41,129 * -0- *
RS Orphan Fund, LP
388 Market Street
Suite 200
San Francisco, CA 94111
Attn: Paul H. Stephens 983,458 7.6 473,462 *
RS Orphan Offshore Fund, L.P.
CITCO Fund Services
Corporate Center
West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
British West Indies
Attn: Paul H. Stephens 421,292 3.3 202,912 *
--------- -------- -------- -------
TOTAL 4,438,934 716,374
========= ========
</TABLE>
__________
* Less than one percent.
(1) Calculated in accordance with Rule 13d-3(d)(i) of the Securities Exchange
Act of 1934.
55
<PAGE>
PLAN OF DISTRIBUTION
The shares of our common stock which the selling stockholders or their
respective pledgees, donees, transferees or other successors in interest are
offering for resale will be sold from time to time in one or more of the
following transactions:
. block transactions;
. transactions on the over the counter electronic bulletin board or on
such other market on which our common stock may from time to time be
trading;
. privately negotiated transactions;
. through the writing of options on the shares;
. short sales; or
. any combination of these transactions
The sale price to the public in these transactions may be:
. the market price prevailing at the time of sale;
. a price related to the prevailing market price;
. negotiated prices; or
. such other price as the selling stockholders determine from time to
time.
The shares of our common stock may also be sold pursuant to Rule 144 promulgated
under the Securities Act of 1933. The selling stockholders shall have the sole
and absolute discretion not to accept any purchase offer or make any sale of
these shares of our common stock if they deem the purchase price to be
unsatisfactory at any particular time.
The selling stockholders or their respective pledges, donees, transferees
or other successors in interest, may also sell these shares of our common stock
directly to market makers acting as principals and/or broker-dealers acting as
agents for themselves or their customers. These broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
selling stockholders and/or the purchasers of these shares of our common stock
for whom such broker-dealers may act as agents or to whom they sell as principal
or both. As to a particular broker-dealer, this compensation might be in excess
of customary commissions. Market makers and block purchasers purchasing these
shares of our common stock will do so for their own account and at their own
risk. It is possible that a selling stockholder will attempt to sell shares of
our common stock in block transactions to market makers or other purchasers at a
price per share which may be below the prevailing market price of our common
stock. There can be no assurance that all or any of these shares of our common
stock offered hereby will be issued to, or sold by, the selling stockholders.
Upon effecting the sale of any of these shares of our common stock offered
pursuant to this registration statement, the selling stockholders and any
brokers, dealers or agents, hereby, may be deemed "underwriters" as that term is
defined under the Securities Act of 1933 or the Securities Exchange Act of 1934,
or the rules and regulations thereunder.
Alternatively, the selling stockholders may sell all or any part of the
shares of our common stock offered hereby through an underwriter. No selling
stockholder has entered into any agreement with a prospective underwriter and
there
56
<PAGE>
is no assurance that any such agreement will be entered into. If a selling
stockholder enters into an agreement or agreements with an underwriter, then the
relevant details will be set forth in a supplement or revisions to this
prospectus.
The selling stockholders and any other persons participating in the sale or
distribution of these shares of our common stock will be subject to applicable
provisions of the Securities Exchange Act of 1934 and the rules and regulations
promulgated thereunder including, without limitation, Regulation M. These
provisions may restrict certain activities of, and limit the timing of purchases
and sales of any of these shares of our common stock by, the selling
stockholders. Furthermore, pursuant to Regulation M, persons engaged in a
distribution of securities are prohibited from simultaneously engaging in market
making and certain other activities with respect to such securities for a
specified period of time prior to the commencement of such distributions,
subject to specified exceptions or exemptions. These regulations may affect the
marketability of these shares of our common stock.
We have agreed to indemnify the selling stockholders, or their transferees
or assignees, against certain liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments the selling stockholders or
their respective pledges, donees, transferees or other successors in interest,
may be required to make in respect thereof.
We will pay substantially all of the expenses incident to the registration
and offering of our common stock, other than commissions or discounts of
underwriters, broker-dealers or agents.
CERTAIN TRANSACTIONS
Share Exchange Transactions with Rozel International Holdings, Ltd.
In October 1998, we completed a share exchange transaction with Rozel
International Holdings, Ltd. in which we issued 1,000,000 shares of our common
stock and 500,000 shares of our Series A Preferred Stock in exchange for 178,700
shares of BrightStreet's Series A Preferred Stock. This represented 100% of
BrightStreet's issued and outstanding shares of Series A Preferred Stock. In
October 1998, we also completed a share exchange transaction with Rozel
International Holdings, Ltd. in which we issued shares of our common stock in
exchange for shares of BrightStreet's common stock. Rozel International
Holdings, Ltd. is a beneficial owner of 23.8% of our common stock.
Loan and Merger Agreements with Strategicus Partners, Inc.
On May 28, 1999, we entered into a loan agreement with Strategicus Partners
Inc., an Oregon corporation. Pursuant to this loan agreement, we agreed to lend
Strategicus Partners up to $2,000,000 on a revolving credit basis with all
advances made under the loan agreement due on July 12, 1999. We subsequently
amended the due date for the repayment of these loans to July 30, 1999.
Strategicus Partners was permitted to use the proceeds of these loans to make
loans to two of its stockholders and to make investments in AsiaCD, Inc. and/or
College411.com, Inc. The obligation of Strategicus Partners to repay these loans
was evidenced by a promissory note in the principal amount of up to $2,000,000.
Strategicus Partners secured its obligation to repay these loans by granting us
a security interest in all of its assets including any of its investments in
AsiaCD, Inc. and College411.com, Inc. We advanced an aggregate amount of
$1,555,000 to Strategicus Partners pursuant to this loan agreement. Strategicus
Partners used approximately $310,000 of these funds to make a loan to Douglas
Spink and used the remainder of these funds to make investments in AsiaCD, Inc.
and College411.com, Inc. and to pay the professional fees related to the
completion of our merger with Strategicus Partners. Upon the completion of our
merger with Strategicus Partners, we agreed to forgive the loan to Mr. Spink if
he remains an employee of Net Value Holdings on May 28, 2000. For a more
detailed discussion of this arrangement, see "MANAGEMENT-Employment Agreements."
On June 21, 1999, we entered into a merger agreement with Strategicus
Partners and Douglas Spink, the founder of Strategicus Partners, in which we
agreed to merge with Strategicus Partners. We completed our merger with
57
<PAGE>
Strategicus Partners on July 30, 1999. Subject to vesting provisions described
in the merger agreement, we issued the following shares of our capital stock to
the stockholders of Strategicus Partners:
<TABLE>
<CAPTION>
Vested Shares of Unvested Shares of Vested Shares of Unvested Shares of
Common Stock Common Stock Series A Preferred Series A Preferred
Stock Stock
<S> <C> <C> <C> <C>
Douglas Spink 239,847 1,641,310 73,678 504,187
Barry Uphoff 120,394 1,760,763 36,983 540,882
Darr Aley 120,394 1,760,763 36,983 540,882
Stephen George 120,394 1,760,763 36,983 540,882
------- --------- ------- ---------
TOTAL 601,029 6,923,599 184,627 2,126,833
</TABLE>
The unvested shares of our capital stock listed above vest ratably on a
monthly basis over periods ranging from 24 months to 48 months based on the
individual stockholder's continued employment or engagement as a consultant with
Net Value Holdings. For a more detailed discussion of this arrangement, see
"Management-Employment Agreements, Consulting Agreements." These shares, upon
full vesting, were intended to represent approximately 40% of our issued and
outstanding capital stock as of June 21, 1999, assuming the exercise or
conversion of certain issued and outstanding convertible securities as of that
date. In exchange for this issuance of our capital stock, we acquired all of the
issued and outstanding capital stock of Strategicus Partners. Our primary
purpose for completing the merger with Strategicus Partners was to acquire
rights to the investments made by Strategicus Partners in metacat.com, inc.,
AsiaCD, Inc. and College411.com, Inc. and to retain the services of the four
stockholders of Strategicus Partners as employees and/or consultants of our
company.
Forgiveness of Certain Loans to Members of Our Management Team
In May 1999, Strategicus Partners made a loan to Mr. Spink in the principal
amount of $310,000. The loan accrues interest at a simple rate of 9% per annum.
The repayment of the principal amount of this loan plus all accrued interest was
originally due on July 12, 1999 but was subsequently extended to July 30, 1999.
Upon the completion of our merger with Strategicus Partners, we entered into an
employment agreement with Mr. Spink in which we agreed not to take any actions
to demand repayment or to collect this loan during the term of the employment
agreement so long as we do not terminate Mr. Spink's employment for "cause,"
death or disability (as such terms are defined in the employment agreement) and
we agreed to forgive the principal amount plus all accrued interest related to
this loan upon the satisfaction of certain conditions. For a more detailed
discussion of this arrangement, see "MANAGEMENT-Employment Agreements."
In June 1999, we extended a loan to Mr. Aley in the principal amount of
$267,000. The repayment of the principal amount of this loan plus all accrued
interest was originally due on July 12, 1999 but was subsequently extended to
July 30, 1999. Upon the completion of our merger with Strategicus Partners, we
entered into a consulting agreement with Mr. Aley in which we agreed not to take
any actions to demand repayment or to collect this loan during the term of the
consulting agreement. We also agreed to forgive Mr. Aley 's obligation to repay
a portion of this loan if he remains engaged as a consultant to our corporation
on each of the first three anniversaries of the date of his consulting
agreement. For a more detailed discussion of this arrangement, see "MANAGEMENT-
Consulting Agreements."
58
<PAGE>
Series A Preferred Stock Exchange
In September 1999, we exchanged 2,898,788 shares of our common stock for
all 4,831,312 issued and outstanding shares of our Series A Preferred Stock. For
a detailed discussion of this transaction, see "DESCRIPTION OF CAPITAL
STOCK-Preferred Stock." Messrs. Spink, Uphoff, Aley and George participated in
this offering and received a total of 1,386,876 shares of our common stock in
exchange for the cancellation of all of their 2,311,460 shares of our Series A
Preferred Stock.
Cancellation of Unvested Shares of Common Stock and Agreement to Issue Options
to Purchase Shares of Our Common Stock
On August 31, 1999, we entered into an agreement with each of Messrs.
Uphoff, Aley and George to immediately cancel all of their unvested shares of
our common stock. In addition, for each share of common stock that we agreed to
cancel, we agreed to issue an option to purchase one share of our common stock
pursuant to a stock option plan which we intend to implement in 1999. Each of
these options will have an exercise price of $1.00 per share and will be subject
to the same vesting provisions that applied to the unvested shares of common
stock as described in our merger agreement with Strategicus Partners. On
September 13, 1999, each of Messrs. Uphoff, Aley, George and Panzo agreed to
forfeit their rights to receive 180,000 stock options. On September 13, 1999,
Mr. Spink agreed to allow Net Value Holdings to cancel 180,000 of his unvested
shares of common stock. These members of the management team entered into these
agreements to allow us to issue 900,000 stock options to Mr. Hansen. In
September 1999, we entered into an employment agreement with Mr. Hansen pursuant
to which we agreed to issue 900,000 stock options to Mr. Hansen. For a detailed
discussion of the terms of Mr. Hansen's employment agreement, see "MANAGEMENT--
Employment Agreements." These transactions and the adoption of our stock option
plan are subject to the approval of our stockholders.
Personal Investments of Members of Our Management Team in Our Partner Companies
Members of our management team have made personal investments in some of
our partner companies. Through September 30, 1999, members of our management
team have made the following investments:
<TABLE>
<CAPTION>
Partner Company Amount of Investment
---------------- --------------------
<S> <C> <C>
Andrew P. Panzo AsiaCD $12,000
Barry Uphoff AsiaCD 12,000
Darr Aley AsiaCD 12,000
Stephen George AsiaCD 12,000
</TABLE>
In addition, Mr. Aley currently owns options to purchase 50,000 shares of
College411's common stock and Mr. George currently owns 37,500 shares of
College411's common stock.
San Francisco Office Space
We share office space in San Francisco, California with XCHANGES
CORPORATION, a corporation owned by Mr. George, at no expense.
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DESCRIPTION OF CAPITAL STOCK
General
We are authorized to issue 50,000,000 shares of common stock, par value
$.001 per share, and 10,000,000 shares of preferred stock, par value $.001 per
share.
The following discussion is qualified in its entirety by reference to our
certificate of incorporation and bylaws, copies of which are filed as exhibits
to this registration statement.
Common Stock
The holders of our common stock are entitled to one vote for each share
held of record on all matters to be voted on by the stockholders. There is no
cumulative voting with respect to the election of directors. Accordingly,
holders of a majority of the outstanding shares of our common stock can elect
all members of our Board of Directors, and holders of the remaining shares by
themselves cannot elect any member of the Board of Directors.
The holders of our common stock are entitled to receive dividends in the
discretion of our Board of Directors. We may only pay dividends out of funds
legally available for this purpose. In the event of the liquidation, dissolution
or winding up of Net Value Holdings, Inc., the holders of our common stock are
entitled to share ratably in all assets remaining available for distribution to
them after payment of liabilities and after provision has been made for each
class of stock, if any, having preference over our common stock. Holders of
shares of our common stock, as such, have no conversion, preemptive or other
subscription rights, and there are no redemptive provisions applicable to our
common stock. All of the outstanding shares of our common stock are fully paid
and nonassessable.
Preferred Stock
Our certificate of incorporation provides that our Board of Directors may
establish one or more classes or series of preferred stock having such number of
shares and relative voting rights, designation, dividend rates, liquidation and
other rights, preferences and limitations as may be fixed by them without
further stockholder approval. The holders of our preferred stock may be entitled
to preferences over common stockholders with respect to dividends, liquidation,
dissolution or our winding up in such amounts are established by our Board of
Directors' resolutions issuing such shares.
In 1998 and 1999, we issued of 4,831,312 shares of our Series A Preferred
Stock to accredited investors. Our Series A Preferred Stock was convertible into
up to one share of our common stock upon our achievement of specified
performance objectives. After discussions with potential investment bankers,
underwriters and other sources of capital financing, we determined that the
conversion features of our Series A Preferred Stock were too complicated and
created uncertainty regarding the number of shares of our common stock which may
have been issuable into the market at any given time upon our satisfaction of
the performance objectives. Therefore, pursuant to a private offering, we issued
2,898,788 shares of our common stock in exchange for all 4,831,312 issued and
outstanding shares of our Series A Preferred Stock. Pursuant to this offering,
the holders of our Series A Preferred Stock forfeited all ownership rights to
the Series A Preferred Stock and any shares of our common stock issuable upon
conversion of the Series A Preferred Stock and released and discharged us and
each of our present and future officers, directors and employees from all claims
or rights related to the Series A Preferred Stock. As there are no longer any
issued and outstanding shares in this series, we plan to cancel the Series A
Preferred Stock.
In September 1999, we designated our Series B Preferred Stock. In September
and October 1999, we issued 4,824 shares of this series to ten accredited
investors in connection with a private placement offering in which we raised
gross proceeds of $4,824,000.
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The shares of Series B Preferred Stock, valued at $4,824,000, are
convertible into shares of our common stock at a conversion price of $4.0875 per
share. The holders of the Series B Preferred Stock may elect to convert the
Series B Preferred Stock into shares of our common stock at any time after the
earlier of (i) March 15, 2000 and (ii) 20 days after the effective date of this
registration statement. During the period from September 17, 1999 until the
first anniversary of the effective date of this registration statement, the
holders of the Series B Preferred Stock may elect to reset the conversion price
to a price per share equal to the greater of:
. the closing bid price of our common stock on the two trading days
immediately preceding the date that we receive notice of the reset
election; and
. $2.50.
The holders of the Series B Preferred Stock may only elect to reset the
conversion price once and they may not reset the conversion price below $2.50
per share. The Series B Preferred Stock accrues dividends at the rate of 5% per
annum of the liquidation value of $1,000 per share. However, the dividend rate
increases to 10% per annum whenever the closing bid price of our common stock is
below 2.50 per share for ten consecutive trading days. The dividend rate of the
Series B Preferred Stock is reset to 5% per annum only after the closing bid
price of our common stock is above $2.50 per share for five consecutive trading
days.
If the holders elected to convert all of the Series B Preferred Stock on
October 4, 1999, then the Series B Preferred Stock would have been converted
into approximately 1,180,184 shares of our common stock. However, this number of
shares will be significantly greater if the conversion price is reset to $2.50
per share. Purchasers of our common stock could therefore experience substantial
dilution of their investment upon conversion of the Series B Preferred Stock.
The shares of Series B Preferred Stock are not registered and may only be resold
if registered under the Securities Act of 1933 or sold in accordance with an
applicable exemption from registration, such as Rule 144 promulgated under the
Securities Act of 1933. We are registering the shares of our common stock which
are issuable upon conversion of the Series B Preferred Stock in this
registration statement. We may redeem all or a portion of the Series B Preferred
Stock at a price per share equal to 120% of the liquidation preference amount,
plus any accrued and unpaid dividends on the Series B Preferred Stock.
Registration Rights
Subsequent to this offering, holders of four convertible promissory notes
in the aggregate principal amount of $900,000, which are convertible into a
total of 360,000 shares of our common stock, plus additional shares for unpaid
interest at the time of conversion, are entitled to registration rights for such
shares issuable upon conversion. The holders of these convertible promissory
notes have "piggy-back" registration rights with regards to the shares of our
common stock issuable upon conversion of these notes in any offering of our
securities pursuant to a registration statement on Forms S-1, S-2 or S-3 filed
subsequent to the consummation of our merger with BrightStreet. We will bear the
expenses incurred in connection with filing such registration statement.
Upon a change of control, as defined in the merger agreement with
Strategicus Partners and Douglas Spink, Messrs. Panzo, Spink, Uphoff, Aley and
George may demand registration of the vested shares of common stock owned by
each in a public offering of such securities under the Securities Act of 1933.
We are required to use our best efforts to effect such registration. We will
bear the expenses incurred in connection with such registrations.
We are obligated to register 807,644 shares of our common stock owned by
Sven Behrendt and 202,533 shares of our common stock owned by Juergen Joeckel,
In addition, we are obligated to issue 10,000 shares of our common stock to each
of Messrs. Behrendt and Joeckel as a penalty for not registering their shares by
August 15, 1999 and we are required to issue additional shares of our common
stock to each of Messrs. Behrendt and Joeckel at the rate of 10,000 shares per
month for each additional day that we have not filed a registration statement
with the Securities and
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Exchange Commission registering the resale of their shares of common stock. As
of September 30, 1999, we have issued 20,000 shares of our common stock to each
of Messrs. Behrendt and Joeckel.
Subsequent to this offering, two stockholders holding an aggregate of
676,374 shares of our common stock are entitled to registration rights. These
stockholders have "piggy-back" registration rights in any offering of our
securities pursuant to a registration statement on Forms S-1, S-2 or S-3 filed
subsequent to the effective date of this registration statement. We will bear
the expenses incurred in connection with filing such registration statement.
Common Stock Purchase Warrants
As of the date of this prospectus, we have issued 1,161,272 common stock
purchase warrants.
On March 1, 1999, in connection with an issuance of convertible promissory
notes in the aggregate principal amount of $900,000, we issued warrants to
purchase 90,000 shares of our common stock at an exercise price of $2.50 per
share and warrants to purchase 90,000 shares of our common stock at an exercise
price of $5.00 per share. These warrants are exercisable at any time prior to
February 28, 2002.
In May 1999, we issued convertible promissory notes in the aggregate
principal amount of $4,270,125 to a group of accredited investors. The
convertible promissory notes were issued in satisfaction of promissory notes
issued by BrightStreet. Each participant in this offering received a convertible
promissory note with a principal amount equal to the principal amount of his
BrightStreet promissory note, plus all accrued interest thereon as of December
31, 1998, in exchange for the cancellation of his BrightStreet promissory note
and their agreement to release us, BrightStreet and the present and future
officers and directors from any claims related to his promissory note. The
noteholders may convert these convertible promissory notes at any time at a
conversion rate of $2.00 per share. We may require the noteholders to convert
the entire principal amount of their convertible promissory notes, plus all
accrued interest thereon, in the event the market price of our common stock
reaches certain targets and the registration of the resale of all shares of our
common stock issuable to the noteholders upon such mandatory conversion of the
convertible promissory notes. We are obligated to issue a warrant to purchase
one-half of one share of our common stock for each share of our common stock
issued to the noteholders upon any conversion of the convertible promissory
notes. These warrants are exercisable for a period of three years after their
grant date at an exercise price of $6.00 per share. As of the date of this
prospectus, we have issued warrants to purchase 586,232 shares of our common
stock to holders who have converted their promissory notes.
In connection with the private offering which we completed in September
1999, we issued warrants to purchase 100,000 shares of our common stock at an
exercise price of $5.00 per share. These warrants are exercisable for a period
of three years from the date of grant.
As of October 4, 1999, we had issued and outstanding callable and non-
callable A, B, C and D warrants to purchase, in the aggregate, 295,040 shares of
our common stock. We issued these warrants to the purchasers of the Series B
Preferred Stock and they are exercisable until October 1, 2004. Each type of
warrant is exercisable for, in the aggregate, the number of shares and at the
exercise price set forth below:
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<TABLE>
<CAPTION>
Shares Exercise Price
------ --------------
<S> <C> <C>
Non-callable A Warrants 36,880 $4.49625
Callable A Warrants 36,880 $4.49625
Non-callable B Warrants 36,880 $ 4.905
Callable B Warrants 36,880 $ 4.905
Non-callable C Warrants 36,880 $5.31375
Callable C Warrants 36,880 $5.31375
Non-callable D Warrants 36,880 $ 5.7225
Callable D Warrants 36,880 $ 5.7225
</TABLE>
The exercise price of each of these warrants may be adjusted from time to
time under certain antidilution provisions. If the closing bid price of our
common stock is at least 150% of the relevant exercise price for 20 consecutive
trading days and this registration statement has been effective for 20 days,
then we may terminate the callable warrants by delivering 20 days written notice
to the holders. The shares of our common stock issuable upon exercise of these
warrants are being registered pursuant to this registration statement.
Transfer Agent and Registrar
The transfer agent for our common stock is StockTrans, Inc. The transfer
agent's address is 7 East Lancaster Avenue, Ardmore, Pennsylvania 19003, and its
telephone number is (610) 649-7300.
SHARES ELIGIBLE FOR FUTURE SALE
12,421,802 shares of our common stock were outstanding as of October 4,
1999.
Under the terms of the subscription agreements of previous private
placements of our securities, 7,324,723 outstanding shares of our common stock
may not be sold or otherwise transferred, without our prior written consent or
the prior written consent of a placement agent whom we designate, except for
certain familial transfers, until the date set forth below:
Number of Shares Restrictions in
Subject to Restriction Effect Through
---------------------- --------------
3,019,852 First anniversary of the later of
(i) the date the shares are
eligible for sale under Rule 144
or (ii) the effective date of a
registration statement registering
the resale of the shares.
4,304,871 First anniversary of effective
date of our merger with
BrightStreet
Holders of 5,847,193 shares of our common stock have certain registration
rights with respect to the registration of the resale of such shares under the
Securities Act of 1933. Upon the effectiveness of this registration statement,
which we are filing on behalf of thirteen such stockholders, 3,722,560 of these
shares will be freely tradeable under the Securities Act of 1933.
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Upon completion of this offering, 11,312,442 "restricted shares" as defined
in Rule 144 will be outstanding. None of these shares will be eligible for sale
in the public market as of the effective date of this registration statement.
In general, under Rule 144 as currently in effect, beginning on the later
of (i) 90 days after the effective date of this registration statement, or (ii)
the date on which the transfer restrictions described above have expired, a
person (or persons whose shares are aggregated) who owns shares that were
purchased from us (or any affiliate) at least one year previously, including a
person who may be deemed our affiliate, is entitled to sell within any three-
month period, a number of shares that does not exceed the greater of:
. 1% of the then outstanding shares of our common stock; or
. the average weekly trading volume of our common stock during the four
calendar weeks preceding the date on which notice of the sale is filed
with the Securities and Exchange commission.
Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and the availability of current public information about us.
Any person (or persons whose shares are aggregated) who is not deemed to have
been our affiliate at any time during the 90 days preceding a sale, and who owns
shares within the definition of "restricted securities" under Rule 144 under the
Securities Act that were purchased from us (or any affiliate) at least two years
previously, would be entitled to sell such shares under Rule 144(k) without
regard to the volume limitations, manner of sale provisions, public information
requirements or notice requirements.
In addition to the outstanding shares of our common stock described above,
as of the date of this prospectus, we have 7,695,876 shares of common stock
reserved for issuance upon the exercise of outstanding options, 3,690,624 shares
of our common stock reserved for issuance upon the conversion of issued and
outstanding convertible debentures in the aggregate principal amount of
$7,956,469 and 1,161,272 shares of common stock reserved for issuance upon the
exercise of common stock purchase warrants. All of these securities and the
shares of our common stock underlying each of these securities are restricted
securities. The transfer of these restricted securities is subject to the
requirements of Rule 144, as discussed above.
Future sales of restricted common stock under Rule 144 or otherwise or of
the shares which we are registering on this registration statement could
negatively impact the market price of our common stock. For a detailed
discussion of this risk, see "RISK FACTORS--RISKS PARTICULAR TO NET VALUE
HOLDINGS, INC.--Shares Eligible For Future Sale By Current Holders Of Our
Securities May Decrease The Price Of Common Stock." We are unable to estimate
the number of shares that may be sold in the future by our existing stockholders
or the effect, if any, that sales of shares by such stockholders will have on
the market price of our common stock prevailing from time to time. Sales of
substantial amounts of our common stock by existing stockholders could adversely
affect prevailing market prices.
PRINCIPAL UNITED STATES TAX CONSEQUENCES TO NON-U.S. HOLDERS
For U.S. federal income tax purposes, a resident alien individual is
treated like a citizen: he or she is subject to U.S. tax on all of his or her
income, regardless of the source. A nonresident alien individual, on the other
hand, is subject to a special tax regime that is fundamentally different from
that which applies to citizens and resident aliens. You are a non-resident
alien if:
. you are not a lawful permanent resident of the U.S. at anytime
during the calendar year;
. you do not make an election to be treated as a resident alien;
and
. you are not physically present in the U.S. for 183 days or more
during the calendar year or the sum of your days of physical
presence in the U.S. for the current calendar year plus 1/3
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the number of days in the first preceding calendar year plus 1/6
the number of days in the second preceding calendar year equals
less than 183 days provided; however, that you will not be
treated as a resident pursuant to this lookback rule if (i) you
are not physically present in the U.S. for at least 31 days
during the calendar year; or (ii) you can establish that you have
a tax home in and closer connections to a foreign country.
The following discussion summarizes principal U.S. federal income and
estate tax consequences of the ownership and disposition of common stock by
"non-U.S. holders." You are a "non-U.S. holder" for U.S. federal income tax
purposes if you are:
. a non-resident alien individual;
. a foreign corporation;
. a foreign partnership; or
. an estate or trust that in either case is not subject to U.S.
federal income tax on a net income basis on income or gain from
common stock.
This discussion does not consider the specific facts and circumstances that
may be relevant to particular holders and does not address the treatment of
holders of common stock under the laws of any state, local or foreign taxing
jurisdiction. This discussion is based on the tax laws of the U.S., including
the Internal Revenue Code, as amended to the date hereof, existing and proposed
regulations thereunder, and administrative and judicial interpretation thereof,
as currently in effect. These laws are subject to change, possibly on a
retroactive basis.
You should consult your own tax advisors with regard to the application of
the federal income tax laws to your particular situation, as well as to the
applicability and effect of any state, local or foreign tax laws to which you
may be subject.
Dividends
If you are a non-U.S. holder of our common stock, dividends paid to you are
subject to withholding of U.S. federal income tax at a 30% rate or at a lower
rate if so specified in an applicable income tax treaty. If, however, the
dividends are effectively connected with your conduct of a trade or business
within the U.S. (holding stock in a corporation engaged in a trade or business
in the U.S. does not cause the shareholder to be engaged in a U.S. trade or
business by reason of the stock ownership), and they are attributable to a
permanent establishment that you maintain in the U.S., if that is required by an
applicable income tax treaty as a condition for subjecting you to U.S. income
tax on a net income basis on such dividends, then such "effectively connected"
dividends generally are not subject to withholding tax. Instead, such
effectively connected dividends are taxed at rates applicable to U.S. citizens,
resident aliens and domestic U.S. corporations.
Effectively connected dividends received by a non-U.S. corporation may,
under certain circumstances, be subject to an additional "branch profits tax" at
a 30% rate or at a lower rate if so specified in an applicable income tax
treaty.
Under currently effective U.S. Treasury regulations, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country, unless the payor has knowledge to the contrary, for purposes of the 30%
withholding tax discussed above. Under current interpretations of U.S. Treasury
regulations, this presumption that dividends paid to an address in a foreign
country are paid to a resident of that country, unless the payor has knowledge
to the contrary, also applies for the purposes of determining whether a lower
tax treaty rate applies.
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Under U.S. Treasury regulations that will generally apply to dividends paid
after December 31, 2000, the "New Regulations," if you claim the benefit of a
lower treaty rate, you must satisfy certain certification requirements. In
addition, in the case of common stock held by a foreign partnership, the
certification requirements generally will apply to the partners of the
partnership and the partnership must provide certain information, including a
U.S. taxpayer identification number. The final withholding regulations also
provide look-through rules for tiered partnerships.
If you are eligible for a reduced rate of U.S. withholding tax under a tax
treaty, you may obtain a refund of any excess amounts withheld by filing a
refund claim with the IRS.
Gain On Disposition of Common Stock
If you are a non-U.S. holder, you generally will not be subject to U.S.
federal income tax on gain recognized on a disposition of common stock unless:
. the gain is effectively connected with your conduct of a trade or
business in the U.S. and the gain is attributable to a permanent
establishment that you maintain in the U.S., if that is required
by an applicable income tax treaty as a condition for subjecting
you to U.S. taxation or a net income basis on gain from the sale
or other disposition of the common stock;
. you are an individual, you hold the common stock as a capital
asset and you are present in the U.S. for 183 or more days in the
taxable year of the sale or certain other conditions exist; or
. you are or have been a "United States real property holding
corporation" for federal income tax purposes and you held,
directly or indirectly, at any time during the five-year period
ending on the date of disposition, more than 5% of our common
stock, and you are not eligible for any treaty exemption.
Effectively connected gains recognized by a corporate non-U.S. holder may
also, under certain circumstances, be subject to an additional "branch profits
tax" at a 30% rate or at a lower rate if so specified in an applicable income
tax treaty.
We have not been, are not, and do not anticipate becoming a "United States
property holding corporation" for federal income tax purposes.
Federal Estate Tax
For estate tax purposes, an individual is a resident if at the time of
death he or she has domicile in the U.S. One has domicile if one intends to
reside in the U.S. permanently or indefinitely. Common stock held by an
individual non-U.S. holder at the time of death will be included in the holder's
gross estate for U.S. federal estate tax purposes and may be subject to U.S.
federal estate taxes, unless an applicable estate tax treaty provides otherwise.
The amount of the Federal estate tax will be between 6% and 30% of the non-U.S.
holder's taxable estate, depending upon the size of the estate.
Information Reporting and Backup Withholding
In general, U.S. information reporting requirements and backup withholding
tax will not apply to dividends paid to you if you are either:
. subject to the 30% withholding tax discussed above, or
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. not subject to the 30% withholding tax because an applicable tax
treaty reduces or eliminates such withholding tax,
although dividend payments to you will be reported for purposes of the
withholding tax. See the discussion under "Dividends" above for further
discussion of the reporting of dividend payments. If you do not meet either of
these requirements for exemption and you fail to provide certain information,
including your U.S. taxpayer identification number, or otherwise establish your
status as an "exemption recipient," you may be subject to backup withholding of
U.S. federal income tax at a rate of 31% on dividends paid with respect to
common stock.
U.S. information reporting and backup withholding requirements generally
will not apply to a payment of the proceeds of a sale of common stock made
outside the U.S. through an office outside the U.S. of a non-U.S. broker.
However, U.S. information reporting, but not backup withholding, will apply to a
payment made outside the U.S. of the proceeds of a sale of common stock through
an office outside the U.S. of a broker that:
. is a U.S. person;
. derives 50% or more of its gross income for certain periods from
the conduct of a trade or business in the U.S.;
. is a "controlled foreign corporation" as to the U.S.; or
. with respect to payments made after December 31, 2000, is a
foreign partnership with certain connections to the U.S.
in each case, unless the broker has documentary evidence in its records that the
holder or beneficial owner is a non-U.S. person and has no knowledge to the
contrary or the holder otherwise establishes an exemption.
Payment of the proceeds of a sale of common stock to or through a U.S.
office of a broker is subject to both U.S. backup withholding and information
reporting unless the holder certifies its non-U.S. status under penalty of
perjury or otherwise establishes an exemption.
Backup withholding is not an additional tax and you may apply any taxes
that are withheld against your tax liability and you generally may obtain a
refund of any excess amounts withheld under the backup withholding rules by
filing a refund claim with the Internal Revenue Service.
EXPERTS
The consolidated financial statements of Net Value Holdings, Inc. as of
December 31, 1998 and 1997 and for each of the years in the three-year period
ended December 31, 1998 have been included herein and in the registration
statement in reliance on the report of L.J. Soldinger Associates, independent
certified public accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL MATTERS
The validity of our common stock offered hereby will be passed upon for us
by Klehr, Harrison, Harvey, Branzburg & Ellers LLP, Philadelphia, Pennsylvania.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act of 1933
with respect to our common stock offered in this prospectus. This
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prospectus does not contain all of the information set forth in the registration
statement and the exhibits to the registration statement. For further
information with respect to Net Value Holdings, Inc. and our common stock
offered hereby, reference is made to the registration statement and the exhibits
filed as part of the registration statement. Statements contained in this
prospectus concerning the contents of any contract or any other document are not
necessarily complete; reference is made in each instance to the copy of such
contract and any other document filed as an exhibit to the registration
statement. Each such statement is qualified in all respects by reference to such
exhibit. The registration statement, including exhibits thereto, may be
inspected without charge at the Securities and Exchange Commission's principal
office in Washington, D.C. and copies of all or any part thereof may be obtained
from the Public Reference Section of the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Securities and Exchange
Commission's regional offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and at 7 World Trade Center, 13th
Floor, New York, New York 10048 after payment of fees prescribed by the
Securities and Exchange Commission. The Securities and Exchange Commission also
maintains a World Wide Web site which provides online access to reports, proxy
and information statements and other information regarding registrants that file
electronically with the Securities and Exchange Commission at the address
http://www.sec.gov.
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================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus in connection with the offer made by this prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by Net Value Holdings, Inc. This prospectus does not constitute an
offer to sell or solicitation of an offer to buy any securities in any
jurisdiction in which such offer or solicitation is not authorized, or in which
the person making such offer or solicitation is not qualified to do so, or to
any person to whom it is unlawful to make such offer or solicitation. Neither
the delivery of this prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of Net Value Holdings, Inc. or that information contained herein is
correct as of any time subsequent to the date hereof.
___________________
_______________________________
NET VALUE HOLDINGS, INC.
3,722,560 SHARES OF COMMON STOCK
_____________
PROSPECTUS
_____________
October 7, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSE OF ISSUANCE AND DISTRIBUTION.
The following is an itemization of all estimated expenses which we have
incurred or expect to incur in connection with the issuance and distribution of
the securities which we are registering in this registration statement. All
amounts are estimated except for the Securities and Exchange Commission
Registration Fee
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.. $ 4,527.56
EDGAR and Printing Expenses.......................... 5,000.00
Legal Fees and Expenses.............................. 100,000.00
Accounting Fees and Expenses......................... 80,000.00
Blue Sky Fees and Expenses........................... 5,000.00
Transfer Agent's Fees and Expenses................... 1,000.00
Miscellaneous Expenses............................... 4,472.44
-----------
Total*.......................................... $200,000.00
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the General Corporate Law of the State of Delaware,
Net Value Holdings, Inc. has broad powers to indemnify its directors and
officers against liabilities they may incur in such capacities, including
liabilities under the Securities Act of 1933. Net Value Holding, Inc.'s bylaws
(Exhibit 3.1 hereto) also provide for mandatory indemnification of its
directors, officers, employees and agents to the fullest extent permissible
under Delaware Law.
Net Value Holdings, Inc.'s Amended and Restated Certificate of
Incorporation (Exhibit 3.2 hereto) provides that the liability of its directors
for monetary damages shall be eliminated to the fullest extent permissible under
Delaware law. Pursuant to Delaware law, this includes elimination of liability
for monetary damages for breach of the directors' fiduciary duty of care to Net
Value Holdings, Inc. and its stockholders. These provisions do not eliminate
the directors' duty of care and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to Net Value
Holdings, Inc., for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision also does not affect a director's responsibilities under any
other laws, such as the federal securities laws or state or federal
environmental laws.
Net Value Holdings, Inc. intends to obtain in conjunction with the
effectiveness of the registration statement, a policy of directors' and
officers' liability insurance that insures our directors and officers against
the cost of defense, settlement or payment of a judgment under certain
circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In September 1998, we issued and sold an aggregate of 2,950,000 shares of
our common stock at an offering price of $.20 per share to a group of accredited
investors pursuant to Rule 504. This offering generated gross proceeds of
$590,000 of which we paid an aggregate of $47,200 in commissions to registered
broker-dealers.
In September 1998, we issued a promissory note in the principal amount of
$900,000 to one accredited investor pursuant to Section 4(2) of the Securities
Act of 1933 in exchange for $900,000. This promissory note matured on March 1,
1999 and on that date we issued four convertible promissory notes in the
aggregate principal amount of $900,000 to the lender and three of its affiliates
and paid $50,334 (representing all accrued interest on the original promissory
note through February 28, 1999) in exchange for the lender's cancellation of the
promissory note and its
II-1
<PAGE>
release of our corporation and our present and future officers and directors
from any claims related to payment of principal and accrued interest pursuant to
the promissory note. The lenders may convert all or any part of the outstanding
principal amount of the convertible promissory notes, plus all accrued interest
thereon through the date of conversion, into shares of our common stock at a
conversion price of $2.50 per share. We may force the lenders to convert the
entire principal amount of the convertible promissory notes, plus all accrued
interest thereon, upon our common stock's satisfaction of certain price and
volume requirements and the registration of the resale of all shares of our
common stock issuable to the lenders upon such mandatory conversion of the
convertible promissory note. The lenders are also entitled to piggyback
registration rights with respect to all shares issuable upon any conversion of
the convertible promissory notes. As additional consideration for the lender's
agreement to cancel the original promissory note and accept convertible
promissory notes in full satisfaction of our obligations pursuant to the
original promissory note, we issued the lender a warrant to purchase 90,000
shares of our common stock at an exercise price of $2.50 per share and a warrant
to purchase 90,000 shares of our common stock at an exercise price of $5.00 per
share. The lender may exercise each of these warrants at any time prior to
February 28, 2002. The lender is not entitled to any registration rights with
respect to any shares of our common stock issued upon the exercise of either of
these warrants. In July 1999, we issued an aggregate total of 6,138 shares of
our common stock to the lenders as payment of accrued interest on the
convertible promissory notes for the quarter ended June 30, 1999.
In October 1998 we issued 1,000,000 shares of our common stock and rights
to receive 500,000 shares of our preferred stock to an accredited investor
pursuant to Rule 506 in exchange for 178,700 shares of Series A Preferred Stock
of BrightStreet.
In October 1998, November 1998 and December 1998, we issued 2,019,852
shares of our common stock and 2,019,852 shares of our Series A Preferred Stock
to a group of accredited investors pursuant to Rule 506 in exchange for
8,079,408 shares of common stock of BrightStreet.
In November 1998 and January 1999, we issued convertible debentures in the
aggregate principal amount of $1,642,500 pursuant to Rule 506 to a series of
accredited investors in exchange for $1,642,500 of which we paid $112,000 in
commissions to registered broker-dealers. The principal amount of these
convertible debentures plus the accrued interest thereon is convertible by the
holders at any time and by us upon the completion of our merger with
BrightStreet at a conversion price of $2.00 per share. As of September 30, 1999,
holders of three convertible debentures issued in this offering have converted
their debentures in the principal amount of $240,000 and the accrued interest
thereon into 123,724 shares of our common stock.
During the period from January 1999 through June 1999, we issued
convertible debentures in the aggregate principal amount of $6,215,000 pursuant
to Rule 506 to a series of accredited investors in exchange for $6,215,000 of
which we paid $410,100 in commissions to registered broker-dealers. The
principal amount of these convertible debentures plus the accrued interest
thereon is convertible by the holders at any time and by us upon the completion
of our merger with BrightStreet at a conversion price of $2.50 per share. As of
October 5, 1999, holders of five convertible debentures issued in this offering
have converted their debentures in the principal amount of $2,600,000 plus
accrued interest into 1,051,943 shares of our common stock.
In April 1999, we issued convertible promissory notes in the aggregate
principal amount of $4,270,125 pursuant to Rule 506 to a series of accredited
investors in exchange for their cancellation of matured promissory notes which
were issued by BrightStreet in October, November and December 1997 and their
agreement to release us, BrightStreet and the present and future officers and
directors of each corporation from any claims related to their BrightStreet
promissory notes. Each participant in this offering received a convertible
promissory note with a principal amount equal to the principal amount of their
BrightStreet promissory note plus all accrued interest thereon as of December
31, 1998. Each noteholder may convert all or any part of the outstanding
principal amount of their convertible promissory note, plus all accrued interest
thereon through the date of conversion, into shares of our common stock at any
time at a conversion rate of $2.00 per share. We may force the noteholders to
convert the entire principal amount of their convertible promissory notes, plus
all accrued interest thereon at a conversion price of $2.00 per share upon our
common stock's achievement of certain market price targets and the registration
of the resale of all shares of our common stock issuable to the noteholders upon
such mandatory conversion of the convertible promissory notes. We are obligated
to issue a warrant to purchase one-half of one share of our common stock for
each share of our common stock issued to the noteholders upon any conversion of
the convertible promissory notes. These warrants are
II-2
<PAGE>
exercisable for a period of three years from the date of issuance at an exercise
price of $6.00 per share. As of October 5, 1999, holders of convertible
promissory notes issued in this offering have converted their promissory notes
in the principal amount of $2,231,158, plus accrued interest into 1,172,456
shares of our common stock and we issued warrants to purchase 586,232 shares of
our common stock to these holders.
In July 1999, we issued 601,029 vested shares of our common stock,
6,923,599 unvested shares of our common stock, 184,627 vested shares of our
Series A Preferred Stock and 2,126,833 unvested shares of our Series A Preferred
Stock to four accredited investors pursuant to Rule 506 in exchange for their
tender of all of the issued and outstanding capital stock of Strategicus
Partners, Inc.
In August 1999, we issued 2,898,788 shares of our common stock to our
stockholders pursuant to Rule 506 in exchange for their tender of 4,831,312
shares of our Series A Preferred Stock and their agreement to release us and our
present and future officers and directors from any claims related to these
rights and any shares of common stock that were to be issuable upon conversion
of these shares of Series A Preferred Stock.
In September 1999, we issued 40,250 shares of our common stock to six
accredited investors pursuant to Section 4(2) of the Securities Act of 1933 in
settlement of various debts and other obligations.
In September and October 1999, we issued 4,824 shares of our Series B
Preferred Stock and warrants to purchase 295,040 shares of our common stock to
ten accredited investors pursuant to Rule 506 in exchange for $5,000,000, of
which we paid $250,000 in commissions to a registered broker-dealer.
In October 1999, we issued 676,374 shares of our common stock to an
accredited investor pursuant to Section 4(2) of the Securities Act of 1933 in
exchange for $676,374.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Document
- ------ --------
<C> <S>
2.1 Merger Agreement and Plan of Reorganization dated as of June 21,
1999 among Net Value Holdings, Inc. and Strategicus Partners Inc.
and Douglas Spink
2.2 Amendment No. 1 to Merger Agreement and Plan of Reorganization
2.3 Amendment No. 2 to Merger Agreement and Plan of Reorganization
2.4 Fairness Opinion of Ferris Baker Watts, dated July 30, 1999,
Regarding the Merger Between Net Value Holdings, Inc. and
Strategicus Partners Inc.
3.1 Amended and Restated Certificate of Incorporation
3.2 Bylaws
4.1 Specimen Certificate for Net Value Holdings, Inc.'s Common Stock
4.2 Form of Convertible Promissory Note of Net Value Holdings, Inc.
convertible into shares of common stock at a conversion price of
$2.00 per share
4.3 Form of Convertible Promissory Note of Net Value Holdings, Inc.
convertible into shares of common stock at a conversion price of
$2.50 per share
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
4.4 Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock
4.5 Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock
5.1* Form of Opinion of Klehr Harrison Harvey Branzburg & Ellers as to
the legality of the shares of common stock being registered
10.1 Employment Agreement with Andrew P. Panzo, dated June 1, 1999
10.2 Employment Agreement with Douglas Spink, dated June 17, 1999
10.3 Employment Agreement with Lee Hansen, dated September 15, 1999
10.4 Consulting Agreement with Barry Uphoff, dated June 30, 1999
10.5 Consulting Agreement with Darr Aley, dated June 30, 1999
10.6 Consulting Agreement with Stephen George, dated June 21, 1999
10.7 Loan Agreement between Strategicus Partners Inc. and Net Value
Holdings, Inc., dated as of May 28, 1999
10.8 Amendment No. 1 to the Loan Agreement between Strategicus
Partners Inc. and Net Value Holdings, Inc.
10.9 Amendment No. 2 to the Loan Agreement between Strategicus
Partners Inc. and Net Value Holdings, Inc.
10.10 Promissory Note in the amount of $310,000 issued by Douglas Spink
in favor of Strategicus Partners Inc., dated May 28, 1999
10.11 Promissory Note in the amount of $267,000 issued by Darr Aley in
favor of Net Value Holdings, Inc., dated June 16, 1999
10.12 Promissory Note issued by Net Value, Inc. in favor of SUNCL,
Inc., dated October 1, 1998
10.13 Loan Agreement by and among Net Value, Inc., American Maple Leaf
Financial Corporation and the other signatories thereto, dated
June 26, 1998
10.14 Promissory Note issued by Net Value, Inc. in favor of American
Maple Leaf Financial Corporation, dated June 26, 1998
10.15 Stock Purchase Agreement By and Between AsiaCD, Inc. and
Strategicus Partners, Inc., dated July 29, 1999
10.16 Common Stock Purchase Agreement By and Between College411.com,
Inc. and Strategicus Partners, Inc., dated July 28, 1999
10.17 Asset Exchange, Inc. Series A Preferred Stock Purchase Agreement,
dated September 10, 1999
10.18 Asset Exchange. Inc. Investor Rights Agreement, dated September
10, 1999
10.19 Series B Convertible Preferred Stock Purchase Agreement, dated as
of September 17, 1999
10.20 Registration Rights Agreement
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.21 Form of Warrant
11.1 Statement re: computation of per share earnings
21.1 Subsidiaries of Net Value Holdings, Inc.
23.1 Consent of L.J. Soldinger Associates regarding Net Value
Holdings, Inc.
24.1 Power of Attorney, included on the signature page hereof
27.1 Financial Data Schedule
</TABLE>
___________
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(i) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(A) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(B) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
(C) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; provided,
however, that paragraphs (1)(i) and (1)(ii) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(ii) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(iii) 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.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(c) The registrant further undertakes that:
(i) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
II-5
<PAGE>
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus 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.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Philadelphia, Commonwealth of Pennsylvania, on October 7, 1999.
NET VALUE HOLDINGS, INC.
BY: /s/ Andrew P. Panzo
--------------------------------------------------
Andrew P. Panzo
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Andrew P. Panzo 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 and necessary to be done in and about the
premises, as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C> <C>
/s/ Andrew P. Panzo President, Chief Executive Officer October 7, 1999
- -------------------------
Andrew P. Panzo and Director
(Principal Executive, Financial
and Accounting Officer)
/s/ Barry Uphoff October 7, 1999
- -------------------------
Barry Uphoff Chairman of the Board of
Directors
/s/ Douglas Spink October 7, 1999
- -------------------------
Douglas Spink Chief Technology Officer
and Director
/s/ Darr Aley October 7, 1999
- -------------------------
Darr Aley Executive Vice President
for Business Development
and Director
/s/ Stephen George October 7, 1999
- -------------------------
Stephen George Director
</TABLE>
II-7
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
INDEX TO THE FINANCIAL STATEMENTS
---------------------------------
Page
--------
Independent Auditors' Report F2
Balance Sheets F3
Statements of Operations F4
Statements of Stockholders' Deficit F5
Statements of Cash Flows F8
Notes to Financial Statements F9
-F1-
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and
Stockholders of Net Value Holdings, Inc.
We have audited the accompanying balance sheets of Net Value Holdings, Inc. (a
development stage entity) as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' deficit and cash flows for each of the
years in the three-year period ended 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Net Value Holdings, Inc. as of
December 31, 1997 and 1998, and the results of its operations, stockholders'
deficit and cash flows for each of the years in the three-year period ended
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 more fully discussed in Note 3 to
the financial statements, the Company's negative working capital position,
substantial losses incurred since inception, and dependence on outside financing
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty. Management's plans concerning these
matters are described in Note 3.
L J SOLDINGER ASSOCIATES
Arlington Heights, Illinois
April 30, 1999
-F2-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Balance Sheets
<TABLE>
<CAPTION>
ASSETS
--------
December 31, June 30,
------------------------- --------------
1997 1998 1999
----------- ----------- -------------
(Unaudited)
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 671,508 $ 223,630 $1,984,794
Accounts receivable - - 62,500
Loan receivable - 200,000 630,000
Prepaid financing fees, net 120,423 176,328 422,415
Prepaid expenses - 97,324 192,628
Other 7,492 15,633 14,486
---------- ---------- ----------
Total Current Assets 799,423 712,915 3,306,823
Property and Equipment, Net 684,174 517,361 431,582
Intangibles, Net 3,742 - -
Deferred Registration Costs 218,773 95,282 75,606
Deposits 94,290 103,107 93,661
---------- ---------- ----------
$1,800,402 $1,428,665 $3,907,672
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current Liabilities
Notes payable, net of discounts $1,811,910 $5,215,000 $1,058,962
Notes payable - related party - 983,000 533,000
Long-term debt due within one year - 62,293 64,749
Accounts payable 2,071,948 1,313,255 1,068,262
Accrued interest 70,681 615,244 366,040
Accrued interest - related party - 34,407 60,759
Accrued salaries and other expenses 272,519 459,333 476,967
Deferred rent - 8,617 6,457
------------ ------------ ------------
Total Current Liabilities 4,227,058 8,691,149 3,635,196
------------ ------------ ------------
Long-term debt, net of discounts and portion included in current liabilities - 975,619 6,074,018
------------ ------------ ------------
Commitments and Contingencies
Stockholders' Deficit
Preferred stock, BrightStreet, Inc., $.001 par value per share. At
December 31, 1997, 22,500 shares issued and outstanding; 0 shares issued and
outstanding at December 31, 1998 and June 30, 1999; $225,000 liquidation
preference at December 31, 1997 22 - -
Preferred stock, Net Value Holdings, Inc., $.001 par value per share. At
December 31, 1997 and 1998 and June 30, 1999, 2,019,852, 2,519,852 and
2,519,852 shares issued and outstanding, respectively 2,020 2,520 2,520
Common stock, BrightStreet, Inc., $.001 par value per share. At December 31,
1997 and 1998 and June 30, 1999, 651,650, 1,037,338 and 1,037,338 shares
issued and outstanding, respectively 652 1,038 1,038
Common stock, Net Value Holdings, Inc., $.001 par value share. At December 31,
1997 and 1998 and June 30, 1999, 2,019,852, 6,969,852 and 9,042,606 shares
issued and outstanding, respectively 2,020 6,970 9,042
Additional paid-in capital 14,561,663 38,180,793 48,482,754
Deferred compensation (497,750) (3,283,532) (4,558,048)
Deficit accumulated during the development stage (16,495,283) (43,145,892) (49,738,848)
------------ ------------ ------------
Total Stockholders' Deficit (2,426,656) (8,238,103) (5,801,542)
------------ ------------ ------------
$ 1,800,402 $ 1,428,665 $ 3,907,672
============ ============ ============
</TABLE>
The accompanying notes are an integral
part of the financial statements.
-F3-
<PAGE>
<TABLE>
<CAPTION>
Net Value Holdings, Inc.
(A Development Stage Entity)
Statements of Operations
December 16,
Six Months Ended 1994
Year Ended December 31, June 30, (Inception)
---------------------------------------------------------------------------- through
1996 1997 1998 1998 1999 June 30, 1999
------------------------------------------------------------- ------------- ---------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues $ $ - $ 1,330,367 $ 74,667 $ 62,500 $ 1,392,867
-------------- -------------- -------------- ------------- ------------- ---------------
Operating Expenses
Compensation and related expenses 742,545 3,589,616 4,073,060 1,785,457 1,645,462 10,181,857
Professional fees 399,356 405,193 1,146,077 278,540 715,620 2,704,682
Advertising 219,760 832,340 287,222 198,656 118,435 1,694,532
Consulting 869,693 984,590 934,162 213,994 188,895 2,986,832
Research and development expenses 809,491 2,588,748 1,694,498 1,540,529 260,124 5,495,085
Depreciation and amortization 13,148 179,304 228,033 115,812 115,767 543,822
Selling, general and administrative 262,529 785,107 892,724 466,322 574,898 2,713,674
-------------- -------------- -------------- ------------- ------------- --------------
Total Operating Expenses 3,316,522 9,364,898 9,255,776 4,599,310 3,619,201 26,320,484
-------------- -------------- -------------- ------------- ------------- --------------
Loss From Operations (3,316,522) (9,364,898) (7,925,409) (4,524,643) (3,556,701) (24,927,617)
Other Income (Expense)
Interest income 4,953 5,627 10,493 6,396 6,340 28,818
Interest expense (2,525) (1,805,470) (3,167,480) (1,430,538) (2,617,305) (7,594,800)
Financing fees - (70,496) (317,713) (225,462) (425,290) (813,499)
-------------- -------------- -------------- ------------- ------------- --------------
Total Other Income (Expense) 2,428 (1,870,339) (3,474,700) (1,649,604) (3,036,255) (8,379,481)
-------------- -------------- -------------- ------------- ------------- --------------
Net Loss $ (3,314,094) (11,235,237) (11,400,109) (6,174,247) (6,592,956) $ (33,307,098)
==============
Preferred Stock Dividend (1,181,250) (15,250,500) (15,250,500) -
-------------- -------------- ------------- -------------
Net Loss to Common Stockholders $ (12,416,487) $ (26,650,609) $(21,424,747) $ (6,592,956)
============== ============== ============= =============
Basic and Diluted Net Loss
Per Common Share $ (6.88) $ (5.66) $ (7.89) $ (.74)
============== ============== ============= =============
Basic and Diluted Weighted Average
Number of Common Shares
Outstanding 1,804,700 4,711,351 2,715,085 8,960,098
============== ============== ============= =============
Pro forma Information (Unaudited):
Net Loss $ (3,314,094)
Pro Forma Tax Provision -
--------------
Pro Forma Net Loss $ (3,314,094)
==============
Net Loss Per Share Data:
Basic and Diluted Net Loss Per
Common Share $ (3.55)
==============
Basic and Diluted Weighted
Average Number of Common
Shares Outstanding 934,810
==============
</TABLE>
The accompanying notes are an integral
part of the financial statements.
-F4-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Statements of Stockholders' Deficit
<TABLE>
<CAPTION>
Preferred Stock Common Stock
----------------------------------------- ----------------------------------------------
BrightStreet Holdings BrightStreet Holdings
------------------ -------------------- ---------------------- --------------------
Shares Amount Shares Amount Shares Amount Shares Amount
-------- ------- --------- -------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 - $ - - $ - - $ - - $ -
Capital contribution - - - - - - - -
Founders' stock issued - - - - 272,500 273 - -
Founders' common
stock warrants issued - - - - - - - -
Common stock issued in
private placements (net of
offering costs of $189,090) - - - - 482,857 483 - -
Common stock issued and
issuable to former members - - - - 768,500 769 - -
Compensatory common stock
options issued - - - - - - - -
Common stock granted for
consulting services - - - - 87,500 87 - -
Unearned consulting services - - - - (43,750) (44) - -
Effects of common stock exchanged - - 1,567,607 1,568 (1,567,607) (1,568) 1,567,607 1,568
Net loss - - - - - - - -
-------- ------- --------- -------- ---------- --------- --------- --------
Balance at December 31, 1996 - - 1,567,607 1,568 - - 1,567,607 1,568
Common stock granted for
consulting services - - - - 43,750 44 - -
Compensatory common stock
options issued - - - - - - - -
Amortization of deferred - - - - - - - -
compensation
Common stock issued in
private placements (net of
offering costs of $38,167) - - - - 73,750 73 - -
Common stock issued as
consideration for notes and loans
payable - - - - 80,050 80 - -
Common stock and warrants
issued in connection with short-
term bridge financing (net of
offering costs of $ 286,109) - - - - 100,625 101 - -
Common stock issued in
connection with conversion
of note and accrued interest - - - - 805,720 806 - -
Issuance of preferred stock 22,500 22 - - - - - -
Preferred stock dividend - - - - - - - -
Effects of common stock exchanged - - 452,245 452 (452,245) (452) 452,245 452
Net loss - - - - - - - -
-------- ------- --------- -------- ---------- --------- --------- --------
Balances at December 31, 1997,
carry forward 22,500 $22 2,019,852 $2,020 651,650 $ 652 2,019,852 $ 2,020
-------- ------- --------- -------- ---------- --------- --------- --------
<CAPTION>
Deficit
Accumulated
Additional During the
Paid-In Members' Deferred Development
Capital Capital Compensation Stage Total
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances at December 31,1995 $ - $ 485,000 $ - $ (764,702) $ (279,702)
Capital contribution - 15,000 - - 15,000
Founders' stock issued 817 - - - 1,090
Founders' common stock warrants
issued 2,000 - - - 2,000
Common stock issued in private
placements (net of offering
costs of $189,090) 2,485,427 - - - 2,485,910
Common stock issued and
issuable to former members 499,231 (500,000) - - -
Compensatory common stock
options issued 172,200 - - - 172,200
Common stock granted for
consulting services 962,415 - - - 962,502
Unearned consulting services (349,954) - - - (349,998)
Effects of common stock exchanged (1,568) - - - -
Net loss - - - (3,314,094) (3,314,094)
------------- ------------ ------------ ------------ ------------
Balance at December 31, 1996 3,770,568 - - (4,078,796) (305,092)
Common stock granted for
consulting services 612,453 - - - 612,497
Compensatory common stock
options issued 1,932,150 - (1,932,150) - -
Amortization of deferred compensation - - 1,434,400 - 1,434,400
Common stock issued in private
placements (net of offering costs of
$38,167) 551,760 - - - 551,833
Common stock issued as consideration
for notes and loans payable 1,300,920 - - - 1,301,000
Common stock and warrants issued
in connection with short-term bridge
financing (net of offering costs of 2,410,541 - - - 2,410,642
Common stock issued in connection with
conversion of note and accrued interest 2,577,495 - - - 2,578,301
Issuance of preferred stock 224,978 - - - 225,000
Preferred stock dividend 1,181,250 - - (1,181,250) -
Effects of common stock exchanged (452) - - - -
Net loss - - - (11,235,237) (11,235,237)
------------- ------------ ------------ ------------ ------------
Balances at December 31, 1997, carry
forward $ 14,561,663 $ - $ (497,750) $(16,495,283) $ (2,426,656)
------------- ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral
part of the financial statements.
-F5-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Statements of Stockholders' Deficit
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------------------------------------------------------------------------
BrightStreet Holdings BrightStreet Holdings
-------------------- ------------------- ----------------- ------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- -------- -------- --------- -------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1997, brought forward 22,500 $ 22 2,019,852 $2,020 651,650 $ 652 2,019,852 $2,020
Issuance of preferred stock 276,200 277 - - - - - -
Preferred stock conversion (80,000) (80) - - 250,000 250 - -
Preferred stock repurchase (40,000) (40) - - - - - -
Issuance of warrants - - - - - - - -
Issuance of common stock - - - - 7,500 7 - -
Common stock issued in
connection with the conversion
of accrued interest - - - - 688 1 - -
Common stock issued as
consideration for the
satisfaction of preferred stock
purchase commitment - - - - 37,500 38 - -
Common stock issued pursuant
to the amended 1Q Agreement - - - - 90,000 90 - -
Acquisition of assets of Holdings - - - - - - 1,000,000 1,000
Common stock issued in connection
with 504 offering (net of offering
costs of $60,570) - - - - - - 2,950,000 2,950
Exchange of preferred stock (178,700) (179) 500,000 500 - - 1,000,000 1,000
Compensatory common stock options
issued - - - - - - - -
Amortization of deferred
compensation - - - - - - - -
Debt discount arising from
convertible debt offering - - - - - - - -
Financing fee - - - - - - - -
Preferred stock dividend - - - - - - - -
Net loss - - - - - - - -
---------- -------- --------- --------- -------- ------- --------- -------
Balances at December 31, 1998 - $ - 2,519,852 $2,520 1,037,338 $1,038 6,969,852 $6,970
---------- -------- --------- --------- -------- ------- --------- -------
<CAPTION>
Deficit
Accumulated
Additional During the
Paid-In Members' Deferred Development
Capital Capital Compensation Stage Total
------------ --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances at December 31,
1997, brought forward $14,561,663 $ - $ (497,750) $(16,495,283) $ (2,426,656)
Issuance of preferred stock 2,761,723 - - - 2,762,000
Preferred stock conversion (170) - - - -
Preferred stock repurchase (399,960) - - - (400,000)
Issuance of warrants 49,200 - - - 49,200
Issuance of common stock 149,993 - - - 150,000
Common stock issued in connection
with the conversion of accrued
interest 13,749 - - - 13,750
Common stock issued as consideration
for the satisfaction of preferred
stock purchase commitment (38) - - - -
Common stock issued pursuant
to the amended 1Q Agreement 251,910 - - - 252,000
Acquisition of assets of Holdings (1,000) - - - -
Common stock issued in connection
with 504 offering (net of offering
costs of $60,570) 526,480 - - - 529,430
Exchange of preferred stock (1,321) - - - -
Compensatory common stock options
issued 4,368,039 - (4,368,039) - -
Amortization of deferred
compensation - - 1,582,257 - 1,582,257
Debt discount arising from
convertible debt offering 575,025 - - - 575,025
Financing fee 75,000 - - - 75,000
Preferred stock dividend 15,250,500 - - (15,250,500) -
Net loss - - - (11,400,109) (11,400,109)
------------ --------- ------------ ------------ ------------
Balances at December 31, 1998 $38,180,793 $ - $(3,283,532) $(43,145,892) $ (8,238,103)
------------ --------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral
part of the financial statements.
-F6-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Statements of Stockholders' Deficit
<TABLE>
<CAPTION>
Preferred Stock Common Stock
---------------------------------------------- --------------------------------------------
BrightStreet Holdings BrightStreet Holdings
---------------------- ---------------------- --------------------- ---------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ---------- ------------ -------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1998 - $ - 2,519,852 $ 2,520 1,037,338 $ 1,038 6,969,852 $ 6,970
Common stock issued in connection
with the conversion of convertible
debt and accrued interest - - - - - - 1,112,621 1,112
Common stock issued in connection
with the conversion of exchange
notes and accrued interest - - - - - - 960,133 960
Debt discount arising from
convertible debt offering - - - - - - - -
Debt discount related to the
exchange notes - - - - - - - -
Debt discount related
to Founders' equity note - - - - - - - -
Compensatory common stock
options issued - - - - - - - -
Amortization of deferred
compensation - - - - - - - -
Financing fee - - - - - - - -
Net loss - - - - - - - -
---------- ---------- ------------ -------- ---------- --------- ---------- ---------
Balances at June 30, 1999
(Unaudited) - $ - 2,519,852 $ 2,520 1,037,338 $ 1,038 9,042,606 $ 9,042
========== ========== ============ ======== ========== ========= ========== =========
<CAPTION>
Deficit
Accumulated
Additional During the
Paid-In Members' Deferred Development
Capital Capital Compensation Stage Total
------------ --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1998 $ 38,180,793 $ - $(3,283,532) $(43,145,892) $(8,238,103)
Common stock issued in connection
with the conversion of convertible
debt and accrued interest 2,729,518 - - - 2,730,630
Common stock issued in connection
with the conversion of exchange
notes and accrued interest 1,919,306 - - - 1,920,266
Debt discount arising from
convertible debt offering 893,920 - - - 893,920
Debt discount related to the
exchange notes 2,284,517 - - - 2,284,517
Debt discount related to
Founders' equity note 115,200 - - - 115,200
Compensatory common stock
options issued 2,184,000 - (2,184,000) - -
Amortization of deferred
compensation - - 909,484 - 909,484
Financing fee 175,500 - - - 175,500
Net loss - - - (6,592,956) (6,592,956)
------------ --------- ------------ ------------- ------------
Balances at June 30, 1999
(Unaudited) $ 48,482,754 $ - $(4,558,048) $(49,738,848) $ (5,801,542)
============ ========= ============ ============= ============
</TABLE>
The accompanying notes are an integral
part of the financial statements.
-F7-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------------------------------------ --------------------------------------
1996 1997 1998 1998 1999
------------ ------------- --------------- ----------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating
Activities
Net Loss $(3,314,094) $(11,235,237) $(11,400,109) $(6,174,247) $(6,592,956)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and amortization 13,148 179,304 240,323 115,812 115,767
Amortization of financing fees - 70,496 275,423 225,462 425,290
Amortization of note payable
discount - 583,660 2,532,200 1,157,026 2,164,757
Amortization of registration costs - - 597,740 - 19,676
Interest expense paid with
stock issuance - 1,129,301 13,750 13,750 120,014
Compensatory common stock,
options and warrants
issued and issuable 786,704 2,046,896 1,608,457 376,037 909,484
Change in assets and liabilities
(Increase) Decrease in
Accounts receivable - - - - (62,500)
Other current assets
and deposits (57,279) (44,145) 297,600 69,965 (84,711)
Increase (Decrease) in
Accounts payable,
accrued expenses and
deferred rent 671,806 1,344,949 15,708 228,107 (8,599)
Deferred revenue - - - 1,255,700 -
Accrued interest -
related parties - - - - 26,352
Accounts payable and
accrued expenses -
related parties 58,333 (58,333) - - -
------------ ------------- --------------- ----------------- ---------------
Total Adjustments 1,472,712 5,252,128 5,581,201 3,441,859 3,625,530
------------ ------------- --------------- ----------------- ---------------
Net Cash Used in
Operating Activities (1,841,382) (5,983,109) (5,818,908) (2,732,388) (2,967,426)
------------ ------------- --------------- ----------------- ---------------
Cash Flows from Investing
Activities
Disbursements of loans - - (200,000) - (630,000)
Collections on loans - - - - 200,000
Payments for organization costs - - - - -
Purchases of furniture and
equipment (308,896) (544,618) (57,478) (40,941) (29,988)
------------ ------------- --------------- ----------------- ---------------
Cash Used in Investing
Activities (308,896) (544,618) (257,478) (40,941) (459,988)
------------ ------------- --------------- ----------------- ---------------
Cash Flows from Financing
Activities
Proceeds from member loans 26,045 - - - -
Repayment of member loans (80,823) - - - -
Proceeds from bridge loan 245,000 - - - -
Repayment of bridge loan (245,000) - - - -
Proceeds from notes and
loans payable -
related parties - 3,601,000 1,728,000 63,000 -
Repayments of notes and
loans payable -
related parties - (1,501,000) (745,000) - (450,000)
Proceeds from notes payable - 1,728,250 1,690,000 750,000 -
Repayment of notes payable - - (750,000) (750,000) (290,000)
Proceeds from long-term debt - - 1,402,500 - 6,455,000
Principal payments of
long-term debt - - (34,173) (9,607) (30,545)
Proceeds from member
capital contributions 15,000 - - - -
Proceeds from member
private placements and
Founders' Stock, net of
offering costs 2,487,000 551,833 529,430 - -
Net proceeds from
issuance of stock and - 2,560,641 - - -
warrants
Proceeds from sale of
preferred stock - 225,000 2,762,000 2,762,000 -
Payment to repurchase
preferred stock - - (400,000) - -
Payment of financing fees - (140,919) (80,000) (80,000) (495,877)
Registration costs - (124,921) (474,249) (414,455) -
------------ ------------- --------------- ----------------- ---------------
Net Cash Provided by
Financing Activities 2,447,222 6,899,884 5,628,508 2,320,938 5,188,578
------------ ------------- --------------- ----------------- ---------------
Net Increase (Decrease) in
Cash and Cash Equivalents 296,944 372,157 (447,878) (452,391) 1,761,164
Cash and Cash Equivalents
at Beginning of Period 2,407 299,351 671,508 671,508 223,630
------------ ------------- --------------- ----------------- ---------------
Cash and Cash Equivalents
at End of Period $ 299,351 $ 671,508 $ 223,630 $ 219,117 $ 1,984,794
============ ============= =============== ================= ===============
Cash Paid for Interest $ - $ 3,200 $ 93,537 $ 1,135 $ 4,993
============ ============= =============== ================= ===============
Cash Paid for Taxes $ - $ - $ - $ - $ -
============ ============= =============== ================= ===============
<CAPTION>
December 16,
1994 (Inception)
Through
June 30, 1999
----------------
(Unaudited)
<S> <C>
Cash Flows from Operating
Activities
Net Loss $(33,307,098)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and amortization 556,112
Amortization of financing fees 771,209
Amortization of note
payable discount 5,280,617
Amortization of
registration costs 617,416
Interest expense paid with 1,263,065
stock issuance
Compensatory common stock,
options and warrants
issued and issuable 5,351,541
Change in assets and liabilities
(Increase) Decrease in
Accounts receivable (62,500)
Other current assets
and deposits 111,107
Increase (Decrease) in
Accounts payable, accrued expenses
and deferred rent 2,272,555
Deferred revenue -
Accrued interest -
related parties 26,352
Accounts payable and
accrued expenses -
related parties -
----------------
Total Adjustments 16,187,474
----------------
Net Cash Used in
Operating Activities (17,119,624)
----------------
Cash Flows from Investing
Activities
Disbursements of loans (830,000)
Collections on loans 200,000
Payments for organization costs (9,063)
Purchases of furniture and
equipment (960,489)
----------------
Cash Used in Investing Activities (1,599,552)
----------------
Cash Flows from Financing
Activities
Proceeds from member loans 80,823
Repayment of member loans (80,823)
Proceeds from bridge loan 245,000
Repayment of bridge loan (245,000)
Proceeds from notes and loans
payable - related parties 5,329,000
Repayments of notes and loans
payable - related parties (2,696,000)
Proceeds from notes payable 3,418,250
Repayment of notes payable (1,040,000)
Proceeds from long-term debt 7,857,500
Principal payments of
long-term debt (64,718)
Proceeds from member
capital contributions 500,000
Proceeds from member
private placements and
Founders' Stock, net of
offering costs 3,568,263
Net proceeds from issuance
of stock and warrants 2,560,641
Proceeds from sale of
preferred stock 2,987,000
Payment to repurchase
preferred stock (400,000)
Payment of financing fees (716,796)
Registration costs (599,170)
----------------
Net Cash Provided by
Financing Activities 20,703,970
----------------
Net Increase (Decrease) in
Cash and Cash Equivalents 1,984,794
Cash and Cash Equivalents
at Beginning of Period -
----------------
Cash and Cash Equivalents
at End of Period $ 1,984,794
================
Cash Paid for Interest $ 101,730
================
Cash Paid for Taxes $ -
================
</TABLE>
The accompanying notes are an integral
part of the financial statements.
-F8-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 1 - DESCRIPTION OF THE BUSINESS
History
- -------
BrightStreet.com, Inc. (formerly netValue, Inc. which was formerly COL
Acquisition Corp. which was formerly Vsquared, Inc.) was formed on July 16, 1996
and subsequently merged on September 18, 1996 with Coupons Online, LLC (the
"LLC"), a limited liability company formed on December 16, 1994 (collectively,
"BrightStreet"). The business combination (the "Initial Merger") was treated as
a purchase in accordance with Accounting Principles Board Opinion No. 16
"Business Combinations" ("APB 16"), whereby the members of the LLC exchanged
their membership interests in the LLC for common stock in BrightStreet, the
surviving entity. Additional parties also received shares of common stock in
BrightStreet in exchange for their cancellation of certain agreements and pre-
existing rights and the waiver of certain obligations of the LLC. The Initial
Merger resulted in the LLC being the acquirer, for accounting purposes, in
accordance with APB 16, since the former members of the combining company
retained the larger portion of the voting rights pursuant to the terms of the
merger agreement. BrightStreet, as the surviving entity, was the legal
acquirer. The corporation changed its name to BrightStreet.com, Inc. on March
18, 1999.
On December 30, 1997, BrightStreet filed a registration statement with the
United States Securities and Exchange Commission ("SEC") to sell its securities
to the public in an initial public offering ("IPO") of its common stock. The
registration statement was subsequently amended and updated during 1998. On
August 24, 1998, management elected to withdraw its registration statement with
the SEC, and discontinue the IPO of BrightStreet common stock. On August 31,
1998, BrightStreet entered into a letter of intent to merge with SUNCL, Inc.
(the "Merger"), a public shell company that did not engage in business or
operations of any kind, had nominal assets and liabilities, and whose common
stock was eligible for quotation on the NASDAQ Over-the-Counter Bulletin Board
Trading System. In contemplation of the Merger, the shareholders of SUNCL, Inc.
agreed to change the corporation's name to Net Value Holdings, Inc.
("Holdings"). The terms of the letter of intent provided that the shareholders
of BrightStreet would receive a mutually agreed-upon portion of the equity of
Holdings, and that Holdings would be the surviving legal entity in the Merger.
As of December 31, 1998, Holdings had entered into share exchange agreements
with a limited number of BrightStreet shareholders who tendered approximately
66% of the issued and outstanding shares of common stock, and 100% of the issued
and outstanding preferred stock, of BrightStreet to Holdings ("Share
Exchanges"). Holdings expects to enter into a merger agreement with
BrightStreet whereby the remaining shareholders of BrightStreet will receive
Holdings' securities on the same terms as contained in the Share Exchanges.
The combination of the two companies has been treated as a recapitalization of
BrightStreet. BrightStreet and Holdings are collectively referred to as the
"Company." Terms of the Share Exchanges provided that the BrightStreet
shareholders exchange four shares of BrightStreet common stock for one share of
Holdings common stock and one share of Holdings convertible preferred stock
("Convertible Preferred Stock"). Each holder of Holdings Convertible Preferred
Stock would be entitled to receive up to one share of Holdings common stock
based upon the achievement of certain performance objectives. Holdings would be
able to convert each share of Convertible Preferred Stock into one share of
common stock at any time. In August 1999, pursuant to a private offering by
Holdings, the holders of the convertible preferred stock agreed to exchange the
equivalent of one share of convertible preferred stock for .6 share of common
stock (see Note 12).
Nature of Operations
- --------------------
BrightStreet is a Development Stage Enterprise, as defined in Statement of
Financial Accounting Standards No. 7 "Accounting and Reporting for Development
Stage Enterprises," which is developing Internet software products intended to
provide fee-based online promotions management services to manufacturers,
retailers and advertisers of consumer products and services through the
electronic transmission of online promotions to be targeted and delivered to
specific consumer segments. Since inception, BrightStreet has been in the
process of developing a number of products, and is actively marketing four such
products.
-F9-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 1 - DESCRIPTION OF THE BUSINESS (Continued)
BrightStreet has applied for, but has not yet obtained, patents relating to the
technology used to operate its products. BrightStreet is currently using
technology to operate its products that is the subject of the patent
applications. Patent applications were rejected and refiled a number of times
in 1998 and 1999, and BrightStreet is currently in the process of again refiling
a patent application. BrightStreet also filed an application for an
international patent application in April 1998 which is currently pending (see
Note 7).
On July 30, 1999 Holdings, Strategicus Partners, Inc. ("Strategicus") and a
principal of Strategicus consummated into a merger agreement (see Note 12).
Strategicus and its principals invest in development stage internet businesses.
At the date of the merger, Strategicus had ownership interests in three internet
businesses in various stages of development, while continuing to pursue
additional investment opportunities.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ----------------------
The Company's financial statements are prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles, and have
been presented on a going concern basis which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. In
order to commence operations, additional capital investments will be required to
complete the development and marketing of the Company's products. No assurance
can be given that the Company will be able to achieve market acceptance of its
products. In addition, there can be no assurance that the Company's patents
will be approved on a timely basis or that any patents issued will provide
protection against competitors with similar technologies.
The combination of Holdings and BrightStreet has been treated as a
recapitalization of BrightStreet. The historical financial information included
in these financial statements prior to October 1998 is that of BrightStreet's.
All significant intercompany transactions and balances have been eliminated.
Pro forma financial information is not presented, since the combination is a
recapitalization and not a business combination.
As a result of these transactions, and in accordance with applicable accounting
standards, the accompanying financial statements are presented as if the
recapitalization had been completed as of December 31, 1998 and BrightStreet is
a wholly-owned subsidiary of Holdings. Unexchanged shares of BrightStreet are
shown as a separate component of stockholders' deficit. All share and per share
amounts presented in these financial statements and the related footnotes have
been restated to agree with the basis used in the recapitalization.
Interim Information
- -------------------
The interim consolidated financial data as of June 30, 1999 and for the six
months ended June 30, 1999 and 1998 is unaudited. The information reflects all
adjustments, consisting only of normal recurring adjustments that, in the
opinion of management, are necessary to fairly present the financial position
and results of operations of the Company for the periods indicated. Results of
operations for the interim periods are not necessarily indicative of the results
of operations for a full fiscal year.
Statements of Stockholders' Deficit
- -----------------------------------
The recapitalization resulted in BrightStreet's equity accounts being restated
based on the ratio of the shares exchanged in the Share Exchanges. The number
of shares restated was equivalent to the amount of shares exchanged under the
Share Exchanges. Every four shares of BrightStreet common stock have been
reflected as one share of Holdings' common stock and one share of Holding's
preferred stock (similar to a reverse stock split). While not changing
stockholders' deficit in the aggregate, the restatement changed the allocation
of capital between par value and additional paid-in capital. The par values of
Holdings' securities and BrightStreet's securities are identical.
-F10-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash Equivalents
- ----------------
For purposes of the statements of cash flows, the Company considers all highly-
liquid instruments purchased with a maturity of three months or less to be cash
equivalents.
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 amounts reported in the financial statements and the accompanying
notes. Actual results could differ from those estimates.
Research and Development Costs
- ------------------------------
The Company has expensed its research and development costs in accordance with
Statement of Financial Accounting Standards No. 86 "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed" ("SFAS 86").
Feasibility of the Company's software will be demonstrated when the Company
earns significant revenue in the marketplace from its software. The Company
intends to continue expensing such costs until software feasibility is
established, which is expected to take place in 1999. Thereafter, the Company
will capitalize the direct costs and allocate overhead associated with the
development of software products. Under SFAS 86, maintenance costs incurred
subsequent to the product feasibility are to be charged to operations.
Revenue Recognition
- -------------------
The Company generates revenues in the form of license fees and transaction fees.
Revenue from license fees is recognized when the license agreement is in effect,
delivery of the product has occurred, the license fee is fixed or determinable
and collectibility is reasonably assured. Revenue representing transaction fees
is recognized as manufacturer promotions are requested for viewing on the
Internet. Certain customers pay the Company in advance for license and
transaction fees. These amounts have been recorded as deferred revenue until
earned. Revenue from licensing agreements is recognized ratably over the
applicable service periods when post-contract support is required.
Intangibles
- -----------
Intangibles consisted of costs incurred in connection with the organization of
BrightStreet. The unamortized balance of these intangibles amounted to $3,742 at
December 31, 1997 and was expensed in 1998, in accordance with AICPA Statement
of Position 98-5 "Reporting on Cost of Start-up Activities." Amortization
expense for 1996, 1997 and 1998 and for the six-month periods ended June 30,
1998 and 1999 was $1,696, $1,813, $3,742, $3,742 and $0, respectively.
Property and Equipment
- ----------------------
Property and equipment are recorded at cost. The Company's policy is to
depreciate these assets over their estimated useful lives, as indicated in the
following table, using straight-line methods. The Company's policy is to
amortize leasehold improvements over the shorter of their useful lives or the
remaining periods of the related leases.
Years
-----
Leasehold Improvements 3
Computer Hardware 4
Office Furniture and Equipment 5
Advertising Expenses
- --------------------
The Company expenses advertising costs as incurred. The Company incurred
advertising and related expenses of $219,760, $832,340 and $287,222 in 1996,
1997 and 1998, and $198,656 and $118,435 for the six-month periods ended June
30, 1998 and 1999, respectively.
-F11-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss Per Share
- --------------
The Company reports loss per share utilizing Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" ("SFAS 128"), which requires companies to
present basic earnings per share and diluted earnings per share (as defined in
SFAS 128). Both presentations under SFAS 128 require the use of the weighted
average number of shares outstanding for each period presented in the
computation of earnings per share; however, when including the dilutive effect
of options and warrants issued, the computation of diluted earnings per share
under SFAS 128 increases the weighted average number of shares.
The Company formerly presented loss per share in accordance with Staff
Accounting Bulletin No. 83 "Earnings Per Share Computations in an Initial Public
Offering" ("SAB 83"). SAB 83 required that the presentation of common stock and
common stock subject to options and warrants issued during the twelve months
preceding the initial filing of the registration statement at prices less than
the contemplated initial public offering price be presented as outstanding for
all periods presented. Staff Accounting Bulletin No. 98 "Earnings Per Share
Computations in an Initial Public Offering," issued in February 1998, amended
SAB 83 to require that historical earnings per share be presented in accordance
with SFAS 128. The Company has therefore followed the requirements of SFAS 128
for all applicable periods presented in these financial statements.
Prepaid Expenses and Financing Fees
- -----------------------------------
Prepaid expenses consist of prepaid insurance premiums, lease payments and
consulting fees. These prepaid expenses are charged to expense over the service
term of each respective agreement. Prepaid financing fees include commissions,
placement fees, professional fees and other consideration incurred by the
Company on borrowings received during 1997 and 1998. These prepaid financing
fees are being charged to expense over the remaining term of the outstanding
borrowings.
Deferred Registration Costs
- ---------------------------
Deferred registration costs consist of professional fees, commissions, filing
fees and other costs incurred by the Company in connection with the filing of
their registration statement with the SEC and have been reflected on the balance
sheet as non-current assets. On August 24, 1998, management elected to withdraw
its registration statement for its contemplated initial public offering with the
SEC. Accordingly, in 1998 the Company expensed the deferred registration costs
related to that offering, amounting to $584,773. These costs have been
reflected in professional fee expense in the accompanying 1998 statement of
operations. At December 31, 1998 and June 30, 1999, the balance of deferred
registration costs consisted of unamortized directors' and officers' prospectus
insurance.
Fair Value of Financial Instruments
- -----------------------------------
The carrying value of the Company's cash and cash equivalents, notes payable,
accounts payable and accrued expenses approximates the fair market value due to
the relatively short maturity of these instruments.
Segment Information
- -------------------
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information," ("SFAS
131") during 1998. SFAS 131 requires companies to disclose certain information
about operating segments. Based on the criteria within SFAS 131, the Company
has determined that it has one reportable segment.
Income Taxes
- ------------
Income taxes are recorded in the period in which the related transactions are
recognized in the financial statements, net of the valuation allowances which
have been recorded against deferred tax assets. Deferred tax assets and
liabilities are recorded for the expected future tax consequences of temporary
differences between the tax basis and the financial reporting of assets and
liabilities. Net deferred tax assets and liabilities, relating primarily to
federal and state net operating loss carryforwards, stock-based compensation,
financing costs associated with stock issuances, and depreciation differences
that have been deferred for tax purposes, have been offset by a valuation
reserve because the future utilization of these assets and liabilities cannot be
determined.
-F12-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Pursuant to the terms of the Internal Revenue Code, no provision or benefit for
federal income taxes has been reflected in the accompanying financial statements
for the LLC, since all tax losses flowed directly to the members (see "Pro Forma
Financial Information" below).
Compensatory Stock-Based Arrangements
- -------------------------------------
Management has utilized the guidelines of Accounting Principles Board Opinion
No. 25 to account for the value of stock-based compensation arrangements that
the Company entered into in exchange for services performed by employees.
Deferred compensation represents the intrinsic value of the options to purchase
common stock that was granted to employees for future services.
Concentrations
- --------------
Concentrations not disclosed elsewhere in the financial statements are as
follows:
The Company currently has four products of which only two were offered to the
public commercially in 1997 and 1998. All of the Company's products, both under
development and currently being offered for sale, utilize the same medium. Lack
of product development or customer interest could have a materially adverse
effect on the Company. Further, significant changes in technology could lead to
new products or services that compete with the products to be offered by the
Company. These changes could materially affect the price of the Company's
products and services or render them obsolete. The Company derived
approximately 90% of its 1998 revenues from one customer through a licensing
agreement that expired June 30, 1999.
Credit Risk
- -----------
The Company has maintained cash balances at several financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to a maximum of $100,000. The Company had an uninsured cash
balance of $1,109,176 at June 30, 1999.
Pro Forma Financial Information
- -------------------------------
BrightStreet, whose assets consisted primarily of cash at the date of the
Initial Merger, is a successor to the LLC whose former members, subsequent to
the reverse acquisition, retained the larger portion of the voting rights
pursuant to the terms of the Initial Merger agreement. Since BrightStreet was
deemed to be a predecessor business, no pro forma information has been included
in the financial statements relating to BrightStreet prior to its being acquired
by the LLC through the reverse acquisition.
The LLC was originally organized in the form of a limited liability company.
Upon the Initial Merger, its capital structure changed to that of a corporation.
The change resulted in the Company retaining the tax benefit for subsequent net
operating losses whereas the previous losses were passed through to the LLC
members. A pro forma condensed income statement for the year ended December 31,
1996 has been presented in the statement of operations which reflects the impact
of the Company's change in capital structure as if it had occurred December 16,
1994 (the Company's inception). This presentation reflects the Company
generating a tax benefit for the net operating losses which were incurred by the
LLC during 1996 prior to the LLC's termination.
Recent Accounting Pronouncements
- --------------------------------
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 established standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
The Company adopted SFAS No. 130 in 1998. The Company has determined that it
has no additional reporting requirements as a result of its adoption of SFAS
130.
-F13-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 3 - CONTINGENCY - GOING CONCERN
At December 31, 1997 and 1998 and June 30, 1999, the Company was in arrears in
its obligations to a significant number of its vendors (see Note 12). Further,
management anticipates the Company will need to expend an aggregate of
approximately $5.1 million in 1999 in order to complete its systems development,
perform its market research and tests, and build an appropriate infrastructure
to support its planned commercial venture.
The Company does not expect that existing shareholders will provide the Company
with adequate future financing to meet its requirements. Upon the consummation
of the Merger, the Company may file a registration statement with the SEC in
order to subsequently raise funds through a secondary public offering ("PO").
There can be no assurance that the SEC will approve the Company's registration
statement or that a PO may occur, or that the Company will successfully raise
the required financing on terms desirable to the Company. Management expects to
utilize the proceeds raised from its convertible debt offering (see Note 8), its
current private placement (see Note 12), or consummate business combinations
with profitable entities, in order to continue the implementation of its
business plan, pay certain vendor obligations and fund development stage cash
requirements until obtaining the necessary funding for the Company from the
proceeds of the contemplated PO. The failure of the Company to obtain such
additional financing or successfully complete a PO would require the Company to
adjust its business plan, or may require the Company to cease operations and
liquidate. Further, no assurance can be given that the Company will be able
achieve market acceptance of its products. As a result of the foregoing, there
is substantial doubt about the Company's ability to continue as a going concern.
These financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
December 31,
---------------------- June 30,
1997 1998 1999
--------- ---------- ----------
(Unaudited)
Leasehold Improvements $ 6,066 $ 6,066 $ 6,066
Computer Equipment 748,723 792,554 822,542
Office Equipment 48,792 51,034 51,034
Office Furniture 75,294 86,699 86,699
--------- --------- ----------
878,875 936,353 966,341
Less Accumulated Depreciation (194,701) (418,992) (534,759)
--------- --------- ----------
$ 684,174 $ 517,361 $ 431,582
========= ========= ==========
Depreciation expense for 1996, 1997, 1998 was $11,452, $177,491 and $224,291 and
for the six-month periods ended June 30, 1998 and 1999 was $112,077 and
$115,767, respectively.
-F14-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 5 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the financial statement carrying amounts of assets and liabilities and
the amounts used for income tax purposes. The tax effects of temporary
differences and carryforwards that give rise to significant portions of the
deferred tax assets and liabilities consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------------- June 30,
1997 1998 1999
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Deferred tax assets (liabilities):
Temporary differences:
Vesting of non-qualified stock options $ 72,000 $ 82,000 $ 87,000
Accrued salaries and compensation to related parties - 37,000 -
Amortization of debt discount 21,000 148,000 148,000
Amortization of financing fees - - 37,000
Common stock warrants issued 1,000 20,000 20,000
Depreciation (27,000) (29,000) (42,000)
----------- ----------- -----------
Total temporary differences 67,000 258,000 250,000
Federal and state deferred tax benefits arising
from net operating loss carryforwards 4,043,000 6,857,000 8,265,000
Research and development credits 168,000 278,000 294,000
----------- ----------- -----------
4,278,000 7,393,000 8,809,000
Less valuation allowance (4,278,000) (7,393,000) (8,809,000)
----------- ----------- -----------
Net deferred tax asset $ - $ - $ -
=========== =========== ===========
</TABLE>
In accordance with federal income tax regulations, the net loss incurred by the
LLC from inception to the date of the Initial Merger has been excluded from the
benefits of the net operating loss carryforwards reflected above.
The following table presents the principal reasons for the difference between
the income tax benefit using the Company's effective tax rates and the United
States federal statutory income tax rate of 35%:
-F15-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 5 - INCOME TAXES (Continued)
<TABLE>
<CAPTION>
Six Months Ended Pro Forma
Years Ended December 31, June 30, December 31,
-------------------------------------- -------------------------
1996 1997 1998 1998 1999 1996
---------- ----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Federal income tax benefit at
statutory rate $1,160,000 $ 3,932,000 $ 3,990,000 $ 2,161,000 $ 2,276,000 $1,160,000
State and local income tax benefits, net
of effect of federal income tax 166,000 561,000 570,000 310,000 325,000 166,000
Research and development credits, net
of effects of asset basis reduction - 101,000 66,000 60,000 10,000 -
Nondeductible research and
development costs (342,000) - - - - (354,000)
Nondeductible stock-based
compensation and interest - (1,083,000) (1,511,000) (491,000) (1,195,000) -
Net loss for LLC in 1996 prior to
date of Merger passed through to
the LLC members (see below) (217,000) - - - - -
---------- ----------- ----------- ----------- ----------- ----------
767,000 3,511,000 3,115,000 2,040,000 1,416,000 972,000
Valuation allowance for deferred
income tax benefit (767,000) (3,511,000) (3,115,000) (2,040,000) (1,416,000) (972,000)
---------- ----------- ----------- ----------- ----------- ----------
Income tax benefit $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
========== =========== =========== =========== =========== ==========
Effective income tax rate 0% 0% 0% 0% 0% 0%
========== =========== =========== =========== =========== ==========
</TABLE>
Prior to September 18, 1996, the Company was a limited liability company and,
accordingly, losses were passed through to its members. For the period from
September 18, 1996 through December 31, 1998 and through June 30, 1999, the
Company had losses which resulted in net operating loss carryforwards for income
tax purposes amounting to approximately $17,144,000 and $20,662,000,
respectively, which expire during 2011 through 2014. However, this carryforward
may be significantly limited due to changes in the ownership of BrightStreet as
a result of future equity offerings. BrightStreet has also generated research
and development credits approximating $294,000 that expire in 2012 through 2014.
The pro forma presentation reflects the effect on the Company had the change in
capital structure to a corporation been effective as of December 16, 1994 (the
Company's inception) (see Note 2).
Recognition of the benefits of the net deferred tax assets and liabilities will
require that the Company generate future taxable income. There can be no
assurance that the Company will generate any earnings or any specific level of
earnings in future years. Therefore, the Company has established valuation
allowances for deferred tax assets (net of liabilities) of approximately
$4,278,000, $7,393,000 and $8,809,000 as of December 31, 1997 and 1998, and June
30, 1999, respectively.
NOTE 6 - OPERATING LEASES
In November 1997, BrightStreet executed an operating lease agreement for a
facility located in Fairfield, Connecticut. The agreement commenced December
1997 and expires December 2000. Monthly rent under this lease agreement amounts
to $13,284 plus additional rent for BrightStreet's pro rata portion of certain
property expenses. In 1999, BrightStreet vacated this property and relocated to
Mountain View, California (see Note 12).
-F16-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 6 - OPERATING LEASES (Continued)
In November 1998, the Company executed an operating sublease agreement for a
facility located in Mountain View, California. The agreement commenced November
1998, expired August 15, 1999 and a new lease became effective thereafter (see
Note 12). Monthly rent under this sublease agreement amounts to $4,816 plus
additional rent for the Company's pro rata portion of certain property expenses.
In February and December 1998, the Company entered into operating lease
agreements for computer equipment. The lease agreements call for 36 monthly
payments of $4,285 and $460, respectively.
Total rental expense amounted to $29,300, $145,682 and $191,906 in 1996, 1997
and 1998 and $83,937 and $124,463 for the six-month periods ended June 30, 1998
and 1999, respectively. Future minimum payments required under the terms of the
Company's lease agreements consisted of the following:
December 31, June 30,
1998 1999
------------ ------------
(Unaudited)
1999 $ 216,348 $ 216,348
2000 216,348 115,219
2001 8,885 1,840
------------ ------------
$ 441,581 $ 333,407
============ ============
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Commitments and contingencies not disclosed elsewhere in the financial
statements are as follows:
BrightStreet entered into a five-year employment agreement with its chief
executive officer ("CEO") and a one-year employment agreement with its chief
technology officer ("CTO") on September 19, 1996. These agreements were
subsequently amended and restated in 1997 (collectively the "Compensation
Agreements"). The Compensation Agreements called for the issuance of stock
options, annual salaries at specified amounts, and bonuses and salary increases
to be given at the discretion of BrightStreet's Board of Directors. In addition,
the CEO's employment agreement provided that in the event severance payments
became due, such payments were to be secured by a lien and security interest in
certain of BrightStreet's intangible assets.
On June 1, 1998, BrightStreet and the CEO entered into a separation agreement
pursuant to which the CEO's employment agreement was terminated. The CEO
immediately resigned from his positions as an officer and as a director of
BrightStreet. Under the terms of the separation agreement, BrightStreet agreed
to pay deferred compensation and severance benefits to the CEO, and permitted
all of the CEO's options to purchase BrightStreet's common stock to immediately
vest. In June 1998, BrightStreet made certain deferred compensation and
severance payments to the former CEO and, in accordance with the terms of the
separation agreement, the former CEO released all of his rights under his lien
and security interests in certain of BrightStreet's assets. Additional severance
compensation payments are to be paid to the former CEO in monthly installments
through October 1999 under the terms of the separation agreement, and this
amount is included in accrued expenses. BrightStreet was obligated to the CEO in
the amount of $61,875 and $20,625 as of December 31, 1998 and June 30, 1999,
respectively, and this amount has been included in accrued expenses. $158,000 of
noncash compensation, related to the options which vested upon the CEO's
termination, was expensed in 1998.
Effective June 1, 1998, BrightStreet entered into an employment agreement with a
new chief executive officer ("New CEO"), pursuant to which the New CEO assumed
the positions of Chairman of BrightStreet's Board of Directors and President.
Pursuant to the employment agreement, the New CEO is paid an annual base salary
and is eligible to receive an annual bonus based upon the attainment of specific
performance goals established by the Board of Directors. The bonus may be
allocated between awards of cash and shares of common stock at the discretion of
the New CEO. In addition, the Employment Agreement requires BrightStreet to
grant the New CEO options to purchase shares of BrightStreet's common stock,
pursuant to BrightStreet's non-qualified stock option plan, that will vest over
a three-year period.
-F17-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
In July 1998, BrightStreet terminated the employment agreement with the CTO.
BrightStreet's Board of Directors removed the CTO from his position as Secretary
of the Company, and a majority of the stockholders of BrightStreet voted to
remove the CTO from the Board of Directors. In November 1998, BrightStreet
entered into an employment agreement with a new chief technology officer ("New
CTO"). The terms of the agreement provide that the New CTO will receive an
annual salary, a signing bonus and options to purchase shares of BrightStreet's
common stock, pursuant to BrightStreet's non-qualified stock option plan, over a
three-year vesting period. The New CTO has also been appointed as a Director of
BrightStreet.
During 1996, the Company entered into an agreement with DMR Consulting Group,
Inc. ("DMR") ("the DMR Agreement") pursuant to which DMR agreed to develop the
material portion of the core software for the Company (the "Software") and
perform the Company's initial systems integration for its products. Pursuant to
the DMR Agreement, DMR was granted title to the portion of the Software that it
had been retained to develop, and such title is being maintained by DMR until
such time that all amounts due pursuant to the DMR Agreement are paid in full.
DMR's title to the Software will revert to the Company upon the Company
satisfying all of its obligations to DMR under the DMR Agreement. The Company
is required to obtain a license from DMR for all intended usage of the Software
for commercial purposes until such time that all of the Company's obligations
under the DMR Agreement are satisfied.
During 1997, the Company became delinquent in its obligations to DMR. On
September 26, 1997, the Company and DMR entered into a letter agreement, to
address repayment of the Company's delinquent balance, which was subsequently
amended March 9, 1998. The amended letter agreement ("Amendment") renegotiated
the payment terms of the previously outstanding balance. Under the terms of the
Amendment, DMR agreed to grant a license to the Company in order to allow the
Company to grant a sublicense for the Company's software to IQ Value, LLC
(formerly I.Q. Card, Inc.) ("IQ") (see below). DMR received a security interest
in the Company's future proceeds to be derived under the sublicense agreement
granted to IQ in exchange for granting the license to the Company. The
Amendment provided that simple interest at the prime rate accrues on the unpaid
balance due to DMR from October 1, 1997 until the obligation is paid. Interest
expense for 1997 and 1998 on the DMR obligation amounted to $36,028 and $39,592,
respectively, and has been included in the accompanying statements of
operations.
On October 6, 1998, the Company and DMR entered into a settlement agreement
("Settlement Agreement") relating to the balance due DMR. The terms of the
Settlement Agreement provided that DMR accept payment from the Company in the
amount of $270,000 ("Settlement Payment") as the final settlement of all
outstanding amounts then due DMR, which totaled $744,355. The Settlement
Agreement also provided that upon receipt of the Settlement Payment, DMR would
deliver the Software to the Company and release all ownership interest in the
Software as well as its security interest in the Company's future proceeds to be
derived under the sublicense agreement granted to IQ. The Settlement Agreement
also provided that the Company provide DMR a license to use derivatives of the
Software for its own purposes, including the right to grant sublicenses to third
parties with the prior consent of the Company. Under the terms of the
Settlement Agreement, DMR is required to pay the Company a $50,000 fee for each
sublicense granted to third parties; however, DMR was provided with a $100,000
credit from the Company relating to such fees. The Company was unable to timely
make the required Settlement Payment and on December 3, 1998 the Company and DMR
amended the Settlement Agreement ("Amended Settlement Agreement"). The Amended
Settlement Agreement requires that all other terms of the DMR Agreement remain
in full force and effect until the Settlement Payment is paid in full to DMR.
The Amended Settlement Agreement provides that the Company pay $50,000 upon the
execution of the Agreement and pay the remaining balance in four quarterly
payments during 1999. The Company paid $50,000 in both December 1998 and March
1999 (see Note 12). Under the terms of the Amended Settlement Agreement, in the
event the Company is in default, the previously outstanding balance due to DMR
prior to the execution of the Settlement Agreement will become fully due and
payable and all other security and ownership interests held by DMR will remain
in effect. At December 31, 1997 and 1998 and June 30, 1999, the Company owed
DMR $818,368, $220,000 and $170,000, respectively, net of the agreed upon
prepayments and accrued interest. These amounts have been included in accounts
payable in the accompanying financial statements at December 31, 1997 and 1998
and at June 30, 1999. The reduction in the Company's obligation to DMR pursuant
to the terms of the Settlement Agreement in the amount of $474,355 has been
reflected as a reduction in research and development expense in the accompanying
1998 statement of operations.
-F18-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
On April 7, 1998, the Company entered into a distribution and license agreement
whereby IQ was granted the exclusive right to the use of COL, one of the
Company's products, in providing services to local merchants and the
nonexclusive right to use COL and i-Value, another Company product, elsewhere to
provide fee-based marketing services to its customers (the " IQ Agreement").
The IQ Agreement required the Company to provide and manage a data center
facility to be used to service IQ's customers. The Company also agreed to
provide IQ with one seat on its Board of Directors during the term of the IQ
Agreement or until such time that IQ no longer retained any exclusivity under
the IQ Agreement. The Company was to receive a minimum licensing fee in the
amount of $3,000,000, of which $1,250,000 was received in April 1998. In
addition to the minimum licensing fee, the Company was to receive a fee for each
transaction processed under the IQ Agreement. In order to maintain the
exclusivity of the license for COL, IQ was required to meet minimum annual
levels of transaction fees. The Company granted DMR a security interest in the
proceeds from the IQ Agreement. Due to contentious service issues between the
Company and IQ, IQ made no additional payments under the terms of the IQ
Agreement in 1998. On December 1, 1998 the Company and IQ amended the IQ
Agreement ("Amended IQ Agreement") whereby IQ agreed to immediately terminate
its exclusivity rights under the IQ Agreement, except for certain exclusive
rights, that expire November 30, 1999, to solicit specified merchant agreements.
The Amended IQ Agreement provides that the Company continue to support IQ
promotions through June 30, 1999, and that the Company will earn a minimum of
$62,500 for its services in 1999. In addition, the Amended IQ Agreement
provides IQ with the right to use any intellectual property rights contained
within the Company's patent rights on its Software in order for IQ to develop
its own coupon delivery system. Upon the issuance of a patent to the Company,
IQ has agreed to pay the Company a royalty for each coupon or offer delivered by
the Company's proprietary system, subject to the mutual agreement of the Company
and IQ that the Company's proprietary technology was utilized in the process.
The Amended IQ Agreement also provides that the Company issue to IQ the
equivalent of 90,000 shares of common stock ("IQ Shares") and warrants to
purchase 360,000 shares of BrightStreet common stock (the "IQ Warrants") for
consulting services to be performed by IQ. The IQ Warrants have exercise prices
of $1.50, $1.80 and $2.16 for a total of 120,000 shares, and carry a two-year
exercise period. The IQ Shares and the IQ Warrants are not entitled to receive
any shares of preferred stock upon any share exchange or in connection with the
Merger. Consulting expense in 1998 relating to the IQ Shares and the IQ
Warrants amounted to $252,000 and $49,200, respectively, based upon a valuation
of these securities performed by an independent valuation company. In May 1999,
the Company entered into a termination agreement with IQ that provided, among
other things, the terms under which the IQ Agreement was to be terminated (see
Note 12).
In October 1997, the Company began contracting with Task Management, Inc.
("Task") for Task to provide consultants to perform programming services for the
development of the Company's products. The Company incurred $262,782 and
$835,956 of software development expenses with Task in 1997 and 1998,
respectively. At December 31, 1997 and 1998 and June 30, 1999, the Company owed
Task $66,108, $96,947 and $96,947, respectively.
During 1996, the Company reached an agreement with Guild Concepts, Ltd.
("Guild") pursuant to which Guild agreed to provide the Company with certain
marketing and creative services in connection with the promotion of the
Company's products. In November 1997, Guild filed a lawsuit against the Company
alleging nonpayment of $243,538 in fees. In June 1998, Guild received a court
judgment against BrightStreet for $233,538. At December 31, 1998, BrightStreet
paid Guild $50,000 of the judgment resulting in an obligation to Guild of
$180,000. The remaining balance due Guild was paid prior to June 30, 1999. At
December 31, 1997 and 1998, the balance due Guild had been included in accounts
payable.
On May 1, 1997, the Company entered into a professional services agreement with
Promunicom, Inc. ("PI"). PI was to perform marketing services for the Company
in exchange for a monthly fee of $10,000 and an unspecified equity interest in
the Company. In March 1998, the Company and PI agreed to terminate the agreement
effective January 15, 1998 (the "Termination Agreement"). Under the terms of the
Termination Agreement, the Company became obligated in the amount of $115,000
and for conveying 7,500 shares of the Company's common and preferred stock
having an ascribed value of the equivalent of $20.00 per share to PI for payment
of 1997 consulting services. At December 31, 1997 and 1998, $250,000 and
$37,500, respectively, of the outstanding balance due PI had been included in
accounts payable. There was no balance due at June 30, 1999.
In December 1997, BrightStreet signed a letter of intent with J.B. Sutton Group,
LLC ("Underwriter") to underwrite the contemplated public offering. In August
1998, BrightStreet elected to withdraw its registration statement for the public
offering, and discontinued the services of the Underwriter in March 1999.
-F19-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
On March 18, 1999 a lawsuit was filed against the Company claiming that the
process used by the Company's products to distribute coupons infringes upon
three existing patents. Management, along with the Company's patent attorneys,
believes that the Company's process does not infringe on the existing patents,
and that the claim is without merit. A second lawsuit of this nature was filed
in September 1999 (see Note 12).
NOTE 8 - NOTES AND LOANS PAYABLE
Notes and loans payable consisted of the following:
<TABLE>
<CAPTION>
December 31, June 30,
-------------------------
1997 1998 1999
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Convertible Debt Offering (a) $ - $ 1,402,500 $ 5,157,500
AML (b) - 783,000 533,000
Rozel (c) - 200,000 -
FAC Enterprises (d) - 40,000 -
FEG (e) - 900,000 900,000
Golden Eagle Partners (f) 250,000 250,000 -
Transamerica (g) - 141,327 110,782
Bridge Offerings and Exchange Notes (h) 4,025,000 4,025,000 2,664,240
----------- ----------- -----------
4,275,000 7,741,827 9,365,522
Less discount on notes payable (2,463,090) (505,915) (1,634,793)
----------- ----------- -----------
1,811,910 7,235,912 7,730,729
Less amount due within one year (1,811,910) (6,260,293) (1,656,711)
----------- ----------- -----------
Noncurrent portion $ - $ 975,619 $ 6,074,018
=========== =========== ===========
</TABLE>
(a) In October 1998, Holdings commenced a private offering of convertible
debentures ("Debentures"). The Debentures are convertible promissory notes
that accrue simple interest at 8% per annum and are convertible at any
time by the holders at a conversion price of $2.00 per share. Holdings may
force the mandatory conversion of the Debentures into shares of its common
stock at a conversion price upon the occurrence of (i) the consummation of
the Merger (see Note 1); (ii) the acquisition of 80% of the issued and
outstanding capital stock of BrightStreet by Holdings; or (iii) the
effective date of a registration statement registering all shares of
common stock issuable upon conversion of the Debentures. The maturity date
of the convertible promissory notes is the earlier of (i) the date on
which the holder elects to convert all of the outstanding unpaid principal
and accrued interest on the note into shares of common stock; (ii) the
date upon which Holdings elects to cause a mandatory conversion of all of
the outstanding principal and accrued interest on the note into shares of
common stock; or (iii) two years from the date of the issuance of the
Debentures. Holdings completed the private offering of the Debentures in
January 1999. The aggregate principal amount of the Debentures was
$1,642,500, of which approximately $1,402,500 was raised as of December
31, 1998. In March and June 1999, holders of these Debentures converted
the aggregate principal amount of $200,000 and the accrued interest
thereon of $4,888 into 102,444 shares of Holdings' common stock.
-F20-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 8 - NOTES AND LOANS PAYABLE (Continued)
In the first quarter of 1999, Holdings commenced a second private offering
of Debentures. Other than having a conversion price of $2.50 per share,
these Debentures contain the same terms as the above Debentures containing
a $2.00 conversion price. Through this second offering, Holdings sold
additional Debentures in the aggregate principal amount of $6,215,000 as of
June 30, 1999. In March and April 1999, holders of these Debentures
converted the aggregate principal amount of $2,500,000 and the accrued
interest thereon of $25,743 into 1,010,177 shares of Holdings' common
stock.
In connection with these two offerings of Debentures, Holdings is required
to pay commissions ranging from 6% to 10% of the aggregate principal amount
of the Debentures sold by placement agents. These commissions and certain
professional fees related to the sale of the Debentures amounted to
$147,485 in 1998 and $495,877 for the six-month period ended June 30, 1999,
and are being amortized as financing fee expense over the term of the
Debentures. The unexpired portion of these financing fees amounting to
$135,195 and $322,786 at December 31, 1998 and June 30, 1999, respectively,
have been reflected on these financial statements as prepaid financing
fees. Financing fee expense relating to the Debentures in 1998 and for the
six months ended June 30, 1999 amounted to $12,290 and $308,286,
respectively.
The conversion rights provide the holders of the Debentures with a
beneficial conversion feature upon issuance in accordance with Emerging
Issues Task Force D-60 "Accounting for the Issuance of Convertible
Preferred Stock and Debt Securities with a Nondetachable Conversion
Feature" ("EITF D-60"). A discount related to the beneficial conversion
feature was ascribed to the Debentures upon issuance, and is being
amortized as interest expense through November 30, 1999, the date the
Merger is expected to become effective. The discount related to the
beneficial conversion feature for the Debentures issued in 1998 and during
the six months ended June 30, 1999 amounted to an aggregate of $575,025 and
$893,920, respectively, based upon a fair market value for Holdings' common
stock of $2.82 per share, as determined by an independent valuation
company. Amortization of the discount amounted to $69,110 and $713,161 in
1998 and for the six-month period ended June 30, 1999, respectively, and
has been reflected as interest expense in the accompanying statements of
operations. At December 31, 1998 and June 30, 1999, the unexpired portion
of the discount amounted to $505,915 and $686,672, respectively, and has
been reflected on the balance sheet as a reduction in notes payable. The
effective interest rate on the Debentures approximated 111% in 1998 and
ranged from between 25% to 60% for the six months ended June 30, 1999.
(b) In 1998, American Maple Leaf Financial Corporation, a related party
("AML"), advanced $783,000 to BrightStreet in unsecured advances. In 1999,
BrightStreet repaid AML $250,000, resulting in a balance due AML of
$533,000 at June 30, 1999. These advances accrue interest at a rate of 8%
per annum. Interest expense of $34,470 and $26,288 was incurred in 1998 and
for the six-month period ended June 30, 1999, respectively, and has been
reflected in accrued expenses - related party at December 31, 1998 and at
June 30, 1999.
(c) In December 1998, Holdings borrowed $200,000 from Rozel International
Holdings Limited ("Rozel"), a related party. The loan was non-interest
bearing and was repaid in February 1999.
(d) In 1998, Holdings borrowed $40,000 from FAC Enterprises, Inc. The loan
accrues simple interest at a rate of 10% per annum, and was repaid in
February 1999.
(e) In September 1998, Holdings borrowed $900,000 from Founders Equity Group,
Inc. ("FEG"). The note accrued simple interest at 10% per annum and had a
maturity date of March 1, 1999 ("Founders' Note") (see Note 11). Interest
expense on the Founders' Note amounted to $27,616 in 1998 and $22,500
during the six months ended June 30, 1999. The entire interest expense was
paid in March 1999. Holdings incurred a $45,000 financing fee on the
procurement of this note, and this amount has been amortized over a six-
month period. The unexpired portion of this financing fee, amounting to
$15,000 at December 31, 1998, has been reflected on these financial
statements as prepaid financing fees at December 31, 1998. The financing
fee expense on the Founders' Note in 1998 and for the six months ended June
30, 1999 amounted to $30,000 and $15,000, respectively. An affiliate of a
shareholder of Holdings guaranteed the Founders' Note and the accrued
interest thereon.
-F21-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 8 - NOTES AND LOANS PAYABLE (Continued)
(f) On June 17, 1997, BrightStreet obtained $250,000 in financing from Golden
Eagle Partners ("Golden Eagle") and executed a Loan and Security Agreement
("Golden Eagle Agreement") which was subsequently modified in December
1997. In consideration for the financing, BrightStreet issued a
convertible promissory note which accrued interest at the rate of 10% per
annum. Pursuant to the terms of the Golden Eagle Agreement, BrightStreet
executed an assignment of certain patents and trademarks for the benefit of
Golden Eagle (the "Golden Eagle Lien"). The modification of the Golden
Eagle Agreement required BrightStreet to issue 10,000 shares of
BrightStreet's common stock as additional consideration at the time of the
repayment. $50,000 of financing fee expense related to BrightStreet's
future stock issuance under this modification was incurred in 1997, is a
noncash transaction, and is reflected in accrued expenses at December 31,
1997 and 1998 and June 30, 1999. In September 1999, the Golden Eagle
obligation was paid in full (see note 12).
On March 11, 1998, BrightStreet, IQ, Golden Eagle and the CEO entered into
an intercreditor agreement (the "Intercreditor Agreement") (see Note 7).
The Intercreditor Agreement provided IQ with a priority interest over the
Golden Eagle Lien. As a result of the Intercreditor Agreement, IQ was
granted a priority security interest in all of BrightStreet's assets,
subordinate only to the DMR Lien. Subsequent to the execution of the
Intercreditor Agreement, AML (see Note 8) transferred 3,750 shares of the
Company's common stock that it held to Golden Eagle in consideration for
Golden Eagle's participation in the Intercreditor Agreement. This
consideration, amounting to $75,000 (based upon an ascribed value of the
equivalent of $20.00 per share), has been reflected as financing fee
expense in 1998. Accrued interest on the note payable to Golden Eagle in
the amount of $38,709 and $51,727 was included in accrued expenses at
December 31, 1998 and June 30, 1999, respectively.
(g) In May 1998, BrightStreet financed $175,500 of a three-year insurance
premium, amounting to $197,500, for the liability coverage of its directors
and officers. The financing accrues interest at 7.76%, and requires 33
monthly installment payments of $5,923. Interest expense on the loan
amounted to $7,879 for 1998 and $4,993 for the first six months of 1999.
(h) In October 1997, BrightStreet completed a $3,000,000 private placement
offering aggregating 120 units ("Units") at $25,000 per Unit. In December
1997, BrightStreet completed a $1,025,000 private placement offering
aggregating 41 Units at $25,000 per Unit (collectively the "Bridge
Offerings"). Each Unit in the Bridge Offerings consisted of a promissory
note in the principal amount of $25,000 ("Note"), 625 shares of the
Company's common stock, and a warrant to purchase 2,500 shares of
BrightStreet's common stock (collectively "Equity Instruments") (see Note
9). The Notes are unsecured subordinated obligations of BrightStreet,
which accrue interest at the rate of 10% per annum or at a default rate of
15% per annum. All principal and accrued interest became payable in full
on the one-year anniversary of their date of issuance.
Proceeds of $2,696,750 were allocated to the Equity Instruments based upon
the relative fair market values of the Notes and Equity Instruments. Of
these proceeds, $2,012,500 has been allocated to common stock, based upon
an ascribed value of the equivalent of $20.00 per share, and $684,250 has
been allocated to the warrants based upon a value of the equivalent of
$6.80 per warrant (see Note 9). The remaining proceeds from the Bridge
Offerings amounting to $1,328,250 from the sale of the Units were recorded
as notes payable, reflecting an aggregate discount of $2,696,750 at the
date of issuance. The discount on the Notes has been amortized as interest
expense over the term of the Notes. Amortization of the discount for 1997
and 1998 amounted to $233,660 and $2,463,090, respectively, and is
reflected as interest expense in the accompanying statements of operations.
At December 31, 1997, the unexpired portion of the discount amounting to
$2,463,090 had been reflected as a reduction in notes payable. There was
no unexpired portion at December 31, 1998.
-F22-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 8 - NOTES AND LOANS PAYABLE (Continued)
Financing fees, consisting of commissions and legal fees, amounting to
$427,028 were incurred in connection with the Bridge Offerings. $286,109
of the financing fees have been prorated to BrightStreet's issuance of
Equity Instruments. The proration has been determined by an allocation
based on the fair market values of the Notes and Equity Instruments. These
financing fees have been recorded as an increase to the stockholder's
deficit in 1997. The remaining portion of the financing fees incurred in
the Bridge Offerings amounted to $140,919. The unexpired portion of these
financing fees amounting to $120,423 at December 31, 1997 has been
reflected as prepaid financing fees. There was no unexpired portion at
December 31, 1998. Financing fee expense in 1997 and 1998 amounted to
$20,496 and $120,423, respectively.
In 1998, BrightStreet defaulted on the payment terms of the Notes (see Note
11). The Notes were not paid within the one-year anniversary of the date
of their issuance. Pursuant to the terms of the Notes, BrightStreet began
accruing interest as of the date of default at the default rate of 15%.
Interest expense incurred on the Notes, exclusive of the aforementioned
amortization of the discount on the Notes, amounted to $56,969, $438,707
and $16,875 in 1997, 1998 and for the six months ended June 30, 1999,
respectively, including $93,146 and $16,875 of default interest in 1998 and
in the six months ended June 30, 1999, respectively. Accrued interest on
the Notes amounted to $56,967, $495,646 and $42,396 at December 31, 1997
and 1998 and June 30, 1999, respectively.
The following additional transactions occurred in 1997 and 1998:
In January 1997 and August 1997, VDC Corporation, Ltd. ("VDC") provided
BrightStreet with bridge financing in the principal amount of $2,500,000 (the
"Bridge Financing") and a senior secured convertible loan in the amount of
$100,000 (the "VDC Loan"). The financing was made in anticipation of a statutory
merger between BrightStreet and VDC. The Bridge Financing and the VDC Loan were
secured by a lien on all of BrightStreet's tangible and intangible assets. In
consideration for the receipt of the Bridge Financing, the Company issued 25,000
shares of common stock to VDC, a non-cash transaction, which was recorded as
interest expense of $200,000 in 1997. Both the Bridge Financing and the VDC
Loan accrued interest at 10% per annum.
On April 22, 1997, BrightStreet entered into an agreement with VDC pursuant to
which VDC proposed to acquire the Company through a statutory merger or similar
business combination. This agreement was subsequently terminated in order to
allow the Company to proceed with other financing alternatives.
In December 1997, $2,400,000 of Bridge Financing principal and accrued interest
of $178,301 due to VDC was canceled and converted into 805,719 shares of common
stock. On December 18, 1997, all of BrightStreet's common stock and debt
obligations owned by VDC were acquired by Rozel, a related party (see Note 9).
Subsequently in December 1997, BrightStreet repaid the remaining $200,000 of
principal outstanding on the Bridge Financing and the VDC Loan.
In 1997, BrightStreet received and repaid $1,001,000 in unsecured advances from
AML, a related party. The Company also issued 47,550 shares of common stock to
AML in a noncash transaction as consideration to AML for the issuance of the
unsecured advances. The consideration amounting to $951,000 (based on an
ascribed value of $20.00 per share) has been recorded as interest expense in
1997.
On September 5, 1997, BrightStreet obtained $300,000 in an unsecured thirty-day
loan at an interest rate of 10% from a private investor. As additional
consideration for such financings in 1997, the Company issued 7,500 shares of
common stock to the investor in a noncash transaction resulting in $150,000 of
interest expense, based on an ascribed value of $20.00 per share. On October 5,
1997, the note was acquired by another private investor, who extended its
maturity date to November 5, 1997. BrightStreet retired the note in October 1997
with the proceeds received from the Bridge Offerings.
In February 1998, the Company obtained $750,000 in financing from an independent
party and correspondingly issued a promissory note with an interest rate of 10%
per annum. The Company paid $50,000 of investment banking fees, relating to
this financing, to a shareholder owning approximately 1% of the Company's
outstanding common stock at December 31, 1997. Expense related to this
financing fee is being recognized over the term of the note. Financing fee
expense of $43,182 was recorded in the three month period ended June 30, 1998.
Upon repayment of the note, the lender agreed to accept 2,750 shares of common
stock as payment in full for $13,750 of interest expense. The note was repaid
on April 9, 1998.
-F23-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 9 - CAPITAL STOCK ACTIVITY
As more fully described in Notes 1 and 2, the combination of BrightStreet and
Holdings was treated as a recapitalization of BrightStreet, whereby a limited
number of BrightStreet shareholders exchanged four shares of BrightStreet common
stock for one share of Holdings' common stock and one share of Holdings'
convertible preferred stock. Upon the consummation of the Merger in 1999, the
recapitalization of BrightStreet is expected to be completed. The following
capital stock transactions for the years ended December 31, 1996, 1997 and 1998
and for the six months ended June 30, 1999, have been restated to reflect the
recapitalization, whereby Holdings issued one share of common stock and one
share of convertible preferred stock for every four shares of BrightStreet
common stock originally issued. Transactions pertaining to warrants and options
outstanding to purchase BrightStreet stock have not been restated.
On July 16, 1996, BrightStreet was formed solely for the purpose of merging with
the LLC. On August 2, 1996, in exchange for $1,090, the initial stockholders
("the Founders") received an aggregate of the equivalent of 272,500 shares of
common stock and preferred stock (the "Founders' Shares"). In connection with
the Company's formation, APP Investments, Inc. ("APP"), an affiliate of AML, a
related party and one of the Founders, was issued warrants to acquire the
equivalent of 500,000 shares of BrightStreet common stock at an exercise price
of $6.00 per share. The warrants are currently exercisable, expire in August
2001 and carry antidilutive rights. At December 31, 1998, the antidilutive
provisions entitle APP to obtain 1,060,222 shares of BrightStreet common stock
at an exercise price of $2.83.
On September 6, 1996, the Company sold an aggregate of the equivalent of 145,357
shares of common stock and preferred stock to a group of Accredited Investors
[as defined under Regulation D of the Securities Act of 1933, as amended
("Accredited Investors")] for an aggregate price of $100,000. This accredited
investor group consisted of certain Founders and a group of other initial
investors. These funds were utilized to fund operating and formation costs.
On September 6, 1996, the Company sold an aggregate of the equivalent of 62,500
shares of common stock and preferred stock to a group of Accredited Investors
for an aggregate price of $350,000.
On September 6, 1996, the Company sold the equivalent of 162,500 shares of
common stock and preferred stock to VDC for an aggregate purchase price of
$650,000 (see Notes 8 and 10). At the time of the sale, VDC was a strategic
investor that the Company was considering for a business combination. All
shares held by VDC were sold to Rozel, a related party, on December 18, 1997
(see Note 8).
On September 12, 1996, the LLC entered into an agreement with Muzak Limited
Partnership ("Muzak") (the "Muzak Agreement") whereby Muzak was appointed as the
exclusive sales agent for a three-year period. In connection with the Muzak
Agreement and the Initial Merger (see Note 1), Muzak, in its capacity as a
member of the LLC, received the equivalent of 118,500 shares of common stock and
preferred stock in the Initial Merger, and options to purchase shares of
BrightStreet's common stock. On April 3, 1997, the Company and Muzak mutually
agreed to terminate the Muzak Agreement. Upon the termination of the Muzak
Agreement, Muzak retained the equivalent of 118,500 shares of common stock and
preferred stock; however, all options granted to Muzak automatically expired and
were canceled.
On September 18, 1996, BrightStreet entered into an agreement with AML, a
related party, pursuant to which AML agreed to provide investment banking
services to the Company for the six-month period commencing September 18, 1996
in exchange for the equivalent of 87,500 shares of common stock and preferred
stock valued at $1,225,000. Such shares were issuable to AML in six equal
installments over the term of the agreement which commenced on October 17, 1996
and ended on March 17, 1997. During 1996, the Company recorded consulting
expense of approximately $671,000 in a noncash transaction representing the cost
of the equivalent of 43,750 shares issued to AML as of December 31, 1996.
During 1997, the remaining equivalent of 43,750 shares of common stock and
preferred stock were issued, resulting in consulting expense of approximately
$554,000 in 1997.
In connection with the Initial Merger, the members of the LLC exchanged all of
their issued and outstanding membership interests, representing cumulative
capital contributions of $500,000, plus the termination and waiver of all
related party agreements, pre-existing rights, claims and causes of action
(except for some predetermined surviving claims) for the equivalent of 768,500
shares of common stock and preferred stock of the Company. The Initial Merger
was a reverse acquisition, whereby the legal acquirer,
-F24-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 9 - CAPITAL STOCK ACTIVITY (Continued)
the LLC, was the accounting acquirer in the transaction. The equivalent of
150,000 of these shares were issuable pending verification of certain
representations and warranties made by two former executives of the LLC, who are
also significant shareholders of the Company ("Co-Founders"), which was
accomplished in July 1997.
On September 19, 1996, after the Initial Merger and subsequent to the first
three private offerings, the Company sold an aggregate of the equivalent of
112,500 shares of common stock and preferred stock to a group of unrelated
Accredited Investors for an aggregate amount of $1,575,000 ($14.00 per common
share).
During the first quarter of 1997, the Company sold an aggregate of the
equivalent of 48,125 shares of common stock and preferred stock to a group of
Accredited Investors for an aggregate purchase price of $385,000 (the equivalent
of $8.00 per common share) less approximately $18,852 in commissions paid.
On May 31, 1997, the Company sold an aggregate of the equivalent of 25,625
shares of common stock and preferred stock to a group of Accredited Investors
for an aggregate purchase price of $205,000 ($8.00 per common share). Such
shares are subject to a Lockup Agreement until May 31, 1999. Commissions of
$4,500 were paid on this offering.
During 1997, the Company issued the equivalent of 25,000 shares of common stock
and preferred stock to VDC and the equivalent of 7,500 shares to a private
investor in connection with the requirements of each of their respective loan
agreements (see Note 8).
In accordance with the terms of the Bridge Offerings, the Company issued the
equivalent of 100,625 shares of common stock and preferred stock and the
equivalent of 402,500 warrants to purchase BrightStreet common stock to a group
of Accredited Investors [see Note 8(h)]. The warrants have an exercise price
equal to the lower of $4.00 per share or the IPO price per share. The warrants
are exercisable for a period of five years commencing on the date the common
stock issued in connection with the Bridge Offerings is first registered with
the SEC.
On November 14, 1997, in a noncash transaction, BrightStreet and VDC agreed to
convert the outstanding Bridge Financing principal and accrued interest due VDC
amounting to $2,578,301 into the equivalent of 805,719 shares of the Company's
common stock and preferred stock (see Note 8).
On December 15, 1997, in a noncash transaction, the Company issued the
equivalent of 47,550 shares of common stock and preferred stock to AML as
consideration to AML for the issuance of unsecured advances to the Company (see
Note 8).
On December 18, 1997, Rozel acquired the equivalent of all 993,219 shares of the
Company's common stock and preferred stock which had been owned by VDC (see Note
8).
On April 13, 1998, the Company issued the equivalent of 688 shares of common
stock and preferred stock as compensation for interest to the lender of a debt
obligation.
In April of 1998, the Company issued the equivalent of 7,500 shares of common
stock and preferred stock to PI for consulting services performed in 1997 (see
Note 7).
On June 1, 1998, Rozel converted the equivalent of 80,000 shares of
BrightStreet's Series A preferred stock into the equivalent of 250,000 shares of
the Company's common stock (see Preferred Stock below).
---------------
On July 28, 1998, the Company issued the equivalent of 37,500 shares of its
common stock and preferred stock to Rozel pursuant to the terms of its Series A
preferred stock agreement (see Preferred Stock below).
---------------
In September 1998, in connection with the recapitalization (see Notes 1 and 2),
BrightStreet reflected an additional 1,000,000 shares of common stock which
represent those Holdings shares outstanding prior to the recapitalization.
-F25-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 9 - CAPITAL STOCK ACTIVITY (Continued)
In September 1998, Holdings sold an aggregate of 2,950,000 shares of common
stock for an aggregate purchase price of $590,000 ($.20 per share) less
approximately $47,200 in commissions paid to a group of Accredited Investors.
Such shares are subject to a Lockup Agreement for one year from the first
anniversary of the proposed Merger unless prior written consent of the
Underwriter is obtained.
On November 15, 1998, in accordance with a share exchange agreement between
BrightStreet and Holdings, Rozel exchanged all of its BrightStreet Series A
preferred shares for 1,000,000 shares of Holdings common stock and 500,000
shares of Holdings Convertible Preferred Stock.
In accordance with the terms of the Amended IQ Agreement, in 1998 the Company
issued the equivalent of 90,000 shares of common stock and warrants to purchase
360,000 shares of BrightStreet common stock to IQ (see Note 7).
Costs of issuance relating to the above transactions amounted to $189,090 in
1996, $38,167 in 1997 and $60,570 in 1998. AML, a related party, received
$31,150 and $23,352 of these costs in 1996 and 1997, respectively.
Options and Warrants
- --------------------
As more fully described in Notes 1 and 2, the combination of BrightStreet and
Holdings was treated as a recapitalization of BrightStreet. A summary of stock
warrants as of December 31, 1996, 1997 and 1998 and June 30, 1999 (unaudited) is
as follows:
<TABLE>
<CAPTION>
Grant Date Exercise Price Expiration
Warrants Granted and Outstanding Shares Date Exercisable per Share Date
- ---------------------------------- --------- ----------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
BrightStreet:
Balance at December 31, 1996 500,000
Granted 402,500 10/97-12/97 IPO Date $ 4.00 Five Years
--------- from IPO
Balance at December 31, 1997 902,500
---------
Granted 120,000 12/1/98 12/1/98 $ 1.50 11/30/2000
Granted 120,000 12/1/98 12/1/98 $ 1.80 11/30/2000
Granted 120,000 12/1/98 12/1/98 $ 2.16 11/30/2000
---------
Balances at December 31, 1998
and June 30, 1999 (Unaudited) 1,262,500
----------
Cumulative Antidilutive effect
[see Note 9] 560,222
---------
Balance at June 30, 1999
(Unaudited) 1,822,722
=========
Holdings:
Granted [see Note 11] 90,000 3/1/99 3/1/99 $ 2.50 2/28/2002
Granted [see Note 11] 90,000 3/1/99 3/1/99 $ 5.00 2/28/2002
Granted [see Note 12] 480,066 5/99-6/99 5/99-6/99 $ 6.00 5/2002-6/2002
---------
Balance at June 30, 1999
(Unaudited) 660,066
=========
</TABLE>
-F26-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 9 - CAPITAL STOCK ACTIVITY (Continued)
A summary of BrightStreet's Stock Option Plan as of December 31 is as follows:
<TABLE>
<CAPTION>
1997 1998
--------------------------- -----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
----------- -------------- ----------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 515,968 $ 3.25 1,674,000 $ 4.02
Granted 1,614,000 4.15 2,354,000 2.22
Canceled (455,968) 3.59 (901,750) 4.53
---------- ----------
Outstanding at end of year 1,674,000 $ 4.02 3,126,250 $ 2.51
========== ==========
Options exercisable at end of year 407,500 1,314,917
========== =========
Shares available for grant 826,000 873,750
========== ==========
Weighted average fair value of options
granted during the year as determined
by an independent valuation company $ 2.10 $ 1.61
========== ==========
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ ---------------------
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Outstanding Contractual Exercise Outstanding Exercise
Options Life Price Options Price
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
From $0.20 to $0.80 598,500 4.44 $ 0.51 428,500 $ 0.64
From $1.20 to $2.50 1,655,000 9.72 1.74 551,667 1.74
From $4.00 to $5.00 528,750 4.13 4.64 334,750 4.45
From $6.00 to $7.00 344,000 7.21 6.46 - -
----------- ----------- ----------- ------------ ------------
From $0.20 to $7.00 3,126,250 7.49 $ 2.51 1,314,917 $ 2.07
=========== =========== =========== ============ ============
</TABLE>
A summary of stock options as of June 30, 1999 (unaudited) is as follows:
Outstanding Exercisable
----------- -----------
BrightStreet:
From $ .20 to $ .80 598,500 428,500
From $1.20 to $2.50 2,138,000 573,302
From $4.00 to $5.00 528,750 334,750
From $6.00 to $7.00 344,000 -
---------- ----------
3,609,250 1,336,552
========== ===========
Holdings:
$1.00 1,200,000 120,000
========== ===========
-F27-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 9 - CAPITAL STOCK ACTIVITY (Continued)
Under BrightStreet's 1996 Stock Option Plan (the "Plan"), stock options to
purchase shares of BrightStreet's common stock may be granted to officers,
directors, employees, consultants and independent contractors. Accordingly,
BrightStreet, as of December 31, 1998, had reserved a total of 4,000,000 shares
of BrightStreet's common stock for issuance upon the exercise of options granted
pursuant to the Plan. Options granted under the Plan generally expire five
years following the date of vesting and are subject to limitations on transfer.
Option grants under the Plan are subject to various vesting provisions. The
exercise price of options granted under the Plan are determined by the Board of
Directors. The Board may amend, suspend or terminate the Plan at any time,
subject to restrictions imposed by applicable law.
On September 19, 1996, options to acquire 350,000 shares of BrightStreet common
stock were granted to the former CEO in connection with his employment agreement
in effect at that time. In December 1997, 290,000 of these options were
canceled and reissued with new exercise prices. On September 19, 1997, options
to acquire an additional 550,000 shares of BrightStreet common stock were
granted to the former CEO and 152,000 options were granted to the former CTO in
connection with their revised employment agreements. In addition to the options
granted to the former CEO and former CTO in 1997, the Company granted
compensatory options to acquire 622,000 shares of BrightStreet common stock to
employees and other directors of BrightStreet, including the Co-Founders (see
Note 10).
In January 1998, BrightStreet granted additional options to acquire 294,000
shares of BrightStreet common stock to certain directors, officers, employees
and consultants. In February 1998, BrightStreet entered into an agreement to
cancel options to acquire 90,000 shares of BrightStreet common stock originally
granted to the Co-Founders and granted additional options to acquire 150,000
shares of BrightStreet common stock with an exercise price equivalent to the
price per share ultimately realized in BrightStreet's contemplated IPO (see Note
10).
Of the outstanding options as of December 31, 1997, 1998 and June 30, 1999 that
had been granted by BrightStreet to acquire 1,674,000, 3,126,250 and 3,609,250
shares of common stock, respectively, options to acquire 407,500, 1,314,917 and
1,336,552 shares of common stock, respectively, were exercisable. Certain
options that carry exercise prices that were less than the fair value of the
common stock at the date of grant resulted in compensation and consulting
expense of $1,434,400 and $1,582,457 in the years ended December 31, 1997 and
1998, and $257,037 and $823,484 for the six months ended June 30, 1998 and 1999,
respectively.
Preferred Stock
- ---------------
BrightStreet authorized 1,000,000 shares of preferred stock with a par value of
$.001 per share. On December 15, 1997, the Company entered into a preferred
stock purchase agreement with Rozel (the "Preferred Stock Agreement"). Pursuant
to the terms of the Preferred Stock Agreement, the Company's Board of Directors
designated 300,000 shares of Preferred Stock as Series A Convertible Preferred
Stock at a $10.00 stated value with no voting or registration rights ("Series A
Shares"). The Series A Shares bear no dividends, and the preferred shareholders
receive the stated value of their shares as a priority over common stock
shareholders in the event of a liquidation of the Company. Each Series A Share
was convertible into the equivalent of 3.125 shares of the Company's common
stock at the option of the Company or Rozel. These conversion rights
provided the Series A shareholders with a beneficial conversion feature upon
issuance, valued at $52.50 per Series A Share, or the equivalent of $16.80 per
each converted common share, based upon the ascribed value of the equivalent of
$20.00 per share of common stock. This beneficial conversion feature resulted
in a preferred dividend upon the issuance of Series A Shares in accordance with
EITF D-60.
The Preferred Stock Agreement permitted the Company to request that Rozel
periodically purchase up to an aggregate of the equivalent of 300,000 of Series
A shares at an aggregate purchase price of $3,000,000. In accordance with the
Preferred Stock Agreement, Rozel purchased 22,500 shares of Series A Shares for
$225,000 and 276,200 shares for $2,762,000 in 1997 and 1998, respectively,
exclusive of amounts repurchased. In September 1998, BrightStreet repurchased
40,000 shares of Series A Shares from Rozel for $400,000. Pursuant to the terms
of the Preferred Stock Agreement, the Company issued the equivalent of 37,500
shares of common stock to Rozel in exchange for the satisfaction of Rozel's
funding obligations. Pursuant to the requirements of EITF D-60, the issuance of
the Series A Shares and the addition of the equivalent of 37,500 shares of
common stock by the Company has been recorded as preferred stock dividends of
$1,181,250 and $15,250,500 in 1997 and 1998, respectively. On June 1, 1998,
Rozel converted 80,000 Series A Shares into the equivalent of 250,000 shares of
the Company's common stock. On November 15, 1998, in accordance with a Share
Exchange agreement between BrightStreet and Holdings, Rozel exchanged the
remaining balance of 178,700 BrightStreet Series A Shares for an additional
1,000,000 shares of Holdings common stock and 500,000 shares of Holdings
Convertible Preferred Stock (see Note 12).
-F28-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
(Ended June 30, 1998 and 1999 is Unaudited)
NOTE 9 - CAPITAL STOCK ACTIVITY (Continued)
As of December 31, 1998, Holdings had 5,000,000 shares of preferred stock
authorized, having a par value of $.001 per share. Dividends, voting rights and
other terms, rights and preferences of the preferred stock may be designated by
Holdings' Board of Directors from time to time. As of December 31, 1998,
Holdings had 2,519,852 issued and outstanding shares of Convertible Preferred
Stock (see Note 12).
Stock-Based Compensation
- ------------------------
During 1997, the Company adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
(" SFAS 123".) As permitted under SFAS 123, the Company has continued to follow
Accounting Principles Board No. 25 "Accounting for Stock-Based Compensation"
("APB 25") in accounting for its stock-based compensation. SFAS 123 recognizes
compensation expense using the fair market value of stock options, warrants and
common stock issuances as of the grant date. APB 25 recognizes the intrinsic
value of the instruments issued by the Company as of the measurement date, which
is generally the date at which both the number of shares that an individual is
entitled to receive and the purchase price are known. Had compensation expense
for 1996, 1997 and 1998 been determined under the fair value provisions of SFAS
123, the Company's net loss and net loss per share would have differed as
follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1997 December 31, 1998
------------------------ ------------------------ ------------------------
Pro Forma
Net Loss Per Share Net Loss Per Share Net Loss Per Share
----------- ----------------- --------------- ------------ ---------------- ------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
As Reported
Under APB 25 $(3,314,094) $ (3.55) $ (11,235,237) $ (6.88) $ (11,400,109) $ (5.66)
============ ================= =============== ============ ================ ============
Pro Forma Under
SFAS 123 $(3,149,487) $ (3.37) $ (12,854,814) $ (7.78) $ (12,026,038) $ (5.79)
============ ================= =============== ============ ================ ============
</TABLE>
The fair market value of the options and warrants used in the above computation
were determined by an independent valuation company, using a simulation model
which simulates many potential outcomes for the value of BrightStreet's stock
over the period during which the options or warrants may be exercised. Because
of the expected high volatility of the value of BrightStreet's common stock and
the long-term nature of some of the options and warrants, standard models were
not deemed appropriate by the independent valuation company. The independent
valuation company determined the potential stock price outcomes using a log-
normal distribution with expected returns of between 23% (after the Company's
stock price had reached an equivalent of $20.00 per share) and 50% (prior to
that), a standard deviation of 26% to 100%. The independent valuation company
determined that there was also a 50% likelihood that the value of the common
stock would drop to zero in any one year before reaching an equivalent of $20.00
per share level.
Loss Per Share
- --------------
The Company adopted SFAS 128 in 1997, and has followed the guidelines of SFAS
128 in the presentation of loss per share for all periods presented in the
financial statements. Options and warrants to purchase common stock and
convertible preferred stock are not included in the computation of diluted loss
per share because the effect of these instruments would be antidilutive for all
periods presented. The common shares potentially issuable arising from these
instruments which were outstanding during the periods presented in the financial
statements are as follows:
-F29-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 10 - RELATED PARTIES
Exercise/ December 31,
Conversion ------------------------
Price 1996 1997 1998
----------- -------- ------- -------
Options $0.63-$5.00 18,753 32,205 8,569
Convertible preferred stock $.080 - 17,578 -
Warrants $4.00 - 2,927 -
Convertible debt $2.00 - - 87,656
-------- ------- -------
Total common shares
potentially issuable 18,753 52,710 96,225
======== ======= =======
Related party transactions not disclosed elsewhere in the financial statements
and notes are as follows:
AML was an employer of a former Director of BrightStreet until September 1997.
In 1998, the President of AML and APP Investments, Inc. became a Director of
BrightStreet and in January 1999 became a Director and President of Holdings.
On September 18, 1996, BrightStreet entered into three-year consulting
agreements with the Co-Founders providing for compensation in the aggregate of
$168,000 annually. The aggregate amount paid on these agreements was $183,225
in 1997. In December 1997, the consulting agreements were canceled and replaced
with employment agreements providing each of the Co-Founders with an annual
salary of $85,000 plus commissions for the first year of the contract, and with
compensation solely on a commission basis thereafter. The employment agreements
also granted the Co-Founders options to acquire 120,000 shares of common stock.
In February 1998, BrightStreet and the Co-Founders agreed to terminate the Co-
Founders' employment agreements. These terminations, which became effective upon
the execution of the IQ Agreement, provide that the Co-Founders receive
compensation of $40,000 which was paid in 1998. The Co-Founders continued to
receive their annual salaries through September 30, 1998 and their options to
acquire shares of BrightStreet common stock have been renegotiated (see Note 9).
During 1998, BrightStreet borrowed $1,528,000 from AML, of which $745,000 was
repaid as of December 31, 1998 (see Note 8).
On December 2, 1998, Holdings borrowed $200,000 from Rozel, in the form of a
non-interest bearing loan (see Note 8).
NOTE 11 - SUBSEQUENT EVENTS
In 1999, the Board of Directors of Holdings agreed to pay AML $8,333 per month
as compensation for the services being provided by the president of Holdings
(see Note 12).
On January 7, 1999, Holdings offered the holders of the Notes in the Bridge
Offerings an exchange of their existing Notes for convertible promissory notes
("Exchange Notes") through a private offering. The principal balance for each of
the Exchange Notes was equivalent to the principal balances on the Notes from
the Bridge Offerings, plus the accrued interest on the Notes through December
31, 1998. The holders of the Exchange Notes may convert all or any part of the
outstanding principal plus the accrued interest thereon into shares of Holdings
common stock at a conversion rate of $2.00 per share at any time. Holdings may
convert the principal and accrued interest on the Exchange Notes into shares of
Holdings common stock at a rate of $2.00 per share, upon Holdings common stock
achieving certain market price targets. The Exchange Notes accrue simple
interest at 12% per annum, and have a maturity date of the earlier of (i) the
date on which either the holder or Holdings exercise their respective conversion
rights under the Exchange Notes; or (ii) the one-year anniversary of the closing
of the Merger. The terms of the Exchange Notes also provide that Holdings issue
to the holders of the Exchange Notes warrants to purchase one-half of one share
of Holdings' common stock for each share purchased through conversion ("Exchange
Warrants"). The Exchange Warrants will be exercisable over a period of three
years from the date of issuance, and will carry an exercise price of $6.00 per
share. The shares of stock purchased through the conversion of the Exchange
Notes or through the Exchange Warrants are subject to a Lockup Agreement for a
one-year
-F30-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 11 - SUBSEQUENT EVENTS (Continued)
period subsequent to the effective date of the Merger, unless prior written
agreement from AML is obtained. As of April 30, 1999, $4,270,125 of Exchange
Notes had been issued by Holdings, which replaced $3,800,000 of principal and
$470,125 of accrued interest on the Notes from the Bridge Offering. The
remaining holders of the Notes will not be participating in the offering of the
Exchange Notes. Therefore, BrightStreet anticipates making payment on the
remaining outstanding principal balances and accrued interest thereon.
BrightStreet continues to be required to pay default interest on the outstanding
balance of the Notes (see Note 12).
The conversion rights under the Exchange Notes provide the holders a beneficial
conversion feature upon issuance in accordance with EITF D-60. A discount
related to the beneficial conversion feature was ascribed to the Exchange Notes
upon issuance, and is being amortized as interest expense through November 30,
1999, the date the Merger is expected to become effective. The discount related
to the beneficial conversion feature for the Exchange Notes issued during the
the six months ended June 30, 1999 amounted to $2,284,517, based upon a fair
market value for Holdings' common stock of $2.82 per share, as determined by an
independent valuation company. Amortization of the discount amounted to
$1,402,434 for the six months ended June 30, 1999 and is reflected as interest
expense in the accompanying statements of operations. At June 30, 1999 the
unexpired portion of the discount amounted to $882,083 and has been reflected as
a reduction in notes payable in the accompanying balance sheet. The effective
interest rate on the Exchange Notes approximated 204% during the six-month
period ended June 30, 1999. Interest incurred on the Exchange Notes, exclusive
of amortization on the debt discount, amounted to $235,630 for the six months
ended June 30, 1999.
On March 1, 1999, Holdings issued a convertible promissory note in the principal
amount of $900,000, and paid $50,334 in accrued interest in full payment of the
Founders' Note (see Note 8). The convertible promissory note accrues interest
at the simple rate of 10% per annum and matures on the earlier of (i) the date
on which the lender elects to exercise its conversion rights; (ii) the date on
which Holdings elects to exercise its conversion rights; (iii) the one-year
anniversary of the consummation of the Merger; or (iv) if the Merger has not
been consummated, March 1, 2000. An affiliate of a shareholder of Holdings
guaranteed the convertible promissory note, including accrued interest.
Holdings is required to pay all unpaid interest accrued on the convertible
promissory note on a quarterly basis commencing on July 1, 1999. At the
noteholder's option, such payments may be in cash or in shares of Holdings'
common stock at a price equal to 80% of the bid price of Holdings' common stock
on the interest payment due date. The noteholder may convert all or any part of
the outstanding principal amount of the convertible promissory note, plus all
accrued interest thereon through the date of conversion, into shares of
Holdings' common stock at a conversion rate of $2.50 per share. Holdings may
require the holder to convert the entire principal amount of the convertible
promissory note, plus all accrued interest thereon, upon Holdings' common stock
attaining certain price and volume requirements and upon the registration for
resale of all shares of Holdings' common stock issuable to the holder upon such
mandatory conversion of the convertible promissory note. The holder is also
entitled to piggyback registration rights on any registration statement filed by
Holdings subsequent to the Merger, with respect to all shares issuable upon its
conversion of the convertible promissory note. As additional consideration for
the agreement to cancel the Founders' Note and accept a convertible promissory
note in full satisfaction of Holdings' obligations pursuant to the Founders'
Note, Holdings issued a warrant to purchase 90,000 shares of Holdings' common
stock at an exercise price of $2.50 per share and a warrant to purchase 90,000
shares of Holdings' common stock at an exercise price of $5.00 per share
("Founders' Warrant"). Each of these warrants may be exercised at any time
prior to February 28, 2002. There are no registration rights granted with
respect to any shares of Holdings' common stock issued upon the exercise of
either of these warrants. An affiliate of the holder of the convertible
promissory note currently owns 100,000 shares of Holdings' common stock and
100,000 shares of Holdings' preferred stock. The value ascribed to the
Founders' Warrants, as determined by an independent valuation company,
aggregated $175,500 and is being expensed as financing fee expense through
November 30, 1999, the date the Merger is expected to become effective and
conversion of the promissory note is expected to take place. Financing fee
expense related to the Founders' Warrants for the six months ended June 30, 1999
amounted to $87,750 and the unexpired portion of the financing fee at June 30,
1999 was $87,750.
The conversion rights under the convertible promissory note provides the holder
with a beneficial conversion feature in accordance with EITF D-60. A discount
related to the beneficial conversion feature was ascribed to the convertible
promissory note upon issuance, and is being amortized as interest expense
through November 30, 1999, the date the Merger is expected to become effective
and conversion of the promissory note is expected to take place. The discount
related to the beneficial conversion feature for the convertible promissory note
amounted to $115,200, based upon a fair market value for Holdings' common stock
of $2.82 per share as determined by an independent valuation company.
Amortization of the discount amounted to $49,162 for the six months ended June
30, 1999 and has been reflected as interest expense in the accompanying
statements of operations. At June 30, 1999, the unexpired portion of the
discount amounted to $66,038 and has been reflected on the balance sheet as a
reduction in notes payable. The effective interest rate on the convertible
promissory note approximated 30% during the six month period ended June 30,
1999.
-F31-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 11 - SUBSEQUENT EVENTS (Continued)
In the first quarter of 1999, Holdings commenced a second private offering of
Debentures (see Note 8). These Debentures contain the same terms as the above
Debentures with the exception of having a $2.50 conversion price rather than a
$2.00 conversion price. Holdings sold $6,215,000 of these Debentures through
June 30, 1999.
In March and April 1999, certain holders of the Debentures from both offerings
converted the principal amount of $2,600,000 and accrued interest thereon of
$27,165 into 1,060,888 shares of Holdings' common stock (see Note 8).
In March and April 1999, BrightStreet granted options to acquire an aggregate of
385,000 shares of common stock to certain BrightStreet employees. Of the total
options to acquire common stock granted, 245,000 vest evenly over a four-year
period beginning on each employee's date of hire. The remaining 140,000 options
are to vest upon BrightStreet attaining certain performance objectives.
In the first quarter of 1999, Holdings engaged Sands Brothers & Co., Ltd.
("Sands Brothers") for a one-year period as a financial advisor to Holdings,
with respect to financial advisory, corporate finance and merger and acquisition
matters. In consideration of such financial advisory services, Holdings paid
Sands Brothers a non-refundable fee of $10,000. Holdings also granted Sands
Brothers the right to act as exclusive selling agent for Holdings in a private
placement of equity securities of Holdings. In connection with the private
placement, Holdings paid Sands Brothers a non-refundable retainer of $20,000.
Holdings subsequently terminated the agreement and discontinued using the
services of Sands Brothers.
NOTE 12 - EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITOR'S
REPORT
In June and September 1999, holders of Debentures converted the aggregate
principal amount of $240,000 and accrued interest thereon of $10,443 into
114,779 shares of Holdings' common stock (see Note 8).
In the period May through September 1999, holders of Exchange Notes (see Note
11) converted principal of $2,231,156 and accrued interest of $113,756 into
1,172,456 shares of Holdings common stock and 586,232 Exchange Warrants.
In June 1999, subsequent to BrightStreet vacating its leased facility in
Fairfield, Connecticut (see Note 6), BrightStreet became delinquent on its
monthly rental obligations under its operating lease. Management has not paid
the monthly rent required by this lease since May 1999 and is currently
negotiating with the property's landlord for settlement of BrightStreet's
remaining obligation under the lease agreement.
In July 1999, Holdings issued 6,138 shares of Holdings common stock at the
request of the Founders' Note noteholders as payment for $30,082 of accrued
interest which was due on July 1, 1999 (see Note 8).
On July 20, 1999, BrightStreet executed a new lease agreement for a facility in
Mountain View, California. The lease agreement commenced on August 27, 1999 and
ends August 26, 2000. Monthly rent under this lease agreement amounts to
$6,472, and the agreement requires a security deposit of one month rent prior to
occupancy.
In May 1999, BrightStreet entered into a termination agreement with IQ ("IQ
Termination Agreement") that provided the terms in which the IQ Agreement (see
Note 7) was to terminate and detailed the conditions related to BrightStreet's
intended purchase of certain assets and related contracts from IQ. The
Termination Agreement provided that the IQ Agreement terminate on June 1, 1999,
IQ is to release its security interests in BrightStreet's Software, and
BrightStreet is to release IQ's obligation to make payments under the IQ
Agreement. The Termination Agreement also provided that BrightStreet is to
purchase IQ's rights under certain contracts for consideration to be paid to IQ
of $100,000, and commissions of 10% of future earnings, as defined under the
contracts. One-half of the consideration is to be paid to IQ by BrightStreet
upon execution of the Termination Agreement with the remaining balance to be
paid upon IQ's assignment of their rights under the contracts to BrightStreet.
The Termination Agreement provides that BrightStreet retain the right to receive
a fee of $62,500 from IQ under the terms of the Amended IQ Agreement; however,
the payment of this fee is to be applied against future commissions to be earned
by IQ from the contracts purchased by BrightStreet. The termination agreement
also eliminated IQ's right to retain one seat on BrightStreet's Board of
Directors and the director selected by IQ consequently resigned from the Board
of Directors.
-F32-
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of June 30, 1999 and for the Six-Month Periods
Ended June 30, 1998 and 1999 is Unaudited)
NOTE 12 - EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITOR'S
REPORT (Cont.)
In May, June and July 1999, BrightStreet granted options to acquire an aggregate
of 108,000 shares of common stock to certain BrightStreet employees. The
options to acquire common stock vest ratably over a four-year period beginning
on each employee's date of hire.
In June 1999, BrightStreet failed to make the $50,000 quarterly settlement
payment as required by the Amended Settlement Agreement with DMR (see Note 7).
Under the terms of the Amended Settlement Agreement, in the event the Company is
in default, the previously outstanding balance due to DMR prior to the execution
of the Settlement Agreement will become fully due and payable and all other
security and ownership interests held by DMR will remain in effect. To date, DMR
has not notified management that a breach of the Amended Settlement Agreement
has taken place.
Effective June 1, 1999, the President of Holdings entered into an employment
agreement with Holdings. The employment agreement provides that the President
will receive a specified annual salary, along with options to acquire 1,200,000
shares of the common stock of Holdings at an exercise price of $1.00 per share,
of which 120,000 options vest immediately and the remaining options vest equally
over a three-year period. The options may be exercised over a five year period
commencing on the date the options vest. These options have an exercise price
that was less than the fair market value of the common stock at the date of
grant, which resulted in compensation expense of $31,000 for the six months
ended June 30, 1999. As of the effective date of the President's employment
agreement, Holdings discontinued payment of the monthly AML consulting fee (see
Note 11).
Pursuant to an offering by Holdings, in August and September 1999, all of the
outstanding Series A Preferred Stock were exchanged at a rate of one share of
Series A Preferred Stock for the equivalent of .6 of a share of Holdings common
stock (the "Preferred Exchange").
As part of a step transaction to obtain an ownership interest in three unrelated
Internet companies, Holdings entered into a letter of intent on May 28, 1999
with Strategicus Partners Inc. ("Strategicus") and a principal of Strategicus
("Principal"), whereby Holdings intended to acquire all of the common stock of
Strategicus in exchange for shares of common and Convertible Preferred Stock
("Strategicus Merger"). Strategicus was an Oregon corporation that was formed in
August 1998, was in the process of developing Internet operations of its own,
and which had the opportunity to consummate transactions in two other Internet
companies which Holdings desired to obtain. Under the terms of the agreement and
as part of a step transaction, Holdings entered into a loan agreement with
Strategicus. The loan permitted Strategicus to borrow a maximum amount of
$2,000,000 on a revolving credit basis, had a maturity date of July 30, 1999,
and earned simple interest at the rate of 10% per annum. The funds loaned to
Strategicus under the loan agreement amounted to $1,555,000, of which $310,000
was then loaned by Strategicus to its Principal. The loan to the Principal bears
simple interest at 9%, and is to be forgiven subject to the Principal remaining
an employee of Holdings through May 2000. Of the remaining amounts loaned to
Strategicus, $1,000,000 was used to acquire a 12% interest in AsiaCD, Inc.,
$100,000 was used to acquire an initial 14% interest in College411.com, Inc.,
and the balance utilized to pay professional fees related to the Strategicus
Merger and fund certain operating expenses. In connection with the acquisitions,
Strategicus also received warrants to acquire additional shares of AsiaCD, Inc.
and College411.com, Inc. common stock for aggregate purchase prices of $300,000
and $150,000, respectively. In September 1999 the Company exercised the
College411.com, Inc. warrant, and as a result, Strategicus ownership interest in
College411.com then increased to approximately 29%. Holding's also loaned
$267,000 to a Strategicus shareholder. This loan bears simple interest at a rate
of 9% and is to be forgiven ratably over a three-year period which is equivalent
to the period of the shareholder's consulting agreement with Holdings. At June
30, 1999, $630,000 of proceeds had been loaned to Strategicus, and the related
interest receivable was $4,162.
The Strategicus Merger agreement was signed on June 21, 1999, and the merger was
consummated on July 30, 1999. In connection with the Strategicus Merger, the
Principal and three other Strategicus shareholders signed employment or
consulting agreements with Holdings. The employment and consulting agreements
provide for specified compensation. In accordance with the merger agreement, as
amended, the Principal and the remaining three shareholders of Strategicus
collectively received 601,029 shares of Holdings common stock and 184,627 shares
of Convertible Preferred stock as initial consideration. In August 1999, the
shares of Convertible Preferred Stock were converted into 110,776 shares of
Holdings common stock in accordance with the Preferred Exchange. Additionally,
the Principal received 1,641,310 shares of Holdings' common stock and 504,187
shares of Convertible Preferred Stock, and the three remaining shareholders each
received 1,760,763 shares of Holdings common stock and 540,882 shares of
Convertible Preferred Stock as additional consideration. The additional
consideration was to vest over the periods of their
-F33-
<PAGE>
NOTE 12 - EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITOR'S
REPORT (Cont.)
respective consulting and employment contracts. The shares of Convertible
Preferred Stock received as additional consideration were exchanged in August
1999 for shares of common stock in accordance with the Preferred Exchange. The
Principal retained the shares of common stock received in the Preferred
Exchange, however, the three remaining Strategicus shareholders subsequently
agreed to exchange all of their unvested shares of common stock received as
additional consideration for options to acquire an identical number of shares of
common stock in Holdings at an exercise price of $1.00 per share. These
agreements are subject to the approval of the shareholders of Holdings. The
additional consideration vests over a 48-month period.
In September 1999, Holdings entered into a three-year employment agreement with
its chief operating officer ("COO"). In accordance with the employment
agreement, the COO is to receive a salary at a specified amount and options to
purchase 900,000 shares of Holdings common stock at an exercise price of $1.00
per share. The options may be exercised over a five year period. In order to
facilitate Holdings granting the COO these options, the President and three
former shareholders of Strategicus each agreed to the cancellation of their
options to purchase 180,000 shares of Holdings common. In addition, the
Principal agreed to the cancellation of 180,000 shares of his Holdings common
stock..
In September 1999, Holdings entered into a convertible preferred stock purchase
agreement with certain investors ("Preferred Agreement") to raise a maximum of
$5,000,000. Under the Preferred Agreement, investors purchased an aggregate of
4,824 shares of Holdings Series B convertible preferred stock ("Series B
Shares"), with a liquidation preference of $1,000 per share, and related
warrants (the "Series B Warrants"). The Series B Shares are convertible into
Holdings common stock at a conversion price equal to the lower of the average
closing bid price of the Holdings common stock for a five-day period prior to
the closing date, provided that the Conversion Price shall not be below $2.50
("Conversion Price"). The holders of the Series B Shares have the right, on a
one-time basis, to elect to reset the Conversion Price within one year after the
date of the registration statement that registers the shares of Holdings common
stock, underlying the Series B Shares and the Series B Warrants, is declared
effective by the U.S. Securities and Exchange Commission (the "Effective Date").
The reset Conversion Price is to be based on the average closing bid price of
the Holdings common stock for a two-day period immediately preceding the receipt
by Holdings of the holders' notice of exercise of their reset option. The
Series B Shares may not be converted by the holder until the earlier of 180 days
from the closing date and 20 days after the Effective Date and shall
automatically convert on the third anniversary of the Effective Date. However,
the automatic conversion date may be extended in certain circumstances. The
Series B Shares bear a dividend rate of 5% per annum, which may increase to 10%
per annum in the event the closing bid price of Holdings common stock falls
below $2.50 for a period of ten consecutive trading days. The dividend rate may
then be reinstated at 5% if the closing bid price of the common stock exceeds
$2.50 for a period of five consecutive trading days. The Series B warrants are
exercisable at prices equivalent to a range between 110% to 140% of the
Conversion Price for a period of five years from the closing date, however,
Holdings may terminate the Series B Warrants upon 20 days notice if the closing
bid price of the common stock exceeds 150% of the purchase price for the
preceding 20 days. The Series B Warrants are exercisable into 295,040 shares of
common stock pursuant to the terms of the Preferred Agreement. The shares of
common stock to be issued upon the conversion of the Series B Shares or upon the
exercise of the Series B Warrants have registration rights. Holdings has the
right to redeem the Series B Shares at any time for an amount equivalent to 120%
of the liquidation preference plus accrued and unpaid dividends.
In September 1999, a second lawsuit was filed (see Note 7) against the Company
claiming that the process used by the Company's products to distribute online
promotions infringes upon an existing patent. Management and the Company's
patent attorneys are reviewing the filing, but are currently unable to assess
the merits of this lawsuit, or determine the amount, if any, of damages that may
result.
In September 1999, Holdings issued 4,000 shares of Holdings common stock as
consideration for Golden Eagle releasing the Golden Eagle Lien (see Note 8).
In September 1999, the Company issued 3,750 shares of Holdings common stock to a
former employee as consideration for entering into a settlement agreement
regarding his employment with the Company.
In September 1999, the Company issued 6,250 shares of Holdings common stock to
two consultants in exchange for consulting services rendered.
-F34-
<PAGE>
NOTE 12 - EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITOR'S
REPORT (Cont.)
The Company intends to file a registration statement with the SEC to register
shares of Holdings' common stock previously issued to certain shareholders. The
Company is obligated to issue an aggregate of 20,000 shares of its common stock
to two such shareholders for failing to meet an agreed-upon deadline for the
filing.
In October 1999, Holdings agreed to issue a total of 676,374 shares of common
stock at a price of $1.00 per share in exchange for future consulting services
to two entities that are affiliated with a consultant that is to provide future
investment banking services to the Company. The services are to be provided over
a three year period, and the Company will recognize consulting fee expense,
amounting to the difference between the fair market value and the purchase
price, ratably over the three year period. These entities also invested
$1,324,000 in the private placement offering of Series B shares.
In September 1999, the Company agreed to acquire convertible preferred stock in
Asset Exchange, Inc., a development stage company intending to provide banks and
other financial institutions with an Internet-based service, which allows them
to more efficiently trade loan portfolio assets. The purchase price of the
convertible preferred stock of Asset Exchange, Inc. was $420,000. If this
preferred stock is converted, the Company would own approximately 20% of Asset
Exchange, Inc.. The Company has the right to convert the preferred stock at any
time. The conversion price is subject to adjustment in the event the capital
structure of Asset Exchange, Inc. is modified.
-F35-
<PAGE>
EXHIBIT 2.1
MERGER AGREEMENT AND PLAN OF REORGANIZATION
dated as of
JUNE 21, 1999
among
NETVALUE HOLDINGS, INC.
AND
STRATEGICUS PARTNERS INC.
AND
DOUGLAS SPINK
<PAGE>
MERGER AGREEMENT AND PLAN OF REORGANIZATION
DATED: As of June 21, 1999
AMONG: NETVALUE HOLDINGS, INC.
Two Penn Center Plaza, Suite 605
Philadelphia, PA 19102 ("NVH")
AND: STRATEGICUS PARTNERS INC.
15455 NW Greenbrier Parkway, #210
Beaverton, OR 97006 ("Strategicus")
AND: DOUGLAS SPINK, solely with respect to Section 11 hereof.
RECITALS
--------
A. The respective boards of directors of NVH and Strategicus deem it
advisable and in the best interests of NVH and Strategicus and their respective
shareholders that Strategicus merge with and into NVH (the "Merger") pursuant to
this Agreement and the applicable provisions of the laws of the States of Oregon
and Delaware.
B. The respective boards of directors of NVH and Strategicus have
approved and adopted this Merger Agreement and Plan of Reorganization
("Agreement") as a plan of reorganization within the provisions of Section
368(a) of the Internal Revenue Code of 1986, as amended.
C. At the Effective Time (as defined herein) of the Merger, each of
the outstanding shares of common stock of Strategicus shall be converted into
shares of common stock and preferred stock of NVH, subject to the terms and
conditions of this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions.
-----------
The following terms shall be defined as follows:
1.1 The term "Change of Control" shall mean the occurrence of any one
of the following events: (a) any "person" as such term is used in Section
3(a)(9) and 13(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")(other than a subsidiary or other affiliate of NVH), becomes a
"beneficial owner," as such term is used in Rule 13d-3 promulgated under the
Exchange Act, of 50% or more of any class of NVH's issued and outstanding common
or preferred stock, which interest in such stock comprises 50% or more of all
issued and outstanding voting shares; (b) the majority of NVH's board of
directors consists of individuals other than Incumbent
2
<PAGE>
Directors, which term means the members of NVH's Board of Directors on the
Effective Time of this Agreement; provided that any person becoming a director
subsequent to such date whose election or nomination for election was supported
by one- half of the directors who then comprised the Incumbent Directors shall
be considered to be an Incumbent Director; or (c) the occurrence of any event
which would be required to be reported by NVH pursuant to Items 1 or 2 of Form
8-K under the Exchange Act, which shall be determined without regard to whether
NVH is actually required file a Form 8-K in relation to such transaction or
event.
1.2 The term "Closing" or "Closing Date" means June 21, 1999, or such
later date as the parties may mutually agree upon in writing.
1.3 The term "Code" means the Internal Revenue Code of 1986, as
amended.
1.4 The term "Consulting Agreement" means the Consulting Agreement
executed by and between NVH and Stephen George and the Consulting Agreement by
and between NVH and Darr Aley.
1.5 The term "Employment Agreement" means the Employment Agreement
executed by and between NVH and Douglas Spink and the Employment Agreement by
and between NVH and Barry Uphoff.
1.6 The term "Series A Preferred Stock" means the Series A Preferred
Stock of NVH, with the rights and preferences set forth in the Certificate of
Designations, Preferences and Rights of Series A Preferred Stock.
1.7 The term "NVH Subsidiaries" means all corporations, limited
liability companies, partnerships or other business entities controlled by NVH
or in which fifty percent (50%) or more of the capital stock or equity interest
in the company is owned by NVH or its wholly owned subsidiaries.
1.8 The term "Strategicus Subsidiaries" means all corporations,
limited liability companies, partnerships or other business entities controlled
by Strategicus or in which fifty percent (50%) or more of the capital stock or
equity interest in the company is owned by Strategicus or its wholly owned
subsidiaries.
2. Merger.
------
2.1 The Merger.
----------
Subject to the terms and conditions of this Agreement, at the
Effective Time (as defined in Section 2.2), Strategicus shall be merged with and
into NVH, the separate corporate existence of Strategicus shall cease, and NVH
will be the surviving corporation (sometimes referred to herein as the
"Surviving Corporation") in the Merger. The separate corporate existence of NVH
and all of its rights, privileges, immunities and franchises and all its duties
and liabilities as a
3
<PAGE>
corporation organized under Delaware law will continue unaffected by the Merger,
and it will succeed to all of Strategicus' rights, assets, liabilities and
obligations in accordance with Delaware General Corporation Law.
2.2 Effective Time.
--------------
Subject to the provisions of this Agreement, the parties shall cause
the Merger to be consummated by filing a Certificate of Merger or other
appropriate documents with the Secretary of State of the State of Delaware in
such form as required by, and executed in accordance with, the relevant
provisions of Delaware law and by filing Articles of Merger or other appropriate
documents with the Secretary of State of the State of Oregon in such form as
required by, and executed in accordance with, the relevant provisions of Oregon
law as soon as practicable on or after the Closing Date, but in no event later
than forty-five (45) days after the Closing Date, which forty-five (45) day
period may be extended by written agreement of the parties. The Merger shall
become effective upon such filing or at such time thereafter as is provided in
the Certificate of Merger and Articles of Merger (the "Effective Time").
2.3 Closing.
-------
The Closing shall take place at a date and time to be mutually agreed
upon by the parties, which shall be no later than the second business day after
satisfaction or waiver of the conditions set forth in Section 7 at the offices
of Farleigh, Wada & Witt, P.C., 121 S.W. Morrison, Suite 600, Portland, Oregon,
unless another time, date or place is agreed to in writing by the parties.
2.4 Certificate of Incorporation and Bylaws.
---------------------------------------
The Certificate of Incorporation and Bylaws of NVH in effect at the
Effective Time shall become the certificate of incorporation and bylaws of the
Surviving Corporation until amended in accordance with applicable law.
2.5 Directors.
---------
At the Effective Time, the board of directors of the Surviving
Corporation shall be comprised of Andrew Panzo (Chairman), Douglas Spink, Barry
Uphoff, Stephen George and Darr Aley, each to hold office in accordance with the
terms of the Certificate of Incorporation and Bylaws of the Surviving
Corporation until such director's successor is duly elected or appointed and
qualified.
2.6 Officers.
--------
At the Effective Time, the officers of the Surviving Corporation will
be Andrew Panzo, Chairman of the Board; Barry Uphoff, President and Chief
Executive Officer; Douglas Spink, Chief Technology Officer; and Darr Aley,
Executive Vice President - Business Development,
4
<PAGE>
each to hold office in accordance with the terms of the Certificate of
Incorporation and Bylaws of the Surviving Corporation until such officer's
successor is duly elected or appointed and qualified.
3. Conversion of Stock.
-------------------
3.1 Conversion of Strategicus Stock.
-------------------------------
At the Effective Time, each share of common stock of Strategicus, no
par value ("Strategicus Stock"), issued and outstanding immediately prior to the
Effective Time (each "Share" and collectively, the "Shares") shall, by virtue of
the Merger and without any action on the part of Strategicus or the holder be
converted into, and become exchangeable for 2,311,460 validly issued, fully paid
and nonassessable shares of Series A Preferred Stock, par value $ .001 per
share, of the Surviving Corporation and 7,524,628 validly issued, fully paid and
nonassessable shares of common stock, par value $ .001 per share, of the
Surviving Corporation (the common stock and Series A Preferred Stock of the
Surviving Corporation may be collectively referred to as the "NVH Stock"),
subject to the vesting provisions set forth Section 3.2 hereof (collectively,
the "Merger Consideration"). Each holder of Strategicus Stock (collectively, the
"Strategicus Stockholders" and each a "Strategicus Stockholder") shall be
required to surrender his share certificate or certificates to NVH, or its
transfer agent, on the Effective Time or as soon as practicable thereafter. NVH
shall, in exchange for the Strategicus Stock owned by each of Douglas Spink and
Barry Uphoff, issue and deliver to Douglas Spink and Barry Uphoff the entire
Merger Consideration to which each is entitled at the Effective Time as set
forth herein, including NVH Shares which will vest over the next twenty-four
months pursuant to the vesting schedule set forth in Section 3.2. NVH shall, in
exchange for the Strategicus Stock owned by each of Darr Aley and Stephen
George, issue and deliver to each of Darr Aley and Stephen George the portion of
the Merger Consideration as such person's interest in NVH Shares vest pursuant
to the vesting schedule set forth in Section 3.2. NVH will deposit with a
mutually satisfactory escrow agent thirty (30) stock certificates for equal
amounts of NVH Stock representing an aggregate of total shares for each of Darr
Aley and Stephen George, and the escrow agent shall deliver a stock certificate
to each of Darr Aley and Stephen George within ten (10) days after their
ownership interest in the shares represented by such certificate has vested
pursuant to the vesting schedule set forth in Section 3.2. Each stock
certificate for any shares of NVH Stock which have not vested pursuant to the
vesting schedule in Section 3.2 shall contain appropriate restrictive legends
regarding the vesting of such NVH Stock and NVH shall instruct its transfer
agent to place a stop order on such certificate in accordance with the vesting
schedule set forth below.
3.2 Vesting Schedule.
----------------
Notwithstanding the delivery of the NVH Stock to the Strategicus
Stockholders, their ownership of the NVH Stock is subject to the following
vesting schedule:
Strategicus Stockholders Vesting Schedule
------------------------ ----------------
5
<PAGE>
Douglas Spink 30% of the NVH Stock shall vest at the
Effective Time, and the remainder of
the NVH Stock shall vest in equal
amounts beginning on the last day of
the month following the Effective Time
and continuing on the last day of each
month thereafter over a period of 24
months;
Barry Uphoff 30% of the NVH Stock shall vest at the
Effective Time, and the remainder of
the NVH Stock shall vest in equal
amounts beginning on the last day of
the month following the Effective Time
and continuing on the last day of each
month thereafter over a period of 24
months;
Darr Aley 15% of the NVH Stock shall vest at the
Effective Time, and the remainder of
the NVH Stock shall vest in equal
amounts beginning on the last day of
the seventh month after the Effective
Time and continuing on the last day of
each month thereafter over a period of
30 months;
Stephen George 15% of the NVH stock shall vest at the
Effective Time, and the remainder of
the NVH Stock shall vest in equal
amounts beginning on the last day of
the seventh month after the Effective
Time and continuing on the last day of
each month thereafter over a period of
30 months.
Upon vesting of each installment of the NVH Stock, each Strategicus
Stockholder's ownership of his vested NVH Stock shall be free and clear of all
rights, claims, offsets, deductions and liens of NVH.
If the employment of either of Douglas Spink or Barry Uphoff is
terminated pursuant to Sections 6.1 (a) through 6.1 (d) of his respective
Employment Agreement with NVH, then he shall forfeit and forever lose all right,
title and interest in and to the NVH Stock which is not vested as of the date of
termination of his employment, and he shall promptly surrender to NVH all share
certificates for NVH Stock which has not vested. In the event either of Douglas
Spink or Barry Uphoff terminates his employment pursuant to Sections 6.1 (e) or
6.1 (f) of his respective Employment Agreement with NVH, then all NVH Stock to
which he is entitled to receive pursuant to this Agreement shall immediately
vest as of the date of termination of his employment. If the
6
<PAGE>
consulting agreement of either of Stephen George or Darr Aley is terminated
pursuant to Section 5 of his respective Consulting Agreement with NVH, then he
shall forfeit and forever lose all right, title and interest in and to the NVH
Stock which had not vested as of the date of termination of his consulting
agreement.
3.3 Registration Rights.
-------------------
In the event of a proposed Change of Control of NVH, NVH, at its
expense, shall use its best efforts to promptly register (or to cause the entity
causing the Change of Control to assume this obligation) the resale of the
vested NVH Stock owned by the Strategicus Stockholders (for purposes of this
Section 3.3 only, the term "Strategicus Stockholders" shall also include Andrew
Panzo) in a public offering of such securities under the Securities Act of 1933
("Act"). NVH shall give the Strategicus Stockholders written notice (the
"Notice") of such registration at least 45 days prior to the effectiveness of
the registration statement covering the NVH Stock being offered. Upon the
written request of each of the Strategicus Stockholders given to NVH within
twenty (20) days after the mailing of such Notice by NVH, NVH shall use its best
efforts to cause to be registered under the Act all of the NVH Stock that each
Strategicus Stockholder has requested to be registered.
To effect the registration of the vested NVH Stock, NVH shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the United States Securities and Exchange
Commission ("SEC") a registration statement with respect to such NVH Stock and
use its best efforts to cause such registration statement to become effective,
and, upon the request of the Strategicus Stockholders who own a majority of the
vested NVH Stock registered thereunder, keep such registration statement
effective for such period of time until each of the Strategicus Stockholders is
permitted to sell such holder's NVH Stock pursuant to Rule 144 promulgated under
the Act without reference to the volume limitations contained therein.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to keep the registration statement
effective for the period stated in subparagraph (a) above, and to comply with
the provisions of the Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to each of the Strategicus Stockholders such numbers of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as he may reasonably request
in order to facilitate the public sale or other disposition of the NVH Stock
owned by him.
(d) Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Strategicus Stockholders,
provided that NVH shall not be required in connection
7
<PAGE>
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each of the Strategicus
Stockholders shall also enter into and perform his obligations under such an
agreement.
(f) Notify the Strategicus Stockholders who own vested NVH Stock covered
by such registration statement at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered under the Act
of the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of
circumstances then existing.
(g) Promptly notify the Strategicus Stockholders of the issuance by the
SEC of any stop order suspending the effectiveness of the registration statement
(or the initiation of any formal proceeding for that purpose) or of the receipt
by NVH of any notification with respect to suspension of the qualification of
the vested NVH Stock for sale in any jurisdiction (or the initiation of any
formal proceeding for that purpose). NVH shall make reasonable efforts to obtain
the withdrawal of any order suspending the effectiveness of a registration
statement hereunder or any post-effective amendment thereto at the earliest
practicable date.
It shall be a condition precedent to the obligations of NVH to take any
action pursuant to this Section 3.3 with respect to the vested NVH Stock of any
selling Strategicus Stockholders, that such Strategicus Stockholders shall
furnish to NVH such information regarding it, the vested NVH Stock held by it,
and the intended method of disposition of such securities as shall be required
to effect the registration of such Strategicus Stockholder's vested NVH Stock
and to execute such documents in connection with such registration as NVH may
reasonably request.
4. Representations and Warranties of Strategicus.
---------------------------------------------
Except as otherwise set forth or described on Schedule 4 (the
"Strategicus Disclosure Schedule"), Strategicus represents and warrants as
follows:
4.1 Corporate Status.
----------------
Strategicus is a corporation duly organized and validly existing under
the laws of the State of Oregon, does not have any subsidiaries except for the
Strategicus Subsidiaries listed on Schedule 4, and does not own any securities
of, or have any proprietary interest in, any other entity. Strategicus, as a
result of the character and location of the assets of Strategicus and the nature
of the business conducted by it, is qualified to conduct business only in
Oregon. Strategicus has full corporate power and corporate authority to own, or
hold under lease, its business assets. Strategicus
8
<PAGE>
has delivered to NVH accurate and complete copies of the articles of
incorporation and bylaws, as currently in effect, of Strategicus.
4.2 Capitalization of Strategicus and its Subsidiaries.
--------------------------------------------------
The authorized capital stock of Strategicus consists of one million
(1,000,000) shares of common stock and two hundred fifty thousand (250,000)
shares of preferred stock, of which two hundred forty thousand (240,000) shares
of common stock are issued and outstanding. All of Strategicus' issued and
outstanding shares of capital stock have been validly issued and are fully paid
and non-assessable and are not subject to any preemptive or other similar
rights. Except as set forth in this Section 4.2, there are outstanding (a) no
shares of capital stock or other voting securities of Strategicus; (b) no
securities of Strategicus convertible into or exchangeable for shares of capital
stock or voting securities of Strategicus; and (c) no options, warrants or other
rights to acquire from Strategicus, and no obligation of Strategicus to issue,
any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or other voting securities of Strategicus. To
Strategicus' knowledge, there are no outstanding obligations of Strategicus to
repurchase, redeem or otherwise acquire any Strategicus Stock.
4.3 Authorization of Strategicus; No Adverse Consequences.
-----------------------------------------------------
4.3.1 This Agreement has been duly executed and delivered by
Strategicus and constitutes a valid obligation legally binding on Strategicus
and is enforceable against Strategicus in accordance with its terms, except as
enforceability may be limited or affected by applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting the
rights of creditors and except as enforceability may be limited by rules of law
governing specific performance, injunctive relief or other equitable remedies.
The execution, delivery and performance of this Agreement by Strategicus and the
consummation of the transactions contemplated hereby by Strategicus do not and
will not conflict with, or result in a breach, default, violation or loss of a
material benefit under any agreement, mortgage, lease, license or other
instrument or obligation of Strategicus in connection with its business
operations or any of its material assets; do not and will not require the
consent or permission of any person or governmental agency; and do not and will
not violate any law, rule or regulation of any agency or governmental body to
which Strategicus is subject and that is individually or in the aggregate
material to the transactions contemplated hereby. Other than the filing of the
Articles of Merger with the Secretary of State of the State of Oregon, no
registration, declaration or filing with any governmental or administrative
authority is required on the part of Strategicus in connection with the
execution, delivery and performance of this Agreement, other than any
registration, declaration or filing which is not reasonably anticipated to
adversely affect this Merger.
4.3.2 The Board of Directors of Strategicus has duly and
validly approved, and taken all corporate action required to be taken by the
Strategicus Board of Directors for the consummation of the Merger and resolved
to recommend that the Strategicus Stockholders approve and adopt this Agreement.
9
<PAGE>
4.4 Liabilities.
-----------
Strategicus does not have any liabilities or obligations (absolute,
accrued, contingent or otherwise) which are material to Strategicus, except for
those which have been previously provided to NVH in due diligence or disclosed
in the Strategicus Disclosure Schedule, other than trade payables incurred in
the ordinary course of business of Strategicus consistent with past business
practices and liabilities incurred in connection with or contemplated by this
Agreement.
4.5 Changes in Business.
-------------------
Except as expressly allowed or contemplated by this Agreement or
approved by NVH, since June 1, 1999, Strategicus has conducted its business in
the ordinary course and there has not occurred:
(i) Any change, effect or occurrence that has, or is
reasonably likely to have, individually or in the aggregate, a material adverse
impact on (i) the condition (financial or otherwise) or prospects of
Strategicus, its business or its assets, or (ii) the operation of the business
before or after the Closing Date or the ownership or other use of the property
thereafter;
(ii) Any acquisition, sale or disposition of property or
assets by or of Strategicus, except in the ordinary course of business;
(iii) Any entry into, amendment of, relinquishment, termination
or non-renewal by Strategicus of any material agreements, lease transaction,
commitment or other right or obligation other than in the ordinary course of
business; or
(iv) Any agreement or arrangement made by Strategicus to take
any action after the date hereof which, if taken prior to the date hereof, would
have made any representation or warranty set forth in this Section 4.5 untrue or
incorrect as of the date hereof.
4.6 Title to Assets.
---------------
To Strategicus' knowledge, Strategicus has good and valid title to its
assets, free and clear of all liens, claims, charges or other encumbrances.
There are no agreements, arrangements or understandings restricting or otherwise
relating to the transfer of any property or assets of Strategicus.
4.7 Taxes and Tax Filings.
---------------------
Strategicus has duly and timely filed all tax reports and returns
required to have been filed on or before the Closing Date, and such returns as
filed are true and correct in all material respects. All federal, state, local
and foreign income, receipts, profits, franchise, sales, use, occupation, real
and personal property, excise, employment or other taxes (including interest and
penalties of Strategicus) required to have been paid on or before the Closing
Date, whether or not
10
<PAGE>
assessed, have been or shall be fully paid on or prior to the due date thereof,
unless an extension has been granted to Strategicus by the appropriate
government authority and Strategicus has either paid the taxes due to such
government authority or has reserved sufficient funds as of the Closing Date to
pay the taxes which will be due. There is no unpaid interest, penalty or
addition to tax due or claimed to be due from, or any unpaid tax deficiency,
determination or assessment outstanding against Strategicus or any basis
therefor known to Strategicus. There are no tax liens on, pending against or, to
the best knowledge of Strategicus, threatened against Strategicus or its
property. Strategicus has not filed a consent under Section 341(f)(1) of the
Internal Revenue Code of 1986, as amended.
4.8 Intangibles.
-----------
Strategicus owns or possesses adequate licenses or other valid rights
to use all material patents, patent rights, trademarks, trade names, copyrights,
service marks, trade secrets and other proprietary rights and information used
or held for use in connection with the business of Strategicus as currently
conducted or as contemplated to be conducted, and Strategicus is unaware of any
assertion or claim challenging the validity of any of the foregoing. To the
best knowledge of Strategicus, the conduct of the business of Strategicus, as
heretofore and currently conducted has not and does not conflict in any way with
any material license, trademark, trade name, service mark, copyright or patent
of any third party. To the best knowledge of Strategicus, there are no
infringements of any proprietary rights owned by or licensed by or to
Strategicus.
4.9 Employee Benefit Plans.
----------------------
Listed in Schedule 4 is each profit sharing plan, stock purchase plan,
pension plan, severance pay plan or policy, or other employee benefit plan as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") to which Strategicus is a party ("Employee Plan"). Each
Employee Plan which is intended to be qualified under Section 401(a) of the Code
is so qualified and has been so qualified during the period from its adoption to
date, and each trust forming a part thereof is exempt from tax pursuant to
Section 501(a) of the Code. Strategicus has furnished to NVH copies of the most
recent Internal Revenue Service determination letters, if any, with respect to
each such Employee Plan. Each Employee Plan has been maintained in substantial
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code, which are applicable to such Employee Plan. Neither Strategicus nor
any of the Strategicus Subsidiaries maintain or administer any "defined benefit
plans" for the benefit of their employees. Other than provisions of applicable
law, to the best knowledge of Strategicus, no condition exists that would
prevent Strategicus from amending or terminating any applicable Employee Plan.
Strategicus is not a party to, or in any other manner participates in, any
multi-employer pension plan.
11
<PAGE>
4.10 No Defaults.
-----------
Strategicus is not in default, or to Strategicus' knowledge alleged to
be in default, under any material agreement, license or obligation relating to
its business or its assets, and there exists no condition or event which, after
notice or lapse of time or both, would constitute a default by Strategicus to
any such agreement, license or obligation.
4.11 License and Permits.
-------------------
Strategicus and its employees have all material governmental licenses
and permits (federal, state and local) necessary for the conduct of the business
as now carried on by Strategicus, and such licenses are in full force and
effect. To Strategicus' knowledge, no violations are or have been recorded and
Strategicus is not aware of any unrecorded violations in respect of any such
licenses or permits of Strategicus. No proceedings are pending or to
Strategicus' knowledge threatened concerning the revocation or limitation of any
such license or permit of Strategicus.
4.12 Compliance With Laws.
--------------------
Strategicus has complied with all material laws, rules, regulations
and orders applicable to the operation of the business conducted by Strategicus.
Strategicus is not in violation of any federal, state or local law governing
environmental matters, including but not limited to discharge of materials into
the environment, noise abatement and other similar matters. Strategicus does
not own, lease or otherwise have any obligations with respect to or
responsibility for any underground fuel storage tanks or facilities and has not
and does not transport or store hazardous or toxic materials. Strategicus has
not received notice nor taken any action or failed to take any action which
action or failure will or would, in any way, preclude or prevent NVH from using
the business assets of Strategicus after the Closing in the same manner as
theretofore used by Strategicus. To the best of Strategicus' knowledge, none of
the real property leased by Strategicus, or the occupation thereof, is in
violation of any material law, building code, zoning or other authority, code or
regulation applicable thereto and no notice from any governmental body has been
served upon Strategicus claiming any violation of any such law, ordinance, codes
or regulation or requiring or calling attention to the need for any work,
repair, construction, alteration or installation.
4.13 Litigation.
----------
There are no material claims, litigation, proceedings or
investigations pending or, to the knowledge of Strategicus, threatened against
Strategicus. There are no judgments, orders or decrees which have been issued
against Strategicus and which remain unpaid in whole or part or to which
Strategicus is otherwise subject. No insurance carrier, which has had any such
incident reported to it, has made a reservation of rights or denial of coverage
with respect to such incident.
4.14 Brokers.
-------
12
<PAGE>
Strategicus has not employed any broker, finder or agent or dealt with
anyone purporting to act in such capacity or agreed to pay any brokerage fee,
finder's fee or commission in connection with the transactions contemplated by
this Agreement.
4.15 Material Contracts.
------------------
Strategicus has delivered or otherwise made available to NVH correct
and complete copies of all contracts and agreements to which Strategicus is a
party or by which any of its properties or assets are bound, that are material
to the business, properties or assets of Strategicus (collectively, the
"Contracts" and each a "Contract"). Strategicus is not aware of any facts that
would lead a reasonable person to believe that a third party intends to cancel
its Contract with Strategicus or that a third party is entitled to terminate any
such Contract. To Strategicus' knowledge, each Contract is valid and
enforceable in accordance with its terms, and there is no default under any
Contract, and no event has occurred that with the lapse of time or the giving of
notice or both would constitute a default thereunder.
4.16 No Material Misstatements.
-------------------------
No representation or warranty by Strategicus contained in this
Agreement, or in any Exhibit or Schedule attached hereto, contains, or will
contain, any untrue statement of a material fact or omits, or will omit, to
state a material fact necessary to make the statements contained herein or
therein not misleading.
5. Representations, Warranties and Agreements of NVH.
-------------------------------------------------
Except as set forth on Schedule 5 ("NVH Disclosure Schedule"), NVH
represents and warrants as follows:
5.1 Corporate Status.
----------------
NVH is a corporation duly organized and validly existing under the
laws of the State of Delaware, does not have any subsidiaries except for the NVH
Subsidiaries listed on Schedule 5, and does not own any securities of, or have
any proprietary interest in, any other entity. NVH has delivered to Strategicus
accurate and complete copies of the articles of incorporation and bylaws, as
currently in effect, of NVH.
5.2 Capitalization of NVH and its Subsidiaries.
------------------------------------------
The authorized capital stock of NVH consists of 50,000,000 shares of
common stock and 5,000,000 shares of preferred stock, of which 3,500,000 shares
have been designated as Series A Preferred Stock. As of the Closing Date, NVH
has 9,665,225 shares of common stock which are issued and outstanding; 2,019,852
shares of Series A Preferred Stock which are issued and outstanding; and zero
shares of other preferred stock which are issued and outstanding. All of NVH's
issued and outstanding shares of stock have been validly issued, are fully paid
and
13
<PAGE>
non-assessable and are not subject to any preemptive or other similar rights.
Except as set forth in the NVH Disclosure Schedule, there are outstanding (a) no
shares of capital stock or other voting securities of NVH; (b) no securities of
NVH convertible into or exchangeable for shares of capital stock or voting
securities of NVH; and (c) no options, warrants or other rights to acquire from
NVH, and no obligation of NVH to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or other voting
securities of NVH. To NVH's knowledge, there are no outstanding obligations of
NVH to repurchase, redeem or otherwise acquire any of its stock.
5.3 Authorization of NVH; No Adverse Consequences.
---------------------------------------------
5.3.1 This Agreement has been duly executed and delivered by
NVH and constitutes a valid obligation legally binding on NVH and is enforceable
against NVH in accordance with its terms, except as enforceability may be
limited or affected by applicable bankruptcy, insolvency, reorganization or
other laws of general application relating to or affecting the rights of
creditors and except as enforceability may be limited by rules of law governing
specific performance, injunctive relief or other equitable remedies. The
execution, delivery and performance of this Agreement by NVH and the
consummation of the transactions contemplated hereby by NVH do not and will not
conflict with, or result in a breach, default, violation or loss of a material
benefit under any agreement, mortgage, lease, license or other instrument or
obligation of NVH; do not and will not require the consent or permission of any
person or governmental agency; and do not and will not violate any law, rule or
regulation of any agency or governmental body to which NVH is subject and that
is individually or in the aggregate material to the transactions contemplated
hereby. Other than the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware, no registration, declaration or filing with any
governmental or administrative authority is required on the part of NVH in
connection with the execution, delivery and performance of this Agreement, other
than any registration, declaration or filing which is not reasonably anticipated
to adversely affect this Merger.
5.3.2 The Board of Directors of NVH has duly and validly
approved, and taken all corporate action required to be taken by the NVH Board
of Directors for the consummation of the Merger and resolved to recommend that
the NVH Stockholders approve and adopt this Agreement.
5.4 Financial Statements.
--------------------
5.4.1 NVH has heretofore delivered to Strategicus the audited
consolidated balance sheet and related audited consolidated statement of income
and cash flows of NVH dated as of December 31, 1998 and the unaudited
consolidated balance sheet and related unaudited consolidated statement of
income and cash flows of NVH dated as of December 31, 1998 (all of the financial
statements described herein may be referred to as the "NVH Financial
Statements"). The NVH Financial Statements accurately present the financial
position, results of the operations and the changes in financial position of NVH
for the periods indicated; were accurately prepared from the books and records
of NVH in accordance with generally accepted accounting policies then in effect;
14
<PAGE>
and have been prepared on a consistent basis with past periods, all subject to
year-end adjustment, which adjustment in the aggregate shall not materially
affect the results contained therein.
5.4.2 To NVH's knowledge, it does not have any liabilities or
obligations (absolute, accrued, contingent or otherwise) which are material to
NVH and which are not disclosed in the NVH Financial Statements or disclosed in
the NVH Disclosure Schedule, other than liabilities and obligations incurred
since January 1, 1999 and the date hereof in the ordinary course of business of
NVH consistent with past business practices and liabilities incurred in
connection with or contemplated by this Agreement.
5.5 Changes in Business.
-------------------
Except as expressly allowed or contemplated by this Agreement, since
the date of the NVH Financial Statements, NVH has conducted its business in the
ordinary course and there has not occurred:
(i) Any change, effect or occurrence that has, or is
reasonably likely to have, individually or in the aggregate, a material adverse
impact on (i) the condition (financial or otherwise) or prospects of NVH, its
business or its assets, or (ii) the operation of the business before or after
the Closing Date or the ownership or other use of the property thereafter;
(ii) Any acquisition, sale or disposition of any material
property or assets by or of NVH, except in the ordinary course of business;
(iii) Any entry into, amendment of, relinquishment, termination
or non-renewal by NVH of any material agreements, lease transaction, commitment
or other right or obligation other than in the ordinary course of business; or
(iv) Any agreement or arrangement made by NVH to take any
action after the date hereof which, if taken prior to the date hereof, would
have made any representation or warranty set forth in this Section 5.5 untrue or
incorrect as of the date hereof.
5.6 Title to Assets.
---------------
To NVH's knowledge, NVH has good and valid title to the assets
reflected on the NVH Financial Statements, free and clear of all liens, claims,
charges or other encumbrances.
5.7 Taxes and Tax Filings.
---------------------
Since October 1, 1998, NVH has duly and timely filed all tax reports
and returns required to have been filed on or before the Closing Date, and such
returns as filed are true and correct in all material respects. All federal,
state, local and foreign income, receipts, profits, franchise, sales, use,
occupation, real and personal property, excise, employment or other taxes
(including interest and penalties of NVH) required to have been paid on or
before the Closing Date,
15
<PAGE>
whether or not assessed, have been or shall be fully paid on or prior to the due
date thereof, unless an extension has been granted to NVH by the appropriate
government authority and NVH has either paid the taxes due to such government
authority or has reserved sufficient funds as of the Closing Date to pay the
taxes which will be due. The accrual for taxes reflected in the most recent
balance sheet included in the NVH Financial Statements shall be in the aggregate
adequate to cover any and all federal, state, local or foreign tax liabilities
(including interest and penalties), whether or not disputed, for which NVH may
be liable for the period ended as of the Closing Date and all prior periods.
There is no unpaid interest, penalty or addition to tax due or claimed to be due
from, or any unpaid tax deficiency, determination or assessment outstanding
against NVH or any basis therefor known to NVH. There are no tax liens on,
pending against or, to the best knowledge of NVH, threatened against NVH or its
property. NVH has not filed a consent under Section 341(f)(1) of the Internal
Revenue Code of 1986, as amended.
5.8 Intangibles.
-----------
NVH owns or possesses adequate licenses or other valid rights to use
all material patents, patent rights, trademarks, trade names, copyrights,
service marks, trade secrets and other proprietary rights and information used
or held for use in connection with the business of NVH as currently conducted or
as contemplated to be conducted, and NVH is unaware of any assertion or claim
challenging the validity of any of the foregoing. To the knowledge of NVH, the
conduct of the business of NVH, as heretofore and currently conducted has not
and does not conflict in any way with any material license, trademark, trade
name, service mark, copyright or patent of any third party. To the knowledge of
NVH, there are no infringements of any proprietary rights owned by or licensed
by or to NVH.
5.9 Employee Benefit Plans.
----------------------
Listed in Schedule 5 is each profit sharing plan, stock purchase plan,
pension plan, severance pay plan or policy, or other employee benefit plan as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") to which NVH is a party ("NVH Employee Plan"). Each NVH
Employee Plan which is intended to be qualified under Section 401(a) of the Code
is so qualified and has been so qualified during the period from its adoption to
date, and each trust forming a part thereof is exempt from tax pursuant to
Section 501(a) of the Code. NVH has furnished to Strategicus copies of the most
recent Internal Revenue Service determination letters, if any, with respect to
each such NVH Employee Plan. Each NVH Employee Plan has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations, including but not limited
to ERISA and the Code, which are applicable to such NVH Employee Plan.
5.10 No Defaults.
-----------
NVH is not in default, or to NVH's knowledge alleged to be in default,
under any material agreement, license or obligation relating to its business or
its assets, and there exists no
16
<PAGE>
condition or event which, after notice or lapse of time or both, would
constitute a default by NVH to any such agreement, license or obligation.
5.11 License and Permits.
-------------------
NVH and its employees have all material governmental licenses and
permits (federal, state and local) necessary for the conduct of the business as
now carried on by NVH, and such licenses are in full force and effect. To NVH's
knowledge, no violations are or have been recorded and NVH is not aware of any
unrecorded violations in respect of any such licenses or permits of NVH. No
proceedings are pending or, to NVH's knowledge, threatened concerning the
revocation or limitation of any such license or permit of NVH.
5.12 Compliance With Laws.
--------------------
NVH has complied with all material laws, rules, regulations and orders
applicable to the operation of the business conducted by NVH. NVH is not in
violation of any federal, state or local law governing environmental matters,
including but not limited to discharge of materials into the environment, noise
abatement and other similar matters. NVH does not own, lease or otherwise have
any obligations with respect to or responsibility for any underground fuel
storage tanks or facilities and has not and does not transport or store
hazardous or toxic materials. To the best of NVH's knowledge, none of the real
property leased by NVH, or the occupation thereof, is in violation of any
material law, building code, zoning or other authority, code or regulation
applicable thereto and no notice from any governmental body has been served upon
NVH claiming any violation of any such law, ordinance, codes or regulation or
requiring or calling attention to the need for any work, repair, construction,
alteration or installation.
5.13 Litigation.
----------
There are no material claims, litigation, proceedings or
investigations pending or, to the knowledge of NVH, threatened against NVH.
There are no judgments, orders or decrees which have been issued against NVH and
which remain unpaid in whole or part or to which NVH is otherwise subject. No
insurance carrier, which has had any such incident reported to it, has made a
reservation of rights or denial of coverage with respect to such incident.
5.14 Brokers.
-------
NVH has not employed any broker, finder or agent or dealt with anyone
purporting to act in such capacity or agreed to pay any brokerage fee, finder's
fee or commission in connection with the transactions contemplated by this
Agreement.
17
<PAGE>
5.15 Material Contracts.
------------------
NVH has delivered or otherwise made available to Strategicus correct
and complete copies of all contracts and agreements to which NVH is a party or
by which any of its properties or assets are bound, that are material to the
business, properties or assets of NVH (collectively, the "NVH Contracts" and
each a "NVH Contract"). NVH is not aware of any facts that would lead a
reasonable person to believe that a third party intends to cancel its NVH
Contract with NVH or that a third party is entitled to terminate any such NVH
Contract. To NVH's knowledge, each NVH Contract is valid and enforceable in
accordance with its terms, and there is no default under any NVH Contract, and
no event has occurred that with the lapse of time or the giving of notice or
both would constitute a default thereunder.
5.16 No Material Misstatements.
-------------------------
No representation or warranty by NVH contained in this Agreement, or
in any Exhibit or Schedule attached hereto, contains, or will contain, any
untrue statement of a material fact or omits, or will omit, to state a material
fact necessary to make the statements contained herein or therein not
misleading.
6. Covenants of Strategicus and NVH.
--------------------------------
Strategicus and NVH hereby covenant and agree that:
6.1 Conduct of Strategicus and NVH. From the date hereof until the
------------------------------
Effective Time, Strategicus and NVH shall in all material respects conduct their
respective businesses in the ordinary and usual course consistent with past
practices, that Strategicus and NVH will use all reasonable efforts to maintain
and preserve their respective business organization, business prospects,
employees and advantageous business relationships. Without limiting the
generality of the foregoing, from the date hereof until the Effective Time,
without the prior written consent of the other party, each agrees that it will
not, except as otherwise contemplated in this Agreement or to the extent
necessary to carry out the terms hereof:
6.1.1 Except as set forth in Schedule 6.1.1 or in the ordinary
and usual course of business consistent with past practice, permit or allow any
material assets (whether real, personal or mixed, tangible or intangible) to be
subjected to any mortgage, pledge, lien, security interest, encumbrance,
restriction or charge of any kind, or sell, transfer or otherwise dispose of any
of its material assets;
6.1.2 Except as contemplated by this Agreement, adopt or
propose any change in its Articles of Incorporation or Bylaws;
6.1.3 Grant any increase in the base compensation or other
payment to any director, officer or employee, whether now or hereafter payable
or granted, or grant any severance or termination pay (other than for severance
pay in amounts consistent with the party's established
18
<PAGE>
severance pay practices), or enter into or vary the terms of any compensation
plan, arrangement or agreement with any such person;
6.1.4 Except as set forth in Schedule 6.1.4, issue any
securities, or alter the terms of any outstanding securities, or declare, pay or
set aside for payment any dividend or other distribution (whether in cash, stock
or property or otherwise) in respect of any securities, or redeem, purchase or
otherwise acquire any securities, any securities convertible into or
exchangeable for any securities or, except as otherwise contemplated by this
Agreement, any options, warrants or other rights to purchase or subscribe to any
of the foregoing;
6.1.5 Sell, transfer, license, sublicense or otherwise dispose
of, nor permit to lapse any rights in, to or for the use of, any of its material
assets, including its intellectual property, and will not pay any dividend or
make any other distribution to holders of its capital stock;
6.1.6 Make any capital expenditure or commitment in excess of
$50,000 for additions to property, plant or equipment, or lease or agree to
lease any assets which, if purchased, would be reflected in the property, plant
or equipment accounts, except pursuant to existing agreements expressly
providing for such as set forth in such party's disclosure schedule; or
6.1.7 Incur any material obligation, indebtedness or
liability, including without limitation any liability for nonperformance or
termination of any contract, or in any way increase its indebtedness for
borrowed money.
6.2 Access to Information. From the date hereof until the Closing
---------------------
Date, each party will give the other party and its respective counsel, financial
advisors, auditors and other authorized representatives reasonable access during
normal business hours to its offices, properties, books and records and furnish
such financial and operating data and all other information with respect to its
business as such persons may reasonably request and will instruct its employees,
counsel and financial advisors to cooperate in the investigation of the business
of the other party and in the planning for the combination of the business of
the parties following the consummation of the Merger.
6.3 Approval of Shareholders. Each party shall take all action
------------------------
necessary in accordance with applicable law and its Certificate of Incorporation
or Articles of Incorporation and Bylaws to obtain the approval of its
shareholders for the adoption of this Agreement, and to consider and approve
such other matters as may be necessary to effectuate the transactions provided
for herein.
6.4 Advice of Changes. Each party will promptly advise the other
-----------------
party in writing (a) of any event occurring subsequent to the date of this
Agreement that would render any representation or warranty of such party
contained in this Agreement, if made on or as of the date of such event or the
Closing Date, untrue, inaccurate or misleading in any material respect (other
than an event so affecting a representation or warranty which is expressly
limited to a state of facts
19
<PAGE>
existing at a time prior to the occurrence of such event) and (b) of any
material adverse change in the business condition of the party and its
subsidiaries, taken as a whole.
6.5 Regulatory Approvals. Each party shall execute and file, or join
--------------------
in the execution and filing of, any application or other document that may be
necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign, which may be reasonably
required, or that the other company may reasonably request, in connection with
the consummation of the transactions contemplated by this Agreement. Each party
shall use its reasonable best efforts to obtain all such authorizations,
approvals and consents.
6.6 Necessary Consents. Each party will use its reasonable best
------------------
efforts to obtain such written consents and take such other actions as may be
necessary or appropriate to allow the consummation of the transactions
contemplated hereby and to allow it to carry on its business after the Closing
Date.
6.7 Actions Contrary to Stated Intent. No party hereto will, either
---------------------------------
before or after the Merger, take any action that would prevent the Merger from
qualifying as a reorganization under Section 368(1)(A) of the Code.
6.8 Public Announcements. The timing and content of all
--------------------
announcements regarding any aspect of the Merger to the financial community,
government agencies, or the public generally shall be mutually agreed upon in
advance (unless NVH is advised by its counsel that any such announcement or
other disclosure not mutually agreed upon in advance following good faith effort
to secure such agreement is required to be made by law or applicable regulation
or rule).
6.9 Satisfaction of Conditions Precedent. Each party will use its
------------------------------------
reasonable best efforts to satisfy or cause to be satisfied all of the
conditions precedent that are set forth in Section 7, as applicable to each of
them, and to cause the transactions contemplated by this Agreement to be
consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its part in order to effect the transactions contemplated hereby.
6.10 No Solicitation. Unless this Agreement has been terminated
---------------
pursuant to Section 8 hereof, neither Strategicus nor NVH shall, for a period of
thirty (30) days from the date of this Agreement, directly or indirectly,
through any officer, director, employee, financial advisor, representative or
agent (i) solicit, initiate, or encourage any inquiries or proposals that
constitute, or could reasonably be expected to lead to, a proposal or offer for
a merger, consolidation, business combination, sale of substantial assets, sale
of shares of capital stock (including without limitation by way of a tender
offer) or similar transaction involving Strategicus, NVH, or any of the
Strategicus Subsidiaries or NVH Subsidiaries, other than the transactions
contemplated by this Agreement (any of the foregoing inquiries or proposals
being referred to in this Agreement as an "Acquisition Proposal"), (ii) engage
in negotiations or discussions with any third party concerning, or provide any
non-public information to any person or entity relating to, any Acquisition
Proposal, or (iii) agree
20
<PAGE>
to or recommend any Acquisition Proposal. Strategicus and NVH each agree not to
release any third party from, or waive any proposal of, any standstill agreement
to which it is a party or any confidentiality agreement between it and another
person who has made, or who may reasonably be considered likely to make, an
Acquisition Proposal, unless their respective board of directors determines in
good faith after consultation with outside legal counsel that such action is
necessary for such board of directors to comply with its fiduciary duties to
stockholders under applicable law. The parties to this Agreement hereby agree
that each shall notify the other immediately after receipt by it (or its
advisors) of any Acquisition Proposal or for access to the properties, books or
records of their respective corporations by any person or entity that informs
them that it is considering making, or has made, an Acquisition Proposal. Such
notice shall be made orally and in writing and shall indicate in reasonable
detail the identity of the offeror and the terms and conditions or such
proposal, inquiry or contact. Strategicus and NVH shall continue to keep each
other informed, on a current basis, of the status of any such discussions or
negotiations and the terms being discussed or negotiated.
7. Conditions to the Merger.
------------------------
7.1 Conditions to Obligations of NVH. The obligations of NVH
--------------------------------
hereunder are subject to the fulfillment or satisfaction, on and as of the
Closing Date, of each of the following conditions (any one or more of which may
be waived by NVH, but only in a writing signed by NVH):
7.1.1 Accuracy of Representations and Warranties and
----------------------------------------------
Compliance with Covenants. The representations and warranties of Strategicus
- -------------------------
contained in Section 4 shall be true and accurate in all material respects on
and as of the Closing Date and Strategicus shall have performed and complied
with all of its covenants contained in Section 6 in all material respects on or
before the Closing Date.
7.1.2 No Material Adverse Change. There shall have been no
--------------------------
material adverse change in the financial condition of Strategicus since June 1,
1999.
7.1.3 Consents. All written consents, assignments, waivers or
--------
authorizations that are required for the consummation of the Merger or for the
continuation in full force and effect of any material contracts or leases of
Strategicus shall have been obtained, except where the failure to obtain such
consents would not, individually or in the aggregate, have a material adverse
effect on Strategicus.
7.1.4 Employment Agreements. NVH shall have entered into
---------------------
mutually acceptable Employment Agreements to be effective as of the Effective
Time with Douglas Spink and Barry Uphoff.
7.1.5 Consulting Agreements. NVH shall have entered into
---------------------
mutually acceptable Consulting Agreements to be effective as of the Effective
Time with Darr Aley and Stephen George.
21
<PAGE>
7.1.6 Fairness Opinion. NVH shall be satisfied, in its sole
----------------
discretion, with a fairness opinion regarding the terms of the Merger issued by
a reputable investment banking firm of its choice.
7.2 Conditions to Obligations of Strategicus. The obligations of
----------------------------------------
Strategicus hereunder are subject to the fulfillment or satisfaction, on and as
of the Closing Date, of each of the following conditions (any one or more of
which may be waived by Strategicus, but only in a writing signed by
Strategicus):
7.2.1 Accuracy of Representations and Warranties and
----------------------------------------------
Compliance with Covenants. The representations and warranties of NVH contained
- -------------------------
in Section 5 shall be true and accurate in all material respects on and as of
the Closing Date and NVH shall have performed and complied with all of its
covenants contained in Section 6 in all material respects on or before the
Closing Date.
7.2.2 No Material Adverse Change. There shall have been no
--------------------------
material adverse change in the financial condition of NVH since the most recent
NVH Financial Statements.
7.2.3 Employment Agreements. NVH shall have entered into
---------------------
mutually acceptable Employment Agreements to be effective as of the Effective
Time with Douglas Spink and Barry Uphoff.
7.2.4 Consulting Agreements. NVH shall have entered into
---------------------
mutually acceptable Consulting Agreements to be effective as of the Effective
Time with Darr Aley and Stephen George.
7.2.5 Appointment of Officers. The board of directors of NVH
-----------------------
shall have appointed the officers set forth in Section 2.6, effective as of the
Effective Time.
7.2.6 Election of Directors. The shareholders or board of
---------------------
directors of NVH, as applicable, shall have elected or appointed the individuals
listed in Section 2.5 to serve on the board of directors of NVH, effective as of
the Effective Time.
7.3 Conditions to Obligations of Each Party. The respective
---------------------------------------
obligations of NVH and Strategicus hereunder are subject to the fulfillment, on
and as of the Closing Date, of each of the following conditions (any one or more
of which may be waived by such parties, but only in a writing signed by such
parties):
7.3.1 Tax-Free Reorganization. Neither party shall have
-----------------------
received from their respective tax advisors an opinion that the Merger will not
constitute a tax-free reorganization within the meaning of Section 368 of the
Code, such opinion to be in the form and substance reasonably satisfactory to
the receiving party.
22
<PAGE>
7.3.2 Illegality or Legal Constraint. No statute, rule,
------------------------------
regulation, executive order, decree, injunction or restraining order shall have
been enacted, promulgated or enforced (and not repealed, superseded or otherwise
made inapplicable) by any court or governmental authority which prohibits the
consummation of the Merger (each party agreeing to use its reasonable best
efforts to have any such order, decree or injunction lifted).
7.3.3 Governmental Authorizations. Except for the filing of
---------------------------
the Certificate of Merger with the Secretary of State of the State of Delaware,
there shall have been obtained any and all governmental authorizations, permits,
approvals and consents of securities or "blue sky" commissions of any
jurisdiction and of any other governmental body or agency that may reasonably be
deemed necessary so that the consummation of the Merger will be in compliance
with applicable laws, except where the failure to obtain such authorizations
would not, individually or in the aggregate, result in a material adverse effect
for either party.
7.3.4 Satisfaction of Counsel. All documents executed by the
-----------------------
parties hereto shall be reasonably satisfactory to each of the parties hereto
and its counsel.
8. Termination of Agreement.
------------------------
8.1 Termination. This Agreement may be terminated at any time prior
-----------
to the Effective Time, whether before or after approval by the shareholders of
Strategicus:
8.1.1 By mutual consent of the boards of directors of NVH and
Strategicus;
8.1.2 By NVH, if (i) there has been a material breach by
Strategicus of any of its representations and warranties hereunder, or (ii)
there has been the willful breach on the part of Strategicus of any of its
covenants or agreements contained in this Agreement such that in both case (i)
and (ii), such breach has not been cured within ten (10) business days after
notice (in reasonable detail) to Strategicus;
8.1.3 By Strategicus, if (i) there has been a material breach by
NVH of any of its representations and warranties hereunder, or (ii) there has
been the willful breach on the part of NVH of any of its covenants or agreements
contained in this Agreement such that in both case (i) and (ii), such breach has
not been promptly cured within ten (10) business days after notice (in
reasonable detail) to NVH; or
8.2 Effect of Termination. In the event of termination of this
---------------------
Agreement as provided above, this Agreement shall forthwith become void, and
there shall be no liability on the part of either NVH or Strategicus, or their
respective officers or directors hereunder, except that the agreements contained
or referred to in Section 11.12 and this Section 8.2 shall survive the
termination hereof; and except that nothing contained in this Section 8.2 shall
relieve any party from any liability for any breach of this Agreement.
9. Expenses.
--------
23
<PAGE>
Strategicus and NVH shall each pay all of their own respective
expenses incurred by or on behalf of each of them in connection with this
Agreement and the transactions contemplated hereunder, including, but not
limited to, all due diligence, legal and accounting expenses; provided, however,
that upon execution of this Agreement, NVH shall advance or reimburse and pay
the legal, accounting and other expenses incurred or to be incurred by
Strategicus or its officers in connection with this Merger, subject to a maximum
total amount of $50,000.
10. Nature of Statements and Survival of Representations, Warranties And
--------------------------------------------------------------------
Agreements.
- ----------
All statements of fact and only those statements of facts contained in
any written statement, certificate, exhibit, schedule or other document
delivered by or on behalf of the parties pursuant hereto or in connection with
the consummation of the transactions contemplated hereby are deemed
representations and warranties made hereunder. All covenants and agreements made
by the parties hereunder shall survive the Closing Date, the Effective Time, and
the Merger. All representations and warranties made by the parties hereunder
shall survive the Closing Date, the Effective Time, and the Merger for a period
of twelve (12) months from the Effective Time.
11. Indemnification By Douglas Spink.
--------------------------------
11.1 Indemnification. Douglas Spink agrees to indemnify and hold
---------------
harmless NVH, from and against, and to reimburse NVH with respect to, any and
all losses, damages, liabilities, costs and expenses incurred by NVH by reason
of or arising out of any material breach or inaccuracy of any representation or
warranty made by Strategicus in this Agreement and the Strategicus Disclosure
Schedule. Any claim for indemnification by NVH pursuant to this Section 11.1
shall hereinafter be referred to as an "NVH Claim."
11.2 Survivability. In order for NVH to be entitled to
-------------
indemnification for an NVH Claim as provided for in Section 11.1, NVH shall
commence its lawsuit against Douglas Spink for recovery of the NVH Claim within
twelve (12) months after the Effective Time or shall be barred from seeking
indemnification from Douglas Spink.
11.3 Claim Basket and Liability Limit. Douglas Spink's obligations
--------------------------------
with respect to indemnity pursuant to this Section 11 shall be limited to the
extent that the aggregate of the NVH Claim(s) must first exceed One Hundred
Thousand Dollars ($100,000) ("Claim Basket") and then Douglas Spink's
indemnification obligations shall be only for the amounts in excess of the Claim
Basket. In no event shall the total liability of Douglas Spink for all NVH
Claims exceed the value of the vested NVH Stock which he receives in this Merger
("Liability Limit"). Douglas Spink may pay his indemnification obligation by
transferring his vested shares of NVH Stock (based upon its market value on the
date of the transfer) or such portion thereof as may be necessary to satisfy the
NVH Claim on the date of transfer, and in that event, he shall have no further
liability under this Section 11 to indemnify NVH, even if NVH has obtained or
will obtain a judgment on an NVH Claim.
24
<PAGE>
11.4 Notice; Tendering Defense to Douglas Spink. Douglas Spink's
------------------------------------------
obligation to indemnify and reimburse NVH hereunder is also subject to prior
written thirty (30) day notice by NVH of an NVH Claim, unless the NVH Claim
involves litigation, in which case NVH shall provide Douglas Spink with notice
of such litigation within twenty (20) days after receipt of such complaint by
NVH; provided, however, that Douglas Spink shall have the right to defend any
NVH Claim made by a third party and Douglas Spink shall have the right to
control the defense, settlement or compromise of such NVH Claim and NVH shall
have the right to be kept currently informed and to reasonably participate in
all aspects of such litigation to the extent deemed necessary to protect NVH's
interest, unless the amount of damages demanded or alleged or prayed for in the
complaint (or if no damages are demanded, alleged or prayed for in the
complaint, the damages reasonably likely to result from such an NVH Claim)
exceed the Liability Limit, as such term is defined in Section 11.3, in which
case the party with the greatest economic risk shall have the right to such
control, subject to the other party's right of information and participation.
12. Miscellaneous.
-------------
12.1 Notices.
-------
Any and all notices, demands or other communications required or
desired to be given hereunder by any party shall be in writing and shall be
validly given or made to another party if served personally or sent by
facsimile, if deposited in the United States mail, certified or registered,
postage prepaid, return receipt requested or if sent by a nationally recognized
overnight courier. If such notice, demand or other communication is served
personally, or by facsimile (with verbal verification of complete receipt),
service shall be conclusively deemed made at the time of such personal service
or facsimile transmission. If such notice, demand or other communication is
given by an overnight courier service, service shall be conclusively deemed made
on the date of delivery by such courier. If such notice, demand or other
communication is given by mail, such notice shall be conclusively deemed given
seventy-two (72) hours after the deposit thereof in the United States mail
addressed to the party to whom such notice, demand or other communication is to
be given as hereinafter set forth:
If to NVH: netValue Holdings, Inc.
Two Penn Center Plaza, Suite 605
Philadelphia, PA 19102
Attn: Andrew Panzo
Facsimile: (215) 564-3133
With a copy to: Michael C. Forman
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
1401 Walnut Street
Philadelphia, PA 19102
Facsimile: (215) 568-6603
25
<PAGE>
If to Strategicus: Strategicus Partners Inc.
15455 NW Greenbrier Parkway, #210
Beaverton, OR 97006
Attn: Douglas B. Spink
Facsimile: (800) 893-8895
With a copy to: Mark R. Wada
Farleigh, Wada & Witt, P.C.
121 S.W. Morrison Street, Suite 600
Portland, Oregon 97204
Facsimile: (503) 228-1741
Any party hereto may change its address for the purpose of receiving notices,
demands and other communications as herein provided by a written notice given in
the manner provided hereby to the other party or parties hereto.
12.2 Modifications or Amendments.
---------------------------
No amendment, change or modification of this document shall be valid
unless in writing and signed by all parties hereto.
12.3 Waiver.
------
No reliance upon or waiver of one or more provisions of this Agreement
shall constitute a waiver of any other provisions hereof. All waivers must be in
writing and signed by the party waiving compliance.
12.4 Knowledge of Parties.
--------------------
Where any representation or warranty contained in this Agreement is
expressly qualified by a reference to knowledge, information and/or belief of
the party making such representation and warranty, such party shall have made
reasonable inquiry as to the matters that are the subject of such
representations and warranties.
12.5 Successors and Assigns.
----------------------
All of the terms and provisions contained herein shall inure to the
benefit of and shall be binding upon the parties hereto and their respective
heirs, personal representatives, successors and assigns.
12.6 Separate Counterparts.
---------------------
26
<PAGE>
This document may be executed in one or more separate counterparts,
each of which, when so executed, shall be deemed to be an original. Such
counterparts shall, together, constitute and shall be one and the same
instrument.
12.7 Further Assurances.
------------------
Each of the parties hereto shall execute and deliver any and all
additional papers, documents, and other assurances, and shall do any and all
acts and things reasonably necessary in connection with the performance of their
obligations hereunder and to carry out the intent of the parties hereto.
12.8 Applicable Law and Severability.
-------------------------------
This document shall, in all respects, be governed by and construed in
accordance with the laws of the State of Delaware. If any provisions of this
Agreement are found to be unenforceable or invalid, the remaining provisions
shall nevertheless be enforceable. If feasible, the term or provision which is
found to be unenforceable or invalid shall be deemed to be modified or limited
to the extent necessary to be valid and enforceable.
12.9 Attorneys' Fees and Costs.
-------------------------
In the event any action or arbitration proceeding is instituted by a
party hereto to enforce any of the terms or provisions hereof, the prevailing
party in such action, as determined by the court or arbitrator, shall be
entitled to such reasonable fees, costs and expenses in any arbitration
proceeding, at trial, on appeal and in connection with any review.
12.10 Captions.
--------
Any captions to the sections of this Agreement are solely for the
convenience of the parties and are not a part of this Agreement and shall not be
used for the determination of the validity of this Agreement or any provision
therefor.
12.11 Entire Agreement.
----------------
This document, together with any exhibits, schedules or documents
referenced herein, attached hereto, or delivered and initialed by the parties in
connection herewith, constitutes the entire understanding and agreement of the
parties with respect to the subject matter of this Agreement.
12.12 Confidentiality.
---------------
The parties agree that no party shall disclose the existence of and
all economic and other terms of this Agreement for any purpose, without the
prior written consent of the other parties, unless such disclosure is required
by law, court order, rule or regulation or is being made to management advisors,
any investor or lender (including their respective counsel and advisors) of
27
<PAGE>
Strategicus or NVH, in which case, prior to such disclosure, such investor or
lender shall agree to abide by the provisions of this Section 12.12.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
NVH: NETVALUE HOLDINGS, INC.
By: /s/ Andrew P. Panzo
-------------------------------
Title: President
----------------------------
STRATEGICUS: STRATEGICUS PARTNERS INC.
By: /s/ Douglas B. Spink
-------------------------------
Title: President
----------------------------
By signing below, Douglas Spink agrees to be bound only by the term and
conditions set forth in Section 11 of this Agreement.
DOUGLAS SPINK: /s/ Douglas Spink
-----------------------------------
Douglas Spink
28
<PAGE>
SCHEDULE 4
TO
MERGER AGREEMENT AND PLAN OF REORGANIZATION
Strategicus Disclosure Schedule
-------------------------------
4.1 metacat.com, Inc. is a subsidiary of Strategicus, which owns 92.5% of the
preferred stock of metacat.com, Inc., taking into consideration options which
have been granted to employees.
4.2 Darr Aley and Stephen George have executed agreements for payment of the
sum of $50,000 each as the balance of consideration due for purchase of their
stock in Strategicus.
4.4 Loan Agreement, Promissory Note and Security Agreement evidencing a loan
from NVH in the original principal sum of $2,000,000.
Promissory Note evidencing a loan from Douglas Spink in the original
principal sum of $30,000.
Strategicus has signed letters of intent for investments in AsiaCD, Inc.
And College411.com, Inc., which have been provided to NVH. Strategicus has also
discussed potential investments with other parties.
29
<PAGE>
SCHEDULE 5
TO
MERGER AGREEMENT AND PLAN OF REORGANIZATION
NVH Disclosure Schedule
-----------------------
30
<PAGE>
SCHEDULE 5.1
TO
MERGER AGREEMENT AND PLAN OF REORGANIZATION
Corporate Status
----------------
NVH currently owns approximately 66% of the issued and outstanding common
stock and 100% of the issued and outstanding Series A Preferred Stock of
BrightStreet.com, Inc. ("BrightStreet").
31
<PAGE>
SCHEDULE 5.2
TO
MERGER AGREEMENT AND PLAN OF REORGANIZATION
Capitalization
--------------
NVH currently has issued and outstanding the following convertible
securities:
1. Convertible promissory notes in the aggregate principal amount of
approximately $3,200,354 which have a conversion price of $2.00 per share.
2. Warrants to purchase an aggregate total of 272,876 shares of the Company's
common stock at an exercise price of $6.00 per share.
3. Convertible promissory notes in the aggregate principal amount of
approximately $1,642,500 which have a conversion price of $2.00 per share.
4. Warrants to purchase an aggregate total of 402,500 shares of BrightStreet
common stock which are exercisable at a price per share equal to the lesser of
(i) $4.00 or (ii) the price per share at which BrightStreet's common stock is
offered to the public in an initial public offering, if any. Based on the share
exchange ratio in the anticipated merger of NVH and BrightStreet, subsequent to
the merger the holders of these warrants will be entitled to purchase an
aggregate total of 100,625 shares of NVH's common stock at an exercise price
equal to the lesser of (i) $16.00 or (ii) four times the price per share at
which NVH's common stock is offered to the public in NVH's first public offering
of securities subsequent to the consummation of the merger of NVH and
BrightStreet, if any.
5. In connection with the formation of BrightStreet, BrightStreet issued
warrants to purchase 500,000 shares of BrightStreet common stock to APP
Investments, Inc. ("APP"). These warrants were initially exercisable at a price
of $6.00 per share. Due to the application of certain antidilution provisions of
this warrant, APP is presently entitled to purchase 1,060,222 shares of
BrightStreet common stock at an exercise price of [$1.25] per share. As of the
date of this memorandum, none of these warrants have been exercised. Based on
the share exchange ratio in the anticipated merger of NVH and BrightStreet,
subsequent to the merger APP will be entitled to purchase an aggregate total of
265,056 shares of the Company's common stock at an exercise price of [$5.00] per
share. The BrightStreet board of directors may further reduce the exercise price
of these warrants.
6. In connection with a Rule 506 offering of convertible debentures, NVH
issued convertible debentures in the aggregate principal amount of approximately
$4,415,000 which have a conversion price of $2.50 per share. Also in connection
with this offering, NVH is obligated to issue warrants to purchase 125,000
shares of common stock to Silver Capital at an exercise price of $2.50 per
share. These warrants will be exercisable for a period of three years from the
date of grant. Also in connection with this offering, NVH will issue warrants to
purchase 100,000 shares of common stock to five brokers who assisted NVH in
selling this offering. The warrants will have an exercise price of $5.00 per
share and will be exercisable for a period of three years from the date of
grant.
32
<PAGE>
7. In connection with the issuance of a convertible promissory note in the
principal amount of $900,000 (the "Founders Note") to Founders Equity Group,
Inc. ("Founders"), NVH issued Founders a warrant to purchase 90,000 shares of
NVH's common stock at an exercise price of $2.50 per share and a warrant to
purchase 90,000 shares of NVH's common stock at an exercise price of $5.00 per
share. These warrants are exercisable at any time prior to February 28, 2002.
8. NVH has issued options to purchase 600,000 shares of NVH common stock at an
exercise price of [$1.00] per share to Andrew Panzo, Chairman of NVH's Board of
Directors. 30% of these options vested immediately upon grant and the remaining
options will vest ratably over the next 24 months.
33
<PAGE>
SCHEDULE 5.4.2
TO
MERGER AGREEMENT AND PLAN OF REORGANIZATION
Other Material Liabilities
--------------------------
A portion of the convertible promissory notes described in Schedule 5.2
were issued during the second quarter of 1999. Accordingly, the related
liability is not recorded in the NVH Financial Statements.
34
<PAGE>
SCHEDULE 5.5
TO
MERGER AGREEMENT AND PLAN OF REORGANIZATION
Changes in Business
-------------------
NVH is contemplating a spinoff of BrightStreet whereby it proposes to sell
substantially all of its assets in BrightStreet to a newly formed corporation, a
significant majority of the common stock of which will initially be owned by NVH
with the remainder of the common stock initially owned by BrightStreet
management.
On August 31, 1998, NVH entered into a letter of intent with BrightStreet
regarding he merger of NVH and BrightStreet. NVH plans to consummate this merger
in 1999. In connection with the consummation of this merger, the BrightStreet
stockholders will have appraisal rights under Delaware law. If any BrightStreet
stockholders elect to exercise their appraisal rights, then NVH will be
obligated to pay such BrightStreet stockholders the fair value of their shares
of BrightStreet common stock as determined by the Delaware Court of Chancery.
35
<PAGE>
SCHEDULE 5.7
TO
MERGER AGREEMENT AND PLAN OF REORGANIZATION
Taxes and Tax Filings
---------------------
The 1998 federal and state tax returns are the first tax returns which the
current management of NVH is responsible for filing with the respective taxing
authorities. These returns will not be due on or before the Closing Date. In all
periods prior to June 1998, NVH was a dormant public shell company. NVH's
current management does not believe that tax returns were filed for 1992 through
1997. However, NVH is not aware of any taxable income earned by the corporation
that would be reportable during those periods.
36
<PAGE>
SCHEDULE 5.10
TO
MERGER AGREEMENT AND PLAN OF REORGANIZATION
Defaults
--------
In connection with the proposed spinoff of BrightStreet, NVH will assume
certain liabilities of BrightStreet pursuant to certain leases and contracts
which are currently in default.
37
<PAGE>
SCHEDULE 5.15
TO
MERGER AGREEMENT AND PLAN OF REORGANIZATION
Material Contracts
------------------
NVH is contemplating a spinoff of BrightStreet whereby it proposes to sell
substantially all of its assets in BrightStreet to a newly formed corporation, a
significant majority of the common stock of which will initially be owned by NVH
with the remainder of the common stock initially owned by BrightStreet
management. NVH contemplates entering into an agreement regarding this
transaction prior to the Effective Date.
38
<PAGE>
SCHEDULE 6.1.1
TO
MERGER AGREEMENT AND PLAN OF REORGANIZATION
Proposed Sale of Material Assets
--------------------------------
NVH is contemplating a spinoff of BrightStreet whereby it proposes to sell
substantially all of its assets in BrightStreet to a newly formed corporation, a
significant majority of the common stock of which will initially be owned by NVH
with the remainder of the common stock initially owned by BrightStreet
management. NVH contemplates entering into an agreement regarding this
transaction prior to the Effective Date.
39
<PAGE>
SCHEDULE 6.1.2
TO
MERGER AGREEMENT AND PLAN OF REORGANIZATION
Amendments to Certificate of Incorporation
------------------------------------------
NVH may amend its Certificate of Incorporation to increase its authorized
capital stock in conjunction with the Merger.
40
<PAGE>
SCHEDULE 6.1.3
TO
MERGER AGREEMENT AND PLAN OF REORGANIZATION
Increase in Officer's Base Compensation
---------------------------------------
Andrew Panzo's annual compensation will be increased to $150,000 per year
in connection with this Merger.
41
<PAGE>
SCHEDULE 6.1.4
TO
MERGER AGREEMENT AND PLAN OF REORGANIZATION
Issuance of Securities
----------------------
NVH will continue to issue convertible promissory notes in connection with
a private placement offering which it is conducting pursuant to Rule 506
promulgated under the Securities Act of 1933, as amended.
42
<PAGE>
SCHEDULE 6.1.7
TO
MERGER AGREEMENT AND PLAN OF REORGANIZATION
Indebtedness
------------
NVH will continue to issue convertible promissory notes in connection with
a private placement offering which it is conducting pursuant to Rule 506
promulgated under the Securities Act of 1933, as amended.
43
<PAGE>
SCHEDULE 6.10
-------------
Sale of Substantial Assets
--------------------------
See Schedule 5.5.
44
<PAGE>
EXHIBIT 2.2
AMENDMENT NO. 1 TO
MERGER AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDMENT NO. 1 TO MERGER AGREEMENT AND PLAN OF REORGANIZATION (the
"Amendment") is entered into as of July 8, 1999, by and among STRATEGICUS
PARTNERS INC., an Oregon corporation ("Strategicus"), NETVALUE HOLDINGS, INC., a
Delaware corporation ("NVH") and DOUGLAS SPINK.
On June 21, 1999, the parties executed and delivered a Merger Agreement and
Plan of Reorganization (the "Agreement"). This Amendment modifies certain of the
terms and conditions contained in the Agreement.
NOW THEREFORE, the parties agree as follows:
1. Defined Terms. Unless given a different meaning herein, all
-------------
capitalized terms used in this Amendment shall have the meanings ascribed to
them in the Agreement.
2. Continuing Effectiveness. Except as expressly modified herein, all of
------------------------
the terms, conditions, covenants and exhibits set forth in the Agreement remain
in full force and effect among the parties.
3. Consulting Agreement. The definition of "Consulting Agreement" set
--------------------
forth in Section 1.4 is hereby deleted and shall be replaced with the following:
The term "Consulting Agreement" means the Consulting Agreement
executed by and between NVH and Stephen George, the Consulting
Agreement by and between NVH and Darr Aley, and the Consulting
Agreement by and between NVH and Barry Uphoff.
4. Employment Agreement. The definition of "Employment Agreement" set
--------------------
forth in Section 1.5 is hereby deleted and shall be replaced with the following:
The term "Employment Agreement" means the Employment Agreement
executed by and between NVH and Douglas Spink, including all
amendments and modifications thereto.
5. Officers. The terms and conditions set forth in Section 2.6 of the
--------
Agreement are hereby deleted and shall be replaced with the following:
At the Effective Time, the officers of the Surviving Corporation will
be Barry Uphoff, Chairman of the Board; Andrew Panzo, President and
Chief Executive Officer; Douglas Spink, Chief Technology Officer; and
Darr Aley, Executive Vice
<PAGE>
President - Business Development, each to hold office in accordance
with the terms of the Certificate of Incorporation and Bylaws of the
Surviving Corporation until such officer's successor is duly elected
or appointed and qualified.
6. Conversion of Strategicus Stock. The terms and conditions set forth
-------------------------------
in Section 3.1 of the Agreement are hereby deleted and shall be replaced with
the following:
At the Effective Time, all of the issued and outstanding shares of
common stock of Strategicus, no par value ("Strategicus Stock"),
issued and outstanding immediately prior to the Effective Time (each,
a "Share" and collectively, the "Shares") shall, by virtue of the
Merger and without any action on the part of Strategicus or the holder
be converted into, and become exchangeable for 2,311,460 validly
issued, fully paid and nonassessable shares of Series A Preferred
Stock, par value $ .001 per share, of the Surviving Corporation and
7,524,628 validly issued, fully paid and nonassessable shares of
common stock, par value $ .001 per share, of the Surviving Corporation
(the common stock and Series A Preferred Stock of the Surviving
Corporation may be collectively referred to as the "NVH Stock"),
subject to the vesting provisions set forth in Section 3.2 hereof
(collectively, the "Merger Consideration"). Each holder of Strategicus
Stock (collectively, the "Strategicus Stockholders" and each a
"Strategicus Stockholder") shall be required to surrender his share
certificate or certificates to NVH, or its transfer agent, on the
Effective Time or as soon as practicable thereafter and shall receive
such shares of NVH Stock as is set forth beside the name of such
Strategicus Stockholder on Schedule 3.1. NVH shall, in exchange for
the Strategicus Stock owned by Douglas Spink, issue and deliver to
Douglas Spink the entire Merger Consideration to which he is entitled
at the Effective Time as set forth herein, including NVH Shares which
will vest over the next twenty-four months pursuant to the vesting
schedule set forth in Section 3.2. NVH shall, in exchange for the
Strategicus Stock owned by each of Darr Aley, Stephen George and Barry
Uphoff, issue and deliver to each of Darr Aley, Stephen George and
Barry Uphoff the portion of the Merger Consideration as such person's
interest in NVH Shares vest pursuant to the vesting schedule set forth
in Section 3.2. NVH will deposit with a mutually satisfactory escrow
agent thirty-six (36) stock certificates for equal amounts of NVH
Stock representing an aggregate of total shares for each of Darr Aley,
Stephen George and Barry Uphoff, and the escrow agent shall deliver a
stock certificate to each of Darr Aley, Stephen George and Barry
Uphoff within ten (10) days after their ownership interest in the
shares represented by such certificate has vested pursuant to the
vesting schedule set forth in Section 3.2. Each stock certificate for
any shares of NVH Stock which have not vested pursuant to the vesting
schedule in Section 3.2 shall contain appropriate restrictive legends
regarding the vesting of such NVH Stock and NVH shall instruct its
transfer agent to place a stop order on such certificate in accordance
with the vesting schedule set forth below.
7. Vesting Schedule. The terms and conditions set forth in Section 3.2
----------------
of the Agreement are hereby deleted and shall be replaced with the following:
2
<PAGE>
Notwithstanding the delivery of the NVH Stock to the Strategicus
Stockholders, their ownership of the NVH Stock is subject to the
following vesting schedule:
Strategicus Stockholders Vesting Schedule
------------------------ ----------------
Douglas Spink 30% of the NVH Stock to which Douglas Spink
is entitled upon consummation of the Merger
shall vest at the Effective Time, and the
remainder of the NVH Stock shall vest in
equal amounts beginning on the last day of
the month following the Effective Time and
continuing on the last day of each month
thereafter over a period of 24 months;
Barry Uphoff 15% of the NVH Stock to which Barry Uphoff is
entitled upon consummation of the Merger
shall vest at the Effective Time, and the
remainder of the NVH Stock shall vest in
equal amounts beginning on the last day of
the month following the Effective Time and
continuing on the last day of each month
thereafter over a period of 36 months;
Darr Aley 15% of the NVH Stock to which Darr Aley is
entitled upon consummation of the Merger
shall vest at the Effective Time, and the
remainder of the NVH Stock shall vest in
equal amounts beginning on the last day of
the month following the Effective Time and
continuing on the last day of each month
thereafter over a period of 36 months;
Stephen George 15% of the NVH Stock to which Stephen George
is entitled upon consummation of the Merger
shall vest at the Effective Time, and the
remainder of the NVH Stock shall vest in
equal amounts beginning on the last day of
the month following the Effective Time and
continuing on the last day of each month
thereafter over a period of 36 months.
Upon vesting of each installment of the NVH Stock, each Strategicus
Stockholder's ownership of his vested NVH Stock shall be free and clear of all
rights, claims, offsets, deductions and liens of NVH.
3
<PAGE>
If the employment of Douglas Spink is terminated pursuant to Sections 6.1
(a) through 6.1 (d) of his Employment Agreement with NVH, then he shall forfeit
and forever lose all right, title and interest in and to the NVH Stock which is
not vested as of the date of termination of his employment, and he shall
promptly surrender to NVH all share certificates for NVH Stock which has not
vested. If Douglas Spink terminates his employment pursuant to Sections 6.1 (e)
or 6.1 (f) of his Employment Agreement with NVH, then all NVH Stock to which he
is entitled to receive pursuant to this Agreement shall immediately vest as of
the date of termination of his employment. If the consulting agreement of either
of Stephen George or Darr Aley is terminated pursuant to Section 5 of his
respective Consulting Agreement with NVH, then he shall forfeit and forever lose
all right, title and interest in and to the NVH Stock which has not vested as of
the date of termination of his consulting agreement. If the consulting agreement
of Barry Uphoff is terminated pursuant to Section 5 of his Consulting Agreement
with NVH, then he shall forfeit and forever lose all right, title and interest
in and to the NVH Stock which has not vested as of the date of termination of
his consulting agreement. If the consulting agreement of Barry Uphoff is
terminated pursuant to Section 5 of his Consulting Agreement with NVH, then he
shall forfeit and forever lose all right, title and interest in and to the NVH
Stock which has not vested as of the date which is 60 days after the date of
termination of his Consulting Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
NVH: NETVALUE HOLDINGS, INC.
By: /s/ Andrew P. Panzo
---------------------------
Andrew P. Panzo, President
STRATEGICUS: STRATEGICUS PARTNERS INC.
By: /s/ Douglas Spink
---------------------------
Douglas Spink, President
4
<PAGE>
SCHEDULE 3.1
TO
MERGER AGREEMENT AND PLAN OF REORGANIZATION
NVH Stock to Strategicus Shareholders
-------------------------------------
<TABLE>
<CAPTION>
Series A Preferred Stock Common Stock
------------------------ ------------
<S> <C> <C>
Douglas Spink 577,865 1,881,157
Darr Aley 577,865 1,881,157
Barry Uphoff 577,865 1,881,157
Stephen George 577,865 1,881,157
</TABLE>
5
<PAGE>
EXHIBIT 2.3
AMENDMENT NO. 2 TO
MERGER AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDMENT NO. 2 TO MERGER AGREEMENT AND PLAN OF REORGANIZATION (the
"Amendment") is entered into as of July 22, 1999, by and among STRATEGICUS
PARTNERS INC., an Oregon corporation ("Strategicus"), NET VALUE HOLDINGS, INC.,
a Delaware corporation ("NVH") and DOUGLAS SPINK.
On June 21, 1999, the parties executed and delivered a Merger Agreement and
Plan of Reorganization and on July 8, 1999 the parties executed and delivered an
Amendment No. 1 to Merger Agreement and Plan of Reorganization (collectively the
"Agreement"). This Amendment modifies certain of the terms and conditions
contained in the Agreement.
NOW THEREFORE, the parties agree as follows:
1. Defined Terms. Unless given a different meaning herein, all
-------------
capitalized terms used in this Amendment shall have the meanings ascribed to
them in the Agreement.
2. Continuing Effectiveness. Except as expressly modified herein, all of
------------------------
the terms, conditions, covenants and exhibits set forth in the Agreement remain
in full force and effect among the parties.
3. Conversion of Strategicus Stock. The terms and conditions set forth
-------------------------------
in Section 3.1 of the Agreement are hereby deleted and shall be replaced with
the following:
At the Effective Time, all of the issued and outstanding shares of
common stock of Strategicus, no par value ("Strategicus Stock"),
issued and outstanding immediately prior to the Effective Time (each,
a "Share" and collectively, the "Shares") shall, by virtue of the
Merger and without any action on the part of Strategicus or the holder
be converted into, and become exchangeable for 2,311,460 validly
issued, fully paid and nonassessable shares of Series A Preferred
Stock, par value $.001 per share, of the Surviving Corporation and
7,524,628 validly issued, fully paid and nonassessable shares of
common stock, par value $.001 per share, of the Surviving Corporation
("NVH Stock"), subject to the vesting provisions set forth in Section
3.2 hereof (collectively, the "Merger Consideration"). Each holder of
Strategicus Stock (collectively, the "Strategicus Stockholders" and
each a "Strategicus Stockholder") shall be required to surrender his
share certificate or certificates to NVH, or its transfer agent, on
the Effective Time or as soon as practicable thereafter and shall
receive such shares of NVH Stock as is set forth beside the name of
such Strategicus Stockholder on Schedule 3.1. NVH shall, in exchange
for the Strategicus Stock owned by Douglas Spink, issue and deliver to
Douglas Spink the entire Merger Consideration to which he is entitled
at the Effective Time as set forth herein,
<PAGE>
including NVH Shares which will vest over the next twenty-four months
pursuant to the vesting schedule set forth in Section 3.2. Each stock
certificate which NVH issues to Douglas Spink for any shares of NVH
Stock which have not vested pursuant to the vesting schedule in
Section 3.2 shall contain appropriate restrictive legends regarding
the vesting of such NVH Stock and NVH shall instruct its transfer
agent to place a stop order on such certificate in accordance with the
vesting schedule set forth below. NVH shall, in exchange for the
Strategicus Stock owned by each of Darr Aley, Stephen George and Barry
Uphoff, issue and deliver to each of Darr Aley, Stephen George and
Barry Uphoff a stock certificate representing the portion of the
Merger Consideration which vests immediately pursuant to the vesting
schedule set forth in Section 3.2. NVH will deposit with a mutually
satisfactory escrow agent forty-eight (48) stock certificates for
equal amounts of NVH Stock issued to each of Darr Aley, Stephen George
and Barry Uphoff representing in the aggregate the total Merger
Consideration which does not vest immediately pursuant to the vesting
schedule set forth in Section 3.2. NVH shall instruct its transfer
agent to place a stop order on each of these certificates in
accordance with the vesting schedule set forth below. The escrow agent
shall deliver a stock certificate to each of Darr Aley, Stephen George
and Barry Uphoff within ten (10) days after their ownership interest
in the shares represented by such certificate has vested pursuant to
the vesting schedule set forth in Section 3.2.
4. Vesting Schedule. The terms and conditions set forth in Section 3.2
----------------
of the Agreement are hereby deleted and shall be replaced with the following:
Notwithstanding the delivery of the NVH Stock to the Strategicus
Stockholders, their ownership of the NVH Stock is subject to the
following vesting schedule:
Strategicus Stockholders Vesting Schedule
------------------------ ----------------
Douglas Spink 12.75% of the NVH Stock to which Douglas
Spink is entitled upon consummation of
the Merger shall vest at the Effective
Time, and the remainder of the NVH Stock
shall vest in equal amounts beginning on
the last day of the month following the
Effective Time and continuing on the
last day of each month thereafter over a
period of 24 months;
Barry Uphoff 6.4% of the NVH Stock to which Barry
Uphoff is entitled upon consummation of
the Merger shall vest at the Effective
Time, and the remainder of the NVH Stock
shall vest in equal amounts beginning on
the last day of the month following the
Effective Time and
<PAGE>
continuing on the last day of each month
thereafter over a period of 48 months;
Darr Aley 6.4% of the NVH Stock to which Darr Aley
is entitled upon consummation of the
Merger shall vest at the Effective Time,
and the remainder of the NVH Stock shall
vest in equal amounts beginning on the
last day of the month following the
Effective Time and continuing on the
last day of each month thereafter over a
period of 48 months;
Stephen George 6.4% of the NVH Stock to which Stephen
George is entitled upon consummation of
the Merger shall vest at the Effective
Time, and the remainder of the NVH Stock
shall vest in equal amounts beginning on
the last day of the month following the
Effective Time and continuing on the
last day of each month thereafter over a
period of 48 months.
Upon vesting of each installment of the NVH Stock, each Strategicus
Stockholder's ownership of his vested NVH Stock shall be free and clear of all
rights, claims, offsets, deductions and liens of NVH.
If the employment of Douglas Spink is terminated pursuant to Sections 6.1
(a) through 6.1 (d) of his Employment Agreement with NVH, then he shall forfeit
and forever lose all right, title and interest in and to the NVH Stock which is
not vested as of the date of termination of his employment, and he shall
promptly surrender to NVH all share certificates for NVH Stock which has not
vested. If Douglas Spink terminates his employment pursuant to Sections 6.1 (e)
or 6.1 (f) of his Employment Agreement with NVH, then all NVH Stock to which he
is entitled to receive pursuant to this Agreement shall immediately vest as of
the date of termination of his employment. If the consulting agreement of
either of Stephen George or Darr Aley is terminated pursuant to Section 5 of his
respective Consulting Agreement with NVH, then he shall forfeit and forever lose
all right, title and interest in and to the NVH Stock which has not vested as of
the date of termination of his consulting agreement. If the consulting
agreement of Barry Uphoff is terminated pursuant to Section 5 of his Consulting
Agreement with NVH, then he shall forfeit and forever lose all right, title and
interest in and to the NVH Stock which has not vested as of the date which is 60
days after the date of termination of his Consulting Agreement.
5. The following subsections of Section 7.1 of the Agreement are hereby
deleted and shall be replaced with the following:
<PAGE>
7.1.4 Employment Agreement. NVH shall have entered into a mutually
--------------------
acceptable Employment Agreement to be effective as of the Effective
Time with Douglas Spink.
7.1.5 Consulting Agreements. NVH shall have entered into mutually
---------------------
acceptable Consulting Agreements to be effective as of the Effective
Time with each of Darr Aley, Stephen George and Barry Uphoff.
6. The following subsection 7.1.7 shall be added to the Agreement:
7.1.7 Closing of Investment Transactions with Partner Companies.
---------------------------------------------------------
Strategicus shall have closed its pending transactions with (i) Asia
CD, Inc. whereby Strategicus will purchase 1,000,000 shares of Asia
CD, Inc.'s Series A Preferred Stock representing an approximate 12%
equity ownership interest of Asia CD, Inc. (assuming the exercise by
Strategicus of its conversion rights related to Asia CD, Inc.'s Series
A Preferred Stock) for a purchase price of $1,000,000, and (ii)
College411.com, Inc. whereby Strategicus will purchase an approximate
10% equity ownership interest of College411.com, Inc. for a purchase
price of $100,000.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
NVH: NETVALUE HOLDINGS, INC.
By: /s/ Andrew P. Panzo
-----------------------------
Andrew P. Panzo, President
STRATEGICUS: STRATEGICUS PARTNERS INC.
By: /s/ Douglas Spink
-----------------------------
Douglas Spink, President
<PAGE>
SCHEDULE 3.1
TO
MERGER AGREEMENT AND PLAN OF REORGANIZATION
NVH Stock to Strategicus Shareholders
-------------------------------------
<TABLE>
<CAPTION>
Series A Preferred Stock Common Stock
------------------------ ------------
<S> <C> <C>
Douglas Spink 577,865 1,881,157
Darr Aley 577,865 1,881,157
Barry Uphoff 577,865 1,881,157
Stephen George 577,865 1,881,157
</TABLE>
<PAGE>
EXHIBIT 2.4
July 30, 1999
The Board of Directors
NetValue Holdings, Inc.
Two Penn Center Plaza
Suite 605
Philadelphia, PA 19102
Gentlemen:
NetValue Holdings, Inc. ("Holdings" or the "Company") has requested a
review of the proposed transaction (the "Transaction") involving the merger
between the Company and Strategicus Partners ("Strategicus"). Specifically, you
have requested a review of the consideration to be issued to Strategicus and
whether this consideration is fair, from a financial point of view to the
existing shareholders of the Company. We were retained by the Board of
Directors and commenced our investigation of the Transaction on June 24, 1999.
Pursuant to the Transaction, Holdings will issue 601,030 shares of
restricted common stock to the principal owners of Strategicus. Strategicus
will contribute its equity interests in Metacat.com, Inc, College411.com, and
Asia CD, Inc. to Holdings. Our opinion relates to the immediately vested 601,030
shares of common stock issued to the Strategicus Partners at the time of the
closing of the Transaction. At the Company's request in a letter received July
23, 1999, additional equity issued to the Strategicus Partners after the closing
of the Transaction is not included in the scope of our review.
In connection with the opinion, we have reviewed, among other things, (i)
the proposed Transaction, (ii) the Agreement and Plan of Reorganization dated as
of June 21, 1999 [as amended], (iii) historical operating results of the
Company, (iv) internally prepared projections of the Company, Metacat.com, Inc.,
College411.com, and Asia CD, Inc., (v) the terms of the investments made by
Strategicus in each of Metacat.com, Inc., College411.com, and Asia CD, Inc.,
(vi) the terms of the most recent debt placement by Holdings, and (vii) the
historical trading performance of the Company's stock. We have held discussions
with members of the management of the Company and Strategicus regarding its
business operations as well as future prospects. We have reviewed industry
specific data regarding the valuation of internet companies as well as other
such information as we consider appropriate.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all financial and other information reviewed by us for purposes
of this opinion whether publicly available or provided to us by the Company or
Strategicus, or representatives of the Company or Strategicus, and we have not
assumed any responsibility for independent verification of such information. We
express no opinion as to the consideration to be received by holders of shares
who may perfect dissenters' statutory fair appraisal remedies, if available.
Based upon the foregoing and based upon other such matters that we consider
relevant, it is our opinion that the issuance of 601,030 shares of Holdings
restricted common stock to Strategicus as consideration for their
<PAGE>
interests in Metacat.com, Inc., College411.com and Asia CD, Inc. is fair from a
financial point of view to the existing shareholders of the Company as of the
date hereof.
Our opinion is necessarily based upon economic, market and other conditions
in effect on, and the information made available to us as of July 30, 1999.
Furthermore, our opinion is subject to change pending final receipt of all
documents in their final form. Our opinion is directed to the Board of
Directors of the Company and does not constitute a recommendation to any
director or stockholder as to how the director or stockholder should vote at the
meeting held in connection with the Transaction. It is understood that
subsequent developments may affect the conclusions reached in this opinion and
that we do not have any obligation to update, revise or reaffirm this opinion.
Very truly yours,
/s/ Ferris, Baker, Watts, Inc.
------------------------------
Ferris, Baker, Watts, Incorporated
2
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NETVALUE HOLDINGS, INC.
NETVALUE HOLDINGS, INC., a corporation existing under the laws of the
State of Delaware (the "Corporation"), hereby certifies as follows:
FIRST: The present name of the Corporation is NETVALUE HOLDINGS, INC.
The name under which the Corporation was originally incorporated was SUNCL, INC.
The date of the filing of the Corporation's original Certificate of
Incorporation was September 18, 1998. An Amended and Restated Certificate of
Incorporation was filed on November 16, 1998.
SECOND: This Restated Certificate of Incorporation restates and
integrates and further amends the Certificate of Incorporation of the
Corporation.
THIRD: This Restated Certificate of Incorporation was duly adopted by
written consent of the stockholders of the Corporation in accordance with the
applicable provisions of Sections 228, 242 and 245 of the General Corporation
Law of the State of Delaware.
FOURTH: The text of the Certificate of Incorporation as amended
heretofore is further amended hereby to read as herein set forth in full:
1. The name of the corporation is:
Net Value Holdings, Inc.
2. The address of its registered office in the State of Delaware is
Incorporating Services, Ltd., 15 East North Street, Dover, Delaware 19901,
located in the County of Kent, Delaware. The name of its registered agent at
such address is Incorporating Services, Ltd.
3. The nature of the business or purposes to be conducted or promoted is:
To engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware,
as amended (the "DGCL").
<PAGE>
4. The authorized capital stock of the Corporation shall consist of
60,000,000 shares of which 10,000,000 shall be Preferred Stock, with a par value
of $.001 per share, and 50,000,000 shall be Common Stock, with a par value of
$.001 per share, and the voting powers, designations, preferences and relative,
participating, optional or other special qualifications, limitations or
restrictions thereof are set forth hereinafter:
(a) The Preferred Stock may be issued in one or more series, each of which
shall be distinctively designated, shall rank equally and shall be
identical in all respects except as otherwise provided in subsection
(b) of this Section 4.
(b) Authority is hereby vested in the Board of Directors to issue from
time to time the Preferred Stock of any series and to state in the
resolution or resolutions providing for the issuance of shares of any
series the voting powers, if any, designations, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions of such series to the full
extent now or hereafter permitted by the law of the State of Delaware
in respect of the matters set forth in the following clauses (i) to
(viii) inclusive:
(i) the number of shares to constitute such series, and the
distinctive designations thereof;
(ii) the voting powers, full or limited, if any, of such series;
(iii) the rate of dividends payable on shares of such series, the
conditions on which and the times when such dividends are
payable, the preference to, or the relation to, the payment of
the dividends payable on any other class, classes or series of
stock, whether cumulative or non-cumulative and, if cumulative,
the date from which dividends on shares of such series shall be
cumulative;
(iv) the redemption price or prices, if any, and the terms and
conditions on which shares of such series shall be redeemable;
(v) the requirement of any sinking fund or funds to be applied to
the purchase or redemption of shares of such series and, if so,
the amount of such fund or funds and the manner of application;
(vi) the rights of shares of such series upon the liquidation,
dissolution or winding up of, or upon any distribution of the
assets of, the Corporation;
(vii) the rights, if any, of the holders of shares of such series to
convert such shares into, or to exchange such shares for,
shares of any other class, classes or series of stock and the
price or prices or the rates of exchange and the
2
<PAGE>
adjustments at which such shares shall be convertible or
exchangeable, and any other terms and conditions of such
conversion or exchange; and
(viii) any other preferences and relative, participating, optional or
other special rights of shares of such series, and
qualifications, limitations or restrictions including, without
limitation, any restriction on an increase in the number of
shares of any series theretofore authorized and any
qualifications, limitations or restrictions of rights or powers
to which shares of any future series shall be subject.
(c) The number of authorized shares of Preferred Stock may be increased or
decreased by the affirmative vote of the holders of a majority of the
votes of all classes of voting securities of the Corporation without a
class vote of the Preferred Stock, or any series thereof, except as
otherwise provided in the resolution or resolutions fixing the voting
rights of any series of the Preferred Stock.
5. The Corporation is to have perpetual existence.
6. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter or repeal
the By-Laws of the Corporation. Elections of Directors need not be written
ballot unless the By-Laws of the Corporation shall so provide.
7. 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.
8. A Director 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 DGCL, or (iv) for any
transaction from which the Director derived any improper personal benefit.
9. The corporation shall, to the full extent permitted by Section 145 of
the DGCL, indemnify all persons whom it may indemnify pursuant thereto.
10. 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 Section 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 Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or
3
<PAGE>
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.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Andrew P. Panzo, its President and Chief Executive Officer, this 26th
day of July, 1999.
NET VALUE HOLDINGS, INC.
By: /s/ Andrew P. Panzo
---------------------------------------
Andrew P. Panzo
President and Chief Executive Officer
<PAGE>
EXHIBIT 3.2
BY LAWS
OF
SUNCL, INC.
ARTICLE I.
OFFICES
-------
Section 1. Registered Office. The registered office of SUNCL, Inc. (the
-----------------
"Corporation") in the State of Delaware shall be 15 E. North Street, in the City
of Dover, County of Kent. The registered agent in charge thereof shall be
Incorporating Services, Inc.
Section 2. Other Offices. The Corporation may also have offices at such
-------------
other places both within and without the State of Delaware as the board of
directors of the Corporation (the "Board of Directors") may from time to time
determine or the business of the Corporation may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place of Meetings. All meetings of the stockholders shall be
-----------------
held at such time and place, either within or without the State of Delaware, as
shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The annual meeting of stockholders shall be
---------------
held on such date and at such time as may be fixed by the Board of Directors and
stated in the notice of the meeting, for the purpose of electing directors and
for the transaction of only such other business as is properly brought before
the meeting in accordance with these Bylaws (the "Bylaws").
Written notice of an annual meeting stating the place, date and hour of the
meeting, shall be given to each stockholder entitled to vote at such meeting not
less than ten (10) nor more than sixty (60) days before the date of the annual
meeting.
To be properly brought before the annual meeting, business must be either
(i) specified in the notice of annual meeting (or any supplement or amendment
thereto) given by or at the direction of the Board of Directors, (ii) otherwise
brought before the annual meeting by or at the direction of the Board of
Directors, or (iii) otherwise properly brought before the annual meeting by a
stockholder. In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered
<PAGE>
to or mailed and received at the principal executive offices of the Corporation
not less than sixty (60) days nor more than ninety (90) days prior to the
meeting; provided, however, that in the event that less than seventy (70) days
notice or prior public disclosure of the date of the annual meeting is given or
made to stockholders, notice by a stockholder, to be timely, must be received no
later than the close of business on the tenth (10th) day following the day on
which such notice of the date of the annual meeting was mailed or such public
disclosure was made, whichever first occurs. A stockholder's notice to the
Secretary shall set forth (a) as to each matter the stockholder proposes to
bring before the annual meeting (i) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, and (ii) any material interest of the
stockholder in such business, and (b) as to the stockholder giving the notice
(i) the name and record address of the stockholder and (ii) the class, series
and number of shares of capital stock of the Corporation which are beneficially
owned by the stockholder. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at the annual meeting except in
accordance with the procedures set forth in this Article II, Section 2. The
officer of the Corporation presiding at an annual meeting shall, if the facts
warrant, determine and declare to the annual meeting that business was not
properly brought before the annual meeting in accordance with the provisions of
this Article II, Section 2, and if such officer should so determine, such
officer shall so declare to the annual meeting and any such business not
properly brought before the meeting shall not be transacted.
Section 3. Special Meetings. Special meetings of the stockholders, for any
----------------
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation of the Corporation (the "Certificate of
Incorporation"), may only be called by a majority of the entire Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President, and shall be called by the President or Secretary at the request in
writing of stockholders owning a majority in amount of the entire capital stock
of the corporation issued and outstanding and entitled to vote. Such request
shall state the purpose or purposes of the proposed meeting.
Unless otherwise provided by law, written notice of a special meeting of
stockholders, stating the time, place and purpose or purposes thereof, shall be
given to each stockholder entitled to vote at such meeting, not less than ten
(10) or more than sixty (60) days before the date fixed for the meeting.
Business transacted at any special meeting of stockholders shall be limited to
the purposes stated in the notice.
Section 4. Quorum. The holders of a majority of the capital stock issued
------
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the holders of a majority of the
votes entitled to be cast by the stockholders entitled to vote thereat, present
in person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally noticed. If the
adjournment is for more than thirty (30) days,
2
<PAGE>
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
entitled to vote at the meeting.
Section 5. Voting. Unless otherwise required by law, the Certificate of
------
Incorporation, the rules or regulations of the Nasdaq OTC Bulletin Board or any
stock exchange applicable to the Corporation or these Bylaws, any question
(other than the election of directors) brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. At all meetings of stockholders
for the election of directors, a plurality of the votes cast shall be sufficient
to elect. Each stockholder represented at a meeting of stockholders shall be
entitled to cast one vote for each share of the capital stock entitled to vote
thereat held by such stockholder, unless otherwise provided by the Certificate
of Incorporation. 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 any person or persons to act for him by proxy. All proxies
shall be executed in writing and shall be filed with the Secretary of the
Corporation not later than the day on which exercised. No proxy shall be voted
or acted upon after three (3) years from its date, unless the proxy provides for
a longer period. The Board of Directors, in its discretion, or the officer of
the Corporation presiding at a meeting of stockholders, in his discretion, may
require that any votes cast at such meeting shall be cast by written ballot.
Section 6. Action of Shareholders Without Meeting. Unless otherwise
--------------------------------------
provided by the Certificate of Incorporation, any action required to be taken at
any annual or special meeting of stockholders, or any action which may be taken
at any annual or special meeting of such stockholders, 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, and shall be delivered to the Corporation
by delivery to its registered office in the State of Delaware, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
Section 7. Voting List. The officer who has charge of the stock ledger
-----------
of the corporation shall prepare and make, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the election, either at a place within the city, town or
village where the election is to be held, which place shall be specified in the
notice of the meeting, or, if not specified, at the place where said meeting is
to be held. The list shall be produced and kept at the time and place of
election during the whole time thereof, and may be inspected by any stockholder
of the Corporation who is present.
3
<PAGE>
Section 8. Stock Ledger. The stock ledger of the Corporation shall be the
------------
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 7 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
Section 9. Adjournment. Any meeting of the stockholders, including one at
-----------
which directors are to be elected, may be adjourned for such periods as the
presiding officer of the meeting or the stockholders present in person or by
proxy and entitled to vote shall direct.
ARTICLE III.
DIRECTORS
---------
Section 1. Powers; Number; Qualifications. The business and affairs of the
------------------------------
Corporation shall be managed by or under the direction of the Board of
Directors, except as may be otherwise provided by law or in the Certificate of
Incorporation. The number of directors which shall constitute the Board of
Directors shall be not less than one (1) nor more than nine (9), spread as
evenly as possible among the Corporation's three classes of directors. The exact
number of directors shall be fixed from time to time, within the limits
specified in this Article III Section 1 or in the Certificate of Incorporation,
or by the Board of Directors. Directors need not be stockholders of the
Corporation.
Section 2. Election; Term of Office; Resignation; Removal; Vacancies. Each
---------------------------------------------------------
director shall hold office until the next annual meeting of stockholders at
which the term of the class to which he has been elected expires and until such
director's earlier resignation, removal from office, death or incapacity. Any
director may resign at any time upon written notice to the Board of Directors or
to the Chief Executive Officer or the Secretary of the Corporation. Such
resignation shall take effect at the time specified therein, and unless
otherwise specified therein no acceptance of such resignation shall be necessary
to make it effective. Any director or the entire Board of Directors may be
removed, but only for cause, by the holders of a majority of the shares then
entitled to vote at an election of directors. Unless otherwise provided in the
Certificate of Incorporation, vacancies and newly created directorships
resulting from any increase in the authorized number of directors or from any
other cause may be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director and each director
so chosen shall hold office until the next annual meeting at which the term of
the class to which such director has been elected expires and until such
director's successor shall be duly elected and shall qualify, or until such
director's earlier resignation, removal from office, death or incapacity.
Section 3. Nominations. Nominations of persons for election to the Board
-----------
of Directors of the Corporation at a meeting of stockholders of the Corporation
may be made at such meeting by or at the direction of the Board of Directors, by
any committee or persons appointed by the Board of Directors or by any
stockholder of the Corporation entitled to vote for the election of directors at
the meeting who complies with the notice procedures set forth in this Article
III, Section 3. Such
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nominations by any stockholder shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the Corporation not less than sixty (60) days nor more than ninety
(90) days prior to the meeting; provided however, that in the event that less
than seventy (70) days notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder, to be
timely, must be received no later than the close of business on the tenth (10th)
day following the day on which such notice of the date of the meeting was mailed
or such public disclosure was made, whichever first occurs. Such stockholder's
notice to the Secretary shall set forth (i) as to each person whom the
stockholder proposes to nominate for election or reelection as a director, (a)
the name, age, business address and residence address of the person, (b) the
principal occupation or employment of the person, (c) the class and number of
shares of capital stock of the Corporation which are beneficially owned by the
person, and (d) any other information relating to the person that is required to
be disclosed in solicitations for proxies for election of directors pursuant to
the Rules and Regulations of the Securities and Exchange Commission under
Section 14 of the Securities Exchange Act of 1934, as amended, and (ii) as to
the stockholder giving the notice (a) the name and record address of the
stockholder and (b) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the stockholder. The Corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the eligibility of such proposed
nominee to serve as a director of the Corporation. No person shall be eligible
for election as a director of the Corporation unless nominated in accordance
with the procedures set forth herein. The officer of the Corporation presiding
at an annual meeting shall, if the facts warrant, determine and declare to the
meeting that a nomination was not made in accordance with the foregoing
procedure, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
Section 4. Meetings. The Board of Directors of the Corporation may hold
--------
meetings, both regular and special, either within or without the State of
Delaware. The first meeting of each newly elected Board of Directors shall be
held immediately after and at the same place as the meeting of the stockholders
at which it as elected and no notice of such meeting shall be necessary to the
newly directors in order legally to constitute the meeting, provide a quorum
shall be present. Regular meetings of the Board of Directors may be held without
notice at such time and place as shall from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman of the Board, the Chief Executive Officer or the President, or a
majority of the entire Board of Directors. Notice thereof stating the place,
date and hour of the meeting shall be given to each director either by mail not
less than forty-eight (48) hours before the date of the meeting, by telephone,
facsimile or telegram on twenty-four (24) hours notice, or on such shorter
notice as the person or persons calling such meeting may deem necessary or
appropriate in the circumstances.
Section 5. Quorum. Except as may be otherwise specifically provided by
------
law, the Certificate of Incorporation or these Bylaws, at all meetings of the
Board of Directors or any committee thereof, a majority of the entire Board of
Directors or such committee, as the case may be, shall constitute a quorum for
the transaction of business and the act of a majority of the directors present
at any meeting at which there is a quorum shall be the act of the Board of
Directors. If a
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quorum shall not be present at any meeting of the Board of Directors or of any
committee thereof, a majority of the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 6. Actions of Board of Directors Without Meeting. Unless otherwise
---------------------------------------------
restricted by the Certificate of Incorporation or 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 of Directors or of such committee, as the case may be, consent thereto in
writing, and the writing or writings are filled with the minutes of proceedings
of the Board of Directors or committee.
Section 7. Removal of Directors by Stockholders. The entire Board of
------------------------------------
Directors or any individual Director may be removed from office with or without
cause by a majority vote of the holders of the outstanding shares then entitled
to vote at an election of directors. In case the Board of Directors or any one
or more Directors be so removed, new Directors may be elected at the same time
for the unexpired portion of the full term of the Director or Directors so
removed.
Section 8. Resignations. Any Director may resign at any time by submitting
------------
his written resignation to the Corporation. Such resignation shall take effect
at the time of its receipt by the Corporation unless another time be fixed in
the resignation, in which case it shall become effective at the time so fixed.
The acceptance of a resignation shall not be required to make it effective.
Section 9. Committees. The Board of Directors may designate one or more
----------
committees, each committee to consist of one or more of the directors of the
Corporation. 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 law and in the resolution of the Board of Directors establishing
such committee, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which 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 the By-laws of the Corporation; and,
unless the resolution expressly so provides, no such committee shall have the
power or authority to declare a dividend or to authorize the issuance of stock
or to adopt a certificate of ownership and merger. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.
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Section 10. Compensation. The directors may be paid their expenses, if any,
------------
of attendance at each meeting of the Board of Directors and may be paid a fixed
amount (in cash or other form of consideration) for attendance at each meeting
of the Board of Directors or a stated salary as director. No such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
Section 11. Interested Directors. No contract or transaction 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, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
Section 12. Meetings by Means of Conference Telephone. Members of the Board
-----------------------------------------
of Directors or any committee designed by the Board of Directors may participate
in a meeting of the Board of Directors or of a committee of the Board of
Directors by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this subsection shall constitute
presence in person at such meeting.
ARTICLE IV.
OFFICERS
--------
Section 1. General. The officers of the Corporation shall be elected by
-------
the Board of Directors and shall consist of: a Chairman of the Board; a Chief
Executive Officer; a President; a Secretary; and a Treasurer. The Board of
Directors, in its discretion, may also elect one or more Vice Presidents
(including Executive Vice Presidents and Senior Vice Presidents), Assistant
Secretaries, Assistant Treasurers, a Controller and such other officers as in
the judgment of the Board of Directors may be necessary or desirable. Any number
of offices may be held by the same person and more than one person may hold the
same office, unless otherwise prohibited by law, the
7
<PAGE>
Certificate of Incorporation or these Bylaws. The officers of the Corporation
need not be stockholders of the Corporation nor, except in the case of the
Chairman of the Board of Directors, need such officers be directors of the
Corporation.
Section 2. Election. The Board of Directors at its first meeting held
--------
after each annual meeting of stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Except as otherwise provided in this Article IV, any officer elected by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors. The salaries of all
officers who are directors of the Corporation shall be fixed by the Board of
Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of attorney,
------------------------------------------
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the Chairman of the Board, Chief Executive Officer,
President or any Vice President, and any such officer may, in the name and on
behalf of the Corporation, take all such action as any such officer may deem
advisable to vote in person or by proxy at any meeting of security holders of
any corporation in which the Corporation may own securities and at any such
meeting shall possess and may exercise any and all rights and powers incident to
the ownership of such securities and which, as the owner thereof, the
Corporation might have exercised and possessed if present. The Board of
Directors may, by resolution, from time to time confer like powers upon any
other person or persons.
Section 4. Chairman of the Board. The Chairman of the Board shall be a
---------------------
member of the Board of Directors and shall preside at all meetings of the Board
of Directors. The Chairman of the Board of Directors shall exercise and perform
such duties and have such powers as may be prescribed by the Board of Directors
or these Bylaws, all in accordance with basic policies as established by and
subject to the oversight of the Board of Directors.
Section 5. Chief Executive Officer. The Chief Executive Officer of the
-----------------------
Corporation shall supervise, coordinate and manage the Corporation's business
and activities and supervise, coordinate and manage its operating expenses and
capital allocation, shall have general authority to exercise all the powers
necessary for the Chief Executive Officer of the Corporation and shall perform
such other duties and have such other powers as may be prescribed by the Board
of Directors or these Bylaws, all in accordance with basic policies as
established by and subject to the oversight of the Board of Directors. In the
absence or disability of the Chairman of the Board, the duties of the Chairman
of the Board shall be performed and the Chairman of the Board's authority may be
exercised by the Chief Executive Officer and, in the event the Chief Executive
Officer is absent or disabled, such duties shall be performed and such authority
may be exercised by a director designated for such purpose by the Board of
Directors.
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<PAGE>
Section 6. President. The President shall have general authority to
---------
exercise all the powers necessary for the President of the Corporation and shall
perform such other duties and have such other powers as may be prescribed by the
Board of Directors or these Bylaws, all in accordance with basic policies as
established by and subject to the oversight of the Board of Directors, the
Chairman of the Board and the Chief Executive Officer. In the absence or
disability of the Chairman of the Board and Chief Executive Officer, the duties
of the Chairman of the Board shall be performed and the Chairman of the Board's
authority may be exercised by the President and, in the event the President is
absent or disabled, such duties shall be performed and such authority may be
exercised by a director designated for such purpose by the Board of Directors.
Section 7. Vice Presidents. At the request of the President or in the
---------------
absence of each of the Chairman of the Board, Chief Executive Officer and
President, or in the event of their inability or refusal to act, the Vice
President or the Vice Presidents if there is more than one (in the order
designated by the Board of Directors) shall perform the duties of the Chairman
of the Board, Chief Executive Officer and/or President, and when so acting,
shall have all the powers of and be subject to all the restrictions upon such
offices (other than as Chairman of the Board). Each Vice President shall perform
such other duties and have such other powers as the Board of Directors from time
to time may prescribe. If there be no Vice President, the Board of Directors
shall designate the officer of the Corporation who, in the absence of each of
the Chairman of the Board, Chief Executive Officer and President or in the event
of the inability or refusal of such officers to act, shall perform the duties of
such offices (other than as Chairman of the Board), and when so acting, shall
have all the powers of and be subject to all the restrictions upon such offices
(other than as Chairman of the Board).
Section 8. Secretary. The Secretary shall attend all meetings of the
---------
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer or the President, under whose
supervision the Secretary shall be. If the Secretary shall be unable or shall
refuse to cause to be given notice of all meetings of the stockholders and
special meetings of the Board of Directors, then any Assistant Secretary shall
perform such actions. If there be no Assistant Secretary, then the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President may choose another officer to cause such notice to be given. The
Secretary shall have custody of the seal of the Corporation and the Secretary or
any Assistant Secretary, if there be one, shall have authority to affix the same
to any instrument requiring it and when so affixed, it may be attested by the
signature of the Secretary or by the signature of any such Assistant Secretary.
The Board of Directors may give general authority to any other officer to affix
the seal of the Corporation and to attest the affixing by his signature. The
Secretary shall see that all books, reports, statements, certificates and other
documents and records required by law to be kept or filed are properly kept or
filed, as the case may be.
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Section 9. Treasurer. The Treasurer shall have the custody of the
---------
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 10. Assistant Secretaries. Except as may be otherwise provided in
---------------------
these Bylaws, Assistant Secretaries, if there be any, shall perform such duties
and have such powers as from time to time may be assigned to them by the Board
of Directors, the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, if there be one, or the Secretary, and in the
absence of the Secretary or in the event of his disability or refusal to act,
shall perform the duties of the Secretary, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the Secretary.
Section 11. Assistant Treasurers. Assistant Treasurers, if there be any,
--------------------
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer, the President, any Vice President, if there be one, or the
Treasurer, and in the absence of the Treasurer or in the event of his disability
or refusal to act, shall perform the duties of the Treasurer, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the Treasurer. If required by the Board of Directors, an Assistant Treasurer
shall give the Corporation a bond in such sum and with such surety or sureties
as shall be satisfactory to the Board of Directors for the faithful performance
of the duties of his office and for the restoration to the Corporation, in case
of his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession or
under his control belonging to the Corporation.
Section 12. Controller. The Controller shall establish and maintain the
----------
accounting records of the Corporation in accordance with generally accepted
accounting principles applied on a consistent basis, maintain proper internal
control of the assets of the Corporation and shall perform such other duties as
the Board of Directors, the Chairman of the Board, the Chief Executive Officer,
the President or any Vice President of the Corporation may prescribe.
Section 13. Other Officers. Such other officers as the Board of Directors
--------------
may choose shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Directors. The Board of Directors may
delegate to any other officer of the Corporation the power to choose such other
officers and to prescribe their respective duties and powers.
10
<PAGE>
Section 14. Vacancies. The Board of Directors shall have the power to fill
---------
any vacancies in any office occurring from whatever reason.
Section 15. Resignations. Any officer may resign at any time by submitting
------------
his written resignation to the Corporation. Such resignation shall take effect
at the time of its receipt by the Corporation, unless another time be fixed in
the resignation, in which case it shall become effective at the time so fixed.
The acceptance of a resignation shall lot be required to make it effective.
Section 16. Removal. Subject to the provisions of any employment agreement
-------
approved by the Board of Directors, any officer of the Corporation may be
removed at any time, with or without cause, by the Board of Directors.
ARTICLE V.
CAPITAL STOCK
-------------
Section 1. Form of Certificates. Every holder of stock in the Corporation
--------------------
shall be entitled to have a certificate signed, in the name of the Corporation
(i) by the Chief Executive Officer, the President or a Vice President and (ii)
by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the Corporation, certifying the number of shares owned by him in
the Corporation.
Section 2. Signatures. Any or all of the signatures on the certificate may
----------
be a facsimile, including, but not limited to, signatures of officers of the
Corporation and countersignatures of a transfer agent or registrar. In case an
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
-----------------
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate, or his legal
representative, to advertise the same in such manner as the Board of Directors
shall require and/or to give the Corporation a bond in such sum as it may direct
as indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be transferable in
---------
the manner prescribed by law and in these Bylaws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be canceled before a new
11
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certificate shall be issued. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transactions upon its books, unless the Corporation has a duty to inquire as to
adverse claims with respect to such transfer which has not been discharged. The
Corporation shall have no duty to inquire into adverse claims with respect to
such transfer unless (a) the Corporation has received a written notification of
an adverse claim at a time and in a manner which affords the Corporation a
reasonable opportunity to act on it prior to the issuance of a new, reissued or
re-registered share certificate and the notification identifies the claimant,
the registered owner and the issue of which the share or shares is a part and
provides an address for communications directed to the claimant; or (b) the
Corporation has required and obtained, with respect to a fiduciary, a copy of a
will, trust, indenture, articles of co-partnership, by-laws or other controlling
instruments, for a purpose other than to obtain appropriate evidence of the
appointment or incumbency of the fiduciary, and such documents indicate, upon
reasonable inspection, the existence of an adverse claim. The Corporation may
discharge any duty of inquiry by any reasonable means, including notifying an
adverse claimant by registered or certified mail at the address furnished by him
or, if there be no such address, at his residence or regular place of business
that the security has been presented for registration of transfer by a named
person, and that the transfer will be registered unless within thirty days from
the date of mailing the notification, either (a) an appropriate restraining
order, injunction or other process issues from a court of competent
jurisdiction; or (b) an indemnity bond, sufficient in the Corporation's judgment
to protect the Corporation and any transfer agent, registrar or other agent of
the Corporation involved from any loss which it or they may suffer by complying
with the adverse claim, is filed with the Corporation.
Section 5. Fixing Record Date. In order that the Corporation may determine
------------------
the stockholders entitled to notice 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 entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record is
adopted by the Board of Directors, and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of such meeting, nor more
than ten (10) days after the date upon which the resolution fixing the record
date of action with a meeting is adopted by the Board of Directors, nor more
than sixty (60) days prior to any other action. If no record date is fixed:
(a) 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.
(b) 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
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necessary, shall be the first date on which a signed written consent is
delivered to the Corporation.
(c) 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. Registered Stockholders. Prior to due presentment for
-----------------------
transfer of any share or shares, the Corporation shall treat the registered
owner thereof as the person exclusively entitled to vote, to receive
notifications and to all other benefits of ownership with respect to such share
or shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of the State Delaware.
ARTICLE VI.
NOTICES
-------
Section 1. Form of Notice. Notices to directors and stockholders other
--------------
than notices to directors of special meetings of the board of Directors which
may be given by any means stated in Article III, Section 4, shall be in writing
and delivered personally or mailed to the directors or stockholders at their
addresses appearing on the books of the corporation. Notice by mail shall be
deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram.
Section 2. Waiver of Notice. Whenever any notice is required to be
----------------
given under the provisions of law or the Certificate of Incorporation or by
these By-laws of the Corporation, a written waiver, signed by the person or
persons entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular, or special meeting of the stockholders, Directors, or members of a
committee of Directors need be specified in any written waiver of notice unless
so required by the Certificate of Incorporation.
ARTICLE VII.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
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Section 1. 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 (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, 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 in connection with such action, suit or proceeding 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. 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 which 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. 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 or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
Corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit 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 except that 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 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 Court of Chancery
or such other court shall deem proper.
Section 3. 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 Sections 1 or 2 of this Article, 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 4. Any indemnification under sections 1 or 2 of this Article
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in such section. Such determination
shall be made:
14
<PAGE>
(a) 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
(b) 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
(c) By the stockholders.
Section 5. Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may 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 such 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 Section. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate.
Section 6. The indemnification and advancement of expenses provided by, or
granted pursuant to the other sections of this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, 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.
Section 7. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another Corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article.
Section 8. For purposes of this Article, references to "the Corporation"
shall include, in addition to the resulting Corporation, any constituent
Corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer employee or
agent of such constituent Corporation, or is or was serving at the request of
such constituent Corporation as a director, officer, employee or agent of
another Corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under this Article with respect to the
resulting or surviving Corporation as he would have with respect to such
constituent Corporation of its separate existence had continued.
Section 9. For purposes of this Article, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the
15
<PAGE>
Corporation" shall include any service as a director, officer, employee or agent
of the Corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee benefit plan,
its participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article.
Section 10. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, 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.
Section 11. No director or officer of the Corporation shall be personally
liable to the Corporation or to any stockholder of the Corporation for monetary
damages for breach of fiduciary duty as a director or officer, provided that
this provision shall not limit the liability of a director or officer (i) for
any breach of the director's or the officer'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 Delaware, or (iv) for any
transaction from which the director or officer derived an improper personal
benefit.
ARTICLE VIII.
GENERAL PROVISIONS
------------------
Section 1. Reliance on Books and Records. Each Director, each member of
-----------------------------
any committee designated by the Board of Directors, and each officer of the
Corporation, shall, in the performance of his duties, be fully protected in
relying in good faith upon the books of account or other records of the
Corporation, including reports made to the Corporation by any of its officers,
by an independent certified public accountant, or by an appraiser selected with
reasonable care.
Section 2. Dividends. Subject to the provisions of the Certificate of
---------
Incorporation, if any, dividends upon the capital stock of the Corporation may
be declared by the Board of Directors at any regular or special meeting,
pursuant to law. Dividends may be paid in cash, in property, or in shares of the
capital stock, subject to the provisions of the Certificate of Incorporation.
Before payment of any dividend, there may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Directors from time
to time, in their absolute discretion, think proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the Corporation, or for such other purpose as the Directors
shall think conducive to the interest of the Corporation, and the Directors may
modify or abolish any such reserve in the manner in which it was created.
Section 3. Annual Statement. The Board of Directors shall present at each
----------------
annual meeting, and at any special meeting of the stockholders when called for
by vote of the stockholders, a full and clear statement of the business and
condition of the Corporation.
16
<PAGE>
Section 4. Checks. All checks or demands for money and notes of the
------
Corporation shall be signed by such officer or officers or such other persons as
the Board of Directors may from time to time designate.
Section 5. Fiscal Year. The fiscal year of the Corporation shall be as
-----------
determined by the Board of Directors. If the Board of Directors shall fail to do
so, the Chief Executive Officer or President shall fix the fiscal year.
Section 6. Seal. The corporate seal shall have inscribed thereon the
----
name of the Corporation, the year of its organization and the words "Corporate
Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any manner reproduced.
Section 7. Amendments. The original or other By-laws may be adopted,
----------
amended or repealed by the stockholders entitled to vote thereon at any regular
or special meeting or, if the Certificate of Incorporation so provides, by the
Board of Directors. The fact that such power has been so conferred upon the
Board of Directors shall not divest the stockholders of the power nor limit
their power to adopt, amend or repeal by-laws.
Section 8. Interpretation of By-laws. All words, terms and provisions
-------------------------
of these by-laws shall be interpreted and defined by and in accordance with the
General Corporation Law of the State of Delaware, as amended, and as amended
from time to time hereafter.
17
<PAGE>
EXHIBIT 4.1
NUMBER SHARES
netValue Holdings, Inc.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 64120C 10 4
COMMON STOCK
This Certifies That
is owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF $.001 PAR VALUE EACH OF
netValue Holdings, Inc.
transferable on the books of the Corporation in person or by attorney upon
surrender of this certificate duly endorsed or assigned. This certificate and
the shares represented hereby are subject to the laws of the State of Delaware,
and to the Certificate of Incorporation and Bylaws of the Corporation, as now or
hereafter amended. This certificate is not valid until countersigned by the
Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
COUNTERSIGNED:
DATED: STOCKTRANS, INC.
7 EAST LANCASTER AVE., ARDMORE, PA 19003
TRANSFER AGENT
BY:
[SEAL]
AUTHORIZED SIGNATURE
/s/ [ILLEGIBLE]^^ /s/ [ILLEGIBLE]^^
SECRETARY PRESIDENT
<PAGE>
EXHIBIT 4.2
THIS NOTE, THE SHARES OF COMMON STOCK AND THE COMMON STOCK PURCHASE WARRANTS
ISSUABLE UPON CONVERSION OF THIS NOTE (COLLECTIVELY, THE "SECURITIES") HAVE NOT
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE
SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY. THE SECURITIES ARE
BEING OFFERED PURSUANT TO EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
FEDERAL AND STATE SECURITIES LAW AND CANNOT BE RESOLD UNLESS THEY ARE
SUBSEQUENTLY REGISTERED UNDER SUCH LAWS OR UNLESS EXEMPTIONS FROM REGISTRATION
ARE AVAILABLE. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER
GOVERNMENTAL AGENCY HAS PASSED ON, RECOMMENDED, OR ENDORSED THE MERITS OF THE
SECURITIES. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
CONVERTIBLE
PROMISSORY NOTE
---------------
$DOLLAR AMOUNT January 1, 1999
FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND HEREBY, netValue
Holdings, Inc., a Delaware corporation having its principal executive office at
Two Penn Center Plaza, Suite 605, Philadelphia, PA 19102 (hereinafter referred
to, and obligated as, "Borrower"), promises to pay to the order of NAME
("Lender"), the principal sum of WRITTEN AMOUNT Dollars, together with interest
as set forth below, until the date on which the principal amount is paid in
full, payable in lawful money of the United States of America in accordance with
the terms of this Promissory Note (the "Note").
1. Maturity Date. The Note shall have a maturity date (the "Maturity
-------------
Date") of the earlier of (i) the date on which the Lender elects to convert all
of the outstanding and unpaid principal and accrued interest of this Note into
shares of the Borrower's common stock, par value $.001 per share ("Common
Stock") pursuant to Paragraph 5(a) hereof; (ii) the date on which the Borrower
elects to cause a Mandatory Conversion of all of the outstanding and unpaid
principal and accrued interest of this Note into shares of the Borrower's Common
Stock pursuant to Paragraph 5(b) hereof; or (iii) the one-year anniversary of
the closing of the merger of Borrower and netValue, Inc. (the "Merger").
2. Interest.
--------
(a) During the period beginning on the date hereof and ending on the
Maturity Date, interest shall accrue daily on the outstanding principal amount
hereunder at a simple rate of twelve percent (12%) per annum.
(b) Interest shall be calculated hereunder for the actual number of
days that the principal is outstanding, based on a three hundred sixty (360) day
year. Interest shall continue to accrue on the principal balance hereof at the
then-applicable simple rate of interest specified in this Note,
<PAGE>
notwithstanding any demand for payment, acceleration and/or the entry of any
judgment against Borrower, until all principal owing hereunder is paid in full
or converted into shares of Common Stock.
3. Payment. No payments of principal or accrued interest shall be due
-------
on the Note until the Maturity Date. Accrued interest shall be paid in shares of
Common Stock of Borrower at the Conversion Price upon any conversion of the Note
into shares of Borrower's Common Stock pursuant to Paragraph 5 hereof. All
accrued and unpaid interest shall be paid in cash upon the one-year anniversary
of the closing of the Merger if no conversion shall occur.
4. Prepayments. The Borrower reserves the right to prepay any or all
-----------
of the principal balance due on the Note at any time prior to the Maturity Date.
5. Conversion Rights.
-----------------
(a) Conversion at the Option of Lender.
----------------------------------
(i) Lender may, at any time and from time to time, convert
(an "Optional Conversion") all or any part of the outstanding principal amount
of the Note, plus all accrued interest thereon through the date of conversion,
into a number of fully paid and nonassessable shares of Common Stock of Borrower
equal to the quotient of the total amount of principal and accrued interest
which Lender has elected to convert divided by the conversion price in effect at
such time (the "Conversion Price"). The initial Conversion Price shall be $2.00.
(ii) In order to effect an Optional Conversion, Lender shall:
(x) fax (or otherwise deliver) a copy of the fully executed Notice of Conversion
to Borrower for the Common Stock and (y) surrender or cause to be surrendered,
the Note duly endorsed, along with a copy of the Notice of Conversion as soon as
practicable thereafter, to Borrower. Upon receipt by Borrower of a facsimile
copy of a Notice of Conversion from Lender, Borrower shall immediately send, via
facsimile, a confirmation to Lender stating that the Notice of Conversion has
been received, the date upon which Borrower expects to deliver the Common Stock
issuable upon such Optional Conversion and the name and telephone number of a
contact person at Borrower regarding the Optional Conversion. Borrower shall not
be obligated to issue shares of Common Stock issuable upon such Optional
Conversion unless either the Note is delivered to Borrower as provided above, or
Lender notifies Borrower that the Note has been lost, stolen or destroyed and
Lender complies with such reasonable requirements of Borrower as are necessary
to assure Borrower of such loss, theft or destruction.
(iii) Upon the surrender of the Note and a Notice of
Conversion, Borrower shall issue and deliver to Lender (x) that number of shares
of Common Stock issuable upon such Optional Conversion of the portion of the
Note being converted, (y) that number of Common Stock Purchase Warrants issuable
in accordance with Section 5(c), and (z) a new note in substantially the same
form as the Note representing the balance of the principal amount of the Note
not being converted, if any.
2
<PAGE>
(b) Mandatory Conversion at the Election of Borrower.
------------------------------------------------
(i) Borrower may cause all, but not less than all, of the
outstanding principal amount of the Note, plus all accrued interest thereon
through the date of conversion, to be converted into a number of fully paid and
nonassessable shares of Common Stock equal to the quotient of the total amount
of principal and accrued interest thereon through the date of conversion divided
by the Conversion Price (a "Mandatory Conversion") upon the occurrence of any
one of the following events:
1) If (i) Borrower's Common Stock is listed on the
NASDAQ Over-the-Counter Bulletin Board Trading System
(the "Bulletin Board"), (ii) the average of the "bid"
and "ask" price on the Bulletin Board is at least
$5.00 per share for a period of at least twenty (20)
consecutive trading days immediately preceding the
date of conversion and (iii) the shares of Common
Stock issuable upon conversion of the Note have been
registered for resale with the Securities and
Exchange Commission (the "SEC"); or
2) If (i) Borrower's Common Stock is traded on any
national exchange or market (other than the Bulletin
Board), (ii) the average closing price on such
exchange or market is at least $5.00 per share for a
period of at least twenty (20) consecutive trading
days immediately preceding the date of conversion and
(iii) the shares of Common Stock issuable upon
conversion of the Note have been registered for
resale with the SEC.
(ii) In order to effect a Mandatory Conversion, Borrower shall:
fax (or otherwise deliver) a copy of the fully executed Notice of Conversion to
Lender. Within three (3) business days of receipt by Lender of such Notice of
Conversion from Borrower, Lender shall cause the Note, duly endorsed, to be
surrendered to Borrower. In the event the Note is not surrendered to Borrower
within three (3) business days following the receipt by Lender of a Notice of
Conversion from Borrower, the Note shall for all purposes be deemed canceled and
shall no longer constitute an obligation of Borrower, except for Borrower's
obligation to deliver shares of Common Stock and Common Stock Purchase Warrants
in accordance with Sections 5(b)(iii) and 5(c) hereof.
(iii) Borrower shall not be obligated to issue shares of Common
Stock or Common Stock Purchase Warrants issuable upon a Mandatory Conversion
unless either the Note is delivered to Borrower as provided above, or Lender
notifies Borrower that the Note has been lost, stolen or destroyed and Lender
complies with such reasonable requirements of Borrower as are necessary to
assure Borrower of such loss, theft or destruction. Upon the surrender of the
Note, Borrower shall issue and deliver to Lender that number of shares of Common
Stock and that number of Common Stock Purchase Warrants issuable upon such
Mandatory Conversion.
3
<PAGE>
(c) Issuance of Common Stock Purchase Warrant. Borrower shall issue
-----------------------------------------
to Lender a Common Stock Purchase Warrant (the "Common Stock Purchase Warrant")
to purchase one-half of one share of Common Stock of Borrower for each share of
Common Stock of Borrower issued to Lender upon any Optional Conversion or
Mandatory Conversion. The Common Stock Purchase Warrant shall be exercisable
for a period of three years from the date of issuance at an exercise price of
$6.00 per share of Common Stock and shall have the other terms and conditions
and be in the form attached at Exhibit "A" hereto.
(d) Taxes. Borrower shall pay any and all taxes (other than transfer
-----
taxes) which may be imposed upon it with respect to the issuance and delivery of
the shares of Common Stock upon any Conversion.
(e) No Fractional Shares. If any Conversion would result in the
---------------------
issuance of a fractional share of Common Stock such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon such
Conversion shall be the nearest whole number of shares.
(f) Adjustments to the Conversion Price. The Conversion Price shall
-----------------------------------
be subject to adjustment from time to time as follows:
(i) If at any time on or after the date of issuance of the
Note, the number of outstanding shares of Common Stock is increased by a stock
split, stock dividend, combination, reclassification or other similar event, the
Conversion Price shall be proportionately reduced, or if the number of
outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares, or other similar event, the
Conversion Price shall be proportionately increased. In such event, Borrower
shall notify Borrower's transfer agent of such change on or before the effective
date thereof.
(ii) If, at any time there shall be (i) any reclassification or
change of the outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), (ii) any consolidation or merger
of Borrower with any other entity (other than a merger in which Borrower is the
surviving or continuing entity and its capital stock is unchanged), (iii) any
sale or transfer of all or substantially all of the assets of Borrower or (iv)
any share exchange pursuant to which all of the outstanding shares of Common
Stock are converted into other securities or property, then Lender shall
thereafter have the right to receive upon conversion, in lieu of the shares of
Common Stock immediately theretofore issuable, such shares of stock, securities
and/or other property as may be issued or payable with respect to or in exchange
for the number of shares of Common Stock immediately theretofore issuable upon
Conversion had such merger, consolidation, exchange of shares, recapitalization,
reorganization or other similar event not taken place, and in any such case,
appropriate provisions shall be made with respect to the rights and interests of
Lender to the end that the provisions hereof shall thereafter be applicable, as
nearly as may be practicable in relation to any shares of stock or securities
thereafter deliverable upon the conversion thereof.
(iii) If Borrower shall declare or make any distribution of its
assets (or rights to acquire its assets) to holders of all shares of Common
Stock as a partial liquidating dividend,
4
<PAGE>
by way of return of capital or otherwise (a "Distribution"), then Lender shall
be entitled, upon any Conversion after the date of record for determining
shareholders entitled to such Distribution, to receive the amount of such assets
which would have been payable to Lender with respect to the shares of Common
Stock issuable upon such Conversion had Lender been the holder of such shares of
Common Stock on the record date for the determination of shareholders entitled
to such Distribution.
(iv) Upon the occurrence of each adjustment or readjustment of
the Conversion Price pursuant to this Section 5(e), Borrower, at its expense,
shall promptly compute such adjustment or readjustment and prepare and furnish
to Lender a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
(g) Restrictions on Transfer of Shares of Common Stock and Common
-------------------------------------------------------------
Stock Purchase Warrants.
- -----------------------
(i) Lender understands that the shares of Common Stock and the
Common Stock Purchase Warrants have not been and are not being registered under
the Securities Act of 1933, as amended (the "Securities Act") or any state
securities laws, and may not transferred unless (a) subsequently registered
thereunder, (b) Lender shall have delivered to Borrower an opinion of counsel
(which opinion shall be in form, substance and scope reasonably acceptable to
Borrower) to the effect that the shares of the Common Stock and the Common Stock
Purchase Warrants to be sold or transferred may be sold or transferred pursuant
to an exemption from such registration or (c) sold pursuant to Rule 144
promulgated under the Securities Act.
(ii) Lender hereby acknowledges and agrees that the shares of
Common Stock and the Common Stock Purchase Warrants shall be subject to any
additional customary restrictions on their sale, transfer or exchange as are
reasonably requested to be imposed on Lender by Borrower's underwriter in
connection with an initial public offering of Borrower's shares of Common Stock.
(iii) Lender understands that the certificates for the shares of
Common Stock and the Common Stock Purchase Warrants will bear a restrictive
legend setting forth such restrictions on transfer.
6. Ranking. The Notes will be subordinated to all present and future
-------
indebtedness of the Borrower ranking by its terms senior to the Note.
7. Security. The Notes will be unsecured obligations of Borrower.
--------
8. Lender's Rights Upon Default.
----------------------------
Each of the following events shall constitute an "Event of Default" and,
upon the occurrence thereof, Lender shall have the option, without the necessity
of giving any prior written notice to Borrower, (1) to accelerate the maturity
of this Note and all amounts payable hereunder and demand immediate payment
thereof and (2) to exercise all of Lender's rights and remedies under this Note
or otherwise available at law or in equity:
5
<PAGE>
(a) Borrower shall fail to pay the principal amount of the Note or
accrued interest thereon on the Maturity Date;
(b) Borrower shall fail to issue shares of Common Stock or Common
Stock Purchase Warrants within thirty (30) days of any Optional Conversion or
Mandatory Conversion and Lender shall not be in default of any of its
obligations in connection therewith;
(c) Borrower shall admit an inability to pay its debts as they mature,
or shall make a general assignment for the benefit of any of its or their
creditors;
(d) Proceedings in bankruptcy, or for reorganization of Borrower for
the readjustment of any of its or their debts, under the United States
Bankruptcy Code, as amended, or any part thereof, or under any other laws,
whether state or federal, for the relief of debtors, now or hereafter existing,
shall be commenced by Borrower or shall be commenced against Borrower and shall
not be dismissed within sixty (60) days of their commencement;
(e) A receiver or trustee shall be appointed for Borrower or for any
substantial part of its assets, or any proceedings shall be instituted for the
dissolution or the full or partial liquidation of Borrower, and if such
appointment or proceedings are involuntary, such receiver or trustee shall not
be discharged within sixty (60) days of appointment, or such proceedings shall
not be discharged within sixty (60) days of their commencement, or Borrower
shall discontinue its business(es) or materially change the nature of its
business(es);
(f) Borrower shall suffer any final judgment for the payment of money
in excess of Five Hundred Thousand Dollars ($500,000) and the same shall not be
discharged or stayed within a period of thirty (30) days from the date of entry
thereof.
9. Application of Funds. All sums realized by Lender on account of this
--------------------
Note, from whatever source received, shall be applied first to any fees, costs
and expenses (including attorney's fees) incurred by Lender, second to accrued
and unpaid interest, and then to principal.
10. Attorney's Fees and Costs. In the event that Lender engages an
-------------------------
attorney to represent it in connection with (a) any default by Borrower under
this Note, (b) the enforcement of any of Lender's rights and remedies hereunder,
(c) any bankruptcy or other insolvency proceedings commenced by or against
Borrower and/or (d) any actual litigation arising out of or related to any of
the foregoing, then Borrower shall be liable to and shall reimburse Lender on
demand for all reasonable attorneys' fees, costs and expenses incurred by Lender
in connection with any of the foregoing provided a final and unappealable
judgment in favor of Lender has been issued in connection therewith.
11. Governing Law. This Note is made and delivered in the State of
-------------
Delaware and shall be construed and enforced in accordance with and governed by
the internal laws of the State of Delaware without regard to conflicts of laws
principles. Borrower agrees to the exclusive jurisdiction of the federal and
state courts located in the State of Delaware in connection with any matter
arising hereunder, including the collection and enforcement of this Note.
6
<PAGE>
12. Miscellaneous.
-------------
(a) Borrower hereby waives protest, notice of protest, presentment,
dishonor, notice of dishonor and demand. To the extent permitted by law,
Borrower hereby waives and releases all errors, defects and imperfections in any
proceedings instituted by Lender under the terms of this Note.
(b) Notwithstanding anything to the contrary contained herein, if the
Merger has not been consummated prior to December 31, 2001, then Lender shall
have the right to demand payment of the principal amount of this Note and all
accrued interest thereon.
(c) The rights and privileges of Lender under this Note shall inure to
the benefit of its successors and assigns. All representations, warranties and
agreements of Borrower made in connection with this Note shall bind Borrower's
successors and assigns.
(d) If any provision of this Note shall for any reason be held to be
invalid or unen forceable, such invalidity or unenforceability shall not affect
any other provision hereof, but this Note shall be construed as if such invalid
or unenforceable provision had never been contained herein.
(e) The waiver of any Event of Default or the failure of Lender to
exercise any right or remedy to which it may be entitled shall not be deemed to
be a waiver of any subsequent Event of Default or of Lender's or Lender's right
to exercise that or any other right or remedy to which Lender is entitled.
(f) The rights and remedies of Lender under this Note shall be in
addition to any other rights and remedies available to Lender at law or in
equity, all of which may be exercised singly or concurrently.
(g) Lender shall have the right, without the prior consent of
Borrower, to assign all of Lender's rights and obligations hereunder.
IN WITNESS WHEREOF, Borrower has duly executed this Promissory Note the day
and year first above written and has hereunto set hand and seal.
NETVALUE HOLDINGS, INC.
By: /s/ Andrew P. Panzo
-------------------
Andrew P. Panzo
President
7
<PAGE>
NOTICE OF CONVERSION
--------------------
Dated: ________, ____.
To:_____________________________
The undersigned, pursuant to the provisions set forth in a Convertible
Promissory Note made by netValue Holdings, Inc. dated _____________ (the
"Note"), hereby agrees to convert the principal and accrued interest in the
amount of $___________ under the Note into shares of netValue Holdings, Inc.
common stock, par value $.001 per share, at the conversion price set forth in
the Note. Please issue a certificate or certificates for such shares of Common
Stock to:
Name:_________________________________
Signature:____________________________
Address:______________________________
______________________________
Note: The above signature should correspond
exactly with the name on the face of
the within Warrant.
8
<PAGE>
EXHIBIT 4.3
EXHIBIT "D"
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THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
(COLLECTIVELY, THE "SECURITIES") HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY. THE SECURITIES ARE BEING OFFERED PURSUANT TO EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF FEDERAL AND STATE SECURITIES LAW AND CANNOT BE
RESOLD UNLESS THEY ARE SUBSEQUENTLY REGISTERED UNDER SUCH LAWS OR UNLESS
EXEMPTIONS FROM REGISTRATION ARE AVAILABLE. NEITHER THE SECURITIES AND EXCHANGE
COMMISSION NOR ANY OTHER GOVERNMENTAL AGENCY HAS PASSED ON, RECOMMENDED, OR
ENDORSED THE MERITS OF THIS NOTE OR THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS NOTE. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
FORM OF CONVERTIBLE
PROMISSORY NOTE
---------------
$ ____________________ May ____, 1999
FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND HEREBY, netValue
Holdings, Inc., a Delaware corporation having its principal executive office at
________________________ (hereinafter referred to, and obligated as,
"Borrower"), promises to pay to the order of __________ having an address at
___________ ("Lender"), the principal sum of ______________________ Dollars,
together with interest as set forth below, until the date on which the principal
amount is paid in full, payable in lawful money of the United States of America
in accordance with the terms of this Promissory Note (the "Note").
1. Maturity Date. The Note shall have a Maturity Date (the "Maturity
-------------
Date") of the earlier of (i) the date on which the Lender elects to convert all
of the outstanding and unpaid principal and accrued interest of this Note into
shares of the Borrower's common stock, par value $.001 per share ("Common
Stock") pursuant to Paragraph 5(a) hereof; (ii) the date on which the Borrower
elects to cause a Mandatory Conversion of all of the outstanding and unpaid
principal and accrued interest of this Note into shares of the Borrower's Common
Stock pursuant to Paragraph 5(b) hereof; or (iii) May ____, 2001.
2. Interest.
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(a) During the period beginning on the date hereof and ending on the
Maturity Date, interest shall accrue daily on the outstanding principal amount
hereunder at a simple rate of eight percent (8%) per annum.
(b) Interest shall be calculated hereunder for the actual number of
days that the principal is outstanding, based on a three hundred sixty (360) day
year. Interest shall continue to accrue on the principal balance hereof at the
then-applicable simple rate of interest specified in this Note,
<PAGE>
notwithstanding any demand for payment, acceleration and/or the entry of any
judgment against Borrower, until all principal owing hereunder is paid in full
or converted into shares of Common Stock.
3. Payment. No payments of principal or accrued interest shall be due on
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the Note until the Maturity Date. Accrued interest shall be paid in shares of
Common Stock of Borrower at the Conversion Price upon any conversion of the Note
into shares of Borrower's Common Stock pursuant to Paragraph 5 hereof. All
accrued and unpaid interest shall be paid in cash upon the two-year anniversary
of this Note if no conversion shall occur.
4. Prepayments. The Borrower reserves the right to prepay any or all of
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the principal balance due on the Note at any time prior to the Maturity Date.
5. Conversion Rights.
-----------------
(a) Conversion at the Option of Lender.
----------------------------------
(i) Lender may, at any time and from time to time, convert (an
"Optional Conversion") all or any part of the outstanding principal amount of
the Note, plus all accrued interest thereon through the date of conversion, into
a number of fully paid and nonassessable shares of Common Stock of Borrower
equal to the quotient of the total amount of principal and accrued interest
which Lender has elected to convert divided by the conversion price in effect at
such time (the "Conversion Price"). The initial Conversion Price shall be $2.50
per share of Common Stock.
(ii) In order to effect an Optional Conversion, Lender shall:
(x) fax (or otherwise deliver) a copy of the fully executed Notice of Conversion
to Borrower for the Common Stock and (y) surrender or cause to be surrendered,
the Note duly endorsed, along with a copy of the Notice of Conversion as soon as
practicable thereafter, to Borrower. Upon receipt by Borrower of a facsimile
copy of a Notice of Conversion from Lender, Borrower shall immediately send, via
facsimile, a confirmation to Lender stating that the Notice of Conversion has
been received, the date upon which Borrower expects to deliver the Common Stock
issuable upon such Optional Conversion and the name and telephone number of a
contact person at Borrower regarding the Optional Conversion. Borrower shall not
be obligated to issue shares of Common Stock issuable upon such Optional
Conversion unless either the Note is delivered to Borrower as provided above, or
Lender notifies Borrower that the Note has been lost, stolen or destroyed and
Lender complies with such reasonable requirements of Borrower as are necessary
to assure Borrower of such loss, theft or destruction.
(iii) Upon the surrender of the Note and a Notice of Conversion,
Borrower shall issue and deliver to Lender (x) that number of shares of Common
Stock issuable upon such Optional Conversion of the portion of the Note being
converted and (y) a new note in substantially the same form as the Note
representing the balance of the principal amount of the Note not being
converted, if any.
(b) Mandatory Conversion at the Election of Borrower.
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<PAGE>
(i) Borrower may cause all, but not less than all, of the
outstanding principal amount of the Note, plus all accrued interest thereon
through the date of conversion, to be converted into a number of fully paid and
nonassessable shares of Common Stock equal to the quotient of the total amount
of principal and accrued interest thereon through the date of conversion divided
by the Conversion Price (a "Mandatory Conversion") upon the occurrence of any
one of the following events:
1) The consummation of a merger between Borrower and netValue,
inc.;
2) Borrower's acquisition of at least 80% of the issued and
outstanding capital stock of netValue, inc.; or
3) The effective date of a registration statement registering
all shares of Common Stock which would be issued upon such
Mandatory Conversion.
(ii) In order to effect a Mandatory Conversion, Borrower shall: fax
(or otherwise deliver) a copy of the fully executed Notice of Conversion to
Lender. Within three (3) business days of receipt by Lender of such Notice of
Conversion from Borrower, Lender shall cause the Note, duly endorsed, to be
surrendered to Borrower. In the event the Note is not surrendered to Borrower
within three (3) business days following the receipt by Lender of a Notice of
Conversion from Borrower, the Note shall for all purposes be deemed canceled and
shall no longer constitute an obligation of Borrower, except for Borrower's
obligation to deliver shares of Common Stock in accordance with Section
5(b)(iii) hereof.
(iii) Borrower shall not be obligated to issue shares of Common Stock
issuable upon a Mandatory Conversion unless either the Note is delivered to
Borrower as provided above, or Lender notifies Borrower that the Note has been
lost, stolen or destroyed and Lender complies with such reasonable requirements
of Borrower as are necessary to assure Borrower of such loss, theft or
destruction. Upon the surrender of the Note, Borrower shall issue and deliver to
Lender that number of shares of Common Stock issuable upon such Mandatory
Conversion.
(c) Taxes. Borrower shall pay any and all taxes (other than transfer
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taxes) which may be imposed upon it with respect to the issuance and delivery of
the shares of Common Stock upon any Conversion.
(d) No Fractional Shares. If any Conversion would result in the issuance
---------------------
of a fractional share of Common Stock such fractional share shall be disregarded
and the number of shares of Common Stock issuable upon such Conversion shall be
the nearest whole number of shares.
(e) Adjustments to the Conversion Price. The Conversion Price shall be
-----------------------------------
subject to adjustment from time to time as follows:
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<PAGE>
(i) If at any time on or after the date of issuance of the Note,
the number of outstanding shares of Common Stock is increased by a stock split,
stock dividend, combination, reclassification or other similar event, the
Conversion Price shall be proportionately reduced, or if the number of
outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares, or other similar event, the
Conversion Price shall be proportionately increased. In such event, Borrower
shall notify Borrower's transfer agent of such change on or before the effective
date thereof.
(ii) If, at any time there shall be (i) any reclassification or
change of the outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), (ii) any consolidation or merger
of Borrower with any other entity (other than a merger in which Borrower is the
surviving or continuing entity and its capital stock is unchanged), (iii) any
sale or transfer of all or substantially all of the assets of Borrower or (iv)
any share exchange pursuant to which all of the outstanding shares of Common
Stock are converted into other securities or property, then Lender shall
thereafter have the right to receive upon conversion, in lieu of the shares of
Common Stock immediately theretofore issuable, such shares of stock, securities
and/or other property as may be issued or payable with respect to or in exchange
for the number of shares of Common Stock immediately theretofore issuable upon
Conversion had such merger, consolidation, exchange of shares, recapitalization,
reorganization or other similar event not taken place, and in any such case,
appropriate provisions shall be made with respect to the rights and interests of
Lender to the end that the provisions hereof shall thereafter be applicable, as
nearly as may be practicable in relation to any shares of stock or securities
thereafter deliverable upon the conversion thereof.
(iii) If Borrower shall declare or make any distribution of its
assets (or rights to acquire its assets) to holders of all shares of Common
Stock as a partial liquidating dividend, by way of return of capital or
otherwise (a "Distribution"), then Lender shall be entitled, upon any Conversion
after the date of record for determining shareholders entitled to such
Distribution, to receive the amount of such assets which would have been payable
to Lender with respect to the shares of Common Stock issuable upon such
Conversion had Lender been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to such Distribution.
(iv) Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to this Section 5(e), Borrower, at its expense, shall
promptly compute such adjustment or readjustment and prepare and furnish to
Lender a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based.
(f) Restrictions on Transfer of Common Shares. Lender understands that the
-----------------------------------------
Common Stock has not been and is not being registered under the Securities Act
of 1933, as amended (the "Securities Act") or any state securities laws, and may
not transferred unless (a) subsequently registered thereunder, (b) Lender shall
have delivered to Borrower an opinion of counsel (which opinion shall be in
form, substance and scope reasonably acceptable to Borrower) to the effect that
the shares of Common Stock to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration or (c) sold pursuant to Rule 144
promulgated under the Securities Act. Lender
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<PAGE>
understands that the certificates for the Common Stock will bear a restrictive
legend setting forth such restrictions on transfer.
6. Ranking. The Notes will be subordinated to all present and future
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indebtedness of the Borrower ranking by its terms senior to the Note.
7. Security. The Notes will be unsecured obligations of Borrower.
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8. Lender's Rights Upon Default.
----------------------------
Each of the following events shall constitute an "Event of Default" and,
upon the occurrence thereof, Lender shall have the option, without the necessity
of giving any prior written notice to Borrower, (1) to accelerate the maturity
of this Note and all amounts payable hereunder and demand immediate payment
thereof and (2) to exercise all of Lender's rights and remedies under this Note
or otherwise available at law or in equity:
(a) Borrower shall fail to pay the principal amount of the Note or
accrued interest thereon on the Maturity Date;
(b) Borrower shall fail to issue shares of Common Stock within thirty
(30) days of any Optional Conversion or Mandatory Conversion and Lender shall
not have failed to deliver the Note in connection therewith;
(c) Borrower shall admit an inability to pay its debts as they mature,
or shall make a general assignment for the benefit of any of its or their
creditors;
(d) Proceedings in bankruptcy, or for reorganization of Borrower for
the readjustment of any of its or their debts, under the United States
Bankruptcy Code, as amended, or any part thereof, or under any other laws,
whether state or federal, for the relief of debtors, now or hereafter existing,
shall be commenced by Borrower or shall be commenced against Borrower and shall
not be dismissed within sixty (60) days of their commencement;
(e) A receiver or trustee shall be appointed for Borrower or for any
substantial part of its assets, or any proceedings shall be instituted for the
dissolution or the full or partial liquidation of Borrower, and if such
appointment or proceedings are involuntary, such receiver or trustee shall not
be discharged within sixty (60) days of appointment, or such proceedings shall
not be discharged within sixty (60) days of their commencement, or Borrower
shall discontinue its business(es) or materially change the nature of its
business(es);
(f) Borrower shall suffer any final judgment for the payment of money
in excess of Five Hundred Thousand Dollars ($500,000) and the same shall not be
discharged or stayed within a period of thirty (30) days from the date of entry
thereof.
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9. Application of Funds. All sums realized by Lender on account of this
--------------------
Note, from whatever source received, shall be applied first to any fees, costs
and expenses (including attorney's fees) incurred by Lender, second to accrued
and unpaid interest, and then to principal.
10. Attorney's Fees and Costs. In the event that Lender engages an
-------------------------
attorney to represent it in connection with (a) any default by Borrower under
this Note, (b) the enforcement of any of Lender's rights and remedies hereunder,
(c) any bankruptcy or other insolvency proceedings commenced by or against
Borrower and/or (d) any actual litigation arising out of or related to any of
the foregoing, then Borrower shall be liable to and shall reimburse Lender on
demand for all reasonable attorneys' fees, costs and expenses incurred by Lender
in connection with any of the foregoing, provided a final and unappealable
judgment in favor of Lender has been issued in connection therewith.
11. Governing Law. This Note is made and delivered in the State of
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Delaware and shall be construed and enforced in accordance with and governed by
the internal laws of the State of Delaware without regard to conflicts of laws
principles. Borrower agrees to the exclusive jurisdiction of the federal and
state courts located in the State of Delaware in connection with any matter
arising hereunder, including the collection and enforcement of this Note.
12. Miscellaneous.
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(a) Borrower hereby waives protest, notice of protest, presentment,
dishonor, notice of dishonor and demand. To the extent permitted by law,
Borrower hereby waives and releases all errors, defects and imperfections in any
proceedings instituted by Lender under the terms of this Note.
(b) The rights and privileges of Lender under this Note shall inure to
the benefit of its successors and assigns. All representations, warranties and
agreements of Borrower made in connection with this Note shall bind Borrower's
successors and assigns.
(c) If any provision of this Note shall for any reason be held to be
invalid or unen forceable, such invalidity or unenforceability shall not affect
any other provision hereof, but this Note shall be construed as if such invalid
or unenforceable provision had never been contained herein.
(d) The waiver of any Event of Default or the failure of Lender to
exercise any right or remedy to which it may be entitled shall not be deemed to
be a waiver of any subsequent Event of Default or of Lender's or Lender's right
to exercise that or any other right or remedy to which Lender is entitled.
(e) The rights and remedies of Lender under this Note shall be in
addition to any other rights and remedies available to Lender at law or in
equity, all of which may be exercised singly or concurrently.
(f) Lender shall have the right, without the prior consent of
Borrower, to assign all of Lender's rights and obligations hereunder.
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<PAGE>
IN WITNESS WHEREOF, Borrower has duly executed this Promissory Note the day
and year first above written and has hereunto set hand and seal.
NETVALUE HOLDINGS, INC.
By: /s/ Andrew P. Panzo
----------------------
Andrew P. Panzo
President and Chief Executive Officer
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<PAGE>
NOTICE OF CONVERSION
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Dated: ________, ____.
To:_____________________________
The undersigned, pursuant to the provisions set forth in a Convertible
Promissory Note made by netValue Holdings, Inc. dated _____________ (the
"Note"), hereby agrees to convert the principal and accrued interest in the
amount of $___________ under the Note into shares of netValue Holdings, Inc.
common stock, par value $.001 per share, at the conversion price set forth in
the Note. Please issue a certificate or certificates for such shares of Common
Stock to:
Name:_________________________________
Signature:____________________________
Address:______________________________
______________________________
Note: The above signature should correspond
exactly with the name on the face of
8
<PAGE>
EXHIBIT 4.4
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
of
SERIES A CONVERTIBLE PREFERRED STOCK
of
NET VALUE HOLDINGS, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
Net Value Holdings, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies that the following resolutions were adopted by the Board of Directors
of the Corporation pursuant to authority of the Board of Directors as required
by Section 151 of the Delaware General Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the "Board")
in accordance with the provisions of its Amended and Restated Certificate of
Incorporation, the Board of Directors hereby creates a series of the
Corporation's previously authorized Preferred Stock, par value $.001 per share
(the "Preferred Stock"), and hereby states the designation and number of shares,
and fixes the relative rights, preferences, privileges, powers and restrictions
thereof as follows:
Series A Convertible Preferred Stock:
Article I. Designation and Amount
The designation of this series, which consists of 4,500,000 shares of
Preferred Stock, is Series A Convertible Preferred Stock (the "Series A
Preferred Stock") and the stated value is $1.00 per share (the "Stated Value").
The number of shares of the Series A Preferred Stock may be decreased from time
to time by a resolution or resolutions of the Board of Directors; provided,
however, that no such amendment shall reduce the number of shares of the Series
A Preferred Stock to a number less than the aggregate number of shares of the
Series A Preferred Stock then issued and outstanding. Notwithstanding any other
provision in this Certificate of Designation, the Corporation shall not be
required to issue fractional shares of Series A Preferred Stock.
Article II. Rank
<PAGE>
All Series A Preferred Stock shall rank (i) prior to the Corporation's
common stock, par value $.001 per share (the "Common Stock"), and (ii) unless
the holders of Series A Preferred Stock shall otherwise consent pursuant to
paragraph A of Article VII, prior to any other class or series of the
Corporation's capital stock, as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
Article III. Dividends
The Series A Preferred Stock will bear no dividends, and the holders of
the Series A Preferred Stock will not be entitled to receive dividends on the
Series A Preferred Stock.
Article IV. Liquidation Preference
1. If the Corporation shall commence a voluntary case under the
federal bankruptcy laws or any other applicable federal or state bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of substantially all of its property, or make an assignment for
the benefit of its creditors, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the federal bankruptcy laws or any other applicable
federal or state bankruptcy, insolvency or similar law resulting in the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of substantially
all of its property, or ordering the winding up or liquidation of its affairs,
and any such decree or order shall be unstayed and in effect for a period of 60
consecutive days and, on account of any such event (a "Liquidation Event"), the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up, no distribution shall be made to the
holders of any shares of capital stock of the Corporation (other than any class
or series of Preferred Stock that, in accordance with Article II, ranks senior
to the Series A Preferred Stock) upon such liquidation, dissolution or winding
up unless prior thereto, the holders of shares of Series A Preferred Stock shall
have received the Liquidation Preference (as defined in Paragraph D of this
Article IV) with respect to each share in accordance with the provisions of this
Article IV. If upon the occurrence of a Liquidation Event, the assets and funds
available for distribution among the holders of the Series A Preferred Stock
shall be insufficient to permit the payment to such holders of the preferential
amounts payable thereon, then the entire assets and funds legally available for
distribution to the Series A Preferred Stock shall be distributed ratably among
such shares.
2. After payment in full of the Liquidation Preference of the
Series A Preferred Stock, holders of Series A Preferred Stock shall not be
entitled to receive any additional cash, property or other assets of the
Corporation upon liquidation, dissolution or winding up of the Corporation.
3. Neither the consolidation, merger or other business combination
of the Corporation with or into any other entity, nor the sale, exchange or
transfer of all or substantially all the assets of the Corporation shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Article IV unless such sale, exchange or transfer is in
connection with a plan of liquidation, dissolution or winding up of the
Corporation.
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4. For purposes hereof, the "Liquidation Preference" means, with
respect to such shares of Series A Preferred Stock, an amount equal to the
Stated Value.
Article V. Conversion Upon Achievement of Certain Performance Objectives
1. The holder of each share of Series A Preferred Stock shall be
entitled, subject to adjustment from time to time as provided in Paragraph B of
this Article V, to receive a minimum of zero and a maximum of one fully paid and
non-assessable share of Common Stock based on the achievement at any time of any
---
one of the following performance objectives (the "Performance Objectives") by
- ---
the Corporation or the subsidiary of the Corporation into which
BrightStreet.com, Inc. is merged (the "Surviving Company"):
a. Completion of an Equity Offering. If, at any time, the
--------------------------------
Surviving Company completes any equity offering generating at least $15,000,000
in gross proceeds to the Surviving Company and:
---
i. The offering is completed at a price of at least
$6.00 per share and results in the Surviving Company having a market
capitalization of at least $75,000,000; then the Surviving Company shall
automatically issue .25 shares of Common Stock to the holder of each issued and
outstanding share of Series A Preferred Stock.
ii. The offering is completed at a price of at least
$7.00 per share and results in the Surviving Company having a market
capitalization of at least $100,000,000; then the Surviving Company shall
automatically issue .50 shares of Common Stock to the holder of each issued and
outstanding share of Series A Preferred Stock.
iii. The offering is completed at a price of at least
$10.00 per share and results in the Surviving Company having a market
capitalization of at least $200,000,000; then the Surviving Company shall
automatically issue one share of Common Stock to the holder of each issued and
outstanding share of Series A Preferred Stock.
For the purposes of this subparagraph 1, "market capitalization" shall be
calculated on the day the equity offering is consummated by multiplying the
total number of issued and outstanding shares of the Surviving Company's Common
Stock subsequent to the completion of the offering by the price per share at
which the equity offering was consummated.
b. Sale or Merger of the Surviving Company. If, at any
---------------------------------------
time, the Surviving Company is sold or merged with another entity and receives
cash or stock consideration equal to:
i. At least $75,000,000 and equal to at least $6.00
per outstanding share; then the Surviving Company shall automatically issue .25
shares of Common Stock to the holder of each issued and outstanding share of
Series A Preferred Stock.
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ii. At least $100,000,000 and equal to at least $7.00
per outstanding share; then the Surviving Company shall automatically issue .50
shares of Common Stock to the holder of each issued and outstanding share of
Series A Preferred Stock.
iii. At least $200,000,000 and equal to at least $10.00
per outstanding share; then the Surviving Company shall automatically issue one
share of Common Stock to the holder of each issued and outstanding share of
Series A Preferred Stock.
c. Gross Revenues of the Surviving Company.
----------------------------------------
i. If the Surviving Company's gross revenues during
any calendar year exceed $20,000,000; then the Surviving Company shall
automatically issue .25 shares of Common Stock to the holder of each issued and
outstanding share of Series A Preferred Stock.
ii. If the Surviving Company's gross revenues during
any calendar year exceed $40,000,000; then the Surviving Company shall
automatically issue .50 shares of Common Stock to the holder of each issued and
outstanding share of Series A Preferred Stock.
iii. If the Surviving Company's gross revenues during
any calendar year exceed $60,000,000; then the Surviving Company shall
automatically issue one share of Common Stock to the holder of each issued and
outstanding share of Series A Preferred Stock.
The Performance Objectives are cumulative and the Surviving Company's
satisfaction of the Performance Objectives may only result in the Surviving
Company issuing a maximum of one share of Common Stock to the holder of each
share of the Series A Preferred Stock. In addition, the shares of Common Stock
related to each tier of the Performance Objectives set forth in (a), (b) and (c)
may only be granted once. For example, if the Surviving Company satisfies the
Performance Objective set forth in subparagraph 1(a), then the holder of each
issued and outstanding share of Series A Preferred Stock will automatically
receive .25 shares of Common Stock. If the Surviving Company subsequently
satisfies the Performance Objectives set forth in subparagraph 2(a) or
subparagraph 3(a), then the holders of the Series A Preferred Stock will not
receive any additional shares of Common Stock based on the satisfaction of these
Performance Objectives. Once the Surviving Company satisfies a Performance
Objective that results in each issued and outstanding share of Series A
Preferred Stock receiving an aggregate total of one share of Common Stock, the
Corporation will automatically cancel each share of Series A Preferred Stock and
the subsequent satisfaction of additional Performance Objectives will not result
in the issuance of any additional shares of Common Stock.
2. In case the Corporation shall (i) declare a dividend or make a
distribution on the outstanding shares of its Common Stock in shares of its
Common Stock, (ii) subdivide its outstanding shares of Common Stock into a
greater number of shares, or (iii) combine its outstanding shares of Common
Stock into a smaller number of shares, the number of shares of Common Stock that
each share of Series A Preferred Stock is entitled to receive upon the
Corporation's satisfaction of the Performance Objectives (the "Entitlement
Shares") in effect at the time of the record date for such dividend or
distribution or the effective date of such subdivision or combination shall be
proportionately adjusted so that after such time the number of Entitlement
Shares shall equal the aggregate number of
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shares of Common Stock that each share of Series A Preferred Stock would have
been entitled to receive had the Corporation satisfied the Performance
Objectives immediately prior to such record date or effective date and the
resulting Common Stock had been subject to such dividend, distribution,
subdivision or combination.
3. No fractional shares of Common Stock or other securities, if
any, or scrip representing fractional shares of Common Stock or other
securities, if any, shall be issued upon the Corporation's satisfaction of the
Performance Objectives. If the Entitlement Shares include a fraction of a share
of Common Stock or other securities, such fractional shares shall be disregarded
and the number of Entitlement Shares issued shall be the next higher number of
such shares.
4. At all times that any shares of Series A Preferred Stock are
outstanding, the Corporation shall reserve a number of shares of authorized but
unissued Common Stock sufficient to provide for the Entitlement Shares, subject
to the provisions of paragraph E of Article V. If the Corporation shall issue
any securities or make any change in its capital structure that would change the
number of Entitlement Shares, then the Corporation shall at the same time also
make proper provision so that thereafter there shall be a number of shares of
Common Stock authorized and reserved equal to Entitlement Shares.
5. In case of (i) any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other corporation (other than a merger in which the
Corporation is the surviving or continuing corporation and its outstanding
capital stock is unchanged), (iii) any sale or transfer of all or substantially
all of the assets of the Corporation or (iv) any share exchange pursuant to
which all of the outstanding shares of Common Stock are converted into other
securities or property, the Corporation shall in each such case make appropriate
provision or cause appropriate provision to be made so that the holders of
shares of Series A Preferred Stock then outstanding shall have the right
thereafter to receive the kind and amount of other securities and property
receivable upon such reclassification, consolidation, merger, sale, transfer or
share exchange by a holder of the Entitlement Shares immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange. To
the extent that as a result of any such reclassification, consolidation, merger,
sale, transfer or share exchange the Series A Preferred Stock becomes entitled
to receive a new common stock of the Corporation or the common stock of any
other corporation involved in a merger with the Corporation, the Corporation
shall make appropriate provision or cause appropriate provision to be made so
that the number of shares of such new common stock that each share of Series A
Preferred Stock shall be entitled to receive upon the Corporation's satisfaction
of the Performance Objectives shall be subject to further adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to Common Stock contained in this Article V. If in
connection with any such reclassification, consolidation, merger, sale, transfer
or share exchange, each holder of shares of Common Stock is entitled to elect to
receive alternative forms of consideration upon completion of such transaction,
the Corporation shall provide or cause to be provided to each holder of Series A
Preferred Stock upon the Corporation's satisfaction of the Performance
Objectives the shares of capital stock or other securities or property
receivable by a holder of Common Stock who failed to make an election with
respect to the form of consideration receivable in such transaction. The
Corporation shall not
5
<PAGE>
effect any such transaction without first complying with this paragraph E. The
foregoing provisions of this paragraph E shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share exchanges.
6. Upon the occurrence of each adjustment or readjustment of the
Entitlement Shares pursuant to this Article V, the Corporation, at its expense,
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to all holders of Series A Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
reasonable detail the basis therefor. The Corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustment or readjustment, and (ii) the new number of Entitlement Shares.
Article VI. Conversion at the Option of the Corporation
1. The Corporation shall have the option to convert all of the
issued and outstanding shares of the Series A Preferred Stock into fully paid
and non-assessable shares of Common Stock at any time in accordance with this
Article VI. The number of shares of Common Stock deliverable upon conversion of
a share of Series A Preferred Stock shall be (i) the quotient obtained by
dividing (a) the Stated Value by (b) the then effective "Conversion Price",
which initially shall be $1.00 and shall be subject to adjustment from time to
time as provided in paragraph B of this Article VI, minus (ii) the number of
shares of Common Stock as of the date of conversion that each share of Series A
Preferred Stock has received due to the Corporation's satisfaction of the
Performance Objectives in accordance with the provisions of Article V. The
Corporation may exercise this option by delivering to the holders of Series A
Preferred Stock a notice setting forth such election to convert the Series A
Preferred Stock into Common Stock in accordance with paragraph A of this Article
VI ("Corporation Optional Conversion Notice"). Not more than 10 business days
after its receipt of a Corporation Optional Conversion Notice, each holder shall
mail the certificates representing its Series A Preferred Stock to the
Corporation. Immediately upon receipt of the certificates representing the
Series A Preferred Stock, the Corporation shall cancel these certificates on its
books and issue a certificate representing that number of shares of Common Stock
into which the Series A Preferred Stock is convertible under this Article VI to
each holder remitting a Series A Preferred Stock certificate. The Corporation
shall not be required to pay any tax in respect of the issuance and delivery
upon conversion of shares of Common Stock or other securities or property in a
name other than that of the registered holder of the shares of the Series A
Preferred Stock being converted.
2. In case the Corporation shall (i) declare a dividend or make a
distribution on the outstanding shares of its Common Stock in shares of its
Common Stock, (ii) subdivide its outstanding shares of Common Stock into a
greater number of shares, or (iii) combine its outstanding shares of Common
Stock into a smaller number of shares, the Conversion Price in effect at the
time of the record date for such dividend or distribution or the effective date
of such subdivision or combination shall be proportionately adjusted so that the
holder of any shares of Series A Preferred Stock surrendered for conversion
after such time shall be entitled to receive the aggregate number of shares of
Common Stock that the holder would have owned or been entitled to receive had
such shares of Series A Preferred Stock been converted immediately prior to such
record date or effective date and the resulting Common Stock had been subject to
such dividend, distribution, subdivision or combination.
6
<PAGE>
3. No fractional shares of Common Stock or other securities, if
any, or scrip representing fractional shares of Common Stock or other
securities, if any, shall be issued upon the conversion of any share or shares
of Series A Preferred Stock. If the conversion of a share or shares of Series A
Preferred Stock results in a fraction of Common Stock or other securities, such
fractional shares shall be disregarded and the number of shares of Common Stock
issuable upon conversion shall be the next higher number of such shares.
4. In case of (i) any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other corporation (other than a merger in which the
Corporation is the surviving or continuing corporation and its outstanding
capital stock is unchanged), (iii) any sale or transfer of all or substantially
all of the assets of the Corporation or (iv) any share exchange pursuant to
which all of the outstanding shares of Common Stock are converted into other
securities or property, the Corporation shall in each such case make appropriate
provision or cause appropriate provision to be made so that the holders of
shares of Series A Preferred Stock then outstanding shall have the right
thereafter to convert each such share of Series A Preferred Stock into the kind
and amount of other securities and property receivable upon such
reclassification, consolidation, merger, sale, transfer or share exchange by a
holder of the number of shares of Common Stock into which each such share of
Series A Preferred Stock might have been converted immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange. To
the extent that as a result of any such reclassification, consolidation, merger,
sale, transfer or share exchange the Series A Preferred Stock becomes
convertible into a new common stock of the Corporation or the common stock of
any other corporation involved in a merger with the Corporation, the Corporation
shall make appropriate provision or cause appropriate provision to be made so
that the Conversion Price with respect to such new common stock shall be subject
to further adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to Common Stock
contained in this Article VI. If in connection with any such reclassification,
consolidation, merger, sale, transfer or share exchange, each holder of shares
of Common Stock is entitled to elect to receive alternative forms of
consideration upon completion of such transaction, the Corporation shall provide
or cause to be provided to each holder of Series A Preferred Stock upon
conversion thereof the shares of capital stock or other securities or property
receivable by a holder of Common Stock who failed to make an election with
respect to the form of consideration receivable in such transaction. The
Corporation shall not effect any such transaction without first complying with
this paragraph D. The foregoing provisions of this paragraph D shall similarly
apply to successive reclassifications, consolidations, mergers, sales, transfers
or share exchanges.
Article VII. Voting Rights
In addition to any voting rights provided by the Delaware General
Corporation Law, the holders of shares of Series A Preferred Stock shall have
the following rights:
1. The affirmative vote of the holders of a majority of the voting
power represented by the outstanding shares of Series A Preferred Stock, voting
separately as a single class, shall be necessary to (i) authorize, adopt or
approve an amendment to the Amended and Restated
7
<PAGE>
Certificate of Incorporation of the Corporation that would either (A) increase
or decrease the aggregate number or par value of authorized shares of Series A
Preferred Stock, or (B) alter or change the powers, preferences or special
rights of any shares of capital stock so as to affect the shares of Series A
Preferred Stock adversely or (ii) issue any shares of capital stock of the
Corporation that are senior to the Series A Preferred Stock.
2. (i) The rights of holders of shares of Series A Preferred
Stock to take any actions as provided in paragraph A of this Article VII may be
exercised at any annual meeting of stockholders or any special meeting of
stockholders or holders of Series A Preferred Stock held for such purposes as
hereinafter provided or at any adjournment thereof, or by the written consent,
delivered to the Secretary of the Corporation, of the holders of the minimum
number of shares of Series A Preferred Stock required to take such action.
So long as such right to vote continues (and unless such right has
been exercised by written consent of the minimum number of shares required to
take such action), the Chairman of the Board of the Corporation may call, and
upon the written request addressed to the Secretary of the Corporation at the
principal office of the Corporation of holders of record of twenty percent 20%
of the voting power represented by the outstanding shares of Series A Preferred
Stock, shall call a special meeting of the holders of shares entitled to vote as
provided herein. Such meeting shall be held within 30 days after delivery of
such request to the Secretary, at the place and upon the notice provided by law
and in the Bylaws of the Corporation for the holding of meetings of
stockholders.
(ii) At each meeting of stockholders at which the holders of
shares of Series A Preferred Stock shall have the right, voting separately as a
single class, to take any action, the presence in person or by proxy of the
holders of record of one-third of the voting power represented by the total
number of shares of Series A Preferred Stock voting separately as a single class
then outstanding and entitled to vote on the matter shall constitute a quorum.
At any such meeting or at any adjournment thereof:
(A) the absence of a quorum of the holders of Series A
Preferred Stock shall not prevent the election of directors, and the
absence of a quorum of the holders of shares of any other class or series
of capital stock shall not prevent the taking of any action pursuant to
this Article VII; and
(B) in the absence of a quorum of the holders of Series A
Preferred Stock, the holders of a majority of the voting power
represented by such stock present in person or by proxy shall have the
power to adjourn the meeting as to the actions to be taken by the holders
of Series A Preferred Stock from time to time and without notice other
than announcement at the meeting until a quorum shall be present.
C. Unless as otherwise required by law, the holders of shares of
Series A Preferred Stock shall have no voting rights except as set forth in this
Article VII.
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<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations, Preferences and
Rights is executed on behalf of the Corporation by its President as of the 8th
day of January, 1999.
NET VALUE HOLDINGS, INC.
BY: /s/ Andrew P. Panzo
--------------------------------
Andrew P. Panzo
President
9
<PAGE>
EXHIBIT 4.5
CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND
PREFERENCES
OF THE
SERIES B CONVERTIBLE PREFERRED STOCK
OF
NET VALUE HOLDINGS, INC.
The undersigned, the President and Chief Executive Officer of Net Value
Holdings, Inc., a Delaware corporation (the "Company"), in accordance with the
provisions of the Delaware General Corporation Law, does hereby certify that,
pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation of the Company, the following resolution creating a
series of Series B Convertible Preferred Stock, was duly adopted on September
10, 1999;
RESOLVED, that pursuant to the authority expressly granted to and vested
in the Board of Directors of the Company (the "Board") by provisions of the
Restated Certificate of Incorporation of the Company (the "Certificate of
Incorporation"), there hereby is created out of the shares of Preferred Stock,
par value $.001 per share, of the Company authorized in Article 5 of the
Certificate of Incorporation (the "Preferred Stock,"), a series of Preferred
Stock of the Company, to be named "Series B Convertible Preferred Stock,"
consisting of five thousand (5,000) shares, which series shall have the
following designation, powers, preferences and relative and other special rights
and the following qualifications, limitations and restrictions;
1. Designation and Rank: The designation of such series of the
--------------------
Preferred Stock shall be the Series b Convertible Preferred Stock, par value
$.001 per share (the "Series B Convertible Preferred stock"). The maximum
number of shares of Series B Convertible Preferred Stock shall be five thousand
(5,000) shares. The Series B Convertible Preferred Stock shall have a
liquidation preference of $1,000 per share. The Series B Convertible Preferred
Stock shall rank (i) prior to the common stock, par value $.001 per share (the
"Common Stock"), and to all other classes and series of equity securities of the
Company which by its terms does not rank senior to the Series B Convertible
Preferred Stock ("Junior Stock"), (ii) on parity with the Series B Preferred
Stock and with any class and series of equity securities which by its terms
shall rank on parity with the Series B Convertible Preferred Stock ("Pari Passu
Stock") and (iii) junior to any class or series of equity securities which by
its terms shall rank senior to the Series B Convertible Preferred Stock. The
Series B Convertible Preferred Stock shall be subordinate to and rank junior to
all indebtedness of the Company now or hereafter outstanding.
2. Dividends
---------
a. Payment of Dividends: The holders of record of shares if Series B
--------------------
Convertible Preferred Stock shall be entitled to receive, out of any assets at
the time legally available therefore and when and as declared by the Board,
dividends at the rate of (except as otherwise provided for in this Section 2(a))
five percent (5%) (the "Dividend Rate") of the stated Liquidation Preference
Amount (as defined in Section 4(a) below) per share per annum, and no more;
provided, however, that the Dividend Rate shall increase to, and accrue at a
- -------- -------
rate of, ten percent (10%) per annum (the "Increased Dividend Rate:) if at any
time the Closing Bid Price (as defined in Section 5(d)) of the Common Stock is
less than the Conversion Flour Price (as defined in Section 5(d)) for a period
of ten (10) consecutive trading days (the "Dividend Payment"). At any time when
the Increased Dividend Rate shall be in effect, the
<PAGE>
Increased Dividend Rate shall be reduced to the Dividend Rate if at any time the
Closing Bid Price of the Common Stock is above the Conversion Floor Price for a
period of five (5) consecutive trading days. The Dividend Payment shall be
payable, out of fund's of legally available therefore pursuant to Delaware
General Corporation law, at the sole discretion of the Company, (i) in
immediately available cash funds or (ii) in shares of Common Stock equal to the
quotient of (x) the Dividend Payment divided by (y) the Conversion Price (as
defined in Section 5(d)). In the case of shares of Series B Convertible
Preferred Stock outstanding for less than a full year, dividends shall be
prorated based on the portion of each year during which such shares are
outstanding. Such dividends on the Series B Convertible Preferred Stock shall be
cumulative and shall accrue and be payable only at conversion of the Series B
Convertible Preferred Stock into shares of Common Stock with respect to that
portion of the Dividends Payment accrued with respect to those shares of Series
B Convertible Preferred Stock being converted and shall accrue until the
Mandatory Conversion Date (as defined in Section 5(e)(ii) without regard to
Section 5(c)(ii)(X)(A)). Such dividends on the Series B Convertible Preferred
Stock are prior and in preference to any declaration or payment of any
distribution (as defined in Section 2(d) below) on any outstanding shares of
Common Stock or any other equity securities of the Company ranking junior to the
Series B Convertible Preferred Stock as to the payment of dividends. Such
dividends shall accrue on each share of Series B Convertible Preferred Stock
from day to day from the date of initial issuance thereof whether or not earned
or declared so that if such dividends with respect to any previous dividend
period at the rate provided for herein have not been paid on, or declared and
set apart for, all shares of Series B Convertible Preferred Stock at the time
outstanding, the deficiency shall be fully paid on, or declared and set apart
for, such shares on a pro rata basis with all other equity securities of the
Company ranking on a parity with the Series B Convertible Preferred Stock as to
the payment of dividends before any distribution shall be paid on, or declared
and set apart for Common Stock or any other equity securities of the Company
ranking junior to the Series B Convertible Preferred Stock as to the payment of
dividends.
b. So long as any shares of Series B Convertible Preferred Stock
are outstanding, the Company shall not declare, pay or set apart for payment any
dividend or make any distribution on, any Junior Stock (other than dividends or
distributions payable in additional shares of Junior Stock), unless at the time
of such dividend or distribution the Company shall have paid all accrued and
unpaid dividends on the outstanding shares of Series B Convertible Preferred
Stock.
c. In the event of a dissolution, liquidation or winding up of the
Company pursuant to Section 4, all accrued and unpaid dividends on the Series B
Convertible Preferred Stock shall be payable on the day immediately preceding
the date of payment of the preferential amount to the holders of Series b
Convertible Preferred Stock. In the event of (i) a mandatory redemption
pursuant to Section 9 or (ii) a redemption upon the occurrence of a Major
Transaction (as defined in Section 8(c)) or a Triggering Event (as defined in
Section 8(d)) or at the election of the Company pursuant to section 8, all
accrued and unpaid dividends on the Series B Convertible Preferred Stock shall
be payable on the day immediately preceding the date of such redemption. In the
event of a voluntary conversion pursuant to Section 5(a), all accrued and unpaid
dividends on the Series B Convertible Preferred Stock being converted shall be
payable on the day immediately preceding the Voluntary Conversion Date (as
defined in Section 5(b)(i) and in the event of a mandatory conversion pursuant
to Section 5(c), all accrued and unpaid dividends on the Series B Convertible
Preferred Stock being converted shall be payable on the day immediately
preceding the Mandatory Conversion Date.
2
<PAGE>
d. For purposes hereof, unless the context otherwise requires,
"distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
shares of Common Stock or other equity securities of the Company, or the
purchases or redemption of shares of the Company (other than redemptions set
forth in Section 8 below or repurchases of Common Stock held by employees or
consultants of the Corporation upon termination of their employment or services
pursuant to agreements providing for such repurchase) for cash or property.
2. Voting Rights
-------------
a. Class Voting Rights: The Series B Convertible Preferred Stock
-------------------
shall have the following class voting rights (in addition to the voting rights
set forth in Section 3(b) hereof). So long as any shares of the Series B
Convertible Preferred Stock remain outstanding, the Company shall not, without
the affirmative vote or consent of the holders of at least three-quarters (3/4)
-----------
of the shares of the Series B Convertible Preferred Stock remain outstanding at
the time, given in person or by proxy, either in writing or at a meeting, in
which the holders of him Series B Convertible Preferred Stock vote separately as
a class: (i) authorize, create, issue or increase the authorized or issued
amount of any class or series of stock, including but not limited to the
issuance of any more shares of previously authorized Common Stock or Preferred
Stock, ranking prior to the Series B Convertible Preferred Stock, with respect
to the distribution of assets on liquidation, dissolution or winding up other
than in connection with the issuance of any Common Stock or any securities
convertible or exchangeable into Common Stock, including debt securities
(collectively, the "Financing Securities"), under any Company employee benefit
plan, stock option plan, or stock purchase plan for the benefit of the Company's
employees or directors; (ii) amend, alter or repeal the provisions to adversely
affect any right, preference, privilege or voting power of the Series B
Convertible Preferred Stock; provided, however, that any creation and issuance
-------- --------
of Pari Passu Stock or another series of Junior Stock shall not be deemed to
adversely affect such rights, preferences, privileges or voting powers; (iii)
repurchase, redeem or pay dividends on, shares of the Company's Junior Stock;
(iv) amend the Certificate of Incorporation or By-Laws of the Company so as to
affect materially and adversely any right, preference or voting power of the
Series B Convertible Preferred Stock; provided, however, that any creation and
-------- -------
issuance of another series of Pari Passu Stock or Junior Stock shall not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting powers; (v) effect any distribution with respect of Junior Stock; or
(vi) reclassify the Company's outstanding securities so as to affect materially
and adversely any right, preference, privilege or voting power of the Series B
Convertible Preferred Stock.
b. General Voting Rights: Except with respect to transactions upon
---------------------
which the Series B Convertible Preferred Stock shall be entitled to vote
separately as a class pursuant to Section 3(a) above and except as otherwise
required by Delaware law, the Series B Convertible Preferred Stock shall have no
voting rights. The Common Stock into which the Series B Convertible Preferred
Stock is convertible shall, upon issuance, have all of the same voting rights as
other issued and outstanding Common Stock of the Company.
c. Rights Offering. Notwithstanding anything herein to the
---------------
contrary, the Series B Convertible Preferred Stock shall not have any voting
rights, whether as a class, in general or otherwise, in connection with any
Rights Offering (as defined below). For purposes of this Certificate
3
<PAGE>
of Designation, "Rights Offering": shall mean the distribution or other
arrangement by the Company, whether directly or by arrangement with any
reputable underwriter(s) for the Partner Company Public Offering (as defined
below) or otherwise, resulting in each holder of the Common Stock obtaining the
right to purchase an amount of the securities of any Partner Company (as defined
below) calculated substantially on a pro rata basis based on the number of
shares of Common Stock owned by such holder at such time in connection with a
public offering of such securities (a "Partner Company Public Offering"). For
purposes of this Certificate of Designation, "Partner Company" shall mean any
entity in which the Company has made an investment.
3. Liquidation Preference.
----------------------
a. In the event of the liquidation, dissolution or widening up of
the affairs of the Company, whether voluntary or involuntary, after payment of
provision for payment of the debts and other liabilities of the Company, the
holders of shares of the Series B Convertible Preferred Stock then outstanding
shall be entitled to receive, out of the assets of the Company whether such
assets are capital or surplus of any nature, an amount equal to $1,000 per share
(the "Liquidation Preference Amount") of the Series B Convertible Preferred
Stock plus any accrued and unpaid dividends before any payment shall be made or
any assets distributed to the holders of the Common Stock or any other Junior
Stock. If the assets of the Company are not sufficient to pay in full the
Liquidation Preference Amount plus any accrued and unpaid dividends payable to
the holders of outstanding shares of the Series B Convertible Preferred Stock
and any series of preferred stock or any other class of stock on a parity, as to
rights on liquidation, dissolution or winding up, with the Series B Convertible
Preferred Stock, if any, notably in accordance with the respective amounts that
would be payable on such shares it all amounts payable thereon were paid in
full. The liquidation payment with respect to each outstanding fractional share
of Series B Convertible Preferred Stock shall be equal to a ratably
proportionate amount of the liquidation payment with respect to each outstanding
share of Series B Convertible Preferred Stock, if any ratably in accordance with
the respective amounts that would be payable on such shares if all amounts
payable thereon were paid in full. The liquidation payment with respect to each
outstanding fractional share of Series B Convertible Preferred Stock shall be
equal to a ratably proportionate amount of the liquidation payment with respect
to each outstanding share of Series B Convertible Preferred Stock. All payments
for which this Section 4(a) provides shall be in cash, property (valued at its
fair market value as determined by the Company's independent, outside
accountant) or a combination thereof, provided, however, that no cash shall be
-------- -------
paid to holders of Junior Stock unless each holder of the outstanding hares of
Series B Convertible Preferred Stock has been paid in cash the full Liquidation
Preference Amount plus any accrued and unpaid dividends to which such holder is
entitled as provided herein. After payment of the full Liquidation Preference
Amount plus any accrued and unpaid dividends to which each holder is entitled,
such holders of shares of Series B Convertible Preferred Stock will not be
entitled to any further participation as such in any distribution of the assets
of the Company.
b. A consolidation of the Company with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Company, or the effectuation by the Company of a transaction or series of
transactions in which more than 50% of the voting shares of the Company is
disposed of or conveyed, shall not be deemed to be a liquidation, dissolution,
or winding up within the meaning of this section 4. In the event of the merger
or consolidation of the Company
4
<PAGE>
with or into another corporation, the Series B Convertible Preferred Stock shall
maintain its relative powers, designations and preferences provided for herein
and no merger shall result inconsistent therewith.
c. Written notice of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, stating a payment date
and the place where the distributable amounts shall be payable, shall be given
by mail, postage prepaid, no less than 45 days prior to the payment date stated
therein, to the holders of record of the Series B Convertible Preferred Stock at
their respective addresses as the same shall appear on the books of the Company.
4. Conversion. The holder of Series B Convertible Preferred Stock
----------
shall have the following conversion rights (the "Conversion Rights"):
a. Right to Convert. At any time on or after the earlier of (i)
----------------
one hundred and eighty (180) days from the First Trenche Closing Date (as such
term is defined in the Securities Purchase Agreement dated as of September 17,
1999 between the Company and the initial holders of the Series B Convertible
Preferred Stock (the "Securities Purchase Agreement:)) and (ii) twenty (20) days
after the Effectiveness Date (as such term is defined in the Registration Rights
Agreement dated as of September 17, 1999 by and among the Company and the
initial holders of the Series B Convertible Preferred Stock (the "Registration
Rights Agreement")), the holder of any such shares of Series B Convertible
Preferred Stock held by such person into a number of fully paid and
nonassessable shares of Common Stock (the "Conversion Rate:) equal to the
quotient of (i) the Liquidation Preference Amount of the shares of Series B
Convertible Preferred Stock being converted divided by (ii) the Conversion Price
(as defined in Section 5(d)) then in effect as of the date of the delivery by
such holder of its notice of election to convert.
b. Mechanics of Voluntary Conversion. The Voluntary Conversion of
---------------------------------
Series B Convertible Preferred Stock shall be conducted in the following manner:
i. Holder's Delivery Requirements. To convert Series B
------------------------------
Convertible Preferred Stock into full shares of Common Stock on any date (the
"Voluntary Conversion Date:), the holder thereof shall (A) transmit by facsimile
(the "Conversion Facsimile"), for receipt on or prior to 5:00 p.m., pacific time
on such date, a copy of a fully executed notice of conversion in the form
attached hereto as Exhibit I ("the Conversion Notice"), to the Company, and (B)
---------
surrender to a common carrier for delivery to the Company within three (3)
business days of the transmission of the Conversion Facsimile, the original
certificates representing the shares of Series B Convertible Preferred Stock
being converted (or an indemnification undertaking with respect to such shares
in the case of their loss, theft or destruction) (the "Preferred Stock
Certificates:) and the originally executed Conversion Notice, issue and
ii. Company's Response. Upon receipt by the Company of a
------------------
facsimile copy of a Conversion Notice, the Company shall immediately send, via
facsimile, a confirmation of receipt of such Conversion Notice to such holder.
Upon receipt by this Company of the Preferred Stock Certificates to be converted
pursuant to a Conversion Notice, together with the originally executed
Conversion Notice, the Company or its designated transfer agent (the "Transfer
Agent") (as applicable)
5
<PAGE>
shall, within three (3) business days of receipt by the Company of the Preferred
Stock Certificates and the originally executed Notice, issue and surrender to a
common carrier for overnight delivery to the address as specified in the
Conversion Notice, a certificate, registered in the name of the holder or its
designee, for the number of shares of Common Stock to which the holder shall be
entitled. If the number of shares of Series B Convertible Preferred Stock
represented by the Preferred Stock Certificate(s) submitted for conversion is
greater than the number of shares of Series B Convertible Preferred Stock being
converted, then the Company shall, as soon as practicable and in no event later
than three (3) business days after receipt of the Preferred Stock Certificate(s)
and at the Company's expense, issue and deliver to the holder a new Preferred
Stock Certificate representing the number of shares of Series B Convertible
Preferred Stock not converted.
iii. Dispute Resolution. In the case of a dispute as to the
------------------
determination of the Average Share Prices (as defined in Section 5(d) below) or
the Conversion Price or the arithmetic calculation of the number of shares of
Common Stock to be issued upon conversion, the Company shall promptly issue to
the holder the number of shares of Common Stock that is not disputed and shall
submit the disputed determinations or arithmetic calculations to the holder via
facsimile as soon as possible, but in no event later than two (2) business days
after receipt of such holder's Conversion Notice. If such holder and the
Company are unable to agree upon the determination or arithmetic calculation
being submitted to the holder, then the Company shall within one (1) business
day submit via facsimile (A) the disputed determination of the Average Share
Prices or the Conversion Price to an independent, reputable investment bank or
(B) the disputed arithmetic calculation of the number of shares of Common Stock
to be issued upon such conversion to an independent, outside accountant. The
Company shall cause the investment bank or the accountant, as the case may be,
to perform the determinations or calculations and notify the Company and the
holder of the results no later than seventy-two (72) hours from the time it
receives the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent manifest error. The reasonable expenses of such
investment bank or accountant in making such determination shall be paid by the
Company, in the event the holder's calculation or determination was correct, or
by the holder, in the event the Company's calculation or determination was
correct. The period of time in which the Company is required to effect
conversions or redemptions under this Certificate of Designation shall be tolled
with respect to the subject conversion or redemption pending resolution of any
dispute by the Company made in good faith and in accordance with this Section
5(b)(iii).
iv. Record Holder. The person or persons entitled to receive
-------------
the shares of Common Stock issuable upon a conversion of the Series B
Convertible Preferred Stock shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on the Conversion date.
v. Company's Failure to Timely Convert. If within five (5)
-----------------------------------
business days of the Company's receipt of the Conversion Notice and the
Preferred Stock Certificates to be converted (the "Share Delivery Period") the
Company shall fail to issue a certificate to a holder for the number of shares
of Common Stock to which such holder is entitled upon such holder's conversion
of the Series B Convertible Preferred Stock or to issue a new Preferred Stock
Certificate representing the number of shares of Series B Convertible Preferred
Stock to which such holder is entitled pursuant to Section
6
<PAGE>
5(b)(ii) (a "Conversion Failure"), in addition to all other available remedies
which such holder may pursue hereunder and under the Securities Purchase
Agreement (including indemnification pursuant to the relevant Article(s)
thereof), the Company shall pay additional liquidated damages to such holder on
each business day after such fifth (5th) business day that such conversion is
not timely effected in an amount equal to 0.5% of the product of (A) the sum of
the number of shares of Common Stock not issued to the holder on a timely basis
pursuant to Section 5(b)(ii) and to which such holder is entitled and, in the
event the Company has failed to deliver a Preferred Stock Certificate to the
holder on a timely basis pursuant to Section 5(b)(ii), the number of shares of
Common Stock issuable upon conversion of the shares of Series B Convertible
Preferred Stock represented by such Preferred Stock Certificate, as of the last
possible date which the Company could have issued such Preferred Stock
Certificate to such holder without violating Section 5(b)(ii) and (B) the
Closing Bid Price (as defined in Section 5(d) below) of the Common Stock on the
last possible date which the Company could have issued such Common Stock and
such Preferred Stock Certificate, as the case may be, to such holder without
violation Section 5(b)(ii). If the Company fails to pay the additional
liquidated damages set forth in this Section 5(b)(v) within five business days
of the date incurred, then such payment shall bear interest at the rate of 2%
per month (pro rated for partial months) until such payments are made.
c. Mandatory Conversion
--------------------
i. Each share of Series B Convertible Preferred Stock
outstanding on the Mandatory Conversion Data shall, automatically and without
any action on the part of the holder thereof, convert into the number of fully
paid and nonassessable shares of Common Stock equal to the quotient of (i) the
Liquidation Preference Amount of the shares of Series B Convertible Preferred
Stock outstanding on the Mandatory Conversion Date divided by (ii) the
Conversion Price in effect on the Mandatory Conversion Date.
ii. For purposes of this Certificate of Designation, a
"Mandatory Conversion Date" shall be the date which is three years from the
Effectiveness Date, provided that the Mandatory Conversion Date shall be
extended for (a) up to an additional one (1 year for any shares of Series B
Convertible Preferred Stock (x) for as long as (A) a Triggering Event (as
defined in Section 8(d)) shall have occurred and be continuing or (B) any event
shall have occurred and be continuing which with the passage of time and the
failure to cure would result in a Triggering Event and (y) pursuant to Section
7(c) of the Registration Rights Agreement, which extension shall be one day for
each day of any Blackout Period (as defined in Section 3(n) of the Registration
Rights Agreement), and (2) up to an additional six (6) months for any shares of
Series B Convertible Preferred Stock the conversion of which would violate
Section 7. The Mandatory Conversion Date and the Voluntary Conversion Date
collectively are referred to in this Certificate of Designation as the
"Conversion Date."
iii. On the Mandatory Conversion Date, the outstanding shares
of Series B Convertible Preferred Stock shall be converted automatically without
any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Company or its
Transfer Agent; provided, however, that the Company shall not be obligated to
-------- -------
issue certificates evidencing the shares of Common Stock issuable upon
conversion of any shares of Series B Convertible Preferred Stock unless
certificates evidencing such shares of Series B Convertible Preferred Stock are
either delivered to the Company or the holder notifies the Company that such
7
<PAGE>
certificates have been lost, stolen, or destroyed, and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection therewith. Upon the occurrence of the automatic conversion of
the Series B Convertible Preferred Stock pursuant to this Section 5(c), the
holders of the Series B Convertible Preferred Stock shall surrender the
Preferred Stock Certificates representing the Series B Convertible Preferred
Stock for which the Mandatory Conversion Date has occurred to the Company and
the Company shall deliver the shares of Common Stock issuable upon such
conversion (in the same manner set forth in Section 5(b)(ii) to the holder
within three (3) business days of the holder's delivery of the applicable
Preferred Stock Certificates.
d. Conversion Price.
----------------
i. The term "Five Day Average Price" shall mean the lesser
of (i) the average of the five (5) Closing Bid Prices of the Company's shares of
Common Stock (as reported by Bloomberg Financial Markets ("Bloomberg")) in the
over-the-counter market on the electronic bulletin board for such security (the
"OTC Bulletin Board") (or on such other United States stock exchange or public
trading market ("Alternative Exchange") on which the shares of the Company trade
if, at the time of the conversion, they are not trading in the OTC Bulletin
Board), of the five (5) trading days immediately preceding the First Tranche
Closing Date and (ii) the average of the five (5) Closing Bid Prices of the
Company's shares of Common Stock (as reported by Bloomberg) in the over-the-
counter market on the OTC Bulletin Board (or on such other Alternative Exchange)
on which the shares of the Company trade if, at the time of the conversion, they
are not trading in the OTC Bulletin Board), of the five (5) trading days
immediately preceding the Second Tranche Closing date (as such term is defined
in the Securities Purchase Agreement); provided, however, that the Second
-------- -------
Tranche Closing Date shall have occurred; provided, further, that if the Second
-------- -------
Tranche Closing shall not occur; the Five Day Average Price shall be calculated
pursuant to (i) of this Section (5(d)(i); provided, however, that the Five Day
-------- -------
Average Price shall not be less than the Conversion Floor Price.
The term "Two Day Average Price" shall mean the average of the
two (2) Closing Bid Prices of the Company's shares of Common Stock (as reported
by Bloomberg) in the OTC Bulletin Board (or on such Alternative Exchange on
which the shares of the Company trade if, at the time of exercise of the Reset
Option (as defined in Section 5(d)(ii) below), they are not trading in the OTC
bulletin Board), of the two (2) trading days immediately preceding the date the
Company receives a notice from all of the holders of the Series B Convertible
Preferred Stock that they elect to exercise the Reset Option.
The Five Day Average Price and the Two Day Average Price are
collectively referred to herein as the "Average Share Prices".
ii. The term "Conversion Price" shall mean, with respect to
any conversion of Series B Convertible Preferred Stock, 100% of the Five Day
Average Price; provided that at any time from the First Tranche Closing Date
--------
until a date which is one (a) year after the Effectiveness Date, the holders of
Series B Convertible Preferred Stock shall have an option (which option may only
be used on one occasion) of resetting the Conversion Price (the "Reset Option")
to equal the greater of (x) the Two Day Average Price and (y) the Conversion
Floor Price (as defined below).
8
<PAGE>
iii. The term "Closing Bid Price" shall mean, for any security
as of any date, the last closing bid price of such security in the OTC Bulletin
Board for such security as reported by Bloomberg, or, if no closing bid price is
reported for such security by Bloomberg, the last closing trade price of such
security as reported by Bloomberg, the average of the bid prices of any market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price of such security on such date
shall be the fair market value as mutually determined by the Company and the
holders of a majority of the outstanding shares of Series B Convertible
Preferred Stock. if the Company and the holders of Series B Convertible
Preferred Stock are unable to agree upon the fair market value of the Common
Stock, then such dispute shall be resolved pursuant to Section 5(b)(iii) above
with the term "Closing Bid Price" being substituted for the term "Average Share
Prices." (All such determinations to be appropriately adjusted for any stock
dividend, stock split or other similar transaction during such period.).
iv. The term "Conversion Floor Price" shall mean $2.50 and
shall be subject to adjustment as provided herein.
e. Adjustments of Conversion Price.
-------------------------------
i. Adjustments for Stock Splits and Combinations. If the
---------------------------------------------
Company shall at any time or from time to time after the date of issuance of the
applicable shares of Series B Convertible Preferred Stock (the "Issuance Date"),
effect a stock split of the outstanding Common Stock, the applicable Conversion
Price and Conversion Floor Price in effect immediately prior to the stock split
shall be proportionately decreased. If the Company shall at any time or from
time to time after the Issuance Date, combine the outstanding shares of Common
Stock, the applicable Conversion Price and the Conversion Floor Price in effect
immediately prior to the combination shall be proportionately increased. Any
adjustments under this Section 5(c)(ii) shall be effective at the close of
business on the date the stock split or combination occurs.
ii. Adjustments for Certain Dividends and Distributions. If
---------------------------------------------------
the Company shall at any time or from time to time after the Issuance Date, make
or issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in shares of Common
Stock, then, and in each event, the applicable Conversion Price and Conversion
Floor Price in effect immediately prior to such event shall be decreased as of
the time of such issuance or, in the event such record date shall have been
fixed, as of the close of business on such record date, by multiplying, as
applicable, the applicable Conversion Price and Conversion Floor Price then in
effect by a fraction:
(1) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date; and
(2) The denominator of which shall be the total number
of shares of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or distribution.
9
<PAGE>
iii. Adjustment for Other Dividends and Distributions. If the
------------------------------------------------
Company shall at any time or from time to time after the Issuance Date, make or
issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in other than
shares of Common Stock, then, and in each event, an appropriate revision to the
applicable Conversion Price and Conversion Floor Price shall be made and
provision shall be made (by adjustments of the Conversion Price, the Conversion
Floor Price or otherwise) so that the holders of Series B Convertible Preferred
Stock shall receive upon conversions thereof, in addition to the number of
shares of Common Stock receivable thereon, the number of securities of the
Company which they would have received had their Series B Convertible Preferred
Stock been converted into Common Stock on the date of such event and had
thereafter, during the period from the date of such event to and including the
Conversion Date, retained such securities (together with any distributions
payable thereon during such period), giving application to all adjustments
called for during such period under this Section 5(c)(iv) with respect to the
rights of the holders of the Series B Convertible Preferred Stock. If the
Company shall at any time or from time to time after the Issuance Date, arrange
a Rights Offering, then, and in each event, on the date of such Rights Offering,
each holder of Series B Convertible Preferred Stock shall receive what such
holder would have received had such holder converted all of its shares of Series
B Convertible Preferred Stock immediately prior to the date of such Rights
Offering.
iv. Adjustments for Reclassification Exchange or
--------------------------------------------
Substitution. If the Common Stock issuable upon conversion of the Series B
- ------------
Convertible Preferred Stock at any time or from time to time after the Issuance
Date shall be changed to the same or different number of shares of any class or
classes of stock, whether by reclassification, exchange, substitution or
otherwise (other than by way of a stock split or combination of shares or stock
dividends provided for in Sections 5(e)(i), (ii) and (iii), or a reorganization,
merger, consolidation, or sale of assets provided for in Section 5(e)(v)), then,
and in each event, an appropriate revision to the Conversion Price and
Conversion Floor Price shall be made and provisions shall be made (by
adjustments of the Conversion Price, Conversion Floor Price or otherwise) so
that the holder of each share of Series B Convertible Preferred Stock shall have
the right thereafter to convert such share of Series B Convertible Preferred
Stock into the kind and amount of shares of stock and other securities
receivable upon reclassification, exchange, substitution or other change, by
holders of the number of shares of Common Stock into which such share of Series
B Convertible Preferred Stock might have been converted immediately prior to
such reclassification, exchange, substitution or other change, all subject to
further adjustment as provided herein.
v. Adjustments for Reorganization, Merger, Consolidation or
--------------------------------------------------------
Sales of Assets. If at any time or from time to time after the Issuance Date
- ---------------
there shall be a capital reorganization of the Company (other than by way of a
stock split or combination of shares or stock dividends or distributions
provided for in Section 5(e)(i), (ii) and (iii), or a reclassification, exchange
or substitution of shares provided for in Section 5(e)(iv)), or a merger or
consolidation of the Company with or into another corporation, or the sale of
all or substantially all of the Company's properties or assets to any other
person (an "Organic Change"), then as a part of such Organic Change an
appropriate revision to the Conversion Price and Conversion Floor Price shall be
made and provision shall be made (by adjustments of the Conversion Price, the
Conversion Floor Price or otherwise) so that the holder of each share of Series
B Convertible Preferred Stock shall have the right thereafter to convert such
share of Series B Convertible Preferred Stock into the kind and amount of shares
of stock and other securities
10
<PAGE>
or property of the Company or any successor corporation resulting from Organic
Change. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 5(e)(v) with respect to the rights
of the holders of the Series B Convertible Preferred Stock after the Organic
Change to the end that the provisions of this Section 5(e)(v) (including any
adjustment in the applicable Conversion Price and Conversion Floor Price then in
effect and the number of shares of stock or other securities deliverable upon
conversion of the Series B Convertible Preferred Stock) shall be applied after
that event in as nearly an equivalent manner as may be practicable.
vi. Adjustments for Issuance of Additional Shares of Common
-------------------------------------------------------
Stock. If the Company, after the Issuance Date and at any time wile any shares
- -----
of Series B Convertible Preferred Stock are outstanding, shall issue any
Additional Shares of Common Stock (as defined below) (otherwise than an provided
in Section 5(e)(i)-(v)), at a price per share less than the Conversion Price
then in effect or without consideration, then the Conversion Price and the
Conversion Floor Price upon each such issuance shall be adjusted to that price
(rounded to the nearest cent), determined by multiplying the Conversion Price
and the Conversion Floor Price, as the case may be, then in effect by a
fraction;
(1) the numerator of which shall be equal to the sum of
(x) the number of shares of Common stock outstanding immediately prior to the
issuance of such Additional Shares of Common Stock plus (y) the number of shares
of Common Stock (rounded to the nearest whole share) which the aggregate
consideration for the total number of such Additional Shares of Common Stock so
issued would purchase at a price per share equal to the Conversion Price, then
in effect; and
(2) the denominator of which shall be equal to the number
of shares of Common Stock outstanding immediately after the issuance of Such
Additional Shares of Common Stock:
The provisions of this Section 5(e)(vi) shall not apply under any of the
circumstances for which an adjustment is provided for in Section 5(e)(i)-(v).
No adjustment of the Conversion Price or the Conversion Price or the Conversion
Floor Price shall be made under this Section 5(e)(vi) upon the issuance of any
Additional Shares of Common Stock which are issued pursuant to any Common Stock
Equivalent (as defined in Section 5(e)(vii)) if upon the issuance of such Common
Stock Equivalent (X) any adjustment shall have been made pursuant to Section
5(e)(vii) or (Y) no adjustment was required pursuant to Section 5(e)(vii). No
adjustment of the Conversion Price and the Conversion Floor Price shall be made
under carried forward and shall be made at the time and together with the next
subsequent adjustment, if any, which together with any adjustments so carried
forward shall amount to $.01 per share or more, provided that upon any
adjustment of the Conversion Price and the Conversion Floor Price as a result of
any dividend or distribution payable in Common Stock or Convertible Securities
(as defined in Section 4(e)(vii), or the reclassification, subdivision or
combination of Common Stock into a greater or smaller number of shares, the
foregoing figure of $.01 per share (or such figure as last adjusted) shall be
adjusted (to the nearest one-half cent) in proportion to the adjustment in the
Conversion Price and the Conversion Floor Price. For purposes of this
Certificate of Designation, "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued by the Company after the Issuance Date, if any,
except (i) shares of Common Stock issued pursuant to any warrants
11
<PAGE>
issued pursuant to the Securities Purchase Agreement and (ii) any shares of
Common Stock issued upon conversion of the Series B Convertible Preferred Stock.
vii. Adjustments for Issuance of Common Stock Equivalents.
----------------------------------------------------
If the Company, after the Issuance Date and at any time while any shares of
Series B Convertible Preferred Stock are outstanding, shall issue any Common
Stock Equivalent and the price per share for which Additional Shares of Common
Stock may be issuable thereafter pursuant to such Common Stock Equivalent shall
be less than the Conversion Price then in effect, or if, after any such issuance
of a Common Stock Equivalent, the price per share for which Additional Shares of
Common Stock may be issuable thereafter is amended or adjusted, and such price
as so amended or adjusted shall be less than the Conversion Floor Price upon
each such issuance or amendment or adjustment shall be adjusted as provided in
the first sentence of Section 5(e)(vi) on the basis that (A) the maximum
Equivalents shall be deemed to have been issued (whether or not such Common
Stock Equivalents are actually then exercisable, convertible or exchangeable in
whole or in part) as of the earlier of (x) the date on which the Company shall
enter into a firm contract for the issuance of such Common Stock Equivalents or
(y) the date of actual issuance of such Common Stock Equivalents and (B) the
aggregate consideration for such maximum number of Additional Shares of Common
Stock shall be deemed to be the minimum consideration received or receivable by
the Company for the issuance of such Additional Shares of Common Stock pursuant
to such Common Stock Equivalent. No adjustment of the Conversion Price and the
Conversion Floor Price shall be made under this Section 5(e)(vii) upon the
issuance of any Convertible Security (as defined below) which is issued pursuant
to the exercise of any warrants or other subscription or purchase rights
therefor, if any adjustment shall previously have been made in the Conversion
Price and the Conversion Floor Price then in effect upon the issuance of such
warrants or other subscription or purchase rights pursuant to this Section
5(e)(vii). For purposes of this Certificate of Designation, (1) "Convertible
Security" or "Convertible Securities" (as applicable) shall mean evidences of
indebtedness, shares of capital stock or other securities of the Company which
are or may be, at any time, convertible into or exchangeable for Additional
Shares of Common Stock and (2) "Common Stock Equivalent" shall mean any
Convertible Security or warrant, option or other right to subscribe for or
purchase any Additional Shares of Common Stock or any Convertible Security.
viii. Consideration for Stock. In case any shares of Common
-----------------------
Stock or any Convertible Securities, other than the Series B Convertible
Preferred Stock, or any rights or warrants or options to purchase any such
Common Stock or Convertible Securities, shall be issued or sold:
(1) in connection with any merger or consolidation in
which the Company is the surviving corporation (other than any consolidation or
merger in which the previously outstanding shares of Common Stock of the Company
shall be changed to or exchanged for the stock or other securities or another
corporation), the amount of consideration therefore shall be, deemed to be the
fair value, as determined reasonably and in good faith by the Board, of such
portion of the assets and business of the nonsurviving corporation as such Board
may determine to be attributable to such shares of Common Stock, Convertible
Securities, rights or warrants or options, as the case may be; or
(2) in the event of any consolidation or merger of the
Company in which the Company is not the surviving corporation or in which the
previously outstanding shares of Common Stock of the Company shall be changed
into or exchanged for the stock or other securities
12
<PAGE>
of another corporation, or in the event of any sale of all or substantially all
of the assets of the Company for stock or other securities of any corporation,
the Company shall be deemed to have issued a number of shares of its Common
Stock for stock or securities or other property of the other corporations
computed on the basis of the actual exchange ratio on which the transaction was
predicated and for a consideration equal to the fair market value on the date of
such transaction of all such stock or securities or other property of the other
corporation. If any such calculation results in adjustment of the applicable
Conversion Price, the Conversion Floor Price or the number of shares of Common
Stock issuable upon conversion of the Series B Convertible Preferred Stock the
determination of the applicable Conversion Price, the Conversion Floor Price or
the number of shares of Common Stock issuable upon conversion of the Series B
Convertible Preferred Stock immediately prior to such merger, consolidation or
sale, shall be made after giving effect to such adjustment of the number of
shares of Common Stock issuable upon conversion of the Series B Convertible
Preferred Stock; or
(3) in connection with events other than described in
Section 5(vii)(A) and (B): (i) to the extent that any Additional Shares of
Common Stock or any Common Stock Equivalents shall be issued for cash
consideration, the consideration received by the Company therefor, or if such
Additional Shares of Common Stock or Common Stock Equivalents are offered by the
Company for subscription, the subscription price, or, if such Additional Shares
of Common Stock or Common Stock Equivalents are sold to underwriters or dealers
for public offering without a subscription offering, the public offering price,
in any such case excluding any amounts paid or receivable for accrued interest
or accrued dividends and without deduction of any compensation, discounts,
commissions, or expenses paid or incurred by the Company for or in connection
with the underwriting thereof or otherwise in connection with the issue thereof
and (ii) to the extent that such issuance shall be for a consideration other
than cash, then, except as herein otherwise expressly provided, the fair market
value of such consideration at the time of such issuance shall be as determined
in good faith by the Board. The consideration for any Additional Shares of
Common Stock issuable pursuant to any Common Stock Equivalents shall be the
consideration received by the Company for issuing such Common Stock Equivalents,
plus the additional consideration payable to the Company upon the exercise,
conversion or exchange of such Common Stock Equivalents. In case of the issuance
at any time of any Additional Shares of Common Stock or Common Stock Equivalents
in payment or satisfaction of any dividend upon any class of capital stock of
the Company other than Common Stock, the Company shall be deemed to have
received for such Additional Shares of Common Stock or Common Stock Equivalents
a consideration equal to the amount of such dividend so paid or satisfied. In
any case in which the consideration to be received or paid shall be other than
cash, the Board shall notify the holders of the Series B Convertible Preferred
Stock of its determination of the fair market value of such consideration prior
to payment or accepting receipt thereof. If, within thirty (30) days after
receipt of said notice, the holders of a majority of the Series B Convertible
Preferred Stock shall notify the Board in writing of their objection to such
determination, a determination of the fair market value of such consideration
shall be made by an independent appraiser selected by the holders of a majority
of the Series B Convertible Preferred Stock with the approval of the Board
(which approval shall not be unreasonably withheld), whose fees and expenses
shall be paid by the Company.
ix. Adjustments for Other Actions Affecting Common Stock. In
----------------------------------------------------
case after the Issuance Date the Company shall take any action affecting its
Common Stock, other than an action described in Section 5(e)(i)-(viii),
inclusive, and the failure to make any adjustment would not fairly
13
<PAGE>
protect the rights of the holders of the Series B Convertible Preferred Stock in
accordance with the essential intent and principle of this Section 5, then the
Conversion Price and the Conversion Floor Price shall be adjusted in such manner
and at such time as the Board may in good faith determine to be equitable in the
circumstances.
x. Outstanding Common Stock. The number of shares of Common
------------------------
Stock at any time outstanding shall (A) not include any shares thereof then
directly or indirectly owned or held by or for the account of the Company or any
of its subsidiaries and (B) be deemed to include all shares of Common Stock then
issuable upon conversion, exercise or exchange of any then outstanding Common
Stock Equivalents or any other evidences of indebtedness, shares of capital
stock (including, without limitation, the Series B Convertible Preferred Stock)
or other securities which are or may be at any time convertible into or
exchangeable for shares of Common Stock.
xi. Readjustment of Conversion Price. Upon the expiration or
--------------------------------
termination of the right to convert, exchange or exercise any Common Stock
Equivalent the issuance of which affected an adjustment in the Conversion Price,
if such Common Stock Equivalent shall not have been converted, exercised or
exchanged in its entirety, the number of shares of Common Stock deemed to be
issued and outstanding by reason of the fact that they were issuable upon
conversion, exchange or exercise of any such Common Stock Equivalent shall no
longer by computed as set forth above, and the Conversion Price shall forthwith
be readjusted and thereafter be the price which it would have been (but
reflecting any other adjustments in the Conversion Price made pursuant to the
provisions of this Section 5(e) after the issuance of any Common Stock
Equivalent) had the adjustment of the Conversion Price been made in accordance
with the issuance or sale of the number of Additional Shares of Common Stock
actually issued upon conversion, exchange or issuance of such Common Stock
Equivalent and thereupon only the number of Additional Shares of Common Stock
actually so issued shall be deemed to have been issued and only the
consideration actually received by the Company (computed as in Section
5(e)(viii)(C)) shall be deemed to have been received by the Company.
xii. Record Date. In case the Company shall take record of the
-----------
holders of its Common Stock or any other Preferred Stock for the purpose of
entitling them to subscribe for or purchase Common Stock or Convertible
Securities, then the date of the issue or sale of the shares of Common Stock
shall be deemed to be such record date.
xiii. Permitted Financings. Notwithstanding anything herein to
--------------------
the contrary, there shall be no adjustment to the Conversion Price, the
Conversion Floor Price or the number of shares of Common Stock issuable upon
conversion of the Series B Convertible Preferred Stock in connection with any
Permitted Financing. For purposes of this Certificate of Designation, a
"Permitted Financing" shall have the same meaning as in Section 3.13 of the
Securities Purchase Agreement.
f. No Impairment. The Company shall not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith, assist in the carrying out of all the provisions of this
Section 5 and in the taking of all such action
14
<PAGE>
as may be necessary or appropriate in order to protect the Conversion Rights of
the holders of the Series B Convertible Preferred Stock against impairment.
g. Certificates as to Adjustments. Upon occurrence of each
------------------------------
adjustment or readjustment of the Conversion Price, the Conversion Floor Price
or the number of shares of Common Stock issuable upon conversion of the Series B
Convertible Preferred Stock pursuant to this Section 5, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each holder of such Series B Convertible
Preferred Stock a certificate setting forth such adjustment and readjustment,
showing in detail the facts upon which such adjustment or readjustment is based.
The Company shall, upon written request of the holder of such affected Series B
Convertible Preferred Stock, at any time, furnish or cause to be furnished to
such holder a like certificate setting forth such adjustments and readjustments,
the applicable Conversion Price and Conversion Floor Price in effect at the
time, and the number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon the conversion
of a share of such Series B Convertible Preferred Stock. Notwithstanding the
foregoing, the Company shall not be obligated to deliver a certificate unless
such certificate would reflect an increase or decrease of at least one percent
of the Conversion Price, Conversion Floor Price or number of shares of Common
Stock issuable upon conversion of the Series B Convertible Preferred Stock
pursuant to this Section 5.
h. Issue Taxes. The Company shall pay any and all issue and other
-----------
taxes, excluding federal, state or local income taxes, that may be payable in
respect of any issue or delivery of shares of Common Stock on conversion of
shares of Series B Convertible Preferred Stock pursuant thereto; provided,
--------
however, that the Company shall not be obligated to pay any transfer taxes
- -------
resulting from any transfer requested by any holder in connection with any such
conversion.
i. Notices. All notices and other communications (including any
-------
certificate setting forth an adjustment or readjustment pursuant to Section
5(g)) hereunder shall be in writing and shall be deemed given if delivered
personally or by facsimile or three (3) business days following being mailed by
certified or registered mail, postage prepaid, return receipt requested,
addressed to the holder of record at its address appearing on the books of the
Company. The Company will give written notice to each holder of Series B
Convertible Preferred Stock at least twenty (20) days prior to the date on which
the Company closes its books or takes a record (I) with respect to any dividend
or distribution upon the Common Stock, (II) with respect to any pro rata
subscription offer to holders of Common Stock or (III) for determining rights to
vote with respect to any Organic Change, dissolution, liquidation or winding up
and in no event shall such notice be provided to such holder prior to such
information being made known to the public. The Company will also give written
notice to each holder of Series B Convertible Preferred Stock at least twenty
(20) days prior to the date on which any Organic Change, dissolution,
liquidation or winding up will take place and in no event shall such notice be
provided to such holder prior to such information being made known to the
public.
j. Fractional Shares. No fractional shares of Common Stock shall
-----------------
be issued upon conversion of the Series B Convertible Preferred Stock. In lieu
of any fractional shares to which the holder would otherwise be entitled, the
Company shall pay cash equal to the product of such fraction multiplied by the
Conversion Price utilized for such conversion.
15
<PAGE>
k. Reservation of Common Stock. The Company shall, so long as any
---------------------------
shares of Series B Convertible Preferred Stock are outstanding, reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of affecting the conversion of the Series B Convertible Preferred Stock,
such number of shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all of the Series B Convertible Preferred Stock then
outstanding; provided that the number of shares of Common Stock so reserved
--------
shall at no time be less than 1,100,000 shares of Common Stock for which the
shares of Series B Convertible Preferred Stock are at any time convertible
following the First Tranche Closing (as such term is defined in the Securities
Purchase Agreement) and an additional 1,650,000 shares of Common Stock for which
the shares of Series B Convertible Preferred Stock are at any time convertible
following the Second Tranche Closing (as such term is defined in the Securities
Purchase Agreement). The initial number of shares of Common Stock reserved for
conversions of the Series B Convertible Preferred Stock and each increase in the
number of shares so reserved shall be allocated pro rata among the holders of
the Series B Convertible Preferred Stock based on the number of shares of Series
B Convertible Preferred Stock held by each holder at the time of issuance of the
Series B Convertible Preferred Stock or increase in the number of reserved
shares, as the case my be. In the event a holder shall sell or otherwise
transfer any of such holder's shares of Series B Convertible Preferred Stock,
each transferee shall be allocated a pro rata portion of the number of reserved
shares of Common Stock reserved for such transferor. Any shares of Common Stock
reserved and which remain allocated to any person or entity which does not hold
any shares of Series B Convertible Preferred Stock shall be allocated to the
remaining holders of Series B Convertible Preferred Stock, pro rata based on the
number of shares of Series B Convertible Preferred Stock then held by such
holder. The Company shall, from time to time in accordance with the Delaware
General Corporation Law, as amended, increase the authorized number of shares of
Common Stock if at any time the unissued number of authorized shares shall not
be sufficient to satisfy the Company's obligations under this Section 5(k).
l. Retirement of Series B Convertible Preferred Stock. Conversion
--------------------------------------------------
of Series B Convertible Preferred Stock shall be deemed to have been affected on
the applicable Voluntary Conversion Date or Mandatory Conversion Date, and such
date is referred to herein as the "Conversion Date". Upon conversion of only a
portion of the number of shares of Series B Convertible Preferred Stock
represented by a certificate surrendered for conversion, the Company shall issue
and deliver to such holder at the expense of the Company, a new certificate
converting the number of shares of Series B Convertible Preferred Stock
representing the unconverted portion of the certificate so surrendered as
required by Section 5(b)(ii).
m. Regulatory Compliance. If any shares of Common Stock to be
---------------------
reserved for the purpose of conversion of Series B Convertible Preferred Stock
require registration or listing with or approval of any governmental authority,
stock exchange or other regulatory body under any federal or state law or
regulation or otherwise before such shares may be validly issued or delivered
upon conversion, the Company shall, at its sole cost and expense, in good faith
and as expeditiously as possible, endeavor to secure such registration, listing
or approval, as the case may be.
5. No Preemptive Rights. Except as provided in Section 5 hereof and in
--------------------
the Securities Purchase Agreement, no holder of the Series B Convertible
Preferred Stock shall be entitled to rights to subscribe for, purchase or
receive any part of any new or additional shares of any class, whether now
16
<PAGE>
or hereinafter authorized, or of bonds or debentures, or other evidences of
indebtedness convertible into or exchangeable for shares of any class, but all
such new or additional shares of any class, or any bond, debentures or other
evidences of indebtedness convertible into or exchangeable for shares, may be
issued and disposed of by the Board on such terms and for such consideration (to
the extent permitted by law), and to such person or persons as the Board in
their absolute discretion may deem advisable.
6. Conversion Restrictions. Notwithstanding anything to the contrary set
-----------------------
forth in Section 5 of this Certificate of Designation, in no event (except with
respect to a Mandatory Conversion as provided in Section 5(c) above) shall any
holder be entitled to convert Series B Convertible Preferred Stock in excess of
that number of shares of Series B Convertible Preferred Stock which, upon giving
affect to such conversion, would cause the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates to exceed 4.99% of the
outstanding shares of the Common Stock following such conversion. For purposes
of the foregoing sentence, the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates shall include the number of
----------
shares of Common Stock issuable upon conversion of the shares of Series B
Convertible Preferred Stock with respect to which such determination is being
made, but shall exclude the number of shares of Common Stock which would be
issuable upon (i) conversion of the remaining, nonconverted shares of Series B
Convertible Preferred Stock beneficially owned by the holder and its affiliates
and (ii) exercise or conversion of the unexercised or unconverted portion of any
other securities of the company (including, without limitation, any warrants)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by the holder and its affiliates. Except as
set forth in the preceding sentence, for purposes of this Section 7, beneficial
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended.
7. Redemption.
----------
a. Redemption Option Upon Major Transaction. In addition to all
----------------------------------------
other rights of the holders of Series B convertible Preferred Stock contained
herein, simultaneous s with the occurrence of a Major Transaction (as defined
below), each holder of Series B Convertible Preferred Stock shall have the
right, at such holder's opinion, to require the Company to redeem all or a
portion of such holder's shares of Series B Convertible Preferred Stock at a
price per share of Series B Convertible Preferred Stock equal to a greater of
(i) 125% of the Liquidation Preference Amount and (ii) the product of (A) the
Conversion Rate (as defined in Section 5(a) and (B) the Closing Bid Price of the
Common Stock on the trading date immediately preceding such Major Transaction
("Major Transaction Redemption Price"):
b. Redemption Opinion Upon Triggering Event. In addition to all
----------------------------------------
other rights of the holders of Series B Convertible Preferred Stock contained
herein, after a Triggering Event (as defined below), each holder of Series B
Convertible Preferred Stock shall have the right, in such holder's option, to
require the Company to redeem all or a portion of such holder's shares of Series
B Convertible Preferred Stock at a price per share of Series B Convertible
Preferred Stock equal to the greater of (i) 125% of the Liquidation Preference
Amount and (ii) the product of (A) the Conversion Rate (as defined in Section
5(a) ) at such time and (B) the Closing Bid Price of the Common Stock calculated
as of the date immediately preceding such Triggering Event on which the exchange
or market
17
<PAGE>
on which the Common Stock is traded is open ("Triggering Event Redemption Price"
and, collectively with "Major Transaction Redemption Price," the "Redemption
Price").
c. "Major Transaction". A "Major Transaction" shall be deemed to
-----------------
have occurred at such time as any of the following events:
i. the consolidation, merger or other business combination of
the Company with or into another Person (other than (A) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company or (B) a consolidation, merger or other business
combination in which holders of the Company's voting power immediately prior to
the transaction continue after the transaction to hold, directly or indirectly,
the voting powers of the surviving entity or entities necessary to elect a
majority of the members of the Board (or their equivalent if other than a
corporation) of such entity or entities); or
ii. the sale or transfer of all or substantially all of the
Company's assets; or
iii. consummation of a purchase, render or exchange offer made
to the holders of more than 30% of the outstanding shares of Common Stock.
Notwithstanding the foregoing in regard to this Section 8(c), each of
(i) the Company's conversion of invested shares of common stock held by members
of its management team into an equivalent number of options to purchase shares
of the Company's common stock (as described on Schedule 2.1(c) to the Securities
Purchase Agreement); (ii) any exchange offers which the Company completes with
shareholders of BrightStreet.com, Inc. in connection with the proposed merger of
the parties (as described in Schedule 2.1(c) to the Securities Purchase
Agreement); and (iii) the spin-off of BrightStreet.com, Inc.'s assets into a
newly formed subsidiary (as described in Schedule 2.1(g) to the Securities
Purchase Agreement), will not be deemed to be a Major Transaction.
d. "Triggering Event". A "Triggering Event" shall be deemed to have
----------------
occurred at such time as any of the following events:
i. the failure of the Registration Statement to be declared
effective by the SEC on or prior to the date which is 150 days after the First
Tranche Closing Date;
ii. while the Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights Agreement,
the effectiveness of the Registration Statement lapses for any reason
(including, without limitations, the issuance of a stop order) or its
unavailable to the holder of the Series B Convertible Preferred Stock for sale
of the Registrable Securities (as defined in the Registration Rights Agreement)
in accordance with the terms of the Registration Rights Agreement, and such
lapse or unavailability continues for a period of ten (10) consecutive trading
days, provided that the cause of such lapse or unavailability is not due to
--------
facts solely within the control of such holder of Series B Convertible Preferred
Stock;
18
<PAGE>
iii. the suspension from listing or the failure of the Common
Stock to be listed on the OTC Bulletin Board, the Gnostic SmallCap Market, the
Gnostic National Market, The New York Stock Exchange, Inc. or The American Stock
Exchange, Inc., as applicable, for a period of five consecutive days;
iv. the Company's notice to any holder of Series B Convertible
Preferred Stock, including by way of public announcement, at any time, of its
inability to comply (including for any of the reasons described in Section 9) or
its intention not to comply with proper requests for conversions of any Series B
Convertible Preferred Stock into share of Common Stock;
v. the Company's failure to comply with a Conversion Notice
tendered in accordance with the provisions of this Certificate of Designation
within ten (10) business days after the receipt by the Company of the Conversion
Notice and the Preferred Stock Certificates; or
vi. the Company breaches any representations, warranty,
covenant or other term or condition of the Securities Purchase Agreement, the
Registration Rights Agreement, this Certificate of Designation or any other
agreement, document certificates or other instrument delivered in connection
with the transaction contemplated thereby or hereby, except to the extent that
such breach would not have a Material Adverse Effect (as defined in Section
2.1(a) of the Securities Purchase Agreement) and except, in the case of a breach
of a covenant which is curable, only if such breach continues for a period of a
least ten days.
e. Mechanics of Redemption at Opinion of Buyer Upon Major
------------------------------------------------------
Transaction. No sooner than fifteen (15) days nor later than ten (10) days
- -----------
prior tot he consummation of Major Transaction, but not prior to the public
announcement of such Major Transaction, the Company shall deliver written notice
thereof via facsimile and overnight courier ("Notice of Major Transaction") to
each holder of Series B Convertible Preferred Stock. At any time after receipt
of a Notice of Major Transaction (or, in the event a Notice of Major Transaction
is not delivered at least ten (10) days prior to a Major Transaction, at any
time within ten (10) days prior to a Major Transaction), any holder of Series B
Convertible Preferred Stock than outstanding may require the Company to redeem,
effective immediately prior to the consummation of such Major Transaction, all
of the holder's Series B Convertible Preferred Stock then outstanding by
delivering written notice thereof via facsimile and overnight courier ("Notice
of Redemption at Option of Buyer Upon Major Transaction") to the Company, which
Notice of Redemption at Option of Buyer Upon Major Transaction shall indicate
(i) the number of shares of Series B Convertible Preferred Stock that such
holder is electing to redeem and (ii) the applicable Major Transaction
Redemption Price, as calculated pursuant to Section 8(a) above.
f. Mechanics of Redemption at Option of Buyer Upon Triggering Event.
----------------------------------------------------------------
Within one (1) day after the occurrence of a Triggering Event, the Company shall
deliver written notice thereof via facsimile and overnight courier ("Notice of
Triggering Event") to each holder of Series B Convertible Preferred Stock. At
any time after the earlier of a holder's receipt of a Notice of Triggering Event
and such holder becoming aware of a Triggering Event, any holder of Series B
Convertible Preferred Stock then outstanding may require the Company to redeem
all of the Series B Convertible Preferred Stock by delivering written notice
thereof via facsimile and overnight courier ("Notice of Redemption at Option of
Buyer Upon Triggering Event") to the Company, which Notice of Redemption
19
<PAGE>
at Option of Buyer Upon Triggering Event shall indicate (i) the number of shares
of Series B Convertible Preferred Stock that such holder is electing to redeem
and (ii) the applicable Triggering Event Redemption Price, as calculated
pursuant to Section 8(b) above.
g. Payment of Redemption Price. Upon the Company's receipt of a
---------------------------
Notice(s) of Redemption at Option of Buyer Upon Triggering Event or a Notice(s)
of Redemption at Option of Buyer Upon Major Transaction from any holder of
Series B Convertible Preferred Stock, the Company shall immediately notify each
holder of Series B Convertible Preferred Stock by facsimile of the Company's
receipt of such Notice(s) of Redemption at Option of Buyer Upon Triggering Event
or Notice(s) of Redemption at Option of Buyer Upon Major Transaction and each
holder which has sent such a notice shall promptly subject to the Company such
holder's Preferred Stock Certificates which such holder has elected to have
redeemed. The Company shall deliver the applicable Triggering Event Redemption
Price, in the case of a redemption pursuant to Section 8(f), to such holder
within five (5) business days after the Company's receipt of a Notice of
Redemption at Option of Buyer Upon Triggering Event and, in the case of a
redemption pursuant to Section 8(e), the Company shall deliver the applicable
Major Transaction Redemption Price immediately prior to the consummation of the
Major Transaction; provided that a holder's Preferred Stock Certificates shall
--------
have been so delivered to the Company' provided further that if the Company is
-------- -------
unable to redeem all of the Series B Convertible Preferred Stock to be redeemed,
the Company shall redeem an amount from each holder of Series B Convertible
Preferred Stock being redeemed equal to such holder's prorate amount (based on a
the number of shares of Series B Convertible Preferred Stock holder by such
holder relative to the number of shares of Series B Convertible Preferred Stock
outstanding ) of all Series B Convertible Preferred Stock being redeemed. If
the Company shall fail to redeem all of the Series B Convertible Preferred Stock
submitted for redemption (other than pursuant to a dispute as the arithmetic
calculation of the Redemption Price), in addition to any remedy such holder of
Series B Convertible Preferred Stock may have under this Certificate of
Designation and the Securities Purchase Agreement, the applicable Redemption
Price payable in respect of such unredeemed Series B Convertible Preferred Stock
shall bear interest at the rate of 2.0% per month (prorated for partial months)
until paid in full. Until the Company pays such unpaid applicable Redemption
Price in full to a holder of shares of Series B Convertible Preferred Stock
submitted for redemption, such holder shall have the option (the "Void Optional
Redemption Option") to, in lieu of redemption, require the Company to promptly
return to such holder(s) all of the shares of Series B Convertible Preferred
Stock that were submitted for redemption by such holder(s) under this Section 8
and for which the applicable Redemption Price has not been paid, by sending
written notice thereof to the Company via facsimile (the "Void Option Redemption
Notice"). Upon the Company's receipt of such Void Option Redemption Notice(s)
and prior to payment of the full applicable Redemption Price to such holder, (i)
the Notice(s) of Redemption at Option of Buyer Upon Triggering Event or the
Notice(s) of Redemption at Option of Buyer Upon Major Transaction, as the case
may be, shall be null and void with respect to those shares of Series B
Convertible Preferred Stock submitted for redemption and for which the
applicable Redemption Price has not been paid, (ii) the Company shall
immediately return any Series B Convertible Preferred Stock submitted to the
Company by each holder for redemption under this Section 8(g) and for which the
applicable Redemption Price has not been paid and (iii) the Conversion Price of
such returned shares of Series B Convertible Preferred Stock shall be adjusted
to the lesser of (A) the Conversion Price as in effect on the date on which the
Void Option Redemption Notice(s) is delivered to the Company and (B) the lowest
Closing Bid Price during the period beginning on the date on which the Notice(s)
of
20
<PAGE>
Redemption of Option of Buyer Upon Major Transaction or the Notice(s) of
Redemption at Option of Buyer Upon Triggering event, as the case may be, is
delivered to the Company and ending on the date on which the Void Optional
Redemption Notice(s) is delivered to the Company; provided that no adjustment
--------
shall be made if such adjustment would result in an increase of the Conversion
Price then in effect. Notwithstanding the foregoing, tin the event of a dispute
as to the determination of the Closing Bid Price or the arithmetic calculation
of the Redemption Price" being substituted for the term "Conversion Price". A
holder's delivery of a Void Optional Redemption Notice and exercise of its
rights following such notice shall not effect the Company's obligations to make
any payments which have accrued prior to the date of such notice. Payments
provided for in this Section 8 shall have priority to payments to other
stockholders in connection with a Major Transaction.
h. Company's Redemption Option. The Company may redeem all or a
---------------------------
portion of the Series B Convertible Preferred Stock outstanding upon five (5)
trading days prior written notice (the "Company's Redemption Notice") to a
holder of shares of the Series B Convertible Liquidation Preference Amount, plus
any accrued but unpaid dividends (the "Company's Redemption Price"); provided,
however, that if a holder has delivered a Conversion Notice to the Company prior
to receipt of the Company's Redemption Notice, the shares of Series B
Convertible Preferred Stock further that if during the period between delivery
of the Company's Redemption Notice and the delivery payment of the Company's
Redemption Price to an applicable holder, a holder shall become entitled to
deliver a Notice of Redemption of Option of Buyer Upon Major Transaction on
Notice of Redemption at Option of Buyer Upon Triggering Event then the right of
such holder shall take precedence over the previously delivered Company
Redemption Notice. The Company's B Convertible Preferred Stock to be redeemed
by the Company. The Company shall deliver the Company's Redemption Price to the
holders) within five (5) trading days after the Company has delivered the
Company's Redemption Price to the holder(s) within five (5) trading days after
the Company has delivered the Company's Redemption Notice. Any holders of the
Series B Convertible Preferred Stock receiving a Company Redemption Notice shall
have the right to convert pursuant to Section 5(b)(i) up to ten percent (10%) of
the number of shares of Series B Convertible Preferred Stock the Company was to
redeem pursuant to such Company Redemption Notice, provided the Company receives
such conversion within twenty-four (24) hours from the time the Company's
Redemption Notice is received by the Purchasers. The Company shall then follow
the manner of response as set forth in Section 5(a)(ii). If the Company fails
to pay the Company's Redemption Price by the sixth trading day following the
date the Company has delivered the Company's Redemption Notice, the redemption
will be declared null and void and the Company shall lose its right to serve a
Company's Redemption Notice in the future.
i. Notwithstanding anything herein to the contrary, any right to
redemption pursuant to this Section 8 is subject to funds of the Company being
legally therefor available pursuant to Delaware General Corporation Law.
8. Inability to Fully Convert.
--------------------------
a. Holder's Option if Company Cannot Fully Convert. If, upon the
-----------------------------------------------
Company's receipt of a Conversion Notice or on the Mandatory Conversion Date,
the Company cannot issue shares of Common Stock registered for resale under the
Registration Statement for any reason including, without limitation, because the
Company (x) does not have a sufficient number of shares of Common
21
<PAGE>
Stock authorized and available, (y) is otherwise prohibited by applicable law or
by the rules or regulations of any stock exchange, interdealer quotation systems
or other self-regulatory organization with jurisdiction over the Company or its
Securities from issuing all of the Common Stock which is to be issued to a
holder of Series B Convertible Preferred Stock pursuant to a Conversion Notice
or (z) fails to have a sufficient member of shares of Common Stock registered
for resale under the Registration Statement, then the Company shall issue as
many shares of Common Stock as it is able to issue in accordance with such
holder's Conversion Notice and pursuant to Section 5(b)(ii) above and, with
respect to the unconverted Series B Convertible Preferred Stock, the holder,
solely as such holder's option, can elect, within five (5) business days after
receipt of notice from the Company, thereof, to:
i. require the Company to redeem from such holder those
Series B Convertible Preferred Stock for which the Company is unable to issue
Common Stock in accordance with such holder's Conversion Notice ("Mandatory
Redemption") at a price per share equal to the Triggering Event Redemption Price
as of such Conversion Date (the "Mandatory Redemption Price")'
ii. if the Company's inability to fully convert Series B
Convertible Preferred Stock is pursuant to Section 9(a)(z) above, require the
Company to issue restricted shares of Common Stock in accordance with such
holder's Conversion Notice and pursuant to Section 5(b)(ii) above;
iii. void its Conversion Notice and retain or have returned, as
the case may be, the shares of Series B Convertible Preferred Stock that were to
be converted pursuant to such holder's Conversion Notice (provided that a
holder's voiding its Conversion Notice shall not effect the Company's
obligations to make any payments which have accrued prior to the date of such
notice).
b. Mechanics of Fulfilling Holder's Election. The Company shall
-----------------------------------------
immediately send via facsimile to a holder of Series B Convertible Preferred
Stock, upon receipt of facsimile copy of a Conversion Notice from such holders
which cannot be fully satisfied as described in Section 9(a) above, a notice of
the Company's inability to fully satisfy such holder's Conversion Notice (the
"Inability to Fully Convert Notice"). Such Inability to Fully Convert Notice
shall indicate (i) the reason why the Company is unable to fully satisfy such
holder's Conversion Notice, (ii) the number of Series B Convertible Preferred
Stock which cannot be converted and (iii) the applicable Mandatory Redemption
Price. Such holder shall notify the Company of its election pursuant to Section
9(a) above by delivering written notice via facsimile to the Company ("Notice in
Response to Inability to Convert").
c. Payment of Redemption Price. If such holder shall elect to
---------------------------
have its shares redeemed pursuant to Section 9(a)(i) above, the Company shall
pay the Mandatory Redemption Price in cash to such holder within thirty (30)
days of the Company's receipt of the holder's Notice in Response to Inability to
Convert, provided that prior to the Company's receipt of the holder's Notice in
--------
Response to Inability to Convert the Company has not delivered a notice to such
holder stating to the satisfaction of the holder, that the event or condition
resulting in the Mandatory Redemption has been cured and all Conversion Shares
issuable to such holder can and will be delivered tot he holder in accordance
with the terms of Section 2(g). If the Company shall fail to pay the applicable
Mandatory Redemption Price to such holder on a timely basis as described in this
Section 9(c) (other than pursuant
22
<PAGE>
to a dispute as to the determination of the arithmetic calculation of the
Redemption Price), in addition to any remedy such holder of Series B Convertible
Preferred Stock may have under this Certificate of Designation and the
Securities Purchase Agreement, such unpaid amount shall bear interest at the
rate of 2.)% per month (prorated for partial months) until paid in full. Until
the full Mandatory Redemptions Price is paid in full to such holder, such holder
may (i) void the Mandatory Redemption with respect to those Series B Convertible
Preferred Stock for which the full Mandatory Redemption Price has not been paid,
(ii) receive back such Series B Convertible Preferred Stock, and (iii) require
that the Conversion Price of such returned Series B Convertible Preferred Stock
be adjusted to the leaser of (A) the Conversion Price as in effect on the date
on which the holder voided the Mandatory Redemption and (B) the lowest Closing
Bid Price during the period beginning on the Conversion Date and ending on the
date the holder voided the Mandatory Redemption. Notwithstanding the foregoing,
if the Company fails to pay the applicable Mandatory Redemption Price within
such thirty (30) days time period due to a dispute as to the determination of
the arithmetic calculation of the Redemption Rate, such dispute shall be
resolved pursuant to Section 5(b)(iii) above with the term "Redemption Price"
being substituted for the term "Conversion Price".
d. Pro-rata Conversion and Redemption. In the event the Company
----------------------------------
receives a Conversion Notice from more than one holder of Series B Convertible
Preferred Stock on the same day and the Company can convert and redeem some, but
not all, of the Series B Convertible Preferred Stock pursuant to this Section 9,
the Company shall convert and redeem from each holder of Series B Convertible
Preferred Stock electing to have Series B Convertible Preferred Stock converted
and redeemed at such time an amount equal to such holder's pro-rata amount
(based on the number shares of Series B Convertible Preferred Stock held by such
holder relative to the number of shares of Series B Convertible Preferred Stock
outstanding) of all shares of Series B Convertible Preferred Stock being
converted and redeemed at such time.
9. Vote to Change the Terms of or Issue Preferred Stock. The affirmative
----------------------------------------------------
vote at a meeting duly called for such purpose or the written consent without a
meeting of the holders of not less than three-fourth ( 3/4) of the then
outstanding shares of Series B Convertible Preferred Stock, shall be required
(a) for any change to this Certificate of Designation or the Company's
Certificate of Incorporation which would amend, alter, change or repeal may of
the powers, designations, preferences and rights of the Series B Convertible
Preferred Stock or (b) for the issuance of shares of Series B Convertible
Preferred Stock other than pursuant to the Securities Purchase Agreement.
10. Lost or Stolen Certificates. Upon receipt by the Company of evidence
---------------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing the shares of Series B Convertible
Preferred Stock, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the holder to the Company and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of the like lienor and date; provided, however, the Company shall
-------- -------
not be obligated to re-issue Preferred Stock Certificates if the holder
contemporaneously requests the Company to convert such shares of Series B
Convertible Preferred Stock into Common Stock.
23
<PAGE>
11. Remedies, Characterizations, Other Obligations, Breaches and
------------------------------------------------------------
Injunctive Relief. The remedies provided in this Certificate of Designation
- -----------------
shall be cumulative and in addition to all other remedies available under this
Certificate of Designation, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate Designation.
Amounts set forth or provided for herein with respect to payments, conversion
and the like (and this computation thereof) shall be the amounts to be received
by the holder thereof and shall not, except as expressly provided herein, be
subject to any other obligation of the Company (or the performance thereof).
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the holders of the Series B Convertible Preferred
Stock and that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach or threatened
breach, the holders of the Series B Convertible Preferred Stock shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
12. Specific Shall Not Limit General; Construction. No specific provision
----------------------------------------------
contained in this Certificate of Designation shall limit or modify any more
general provision contained herein. This Certificate of Designation shall be
deemed to be jointly drafted by the Company and all initial purchasers of the
Series B Convertible Preferred Stock and shall not be construed against any
person as the drafter hereof.
13. Failure or Indulgence Not Waiver. No failure or delay on the part of
--------------------------------
a holder of Series B Convertible Preferred Stock in the exercise or any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
24
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed and subscribed this
Certificate and does affirm the foregoing as true this ____ day of September,
1999.
NET VALUE HOLDINGS, INC.
By:_____________________________________________
Name: Andrew P. Panzo
Title: President and Chief Executive Officer
25
<PAGE>
EXHIBIT I
NET VALUE HOLDINGS, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designation of the Relative Rights and
Preferences of the Series B Convertible Preferred Stock of Net Value Holdings,
Inc. (The "Certificate of Designation"). In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of Series B Convertible Preferred Stock, par value $.001 per share
(the "Preferred Shares"), of Net Value Holdings, Inc., a Delaware corporation
(the "Company"), indicated below into shares of Common Stock per value $.001 per
share (the "Common Stock"), of the Company, by tendering the stock
certificate(s) representing the share(s) of Preferred Shares specified below as
of the date specified below.
Date of Conversion:___________________________________________________
Number of Preferred Shares to be converted:___________________________
Stock certificate no(s). of Preferred Shares to be converted:_________
The Common Stock have been sold pursuant to the Registration Statement
(as defined in the Registration Rights Agreement): YES_____ NO_____
Please confirm the following information:
Conversion Price: __________________________________
Number of shares of Common Stock
to be issued: __________________________________
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to: __________________________________
__________________________________
Facsimile Number: __________________________________
Authorization: __________________________________
By:_______________________________
Title:____________________________
Dated:
PRICES ATTACHED
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of June 1, 1999 by
NET VALUE HOLDINGS, INC., a Delaware corporation (the "Employer"), and ANDREW P.
PANZO, an individual resident in the State of Pennsylvania (the "Executive").
RECITALS
Strategicus Partners, Inc. and Employer, expect to enter into a merger
transaction (the "Merger"), under which Employer will be the surviving
corporation. Executive is currently an at will employee of Employer. In
contemplation of the merger transaction, Employer desires to formalize the terms
of the Executive's continued employment by Employer, and the Executive desires
to continue his employment with Employer, upon the terms and conditions set
forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"Agreement" means this Employment Agreement, as amended from time to time.
"Benefits" is defined in Section 3.1(b).
"Board of Directors" means the board of directors of Employer.
"Change of Control"shall mean the occurrence of any one of the following
events: (a) any "person" as such term is used in Section 3(a)(9) and 13(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")(other than
a subsidiary or other affiliate of Employer), becomes a "beneficial owner," as
such term is used in Rule 13d-3 promulgated under the Exchange Act, of 50% or
more of any class of Employer's issued and outstanding common or preferred
stock, which interest in such stock comprises 50% or more of all issued and
outstanding voting shares; (b) the majority of Employer's board of directors
consists of individuals other than Incumbent Directors, which term means the
members of Employer's Board of Directors on the Effective Date of this
Agreement, including Executive; provided that any person becoming a director
subsequent to such date whose election or nomination for election was supported
by the Executive and/or one half of the directors who then comprised the
Incumbent Directors shall be considered to be an Incumbent Director; or (c) the
occurrence of any event which would be required to be reported by Employer
pursuant to Items 1 or 2 of Form 8-K under the Exchange Act, which shall be
determined without regard to whether Employer is actually required file a Form
8-K in relation to such transaction or event.
"Disability" is defined in Section 6.2.
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"Effective Date" means the date of the closing of the merger transaction
between Employer and Strategicus Partners, Inc., in which Employer shall be the
surviving corporation.
"Employment Period" means the term of the Executive's employment under this
Agreement as defined in Section 2.2.
"for cause" is defined in Section 6.3.
"person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
"Salary" is defined in Section 3.1(a).
2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT
Effective on the Effective Date, Employer hereby employs the Executive, and
the Executive hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 TERM
Subject to the provisions of Section 6, the Employment Period for the
Executive's employment under this Agreement will be three years, beginning on
the Effective Date, and shall be automatically renewed for consecutive one-year
renewal terms thereafter, unless, not less than sixty (60) days prior to the end
of the original term or any renewal term, either party gives the other party
written notice of termination of employment which termination shall be effective
as of the end of such original term or renewal term.
2.3 DUTIES
The Executive will have such duties as are assigned or delegated to the
Executive by the Board of Directors, and will initially serve as the President
and Chief Executive Officer of Employer. The Executive agrees to perform in good
faith and to the best of his ability all services which may be required of him
hereunder and will devote his best efforts and such business time, skill,
attention and energies as are reasonably necessary to perform his duties and
responsibilities under this Agreement and to promote the success of the
Employer's business. The Executive shall be employed on a full-time basis by
Employer. Executive may continue to engage in the following activities: (a)
attending board of directors' or like meetings of other companies in which
Executive or an affiliate has invested or in which Executive has been elected to
serve, and (b) managing his personal investments, provided that such activities
set forth in (a) and (b) (individually or collectively) do not materially and
adversely interfere or conflict with the performance of Executive's duties or
responsibilities under this Agreement.
3. COMPENSATION
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3.1 BASIC COMPENSATION
(a) Salary. The Executive will be paid an annual salary of
$150,000, subject to adjustment as provided below (the "Salary"), which will be
payable in equal periodic installments according to the Employer's customary
payroll practices, but no less frequently than monthly. The Executive's Salary
will be reviewed by Employer's Board of Directors not less frequently than
annually, and may be adjusted upward or downward by Employer, but in no event
will the Salary be less than $150,000 per year.
(b) Benefits. The Executive will, during the Employment Period,
be permitted to participate in such pension, profit sharing, bonus (subject to
the provisions of Section 3.2), life insurance, hospitalization, major medical,
and other employee benefit plans of the Employer that may be in effect from time
to time, to the extent the Executive is eligible under the terms of those plans
(collectively, the "benefits").
(c) Options. The Executive will receive an award of options to
purchase 1,200,000 shares of the Employer's common stock (the "Options")
pursuant to the stock option plan to be implemented by Employer. 120,000 of the
Options will vest immediately and the remainder of the Options will vest over a
period of three years from the date of this Agreement. Employer may exercise the
Options until five years after their vesting date at an exercise price of $1.00
per share.
3.2 BONUS COMPENSATION
Executive shall be eligible to receive annual bonus compensation at
the discretion of Employer's Board of Directors and in accordance with
Employer's executive bonus or incentive compensation plan that may be in effect
from time to time.
4. EXPENSE REIMBURSEMENT
The Employer will pay the Executive's dues in such trade and professional
organizations as Employer deems appropriate, and will pay on behalf of the
Executive (or reimburse the Executive for) reasonable expenses incurred by the
Executive at the request of, or on behalf of, the Employer in the performance of
the Executive's duties pursuant to this Agreement, and in accordance with the
Employer's employment policies, including without limitation reasonable expenses
incurred by the Executive in attending conventions, seminars, other business
meetings and for promotional expenses, provided that any such activities must be
related to Employer's business and all individual expenses (or those aggregated
for a single convention, seminar or other business trip) greater than $5,000
must be approved by Employer's board of directors. The Executive must file
expense reports with respect to such expenses in accordance with the Employer's
policies.
5. VACATIONS AND HOLIDAYS
The Executive will be entitled to three (3) weeks' paid vacation each
calendar year in accordance with the vacation policies of the Employer in effect
for its executive officers from time to time. The Executive will also be
entitled to the paid holidays and other paid leave set forth in the
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Employer's policies. Vacation days during any calendar year that are not used by
the Executive during such calendar year may be used in any subsequent calendar
year; provided, however, that no more than six weeks' paid vacation may be
accrued or carried forward.
6. TERMINATION
6.1 EVENTS OF TERMINATION
The Executive's employment pursuant to this Agreement may be terminated by
Employer only on the following grounds:
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as defined in Section
6.2) immediately upon notice from either party to the other; and
(c) for cause (as defined in Section 6.3), immediately upon
notice from the Employer to the Executive, or at such later time as such notice
may specify.
The Executive may terminate his employment only on the following grounds:
(d) without any cause whatsoever, provided that Executive gives
Employer at least 60 days' prior written notice of his termination of
employment;
(e) for any material breach of this Agreement by Employer, which
is not cured within ten (10) days after written notice to Employer;
(f) the occurrence of a Change in Control, provided that
Executive gives Employer at least 60 days' prior written notice of his
termination of employment.
6.2 DEFINITION OF DISABILITY
For purposes of Section 6.1, the Executive will be deemed to have a
"Disability" if, for physical or mental reasons, the Executive is unable to
perform the essential functions of the Executive's duties with reasonable
accommodation under this Agreement for 120 consecutive days, or 120 days during
any twelve-month period, as determined in accordance with this Section 6.2. The
Disability of the Executive will be determined by a medical doctor selected by
written agreement of the Employer and the Executive upon the request of either
party by notice to the other. If the Employer and the Executive cannot agree on
the selection of a medical doctor, each of them will select a medical doctor and
the two medical doctors will select a third medical doctor who will determine
whether the Executive has a Disability. The determination of the medical doctor
selected under this Section 6.2 will be binding on both parties. The Executive
must submit to a reasonable number of examinations by the medical doctor making
the determination of disability under this Section 6.2, and the Executive hereby
authorizes the disclosure and release to the Employer of such determination and
all supporting medical records. If the Executive is not legally competent, the
Executive's legal guardian or duly authorized attorney-in-fact
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will act in the Executive's stead, under this Section 6.2, for the purposes of
submitting the Executive to the examinations, and providing the authorization of
disclosure, required under this Section 6.2.
6.3 DEFINITION OF "FOR CAUSE"
For purposes of Section 6.1, the phrase "for cause" means: (a) the
Executive's material breach of this Agreement, which is not cured within ten
(10) days after written notice to Executive; (b) theft, fraud, or
misappropriation (or attempted misappropriation) of any of the Employer's funds
or property; or (c) a conviction or entry of a guilty plea or plea of no contest
with respect to a felony or other crime involving moral turpitude for which
imprisonment is a possible punishment.
6.4 TERMINATION PAY
Effective upon the termination of this Agreement, the Employer will be
obligated to pay the Executive (or, in the event of his death, his designated
beneficiary as defined below) the compensation provided in this Section 6.4:
(a) Termination by the Employer for Cause or Termination by
Executive Without Cause. If the Employer terminates this Agreement for cause or
Executive terminates his employment without cause, the Executive will be
entitled to receive his Salary only through the date such termination is
effective, but will not be entitled to any bonus compensation for the calendar
year during which such termination occurs.
(b) Termination upon Disability. If this Agreement is terminated
by either party as a result of the Executive's Disability, as determined under
Section 6.2, the Employer will pay the Executive his Salary through the
remainder of the calendar month during which such termination is effective and
for the lesser of (i) three consecutive months thereafter, or (ii) the period
until disability insurance benefits commence under the disability insurance
coverage furnished by the Employer to the Executive. Executive shall also be
entitled to receive that part of the Executive's bonus compensation, if any, for
the calendar year during which his Disability occurs, prorated through the end
of the calendar month during which his termination is effective.
(c) Termination upon Death. If this Agreement is terminated
because of the Executive's death, the Executive will be entitled to receive his
Salary through the end of the calendar month in which his death occurs, and that
part of the Executive's bonus compensation, if any, for the calendar year during
which his death occurs, prorated through the end of the calendar month during
which his death occurs.
(d) Termination by Executive Due to Material Breach by Employer.
If this Agreement is terminated by Executive due to a material breach of this
Agreement by Employer, then (i) Employer shall continue to pay to Executive his
monthly Salary and bonus, based upon the average annual bonus paid previously to
Executive prior to termination of this Agreement, for the lesser of one year
from the date of termination or the remaining original three-year Employment
Period; and (ii) all stock, options or other equity rights in Employer which
Executive received in connection with the Merger shall become immediately vested
and Employer shall promptly deliver to Executive stock certificates therefor, if
applicable.
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(e) Termination by Executive Due to a Change of Control. If this
Agreement is terminated by Executive due to a Change of Control, then (i)
Employer shall continue to pay to Executive his monthly Salary and bonus, based
upon the average annual bonus paid previously to Executive prior to termination
of this Agreement, for the lesser of one year from the date of termination or
the remaining original three-year Employment Period; and (ii) all stock, options
or other equity rights in Employer which Executive received in connection with
the Merger shall become immediately vested and Employer shall promptly deliver
to Executive stock certificates therefor, if applicable.
(f) Benefits. The Executive's accrual of, or participation in
plans providing for, the Benefits will cease at the effective date of the
termination of this Agreement, and the Executive will be entitled to accrued
Benefits pursuant to such plans only as provided in such plans.
7. NON-DISCLOSURE COVENANT
Employer and the Executive acknowledge that the services to be performed by
the Executive under this Agreement are unique and valuable and that, as a result
of the Executive's employment, the Executive will be in a relationship of
confidence and trust with Employer and will come into possession of
"Confidential Information" (i) owned or controlled by Employer and its
subsidiaries and affiliates; (ii) in the possession of Employer and its
subsidiaries and affiliates and belonging to third parties; or (iii) conceived,
originated, discovered or developed, in whole or in part, by the Executive. As
used herein "Confidential Information" means trade secrets and other
confidential or proprietary business, technical, personnel or financial
information of Employer, whether or not the Executive's work product, in
written, graphic, oral or other tangible or intangible forms, including but not
limited to specifications, samples, records, data, computer programs, drawings,
diagrams, models, consumer names, ID's or e-mail addresses, business or
marketing plans, studies, analyses, projections and reports, communications by
or to attorneys (including attorney-client privileged communications), memos and
other materials prepared by attorneys or under their direction (including
attorney work product), and software systems and processes that are not readily
available to the public, even it is not specifically marked as a trade secret or
confidential, unless Employer advises the Executive otherwise in writing or
unless the information has been shared by Employer with entities not bound by
non-disclosure agreements. In consideration of the compensation and benefits to
be paid or provided to the Executive by the Employer under this Agreement, the
Executive agrees not to directly or indirectly use or disclose to anyone, either
during the Employment Period or after the termination of this Agreement, except
in the performance of his duties of his employment with Employer or with
Employer's prior written consent, any Confidential Information of Employer. This
non-disclosure covenant does not apply to information that is disclosed or
becomes public through another source; which Executive is required to disclose
pursuant to court order, subpoena or applicable law (provided that Executive
will use reasonable efforts to provide Employer with prompt notice of any such
requests or requirement so that Employer may seek an appropriate protective
order); or which is disclosed in any proceeding to enforce or interpret this
Agreement. The Executive agrees that in the event of the termination of the
Executive's employment for any reason, the Executive will deliver to Employer,
upon request, all property belonging to Employer, including all documents and
materials of any nature pertaining to the Executive's work with Employer and
will not take with him any documents or materials of any description, or any
reproduction thereof of any description, containing or pertaining to any
Confidential Information.
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8. NON-COMPETITION
During the term of this Agreement and for a one-year period after
termination of this Agreement by Employer for cause or by Executive without any
cause whatsoever, as set forth in Sections 6.1(c) and (d), the Executive agrees
that he shall not (a) work for or be interested in any business which serves as
a holding company primarily for the purpose of acquiring entities whose products
and services are delivered to consumers over the Internet ("Internet Entities"),
(b) engage or be interested in or receive any compensation from any business in
which the services to be rendered by the Executive to such business directly
relates to services or products which are directly competitive with "primary"
services or products offered by the Employer or a subsidiary or affiliate of
Employer at the Executive's termination date; or (c) induce or attempt to induce
any employee, agent or customer of Employer or any of its subsidiaries or
affiliates to terminate or reduce the scope of his, her or its relationship with
Employer. A product or service shall be deemed "primary" only if such service or
product constitutes a primary component of the core business of Employer or its
majority-owned subsidiaries and affiliates on Executive's termination date. For
the purposes of this Agreement, the term Awork for or be interested in@ a
business means that the Executive is a stockholder, director, officer, employee,
partner, individual proprietor, lender or consultant with that business, but not
if (i) his interest is limited solely to the passive ownership of five percent
(5%) or less of any class of the equity or debt securities of a corporation
whose shares are listed for trading on a national securities exchange or traded
in the over-the-counter market, or (ii) he is interested in a company listed on
Schedule 8 hereto, or after termination hereof, works for such company; provided
however, that so long as this non-competition agreement is in effect, Executive
shall not work for a company listed on Schedule 8 if such company serves as a
holding company primarily for the purpose of acquiring Internet Entities. In
the event that any part of this Section 8 is adjudged invalid or unenforceable
by any court of record, board of arbitration or judicial or quasi judicial
entity having jurisdiction thereof by reason of length of time, geographical
coverage, activities covered, or for any other reason, then the invalid or
unenforceable provisions of this covenant shall be deemed reformed and amended
to the maximum extent permissible under applicable law and shall be enforced and
enforceable as so amended in accordance with the intention of the parties as
expressed herein.
9. GENERAL PROVISIONS
9.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Executive acknowledges that the injury that would be suffered by the
Employer as a result of a breach of the provisions of any provision of Sections
7 and 8 of this Agreement would be irreparable and that an award of monetary
damages to the Employer for such a breach would be an inadequate remedy.
Consequently Employer will have the right, in addition to any other rights it
may have, to obtain injunctive relief to restrain any breach or threatened
breach or otherwise to specifically enforce any provisions of Sections 7 and 8
of this Agreement, and the Employer will not be obligated to post bond or other
security in seeking such relief.
9.2 WAIVER
The rights and remedies of the parties to this Agreement are cumulative and
not alternative. Neither the failure nor any delay by either party in exercising
any right, power, or privilege under this Agreement will operate as a waiver of
such right, power, or privilege, and no single or partial exercise
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of any such right, power, or privilege will preclude any other or further
exercise of such right, power, or privilege or the exercise of any other right,
power, or privilege.
9.3 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand, (b) sent by facsimile (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received by the addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the appropriate addresses
and facsimile numbers set forth below (or to such other addresses and facsimile
numbers as a party may designate by notice to the other parties):
If to Employer: Net Value Holdings, Inc.
Two Penn Center, Suite 605
Philadelphia, PA 19102
Facsimile No.: (215) 564-3133
With a copy to: Klehr, Harrison, Harvey, Branzburg & Ellers
260 South Broad Street
Philadelphia, PA 19102
Attention: Michael C. Forman
Facsimile No.: (215) 568-6603
If to Executive: Andrew P. Panzo
8 Pennsford Lane
Media, PA 19063
Facsimile No.: (610) 872-9431
9.4 ENTIRE AGREEMENT; AMENDMENTS
This Agreement and the documents referenced herein, contain the entire
agreement between the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, between the
parties hereto with respect to the subject matter hereof. This Agreement may
not be amended orally, but only by an agreement in writing signed by the parties
hereto.
9.5 GOVERNING LAW
This Agreement will be governed by the laws of the State of Delaware
without regard to conflicts of laws principles.
9.6 JURISDICTION
Any action or proceeding seeking to enforce any provision of, or based on
any right arising out of, this Agreement may be brought against either of the
parties in the courts of the State of Delaware, or, if it has or can acquire
jurisdiction, in the United States District Court for the District of Delaware,
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and each of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred
to in the preceding sentence may be served on either party anywhere in the
world.
9.7 ASSIGNABILITY, BINDING NATURE
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors, heirs (in the case of the Executive)
and assigns. No rights or obligations of the Executive under this Agreement may
be assigned or transferred by the Executive other than his rights to
compensation and benefits, which may be transferred only by will or operation of
law.
9.8 SURVIVAL
The respective rights and obligations of the parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
9.9 PRIOR AGREEMENTS
The Executive represents and warrants to Employer that his execution and
performance of this Agreement shall not constitute a breach of any contract,
agreement or understanding, whether oral or written, to which he is a party or
by which he is bound.
9.10 ACKNOWLEDGMENT
The Executive hereby acknowledges and certifies that he has read the terms
of this Agreement, that he has been informed by Employer that he should discuss
it with an attorney of his choice, and that he understands its terms and
effects. The Executive further acknowledges that based on his training and
experience, he has the capacity to earn a livelihood by performing services as
an employee or otherwise in a business that does not violate the provisions of
Section 8.
9.11 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement unless otherwise specified. All words used in this Agreement will be
construed to be of such gender or number as the circumstances require. Unless
otherwise expressly provided, the word "including"@ does not limit the preceding
words or terms.
9.12 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision
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of this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or unenforceable.
9.13 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement. This
Agreement (and all other agreements, documents, instruments and certificates
executed and/or delivered in connection herewith) may be executed by facsimile
signatures, each of which shall be deemed an original copy of this Agreement (or
other such agreement, document, instrument and certificate).
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
EMPLOYER:
NET VALUE HOLDINGS, INC.
By: /s/ Barry Uphoff
------------------------------
Barry Uphoff, Chairman of the
Board of Directors
EMPLOYEE:
/s/ Andrew P. Panzo
----------------------------------
Andrew P. Panzo, individually
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SCHEDULE 8
EMPLOYMENT AGREEMENT
APP Investments, Inc.
Aviation Holdings Group, Inc.
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EXHIBIT 10.2
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (this "Agreement") is
effective as of June 17, 1999 by NETVALUE HOLDINGS, INC., a Delaware corporation
(the "Employer"), and DOUGLAS SPINK, an individual resident in the State of
Oregon (the "Executive").
RECITALS
Strategicus Partners, Inc. and Employer, are entering into a merger
transaction (the "Merger"), under which Employer will be the surviving
corporation. In contemplation of the completion of such merger transaction,
Employer desires to employ the Executive, and the Executive desires to accept
such employment, upon the terms and conditions set forth in this Agreement. This
Agreement replaces and supersedes the Employment Agreements executed by the
parties on or about June 17, 1999.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"Agreement" means this Employment Agreement, as amended from time to time.
"Benefits" is defined in Section 3.1(b).
"Board of Directors" means the board of directors of Employer.
"Change of Control"shall mean the occurrence of any one of the following
events: (a) any "person" as such term is used in Section 3(a)(9) and 13(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")(other than
a subsidiary or other affiliate of Employer), becomes a "beneficial owner," as
such term is used in Rule 13d-3 promulgated under the Exchange Act, of 50% or
more of any class of Employer's issued and outstanding common or preferred
stock, which interest in such stock comprises 50% or more of all issued and
outstanding voting shares; (b) the majority of Employer's board of directors
consists of individuals other than Incumbent Directors, which term means the
members of Employer's Board of Directors on the Effective Date of this
Agreement, including Executive; provided that any person becoming a director
subsequent to such date whose election or nomination for election was supported
by the Executive and/or one half of the directors who then comprised the
Incumbent Directors shall be considered to be an Incumbent Director; or (c) the
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occurrence of any event which would be required to be reported by Employer
pursuant to Items 1 or 2 of Form 8-K under the Exchange Act, which shall be
determined without regard to whether Employer is actually required file a Form
8-K in relation to such transaction or event.
"Disability" is defined in Section 6.2.
"Effective Date" means the date of the closing of the merger transaction
between Employer and Strategicus Partners, Inc., in which Employer shall be the
surviving corporation.
"Employment Period" means the term of the Executive's employment under this
Agreement as defined in Section 2.2.
"for cause" is defined in Section 6.3.
"person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
"Promissory Note" is defined as the Promissory Note executed and delivered
by Executive to Strategicus Partners, Inc. on or about May 28, 1999 in the
original principal amount of $310,000.
"Salary" is defined in Section 3.1(a).
2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT
Effective on the Effective Date, Employer hereby employs the Executive, and
the Executive hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 TERM
Subject to the provisions of Section 6, the Employment Period for the
Executive's employment under this Agreement will be three years, beginning on
the Effective Date, and shall be automatically renewed for consecutive one-year
renewal terms thereafter, unless, not less than sixty (60) days prior to the end
of the original term or any renewal term, either party gives the other party
written notice of termination of employment which termination shall be effective
as of the end of such original term or renewal term.
2.3 DUTIES
The Executive will have such duties as are assigned or delegated to the
Executive by the Board of Directors, and will initially serve as the Chief
Technology Officer of Employer and as a member of
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Employer's Board of Directors. The Executive agrees to perform in good faith and
to the best of his ability all services which may be required of him hereunder
and will devote his best efforts and such business time, skill, attention and
energies as are reasonably necessary to perform his duties and responsibilities
under this Agreement and to promote the success of the Employer's business. The
Executive shall be employed on a full-time basis by Employer. Executive may
continue to engage in the following activities: (a) attending board of
directors' or like meetings of other companies in which Executive or an
affiliate has invested or in which Executive has been elected to serve, and (b)
managing his personal investments, provided that such activities set forth in
(a) and (b) (individually or collectively) do not materially and adversely
interfere or conflict with the performance of Executive's duties or
responsibilities under this Agreement.
3. COMPENSATION
3.1 BASIC COMPENSATION
(a) Salary. The Executive will be paid an annual salary of
$150,000, subject to adjustment as provided below (the "Salary"), which will be
payable in equal periodic installments according to the Employer's customary
payroll practices, but no less frequently than monthly. The Executive's Salary
will be reviewed by Employer's Board of Directors not less frequently than
annually, and may be adjusted upward or downward by Employer, but in no event
will the Salary be less than $150,000 per year.
(b) Benefits. The Executive will, during the Employment Period,
be permitted to participate in such pension, profit sharing, bonus (subject to
the provisions of Section 3.2), life insurance, hospitalization, major medical,
and other employee benefit plans of the Employer that may be in effect from time
to time, to the extent the Executive is eligible under the terms of those plans
(collectively, the "Benefits").
3.2 BONUS COMPENSATION
Executive shall be eligible to receive annual bonus compensation at
the discretion of Employer's Board of Directors and in accordance with
Employer's executive bonus or incentive compensation plan that may be in effect
from time to time.
4. EXPENSE REIMBURSEMENT
The Employer will pay the Executive's dues in such trade and professional
organizations as Employer deems appropriate, and will pay on behalf of the
Executive (or reimburse the Executive for)
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reasonable expenses incurred by the Executive at the request of, or on behalf
of, the Employer in the performance of the Executive's duties pursuant to this
Agreement, and in accordance with the Employer's employment policies, including
without limitation reasonable expenses incurred by the Executive in attending
conventions, seminars, other business meetings and for promotional expenses,
provided that any such activities must be related to Employer's business and all
individual expenses (or those aggregated for a single convention, seminar or
other business trip) greater than $5,000 must be approved by Employer's board of
directors. The Executive must file expense reports with respect to such expenses
in accordance with the Employer's policies.
5. VACATIONS AND HOLIDAYS
The Executive will be entitled to three (3) weeks' paid vacation each
calendar year in accordance with the vacation policies of the Employer in effect
for its executive officers from time to time. The Executive will also be
entitled to the paid holidays and other paid leave set forth in the Employer's
policies. Vacation days during any calendar year that are not used by the
Executive during such calendar year may be used in any subsequent calendar year;
provided, however, that no more than six weeks' paid vacation may be accrued or
carried forward.
6. TERMINATION
6.1 EVENTS OF TERMINATION
The Executive's employment pursuant to this Agreement may be terminated by
Employer only on the following grounds:
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as defined in Section
6.2) immediately upon notice from either party to the other; and
(c) for cause (as defined in Section 6.3), immediately upon
notice from the Employer to the Executive, or at such later time as such notice
may specify.
The Executive may terminate his employment only on the following grounds:
(d) without any cause whatsoever, provided that Executive gives
Employer at least 60 days' prior written notice of his termination of
employment;
(e) for any material breach of this Agreement by Employer, which
is not cured within ten (10) days after written notice to Employer;
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(f) the occurrence of a Change in Control, provided that
Executive gives Employer at least 60 days' prior written notice of his
termination of employment.
6.2 DEFINITION OF DISABILITY
For purposes of Section 6.1, the Executive will be deemed to have a
"Disability" if, for physical or mental reasons, the Executive is unable to
perform the essential functions of the Executive's duties with reasonable
accommodation under this Agreement for 120 consecutive days, or 120 days during
any twelve-month period, as determined in accordance with this Section 6.2. The
Disability of the Executive will be determined by a medical doctor selected by
written agreement of the Employer and the Executive upon the request of either
party by notice to the other. If the Employer and the Executive cannot agree on
the selection of a medical doctor, each of them will select a medical doctor and
the two medical doctors will select a third medical doctor who will determine
whether the Executive has a Disability. The determination of the medical doctor
selected under this Section 6.2 will be binding on both parties. The Executive
must submit to a reasonable number of examinations by the medical doctor making
the determination of disability under this Section 6.2, and the Executive hereby
authorizes the disclosure and release to the Employer of such determination and
all supporting medical records. If the Executive is not legally competent, the
Executive's legal guardian or duly authorized attorney-in-fact will act in the
Executive's stead, under this Section 6.2, for the purposes of submitting the
Executive to the examinations, and providing the authorization of disclosure,
required under this Section 6.2.
6.3 DEFINITION OF "FOR CAUSE"
For purposes of Section 6.1, the phrase "for cause" means: (a) the
Executive's material breach of this Agreement, which is not cured within ten
(10) days after written notice to Executive; (b) theft, fraud, or
misappropriation (or attempted misappropriation) of any of the Employer's funds
or property; or (c) a conviction or entry of a guilty plea or plea of no contest
with respect to a felony or other crime involving moral turpitude for which
imprisonment is a possible punishment.
6.4 TERMINATION PAY
Effective upon the termination of this Agreement, the Employer will be
obligated to pay the Executive (or, in the event of his death, his designated
beneficiary as defined below) the compensation provided in this Section 6.4:
(a) Termination by the Employer for Cause or Termination by
Executive Without Cause. If the Employer terminates this Agreement for cause or
Executive terminates his
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employment without cause, the Executive will be entitled to receive his Salary
only through the date such termination is effective, but will not be entitled to
any bonus compensation for the calendar year during which such termination
occurs.
(b) Termination upon Disability. If this Agreement is terminated
by either party as a result of the Executive's Disability, as determined under
Section 6.2, the Employer will pay the Executive his Salary through the
remainder of the calendar month during which such termination is effective and
for the lesser of (i) three consecutive months thereafter, or (ii) the period
until disability insurance benefits commence under the disability insurance
coverage furnished by the Employer to the Executive. Executive shall also be
entitled to receive that part of the Executive's bonus compensation, if any, for
the calendar year during which his Disability occurs, prorated through the end
of the calendar month during which his termination is effective.
(c) Termination upon Death. If this Agreement is terminated
because of the Executive's death, the Executive will be entitled to receive his
Salary through the end of the calendar month in which his death occurs, and that
part of the Executive's bonus compensation, if any, for the calendar year during
which his death occurs, prorated through the end of the calendar month during
which his death occurs.
(d) Termination by Executive Due to Material Breach by Employer.
If this Agreement is terminated by Executive due to a material breach of this
Agreement by Employer, then (i) Employer shall continue to pay to Executive his
monthly Salary and bonus, based upon the average annual bonus paid previously to
Executive prior to termination of this Agreement, for the lesser of one year
from the date of termination or the remaining original three-year Employment
Period; and (ii) all stock, options or other equity rights in Employer which
Executive received in connection with the Merger shall become immediately vested
and Employer shall promptly deliver to Executive stock certificates therefor, if
applicable.
(e) Termination by Executive Due to a Change of Control. If this
Agreement is terminated by Executive due to a Change of Control, then (i)
Employer shall continue to pay to Executive his monthly Salary and bonus, based
upon the average annual bonus paid previously to Executive prior to termination
of this Agreement, for the lesser of one year from the date of termination or
the remaining original three-year Employment Period; and (ii) all stock, options
or other equity rights
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in Employer which Executive received in connection with the Merger shall become
immediately vested and Employer shall promptly deliver to Executive stock
certificates therefor, if applicable.
(f) Benefits. The Executive's accrual of, or participation in
plans providing for, the Benefits will cease at the effective date of the
termination of this Agreement, and the Executive will be entitled to accrued
Benefits pursuant to such plans only as provided in such plans.
7. NON-DISCLOSURE COVENANT
Employer and the Executive acknowledge that the services to be performed by
the Executive under this Agreement are unique and valuable and that, as a result
of the Executive's employment, the Executive will be in a relationship of
confidence and trust with Employer and will come into possession of
"Confidential Information" (i) owned or controlled by Employer and its
subsidiaries and affiliates; (ii) in the possession of Employer and its
subsidiaries and affiliates and belonging to third parties; or (iii) conceived,
originated, discovered or developed, in whole or in part, by the Executive. As
used herein "Confidential Information" means trade secrets and other
confidential or proprietary business, technical, personnel or financial
information of Employer, whether or not the Executive's work product, in
written, graphic, oral or other tangible or intangible forms, including but not
limited to specifications, samples, records, data, computer programs, drawings,
diagrams, models, consumer names, ID's or e-mail addresses, business or
marketing plans, studies, analyses, projections and reports, communications by
or to attorneys (including attorney-client privileged communications), memos and
other materials prepared by attorneys or under their direction (including
attorney work product), and software systems and processes that are not readily
available to the public, even it is not specifically marked as a trade secret or
confidential, unless Employer advises the Executive otherwise in writing or
unless the information has been shared by Employer with entities not bound by
non-disclosure agreements. In consideration of the compensation and benefits to
be paid or provided to the Executive by the Employer under this Agreement, the
Executive agrees not to directly or indirectly use or disclose to anyone, either
during the Employment Period or after the termination of this Agreement, except
in the performance of his duties of his employment with Employer or with
Employer's prior written consent, any Confidential Information of Employer. This
non-disclosure covenant does not apply to information that is disclosed or
becomes public through another source; which Executive is required to disclose
pursuant to court order, subpoena or applicable law (provided that Executive
will use reasonable efforts to provide Employer with prompt notice of any such
requests or requirement so that Employer may seek
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an appropriate protective order); or which is disclosed in any proceeding to
enforce or interpret this Agreement. The Executive agrees that in the event of
the termination of the Executive's employment for any reason, the Executive will
deliver to Employer, upon request, all property belonging to Employer, including
all documents and materials of any nature pertaining to the Executive's work
with Employer and will not take with him any documents or materials of any
description, or any reproduction thereof of any description, containing or
pertaining to any Confidential Information.
8. NON-COMPETITION
During the term of this Agreement and for a one-year period after
termination of this Agreement by Employer for cause or by Executive without any
cause whatsoever, as set forth in Sections 6.1(c) and (d), the Executive agrees
that he shall not (a) work for or be interested in any business which serves as
a holding company primarily for the purpose of acquiring entities whose products
and services are delivered to consumers over the Internet ("Internet Entities"),
(b) engage or be interested in or receive any compensation from any business in
which the services to be rendered by the Executive to such business directly
relates to services or products which are directly competitive with "primary"
services or products offered by the Employer or a subsidiary or affiliate of
Employer at the Executive's termination date; or (c) induce or attempt to induce
any employee, agent or customer of Employer or any of its subsidiaries or
affiliates to terminate or reduce the scope of his, her or its relationship with
Employer. A product or service shall be deemed "primary" only if such service or
product constitutes a primary component of the core business of Employer or its
majority-owned subsidiaries and affiliates on Executive's termination date. For
the purposes of this Agreement, the term "work for or be interested in" a
business means that the Executive is a stockholder, director, officer, employee,
partner, individual proprietor, lender or consultant with that business, but not
if (i) his interest is limited solely to the passive ownership of five percent
(5%) or less of any class of the equity or debt securities of a corporation
whose shares are listed for trading on a national securities exchange or traded
in the over-the-counter market, or (ii) he is interested in a company listed on
Schedule 8 hereto, or after termination hereof, works for such company; provided
however, that so long as this non-competition agreement is in effect, Executive
shall not work for a company listed on Schedule 8 if such company serves as a
holding company primarily for the purpose of acquiring Internet Entities. In the
event that any part of this Section 8 is adjudged invalid or unenforceable by
any court of record, board of arbitration or judicial or quasi judicial entity
having jurisdiction thereof by reason of length of time, geographical
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coverage, activities covered, or for any other reason, then the invalid or
unenforceable provisions of this covenant shall be deemed reformed and amended
to the maximum extent permissible under applicable law and shall be enforced and
enforceable as so amended in accordance with the intention of the parties as
expressed herein.
9. FORGIVENESS OF LOANS MADE TO EXECUTIVE
Strategicus Partners, Inc. has loaned to Executive the sum of $310,000,
pursuant to the terms set forth in the Promissory Note. During the Employment
Period and so long as Executive has not been terminated for cause, death or
Disability hereunder, Employer agrees that it shall take no action to demand or
collect the amounts due under the Promissory Note and that the principal balance
and accrued interest due under such Promissory Note shall be forgiven and
Executive shall be released from any further liability under the Promissory Note
in accordance with the schedule attached hereto as Schedule 9, which is
incorporated by this reference and made a part hereof. Notwithstanding anything
to the contrary contained in this Agreement or in Schedule 9, in the event
Employer terminates Executive in breach of this Agreement or in the event of a
Change of Control, then the entire outstanding balance of principal and accrued
interest shall be immediately forgiven, the Executive shall be released from any
further liability under the Promissory Note and all security agreements granted
to secure the Promissory Note shall also be released and terminated to the
extent of the entire outstanding balance due under the Promissory Note.
10. GENERAL PROVISIONS
10.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Executive acknowledges that the injury that would be suffered by the
Employer as a result of a breach of the provisions of any provision of Sections
7 and 8 of this Agreement would be irreparable and that an award of monetary
damages to the Employer for such a breach would be an inadequate remedy.
Consequently Employer will have the right, in addition to any other rights it
may have, to obtain injunctive relief to restrain any breach or threatened
breach or otherwise to specifically enforce any provisions of Sections 7 and 8
of this Agreement, and the Employer will not be obligated to post bond or other
security in seeking such relief.
10.2 WAIVER
The rights and remedies of the parties to this Agreement are cumulative and
not alternative. Neither the failure nor any delay by either party in exercising
any right, power, or privilege under this
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Agreement will operate as a waiver of such right, power, or privilege, and no
single or partial exercise of any such right, power, or privilege will preclude
any other or further exercise of such right, power, or privilege or the exercise
of any other right, power, or privilege.
10.3 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand, (b) sent by facsimile (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received by the addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the appropriate addresses
and facsimile numbers set forth below (or to such other addresses and facsimile
numbers as a party may designate by notice to the other parties):
If to Employer: netValue Holdings, Inc.
Two Penn Center, Suite 605
Philadelphia, PA 19102
Facsimile No.: (215) 564-3133
With a copy to: Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Attention: Michael C. Forman
Facsimile No.: (215) 568-6603
If to Executive: Douglas Spink
15455 NW Greenbrier Parkway, #210
Beaverton, OR 97006
Facsimile No.: (800) 893-8895
10.4 ENTIRE AGREEMENT; AMENDMENTS
This Agreement and the documents reference herein, contain the entire
agreement between the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, between the
parties hereto with respect to the subject matter hereof. This Agreement may
not be amended orally, but only by an agreement in writing signed by the parties
hereto.
10.5 GOVERNING LAW
This Agreement will be governed by the laws of the State of Delaware
without regard to conflicts of laws principles.
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10.6 JURISDICTION
Any action or proceeding seeking to enforce any provision of, or based on
any right arising out of, this Agreement may be brought against either of the
parties in the courts of the State of Delaware, or, if it has or can acquire
jurisdiction, in the United States District Court for the District of Delaware,
and each of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred
to in the preceding sentence may be served on either party anywhere in the
world.
10.7 ASSIGNABILITY, BINDING NATURE
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors, heirs (in the case of the Executive)
and assigns. No rights or obligations of the Executive under this Agreement may
be assigned or transferred by the Executive other than his rights to
compensation and benefits, which may be transferred only by will or operation of
law.
10.8 SURVIVAL
The respective rights and obligations of the parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
10.9 PRIOR AGREEMENTS
The Executive represents and warrants to Employer that his execution and
performance of this Agreement shall not constitute a breach of any contract,
agreement or understanding, whether oral or written, to which he is a party or
by which he is bound.
10.10 ACKNOWLEDGMENT
The Executive hereby acknowledges and certifies that he has read the terms
of this Agreement, that he has been informed by Employer that he should discuss
it with an attorney of his choice, and that he understands its terms and
effects. The Executive further acknowledges that based on his training and
experience, he has the capacity to earn a livelihood by performing services as
an employee or otherwise in a business that does not violate the provisions of
Section 8.
10.11 SECTION HEADINGS, CONSTRUCTION
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The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement unless otherwise specified. All words used in this Agreement will be
construed to be of such gender or number as the circumstances require. Unless
otherwise expressly provided, the word "including" does not limit the preceding
words or terms.
10.12 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid
or unenforceable only in part or degree will remain in full force and effect to
the extent not held invalid or unenforceable.
10.13 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement. This
Agreement (and all other agreements, documents, instruments and certificates
executed and/or delivered in connection herewith) may be executed by facsimile
signatures, each of which shall be deemed an original copy of this Agreement (or
other such agreement, document, instrument and certificate).
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date above first written above.
EMPLOYER:
NETVALUE HOLDINGS, INC.
/s/ Andrew P. Panzo
---------------------------------
By: Andrew P. Panzo
Its: President
Dated: __________________________
EMPLOYEE:
/s/ Douglas Spink
---------------------------------
Douglas Spink, individually
Dated: __________________________
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SCHEDULE 8
EMPLOYMENT AGREEMENT
Merus Partners, Inc.
Timberline Retrievers, L.L.C.
Timberline Forms, L.L.C.
Webmodal, Inc.
Connectagon
Chouca, Inc.
Journalia
Topscotch
Cosmetica.com
American Families Online, Inc.
Stallions.net
Zombie Studios
Fez, Inc.
Cryptica.com
Thoughts.com
ACFN.com
<PAGE>
SCHEDULE 9
EMPLOYMENT AGREEMENT
The principal and interest due under the Promissory Note executed and delivered
by Executive shall be forgiven and Executive shall be released from any further
liability as follows:
1. Fifty percent (50%) of the principal and interest due under the
Promissory Note will be forgiven on January 1, 2000; and
2. The remaining balance of principal and interest due under the
Promissory Note will be forgiven on May 28, 2000.
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of September 15,
1999 by NET VALUE HOLDINGS, INC., a Delaware corporation (the "Employer"), and
LEE C. HANSEN an individual resident in the State of California (the
"Executive").
BACKGROUND
The Employer wishes to employ the Executive and the Executive wishes to
enter into the employ of the Employer on the terms and conditions contained in
this Agreement.
NOW THEREFORE, in consideration of the facts, mutual promises and covenants
contained herein and intending to be legally bound hereby, the Employer and the
Executive agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"Agreement" means this Employment Agreement, as amended from time to time.
"Benefits" is defined in Section 3.1(b).
"Board of Directors" means the board of directors of Employer.
"cause" is defined in Section 6.3.
"Change of Control"shall mean the occurrence of any one of the following
events: (a) any "person" as such term is used in Section 3(a)(9) and 13(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")(other than
a subsidiary or other affiliate of Employer), becomes a "beneficial owner," as
such term is used in Rule 13d-3 promulgated under the Exchange Act, of 50% or
more of any class of Employer's issued and outstanding common or preferred
stock, which interest in such stock comprises 50% or more of all issued and
outstanding voting shares; (b) the majority of Employer's board of directors
consists of individuals other than Incumbent Directors, which term means the
members of Employer's Board of Directors on the Effective Date of this
Agreement, provided that any person becoming a director subsequent to such date
whose election or nomination for election was supported by the Executive and/or
one half of the directors who then comprised the Incumbent Directors shall be
considered to be an Incumbent Director; or (c) the occurrence of any event which
would be required to be reported by Employer pursuant to Items 1 or 2 of Form 8-
K under the Exchange Act, which shall be determined without regard to whether
Employer is actually required to file a Form 8-K in relation to such transaction
or event.
"Disability" is defined in Section 6.2.
"Effective Date" means October 1, 1999.
<PAGE>
"Employment Period" means the term of the Executive's employment under this
Agreement as defined in Section 2.2.
"good reason" means: (a) the Employer's material breach of this Agreement,
which is not cured within ten (10) days after written notice to Employer.
"person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
"Registration Statement Availability Date" means, with respect to any
Options, the date both (a) such Options have vested and (b) a registration
statement of the Employer under the Securities Act of 1933, as amended, covering
the resale of the common stock of the Employer underlying such Options is
effective.
"Salary" is defined in Section 3.1(a).
2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT
Effective on the Effective Date, Employer hereby employs the Executive, and
the Executive hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 TERM
Subject to the provisions of Section 6, the Employment Period for the
Executive's employment under this Agreement will be three years, beginning on
the Effective Date, and shall be automatically renewed for consecutive one-year
renewal terms thereafter, unless, not less than sixty (60) days prior to the end
of the original term or any renewal term, either party gives the other party
written notice of termination of employment which termination shall be effective
as of the end of such original term or renewal term.
2.3 DUTIES
The Executive shall serve the Employer generally as Chief Operating Officer
and shall have such authority and responsibilities as the Employer may determine
from time to time consistent with Executive's skills and abilities. Employer
shall perform any other duties reasonably required by the Employer and, if
requested by the Employer, shall serve as an officer or director of the Employer
or any subsidiary of the Employer without additional compensation. The
Executive agrees to perform in good faith and to the best of his ability all
services which may be required of him hereunder and will devote his best efforts
and such business time, skill, attention and energies as are reasonably
necessary to perform his duties and responsibilities under this Agreement and to
promote
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the success of the Employer's business. The Executive shall be employed on a
full-time basis by Employer. Executive may continue to engage in the following
activities: (a) attending board of directors' or like meetings of other
companies in which Executive or an affiliate has invested or in which Executive
has been elected to serve, and (b) managing his personal investments, provided
that such activities set forth in (a) and (b) (individually or collectively) do
not materially and adversely interfere or conflict with the performance of
Executive's duties or responsibilities under this Agreement.
3. COMPENSATION
3.1 BASIC COMPENSATION
(a) Salary. The Executive will be paid an annual salary of
$150,000, subject to adjustment as provided below (the "Salary"), which will be
payable in equal periodic installments according to the Employer's customary
payroll practices, but no less frequently than monthly. The Executive's Salary
will be reviewed by Employer's Board of Directors not less frequently than
annually, and may be adjusted upward or downward by Employer, but in no event
will the Salary be less than $150,000 per year.
(b) Benefits. The Executive will, during the Employment Period,
be permitted to participate in such pension, profit sharing, bonus (subject to
the provisions of Section 3.2), life insurance, hospitalization, major medical,
and other employee benefit plans of the Employer that may be in effect from time
to time, to the extent the Executive is eligible under the terms of those plans
(collectively, the "benefits").
(c) Indemnification. The Employer shall, to the full extent
permitted by Section 146 of the Delaware General Corporation Law, as amended,
and in accordance with Article VII of the By-laws of the Employer (a copy of
which is attached as Exhibit A hereto) indemnify the Executive as an officer of
the Employer. The Employer agrees that it shall not amend its By-laws in any
manner that will materially adversely affect the Executive's rights to
indemnification thereunder.
3.2 BONUS COMPENSATION
Executive shall be eligible to receive annual bonus compensation at
the discretion of Employer's Board of Directors and in accordance with
Employer's executive bonus or incentive compensation plan that may be in effect
from time to time.
3.3 OPTIONS
(a) The Executive will receive an award of options to purchase
900,000 shares of the Employer's common stock (the "Options") at an exercise
price of $1.00 per share pursuant to the stock option plan to be implemented by
Employer. 90,000 of the Options will vest upon the
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Effective Date and the remainder of the Options will vest pro rata each month
over a period of three years from the Effective Date so long as the Executive
remains employed by the Employer. No Options shall vest after the Executive's
employment by the Employer is terminated for any reason.
(b) Exercise Period. While the Executive is employed by the
Employer, the Executive may exercise any Options from the date such Options vest
until the later of (i) five years after the vesting date of such Options or (ii)
one year after the Registration Statement Availability Date with respect to such
Options (the "Employment Exercise Period"). In the event the Company terminates
the employment by the Employer of the Executive without cause, the Executive
resigns for good reason, or the employment of the Executive is terminated due to
the Executive's death or Disability, the Executive (or the Executive's estate)
may exercise those Options that have vested as of the date the Executive's
employment was terminated until the later of (i) one year after the date of such
termination or (ii) one year after the first Registration Statement Availability
Date on or after the date of such termination. In the event the Company
terminates the employment by the Company of the Executive for cause, or the
Executive resigns without good reason, the Executive may exercise those Options
that have vested as of the date the Executive's employment was terminated until
the later of (i) six months after the date of such termination or (ii) six
months after the first Registration Statement Availability Date on or after the
date of such termination. Notwithstanding the foregoing, no Option shall be
exercisable with respect to any termination of the Executive's employment
hereunder that occurs after the Employment Exercise Period with respect to such
Option.
4. EXPENSE REIMBURSEMENT
The Employer will pay the Executive's dues in such trade and professional
organizations as Employer deems appropriate, and will pay on behalf of the
Executive (or reimburse the Executive for) reasonable expenses incurred by the
Executive at the request of, or on behalf of, the Employer in the performance of
the Executive's duties pursuant to this Agreement, and in accordance with the
Employer's employment policies, including without limitation reasonable expenses
incurred by the Executive in attending conventions, seminars, other business
meetings and for promotional expenses, provided that any such activities must be
related to Employer's business and all individual expenses (or those aggregated
for a single convention, seminar or other business trip) greater than $5,000
must be approved by Employer's Chief Executive Officer. The Executive must file
expense reports with respect to such expenses in accordance with the Employer's
policies.
5. VACATIONS AND HOLIDAYS
The Executive will be entitled to three (3) weeks' paid vacation each
calendar year in accordance with the vacation policies of the Employer in effect
for its executive officers from time to time. The Executive will also be
entitled to the paid holidays and other paid leave set forth in the Employer's
policies. Vacation days during any calendar year that are not used by the
Executive during such calendar year may be used in any subsequent calendar year;
provided, however, that no more than six weeks' paid vacation may be accrued or
carried forward.
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6. TERMINATION
6.1 EVENTS OF TERMINATION
The Executive's employment pursuant to this Agreement may be terminated by
Employer only on the following grounds:
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as defined in Section
6.2) immediately upon notice from either party to the other; and
(c) for cause (as defined in Section 6.3), immediately upon
notice from the Employer to the Executive, or at such later time as such notice
may specify.
The Executive may terminate his employment only on the following grounds:
(d) without any cause whatsoever, provided that Executive gives
Employer at least 60 days' prior written notice of his termination of
employment;
(e) for any material breach of this Agreement by Employer, which
is not cured within ten (10) days after written notice to Employer;
(f) the occurrence of a Change in Control, provided that
Executive gives Employer at least 60 days' prior written notice of his
termination of employment.
6.2 DEFINITION OF DISABILITY
For purposes of Section 6.1, the Executive will be deemed to have a
"Disability" if, for physical or mental reasons, the Executive is unable to
perform the essential functions of the Executive's duties with reasonable
accommodation under this Agreement for 120 consecutive days, or 120 days during
any twelve-month period, as determined in accordance with this Section 6.2. The
Disability of the Executive will be determined by a medical doctor selected by
written agreement of the Employer and the Executive upon the request of either
party by notice to the other. If the Employer and the Executive cannot agree on
the selection of a medical doctor, each of them will select a medical doctor and
the two medical doctors will select a third medical doctor who will determine
whether the Executive has a Disability. The determination of the medical doctor
selected under this Section 6.2 will be binding on both parties. The Executive
must submit to a reasonable number of examinations by the medical doctor making
the determination of disability under this Section 6.2, and the Executive hereby
authorizes the disclosure and release to the Employer of such determination and
all supporting medical records. If the Executive is not legally competent, the
Executive's legal guardian or duly authorized attorney-in-fact will act in the
Executive's stead, under this Section 6.2, for the purposes of submitting the
Executive to the examinations, and providing the authorization of disclosure,
required under this Section 6.2.
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6.3 DEFINITION OF "FOR CAUSE"
For purposes of Section 6.1, the phrase "for cause" means: (a) the
Executive's material breach of this Agreement, which is not cured within ten
(10) days after written notice to Executive; (b) theft, fraud, or
misappropriation (or attempted misappropriation) of any of the Employer's funds
or property; or (c) a conviction or entry of a guilty plea or plea of no contest
with respect to a felony or other crime involving moral turpitude for which
imprisonment is a possible punishment.
6.4 TERMINATION PAY
Effective upon the termination of this Agreement, the Employer will be
obligated to pay the Executive (or, in the event of his death, his designated
beneficiary as defined below) the compensation provided in this Section 6.4:
(a) Termination by the Employer for Cause or Termination by
-------------------------------------------------------
Executive Without Cause. If the Employer terminates this Agreement for cause or
- -----------------------
Executive terminates his employment without good reason, the Executive will be
entitled to receive his Salary only through the date such termination is
effective, but will not be entitled to any bonus compensation for the calendar
year during which such termination occurs.
(b) Termination upon Disability. If this Agreement is
---------------------------
terminated by either party as a result of the Executive's Disability, as
determined under Section 6.2, the Employer will pay the Executive his Salary
through the remainder of the calendar month during which such termination is
effective and for the lesser of (i) three consecutive months thereafter, or (ii)
the period until disability insurance benefits commence under the disability
insurance coverage furnished by the Employer to the Executive. Executive shall
also be entitled to receive that part of the Executive's bonus compensation, if
any, for the calendar year during which his Disability occurs, prorated through
the end of the calendar month during which his termination is effective.
(c) Termination upon Death. If this Agreement is terminated
----------------------
because of the Executive's death, the Executive will be entitled to receive his
Salary through the end of the calendar month in which his death occurs, and that
part of the Executive's bonus compensation, if any, for the calendar year during
which his death occurs, prorated through the end of the calendar month during
which his death occurs.
(d) Termination by Executive Due to Material Breach by Employer.
-----------------------------------------------------------
If this Agreement is terminated by Executive due to a material breach of this
Agreement by Employer, then Employer shall continue to pay to Executive his
monthly Salary and bonus, based upon the average annual bonus paid previously to
Executive prior to termination of this Agreement, for the lesser of one year
from the date of termination or the remaining original three-year Employment
Period.
(e) Termination by Executive Due to a Change of Control. If this
---------------------------------------------------
Agreement is terminated by Executive due to a Change of Control, then Employer
shall continue to pay to Executive his monthly Salary and bonus, based upon the
average annual bonus paid
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previously to Executive prior to termination of this Agreement, for the lesser
of one year from the date of termination or the remaining original three-year
Employment Period.
(f) Benefits. The Executive's accrual of, or participation in
--------
plans providing for, the Benefits will cease at the effective date of the
termination of this Agreement, and the Executive will be entitled to accrued
Benefits pursuant to such plans only as provided in such plans.
7. NON-DISCLOSURE COVENANT
Employer and the Executive acknowledge that the services to be performed by
the Executive under this Agreement are unique and valuable and that, as a result
of the Executive's employment, the Executive will be in a relationship of
confidence and trust with Employer and will come into possession of
"Confidential Information" (i) owned or controlled by Employer and its
subsidiaries and affiliates; (ii) in the possession of Employer and its
subsidiaries and affiliates and belonging to third parties; or (iii) conceived,
originated, discovered or developed, in whole or in part, by the Executive. As
used herein "Confidential Information" means trade secrets and other
confidential or proprietary business, technical, personnel or financial
information of Employer, whether or not the Executive's work product, in
written, graphic, oral or other tangible or intangible forms, including but not
limited to specifications, samples, records, data, computer programs, drawings,
diagrams, models, consumer names, ID's or e-mail addresses, business or
marketing plans, studies, analyses, projections and reports, communications by
or to attorneys (including attorney-client privileged communications), memos and
other materials prepared by attorneys or under their direction (including
attorney work product), and software systems and processes that are not readily
available to the public, even it is not specifically marked as a trade secret or
confidential, unless Employer advises the Executive otherwise in writing or
unless the information has been shared by Employer with entities not bound by
non-disclosure agreements. In consideration of the compensation and benefits to
be paid or provided to the Executive by the Employer under this Agreement, the
Executive agrees not to directly or indirectly use or disclose to anyone, either
during the Employment Period or after the termination of this Agreement, except
in the performance of his duties of his employment with Employer or with
Employer's prior written consent, any Confidential Information of Employer.
This non-disclosure covenant does not apply to information that is disclosed or
becomes public through another source; which Executive is required to disclose
pursuant to court order, subpoena or applicable law (provided that Executive
will use reasonable efforts to provide Employer with prompt notice of any such
requests or requirement so that Employer may seek an appropriate protective
order); or which is disclosed in any proceeding to enforce or interpret this
Agreement. The Executive agrees that in the event of the termination of the
Executive's employment for any reason, the Executive will deliver to Employer,
upon request, all property belonging to Employer, including all documents and
materials of any nature pertaining to the Executive's work with Employer and
will not take with him any documents or materials of any description, or any
reproduction thereof of any description, containing or pertaining to any
Confidential Information.
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8. NON-COMPETITION
During the term of this Agreement and for a one-year period after
termination of this Agreement by Employer for cause or by Executive without any
cause whatsoever, as set forth in Sections 6.1(c) and (d), the Executive agrees
that he shall not (a) work for or be interested in any business which serves as
a holding company primarily for the purpose of acquiring entities whose products
and services are delivered to consumers over the Internet ("Internet Entities"),
(b) engage or be interested in or receive any compensation from any business in
which the services to be rendered by the Executive to such business directly
relates to services or products which are directly competitive with "primary"
services or products offered by the Employer or a subsidiary or affiliate of
Employer at the Executive's termination date; or (c) induce or attempt to induce
any employee, agent or customer of Employer or any of its subsidiaries or
affiliates to terminate or reduce the scope of his, her or its relationship with
Employer. A product or service shall be deemed "primary" only if such service or
product constitutes a primary component of the core business of Employer or its
majority-owned subsidiaries and affiliates on Executive's termination date. For
the purposes of this Agreement, the term "work for or be interested in" a
business means that the Executive is a stockholder, director, officer, employee,
partner, individual proprietor, lender or consultant with that business, but not
if (i) his interest is limited solely to the passive ownership of five percent
(5%) or less of any class of the equity or debt securities of a corporation
whose shares are listed for trading on a national securities exchange or traded
in the over-the-counter market, or (ii) he is interested in a company listed on
Schedule 8 hereto, or after termination hereof, works for such company; provided
however, that so long as this non-competition agreement is in effect, Executive
shall not work for a company listed on Schedule 8 if such company serves as a
holding company primarily for the purpose of acquiring Internet Entities. In
the event that any part of this Section 8 is adjudged invalid or unenforceable
by any court of record, board of arbitration or judicial or quasi judicial
entity having jurisdiction thereof by reason of length of time, geographical
coverage, activities covered, or for any other reason, then the invalid or
unenforceable provisions of this covenant shall be deemed reformed and amended
to the maximum extent permissible under applicable law and shall be enforced and
enforceable as so amended in accordance with the intention of the parties as
expressed herein.
9. GENERAL PROVISIONS
9.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Executive acknowledges that the injury that would be suffered by the
Employer as a result of a breach of the provisions of any provision of Sections
7 and 8 of this Agreement would be irreparable and that an award of monetary
damages to the Employer for such a breach would be an inadequate remedy.
Consequently Employer will have the right, in addition to any other rights it
may have, to obtain injunctive relief to restrain any breach or threatened
breach or otherwise to specifically enforce any provisions of Sections 7 and 8
of this Agreement, and the Employer will not be obligated to post bond or other
security in seeking such relief.
8
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9.2 WAIVER
The rights and remedies of the parties to this Agreement are cumulative and
not alternative. Neither the failure nor any delay by either party in exercising
any right, power, or privilege under this Agreement will operate as a waiver of
such right, power, or privilege, and no single or partial exercise of any such
right, power, or privilege will preclude any other or further exercise of such
right, power, or privilege or the exercise of any other right, power, or
privilege.
9.3 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand, (b) sent by facsimile (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received by the addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the appropriate addresses
and facsimile numbers set forth below (or to such other addresses and facsimile
numbers as a party may designate by notice to the other parties):
If to Employer: Net Value Holdings, Inc.
Two Penn Center, Suite 605
Philadelphia, PA 19102
Facsimile No.: (215) 564-3133
With a copy to: Klehr, Harrison, Harvey, Branzburg & Ellers
260 South Broad Street
Philadelphia, PA 19102
Attention: Michael C. Forman
Facsimile No.: (215) 568-6603
If to Executive: Lee C. Hansen
1475 Vallejo Street (#3)
San Francisco, CA 94109
9.4 ENTIRE AGREEMENT; AMENDMENTS
This Agreement and the documents referenced herein, contain the entire
agreement between the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, between the
parties hereto with respect to the subject matter hereof. This Agreement may not
be amended orally, but only by an agreement in writing signed by the parties
hereto.
9
<PAGE>
9.5 GOVERNING LAW
This Agreement will be governed by the laws of the State of Delaware
without regard to conflicts of laws principles.
9.6 JURISDICTION
Any action or proceeding seeking to enforce any provision of, or based on
any right arising out of, this Agreement may be brought against either of the
parties in the courts of the State of Delaware, or, if it has or can acquire
jurisdiction, in the United States District Court for the District of Delaware
and each of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred
to in the preceding sentence may be served on either party anywhere in the
world.
9.7 ASSIGNABILITY, BINDING NATURE
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors, heirs (in the case of the Executive)
and assigns. No rights or obligations of the Executive under this Agreement may
be assigned or transferred by the Executive other than his rights to
compensation and benefits, which may be transferred only by will or operation of
law.
9.8 SURVIVAL
The respective rights and obligations of the parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
9.9 PRIOR AGREEMENTS
The Executive represents and warrants to Employer that his execution and
performance of this Agreement shall not constitute a breach of any contract,
agreement or understanding, whether oral or written, to which he is a party or
by which he is bound.
9.10 ACKNOWLEDGMENT
The Executive hereby acknowledges and certifies that he has read the terms
of this Agreement, that he has been informed by Employer that he should discuss
it with an attorney of his choice, and that he understands its terms and
effects. The Executive further acknowledges that based on his training and
experience, he has the capacity to earn a livelihood by performing services as
an employee or otherwise in a business that does not violate the provisions of
Section 8.
10
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9.11 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement unless otherwise specified. All words used in this Agreement will be
construed to be of such gender or number as the circumstances require. Unless
otherwise expressly provided, the word "including" does not limit the preceding
words or terms.
9.12 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid
or unenforceable only in part or degree will remain in full force and effect to
the extent not held invalid or unenforceable.
9.13 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement. This
Agreement (and all other agreements, documents, instruments and certificates
executed and/or delivered in connection herewith) may be executed by facsimile
signatures, each of which shall be deemed an original copy of this Agreement (or
other such agreement, document, instrument and certificate).
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
EMPLOYER:
NET VALUE HOLDINGS, INC.
By: /s/ Andrew P. Panzo
-------------------------
Andrew Panzo
Chief Executive Officer
and President
EMPLOYEE:
/s/ Lee Hansen
-----------------------------
Lee C. Hansen, individually
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SCHEDULE 8
EMPLOYMENT AGREEMENT
None
13
<PAGE>
EXHIBIT A
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
Section 1. 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 (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, 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 in connection with such action, suit or proceeding 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. 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 which 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. 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 or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
Corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit 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 except that 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 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 Court of Chancery
or such other court shall deem proper.
Section 3. 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 Sections 1 or 2 of this Article, 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.
14
<PAGE>
Section 4. Any indemnification under sections 1 or 2 of this Article
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in such section. Such determination
shall be made:
(a) 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
(b) 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
(c) By the stockholders.
Section 5. Expenses (including attorneys' fees) incurred by an officer
or director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may 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 such 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 Section. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate.
Section 6. The indemnification and advancement of expenses provided by,
or granted pursuant to the other sections of this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, 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.
Section 7. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another Corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article.
Section 8. For purposes of this Article, references to "the
Corporation" shall include, in addition to the resulting Corporation, any
constituent Corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer employee or
agent of such constituent Corporation, or is or was serving at the request of
such constituent Corporation as a director, officer, employee or agent of
another Corporation, partnership, joint venture, trust or other enterprise,
shall
15
<PAGE>
stand in the same position under this Article with respect to the resulting or
surviving Corporation as he would have with respect to such constituent
Corporation of its separate existence had continued.
Section 9. For purposes of this Article, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article.
Section 10. The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, 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.
Section 11. No director or officer of the Corporation shall be personally
liable to the Corporation or to any stockholder of the Corporation for monetary
damages for breach of fiduciary duty as a director or officer, provided that
this provision shall not limit the liability of a director or officer (i) for
any breach of the director's or the officer'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 Delaware, or (iv) for any
transaction from which the director or officer derived an improper personal
benefit.
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EXHIBIT 10.4
CONSULTING AGREEMENT
This Consulting Agreement (this "Agreement") is made as of June 30, 1999 by
NET VALUE HOLDINGS, INC., a Delaware corporation (the "Company"), and BARRY
UPHOFF, an individual resident of the State of Illinois (the "Consultant").
RECITALS
Strategicus Partners, Inc. and the Company, expect to enter into a merger
transaction (the "Merger"), in which the Company will be the surviving
corporation. In connection with the Merger, the Company desires to retain the
Consultant, and the Consultant desires to provide services to the Company, upon
the terms and conditions set forth in this Agreement. This Agreement replaces
and supercedes the Employment Agreement executed by the parties on or about June
17, 1999,
AGREEMENT
The parties, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"Agreement" means this Consulting Agreement, as amended from time to time.
"Board of Directors" means the board of directors of the Company.
"Effective Date" means the date of the closing of the Merger between the
Company and Strategicus Partners, Inc., in which the Company shall be the
surviving corporation.
"Promissory Note" is defined as the Promissory Note executed and delivered
by the Consultant to the Company on or about June 16, 1999 in the original
principal amount of $267,000.
2. ENGAGEMENT
The Consultant will have such duties as are assigned or delegated to the
Consultant by the Board of Directors, and will initially serve as Chairman of
the Company's Board of Directors. The Consultant shall continue to be employed
on a full-time basis by Diamond Technology Partners, Inc. during the term of
this Agreement, and the duties assigned to Consultant by the Board of Directors
will take this into account. Subject to his obligations to Diamond Technology
Partners, Consultant agrees to perform in good faith and to the best of his
ability all services which may be required of him hereunder and will devote his
best efforts and such business time, skill, attention and energies as are
reasonably necessary to perform his duties and responsibilities under this
Agreement and to promote the success of the Company's business. It is
contemplated that Consultant's duties for the Company will consist of attending
meetings of the Board of Directors, assisting with the raising of
<PAGE>
capital for the Company, evaluating transactions and advising portfolio
companies on business and technology issues.
3. RETAINER
The Consultant will be paid a monthly retainer of $500.00, which will be
payable on the last business day of each month during the term of this
Agreement.
4. EXPENSE REIMBURSEMENT
The Company will reimburse the Consultant for all reasonable expenses
incurred by the Consultant at the request of, or on behalf of, the Company in
the performance of the Consultant's duties pursuant to this Agreement, including
without limitation reasonable expenses incurred by the Consultant in attending
conventions, seminars, other business meetings and for promotional expenses,
provided that any such activities must be related to the Company's business and
all individual expenses (or those aggregated for a single convention, seminar or
other business trip) greater than $2,000 must be approved in advance by the
Board of Directors or the Chief Executive Officer. The Consultant must file
expense reports with respect to such expenses in accordance with the Company's
policies.
5. TERMINATION
5.1 RIGHT TO TERMINATE
The Company and/or Andrew Panzo (in his sole discretion) may terminate
the Engagement and all of the Company's obligations under this Agreement at any
time and for any reason.
5.2 RIGHTS UPON TERMINATION
If the engagement is terminated, the Consultant shall have no further
rights against the Company hereunder, except for the right to receive (i) any
unpaid retainer with respect to the period prior to the effective date of
termination, (ii) reimbursement of expenses to which the Consultant is entitled,
and (iii) stock certificates for any shares of the Company's common stock owned
by the Consultant which vested prior to the effective date of termination and
for a period of 60 days immediately following the date of termination.
6. NON-DISCLOSURE COVENANT
The Company and the Consultant acknowledge that the services to be
performed by the Consultant under this Agreement are unique and valuable and
that, as a result of the Consultant's engagement, the Consultant will be in a
relationship of confidence and trust with the Company and will come into
possession of "Confidential Information" (i) owned or controlled by the Company
and its subsidiaries and affiliates; (ii) in the possession of the Company and
its subsidiaries and affiliates and belonging to third parties; or (iii)
conceived, originated, discovered or developed, in whole or in part, by the
Consultant. As used herein "Confidential Information" means trade secrets
2
<PAGE>
and other confidential or proprietary business, technical, personnel or
financial information of the Company, whether or not the Consultant's work
product, in written, graphic, oral or other tangible or intangible forms,
including but not limited to specifications, samples, records, data, computer
programs, drawings, diagrams, models, consumer names, ID's or e-mail addresses,
business or marketing plans, studies, analyses, projections and reports,
communications by or to attorneys (including attorney-client privileged
communications), memos and other materials prepared by attorneys or under their
direction (including attorney work product), and software systems and processes
that are not readily available to the public, even such items not specifically
marked as a trade secret or confidential, unless the Company advises the
Consultant otherwise in writing or unless the information has been shared by the
Company with entities not bound by non-disclosure agreements. In consideration
of the fees to be paid or provided to the Consultant by the Company under this
Agreement, the Consultant agrees not to directly or indirectly use or disclose
to anyone, either during the term of this Agreement or after the termination of
this Agreement, except in the performance of his duties as described in this
Agreement or with the Company's prior written consent, any Confidential
Information of the Company. This non-disclosure covenant does not apply to
information (i) that is disclosed or becomes public through another source; (ii)
which the Consultant is required to disclose pursuant to court order, subpoena
or applicable law (provided that the Consultant will use reasonable efforts to
provide the Company with prompt notice of any such requests or requirement so
that the Company may seek an appropriate protective order); or (iii) which is
disclosed in any proceeding to enforce or interpret this Agreement. The
Consultant agrees that in the event of the termination this Agreement for any
reason, the Consultant will deliver to the Company, upon request, all property
belonging to the Company, including all documents and materials of any nature
pertaining to the Consultant's engagement with the Company and will not take
with him any documents or materials of any description, or any reproduction
thereof of any description, containing or pertaining to any Confidential
Information.
7. NON-COMPETITION
During the term of this Agreement and for a one-year period after
termination of this Agreement for any reason, the Consultant agrees that he
shall not (a) work for or be interested in any business which serves as a
holding company primarily for the purpose of acquiring entities whose products
and services are delivered to consumers over the Internet ("Internet Entities"),
(b) engage or be interested in or receive any compensation from any business in
which the services to be rendered by the Consultant to such business directly
relates to services or products which are directly competitive with "primary"
services or products offered by the Company or a subsidiary or affiliate of the
Company at the effective date of the termination of this Agreement or (c) induce
or attempt to induce any employee, agent or customer of the Company or any of
its subsidiaries or affiliates to terminate or reduce the scope of his, her or
its relationship with the Company. A product or service shall be deemed
"primary" only if such service or product constitutes a primary component of the
core business of the Company or its majority-owned subsidiaries and affiliates
on the effective date of termination of this Agreement. For the purposes of this
Agreement, the term "work for or be interested in" a business means that the
Consultant is a stockholder, director, officer, employee, partner, individual
proprietor, lender or consultant with that business, but not if (i) his interest
is
3
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limited solely to the passive ownership of five percent (5%) or less of any
class of the equity or debt securities of a corporation whose shares are listed
for trading on a national securities exchange or traded in the over-the-counter
market, or (ii) he is interested in a company listed on Schedule 7 hereto, or
after termination hereof, works for such company; provided however, that so long
as this non-competition agreement is in effect, the Consultant shall not work
for a company listed on Schedule 7 if such company serves as a holding company
primarily for the purpose of acquiring Internet Entities. In the event that any
part of this Section 7 is adjudged invalid or unenforceable by any court of
record, board of arbitration or judicial or quasi judicial entity having
jurisdiction thereof by reason of length of time, geographical coverage,
activities covered, or for any other reason, then the invalid or unenforceable
provisions of this covenant shall be deemed reformed and amended to the maximum
extent permissible under applicable law and shall be enforced and enforceable as
so amended in accordance with the intention of the parties as expressed herein.
8. REPAYMENT OF LOANS MADE TO CONSULTANT
Strategicus Partners, Inc. has loaned to Consultant the sum of $267,000,
pursuant to the terms set forth in the Promissory Note. Prior to Consultant's
execution of this Agreement, he has repaid all amounts due under such Promissory
Note. The Company acknowledges receipt of all amounts advanced to Strategicus
Partners, Inc. to loan to Consultant, and will return to Consultant the original
Promissory Note and Guaranty of Linda Uphoff marked "Paid."
9. GENERAL PROVISIONS
9.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Consultant acknowledges that the injury that would be suffered by the
Company as a result of a breach of the provisions of any provision of Sections 6
and 7 of this Agreement would be irreparable and that an award of monetary
damages to the Company for such a breach would be an inadequate remedy.
Consequently the Company will have the right, in addition to any other rights it
may have, to obtain injunctive relief to restrain any breach or threatened
breach or otherwise to specifically enforce any provisions of Sections 6 and 7
of this Agreement, and the Company will not be obligated to post bond or other
security in seeking such relief.
9.2 WAIVER
The rights and remedies of the parties to this Agreement are cumulative and
not alternative. Neither the failure nor any delay by either party in exercising
any right, power, or privilege under this Agreement will operate as a waiver of
such right, power, or privilege, and no single or partial exercise of any such
right, power, or privilege will preclude any other or further exercise of such
right, power, or privilege or the exercise of any other right, power, or
privilege.
9.3 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand, (b) sent by
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facsimile (with written confirmation of receipt), provided that a copy is mailed
by registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
If to the Company: Net Value Holdings, Inc.
Two Penn Center, Suite 605
Philadelphia, PA 19102
Facsimile No.: (215) 564-3133
With a copy to: Klehr, Harrison, Harvey, Branzburg & Ellers
260 South Broad Street
Philadelphia, PA 19102
Attention: Michael C. Forman
Facsimile No.: (215) 568-6603
If to the Consultant: Barry Uphoff
4080 Winberie Avenue
Naperville, IL 60564
Facsimile No.: 312-255-6575
9.4 ENTIRE AGREEMENT; AMENDMENTS
This Agreement and the documents reference herein, contain the entire
agreement between the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, between the
parties hereto with respect to the subject matter hereof. This Agreement may not
be amended orally, but only by an agreement in writing signed by the parties
hereto.
9.5 GOVERNING LAW
This Agreement will be governed by the laws of the State of Delaware
without regard to conflicts of laws principles.
9.6 JURISDICTION
Any action or proceeding seeking to enforce any provision of, or based on
any right arising out of, this Agreement may be brought against either of the
parties in the courts of the State of Delaware, or, if it has or can acquire
jurisdiction, in the United States District Court for the District of Delaware,
and each of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid
5
<PAGE>
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on either party anywhere in the world.
9.7 ASSIGNABILITY, BINDING NATURE
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors, heirs (in the case of the Consultant)
and assigns. No rights or obligations of the Consultant under this Agreement may
be assigned or transferred by the Consultant other than his rights to
compensation and benefits, which may be transferred only by will or operation of
law.
9.8 SURVIVAL
The respective rights and obligations of the parties hereunder shall
survive any termination of the Consultant's employment to the extent necessary
to the intended preservation of such rights and obligations.
9.9 PRIOR AGREEMENTS
The Consultant represents and warrants to the Company that there are no
restrictions, agreements or understandings of any kind whatsoever to which the
Consultant is a party, or by which he is bound, which would inhibit, prevent or
make unlawful his execution of this Agreement, and his execution and performance
of this Agreement shall not constitute a breach of any contract, agreement or
understanding, whether oral or written, to which he is a party or by which he is
bound.
9.10 ACKNOWLEDGMENT
The Consultant hereby acknowledges and certifies that he has read the terms
of this Agreement, that he has been informed by the Company that he should
discuss it with an attorney of his choice, and that he understands its terms and
effects. The Consultant further acknowledges that based on his training and
experience, he has the capacity to earn a livelihood by performing services as
an employee or otherwise in a business that does not violate the provisions of
Section 7.
9.11 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement unless otherwise specified. All words used in this Agreement will be
construed to be of such gender or number as the circumstances require. Unless
otherwise expressly provided, the word "including" does not limit the preceding
words or terms.
6
<PAGE>
9.12 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
9.13 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement. This
Agreement (and all other agreements, documents, instruments and certificates
executed and/or delivered in connection herewith) may be executed by facsimile
signatures, each of which shall be deemed an original copy of this Agreement (or
other such agreement, document, instrument and certificate).
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date above first written above.
NETVALUE HOLDINGS, INC.
/s/ Andrew P. Panzo
---------------------------
By: Andrew P. Panzo
Its: President
/s/ Barry Uphoff
---------------------------
Barry Uphoff, Individually
7
<PAGE>
SCHEDULE 7
CONSULTING AGREEMENT
Diamond Technology Partners, Inc.
Merus Partners, Inc.
Timberline Retrievers L.L.C.
Timberline Farms L.L.C.
Webmodal.com
ACFN.com
Connectagon.com
Chouca.com
Journalia.com
Topscotch.com
Bingcherry.com
American Families Online, Inc.
Stallions.net
Zombie Studios Inc./Zombie L.L.C.
Fez.com
Cryptica.com
Thoughts.com
Bidland.com
ArmyHQ.com
Shrapnel.com
Eruptor.com
8
<PAGE>
EXHIBIT 10.5
CONSULTING AGREEMENT
This Consulting Agreement (this "Agreement") is made as of June 30, 1999 by
NET VALUE HOLDINGS, INC., a Delaware corporation (the "Company"), and DARR ALEY,
an individual resident of the State of California (the "Consultant").
RECITALS
Strategicus Partners, Inc. and the Company, expect to enter into a merger
transaction (the "Merger"), in which the Company will be the surviving
corporation. In connection with the Merger, the Company desires to retain the
Consultant, and the Consultant desires to provide services to the Company, upon
the terms and conditions set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"Agreement" means this Consulting Agreement, as amended from time to time.
"Board of Directors" means the board of directors of the Company.
"Effective Date" means the date of the closing of the Merger between the
Company and Strategicus Partners, Inc., in which the Company shall be the
surviving corporation.
"Promissory Note" is defined as the Promissory Note executed and delivered
by the Consultant to the Company on or about June 29, 1999 in the original
principal amount of $267,000.
2. ENGAGEMENT
The Consultant will have such duties as are assigned or delegated to the
Consultant by the Board of Directors, and will initially perform services
equivalent to those performed by an Executive Vice President--Business
Development of the Company and will serve as a member of the Board of Directors.
The Consultant agrees to perform in good faith and to the best of his ability
all services which may be required of him hereunder and will devote his best
efforts and such business time, skill, attention and energies as are reasonably
necessary to perform his duties and responsibilities under this Agreement and to
promote the success of the Company's business.
3. RETAINER
The Consultant will be paid a monthly retainer of $500.00, which will be
payable on the last business day of each month during the term of this
Agreement.
4. EXPENSE REIMBURSEMENT
<PAGE>
The Company will reimburse the Consultant for all reasonable expenses
incurred by the Consultant at the request of, or on behalf of, the Company in
the performance of the Consultant's duties pursuant to this Agreement, including
without limitation reasonable expenses incurred by the Consultant in attending
conventions, seminars, other business meetings and for promotional expenses,
provided that any such activities must be related to the Company's business and
all individual expenses (or those aggregated for a single convention, seminar or
other business trip) greater than $2,000 must be approved in advance by the
Board of Directors or the Chief Executive Officer. The Consultant must file
expense reports with respect to such expenses in accordance with the Company's
policies.
5. TERMINATION
5.1 RIGHT TO TERMINATE
The Company and/or Andrew Panzo (in his sole discretion) may terminate
the Engagement and all of the Company's obligations under this Agreement at any
time and for any reason.
5.2 RIGHTS UPON TERMINATION
If the engagement is terminated, the Consultant shall have no further
rights against the Company hereunder, except for the right to receive (i) any
unpaid retainer with respect to the period prior to the effective date of
termination, (ii) reimbursement of expenses to which the Consultant is entitled,
and (iii) stock certificates for any shares of the Company's common stock owned
by the Consultant which vested prior to the effective date of termination.
6. NON-DISCLOSURE COVENANT
The Company and the Consultant acknowledge that the services to be
performed by the Consultant under this Agreement are unique and valuable and
that, as a result of the Consultant's engagement, the Consultant will be in a
relationship of confidence and trust with the Company and will come into
possession of "Confidential Information" (i) owned or controlled by the Company
and its subsidiaries and affiliates; (ii) in the possession of the Company and
its subsidiaries and affiliates and belonging to third parties; or (iii)
conceived, originated, discovered or developed, in whole or in part, by the
Consultant. As used herein "Confidential Information" means trade secrets and
other confidential or proprietary business, technical, personnel or financial
information of the Company, whether or not the Consultant's work product, in
written, graphic, oral or other tangible or intangible forms, including but not
limited to specifications, samples, records, data, computer programs, drawings,
diagrams, models, consumer names, ID's or e-mail addresses, business or
marketing plans, studies, analyses, projections and reports, communications by
or to attorneys (including attorney-client privileged communications), memos and
other materials prepared by attorneys or under their direction (including
attorney work product), and software systems and processes that are not readily
available to the public, even such items not specifically marked as a trade
secret or confidential, unless the Company advises the Consultant otherwise in
writing or unless the information has been shared by the Company with entities
not bound by non-disclosure
2
<PAGE>
agreements. In consideration of the fees to be paid or provided to the
Consultant by the Company under this Agreement, the Consultant agrees not to
directly or indirectly use or disclose to anyone, either during the term of this
Agreement or after the termination of this Agreement, except in the performance
of his duties as described in this Agreement or with the Company's prior written
consent, any Confidential Information of the Company. This non-disclosure
covenant does not apply to information (i) that is disclosed or becomes public
through another source; (ii) which the Consultant is required to disclose
pursuant to court order, subpoena or applicable law (provided that the
Consultant will use reasonable efforts to provide the Company with prompt notice
of any such requests or requirement so that the Company may seek an appropriate
protective order); or (iii) which is disclosed in any proceeding to enforce or
interpret this Agreement. The Consultant agrees that in the event of the
termination this Agreement for any reason, the Consultant will deliver to the
Company, upon request, all property belonging to the Company, including all
documents and materials of any nature pertaining to the Consultant's engagement
with the Company and will not take with him any documents or materials of any
description, or any reproduction thereof of any description, containing or
pertaining to any Confidential Information.
7. NON-COMPETITION
During the term of this Agreement and for a one-year period after
termination of this Agreement for any reason, the Consultant agrees that he
shall not (a) work for or be interested in any business which serves as a
holding company primarily for the purpose of acquiring entities whose products
and services are delivered to consumers over the Internet ("Internet Entities"),
(b) engage or be interested in or receive any compensation from any business in
which the services to be rendered by the Consultant to such business directly
relates to services or products which are directly competitive with "primary"
services or products offered by the Company or a subsidiary or affiliate of the
Company at the effective date of the termination of this Agreement or (c) induce
or attempt to induce any employee, agent or customer of the Company or any of
its subsidiaries or affiliates to terminate or reduce the scope of his, her or
its relationship with the Company. A product or service shall be deemed
"primary" only if such service or product constitutes a primary component of the
core business of the Company or its majority-owned subsidiaries and affiliates
on the effective date of termination of this Agreement. For the purposes of this
Agreement, the term "work for or be interested in" a business means that the
Consultant is a stockholder, director, officer, employee, partner, individual
proprietor, lender or consultant with that business, but not if (i) his interest
is limited solely to the passive ownership of five percent (5%) or less of any
class of the equity or debt securities of a corporation whose shares are listed
for trading on a national securities exchange or traded in the over-the-counter
market, or (ii) he is interested in a company listed on Schedule 7 hereto, or
after termination hereof, works for such company; provided however, that so long
as this non-competition agreement is in effect, the Consultant shall not work
for a company listed on Schedule 7 if such company serves as a holding company
primarily for the purpose of acquiring Internet Entities. In the event that any
part of this Section 7 is adjudged invalid or unenforceable by any court of
record, board of arbitration or judicial or quasi judicial entity having
jurisdiction thereof by reason of length of time, geographical coverage,
activities covered, or for any other reason, then the invalid or unenforceable
provisions of this covenant shall be deemed reformed and amended to
3
<PAGE>
the maximum extent permissible under applicable law and shall be enforced and
enforceable as so amended in accordance with the intention of the parties as
expressed herein.
8. FORGIVENESS OF LOANS MADE TO CONSULTANT
The Company has made a loan to the Consultant in the principal amount of
$267,000, pursuant to the terms set forth in the Promissory Note. During the
term of this Agreement, the Company agrees that it shall take no action to
demand or collect the amounts due under the Promissory Note and that the
principal balance and accrued interest due under such Promissory Note shall be
forgiven and the Consultant shall be released from any further liability under
the Promissory Note in accordance with the schedule attached hereto as Schedule
8, which is incorporated by this reference and made a part hereof.
9. GENERAL PROVISIONS
9.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Consultant acknowledges that the injury that would be suffered by the
Company as a result of a breach of the provisions of any provision of Sections 6
and 7 of this Agreement would be irreparable and that an award of monetary
damages to the Company for such a breach would be an inadequate remedy.
Consequently the Company will have the right, in addition to any other rights it
may have, to obtain injunctive relief to restrain any breach or threatened
breach or otherwise to specifically enforce any provisions of Sections 6 and 7
of this Agreement, and the Company will not be obligated to post bond or other
security in seeking such relief.
9.2 WAIVER
The rights and remedies of the parties to this Agreement are cumulative and
not alternative. Neither the failure nor any delay by either party in exercising
any right, power, or privilege under this Agreement will operate as a waiver of
such right, power, or privilege, and no single or partial exercise of any such
right, power, or privilege will preclude any other or further exercise of such
right, power, or privilege or the exercise of any other right, power, or
privilege.
9.3 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand, (b) sent by facsimile (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received by the addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the appropriate addresses
and facsimile numbers set forth below (or to such other addresses and facsimile
numbers as a party may designate by notice to the other parties):
4
<PAGE>
If to the Company: netValue Holdings, Inc.
Two Penn Center, Suite 605
Philadelphia, PA 19102
Facsimile No.: (215) 564-3133
With a copy to: Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Attention: Michael C. Forman
Facsimile No.: (215) 568-6603
If to the Consultant: Darr Aley
615 Howard Avenue
Burlingame, CA 94010
Facsimile No.: 650-343-2225
9.4 ENTIRE AGREEMENT; AMENDMENTS
This Agreement and the documents reference herein, contain the entire
agreement between the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, between the
parties hereto with respect to the subject matter hereof. This Agreement may not
be amended orally, but only by an agreement in writing signed by the parties
hereto.
9.5 GOVERNING LAW
This Agreement will be governed by the laws of the State of Delaware
without regard to conflicts of laws principles.
9.6 JURISDICTION
Any action or proceeding seeking to enforce any provision of, or based on
any right arising out of, this Agreement may be brought against either of the
parties in the courts of the State of Delaware, or, if it has or can acquire
jurisdiction, in the United States District Court for the District of Delaware,
and each of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred to
in the preceding sentence may be served on either party anywhere in the world.
9.7 ASSIGNABILITY, BINDING NATURE
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors, heirs (in the case of the Consultant)
and assigns. No rights or obligations of
5
<PAGE>
the Consultant under this Agreement may be assigned or transferred by the
Consultant other than his rights to compensation and benefits, which may be
transferred only by will or operation of law.
9.8 SURVIVAL
The respective rights and obligations of the parties hereunder shall
survive any termination of the Consultant's employment to the extent necessary
to the intended preservation of such rights and obligations.
9.9 PRIOR AGREEMENTS
The Consultant represents and warrants to the Company that there are no
restrictions, agreements or understandings of any kind whatsoever to which the
Executive is a party, or by which he is bound, which would inhibit, prevent or
make unlawful his execution of this Agreement, and his execution and performance
of this Agreement shall not constitute a breach of any contract, agreement or
understanding, whether oral or written, to which he is a party or by which he is
bound.
9.10 ACKNOWLEDGMENT
The Consultant hereby acknowledges and certifies that he has read the terms
of this Agreement, that he has been informed by the Company that he should
discuss it with an attorney of his choice, and that he understands its terms and
effects. The Consultant further acknowledges that based on his training and
experience, he has the capacity to earn a livelihood by performing services as
an employee or otherwise in a business that does not violate the provisions of
Section 7.
9.11 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement unless otherwise specified. All words used in this Agreement will be
construed to be of such gender or number as the circumstances require. Unless
otherwise expressly provided, the word "including" does not limit the preceding
words or terms.
9.12 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
9.13 COUNTERPARTS
6
<PAGE>
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement. This
Agreement (and all other agreements, documents, instruments and certificates
executed and/or delivered in connection herewith) may be executed by facsimile
signatures, each of which shall be deemed an original copy of this Agreement (or
other such agreement, document, instrument and certificate).
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date above first written above.
NETVALUE HOLDINGS, INC.
/s/ Andrew P. Panzo
-------------------------------
By: Andrew P. Panzo
Its: President
/s/ Darr Alley
-------------------------------
Darr Aley, Individually
8
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SCHEDULE 7
CONSULTING AGREEMENT
None.
<PAGE>
SCHEDULE 8
CONSULTING AGREEMENT
The principal and interest due under the Promissory Note executed and
delivered by the Consultant shall be forgiven and the Consultant shall be
released from any further liability as follows:
1. One-third (33.3%) of the principal and interest due under the
Promissory Note will be forgiven on the first anniversary of the Effective Date;
2. One-third (33.3%) of the principal and interest due under the
Promissory Note will be forgiven on the second anniversary of the Effective
Date; and
3. One-third (33.3 %) of the principal and interest due under the
Promissory Note will be forgiven on the third anniversary of the Effective Date.
<PAGE>
EXHIBIT 10.6
CONSULTING AGREEMENT
This Consulting Agreement (this "Agreement") is made as of June 21, 1999 by
NET VALUE HOLDINGS, INC., a Delaware corporation (the "Company"), and STEPHEN
GEORGE, an individual resident of the State of California (the "Consultant").
RECITALS
Strategicus Partners, Inc. and the Company, expect to enter into a merger
transaction (the "Merger"), in which the Company will be the surviving
corporation. In connection with the Merger, the Company desires to retain the
Consultant, and the Consultant desires to provide services to the Company, upon
the terms and conditions set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"Agreement" means this Consulting Agreement, as amended from time to time.
"Board of Directors" means the board of directors of the Company.
"Effective Date" means the date of the closing of the Merger between the
Company and Strategicus Partners, Inc., in which the Company shall be the
surviving corporation.
2. ENGAGEMENT
The Consultant will have such duties as are assigned or delegated to the
Consultant by the Board of Directors, and will initially serve as a member of
the Board of Directors. The Consultant agrees to perform in good faith and to
the best of his ability all services which may be required of him hereunder and
will devote his best efforts and such business time, skill, attention and
energies as are reasonably necessary to perform his duties and responsibilities
under this Agreement and to promote the success of the Company's business.
3. RETAINER
The Consultant will be paid a monthly retainer of $500.00, which will be
payable on the last business day of each month during the term of this
Agreement.
4. EXPENSE REIMBURSEMENT
The Company will reimburse the Consultant for all reasonable expenses
incurred by the Consultant at the request of, or on behalf of, the Company in
the performance of the Consultant's
<PAGE>
duties pursuant to this Agreement, including without limitation reasonable
expenses incurred by the Consultant in attending conventions, seminars, other
business meetings and for promotional expenses, provided that any such
activities must be related to the Company's business and all individual expenses
(or those aggregated for a single convention, seminar or other business trip)
greater than $2,000 must be approved in advance by the Board of Directors or the
Chief Executive Officer. The Consultant must file expense reports with respect
to such expenses in accordance with the Company's policies.
5. TERMINATION
5.1 RIGHT TO TERMINATE
The Company and/or Andrew Panzo (in his sole discretion) may terminate
the Engagement and all of the Company's obligations under this Agreement at any
time and for any reason.
5.2 RIGHTS UPON TERMINATION
If the engagement is terminated, the Consultant shall have no further
rights against the Company hereunder, except for the right to receive (i) any
unpaid retainer with respect to the period prior to the effective date of
termination, (ii) reimbursement of expenses to which the Consultant is entitled,
and (iii) stock certificates for any shares of the Company's common stock owned
by the Consultant which vested prior to the effective date of termination.
6. NON-DISCLOSURE COVENANT
The Company and the Consultant acknowledge that the services to be
performed by the Consultant under this Agreement are unique and valuable and
that, as a result of the Consultant's engagement, the Consultant will be in a
relationship of confidence and trust with the Company and will come into
possession of "Confidential Information" (i) owned or controlled by the Company
and its subsidiaries and affiliates; (ii) in the possession of the Company and
its subsidiaries and affiliates and belonging to third parties; or (iii)
conceived, originated, discovered or developed, in whole or in part, by the
Consultant. As used herein "Confidential Information" means trade secrets and
other confidential or proprietary business, technical, personnel or financial
information of the Company, whether or not the Consultant's work product, in
written, graphic, oral or other tangible or intangible forms, including but not
limited to specifications, samples, records, data, computer programs, drawings,
diagrams, models, consumer names, ID's or e-mail addresses, business or
marketing plans, studies, analyses, projections and reports, communications by
or to attorneys (including attorney-client privileged communications), memos and
other materials prepared by attorneys or under their direction (including
attorney work product), and software systems and processes that are not readily
available to the public, even such items not specifically marked as a trade
secret or confidential, unless the Company advises the Consultant otherwise in
writing or unless the information has been shared by the Company with entities
not bound by non-disclosure
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agreements. In consideration of the fees to be paid or provided to the
Consultant by the Company under this Agreement, the Consultant agrees not to
directly or indirectly use or disclose to anyone, either during the term of this
Agreement or after the termination of this Agreement, except in the performance
of his duties as described in this Agreement or with the Company's prior written
consent, any Confidential Information of the Company. This non-disclosure
covenant does not apply to information (i) that is disclosed or becomes public
through another source; (ii) which the Consultant is required to disclose
pursuant to court order, subpoena or applicable law (provided that the
Consultant will use reasonable efforts to provide the Company with prompt notice
of any such requests or requirement so that the Company may seek an appropriate
protective order); or (iii) which is disclosed in any proceeding to enforce or
interpret this Agreement. The Consultant agrees that in the event of the
termination this Agreement for any reason, the Consultant will deliver to the
Company, upon request, all property belonging to the Company, including all
documents and materials of any nature pertaining to the Consultant's engagement
with the Company and will not take with him any documents or materials of any
description, or any reproduction thereof of any description, containing or
pertaining to any Confidential Information.
7. NON-COMPETITION
During the term of this Agreement and for a one-year period after
termination of this Agreement for any reason, the Consultant agrees that he
shall not (a) work for or be interested in any business which serves as a
holding company primarily for the purpose of acquiring entities whose products
and services are delivered to consumers over the Internet ("Internet Entities"),
(b) engage or be interested in or receive any compensation from any business in
which the services to be rendered by the Consultant to such business directly
relates to services or products which are directly competitive with "primary"
services or products offered by the Company or a subsidiary or affiliate of the
Company at the effective date of the termination of this Agreement or (c) induce
or attempt to induce any employee, agent or customer of the Company or any of
its subsidiaries or affiliates to terminate or reduce the scope of his, her or
its relationship with the Company. A product or service shall be deemed
"primary" only if such service or product constitutes a primary component of the
core business of the Company or its majority-owned subsidiaries and affiliates
on the effective date of termination of this Agreement. For the purposes of this
Agreement, the term "work for or be interested in" a business means that the
Consultant is a stockholder, director, officer, employee, partner, individual
proprietor, lender or consultant with that business, but not if (i) his interest
is limited solely to the passive ownership of five percent (5%) or less of any
class of the equity or debt securities of a corporation whose shares are listed
for trading on a national securities exchange or traded in the over-the-counter
market, or (ii) he is interested in a company listed on Schedule 7 hereto, or
after termination hereof, works for such company; provided however, that so long
as this non-competition agreement is in effect, the Consultant shall not work
for a company listed on Schedule 7 if such company serves as a holding company
primarily for the purpose of acquiring Internet Entities. In the event that any
part of this Section 7 is adjudged invalid or unenforceable by any court of
record, board of arbitration or judicial or quasi judicial entity having
jurisdiction thereof by reason of length of time, geographical coverage,
activities covered, or for any other reason, then the invalid or unenforceable
provisions of this covenant shall be deemed reformed and amended to
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the maximum extent permissible under applicable law and shall be enforced and
enforceable as so amended in accordance with the intention of the parties as
expressed herein.
8. GENERAL PROVISIONS
8.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Consultant acknowledges that the injury that would be suffered by
the Company as a result of a breach of the provisions of any provision of
Sections 6 and 7 of this Agreement would be irreparable and that an award of
monetary damages to the Company for such a breach would be an inadequate remedy.
Consequently the Company will have the right, in addition to any other rights it
may have, to obtain injunctive relief to restrain any breach or threatened
breach or otherwise to specifically enforce any provisions of Sections 6 and 7
of this Agreement, and the Company will not be obligated to post bond or other
security in seeking such relief.
8.2 WAIVER
The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by either
party in exercising any right, power, or privilege under this Agreement will
operate as a waiver of such right, power, or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude any other or
further exercise of such right, power, or privilege or the exercise of any other
right, power, or privilege.
8.3 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand, (b) sent by facsimile (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received by the addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the appropriate addresses
and facsimile numbers set forth below (or to such other addresses and facsimile
numbers as a party may designate by notice to the other parties):
If to the Company: Net Value Holdings, Inc.
Two Penn Center, Suite 605
Philadelphia, PA 19102
Facsimile No.: (215) 564-3133
With a copy to: Klehr, Harrison, Harvey, Branzburg & Ellers
260 South Broad Street
Philadelphia, PA 19102
Attention: Michael C. Forman
Facsimile No.: (215) 568-6603
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If to the Consultant: Stephen George
5 Morning Sun Avenue
Mill Valley, CA 94941
Facsimile No.: 415-934-1411
8.4 ENTIRE AGREEMENT; AMENDMENTS
This Agreement and the documents reference herein, contain the entire
agreement between the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, between the
parties hereto with respect to the subject matter hereof. This Agreement may not
be amended orally, but only by an agreement in writing signed by the parties
hereto.
8.5 GOVERNING LAW
This Agreement will be governed by the laws of the State of Delaware
without regard to conflicts of laws principles.
8.6 JURISDICTION
Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Agreement may be brought against either of the
parties in the courts of the State of Delaware, or, if it has or can acquire
jurisdiction, in the United States District Court for the District of Delaware,
and each of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred to
in the preceding sentence may be served on either party anywhere in the world.
8.7 ASSIGNABILITY, BINDING NATURE
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors, heirs (in the case of the Consultant)
and assigns. No rights or obligations of the Consultant under this Agreement may
be assigned or transferred by the Consultant other than his rights to
compensation and benefits, which may be transferred only by will or operation of
law.
8.8 SURVIVAL
The respective rights and obligations of the parties hereunder shall
survive any termination of the Consultant's employment to the extent necessary
to the intended preservation of such rights and obligations.
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8.9 PRIOR AGREEMENTS
The Consultant represents and warrants to the Company that there are
no restrictions, agreements or understandings of any kind whatsoever to which
the Consultant is a party, or by which he is bound, which would inhibit, prevent
or make unlawful his execution of this Agreement, and his execution and
performance of this Agreement shall not constitute a breach of any contract,
agreement or understanding, whether oral or written, to which he is a party or
by which he is bound.
8.10 ACKNOWLEDGMENT
The Consultant hereby acknowledges and certifies that he has read the
terms of this Agreement, that he has been informed by the Company that he should
discuss it with an attorney of his choice, and that he understands its terms and
effects. The Consultant further acknowledges that based on his training and
experience, he has the capacity to earn a livelihood by performing services as
an employee or otherwise in a business that does not violate the provisions of
Section 7.
8.11 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for
convenience only and will not affect its construction or interpretation. All
references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Agreement unless otherwise specified. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
8.12 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
8.13 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
This Agreement (and all other agreements, documents, instruments and
certificates executed and/or delivered in connection herewith) may be executed
by facsimile signatures, each of which shall be deemed an original copy of this
Agreement (or other such agreement, document, instrument and certificate).
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date above first written above.
NETVALUE HOLDINGS, INC.
/s/ Andrew P. Panzo
----------------------------------
By: Andrew P. Panzo
Its: President
/s/ Stephen George
----------------------------------
Stephen George, Individually
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SCHEDULE 7
CONSULTING AGREEMENT
None
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EXHIBIT 10.7
LOAN AGREEMENT
Dated as of: May 28, 1999
Parties: Strategicus Partners, Inc., an Oregon corporation ("Borrower")
And: netValue Holdings, Inc., a Delaware corporation ("Lender")
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"Borrower" means Strategicus Partners, Inc.
"Default" means any Event of Default or any event which with the giving of
notice or the passage of time, or both, would constitute an Event of Default.
"Loan Documents" means this Agreement, the Note, the Security Documents and
all other documents and instruments attached hereto, referred to herein or
heretofore, contemporaneously herewith or hereafter executed or delivered to
Lender by any Person in connection with any indebtedness of Borrower to Lender.
"Lender" means netValue Holdings, Inc.
"Maximum Revolving Loan Amount" means $2,000,000.00.
"Note" means the Revolving Note.
"Person" means an individual or entity, including without limitation a
corporation, general or limited partnership, limited liability company, trust,
unincorporated association, government or government agency.
"Security Documents" means each Security Agreement under which Borrower
grants and pledges to Lender a security interest, to secure repayment of the
Note, in stock, options, warrants, equity investments and other interests which
Borrower may acquire in Asia CD, Inc. and/or College411.com, Inc. with the
proceeds of the Revolving Loans; in the promissory notes executed by Douglas
Spink and Barry Uphoff in consideration of the loans made to them pursuant to
Section 2.2.2 hereof; in the Uphoff Collateral pledged by Barry Uphoff to secure
the loan made to him
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pursuant to Section 2.2.2; and in all of Borrower's now owned or hereafter
acquired assets, including without limitation all shares of preferred stock in
metacat.com, Inc. owned by Borrower.
ARTICLE II
REVOLVING LOANS
2.1 Maximum Amount. Subject to the terms and conditions of this Agreement,
Lender agrees to make loans to Borrower from time to time on a revolving credit
basis (each a "Revolving Advance", collectively, "Revolving Loans"), provided
that the aggregate principal amount of outstanding Revolving Loans shall at no
time exceed the Maximum Revolving Loan Amount. The availability of Revolving
Advances shall terminate forty-five days after the date of this Agreement.
2.2 Use of Proceeds. Borrower shall use the proceeds of the Revolving
Loans as follows:
2.2.1 The aggregate sum of $577,000 may be loaned by Borrower to
Douglas Spink ($310,000) and Barry Uphoff ($267,000); provided however, that
Borrower shall, as a condition to loaning a portion of the Revolving Loan to
Douglas Spink, grant a security interest in, pledge, endorse and deliver to
Lender the promissory note executed by Douglas Spink to evidence the loan
obligation, and Borrower shall, as a condition to loaning a portion of the
Revolving Loan to Barry Uphoff, grant a security interest in, pledge, endorse
and deliver to Lender the promissory note executed by Barry Uphoff and
collateral security for such loan including without limitation shares of common
stock of Diamond Technology Partners, Inc., or other stock approved in writing
by Lender, with a market value equal to the 150% of the principal balance of the
loan made to Barry Uphoff as of the date of the loan ("Uphoff Collateral").
2.2.2 The balance of the Revolving Loans may be used by Borrower to
make investments in Asia CD, Inc. and/or College411.com, Inc. on terms and
conditions acceptable to Borrower; provided however, that Borrower shall as a
condition to using the Revolving Loans for investments in Asia CD, Inc. and/or
College411.com, Inc., grant a security interest in and pledge to Lender all
assets, stock, warrants, notes, or other equity or debt instruments which
evidence Borrower's investment in Asia CD, Inc. and/or College411.com, Inc.
2.3 Revolving Note. The Revolving Loans shall be evidenced by the Note
executed by Borrower in the principal amount of up to $2,000,000.00
substantially in the form attached as Exhibit 2.3. The Revolving Loans shall be
subject to all terms and conditions of the Note and of this Agreement.
2.4 Interest. Interest on the unpaid principal balance of the Note shall
be due and payable at the times and at the rates set forth in the Note.
2.5 Payments. The principal balance of each Revolving Advance under the
Note shall be due and payable on or before the forty-fifth (45th) day after the
date of this Agreement.
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2.6 Requests for Revolving Advances. Whenever Borrower wishes to request a
Revolving Advance, Borrower shall give Lender not less than five business days'
advance written notice thereof in accordance with the provisions of the Note,
provided that Lender shall fund the Revolving Advances related to the loans to
Douglas Spink and Barry Uphoff within the later of one business day of the date
of this Agreement or within one business day after Borrower's written request
therefor.
2.7 Collateral. In addition to the other collateral granted to secure
repayment of the Revolving Note, Borrower shall also grant to Lender a first
priority security interest in all assets of Borrower, including without
limitation all of its shares of preferred stock in metacat.com, Inc. which
comprise 92.5% of all of the stock which metacat.com, Inc. has issued to its
shareholders or has committed to issue. All of the collateral described in this
Agreement which will be granted by Borrower to Lender to secure repayment of the
Revolving Note shall be referred to as the "Collateral."
ARTICLE III
CONDITIONS PRECEDENT
3.1 Initial Conditions Precedent. The effectiveness of this Agreement is
subject to satisfaction of each of the following conditions precedent
concurrently with or prior to execution of this Agreement:
3.1.1 Lender shall have received executed original copies of this
Agreement, the Note, and each other Loan Document required by Lender, including
without limitation, a Security Agreement executed by Borrower granting to Lender
a security interest in all of Borrower's assets.
3.1.2 Lender shall have received all documents and information Lender
may request relating to the authority for and validity of this Agreement and the
other Loan Documents, and to any other related matters, each in form and
substance satisfactory to Lender.
3.2 Conditions Precedent to Loan Advances. Lender's Agreement to make a
Revolving Advance is subject to satisfaction of the following conditions on the
date any Revolving Advance is made.
3.2.1 No Default shall have occurred or will occur as a result of the
Revolving Advance.
3.2.2 The representations and warranties in this Agreement shall be
true and correct as of such date.
3.2.3 With regard to Revolving Advances for an investment by Borrower
in Asia CD, Inc. and/or College 411.com, Inc., Borrower shall execute and/or
deliver (or cause to be
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executed and/or delivered) to Lender the following (all documents to be in form
and substance satisfactory to Lender):
(a) a Pledge and Assignment Agreement duly executed by
Borrower, pursuant to which Borrower pledges to Lender all of the Borrower's
interest in the capital stock (or other interest acquired by Borrower) of Asia
CD, Inc. or College 411.com, Inc. (as the case may be), together with blank
stock and bond powers and certificates representing such capital stock or
interest;
(b) a fully-executed copy of the acquisition agreement (the
"Purchase Agreement") pursuant to which Borrower acquires the capital stock or
other interest in Asia CD, Inc. or College 411.com, Inc., the terms and
conditions of which shall be satisfactory to Lender in its sole discretion;
(c) in the event that Borrower acquires a controlling interest
in Asia CD, Inc. or College 411.com, Inc., a joinder agreement pursuant to which
Asia CD, Inc. or College 411.com, Inc. (as the case may be) joins in this
Agreement and the related instruments, documents, and agreements to be executed
by Borrower including, without limitation, the Security Documents;
(d) certified copies of the resolutions (dated the date of the
funding of such Revolving Advance) of the board of directors of Asia CD, Inc. or
College 411.com, Inc. (as the case may be) authorizing the execution, delivery
and performance of the joinder agreement (if required), the Purchase Agreement
and each other document to be executed and/or delivered by such entity pursuant
hereto;
(e) certified copies of the articles or certificate of
incorporation and by-laws of Asia CD, Inc. or College 411.com, Inc. (as the case
may be), in each case with all amendments thereto;
(f) certificates (dated as of the date of funding such
Revolving Advance) of the corporate secretary of Asia CD, Inc. or College
411.com, Inc. (as the case may be) as to the incumbency and specimen signatures
of the officers of such entity executing the joinder agreement and each other
document to be executed and/or delivered by such entity pursuant hereto;
(g) certificates, as of the most recent dates practicable, of
the Secretary of State of the state of incorporation and of each other state or
jurisdiction in which Asia CD, Inc. or College 411.com, Inc. (as the case may
be) is qualified as a foreign entity as to the subsistence and/or good standing
of such entity, as applicable;
(h) upon funding of such Revolving Advance, all transactions
contemplated in the Purchase Agreement shall be fully consummated;
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(i) no event shall have occurred since the date hereof
which has a material adverse effect on the business, properties, prospects, or
financial condition of Borrower or Asia CD, Inc. or College 411.com, Inc. (as
the case may be);
(j) satisfactory review by Lender of the most recently
available accountant reviewed or audited financial statements of Asia CD, Inc.
or College 411.com, Inc. (as the case may be); and
(k) all other information and documents that Lender may
reasonably request.
3.2.4 With regard to Revolving Advances for loans to Douglas Spink,
Borrower shall execute and deliver (or cause to be executed and delivered) to
Lender the promissory note executed by Douglas Spink to evidence the loan made
by Borrower to Douglas Spink, conditionally endorsed by Borrower and made
payable to the order of Lender, which promissory note shall be in form and
substance reasonably satisfactory to Lender.
3.2.5 With regard to Revolving Advances for loans to Barry Uphoff,
Borrower shall execute and deliver (or cause to be executed and delivered) to
Lender each of the documents required in connection with a loan to Douglas
Spink, together with a Pledge and Assignment Agreement duly executed by Barry
Uphoff (in form and substance reasonably satisfactory to Lender), pursuant to
which Barry Uphoff pledges to Lender a security interest in and to the Uphoff
Collateral, together with stock certificates evidencing Barry Uphoff's interest
in the Uphoff Collateral and blank stock powers providing for the transfer of
the Uphoff Collateral duly executed by Barry Uphoff; and
3.2.6 All other Revolving Advances shall be at Lender's sole
discretion.
3.2.7 With regard to Revolving Advances for an investment in Asia CD,
Inc. and/or College411.com, Inc., Borrower shall execute and deliver a Security
Agreement, in form and substance reasonably satisfactory to Lender, granting to
Lender a first priority security interest and pledge of stock, options,
warrants, equity investments and other interests which Borrower acquires in Asia
CD, Inc. and/or College411.com, Inc.. with the Revolving Loan proceeds. In
addition, any request for a Revolving Advance for an investment in Asia CD, Inc.
and/or College411.com, Inc. is subject to Lender's prior written approval.
3.2.8 With regard to Revolving Advances for loans to Douglas Spink or
Barry Uphoff, Borrower shall execute and deliver a Security Agreement, in form
and substance reasonably satisfactory to Lender, granting to Lender a first
priority security interest in and pledge to Lender the promissory note executed
by Douglas Spink to evidence the loan obligation, the promissory note executed
by Barry Uphoff to evidence the loan obligation and the Uphoff Collateral.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants:
4.1 Existence and Power. Borrower is a duly organized and validly existing
corporation, is duly qualified and in good standing in each jurisdiction where
the conduct of its business or the ownership of its properties requires such
qualification, and has full power, authority and legal right to carry on its
business as presently conducted, to own and operate its properties and assets,
and to execute, deliver and perform the Loan Documents and all other documents
to be executed and delivered by it.
4.2 Authorization. Borrower's execution, delivery and performance of the
Loan Documents and all documents to be executed, delivered or performed by it
and any borrowing in connection therewith have been duly authorized by all
necessary corporate action, do not contravene any law, regulation, rule or order
binding on it or its articles of incorporation or bylaws, and do not contravene
the provisions of or constitute a default under any agreement or instrument to
which it is a party or by which it may be bound or affected.
4.3 Litigation. There are no material actions, proceedings,
investigations, or claims pending against Borrower, or to its knowledge,
threatened against or affecting it, before any court or arbitrator or any
governmental body or agency which would be likely to result in a judgment or
order against it (in excess of insurance coverage) for more than $50,000.00
individually or in the aggregate.
4.4 Taxes. Borrower has filed all tax returns and reports required of it,
and has paid all taxes payable by it which have become due pursuant to such tax
returns and all other taxes and assessments payable by it.
4.5 Other Agreements. Borrower is not in breach of or in default under any
agreement to which it is a party or which is binding on it or any of its assets,
which such breach or default would have a material adverse effect on its
financial condition or operations. As of the date of this Agreement, Borrower is
not a party to any material agreements.
4.6 Compliance with Laws. Borrower is in material compliance with all
applicable federal, state, regional and local laws, regulations and ordinances.
4.7 No Material Misstatements. No report, financial statement,
representation or other information furnished by Borrower to Lender contains any
material misstatement of fact or omits to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
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4.8 Enforceability. This Agreement constitutes, and each other Loan
Document to which Borrower is a party when executed and delivered to Lender will
constitute, a legal, valid and binding obligation of Borrower, enforceable in
accordance with its terms.
4.9 Good Title and Validity. Borrower is the true and lawful owner of and
has good title to all Collateral which it now owns and it will have good title
to all such Collateral acquired hereafter, free of any security interests, liens
or encumbrances, except in favor of Lender.
4.10 First Priority Security Interest. The liens created or to be created
in favor of Lender under the Security Agreements do and will at all times on and
after the effective date of this Agreement, constitute first priority security
interests in the Collateral as security for the obligations of Borrower under
the Loan Documents.
ARTICLE V
NEGATIVE COVENANTS
Until payment and performance in full of all obligations of Borrower under
the Loan Documents, Borrower agrees, that except with the written consent of
Lender, which shall not be unreasonably withheld:
5.1 Liquidation, Merger. Borrower shall not liquidate, dissolve or enter
into any merger, consolidation or other combination, except for the proposed
merger or combination with Lender.
5.2 Subsidiaries. Borrower shall not create, acquire or permit to exist
any subsidiaries (defined as an entity in which Borrower holds a controlling
interest); provided, however, Borrower may create, acquire or permit to exist
one or more subsidiaries if each such entity executes and delivers to Lender a
joinder agreement in form and substance reasonably satisfactory to Lender,
pursuant to which such subsidiary becomes an obligor under the Loan Documents
and grants a security interest to Lender in and to all of such subsidiary's
assets as collateral security for Borrower's obligations hereunder.
5.3 Sale of Assets. Borrower shall not sell, lease or dispose of any
material portion of its business or assets except for sales of inventory in the
ordinary course of business.
5.4 Loans and Investments. Borrower shall not make or contract to make
any loan to any company or purchase or otherwise acquire the capital stock, or
any interest in, any company, except for the investments and/or loans in Asia
CD, Inc. and/or College411.com, Inc., or loans to Spink and Uphoff.
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ARTICLE VI
DEFAULT
6.1 Events of Default. The occurrence of any of the following shall
constitute an Event of Default under this Agreement and each of the Loan
Documents:
6.1.1 Any default in the payment of any portion of any principal,
interest, fees or any other amount when due under this Agreement, the Note or
any other Loan Document.
6.1.2 Any other default in the performance of or compliance with any
term of this Agreement, the Note, any other Loan Document, or any other
agreement between Lender and Borrower, which default is not cured within ten
(10) days after written notice to Borrower.
6.1.3 Any default under any security instrument securing any
indebtedness or obligation of Borrower to Lender or if any security interest or
lien created or purported to be created by any Security Document shall cease to
be a valid, first priority security interest or lien.
6.1.4 The commencement of any proceeding under any bankruptcy or
insolvency laws by or against, appointment of a receiver for any part of the
property of, insolvency or business failure of, or any attachment, seizure or
levy on any property of Borrower.
6.1.5 One or more judgments for the payment of money shall have been
entered against Borrower, which judgment or judgments exceed $10,000.
6.2 Consequences of Default; Lender's Rights and Remedies. Time is of the
essence of this Agreement.
6.2.1 Upon the occurrence of any Event of Default and at any time
thereafter Lender may, at its sole option and subject to the provisions of
Section 6.2.2 hereof, do any one or more of the following:
(a) Declare the entire outstanding balance of principal and
interest on the Note and other Loan Documents immediately due and payable; and
(b) Exercise any and all other rights and remedies provided in
the Loan Documents and in any related agreements and documents, and as otherwise
provided by law.
6.2.2 Notwithstanding anything to the contrary contained in this
Agreement or the other Loan Documents and so long as there is no fraud or
intentional misrepresentations or omission by Borrower, its officers, Spink or
Uphoff which materially and adversely affect the value of the Borrower's
investments in either Asia CD, Inc. or College411.com, Inc., in the event
Borrower invests in Asia CD, Inc. and College 411.com, Inc. and grants a
security interest to Lender or pledges to Lender the stock, options, warrants,
equity investments and other interests which Borrower may
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acquire in Asia CD, Inc. and College411.com, Inc. with the proceeds of the
Revolving Loans, then Lender's sole recourse in the event of a default under the
Agreement or the other Loan Documents, shall be to exercise its rights as a
secured creditor against such collateral, and neither Borrower or any other
guarantor, officer, shareholder or agent shall have any personal liability for
the Revolving Loans, including principal, interest other amounts due under this
Agreement or the other Loan Documents and Lender shall release its security
interest in and pledge of the promissory notes executed by Douglas Spink and
Barry Uphoff individually and the pledge of the Uphoff Collateral by Barry
Uphoff. In the event Borrower invests in either Asia CD, Inc. or College411.com,
Inc. and grants a security interest to Lender or pledges to Lender the stock,
options, warrants, equity investments and other interests which Borrower may
acquire in Asia CD, Inc. or College411.com, Inc., as applicable, with the
proceeds of the Revolving Loans, then Lender's sole recourse for recovery of the
Revolving Advance used to make such investment in the event of a default under
the Agreement or the other Loan Documents shall be to exercise its rights as a
secured creditor against such collateral, and neither Borrower or any other
guarantor, officer, shareholder or agent shall have any personal liability for
such Revolving Advance, including principal, interest other amounts due under
this Agreement or the other Loan Documents related to such Revolving Advance. In
the event Borrower does not invest in either Asia CD, Inc. or College411.com,
Inc., then Lender may exercise its rights and remedies for collection of all
amounts due under the Revolving Note, including exercising its rights and
remedies as to any Collateral granted to Lender.
ARTICLE VII
MISCELLANEOUS
7.1 No Waiver by Lender. No failure or delay of Lender in exercising any
right, power or remedy under this Agreement or any Loan Document shall operate
as a waiver of such right, power or remedy of Lender or of any other right. A
waiver of any provision of any Loan Document shall not constitute a waiver of or
prejudice Lender's right otherwise to demand strict compliance with that
provision or any other provision. Any waiver, permit, consent or approval of any
kind or character on the part of Lender must be in writing and shall be
effective only to the extent specifically set forth in such writing.
7.2 Notices. Except as otherwise specifically set forth in any Loan
Document, all notices, requests and demands hereunder shall be in writing, and
shall be deemed to have been given when hand-delivered, three business days
after being deposited in the mail as first class, registered or certified mail,
postage prepaid, or when sent by telecopier, addressed as set forth below. Any
party may at any time change its address for notices by giving notice of such
change to the other parties.
7.3 Collection Costs and Attorney Fees. If litigation or arbitration is
commenced to enforce or construe any term of any of the Loan Documents, the
prevailing party shall be entitled to recover from the other party all costs
thereof, including but not limited to such sums as the court or arbitrator(s)
may adjudge reasonable as attorney fees at trial, in any appellate proceeding,
proceeding under the bankruptcy code or receivership and post-judgment attorney
fees incurred in enforcing any judgment.
9
<PAGE>
7.4 Integration; Conflicting Terms. This Agreement together with the
other Loan Documents comprises the entire agreement of the parties on the
subject matter hereof and supersedes and replaces all prior agreements, oral and
written, on such subject matter. If any term of any of the other Loan Documents
expressly conflicts with the provisions of this Agreement, the provisions of
this Agreement shall control.
7.5 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware without regard to
conflicts of law principles.
7.6 Jurisdiction. In any dispute arising out of this Agreement, the Note
or the Loan Documents, Borrower hereby consents to the personal jurisdiction of
the state and/or federal courts located in the State of Delaware.
7.7 Additional Acts. Upon request by Lender, Borrower will from time to
time provide such information, execute such documents and do such acts as may
reasonably be required by Lender in connection with any indebtedness or
obligations of any of them to Lender.
7.8 Exhibits. All Exhibits referred to herein are attached hereto and
hereby incorporated by reference as if fully set forth herein.
7.9 Computations. All interest rates and fees referred to herein shall be
computed on the basis of a 360-day year and applied to the actual number of days
elapsed.
7.10 Counterparts. This Agreement may be executed in any number of
counterparts. Each signed counterpart shall be deemed an original, and all of
said counterparts taken together shall be deemed to constitute but one and the
same instrument.
7.11 Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define the
provisions of this Agreement.
7.12 Severability. If an arbitrator or a court of competent jurisdiction
finds any provision of this Agreement or the Loan Documents to be invalid or
unenforceable as to any person or circumstance, such finding shall not render
that provision invalid or unenforceable as to any other persons or
circumstances. If feasible, any such offending provision shall be deemed
modified to be within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all other
provisions of this Agreement and the Loan Documents in all other respects shall
remain valid and enforceable.
7.13 Further Assurances. Each of the parties hereto shall execute and
deliver any and all additional agreements, documents and other assurances, and
shall do any and all acts and things reasonably necessary in connection with the
performance of their obligations hereunder and pursuant to any of the Loan
Documents and to carry out the intent of the parties hereto.
10
<PAGE>
BORROWER: LENDER:
STRATEGICUS PARTNERS, INC. NETVALUE HOLDINGS, INC.
15455 NW Greenbrier Parkway, #210 Two Penn Center Plaza, Suite 605
Beaverton, OR 97006 Philadelphia, PA 19102
Fax No.: (800) 893-8895 Fax No.: (215) 564-3133
By:/s/ Douglas Spink By:/s/ Andrew Panzo
------------------------------ --------------------------------
Title: Douglas Spink, President Title: Andrew Panzo, President
--------------------------- ------------------------------
11
<PAGE>
EXHIBIT 10.8
AMENDMENT TO LOAN AGREEMENT
THIS AMENDMENT TO LOAN AGREEMENT (the "Amendment) is entered into as
of June 15, 1999, by and among STRATEGICUS PARTNERS, INC., an Oregon
corporation ("Borrower"), and NETVALUE HOLDINGS, INC., a Delaware corporation
("Lender") .
On May 28, 1999, the parties executed and delivered a Loan Agreement
(the "Agreement"). This Amendment modifies certain of the terms and conditions
contained in the Agreement.
NOW THEREFORE, the parties agree as follows:
1. Defined Terms. Unless given a different meaning herein, all capitalized
-------------
terms used in this Amendment shall have the meanings ascribed to them in the
Agreement.
2. Continuing Effectiveness. Except as expressly modified herein, all of the
------------------------
terms, conditions, covenants and exhibits set forth in the Agreement remain in
full force and effect among the parties.
3. Guaranty. In lieu of Barry Uphoff granting a security interest in the
--------
Uphoff Collateral, Borrower and Lender agree that Barry Uphoff may instead
provide a Guaranty of Lida Uphoff in form and substance acceptable to Lender.
The execution and delivery of the Guaranty of Lida Uphoff shall be a condition
precedent to disbursement of the loan in the sum of $267,000 to Barry Uphoff.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
BORROWER: LENDER:
STRATEGICUS PARTNERS, INC. NETVALUE HOLDINGS, INC.
15455 NW Greenbrier Parkway, #210 Two Penn Center Plaza, Suite 605
Beaverton, OR 97006 Philadelphia, PA 19102
Fax No.: (800) 893-8895 Fax No.: (215) 564-3133
By:______________________________ By:_____________________________
Title: Douglas Spink, President Title: Andrew Panzo, President
--------------------------- --------------------------
<PAGE>
EXHIBIT 10.9
SECOND AMENDMENT TO LOAN AGREEMENT AND PROMISSORY NOTE
THIS SECOND AMENDMENT TO LOAN AGREEMENT AND PROMISSORY NOTE (the
"Second Amendment) is entered into as of July 8, 1999, by and among STRATEGICUS
PARTNERS, INC., an Oregon corporation ("Borrower"), and NETVALUE HOLDINGS, INC.,
a Delaware corporation ("Lender").
RECITALS
A. On May 28, 1999, the parties executed and delivered a Loan
Agreement (the "Agreement") and Promissory Note (the "Note"). The term
"Agreement" also includes the Amendment to Loan Agreement dated as of June 15,
1999. This Second Amendment modifies certain of the terms and conditions
contained in the Agreement and Note.
B. On or about June 21, 1999, the parties executed and delivered a
Merger Agreement and Plan of Reorganization (the "Merger Agreement") for the
merger of Strategicus Partners, Inc. with netValue Holdings, Inc. The parties
thereto have agreed to consummate the merger (the "Effective Time," as defined
in the Merger Agreement) within 45 days after the signing of the Merger
Agreement and desire to extend the repayment terms under the Agreement and Note
to allow the parties to consummate the merger.
NOW THEREFORE, the parties agree as follows:
1. Defined Terms. Unless given a different meaning herein, all capitalized
-------------
terms used in this Second Amendment shall have the meanings ascribed to them in
the Agreement and Note.
2. Continuing Effectiveness. Except as expressly modified herein, all of the
------------------------
terms, conditions, covenants and exhibits set forth in the Agreement and Note
remain in full force and effect among the parties.
3. Modification of Payment Terms. Repayment of the entire outstanding balance
-----------------------------
of the Note and the Agreement is due on or before July 2, 1999. So long as the
Merger Agreement has not been terminated in accordance with its terms and
through the Effective Time, Lender agrees that it shall take no action to demand
or collect the amounts due under the Note and Agreement nor shall it exercise
any of its rights and remedies under the Security Agreement executed by and
between the parties. In the event the Merger Agreement is terminated, the
amounts due under the Agreement and Note shall be due on the effective date of
such termination.
4. Counterparts. This Second Amendment may be executed by the parties in
------------
separate counterparts, each of which when executed and delivered shall be an
original, but all of which together shall constitute one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Second Amendment as
of the date first written above.
BORROWER: LENDER:
STRATEGICUS PARTNERS, INC. NETVALUE HOLDINGS, INC.
15455 NW Greenbrier Parkway, #210 Two Penn Center Plaza, Suite 605
Beaverton, OR 97006 Philadelphia, PA 19102
Fax No.: (800) 893-8895 Fax No.: (215) 564-3133
By:/s/ Douglas Spink By: /s/ Andrew Panzo
------------------------------ -------------------------------
Title: Douglas Spink, President Title: Andrew Panzo, President
-------------------------- ----------------------------
2
<PAGE>
EXHIBIT 10.10
PROMISSORY NOTE
Borrower: Douglas B. Spink Lender: Strategicus Partners, Inc.
15455 W Greenbrier Parkway, an Oregon corporation
#210 15455 NW Greenbrier Parkway
Beaverton, OR 97006 #210
Beaverton, OR 97006
Principal Amount: $310,000 Rate: 9% Date of Note: May 28, 1999
PROMISE TO PAY. Douglas B. Spink (referred to herein as "Borrower") promises to
pay to Strategicus Partners, Inc., ("Lender"), or order, in lawful money of the
United States of America, the principal amount of $310,000, together with
interest on the unpaid principal balance from the date of disbursement until
paid in full.
PAYMENT. Borrower will pay this loan in accordance with the following payment
schedule:
Borrower will pay the entire outstanding balance of principal and accrued
interest on or before the forty-fifth (45th) day after the date of the Loan
Agreement and other loan documents executed by and between Strategicus Partners,
Inc. and netValue Holdings, Inc. Interest shall accrue on the entire outstanding
principal balance at the rate of nine percent (9%) per annum. Interest on this
Note is computed on the basis of a 360 day year; that is, by applying the ratio
of the annual interest rate multiplied by the outstanding principal balance over
360 days, multiplied by the actual number of days the principal balance is
outstanding. Borrower will pay Lender at Lender's address shown above or at such
other place as Lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to accrued interest,
then to any unpaid collection costs and any remaining amount to principal.
PREPAYMENT. This Note may be prepaid at any time without penalty during the
term of the Note.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment within ten (10) days after the payment is
due. (b) Borrower fails to comply with or perform when due any other term,
obligation, covenant or condition contained in this Note or any agreement
related to this Note, or in any other agreement or loan Borrower has with
Lender. (c) Any representation or statement made or furnished to Lender by
Borrower or on Borrower's behalf is false or misleading in any material respect.
(d) Borrower dissolves or becomes insolvent; a receiver is appointed for any
part of Borrower's property; Borrower makes an assignment for the benefit of
creditors; or any proceeding is commenced either by Borrower or against Borrower
under any bankruptcy or insolvency laws; provided, however, that Borrower shall
have thirty (30) days in which to obtain a dismissal of any such insolvency
proceedings. (e) Any creditor tries to take any of Borrower's property on or in
which Lender has a lien or security interest. This includes a garnishment of any
of Borrower's accounts with Lender.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon the occurrence of a
default, Lender may exercise any other rights or remedies available under
applicable law, and Lender may, at its option, increase the rate of interest
under this Note to 12% per annum. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender any
amount related to such collection services. This includes, subject to any limits
under
<PAGE>
applicable law, Lender's attorney fees and legal expenses whether or not there
is a lawsuit, including attorney fees and legal expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF OREGON, WITHOUT GIVING EFFECT TO ITS CONFLICT OF LAW PRINCIPLES.
GENERAL PROVISIONS. Time is of the essence with respect to this Note. Lender may
delay or forgo enforcing any of its rights or remedies under this Note without
losing them. Borrower and any other person who signs, guarantees or endorses
this Note, to the extent allowed by law, hereby waive presentment, demand for
payment, protest and notice of dishonor or default. Upon any change in the terms
of this Note, and unless otherwise expressly stated in writing, no party who
signs this Note, whether as maker, guarantor, accommodation maker or endorser,
shall be released from liability. All such parties agree that Lender may renew,
or extend (repeatedly and for any length of time) this loan, or release any
party or guarantor or collateral; fail to realize upon or perfect Lender's
security interest in the collateral; or take any other action deemed necessary
by Lender without the consent of or notice to anyone. If Borrower consists of
more than one person or entity, all obligations of Borrower herein shall be
joint and several, and all references to Borrower shall mean each and every
Borrower. It is not necessary for Lender to inquire into the powers of any of
the parties hereto or of the officers, directors, partners, managers, members or
agents acting or purporting to act on their behalf.
Prior to signing this Note, Borrower read and understood all of the provisions
of this Note. Borrower agrees to the terms of the Note and acknowledges receipt
of a complete copy of the Note.
BORROWER:
/s/ Douglas B. Spink
- -------------------------
Douglas B. Spink
2
<PAGE>
EXHIBIT 10.11
PROMISSORY NOTE
- --------------------------------------------------------------------------------
Borrower: Darr Aley Lender: netValue Holdings, Inc.,
1675 N Shoreline Blvd a Delaware corporation
Mountain View, CA 94043 Two Penn Center, Suite 605
Philadelphia, PA 19102
- --------------------------------------------------------------------------------
Principal Amount: $267,000 Rate: 9 % Date of Note: June 16, 1999
PROMISE TO PAY. Darr Aley (referred to herein as "Borrower") promises to pay to
netValue Holdings, Inc., ("Lender"), or order, in lawful money of the United
States of America, the principal amount of $267,000, together with interest on
the unpaid principal balance from the date of disbursement until paid in full.
PAYMENT. Borrower will pay this loan in accordance with the following payment
schedule:
Borrower will pay the entire outstanding balance of principal and accrued
interest on or before the forty-fifth (45th) day after the date of the Loan
Agreement and other loan documents executed by and between Strategicus Partners,
Inc. and netValue Holdings, Inc. Interest shall accrue on the entire outstanding
principal balance at the rate of nine percent (9%) per annum. Interest on this
Note is computed on the basis of a 360 day year; that is, by applying the ratio
of the annual interest rate multiplied by the outstanding principal balance over
360 days, multiplied by the actual number of days the principal balance is
outstanding. Borrower will pay Lender at Lender's address shown above or at such
other place as Lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to accrued interest,
then to any unpaid collection costs and any remaining amount to principal.
PREPAYMENT. This Note may be prepaid at any time without penalty during the term
of the Note.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment within ten (10) days after the payment is
due. (b) Borrower fails to comply with or perform when due any other term,
obligation, covenant or condition contained in this Note or any agreement
related to this Note, or in any other agreement or loan Borrower has with
Lender. (c) Any representation or statement made or furnished to Lender by
Borrower or on Borrower's behalf is false or misleading in any material respect.
(d) Borrower dissolves or becomes insolvent; a receiver is appointed for any
part of Borrower's property; Borrower makes an assignment for the benefit of
creditors; or any proceeding is commenced either by Borrower or against Borrower
under any bankruptcy or insolvency laws; provided, however, that Borrower shall
have thirty (30) days in which to obtain a dismissal of any such insolvency
proceedings. (e) Any creditor tries to take any of Borrower's property on or in
which Lender has a lien or security interest. This includes a garnishment of any
of Borrower's accounts with Lender.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon the occurrence of a
default, Lender may exercise any other rights or remedies available under
applicable law, and Lender may, at its option, increase the rate of interest
under this Note to 12% per annum. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender any
amount related to such collection services. This includes, subject to any limits
under applicable law, Lender's attorney fees and legal expenses whether or not
there is a lawsuit, including attorney fees and legal expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
THIS NOTE SHALL BE
<PAGE>
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OREGON,
WITHOUT GIVING EFFECT TO ITS CONFLICT OF LAW PRINCIPLES.
GENERAL PROVISIONS. Time is of the essence with respect to this Note. Lender may
delay or forgo enforcing any of its rights or remedies under this Note without
losing them. Borrower and any other person who signs, guarantees or endorses
this Note, to the extent allowed by law, hereby waive presentment, demand for
payment, protest and notice of dishonor or default. Upon any change in the terms
of this Note, and unless otherwise expressly stated in writing, no party who
signs this Note, whether as maker, guarantor, accommodation maker or endorser,
shall be released from liability. All such parties agree that Lender may renew,
or extend (repeatedly and for any length of time) this loan, or release any
party or guarantor or collateral; fail to realize upon or perfect Lender's
security interest in the collateral; or take any other action deemed necessary
by Lender without the consent of or notice to anyone. If Borrower consists of
more than one person or entity, all obligations of Borrower herein shall be
joint and several, and all references to Borrower shall mean each and every
Borrower. It is not necessary for Lender to inquire into the powers of any of
the parties hereto or of the officers, directors, partners, managers, members or
agents acting or purporting to act on their behalf.
Prior to signing this Note, Borrower read and understood all of the provisions
of this Note. Borrower agrees to the terms of the Note and acknowledges receipt
of a complete copy of the Note.
BORROWER:
/s/ Darr Aley
- -------------
Darr Aley
2
<PAGE>
EXHIBIT 10.12
THIS NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION,
ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY. THIS NOTE IS
BEING OFFERED PURSUANT TO EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
FEDERAL AND STATE SECURITIES LAW AND CANNOT BE RESOLD UNLESS IT IS SUBSEQUENTLY
REGISTERED UNDER SUCH LAWS OR UNLESS EXEMPTIONS FROM REGISTRATION ARE AVAILABLE.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER GOVERNMENTAL AGENCY
HAS PASSED ON, RECOMMENDED, OR ENDORSED THE MERITS OF THIS NOTE. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
PROMISSORY NOTE
---------------
$1,440,000.00 October 1, 1998
FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND HEREBY, netValue, inc., a
Delaware corporation having its principal executive office at 1960 Bronson Road,
Building Two, Fairfield Connecticut, 06430 (hereinafter referred to, and
obligated as, "Borrower"), promises to pay to the order of SUNCL, Inc., a
Delaware corporation, having an address at 7695 S.W. 104th Street, Suite 210,
Miami, Florida 33156 ("Lender"), the principal sum of One Million Four Hundred
Forty Thousand Dollars ($1,440,000.00), together with all additional principal
which Lender hereafter advances to Borrower and interest as set forth below,
until the date on which the principal amount is paid in full, payable in lawful
money of the United States of America in accordance with the terms of this
Promissory Note (the "Note").
1. Maturity Date. The Note shall have a Maturity Date which is thirty
-------------
(30) days after the date on which Lender delivers written notice to
Borrower demanding payment of all principal and accrued interest due under
the Note.
2. Interest.
--------
(a) During the period beginning on the date hereof and ending on the
Maturity Date, interest shall accrue daily on the outstanding principal amount
hereunder at a simple rate of ten percent (10%) per annum.
(b) Interest shall be calculated hereunder for the actual number of
days that the principal is outstanding, based on a three hundred sixty (360) day
year. Interest shall continue to accrue on the principal balance hereof at the
then-applicable simple rate of interest specified in this Note, notwithstanding
any demand for payment, acceleration and/or the entry of any judgment against
Borrower, until all principal owing hereunder is paid in full.
3. Payment. No principal or accrued interest payments shall be due on the
-------
Note until the Maturity Date. All payments of principal and interest shall
be made by cash or check to Lender at the address designated in writing by
Lender.
<PAGE>
4. Ranking.
-------
(a) The Note will be subordinated to (i) the assignments and security
interests granted by that certain Security Agreement and that certain Collateral
Assignment of Patents and Trademarks, each dated as of March 11, 1998 between
Borrower and IQ Value, LLC; (ii) the assignments and security interests granted
by that certain Loan and Security Agreement and that certain Collateral
Assignment of Patents and Trademarks, each dated as of June 17, 1997 between
Borrower and Golden Eagle Partners; and (iii) all future indebtedness of the
Borrower ranking by its terms senior to the Note; and
(b) The Note will rank pari passu with the promissory notes issued in 1997
pursuant to the Private Placement Memoranda dated August 28, 1997 and November
7, 1997, respectively, and all amendments thereto.
5. Lender's Rights Upon Default.
----------------------------
Each of the following events shall constitute an "Event of Default" and, upon
the occurrence thereof, Lender shall have the option, without the necessity of
giving any prior written notice to Borrower, (1) to accelerate the maturity of
this Note and all amounts payable hereunder and demand immediate payment thereof
and (2) to exercise all of Lender's rights and remedies under this Note or
otherwise available at law or in equity:
(a) Borrower shall fail to pay the principal amount of the Note on the
Maturity Date;
(b) Borrower shall fail to pay accrued interest on the Maturity Date;
(c) Borrower shall admit an inability to pay its debts as they mature, or
shall make a general assignment for the benefit of any of its or their
creditors;
(d) Proceedings in bankruptcy, or for reorganization of Borrower for the
readjustment of any of its or their debts, under the United States Bankruptcy
Code, as amended, or any part thereof, or under any other laws, whether state or
federal, for the relief of debtors, now or hereafter existing, shall be
commenced by Borrower or shall be commenced against Borrower and shall not be
dismissed within sixty (60) days of their commencement;
(e) A receiver or trustee shall be appointed for Borrower or for any
substantial part of its assets, or any proceedings shall be instituted for the
dissolution or the full or partial liquidation of Borrower, and if such
appointment or proceedings are involuntary, such receiver or trustee shall not
be discharged within sixty (60) days of appointment, or such proceedings shall
not be discharged within sixty (60) days of their commencement, or Borrower
shall discontinue its business(es) or materially change the nature of its
business(es);
(f) Borrower shall suffer any final judgment for the payment of money in
excess of Five Hundred Thousand Dollars ($500,000) and the same shall not be
discharged or stayed within a period of thirty (30) days from the date of entry
thereof.
2
<PAGE>
6. Application of Funds. All sums realized by Lender on account of this
--------------------
Note, from whatever source received, shall be applied first to any fees,
costs and expenses (including attorney's fees) incurred by Lender, second
to accrued and unpaid interest, and then to principal.
7. Attorney's Fees and Costs. In the event that Lender engages an
-------------------------
attorney to represent it in connection with (a) any default by Borrower
under this Note, (b) any bankruptcy or other insolvency proceedings
commenced by or against Borrower and/or (c) any actual litigation arising
out of or related to any of the foregoing, then Borrower shall be liable
to and shall reimburse Lender on demand for all reasonable attorneys'
fees, costs and expenses incurred by Lender in connection with any of the
foregoing.
8. Governing Law. This Note is made and delivered in the State of
-------------
Delaware and shall be construed and enforced in accordance with and
governed by the internal laws of the State of Delaware without regard to
conflicts of laws principles.
9. Miscellaneous.
-------------
(a) Borrower hereby waives protest, notice of protest, presentment,
dishonor, notice of dishonor and demand. To the extent permitted by law,
Borrower hereby waives and releases all errors, defects and imperfections in any
proceedings instituted by Lender under the terms of this Note.
(b) The rights and privileges of Lender under this Note shall inure to the
benefit of its successors and assigns. All representations, warranties and
agreements of Borrower made in connection with this Note shall bind Borrower's
successors and assigns.
(c) If any provision of this Note shall for any reason be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision hereof, but this Note shall be construed as if such invalid
or unenforceable provision had never been contained herein.
(d) The waiver of any Event of Default or the failure of Lender to
exercise any right or remedy to which it may be entitled shall not be deemed to
be a waiver of any subsequent Event of Default or of Lender's or Lender's right
to exercise that or any other right or remedy to which Lender is entitled.
(e) The rights and remedies of Lender under this Note shall be in addition
to any other rights and remedies available to Lender at law or in equity, all of
which may be exercised singly or concurrently.
(f) Lender shall have the right, without the prior consent of Borrower, to
assign all of Lender's rights and obligations hereunder.
3
<PAGE>
IN WITNESS WHEREOF, Borrower has duly executed this Promissory Note the day
and year first above written and has hereunto set hand and seal.
NETVALUE, INC.
By: /s/ R. Scott Wills
------------------
R. Scott Wills
President and Chief Executive Officer
4
<PAGE>
EXHIBIT 10.13
LOAN AGREEMENT
--------------
This Loan Agreement ("Agreement") is made as of the 26th day of June 1998 by
and among the Lenders listed on the signature pages hereof (each a "Lender" and
collectively the "Lenders"), American Maple Leaf Financial Corporation, a
Delaware corporation, having an address at Two Penn Center Plaza, Suite 605,
Philadelphia, PA 19102, as agent for itself and the Lenders hereunder ("Agent")
and netValue, Inc., a Delaware corporation with its principal executive office
at 1960 Bronson Road, Building Two, Fairfield, Connecticut 06430 ("Borrower").
BACKGROUND
----------
WHEREAS, Lenders are willing to loan to Borrower, and Borrower is willing to
borrow from Lenders, the principal sum of up to One Million Six Hundred Thousand
($1,600,000.00) Dollars ("Loan") on the terms and subject to the conditions of
this Agreement.
NOW, THEREFORE, with the foregoing Background deemed incorporated hereinafter
by this reference and hereby made a part hereof, the parties hereto, intending
to be legally bound hereby, further covenant and agree as follows:
SECTION 1. DEFINITIONS.
-----------
As used herein:
1.1 "Assets" means, at any time, all assets of every kind of Borrower as
would be shown on a consolidated or consolidating financial statement of
Borrower prepared in accordance with GAAP.
1.2 "Closing" means the date of this Agreement.
1.3 "Event of Default" means an event specified in Section 5 hereof.
1.4 "GAAP" means generally accepted accounting principles consistently
applied.
1.5 "Indebtedness" means, as to Borrower, all items of indebtedness,
obligation or liability, due or to become due, liquidated or unliquidated,
direct or contingent, joint or several, of any nature whatsoever and out of
whatever transaction arising.
1.6 "Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs or decrees of any government or political subdivision or
agency thereof or any court or similar entity established by any thereof.
1.7 "Lien" means a lien, encumbrance, charge or security interest of any
nature whatsoever.
<PAGE>
1.8 "Maturity Date" means that date which is thirty (30) days after the
date on which Lender delivers written notice to Borrower demanding payment of
all principal and accrued interest due under the Note as defined in Paragraph
2.2 of this Agreement.
1.9 "Note" has the meaning set forth in Paragraph 2.2 of this Agreement.
1.10 "Obligations" mean the obligations of Borrower:
1.10.1 To pay the principal of, and the interest on, the Note in
accordance with the terms hereof and thereof, and to satisfy all of Borrower's
other existing and future debts, liabilities and obligations to Lenders, whether
matured or unmatured, direct or contingent, joint or several, including, without
limitation, any extensions, modifications or renewals thereof and substitutions
therefor; and
1.10.2 To pay all of Lenders' fees, expenses and costs including,
without limitation, the reasonable fees and expenses of Lenders' counsel, in
connection with the preparation, negotiation, administration, amendment,
modification or enforcement of this Agreement and Lenders' rights hereunder and
under the documents required hereunder, or any proceedings (including, without
limitation, bankruptcy or other insolvency proceedings) brought or threatened to
enforce payment of any of the Obligations.
1.11 "Person" means any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, joint venture, court or
government or political subdivision or agency thereof.
1.12 "Records" means, severally and collectively, Borrower's
correspondence, memoranda, tapes, discs, papers, books and other documents, or
transcribed information of any type related to Borrower's assets, whether
expressed in ordinary or machine language, and whether on or off the premises of
Borrower.
SECTION. THE LOAN.
--------
1.13 Disbursement of the Loan Proceeds. Upon the execution hereof, Agent
---------------------------------
shall disburse to Borrower $63,000. Thereafter, until the Maturity Date, upon
the Borrower's request, each Lender shall be obligated to disburse to Borrower
funds in the aggregate up to the amount set opposite to such Lender's name on
Schedule 2.1 hereof (each such amount, a Lender's "Loan Commitment").
- ------------
1.14 The Note. Contemporaneously herewith, Borrower shall execute and
--------
deliver to Agent a Promissory Note in the principal amount of Sixty Three
Thousand ($63,000.00) Dollars plus all additional amounts which Lender hereafter
advances to Borrower, up to a maximum amount of One Million Six Hundred Thousand
Dollars ($1,600,000.00) (the "Note") to evidence Borrower's Obligations to repay
Agent (for the account of Lenders), with interest at eight percent (8%) per
annum, the principal sum of the Loan, on the Maturity Date unless the Loan is
sooner accelerated in accordance with the provisions of this Agreement, all as
more fully described in the Note, the terms, covenants and conditions of which
are hereby deemed incorporated herein by this reference and made a part hereof.
2
<PAGE>
1.15 Payments to Lenders. All payments of interest on, and principal of,
-------------------
the Loan, all fees and all other sums payable to Lender hereunder shall be paid
directly to Agent (for the account of Lenders) in immediately available funds,
in such currency of the United States of America as is, at the time of payment,
legal tender for the payment of public and private debts. When any payment of
interest, principal or other fees or sums is received by Agent, Borrower's
obligations to each Lender pursuant to this Agreement and the Note shall be
fully discharged with respect to such payment.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
------------------------------
2.1 Inducement to Lender. To induce Lenders to enter into this Agreement,
--------------------
Borrower represents and warrants to Lenders that:
2.1.1 Borrower is a corporation duly organized, validly existing and in
good standing under the Laws of Delaware; Borrower has the lawful power and
capacity to own its property and to engage in the business it conducts; Borrower
is duly qualified as a foreign corporation to do business in the State of
Connecticut;
2.1.2 Borrower is not in default with respect to any of its existing
Indebtedness for borrowed money, and the making and performance of this
Agreement and the Note will not (immediately, with the passage of time, or with
the giving of notice and the passage of time):
2.1.3 Violate the Amended and Restated Certificate of Incorporation or
By-laws of Borrower or, in any material respect, violate any Laws or result in a
default under any contract, agreement or instrument to which Borrower is a party
or by which Borrower or its properties or assets are or may be bound; or
2.1.4 Result in the creation or imposition of any Lien upon any of the
Assets of Borrower, except such as are in favor of Agent;
2.1.5 Borrower has the power, authority and capacity to enter into and
perform this Agreement and the Note and to incur the Obligations herein and
therein provided for, and Borrower has taken all proper and necessary corporate
action to authorize the execution, delivery and performance of this Agreement
and the Note;
2.1.6 This Agreement is, and the Note when delivered will be, valid,
binding and enforceable against Borrower in accordance with their respective
terms;
2.1.7 There are no judgments or judicial or administrative orders or
proceedings pending, or to the knowledge of Borrower threatened, against or
affecting Borrower or the property of Borrower in any court or before any
governmental authority or arbitration board or tribunal. Borrower is not in
default under any order of any court, governmental authority, arbitration board
or tribunal or administrative agency;
2.1.8 Borrower has complied in all material respects with all
applicable Laws with respect to (a) restrictions, specifications or other
requirements pertaining to the services it performs, (b) the
3
<PAGE>
conduct of its business operations, and (c) the use, maintenance and operation
of the real and personal property owned or leased by it in the operation of its
business;
2.1.9 No representation or warranty by Borrower contained herein, or in
any certificate or other document furnished by Borrower pursuant hereto,
contains any untrue statements of material fact or omits to state a material
fact necessary to make any such representation or warranty not misleading in
light of the circumstances under which it was made;
2.1.10 No consent, approval or authorization of, or filing other than
UCC filings, registration or qualification with, any Person is required to be
obtained by Borrower in connection with the execution and delivery of this
Agreement and the Note or the undertaking or performance of any Obligation
hereunder or thereunder;
2.1.11 Borrower has not committed Lenders or Agent to the payment of any
brokerage fee or commission in connection with this transaction and, if any such
claim is made against any Lender or Agent by any broker, finder or agent or any
other Person, Borrower will indemnify, defend (at its expense, engaging counsel
reasonably acceptable to Agent) and hold such Lender and/or Agent harmless
against any such claim, at Borrower's cost and expense, including such Lender's
and/or Agent's reasonable counsel fees; and
2.1.12 Borrower has obtained all licenses, permits, franchises or other
governmental authorizations necessary to the ownership of its property and
assets and to the conduct of its business, all of which are in good standing and
free from any claim of invalidity, defect or ineffectiveness.
2.2 Survival. By completing a closing hereunder Lenders do not thereby
--------
waive any breach of warranty or misrepresentation made by Borrower hereunder or
under any other document or agreement delivered to Agent or Lenders at Closing
or otherwise referred to herein, and all of Agent's and/or Lenders' claims and
rights resulting from any breach or misrepresentation by Borrower are expressly
reserved by Agent and/or Lenders. All of the foregoing representations and
warranties set forth in this Section 3 shall survive until the Obligations are
paid and satisfied in full.
SECTION 3. BORROWER'S COVENANTS.
--------------------
3.1 Affirmative Covenants. Borrower covenants and agrees with Lenders
---------------------
that, so long as any of the Obligations remain unsatisfied and outstanding,
Borrower will comply with the following covenants:
3.1.1 Borrower will furnish Agent with such data and information
(financial or otherwise) as Agent reasonably may request;
3.1.2 Borrower will pay or cause to be paid when due, all taxes,
assessments and charges or levies imposed upon Borrower or its properties or
which it is required to withhold and pay over, except if the same are being
contested by Borrower in good faith, by appropriate proceedings and with
adequate reserves therefor being set aside on the Records;
4
<PAGE>
3.1.3 Borrower will maintain its inventory, equipment, real estate and
other properties in good condition and repair (normal wear and tear excepted),
and will pay and discharge, or cause to be paid and discharged, when due, the
cost of repairs to or maintenance of the same;
3.1.4 Borrower will take all necessary steps to preserve its existence
as a corporation, and Borrower will comply with all present and future Laws
applicable to it in the operation of Borrower's business;
3.1.5 Borrower will collect its accounts receivable, sell its
inventory, and provide services, only in the ordinary course of its business;
3.1.6 Borrower will give immediate notice to Agent of (a) any
litigation to which Borrower is a party (whether or not the claim is considered
to be covered by insurance) for which the damages sought or the amount of the
claim is in excess of Five Hundred Thousand ($500,000.00) Dollars, and (b) the
institution of any other suit or any administrative proceeding involving
Borrower that materially and adversely affects Borrower's operations, financial
condition, property or business;
3.1.7 Borrower will give written notice to Agent promptly upon becoming
aware of the occurrence of any Event of Default or of the failure of Borrower to
observe any of its undertakings hereunder, which notice shall specify the nature
of such event or Event of Default and the period of existence of the same;
3.1.8 Borrower will notify Agent in writing upon any change in the
location of any of its places of business or of the establishment of any new, or
the discontinuance of any existing, place(s) of business;
3.1.9 Borrower will, when requested by Agent from time to time, give
Agent specific assignments and schedules of accounts receivable after they come
into existence, the form and content of such assignments and schedules to be
reasonably satisfactory to Agent and its counsel.
3.2 Negative Covenants. Borrower hereby covenants and agrees that, so long
------------------
as any of the Obligations remain unsatisfied and outstanding, without the prior
written consent of Agent, which consent shall not be unreasonably withheld:
3.2.1 Borrower will not sell, transfer, assign, lease or otherwise
dispose of all or (except in the ordinary course of business) any material part
of its Assets;
3.2.2 Borrower will not furnish Agent any certificate or other document
that will contain any untrue statement of material fact or that will omit to
state a material fact necessary to make it not misleading in light of the
circumstances under which it was furnished.
SECTION 4. DEFAULT.
-------
4.1 Events of Default. Each of the following events shall constitute an
-----------------
Event of Default and Agent shall thereupon have the option (which is not
intended to diminish, alter or limit Agent's rights described in this Agreement,
the Note or any related instruments, agreements and documents) to declare
Borrower in default under this Agreement, the Note, and all other agreements
with Lenders,
5
<PAGE>
and declare all existing and future liabilities, indebtedness and Obligations
accelerated and immediately due and payable, including, without limitation,
interest, principal, expenses and reasonable counsel fees to enforce this
Agreement, the Note and all related instruments, agreements and documents, and
all of Lenders' and/or Agent's rights hereunder and thereunder, all without
demand, notice, presentment or protest, or further action of any kind, except as
specified herein:
4.1.1 Borrower shall fail to pay within ten (10) days of the date when
due any amounts due under the Note;
4.1.2 Borrower shall fail to observe or perform any other obligation or
covenant to be observed or performed by Borrower hereunder or under the Note
within fifteen (15) days after written notice thereof from Agent;
4.1.3 If any financial statement, representation, warranty, statement
or certificate made or furnished to Agent or Lenders in connection with this
Agreement, or as inducement to Lenders to enter into this Agreement, or in any
separate statement or document to be delivered hereunder to Agent or Lenders,
shall be materially false, incorrect, or incomplete, when made;
4.1.4 Borrower shall admit an inability to pay its debts as they
mature, or shall make a general assignment for the benefit of any of its or
their creditors;
4.1.5 Proceedings in bankruptcy, or for reorganization of Borrower for
the readjustment of any of its or their debts, under the United States
Bankruptcy Code, as amended, or any part thereof, or under any other Laws,
whether state or federal, for the relief of debtors, now or hereafter existing,
shall be commenced by Borrower or shall be commenced against Borrower and shall
not be dismissed within sixty (60) days of their commencement;
4.1.6 A receiver or trustee shall be appointed for Borrower or for any
substantial part of its assets, or any proceedings shall be instituted for the
dissolution or the full or partial liquidation of Borrower, and if such
appointment or proceedings are involuntary, such receiver or trustee shall not
be discharged within sixty (60) days of appointment, or such proceedings shall
not be discharged within sixty (60) days of their commencement, or Borrower
shall discontinue its business(es) or materially change the nature of its
business(es);
4.1.7 Borrower shall suffer final judgment(s) for the payment of money
in excess of Five Hundred Thousand ($500,000.00) Dollars and the same or any one
of the same shall not be discharged or stayed within a period of sixty (60) days
from the date of entry thereof;
4.1.8 A judgment or attaching creditor of Borrower shall obtain
possession of any of Borrower's Assets having a book value greater than One
Hundred Thousand ($100,000) Dollars by any means including, without limitation,
levy, distraint, replevin or self-help; or
4.1.9 The validity or enforceability of this Agreement or the Note
shall be contested by Borrower, any guarantor or any stockholder of Borrower, or
Borrower shall deny that it has any or further liability or obligation hereunder
or thereunder.
6
<PAGE>
SECTION 5. AGENCY PROVISIONS.
-----------------
As between Agent, on the one hand and each of the Lenders, on the other hand,
Agent and each Lender agree (and Borrower hereby consents) as follows:
5.1 Appointment and Authorization. Each Lender, by its acceptance thereof,
-----------------------------
hereby irrevocably appoints and authorizes Agent to take such action on its
behalf and to exercise such powers under this Agreement as are respectively
delegated to Agent by the terms hereof, together with such powers as are
reasonably incidental thereto. Subject to the provisions of this Agreement,
Agent will handle all transactions relating to the Loan and all other
Obligations, including, without limitation, all transactions with respect to
this Agreement, the Note and all related documents. Borrower is hereby
authorized by Lenders to deal with Agent in all transactions which affect
Lenders under this Agreement and the Note. The rights, privileges and remedies,
accorded to Agent hereunder shall be exercised by Agent on behalf of all
Lenders.
5.2 General Immunity. In performing its duties as Agent hereunder, Agent
----------------
will take the same care as it takes in connection with loans in which it alone
is interested. However, Agent nor any of its partners shall be liable for any
action taken or omitted to be taken by Agent hereunder or in connection herewith
except to the extent any such action or omission results from Agent's gross
negligence or willful misconduct.
5.3 Consultation with Counsel. Agent may consult with legal counsel and
-------------------------
any other professional advisors or consultants deemed necessary or appropriate
and selected by Agent and shall not be liable for any action taken or suffered
in good faith by it in accordance with the advice of such counsel.
5.4 Collections and Disbursements. Agent will have the right to collect
-----------------------------
and receive all payments of the Obligations, and to collect and receive all
fees, charges or other amounts due under this Agreement and the Note, and Agent
will promptly remit to each Lender, pro rata in accordance with such Lender's
Loan Commitment, all such payments actually received by Agent in accordance with
the settlement procedures established by Agent from time to time.
SECTION 6. MISCELLANEOUS
-------------
6.1 Construction. The provisions of this Agreement shall be in addition to
------------
those of any guaranty, pledge or security agreement, note or other evidence of
liability held by Agent or Lenders, all of which shall be construed as
integrated and complementary of each other. Nothing herein contained shall
prevent Agent or Lenders from enforcing any or all other notes, guaranty, pledge
or security agreements in accordance with their respective terms.
6.2 Further Assurances. From time to time, Borrower will execute and
------------------
deliver to Agent such additional documents, and will provide such additional
information as Agent may reasonably require, to carry out the terms of this
Agreement and the Note, and be informed of Borrower's status and affairs.
6.3 Enforcement and Waiver by Agent. Agent shall have the right at all
-------------------------------
times to enforce the provisions of this Agreement and the Note in strict
accordance with the terms hereof and thereof,
7
<PAGE>
notwithstanding any conduct or custom on the part of Agent in refraining from so
doing at any time or times. The failure of Agent at any time or times to enforce
its rights under such provisions, strictly in accordance with the same, shall
not be construed as having created a custom in any way or manner contrary to
specific provisions of this Agreement or as having in any way or manner modified
or waived the same. All rights and remedies of Agent are cumulative and
concurrent and the exercise of one right or remedy shall not be deemed a waiver
or release of any other right or remedy.
6.4 Expenses of Agent. Borrower will pay all expenses, including the
-----------------
reasonable fees and expenses of legal counsel for Agent incurred in connection
with the enforcement of this Agreement and the Note and the collection or
attempted collection of the Note.
6.5 Notices. Any notices or consents required or permitted by this
-------
Agreement shall be in writing and shall be deemed delivered if delivered in
person, or by commercial courier against receipt or if sent by certified mail,
postage prepaid, return receipt requested, or telecopier, as follows, unless
such address is changed by written notice hereunder:
6.5.1 If to Borrower:
netValue, Inc
1960 Bronson Road
Building Two
Fairfield, CT 06430
Attention: R. Scott Wills, President
Telephone: (203) 319-7000
Facsimile: (203) 254-9814
With copies to:
Klehr, Harrison, Harvey,
Branzburg & Ellers LLP
1401 Walnut Street
Philadelphia, PA 19102
Attention: Michael C. Forman, Esquire
Telephone: (215) 568-6060
Facsimile: (215) 568-6603
6.5.2 If to any Lender or Agent:
American Maple Leaf Financial Corporation
Two Penn Center Plaza, Suite 605
Philadelphia, PA 19102
Attention: Andrew P. Panzo
Telephone: (215) 564-3131
Facsimile: (215) 564-3133
8
<PAGE>
6.6 Waiver and Release by Borrower. To the maximum extent permitted by
------------------------------
applicable Laws, Borrower hereby waives (a) protest, notice of protest,
presentment, dishonor, notice of dishonor and demand of all commercial paper at
any time held by Agent and/or Lenders on which Borrower is in any way liable and
(b) except as otherwise set forth herein or in the Note after acceleration in
the manner provided in Paragraph 5.1 before exercise by Agent of the remedies of
self-help, set-off, or of other summary procedures permitted by any applicable
Laws or by any agreement with Borrower and, except where required hereby or by
any applicable Laws, notice of any other action taken by Agent.
6.7 Waiver of Jury Trial. IN ANY LITIGATION ARISING OUT OF OR RELATING TO
--------------------
THE LOAN OR ANY OF THE OTHER OBLIGATIONS IN WHICH BORROWER AND AGENT OR LENDERS
ARE ADVERSE PARTIES, BORROWER, AGENT AND LENDERS HEREBY WAIVE TRIAL BY JURY.
6.8 Applicable Law. The substantive Laws of the State of Delaware shall
--------------
govern the construction of this Agreement and the rights and remedies of the
parties hereto.
6.9 Binding Effect, Assignment and Entire Agreement.
-----------------------------------------------
6.9.1 This Agreement shall inure to the benefit of, and shall be
binding upon, the respective heirs, personal representatives, successors and
permitted assigns of the parties hereto.
6.9.2 Borrower has no right to assign any of its rights or Obligations
hereunder without the prior written consent of Agent.
6.9.3 Each Lender shall have the right, without the prior consent of
Borrower, to assign to an Affiliate of such Lender all of such Lender's rights
and obligations hereunder.
6.9.4 This Agreement, and the documents executed and delivered pursuant
hereto, constitute the entire agreement between the parties, and may be amended
only by a writing signed on behalf of each party.
6.10 Severability. If any provision of this Agreement shall be held invalid
------------
under any applicable Laws, such invalidity shall not affect any other provision
of this Agreement that can be given effect without the invalid provision, and,
to this end, the provisions hereof are severable.
6.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument.
6.12 Headings. The headings of any paragraph of this Agreement are for
--------
convenience only and shall not be used to interpret any provision of this
Agreement.
6.13 Modification. No modification hereof or of any agreement referred to
------------
herein shall be binding or enforceable unless in writing and signed on behalf of
the party against whom enforcement is sought.
9
<PAGE>
6.14 Third Parties. No rights are intended to be created hereunder, or
-------------
under the Loan Documents or related agreements and documents for the benefit of
any third party donee, creditor or incidental beneficiary of Borrower. Nothing
contained in this Agreement shall be construed as a delegation to Agent or
Lenders of Borrower's duties of performance, including, without limitation,
Borrower's duties under any account or contract in which Agent has a security
interest.
6.15 Seal. This Agreement is intended to take effect as an instrument under
----
seal.
[Remainder of page intentionally left blank.]
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first above written.
NETVALUE, INC.
By: /s/ R. Scott Wills
------------------------------
R. Scott Wills, President
AMERICAN MAPLE LEAF
FINANCIAL CORPORATION, as Agent for Lenders
By: /s/ Andrew P. Panzo
------------------------------
Andrew P. Panzo, President
ROZEL INTERNATIONAL HOLDINGS LIMITED
By: /s/ Harold Chaffe
------------------------------
Harold Chaffe, President
AVIATION HOLDINGS GROUP, INC.
(f/k/a EyeQ Networking, Inc.)
By: /s/ Joseph Nelson, President
------------------------------
Joseph Nelson, President
FAC ENTERPRISES
By: /s/ FAC Enterprises, Inc.
------------------------------
IP SERVICES, INC.
By: /s/ IP Services, Inc.
------------------------------
/s/ Michael Garnick (Seal)
-----------------------------------
Michael Garnick
11
<PAGE>
SCHEDULE 2.1
Loan Commitments
----------------
Lender Commitment
------ ----------
American Maple Leaf $ 400,000.00
Financial Corporation
Rozel International $ 425,000.00
Holdings Limited
Aviation Holdings $ 225,000.00
Group, Inc.
FAC Enterprises $ 250,000.00
IP Services, Inc. $ 100,000.00
Michael Garnick $ 200,000.00
-------------
Total $1,600,000.00
12
<PAGE>
EXHIBIT 10.14
THIS NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION,
ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY. THIS NOTE IS
BEING OFFERED PURSUANT TO EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
FEDERAL AND STATE SECURITIES LAW AND CANNOT BE RESOLD UNLESS IT IS SUBSEQUENTLY
REGISTERED UNDER SUCH LAWS OR UNLESS EXEMPTIONS FROM REGISTRATION ARE AVAILABLE.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER GOVERNMENTAL AGENCY
HAS PASSED ON, RECOMMENDED, OR ENDORSED THE MERITS OF THIS NOTE. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
PROMISSORY NOTE
---------------
$1,600,000.00 June 26, 1998
FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND HEREBY, netValue, inc., a
Delaware corporation having its principal executive office at 1960 Bronson Road,
Building Two, Fairfield Connecticut, 06430 (hereinafter referred to, and
obligated as, "Borrower"), promises to pay to the order of American Maple Leaf
Financial Corporation, a Delaware corporation having an address at Two Penn
Center Plaza, Suite 605, Philadelphia, PA 19102, acting as agent for itself and
a group of accredited investors (collectively, "Lender"), the principal sum
equal to Sixty-Three Thousand Dollars ($63,000) plus all additional amounts
which Lender hereafter advances to Borrower, up to a maximum amount of One
Million Six Hundred Thousand Dollars ($1,600,000), together with interest as set
forth below, until the date on which the principal amount is paid in full,
payable in lawful money of the United States of America in accordance with the
terms of this Promissory Note (the "Note").
1. Maturity Date. The Note shall have a maturity date (the "Maturity Date")
-------------
which is thirty (30) days after the date on which Lender delivers written notice
to Borrower demanding payment of all principal and accrued interest due under
the Note.
2. Interest.
--------
(a) During the period beginning on the date hereof and ending on the
Maturity Date, interest shall accrue daily on the outstanding principal amount
hereunder at a simple rate of eight percent (8%) per annum.
(b) Interest shall be calculated hereunder for the actual number of days
that the principal is outstanding, based on a three hundred sixty (360) day
year. Interest shall continue to accrue on the principal balance hereof at the
then-applicable simple rate of interest specified in this Note, notwithstanding
any demand for payment, acceleration and/or the entry of any judgment against
Borrower, until all principal owing hereunder is paid in full.
3. Payment. No principal or accrued interest payments shall be due on the Note
-------
until the Maturity Date. All payments of principal and interest shall be made by
cash or check to Lender at the address designated in writing by Lender.
<PAGE>
4. Ranking.
-------
(a) The Note will be subordinated to (i) the assignments and security
interests granted by that certain Security Agreement and that certain Collateral
Assignment of Patents and Trademarks, each dated as of March 11, 1998 between
Borrower and IQ Value, LLC; (ii) the assignments and security interests granted
by that certain Loan and Security Agreement and that certain Collateral
Assignment of Patents and Trademarks, each dated as of June 17, 1997 between
Borrower and Golden Eagle Partners; and (iii) all future indebtedness of the
Borrower ranking by its terms senior to the Note; and
(b) The Note will rank pari passu with the promissory notes issued in 1997
pursuant to the Private Placement Memoranda dated August 28, 1997 and November
7, 1997, respectively, and all amendments thereto.
5. Security. The Note will be an unsecured obligation of Borrower.
--------
6. Lender's Rights Upon Default.
----------------------------
Each of the following events shall constitute an "Event of Default" and, upon
the occurrence thereof, Lender shall have the option, without the necessity of
giving any prior written notice to Borrower, (1) to accelerate the maturity of
this Note and all amounts payable hereunder and demand immediate payment thereof
and (2) to exercise all of Lender's rights and remedies under this Note or
otherwise available at law or in equity:
(a) Borrower shall fail to pay the principal amount of the Note or accrued
interest thereon on the Maturity Date;
(b) Borrower shall admit an inability to pay its debts as they mature, or
shall make a general assignment for the benefit of any of its or their
creditors;
(c) Proceedings in bankruptcy, or for reorganization of Borrower for the
readjustment of any of its or their debts, under the United States Bankruptcy
Code, as amended, or any part thereof, or under any other laws, whether state or
federal, for the relief of debtors, now or hereafter existing, shall be
commenced by Borrower or shall be commenced against Borrower and shall not be
dismissed within sixty (60) days of their commencement;
(d) A receiver or trustee shall be appointed for Borrower or for any
substantial part of its assets, or any proceedings shall be instituted for the
dissolution or the full or partial liquidation of Borrower, and if such
appointment or proceedings are involuntary, such receiver or trustee shall not
be discharged within sixty (60) days of appointment, or such proceedings shall
not be discharged within sixty (60) days of their commencement, or Borrower
shall discontinue its business(es) or materially change the nature of its
business(es);
(e) Borrower shall suffer any final judgment for the payment of money in
excess of Five Hundred Thousand Dollars ($500,000) and the same shall not be
discharged or stayed within a period of thirty (30) days from the date of entry
thereof.
2
<PAGE>
7. Application of Funds. All sums realized by Lender on account of this Note,
--------------------
from whatever source received, shall be applied first to any fees, costs and
expenses (including attorneys' fees) incurred by Lender, second to accrued and
unpaid interest, and then to principal.
8. Attorneys' Fees and Costs. In the event that Lender engages an attorney to
-------------------------
represent it in connection with (a) any default by Borrower under this Note, (b)
the enforcement of any of Lender's rights and remedies hereunder, (c) any
bankruptcy or other insolvency proceedings commenced by or against Borrower
and/or (d) any actual litigation arising out of or related to any of the
foregoing, then Borrower shall be liable to and shall reimburse Lender on demand
for all reasonable attorneys' fees, costs and expenses incurred by Lender in
connection with any of the foregoing provided a final and unappealable judgment
in favor of Lender has been issued in connection therewith.
9. Governing Law. This Note is made and delivered in the State of Delaware and
-------------
shall be construed and enforced in accordance with and governed by the internal
laws of the State of Delaware without regard to conflicts of laws principles.
Borrower agrees to the exclusive jurisdiction of the federal and state courts
located in the State of Delaware in connection with any matter arising
hereunder, including the collection and enforcement of this Note.
10. Miscellaneous.
-------------
(a) Borrower hereby waives protest, notice of protest, presentment,
dishonor, notice of dishonor and demand. To the extent permitted by law,
Borrower hereby waives and releases all errors, defects and imperfections in any
proceedings instituted by Lender under the terms of this Note.
(b) The rights and privileges of Lender under this Note shall inure to the
benefit of its successors and assigns. All representations, warranties and
agreements of Borrower made in connection with this Note shall bind Borrower's
successors and assigns.
(c) If any provision of this Note shall for any reason be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision hereof, but this Note shall be construed as if such invalid
or unenforceable provision had never been contained herein.
(d) The waiver of any Event of Default or the failure of Lender to
exercise any right or remedy to which it may be entitled shall not be deemed to
be a waiver of any subsequent Event of Default or of Lender's or Lender's right
to exercise that or any other right or remedy to which Lender is entitled.
(e) The rights and remedies of Lender under this Note shall be in addition
to any other rights and remedies available to Lender at law or in equity, all of
which may be exercised singly or concurrently.
(f) Lender shall have the right, without the prior consent of Borrower, to
assign all of Lender's rights and obligations hereunder.
3
<PAGE>
IN WITNESS WHEREOF, Borrower has duly executed this Promissory Note the day
and year first above written and has hereunto set hand and seal.
NETVALUE, INC.
By: /s/ R. Scott Wills
------------------
R. Scott Wills
President and Chief Executive Officer
4
<PAGE>
EXHIBIT 10.15
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made this 29th day of
July, 1999, by and between ASIA CD, INC., a California corporation (the
"Company"), and STRATEGICUS PARTNERS, INC., an Oregon corporation (the
"Investor").
RECITALS:
--------
The Company wishes to issue and sell to the Investor one million
(1,000,000) shares (the "Shares") of the Company's Series A Preferred Stock (the
"Series A Preferred Stock"). The Investor wishes to purchase the Shares on the
terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants,
warranties and agreements contained herein, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto do hereby agree as follows:
1. Purchase and Sale of Series A Preferred Stock.
---------------------------------------------
a. Sale and Issuance of Series A Preferred Stock. Subject to the terms and
---------------------------------------------
conditions of this Agreement, the Investor agrees to purchase, and the Company
agrees to sell and issue to Investor at the Closing (as defined in Section 1.2),
one million (1,000,000) Shares of Series A Preferred Stock at the purchase price
of One Dollar ($1) per share for an aggregate purchase price of One Million
Dollars ($1,000,000) (the "Purchase Price").
b. The Closing. The closing (the "Closing") of the transaction contemplated by
-----------
this Agreement shall take place at the offices of netValue Holdings, Inc., 1085
Mission Street, San Francisco, California 94103, at 3:00 p.m., local time, on
July 29, 1999. The Closing may occur at such different place, such different
time, or such different date or a combination thereof as the Company and the
Investor agree.
c. Closing Deliveries. In connection with the Closing:
------------------
i. By the Company.
--------------
(a) The Company shall deliver or cause to be delivered to
the Investor at the Closing or as soon as possible thereafter, but in no event
later than ten (10) days after the Closing Date:
(i) Stock certificates representing the Shares
purchased by the Investor dated as of the Closing Date; and
(ii) A good standing certificate from the Secretary of
State of the State of California with respect to the Company and such Closing or
other certificates and instrument as may reasonably be requested of the Company
by the Investor;
<PAGE>
(b) The Company shall deliver or cause to be delivered to
the Investor at the Closing:
(i) Registration Rights Agreement dated as of the
Closing date, duly executed by the Company;
(ii) A certificate, signed by a duly authorized
officer of the Company and dated as of the Closing Date, as described in Section
4.2.1; and
(iii) A certificate, signed by the Secretary of the
Company, certifying the truth and correctness of the Company's respective
Articles of Incorporation, Bylaws, and Resolutions of the Board of Directors and
shareholders of the Company approving this Agreement and the consummation of the
transactions contemplated hereby.
ii. By the Investor.
---------------
(a) The Investor shall deliver or cause to be delivered to
the Company at the Closing or as soon as possible thereafter, but in no event
later than ten (10) days after the Closing Date in the amount of the Purchase
Price by wire transferring the amount of Seven Hundred Fifty Thousand Dollars
($750,000) and executing and delivering to the Company the Promissory Note in
the principal amount of Two Hundred Fifty Thousand Dollars ($250,000) in the
form attached hereto as Schedule 1.3.2(a)(i) (the "Promissory Note") and the
Stock Pledge Agreement in the form attached hereto as Schedule 1.3.2(a)(ii) (the
"Stock Pledge Agreement").
(b) The Investor shall deliver or cause to be delivered to
the Company at the Closing:
(i) Registration Rights Agreement dated as of the
Closing Date, duly executed by the Investor; and
(ii) A certificate, signed by a duly authorized
officer of the Investor, as described in Section 4.1.1.
2. Representations and Warranties of the Company. Subject to the terms and
---------------------------------------------
conditions of this Agreement, the Company, after due inquiry and investigation,
makes to the Investor the following representations and warranties as of the
date hereof except as set forth in Schedule 2 attached hereto (the "Schedule of
Exceptions"):
a. Organization of the Company. The Company (a) is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
California; (b) is qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the ownership of its property or the
conduct of its business requires such qualification, except where failure to so
qualify would not have a material adverse effect upon the Company's business,
its properties or its financial condition; and (c) has all necessary corporate
power and authority to carry on its business as it is now being conducted and to
own or lease and operate its properties and assets.
2
<PAGE>
b. No Subsidiaries. The Company does not, directly or indirectly, own or
---------------
control any interest or investment (whether equity or debt) in any corporation,
partnership, joint venture, business organization, trust or other entity.
c. Capitalization.
--------------
(a) The authorized capital stock of the Company will consist,
immediately upon the filing of the Amended and Restated Articles of
Incorporation (the "Restated Articles") substantially in the form attached
hereto as Schedule 4.2.3, of fifty million (50,000,000) shares of common stock
(the "Common Stock"), of which seven million eighty-seven thousand five hundred
(7,087,500) are and shall be issued and outstanding, and ten million
(10,000,000) shares of preferred stock (the "Preferred Stock"), of which one
million one hundred thousand (1,100,000) have been designated as Series A
Preferred Stock and none of which will be issued and outstanding immediately
prior to the issuance thereof to the Investor hereunder. All of the issued and
outstanding shares of Common Stock of the Company were validly issued, are fully
paid and nonassessable and have been issued in compliance with all applicable
federal and state securities laws.
(b) Except for the transactions contemplated by this
Agreement, there are not, on the date hereof, authorized, outstanding, or
contemplated any subscriptions, options, conversion rights, warrants, or other
agreements, securities or commitments obligating the Company to issue, deliver,
or sell, or cause to be issued, delivered, or sold, any shares of capital stock
of the Company, or any securities convertible into or exchangeable for shares of
capital stock of the Company or obligating the Company to grant, extend or enter
into any such agreement or commitment. The Company is not a party or subject to
any other agreement or understanding and, to the best of the knowledge of the
Company, there is no agreement or understanding that effects or relates to the
voting, transfer or giving of written consents with respect to any capital stock
of the Company.
(c) The rights, preferences, and privileges of the Shares of
Series A Preferred Stock will be as stated in the Restated Articles and, when
issued, sold and delivered in accordance with the terms hereof for the Purchase
Price will be duly and validly issued, fully paid and nonassessable and free of
any liens or encumbrances, except for restrictions under applicable federal and
state securities and corporations laws and restrictions contained in the
Registration Rights Agreement. The shares of the Company's common stock issuable
upon conversion thereof (the "Conversion Shares") upon the filing of the
Restated Articles will be duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Restated Articles, will be duly and
validly issued, fully paid and nonassessable and free of any liens or
encumbrances, except for restrictions under applicable federal and state
securities and corporations laws and restrictions contained in the Registration
Rights Agreement. Upon payment by the Investor of the amount due under the
Promissory Note, the Shares of Series A Preferred Stock issued hereunder, and
any shares of Common Stock of the Company issued upon conversion of such Shares
of Series A Preferred Stock, will be fully paid and nonassessable.
d. Minute and Stock Transfer Books. The minute books of the Company are
-------------------------------
correct (including signatures), complete and current in all material respects
and fairly reflect in all material respects the corporate actions of the Board
of Directors and shareholders of the Company. The stock transfer books of the
Company are correct (including signatures), complete and current in all material
3
<PAGE>
respects. True and accurate copies of the Company's Articles of Incorporation,
and all amendments thereto, and the Company's Bylaws as presently in effect are
attached to the Schedule of Exceptions.
e. Authorization and Approvals. This Agreement is the legal, valid and binding
---------------------------
obligation of the Company enforceable in accordance with its terms, except as
such enforceability may be effected by bankruptcy, insolvency or similar laws
affecting the rights of creditors and relief of debtors and the exercise of
judicial discretion in accordance with general equitable principles (regardless
of whether such agreement is sought to be enforced in a proceeding at law or in
equity). Except for the Secretary of State of the State of California with
respect to the Restated Articles, no further approvals or consents by, or filing
with, any federal, state, municipal, foreign or other court or governmental or
administrative body or agency or any other third party is required in connection
with the execution and delivery by the Company of this Agreement or the
consummation of the transactions contemplated hereby.
f. No Violations. Neither the execution and delivery of this Agreement, nor
-------------
the consummation of the transactions contemplated hereby, will (a) violate any
provision of the Articles of Incorporation or Bylaws of the Company or, upon
filing, the Restated Articles of the Company, (b) violate, or be in conflict
with, or constitute a default (or other event which, with the giving of notice
or lapse of time or both, would constitute a default) under, or give rise to any
right of termination, cancellation or acceleration under any of the terms,
conditions or provisions of any material lease, license, promissory note,
contract, agreement, mortgage, deed of trust or other instrument or document to
which the Company is a party or by which the Company or any of its properties or
assets is bound, or (c) to the knowledge of the Company violate any material
order, writ, injunction, decree, law, statute, rule or regulation of any court
or governmental authority applicable to the Company or any of its properties or
assets.
g. Taxes. The Company has (a) timely filed all federal, state, local and
-----
foreign franchise, income, sales, gross receipts and all other tax returns and
statements which are required to be filed by it and which were due prior to the
date hereof ("Tax Returns and Statements"), and (b) paid within the time and in
the manner prescribed by law or established reasonable reserves as reflected on
the Financial Statements (as defined in Section 2.9 below) for the payment of
all taxes, levies, assessments, fees, penalties, interest and other governmental
charges accrued or payable for all periods ending on or prior to the date
hereof. The Tax Returns and Statements are complete and accurate in all material
respects, and no tax assessment or deficiency which has not been paid or for
which an adequate reserve has not been set aside, has been made or proposed
against the Company, nor are any of the Tax Returns and Statements now being
examined or audited nor, to the knowledge of the Company, is there a threat that
any of the Tax Returns and Statements will be examined or audited, and no
consents waiving or extending any applicable statutes of limitations for the Tax
Returns and Statements, or any taxes required to be paid thereunder, have been
filed. Prior to the date hereof, the Company has delivered to the Investor
complete and correct copies of the Tax Returns and Statements for the fiscal
year ended in 1998.
h. Transactions With Affiliates. None of the Company's shareholders
----------------------------
beneficially owning more than ten percent (10%) of the Company's capital stock
(the "Principal Shareholders"), directors, officers or employees, nor any of
their respective Affiliates, has any interest, directly or indirectly, in any
lease, lien, contract, license, encumbrance, loan or other agreement to which
the Company is a party, any interest in any properties or assets of the Company
or any interest in any competitor,
4
<PAGE>
supplier or customer of the Company. The Company is not indebted, directly or
indirectly, to any of its Principal Shareholders, directors, officers or
employees, or their respective Affiliates other than in connection with expenses
or the advancement of expenses in the ordinary course of business, and none of
such Principal Shareholders, directors, officers or employees, nor any of their
respective Affiliates, is indebted, directly or indirectly, to the Company. For
purposes hereof and elsewhere in this Agreement, "Affiliate" means a person or
entity that, directly or indirectly, through one or more intermediaries,
controls or is controlled by, or is under common control with, the person or
entity specified.
i. Financial Statements. Attached to the Schedule of Exceptions are the
--------------------
unaudited balance sheet of the Company as of December 31, 1998, and the related
unaudited statement of operations and accumulated deficit and cash flow
statements of the Company for the year then ended (the "Financial Statements").
The Financial Statements (a) present fairly in all material respects the
financial position of the Company for the periods then ended, subject to
normally recurring year-end adjustments, and (b) were prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied,
except that the Financial Statements do not include any footnotes.
j. Intellectual Property. The Schedule of Exceptions sets forth a correct and
---------------------
complete list of all of the Company's intellectual property, which includes, but
is not limited to, all patents, copyrights, common law copyrights, trade name,
trademark, service mark, trade secret, technology, know-how or process, or any
other intangible property rights of the Company that are necessary for its
business as now being conducted ("Intellectual Property"), and all of the
Company's licenses or other rights to use the Intellectual Property
(collectively, the "Intellectual Property Rights"). To the knowledge of the
Company, the Company is not infringing upon, misappropriating or violating the
right of any other person under, or in respect to, any of the Intellectual
Property Rights, and the Company has not received any charge, complaint, claim,
or notice of such an infringement, misappropriation or violation. To the
knowledge of the Company, no third party has infringed upon, misappropriated or
violated the Intellectual Property Rights.
k. Title to and Adequacy of Assets and Properties. The Schedule of Exceptions
----------------------------------------------
sets forth a correct and complete list and summary description of all of the
Company's tangible personal property and assets of whatever kind (the "Assets"),
other than any such Assets the replacement cost of which would be less than Ten
Thousand Dollars ($10,000) and which are not of material importance to the
operation of the business of the Company. All Assets owned by the Company are in
good operating condition and repair, subject to normal wear and maintenance, are
usable in the regular and ordinary course of business and, to the best of the
knowledge of the Company, comply in all material respects with all applicable
laws, regulations and licenses which govern the use and operation thereof. The
Company has good, complete and marketable title to all of the Assets, free and
clear of all mortgages, security interests, liens, options, pledges, equities,
claims, charges, restrictions, conditions, conditional sale contracts and any
other encumbrance or adverse interests of any kind or nature whatsoever
(collectively, the "Liens and Encumbrances"). All of the Assets are in the
exclusive possession and control of the Company and the Company has the
unencumbered right to use all of the Assets without interference from and free
of the rights and claims of others.
l. Material Contracts. All of the agreements, contracts, leases, licenses,
------------------
instruments, commitments, and understandings, written or oral, to which the
Company is a party or is subject, and which is material in any respect are
listed (or, in the case of oral agreements or understandings, that
5
<PAGE>
are described) in the Schedule of Exceptions attached hereto (the "Contracts"),
including, without limitation, any leases under which the Company holds any
leasehold interest in real property or personal property, whether tangible or
intangible, that is used in or in connection with the business (respectively,
the "Real Property Leases" and the "Personal Property Leases" and, collectively,
the "Leases"). The Schedule of Exceptions contains an accurate and complete list
of the Contracts (including the Leases); and, there are no other material
contracts, agreements, indentures, notes, leases or other instruments or
commitments, whether written or oral, to which the Company is a party or is
bound. The Company has furnished to the Investor accurate and complete copies of
all written Contracts. Each of the Contracts (including, but not limited to,
each of the Leases) is a valid and binding obligation of the parties thereto, is
in full force and effect and is enforceable in accordance with its terms, except
as the enforceability thereof may be limited by bankruptcy, insolvency,
moratorium or similar laws affecting creditors' rights generally and general
principles of equity relating to the availability of equitable remedies. There
have not been any defaults by the Company or, to the best knowledge of the
Company, defaults or any claims of default or claims of nonenforceability by the
other party or parties, under any of the Contracts, which, individually or in
the aggregate, would have or which could reasonably be expected to have a
material adverse effect on the business or the Company. The Company is not aware
of any facts or conditions that have occurred which, with the passage of time or
the giving of notice, or both, would constitute such a default under, or entitle
any of the other parties to the Contracts to terminate, or accelerate the
Company's payment obligations under, any of the Contracts or would cause the
creation or imposition of any Lien or Encumbrance upon any of the assets or
properties of the Company.
m. Licenses and Permits. The Company possesses all material licenses, permits,
--------------------
certificates of need, franchises and other permits or licenses (the "Licenses
and Permits") necessary for the present conduct of its business, including,
without limitation, any and all Licenses and Permits issued by any governmental
or administrative agency or body, the lack of which would materially and
adversely affect the business of the Company. To the knowledge of the Company,
each of such Licenses and Permits is in full force and effect, and there are no
pending or threatened claims or proceedings challenging the validity of, or
seeking to revoke or discontinue, any of the Licenses or Permits. To the
knowledge of Company, neither the transactions contemplated by this Agreement
nor any prior operations or history shall affect the validity of, or cause the
revocation or discontinuation of any of the Licenses and Permits.
n. Insurance. The Schedule of Exceptions contains a complete, current and
---------
correct, description of all existing policies of insurance maintained by the
Company. All such policies are in full force and effect, all premiums with
respect thereto covering all periods up to and including the date hereof have
been paid, and no notice of cancellation, termination or denial of coverage has
been received with respect to any such policy. To the knowledge of the Company,
such policies provide adequate insurance coverage for all risks usually and
customarily insured against by persons or entities operating businesses similar
to the business of the Company as presently being conducted. No claims are
pending or have been paid under such insurance policies. The Company has not
been refused any insurance with respect to its properties, assets or operations,
nor has its coverage been limited, by any insurance carrier to which it has
applied for any such insurance or with which it has carried insurance. Prior to
the date hereof, the Company shall have delivered or made available to the
Investor complete, current and correct copies of the policies of insurance
listed on the Schedule of Exceptions.
6
<PAGE>
o. Absence of Certain Changes. Since the date of the balance sheet, included
--------------------------
in the Financial Statements attached to the Schedule of Exceptions, there has
not been:
(a) Any declaration or payment of dividends by the Company or
any transfer of properties or assets of any kind whatsoever to any of its
shareholders (other than the payment of salaries and the like in the ordinary
course of business in their capacity as employees of the Company);
(b) Any transaction by the Company not in the ordinary course of
business;
(c) Any material adverse change in the results of the
operations, financial condition, business or prospects of the Company;
(d) Any damage, destruction or loss, whether or not covered by
insurance, which has had or would have a material adverse effect on any of the
properties, assets, business or prospects of the Company (as such business is
presently being conducted);
(e) Except (i) for amounts involving less than Ten Thousand
Dollars ($10,000) individually or in the aggregate, or (ii) in the ordinary
course of business and consistent with past practices, any sale or transfer of
any properties or assets or any cancellation of any debts or claims of the
Company;
(f) Any mortgage, pledge or subjection to lien, charge or
encumbrance of any kind on any of the Company's properties or assets (except for
liens for taxes not yet due or payable), or any occurrence of, assumption of, or
taking any properties or assets subject to, any material liability;
(g) Any amendment, modification or termination of any material
contract or material agreement to which the Company is a party or pursuant to
which its properties or assets is bound;
(h) Any increase in, or commitment to increase, the compensation
payable or to become payable to, any officer or director of the Company, its
employees other than in the ordinary course of business consistent with past
practice, or to any of its shareholders or their respective Affiliates, or any
commitment to make severance, bonus or special payments to any of such parties,
upon a change in ownership or management of the Company or upon termination of
such parties;
(i) Any adoption by the Company of a plan or agreement or
amendment to any plan or agreement providing any new or additional employee
benefits; or
(j) To the best knowledge of the Company, the occurrence of
any other event which has had or is reasonably likely to have a material adverse
effect on the results of operations, financial condition, business or prospects
of the Company (as such business is presently being conducted).
p. Compliance with Laws. To the knowledge of the Company, the business of the
--------------------
Company has been conducted in material compliance with all applicable laws,
statutes, ordinances, rules,
7
<PAGE>
regulations, orders and other requirements of all national governmental
authorities, and of all territories, states, municipalities and other political
subdivisions and agencies thereof, having jurisdiction over it, including,
without limitation, all such laws, regulations, ordinances and requirements
relating to antitrust, consumer protection, labor and employment, immigration,
health, occupational safety, pension and securities matters, except for
violations that individually, or in the aggregate, will have no material adverse
effect on the business, operations or financial condition of the Company. Since
the date of the balance sheet included in the Interim Financial Statements, the
Company has not received any notification of any asserted present or past
failure by the Company to comply with such laws, statutes, ordinances, rules,
regulations, orders or other requirements.
q. No Undisclosed Liabilities. To the knowledge of the Company, there are no
--------------------------
obligations, debts or liabilities of any nature of the Company, whether accrued
or unaccrued, contingent or absolute, direct or indirect, recorded or
unrecorded, potential or realized ("Liabilities") that would be required by GAAP
to be reflected or reserved against in the Financial Statements except (i) such
Liabilities as are reflected or reserved against in the Financial Statements or
disclosed therein and (ii) such Liabilities as are incurred after December 31,
1998, in the ordinary course of business and consistent with past practice and
which, in any event, would not, in the aggregate, have a material adverse effect
upon the business, operations or financial condition of the Company.
r. Employees.
---------
(a) The Schedule of Exceptions contains a complete, current and
correct list of all employees of the Company ("Employees"), which includes the
job position and compensation payable to each of the Employees.
(b) To the knowledge of the Company, the Company is in
compliance with all laws, statutes, ordinances, rules, regulations, orders and
other requirements relating to the employment of labor, including, without
limitation, Title VII of the federal Civil Rights Act of 1964, the federal Age
Discrimination in Employment Act of 1967, the federal Employee Retirement Income
Security Act of 1974, and any and all provisions thereof relating to wages,
hours, collective bargaining and the payment of social security and similar
taxes except for violations that individually, or in the aggregate, will have no
material adverse effect on the business, operations or financial condition of
the Company;
(c) There is no pending or, to the knowledge of the Company,
threatened charge, complaint, allegation, application or other process or claim
pending or threatened against the Company before any federal, territorial, state
or local or other governmental or administrative agency or other entity; and
(d) There is no labor dispute, strike, slowdown, work stoppage
or other job action pending, or, to the knowledge of the Company, threatened
against the Company.
s. Litigation.
----------
(a) There is no pending or, to the best knowledge of the
Company, threatened action, suit, arbitration proceeding, investigation or
inquiry before any court or governmental or administrative body or agency, or
any private arbitration tribunal, against, relating to or affecting the
8
<PAGE>
Company or any director, officer, agent or employee of the Company in his
capacity as such, or the assets, properties or business of the Company, or the
transactions contemplated by this Agreement;
(b) There is not in effect any order, judgment or decree of any court
or governmental or administrative body or agency enjoining, barring, suspending,
prohibiting or otherwise limiting the Company or any officer, director, employee
or agent of the Company from conducting or engaging in any aspect of the
Company's business, or requiring the Company or any officer, director, employee
or agent of the Company, to take certain action with respect to any aspect of
the business of the Company which could reasonably be anticipated to have a
material adverse effect on the business, operations or financial condition of
the Company; and
(c) The Company is not in violation of or in default under any
material order, judgment, writ, injunction or decree of any court or
governmental or administrative body or agency to which it is a party.
t. Environmental Compliance.
------------------------
(a) To the Company's knowledge, the Company has not been and is not
currently in violation of any Hazardous Materials Laws.
(b) For purposes of the foregoing:
(i) "Hazardous Materials Law" means any federal, state or local
law, order, rule or regulation relating to pollution, human health and the
environment or relating to the discharge, remediation, removal, manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Substances; and
(ii) "Hazardous Substance" means any substance, material,
chemical or waste, the presence of which requires investigation or remediation
under, or which is or becomes regulated by, any federal, state or local
governmental authority, due to its properties of being toxic, hazardous,
explosive, corrosive, flammable, infectious, radioactive, carcinogenic or
mutagenic.
u. Employee Benefit Plans. The Company does not have any employee benefit plan
----------------------
as defined in Section 3(3) of Employee Retirement Income Security Act of 1974,
as amended, or any plans, programs, arrangements or methods of contribution or
compensation sponsored by the Company or in which the employees participate,
including, without limitation, pension, retirement or severance plans,
disability, medical, dental or other health insurance plans. life insurance or
other death benefit plans and profit-sharing, deferred compensation, stock
option, bonus or other incentive plans.
v. Brokers and Finders. Except for accountants and attorneys acting as such
-------------------
(and not as brokers, finders or in other like capacity), all negotiations on
behalf of the Company relating to this Agreement and the transactions
contemplated hereby have been carried on directly by the Company without the
intervention of any broker, finder, investment banker or other third party
representing the Company. The Company has not engaged or authorized any broker,
finder, investment banker or other third party to act on its behalf directly or
indirectly, as a finder, investment banker or in any other like capacity in
connection with this Agreement or the transactions contemplated hereby or has
consented to or acquiesced in anyone so acting, and none knows of any claim for
compensation from
9
<PAGE>
any such broker, finder, investment banker or other third party for so acting or
of any basis for such a claim.
w. Offering. Subject to the truth and accuracy of the representations made by
--------
the Investor in Section 3 hereof, the offer, sale and issuance of the shares of
Series A Preferred Stock as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act of 1933, as amended (the "1933
Act"), and will have been registered or qualified (or are except) under the
registration, permit, or qualification requirements of all applicable state
securities laws, and neither the Company nor any authorized agent acting on its
behalf has taken or will take any action thereafter that would cause the loss of
any such exemption.
x. Reservation of Shares. The shares of common stock issuable on conversion of
---------------------
the Shares of Series A Preferred Stock, upon filing of the Restated Articles,
will be duly and validly reserved for issuance.
y. Use of Proceeds. The Company will use the proceeds from the sale of the
---------------
Shares as described in the Schedule of Exceptions.
z. Disclosure. The representations and warranties of the Company contained
----------
herein do not contain any statement of a material fact that was untrue or omit
any material fact necessary to make the information contained therein, in light
of the circumstances under which such information was disclosed, not misleading.
3. Representations and Warranties of Investor. Subject to the terms and
------------------------------------------
conditions of this Agreement, the Investor, after due inquiry and investigation,
makes the representations and warranties set forth as of the date hereof and as
of the date of the stock certificate for the Shares:
a. Organization; Qualification and Power. The Investor is a corporation duly
-------------------------------------
organized and validly existing under the laws of the State of Oregon, has all
requisite corporate power and authority to carry on its business as presently
contemplated to be conducted hereafter and is qualified to do business and in
good standing in every jurisdiction in which the failure to so qualify or be in
good standing, individually or in the aggregate, could have a material adverse
effect on the Investor.
b. Necessary Actions; Binding Effect. The Investor has taken all corporate
---------------------------------
action necessary to authorize the execution and delivery of, and the performance
of its obligations under, this Agreement. This Agreement constitutes a valid and
legally binding obligation of the Investor that is enforceable against the
Investor in accordance with its respective terms, except as such enforceability
may be limited by (i) bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights and (ii) general principles of equity relating to
the availability of equitable remedies (regardless of whether such agreement is
sought to be enforced in a proceeding at law or in equity).
c. No Violations. Neither the execution and delivery of this Agreement, nor
-------------
the consummation of the transactions contemplated hereby, will (a) violate any
provision of the Articles of Incorporation or the Bylaws of the Investor, (b)
violate, or be in conflict with, or constitute a default (or any event which,
with the giving of notice or lapse of time or both, would constitute a default)
under any material agreement or instrument to which the Investor is a party or
by which Investor is
10
<PAGE>
bound, or (c) violate any order, writ, injunction, decree, law, statute, rule or
regulation of any court or governmental authority applicable to the Investor.
d. Investment Intent. The Shares of Series A Preferred Stock being acquired
-----------------
under this Agreement are being purchased for the Investor's own account, and not
as a nominee or agent, and not with a view to, or for resale in connection with,
any distribution or public offering thereof within the meaning of the "1933
Act". The Investor understands that the Shares are characterized as "restricted
securities" under federal securities laws in as much as the Shares are being
acquired from the Company in a transaction not involving a public offering. The
Investor understands that the Shares have not been registered under the 1933 Act
by reason of their issuance or contemplated issuance in a transaction exempt
from the registration and prospectus delivery requirements of the 1933 Act that
they must be held indefinitely unless a subsequent disposition thereof is
registered under the 1933 Act or is exempt from registration, and that the
reliance of the Company and others on this exemption is predicated on the
Investor's representations and warranties. The Investor does not presently have
any contract, undertaking, agreement, or arrangement with any person to sell,
transfer, or grant participation to such person or to any third person, with
respect to the Shares of Series A Preferred Stock being sold hereunder except
that the Company is aware that the Investor intends to merge into and with
netValue Holdings, Inc. with netValue Holdings, Inc. being the surviving
corporation. The Investor understands that no public market presently exists for
the Shares or for any of the securities issued by the Company, and that the
Company has not made any assurances that a public market will ever exist for the
Shares of Series A Preferred Stock being acquired hereunder.
e. Information. The Investor has had an opportunity to discuss the Company's
-----------
business, management, financial affairs, and the terms and conditions of the
offering of the Series A Preferred Stock hereunder with the Company's management
and has had an opportunity to review the Company's facilities. The Investor
understands that such discussion, and any written information delivered to the
Investor, were intended to describe the aspects of the Company's business that
it believes to be material.
f. Accredited Investor. The Investor is an accredited investor as defined in
-------------------
Rule 501(a) of Regulation D promulgated under the 1933 Act.
g. Disclosure. The representations and warranties of the Investor contained
----------
herein do not contain any statement of a material fact that was untrue when made
or omit any material fact necessary to make the information contained therein,
in light of the circumstances under which such information was disclosed, not
misleading.
4. Conditions to the Closing.
-------------------------
a. Conditions to Obligations of the Company. The obligations of the Company to
----------------------------------------
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment or the Company's express written waiver, at or prior to the
Closing, of each of the following conditions:
i. Representations and Warranties; Covenants. The representations and
-----------------------------------------
warranties of the Investor contained in this Agreement shall have been true and
correct in all material respects shall be true and correct in all material
respects as of the date hereof, with the same force and effect as if made as of
the Closing; all the covenants contained in this Agreement to be complied with
by the
11
<PAGE>
Investor on or before the date hereof shall have been complied with in all
material respects; and the Company shall have received a certificate of the
Investor to such effect signed by a duly authorized officer thereof.
ii. No Order. No United States or state governmental authority or other
--------
agency or commission or United States or state court of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, injunction, judgment, decree or other order (whether temporary,
preliminary or permanent) which is in effect and has the effect of making such
transactions contemplated by this Agreement illegal or otherwise restraining or
prohibiting consummation of such transactions; provided, however, that each
party hereto shall use its reasonable best efforts to oppose and/or have any
such order, judgment, decree or injunction vacated and to avail itself of all
rights of appeal therefor, unless it has determined, in its reasonable
judgement, that such efforts would not have a substantial likelihood of success.
iii. Closing Deliveries. The Company shall have received the closing
------------------
deliveries described in Section 1.3.2(b).
b. Conditions to Obligations of the Investor. The obligations of the Investor
-----------------------------------------
to consummate the transactions contemplated by this Agreement shall be subject
to the fulfillment or the Investor's express written waiver, at or prior to the
Closing, of each of the following conditions:
i. Representations and Warranties; Covenants. The representations and
-----------------------------------------
warranties of the Company contained in this Agreement shall have been true and
correct in all material respects shall be true and correct in all material
respects as of the Closing, with the same force and effect as if made as of the
date hereof; all the covenants contained in this Agreement to be complied with
by the Company on or before the date hereof shall have been complied with in all
material respects; and the Investor shall have received a certificate of the
Company to such effect signed by a duly authorized officer thereof.
ii. No Order. No United States or state governmental authority or other
--------
agency or commission or United States or state court of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, injunction, judgment, decree or other order (whether temporary,
preliminary or permanent) which is in effect and has the effect of making the
transactions contemplated by this Agreement illegal or otherwise restraining or
prohibiting consummation of such transactions; provided, however, that each
party hereto shall use its reasonable best efforts to oppose and/or have any
such order, judgement, decree or injunction vacated and to avail itself of all
right of appeal therefor, unless it has determined, in its reasonable judgment,
that such efforts would not have a substantial likelihood of success.
iii. Amended and Restated Articles of Incorporation. The Company shall
----------------------------------------------
have adopted and filed the Restated Articles in the form attached hereto as
Schedule 4.2.3 with the Secretary of State of the State of California on or
before the Closing.
iv. Consent of netValue Holdings, Inc.. netValue Holdings, Inc. shall
---------------------------------
have consented to the transactions contemplated by this Agreement on or before
the Closing Date.
12
<PAGE>
v. Closing Deliveries. The Investor shall have received the closing
------------------
deliveries described in Section 1.3.1(b).
5. Consummation of Post-Closing Deliveries.
---------------------------------------
a. Restated Articles. The Company shall on and after the Closing Date
-----------------
diligently seek the approval from the Secretary of State of the State of
California of the Restated Articles. The Company shall keep the Investor
informed of the status of such approval. The Company shall delivered or cause to
be delivered to the Investor the stock certificates representing the Shares
immediately after the Secretary of State of the State of California's approval
of the Restated Articles. Upon the Investor's receipt of the stock certificates
representing the Shares, the Investor shall concurrently or as soon as possible
after such receipt wire transfer the amount of Seven Hundred Fifty Thousand
Dollars ($750,000) and execute and deliver or cause to be delivered the
Promissory Note and the Stock Pledge Agreement to the Company. The Investor
shall not be obligated to deliver or cause to be delivered to the Company the
Purchase Price until receipt of the stock certificates representing the Shares.
b. Termination. If the Secretary of State of the State of California does not
-----------
approve the Restated Articles substantially in the form attached hereto as
Schedule 4.2.3 within ten (10) days of the Closing Date, then the Investor may
elect to terminate this Agreement. If the Investor elects to terminate this
Agreement, then the Investor shall deliver to the Company written notice of
termination, and thereupon, this Agreement shall be terminated without
obligation or liability to any party in favor of any other party.
c. Registration Rights Agreement. The parties shall execute and deliver the
-----------------------------
Registration Rights Agreement as of the Closing Date; provided, however, that,
notwithstanding anything in the Registration Rights Agreement, the Registration
Rights Agreement shall not be effective if and until the Secretary of State of
the State of California approves the Restated Articles substantially in the form
attached hereto as Schedule 4.2.3, the Investor delivers the stock certificates
representing the Shares to the Company, and the Investor pays the Purchase Price
to the Company. If the Company elects to terminate this Agreement under Section
5.2, then the Registration Rights Agreement shall also be terminated without
obligation or liability of any party in favor of any other party.
6. Survival of Representations and Warranties. The respective representations
------------------------------------------
and warranties of the parties contained herein or in any certificates or the
documents delivered prior to or at the Closing shall not be deemed waived or
otherwise affected by any investigation made by any party hereto and shall
survive the Closing for a period of two years. Any covenants of any party hereto
which requires performance by such party subsequent to the date hereof shall
survive the execution and delivery of this Agreement and the consummation of the
other transactions contemplated hereby until such covenants have been fully
discharged by performance thereof in accordance with the applicable terms and
provisions of this Agreement.
7. Miscellaneous.
-------------
a. Information Obligations. The Company shall furnish to the Investor or any
-----------------------
successor-in-interest such information regarding the Company and its
shareholders as the Investor or any successor-in-interest may reasonably request
from time to time in order to permit them to comply with the
13
<PAGE>
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, and any applicable state securities laws in connection with the
preparation and filing of any registration statements and reports thereunder,
including without limitation business descriptions, capitalizations schedules,
and product updates. Notwithstanding the foregoing, the Company should not be
required to furnish any information if the furnishing thereof would cause it to
breach any confidentiality or nondisclosure agreement to which it is subject.
The Investor shall reimburse the Company for any reasonable expenses it may
incur in connection with the furnishing of any information hereunder.
b. Expenses. Each party shall each bear its own expenses in connection with
--------
the transactions contemplated by this Agreement, including the fees of
attorneys, accountants, advisors, brokers, investment bankers and other
representatives.
c. Notices. Any notice, consent, authorization or other communication to be
-------
given hereunder shall be in writing and shall be deemed duly given and received
when delivered personally or transmitted by facsimile transmission with receipt
acknowledged by the addressee or three (3) days after being mailed by first
class mail, or the next business day after being deposited for next-day delivery
with a nationally recognized overnight delivery service, charges and postage
prepaid, properly addressed to the party to receive such notice at the following
address for such party (or at such other address as shall be specified by a like
notice):
If to the Company, to: Asia CD, Inc.
28 Second Street, Suite 100
San Francisco, California 94105
Telephone: (415) 777-3280
Facsimile: (415) 777-3608
with copies to: Stephen J. DeCosse
Howard Rice Nemerovski Canady Falk
& Rabkin
Three Embarcadero Center, 7th Floor
San Francisco, California 94111
Telephone: (415) 434-1600
Facsimile: (415) 217-5910
If to the Investor: Strategicus Partners, Inc.
15455 N.W. Greenbrier Parkway, #210
Beaverton, Oregon 97006
Telephone: (800) 893-8894
Facsimile: (800) 893-8895
with copies to: David R. Ludwig
Farleigh, Wada & Witt, P.C.
121 S.W. Morrison Street, Suite 600
Portland, Oregon 97204
Telephone: (503) 228-6044
Facsimile: (503) 228-1741
14
<PAGE>
d. Counterparts. This Agreement may be executed in any number of counterparts,
------------
each of which shall be an original, and all of which together shall constitute
but one and the same instrument.
e. Entire Agreement. Unless otherwise specifically agreed in writing, this
----------------
Agreement and the schedules and exhibits attached hereto represent the entire
understanding of the parties with reference to the transactions set forth
herein, and supersede all prior representations, warranties, understandings and
agreements heretofore made by the parties, and neither this Agreement nor any
provisions hereof may be amended, waived, modified or discharged except by an
agreement in writing signed by the party against whom the enforcement of any
amendment, waiver, change or discharge is sought.
f. Binding Agreement. This Agreement shall be binding upon and inure to the
-----------------
benefit of the parties hereto and their respective heirs, successors and
assigns.
g. Parties in Interest. Nothing in this Agreement, whether express or implied,
-------------------
is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third persons to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action over or against any party to this Agreement.
h. Governing Law. This Agreement is deemed to have been made in the State of
-------------
Oregon, and its interpretation, its construction and the remedies for its
enforcement or breach are to be applied pursuant to, and in accordance with, the
laws of the State of Oregon as such apply to contracts made and to be performed
in that state.
i. Severability; Construction. In the event any provision hereof is determined
--------------------------
to be invalid or unenforceable, the remaining provisions hereof shall be deemed
severable therefrom and shall remain in full force and effect. Words and phrases
defined in the plural shall also be used in the singular and vice versa and be
construed in the plural or singular as appropriate and apparent in the context
used. Unless otherwise specifically provided herein, accounting terms shall be
given and assigned their usual meaning and effect as defined or used in GAAP.
j. Assignment. The Investor may assign this Agreement and may transfer or
----------
assign all or any part of the Shares of Series A Preferred Stock acquired
hereunder provided that the Investor complies with the provisions of the 1933
Act and applicable state securities laws in respect to the transfer of any of
the Shares of Series A Preferred Stock acquired hereunder . The Company may not
assign this Agreement or any rights hereunder or delegate any duties hereunder.
Any attempted or purported assignment or delegation in violation of the
proceedings shall be void.
k. Arbitration. All disputes between the parties hereto shall be determined
-----------
solely and exclusively by arbitration in accordance with the commercial
arbitration rules then in effect of the American Arbitration Association, or any
successors hereto ("AAA"), in San Francisco County, California unless the
parties otherwise agree in writing. The parties shall jointly select an
arbitrator. In the event the parties fail to agree upon an arbitrator within ten
(10) days, then each party shall select an arbitrator and such arbitrators shall
then select a third arbitrator to serve as the sole arbitrator; provided, that
if either party, in such event, fails to select an arbitrator within seven (7)
days, such
15
<PAGE>
arbitrator shall be selected by the AAA upon application of either party.
Judgment upon the award of the agreed upon arbitrator or the so chosen third
arbitrator, as the case may be, shall be binding and shall be entered into by a
court of competent jurisdiction.
l. Attorneys' Fees. In the event of any action at law or in equity in relation
---------------
to this Agreement, the prevailing party in such action or suit shall be entitled
to receive its reasonable attorneys' fees and all other costs and expenses of
such action or suit.
m. Stock Option Agreement. The Company and the Investor agree that, promptly
----------------------
after the Closing, they will negotiate and prepare a consulting and stock option
agreement to provide for (i) certain consulting services to be provided by the
Investor to the Company and (ii) and stock options to be issued by the Company
to the Investor for three hundred thousand (300,000) shares of Common Stock
subject to a three (3) year vesting schedule, such agreement to have such other
terms and conditions as the parties may agree.
n. Facsimile Signatures. Facsimile transmissions of any signed original
--------------------
document, and retransmission of any signed facsimile transmission, shall be the
same as delivery of an original. At the request of either party, the parties
shall confirm facsimile transmitted signatures by signing an original document.
[SIGNATURE PAGE FOLLOWS.]
16
<PAGE>
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the day and year first written above.
COMPANY:
ASIA CD, INC.
By:/s/ Joshua Lau
-----------------------------------
Joshua Lau,
-----------------------------------
[SIGNATURE PAGE CONTINUES]
17
<PAGE>
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
INVESTOR:
STRATEGICUS PARTNERS, INC.
By:/s/ Douglas B. Spink
-----------------------------------
Its: President
----------------------------------
18
<PAGE>
SCHEDULE 1.3.2(a)(i)
FORM OF PROMISSORY NOTE
-----------------------
See attached.
19
<PAGE>
SCHEDULE 1.3.2(a)(ii)
FORM OF STOCK PLEDGE AGREEMENT
------------------------------
See attached.
20
<PAGE>
SCHEDULE 2
SCHEDULE OF EXCEPTIONS
----------------------
The information set forth in this Schedule of Exceptions shall apply to or
qualify any or all applicable representations and warranties that the Company
makes under the Stock Purchase Agreement to which this Schedule is attached. All
capitalized terms used without definition in this Schedule of Exceptions shall
have the meanings assigned to them in the Stock Purchase Agreement.
Between February 6, 1998 and May 13, 1998, the then-effective Articles of
Incorporation authorized 1,000,000 shares of Common Stock, and the Company
issued a total of 2,750,000 shares of Common Stock. This inadvertent error was
remedied on July 16, 1998 when the Company filed with the California Secretary
of State a Certificate of Amendment to its Articles of Incorporation authorizing
50,000,000 shares of Common Stock.
Notwithstanding that a number of the investors in the Company received
stock certificates dated July 15, 1998 with respect to shares of Common Stock
issued to them, the issuance of shares to such persons took place on July 16,
1998. No securities filings under state or federal law have yet been made in
connection with any issuances of capital stock by the Company. The Company is
working with counsel to prepare and make such filings.
Hong Lee, a former employee, purchased the following shares of Common
Stock at the following times: (i) 5,000 shares and (ii) 5,000 shares pursuant to
a stock dividend effective on February 1, 1999. The total consideration paid for
such shares by Mr. Hong is $1500. Without further investigation, the Company
does not know whether Mr. Lee will qualify for a 25102(f) exemption from
qualification under California securities law. If he does not, he may have
rescission rights with respect to the shares of Common Stock acquired for the
statutory period.
The Company has issued a Convertible Promissory Note dated June __, 1999
in the original principal amount of $250,000 to NetValue Holdings, Inc. and has
entered into a letter of understanding with NetValue Holdings with respect to
the investment in the Company to be made by Strategicus Partners, Inc.
The Company has not adopted a written sexual harassment policy or any
other policies or reporting requirements that may be required by applicable
employment or labor laws, including, without limitation, vacation policies and
requirements to classify employees as "exempt" and "exempt" under the Fair Labor
Standards Act, California labor standards regulations or other applicable law.
The current space where the office of the Company is located may not comply with
San Francisco building codes. Except to the extent set forth below with respect
to Tai Seng Video, the Company has not investigated, and does not know, whether
it sells any compact disks, DVDs or other types of media in violation of
applicable laws, including copyright laws, or third party exclusive distribution
rights.
The Company owns or has a license to the following items of Intellectual
Property: software and specifications developed in connection with the front-end
of the Company's Website, software and specifications relating to the back-end
of the Company's Website, including, among other
21
<PAGE>
things, items relating to order processing, order tracking, process of changing
Asian characters into graphic files, customer lists and information relating
thereto, supplier and vendor lists and information relating thereto, trade
secrets and know-how relating to the process of conducting the business of the
Company, and common law copyrights in materials prepared by the Company for
various purposes. The Company has entered into development and consulting
agreement with Vest Technologies pursuant to which the Company obtains certain
rights in intellectual property developed by Vest Technologies. The Company
utilizes Yahoo as a back-end service provider with respect to its website.
The Company has filed an intent to use trademark application with respect
to the name "popbids" with the United States Patent and Trademark Office. The
Company uses the name "AsiaCD" and has the domain name "Asia CD." The Company
has registered and maintains (but does not currently use) a number of other
domain names.
The Board of Directors of the Company approved a 1999 stock option plan of
the Company on July 28, 1999. It has also approved the hiring of a Chief
Operating Officer and Controller at salaries of $96,000 and $78,000,
respectively, subject to the negotiation by the officers of the Company of
definitive agreements with respect to the same. In addition, the Board approved
the issuance of options to purchase Common Stock to each of such persons in the
amount of 250,000 shares and 250,000 shares, respectively, subject to the
negotiation by the officers of the Company of satisfactory terms for such stock
options.
The Company has not formally adopted a customer privacy policy on its
Website.
The Company does not currently maintain any insurance policies, including
commercial general liability insurance. The Company does not currently maintain
workmen's compensation insurance. The Company is negotiating for the purchase of
workmen's compensation insurance. The Company maintains a health plan for
certain of its employees. The name of the health plan is Chinese Community
Health Plan-Small Group-Medical and Hospital Service Agreement.
Michael Lui, a director of the Company, is the President of Tang Fat
Enterprises, the current landlord of the Company. On July 28, 1999, the Board of
Directors approved entering into a new office lease agreement with Tang Fat
Enterprises, subject to negotiation of the definitive Lease Agreement.
The Company has no item of tangible personal property with a replacement
cost of more than $10,000.
The Company received a letter dated May 18, 1999 from Tai Seng Video
claiming that the Company was selling 59 titles in violation of Tai Seng Video's
exclusive rights to sell such titles in the United States and subsequently,
through its attorney, exchanged correspondence regarding such claim. The
Company's initial investigation of Tai Seng Video's claim was inconclusive. The
Company is currently purchasing such titles directly from Tai Seng Video.
The Company is not a S-Corporation for tax purposes. The Board of
Directors of the Company have not approved the Company's medical plan.
22
<PAGE>
The Company has entered into the following material contracts: Vest
Technologies Website Development and Consulting Agreement. Company's lease of
office space with Tang Fat Enterprises. The Company currently purchases titles
from its suppliers on a case by case basis and not pursuant to any master
purchase agreement. The Company makes available on its Website an opportunity
for persons enter into a referral agreement with the Company pursuant to which
the Company pays a commission to persons who refer business to it. No individual
referral agreement is material. In the aggregate, business generated from such
referrals accounts for about 8% of the business of the Company. The Company has
entered into non-disclosure agreements with its employees. Engagement Letter
with Howard, Rice et al. Engagement Letter with Pam Buda for consulting services
in connection with developing a business plan.
Since December 31, 1998, the Company entered into the Vest Technologies
agreement, the monthly salary of Joshua Lau was increased from $2500 to $5000,
the monthly salary of Priscilla Chu was increased from $2500 to $4000 and the
officers of the Company adopted its health plan in April, 1999.
The Company anticipates that the proceeds from the sale of Series A
Preferred Stock under the Stock Purchase Agreement will be applied to one or
more of the following Company areas: hiring employees, moving into a new office,
improvement in infrastructure, including the Company's Website, marketing,
database development and international development and expansion.
The following is a complete, current and correct list of all employees of
the Company (the "Employees"), which includes the job position and the
compensation payable to each of the Employees:
- ------------------------------------------------------------------------------
Full Time Position Salary
- --------- -------- ------
KwokChu Lau (Joshua) CEO 2,500
Lai King Chu (Priscilla) CTO 1,500
Elaine Wong Accountant 1,900
Sharon Yu Sales Associate 2,000
Cheung-Luen Wat Production Assistant 1,650
Yuk-Chun Poon (Jade) Senior Accounting Assistant 1,500
Mu Yan Liao (Amy) Shipment Assistant 1,050
Part Time Position Salary
- --------- -------- ------
Stephen Chung Chu VP of Operation (Part Time) 500
Yvonne Ya Yee Lee Production Assistant 230
Chiu-Hung Kwong Shipment Assistant 860
Vivian Jian Min Yun Production Assistant 150
Susan Chiu Customer Assistant 800
- ------------------------------------------------------------------------------
23
<PAGE>
SCHEDULE 4.2.3
AMENDED AND RESTATED ARTICLES OF INCORPORATION
----------------------------------------------
Kwok Chu Lau and Priscilla Chu certify that:
1. They are, respectively, the President and Secretary of Asia CD, Inc., a
California corporation (the "corporation").
2. The Articles of Incorporation of this corporation are amended and
restated to read as follows:
I
The name of this corporation is Asia CD, Inc.
II
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III
This corporation is authorized to issue two classes of shares of stock, to
be designated Common and Preferred, respectively. This corporation is authorized
to issue 50,000,000 shares of Common Stock and 10,000,000 shares of Preferred
Stock. The shares of Preferred Stock may be issued from time to time in series.
The par value of Common Stock and Preferred Stock is $0.001 per share.
Of the 10,000,000 shares of Preferred Stock, this corporation is
authorized to issue 1,100,000 shares of Series A Preferred Stock.
The Board of Directors of this corporation (the "Board") is authorized to
fix or alter the rights, preferences, privileges, and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock, including but not
limited to the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions) and the
liquidation preferences, and the number of shares constituting any such series
and the designation thereof, or any of them; and to increase or decrease the
number of shares of any series subsequent to the issue of shares of such series.
In case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
IV
24
<PAGE>
The Series A Preferred Stock will have the following rights, privileges,
preferences and restrictions:
A. Voting Rights.
-------------
(1) Except as otherwise provided below with respect to the election
of directors or as required by law, the holders of Series A Preferred Stock will
be entitled to notice of any meeting of shareholders of the corporation and to
vote upon any matter submitted to shareholders of the corporation on the
following basis: each share of Series A Preferred Stock will be treated as the
number of shares of Common Stock into which such share could be converted
pursuant to paragraph D below on the record date fixed for the vote or consent
of shareholders.
(2) The holders of the Series A Preferred Stock will be entitled,
voting as a separate class, to elect one (1) director; provided that at such
time as the number of outstanding shares of Series A Preferred Stock (prior to
conversion into Common Stock or retirement) represents less than 7.5% of the
outstanding voting capital stock of the corporation, then the Common Stock and
all series of Preferred Stock (voting on an as-converted into Common Stock
basis) will be entitled to elect all directors. Any director elected solely by
the holders of the Series A Preferred Stock, or of the Common Stock and all
series of Preferred Stock (voting on an as-converted into Common Stock basis),
as the case may be, may be removed, either with or without cause, by, and only
by, the affirmative vote of the holders of the shares of the Series A Preferred
Stock, or of the Common Stock and all series of Preferred Stock (voting on an
as-converted into Common Stock basis), as the case may be.
(3) Except as otherwise required by law or provided by these
Articles of Incorporation, a majority of the shares entitled to vote,
represented in person or by proxy, will constitute a quorum at a meeting of
shareholders; provided that for action upon any matter as to which holders of
shares are entitled to vote as a class, a majority of the shares of such class,
represented in person or by proxy, will constitute a quorum.
B. Dividends. The holders of the Series A Preferred Stock will be
---------
entitled to receive, prior and in preference to the holders of Common Stock,
when, as and if declared by the Board out of any assets at the time legally
available therefor, noncumulative cash dividends at the rate of $0.08 per annum
on each outstanding share of Series A Preferred Stock (as appropriately adjusted
for stock splits, stock dividends on Series A Preferred Stock, stock
combinations and stock reclassifications and the like). No dividend shall be
declared or paid or other distributions made (other than those payable solely in
shares of Common Stock) with respect to the Common Stock during any fiscal year
of the Corporation (except pursuant to Compensatory Share Repurchase Rights as
defined in paragraph C(4) below or pursuant to the corporation's exercise of any
contractual or other legal rights of first refusal upon a proposed transfer of
shares) until any declared dividends in the aforesaid amounts on the outstanding
shares of Series A Preferred Stock shall have been paid in such fiscal year.
C. Liquidation Preference.
----------------------
(1) For purposes hereof, the Original Purchase Price of the Series A
Preferred Stock is $1.00 per share.
25
<PAGE>
(2) In the event of the liquidation, dissolution or winding up of the
corporation, either voluntary or involuntary, the holders of Series A Preferred
Stock will be entitled to receive out of the assets of the corporation, for each
share of the Series A Preferred Stock then held by them: prior and in preference
to any distribution to the holders of the Common Stock, an amount equal to the
Original Purchase Price of the Series A Preferred Stock (as appropriately
adjusted for stock splits, stock dividends on Series A Preferred Stock, stock
combinations and stock reclassifications and the like), plus all declared and
unpaid dividends with respect thereto, and no more. If upon the occurrence of
such event the assets and funds available for distribution among the holders of
the Series A Preferred Stock are insufficient to permit the payment to such
holders of the full preferential amount provided in the immediately prior
sentence, then the entire assets and funds of the corporation legally available
for distribution to the holders of the Series A Preferred Stock will be
distributed ratably among the holders of the Series A Preferred Stock in
proportion to the shares of the Series A Preferred Stock held by each such
holder. After payment has been made to the holders of the Series A Preferred
Stock of the full amounts to which they will be entitled as aforesaid, any
remaining assets will be distributed ratably among the holders of the
corporation's Common Stock.
(3) A liquidation, dissolution or winding up for the purposes of this
paragraph C includes a sale of all or substantially all of the assets of the
corporation (a "Sale of Corporation") and a merger, consolidation or
reorganization of the corporation with or into any other corporation or
corporations where the shareholders of the corporation immediately prior to such
event do not retain more than a fifty percent (50%) voting interest in the
successor entity (a "Merger"). No later than twenty days before the consummation
of any Merger or Sale of Corporation, the corporation shall deliver a notice to
each holder of Series A Preferred Stock setting forth the principal terms of
such Merger or Sale of Corporation. Such notice shall be deemed delivered upon
personal delivery or five days after deposit in the United States mail, by
registered or certified mail, addressed to a party at its address as shown on
the stock records of the corporation.
(4) Each holder of an outstanding share of Series A Preferred Stock
shall be deemed to have consented, for purposes of Sections 502, 503 and 506 of
the California Corporations Code, to distributions made by this corporation in
connection with the repurchase at cost (or such other price as may be agreed to
by the Board) of shares of Common Stock issued to or held by officers, directors
or employees of, or consultants to, this corporation upon termination of their
employment or services pursuant to agreements (whether now existing or hereafter
entered into) providing for the right of said repurchase between this
corporation and such persons (the "Compensatory Share Repurchase Rights").
D. Conversion to Common Stock. The Series A Preferred Stock shall be
--------------------------
convertible into Common Stock of the corporation as follows:
(1) Optional Conversion. Each holder of Series A Preferred Stock may,
-------------------
at any time, and from time to time, convert any or all of such holder's shares
of Series A Preferred Stock into fully-paid and non-assessable shares of Common
Stock.
(2) Automatic Conversion. Each share of Series A Preferred Stock
--------------------
shall automatically be converted into shares of Common Stock immediately (a)
upon the closing of the corporation's sale of its Common Stock in an
underwritten public offering registered under the Securities Act of
26
<PAGE>
1933, as amended (other than a registration on Form S-8, Form S-4 or comparable
forms), which results in aggregate cash proceeds (net of underwriter commissions
and offering expenses) to the corporation of not less than $10,000,000 and which
has a public offering price of not less than $3.00 per share (as appropriately
adjusted for stock splits, stock dividends on Series A Preferred Stock, stock
combinations and stock reclassifications and the like) or (b) upon the
conversion of at least 50% of the maximum number of shares of Series A Preferred
Stock outstanding at any time.
(3) Conversion Ratio.
----------------
(a) Upon conversion, each share of Series A Preferred Stock
shall be converted into the number of shares of Common Stock that results from
dividing the Original Purchase Price by the Conversion Price in effect at the
time of conversion.
(b) The initial Conversion Price will be the Original Purchase
Price, so that prior to any adjustment from time to time under certain instances
as hereinafter provided, each share of Series A Preferred Stock shall be
convertible into one share of Common Stock.
(c) In the case of optional conversion, before any holder of
Series A Preferred Stock shall be entitled to convert the same into Common
Stock, such holder shall surrender the certificate or certificates therefor (or
an affidavit certifying that such certificate has been mutilated or apparently
lost, destroyed or stolen along with an appropriate indemnity), duly endorsed,
to the office of the corporation or any transfer agent for such Series A
Preferred Stock and shall give written notice to the corporation at such office
that it elects to convert the same. The corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder, or to
its nominee or nominees, certificates for the number of full shares of Common
Stock to which it shall be entitled, together with cash in lieu of any fraction
of a share as hereinafter provided, and, if less than all of the shares
represented by such certificate are converted, a certificate representing the
shares of Series A Preferred Stock not converted. Such conversion shall be
deemed to have been made as of the date of such surrender of the certificate for
the stock to be converted, and the person or persons entitled to receive the
Common Stock deliverable upon such conversion shall be treated for all purposes
as the record holder or holders of such Common Stock on such date. If the
conversion is in connection with an offer of securities registered pursuant to
the Securities Act of 1933, as amended, the conversion may, at the option of any
holder tendering shares of Series A Preferred Stock for conversion, be
conditioned upon the closing of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common Stock
deliverable upon such conversion of the Series A Preferred Stock shall not be
deemed to have converted such Series A Preferred Stock until effective with the
closing of such sale of securities.
(d) In the case of automatic conversion, on and after the
related conversion event, notwithstanding that any certificates for such shares
of Series A Preferred Stock subject to such conversion shall not have been
surrendered for conversion, the shares of Series A Preferred Stock evidenced
thereby shall be deemed to be no longer outstanding, and all rights with respect
thereto shall forthwith cease and terminate, except only the rights of the
holder (i) to receive the shares of Common Stock to which such holder shall be
entitled upon conversion thereof and to be deemed for all purposes as the record
holder of such Common Stock as of the automatic conversion date, and (ii) to
receive the amount of cash payable in respect of any fractional share of Common
Stock to which such holder shall be entitled.
27
<PAGE>
(4) Adjustments to Conversion Price. The Conversion Price in effect
-------------------------------
from time to time shall be subject to adjustment in certain cases as follows:
(a) Adjustment for Subdivisions or Combinations of Common Stock.
-----------------------------------------------------------
In the event the corporation at any time or from time to time after the
effective date of the initial sale of Series A Preferred Stock (the "Original
Issue Date") effects a subdivision or combination of its outstanding Common
Stock into a greater or lesser number of shares without a proportionate and
corresponding subdivision or combination of its outstanding Series A Preferred
Stock, then the existing Conversion Price for the Series A Preferred Stock will
be decreased or increased proportionately.
(b) Adjustment for Dividends, Distributions and Common Stock
--------------------------------------------------------
Equivalents. In the event the corporation at any time or from time to time after
- -----------
the Original Issue Date makes or issues, or fixes a record date for the
determination of holders of Common Stock (but not holders of Series A Preferred
Stock) entitled to receive a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights (hereinafter
referred to as "Common Stock Equivalents") convertible into or entitling the
holder thereof to receive additional shares of Common Stock without payment of
any consideration for such Common Stock Equivalents or the additional shares of
Common Stock, for the purpose of protecting the holders of Series A Preferred
Shares from any dilution in connection therewith, then and in each such event
the maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein for a subsequent adjustment
of such number) of Common Stock issuable in payment of such dividend or
distribution or upon conversion or exercise of such Common Stock Equivalents
will be deemed to be issued and outstanding as of the time of such issuance or,
in the event such a record date has been fixed, as of the close of business on
such record date. In each such event, the then existing Conversion Price for the
Series A Preferred Stock will be increased as of the time of such issuance or,
in the event such a record date has been fixed, as of the close of business on
such record date, by multiplying the Conversion Price for the Series A Preferred
Stock by a fraction:
(i) the numerator of which will be the total number of
shares of Common Stock and Common Stock Equivalents issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date; and
(ii) the denominator of which will be the total number of
shares of Common Stock and Common Stock Equivalents issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date plus number of shares of Common Stock issuable in payment of such
dividend or distribution or upon conversion or exercise of such Common Stock
Equivalents;
provided, however, if such record date has been fixed and such dividend is not
fully paid or if such distribution is not fully made on the date fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Conversion Price for the Series A Preferred Stock will be
recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price for the Series A Preferred Stock will be
adjusted pursuant to this paragraph (4) as of the time of actual payment of such
dividends or distribution.
(c) Adjustments for Recapitalizations, etc. If at any time or
--------------------------------------
from time to time there shall be a recapitalization of the Common Stock (other
than a subdivision or combination
28
<PAGE>
provided for elsewhere in this paragraph D) or payment of a dividend or
distribution (other than a cash dividend, or dividends and distributions as to
which paragraphs (4)(a) or (4)(b) of this paragraph D apply), provision shall be
made so that the holders of Series A Preferred Stock shall thereafter be
entitled to receive upon conversion of such Series A Preferred Stock the number
of shares of stock or other securities or property of the corporation or
otherwise, to which it would have received had it converted its shares of Series
A Preferred Stock into Common Stock immediately prior to such recapitalization,
dividend or distribution. In any such case, appropriate adjustment shall be made
in the application of the provisions of this paragraph D with respect to the
rights of the holders of Series A Preferred Stock after the recapitalization to
the end that the provisions of this paragraph D (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of shares of Series A Preferred Stock) shall be applicable after that
event as nearly equivalent as may be practicable.
(d) Second Successive Changes. The above provisions of this
-------------------------
paragraph D shall similarly apply to successive dividends or other
distributions, subdivisions and combinations on or of the Common Stock after the
Original Issue Date.
(e) No Impairment. The corporation will not, by amendment of the
-------------
corporation's Articles of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this paragraph D and in the taking of all
such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of Series A Preferred Stock against impairment.
(f) Excluded Events. Notwithstanding anything in this paragraph
---------------
D to the contrary, the Conversion Price shall not be adjusted by virtue of the
conversion of shares of Series A Preferred Stock into shares of Common Stock.
(g) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Price pursuant to this paragraph D,
the corporation, at its expense promptly shall compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based.
(5) Reservation of Stock Issuable Upon Conversion. The corporation at
---------------------------------------------
all times will reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of Series A Preferred Stock such number of its shares of Common Stock as
from time to time will be sufficient to effect the conversion of all then
outstanding shares of Series A Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock is not sufficient to effect the
conversion of all then outstanding shares of Series A Preferred Stock, in
addition to such other remedies as may be available to the holders of Series A
Preferred Stock for such failure, the corporation will take such corporate
action as, in the opinion of its counsel, may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as will
be sufficient for such purpose.
29
<PAGE>
(6) No Fractional Shares. No fractional shares shall be issued upon
--------------------
conversion of shares of Series A Preferred Stock. Whether or not fractional
shares would be issuable upon such conversion shall be determined on the basis
of the total number of shares of Series A Preferred Stock the holder is at the
time converting into Common Stock and the number of shares of Common Stock
issuable upon such aggregate conversion. If the conversion would result in any
fractional share, the corporation shall, in lieu of issuing any fractional
share, pay the holder an amount in cash equal to the fair market value of such
fractional share on the date of conversion (as determined in good faith by the
Board).
(7) Notices of Record Date. In the event of any taking by the
----------------------
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the corporation
will dispatch to each holder of Series A Preferred Stock at least 20 days prior
to the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or rights,
and the amount and character of such dividend, distribution or right.
(8) Other Notices. Any notices required by the provisions of this
-------------
paragraph D to be given to the holders of shares of Series A Preferred Stock
must be in writing and will be deemed given upon personal delivery, one day
after deposit with a reputable overnight courier service for overnight delivery
or after transmission by facsimile telecopier with confirmation of successful
transmission, or three business days after deposit in the United States mail, by
registered or certified mail postage prepaid, or upon actual receipt if given by
any other method, addressed to each holder of such record at his address
appearing on the books of the corporation.
E. Covenants. Except as otherwise required by law, this corporation shall
---------
not, without first obtaining the affirmative vote or written consent of the
holders of not less than a majority of the outstanding shares of Series A
Preferred Stock voting as a class, take any action, or permit any action to be
taken, to amend or repeal any provision of, or add any provision to, this
corporation's Articles of Incorporation or bylaws if such action would adversely
effect the rights, preferences, privileges or powers of the Series A Preferred
Stock.
V
The liability of the directors of this corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law. Any
repeal or modification of this Article, or the adoption or any provision of the
Articles of Incorporation inconsistent with this Article, shall only be
prospective and shall not adversely affect the rights under this Article in
effect at the time of the alleged occurrence of any act or omission to act
giving rise to liability.
VI
This corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with agents, vote of shareholders or disinterested
directors or otherwise, in excess of the indemnification otherwise permitted by
Section 317 of the California Corporations Code, subject only to the applicable
limits
30
<PAGE>
set forth in Section 204 of the California Corporations Code with respect to
actions for breach of duty to this corporation and its shareholders. Any repeal
or modification of this Article, or the adoption of any provision of the
Articles of Incorporation inconsistent with this Article, shall only be
prospective and shall not adversely affect the rights under this Article in
effect at the time of the alleged occurrence of any action or omission to act
giving rise to indemnification.
3. The foregoing amendment and restatement of Articles of Incorporation
has been duly approved by the Board.
4. The foregoing amendment and restatement of Articles of Incorporation
has been duly approved by the required vote of shareholders in accordance with
Section 902 of the Corporations Code. The total number of outstanding shares of
the corporation is 7,087,500 shares of Common Stock and no shares of Preferred
Stock. The number of shares of each class voting in favor of the amendment
equaled or exceeded the vote required. The percentage vote required of each
class was more than 50%.
I further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true of our own
knowledge.
Executed at San Francisco, California on this ____ day of July, 1999.
/s/
-----------------------------------------------
Kwok Chu Lau, President
/s/
-----------------------------------------------
Priscilla Chu, Secretary
31
<PAGE>
SCHEDULE 4.2.4
REGISTRATION RIGHTS AGREEMENT
-----------------------------
See attached.
32
<PAGE>
EXHIBIT 10.16
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT (the "Agreement") is made as of this
28th day of July, 1999, by and between COLLEGE411.COM, INC., a Delaware
corporation (the "Company"), and STRATEGICUS PARTNERS, INC., an Oregon
corporation (the "Investor").
RECITALS:
--------
A. The Company wishes to issue and sell to the Investor one million five
hundred thousand (1,500,000) shares (the "Shares") of the Company's common
stock, par value $0.001 per share (the "Common Stock"); and
B. The Investor wishes to purchase the Shares on the terms and subject to
the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants,
warranties and agreements contained herein, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto do hereby agree as follows:
1 Purchase and Sale of Common Stock.
---------------------------------
1.1 Sale and Issuance of Common Stock. Subject to the terms and conditions
---------------------------------
of this Agreement, the Investor agrees to purchase, and the Company agrees
to sell and issue to Investor at the Closing (as defined in Section 1.2),
one million five hundred thousand (1,500,000) Shares of Common Stock at
the purchase price of six and two-thirds cents (6 2/3 (cent)) per share
for an aggregate purchase price of One Hundred Thousand Dollars ($100,000)
(the "Purchase Price").
1.2 The Closing. The transactions contemplated by this Agreement shall be
-----------
consummated at the closing (the "Closing") which shall take place
immediately following fulfillment or waiver, in accordance with this
Agreement, of all conditions to the Closing (the "Closing Date"), but in
any event no later than July 30, 1999, unless extended by mutual written
agreement of the parties. The Closing shall occur on the Closing Date at
10:00 a.m. at Farleigh, Wada & Witt, P.C., 121 S.W. Morrison Street, Suite
600, Portland, Oregon 97204.
1.3 Closing Deliveries. In connection with and at the time of Closing:
------------------
1.3.1 By the Company. The Company shall deliver or cause to be
--------------
delivered to the Investor the following:
(a) Stock certificates representing the Shares purchased by
the Investor;
(b) Evidence of the receipt of third-party consents and
approvals required to enable the Company to consummate the transaction as
contemplated by this Agreement without breaching the representations and
warranties set forth in Section 2 of this Agreement;
<PAGE>
(c) A warrant in the form attached hereto as Schedule
1.3.1(c) (the "Warrant Agreement") duly executed by the Company;
(e) Good standing certificates from the States of
California and Delaware with respect to the Company;
(f) A certificate, signed by a duly authorized officer of
the Company and dated as of the Closing Date, as described in Section 4.2.1; and
(g) A certificate, signed by the Secretary of the Company,
certifying the truth and correctness of the Company's respective Certificate of
Incorporation, Bylaws, and resolutions of the Board of Directors of the Company
approving this Agreement and the consummation of the transactions contemplated
hereby.
1.3.2 By the Investor. The Investor shall deliver or cause to be
---------------
delivered to the Company:
(a) Cash by wire transfer to the Company in the amount of
the Purchase Price;
(b) The Warrant Agreement, duly executed by the Investor;
and
(c) A certificate, signed by a duly authorized officer of
the Investor, as described in Section 4.1.1.
2 Representations and Warranties of the Company. As a material inducement to
---------------------------------------------
Investor to enter into this Agreement, the Company, after due inquiry and
investigation and except as set forth in Schedule 2 (the "Schedule of
Exceptions"), makes to the Investor the following representations and
warranties as of the date hereof and as of the Closing Date:
2.1 Organization of the Company. The Company (a) is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the
State of Delaware; (b) is qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the
ownership of its property or the conduct of its business requires such
qualification, except where failure to so qualify would not have a
material adverse effect upon the Company's business, its properties or its
financial condition; and (c) has all necessary corporate power and
authority to carry on its business as it is now being conducted and to own
or lease and operate its properties and assets.
2.2 No Subsidiaries. The Company does not, directly or indirectly, own or
---------------
control any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business organization, trust or
other entity.
2.3 Capitalization.
--------------
(a) The authorized capital stock of the Company consists of
fifteen million (15,000,000) shares of Common Stock.
2
<PAGE>
(b) As of the date of this Agreement, the total number of shares
of Common Stock currently issued and outstanding is nine million two hundred
fifty thousand (9,250,000). All such issued shares were validly issued, are
fully paid and nonassessable and have been issued in accordance with all
applicable federal and state securities laws.
(c) The Company has granted options to purchase eight hundred
sixty-two thousand five hundred (862,500) shares of Common Stock pursuant to its
1999 Stock Plan (the "Stock Plan") out of the two million (2,000,000) shares of
the Common Stock reserved for issuance under such Stock Plan. None of the
holders of such options has exercised any of such options.
(d) Except as set forth above, as set forth in the Schedule of
Exceptions, and as provided in the Company's Certificate of Incorporation and
pursuant to the transactions contemplated by this Agreement, there are not, on
the date hereof, authorized, outstanding, or contemplated any subscriptions,
options, conversion rights, warrants, or other agreements, securities or
commitments obligating the Company to issue, deliver, or sell, or cause to be
issued, delivered, or sold, any shares of capital stock of the Company, or any
securities convertible into or exchangeable for shares of capital stock of the
Company or obligating the Company to grant, extend or enter into any such
agreement or commitment.
(e) The Company is not a party or subject to any other agreement
or understanding and, to the best of the knowledge of the Company, there is no
agreement or understanding that affects or relates to the voting, transfer or
giving of written consents with respect to any capital stock of the Company.
(f) The Shares, when issued, sold and delivered in accordance
with the terms hereof for the Purchase Price, will be duly and validly issued,
fully paid and nonassessable and free of any liens or encumbrances, except for
restrictions under applicable federal and state securities laws.
2.4 Minute and Stock Transfer Books. The minute books of the Company are
-------------------------------
correct (including signatures), complete and current in all material
respects and fairly reflect the corporate actions of the Board of
Directors and shareholders of the Company. The stock transfer books of the
Company are correct (including signatures), complete and current. True and
accurate copies of the Company's Certificate of Incorporation, all
amendments thereto, and the Company's Bylaws as presently in effect have
been delivered to legal counsel to the Investor by the Company or the
Company's legal counsel.
2.5 Authorization and Approvals. This Agreement is the legal, valid and
---------------------------
binding obligation of the Company enforceable in accordance with its
terms, except as such enforceability may be affected by bankruptcy,
insolvency or similar laws affecting the rights of creditors and relief of
debtors and the exercise of judicial discretion in accordance with general
equitable principles. No further approvals or consents by, or filing with,
any federal, state, municipal, foreign or other court or governmental or
administrative body or agency or any other third party is required in
connection with the execution and delivery by the Company of this
Agreement or the consummation of the transactions contemplated hereby.
3
<PAGE>
2.6 No Violations. Neither the execution and delivery of this Agreement,
-------------
nor the consummation of the transactions contemplated hereby, will (a)
violate any provision of the Certificate of Incorporation or Bylaws of the
Company, (b) violate, or be in conflict with, or constitute a default (or
other event which, with the giving of notice or lapse of time or both,
would constitute a default) under, or give rise to any right of
termination, cancellation or acceleration under any of the terms,
conditions or provisions of any material lease, license, promissory note,
contract, agreement, mortgage, deed of trust or other instrument or
document to which the Company is a party or by which the Company or any of
their respective material properties or assets may be bound, or (c)
violate any material order, writ, injunction, decree, law, statute, rule
or regulation of any court or governmental authority applicable to the
Company or any of its respective material properties or assets.
2.7 Taxes. The Company has not filed any federal, state, local and foreign
-----
franchise, income, sales, gross receipts or other tax returns and
statements.
2.8 Transactions With Affiliates. None of the Principal Shareholders,
----------------------------
directors, officers or employees of the Company, nor any of their
respective Affiliates, has any interest, directly or indirectly, in any
lease, lien, contract (except stock purchase agreements (in the case of
certain employees), consulting agreements (in the case of consultants);
employment, confidential information, and invention assignment agreements
(in the case of employees); stock option agreements (in the case of
certain consultants and employees); and indemnification agreements (in the
case of directors)), license, encumbrance, loan or other agreement to
which the Company is a party, any interest in any properties or assets of
the Company or any interest in any competitor, supplier or customer of the
Company. The Company is not indebted, directly or indirectly, to any of
its Principal Shareholders, directors, officers or employees, or their
respective Affiliates, and none of such Principal Shareholders, directors,
officers or employees, nor any of their respective Affiliates, is
indebted, directly or indirectly, to the Company. For purposes hereof and
elsewhere in this Agreement, "Affiliate" means a person or entity that,
directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, the person or entity
specified.
2.9 Balance Sheet. Attached hereto as Schedule 2.9 is the unaudited
-------------
balance sheet of the Company as of June 30, 1999 (the "Balance Sheet").
The Balance Sheet is in accordance with the books and records of the
Company and is true, correct, and complete, fairly presents in all
material respects the financial position of the Company for the period
then ended, subject to normally recurring year-end adjustments, and, to
the knowledge of the Company, was prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied.
2.10 Intellectual Property. The Company owns a valid right, title,
---------------------
interest or license in and to the intellectual property set forth on
Schedule 2.10, which includes, but is not limited to, all patents,
copyrights, common law copyrights, trade name, trademark, service mark,
trade secret, technology, know-how or process or any other intangible
property rights of the Company ("Intellectual Property"). Except as set
forth on Schedule 2.10, there are no claims pending or, to the best
knowledge of the Company, threatened against the Company regarding any
claim or infringement of any Intellectual Property belonging to any other
person, firm or corporation and neither the Company nor the Principal
Shareholders have received any written notice or other indication of any
claim of any such
4
<PAGE>
infringement. The Company owns, or holds valid licenses or other rights
(all of which are accurately listed on Schedule 2.10 hereto) to use, all
of the Intellectual Property, and any other intellectual or intangible
property right, material for the operation of the business.
2.11 Title to and Adequacy of Assets and Properties. Schedule 2.11 sets
----------------------------------------------
forth a correct and complete list and summary description of all of the
Company's assets and properties of whatever kind (real or personal,
tangible or intangible), other than any such assets or properties the
replacement cost of which would be less than Five Thousand Dollars
($5,000) and which are not of material importance to the operation of the
business of the Company. All facilities, equipment and other material
items of tangible assets and properties owned by the Company are in good
operating condition and repair, subject to normal wear and maintenance,
are usable in the regular and ordinary course of business and, to the best
of the knowledge of the Company, comply in all material respects with all
applicable laws, regulations and licenses which govern the use and
operation thereof. Except as disclosed on Schedule 2.11, the Company has
good, complete and marketable title to all of its assets and properties,
free and clear of all mortgages, security interests, liens, options,
pledges, equities, claims, charges, restrictions, conditions, conditional
sale contracts and any other encumbrance or adverse interests of any kind
or nature whatsoever (collectively, the "Liens and Encumbrances").
2.12 Material Contracts. All of the agreements, contracts, leases,
------------------
licenses, instruments, commitments and understandings, written or oral, to
which the Company is a party or is subject, and which is material to the
Company's business as currently conducted are listed (or, in the case of
oral agreements or understandings, that are described) in Schedule 2.12
attached hereto (the "Contracts"), including, without limitation, any
leases under which the Company holds any leasehold interest in real
property or personal property, whether tangible or intangible, that is
used in or in connection with the business. Schedule 2.12 contains an
accurate and complete list of the Contracts; and, except as set forth on
Schedule 2.12, there are no other material contracts, agreements,
indentures, notes, leases or other instruments or commitments, whether
written or oral, to which the Company is a party or is bound. The Company
has furnished to the Investor or to the Investor's legal counsel accurate
and complete copies of all Contracts listed on Schedule 2.12 not already
in the possession of the Investor. Each of the Contracts is a valid and
binding obligation of the Company and, to the knowledge of the Company,
the counterparty or counterparties thereto, is in full force and effect
and is enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency,
moratorium or similar laws affecting creditors' rights generally and
general principles of equity relating to the availability of equitable
remedies. There have not been any defaults by the Company or, to the best
knowledge of the Company, defaults or any claims of default or claims of
nonenforceability by the other party or parties, under any of the
Contracts, which, individually or in the aggregate, would have or which
could reasonably be expected to have a material adverse effect on the
business or the Company, and there are no facts or conditions that have
occurred which, with the passage of time or the giving of notice, or both,
would constitute such a default under, or entitle any of the other parties
to the Contracts to terminate, or accelerate the Company's payment
obligations under, any of the Contracts or would cause the creation or
imposition of any Lien or Encumbrance upon any of the assets or properties
of the Company.
5
<PAGE>
2.13 Licenses and Permits. Schedule 2.13 contains a complete, current and
--------------------
correct list of all material licenses, permits, certificates of need,
franchises and other permits or licenses used to or in connection with the
operation of the business ("Licenses and Permits") of the Company that, to
the knowledge of the Company, are material to its business. The Company
possesses all material licenses necessary for the present conduct of its
business, including, without limitation, any and all Licenses and Permits
issued by any governmental or administrative agency or body. Each of such
Licenses and Permits is in full force and effect, and there are no pending
or, to the knowledge of the Company, threatened claims or proceedings
challenging the validity of, or seeking to revoke or discontinue, any of
the Licenses or Permits. None of the transactions contemplated by this
Agreement nor, to the knowledge of Company, any prior operations or
history shall affect the validity of, or cause the revocation or
discontinuation of any of the Licenses and Permits.
2.14 Insurance. The Company does not maintain any policies of fire,
---------
liability, worker's compensation or any other forms of insurance.
2.15 Absence of Certain Changes. Since the date of the Balance Sheet, there
--------------------------
has not been:
(a) Any declaration or payment of dividends by the Company or any
transfer of properties or assets of any kind whatsoever to any of its
shareholders;
(b) Any transaction by the Company not in the ordinary course of
business;
(c) Any material adverse change in the results of the operations,
financial condition, or business of the Company;
(d) Any damage, destruction or loss which has had or would have a
material adverse effect on any of the properties, assets, business or prospects
of the Company;
(e) Except in the ordinary course of business, any sale or transfer
of any properties or assets or any cancellation of any debts or claims of the
Company;
(f) Any mortgage, pledge or subjection to a Lien or Encumbrance on
any of the Company's properties or assets or any occurrence of, assumption of or
taking any properties or assets subject to any material liability;
(g) Any amendment, modification or termination of any material
contract or agreement to which the Company is a party or pursuant to which its
properties or assets may be bound; or
(h) To the best knowledge of the Company, the occurrence of any other
event which has had or is reasonably likely to have a material adverse effect on
the results of operations, financial condition, or business of the Company.
6
<PAGE>
2.16 Compliance with Laws. The business of the Company has been conducted
--------------------
in material compliance with all applicable laws, statutes, ordinances,
rules, regulations, orders and other requirements of all national
governmental authorities, and of all territories, states, municipalities
and other political subdivisions and agencies thereof, having jurisdiction
over it, including, without limitation, all such laws, regulations,
ordinances and requirements relating to antitrust, consumer protection,
labor and employment, immigration, health, occupational safety, pension
and securities matters, except for violations that individually, or in the
aggregate, will have no material adverse effect on the business,
operations or financial condition of the Company. Since the date of the
Balance Sheet, the Company, none of the Company or the Principal
Shareholders has received any notification of any asserted present or past
failure by the Company to comply with such laws, statutes, ordinances,
rules, regulations, orders or other requirements.
2.17 No Undisclosed Liabilities. There are no obligations, debts or
--------------------------
liabilities of any nature of the Company, whether accrued or unaccrued,
contingent or absolute, direct or indirect, recorded or unrecorded,
potential or realized which have or may have a material adverse effect
upon the business, operations or financial condition of the Company.
2.18 Employees and Employee Benefit Plans. The Company is not bound by or
------------------------------------
subject to (and none of its assets or properties are bound by or subject
to) any written or oral, express or implied, contract, commitment, or
arrangement with any employee pursuant to which the Company states that
such employee's employment with Company is anything other than "at will."
The Company does not have any collective bargaining agreement with any
labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives, or
agents of the Company. The Company does not maintain or offer any employee
benefit plans (as such term is defined in the Employee Retirement Income
Security Act of 1974, as amended).
2.19 Litigation. There is no pending or, to the best knowledge of the
----------
Company, threatened action, suit, arbitration proceeding, investigation or
inquiry before any court or governmental or administrative body or agency,
or any private arbitration tribunal, against, relating to or affecting the
Company or any director, officer, agent or employee of the Company in his
capacity as such, or the assets, properties or business of the Company, or
the transactions contemplated by this Agreement.
2.20 Brokers and Finders. None of the Company or the Principal Shareholders
-------------------
has engaged or authorized any broker, finder, investment banker or other
third party to act on its behalf directly or indirectly, as a finder,
investment banker or in any other like capacity in connection with this
Agreement or the transactions contemplated hereby or has consented to or
acquiesced in anyone so acting, and none knows of any claim for
compensation from any such broker, finder, investment banker or other
third party for so acting or of any basis for such a claim.
2.21 Use of Proceeds. The Company will use the proceeds from the sale of
---------------
the Shares for the construction and marketing of the Company's website.
7
<PAGE>
2.22 Disclosure. The representations and warranties of the Company
----------
contained herein do not contain any statement of a material fact that was
untrue as of the date of this Agreement and as of the Closing Date or
omits any material fact necessary to make the information contained
therein, in light of the circumstances under which such information was
disclosed, not misleading as of the date of this Agreement and as of the
Closing Date.
3 Representations and Warranties of the Investor. As a material inducement to
----------------------------------------------
the Company to enter into this Agreement, the Investor, after due inquiry
and investigation, makes the representations and warranties set forth in
this Section 3.
3.1 Organization; Qualification and Power. The Investor is a corporation
-------------------------------------
duly organized and validly existing under the laws of the State of Oregon,
has all requisite corporate power and authority to carry on its business
as presently contemplated to be conducted hereafter and is qualified to do
business and in good standing in every jurisdiction in which the failure
to so qualify or be in good standing, individually or in the aggregate,
could have a material adverse effect on the Investor.
3.2 Necessary Actions; Binding Effect. The Investor has taken all
---------------------------------
corporate action necessary to authorize the execution and delivery of, and
the performance of its obligations under, this Agreement. This Agreement
constitutes a valid and legally binding obligation of the Investor that is
enforceable against the Investor in accordance with its respective terms,
except as such enforceability may be limited by (i) bankruptcy,
insolvency, moratorium or other similar laws affecting creditors' rights
and (ii) general principles of equity relating to the availability of
equitable remedies (regardless of whether such agreement is sought to be
enforced in a proceeding at law or in equity).
3.3 No Violations. Neither the execution and delivery of this Agreement,
-------------
nor the consummation of the transactions contemplated hereby, will (a)
violate any provision of the Articles of Incorporation or the Bylaws of
the Investor, (b) violate, or be in conflict with, or constitute a default
(or any event which, with the giving of notice or lapse of time or both,
would constitute a default) under any material agreement or instrument to
which the Investor is a party or by which Investor is bound, or (c)
violate any order, writ, injunction, decree, law, statute, rule or
regulation of any court or governmental authority applicable to the
Investor.
3.4 Preexisting Relationship with Company; Business and Financial
-------------------------------------------------------------
Experience. The Investor either (i) has a prior business and/or personal
----------
relationship with the Company and/or its officers and directors, or (ii)
by reason of its business or financial experience or the business or
financial experience of its professional advisors who are unaffiliated
with the Company and who are not compensated by the Company, has the
capacity to protect its own interests in connection with the purchase of
the Shares and has the ability to bear the economic risk (including the
risk of total loss) of its investment in the Shares.
3.5 Investment Intent. The Shares of Common Stock being acquired under
-----------------
this Agreement are being purchased for the Investor's own account and not
with a view to, or for resale in connection with, any distribution or
public offering thereof within the meaning of the Securities Act of 1933,
as amended (the "1933 Act"). The Investor understands that the Shares are
characterized as "restricted securities" under federal securities laws in
as much as the Shares are
8
<PAGE>
being acquired from the Company in a transaction not involving a public
offering. The Investor understands that the Shares have not been
registered under the 1933 Act by reason of their issuance or contemplated
issuance in a transaction exempt from the registration and prospectus
delivery requirements of the 1933 Act, that they must be held indefinitely
unless a subsequent disposition thereof is registered under the 1933 Act
or is exempt from registration, and that the reliance of the Company and
others on this exemption is predicated in part on the Investor's
representations and warranties. The Investor understands and agrees that
the stock certificate for the Shares shall have the following legend
stamped or otherwise imprinted on it:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH A REGISTRATION STATEMENT UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT."
3.6 Rule 144. The Investor acknowledges that the Shares must be held
--------
indefinitely unless subsequently registered under the 1933 Act or unless
an exemption from such registration is available. The Investor is aware of
the provisions of Rule 144 promulgated under the 1933 Act which permits
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the
existence of a public market for such shares, the availability of certain
current public information about the Company, the resale occurring not
less than one year after a party has purchased and paid for the security
to be sold, the sale being effected through a "broker's transaction" or in
a transaction directly with a "market maker," and the number of shares
being sold during any three-month period not exceeding limitations
specified in Rule 144.
3.7 No Public Market. The Investor understands that no public market now
----------------
exists for any of the securities issued by the Company and that the
Company has made no assurances that a public market will ever exist for
the Company's securities.
3.8 Access to Data. The Investor has had an opportunity to discuss the
--------------
Company's business, management and financial affairs with the Company's
management and the opportunity to review the Company's financial
statements and obtain additional information necessary to verify the
accuracy of such information furnished to it or to which it had access.
The Investor has also had an opportunity to ask questions of officers of
the Company which questions, if asked, were answered to its satisfaction.
The Investor understands that such discussions, as well as any written
information issued by the Company, were intended to describe certain
aspects of the Company's business and prospects but were not a thorough or
exhaustive description.
3.9 Limited Operating History. The Investor acknowledges that the Company
-------------------------
was incorporated on April 30, 1999, as a new business and has a limited
operating history.
3.10 Disclosure. The representations and warranties of the Investor
----------
contained herein do not contain any statement of a material fact that was
untrue when made or omits any
9
<PAGE>
material fact necessary to make the information contained therein, in
light of the circumstances under which such information was disclosed,
not misleading.
4 Conditions to the Closing.
-------------------------
4.1 Conditions to Obligations of the Company. The obligations of each of
----------------------------------------
the Company to consummate the transactions contemplated by this Agreement
shall be subject to the fulfillment or the Company's express written
waiver, at or prior to the Closing, of each of the following conditions:
4.1.1 Representations and Warranties; Covenants. The representations
-----------------------------------------
and warranties of the Investor contained in this Agreement shall have
been true and correct in all material respects when made and shall be
true and correct in all material respects as of the Closing, with the
same force and effect as if made as of the Closing; all the covenants
contained in this Agreement to be complied with by the Investor on or
before the Closing shall have been complied with in all material
respects; and the Company shall have received a certificate of the
Investor to such effect signed by a duly authorized officer thereof.
4.1.2 No Order. No United States or state governmental authority or
--------
other agency or commission or United States or state court of
competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, injunction,
judgment, decree or other order (whether temporary, preliminary or
permanent) which is in effect and has the effect of making such
transactions contemplated by this Agreement illegal or otherwise
restraining or prohibiting consummation of such transactions;
provided, however, that each party hereto shall use its reasonable
best efforts to oppose and/or have any such order, judgment, decree or
injunction vacated and to avail itself of all rights of appeal
therefor, unless it has determined, in its reasonable judgement, that
such efforts would not have a substantial likelihood of success.
4.1.3 Warrant Agreement. The Company and the Investor shall have
-----------------
entered into the Warrant Agreement on or before the Closing Date.
4.1.4 Consent of netValue Holdings, Inc.. netValue Holdings, Inc. shall
----------------------------------
have consented to the transactions contemplated by this Agreement on
or before the Closing Date.
4.1.5 Closing Deliveries. The Company shall have received the closing
------------------
deliveries described in Section 1.3.2.
4.2 Conditions to Obligations of the Investor. The obligations of the
-----------------------------------------
Investor to consummate the transactions contemplated by this Agreement
shall be subject to the fulfillment or the Investor's express written
waiver, at or prior to the Closing, of each of the following conditions:
4.2.1 Representations and Warranties; Covenants. The representations
-----------------------------------------
and warranties of the Company contained in this Agreement shall have
been true and correct in all material respects when made and shall be
true and correct in all material respects as of the Closing, with the
same force and effect as if made as of the Closing; all the covenants
contained in this Agreement to be complied with by the Company on or
before the Closing shall have
10
<PAGE>
been complied with in all material respects; and the Investor shall
have received a certificate of the Company to such effect signed by a
duly authorized officer thereof.
4.2.2 No Order. No United States or state governmental authority or
--------
other agency or commission or United States or state court of
competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, injunction,
judgment, decree or other order (whether temporary, preliminary or
permanent) which is in effect and has the effect of making the
transactions contemplated by this Agreement illegal or otherwise
restraining or prohibiting consummation of such transactions;
provided, however, that each party hereto shall use its reasonable
best efforts to oppose and/or have any such order, judgement, decree
or injunction vacated and to avail itself of all right of appeal
therefor, unless it has determined, in its reasonable judgment, that
such efforts would not have a substantial likelihood of success.
4.2.3 Closing Deliveries. The Investor shall have received the closing
------------------
deliveries described in Section 1.3.1.
5 Indemnification.
---------------
5.1 Indemnification by the Company. Subject to terms and conditions
------------------------------
described herein, (i) the Company shall be solely and fully responsible
for any breach of representations, warranties and covenants of the
Company, and (ii) the Company shall defend, indemnify and hold harmless
the Investor, its Affiliates and their respective officers, directors,
shareholders, employees, agents, successors and assigns (the "Investor
Indemnified Parties"), from and against any and all claims, demands,
damages, liabilities, losses, costs, interests, penalties and expenses
(including attorneys' fees) of any kind or nature whatsoever ("Claims and
Damages") which may be asserted against, or sustained or incurred by the
Investor Indemnified Parties or any of them, as a result of (i) any facts,
circumstances, events or conditions the existence or happening of which
constitutes a material breach of or inaccuracy in any of the
representations or warranties of any of the Company contained in this
Agreement or any certificates delivered hereunder by or on behalf of the
Company; and (ii) any material breach or default by any of the Company of
any of the covenants contained in this Agreement.
5.2 Indemnification by the Investor. The Investor hereby agrees that it
-------------------------------
will indemnify and hold harmless the Company and its successors and
assigns (collectively, the "Contributing Indemnified Parties") from and
against any and all Claims and Damages (as defined above) that arise in
connection with or out of (i) any facts, circumstances, events or
conditions the existence or happening of which constitutes a material
breach of or inaccuracy of the representations and warranties of the
Investor contained in this Agreement and (ii) any material breach or
default by the Investor of its covenants or agreements contained in this
Agreement.
5.3 Defense of Claims. The Company and the Investor (individually, an
-----------------
"Indemnitor") shall have the right, exercisable in the Indemnitor's sole
discretion and at the Indemnitor's cost, on behalf of the Investor
Indemnified Parties or the Contributing Indemnified Parties, as the case
may be (collectively, the "Investor Indemnified Parties" and the
Contributing Indemnifying Parties and referred to as the "Indemnified
Parties") to select counsel to defend, conduct the defense of and
prosecute, settle, compromise or otherwise dispose of, any suit or action
in which
11
<PAGE>
any Indemnified Party is named as a defendant or is otherwise included as
a party and for which the Indemnitor has the obligation to indemnify under
this Section 5. If the Indemnitor elects not to defend such suit or
action, the Indemnitor shall so notify the Indemnified Parties within a
reasonable time after making such election and the Indemnified Parties
shall be entitled to engage their own counsel at the Indemnitor's cost.
The Indemnified Parties and the Indemnitor shall use their respective good
faith efforts to inform and notify one another of the status of any such
suits or actions.
6 Right of First Refusal.
----------------------
6.1 Pro Rata Right. The Company hereby grants to the Investor the right of
--------------
first refusal to purchase, pro rata, all New Securities (as defined in
Section 6.2) which the Company may, from time to time, propose to issue,
sell or exchange. The Investor's pro rata share, for purposes of this
right of first refusal, is the ratio (a) the numerator of which is the
number of shares of Common Stock held by the Investor, on the date of the
Company's written notice pursuant to Section 6.3; and (b) the denominator
of which is the total number of shares of Common Stock then outstanding
and issuable upon exercise and conversion of all outstanding options,
warrants, rights and convertible securities.
6.2 Definition. "New Securities" shall mean any capital stock (including
----------
the Common Stock) of the Company whether now authorized or not, and
rights, options or warrants to purchase, subscribe for or otherwise
acquire capital stock, and securities of any type whatsoever that are, or
may become, convertible into or exchangeable for capital stock the
issuance of which will result in a post-issuance valuation of the Company
equal to or less than Four Million Dollars ($4,000,000); provided that the
term "New Securities" does not include (i) securities issued pursuant to
the acquisition of another entity by the Company by merger, purchase of
substantially all the assets or other reorganization whereby the Company
owns more than fifty percent (50%) of the voting power of such entity;
(ii) securities issued pursuant to the acquisition of the Company by
another entity by merger, purchase of substantially all the assets or
other reorganization whereby the shareholders of the Company immediately
prior to such acquisition own immediately after such acquisition less than
fifty percent (50%) of the voting power of such entity; (iii) any
borrowings, direct or indirect, from financial institutions or other
persons by the Company, whether or not presently authorized, including any
type of loan or payment evidenced by any type of debt instrument, provided
such borrowings do not have any equity features, including warrants,
options, or other rights to purchase capital stock, and are not
convertible into capital stock of the Company (but excluding warrants,
options, or other such rights granted in connection with licensing
agreements, equipment lease financings, and other similar financing
transactions where the Board of Directors of the Company determines the
grant thereof to be in the best interests of the Company); (iv) shares of
Common Stock (including options to purchase Common Stock) issued to
employees, consultants or directors of, or other persons with important
business relationships with, the Company pursuant to any stock option plan
or stock purchase or stock bonus agreement or arrangement approved by the
Board of Directors of the Company; (v) securities issued pursuant to any
stock dividend, stock split, combination or other reclassification by the
Company of any of its capital stock; (vi) securities offered pursuant to
an initial public offering of any class of capital stock of the Company;
or (vii) the sale of the Investor's Shares.
12
<PAGE>
6.3 Required Notices. In the event the Company proposes to undertake an
----------------
issuance of New Securities, it shall give the Investor written notice,
pursuant to the provisions of Section 8.2 hereof, of the proposed
issuance, describing the type of New Securities (including a brief
description of the rights, preferences and privileges thereof), the number
of New Securities proposed to be issued, the proposed issuance date, the
price and the general terms upon which the Company proposes to issue the
same. The Investor shall have twenty (20) days from the date of receipt
(the "Purchase Period") of any such notice to agree to purchase its pro
rata share of such New Securities for the price and upon the general terms
specified in the notice by giving written notice to the Company and
stating therein the quantity of New Securities to be purchased.
6.4 Company's Right to Sell. In the event the Investor fails to exercise
-----------------------
fully the right of first refusal within the twenty (20) day period, the
Company shall have ninety (90) days thereafter to sell or enter into an
agreement (pursuant to which the sale of New Securities covered thereby
shall be closed, if at all, within ninety (90) days from the date of such
agreement) to sell the New Securities not purchased by the Investor (the
"Available New Securities") at a price and upon general terms no more
favorable in any material respect to the purchasers thereof than specified
in the Company's notice. In the event the Company has not sold within such
ninety (90) day period or entered into an agreement to sell the Available
New Securities within such ninety (90) day period (or sold and issued the
Available New Securities in accordance with the foregoing within ninety
(90) days from the date of such agreement), the Company shall not
thereafter issue or sell any New Securities, without first offering such
securities to the Investor in the manner provided in this section.
7 Covenants of the Company.
------------------------
(a) So long as the Investor or any successor-in-interest holds at
least ten percent (10%) of the issued and outstanding capital stock of the
Company on an as-converted to Common Stock basis:
(i) The Company shall furnish to the Investor or any successor-
in-interest such information regarding the Company and its shareholders as the
Investor or any successor-in-interest may reasonably request from time to time
in order to permit them to comply with the Securities Act of 1933, as amended,
the Securities Exchange Act of 1934, as amended, and any applicable state
securities laws in connection with the preparation and filing of any
registration statements and reports thereunder, including without limitation
business descriptions, capitalizations schedules, and product updates.
(ii) The Company shall deliver to the Investor or any successor-
in-interest such monthly, quarterly and annual financial statements as the
Company may prepare or have prepared from time to time after the date hereof and
as soon as reasonably possible after their preparation.
(iii) The Company shall permit the Investor or any successor-in-
interest at its expense to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with the Company's officers and accountants.
13
<PAGE>
(b) So long as the Investor or any successor-in-interest holds at
least twenty-five percent (25%) of the issued and outstanding capital stock of
the Company on an as-converted to Common Stock basis:
(i) The Company shall not, without the consent of the Investor,
which consent shall not be unreasonably withheld or delayed, sell, lease,
transfer, convey or otherwise dispose of all or substantially all of its
property or business or merge into or consolidate with any other corporation
(other than a wholly-owned subsidiary of the Company), effect any transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of the Company is disposed of or otherwise liquidate and dissolve
the Company.
(ii) The Company shall not declare or pay any dividends, either
in cash or other property without the consent of the Investor, which consent
shall not be unreasonably withheld or delayed.
(iii) The Board of Directors of the Company shall approve the
compensation payable or to become payable to any of the Company's officers,
directors and executive employees or any increase in such compensation.
8. Deliverables. So long as the Investor or any successor-in-interest
------------
holds at least one million five hundred thousand (1,500,000) Shares of
Common Stock of the Company, the Investor shall use its reasonable best
efforts to provide to the Company that the deliverables described in
Douglas B. Spink's letter to Travis S. Bowie dated May 27, 1999 and
attached hereto as Schedule 8.
9. Survival of Representations and Warranties. The respective
------------------------------------------
representations and warranties of the parties contained herein or in any
certificates or the documents delivered prior to or at the Closing shall
not be deemed waived or otherwise affected by any investigation made by
any party hereto and shall survive the Closing for a period of two years.
Any covenants of any party hereto which requires performance by such party
subsequent to the date hereof, such as, but not limited to, the
indemnification covenants set forth in Section 5 hereof, shall survive the
execution and delivery of this Agreement and the consummation of the other
transactions contemplated hereby until such covenants have been fully
discharged by performance thereof in accordance with the applicable terms
and provisions of this Agreement.
10. Miscellaneous.
-------------
10.1 Office Space. The Investor agrees to make available to the Company
------------
office space located in the San Francisco Bay area, California of the
Investor or netValue Holdings, Inc. for a period of one (1) year after the
date of this Agreement.
10.2 Expenses. Each party shall each bear its own expenses in connection
--------
with the transactions contemplated by this Agreement, including the fees
of attorneys, accountants, advisors, brokers, investment bankers and other
representatives.
10.3 Notices. Any notice, consent, authorization or other communication
-------
to be given hereunder shall be in writing and shall be deemed duly given
and received when delivered
14
<PAGE>
personally or transmitted by facsimile transmission with receipt
acknowledged by the addressee or three (3) days after being mailed by
first class mail, or the next business day after being deposited for next-
day delivery with a nationally recognized overnight delivery service,
charges and postage prepaid, properly addressed to the party to receive
such notice at the following address for such party (or at such other
address as shall be specified by a like notice):
If to the Company, to: College411.com, Inc.
1085 Mission Street
San Francisco, California 94303
Telephone: (415) 934-1400 ext. 232
Facsimile: (415) 934-1411
with copies to: Herbert P. Fockler
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Telephone: (650) 493-9300
Facsimile: (650) 493-6811
If to the Investor: Strategicus Partners, Inc.
15455 N.W. Greenbrier Parkway, #210
Beaverton, Oregon 97006
Telephone: (800) 893-8894
Facsimile: (800) 893-8895
with copies to: David R. Ludwig
Farleigh, Wada & Witt, P.C.
121 S.W. Morrison Street, Suite 600
Portland, Oregon 97204
Telephone: (503) 228-6044
Facsimile: (503) 228-1741
10.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, and all of which
together shall constitute but one and the same instrument.
10.5 Entire Agreement. Unless otherwise specifically agreed in writing,
----------------
this Agreement and the schedules and exhibits attached hereto represent
the entire understanding of the parties with reference to the transactions
set forth herein, and supersede all prior representations, warranties,
understandings and agreements heretofore made by the parties, and neither
this Agreement nor any provisions hereof may be amended, waived, modified
or discharged except by an agreement in writing signed by the party
against whom the enforcement of any amendment, waiver, change or discharge
is sought.
10.6 Binding Agreement. This Agreement shall be binding upon and inure to
-----------------
the benefit of the parties hereto and their respective heirs, successors
and assigns.
15
<PAGE>
10.7 Parties in Interest. Nothing in this Agreement, whether express or
-------------------
implied, is intended to confer any rights or remedies under or by reason
of this Agreement on any persons other than the parties to it and their
respective successors and assigns, nor is anything in this Agreement
intended to relieve or discharge the obligation or liability of any third
persons to any party to this Agreement, nor shall any provision give any
third persons any right of subrogation or action over or against any party
to this Agreement.
10.8 Governing Law. This Agreement is deemed to have been made in the State
-------------
of Oregon, and its interpretation, its construction and the remedies for
its enforcement or breach are to be applied pursuant to, and in accordance
with, the laws of the State of Oregon as such apply to contracts made and
to be performed in that state.
10.9 Severability; Construction. In the event any provision hereof is
--------------------------
determined to be invalid or unenforceable, the remaining provisions hereof
shall be deemed severable therefrom and shall remain in full force and
effect. Words and phrases defined in the plural shall also be used in the
singular and vice versa and be construed in the plural or singular as
appropriate and apparent in the context used.
10.10 Assignment. The Investor may assign this Agreement and may assign or
----------
transfer all or any part of the Shares to its Affiliates provided that the
Investor complies with the provisions of the 1933 Act and applicable state
securities laws in respect to the transfer of any of the Shares. The
Company and the Principal Shareholders shall not assign this Agreement or
any rights hereunder or delegate any duties hereunder. Any attempted or
purported assignment or delegation in violation of the proceedings shall
be void.
10.11 Arbitration. All disputes between the parties hereto shall be
-----------
determined solely and exclusively by arbitration in accordance with the
commercial arbitration rules then in effect of the American Arbitration
Association, or any successors hereto ("AAA"), in San Francisco County,
California unless the parties otherwise agree in writing. The parties
shall jointly select an arbitrator. In the event the parties fail to agree
upon an arbitrator within ten (10) days, then each party shall select an
arbitrator and such arbitrators shall then select a third arbitrator to
serve as the sole arbitrator; provided, that if either party, in such
event, fails to select an arbitrator within seven (7) days, such
arbitrator shall be selected by the AAA upon application of either party.
Judgment upon the award of the agreed upon arbitrator or the so chosen
third arbitrator, as the case may be, shall be binding and shall be
entered into by a court of competent jurisdiction.
10.12 Attorneys' Fees. In the event of any action at law or in equity in
---------------
relation to this Agreement, the prevailing party in such action or suit
shall be entitled to receive its reasonable attorneys' fees and all other
costs and expenses of such action or suit.
10.13 Facsimile Signatures. Facsimile transmissions of any signed original
--------------------
document, and retransmission of any signed facsimile transmission, shall
be the same as delivery of an original. At the request of either party,
the parties shall confirm facsimile transmitted signatures by signing an
original document.
16
<PAGE>
[SIGNATURE PAGE FOLLOWS.]
17
<PAGE>
[SIGNATURE PAGE TO COMMON STOCK PURCHASE AGREEMENT]
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the day and year first written above.
COMPANY:
COLLEGE411.COM, INC.
By: /s/ Travis S. Bowie
-------------------------------------
Its: Chief Executive Officer
------------------------------------
[SIGNATURE PAGE CONTINUES]
18
<PAGE>
[SIGNATURE PAGE TO COMMON STOCK PURCHASE AGREEMENT]
INVESTOR:
STRATEGICUS PARTNERS, INC.
By: /s/ Douglas B. Spink
--------------------------------------
Its: President
--------------------------------------
19
<PAGE>
SCHEDULE 1.3.1(c)
FORM OF WARRANT AGREEMENT
-------------------------
See attached.
20
<PAGE>
SCHEDULE 2
SCHEDULE OF EXCEPTIONS
----------------------
The following are the exceptions to the representations and warranties of
College411.com, Inc., a Delaware corporation (the "Company"), set forth in
Section 2 of that certain Common Stock Purchase Agreement (the "Agreement")
dated as of July 28, 1999, by and between the Company and Strategicus Partners,
Inc., an Oregon corporation (the "Investor") to which this is an exhibit. All
capitalized terms used and not otherwise defined herein shall have the meanings
given to them in the Agreement. The section numbers below correspond to the
section numbers in the Agreement. Anything disclosed under a section specified
below that is clearly applicable to any other section is deemed to be disclosed
with regard to such other sections.
2.5 Authorization and Approvals.
---------------------------
Upon signing the Agreement, the Company will file a Notice of Transaction
pursuant to California Corporations Code Section 25102(f) with the California
Commissioner of Corporations.
2.10 Intellectual Property.
---------------------
The Company is in the process of registering the trademark "COLLEGE411.COM."
The Company has signed invention assignment agreements with each of its
employees and consultants in order to ensure that the Company owns the
College411.com website at www.college411.com (the "Company Website").
Peter Morrow, a former product manager of the Company, provided certain
content for the Company Website consisting primarily of a directory of
third-party websites. Pursuant to an Intellectual Property Assignment Agreement
by and between the Company and Mr. Morrow dated as of July 20, 1999 (a copy of
which has been provided to the Investor's legal counsel) (the "Assignment
Agreement"), Mr. Morrow has assigned to the Company all intellectual property he
has created and/or developed for and on behalf of the Company, subject to the
exception described in Exhibit A to the Assignment Agreement.
The Company has entered into "associate" agreements with entities such as
Amazon.com, Inc., pursuant to which the Company is permitted by the counterparty
to provide links to one or more of the counterparty's web pages and is granted a
license to use certain intellectual property (such as the counterparty's
corporate logo or copyrighted text).
In addition to the above agreements, the Company has licensed from third
parties widely available software products pursuant to shrinkwrap license
agreements.
2.11 Title and Adequacy of Assets and Property.
-----------------------------------------
The Company Website.
21
<PAGE>
The Company owns four Dell desktop computers and one Dell laptop computer
purchased for approximately $8,000.
22
<PAGE>
2.12 Material Contracts.
------------------
Sublease Agreement by and between the Company and the Investor (or an
affiliate of the Investor).
Restricted Stock Purchase Agreement by and between the Company and Dylan C.
Vaughn dated as of June 1, 1999.
Restricted Stock Purchase Agreement by and between the Company and Travis S.
Bowie dated as of June 1, 1999.
There are no other contracts that are, to the best of the Company's knowledge,
material to the Company's operations.
2.13 Licenses and Permits.
--------------------
Disclosure relating to Licenses and Permits in Section 2.10 above is
incorporated by reference hereto.
The Company was incorporated in the State of Delaware and is in good standing
with the State of Delaware.
The Company is qualified to conduct business as a foreign corporation in the
State of California and is in good standing with the State of California.
2.15 Absence of Certain Changes
--------------------------
Peter T. Morrow, a former product manager of the Company, left the Company in
June 1997.
2.16 Compliance with Laws.
--------------------
The Company was incorporated on April 30, 1999 and has minimal capital
resources. Consequently, the Company does not currently have the resources to
ensure compliance with antitrust, consumer protection, labor and employment,
immigration, health, occupational safety and pension laws, statutes, ordinances,
rules, regulations, orders and other requirements.
2.20 Brokers and Finders.
-------------------
The Company intends to grant Darr Aley and Stephen George, who the Company
understands are officers of the Investor, options to purchase 50,000 and 37,500
shares of Common Stock, respectively.
23
<PAGE>
SCHEDULE 2.9
BALANCE SHEET
-------------
See attached.
24
<PAGE>
SCHEDULE 2.10
INTELLECTUAL PROPERTY
---------------------
The Company is in the process of registering the trademark
"COLLEGE411.COM."
The Company has signed invention assignment agreements with each of its
employees and consultants in order to ensure that the Company owns the
College411.com website at www.college411.com (the "Company Website").
Peter Morrow, a former product manager of the Company, provided certain
content for the Company Website consisting primarily of a directory of
third-party websites. Pursuant to an Intellectual Property Assignment Agreement
by and between the Company and Mr. Morrow dated as of July 20, 1999 (a copy of
which has been provided to the Investor's legal counsel) (the "Assignment
Agreement"), Mr. Morrow has assigned to the Company all intellectual property he
has created and/or developed for and on behalf of the Company, subject to the
exception described in Exhibit A to the Assignment Agreement.
The Company has entered into "associate" agreements with entities such as
Amazon.com, Inc., pursuant to which the Company is permitted by the counterparty
to provide links to one or more of the counterparty's web pages and is granted a
license to use certain intellectual property (such as the counterparty's
corporate logo or copyrighted text).
In addition to the above agreements, the Company has licensed from third
parties widely available software products pursuant to shrinkwrap license
agreements.
25
<PAGE>
SCHEDULE 2.11
ASSETS AND PROPERTIES
---------------------
The Company Website.
The Company owns four Dell desktop computers and one Dell laptop computer
purchased for approximately $8,000.
26
<PAGE>
SCHEDULE 2.12
MATERIAL CONTRACTS
------------------
Sublease Agreement by and between the Company and the Investor (or an
affiliate of the Investor).
Restricted Stock Purchase Agreement by and between the Company and Dylan
C. Vaughn dated as of June 1, 1999.
Restricted Stock Purchase Agreement by and between the Company and Travis
S. Bowie dated as of June 1, 1999.
There are no other contracts that are, to the best of the Company's
knowledge, material to the Company's operations.
27
<PAGE>
SCHEDULE 2.13
LICENSES AND PERMITS
--------------------
Disclosure relating to Licenses and Permits in Schedule 2.10 above is
incorporated by reference hereto.
The Company was incorporated in the State of Delaware and is in good
standing with the State of Delaware.
The Company is qualified to conduct business as a foreign corporation in
California and is in good standing with the State of Delaware.
28
<PAGE>
SCHEDULE 8
DELIVERABLES
------------
See attached.
29
<PAGE>
EXHIBIT 10.17
ASSET EXCHANGE, INC.
SERIES A PREFERRED
STOCK PURCHASE AGREEMENT
September 10, 1999
<PAGE>
ASSET EXCHANGE, INC.
SERIES A PREFERRED STOCK
PURCHASE AGREEMENT
This SERIES A PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made
as of the 10th day of September, 1999 by and among ASSET EXCHANGE, INC., a
Delaware corporation (the "Company"), and the Investors listed on Exhibit A
---------
hereto (each of whom individually is referred to herein as an "Investor" and
collectively referred to as the "Investors").
THE PARTIES HERETO AGREE AS FOLLOWS:
1 Authorization of Preferred Stock; Purchase and Sale of Preferred Stock.
1.1 Authorization of Preferred Stock. The Company has authorized the
issue and sale of up to 290,323 shares of Series A Preferred Stock, $0.0001 par
value (the "Preferred Stock"), to be issued under this Agreement. The rights,
privileges, and preferences of the Series A Preferred Stock are as set forth in
the Restated Certificate of Incorporation (the "Certificate") in the form
attached to this Agreement as Exhibit B.
---------
1.2 Purchase and Sale of the Preferred Stock. Subject to the terms and
conditions of this Agreement and on the basis of the representations and
warranties set forth herein, the Company agrees to sell to the Investors and
each such Investor, severally and not jointly, agrees to purchase from the
Company the number of shares of Preferred Stock (collectively, the "Shares") set
forth opposite such Investor's name on Exhibit A hereto for a purchase price of
---------
$1.55 per share of Preferred Stock.
1.3 The Closing. The purchase and sale of the Shares will take place at
the closing (the "Closing") at such place as the parties shall mutually agree.
The Closing shall take place concurrently with the execution and delivery of
this Agreement or at such other time as the parties shall mutually agree. At the
Closing, the Company will deliver to each of the Investors purchasing Shares
certificates, registered in such Investor's name, representing the number of
shares of Preferred Stock to be acquired by such Investor pursuant to this
Agreement against payment of the purchase price thereof in lawful money of the
United States of America by wire transfer or check payable to the Company.
2 Representations and Warranties.
In order to induce the Investors to enter into this Agreement and to
purchase the Shares hereunder, the Company hereby represents and warrants to
each Investor:
<PAGE>
2.1 Organization and Corporate Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company is qualified to do business as a foreign corporation in
the State of Oregon. The Company is not qualified to do business as a foreign
corporation in any other jurisdiction and the failure to so qualify does not
have a material adverse effect on the Company's business, condition or results
of operations. The Company has all required corporate power and authority to
own its property, to carry on its business as presently conducted or
contemplated to be conducted and to carry out the transactions contemplated
hereby. The copies of the Certificate of Incorporation and By-laws of the
Company, as amended to date, which have been furnished to the Investors by the
Company, are true, correct and complete and have not been amended or modified
further.
2.2 Authorization. This Agreement and the Investor Rights Agreement, in
the form attached hereto as Exhibit C (the "Investor Rights Agreement")
---------
(together, the "Transaction Documents") have been duly executed and delivered by
the Company and are the legal, valid and binding obligations of the Company,
enforceable in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization and moratorium laws and other laws of
general application affecting enforcement of creditors' rights generally. The
execution, delivery and performance of each of the Transaction Documents have
been duly authorized by all necessary corporate action of the Company.
2.3 Capitalization. The entire authorized capital stock of the Company
consists of 10,000,000 shares of Common Stock, $0.0001 par value per share, of
which 1,000,000 shares are issued and outstanding and 4,000,000 shares of
Preferred Stock, $0.0001 par value per share, of which 400,000 shares have been
designated Series A Preferred Stock (none of which are issued and outstanding).
All outstanding capital stock is duly authorized, validly issued and fully paid
and non-assessable. The Company has authorized the issuance of 290,323 shares
of Series A Preferred Stock for issuance to the Investors pursuant to this
Agreement. When issued in accordance with the terms of this Agreement, the
Shares will be duly authorized, validly issued and outstanding, fully paid and
nonassessable. There are no outstanding options, subscriptions or warrants, or
other agreements or rights to purchase or acquire from the Company, or
exchangeable for or convertible into, any shares of Common Stock or Preferred
Stock.
2.4 Subsidiaries. The Company has no subsidiaries and has no investments
in any other corporation, association or business organization.
2.5 Financial Statements. The Company has delivered to the Investors its
unaudited balance sheet for the period ending June 29, 1999 (the "Financial
Statements") a copy of which is attached hereto as Exhibit D. The Financial
---------
Statements present fairly in all material respects the financial position of the
Company for the periods then ended, subject to normally recurring year-end
adjustments. There has been no material adverse change in the assets of the
Company, its financial condition or its business prospects since the date of the
Financial Statements.
2
<PAGE>
2.6 No Defaults. The Company is not in default (a) under its charter
documents or its by-laws or any note, indenture, mortgage, lease, agreement,
contract, purchase order or other instrument, document or agreement to which it
is a party or (b) with respect to any order, writ, injunction or decree of any
court or any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, that
specifically names the Company. To the best knowledge of the Company, there
exists no condition, event or act which after notice, lapse of time, or both,
would constitute a default by the Company under any of the foregoing. To the
best of the Company's knowledge, no third party is in default under any
agreement, contract or other instrument, document or agreement to which the
Company is a party, which default would or could have a material adverse effect
on the Company's properties or assets or the business of the Company as
presently conducted or proposed to be conducted.
2.7 Intellectual Property. To the best of the Company's knowledge, the
Company owns a valid right, title, interest, or license in and to the
intellectual property necessary for the operation of its business, which
includes, but is not limited to, all patents, copyrights, common law copyrights,
trade name, trademark, service mark, trade secret, technology, know-how or
process, or any other intangible property rights of the Company ("Intellectual
Property"). There are no claims pending or, to the best knowledge of the
Company, threatened against the Company regarding any claim or infringement of
any Intellectual Property belonging to any other person, firm or corporation and
the Company has not received any written notice or other indication of any claim
of any such infringement. To the best of the Company's knowledge, the Company
owns, or holds valid licenses or other rights to use, all of the Intellectual
Property, and any other intellectual or intangible property right, used in or
necessary for the operation of the business.
2.8 Licenses and Permits. Except as set forth in Schedule 3.1.4, the
Company possesses all material licenses and permits necessary for the present
conduct of its business. Each of such licenses and permits is in full force and
effect, and there are no pending or, to the knowledge of the Company, threatened
claims or proceedings challenging the validity of, or seeking to revoke or
discontinue, any of the license or permits of the Company.
3
<PAGE>
2.9 Taxes. The Company has (a) timely filed all federal, state, local and
foreign franchise, income, sales, gross receipts and all other tax returns and
statements which are required to be filed by it and which were due prior to the
date hereof ("Tax Returns and Statements""), and (b) paid within the time and in
the manner prescribed by law or established reasonable reserves as reflected on
the Financial Statements for the payment of all taxes, levies, assessments,
fees, penalties, interest and other governmental charges accrued or payable for
all periods ending on or prior to the date hereof. The Tax Returns and
Statements are complete and accurate in all material respects, and no tax
assessment or deficiency which has not been paid or for which an adequate
reserve has not been set aside, has been made or proposed against the Company,
nor are any of the Tax Returns and Statements now being examined or audited nor,
to the knowledge of the Company, is there a threat that any of the Tax Returns
and Statements will be examined or audited, and no consents waiving or extending
any applicable statues of limitations for the Tax Returns and Statements, or any
taxes required to be paid thereunder, have been filed.
2.10 Compliance with Laws. The business of the Company has been conducted
in material compliance with all applicable laws, statutes, ordinances, rules,
regulations, order and other requirements of all national governmental
authorities, and of all territories, states, municipalities and other political
subdivisions and agencies thereof, having jurisdiction over it, except for
violations that individually, or in the aggregate, will have not material
adverse effect on the business, operations or financial condition of the
Company.
2.11 Offering. The offer, sale and issuance of the Shares of the Preferred
Stock as contemplated by this Agreement are exempt from the registration
requirements of the Securities Act of 1933, as amended (the "1933 Act"), and
applicable state securities laws, and neither the Company nor any authorized
agent acting on its behalf has taken or will take any action thereafter that
would cause the loss of such exemption.
2.12 Reservation of Shares. The shares of common stock issuable on
conversion of the shares of Preferred Stock have been duly and validly reserved
for issuance and, upon conversion of the shares of Preferred Stock into shares
of common stock, will be duly and validly issued, fully paid and nonassessable
and will be free of restrictions on transfer other than restrictions on transfer
under applicable federal and state securities laws.
2.13 Employment Benefit Plans. The Company does not sponsor or maintain,
directly or indirectly, any Employee Plan, as defined herein. "Employee Plan"
means any employee benefit plan as defined in Section 3(3) of ERISA and shall
mean all plans, programs, arrangements and methods of contribution or
compensation sponsored by the Company or in which the Company's employees
participate, including, without limitation, pension, retirement or severance
plans, disability, medical, dental or other health insurance plans, life
insurance or other death benefit plans and profit-sharing deferred compensation,
stock option, bonus or other incentive plans.
4
<PAGE>
2.14 Litigation. There is no claim, action, lawsuit, proceeding,
complaint, charge or investigation pending or, to the best knowledge of the
Company, threatened against the Company which questions the validity of any of
the Transaction Documents or the right of the Company to enter into them or to
consummate the transactions contemplated hereby or thereby, or which might
result, either individually or in the aggregate, in any material adverse change
in the business, assets, conditions, operations, affairs, or prospects of the
Company, financial or otherwise, or any change in the current equity ownership
of the Company, nor is the Company aware that there is any basis for the
foregoing.
2.15 Title to and Adequacy of Assets and Properties. All facilities,
equipment and other material items of tangible assets and properties owned by
the Company are in good operating condition and repair, subject to normal wear
and maintenance, are usable in the regular and ordinary course of business and,
to the best of the knowledge of the Company, comply in all material respects
with all applicable laws, regulations and licenses which govern the use and
operation thereof. The Company has good, complete and marketable title to all of
its assets and properties, free and clear of all mortgages, security interests,
liens, options, pledges, equities, claims, charges, restrictions, conditions,
conditional sale contracts and any other encumbrance or adverse interests of any
kind or nature whatsoever (collectively, the "Liens and Encumbrances"). All of
the respective assets and properties are in the exclusive possession and control
of the Company and the Company has the unencumbered right to use all of its
assets and properties without interference from and free of the rights and
claims of others.
3 Representations and Warranties and other Agreements of the Investors.
3.1 Representations and Warranties. Each Investor severally and not
jointly hereby represents and warrants that as to itself only:
3.1.1 Authorization. Such Investor has full power and authority to
execute, deliver and perform this Agreement and the Investor Rights Agreement
and to acquire the Shares. This Agreement and the Investor Rights Agreement
constitute the valid and legally binding obligation of such Investor,
enforceable against such Investor in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, reorganization and moratorium laws
and other laws of general application affecting enforcement of creditors' rights
generally.
3.1.2 Purchase Entirely for Our Own Account. That the Shares to be
purchased by such Investor and the Common Stock issuable upon conversion of the
Preferred Stock (collectively, the "Securities") will be acquired for investment
for such Investor's own account, not as a nominee or agent, and not with a view
to the resale or distribution of any part thereof, and that such Investor has no
present intention of selling, granting any participation in or otherwise
distributing the same. Such Investor does not have any contract, undertaking,
agreement or arrangement with any person or entity to sell, transfer or grant
participations to such person or to any third party with respect to any of the
Securities.
5
<PAGE>
3.1.3 Reliance Upon Investor's Representations. Such Investor
understands that the Securities have not been registered under the Securities
Act of 1933, as amended (the "Securities Act") on the ground that the sale
provided for in this Agreement and the issuance of securities hereunder is
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof, and that the Company's reliance on such exemption is predicated on the
Investors' representations set forth herein. Such Investor realizes that the
basis for the exemption may not be present if, notwithstanding such
representations, the Investor has in mind merely acquiring shares of the
Securities for a fixed or determinable period in the future, or for a market
rise, or for sale if the market does not rise. Such Investor has no such
intention.
3.1.4 Risks and Special Considerations. SUCH INVESTOR UNDERSTANDS THE
RISKS AND SPECIAL CONSIDERATIONS RELATING TO AN INVESTMENT IN THE COMPANY,
INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH IN SCHEDULE 3.1.4 HERETO.
3.1.5 Investment Experience. Such Investor is experienced in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development and acknowledges that such Investor
is able to fend for itself, can bear the economic risk of such Investor's
investment and has such knowledge and experience in financial and business
matters that such Investor is capable of evaluating the merits and risks of the
investment in the Securities. If other than an individual, such Investor has not
been organized for the purpose of acquiring the securities.
3.1.6 Accredited Investor. Such Investor is an "accredited investor"
as defined in Rule 501 promulgated under the Securities Act. The term
"accredited investor" as used herein refers to:
(i) A person or entity who is a director or executive officer of the
Company;
(ii) Any bank as defined in Section 3(a)(2) of the Securities Act, or
any savings and loan association or other institution as defined
in Section 3(a)(5)(A) of the Securities Act whether acting in its
individual or fiduciary capacity; any broker or dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934;
any insurance company as defined in Section 2(13) of the
Securities Act; any investment company registered under the
Investment Company Act of 1940 or a business development company
as defined in Section 2(a)(48) of that Act; any Small Business
Investment Company licensed by the US Small Business
Administration under Section 301(c) or (d) of the Small business
Investment Act of 1958; any plan established and maintained by a
state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess
of $5,000,000; any employee benefit plan within the meaning of
Title I of the Employment Retirement Income Security Act of 1974,
if the investment decision is made by a plan fiduciary, as
defined in Section 3(21) of such Act, which is either a bank,
savings and loan association, insurance
6
<PAGE>
company, or registered investment advisor, or if the employee
benefit plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with investment decisions made solely by
persons that are accredited investors;
(iii) Any private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
(iv) Any organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of
acquiring the securities offered, with total assets in excess
of $5,000,000;
(v) Any natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of the purchase
exceeds $1,000,000;
(vi) Any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income
with that person's spouse in excess of $300,000 in each of
those years and has a reasonable expectation of reaching the
same income level in the current year;
(vii) Any trust with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the securities offered,
whose purchase is directed by a person who has such knowledge
and experience in financial and business matters that he or she
is capable of evaluating the merits and risks of the
prospective investment; or
(viii) Any entity in which all of the equity owners are accredited
investors.
As used in this paragraph, the term "net worth" means the excess of total
assets over total liabilities. For the purpose of determining a person's net
worth, the principal residence owned by an individual should be valued at fair
market, value, including the cost of improvements, net of current encumbrances.
As used in this paragraph, "income" means actual economic income, which may
different from adjusted gross income for income tax purposes. Accordingly, each
Investor should consider whether such Investor should add any or all of the
following items to such Investor's adjusted gross income for income tax purposes
in order to reflect more accurately such Investor's actual economic income: any
amounts attributable to tax-exempt income received, losses claimed as a limited
partner in any limited partnership, deductions claimed for depletion,
contributions to an IRA or Keogh retirement plan, and alimony payments.
3.2 Restricted Securities. Such Investor understands that the Securities
may not be sold, transferred or otherwise disposed of without registration under
the Securities Act or an exemption therefrom, and that in the absence of an
effective registration statement covering the Securities or an available
exemption from registration under the Securities Act, the Securities must be
held indefinitely. In particular, such Investor is aware that the Securities may
not be sold pursuant to Rule 144 promulgated under the Securities Act unless all
of the conditions of
7
<PAGE>
that rule are met. Among the conditions for use of Rule 144 may be the
availability of current information to the public about the Company. Such
information is not now available and the Company has no present plans to make
such information available.
4 Brokerage. There are no claims for brokerage commissions or finder's fees
or similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of such
Investor, and such Investor agrees to indemnify and hold the Company and the
other Investors harmless against any damages incurred as a result of any such
claims.
5 Further Limitations on Disposition.
5.1 Each Investor further agrees not to make any disposition of all or any
portion of the Shares unless and until:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration
statement and all applicable state securities laws; or
(ii) Such Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement
of the circumstances surrounding the proposed disposition, and
(B) such Investor shall have furnished the Company with an
opinion from counsel, reasonably satisfactory to the Company,
that such disposition will not require registration of such
shares under the Securities Act and that all requisite action has
been or will be, on a timely basis, taken under any applicable
state securities laws in connection with such disposition.
5.2 Notwithstanding the provisions of paragraphs (i) and (ii) above, no
such registration statement or opinion of counsel shall be necessary for a
transfer without additional consideration by any Investor: (i) if such Investor
is a natural person, by gift or bequest or through inheritance to any of such
Investor's spouse, father, mother, brothers, sisters and lineal descendants and
ancestors (collectively, the "Investor's Immediate Family"), (ii) to a trust for
the benefit of any member or members of such Investor's Immediate Family or
(iii) to a trust in respect of which such Investor serves as trustee (provided,
however, that the trust instrument governing such trust shall provide that such
Investor, as trustee, shall retain sole and exclusive control over the voting
and disposition of such Shares until the termination of the Investor Rights
Agreement), if the transferee agrees in writing to be subject to the terms
hereof to the same extent as if such transferee were an original Investor
hereunder.
6 Legends. It is understood that the certificates evidencing the Shares may
bear substantially the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED
8
<PAGE>
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144
OR RULE 144A OF SUCH ACT."
(b) Any legend required by the Investor Rights Agreement or the laws
of any other applicable jurisdiction.
7 Conditions to the Investors' Obligations at each Closing.i
The obligations of the Investors under Section 1 of this Agreement to
purchase the Shares at the Closing are subject to the fulfillment on or before
the Closing of each of the following conditions unless waived by the Investors:
7.1 Representations and Warranties. The representations and warranties of
the Company contained in Section 2 shall be true and correct.
7.2 Performance. The Company shall have performed and complied with all
agreements, obligations, and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
7.3 Restatement of Certificate of Incorporation. The Company shall have
filed with the Secretary of the State of Delaware the Certificate of
Incorporation which is attached hereto as Exhibit B.
---------
7.4 Qualifications. All authorizations, approvals, or permits, if any, of
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Shares to the Investors pursuant to this Agreement shall have been duly obtained
and shall be effective on and as of the Closing other than those which are not
required to be obtained before the Closing.
7.5 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Investors and the Investors' counsel, and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.
7.6 Other Agreements. The Investor Rights Agreement substantially in the
form of Exhibit C attached hereto shall have been executed and delivered by the
---------
parties thereto (other than the Investors).
9
<PAGE>
7.7 Board of Directors. Immediately upon the Closing, the Company shall
have a four-member board of directors consisting of Douglas B. Spink (as the
representative of the holders of the Series A Preferred Stock), and Frank K.
Selker, William C. Koo, and Michael McNally (as the representatives of the
holders of the Common Stock).
7.8 Minimum Proceeds. Investors shall have tendered at the Closing
aggregate consideration of not less than $450,000 for the purchase of the Series
A Preferred Stock offered hereby.
8 Conditions of the Company's Obligations at the Closing.i
The obligations of the Company under Section 1 of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions unless waived by the Company:
8.1 Representations and Warranties. The representations and warranties of
the Investors contained in Section 3 shall be true and correct on and as of the
date of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of the Closing.
8.2 Payment of Purchase Price. The Investors shall have delivered payment
of the aggregate purchase price of the Shares to be purchased by them at the
Closing as set forth in Section 1.3.
8.3 Other Agreements. The Investor Rights Agreement substantially in the
form of Exhibit C attached hereto shall have been executed and delivered by the
---------
Investors purchasing Shares at the Closing.
9 Certain Covenants.
9.1 Indemnification by the Company. Subject to terms and conditions
described herein, the Company shall defend, indemnify and hold harmless the
Investor, its affiliates and their respective officers, directors, shareholders,
employees, agents, successors, and assigns (the "Investor Indemnified Parties"),
from and against any and all claims, demands, damages, liabilities, losses,
costs, interests, penalties and expenses (including reasonable attorneys' fees)
of any kind or nature whatsoever ("Claims and Damages") which may be asserted
against, or sustained or incurred by the Investor Indemnified Parties or any of
them, as a result of (i) any breach of or inaccuracy in any of the Company's
representations or warranties contained in this Agreement or any certificates or
other agreements delivered contemporaneously herewith by or on behalf of the
Company; and (ii) any breach or default by the Company of any of its covenants
contained in this Agreement or the other agreements executed contemporaneously
herewith by or on behalf of the Company.
10
<PAGE>
9.2 Further Cooperation and Assurances. Each of the parties hereto shall
execute and deliver any and all additional papers, documents and other
assurances, and shall do any and all acts and things reasonably necessary in
connection with the performance of their obligations hereunder and to carry out
the intent of the parties hereto. In addition, the Company agrees to provide
each Investor with such information and documents reasonably requested by such
Investor in connection with the preparation and filing of any registration
statements or periodic reports with the Securities and Exchange Commission,
including without limitation descriptions of the Company's business,
capitalization schedules, product updates and management profiles.
10 Miscellaneous.
10.1 Survival of Covenants; Assignability of Rights. All covenants,
agreements, representations and warranties of the Company made herein and in the
certificates, lists, exhibits, schedules or other written information delivered
or furnished to any Investor in connection herewith shall be deemed material and
to have been relied upon by such Investor. All representations and warranties of
the Company shall survive the delivery of the Shares, and shall bind the Company
and its successors and assigns, whether so expressed or not, for a period of two
years.
10.2 Incorporation by Reference. All exhibits and schedules appended to
this Agreement are herein incorporated by reference and made a part hereof.
10.3 Parties in Interest. All covenants, agreements, representations,
warranties and undertakings in this Agreement made by and on behalf of any of
the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto and to transferees of the Shares
whether so expressed or not.
10.4 Amendments and Waivers. Except as set forth in this Agreement,
changes in or additions to this Agreement may be made, or compliance with any
term, covenant, agreement, condition or provision set forth herein may be
omitted or waived (either generally or in a particular instance and either
retroactively or prospectively), or representatives to act on behalf of the
holders of all of the Shares may be designated, upon the written consent of the
Company and the holders of at least 66% of the Shares sold hereunder.
10.5 Governing Law; Jurisdiction. This Agreement shall be deemed a
contract made under the laws of the State of Oregon and, together with the
rights of obligations of the parties hereunder, shall be construed under and
governed by the laws of such State. Any action brought between the parties may
be brought only in the state or federal courts located in Oregon, and in no
other place unless the parties expressly agree in writing to waive this
requirement.
10.6 Notices. All notices, requests, consents and demands shall be in
writing and shall be personally delivered (effective upon receipt), mailed,
postage prepaid (effective three business days after dispatch), telecopied or
telegraphed (effective upon receipt of the telecopy in complete, readable form),
or sent via a reputable overnight courier service (effective the following
business day), to the Company at:
11
<PAGE>
Asset Exchange, Inc.
Mr. Frank K. Selker
6121 SW Tower Way, Suite 100
Portland, Oregon 97221
Fax Number: 503/244-5909
with a copy to:
Tonkon Torp LLP
1600 Pioneer Tower
888 SW Fifth Avenue
Portland, OR 97204
Attn: Brendan McDonnell
Fax Number: (503) 972-3754
or to each Investor at its address set out on Exhibit A, or such other address
---------
as may be furnished in writing to the other parties hereto.
10.7 Entire Agreement. This Agreement and the Exhibits and Schedules
hereto together with any other agreement referred to herein (the "Additional
Agreements") constitute the entire agreement among the Company and the Investors
with respect to the subject matter hereof. This Agreement and such Additional
Agreements supersede all prior agreements between the parties with respect to
the shares purchased hereunder and the subject matter hereof.
10.8 Severability. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision.
10.9 Counterparts. This Agreement may be executed in counterparts, all of
which together shall constitute one and the same agreement.
[Remainder of Page Left Intentionally Blank]
12
<PAGE>
IN WITNESS WHEREOF, the Company and the Investors have executed this
Agreement as of the day and year first above written.
ASSET EXCHANGE, INC.
By: _____________________________
Title: Frank Selker, President
INVESTOR:
Net Value Holdings, Inc.
By: ________________________________
Douglas B. Spink
Its:________________________________
INVESTOR:
Treeside Incorporated
By:_________________________________
Michael McNalley
Its: _______________________________
13
<PAGE>
Exhibit A
Closing
<TABLE>
<CAPTION>
# of Shares of Series A Total Purchase
Investor's Name and Address Preferred Stock Price Per Share Price
- --------------------------------- ----------------------- --------------- --------------
<S> <C> <C> <C>
Net Value Holdings Inc. 258,065 $ 1.55 $ 400,000.75
2 Penn Central Plaza, Suite 605
Philadelphia, PA 19102
Treeside Incorporated 32,258 $ 1.55 $ 49,999.90
1027 Portsmere Court
Northville, MI 48167
----------------------- --------------- --------------
TOTALS: 290,323 $ 1.55 $ 450,000.65
======================= =============== ==============
</TABLE>
14
<PAGE>
EXHIBIT 10.18
ASSET EXCHANGE, INC.
Investor Rights Agreement
September 10, 1999
<PAGE>
ASSET EXCHANGE, INC.
Investor Rights Agreement
This Agreement (the "Agreement") is made as of September 10, 1999 by and
among Asset Exchange, Inc., a Delaware corporation (the "Company"), and the
Investors set forth on Exhibit A to the Stock Purchase Agreement (as identified
---------
in the first recital below) (the "Investors").
RECITALS
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Company and the Investors have entered into a Series A Preferred
Stock Purchase Agreement dated as of September 9, 1999 (as in effect from time
to time, the "Purchase Agreement") in connection with the issuance and sale by
the Company to the Investors of certain shares (the "Series A Shares") of the
Company's Series A Preferred Stock, $0.0001 par value per share; and
WHEREAS, it is a condition to the purchase of the Investors' Series A
Shares pursuant to the Purchase Agreement that the Company and the Investors
enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and agreements contained herein, the parties agree as follows:
1. Financial and Other Information.
1.1 Annual Financial Statements.
The Company will deliver to each Investor within one hundred twenty (120)
days after the end of each fiscal year a copy of the balance sheet of the
Company as of the end of such year, together with consolidated and consolidating
statements of income and of cash flows of the Company for such year, all in
reasonable detail, and prepared in accordance with generally accepted accounting
principles, consistently applied.
1.2 Monthly Financial Statements and Budgets.
The Company will furnish to each Investor, within thirty (30) days after
the end of each month, other than the last month of the fiscal year of the
Company, a copy of the unaudited consolidated balance sheet of the Company as of
the end of such month and unaudited consolidated statements of income and of
cash flows of the Company for such month. Each of the foregoing balance sheets
and statements should set forth in comparative form the corresponding figures
for the corresponding period during the prior fiscal year and, in comparative
form, the corresponding budgeted figures. The balance sheets and statements
should be in reasonable detail, and be prepared in accordance with generally
accepted accounting principles, consistently applied, except that such financial
statements need not contain all footnotes required under generally accepted
accounting principles.
<PAGE>
1.3 Budget and Operating Plan.
The Company will furnish to each Investor, at least thirty (30) days prior
to the beginning of each fiscal year, a budget and operating plan for such
fiscal year which has been approved by the Company's Board of Directors.
2. Preemptive Rights.
2.1 Except as provided in Section 2.6, the Company shall not issue or
sell any of its equity securities (including securities convertible into equity
securities) (collectively, the "Future Shares") to any person without first
providing each Investor (each a "Holder") the right to subscribe for its
Proportionate Percentage (as defined in Section 2.4) of such Future Shares at
the same price and on the same terms (including the method of purchase;
provided, however, that the Holders shall have the option of purchasing Future
Shares with cash, regardless of the method of purchase offered to such person)
as shall be offered to such third party and which shall have been specified by
the Company in a writing delivered to each Holder (the "Proposal"). The
Proposal by its terms shall remain open and irrevocable for a period of fifteen
(15) days from the date it is delivered by the Company to each Holder (the
"Future Shares Exercise Period"). The Proposal shall also certify that the
Company has either (a) received a firm offer from a prospective purchaser, who
shall be identified in such certification, so that the Company in good faith
believes a binding agreement of sale is obtainable for consideration having a
fair market, cash equivalent or present value set forth in such certification;
or (b) intends in good faith to make an offering of its securities at the price
and on the terms set forth in such certification.
2.2 Notice of each Holder's acceptance, in whole or in part, of the
Proposal made pursuant to Section 2.1 hereof shall be evidenced by a writing
signed by such Holder delivered to the Company prior to the end of the Future
Shares Exercise Period setting forth that portion of the Future Shares, as the
case may be, which the Holder elects to purchase (the "Notice of Purchase"). If
a Holder does not deliver such written notice within the Future Shares Exercise
Period, such Holder shall be deemed to have elected not to purchase all or any
part of such Future Shares.
2.3 In the event that the Holders elect not to purchase all of such
Future Shares, the Company shall have 120 days from the expiration of the Future
Shares Exercise Period to offer and sell any part of such Future Shares not
elected to be purchased by the Holders (the "Refused Future Shares") to any
other person(s), but only upon terms and conditions in all respects (including,
without limitation, price, seniority, dividends and liquidation, redemption and
conversion rights) which are no more favorable to such other person(s) or less
favorable to the Company than those set forth in the Proposal; provided,
--------
however, that such sale be to the same person(s) or their affiliates identified
- -------
in the Proposal, if so identified pursuant to Section 2.1. In the event that
the Company so sells the Refused Future Shares to such other person(s), the sale
to each Holder of the Future Shares in respect of which a Notice of Purchase was
delivered to the Company by such Holder shall occur upon the closing of the sale
to such other person(s) of Refused Future Shares (which closing shall include
full payment to the Company). If there are no Refused Future Shares, the sale
to such Holder of such Future Shares shall occur within 20 days of the
expiration of the Future Shares Exercise Period. In any event, the sale to such
Holder of such Future Shares shall be on the terms specified in the Proposal.
2
<PAGE>
Any Refused Future Shares not purchased by such other person(s) within a 120-day
period shall remain subject to this Section 2.
2.4 The term "Proportionate Percentage" shall mean, as to any Holder,
that percentage figure which expresses the ratio which (i) the aggregate number
of shares of Common Stock then (a) outstanding and owned by such Holder and (b)
issuable upon conversion or exercise of securities which are convertible into or
exercisable for Common Stock outstanding and owned by such Holder bears to (ii)
the aggregate number of shares of Common Stock (a) outstanding and owned by all
stockholders of the Company and (b) issuable upon conversion or exercise of
options, warrants, other securities and other rights which are convertible into
or exercisable for Common Stock outstanding and owned by all stockholders of the
Company.
2.5 For purposes solely of the computation required under Section
2.4, the Holders and other stockholders of the Company shall be treated as
having converted or exercised all options, warrants, other securities and other
rights which are convertible into or exercisable for shares of Common Stock at
the rate at which such securities are convertible into or exercisable for Common
Stock at the time of such computation.
2.6 Notwithstanding anything in Section 2.1 to the contrary, a Holder
shall not be entitled to any preemptive rights in connection with any issuance
of shares of Common Stock (i) securities issued upon conversion of any
outstanding shares of preferred stock; (ii) securities issued pursuant to the
acquisition of another business entity or business segment of any such entity by
the Company by merger, purchase of substantially all the assets or other
reorganization whereby the Company will own more than fifty percent (50%) of the
voting power of such business entity or business segment of any such entity;
(iii) any borrowings, direct or indirect, from financial institutions or other
persons by the Company, whether or not presently authorized, including any type
of loan or payment evidenced by and type of debt instrument, provided such
borrowings do not have any equity features including warrants, options or other
rights to purchase capital stock and are not convertible into capital stock of
the Company; (iv) securities issued to employees, consultants, officers or
directors of the Company pursuant to any stock option, stock purchase or stock
bonus plan, agreement or arrangement approved by the Board of Directors; (v)
securities issued to vendors or customers or to other persons in similar
commercial situations with the Company if such issuance is approved by the Board
of Directors; (vi) securities issued in connection with obtaining lease
financing, whether issued to a lessor, guarantor or other person; (vii)
securities issued in a public offering to the public of at least $7,5000,000 (a
"Qualified Public Offering"); (viii) securities issued in connection with any
stock split, stock dividend or recapitalization of the Company; (ix) securities
issued in connection with corporate partnering transactions on terms approved by
the Board of Directors; and (x) any right, option or warrant to acquire any
security convertible into the securities excluded from the definition of New
Securities pursuant to subsections (i) through (ix) above.
2.7 The obligations of the Company to comply with this Section 2
shall terminate upon a Qualified Public Offering.
3
<PAGE>
2.8 Investor shall have the right to assign the rights granted to the
Investors in this Section 2 to any transferee who is acquiring or receiving at
least 10,000 shares of the Company's Common Stock (assuming conversion of any
outstanding Preferred Stock).
3. Registration Rights.
3.1 Definitions.
-----------
(a) The terms "Form S-1," "Form S-3," "Form S-4" and "Form S-8" mean
such respective forms under the Securities Act of 1933, as amended (the "1933
Act") as in effect on the date hereof or any successor registration forms to
Form S-1, Form S-3, Form S-4 and Form S-8, respectively, under the 1933 Act
subsequently adopted by the Securities and Exchange Commission (the "SEC").
(b) The term "Holder" means any person owning Registrable Securities
(as defined below) or any assignee thereof in accordance with Section 3.10
hereof.
(c) The term "Immediate Family" means, with respect to any natural
person, each of such person's spouse, father, mother, brothers, sisters and
lineal descendants and ancestors.
(d) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the 1933 Act, and the automatic
effectiveness or the declaration or ordering of effectiveness of such
registration statement or document.
(e) The term "Registrable Securities" means any shares of Common Stock
issuable upon conversion of Series A Preferred Stock held by an Investor or any
Common Stock issued as a dividend or other distribution with respect to, in
exchange for, or in replacement of such stock; provided, however, that any
-------- -------
shares previously sold pursuant to a registered public offering or pursuant to
an exemption from the registration requirements of the 1933 Act under which the
transferee does not receive "restricted securities" shall cease to be
Registrable Securities.
3.2 Company Registration. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any of its
capital stock or other securities under the 1933 Act in connection with the
public offering of such securities solely for cash (other than a registration on
Form S-8 relating solely to the sale of securities to participants in a Company
stock plan or a registration on Form S-4 or a Rule 145 transaction), the Company
shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of any Holder given within 20 days after
mailing of such notice by the Company, the Company shall, subject to the
provisions of Section 3.6, cause a registration statement covering all of the
Registrable Securities that each such Holder has requested to be registered to
become effective under the 1933 Act.
4
<PAGE>
3.3 Obligations of the Company. Whenever required under this Section
3 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible, prepare and file with the SEC a
registration statement with respect to such Registrable Securities and cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to 90 days or until such earlier
time at which such Holders have informed the Company in writing that the
distribution of their securities has been completed (such 90-day or shorter
period, the "Effectiveness Period"). In addition, the Company shall:
(a) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement, and cause each such amendment and supplement to
become effective, as may be necessary to comply with the provisions of the
1933 Act with respect to the disposition of all securities covered by such
registration statement during the Effectiveness Period.
(b) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of
the 1933 Act, and such other documents as they may reasonably request in
order to facilitate the disposition of Registrable Securities owned by
them.
(c) Register or qualify the securities covered by such registration
statement under such other securities or Blue Sky laws of such states and
jurisdictions as shall be reasonably requested by the Holders, except that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business, subject itself to taxation or file a
general consent to service of process in any such state or jurisdiction.
(d) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an underwriting agreement, including furnishing any
opinion of counsel or entering into a lock-up agreement reasonably
requested by the managing underwriter.
(e) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered under
the 1933 Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing and promptly file such amendments and supplements which may be
required pursuant to Section 3.3(a) on account of such event and use its
best efforts to cause each such amendment and supplement to become
effective.
(f) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 3, on the date that such
Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 3, if such
securities are being sold through underwriters, or, if such securities are
5
<PAGE>
not being sold through underwriters, on the date that the registration
statement with respect to such securities becomes effective, (i) an opinion
or opinions, dated such date, of the counsel representing the Company for
the purposes of such registration, in form and substance as is customarily
given by company counsel to the underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities and (ii) a letter dated
such date, from the independent certified public accountant of the Company,
in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities.
(g) Apply for listing and list the Registrable Securities being
registered on any national securities exchange on which a class of the
Company's equity securities is listed or, if the Company does not have a
class of equity securities listed on a national securities exchange, apply
for qualification and use its best efforts to qualify the Registrable
Securities being registered for inclusion on the automated quotation system
of the National Association of Securities Dealers, Inc.
3.4 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 3 in
respect of the Registrable Securities of any selling Holder that such selling
Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of its
Registrable Securities.
3.5 Expenses of Company Registration. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to any registration
pursuant to Section 3.2 for each Holder, including, without limitation, all
registration, filing and qualification fees, printing and accounting fees, fees
and disbursements of counsel for the Company excluding the fees and
disbursements of counsel for the selling Holders. The Holders will bear and pay
ratably all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to any registration
pursuant to Section 3.9 for each Holder, including, without limitation, all
registration, filing and qualification fees, printing and accounting fees, fees
and disbursements of counsel for the Company. Underwriting discounts and
commissions relating to Registrable Securities included in any registration
effected pursuant to Section 3.2 or 3.9 will be borne and paid ratably by the
Holders of such Registrable Securities.
6
<PAGE>
3.6 Underwriting Requirements. In connection with any offering
involving an underwriting of securities being issued by the Company, the Company
shall not be required under Section 3.2 to include any of the Holders'
securities in such underwriting unless such Holders accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it, and then only in such quantity, if any, as in the reasonable opinion of the
underwriters, marketing factors allow. If the managing underwriter for the
offering shall advise the Company in writing that the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities to be sold other than
by the Company that marketing factors allow, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the managing underwriter believes marketing
factors allow (the securities so included to be reduced as follows: (a) all
securities which stockholders other than the Company and the Holders seek to
include in the offering shall be excluded from the offering to the extent
limitation on the number of shares included in the underwriting is required, and
(b) if further limitation on the number of shares to be included in the
underwriting is required, then the number of shares held by Holders that may be
included in the underwriting shall be reduced so that the number of shares
included in the underwriting are pro rata in accordance with the number of
shares of Registrable Securities held by each such Holder), but in no event
shall the amount of securities of the selling Holders included in the offering
be reduced below 25% of the total amount of securities included in such
offering, unless such offering is the initial public offering of the Company's
securities in which case the selling Holders may be excluded if the managing
underwriter makes the determination described above and no securities other than
those of the Company are included.
3.7 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 3:
(a) The Company will indemnify and hold harmless each Holder, the
officers, directors, partners, members, agents and employees of each
Holder, any underwriter (as defined in the 1933 Act) for such Holder and
each person, if any, who controls or is deemed to control such Holder or
underwriter within the meaning of the 1933 Act or the 1934 Act, against any
losses, claims, damages or liabilities (joint or several) to which they may
become subject under the 1933 Act, the 1934 Act or any other federal or
state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (each a "Violation"): (i) any
untrue statement or alleged untrue statement of a material fact contained
in such registration statement, including any preliminary prospectus or
final prospectus contained therein or any amendments or supplements
thereto, (ii) the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading, or (iii) any violation or alleged violation by the Company of
the 1933 Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the 1933 Act, the 1934 Act or any state
securities law in connection with any matter relating to such registration
statement. The Company will reimburse each such Holder, officer, director,
partner, member, agent, employee, underwriter or controlling person or
person who is deemed to control for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such
loss, claim, damage, liability, or action. The indemnity agreement
contained in this Section 3.7(a) shall not apply to amounts paid in
settlement of any loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable to a
Holder in any such case for any such loss, claim,
7
<PAGE>
damage, liability or action (1) to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by or on behalf of such Holder, underwriter or controlling
person or (2) in the case of a sale directly by a Holder of Registrable
Securities (including a sale of such Registrable Securities through any
underwriter retained by such Holder engaging in a distribution solely on
behalf of such Holder), such untrue statement or alleged untrue statement
or omission or alleged omission was contained in a preliminary prospectus
and corrected in a final or amended prospectus, and such Holder failed to
deliver a copy of the final or amended prospectus at or prior to the
confirmation of the sale of the Registrable Securities to the person
asserting any such loss, claim, damage or liability in any case in which
such delivery is required by the 1933 Act.
(b) Each Holder which includes any Registrable Securities in any
registration statement will indemnify and hold harmless the Company, each
of its directors, each of its officers who have signed the registration
statement, each person, if any, who controls the Company within the meaning
of the 1933 Act, each employee, agent, and any underwriter for the Company,
and any other Holder or other stockholder selling securities in such
registration statement or any of its directors, officers, partners,
members, agents or employees or any person who controls such Holder or such
other stockholder or such underwriter, against any losses, claims, damages,
or liabilities (joint or several) to which the Company or any such
director, officer, controlling person, employee, agent, or underwriter or
controlling person, or other such Holder, stockholder, director, officer or
controlling person may become subject, under the 1933 Act, the 1934 Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by or on behalf of such Holder expressly for use in
connection with such registration, and each such Holder will reimburse any
legal or other expenses reasonably incurred by the Company or any such
director, officer, controlling person, agent or underwriter or controlling
person, other Holder or other stockholder, officer, director, partner,
member, agent, employee, or controlling person in connection with
investigating or defending any such loss,claim, damage, liability, or
action; provided, however, that the liability of any Holder hereunder shall
-------- -------
be limited to the amount of net proceeds (after deduction of all
underwriters' discounts and commissions paid by such Holder in connection
with the registration in question) received by such Holder, in the offering
giving rise to the Violation; and provided, further, that the indemnity
-------- -------
agreement contained in this Section 3.7(b) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld or delayed nor, in the case of a sale
directly by the Company of its securities (including a sale of such
securities through any underwriter retained by the Company to engage in a
distribution solely on behalf of the Company), shall the Holder be liable
to the Company in any case in which
8
<PAGE>
such untrue statement or alleged untrue statement or omission or alleged
omission was contained in a preliminary prospectus and corrected in a final or
amended prospectus, and the Company failed to deliver a copy of the final or
amended prospectus at or prior to the confirmation of the sale of the securities
to the person asserting any such loss, claim, damage or liability in any case in
which such delivery is required by the 1933 Act. The obligations of the Holders
hereunder are several, and not joint.
(c) Promptly after receipt by an indemnified party under this Section
3.7 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 3.7, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume and control the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an
-------- -------
indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing interests, as reasonably
determined by either party, between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 3.7 to the extent of such prejudice, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 3.7.
(d) The obligations of the Company and the Holders under this Section
3.7 shall survive the conversion, if any, of the Registrable Securities and the
completion of any offering of Registrable Securities in a registration statement
whether under this Section 3 or otherwise.
3.8 Reports Under Securities Exchange Act of 1934.
(a) Resales Under Rule 144; Form S-3 Registration. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
1933 Act ("Rule 144") and any other rule or regulation of the SEC that may at
any time permit a Holder to sell securities of the Company to the public without
registration, and with a view to making it possible for Holders to have the
resale of the Registrable Securities registered pursuant to a registration
statement on Form S-3, the Company agrees to:
(i) make and keep public information available, as those terms
are understood and defined in Rule 144, at all times after 90 days
after the effective date of the first registration statement filed by
the Company for the offering of its securities to the general public;
9
<PAGE>
(ii) concurrently with the first registered public offering,
take such action, including the voluntary registration of its Common
Stock under Section 12 of the 1934 Act or compliance with the
reporting requirements of Section 15(d) of the 1934 Act, as is
necessary to enable the Holders to utilize Form S-3 for the sale of
their Registrable Securities;
(iii) after the first registered public offering, file with the
SEC in a timely manner all reports and other documents required of the
Company under the 1933 Act and the 1934 Act; and
(iv) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (1) a written statement
by the Company as to its compliance with the reporting requirements of
Rule 144 (at any time after 90 days after the effective date of the
first registration statement filed by the Company for the offering of
the securities to the general public), the 1933 Act and the 1934 Act
(at any time after it has become subject to such reporting
requirements), or as to its qualification as a registrant whose
securities may be resold pursuant to Form S-3 (at any time after it so
qualifies), (2) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the
Company, and (3) such other documents as may be reasonably requested
in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration or
pursuant to such form.
3.9 Form S-3 Registration.
(a) In case the Company shall receive from any Holder or Holders a
written request or requests that the Company effect a registration on Form
S-3 (or on any successor form to Form S-3 regardless of its designation)
and any related qualification or compliance with respect to all or a part
of the Registrable Securities owned by such Holder or Holders, the Company
will:
(i) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(ii) effect, as soon as practicable, such registration (and to
keep such registration effective for up to 90 days), qualification or
compliance as may be so requested and as would permit or facilitate
the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any
other Holder or Holders joining in such request as are specified in a
written request given within 20 days after receipt of such written
notice from the Company; provided, however, that the Company shall not
-------- -------
be obligated to effect any such registration, qualification or
compliance pursuant to this Section 3.9 if: (1) Form S-3 (or any
successor form to Form S-3 regardless of its designation) is not
available for such offering by the Holders; (2) the aggregate net
offering price (after deduction of anticipated underwriting discounts
and commissions) of the Registrable Securities specified in such
request is not at least $500,000; (3) the
10
<PAGE>
Company has already effected one registration on Form S-3 within the
previous twelve-month period; or (4) the Company shall furnish to the
Holders a certificate signed by the president of the Company stating
that, in the good faith judgment of the Board of Directors, it would
not be in the best interests of the Company and its stockholders for
such Form S-3 registration to be effected at such time, in which event
the Company shall have the right to defer the filing of the Form S-3
registration for a period of not more than 90 days after receipt of
the request of the Holder or Holders under this Section 3.9; provided,
--------
however, that the Company shall not utilize this right more than once
-------
in any twelve-month period.
3.10 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 3 may be
assigned by any Holder to a permitted transferee, and by such transferee to a
subsequent permitted transferee, but only if such rights are transferred in
connection with the sale or other transfer of not fewer than an aggregate of
10,000 Registrable Securities (as adjusted for stock splits, combinations, stock
dividends and recapitalizations) or some lesser number, if such lesser number
represents all the Registrable Securities then held by such Holder. Any
transferee to whom rights under this Agreement are transferred shall (i) as a
condition to such transfer, deliver to the Company a written instrument by which
such transferee agrees to be bound by the obligations imposed upon Holders under
this Agreement to the same extent as if such transferee were a Holder under this
Agreement and (ii) be deemed to be a Holder hereunder.
4. Lock-up.
If requested by the Company and the managing underwriter, each Holder
agrees to enter into a lock-up agreement pursuant to which Holder will not, for
a period of no more than 180 days following the effective date of the first
registration statement for a public offering of the Company's securities, offer,
sell or otherwise dispose of the or other equity securities of the Company
without the prior consent of the Company and the underwriter.
5. Miscellaneous.
5.1 Notices.
All notices, requests, consents and demands shall be in writing and shall
be personally delivered (effective upon receipt), mailed, postage prepaid
(effective three business days after dispatch), emailed, telecopied or
telegraphed (effective upon receipt of the transmission in complete, readable
form), or sent via a reputable overnight courier service (effective the
following business day following dispatch), to the Company at:
Asset Exchange, Inc.
Attn: Frank Selker, President
6121 SW Tower Way, Suite 100
Portland, OR 97221
Fax number: (503) 244-5909
with a copy to:
11
<PAGE>
Tonkon Torp LLP
Attn: Brendan McDonnell
1600 Pioneer Tower
888 S.W. Fifth Avenue
Portland, OR 97204
Fax Number: (503) 972-3754
or to each Investor at:
Net Value Holdings Inc.
Attn: Douglas B. Spink
2 Penn Central Plaza
Suite 605
Philadelphia, PA 19102
Fax Number: (503) 985-0290 (OR)
Email: [email protected]
and
Treeside Incorporated
Attn: Michael A. McNalley
1027 Portsmere Court
Northville, MI 48167
Fax Number: 248/344-7874 (call first)
Email: [email protected]
5.2 Entire Agreement.
This Agreement and the Purchase Agreement constitute the entire
understanding of the parties with respect to the subject matter hereof and
thereof and supersede any and all prior understandings and agreements, whether
written or oral, with respect to such subject matter.
5.3 Amendments, Waivers and Consents.
Any provision in this Agreement to the contrary notwithstanding,
modifications or amendments to this Agreement may be made, and compliance with
any covenant or provision herein set forth may be omitted or waived, if the
Company shall agree thereto, and (a) the Company shall obtain consent thereto in
writing from persons holding a majority of the Series A Preferred Stock then
outstanding and (b) the Company shall, in each such case, deliver copies of such
consent in writing to any Holders who did not execute the same; provided,
---------
however, that no Holder shall, without its consent, be adversely affected by any
- -------
such modification, amendment or waiver in any manner in which the other Holders
are not likewise adversely affected. Without the consent of the Investors, this
Agreement shall be amended to reflect any additional investors that become
parties to this Agreement pursuant to the rights of the Company to sell shares
of the Company's Series A Preferred if not all of the authorized shares have
been sold as of the closing
12
<PAGE>
under the Purchase Agreement. The new investors shall execute a signature page
to this Agreement.
5.4 Binding Effect; Assignment.
This Agreement shall be binding upon and inure to the benefit of the
personal representatives, successors and permitted assigns of the respective
parties hereto.
5.5 General.
The headings contained in this Agreement are for reference purposes only
and shall not in any way affect the meaning or interpretation of this Agreement.
In this Agreement the singular includes the plural, the plural includes the
singular, and reference to any gender includes the neuter, masculine and
feminine genders. This Agreement shall be governed by and construed in
accordance with the laws of the State of Oregon. Any action brought between the
parties may be brought only in the state or federal courts located in Oregon,
and in no other place unless the parties expressly agree in writing to waive
this requirement.
5.6 Severability.
If any provision of this Agreement shall be found by any court of competent
jurisdiction to be invalid or unenforceable, the parties hereby waive such
provision to the extent that it is found to be invalid or unenforceable. Such
provision shall, to the maximum extent allowable by law, be modified by such
court so that it becomes enforceable, and, as modified, shall be enforced as any
other provision hereof, all the other provisions hereof continuing in full force
and effect.
5.7 Counterparts.
This Agreement may be executed in counterparts, all of which together shall
constitute one and the same agreement.
5.8 Dispute Resolution.
Any controversy, claim, or dispute arising out of or relating to this
Agreement or the breach thereof shall be settled, if possible, through good
faith negotiations between the parties. If the matter is not resolved within 60
days after initiation by either party of good faith negotiations, such
controversy, claim or dispute shall be resolved by arbitration administered by
the American Arbitration Association in accordance with its Commercial
Arbitration Rules. Such arbitration shall take place in Portland, Oregon. The
arbitration award shall be final and binding regardless of whether one of the
parties fails or refuses to participate in the arbitration. Judgment on the
award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. The prevailing party shall be entitled to an award of
reasonable attorney fees.
13
<PAGE>
IN WITNESS WHEREOF, the Company and the Investors have executed this Agreement
as of the date and year first above written.
ASSET EXCHANGE, INC.
By: _____________________________
William C. Koo, CEO
Net Value Holdings Inc.
By: _____________________________
Andrew P. Panzo
Its: President and Chief Executive
Officer
Treeside Incorporated
By: _____________________________
Michael A. McNalley
Its: Chairman of the Board
14
<PAGE>
EXHIBIT 10.19
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
Dated as of September 17, 1999
among
NET VALUE HOLDINGS, INC.
and
THE PURCHASERS EXECUTING THIS AGREEMENT AND LISTED ON EXHIBIT A
AND
THOSE PURCHASERS, IF ANY, PARTICIPATING
IN THE SECOND TRANCHE CLOSING
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - Purchase and Sale of Preferred Stock 1
Section 1.1 Purchase and Sale of Stock 1
Section 1.2 The Conversion Shares 2
Section 1.3 Purchase Price, Execution and Closing 2
Section 1.4 Escrow. 2
Section 1.5 Warrants. 3
ARTICLE II - Representations and Warranties 5
Section 2.1 Representation and Warranties of the Company 5
(a) Organization, Good Standing and Power 5
(b) Authorization; Enforcement 5
(c) Capitalization 5
(d) Issuance of Shares 6
(e) No Conflicts 6
(f) Commission Documents, Financial Statements 7
(g) Subsidiaries 7
(h) No Material Adverse Change 8
(i) No Undisclosed Liabilities 8
(j) No Undisclosed Events or Circumstances 8
(k) Indebtedness 8
(l) Title to Assets 8
(m) Actions Pending 9
(n) Compliance with Law 9
(o) Taxes 9
(p) Certain Fees 9
(q) Disclosure 10
(r) Operation of Business 10
(s) Environmental Compliance 10
(t) Books and Record Internal Accounting Controls 11
(u) Material Agreements 11
(v) Transactions with Affiliates 11
(w) Securities Act of 1933 11
(x) Governmental Approvals 12
(y) Employees 12
(z) Absence of Certain Developments 12
(aa) Use of Proceeds 14
(ab) Public Utility Holding Company Act and
Investment Company Act Status 14
(ac) ERISA 14
(ad) Dilutive Effect 14
Section 2.2 Representations and Warranties of the Purchasers 14
(a) Organization and Standing of the Purchasers 15
(b) Authorization and Power 15
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(c) No Conflicts 15
(d) Acquisition for Investment 15
(e) Accredited Purchasers 16
(f) Rule 144 16
(g) [Intentionally Omitted.] 16
(h) General 16
(i) Short Selling. 16
ARTICLE III - Covenants 17
Section 3.1 Securities Compliance 17
Section 3.2 Registration and Listing 17
Section 3.3 Inspection Rights 17
Section 3.4 Compliance with Laws 18
Section 3.5 Keeping of Records and Books of Account 18
Section 3.6 Reporting Requirements 18
Section 3.7 Amendments 18
Section 3.8 Other Agreements 19
Section 3.9 Distributions. 19
Section 3.10 Status of Dividends 19
Section 3.11 [Intentionally Omitted.] 20
Section 3.12 Regulation S 20
Section 3.13 Restrictions on Subsequent Financings 20
Section 3.14 Reservation of Shares 22
Section 3.15 Transfer Agent Instructions 22
Section 3.16 Transfer or Resale 22
Section 3.17 Short Selling. 23
ARTICLE IV - Conditions 23
Section 4.1 Conditions Precedent to the Obligation of the Company to
Sell the Shares at the First Tranche Closing 23
(a) Accuracy of Each First Tranche Purchaser's
Representations and Warranties 23
(b) Performance by the First Tranche Purchasers 23
(c) No Injunction 24
Section 4.2 Conditions Precedent to the Obligation of the Company
to Sell the Shares at the Second Tranche Closing 24
(a) Accuracy of Each Second Tranche Purchaser's
Representations and Warranties 24
(b) Performance by the Second Tranche Purchasers 24
(c) No Injunction 24
(d) Payment of Second Tranche Purchaser Prices 24
Section 4.3 Conditions Precedent to the Obligation of the Purchasers to
Purchase the Shares at the First Tranche Closing 24
(a) Accuracy of the Company's Representations
and Warranties 25
(b) Performance by the Company 25
(c) No Suspension, Etc 25
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(d) No Injunction 25
(e) No Proceedings or Litigation 25
(f) Certificate of Designation of Rights and Preferences 25
(g) Opinion of Counsel, Etc. 26
(h) Registration Rights Agreement 26
(i) Preferred Stock Certificates 26
(j) Resolutions 26
(k) Reservation of Shares 26
(l) Transfer Agent Instructions 26
(m) Secretary's Certificate 26
(n) Escrow Agreement 27
(o) Officer's Certificate 27
Section 4.4 Conditions Precedent to the Obligation of the Purchasers
to Purchase the Shares at the Second Tranche Closing 27
(a) Accuracy of the Company's Representations
and Warranties 27
(b) Performance by the Company 27
(c) No Suspension, Etc 27
(d) No Injunction 27
(e) No Proceedings or Litigation 28
(f) Opinion of Counsel, Etc. 28
(g) Preferred Stock Certificates 28
(h) Resolutions 28
(i) Reservation of Shares 28
(j) Secretary's Certificate 28
(k) Officer's Certificate 29
(l) Registration Statement 29
ARTICLE V - Registration Rights 29
ARTICLE VI - Stock Certificate Legend 29
Section 6.1 Legend 29
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII - Termination 30
Section 7.1 Termination by Mutual Consent 30
Section 7.2 Other Termination 30
Section 7.3 Termination of Second Tranche Closing 31
Section 7.4 Effect of Termination 31
ARTICLE VIII - Indemnification 31
Section 8.1 General Indemnity 31
Section 8.2 Indemnification Procedure 31
ARTICLE IX - Miscellaneous 32
Section 9.1 Fees and Expenses 32
Section 9.2 Specific Enforcement, Consent to Jurisdiction 33
Section 9.3 Entire Agreement; Amendment 33
Section 9.4 Notices 34
Section 9.5 Waivers 34
Section 9.6 Headings 35
Section 9.7 Successors and Assigns 35
Section 9.8 No Third Party Beneficiaries 35
Section 9.9 Governing Law 35
Section 9.10 Survival 35
Section 9.11 Counterparts 35
Section 9.12. Publicity 36
Section 9.13 Severability 36
Section 9.14 Further Assurances 36
</TABLE>
<PAGE>
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
This SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is dated as of September 17, 1999 by and among Net Value Holdings,
Inc., a Delaware corporation (the "Company"), and each of the Purchasers of
shares of Series B Convertible Preferred Stock of the Company executing this
Agreement and whose names are set forth on Exhibit A hereto (individually, a
"First Tranche Purchaser" and collectively, the "First Tranche Purchasers") and
each of those Purchasers of shares of Series B Convertible Preferred Stock who
purchase such shares pursuant to the Second Tranche Closing, if applicable
(individually, a "Second Tranche Purchaser," and collectively, the "Second
Tranche Purchasers"). Each of the First Tranche Purchasers and Second Tranche
Purchasers is referred to herein as a "Purchaser" and are collectively referred
to herein as the "Purchasers"; provided, however, if the Second Tranche Closing
-------- -------
does not occur, the term "Purchaser" shall only include a First Tranche
Purchaser and the term "Purchasers" shall only include the First Tranche
Purchasers. Prior to the Second Tranche Closing, if applicable, the Second
Tranche Purchasers shall provide the Company with an Exhibit AA which shall set
forth the names of the Second Tranche Purchasers and the number of shares of the
Series B Convertible Preferred Stock each such Second Tranche Purchaser is
purchasing.
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Preferred Stock
Section 1.1 Purchase and Sale of Stock. Upon the following terms and
--------------------------
conditions, the Company shall issue and sell to the Purchasers and each of the
Purchasers shall purchase from the Company, shares of the Company's Series B
Convertible Preferred Stock, par value $.001 per share (the "Preferred Shares"),
and one callable and one non-callable Warrant A, Warrant B, Warrant C and
Warrant D (singularly a "Warrant" and together, the "Warrants"), each in
substantially the form attached hereto as Exhibit B, to purchase the Company's
Common Stock, par value $.001 per share (the "Common Stock"). The Preferred
Shares and the Warrants shall be funded in two tranches as agreed upon by the
Company and the Purchasers. The designation, rights, preferences and other terms
and provisions of the Series B Convertible Preferred Stock are set forth in the
Certificate of Designation of the Relative Rights and Preferences of the Series
B Convertible Preferred Stock attached hereto as Exhibit C (the "Certificate of
Designation"). The Company and the Purchasers are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded by Rule 506 of Regulation D ("Regulation D") as
promulgated by the United States Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act") or Section 4(2) of the Securities Act.
<PAGE>
Section 1.2 The Conversion Shares. The Company has authorized and has
---------------------
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, a sufficient number of its
authorized but unissued shares of its Common Stock, to effect the conversion of
the Preferred Shares and exercise of the Warrants. Any shares of Common Stock
issuable upon conversion of the Preferred Shares and exercise of the Warrants
(and such shares when issued) are herein referred to as the "Conversion Shares"
and the "Warrant Shares", respectively. The Preferred Shares, the Conversion
Shares and the Warrant Shares are sometimes collectively referred to as the
"Shares".
Section 1.3 Purchase Price, Execution and Closing. In consideration of
-------------------------------------
and in express reliance upon the representations, warranties, covenants, terms
and conditions of this Agreement, the Company agrees to issue and sell to the
Purchasers and the Purchasers, severally but not jointly, agree to purchase the
Preferred Shares set forth opposite their respective names on Exhibit A and
Exhibit AA, as applicable, and Warrants exercisable for that number of Warrant
Shares computed in accordance with Section 1.5. The aggregate purchase price of
the Preferred Shares and the Warrants being acquired by each Purchaser is set
forth opposite such Purchaser's name on Exhibit A and Exhibit AA, as applicable,
(each a "Purchase Price", and collectively referred to as the "Purchase
Prices"). Those Purchase Prices listed on Exhibit A hereto shall be the "First
Tranche Purchase Prices" and those Purchase Prices listed on Exhibit AA, as
applicable, shall be the "Second Tranche Purchase Prices." The closing of the
purchase and sale of the first tranche (the "First Tranche Closing") of
Preferred Shares and Warrants to be acquired by the Purchasers from the Company
shall take place at the offices of Parker Chapin Flattau & Klimpl, LLP, at 10:00
a.m. eastern time (i) on September 17, 1999 or (ii) such other time and place or
on such date as the Purchaser and the Company may agree upon (the "First Tranche
Closing Date"), subject to the satisfaction (or waiver) of the applicable
conditions set forth in Article IV hereof with respect to the First Tranche
Closing. This Agreement shall be effective as of the First Tranche Closing Date.
Subject to the satisfaction (or waiver) of the applicable conditions set forth
on Article IV hereof with respect to the Second Tranche Closing, the closing of
the purchase and sale of the second tranche (the "Second Tranche Closing" and as
with the First Tranche Closing, a "Closing") of Preferred Shares and Warrants to
be acquired by the Purchasers from the Company shall take place at the offices
of Parker Chapin Flattau & Klimpl, LLP in New York, New York (i) as soon as
practicable after the filing of the Registration Statement (as such term is
defined in the Registration Rights Agreement), the date (the "Filing Date") of
which is to be October 1, 1999 (such filing shall be confirmed by the Company by
facsimile to the Escrow Agent and each of the Purchasers on the Filing Date) or
(ii) such other time and place or on such date as the Purchasers and the Company
may agree upon (the "Second Tranche Closing Date" and as with the First Tranche
Closing Date, a "Closing Date").
Section 1.4 Escrow. On or before each of the Closing Dates, (a) the
------
Company shall execute and deliver to the escrow agent (the "Escrow Agent")
identified in the Escrow Agreement attached hereto as Exhibit D (the "Escrow
Agreement") all applicable agreements, documents, instruments and writings
required pursuant to (i) Section 4.3 in regard to the First Tranche Closing
(collectively, the "First Tranche Company Closing Documents") or (ii) Section
4.4 in regard to the Second Tranche Closing (collectively, the "Second Tranche
Company Closing Documents" and together with the First Tranche Company Closing
Documents, the "Company Closing Documents"), to be delivered by the Company
including, without limitation,
2
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certificates for the number and series of Preferred Shares set forth opposite
each Purchaser's name on Exhibit A or Exhibit AA, as applicable, registered in
such Purchaser's name and such Purchaser's Warrants and (b) each of the
Purchasers shall pay by wire transfer of immediately available funds into escrow
in accordance with the Escrow Agreement such Purchaser's Purchase Price and
execute and deliver all applicable agreements, documents, instruments and
writings required pursuant to (i) Section 4.1 in regard to the First Tranche
Closing (collectively and together with such Purchaser's First Tranche Purchase
Price, the "First Tranche Purchaser's Closing Documents") or (ii) Section 4.2 in
regard to the Second Tranche Closing (collectively, and together with such
Purchaser's Second Tranche Purchase Price, the "Second Tranche Purchaser's
Closing Documents" and together with the First Tranche Purchaser's Closing
Documents, and the Company Closing Documents, the "Closing Documents"), to be
delivered by such Purchaser. In regard to the First Tranche Closing, the Escrow
Agent shall give notice (an "Escrow Agent Notice") to the parties hereto when
the Escrow Agent has received all of the First Tranche Company Closing Documents
and First Tranche Purchaser's Closing Documents and shall deliver the First
Tranche Company Closing Documents to the Purchasers and wire transfer the funds
constituting the First Tranche Purchase Prices and deliver the other First
Tranche Purchaser's Closing Documents to the Company pursuant to the terms of
the Escrow Agreement. In regard to the Second Tranche Closing, the Escrow Agent
shall give an Escrow Agent Notice to the parties hereto when the Escrow Agent
has received all the Second Tranche Company Closing Documents and Second Tranche
Purchaser's Closing Documents. The Company shall then give notice (the "Company
Closing Notice") to the Escrow Agent and the Purchasers when all of the
conditions set forth in Section 4.2 have been satisfied or waived and that it is
ready to file the Registration Statement as soon as is practicable after receipt
of the Purchaser Closing Notice (defined below) of each Purchaser. Each
Purchaser shall give notice (each a "Purchaser Closing Notice") to the Company
and the Escrow Agent that all of the conditions set forth in Section 4.4 have
been satisfied or waived except for Section 4.4(l). Upon the filing of the
Registration Statement, the Company shall give notice (the "Filing Notice") to
the Escrow Agent and the Purchasers that such filing has occurred. As soon
thereafter as is practicable on the Second Tranche Closing Date, the Escrow
Agent shall deliver the Second Tranche Company Closing Documents to the
Purchasers and wire transfer the funds constituting the Second Tranche Purchase
Prices and deliver the other Second Tranche Purchaser's Closing Documents to the
Company pursuant to the terms and conditions of the Escrow Agreement.
Section 1.5 Warrants. At each Closing, the Company agrees to issue to
--------
the applicable Purchasers a non-callable and a callable Warrants A, Warrants B,
Warrants C and Warrants D, representing the number of Warrant Shares as
calculated pursuant to this Section 1.5. At each Closing, the Warrants issued to
the Purchasers, collectively, shall be exercisable for that number of Warrant
Shares equal to twenty-five percent (25%) of the quotient of: (i) the sum of the
Purchase Prices (relating to such Closing) of the Purchasers and (ii) the
initial Conversion Price (as such term is defined in Section 5(d) of the
Certificate of Designation). The Warrant Shares subject to the Warrants being
issued on each Closing Date shall be divided equally among the non-callable and
callable Warrant As, Warrant Bs, Warrant Cs and Warrant Ds. Each Purchaser shall
receive a non-callable and a callable Warrant A, Warrant B, Warrant C and
Warrant D, each exercisable for that number of Warrant Shares computed by
multiplying (a) the percentage computed by dividing such Purchaser's Purchase
Price by the sum of the Purchase Prices (relating to such Closing) of all of the
Purchasers (relating to such Closing) by (b) the product of multiplying .125 by
the aggregate number of Warrant Shares (relating to such Closing). Each of
3
<PAGE>
the Warrants shall be exercisable for five (5) years from the Closing Date on
which such Warrant is issued and the exercise price of each of the Warrants
shall be as follows:
- --------------------------------------------------------------------------------
Type of Warrant Exercise Price
- --------------------------------------------------------------------------------
Warrant A 110% of the initial Conversion Price
- --------------------------------------------------------------------------------
Warrant B 120% of the initial Conversion Price
- --------------------------------------------------------------------------------
Warrant C 130% of the initial Conversion Price
- --------------------------------------------------------------------------------
Warrant D 140% of the initial Conversion Price
- --------------------------------------------------------------------------------
The calculation of the Warrant Shares for which any Warrants are exercisable
under this Section 1.5 shall be referred to herein as the "Warrant Calculation."
In the case where a Purchaser receiving Warrants representing Warrant
Shares at the First Tranche Closing would have received more Warrant Shares for
such Warrants if the number of Warrant Shares represented by such Warrants had
been calculated pursuant to the Warrant Calculation at the Second Tranche
Closing, such Purchaser shall be entitled to exchange such Warrants received
pursuant to the First Tranche Closing for Warrants (the "Exchange Warrants")
which represent the number of Warrant Shares as calculated pursuant to the
Warrant Calculation at the Second Tranche Closing. In such case, the Warrant
Calculation for all Warrants issued in connection with the Second Tranche
Closing and Exchange Warrants shall be made as if the Closings had occurred on
the same Closing Date. If any Purchaser shall be entitled to Exchange Warrants,
the Company shall have three (3) Trading Days (as such term is defined in the
Warrant) from the date on which the Company shall be in receipt of the original
Warrants of a Purchaser to deliver to such Purchaser Exchange Warrants. The
Company agrees that if the Company fails to delivery to any applicable Purchaser
Exchange Warrants pursuant to the delivery requirements of this Section 1.5, any
such Purchaser shall be entitled to an injunction or injunctions to prevent or
cure breaches and to enforce specifically the terms and provisions of this
Section 1.5, this being in addition to any other remedy to which any such
Purchaser may be entitled by law or equity.
ARTICLE II
Representations and Warranties
Section 2.1 Representation and Warranties of the Company. The Company
--------------------------------------------
hereby makes the following representations and warranties to the Purchasers:
(a) Organization, Good Standing and Power. The Company is a
-------------------------------------
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it is
now being conducted. The Company does not have any subsidiaries or securities of
any kind in any other entity except as set forth in Schedule 2.1(a) hereto.
---------------
Except as set forth on Schedule 2.1(a) hereto, the Company and
---------------
each such subsidiary is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary
4
<PAGE>
except for any jurisdiction(s) (alone or in the aggregate) in which the failure
to be so qualified will not have a Material Adverse Effect (as defined
hereinafter) on the Company's financial condition. For the purposes of this
Agreement, "Material Adverse Effect" means any adverse effect on the business,
operations, properties, prospects, or financial condition of the Company or its
subsidiaries and which is material to such entity or other entities controlling
or controlled by such entity.
(b) Authorization; Enforcement. The Company has the requisite
--------------------------
corporate power and authority to enter into and perform this Agreement, the
Escrow Agreement, the Transfer Agent Instructions (as defined in Section 3.15),
Registration Rights Agreement attached hereto as Exhibit E (the "Registration
Rights Agreement") and the Warrants (collectively, the "Transaction Documents")
and to issue and sell the Shares in accordance with the terms hereof, the
Certificate of Designation and the Warrants. The execution, delivery and
performance of the Transaction Documents and the Certificate of Designation by
the Company and the consummation by it of the transactions contemplated hereby
and thereby have been duly and validly authorized by all necessary corporate
action, and no further consent or authorization of the Company or its Board of
Directors or stockholders is required. This Agreement has been duly executed and
delivered by the Company. The Registration Rights Agreement will have been duly
executed and delivered by the Company on or before the First Tranche Closing
Date. Each of the Transaction Documents constitutes, or shall constitute when
executed and delivered, a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company and
--------------
the shares thereof currently issued and outstanding as of September 17, 1999 are
set forth on Schedule 2.1(c) hereto. All of the outstanding shares of Company's
---------------
Common Stock and Series A Convertible Preferred Stock have been duly and validly
authorized. Except as set forth in this Agreement and the Registration Rights
Agreement and as set forth on Schedule 2.1(c) hereto, no shares of Common Stock
---------------
or any other securities issued by the Company are entitled to preemptive rights
or registration rights and there are no outstanding options, warrants, scrip,
rights to subscribe to, call or commitments of any character whatsoever relating
to, or securities or rights convertible into, any shares of capital stock of the
Company. Furthermore, except as set forth in this Agreement and the Registration
Rights Agreement and as set forth on Schedule 2.1(c), there are no contracts,
---------------
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of the capital stock of the Company or
options, securities or rights convertible into shares of capital stock of the
Company. Except for customary transfer restrictions contained in agreements
entered into by the Company in order to sell restricted securities or as
provided on Schedule 2.1 (c) hereto, the Company is not a party to any agreement
----------------
granting registration or anti-dilution rights to any person with respect to any
of its equity or debt securities. The Company is not a party to, and it has no
knowledge of, any agreement restricting the voting or transfer of any shares of
the capital stock of the Company. Except as set forth on Schedule 2.1(c) hereto,
---------------
the offer and sale of all capital stock, convertible securities, rights,
warrants, or options of the Company issued prior to each of the Closings
complied with all applicable Federal and state securities laws, and no
stockholder has a right of
5
<PAGE>
rescission or damages with respect thereto which would have a Material Adverse
Effect on the Company's financial condition or operating results. The Company
has furnished or made available to the Purchasers true and correct copies of the
Company's Certificate of Incorporation as in effect on the date hereof (the
"Articles"), and the Company's Bylaws as in effect on the date hereof (the
"Bylaws").
(d) Issuance of Shares. The Preferred Shares to be issued at each of
------------------
the Closings have been duly authorized by all necessary corporate action and,
when paid for or issued in accordance with the terms hereof, the Preferred
Shares shall be validly issued and outstanding, fully paid and nonassessable and
entitled to the rights and preferences set forth in the Certificate of
Designation. When the Conversion Shares and the Warrant Shares are issued in
accordance with the terms of the Preferred Shares as set forth in the
Certificate of Designation and the Warrants, respectively, such shares will be
duly authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, and the holders shall be entitled to
all rights accorded to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of the
------------
Transaction Documents by the Company, the performance by the Company of its
obligations under the Certificate of Designation and the consummation by the
Company of the transactions contemplated herein and therein do not (i) violate
any provision of the Company's Articles or Bylaws, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company is a party, (iii) create or impose a lien, charge or
encumbrance on any property of the Company under any agreement or any commitment
to which the Company is a party or by which the Company is bound or by which any
of its respective properties or assets are bound, or (iv) result in a violation
of any federal, state, local or foreign statute, rule, regulation, order,
judgment or decree (including Federal and state securities laws and regulations)
applicable to the Company or any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries are bound or affected, except,
in all cases other than violations pursuant to clause (i) above, for such
conflicts, defaults, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Company and its subsidiaries is not being
conducted in violation of any laws, ordinances or regulations of any
governmental entity, except for possible violations which singularly or in the
aggregate do not and will not have a Material Adverse Effect. The Company is not
required under Federal, state or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under the Transaction Documents or the Certificate of
Designation, or issue and sell the Preferred Shares, the Conversion Shares and
the Warrant Shares in accordance with the terms hereof or thereof (other than
any filings which may be required to be made by the Company with the Securities
and Exchange Commission (the "Commission") or state securities administrators
subsequent to any of the Closings, any registration statement which may be filed
pursuant hereto, and the Certificate of Designation); provided that, for
purposes of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Purchasers herein.
6
<PAGE>
(f) Commission Documents, Financial Statements. The Company has not
------------------------------------------
provided to the Purchasers any material non-public information or other
information which, according to applicable law, rule or regulation, should have
been disclosed publicly by the Company but which has not been so disclosed,
other than with respect to the transactions contemplated by this Agreement. The
financial statements of the Company furnished to the Purchasers comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements), and fairly present in all material
respects the financial position of the Company and its subsidiaries as of the
dates thereof and the results of operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each subsidiary
------------ --------------
of the Company, showing the jurisdiction of its incorporation or organization
and showing the percentage of the Company's ownership of the outstanding stock
or other interests of such subsidiary. For the purposes of this Agreement,
"subsidiary" shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries. All of the
outstanding shares of capital stock of each subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. Except as disclosed on
Schedule 2.1(g), there are no outstanding preemptive, conversion or other
- ---------------
rights, options, warrants or agreements granted or issued by or binding upon any
subsidiary for the purchase or acquisition of any shares of capital stock of any
subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Except
as set forth on Schedule 2.1(g), neither the Company nor any subsidiary is
---------------
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of the capital stock of any subsidiary or any
convertible securities, rights, warrants or options of the type described in the
preceding sentence. Neither the Company nor any subsidiary is party to, nor has
any knowledge of, any agreement restricting the voting or transfer of any shares
of the capital stock of any subsidiary.
(h) No Material Adverse Change. Since June 30, 1999, the Company has
--------------------------
not experienced or suffered any Material Adverse Effect, except as disclosed on
Schedule 2.1(h) hereto.
- ---------------
(i) No Undisclosed Liabilities. Except as disclosed on Schedule
-------------------------- --------
2.1(i) hereto, neither the Company nor any of its subsidiaries has any
- ------
liabilities, obligations, claims or losses (whether liquidated or unliquidated,
secured or unsecured, absolute, accrued, contingent or otherwise) other than
those incurred in the ordinary course of the Company's or its subsidiaries
respective businesses since June 30, 1999 and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect on the Company or
its subsidiaries.
7
<PAGE>
(j) No Undisclosed Events or Circumstances. No event or circumstance
--------------------------------------
has occurred or exists with respect to the Company or its subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.
(k) Indebtedness. Schedule 2.1(k) hereto sets forth as of the date
------------ ---------------
hereof all outstanding secured and unsecured Indebtedness of the Company or any
subsidiary, or for which the Company or any subsidiary has commitments. For the
purposes of this Agreement, "Indebtedness" shall mean (a) any liabilities for
borrowed money or amounts owed in excess of $25,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company's
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease payments in
excess of $25,000 due under leases required to be capitalized in accordance with
GAAP. Except as disclosed on Schedule 2.1(k), neither the Company nor any
---------------
subsidiary is in default with respect to any Indebtedness.
(l) Title to Assets. Each of the Company and the subsidiaries has
---------------
good and marketable title to all of its real and personal property, free of any
encumbrances, except for those indicated on Schedule 2.1(l) hereto or such that,
---------------
individually or in the aggregate, do not cause a Material Adverse Effect on the
Company's financial condition or operating results. Except as described on
Schedule 2.1(l), all said leases of the Company and each of its subsidiaries are
- ---------------
valid and subsisting and in full force and effect.
(m) Actions Pending. There is no action, suit, claim, investigation
---------------
or proceeding pending or, to the knowledge of the Company, threatened against
the Company or any subsidiary which questions the validity of this Agreement or
the transactions contemplated hereby or any action taken or to be taken pursuant
hereto or thereto. Except as set forth on Schedule 2.1(m) hereto, there is no
---------------
action, suit, claim, investigation or proceeding pending or, to the knowledge of
the Company, threatened, against or involving the Company, any subsidiary or any
of their respective properties or assets. There are no outstanding orders,
judgments, injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against the Company or any subsidiary or any
officers or directors of the Company or subsidiary in their capacities as such.
(n) Compliance with Law. The business of the Company and the
-------------------
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth on Schedule 2.1(n) hereto or such that,
---------------
individually or in the aggregate, do not cause a Material Adverse Effect. The
Company and each of its subsidiaries have all franchises, permits, licenses,
consents and other governmental or regulatory authorizations and approvals
necessary for the conduct of its business as now being conducted by it unless
the failure to possess such franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
8
<PAGE>
(o) Taxes. Except as set forth on Schedule 2.1(o) hereto, the Company
----- ---------------
and each of the subsidiaries has accurately prepared and filed all federal,
state and other tax returns required by law to be filed by it, has paid or made
provisions for the payment of all taxes shown to be due and all additional
assessments, and adequate provisions have been and are reflected in the
financial statements of the Company and the subsidiaries for all current taxes
and other charges to which the Company or any subsidiary is subject and which
are not currently due and payable. Except as disclosed on Schedule 2.1(o)
---------------
hereto, none of the federal income tax returns of the Company or any subsidiary
has been audited by the Internal Revenue Service. The Company has no knowledge
of any additional assessments, adjustments or contingent tax liability (whether
federal or state) pending or threatened against the Company or any subsidiary
for any period, nor of any basis for any such assessment, adjustment or
contingency.
(p) Certain Fees. The Company has not employed any broker or finder
------------
or incurred any liability for any brokerage or investment banking fees,
commissions, finders' fees, financial advisory fees or other similar fees in
connection with this Agreement, except as set forth on Schedule 2.1(p) hereto.
---------------
All those entities listed on Schedule 2.1(p) hereto are broker/dealers (i)
---------------
registered and in good standing with the National Association of Securities
Dealers, Inc. and (ii) registered pursuant to Section 15 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(q) Disclosure. To the best of the Company's knowledge, neither this
----------
Agreement or the Schedules hereto nor any other documents, certificates or
---------
instruments furnished to the Purchasers by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading; provided, however, that the Purchasers understand and agree that any
-------- -------
and all drafts of the Registration Statement provided to them are incomplete
drafts subject to completion.
(r) Operation of Business. The Company and each of the subsidiaries
---------------------
owns or possesses all patents, trademarks, domain names (whether or not
registered) and any patentable improvements or copyrightable derivative works
thereof, websites and intellectual property rights relating thereto, service
marks, trade names, copyrights, licenses and authorizations, including (but not
limited to) those set forth on Schedule 2.1(r) hereto, and all rights with
---------------
respect to the foregoing, which are necessary for the conduct of its business as
now conducted without any conflict with the rights of others except as disclosed
on Schedule 2.1(r).
---------------
(s) Environmental Compliance. Except as disclosed on Schedule 2.1(s)
------------------------ ---------------
hereto, the Company and each of its subsidiaries have obtained all material
approvals, authorization, certificates, consents, licenses, orders and permits
or other similar authorizations of all governmental authorities, or from any
other person, that are required under any Environmental Laws.
Schedule 2.1(s) hereto sets forth all material permits, licenses and other
- ---------------
authorizations issued under any Environmental Laws to the Company or its
subsidiaries. "Environmental Laws" shall mean all applicable laws relating to
the protection of the environment including, without limitation, all
requirements pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or threatened
releases of hazardous substances, chemical substances, pollutants, contaminants
or toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature, into the air, surface
9
<PAGE>
water, groundwater or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
hazardous substances, chemical substances, pollutants, contaminants or toxic
substances, material or wastes, whether solid, liquid or gaseous in nature.
Except as set forth on Schedule 2.1(s) hereto, the Company has all necessary
---------------
governmental approvals required under all Environmental Laws and used in its
business or in the business of any of its subsidiaries. The Company and each of
its subsidiaries are also in compliance with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws. Except for such instances as
would not individually or in the aggregate have a Material Adverse Effect, there
are no past or present events, conditions, circumstances, incidents, actions or
omissions relating to or in any way affecting the Company or its subsidiaries
that violate or may violate any Environmental Law after the any of the Closings
or that may give rise to any environmental liability, or otherwise form the
basis of any claim, action, demand, suit, proceeding, hearing, study or
investigation (i) under any Environmental Law, or (ii) based on or related to
the manufacture, processing, distribution, use, treatment, storage (including
without limitation underground storage tanks), disposal, transport or handling,
or the emission, discharge, release or threatened release of any hazardous
substance. "Environmental Liabilities" means all liabilities of a person
(whether such liabilities are owed by such person to governmental authorities,
third parties or otherwise) whether currently in existence or arising hereafter
which arise under or relate to any Environmental Law.
(t) Books and Record Internal Accounting Controls. The records and
---------------------------------------------
documents of the Company and its subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and the
subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any subsidiary. The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment of the
Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate actions is taken
with respect to any differences.
(u) Material Agreements. Except as set forth on Schedule 2.1(u)
------------------- ---------------
hereto, neither the Company nor any subsidiary is a party to any written or oral
contract, instrument, agreement, commitment, obligation, plan or arrangement, a
copy of which would be required to be filed with the Commission as an exhibit to
a registration statement on Form S-1 or applicable form (collectively, "Material
Agreements") if the Company or any subsidiary were registering securities under
the Securities Act. Except as set forth on Schedule 2.1(u) hereto, the Company
---------------
and each of its subsidiaries has in all material respects performed all the
obligations required to be performed by them to date under the foregoing
agreements, have received no notice of default and, to the best of the Company's
knowledge are not in default under any Material Agreement now in effect, the
result of which could cause a Material Adverse Effect. No written or oral
contract, instrument, agreement, commitment, obligation, plan or arrangement of
the Company
10
<PAGE>
or of any subsidiary limits or shall limit the payment of dividends on the
Company's Preferred Shares, other Preferred Stock, if any, or its Common Stock.
(v) Transactions with Affiliates. Except as set forth on Schedule
---------------------------- --------
2.1(v) hereto, there are no loans, leases, agreements, contracts, royalty
- ------
agreements, management contracts or arrangements or other continuing
transactions exceeding $100,000 between (a) the Company, any subsidiary or any
of their respective customers or suppliers on the one hand, and (b) on the other
hand, any officer, employee, consultant or director of the Company, or any of
its subsidiaries, or any person owning any capital stock of the Company or any
subsidiary or any member of the immediate family of such officer, employee,
consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder, or a
member of the immediate family of such officer, employee, consultant, director
or stockholder.
(w) Securities Act of 1933. The Company has complied and will comply
----------------------
with all applicable Federal and state securities laws in connection with the
offer, issuance and sale of the Preferred Shares and the Warrants hereunder.
Neither the Company nor anyone acting on its behalf, directly or indirectly, has
or will sell, offer to sell or solicit offers to buy the Preferred Shares, the
Warrants or similar securities to, or solicit offers with respect thereto from,
or enter into any preliminary conversations or negotiations relating thereto
with, any person, or has taken or will take any action so as to bring the
issuance and sale of the Preferred Shares and the Warrants under the
registration provisions of the Securities Act and applicable state securities
laws. Neither the Company nor any of its affiliates, nor any person acting on
its or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act) in
connection with the offer or sale of the Preferred Shares and the Warrants.
(x) Governmental Approvals. Except as set forth on Schedule 2.1(x)
---------------------- ---------------
hereto, and except for the filing of any notice prior or subsequent to any of
the Closings that may be required under applicable state and/or Federal
securities laws (which if required, shall be filed on a timely basis), including
the filing of a registration statement or statements pursuant to the
Registration Rights Agreement, and the filing of the Certificate of Designation
with the Secretary of State for the State of Delaware, no authorization,
consent, approval, license exemption of, filing or registration with any court
or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the execution or delivery of the Preferred Shares, or for the
performance by the Company of its obligations under the Transaction Documents or
the Certificate of Designation.
(y) Employees. Neither the Company nor any subsidiary has any
---------
collective bargaining arrangements or agreements covering any of its employees,
except as set forth on Schedule 2.1(y) hereto. Except as set forth on Schedule
--------------- --------
2.1(y) hereto, neither the Company nor any subsidiary has any employment
- ------
contract, agreement regarding proprietary information, non-competition
agreement, non-solicitation agreement, confidentiality agreement, or any other
similar contract or restrictive covenant, relating to the right of any officer,
employee or consultant to be employed or engaged by the Company or such
subsidiary. Since June 30, 1999, no officer, consultant or key employee of the
Company or any subsidiary whose termination, either individually or in the
aggregate, could have a Material Adverse Effect, has terminated or,
11
<PAGE>
to the knowledge of the Company, has any present intention of terminating his or
her employment or engagement with the Company or any subsidiary.
(z) Absence of Certain Developments. Except as provided in Schedule
------------------------------- --------
2.1(z) hereto, since June 30, 1999, neither the Company nor any subsidiary has:
- ------
(i) issued any stock, bonds or other corporate securities or
any rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in the
ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
(v) sold, assigned or transferred any other tangible assets,
or canceled any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;
(vii) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
(x) entered into any other transaction other than in the
ordinary course of business, or entered into any other material transaction,
whether or not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of
$25,000;
12
<PAGE>
(xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment;
(xiv) effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company or its subsidiaries; or
(xv) entered into an agreement, written or otherwise, to take
any of the foregoing actions.
(aa) Use of Proceeds. The proceeds from the sale of the
---------------
Preferred Shares will be used by the Company for acquisitions and funding
certain preexisting obligations as listed on Schedule 2.1(aa), working capital
----------------
and general corporate purposes.
(ab) Public Utility Holding Company Act and Investment Company
---------------------------------------------------------
Act Status. The Company is not a "holding company" or a "public utility company"
- ----------
as short terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon each of the
Closings will not be, an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
(ac) ERISA. No liability to the Pension Benefit Guaranty
-----
Corporation has been incurred with respect to any Plan by the Company or any of
its subsidiaries which is or would be materially adverse to the Company and its
subsidiaries. The execution and delivery of this Agreement and the issue and
sale of the Preferred Shares will not involve any transaction which is subject
to the prohibitions of Section 406 of ERISA or in connection with which a tax
could be imposed pursuant to Section 4975 of the Internal Revenue Code of 1986,
as amended, provided that, if any of the Purchasers, or any person or entity
that owns a beneficial interest in any of the Purchasers, is an "employee
pension benefit plan" (within the meaning of Section 3(2) of ERISA) with respect
to which the Company is a "party in interest" (within the meaning of Section
3(14) of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(ac), the term "Plan" shall mean
an "employee pension benefit plan" (as defined in Section 3 of ERISA) which is
or has been established or maintained, or to which contributions are or have
been made, by the Company or any subsidiary or by any trade or business, whether
or not incorporated, which, together with the Company or any subsidiary, is
under common control, as described in Section 414(b) or (c) of the Code.
(ad) Dilutive Effect. The Company understands and
---------------
acknowledges that the number of Conversion Shares issuable upon conversion of
the Preferred Shares and the Warrant Shares issuable upon exercise of the
Warrants will increase in certain circumstances. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Shares in accordance with this Agreement and the Certificate of
Designation and its obligations to issue the Warrant Shares upon the exercise of
the Warrants in accordance with this Agreement and the Warrants, is, in each
case, absolute and unconditional
13
<PAGE>
regardless of the dilutive effect that such issuance may have on the ownership
interest of other stockholders of the Company.
Section 2.2 Representations and Warranties of the Purchasers. Each of
------------------------------------------------
the Purchasers hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization and Standing of the Purchasers. If the
-------------------------------------------
Purchaser is an entity, such Purchaser is a corporation, limited liability
company or partnership duly incorporated or organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization.
(b) Authorization and Power. The Purchaser has the requisite
-----------------------
power and authority to enter into and perform this Agreement, the Registration
Rights Agreement, the Escrow Agreement and to purchase the Preferred Shares and
the Warrants being sold to it hereunder. The execution, delivery and performance
of this Agreement, the Registration Rights Agreement, the Escrow Agreement and
the documents contemplated hereby by such Purchaser and the consummation by it
of the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate, company or partnership action (if the Purchaser is an
entity), and no further consent or authorization of such Purchaser or its Board
of Directors, stockholders, members, managers or partners, as the case may be,
is required. This Agreement, the Registration Rights Agreement and the Escrow
Agreement will have been duly executed and delivered by the Purchasers on the
Effective Date. Each of this Agreement, the Registration Rights Agreement and
the Escrow Agreement constitutes, or shall constitute when executed and
delivered, a valid and binding obligation of the Purchaser enforceable against
the Purchaser in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, or similar laws relating to, or affecting
generally the enforcement of, creditor's rights, remedies or by other equitable
principles of general application.
(c) No Conflicts. The execution, delivery and performance of
------------
this Agreement, the Registration Rights Agreement, the Escrow Agreement and the
documents contemplated hereby and thereby and the consummation by such Purchaser
of the transactions contemplated hereby and thereby or relating hereto do not
and will not (i) result in a violation of such Purchaser's charter documents
bylaws, partnership agreement, operating agreement or other organizational
documents, or (ii) conflict with, constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of any
agreement, indenture or instrument to which such Purchaser is a party, or result
in a violation of any law, rule, or regulation, or any order, judgment or decree
of any court or governmental agency applicable to such Purchaser or its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a Material Adverse Effect on such
Purchaser). Such Purchaser is not required to obtain any consent, authorization
or order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement, the Registration Rights Agreement, the Escrow Agreement or
the documents contemplated hereby and thereby or to purchase the Preferred
Shares and the Warrants in accordance with the terms hereof, provided that for
purposes of the representation
14
<PAGE>
made in this sentence, such Purchaser is assuming and relying upon the accuracy
of the relevant representations and agreements of the Company herein.
(d) Acquisition for Investment. Such Purchaser is purchasing the
--------------------------
Shares and the Warrants solely for its own account for the purpose of investment
and not with a view to or for sale in connection with distribution. Such
Purchaser does not have a present intention to sell the Shares or the Warrants,
nor a present arrangement (whether or not legally binding) or intention to
effect any distribution of the Shares or the Warrants to or through any person
or entity; provided, however, that by making the representations herein and
-------- --------
subject to Section 2.2(f) below, such Purchaser does not agree to hold the
Shares or the Warrants for any minimum or other specific term and reserves the
right to dispose of the Shares or the Warrants at any time in accordance with
Federal securities laws applicable to such disposition. Such Purchaser
acknowledges that it is able to bear the financial risks associated with an
investment in the Shares or the Warrants and that it has been given full access
to such records of the Company and the subsidiaries and to the officers of the
Company and the subsidiaries as it has deemed necessary or appropriate to
conduct its due diligence investigation.
(e) Accredited Purchasers. Such Purchaser is an "accredited
---------------------
investor" as defined in Regulation D promulgated under the Securities Act and is
a resident of the jurisdiction indicated on Exhibit A hereto.
(f) Rule 144. Such Purchaser understands that the Shares and the
--------
Warrants must be held indefinitely unless such Shares and the Warrants are
registered under the Securities Act or an exemption from registration is
available. Such Purchaser acknowledges that such person is familiar with Rule
144 of the rules and regulations of the Commission, as amended, promulgated
pursuant to the Securities Act ("Rule 144"), and that such person has been
advised that Rule 144 permits resales only under certain circumstances. Such
Purchaser understands that to the extent that Rule 144 is not available, such
person will be unable to sell any Shares and the Warrants without either
registration under the Securities Act or the existence of another exemption from
such registration requirement.
(g) [Intentionally Omitted.]
(h) General. Such Purchaser understands that the Shares are being
-------
offered and sold in reliance on a transactional exemption from the registration
requirement of Federal and state securities laws and the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Shares. Purchaser understands that no United States
federal or state agency or any government or governmental agency has passed upon
or made any recommendation or endorsement of the Shares and the Warrants
(i) Short Selling. During the period beginning five (5) Trading
-------------
Days prior to a Closing Date (the "Pre-Closing Period") through such Closing
Date, no Purchaser participating in such Closing Date or any person acting on
behalf of such Purchaser has taken any action intended to decrease the Per Share
Market Value (as defined in the Warrant) during the Pre-Closing Period. During
the Pre-Closing Period, no Purchaser participating in such Closing Date
15
<PAGE>
or any person acting on behalf of such Purchaser effected any "short" sales in
the Common Stock or borrowed shares or otherwise participated in any transaction
which could be considered a "short sale" under the rules and regulations
promulgated under the Exchange Act (a "Short Sale").
ARTICLE III
Covenants
The Company covenants with each of the Purchasers, which covenants are for
the benefit of the Purchasers and their permitted assignees (as defined herein),
and, with respect to Sections 3.16 and 3.17, each of the Purchasers covenants
with the Company, which covenants are for the benefit of the Company and its
permitted assignees (as defined herein), as follows:
Section 3.1 Securities Compliance.
---------------------
(a) The Company shall notify the Commission in accordance with
their rules and regulations, of the transactions contemplated by any of the
Transaction Documents, including filing a Form D with respect to the Preferred
Shares, Warrants, Conversion Shares and Warrants Shares as may be required under
Regulation D, and shall take all other necessary action and proceedings as may
be required and permitted by applicable law, rule and regulation, for the legal
and valid issuance of the Preferred Shares and the Warrant Shares to the
Purchasers or subsequent holders.
(b) The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
such Purchasers set forth herein in order to determine the applicability of
Federal and state securities laws exemptions and the suitability of such
Purchasers to acquire the Shares and the Warrants.
Section 3.2 Registration and Listing. The Company will cause its Common
------------------------
Stock to be registered under Sections 12(b) or 12(g) of the Exchange Act
pursuant to the Registration Statement within 150 days of (a) the later of (i)
the First Tranche Closing Date and (ii) the Second Tranche Closing Date, if
applicable, and (b) the date which is within five (5) business days of the date
on which the Commission informs the Company that it may request the acceleration
of the effectiveness of the Registration Statement, will comply in all respects
with its reporting and filing obligations under the Exchange Act, will comply
with all requirements related to any registration statement filed pursuant to
this Agreement or the Registration Rights Agreement, and will not take any
action or file any document (whether or not permitted by the Securities Act or
the rules promulgated thereunder) to terminate or suspend such registration or
to terminate or suspend its reporting and filing obligations under the Exchange
Act or Securities Act, except as permitted herein. The Company will take all
action necessary to continue the listing or trading of its Common Stock on the
over-the-counter electronic bulletin board.
Section 3.3 Inspection Rights. The Company shall permit, during normal
-----------------
business hours and upon reasonable request and reasonable notice, each Purchaser
or any employees, agents or representatives thereof, so long as such Purchaser
shall be obligated hereunder to
16
<PAGE>
purchase the Preferred Shares or shall beneficially own any Preferred Shares, or
shall own Conversion Shares which, in the aggregate, represent more than 2% of
the total combined voting power of all voting securities then outstanding, to
examine and make reasonable copies of and extracts from the records and books of
account of, and visit and inspect the properties, assets, operations and
business of the Company and any subsidiary, and to discuss the affairs, finances
and accounts of the Company and any subsidiary with any of its officers,
consultants, directors, and key employees.
Section 3.4 Compliance with Laws. The Company shall comply, and cause
--------------------
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could have a Material Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company shall
---------------------------------------
keep and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 Reporting Requirements. The Company shall furnish the
----------------------
following, if and when applicable, to each Purchaser so long as such Purchaser
shall be obligated hereunder to purchase the Preferred Shares or shall
beneficially own any Preferred Shares, or shall own Conversion Shares which, in
the aggregate, represent more than 2% of the total combined voting power of all
voting securities then outstanding:
(a) Quarterly Reports filed with the Commission on Form 10-Q or
10-QSB, as the case may be, as soon as available, and in any event within 45
days after the end of each of the first three fiscal quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-K or
10-KSB, as the case may be, as soon as available, and in any event within 90
days after the end of each fiscal year of the Company; and
(c) Copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.
Section 3.7 Amendments. The Company shall not amend or waive any
----------
provision of the Articles or Bylaws of the Company, or Registration Rights
Agreement in any way that would adversely affect the liquidation preferences,
dividends rights, conversion rights, voting rights or redemption rights of the
holders of the Preferred Shares; provided, however, that this provision shall
-------- -------
not apply to any amendment or waiver specifically permitted by the terms and
provisions of the Certificate of Designation.
17
<PAGE>
Section 3.8 Other Agreements. The Company shall not enter into any
----------------
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any subsidiary under any
Transaction Document or the Certificate of Designation.
Section 3.9 Distributions. So long as any Preferred Shares or Warrants
-------------
remain outstanding, the Company agrees that it shall not (i) declare or pay any
dividends or make any distributions to any holder(s) of Common Stock or (ii)
purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company; provided, however, that this
-------- -------
provision shall not apply to any transaction described in clauses (i) or (ii)
above specifically permitted by the terms and provisions of the Certificate of
Designation or Warrants.
Section 3.10 Status of Dividends. The Company covenants and agrees that
-------------------
(i) no Federal income tax return or claim for refund of Federal income tax or
other submission to the Internal Revenue Service will adversely affect the
Preferred Shares, any other series of its Preferred Stock, or the Common Stock,
and any deduction shall not operate to jeopardize the availability to Purchasers
of the dividends received deduction provided by Section 243(a)(1) of the Code or
any successor provision, (ii) in no report to shareholders or to any
governmental body having jurisdiction over the Company or otherwise will it
treat the Preferred Shares other than as equity capital or the dividends paid
thereon other than as dividends paid on equity capital unless required to do so
by GAAP (according to the Company's accountants), a governmental body having
jurisdiction over the accounts of the Company or by a change in generally
accepted accounting principles required as a result of action by an
authoritative accounting standards setting body, and (iii) other than pursuant
to this Agreement or the Certificate of Designation, it will take no action
which would result in the dividends paid by the Company on the Preferred Shares
out of the Company's current or accumulated earnings and profits being
ineligible for the dividends received deduction provided by Section 243(a)(1) of
the Code. The preceding sentence shall not be deemed to prevent the Company from
designating the Preferred Stock as "Convertible Preferred Stock" in its annual
and quarterly financial statements in accordance with its prior practice
concerning other series of preferred stock of the Company. In the event that the
Purchasers have reasonable cause to believe that dividends paid by the Company
on the Preferred Shares out of the Company's current or accumulated earnings and
profits will not be treated as eligible for the dividends received deduction
provided by Section 243(a)(1) of the Code, or any successor provision, the
Company will, at the request of the Purchasers of 51% of the outstanding
Preferred Shares, join with the Purchasers in the submission to the Service of a
request for a ruling that dividends paid on the Shares will be so eligible for
Federal income tax purposes. In addition, the Company will reasonably cooperate
with the Purchasers (at Purchasers' expense) in any litigation, appeal or other
proceeding challenging or contesting any ruling, technical advice, finding or
determination that earnings and profits are not eligible for the dividends
received deduction provided by Section 243(a)(1) of the Code, or any successor
provision to the extent that the position to be taken in any such litigation,
appeal, or other proceeding is not contrary to any provision of the Code or
incurred in connection with any such submission, litigation, appeal or other
proceeding. Notwithstanding the foregoing, nothing herein contained shall be
deemed to preclude the Company from claiming a deduction with respect to such
dividends if (i) the Code shall hereafter be amended, or final Treasury
regulations thereunder are issued or modified, to provide that dividends on the
Preferred Shares or Conversion Shares should not be treated as dividends for
Federal income tax purposes or that a
18
<PAGE>
deduction with respect to all or a portion of the dividends on the Shares is
allowable for Federal income tax purposes, or (ii) in the absence of such an
amendment, issuance or modification and after a submission of a request for
ruling or technical advice, the service shall rule or advise that dividends on
the shares should not be treated as dividends for Federal income tax purposes.
If the Service determines that the Preferred Shares or Conversion Shares
constitute debt, the Company may file protective claims for refund.
Section 3.11 [Intentionally Omitted.]
Section 3.12 Regulation S. The Company covenants and agrees that if the
------------
Company fails to register the Conversion Shares under the terms and conditions
of the Registration Rights Agreement attached hereto as Exhibit E or such
registration shall no longer be effective, then for so long as any of the
Preferred Shares or Conversion Shares remain outstanding and continue to be
"restricted securities" within the meaning of Rule 144 under the Securities Act,
the Company shall, in order to permit resales of the Preferred Shares or
Conversion Shares pursuant to Regulation S under the Securities Act, (a)
continue to file all material required to be filed pursuant to Section 13(a) or
15(d) of the Exchange Act and (b) not knowingly engage in directed selling
efforts in connection with the resale of securities by any Purchaser under
Regulation S.
Section 3.13 Restrictions on Subsequent Financings. The Company
-------------------------------------
covenants and agrees that as long as there are any Preferred Shares outstanding,
the Company with respect to any subsequent offer or sale to, or exchange with
(or other type of distribution to), any third party (a "Subsequent Financing")
of Common Stock or any securities convertible or exchangeable into Common Stock,
including debt securities, (collectively, the "Financing Securities"), which
shall include, through exercise, exchange, or conversion or otherwise, the
offering, sale or distribution of Additional Shares of Common Stock or Common
Stock Equivalents (as such terms are defined in Section 5(e) of the Certificate
of Designation) at a price which is less than the Conversion Price, shall comply
with the applicable terms and conditions (including but not limited to, those
relating to adjustments to the conversion of the Preferred Shares and number of
Conversion Shares) of Section 5(e) of the Certificate of Designation.
Notwithstanding the foregoing, a Subsequent Financing shall not include: (i) any
transaction involving the Company's issuances of any Financing Securities (other
than for cash) (A) as consideration in a merger, consolidation or sale of
assets, (B) in connection with any strategic partnership or joint venture (the
primary purpose of which is not to raise equity capital) or (C) in exchange for
assets, stock or joint venture interest; (ii) the grant of any Financing
Securities under any Company employee benefit plan stock option plan, restricted
stock plan or stock purchase plan for the benefit of the Company's employees or
directors; or (iii) any transaction entered into and completed on terms and
conditions which contemplate the exchange, consideration or sale (or other type
of distribution or payment, as applicable) of any Financing Securities at a
price (as determined in a manner consistent with the Certificate of Designation)
at or above the Conversion Price; (iv) any transaction what is disclosed on
Schedule 2.1(c) or Schedule 2.1(z); or (v) the issuance of securities upon
- --------------- ---------------
exercise or conversion of the Preferred Shares or the Warrants; or (vi) any
transaction (an "Alternative Transaction") involving the Company's issuance of
any Financing Securities if the Second Tranche Closing has not occurred on or
before October 1, 1999 (the "Drop Dead Date") or the Second Tranche Closing has
occurred on or before the Drop Dead Date and the aggregate Purchase Prices
delivered at the Second Tranche Closing is less than $3,000,000; provided that
--------
the failure of the Second Tranche Closing to have occurred by the
19
<PAGE>
Drop Dead Date is not due to the failure of Company's obligations pursuant to
Article IV of this Agreement, and further provided that any Alternative
------- --------
Transaction (A) is entered into and completed on terms and conditions which
provide for the issuance or sale of any Financing Securities at a price (as
determined in a manner consistent with the Certificate of Designation) at or
above seventy percent (70%) of the Five Day Average Price (as defined in the
Certificate of Designation) of the Common Stock immediately preceding the
scheduled closing date of the Alternative Transaction as set forth in the Rights
Notice (as defined below), (B) the closing date of such Alternative Transaction
occurs on or before October 2, 2000, (C) the Company has complied with the First
Refusal Rights (as defined below) in connection with such Alternative
Transaction, and (D) the proceeds received by October 2, 2000 by the Company in
connection with all such Alternative Transactions do not exceed, in the
aggregate, the difference between $5,000,000 and the aggregate amount of the
Purchase Prices received at the Closings (each of the transactions set forth in
(i)-(vi) of this Section 3.13 being a "Permitted Financing"); provided, however,
-------- -------
that any such Permitted Financing (other than an Alternative Transaction) is not
subject to any term or condition which shall require the Company to file with
the Commission a registration statement in respect of any Financing Securities
prior to sixty (60) days after the Effectiveness Date (as defined in the
Registration Rights Agreement), except as disclosed on Schedule 2.1(c) and
---------------
Schedule 2.1(z) hereto. The Company will promptly notify the Purchasers in
- ---------------
writing of the terms and conditions of any proposed Subsequent Financing. The
Company will not, directly or indirectly, conduct any proposed Alternative
Transaction (other than an Alternative Transaction at a price (as determined in
a manner consistent with the Certificate of Designation) at or above the
Conversion Price) for any Alternative Transaction during the period beginning on
the date hereof and ending on October 2, 2000, unless it shall have first
delivered to Settondown Capital International, Ltd. or any of its assignees
("Settondown"), at least ten (10) Trading Days prior to the closing of such
Alternative Transaction, a written notice (a "Rights Notice") describing, in
reasonable detail, the proposed Alternative Transaction, the proposed closing
date of the Alternative Transaction which shall be within (20) Trading Days from
the date of the Rights Notice, including, without limitation, all of the terms
and conditions thereof, and providing Settondown an option (the "Rights Option")
during the ten (10) Trading Day period (the "Option Period") following delivery
of the Rights Notice to purchase all of the securities being offered in such
Alternative Transaction on the same, absolute terms and conditions as
contemplated by such Alternative Transaction (the "First Refusal Rights");
provided that no Rights Notice may be delivered until October 4, 1999. Delivery
- --------
of any Rights Notice constitutes a representation and warranty by the Company
that there are no other material terms and conditions, arrangements, agreements
or otherwise except for those disclosed in the Rights Notice, to provide
additional compensation to any party participating in any proposed Alternative
Transaction, including, but not limited to, additional compensation based on
changes in the Closing Bid Price (as defined in the Certificate of Designation)
or any type of reset or adjustment of a purchase or conversion price or to issue
additional securities at any time after the closing date of an Alternative
Financing. If the Company does not receive notice of exercise of the Rights
Option from Settondown within the Option Period, the Company shall have the
right to close the Alternative Transaction on the scheduled closing date with a
third party; provided that all of the terms and conditions of such closing are
--------
the same as those provided to Settondown in the Rights Notice. If the closing of
the proposed Alternative Transaction does not occur on that date, any closing of
the contemplated Alternative Transaction or any other Alternative Transaction
shall be subject to all of the provisions of this Section 3.13, including,
without limitation, the delivery of a new Rights Notice.
20
<PAGE>
Section 3.14 Reservation of Shares. So long as any of the Preferred
---------------------
Shares or Warrants remain outstanding, the Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than an aggregate of 1,100,000 Conversion Shares and Warrant
Shares following the First Tranche Closing and an additional aggregate of
1,650,000 Conversion Shares and Warrant Shares following the Second Tranche
Closing, if applicable.
Section 3.15 Transfer Agent Instructions. The Company shall issue
---------------------------
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Purchaser to the Company upon
conversion of the Preferred Shares or exercise of the Warrants in the form of
Exhibit F attached hereto (the "Irrevocable Transfer Agent Instructions").
Prior to registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 6.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.15 will be given by the Company to its transfer agent and that
the Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. Nothing in this Section 3.15 shall affect in any way each
Purchaser's obligations and agreements set forth in Section 6.1 to comply with
all applicable prospectus delivery requirements, if any, upon resale of the
Shares. If a Purchaser transfers any Shares or Warrants in compliance with
Section 3.16, the Company shall permit the transfer, and, in the case of the
Conversion Shares and the Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates in such name and in such denominations as
specified by such Purchaser and without any restrictive legend. The Company
acknowledges that a breach by it of its obligations under this Section 3.15 will
cause irreparable harm to the Purchasers by vitiating the intent and purpose of
the transaction contemplated hereby. Accordingly, the Company acknowledges that
the remedy at law for a breach of its obligations under this Section 3.15 will
be inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 3.15, that the Purchasers shall be
entitled, in addition to all other available remedies, to an order and/or
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
Section 3.16 Transfer or Resale. Each Purchaser severally, and not
------------------
jointly, understands that (i) except as provided in the Registration Rights
Agreement, the sale or resale of the Shares and the Warrants have not been and
are not being registered under the Securities Act or any state securities laws,
and agrees that the Shares and the Warrants may not be transferred unless (a)
the resale of the Shares and Warrants has been registered thereunder; or (b)
Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Shares and Warrants to be
sold or transferred may be sold or transferred pursuant to an exemption from
such registration; or (c) the Shares and Warrants are sold under Rule 144
promulgated under the Securities Act (or a successor rule); and (ii) neither the
Company nor any other person is under any obligation to register such Securities
under the Securities Act or any state securities laws (other than pursuant to
the Registration Rights Agreement).
21
<PAGE>
Section 3.17 Short Selling. Each Purchaser, severally, and not jointly,
-------------
covenants and agrees that neither such Purchaser nor any person acting on behalf
of such Purchaser shall effect any Short Sales in the Common Stock (i) during
the ten (10) Trading Days immediately preceding the exercise of the Reset Option
(as defined in the Certificate of Designation), if exercised, or (ii) if the bid
price of the Common Stock is between $3.50 and $6.50 per share.
ARTICLE IV
Conditions
Section 4.1 Conditions Precedent to the Obligation of the Company to
--------------------------------------------------------
Sell the Shares at the First Tranche Closing. The obligation hereunder of the
- --------------------------------------------
Company to issue and sell the Preferred Shares and the Warrants to the First
Tranche Purchasers is subject to the satisfaction or waiver, at or before the
First Tranche Closing, of each of the conditions set forth below. These
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.
(a) Accuracy of Each First Tranche Purchaser's Representations
----------------------------------------------------------
and Warranties. The representations and warranties of each First Tranche
- --------------
Purchaser shall be true and correct in all material respects as of the date when
made and as of the First Tranche Closing as though made at that time, except for
representations and warranties that are expressly made as of a particular date,
which shall be true and correct in all material respects as of such date.
(b) Performance by the First Tranche Purchasers. Each First
-------------------------------------------
Tranche Purchaser shall have performed, satisfied and complied in all material
respects with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Purchaser at or
prior to the First Tranche Closing, including having paid by wire transfer of
funds into escrow in accordance with this Agreement and the Escrow Agreement the
Purchase Price set forth opposite such Purchaser's name on Exhibit A, such
Purchaser shall have executed and delivered this Agreement, the Registration
Rights Agreement and the Escrow Agreement to the Escrow Agent on behalf of the
Company. The Escrow Agent shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by this
Agreement and the Escrow Agreement to be performed, satisfied or complied with
by the Escrow Agent at or prior to the First Tranche Closing, including delivery
of all of the First Tranche Purchaser's Closing Documents to the Company.
(c) No Injunction. No statute, rule, regulation, executive
-------------
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
Section 4.2 Conditions Precedent to the Obligation of the Company to
--------------------------------------------------------
Sell the Shares at the Second Tranche Closing. The obligation hereunder of the
- ---------------------------------------------
Company to issue and sell the Preferred Shares and the Warrants to the Second
Tranche Purchasers is subject to the satisfaction or waiver, at or before the
Second Tranche Closing, of each of the conditions set forth below.
22
<PAGE>
These conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion.
(a) Accuracy of Each Second Tranche Purchaser's Representations and
---------------------------------------------------------------
Warranties. The representations and warranties of each Second Tranche Purchaser
- ----------
shall be true and correct in all material respects as of the date when made and
as of the Second Tranche Closing as though made at that time, except for
representations and warranties that are expressly made as of a particular date,
which shall be true and correct in all material respects as of such date.
(b) Performance by the Second Tranche Purchasers. Each Second
--------------------------------------------
Tranche Purchaser shall have performed, satisfied and complied in all material
respects with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Purchaser at or
prior to the Second Tranche Closing, including having paid by wire transfer of
funds into escrow in accordance with this Agreement and the Escrow Agreement the
Purchase Price set forth opposite such Purchaser's name on Exhibit AA, as
applicable, such Purchaser shall have executed and delivered a counterpart to
each of this Agreement, the Registration Rights Agreement and the Escrow
Agreement to the Escrow Agent on behalf of the Company. Each of the Second
Tranche Purchasers shall have delivered such Purchaser's Purchaser Closing
Notice to the Company. The Escrow Agent shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by this Agreement and the Escrow Agreement to be performed, satisfied
or complied with by the Escrow Agent at or prior to the Second Tranche Closing,
including delivery of all of the Second Tranche Purchaser's Closing Documents to
the Company.
(c) No Injunction. No statute, rule, regulation, executive order,
-------------
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) Payment of Second Tranche Purchaser Prices. The aggregate of
------------------------------------------
all of the Second Tranche Purchase Prices shall not be less than $3,000,000.
Section 4.3 Conditions Precedent to the Obligation of the Purchasers to
-----------------------------------------------------------
Purchase the Shares at the First Tranche Closing. The obligation hereunder of
- ------------------------------------------------
each Purchaser to acquire and pay for the Preferred Shares and the Warrants is
subject to the satisfaction or waiver, at or before the First Tranche Closing,
of each of the conditions set forth below. These conditions are for each
Purchaser's sole benefit and may be waived by such Purchaser at any time in its
sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each
--------------------------------------------------------
of the representations and warranties of the Company shall be true and correct
in all material respects as of the date when made and as of the First Tranche
Closing as though made at that time (except for representations and warranties
that speak as of a particular date), which shall be true and correct in all
material respects as of such date.
(b) Performance by the Company. The Company shall have performed,
--------------------------
satisfied and complied in all material respects with all covenants, agreements
and conditions
23
<PAGE>
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the First Tranche Closing.
(c) No Suspension, Etc. From the date hereof to the First Tranche
------------------
Closing Date, trading in the Company's Common Stock shall not have been
suspended by the Commission (except for any suspension of trading of limited
duration agreed to by the Company, which suspension shall be terminated prior to
the First Tranche Closing), and, at any time prior to the First Tranche Closing,
trading in securities generally as reported by Bloomberg Financial Markets
("Bloomberg") shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported by Bloomberg,
or on the New York Stock Exchange, nor shall a banking moratorium have been
declared either by the United States or New York State authorities, nor shall
there have occurred any material outbreak or escalation of hostilities or other
national or international calamity or crisis of such magnitude in its effect on,
or any material adverse change in any financial market which, in each case, in
the judgment of such Purchaser, makes it impracticable or inadvisable to
purchase the Preferred Shares.
(d) No Injunction. No statute, rule, regulation, executive order,
-------------
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding
----------------------------
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any subsidiary, or any of the officers, directors or
affiliates of the Company or any subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
(f) Certificate of Designation of Rights and Preferences. Prior to
----------------------------------------------------
the First Tranche Closing, the Certificate of Designation in the form of Exhibit
C attached hereto shall have been filed with the Secretary of State of Delaware.
(g) Opinion of Counsel, Etc. At the First Tranche Closing, the Escrow
-----------------------
Agent on behalf of each Purchaser shall have received an opinion of counsel to
the Company, dated the date of the First Tranche Closing, in the form of Exhibit
G hereto, and such other certificates and documents as such Purchaser or its
counsel shall reasonably require incident to the First Tranche Closing.
(h) Registration Rights Agreement. Prior to the First Tranche
-----------------------------
Closing, the Company shall have executed and delivered the Registration Rights
Agreement to the Escrow Agent on behalf of each Purchaser.
(i) Preferred Stock Certificates. The Company shall have executed
----------------------------
and delivered to the Escrow Agent on behalf of each Purchaser, the stock
certificates (in such denominations as such Purchaser shall request) for the
Preferred Shares being purchased by such Purchaser at the First Tranche Closing.
24
<PAGE>
(j) Resolutions. Prior to the First Tranche Closing, the Board of
-----------
Directors of the Company shall have adopted resolutions consistent with Section
2.1(b) above in a form reasonably acceptable to each Purchaser (the
"Resolutions").
(k) Reservation of Shares. As of the First Tranche Closing Date,
---------------------
the Company shall have reserved out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Preferred Shares and
the exercise of the Warrants, a number of shares of Common Stock equal to at
least 1,100,000 shares of Common Stock which would be issuable upon conversion
of the Preferred Stock and upon exercise of the Warrants following the First
Tranche Closing (after giving effect to the Preferred Shares and Warrants to be
issued on such Closing Date and assuming all such Preferred Shares and Warrants
were fully convertible or exercisable on such date regardless of any limitation
on the timing or amount of such conversions or exercises).
(l) Transfer Agent Instructions. Prior to the First Tranche
---------------------------
Closing, the Irrevocable Transfer Agent Instructions, in the form of Exhibit F
attached hereto, shall have been delivered to and acknowledged in writing by the
Company's transfer agent.
(m) Secretary's Certificate. At the First Tranche Closing, the
-----------------------
Company shall have delivered to the Escrow Agent on behalf of each Purchaser a
secretary's certificate, dated as of the First Tranche Closing Date, as to (i)
the Resolutions, (ii) the Articles, (iii) the Bylaws, (iv) the Certificate of
Designation, each as in effect at the First Tranche Closing, and (iv) the
authority and incumbency of the officers of the Company executing the
Transaction Documents and any other documents required to be executed or
delivered in connection therewith.
(n) Escrow Agreement. Prior to the First Tranche Closing, the
----------------
Company shall have executed and delivered the Escrow Agreement to the Escrow
Agent on behalf of each Purchaser.
(o) Officer's Certificate. At the First Tranche Closing, the
---------------------
Company shall have delivered to such Purchaser a certificate of an executive
officer of the Company, dated as of the First Tranche Closing Date, confirming
the accuracy of the Company's representations, warranties and covenants as of
such Closing Date and confirming the compliance by the Company with the
conditions precedent set forth in this Section 4.2 as of such Closing Date.
Section 4.4 Conditions Precedent to the Obligation of the Purchasers to
-----------------------------------------------------------
Purchase the Shares at the Second Tranche Closing. The obligation hereunder of
- -------------------------------------------------
each Purchaser to acquire and pay for the Preferred Shares and the Warrants is
subject to the satisfaction or waiver, at or before the Second Tranche Closing,
of each of the conditions set forth below. These conditions are for each
Purchaser's sole benefit and may be waived by such Purchaser at any time in its
sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each
--------------------------------------------------------
of the representations and warranties of the Company shall be true and correct
in all material respects as of the date when made and as of the Second Tranche
Closing as though made at that time (except for representations and warranties
that speak as of a particular date), which shall be true and correct in all
material respects as of such date.
25
<PAGE>
(b) Performance by the Company. The Company shall have performed,
--------------------------
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Second Tranche Closing.
(c) No Suspension, Etc. From the date hereof to the Second Tranche
------------------
Closing Date, trading in the Company's Common Stock shall not have been
suspended by the Commission (except for any suspension of trading of limited
duration agreed to by the Company, which suspension shall be terminated prior to
the Second Tranche Closing), and, at any time prior to the Second Tranche
Closing, trading in securities generally as reported by Bloomberg Financial
Markets ("Bloomberg") shall not have been suspended or limited, or minimum
prices shall not have been established on securities whose trades are reported
by Bloomberg, or on the New York Stock Exchange, nor shall a banking moratorium
have been declared either by the United States or New York State authorities,
nor shall there have occurred any material outbreak or escalation of hostilities
or other national or international calamity or crisis of such magnitude in its
effect on, or any material adverse change in any financial market which, in each
case, in the judgment of such Purchaser, makes it impracticable or inadvisable
to purchase the Preferred Shares.
(d) No Injunction. No statute, rule, regulation, executive order,
-------------
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding
----------------------------
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any subsidiary, or any of the officers, directors or
affiliates of the Company or any subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in
connection with such transactions.
(f) Opinion of Counsel, Etc. At the Second Tranche Closing, the
-----------------------
Escrow Agent on behalf of each Purchaser shall have received an opinion of
counsel to the Company, dated the date of each Closing, in the form of Exhibit G
hereto, and such other certificates and documents as such Purchaser or its
counsel shall reasonably require incident to the Second Tranche Closing.
(g) Preferred Stock Certificates. The Company shall have executed
----------------------------
and delivered to the Escrow Agent on behalf of each Purchaser, the stock
certificates (in such denominations as such Purchaser shall request) for the
Preferred Shares being purchased by such Purchaser at the Second Tranche
Closing.
(h) Resolutions. Prior to the Second Tranche Closing, the Board of
-----------
Directors of the Company shall have adopted resolutions consistent with Section
2.1(b) above in a form reasonably acceptable to each Purchaser (the
"Resolutions").
(i) Reservation of Shares. As of the Second Tranche Closing Date,
---------------------
the Company shall have reserved out of its authorized and unissued Common Stock,
solely for the
26
<PAGE>
purpose of effecting the conversion of the Preferred Shares and the exercise of
the Warrants, a number of shares of Common Stock equal to at least 1,650,000
shares of Common Stock which would be issuable upon conversion of the Preferred
Stock and upon exercise of the Warrants following the Second Tranche Closing
(after giving effect to the Preferred Shares and Warrants to be issued on such
Closing Date and assuming all such Preferred Shares and Warrants were fully
convertible or exercisable on such date regardless of any limitation on the
timing or amount of such conversions or exercises).
(j) Secretary's Certificate. At the Second Tranche Closing, the
-----------------------
Company shall have delivered to the Escrow Agent on behalf of each Purchaser a
secretary's certificate, dated as of the Second Tranche Closing Date, as to (i)
the Resolutions, (ii) the Articles, (iii) the Bylaws, (iv) the Certificate of
Designation, each as in effect at the Second Tranche Closing, and (iv) the
authority and incumbency of the officers of the Company executing the
Transaction Documents and any other documents required to be executed or
delivered in connection therewith.
(k) Officer's Certificate. At the Second Tranche Closing, the
---------------------
Company shall have delivered to such Purchaser a certificate of an executive
officer of the Company, dated as of the Second Tranche Closing Date, confirming
the accuracy of the Company's representations, warranties and covenants as of
the Second Tranche Closing Date and confirming the compliance by the Company
with the conditions precedent set forth in this Section 4.3 as of such Closing
Date.
(l) Registration Statement. Prior to the Second Tranche Closing,
----------------------
the Company shall have filed the Registration Statement after receipt by the
Company of the Purchaser Closing Notice from each Purchaser.
ARTICLE V
Registration Rights
At the First Tranche Closing Date, the Company and the First Tranche
Purchasers shall enter into a Registration Rights Agreement in the form attached
hereto as Exhibit E (the "Registration Rights Agreement") and at the Second
Tranche Closing Date, if applicable, the Second Tranche Purchasers shall duly
execute and delivery to the Company counterparts to the Registration Rights
Agreement.
ARTICLE VI
Stock Certificate Legend
Section 6.1 Legend. Each certificate representing the Shares and the
------
Warrants, and, if appropriate, securities issued upon conversion thereof, shall
be stamped or otherwise imprinted with a legend substantially in the following
form (in addition to any legend required by applicable state securities or "blue
sky" laws):
27
<PAGE>
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THAT ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR NET VALUE HOLDINGS, INC. (THE"COMPANY")
SHALL HAVE RECEIVED AN OPINION, IN FORM, SCOPE AND SUBSTANCE
REASONABLY ACCEPTABLE TO THE COMPANY, OF COUNSEL, WHO IS
REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION OF SUCH
SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing the Shares or the
Warrants, without the legend set forth above if at such time, prior to making
any transfer of any Shares or, the Warrants such holder thereof shall give
written notice to the Company describing the manner and terms of such transfer
and removal as the Company may reasonably request and such holder otherwise
complies with the terms of the Transaction Documents. The legend set forth above
shall be removed and the Company shall issue a certificate without such legend
to the holder of any Shares or Warrants upon which it is stamped if, unless
otherwise required by state securities laws, (a) the sale of such Shares or
Warrants is registered under the Securities Act (including registration pursuant
to Rule 416 thereunder) as contemplated by the Registration Rights Agreement (b)
such holder provides the Company with an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable transactions, to the
effect that a sale or transfer of such Shares or Warrants may be made without
registration under the Securities Act; or (c) such holder provides the Company
with reasonable assurances that such Shares or Warrants can be sold under Rule
144(k). Each Purchaser agrees to sell all Shares or Warrants, including those
represented by a certificate(s) from which the legend has been removed, pursuant
to an effective registration statement, under an exemption from the registration
requirements of the Securities Act or in accordance with Rule 144(k). In the
event the above legend is removed from any Shares or Warrants and the
effectiveness of a registration statement covering such Shares or Warrants is
suspended or the Company determines that a supplement or amendment thereto is
required by applicable securities laws, then upon reasonable advance notice to
such Purchaser the Company may require that the above legend be placed on any
such Shares or Warrants that cannot then be sold pursuant to an effective
registration statement, under an exemption from the registration requirements of
the Securities Act or under Rule 144(k) and such Purchaser shall cooperate in
the replacement of such legend. Such legend shall thereafter be removed when
such Shares or Warrants may again be sold pursuant to an effective registration
statement, under an exemption from the registration requirements of the
Securities Act or under Rule 144(k). The restrictions on transfer contained in
Section 6.1 shall be in addition to, and not by way of limitation of, any other
restrictions on transfer contained in any other section of this Agreement.
28
<PAGE>
ARTICLE VII
Termination
Section 7.1 Termination by Mutual Consent. This Agreement may be
-----------------------------
terminated at any time prior to the First Tranche Closing by the mutual written
consent of the Company and the Purchasers.
Section 7.2 Other Termination . This Agreement may be terminated by the
-----------------
action of the Board of Directors of the Company or by any one or more of the
Purchasers at any time if the First Tranche Closing shall not have been
consummated by the First Tranche Closing Date, as long as the failure to so
consummate is not the fault of the terminating party.
Section 7.3 Termination of Second Tranche Closing. If the Second
-------------------------------------
Tranche Closing has not occurred on or prior to the Second Tranche Closing Date,
those sections and provisions relating to the Second Tranche Closing in this
Agreement may be terminated by the action of the Board of Directors of the
Company or by any one or more of the Second Tranche Purchasers as long as the
failure to so consummate is not the fault of the terminating party.
Section 7.4 Effect of Termination. In the event of termination by the
---------------------
Company or any one or more of the Purchasers of this Agreement or any part
hereof, written notice thereof shall forthwith be given to the other party and
the transactions contemplated by this Agreement and the Registration Rights
Agreement shall be terminated without further action by either party. If this
Agreement is terminated as provided in Section 7.1 or 7.2 herein, this Agreement
shall become void and of no further force and effect, except for Sections 9.1
and 9.2, and Article VIII herein. Nothing in this Section 7.4 shall be deemed to
release the Company or any Purchaser from any liability for any breach under
this Agreement or the Registration Rights Agreement, or to impair the rights of
the Company and the Purchasers to compel specific performance by the other party
of its obligations under this Agreement and the Registration Rights Agreement.
ARTICLE VIII
Indemnification
Section 8.1 General Indemnity. The Company agrees to indemnify and hold
-----------------
harmless the Purchasers (and its respective directors, officers, affiliates,
agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorney's fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. Each
Purchaser severally but not jointly agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys fees, charges
and disbursements) incurred by the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by such Purchaser
herein.
29
<PAGE>
Section 8.2 Indemnification Procedure. Any party entitled to
-------------------------
indemnification under this Article VIII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VIII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VIII to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Article VIII shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE IX
Miscellaneous
30
<PAGE>
Section 9.1 Fees and Expenses. Each party shall pay the fees and
-----------------
expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement, provided
that the Company shall allocate $25,000, at the First Tranche Closing, from the
aggregate Purchase Prices, to pay for all attorneys fees and expenses (exclusive
of disbursements and out-of-pocket expenses) incurred by the Purchasers in
connection with the preparation, negotiation, execution and delivery of this
Agreement, the Registration Rights Agreement and the transaction contemplated
hereunder. In addition, the Company shall pay all reasonable fees and expenses
incurred by the Purchasers in connection with Second Tranche Closing, if
applicable, and any amendments, modifications or waivers of this Agreement or
any of the other Transaction Documents requested by the Company, or incurred in
connection with the enforcement of this Agreement or any of the other
Transaction Documents, including, without limitation, all reasonable attorneys
fees and expenses. The Company shall pay all stamp or other similar taxes and
duties levied in connection with issuance of the Preferred Shares pursuant
hereto.
Section 9.2 Specific Enforcement, Consent to Jurisdiction .
---------------------------------------------
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the Registration Rights Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement or the Registration Rights
Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) Each of the Company and the Purchasers (i) hereby
irrevocably submits to the jurisdiction of the United States District Court
sitting in the Southern District of New York for the purposes of any suit,
action or proceeding arising out of or relating to this Agreement or the
Registration Rights Agreement and (ii) hereby waives, and agrees not to assert
in any such suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such court, that the suit, action or proceeding
is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Each of the Company and the Purchasers consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section 9.2 shall affect
or limit any right to serve process in any other manner permitted by law.
Section 9.3 Entire Agreement; Amendment. This Agreement contains the
---------------------------
entire understanding of the parties with respect to the matters covered hereby
and, except as specifically set forth herein or in the Transaction Documents or
the Certificate of Designation, neither the Company nor any of the Purchasers
makes any representations, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived or amended other than
by a written instrument signed by the Company and the holders of at least two-
thirds (2/3) of the Preferred Shares then outstanding, and no provision hereof
may be waived other than by an a written instrument signed by the party against
whom enforcement of any such
31
<PAGE>
amendment or waiver is sought. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Preferred Shares
then outstanding. No consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents or the Certificate of Designation unless the same
consideration is also offered to all of the parties to the Transaction Documents
or holders of Preferred Shares, as the case may be.
Section 9.4 Notices. Any notice, demand, request, waiver or other
-------
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company: Andrew P. Panzo, President and CEO
Net Value Holdings, Inc.
Two Penn Center Plaza, Suite 605
Philadelphia, PA 19102
Tel: (215) 564-9190
Fax: (215) 564-3133
with copies to: Michael C. Foreman, Esq.
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
260 South Broad St.
Philadelphia, PA 19102
Tel: (215) 568-6060
Fax: (215) 568-6603
If to any Purchaser: At the address of such Purchaser set forth on
Exhibit A to this Agreement, with copies as
specified in writing by such Purchaser with
copies to:
Christopher S. Auguste, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Telephone Number: (212) 704-6000
Fax: (212) 704-6288
Any party hereto may from time to time change its address for notices by
giving at least ten (10) days written notice of such changed address to the
other party hereto.
32
<PAGE>
Section 9.5 Waivers. No waiver by either party of any default with
-------
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
Section 9.6 Headings. The article, section and subsection headings in
--------
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 9.7 Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of the parties and their successors and assigns. A
Purchaser may only assign his rights hereunder if the entity to be assigned such
rights has provided assurances to the Company reasonably satisfactory to the
Company that such entity can comply with the representations and warranties set
forth in Section 2.2 of this Agreement. After the First Tranche Closing, the
assignment by a party to this Agreement of any rights hereunder shall not affect
the obligations of such party under this Agreement. At or prior to the Second
Tranche Closing, if applicable, each of the Second Tranche Purchasers shall have
duly executed and delivered to the Company a counterpart to this Agreement.
Section 9.8 No Third Party Beneficiaries. This Agreement is intended
----------------------------
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 9.9 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of New York, without
giving effect to the choice of law provisions.
Section 9.10 Survival. The representations and warranties of the Company
--------
and the Purchasers contained in Sections 2.1(o) and (s) should survive
indefinitely and those contained in Article II, with the exception of Sections
2.1(o) and (s), shall survive the execution and delivery hereof and the Closings
until the date two years from the later of the (i) First Tranche Closing Date
and (ii) Second Tranche Closing Date, if applicable, and the agreements and
covenants set forth in Articles I, III, V, VII, VIII and IX of this Agreement
shall survive the execution and delivery hereof and the Closings hereunder until
the Purchasers in the aggregate beneficially own (determined in accordance with
Rule 13d-3 under the Exchange Act) less than 2% of the total combined voting
power of all voting securities then outstanding, provided, that Sections 3.1,
3.2, 3.4, 3.5, 3.7, 3.8, 3.9, 3.10 and 3.12 shall not expire until the
Registration Statement required by Section 2 of the Registration Rights
Agreement is no longer required to be effective under the terms and conditions
of Registration Rights Agreement.
Section 9.11 Counterparts. This Agreement may be executed in any number
------------
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, the party using such means of
33
<PAGE>
delivery shall cause four additional executed signature pages to be physically
delivered to the other parties within five days of the execution and delivery
hereof.
Section 9.12. Publicity. The Company agrees that it will not disclose,
---------
and will not include in any public announcement, the name of the Purchasers,
unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.
Section 9.13 Severability. The provisions of this Agreement, the
------------
Certificate of Designation and the Registration Rights Agreement are severable
and, in the event that any court of competent jurisdiction shall determine that
any one or more of the provisions or part of the provisions contained in this
Agreement, the Certificate of Designation or the Registration Rights Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement, the Certificate of
Designation or the Registration Rights Agreement shall be reformed and construed
as if such invalid or illegal or unenforceable provision, or part of such
provision, had never been contained herein, so that such provisions would be
valid, legal and enforceable to the maximum extent possible.
Section 9.14 Further Assurances. From and after the date of this
------------------
Agreement, upon the request of any Purchaser or the Company, each of the Company
and the Purchasers shall execute and deliver such instrument, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement, the
Preferred Shares, the Conversion Shares, the Warrants, the Warrant Shares, the
Certificate Designation, and the Registration Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorize officer as of the date first above
written.
NET VALUE HOLDINGS, INC.
By:_____________________________________
Name:
Title:
PURCHASERS:
TONGA PARTNERS, L.P.
By:_____________________________________
Name: J. Carlo Cannell
Title:
Address: c/o Cannell Capital Management
600 California Street, Floor 14
San Francisco, CA 94108
Attn: J. Carlo Cannell
Tel: (415) 835-8300
Fax: (415) 835-8312
PLEIADES INVESTMENT PARTNERS, L.P.
By:_____________________________________
Name: Ken Rowles
Title:
Address: 600 West Chester Pike
Newtown Square, PA 19074
Attn: Ken Rowles
Tel: (610) 640-2327, ext. 3018
Fax: (610) 640-0401
YEOMAN VENTURES LIMITED (BVI)
35
<PAGE>
By:_____________________________________
Name: Giora Lavie
Title:
Address: P.O. Box 146
Road Town, Tartola
British Virgin Islands
Attn: Giora Lavie
Fax: 011-9723-544-1870
LIGHTLINE LIMITED (BVI)
By:_____________________________________
Name: Giora Lavie
Title:
Address: P.O. Box 146
Road Town, Tartola
British Virgin Islands
Attn: Giora Lavie
Fax: 011-9723-544-1870
36
<PAGE>
EXHIBIT A TO THE
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
FOR NET VALUE HOLDINGS, INC.
First Tranche Closing
---------------------
<TABLE>
<CAPTION>
Name and Address Number of Preferred
of Purchaser Shares Purchased Purchase Price Issuance Date
- ------------ ---------------- -------------- -------------
<S> <C> <C> <C>
Tonga Partners, L.P. 1,500 $1,500,000 September 17, 1999
c/o Cannell Capital Management
600 California Street, Floor 14
San Francisco, CA 94108
Attn: J. Carlo Cannell
Tel: 415-835-8300
Fax: 415-835-8312
Yeoman Ventures Limited (BVI) 250 $ 250,000 September 17, 1999
P.O. Box 146
Road Town, Tartola
British Virgin Islands
Attn: Giora Lavie
Fax: 011-9723-544-1870
Lightline Limited BVI 250 $ 250,000 September 17, 1999
P.O. Box 146
Road Town Tartola
British Virgin Islands
Attn: Giora Lavie
Fax: 011-9723-544-1870
</TABLE>
37
<PAGE>
EXHIBIT 10.20
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (this "Agreement") is made and
---------
entered into as of September 17, 1999, among Net Value Holdings, Inc., a
Delaware corporation (the "Company"), and each of the Purchasers executing this
-------
Agreement and listed on Schedule 1 attached hereto (individually, a "First
-----
Tranche Purchaser" and collectively, the "First Tranche Purchasers") and each of
- ----------------- ------------------------
those Purchasers participating in the Second Tranche Closing (as such term is
defined in the Purchase Agreement (as defined below)) (individually, a "Second
------
Tranche Purchaser" and collectively, the "Second Tranche Purchasers"). Each of
- ----------------- -------------------------
the First Tranche Purchasers and Second Tranche Purchasers is referred to herein
as a "Purchaser" and are collectively referred to herein as the "Purchasers";
--------- ----------
provided, however, if the Second Tranche Closing does not occur, the term
- -------- -------
"Purchaser" shall only include a First Tranche Purchaser and the term
---------
"Purchasers" shall only include the First Tranche Purchasers.
----------
This Agreement is being entered into pursuant to the Series B Convertible
Preferred Stock Purchase Agreement, dated as of the date hereof, by and among
the Company and the Purchasers (the "Purchase Agreement").
------------------
The Company and the Purchasers hereby agree as follows:
1. Definitions.
-----------
Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Purchase Agreement. As used in this Agreement,
the following terms shall have the following meanings:
"Advice" shall have the meaning set forth in Section 3(m).
------
"Affiliate" means, with respect to any Person, any other Person that
---------
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
-------
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
---------- ----------- ----------
correlative to the foregoing.
"Blackout Period" shall have the meaning set forth in Section 3(n).
---------------
"Board" shall have the meaning set forth in Section 3(n).
-----
"Business Day" means any day except Saturday, Sunday and any day which
------------
shall be a legal holiday or a day on which banking institutions in the state of
California generally are authorized or required by law or other government
actions to close.
"Commission" means the Securities and Exchange Commission.
----------
<PAGE>
"Common Stock" means the Company's Common Stock, par value $.001 per share.
------------
"Effectiveness Date" means with respect to the Registration Statement the
------------------
earlier of the 150th day following (a) the later of the (i) First Tranche
Closing Date and (ii) Second Tranche Closing Date and (b) the date which is
within five (5) business days of the date on which the Commission informs the
Company that it may request the acceleration of the effectiveness of the
Registration Statement.
"Effectiveness Period" shall have the meaning set forth in Section 2(a).
--------------------
"Event" shall have the meaning set forth in Section 7(e).
-----
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Filing Date" means the Second Tranche Closing Date; provided, however,
----------- -------- -------
that if no Second Tranche Closing occurs, the Filing Date shall mean the 45th
day following the First Tranche Closing Date.
"Holder" or "Holders" means the holder or holders, as the case may be,
------ -------
from time to time of Registrable Securities, including without limitation the
Purchasers and their assignees.
"Indemnified Party" shall have the meaning set forth in Section 5(c).
-----------------
"Indemnifying Party" shall have the meaning set forth in Section 5(c).
------------------
"Losses" shall have the meaning set forth in Section 5(a).
------
"OTC Bulletin Board" shall mean the over-the-counter electronic bulletin
------------------
board.
"Person" means an individual or a corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Stock" means the Series B Convertible Preferred Stock, par value
---------------
$.001 per share and stated value $1,000 per share, of the Company issued to the
Purchasers pursuant to the Purchase Agreement.
"Proceeding" means an action, claim, suit, investigation or proceeding
----------
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration Statement
----------
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities
2
<PAGE>
covered by the Registration Statement, and all other amendments and supplements
to the Prospectus, including post-effective amendments, and all material
incorporated by reference in such Prospectus.
"Registrable Securities" means (i) the shares of Common Stock issuable upon
----------------------
conversion of the Preferred Stock (the "Conversion Shares") and exercise of the
Warrants (the "Warrant Shares"), and upon any stock split, stock dividend,
recapitalization or similar event with respect to such Conversion Shares,
Warrant Shares or Preferred Stock and (ii) any other dividend or other
distribution with respect to, conversion or exchange of, or in replacement of,
Registrable Securities; provided, however, that Registrable Securities shall
-------- -------
include (but not be limited to) a number of shares of Common Stock equal to no
less than 1,100,000 shares of Common Stock which would be issuable upon
conversion of the Preferred Stock and upon exercise of the Warrants following
the First Tranche Closing and an additional 1,650,000 shares of Common Stock
which would be issuable upon conversion of the Preferred Stock and upon exercise
of the Warrants following the Second Tranche Closing. Notwithstanding anything
herein contained to the contrary, such registered shares of Common Stock shall
be allocated among the Holders pro rata based on the total number of Registrable
Securities issued or issuable as of each date that a Registration Statement, as
amended, relating to the resale of the Registrable Securities is declared
effective by the Commission.
"Registration Statement" means the registration statements and any
----------------------
additional registration statements contemplated by Section 2, including (in each
case) the Prospectus, amendments and supplements to such registration statement
or Prospectus, including pre- and post-effective amendments, all exhibits
thereto, and all material incorporated by reference in such registration
statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the
--------
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to the
--------
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to the
--------
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Special Counsel" means any special counsel to the Holders, for which the
---------------
Holders will be reimbursed by the Company pursuant to Section 4.
2. Registration.
-------------
(a) Required Registration. On or prior to the Filing Date, the Company
---------------------
shall prepare and file with the Commission a "shelf" Registration Statement
covering all Registrable
3
<PAGE>
Securities for an offering to be made on a continuous basis pursuant to Rule
415. The Registration Statement shall be on Form S-1 (or on another form
appropriate for such registration in accordance herewith). The Company shall (i)
not permit any securities other than (x) the Registrable Securities and (y)
those securities identified on Schedule 2(a) hereto to be included in the
Registration Statement and (ii) use its best efforts to cause the Registration
Statement to be declared effective under the Securities Act (including filing
with the Commission a request for acceleration of effectiveness in accordance
with Rule 12dl-2 promulgated under the Exchange Act within five (5) Business
Days of the date that the Company is notified (orally or in writing, whichever
is earlier) by the Commission that a Registration Statement will not be
"reviewed," or not be subject to further review) within one hundred and twenty
(120) days from the First Tranche Closing Date, but in any event prior to the
Effectiveness Date, and to keep such Registration Statement continuously
effective under the Securities Act until such date as is the earlier of (x) the
date when all Registrable Securities covered by such Registration Statement have
been sold or (y) the date on which the Registrable Securities may be sold
without any restriction pursuant to Rule 144(k) as determined by the counsel to
the Company pursuant to a written opinion letter, addressed to the Company's
transfer agent to such effect (the "Effectiveness Period"). If an additional
--------------------
Registration Statement is required to be filed because the actual number of
shares of Common Stock into which the Preferred Stock is convertible and the
Warrants are exercisable exceeds the number of shares of Common Stock initially
registered in respect of the Conversion Shares and the Warrant Shares based
upon the computation on the Second Tranche Closing Date, the Company shall have
twenty (20) Business Days to file such additional Registration Statement, and
the Company shall use its best efforts to cause such additional Registration
Statement to be declared effective by the Commission as soon as possible, but
in no event later than thirty (30) days after filing.
(b) Shelf Registration. As soon as possible but no later than thirty
------------------
(30) days after becoming eligible to file a registration statement for a
secondary or resale offering of the Registrable Securities on Form S-3, the
Company shall prepare and file with the Commission a post-effective amendment to
Form S-1 (or such other applicable form filed in accordance with Section 2(a)
above) on Form S-3 to continue the registration of all Registrable Securities
pursuant to a "shelf" Registration Statement on Form S-3 covering all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. Notwithstanding anything to the contrary contained herein, at no
time during the Effectiveness Period shall any of the Registrable Securities
cease being registered.
3. Registration Procedures.
-----------------------
In connection with the Company's registration obligations hereunder, the
Company shall:
(a) Prepare and file with the Commission on or prior to the Filing Date, a
Registration Statement on Form S-1 (or on another form appropriate for such
registration in accordance herewith) in accordance with the method or methods of
distribution thereof as specified by the Holders (except if otherwise directed
by the Holders), and cause the Registration Statement to become effective and
remain effective as provided he rein; provided, however, that not less than five
-------- -------
(5) Business Days prior to the filing of the Registration Statement or any
--------
related Prospectus or any amendment or supplement thereto (including any
document that would
4
<PAGE>
be incorporated therein by reference), the Company shall (i) furnish to the
Holders and any Special Counsel, copies of all such documents proposed to be
filed, which documents (other than those incorporated by reference) will be
subject to the review of such Holders and such Special Counsel, and (ii) at the
request of any Holder cause its officers and directors, counsel and independent
certified public accountants to respond to such inquiries as shall be necessary,
in the reasonable opinion of counsel to such Holders, to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file the Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the Registrable
Securities or any Special Counsel shall reasonably object in writing within
three (3) Business Days of their receipt thereof.
(b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement as may be necessary to
keep the Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare and file with
the Commission such additional Registration Statements in order to register for
resale under the Securities Act all of the Registrable Securities; (ii) cause
the related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule 424
(or any similar provisions then in force) promulgated under the Securities Act;
(iii) respond as promptly as possible to any comments received from the
Commission with respect to the Registration Statement or any amendment thereto
and as promptly as possible provide the Holders true and complete copies of all
correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
Holders thereof set forth in the Registration Statement as so amended or in such
Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold and any
Special Counsel as promptly as possible (and, in the case of (i)(A) below, not
less than five (5) Business Days prior to such filing) and (if requested by any
such Person) confirm such notice in writing no later than one (1) Business Day
following the day (i)(A) when a Prospectus or any Prospectus supplement or post-
effective amendment to the Registration Statement is proposed to be filed; (B)
when the Commission notifies the Company whether there will be a "review" of
such Registration Statement and whenever the Commission comments in writing on
such Registration Statement and (C) with respect to the Registration Statement
or any post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that makes any statement made
in the Registration Statement or Prospectus or any document
5
<PAGE>
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued, obtain
the withdrawal of, (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(e) If requested by the Holders of a majority in interest of the
Registrable Securities, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as the
Company reasonably agrees should be included therein and (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as soon
as practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment.
(f) Furnish to each Holder and any Special Counsel, without charge, at
least one conformed copy of each Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.
(g) Promptly deliver to each Holder and any Special Counsel, without
charge, as many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its best
efforts to register or qualify or cooperate with the selling Holders and any
Special Counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder requests in writing, to
keep each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided, however,
-------- -------
that the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any action that
would subject it to general service of process in any such jurisdiction where it
is not then so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
6
<PAGE>
(i) Cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold pursuant
to a Registration Statement, which certificates shall be free of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as any Holder may request at least two (2) Business
Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section 3(c)(vi), as
promptly as possible, prepare a supplement or amendment, including a post-
effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities relating to
such Registration Statement to be listed on the OTC Bulletin Board and any other
securities exchange, quotation system, market or over-the-counter bulletin
board, if any, on which similar securities issued by the Company are then listed
as and when required pursuant to the Purchase Agreement.
(l) Comply in all material respects with all applicable rules and
regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period is a
fiscal year) commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Registration Statement, which statement
shall conform to the requirements of Rule 158.
(m) Require each selling Holder to furnish to the Company information
regarding such Holder and the distribution of such Registrable Securities as is
required by law to be disclosed in the Registration Statement, and the Company
may exclude from such registration the Registrable Securities of any such Holder
who fails to furnish such information within a reasonable time prior to the
filing of each Registration Statement, supplemented Prospectus and/or amended
Registration Statement.
If the Registration Statement refers to any Holder by name or otherwise as
the holder of any securities of the Company, then such Holder shall have the
right to require (if such reference to such Holder by name or otherwise is not
required by the Securities Act or any similar federal statute then in force) the
deletion of the reference to such Holder in any amendment or supplement to the
Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any Registrable
Securities under the Registration Statement until it has received copies of the
Prospectus as then amended or supplemented as contemplated in Section 3(g) and
notice from the Company that such Registration Statement and any post-effective
amendments thereto have become effective as contemplated by Section 3(c) and
(ii) it and its officers, directors or Affiliates, if any, will
7
<PAGE>
comply with the prospectus delivery requirements of the Securities Act as
applicable to them in connection with sales of Registrable Securities pursuant
to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities that,
upon receipt of a notice from the Company of the occurrence of any event of the
kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi),
such Holder will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(j), or until it is advised in writing (the "Advice")
------
by the Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
(n) If (i) there is material non-public information regarding the Company
which the Company's Board of Directors (the "Board") reasonably determines not
-----
to be in the Company's best interest to disclose and which the Company is not
otherwise required to disclose, or (ii) there is a significant business
opportunity (including, but not limited to, the acquisition or disposition of
assets (other than in the ordinary course of business) or any merger,
consolidation, tender offer or other similar transaction) available to the
Company which the Board reasonably determines not to be in the Company's best
interest to disclose and which the Company would be required to discl ose under
the Registration Statement, then the Company may postpone or suspend filing or
effectiveness of a registration statement for a period not to exceed 20
consecutive days, provided that the Company may not postpone or suspend its
obligation under this Section 3(n) for more than 45 days in the aggregate during
any 12 month period (each, a "Blackout Period"); provided, however, that no such
--------------- -------- -------
postponement or suspension shall be permitted for consecutive 20 day periods,
arising out of the same set of facts, circumstances or transactions.
4. Registration Expenses
---------------------
All fees and expenses incident to the performance of or compliance with
this Agreement by the Company shall be borne by the Company whether or not the
Registration Statement is filed or becomes effective and whether or not any
Registrable Securities are sold pursuant to the Registration Statement. The fees
and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with the OTC
Bulletin Board and each other securities exchange or market on which Registrable
Securities are required hereunder to be listed, (B) with respect to filings
required to be made with the Commission, (C) with respect to filings required to
be made under the OTC Bulletin Board and (C) in compliance with state securities
or Blue Sky laws (including, without limitation, fees and disbursements of
counsel for the Holders in connection with Blue Sky qualifications of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as the Holders of
a majority of Registrable Securities may designate)), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the holders of a majority of the Registrable
Securities included in the Registration Statement), (iii) messenger, telephone
and delivery expenses, (iv) Securities Act
8
<PAGE>
liability insurance, if the Company so desires such insurance, and (v) fees and
expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement, including,
without limitation, the Company's independent public accountants (including the
expenses of any comfort letters or costs associated with the delivery by
independent public accountants of a comfort letter or comfort letters). In
addition, the Company shall be responsible for all of its internal expenses
incurred in connection with the consummation of the transactions contemplated by
this Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the Registrable Securities on any securities exchange as required hereunder.
5. Indemnification
---------------
(a) Indemnification by the Company. The Company shall, notwithstanding
------------------------------
any termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents, brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and employees
of each of them, each Person who controls any such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents and employees of each such controlling Person, to
the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
costs of preparation and attorneys' fees) and expenses (collectively, "Losses"),
------
as incurred, arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in the light of the circumstances under
which they were made) not misleading, except to the extent, but only to the
extent, that such untrue statements or omissions are based solely upon
information regarding such Holder furnished in writing to the Company by such
Holder expressly for use therein, which information was reasonably relied on by
the Company for use therein or to the extent that such information relates to
such Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus or in any amendment or supplement thereto. The Company shall notify
the Holders promptly of the institution, threat or assertion of any Proceeding
of which the Company is aware in connection with the transactions contemplated
by this Agreement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of an Indemnified Party (as
defined in Section 5(c) to this Agreement) and shall survive the transfer of the
Registrable Securities by the Holders.
(b) Indemnification by Holders. Each Holder shall, severally and not
--------------------------
jointly, indemnify and hold harmless the Company, the directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising solely out of or based solely upon any untrue statement of a
material fact
9
<PAGE>
contained in the Registration Statement, any Prospectus, or any form of
prospectus, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein (in the case of any Prospectus or form of prospectus or supplement
thereto, in the light of the circumstances under which they were made) not
misleading, to the extent, but only to the extent, that such untrue statement or
omission is contained in or omitted from any information so furnished in writing
by such Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus and that such information was reasonably relied
upon by the Company for use in the Registration Statement, such Prospectus or
such form of prospectus or to the extent that such information relates to such
Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus Supplement. Notwithstanding anything to the contrary contained
herein, the Holder shall be liable under this Section 5(b) for only that amount
as does not exceed the net proceeds to such Holder as a result of the sale of
Registrable Securities pursuant to such Registration Statement.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be
--------------------------------------
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
-----------------
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
------------------
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in any
such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
10
<PAGE>
All fees and expenses of the Indemnified Party (including reasonable fees
and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a) or
------------
5(b) is unavailable to an Indemnified Party because of a failure or refusal of a
governmental authority to enforce such indemnification in accordance with its
terms (by reason of public policy or otherwise), then each Indemnifying Party,
in lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been taken
or made by, or relates to information supplied by, such Indemnifying, Party or
Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses shall
be deemed to include, subject to the limitations set forth in Section 5(c), any
reasonable attorneys' or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party in accordance with its terms.
Notwithstanding anything to the contrary contained herein, the Holder shall be
liable or required to contribute under this Section 5(c) for only that amount as
does not exceed the net proceeds to such Holder as a result of the sale of
Registrable Securities pursuant to such Registration Statement.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties
6. Rule 144.
--------
As long as any Holder owns Preferred Shares, Conversion Shares, Warrants or
Warrant Shares, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after
11
<PAGE>
the date hereof pursuant to Section 13(a) or 15(d) of the Exchange Act and to
promptly furnish the Holders with true and complete copies of all such filings.
As long as any Holder owns Preferred Shares, Conversion Shares, Warrants or
Warrant Shares, if the Company is not required to file reports pursuant to
Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the
Holders and make publicly available in accordance with Rule 144(c) promulgated
under the Securities Act annual and quarterly financial statements, together
with a discussion and analysis of such financial statements in form and
substance substantially similar to those that would otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the Exchange Act, as
well as any other information required thereby, in the time period that such
filings would have been required to have been made under the Exchange Act. The
Company further covenants that it will take such further action as any Holder
may reasonably request, all to the extent required from time to time to enable
such Person to sell Conversion Shares and Warrant Shares without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144 promulgated under the Securities Act, including compliance with the
provisions of the Purchase Agreement relating to the transfer of the Conversion
Shares and Warrant Shares. Upon the request of any Holder, the Company shall
deliver to such Holder a written certification of a duly authorized officer as
to whether it has complied with such requirements.
7. Miscellaneous.
-------------
(a) Remedies. In the event of a breach by the Company or by a Holder,
--------
of any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) No Inconsistent Agreements. Except as disclosed in Schedules
--------------------------
2.1(c) and 2.1(z) to the Purchase Agreement, neither the Company nor any of its
subsidiaries has, as of the date hereof entered into and currently in effect,
nor shall the Company or any of its subsidiaries, on or after the date of this
Agreement, enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. Except as disclosed in Schedules
2.1(c) and 2.1(z) to the Purchase Agreement, neither the Company nor any of its
subsidiaries has previously entered into any agreement currently in effect
granting any registration rights with respect to any of its securities to any
Person. Without limiting the generality of the foregoing, except as set forth on
Schedule 2.1(a) hereto, without the written consent of the Holders of a majority
of the then outstanding Registrable Securities, the Company shall not grant to
any Person the right to request the Company to register any securities of the
Company under the Securities Act unless the rights so granted are subject in all
respects to the prior rights in full of the Holders set forth herein, and are
not otherwise in conflict with the provisions of this Agreement.
12
<PAGE>
(c) No Piggyback on Registrations. Neither the Company nor any of its
-----------------------------
security holders (other than the Holders in such capacity pursuant hereto and as
set forth on Schedule 2.1(a) hereto) may include securities of the Company in
the Registration Statement, and the Company shall not after the date hereof
enter into any agreement providing such right to any of its security holders,
unless the right so granted is subject in all respects to the prior rights in
full of the Holders set forth herein, and is not otherwise in conflict with the
provisions of this Agreement.
(d) Piggy-Back Registrations. If at any time when there is not an
------------------------
effective Registration Statement covering (i) Conversion Shares or (ii) Warrant
Shares, the Company shall determine to prepare and file with the Commission a
registration statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or its then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit
plans, the Company shall send to each holder of Registrable Securities written
notice of such determination and, if within thirty (30) days after receipt of
such notice, any such holder shall so request in writing (which request shall
specify the Registrable Securities intended to be disposed of by the Holders),
the Company will cause the registration under the Securities Act of all
Registrable Securities which the Company has been so requested to register by
the holder, to the extent requisite to permit the disposition of the Registrable
Securities so to be registered, provided that if at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to such holder and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay expenses in accordance with Section 4 hereof),
and (ii) in the case of a determination to delay registering, shall be permitted
to delay registering any Registrable Securities being registered pursuant to
this Section 7(d) for the same period as the delay in registering such other
securities. The Company shall include in such registration statement all or any
part of such Registrable Securities such holder requests to be registered;
provided, however, that the Company shall not be required to register any
- -------- -------
Registrable Securities pursuant to this Section 7(d) that are eligible for sale
pursuant to Rule 144(k) of the Securities Act. In the case of an underwritten
public offering, if the managing underwriter(s) or underwriter(s) should
reasonably object to the inclusion of the Registrable Securities in such
registration statement, then if the Company after consultation with the managing
underwriter should reasonably determine that the inclusion of such Registrable
Securities, would materially adversely affect the offering contemplated in such
registration statement, and based on such determination recommends inclusion in
such registration statement of fewer or none of the Registrable Securities of
the Holders, then (x) the number of Registrable Securities of the Holders
included in such registration statement shall be reduced pro-rata among such
Holders (based upon the number of Registrable Securities requested to be
included in the registration), if the Company after consultation with the
underwriter(s) recommends the inclusion of fewer Registrable Securities, or (y)
none of the Registrable Securities of the Holders shall be included in such
registration statement, if the Company after consultation with the
underwriter(s) recommends the inclusion of none of such Registrable Securities;
provided, however, that if
- -------- -------
13
<PAGE>
securities are being offered for the account of other persons or entities as
well as the Company, such reduction shall not represent a greater fraction of
the number of Registrable Securities intended to be offered by the Holders than
the fraction of similar reductions imposed on such other persons or entities
(other than the Company).
(e) Failure to File Registration Statement and Other Events. The
-------------------------------------------------------
Company and the Holders agree that the Holders will suffer damages if the
Registration Statement is not filed on or prior to the Filing Date and not
declared effective by the Commission on or prior to the Effectiveness Date and
maintained in the manner contemplated herein during the Effectiveness Period.
The Company and the Holders further agree that it would not be feasible to
ascertain the extent of such damages with precision. Accordingly, if (i) the
Registration Statement is not filed on or prior to the Filing Date, or is not
declared effective by the Commission on or prior to the Effectiveness Date (or
in the event an additional Registration Statement is filed because the actual
number of shares of Common Stock into which the Preferred Stock is convertible
and the Warrants are exercisable exceeds the number of shares of Common Stock
initially registered is not filed and declared effective within the time periods
set forth in Section 2(a)), or (ii) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 12dl-2 promulgated
under the Exchange Act within five (5) Business Days of the date that the
Company is notified (orally or in writing, whichever is earlier) by the
Commission that a Registration Statement will not be "reviewed," or not subject
to further review, or (iii) the Registration Statement is filed with and
declared effective by the Commission but thereafter ceases to be effective as to
all Registrable Securities at any time prior to the expiration of the
Effectiveness Period, without being succeeded immediately by a subsequent
Registration Statement filed with and declared effective by the Commission, or
(iv) trading in the Common Stock shall be suspended or if the Common Stock is
delisted from the OTC Bulletin Board for any reason for more than three Business
Days in the aggregate, or (v) the conversion rights of the Holders are suspended
for any reason (other than in accordance with certain terms of the Certificate
of Designation), including by the Company, or (vi) the Company has breached
Section 3(n) of this Agreement (any such failure or breach being referred to as
an "Event"), the Company shall pay in cash as liquidated damages for such
-----
failure and not as a penalty to each Holder an amount equal to one percent (1%)
of such Holder's pro rata share of the purchase price paid by all Holders for
all shares of Preferred Stock purchased and then outstanding pursuant to the
Purchase Agreement for the initial thirty (30) day period until the applicable
Event has been cured, which shall be pro rated for such periods less than thirty
(30) days and two percent (2%) of such Holder's pro rata share of the purchase
price paid by all Holders for all shares of Preferred Stock and then outstanding
pursuant to the Purchase Agreement for each subsequent thirty (30) day period
until the applicable Event has been cured which shall be pro rated for such
periods less than thirty days (the "Periodic Amount"). Payments to be made
---------------
pursuant to this Section 7(e) shall be due and payable immediately upon demand
in immediately available cash funds. The parties agree that the Periodic Amount
represents a reasonable estimate on the part of the parties, as of the date of
this Agreement, of the amount of damages that may be incurred by the Holders if
the Registration Statement is not filed on or prior to the Filing Date or has
not been declared effective by the Commission on or prior to the Effectiveness
Date and maintained in the manner contemplated herein during the Effectiveness
Period or if any other Event as described herein has occurred.
(f) Specific Enforcement, Consent to Jurisdiction.
---------------------------------------------
14
<PAGE>
(i) The Company and the Holders acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the Purchase Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement or the Purchase Agreement and to
enforce specifically the terms and provisions hereof or thereof, this being in
addition to any other remedy to which any of them may be entitled by law or
equity.
(ii) Each of the Company and the Holders (i) hereby irrevocably
submits to the jurisdiction of the United States District Court sitting in the
Southern District of New York for the purposes of any suit, action or proceeding
arising out of or relating to this Agreement or the Purchase Agreement and (ii)
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Each of the Company and
the Holders consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
Section 7(f) shall affect or limit any right to serve process in any other
manner permitted by law.
(g) Amendments and Waivers. The provisions of this Agreement, including
----------------------
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the same shall be in writing and signed by the Company and each of
the Holders. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; provided, however, that the
-------- -------
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.
(h) Notices. Any and all notices or other communications or deliveries
-------
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., pacific time, on a
Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., pacific time, on any date and
earlier than 11:59 p.m., pacific time, on such date, (iii) the Business Day
following the date of mailing, if sent by nationally recognized overnight
courier service or (iv) actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be with
respect to each Holder at its address set forth under its name on Schedule 1
attached hereto, or with respect to the Company, addressed to:
Net Value Holdings, Inc.
Two Penn Center Plaza, Suite 605
Philadelphia, PA 19102
15
<PAGE>
Attention: Andrew P. Panzo, President and CEO
Tel: (215) 564-9190
Facsimile No.: (215) 564-3133
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to the Issuer shall be sent to Klehr,
Harrison, Harvey, Branzburg & Ellers LLP, 260 South Broad Street, Philadelphia,
PA 19102, Attention: Michael C. Forman, Esq., facsimile no.: (215) 568-6603.
Copies of notices to any Holder shall be sent to the addresses listed on
Schedule 1 attached hereto, if applicable. Copies of notices to the Company
shall be sent to Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the
Americas, New York, New York 10036, Attention: Christopher S. Auguste, Esq.,
Facsimile No.: (212) 704-6288.
(i) Successors and Assigns. This Agreement shall be binding upon and inure
----------------------
to the benefit of the parties and their successors and permitted assigns and
shall inure to the benefit of each Holder and its successors and assigns. The
Company may not assign this Agreement or any of its rights or obligations
hereunder without the prior written consent of each Holder. Each Holder may
assign its rights hereunder in the manner and to the Persons as permitted under
the Purchase Agreement.
(j) Assignment of Registration Rights. The rights of each Holder
---------------------------------
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any transferee of such Holder of all
or a portion of the shares of Preferred Stock or the Registrable Securities if:
(i) the Holder agrees in writing with the transferee or assignee to assign such
rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment the further disposition of such
securities by the transferee or assignees is restricted under the Securities Act
and applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this Section 7(j),
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions of this Agreement, and (v) such transfer shall have been made
in accordance with the applicable requirements of the Purchase Agreement. In
addition, each Holder shall have the right to assign its rights hereunder to any
other Person with the prior written consent of the Company, which consent shall
not be unreasonably withheld. The rights to assignment shall apply to the
Holders (and to subsequent) successors and assigns.
(k) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
16
<PAGE>
(l) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York, without regard to principles
of conflicts of law thereof.
(m) Cumulative Remedies. The remedies provided herein are cumulative and
-------------------
not exclusive of any remedies provided by law.
(n) Severability. If any term, provision, covenant or restriction of this
------------
Agreement is held to be invalid, illegal, void or unenforceable in any respect,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(o) Headings. The headings herein are for convenience only, do not
--------
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
(p) Shares Held by the Company and its Affiliates. Whenever the consent or
---------------------------------------------
approval of Holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or its Affiliates
(other than any Holder or transferees or successors or assigns thereof if such
Holder is deemed to be an Affiliate solely by reason of its holdings of such
Registrable Securities) shall not be counted in determining whether such consent
or approval was given by the Holders of such required percentage.
(q) Notice of Effectiveness. Within two (2) business days after the
-----------------------
Registration Statement which includes the Registrable Securities is ordered
effective by the Commission, the Company shall deliver, and shall cause legal
counsel for the Company to deliver, to the transfer agent for such Registrable
Securities (with copies to the Holders whose Registrable Securities are included
in such Registration Statement) confirmation that the Registration Statement has
been declared effective by the Commission in the form attached hereto as Exhibit
-------
A.
- -
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.
NET VALUE HOLDINGS, INC.
By:_______________________________________________
Name:
Title:
PURCHASERS:
TONGA PARTNERS, L.P.
By:_____________________________________
Name: J. Carlo Cannell
Title:
Address: c/o Cannell Capital Management
600 California Street, Floor 14
San Francisco, CA 94108
Attn: J. Carlo Cannell
Tel: (415) 835-8300
Fax: (415) 835-8312
PLEIADES INVESTMENT PARTNERS, L.P.
By:____________________________________
Name: Ken Rowles
Title:
Address: 600 West Chester Pike
Newtown Square, PA 19074
Attn: Ken Rowles
Tel: (610) 640-2327, ext.3018
Fax: (610) 640-0401
YEOMAN VENTURES LIMITED
By:____________________________________
Name: Giora Lavie
18
<PAGE>
Title:
Address: P.O. Box 146
Road Town, Tartola
British Virgin Islands
Attn: Giora Lavie
Fax: 011-9723-544-1870
LIGHTLINE LIMITED
By:____________________________________
Name: Giora Lavie
Title:
Address: P.O. Box 146
Road Town, Tartola
British Virgin Islands
Attn: Giora Lavie
Fax: 011-9723-544-1870
19
<PAGE>
SCHEDULE 1
TONGA PARTNERS, L.P.
c/o Cannell Capital Management
600 California Street, Floor 14
San Francisco, CA 94108
Attn: J. Carlo Cannell
Tel: (415) 835-8300
Fax: (415) 835-8312
YEOMAN VENTURES LIMITED
P.O. Box 146
Road Town, Tartola
British Virgin Islands
Attn: Giora Lavie
Fax: 011-9723-544-1870
LIGHTLINE LIMITED
P.O. Box 146
Road Town, Tartola
British Virgin Islands
Attn: Giora Lavie
Fax: 011-9723-544-1870
20
<PAGE>
SCHEDULE 2.1(A)
Additional Selling Stockholders
Sven Behrendt 807,644 shares of common stock
10 Gilston Road
London, U.K. SW1695R
Juergen Joekel 202,533 shares of common stock
51 Valley Road
Athenton, CA 94027
Gary E. Markman 95,775 shares of common stock
424 Charles Lane
Wynnewood, PA 19096
21
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Jonathan Miller
StockTrans, Inc.
7 East Lancaster Avenue
Ardmore, PA 19003
Re: Net Value Holdings, Inc.
------------------------
Dear Mr. Miller:
We are counsel to Net Value Holdings, Inc., a Delaware corporation (the
"Company"), and have represented the Company in connection with that certain
Series B Convertible Preferred Stock Purchase Agreement (the "Purchase
Agreement") dated as of September 17, 1999 by and among the Company and the
buyers named therein (collectively, the "Holders") pursuant to which the Company
issued to the Holders shares of its Series B Convertible Preferred Stock, par
value $.001 per share (the "Preferred Shares"), convertible into shares of the
Company's common stock, par value $.001 per share (the "Common Stock"), and
warrants to purchase shares of the Common Stock (the "Warrants"). Pursuant to
the Purchase Agreement, the Company has also entered into a Registration Rights
Agreement with the Holders (the "Registration Rights Agreement") pursuant to
which the Company agreed, among other things, to register the Registrable
Securities (as defined in the Registration Rights Agreement), including the
shares of Common Stock issuable upon conversion of the Preferred Shares and
exercise of the Warrants, under the Securities Act of 1933, as amended (the
"1933 Act"). In connection with the Company's obligations under the
Registration Rights Agreement, on ____________ ___, 1999, the Company filed a
Registration Statement on Form S-1 (File No. 333-_____________) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities which names each of the Holders as
a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very truly yours,
By:_____________________________________
cc: [LIST NAMES OF HOLDERS]
22
<PAGE>
EXHIBIT 10.21
FORM OF WARRANT
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS OR NET VALUE HOLDINGS, INC. SHALL HAVE RECEIVED
AN OPINION, IN FORM, SCOPE AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY,
OF COUNSEL, WHO IS REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION OF
SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED.
[CALLABLE] WARRANT [__] TO PURCHASE
SHARES OF COMMON STOCK
OF
Net Value Holdings, Inc.
Expires_____________ ____, 2004
No.: W[__]-__ Number of Shares: __________
Date of Issuance: _____________, 1999
FOR VALUE RECEIVED, subject to the provisions hereinafter set forth, the
undersigned, Net Value Holdings, Inc., a Delaware corporation (together with its
successors and assigns, the "Issuer"), hereby certifies that ___________________
or its registered assigns is entitled to subscribe for and purchase, during the
period specified in this Warrant, up to ___________ shares (subject to
adjustment as hereinafter provided) of the duly authorized, validly issued,
fully paid and non-assessable Common Stock of the Issuer, at an exercise price
per share equal to the Warrant Price then in effect, subject, however, to the
provisions and upon the terms and conditions hereinafter set forth. Capitalized
terms used in this Warrant and not otherwise defined herein shall have the
respective meanings specified in Section 8 hereof.
1. Term. The right to subscribe for and purchase shares of Warrant Stock
----
represented hereby shall commence on the date of issuance of this Warrant and
shall expire at 5:00 p.m., pacific time, on _________ __, 2004 (such period
being the "Term").
2. Method of Exercise Payment: Issuance of New Warrant: Transfer and
-----------------------------------------------------------------
Exchange.
- --------
<PAGE>
(a) Time of Exercise. The purchase rights represented by this Warrant
----------------
may be exercised in whole or in part at any time and from time to time during
the Term.
(b) Method of Exercise. The Holder hereof may exercise this Warrant,
------------------
in whole or in part, by the surrender of this Warrant (with the exercise form
attached hereto duly executed) at the principal office of the Issuer, and by the
payment to the Issuer of an amount of consideration therefor equal to the
Warrant Price in effect on the date of such exercise multiplied by the number of
shares of Warrant Stock with respect to which this Warrant is then being
exercised, payable at such Holder's election (i) by certified or official bank
check or (ii) by surrender to the Issuer for cancellation of a portion of this
Warrant representing that number of unissued shares of Warrant Stock which is
equal to the quotient obtained by dividing (A) the product obtained by
multiplying the Warrant Price by the number of shares of Warrant Stock being
purchased upon such exercise by (B) the difference obtained by subtracting the
Warrant Price from the Per Share Market Value as of the date of such exercise,
or (iii) by a combination of the foregoing methods of payment selected by the
Holder of this Warrant. In any case where the consideration payable upon such
exercise is being paid in whole or in part pursuant to the provisions of clause
(ii) of this subsection (b), such exercise shall be accompanied by written
notice from the Holder of this Warrant specifying the manner of payment thereof
and containing a calculation showing the number of shares of Warrant Stock with
respect to which rights are being surrendered thereunder and the net number of
shares to be issued after giving effect to such surrender.
(c) Issuance of Stock Certificates. In the event of any exercise of
------------------------------
the rights represented by this Warrant in accordance with and subject to the
terms and conditions hereof, (i) certificates for the shares of Warrant Stock so
purchased shall be dated the date of such exercise and delivered to the Holder
hereof within a reasonable time, not exceeding three (3) Trading Days after such
exercise, and the Holder hereof shall be deemed for all purposes to be the
Holder of the shares of Warrant Stock so purchased as of the date of such
exercise, and (ii) unless this Warrant has expired, a new Warrant representing
the number of shares of Warrant Stock, if any, with respect to which this
Warrant shall not then have been exercised (less any amount thereof which shall
have been canceled in payment or partial payment of the Warrant Price as
hereinabove provided) shall also be issued to the Holder hereof at the Issuer's
expense within such time.
(d) Transferability of Warrant. Subject to Section 2(e), this Warrant
--------------------------
may be transferred by a Holder without the consent of the Company. If
transferred pursuant to this paragraph and subject to the provisions of
subsection (e) of this Section 2, this Warrant may be transferred on the books
of the Issuer by the Holder hereof in person or by duly authorized attorney,
upon surrender of this Warrant at the principal office of the Issuer, properly
endorsed (by the Holder executing an assignment in the form attached hereto) and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. This Warrant is exchangeable at the principal office of the
Issuer for Warrants for the purchase of the same aggregate number of shares of
Warrant Stock, each new Warrant to represent the right to purchase such number
of shares of Warrant Stock as the Holder hereof shall designate at the time of
such exchange. All Warrants issued on transfers or exchanges shall be dated the
Original Issue Date and shall be identical with this Warrant except as to the
number of shares of Warrant Stock issuable pursuant hereto.
2
<PAGE>
(e) Compliance with Securities Laws.
-------------------------------
(i) The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant or the shares of Warrant Stock to be issued upon
exercise hereof are being acquired solely for the Holder's own account and not
as a nominee for any other party, and for investment, and that the Holder will
not offer, sell or otherwise dispose of this Warrant or any shares of Warrant
Stock to be issued upon exercise hereof except pursuant to an effective
registration statement, or an exemption from registration, under the Securities
Act and any applicable state securities laws.
(ii) Except as provided in paragraph (iii) below, this Warrant
and all certificates representing shares of Warrant Stock issued upon exercise
hereof shall be stamped or imprinted with a legend in substantially the
following form:
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS OR NET VALUE HOLDINGS, INC. SHALL HAVE RECEIVED
AN OPINION, IN FORM, SCOPE AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY,
OF COUNSEL, WHO IS REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION OF
SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED.
(iii) The restrictions imposed by this subsection (e) upon the
transfer of this Warrant or the shares of Warrant Stock to be purchased upon
exercise hereof shall terminate (A) when such securities shall have been resold
pursuant to being effectively registered under the Securities Act, (B) upon the
Issuer's receipt of an opinion of counsel, in form and substance reasonably
satisfactory to the Issuer, addressed to the Issuer to the effect that such
restrictions are no longer required to ensure compliance with the Securities Act
and state securities laws or (C) upon the Issuer's receipt of other evidence
reasonably satisfactory to the Issuer that such registration and qualification
under state securities laws is not required. Whenever such restrictions shall
cease and terminate as to any such securities, the Holder thereof shall be
entitled to receive from the Issuer (or its transfer agent and registrar),
without expense (other than applicable transfer taxes, if any), new Warrants
(or, in the case of shares of Warrant Stock, new stock certificates) of like
tenor not bearing the applicable legend required by paragraph (ii) above
relating to the Securities Act and state securities laws.
(f) Continuing Rights of Holder. The Issuer will, at the time of or
---------------------------
at any time after each exercise of this Warrant, upon the request of the Holder
hereof, acknowledge in writing the extent, if any, of its continuing obligation
to afford to such Holder all rights to which such Holder shall continue to be
entitled after such exercise in accordance with the terms of this Warrant,
provided that if any such Holder shall fail to make any such request, the
- --------
failure shall not affect the continuing obligation of the Issuer to afford such
rights to such Holder.
3
<PAGE>
(g) Certain Restrictions on Exercise or Transfer. This Warrant or any
--------------------------------------------
part hereof may only be (i) exercised pursuant to Section 2(b) or (ii)
transferred pursuant to Section 2(d), by the Holder, if such Holder
simultaneously (i) exercises pursuant to Section 2(b) or (ii) transfers pursuant
to Section 2(d), as applicable, an identical portion of Warrant [_________].
3. Stock Fully Paid: Reservation and Listing of Shares: Covenants.
--------------------------------------------------------------
(a) Stock Fully Paid. The Issuer represents, warrants, covenants and
----------------
agrees that all shares of Warrant Stock which may be issued upon the exercise of
this Warrant or otherwise hereunder will, upon issuance, be duly authorized,
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges created by or through Issuer. The Issuer further covenants and agrees
that during the period within which this Warrant may be exercised, the Issuer
will at all times have authorized and reserved for the purpose of the issue upon
exercise of this Warrant a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(b) Reservation. If any shares of Common Stock required to be
-----------
reserved for issuance upon exercise of this Warrant or as otherwise provided
hereunder require registration or qualification with any governmental authority
under any federal or state law before such shares may be so issued, the Issuer
will in good faith use its best efforts as expeditiously as possible at its
expense to cause such shares to be duly registered or qualified. If the Issuer
shall list any shares of Common Stock on any securities exchange or market it
will, at its expense, list thereon, maintain and increase when necessary such
listing, of, all shares of Warrant Stock from time to time issued upon exercise
of this Warrant or as otherwise provided hereunder, and, to the extent
permissible under the applicable securities exchange rules, all unissued shares
of Warrant Stock which are at any time issuable hereunder, so long as any shares
of Common Stock shall be so listed. The Issuer will also so list on each
securities exchange or market, and will maintain such listing of, any other
securities which the Holder of this Warrant shall be entitled to receive upon
the exercise of this Warrant if at the time any securities of the same class
shall be listed on such securities exchange or market by the Issuer.
(c) Covenants. The Issuer shall not by any action including, without
---------
limitation, amending the Certificate of Incorporation or the by-laws of the
Issuer, or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or appropriate to
protect the rights of the Holder hereof against dilution (to the extent
specifically provided herein) or impairment. Without limiting the generality of
the foregoing, the Issuer will (i) not permit the par value, if any, of its
Common Stock to exceed the then effective Warrant Price, (ii) not amend or
modify any provision of the Certificate of Incorporation or by-laws of the
Issuer in any manner that would adversely affect in any way the powers,
preferences or relative participating, optional or other special rights of the
Common Stock or which would adversely affect the rights of the Holders of the
Warrants, (iii) take all such action as may be reasonably necessary in order
that the Issuer may validly and legally issue fully paid and nonassessable
shares of Common Stock, free and clear of any liens, claims, encumbrances and
restrictions (other than as provided herein) upon the exercise of this Warrant,
and (iv) use its best efforts to obtain all such authorizations, exemptions
4
<PAGE>
or consents from any public regulatory body having jurisdiction thereof as may
be reasonably necessary to enable the Issuer to perform its obligations under
this Warrant.
(d) Loss, Theft, Destruction of Warrants. Upon receipt of evidence
------------------------------------
satisfactory to the Issuer of the ownership of and the loss, theft, destruction
or mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Issuer
or, in the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Issuer will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor and representing the
right to purchase the same number of shares of Common Stock.
(e) Rights and Obligations under the Registration Rights Agreement.
--------------------------------------------------------------
The shares of Warrant Stock are entitled to the benefits and subject to the
terms of the Registration Rights Agreement dated as of even date herewith
between the Issuer and the Holders listed on the signature pages thereof (as
amended from time to time, the "Registration Rights Agreement"). The Issuer
shall keep or cause to be kept a copy of the Registration Rights Agreement, and
any amendments thereto, at its chief executive office and shall furnish, without
charge, copies thereof to the Holder upon request.
4. Adjustment of Warrant Price and Warrant Share Number. The number and
----------------------------------------------------
kind of Securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events as follows; provided, however, that notwithstanding anything
-------- -------
herein to the contrary, no such adjustment shall be made in connection with any
Permitted Financing (as defined below) or Rights Offering (as defined below):
(a) Recapitalization, Reorganization, Reclassification, Consolidation,
------------------------------------------------------------------
Merger or Sale. (i) In case the Issuer after the Original Issue Date shall do
- --------------
any of the following (each, a "Triggering Event"): (a) consolidate with or merge
into any other Person and the Issuer shall not be the continuing or surviving
corporation of such consolidation or merger, or (b) permit any other Person to
consolidate with or merge into the Issuer and the Issuer shall be the continuing
or surviving Person but, in connection with such consolidation or merger, any
Capital Stock of the Issuer shall be changed into or exchanged for Securities of
any other Person or cash or any other property, or (c) transfer all or
substantially all of its properties or assets to any other Person, or (d) effect
a capital reorganization or reclassification of its Capital Stock, then, and in
the case of each such Triggering Event, proper provision shall be made so that,
upon the basis and the terms and in the manner provided in this Warrant, the
Holder of this Warrant shall be entitled (x) upon the exercise hereof at any
time after the consummation of such Triggering Event, to the extent this Warrant
is not exercised prior to such Triggering Event, to receive at the Warrant Price
in effect at the time immediately prior to the consummation of such Triggering
Event in lieu of the Common Stock issuable upon such exercise of this Warrant
prior to such Triggering Event, the Securities, cash and property to which such
Holder would have been entitled upon the consummation of such Triggering Event
if such Holder had exercised the rights represented by this Warrant immediately
prior thereto, subject to adjustments (subsequent to such corporate action) as
nearly equivalent as possible to the adjustments provided for in Section 4
hereof or (y) to sell this Warrant (or, at such Holder's election, a portion
hereof) concurrently with the Triggering Event to the Person continuing after or
surviving such Triggering Event, or to the
5
<PAGE>
Issuer (if Issuer is the continuing or surviving Person) at a sales price equal
to the amount of cash, property and/or Securities to which a holder of the
number of shares of Common Stock which would otherwise have been delivered upon
the exercise of this Warrant would have been entitled upon the effective date or
closing of any such Triggering Event (the "Event Consideration"), less the
amount or portion of such Event Consideration having a fair value equal to the
aggregate Warrant Price applicable to this Warrant or the portion hereof so
sold.
(ii) Notwithstanding anything contained in this Warrant to the
contrary, the Issuer will not effect any Triggering Event unless, prior to the
consummation thereof, each Person (other than the Issuer) which may be required
to deliver any Securities, cash or property upon the exercise of this Warrant as
provided herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the Holder of this Warrant, (A) the obligations of the Issuer
under this Warrant (and if the Issuer shall survive the consummation of such
Triggering Event, such assumption shall be in addition to, and shall not release
the Issuer from, any continuing obligations of the Issuer under this Warrant)
and (B) the obligation to deliver to such Holder such shares of Securities, cash
or property as, in accordance with the foregoing provisions of this subsection
(a), such Holder shall be entitled to receive, and such Person shall have
similarly delivered to such Holder an opinion of counsel for such Person, which
counsel shall be reasonably satisfactory to such Holder, stating that this
Warrant shall thereafter continue in full force and effect and the terms hereof
(including, without limitation, all of the provisions of this subsection (a))
shall be applicable to the Securities, cash or property which such Person may be
required to deliver upon any exercise of this Warrant or the exercise of any
rights pursuant hereto.
(iii) If with respect to any Triggering Event, the Holder of
this Warrant has exercised its right as provided in clause (y) of subparagraph
(i) of this subsection (a) to sell this Warrant or a portion thereof, the Issuer
agrees that as a condition to the consummation of any such Triggering Event the
Issuer shall secure such right of Holder to sell this Warrant to the Person
continuing after or surviving such Triggering Event and the Issuer shall not
effect any such Triggering Event unless upon or prior to the consummation
thereof the amounts of cash, property and/or Securities required under such
clause (y) are delivered to the Holder of this Warrant. The obligation of the
Issuer to secure such right of the Holder to sell this Warrant shall be subject
to such Holder's cooperation with the Issuer, including, without limitation, the
giving of customary representations and warranties to the purchaser in
connection with any such sale. Prior notice of any Triggering Event shall be
given to the Holder of this Warrant in accordance with Section 11 hereof.
(b) Subdivision or Combination of Shares. If the Issuer, at any time
------------------------------------
while this Warrant is outstanding, shall subdivide or combine any shares of
Common Stock, (i) in case of subdivision of shares, the Warrant Price shall be
proportionately reduced (as at the effective date of such subdivision or, if the
Issuer shall take a record of Holders of its Common Stock for the purpose of so
subdividing, as at the applicable record date, whichever is earlier) to reflect
the increase in the total number of shares of Common Stock outstanding as a
result of such subdivision, or (ii) in the case of a combination of shares, the
Warrant Price shall be proportionately increased (as at the effective date of
such combination or, if the Issuer shall take a record of Holders of its Common
Stock for the purpose of so combining, as at the applicable
6
<PAGE>
record date, whichever is earlier) to reflect the reduction in the total number
of shares of Common Stock outstanding as a result of such combination.
(c) Certain Dividends and Distributions. If the Issuer, at any time
-----------------------------------
while this Warrant is outstanding, shall:
(i) Stock Dividends. Pay a dividend in, or make any other
---------------
distribution to its stockholders (without consideration therefor) of, shares of
Common Stock, the Warrant Price shall be adjusted, as at the date the Issuer
shall take a record of the Holders of the Issuer's Capital Stock for the purpose
of receiving such dividend or other distribution (or if no such record is taken,
as at the date of such payment or other distribution), to that price determined
by multiplying the Warrant Price in effect immediately prior to such record date
(or if no such record is taken, then immediately prior to such payment or other
distribution), by a fraction (1) the numerator of which shall be the total
number of shares of Common Stock outstanding immediately prior to such dividend
or distribution, and (2) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution (plus in the event that the Issuer paid cash for fractional shares,
the number of additional shares which would have been outstanding had the Issuer
issued fractional shares in connection with said dividends); or
(ii) Other Dividends. Pay a dividend on, or make any distribution
---------------
of its assets upon or with respect to (including, but not limited to, a
distribution of its property as a dividend in liquidation or partial liquidation
or by way of return of capital), the Common Stock (other than as described in
clause (i) of this subsection (c)), or in the event that the Company shall offer
options or rights to subscribe for shares of Common Stock, or issue any Common
Stock Equivalents, to all of its holders of Common Stock, then on the record
date for such payment, distribution or offer or, in the absence of a record
date, on the date of such payment, distribution or offer, the Holder shall
receive what the Holder would have received had it exercised this Warrant in
full immediately prior to the record date of such payment, distribution or offer
or, in the absence of a record date, immediately prior to the date of such
payment, distribution or offer.
(d) Issuance of Additional Shares of Common Stock. If the Issuer, at
---------------------------------------------
any time while this Warrant is outstanding, shall issue any Additional Shares of
Common Stock (otherwise than as provided in the foregoing subsections (a)
through (c) of this Section 4), at a price per share less than the Per Share
Market Value then in effect or without consideration, then the Warrant Price
upon each such issuance shall be adjusted to that price (rounded to the nearest
cent) determined by multiplying the Warrant Price then in effect by a fraction:
(i) the numerator of which shall be equal to the sum of (A) the
number of shares of Common Stock outstanding immediately prior to the issuance
of such Additional Shares of Common Stock plus (B) the number of shares of
----
Common Stock (rounded to the nearest whole share) which the aggregate
consideration for the total number of such Additional Shares of Common Stock so
issued would purchase at a price per share equal to the Per Share Market Value
then in effect, and
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<PAGE>
(ii) the denominator of which shall be equal to the number of shares
of Common Stock outstanding immediately after the issuance of such Additional
Shares of Common Stock.
The provisions of this subsection (d) shall not apply under any of the
circumstances for which an adjustment is provided in subsections (a), (b) or (c)
of this Section 4. No adjustment of the Warrant Price shall be made under this
subsection (d) upon the issuance of any Additional Shares of Common Stock which
are issued pursuant to any Common Stock Equivalent if upon the issuance of such
Common Stock Equivalent (x) any adjustment shall have been made pursuant to
subsection (e) of this Section 4 or (Y) no adjustment was required pursuant to
subsection (e) of this Section 4. No adjustment of the Warrant Price shall be
made under this subsection (d) in an amount less than $.01 per share, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment, if any, which together with
any adjustments so carried forward shall amount to $.01 per share or more,
provided that upon any adjustment of the Warrant Price as a result of any
dividend or distribution payable in Common Stock or Convertible Securities or
the reclassification, subdivision or combination of Common Stock into a greater
or smaller number of shares, the foregoing figure of $.01 per share (or such
figure as last adjusted) shall be adjusted (to the nearest one-half cent) in
proportion to the adjustment in the Warrant Price.
(e) Issuance of Common Stock Equivalents. If the Issuer, at any time
------------------------------------
while this Warrant is outstanding, shall issue any Common Stock Equivalent and
the price per share for which Additional Shares of Common Stock may be issuable
thereafter pursuant to such Common Stock Equivalent shall be less than the Per
Share Market Value then in effect, or if, after any such issuance of Common
Stock Equivalents, the price per share for which Additional Shares of Common
Stock may be issuable thereafter is amended or adjusted, and such price as so
amended shall be less than the Per Share Market Value in effect at the time of
such amendment, then the Warrant Price upon each such issuance or amendment
shall be adjusted as provided in the first sentence of subsection (d) of this
Section 4 on the basis that (1) the maximum number of Additional Shares of
Common Stock issuable pursuant to all such Common Stock Equivalents shall be
deemed to have been issued (whether or not such Common Stock Equivalents are
actually then exercisable, convertible or exchangeable in whole or in part) as
of the earlier of (A) the date on which the Issuer shall enter into a firm
contract for the issuance of such Common Stock Equivalent, or (B) the date of
actual issuance of such Common Stock Equivalent, and (2) the aggregate
consideration for such maximum number of Additional Shares of Common Stock shall
be deemed to be the minimum consideration received or receivable by the Issuer
for the issuance of such Additional Shares of Common Stock pursuant to such
Common Stock Equivalent. No adjustment of the Warrant Price shall be made under
this subsection (e) upon the issuance of any Convertible Security which is
issued pursuant to the exercise of any warrants or other subscription or
purchase rights therefor, if any adjustment shall previously have been made in
the Warrant Price then in effect upon the issuance of such warrants or other
rights pursuant to this subsection (e). If no adjustment is required under this
subsection (e) upon issuance of any Common Stock Equivalent or once an
adjustment is made under this subsection (e) based upon the Per Share Market
Value in effect on the date of such adjustment, no further adjustment shall be
made under this subsection (e) based solely upon a change in the Per Share
Market Value after such date.
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<PAGE>
(f) Purchase of Common Stock by the Issuer. If the Issuer at any time
--------------------------------------
while this Warrant is outstanding shall, directly or indirectly through a
Subsidiary or otherwise, purchase, redeem or otherwise acquire any shares of
Common Stock at a price per share greater than the Per Share Market Value then
in effect, then the Warrant Price upon each such purchase, redemption or
acquisition shall be adjusted to that price determined by multiplying such
Warrant Price by a fraction (i) the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such purchase,
redemption or acquisition minus the number of shares of Common Stock which the
aggregate consideration for the total number of such shares of Common Stock so
purchased, redeemed or acquired would purchase at the Per Share Market Value;
and (ii) the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such purchase, redemption or acquisition. For the
purposes of this subsection (f), the date as of which the Per Share Market Value
shall be computed shall be the earlier of (x) the date on which the Issuer shall
enter into a firm contract for the purchase, redemption or acquisition of such
Common Stock, or (y) the date of actual purchase, redemption or acquisition of
such Common Stock. For the purposes of this subsection (f), a purchase,
redemption or acquisition of a Common Stock Equivalent shall be deemed to be a
purchase of the underlying Common Stock, and the computation herein required
shall be made on the basis of the full exercise, conversion or exchange of such
Common Stock Equivalent on the date as of which such computation is required
hereby to be made, whether or not such Common Stock Equivalent is actually
exercisable, convertible or exchangeable on such date.
(g) Other Provisions Applicable to Adjustments Under this Section 4.
---------------------------------------------------------------
The following provisions shall be applicable to the making of adjustments in the
Warrant Price hereinbefore provided in Section 4:
(i) Computation of Consideration. The consideration received by
----------------------------
the Issuer shall be deemed to be the following: to the extent that any
Additional Shares of Common Stock or any Common Stock Equivalents shall be
issued for a cash consideration, the consideration received by the Issuer
therefor, or if such Additional Shares of Common Stock or Common Stock
Equivalents are offered by the Issuer for subscription, the subscription price,
or, if such Additional Shares of Common Stock or Common Stock Equivalents are
sold to underwriters or dealers for public offering without a subscription
offering, the public offering price, in any such case excluding any amounts paid
or receivable for accrued interest or accrued dividends and without deduction of
any compensation, discounts, commissions, or expenses paid or incurred by the
Issuer for or in connection with the underwriting thereof or otherwise in
connection with the issue thereof; to the extent that such issuance shall be for
a consideration other than cash, then, except as herein otherwise expressly
provided, the fair market value of such consideration at the, time of such
issuance as determined in good faith by the Board. The consideration for any
Additional Shares of Common Stock issuable pursuant to any Common Stock
Equivalents shall be the consideration received by the Issuer for issuing such
Common Stock Equivalents, plus the additional consideration payable to the
Issuer upon the exercise, conversion or exchange of such Common Stock
Equivalents. In case of the issuance at any time of any Additional Shares of
Common Stock or Common Stock Equivalents in payment or satisfaction of any
dividend upon any class of Capital Stock of the Issuer other than Common Stock,
the Issuer shall be deemed to have received for such Additional Shares of Common
Stock or Common Stock Equivalents a consideration equal to the amount of such
dividend so paid or satisfied. In any case in which the consideration to be
received or paid shall be other than cash,
9
<PAGE>
the Board shall notify the Holder of this Warrant of its determination of the
fair market value of such consideration prior to payment or accepting receipt
thereof. If, within thirty (30) days after receipt of said notice, the Majority
Holders shall notify the Board in writing of their objection to such
determination, a determination of the fair market value of such consideration
shall be made by an Independent Appraiser selected by the Majority Holders with
the approval of the Board (which approval shall not be unreasonably withheld),
whose fees and expenses shall be paid by the Issuer.
(ii) Readjustment of Warrant Price. Upon the expiration or
-----------------------------
termination of the right to convert, exchange or exercise any Common Stock
Equivalent the issuance of which effected an adjustment in the Warrant Price, if
such Common Stock Equivalent shall not have been converted, exercised or
exchanged in its entirety, the number of shares of Common Stock deemed to be
issued and outstanding by reason of the fact that they were issuable upon
conversion, exchange or exercise of any such Common Stock Equivalent shall no
longer be computed as set forth above, and the Warrant Price shall forthwith be
readjusted and thereafter be the price which it would have been (but reflecting
any other adjustments in the Warrant Price made pursuant to the provisions of
this Section 4 after the issuance of such Common Stock Equivalent) had the
adjustment of the Warrant Price been made in accordance with the issuance or
sale of the number of Additional Shares of Common Stock actually issued upon
conversion, exchange or issuance of such Common Stock Equivalent and thereupon
only the number of Additional Shares of Common Stock actually so issued shall be
deemed to have been issued and only the consideration actually received by the
Issuer (computed as in clause (i) of this subsection (g)) shall be deemed to
have been received by the Issuer.
(iii) Outstanding Common Stock. The number of shares of Common
------------------------
Stock at any time outstanding shall (A) not include any shares thereof then
directly or indirectly owned or held by or for the account of the Issuer or any
of its Subsidiaries, and (B) be deemed to include all shares of Common Stock
then issuable upon conversion, exercise or exchange of any then outstanding
Common Stock Equivalents or any other evidences of Indebtedness, shares of
Capital Stock (including, without limitation, the Preferred Stock) or other
Securities which are or may be at any time convertible into or exchangeable for
shares of Common Stock or Other Common Stock.
(h) Other Action Affecting Common Stock. In case after the Original
-----------------------------------
Issue Date the Issuer shall take any action affecting its Common Stock, other
than an action described in any of the foregoing subsections (a) through (g) of
this Section 4, inclusive, and the failure to make any adjustment would not
fairly protect the purchase rights represented by this Warrant in accordance
with the essential intent and principle of this Section 4, then the Warrant
Price shall be adjusted in such manner and at such time as the Board may in good
faith determine to be equitable in the circumstances.
(i) Adjustment of Warrant Share Number. Upon each adjustment in
----------------------------------
the Warrant Price pursuant to any of the foregoing provisions of this Section 4,
the Warrant Share Number shall be adjusted, to the nearest one hundredth of a
whole share, to the product obtained by multiplying the Warrant Share Number
immediately prior to such adjustment in the Warrant Price by a fraction, the
numerator of which shall be the Warrant Price
10
<PAGE>
immediately before giving effect to such adjustment and the denominator of which
shall be the Warrant Price immediately after giving effect to such adjustment.
If the Issuer shall be in default under any provision contained in Section 3 of
this Warrant so that shares issued at the Warrant Price adjusted in accordance
with this Section 4 would not be validly issued, the adjustment of the Warrant
Share Number provided for in the foregoing sentence shall nonetheless be made
and the Holder of this Warrant shall be entitled to purchase such greater number
of shares at the lowest price at which such shares may then be validly issued
under applicable law. Such exercise shall not constitute a waiver of any claim
arising against the Issuer by reason of its default under Section 3 of this
Warrant.
(j) Form of Warrant after Adjustments. The form of this Warrant need
---------------------------------
not be changed because of any adjustments in the Warrant Price or the number and
kind of Securities purchasable upon the exercise of this Warrant.
5. Notice of Adjustments. Whenever the Warrant Price or Warrant Share
---------------------
Number shall be adjusted pursuant to Section 4 hereof (for purposes of this
Section 5, each an "adjustment"), the Issuer shall cause its Chief Financial
Officer to prepare and execute a certificate setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a description of the
basis on which the Board made any determination hereunder), and the Warrant
Price and Warrant Share Number after giving effect to such adjustment, and shall
cause copies of such certificate to be delivered to the Holder of this Warrant
promptly after each adjustment. Any dispute between the Issuer and the Holder
of this Warrant with respect to the matters set forth in such certificate may at
the option of the Holder of this Warrant be submitted to one of the national
accounting firms currently known as the "big five" selected by the Holder,
provided that the Issuer shall have ten (10) days after receipt of notice from
- --------
such Holder of its selection of such firm to object thereto, in which case such
Holder shall select another such firm and the Issuer shall have no such right of
objection. The firm selected by the Holder of this Warrant as provided in the
preceding sentence shall be instructed to deliver a written opinion as to such
matters to the Issuer and such Holder within thirty (30) days after submission
to it of such dispute. Such opinion shall be final and binding on the parties
hereto. The fees and expenses of such accounting firm shall be paid by the
Issuer.
6. Fractional Shares. No fractional shares of Warrant Stock will be
-----------------
issued in connection with and exercise hereof, but in lieu of such fractional
shares, the Issuer shall make a cash payment therefor equal in amount to the
product of the applicable fraction multiplied by the Per Share Market Value then
in effect.
7. Call. Notwithstanding anything herein to the contrary, the Issuer, at
----
its option, may provide the holder of this Warrant written notice pursuant to
Section 12 (the "Call Notice") that this Warrant shall terminate on the
twentieth (20th) day following the date of delivery of the Call Notice (such
date being the "Early Termination Date") at any time: (i) the Per Share Market
Price of the Common Stock has been equal to or greater than one hundred fifty
percent (150%) of the Warrant Price on the date of delivery of the Call Notice
and the nineteen (19) consecutive Trading Days immediately preceding the date of
delivery of the Call Notice (the "Call Notice Period") and (ii) after the
Registration Statement has been declared effective and has been effective for
the Call Notice Period. In the event that the Warrant is not exercised by the
holder of this Warrant on or before the Early Termination Date, this Warrant
shall expire at 5:00 p.m.
11
<PAGE>
pacific time, on the Early Termination Date and the Company will remit to the
holder of this Warrant $0.001 per Warrant Share upon such holder tendering to
the Company the expired Warrant certificate.
8. Definitions. For the purposes of this Warrant, the following terms
-----------
have the following meanings:
"Additional Shares of Common Stock" means all shares of Common Stock issued by
the Issuer after the Original Issue Date, and all shares of Other Common, if
any, issued by the Issuer after the Original Issue Date, except the Warrant
Stock, the Preferred Shares and Common Stock and Convertible Securities issued
in connection with a Permitted Financing.
"Board" shall mean the Board of Directors of the Issuer.
"Capital Stock" means and includes (i) any and all shares, interests,
participations or other equivalents of or interests in (however designated)
corporate stock, including, without limitation, shares of preferred or
preference stock, (ii) all partnership interests (whether general or limited) in
any Person which is a partnership, (iii) all membership interests or limited
liability company interests in any limited liability company, and (iv) all
equity or ownership interests in any Person of any other type.
"Certificate of Incorporation" means the Certificate of Incorporation of the
Issuer as in effect on the Original Issue Date, and as hereafter from time to
time amended, modified, supplemented or restated in accordance with the terms
hereof and thereof and pursuant to applicable law.
"Common Stock" means the Common Stock, $.001 par value, of the Issuer and any
other Capital Stock into which such stock may hereafter be changed.
"Common Stock Equivalent" means any Convertible Security or warrant, option or
other right to subscribe for or purchase any Additional Shares of Common Stock
or any Convertible Security.
"Convertible Securities" means evidences of Indebtedness, shares of Capital
Stock or other Securities which are or may be at any time convertible into or
exchangeable for Additional Shares of Common Stock. The term "Convertible
Security" means one of the Convertible Securities.
"Governmental Authority" means any governmental, regulatory or self-regulatory
entity, department, body, official, authority, commission, board, agency or
instrumentality, whether federal, state or local, and whether domestic or
foreign.
"Holders" mean the Persons who shall from time to time own any Warrant. The
term "Holder" means one of the Holders.
"Independent Appraiser" means a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the financial
statements of the Issuer) that is regularly engaged in the business of
appraising the Capital Stock or assets of corporations or other entities as
going concerns, and which is not affiliated with either the Issuer or the Holder
of any Warrant.
12
<PAGE>
"Issuer" means Net Value Holdings, Inc., a Delaware corporation, and its
successors.
"Majority Holders" means at any time the Holders of Warrants exercisable for a
majority of the shares of Warrant Stock issuable under the Warrants at the time
outstanding.
"Original Issue Date" means September 16, 1999.
"Other Common" means any other Capital Stock of the Issuer of any class which
shall be authorized at any time after the date of this Warrant (other than
Common Stock) and which shall have the right to participate in the distribution
of earnings and assets of the Issuer without limitation as to amount.
"OTC Bulletin Board" means the over-the-counter electronic bulletin board.
"Person" means an individual, corporation, limited liability company,
partnership, joint stock company, trust, unincorporated organization, joint
venture, Governmental Authority or other entity of whatever nature.
"Permitted Financing" has the meaning specified in Section 3.13 of the Purchase
Agreement.
"Per Share Market Value" means on any particular date (a) the closing bid price
per share of the Common Stock on such date on the OTC Bulletin Board or other
registered national stock exchange on which the Common Stock is then listed or
if there is no such price on such date, then the closing bid price on such
exchange or quotation system on the date nearest preceding such date, or (b) if
the Common Stock is not listed then on the OTC Bulletin Board or any registered
national stock exchange, the closing bid price for a share of Common Stock in
the over-the-counter market, as reported by the OTC Bulletin Board or in the
National Quotation Bureau Incorporated or similar organization or agency
succeeding to its functions of reporting prices) at the close of business on
such date, or (c) if the Common Stock is not then reported by the OTC Bulletin
Board or the National Quotation Bureau Incorporated (or similar organization or
agency succeeding to its functions of reporting prices), then the average of the
"Pink Sheet" quotes for the relevant conversion period, as determined in good
faith by the holder, or (d) if the Common Stock is not then publicly traded the
fair market value of a share of Common Stock as determined by an Independent
Appraiser selected in good faith by the Majority Holders; provided, however,
-------- -------
that the Issuer, after receipt of the determination by such Independent
Appraiser, shall have the right to select an additional Independent Appraiser,
in which case, the fair market value shall be equal to the average of the
determinations by each such Independent Appraiser; and provided, further that
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all determinations of the Per Share Market Value shall be appropriately adjusted
for any stock dividends, stock splits or other similar transactions during such
period. The determination of fair market value by an Independent Appraiser
shall be based upon the fair market value of the Issuer determined on a going
concern basis as between a willing buyer and a willing seller and taking into
account all relevant factors determinative of value, and shall be final and
binding on all parties. In determining the fair market value of any shares of
Common Stock, no consideration shall be given to any restrictions on transfer of
the Common Stock imposed by agreement or by federal or state securities laws, or
to the existence or absence of, or any limitations on, voting rights.
13
<PAGE>
"Preferred Shares" means Common Stock issuable upon the conversion of any
Preferred Stock.
"Preferred Stock" means the Series B Preferred Stock issued and sold pursuant to
the Purchase Agreement.
"Purchase Agreement" means the Series B Convertible Preferred Stock Purchase
Agreement dated as of September 16, 1999 among the Issuer and the investors a
party thereto.
"Registration Rights Agreement" has the meaning specified in Section 3(e)
hereof.
"Rights Offering" means the distribution or other arrangement by the Company,
whether directly or by arrangement with any reputable underwriter(s) for the
Partner Company Public Offering (as defined below) or otherwise, resulting in
each holder of the Common Stock obtaining the right to purchase an amount of the
securities of any entity in which the Company has made an investment calculated
substantially on a pro rata basis based on the number of shares of Common Stock
owned by such holder at the time in connection with a public offering of such
securities (a "Partner Company Public Offering").
"Securities" means any debt or equity securities of the Issuer, whether now or
hereafter authorized, any instrument convertible into or exchangeable for
Securities or a Security, and any option, warrant or other right to purchase or
acquire any Security. "Security" means one of the Securities.
"Securities Act" means the Securities Act of 1933, as amended, or any similar
federal statute then in effect.
"Subsidiary" means any corporation at least 50% of whose outstanding Voting
Stock shall at the time be owned directly or indirectly by the Issuer or by one
or more of its Subsidiaries, or by the Issuer and one or more of its
Subsidiaries.
"Trading Day" means (a) a day on which the Common Stock is traded on the over
the counter market as reported by the OTC Bulletin Board, or (b) if the Common
Stock is not listed on the OTC Bulletin Board, a day on which the Common Stock
is traded on any other registered national stock exchange, or (c) if the Common
Stock is not quoted on the OTC Bulletin Board, a day on which the Common Stock
is quoted in the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding its
functions of reporting prices); provided, however, that in the event that the
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Common Stock is not listed or quoted as set forth in (a), (b) and (c) hereof,
then Trading Day shall mean any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
New York are authorized or required by law or other government action to close.
"Term" has the meaning specified in Section 1 hereof.
"Voting Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) having ordinary
voting power for the election of a majority
14
<PAGE>
of the members of the Board of Directors (or other governing body) of such
corporation, other than Capital Stock having such power only by reason of the
happening of a contingency.
"Warrants" means the Warrants issued and sold pursuant to the Purchase
Agreement, including, without limitation, this Warrant, and any other warrants
of like tenor issued in substitution or exchange for any thereof pursuant to the
provisions of Section 2(c), 2(d) or 2(e) hereof or of any of such other
Warrants.
"Warrant Price" means [_____]% of the initial Conversion Price (as such term is
defined in the Certificate of Designation), as such price may be adjusted from
time to time as shall result from the adjustments specified in Section 4 hereof.
"Warrant Share Number" means at any time the aggregate number of shares of
Warrant Stock which may at such time be purchased upon exercise of this Warrant,
after giving effect to all prior adjustments and increases to such number made
or required to be made under the terms hereof.
"Warrant Stock" means Common Stock issuable upon exercise of any Warrant or
Warrants or otherwise issuable pursuant to any Warrant or Warrants.
9. Other Notices. In case at any time:
-------------
(a) the Issuer shall make any distributions to the holders of Common
Stock; or
(b) the Issuer shall authorize the granting to all holders of its
Common Stock of rights to subscribe for or purchase any shares of Capital Stock
of any class or of any Common Stock Equivalents or Convertible Securities or
other rights; or
(c) there shall be any reclassification of the Capital Stock of the
Issuer; or
(d) there shall be any capital reorganization by the Issuer; or
(e) there shall be any (i) consolidation or merger involving the
Issuer or (ii) sale, transfer or other disposition of all or substantially all
of the Issuer's property, assets or business (except a merger or other
reorganization in which the Issuer shall be the surviving corporation and its
shares of Capital Stock shall continue to be outstanding and unchanged and
except a consolidation, merger, sale, transfer or other disposition involving a
wholly-owned Subsidiary); or
(f) there shall be a voluntary or involuntary dissolution, liquidation
or winding-up of the Issuer or any partial liquidation of the Issuer or
distribution to holders of Common Stock;
then, in each of such cases, the Issuer shall give written notice to the Holder
of the date on which (i) the books of the Issuer shall close or a record shall
be taken for such dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be, shall take place.
Such notice also
15
<PAGE>
shall specify the date as of which the holders of Common Stock of record shall
participate in such dividend, distribution or subscription rights, or shall be
entitled to exchange their certificates for Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, disposition, dissolution, liquidation or winding-up, as the case may be.
Such notice shall be given at least twenty (20) days prior to the action in
question and not less than twenty (20) days prior to the record date or the date
on which the Issuer's transfer books are closed in respect thereto. The Issuer
shall give to the Holder notice of all meetings and actions by written consent
of its stockholders, at the same time in the same manner as notice of any
meetings of stockholders is required to be given to stockholders who do not
waive such notice (or, if such requires no notice, then two (2) Trading Days
written notice thereof describing the matters upon which action is to be taken).
The Holder shall have the right to send two representatives selected by it to
each meeting, who shall be permitted to attend, but not vote at, such meeting
and any adjournments thereof. This Warrant entitles the Holder to receive copies
of all financial and other information distributed or required to be distributed
to the holders of the Common Stock.
10. Amendment and Waiver. Any term, covenant, agreement or condition in
--------------------
this Warrant may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by a written instrument or written instruments executed by the
Issuer and the Majority Holders; provided, however, that no such amendment or
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waiver shall reduce the Warrant Share Number, increase the Warrant Price,
shorten the period during which this Warrant may be exercised or modify any
provision of this Section 9 without the consent of the Holder of this Warrant.
11. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.
12. Notices. Any and all notices or other communications or deliveries
-------
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., pacific time, on a
Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., pacific time, on any date and
earlier than 11:59 p.m., pacific time, on such date, (iii) the Business Day
following the date of mailing, if sent by nationally recognized overnight
courier service or (iv) actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be with
respect to the Holder of this Warrant or of Warrant Stock issued pursuant
hereto, addressed to such Holder at its last known address or facsimile number
appearing on the books of the Issuer maintained for such purposes, or with
respect to the Issuer, addressed to:
Net Value Holdings, Inc.
Two Penn Center Plaza, Suite 605
Philadelphia, PA 19102
Attention: Andrew P. Panzo, C.E.O. and President
Tel No.: (215) 564-9190
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<PAGE>
Fax No.: (215) 564-3133
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to the Issuer shall be sent to Klehr,
Harrison, Harvey, Branzburg & Ellers LLP, 260 S. Broad Street, Philadelphia,
Pennsylvania 19102, Attention: Michael Forman, Esq., Facsimile no.: (215) 568-
6603. Copies of notices to the Holder shall be sent to Parker Chapin Flattau &
Klimpl, LLP, 1211 Avenue of the Americas, New York, New York 10036, Attention:
Christopher S. Auguste, Esq., Facsimile no.: (212) 704-6288.
13. Warrant Agent. The Issuer may, by written notice to each Holder of
-------------
this Warrant, appoint an agent having an office in New York, New York for the
purpose of issuing shares of Warrant Stock on the exercise of this Warrant
pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant
to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to
subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any
such issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent.
14. Remedies. The Issuer stipulates that the remedies at law of the
--------
Holder of this Warrant in the event of any default or threatened default by the
Issuer in the performance of or compliance with any of the terms of this Warrant
are not and will not be adequate and that, to the fullest extent permitted by
law, such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
15. Successors and Assigns. This Warrant and the rights evidenced hereby
----------------------
shall inure to the benefit of and be binding upon the successors and assigns of
the Issuer, the Holder hereof and (to the extent provided herein) the Holders of
Warrant Stock issued pursuant hereto, and shall be enforceable by any such
Holder or Holder of Warrant Stock
16. Modification and Severability. If, in any action before any court or
-----------------------------
agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of this Warrant, but this Warrant shall be construed as if such
unenforceable provision had never been contained herein.
17. Headings. The headings of the Sections of this Warrant are for
--------
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17
<PAGE>
IN WITNESS WHEREOF, the Issuer has executed this Warrant as of the day and
year first above written.
NET VALUE HOLDINGS, INC.
By:____________________________
Name:
Title:
18
<PAGE>
EXERCISE FORM
[NAME OF ISSUER]
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of
___________________ covered by the within Warrant.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-_____ canceled (or transferred or exchanged) this _____ day
of ___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock in
the name of _______________.
19
<PAGE>
EXHIBIT 11.1
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Loss $(11,235,237) $ (11,400,109) $ (6,174,247) $(6,592,956)
Preferred stock dividend (1,181,250) (15,250,500) (15,250,500 -
------------- -------------- ------------- ------------
Net loss per common stock holders $(12,416,847) ($26,650,609) $(21,424,747) $(6,592,956)
============= ============== ============= ============
Weighted average number of common shares outstanding 1,804,700 4,711,351 2,715,085 8,960,098
============= ============== ============= ============
Net loss per common shares outstanding $ (6.88) $ (5.66) $ (7.89) $ (.74)
============= ============== ============= ============
Pro Forma Information
(unaudited):
Net loss $(3,314,094)
Pro forma tax provision -
------------
Pro forma net loss $(3,314,094)
============
Net Loss Per Share Data:
Basic and diluted weighted average
number of common shares outstanding 934,810
============
Basic and diluted net loss per common share $ (3.55)
============
</TABLE>
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" for all applicable periods presented
in the accompanying financial statements. See Notes to the Company's
financial statements included herein.
<PAGE>
EXHIBIT 21.1
Conducts Business
Subsidiary State of Incorporation Under the Name
- ---------- ---------------------- ----------------
BrightStreet.com, Inc. Delaware BrightStreet.com
metacat.com, Inc. Oregon metacat.com
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS'
We consent to the reference to our firm under the caption "Experts" and the use
of our report dated April 30, 1999, in the Registration Statement (Form S-1 No.
333-_____) and related Prospectus of NetValue Holdings, Inc. for the
registration of 3,722,560 shares of its common stock.
LJ SOLDINGER ASSOCIATES
Arlington Heights, Illinois
April 30, 1999
<PAGE>
EXHIBIT 24.1
See signature page of registration statement.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS OF NET VALUE HOLDINGS, INC. AS OF DECEMBER 31, 1998 AND JUNE 30, 1999 AND
THE RELATED STATEMENTS OF OPERATIONS FOR THE YEAR AND SIX MONTHS ENDED DECEMBER
31, 1998 AND JUNE 30, 1999, RESPECTIVELY, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 223,630 1,984,794
<SECURITIES> 0 0
<RECEIVABLES> 0 62,500
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 712,915 3,306,823
<PP&E> 936,353 966,341
<DEPRECIATION> 418,992 534,759
<TOTAL-ASSETS> 1,428,665 3,907,672
<CURRENT-LIABILITIES> 8,691,149 3,635,196
<BONDS> 0 0
0 0
2,520 2,520
<COMMON> 8,008 10,080
<OTHER-SE> (8,248,631) (5,814,142)
<TOTAL-LIABILITY-AND-EQUITY> 1,428,665 3,907,672
<SALES> 1,330,367 62,500
<TOTAL-REVENUES> 1,330,367 62,500
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 9,255,776 3,619,201
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,167,480 2,617,305
<INCOME-PRETAX> (11,400,109) (6,592,956)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (11,400,109) (6,592,956)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (11,400,109) (6,592,956)
<EPS-BASIC> (5.66) (.74)
<EPS-DILUTED> (5.66) (.74)
</TABLE>
