<PAGE>
As filed with the Securities and Exchange Commission on December 17, 1999.
Registration No. 333-88629
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
AMENDMENT No. 1
TO
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)
1085 Mission Street
San Francisco, CA 94103
(415) 575-4755
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
Andrew P. Panzo
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> <C>
Common Stock, $.001 par value 3,722,560 $4.375 $16,286,200 $4,527.56
====================================================================================================================
</TABLE>
The registration fee calculated above was previously paid at the time
of the initial filing of this registration statement. This registration
statement registers the resale of 3,722,560 shares of common stock offered by
selling stockholders, as follows:
o 2,358,160 shares issuable upon conversion of 4,824 shares of our
Series B Convertible Preferred Stock;
o 295,040 shares issuable upon exercise of the warrants held by the
holders of shares of our Series B Convertible Preferred Stock; and
o 1,069,360 shares of common stock presently held by three other
selling stockholders.
In addition to the number of shares set forth above, the amount to be
registered includes any shares of our common stock issued 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 December 17, 1999
SUBJECT TO COMPLETION
PROSPECTUS
3,722,560 SHARES
NET VALUE HOLDINGS, INC.
COMMON STOCK
The following stockholders are offering and selling up to 3,722,560
shares of our common stock:
Sven Behrendt
Juergen Jaekel
Gary E. Markman
Tonga Partners, LP
Yeoman Ventures, Ltd.
Lightline Limited
Little Wing LP
Little Wing Too LP
Tradewinds Fund, LLC
JDN Partners, LP
Bayhill Fund, Ltd.
RS Orphan Fund, LP
RS Orphan Offshore Fund, LP
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.
We will not receive any proceeds from this offering. However, 295,040 of the
shares of common stock which we are registering are issuable upon exercise of
warrants. If all of the warrants are exercised, we will receive gross proceeds
of $1,507,470.
Our common stock is listed on the NASDAQ Over-the-Counter Bulletin
Board Trading System under the symbol "NETV." On December 14, 1999, the closing
sale price for our common stock, as quoted on the NASDAQ Over-the-Counter
Bulletin Board Trading System was $8.6875 per share.
Investing in our 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 December 17, 1999
-----------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ABOUT THIS PROSPECTUS............................................................................................4
SUMMARY ........................................................................................................4
FORWARD-LOOKING STATEMENTS......................................................................................10
RISK FACTORS....................................................................................................10
MARKET PRICE AND DIVIDEND INFORMATION...........................................................................30
CAPITALIZATION..................................................................................................32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........................................................34
BUSINESS .......................................................................................................43
MANAGEMENT .....................................................................................................64
SECURITY OWNERSHIP OF EXECUTIVE OFFICERS, DIRECTORS
AND BENEFICIAL OWNERS OF GREATER THAN 5% OF OUR COMMON STOCK...........................................70
SELLING STOCKHOLDERS............................................................................................72
PLAN OF DISTRIBUTION............................................................................................76
TRANSACTIONS WITH OFFICERS AND DIRECTORS
AND OTHER BUSINESS RELATIONSHIPS.......................................................................77
DESCRIPTION OF CAPITAL STOCK....................................................................................81
SHARES ELIGIBLE FOR FUTURE SALE.................................................................................85
PRINCIPAL UNITED STATES TAX CONSEQUENCES TO NON-U.S. HOLDERS....................................................86
EXPERTS .......................................................................................................89
LEGAL MATTERS...................................................................................................90
WHERE YOU CAN FIND MORE INFORMATION.............................................................................90
INFORMATION NOT REQUIRED IN PROSPECTUS......................................................................II - 1
SIGNATURES..................................................................................................II - 8
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.....................................................................F-1
</TABLE>
<PAGE>
ABOUT THIS PROSPECTUS
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.
Description of Selling Stockholders
In this registration statement we are registering the resale of up to
3,722,560 shares of our common stock by thirteen of our stockholders. These
stockholders acquired their shares of our common stock which they are offering
for resale as follows:
On February 4, 1999, Sven Behrendt purchased a convertible promissory
note in the principal amount of $2,000,000 from us. We received $2,000,000 as
consideration for the issuance of the convertible promissory note. On March 19,
1999, pursuant to the terms of the convertible promissory note, Mr. Behrendt
converted the principal amount of the convertible promissory note plus all
accrued interest thereon into 807,644 shares of the Company's common stock.
On February 20, 1999, Juergen Jaekel purchased a convertible promissory
note in the principal amount of $500,000 from us. We received $500,000 as
consideration for the issuance of the convertible promissory note. On April 18,
1999, pursuant to the terms of the convertible promissory note, Mr. Jaekel
converted the principal amount of the convertible promissory note plus all
accrued interest thereon into 202,533 shares of the Company's common stock.
On January 1, 1999, Gary Markman purchased a convertible promissory
note in the principal amount of $113,125 from us. As consideration for the
issuance of the convertible promissory note, Mr. Markman agreed to cancel a Net
Value, Inc. promissory note in the principal amount of $100,000 which he owned
and to release us, Net Value, Inc. and the present and future officers and
directors of each corporation from any claims related to this Net Value, Inc.
promissory note. On June 16, 1999, pursuant to the terms of the convertible
promissory note, Mr. Markman converted the principal amount of the convertible
promissory note plus all accrued interest thereon into 59,183 shares of the
Company's common stock.
3
<PAGE>
In two transactions which closed on September 17, 1999 and October 1,
1999, respectively, we sold the following number of shares of our Series B
Preferred Stock, which are convertible into the following number of shares of
our common stock at the lowest possible conversion price of $2.50 per share, and
issued common stock purchase warrants to the following entities:
<TABLE>
<CAPTION>
Selling Stockholder Series B Preferred Common Stock Warrants Consideration
------------------- ------------------ ------------ -------- -------------
<S> <C> <C> <C> <C>
Tonga Partners, L.P. 1,500 600,000 91,744 $1,500,000
Yeoman Ventures, Ltd. 250 100,000 15,288 $250,000
Lightline Limited 250 100,000 15,288 $250,000
Little Wing LP 450 180,000 27,520 $450,000
Little Wing Too, LP 150 60,000 9,176 $150,000
Tradewinds Fund LLC 150 60,000 9,176 $150,000
JDN Partners, L.P. 675 270,000 41,288 $675,000
Bayhill Fund, Ltd. 75 30,000 4,584 $75,000
RS Orphan Fund, LP 927 370,800 56,696 $927,000
RS Orphan Offshore Fund, LP 397 158,800 24,280 $397,000
TOTAL 4,824 1,929,600 295,040 $4,824,000
</TABLE>
We are registering 2,653,200 shares of our common stock with respect to
the Series B Preferred Stock and the warrants as required in the registration
rights agreement which we entered into with the holders of the Series B
Preferred Stock. The difference between the number of shares issuable upon
conversion of the Series B Preferred Stock and the warrants and the total number
of shares which we are registering is being allocated among the holders of the
Series B Preferred Stock on a pro rata basis based on the ownership of shares of
Series B Preferred Stock.
Net Value Holdings, Inc.
History of Net Value Holdings, Inc.
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, our stockholders approved our redomestication 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 Net Value, Inc. stockholders, we acquired
approximately 66% of the issued and outstanding shares of Net Value, Inc.'s
common stock and 100% of the issued and outstanding shares of Net Value, Inc.'s
Series A Preferred Stock.
On July 30, 1999, we merged with Strategicus Partners, Inc., an Oregon
corporation. As a result of our merger with Strategicus, we acquired ownership
interests in metacat.com, Inc., AsiaCD, Inc. and College 411.com, Inc., each of
which was owned by Strategicus at the time of the merger. In addition, members
of Strategicus' management team became officers and directors of our
corporation.
In September 1999, we acquired our ownership interest in AssetExchange,
Inc.
4
<PAGE>
In October 1999, we acquired our ownership interest in Webmodal, Inc.
In November 1999, we acquired our ownership interest in Swapit.com,
Inc.
In December 1999, Net Value, Inc. sold substantially all of its assets,
including the name BrightStreet.com, Inc., to Promotions Acquisition, Inc., a
Delaware corporation, in connection with a $17,000,000 investment in Promotions
Acquisition, Inc. by outside investors. Pursuant to this transaction, we
received $2,000,000 in cash, Promotions Acquisition, Inc.'s agreement to assume
approximately $1,600,000 in liabilities of Net Value, Inc., and 2,958,819 shares
of common stock, representing a 12% ownership interest in Promotions
Acquisition, Inc. calculated on a fully diluted basis.
Subsequent to this transaction, Promotions Acquisition, Inc. changed
its name to BrightStreet.com, Inc. As a result of this transaction, Net Value,
Inc. has no operations. Net Value, Inc. plans to use the $2,000,000 which it
received pursuant to this transaction to satisfy its remaining liabilities. We
then intend to complete a merger with Net Value, Inc. pursuant to which the
remaining stockholders of Net Value, Inc. will receive .4 shares of our common
stock for every share of Net Value, Inc. common stock which they tender to us in
the merger.
Our principal executive office is located at 1085 Mission Street, San
Francisco, California 94103. The phone number of our principal executive office
is (415) 575-4755. We also maintain an office at Two Penn Center Plaza, Suite
605, Philadelphia, Pennsylvania 19102 and our telephone number is (215)
564-9190. We maintain an Internet website at www.netvalueholdings.com. The
information on our Internet website is not part of this prospectus.
Recent Financial Results
In 1998, we experienced net losses of $2,889,386. For the nine months
ended September 30, 1999, we experienced net losses of $14,510,127 (unaudited).
Through September 30, 1999, we have experienced an accumulated deficit of
$17,404,513 (unaudited). Since our affiliate companies are development stage
companies with limited revenues, we expect that we will continue to experience
net losses in the future until our majority-owned affiliate companies begin to
generate profits and our minority-owned affiliate companies develop their
businesses sufficiently to pay dividends. Due to the fact that we face
substantial competition from other providers of capital and management services
including publicly-traded Internet companies, venture capital firms and large
corporations, many of whom have greater financial resources than we do, we
expect to continue experiencing substantial net losses in the future. We plan to
generate revenues from the operations of our majority-owned affiliate companies,
as we consolidate the operations of these affiliate companies with our operating
results for financial reporting purposes and from dividends which we receive
from our minority-owned affiliate companies.
Affiliate Companies
We are an Internet holding company actively engaged in e-commerce
through our affiliate companies. We primarily engage in acquiring a controlling
interest in and providing financial, management and technical support to
development stage Internet businesses which we either participate in founding or
identify as meeting our criteria. All of our affiliate companies are currently
in the development stage. We currently have ownership interests in seven
affiliate companies. Our approximate ownership interest in each of our current
affiliate companies is as follows:
metacat.com, Inc. (www.metacat.com) 100%
College 411.com, Inc. (www.college411.com) 29%
AssetExchange.com, Inc. (www.AssetExchange.com) 20%
Net Value, Inc. N/A 66%
AsiaCD, Inc. (www.asiacd.com) 11%
Webmodal, Inc. (www.Webmodal.com) 12%
Swapit.com Inc. (www.swapit.com) 12%
5
<PAGE>
metacat.com, Inc. is an Internet-based e-commerce superstore that will
aggregate and search the product offerings of catalog and mail order businesses
and will allow consumers to purchase these products through its Internet
website. metacat anticipates that its Internet website will be fully operational
in December 1999. As of September 30, 1999, metacat had not recognized any
revenues, had minimal assets and had an accumulated deficit of approximately
$120,000 (unaudited). metacat's net losses for the nine months ended September
30, 1999 were approximately $120,000 (unaudited).
College 411.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. College 411 anticipates that its Internet website
will be fully functional in January 2000. As of September 30, 1999, College 411
had not generated any revenues, had assets of $92,278, net losses of $100,017
(unaudited) for the nine months ended September 30, 1999 and had an accumulated
deficit of $100,017 (unaudited).
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, had assets of $439,233, net losses of $48,529 (unaudited) for the nine
months ended September 30, 1999 and had an accumulated deficit of $48,529
(unaudited).
Net Value, Inc. was the historical owner of the technology and assets
which are presently used in BrightStreet.com, Inc.'s operations. In December
1999, Net Value, Inc. sold substantially all of its assets to BrightStreet.com,
Inc. Net Value, Inc. no longer has any operations and holds a 12% ownership
interest in BrightStreet.com, Inc. We plan to complete a merger with Net Value,
Inc. in the next three to six months. BrightStreet.com, Inc. has developed
technology that enables retailers, manufacturers and operators of Internet
websites that publish non-product related information for consumers to deliver
Internet-based promotions to consumers. BrightStreet licenses its technology
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 has created a
network of affiliated Internet websites. This network offers customers who want
a wider distribution of their promotions the ability to place their promotions
on the Internet websites of companies with whom BrightStreet has a relationship.
As of September 30, 1999, BrightStreet had assets of approximately $34,000
(unaudited), had not generated any revenues, had no net losses or income
(unaudited) for the nine months ended September 30, 1999 and had an accumulated
deficit of $0 (unaudited).
AsiaCD, 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. AsiaCD 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 through September 30, 1999 it has generated approximately
$1,473,845 (unaudited) in revenues. AsiaCD's net losses for the nine months
ended September 30, 1999 were approximately $271,478 (unaudited). As of
September 30, 1999, AsiaCD's accumulated deficit was approximately $380,789
(unaudited).
Webmodal, Inc. is developing an Internet application for use by
shippers in purchasing and executing domestic full-truckload intermodal freight
shipments. This application will allow shippers to input their specific
transportation needs and receive all of the information necessary for them to
schedule and execute intermodal shipments in a cost-effective manner. Webmodal
plans to launch its Internet website in 2000. As of September 30, 1999, Webmodal
had not recognized any revenues, had assets of approximately $220,000
(unaudited), net losses of approximately $70,000 (unaudited) for the nine months
ended September 30, 1999 and had an accumulated deficit of approximately $70,000
(unaudited).
Swapit.com, Inc. is designing a consumer-driven electronic barter
exchange on the Internet. Swapit.com, Inc. believes that this service will allow
the swap and sale of consumer goods between individuals. Swapit.com, Inc. plans
to launch its Internet website in April 2000. As of November 30, 1999,
Swapit.com had not generated any revenues, had assets of $479,048 and had an
accumulated deficit of approximately $40,000 (unaudited).
6
<PAGE>
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. The summary pro forma data does not purport to represent what our
results would have been if the events described below had occurred at the dates
indicated. The Pro Forma Consolidated Balance Sheet Data reflect the following
as if they had occurred as of September 30, 1999:
o We received net proceeds of 2,582,000 in October 1999
from the sale of 2,824 shares of our Series B
Preferred Stock.
o In the fourth quarter, holders of our convertible
debentures converted principal and accrued interest
of $504,582 into 207,273 shares of our common stock.
o In the fourth quarter, holders of our convertible
promissory notes converted principal and accrued
interest of $620,317 into 310,612 shares of our
common stock.
o We completed our investment in Webmodal in October
1999, whereby we acquired 12% of the issued and
outstanding shares of common stock of Webmodal for
$350,000 in cash. Our equity interest in this company
will be accounted for under the cost method of
accounting.
o We completed our investment in Swapit.com in November
1999, whereby we acquired shares of Series A
Preferred Stock convertible into 12% of the issued
and outstanding shares of common stock of Swapit.com
for $500,000. Our equity interest in this company
will be accounted for under the cost method of
accounting.
o We exercised warrants to purchase 1,125,000 shares of
college 411.com, Inc.'s common stock for $75,000 in
October 1999. This increased our total ownership of
the common stock of College 411.com, Inc. to 29%. Our
equity interest in this company will continue to be
accounted for under the equity method of accounting.
o On October 1, 1999 we paid $250,000 in satisfaction
of the stock subscription payable to AssetExchange,
Inc. Our equity interest in this company will be
accounted for under the equity method of accounting.
o We issued 676,374 shares of our common stock in a
private placement with the RS Orphan Fund, LP and the
RS Orphan Offshore Fund, LP in October 1999 pursuant
to which we received gross proceeds of $676,374.
7
<PAGE>
Summary of Selected Consolidated Financial Data
<TABLE>
<CAPTION>
Nine Months Ended January 1,
September 30, 1998
Year Ended --------------------------- through
December 31, (Unaudited) September 30,
1998 1998 1999 1999
------------ --------- ---------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
Statement of Operations Data
Revenues $ 0 $ 0 $ 0 $ 0
Operating expenses 2,758,868 1,351,120 10,577,686 13,336,554
Loss from operations (2,758,868) (1,351,120) (10,577,686) (13,336,554)
Other income (expense) (130,518) (4,685) (3,932,441) (4,062,959)
Net loss (2,889,386) (1,355,805) (14,510,127) (17,399,513)
----------------------------------------------------------------
Net loss per common share
outstanding, Basic and Diluted (0.58) (0.59) (1.68)
================================================================
Weighted average shares
outstanding, Basic and Diluted 4,993,868 2,292,555 8,647,063
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999 (Unaudited)
------------------------------
Pro Forma
Actual Transactions As Adjusted
------ ------------ -----------
Balance Sheet Data
<S> <C> <C> <C>
Cash and cash equivalents $ 1,051,931 $ 3,135,305 $ 3,135,305
Working capital (deficit) (304,732) 1,858,769 1,858,769
Total assets 8,177,755 11,436,129 11,436,129
Total liabilities 8,479,891 7,354,992 7,354,992
Notes payable and accrued interest 8,095,261 6,970,362 6,970,362
Stockholders' equity (deficit) (402,136) 3,981,137 3,981,137
</TABLE>
As of December 3, 1999, we will no longer fund the operations of
Net Value, Inc., nor will we assume additional obligations of Net Value, Inc.
For the year ended December 31, 1998, we incurred losses of $2,618,384 in
connection with advances made during the year. For the nine months ended
September 30, 1999, we incurred losses of $3,920,964 for advances made to Net
Value, Inc. during the period and $4,468,675 for obligations assumed from Net
Value, Inc. through September 30, 1999.
8
<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 affiliate companies,
including, among other things:
o development of an e-commerce market;
o 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;
o our ability to successfully execute our business
model;
o the ability of each of our affiliate companies to
compete successfully against direct and indirect
competitors;
o our ability to acquire interests in additional
companies;
o growth in demand for Internet products and services;
and
o adoption of the Internet as an advertising medium.
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, our 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 Net Value Holdings.
We have a very limited operating history and have not generated any earnings or
revenues since our inception. Accordingly, the financial statements included in
this prospectus only provide you with limited operating results upon which you
may evaluate our corporation and its business prospects. We will continue to
sustain operating expenses without corresponding revenues until one of the
following events occurs:
o we acquire or start-up development stage Internet
companies whose products and services are ready for
distribution to the market;
o our majority-owned affiliate companies become
profitable; or
o our minority-owned affiliate companies pay dividends.
Although we may also derive revenues from the sale of interests in one
or more affiliate companies, we do not intend to acquire interests in affiliate
companies with a view to disposing of the interests and, therefore, do not
regard such sales as a source of revenues. All of our current affiliate
companies are development stage companies that have limited operating histories
and have generated very limited, if any, revenues or earnings from operations
9
<PAGE>
since inception. We are not certain that any of our current affiliate companies
will ever generate substantial earnings or that we will generate corresponding
revenues from our equity holdings in these affiliate companies.
Our auditors have raised substantial doubt about our ability to continue as a
going concern and we will not receive any proceeds from this offering.
Due to our dependence on outside financing and the losses we have
incurred since inception, our auditors have raised substantial doubt about our
ability to continue as a going concern. Notwithstanding that doubt, this
offering relates solely to the resale of shares of our common stock by existing
shareholders and we will not receive any proceeds from sales of these shares of
common stock by these shareholders.
We no longer own our primary source of historical revenues and may not be able
to create or obtain additional sources of revenues.
Our primary source of revenues to date has been our operation of Net
Value, Inc. Specifically, Net Value, Inc. derived revenues from an agreement
between Net Value, Inc. and IQ Value LLC pursuant to which IQ licensed Net
Value's technology for commercial use. During the period from inception through
June 30, 1999, this agreement provided approximately $1,250,000 or 90% of our
consolidated revenues. This agreement lapsed pursuant to its terms on June 30,
1999. During the quarter ended September 30, 1999, we did not generate any
revenues. On December 3, 1999, Net Value, Inc. sold substantially all of its
assets. Although we own 100% of metacat.com, Inc., it is in the development
stage and will only generate minimal revenues during 1999. Accordingly, we no
longer own a majority interest in an operating company that is presently
generating revenues. Although we intend to devote our resources to expanding
metacat.com's operations, to developing additional majority-owned affiliate
companies whose operations will generate revenues and to developing our
minority-owned affiliate companies, if we are unable to do so, then we may be
forced to go out of business.
We have had a history of losses and expect continued losses in the foreseeable
future.
For the nine months ended September 30, 1999, we realized a net loss of
$14,510,127 (unaudited). For the year ended December 31, 1998, we realized a net
loss of $2,889,386. From our inception through September 30, 1999, we have
realized a cumulative net loss of $17,404,513 (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 continue in the development stage of
our business model and as we continue to build an infrastructure for our network
of affiliate companies. For example, we expect to hire up to ten additional
employees by December 31, 2000. We will hire these employees to manage both our
operations and the operations of our majority-owned affiliate companies. If any
of these and other expenses are not accompanied by increased revenues, then our
losses will be greater than we anticipate.
There is substantial doubt regarding our ability to continue as a going concern
and we may go out of business.
Since our inception, we have generated our operating funds primarily
through the sale of our equity and debt securities. Our dependence on outside
financing and the losses which we have incurred since our inception raise
substantial doubt about our ability to continue as a going concern. This
offering relates to the resale of shares of our common stock owned by or
issuable to our existing stockholders upon conversion of shares of our Series B
Preferred Stock and exercise of warrants. Accordingly, although we will receive
proceeds from the exercise of the warrants, we will not receive any of the
proceeds of this offering and it will not have any effect on our financial
condition. Our financial condition may have a negative effect on our ability to
enter into relationships with or to start-up and develop additional affiliate
companies. We are not certain that we will be able to, and we currently have no
specific plans to, sell additional debt or equity securities to generate the
necessary proceeds to continue to finance our operations. In the second quarter
of 2000, we may attempt to sell additional securities to raise funds for working
capital purposes. If we fail to raise sufficient proceeds to finance our
operations through the sale of additional securities, then we will not have
sufficient cash to meet the basic requirements of our business plan and will
cease to continue as a going concern. If we cease to continue as a going
concern, then we may go out of
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business and investors in our common stock will lose all or a substantial
portion of their investment in our common stock.
Our Officers and Directors have acquired personal interests in our affiliate
companies which may create conflicts of interest that may adversely affect our
stockholders' best interests.
Some of our Officers and Directors personally own interests or rights to
purchase interests in some of our affiliate companies as follows:
Officer/Director Affiliate Company
Darr Aley AsiaCD, Inc., College 411.com, Inc.
Thomas Aley Swapit.com, Inc.
Stephen George AsiaCD, Inc., College 411.com, Inc.
Andrew P. Panzo AsiaCD, Inc.
Douglas Spink Webmodal, Inc.
Barry Uphoff AsiaCD, Inc.
This may cause the interests of these individuals to conflict with our
stockholders' best interests. For example, if the operations of one of these
affiliate companies is unsuccessful, it may be in our stockholders' best
interests for us to either divest our ownership interest in this affiliate
company or devote a smaller percentage of our management resources to assisting
in the development of this affiliate company. In addition, in order to avoid
registration under the Investment Company Act of 1940, we may have to divest our
ownership interest in a particular affiliate company. However, the officer(s) or
director(s) who own a personal interest in this affiliate company may vote not
to take this action or may seek to continue to devote management resources to
this affiliate company due to his personal interest. Our Board of Directors has
implemented a policy prohibiting our officers and directors from acquiring
personal interests in our affiliate companies in the future.
Our proposed operations are speculative in nature and may not ever result in any
operating revenues or profits.
We are not certain that our business model, even if successful, will
result in operating revenues or profits. Our success depends upon our ability to
develop or select affiliate companies that are ultimately successful. As of the
date of this prospectus, none of our affiliate companies which we have
identified have generated material revenues. Although we intend to internally
develop business concepts into operating affiliate companies, as of the date of
this prospectus, our only internally-developed affiliate companies, metacat.com,
Inc. and BrightStreet.com, Inc., have not generated material revenues.
Accordingly, we do not have an established history of selecting and developing
successful affiliate companies. Economic, governmental, regulatory and industry
factors outside our control affect each of our affiliate companies. If our
affiliate companies do not successfully implement their business plans with the
assistance of our experiences and methodologies, then we will not be able to
achieve our business plan. 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 also material risks relating to the
businesses of our affiliate companies. Accordingly, the success of our
operations will be dependent upon the management and operations of our affiliate
companies, the timing of the marketing of our affiliate companies' products and
numerous other factors beyond our control.
We are a holding company and we rely on our affiliate companies to fund our
operations.
We operate as an Internet holding company. As an Internet holding
company without significant income from operations, we expect to ultimately
derive the cash flow necessary to fund our operations from our affiliate
companies. In order to have sufficient cash flow to pay dividends, our affiliate
companies must generate earnings.
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If our affiliate companies do not generate sufficient earnings to pay
dividends or otherwise distribute amounts to us 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 acquisition opportunities and
business combinations.
Although we expect a substantial number of our affiliate companies to be
entities founded by us, there are a limited number of Internet-based businesses
seeking investment capital which we deem to be desirable candidates to become
affiliate companies and there is a very high level of competition among
companies seeking to acquire interests in these entities. We are and will
continue to be a very minor participant in the business of seeking mergers or
business relationships with, 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 acquiring
interests in companies which we may find to be desirable candidates to become
affiliate companies. Many of these investment-oriented entities have
significantly greater financial resources, technical expertise and managerial
capabilities than us. Consequently, we will be at a competitive disadvantage in
negotiating and executing possible business combinations with regard to these
entities as they generally have easier access to capital, which entrepreneurs of
development stage companies generally place greater emphasis on than obtaining
the management skills and networking services that we provide to our affiliate
companies. Even if we are able to successfully compete with these venture
capital entities, this competition may affect the terms of completed
transactions and, as a result, we may pay more than we expected for interests in
affiliate 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:
o a failure to agree on the terms necessary for a
transaction, such as the amount or price of our
equity interest;
o incompatibility between our operational strategies
and management philosophies and those of the
affiliate company;
o competition from other acquirers of Internet
companies;
o a lack of sufficient capital to acquire an interest
in a potential affiliate company; and
o the unwillingness of a potential affiliate company to
affiliate with our corporation or
one of our affiliate companies.
If we are unable to successfully compete with other entities in
identifying and executing possible business opportunities, then we will not be
able to successfully implement our business plan.
We are not required to follow any specific criteria for identifying affiliate
companies, and therefore may acquire interests in affiliate companies that do
not meet the criteria we have described.
To date, we have focused our acquisition and affiliating efforts on
businesses whose operations are focused in the Internet industry and meet the
following criteria:
o development stage entity;
o seeking $250,000 to $1,000,000 in capital;
o management that is experienced in the Internet
industry and in the substantive industry in which the
affiliate company will operate; and
o established branded products.
However, we are not obligated to follow any particular operating, financial,
geographic or other criteria in evaluating candidates for potential business
combinations. In addition, we are not required to acquire interests in any
number of affiliate companies, complete any number of business combinations, or
internally develop any number of affiliate companies in any calendar year. We
will determine which target companies provide the best potential financial
return for our stockholders and we will determine the amount of equity and other
terms and conditions of investments. Once you purchase our securities, you will
not have the opportunity to evaluate the relevant economic,
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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
factors or strategies which they will implement in developing such
relationships. We are not certain that we will be successful in identifying and
evaluating suitable business opportunities and consummating business
combinations with or acquiring interests in additional affiliate companies. We
do not anticipate that our affiliate companies' operations will have a
short-term positive impact on our operations. Thus, we continue to seek
additional target companies and are continuing to develop companies based on our
internally conceived business ideas. These companies may operate in industries
in which members of our management team have little or no prior experience.
We may be required to dispose of our interests in our affiliate companies or
take other actions which we would not otherwise take in order to avoid
classification as an investment company under the Investment Company Act of
1940.
Although we are primarily engaged in the business of e-commerce through our
affiliate companies, we may be required to sell interests in affiliate companies
which we would otherwise continue to hold in order to avoid classification as an
investment company under the Investment Company Act of 1940. A company is
presumed to be an investment company under the Investment Company Act of 1940 if
more than 45% of its total assets consists of, and more than 45% of its
income/loss and revenue attributable to it over the last four quarters is
derived from, ownership interests in companies it does not control. Under the
Investment Company Act of 1940, we are considered to control a company if we own
more than 25% of that company's voting securities. Prior to the sale by Net
Value, Inc. of its assets to BrightStreet, Net Value, Inc. alone constituted
greater than 55% of our total assets and substantially in excess of 55% of
income/loss and revenues for the past four fiscal quarters. As a result of the
sale, we may have more than 45% of our total assets comprised of and more than
45% of our income/loss over the prior four fiscal quarters derived from
ownership interest in companies we do not control.
The rules under the Investment Company Act of 1940 provide us with a
grace period of one year, at the end of which we must again meet the foregoing
45% tests. We intend to meet the tests as the result of our ownership interests
in companies which we will control. However, because five of our affiliate
companies are not majority-owned subsidiaries and we may not retain a majority
ownership interest in our other two affiliate companies, changes in the value of
our ownership interests in our affiliate companies and the income/loss and
revenue attributable to our affiliate 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 forced to sell
our minority ownership interests in some of our affiliate companies which we do
not want to sell and any sale may be at less than fair market value as we will
be selling restricted securities in privately negotiated transactions. We may
also have to ensure that we retain at least a 25% voting ownership interest in
our majority-owned affiliate 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 affiliate 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 developing
our affiliate companies and helping them to access the capital markets. We are
therefore dependent on the success of 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 affiliate
companies to grow and access the capital markets will be impaired and we may
need to provide additional capital to our affiliate companies in order to
protect our equity holdings. If we are unable to provide additional capital to
our affiliate companies in these circumstances, then our affiliate
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companies' operations may suffer, we will not successfully implement our
business plan and the value of our common stock may decrease.
We expect our affiliate companies to grow rapidly and if we are unable to assist
them in sustaining and managing their growth, our affiliate companies'
businesses will suffer, which will adversely affect our business.
Our affiliate companies may experience rapid growth as they introduce
new products and services and hire additional employees to manage expanded areas
of development and service growing number of consumers. 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 affiliate companies. In addition, our management may be unable to
convince our affiliate companies to adopt our ideas effectively, the affiliate
companies may fail in their attempt to execute our ideas or successfully manage
their growth. If we are unable to effectively assist our affiliate companies in
managing their growth, then they may not sustain profitable operations and the
value of our common stock may decrease.
Our resources and our ability to manage newly acquired or developed affiliate
companies may be strained as we acquire interests in and develop additional
Internet companies.
We have acquired or developed interests in Internet companies that
complement our business strategy. We plan to acquire or develop additional
affiliate companies that also 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 relationships 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.
If we are unable to obtain additional financing, then our business will suffer.
We will need to raise substantial additional financing in the future to
support our working capital needs or our affiliate companies' working capital
needs and to provide us with sufficient funding to enter into additional
business relationships and start additional development stage companies. As of
December 9, 1999, we had approximately $1,845,000 of cash and cash equivalents
on hand. We currently anticipate using an average of approximately $250,000 per
month over the next twelve months to satisfy our operating expenses.
Accordingly, we estimate that we presently have approximately $345,000 available
for use in developing or purchasing interests in new affiliate companies through
June 30, 2000. Our estimated average cost of developing and purchasing interests
in affiliated companies is approximately $500,000. This means that with our cash
on hand as of December 9, 1999, if we develop or purchase interests in at least
one additional affiliate company, then we will not have sufficient cash to
satisfy our operating expenses through June 30, 2000. While these funds may be
sufficient to satisfy our short term financing needs, we will need significant
additional funding in order to be able to continue to develop our network of
companies. If we are unable to secure additional financing on acceptable terms,
then we will not be able to fully implement our business plan.
Our success is dependent on our continued employment of Andrew Panzo, Lee Hansen
and Thomas Aley and the continued employment by our affiliate companies of their
key personnel, including, for example, Joshua Lau of AsiaCD, Inc. and Chris
Kravas of Webmodal, Inc, and if we were to lose the services of these
individuals, our business and the businesses of our affiliate companies would be
negatively affected.
We believe that our success will depend on continued employment by us
and our affiliate 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
affiliate companies are unable or unwilling to continue in their present
positions, then our business and operations could be disrupted.
As of December 9, 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
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us on October 1, 1999 and Thomas Aley, our Executive Vice President-Business
Development, who joined us on November 22, 1999, the remainder of our management
team, including Darr Aley, Stephen George and Barry Uphoff, 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 affiliate companies.
The success of some of our affiliate companies also depends on their
having highly trained technical and marketing personnel, including:
Neal Wozniak metacat.com, Inc.
Travis Bowie College 411.com, Inc.
Willie Koo AssetExchange.com, Inc.
R. Scott Wills BrightStreet.com, Inc.
Joshua Lau AsiaCD, Inc.
Chris Kravas Webmodal, Inc.
Kevin Wells Swapit.com, Inc.
Our affiliate companies will need to continue to hire additional
qualified personnel as their businesses grow. A shortage in the number of
trained technical and marketing personnel could limit the ability of our
affiliate companies to increase the sales of their existing products and
services and launch new product offerings.
We owe approximately $8,000,000 to third parties; if we are unable to satisfy
this indebtedness, our business will be adversely affected.
As of December 9, 1999, we had indebtedness to third parties in the
aggregate amount of approximately $8,000,000 (unaudited). A significant portion
of this indebtedness consists of convertible debentures which are not current
liabilities. In addition, if we acquire at least 80% of Net Value, Inc.'s common
stock, then we can automatically convert convertible debentures in the aggregate
principal amount of $4,534,500 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 affiliate companies and third parties may not be
year 2000 compliant, which could disrupt our operations and the operations of
our affiliate 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 affiliate 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 affiliate
companies to address the Year 2000 compliance issues are not successful, or if
distributors, suppliers and other third parties with which we and our affiliate
companies conduct business do not successfully address these issues, then our
business and the businesses of our affiliate companies may not be operational
for a period of time. If the Web-hosting facilities of our affiliate companies
are not Year 2000 compliant, then their production websites may become
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unavailable in the Year 2000. This may impair our affiliate companies' ability
to deliver services to their users, which would adversely affect our business.
Fluctuations in our quarterly results based on our accounting methodologies may
adversely affect our stock price.
Our quarterly financial results may fluctuate significantly due to our
accounting methodologies. This may cause our operating results in any calendar
quarter to not meet securities analysts' or investors' expectations, which may
cause the price of our common stock to decrease. Our accounting methods for
particular affiliate companies will change as a result of changes in our
ownership percentages of our affiliate companies due to:
o our acquisition of additional ownership interests in
particular affiliate companies in which we already
own equity interests;
o a decrease in our ownership interests in particular
affiliate companies due to their issuance of
additional equity securities to third parties; and
o our acquisition or development of additional
affiliate companies which become majority owned
subsidiaries of our corporation.
For example, if we own interests that represent greater than 20% of the
issued and outstanding equity securities of an affiliate company, then we are
required to account for this ownership interest using the equity method of
accounting. The equity method of accounting requires us to reflect our share of
the earnings or losses of the affiliate company in our consolidated financial
statements. If this affiliate company issues additional equity securities to
third parties and our ownership interest is diluted below 20% of the issued and
outstanding equity securities of this affiliate company, then we will account
for this ownership interest using the cost method of accounting. Under the cost
method, our share of the affiliate company's earnings or losses is not included
in our consolidated financial statements. Accordingly, this type change in our
ownership interest of an affiliate company may cause our quarterly operating
results to fluctuate. In addition, if we own greater than 50% of the issued and
outstanding equity securities of an affiliate company, then we are required to
consolidate the affiliate company's financial statements with our financial
statements. Accordingly, as we acquire or develop additional affiliate companies
in which we own greater than 50% of the issued and outstanding equity
securities, our quarterly operating results will fluctuate. Based on our
business plan, we believe that period-to-period comparisons of our operating
results are not meaningful. However, securities analysts and investors may place
significant reliance on these results which may adversely affect our stock
price.
Future securities offerings will dilute the ownership interest of our current
stockholders.
We expect to sell equity securities in the future in order to raise the
funds necessary to internally develop or acquire equity interests in affiliate
companies and to fund our operations. 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.
If our acquisitions and disposals of our equity interests in our affiliate
companies cause negative tax consequences, then our business and results of
operations will be adversely affected.
Federal and state tax consequences will, in all likelihood, be major
considerations in our decision to make any investment in an affiliate 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 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 a 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. In addition, if we sell equity
interests in
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our affiliate companies, then we may recognize considerable gains which 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 $6,911,687 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 1,326,432 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. 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 of the convertible promissory notes and for one year from the date on which
these warrants are exercised. We have also issued and outstanding 4,824 shares
of our Series B Preferred Stock which are presently convertible at a price of
$4.0875 per share into 1,180,184 shares 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. On December 14, 1999,
the closing sales price of our common stock was $8.6875. 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. This registration statement registers the resale of the shares
of our common stock issuable upon conversion of Series B Preferred Stock and the
shares of our common stock issuable upon exercise of the related warrants.
Accordingly, there are no longer any restrictions currently in place on the
shares of our common stock underlying the Series B Preferred Stock and the
related 295,040 warrants, and upon the conversion or exercise of these
securities, there will be approximately an additional 2,225,000 shares of our
common stock available for sale on the open market. This increase in the supply
of shares eligible for sale on the open market may decrease the trading price of
our common stock.
There is no significant trading market for our 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 a limited number of
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 Bulletin Board. Pursuant to these
rules, no issuer's securities may be quoted on the Bulletin Board 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 Bulletin Board 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 Bulletin Board as opposed
to a national exchange or quotation system. This volatility may be caused by a
variety of factors, including:
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o the lack of readily available price quotations;
o the absence of consistent administrative supervision
of "bid" and "ask" quotations;
o lower trading volume; and
o 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 may be subject to certain limitations upon trading activities.
Trading of our common stock may be subject to material limitations as a
consequence of certain provisions of the Securities Exchange Act of 1934 which
limit the activities of broker-dealers effecting transactions in "penny stocks."
"Penny stocks" are equity securities with a market price below $5.00 per
share other than a security that is registered on a national exchange; included
for quotation in the NASDAQ system; or whose issuer has net tangible assets of
more than $2,000,000 and has been in continuous operation for greater than three
years. Issuers who have been in operation less than three years must have net
tangible assets of at least $5,000,000.
Rules promulgated by the Securities and Exchange Commission under
Section 15(g) of the Exchange Act require broker-dealers engaging in
transactions in "penny stocks," to first provide to their customers a series of
disclosures and documents, including:
o a standardized risk disclosure document identifying
the risks inherent in investment in "penny stocks;"
o all compensation received by the broker-dealer in
connection with the transaction;
o current quotation prices and other relevant market
data; and
o monthly account statements reflecting the fair market
value of the securities. In addition, these rules
require that a broker-dealer obtain financial and
other information from a customer, determine that
transactions in penny stocks are suitable for such
customer and deliver a written statement to such
customer setting forth the basis for such
determination.
On December 14, 1999, the closing sales price of our common stock was
$8.6875. Although our common stock does not presently constitute a "penny
stock," we cannot predict with any certainty that our common stock will not
trade below $5.00 in the future and thereby constitute "penny stock." In that
event, trading activities for the common stock will be made more difficult for
broker-dealers than in the case of securities not defined as "penny stock." This
may have the result of depressing the market for our securities and an investor
may find it difficult to dispose of such securities.
Further, under the Exchange Act, and the regulations thereunder, any
person engaged in a distribution of the units offered by this prospectus may not
simultaneously engage in market making activities with respect to the common
stock during the applicable "cooling off' periods prior to the commencement of
such distribution.
Anti-takeover provisions under our Certificate of Incorporation and Delaware Law
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:
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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.
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 on our common stock 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, any applicable
regulatory considerations, 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 AFFILIATE COMPANIES.
Each of our affiliate companies has a very limited operating history and
has generated very limited, if any, revenues.
Other than Net Value, Inc., our affiliate companies were all formed less
than two years ago. Each of our affiliate companies is in the development stage
and has generated very limited, if any, revenues. Accordingly, we have no
historical basis on which to evaluate the future success of any of our affiliate
companies.
Most of our affiliate companies have inadequate amounts of capital and
will require significant additional financing to execute their business plans.
Other than BrightStreet, each of our affiliate companies only has
sufficient capital resources to meet operating expenses for less than one year.
Accordingly, most of our affiliate companies will require significant additional
financing to execute their business plans. Although we intend to assist our
affiliate companies in obtaining this financing, there is no assurance that
these affiliate companies will be able to obtain this financing on a timely
basis. If any of our affiliate companies are unable to obtain the required
financing on a timely basis, then they may not be able to execute their business
plans.
Our affiliate companies may be unable to protect their proprietary rights which
may increase the level of competition which they face.
Although our affiliate companies seek to protect their proprietary
rights, their actions may be inadequate to protect any trademarks, copyrights
and other proprietary rights. This may result in increased competition to our
affiliate companies. Many of our affiliate companies are in the development
stage and are either in the process of preparing their initial trademark or
patent applications or are awaiting approval of these initial applications by
the
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United States Patent and Trademark office. For example, our affiliate companies
have filed the following applications:
College 411.com, Inc. one trademark application
BrightStreet.com, Inc. one patent application and eight
trademark applications
AsiaCD, Inc. one trademark application
Webmodal, Inc. two trademark applications
If our affiliate companies are unable to protect their proprietary
rights, then other businesses may provide their products and services, thus
increasing the level of competition which our affiliate companies may face. For
example, BrightStreet 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 affiliate companies
to control the dissemination of their work.
Our affiliate companies may be subject to claims that their products or services
infringe on intellectual property rights of third parties.
Our affiliate 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 affiliate companies to costly
litigation and divert the attention of their technical and management personnel.
If these claims are valid, then our affiliate companies may be required to cease
the infringing activity and pay substantial damages. For example, BrightStreet
is currently named as a defendant in a lawsuit in which the plaintiff has
alleged that BrightStreet's technology infringes upon its patent. If
BrightStreet loses this litigation, it may be required to cease offering its
product and services. Even if BrightStreet successfully defends this claim, it
will incur substantial legal fees and defense costs. If our affiliate companies
incur significant expenses in connection with litigation and their management
and personnel are required to divert their attention to this litigation, then
the expenses, lost time to further develop their products and services and
financial losses incurred by our affiliate companies will increase and their
profits, if any, will decrease.
The success of our affiliate companies depends on the development of the
e-commerce market, which is uncertain.
All of our affiliate 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 continue to
develop, or if the Internet does not expand as an effective medium for the sale
of products and services, then our affiliate companies may not succeed. For
example, AsiaCD, Swapit.com and metacat each allow consumers to purchase
products over the Internet. If consumer use of the Internet to purchase goods
and services does not continue to develop and expand, then these affiliate
companies may not attract a sufficient customer base and their businesses may be
adversely affected. In addition, if businesses do not continue to use or expand
their use of the Internet for conducting business then some of our affiliate
companies may not develop an adequate customer base to execute their business
plans. For example, if financial institutions are unwilling to purchase and sell
loan portfolios over the Internet, then AssetExchange will not sufficiently
develop its service to meet its business plan. In addition, if businesses are
unwilling to forgo the service provided by marketing intermediaries in order to
plan and execute intermodal shipments over the Internet, then Webmodal will not
develop a sufficient customer base to execute its business plan.
Our long-term success depends on widespread market-acceptance of
e-commerce. A number of factors could prevent such acceptance, including the
following:
o the unwillingness of businesses to shift from
traditional business processes to e-commerce
processes;
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o the necessary network infrastructure for substantial
growth in usage of e-commerce may not be adequately
developed;
o increased government and securities regulation or
taxation may adversely affect the viability of
e-commerce;
o insufficient availability of telecommunication
services or changes in telecommunication services
could result in slower response times for the users
of e-commerce; and
o concern and adverse publicity about the security of
e-commerce transactions.
Our affiliate companies may fail if their competitors provide superior
Internet-related products or continue to have greater resources than our
affiliate companies.
Competition for Internet products and services is intense and grows on a
daily basis. 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. As no physical presence is required to
commence operations, our affiliate companies' competitors may emerge without the
same degree of warning that competitors who are traditional bricks-and-mortar
businesses would provide to those businesses. Our affiliate companies compete
for a share of a customer's:
o purchasing budget for services, materials and
supplies with other online providers and traditional
distribution channels; and
o advertising budget with online services and
traditional off-line media, such as print and trade
associations.
Many of our affiliate companies' existing competitors have greater brand
recognition and greater financial, marketing and other resources than our
affiliate companies. This may place our affiliate companies at a competitive
disadvantage in responding to other companies' pricing strategies, technological
advances, advertising campaigns, strategic partnerships and other initiatives.
In addition, our affiliate companies compete to attract and retain a
critical mass of buyers and sellers. Our affiliate companies' competitors may
develop Internet products or services that are superior to, or have greater
market acceptance than, those offered by our affiliate companies. If our
affiliate companies are unable to compete successfully against their existing
and developing competitors, then our affiliate companies may fail.
Our affiliate companies' computer and communications systems may fail, which may
discourage content providers and consumers from using our affiliate companies'
systems.
Our affiliate companies' businesses depend on the efficient and
uninterrupted operation of their computer and communications hardware systems.
Interruptions could result from natural disasters as well as power loss,
telecommunications failure and similar events. Any system interruptions that
cause our affiliate companies' Internet websites to be unavailable to Internet
browsers may reduce the attractiveness of our affiliate companies' Internet
websites to consumers and third party content providers. If consumers and third
party content providers are unwilling to use our affiliate companies' Internet
websites, then our business, financial condition and operating results could be
adversely affected.
Our affiliate companies' businesses may be disrupted if they are unable to
upgrade their systems to meet increased demand.
Capacity limits on our affiliate 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. Our affiliate companies will require significant amounts of
capital to upgrade their technology systems. If our affiliate companies are
unable to obtain this financing to appropriately upgrade their systems and
network hardware and software, then the operations and processes of our
affiliate companies may be disrupted.
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Due to the fact that its Internet website and accompanying systems have
yet to be publicized or open for use by the general public, metacat's technology
systems are currently being used at less than 5% capacity. metacat believes that
its technology systems can accommodate several thousand transactions a day. In
addition, metacat's technology systems can be expanded by purchasing additional
hardware and software licenses. metacat believes that it can accomplish any
required expansion of its technology systems within one to two days.
Although College 411 owns its own web server, its operations are hosted
by AboveNet Communications 24 hours a day and is currently running at
approximately 20% capacity. College 411 believes that it can easily expand both
its database architecture and web server through the addition of server
hardware.
AssetExchange's technology systems have the capacity to handle
approximately 20,000 members. Accordingly, AssetExchange believes that its
technology systems are currently operating at less than 5% of its capacity.
AssetExchange believes that it can quickly increase its capacity by adding
processors to the existing server, providing additional servers or replacing the
server with a more powerful server.
BrightStreet believes that its technology systems have the capacity to
deliver approximately 2,000,000 promotion views per day. BrightStreet is
presently experiencing an average of approximately 400 promotion views per day.
BrightStreet believes that it can easily increase its capacity by purchasing
additional servers, processors and hard disk arrays.
AsiaCD's web server is hosted by Mindspring. In addition, AsiaCD's
transaction processing is performed by Yahoo! Store and Wells Fargo Bank.
Accordingly, AsiaCD believes that it currently has sufficient capacity to handle
its transaction volume. AsiaCD can easily expand its technology systems by
purchasing additional web servers.
Since Webmodal and Swapit.com have not launched their Internet websites
and operations, they do not yet face capacity limits.
Our affiliate companies that publish or distribute content over the Internet may
be subject to legal liability.
Some of our affiliate companies may be subject to legal claims relating
to the content on their Internet websites, or the downloading and distribution
of this content. For example, College 411, AssetExchange, AsiaCD and Webmodal
all use content and information obtained from third party sources. Claims
involving matters such as defamation, invasion of privacy and copyright
infringement can be made against these affiliate companies if they improperly
obtain or use this content. 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 affiliate companies on their Internet websites is drawn from data
compiled by other parties, including governmental and commercial sources, and
our affiliate companies re-enter the data. This data may have errors. If any of
our affiliate companies' Internet website content is improperly used or if any
of our affiliate companies supply incorrect information, it could result in
unexpected liability. Any of our affiliate 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 affiliate companies incur
substantial costs because of this type of unexpected liability, then the
expenses incurred by our affiliate companies will increase and their profits, if
any, will decrease.
Changes in federal and state tax treatment of Internet sales could result in
decreased revenues for some of our affiliate companies.
The imposition of sales taxes on Internet sales would increase the
effective cost of goods to purchasers from metacat.com, College 411, AsiaCD and
Swapit.com and may result in lower sales. Currently, these affiliate companies
are not required to charge any customer sales and usage tax, and there is a
federally imposed moratorium on taxation of Internet transactions. However, the
growth of Internet commerce is likely to lead state revenue agencies to pursue
taxation on Internet sales. To the extent that states are successful in imposing
taxes on Internet
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sales, the result will be an effective increase in the cost of goods purchased
through Internet websites. Consumers may respond by shifting to traditional
purchasing methods such as catalog sales which often do not impose sales tax or
interstate shipments or store purchases which do not involve shipping costs.
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 affiliate companies that depend on
such transactions, such as metacat.com, AsiaCD, College 411 and Swapit.com do
not add sufficient security features to their future product releases, then our
affiliate companies' products and services may not gain market acceptance or
there may be additional legal exposure to them.
Since metacat has not yet opened its Internet website to the general
public, it has not yet experienced any service interruptions.
Since it launched its Internet website, College 411 has experienced
approximately ten service interruptions, each of which lasted for a duration of
five minutes or less.
In September 1999, AssetExchange experienced several brief outages due
to an incorrect database configuration setting. Each of these outages lasted for
less than 30 minutes. AssetExchange has not experienced any unscheduled outages
since this problem was corrected.
In the past 45 days, BrightStreet has experienced four service
interruptions. Three of these interruptions lasted for 30 minutes or less and
the fourth interruption lasted for approximately two hours. All of these service
interruptions were scheduled maintenance periods for BrightStreet's co-location
facility and occurred between the hours of 1:00 a.m. and 4:00 a.m. PST. These
service interruptions were pre-announced to BrightStreet's customer base seven
days in advance of each interruption. BrightStreet believes that these scheduled
maintenance interruptions are a regular activity that will continue to occur in
the foreseeable future.
During the past 18 months, AsiaCD experienced three service
interruptions. Two of these interruptions were related to web servers and were
resolved within two hours by installing new hardware and more servers. The third
interruption involved AsiaCD's online payment gateway and lasted for one day.
During this period, AsiaCD disabled its real time credit card authorization
system and processed orders by manually authorizing credit card purchases.
Since Webmodal and Swapit.com have not launched their Internet websites
and operations, they have not experienced any service interruptions.
Our affiliate companies' technology systems are vulnerable to break-ins, viruses
or similar problems which, if they occur, could adversely affect their
reputations.
The technology systems of our affiliate companies are 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 affiliate
companies, then he or she could misappropriate proprietary information or cause
interruption in operations of the affiliate company. Security breaches that
result in access to confidential information could damage the reputations of our
affiliate companies and expose the affected affiliate company to a risk of loss
or liability. Some of our affiliate 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 affiliate
companies' customers will become more concerned about security. If our affiliate
companies are unable to adequately address these concerns, then they may be
unable to sell their products.
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All of our affiliate companies anticipate rapid growth, and failure to manage
that growth could adversely affect their businesses.
Each of our affiliate companies anticipates rapid growth, which will
require continual enhancement to financial and management controls, reporting
systems and procedures and expansion, training and management of personnel. If
any affiliate company fails to have systems, procedures and controls which are
adequate to support its growth and operations, it may be unable to successfully
implement its business plan. In addition, it may lose customers who become
dissatisfied as the result of operational problems created by the failure to
manage growth, adversely impacting revenues, expenses and earnings.
Risks particular to metacat.com.
metacat.com's business will be adversely affected if it is unable to maintain a
current product database.
metacat.com will have to develop and maintain a product database from
the catalog merchants it serves. Keeping the product database updated as
individual catalogs change their selections and prices will require diligence
and continual dialogue with retailers. If metacat.com is unable to maintain a
current and accurate database, consumers will become frustrated with its service
and turn to other methods for purchasing products.
If merchants whose products metacat.com offers fail to ship orders properly,
metacat.com will incur increased costs and reduced sales.
If merchants whose products are ordered through metacat.com fail to ship
their orders in a timely manner, ship incomplete or otherwise faulty orders, or
fail to maintain inventory, then metacat.com will incur additional expense in
customer service in order to handle problems and may have to make refunds to
purchasers. In addition, consumers do not have great tolerance for such
problems, and chronic problems will result in fewer repeat customers and reduced
orders as frustrated customers cease using its service. Although merchant
performance is not under metacat.com's direct control, metacat.com will maintain
a customer service history for each cataloger and conduct a periodic performance
review, as well as act to either discipline or remove catalogers with
consistently poor service records in order to ensure timely information and a
high level of customer service.
Competition from various sources could aversely impact metcat's operating
results.
metacat.com, Inc. competes with a wide variety of online and offline
sources for mail order products. Competition includes literally thousands of
sources from which consumers can make purchases, including traditional "bricks
and mortar" stores, print-based mail order catalogs, individual merchants'
online catalogs and online aggregators of products and catalogs. metacat
directly competes with online competitors including catalogcity.com and
Catalog.com, each of whom have Internet websites that are currently in operation
and attracting consumers. Many of metacat's competitors have established
Internet websites and greater resources and customer recognition than metacat.
Metacat's ability to compete will be dependent on providing hard-to-find
products and on effective marketing to inform consumers of the existence of its
website.
metacat.com has not developed a Year 2000 contingency plan and may
suffer business disruptions as a result.
Although metacat.com believes that its software is fully Year 2000
compliant, it has not developed any contingency plans should it or any of its
vendors have Year 2000 problems. As a result, it may suffer business disruptions
should such problems arise.
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Risks particular to Webmodal.
If intermodal railroads are unwilling to establish relationships with Webmodal,
Webmodal will be unable to implement its business plan.
Webmodal's business plan is dependent on establishing relationships
with intermodal railroads so that it can market intermodal products and
services. Most such railroads have contract minimum and creditworthiness
requirements. Although Webmodal believes that it will be able to either meet
these requirements or obtain exceptions to the requirements based on the
potential value to the railroads of its services, and establish relationships
with the railroads, a failure to do so on a consistent basis would reduce the
attractiveness of Webmodal's products and services.
If Webmodal is unable to establish relationships with trucking companies in hub
cities it will be delayed in executing its business plan.
Webmodal's business plan requires that it establish relationships for
online pricing and operations interfaces with trucking companies in 40-60
intermodal hub locations around the country. If too many trucking companies are
unwilling to provide the resources or attention necessary for such a
relationship, or lack necessary information interfaces, Webmodal's ability to
offer services in the applicable hub cities will be adversely affected until
such relationships can be established.
Webmodal will not be successful unless it can convert shippers from traditional
methods of arranging for shipments.
Shippers of goods by intermodal means traditionally have relied on
intermodal marketing companies to negotiate pricing, arrange for shipping and
otherwise act as intermediaries in the shipping process. Although Webmodal will
offer lower fees, lower ultimate shipping costs and other benefits, its success
will be dependent on its ability to educate shippers and persuade them to adopt
a new way of doing business. To the extent that Webmodal is unsuccessful in this
educational effort, its business will suffer.
Competition from various sources could adversely impact Webmodal's operating
results.
Webmodal faces competition from various current and potential
participants in the intermodal shipping market, who could respond to Webmodal by
developing similar systems and apply greater marketing and management resources,
thus reducing Webmodal's entry into the marketing and adversely affecting
Webmodal's revenues. Existing intermodal marketing companies such as Hub Group
and Mark VII Transportation, Inc. and intermodal-enabled trucking companies such
as J.B. Hunt Transportation Services, Inc. and Schneider National have
pre-existing service relationships with intermodal carriers as well as
substantially greater resources than Webmodal. Hub Group and CrossRoad have
introduced limited online information systems that do not have most of the
features of Webmodal's system, but could potentially develop systems similar to
Webmodal's. Railroads, trucking companies and other independent entities like
Webmodal also could enter this market, although railroads and trucking companies
would have conflicting interests due to their direct participation in shipping
that make their participation less likely. Third party logistics companies, to
whom shippers sometimes outsource shipment management activities and who are a
primary source of potential customers for Webmodal, could become competitors.
Finally, other transportation-related e-commerce ventures, such as national
Transportation Exchange, FreightQuote and RouteGuide.com are not directed at the
intermodal shipping market but could develop applications for that market.
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Risks particular to College 411.
College 411's target audience may not respond to its offerings in sufficient
numbers.
If College 411 does not attract sufficient college students to view
content and buy products on its Internet website, then its revenues will be
adversely affected. College 411's business model relies on advertising revenues
which are dependent on the number of visits to its Internet website, and on
revenues from sales of products offered for sale on its Internet website.
Although the Internet website's content is carefully chosen to attract college
students, College 411 is targeting a fast-paced consumer group with progressive,
rapidly shifting tastes and preferences who may not ultimately accept its
product offerings. Management has sought to mitigate this risk by ensuring that
the writers of the Internet website's content are young, recent college
graduates, and are thus extremely familiar with our audience's tastes and
preferences. In addition, the company frequently visits and speaks with a large
number of potential consumers and requests their input for the Internet
website's content.
Competition from various sources could adversely impact College 411's operating
results.
College 411 faces competition from a variety of sources, including such
online competitors as College Club, MyBytes and Student Advantage, each of which
have Internet websites providing a variety of products and services similar to
those provided by College 411. In addition to these entities, College 411
competes secondarily with many other online providers of content that appeals to
college students and with print and electronic media including television and
radio, newspapers and magazines that target young adults. Many of College 411's
competitors have greater resources than College 411 and have been providing
products and services to college students for longer periods of time. College
411's ability to compete will be dependent on its ability to provide content and
services that appeal to college students.
Risks particular to AsiaCD.
A larger competitor in the Asian music market could adversely affect AsiaCD's
operating results.
If a large, well-funded United States based music Internet website
launches an Internet website directed at sales of Asian music titles to the
Asian population in the United States, it would compete directly with AsiaCD and
could reduce AsiaCD's revenues and require that AsiaCD increase its marketing
efforts in response. However, existing music Internet websites contain almost no
Asian music, and therefore do not compete with AsiaCD, and AsiaCD is not aware
of any proposal for this type of Internet website to materially increase its
Asian music offerings or launch an Asia-specific Internet website. As AsiaCD
becomes a more prominent player in the already-crowded online music space,
competition is likely to arrive, either from larger entities with broad
offerings that include Asian titles or from other Asia-specific Internet
websites.
AsiaCD may be unable to obtain an adequate number of music titles to sell if it
is unable to develop supplier relationships in Asian countries.
AsiaCD relies on the supply of Asian music titles from local
distributors in various Asian countries. It has supplier relationships in Hong
Kong, Japan and Taiwan, but needs to build strong ties with suppliers in Korea,
China, and other Asian countries in order to broaden its selections. If it is
unable to do so, its potential business growth will be limited.
Relatively wide availability of counterfeit goods in Asia may make it difficult
for AsiaCD to sell genuine products in Asia.
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Loose intellectual property laws and uneven enforcement of existing
laws in many Asian countries has led to wide availability of cheap but
low-quality compact discs and videos. Since AsiaCD carries only original,
high-quality products on its Internet website, it must depend on local copyright
enforcement efforts, or consumer perception of the higher quality of its
products, in order to compete against such goods in the Asian market. If it is
unsuccessful in creating consumer perception of the quality of its goods, it
will not be successful in these markets.
AsiaCD's sales in Asia could be adversely affected by economic conditions in
Asia.
AsiaCD's ability to generate significant sales in Asia will depend in
part on the speed with which various Asian countries recover from recent
economic instability and recession. Any recurring downturn or political or
economic instability could adversely affect AsiaCD's sales in that region.
Risks particular to AssetExchange, Inc.
Buyers and sellers of financial assets may not accept AssetExchange's services,
resulting in lower than anticipated revenues.
While AssetExchange believes that the scope and pricing of its services
will be attractive to buyers and sellers of financial assets, it cannot be
certain that its service will attract the number and quality of portfolios for
sale and buyers that it has anticipated, or that particular classes of assets
can be priced attractively. If sufficient sellers and buyers do not use
AssetExchange's services, its revenues and income will be adversely affected.
Competitive services for brokerage of financial assets could reduce
AssetExchange's business.
If other online financial asset brokerage systems appear, or buyers and
sellers of financial assets use online means for direct negotiation of
transactions, the result will be a reduction in the volume of transactions
through AssetExchange's service and resulting lower revenues and income. The
online asset brokerage business is new and rapidly evolving. It is likely that
other entities will emerge and attempt to compete in this market. As there are a
limited number of active buyers of credit card portfolios, it may be feasible
for buyers and sellers to make direct contact to negotiate transactions without
using AssetExchange or a competing service. Other potential competitors include
businesses currently conducting online mortgage portfolio auctions and loan
participations who may choose to enter the market for credit card portfolios.
Risks particular to Swapit.com.
Swapit.com may overvalue goods taken in trade, resulting in accumulation of
inventory and write-offs.
Swapit.com will attempt to credit user's accounts for any used good
submitted to it with an amount which reflects the market value that it can
acquire from other users in trade for the same item. As the market value in
trade of used goods cannot be estimated precisely, it may overvalue used goods.
In addition, Swapit.com may opt to credit users with an amount that exceeds the
valuation of the goods offered in trade by a current or potential user in order
to build a user base and develop its brand name. This may result in the
accumulation of inventory or the sale or exchange of overvalued goods at reduced
margins or at a loss. Swapit.com may be forced to write-off large quantities of
aging inventories, or maintain large reserves on our books, due to valuation
errors.
Competition from a variety of online trading services will be intense and
Swapit.com may not be able to compete successfully.
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The market for trading and sales over the Internet is new, rapidly
evolving and intensely competitive, and Swapit.com expects competition to
intensify in the future. Though its business concept can be differentiated from
existing person-to-person trading services, barriers to entry are relatively
low, and the necessary hardware and software is commercially available. Services
similar to Swapit.com could therefore appear at any time. In addition Swapit.com
expects that it will compete heavily with existing person-to-person trading
services including eBay, Yahoo!, Auctions, Amazon.com, Excite, Inc., Auction
Universe and a number of other small services. It will also compete indirectly
with business-to-consumer online auction services such as Onsale, First Auction,
Surplus Auction and uBid. It potentially faces competition from any number of
large online communities and services that have expertise in developing online
commerce and in facilitating online trading and who could rapidly develop and
launch services similar to ours prior to or after our appearance. Some current
and many potential competitors have longer company operating histories, larger
customer bases and greater brand recognition in other business and Internet
markets than Swapit.com does. Some of these competitors also have significantly
greater financial, marketing, technical and other resources. Other online
trading services may be acquired by, receive investments from or enter into
other commercial relationships with larger, well established and well financed
companies. As a result, some of its competitors with other revenue sources may
be able to devote more resources to marketing and promotional campaigns, adopt
more aggressive pricing policies and devote substantially more resources to
website and systems development than Swapit.com. Increased competition may
result in reduced operating margins, loss of market share and diminished value
of Swapit.com's brand. In addition, some of its competitors have offered
services for free and others may do this as well.
A decline in demand for used goods would adversely impact Swapit.com's business.
A decline in the popularity of, use of or demand for, certain items
traded or sold through Swapit.com's service could reduce the overall volume of
transactions on the service, resulting in reduced revenues. For instance if
audio compact discs become less popular because of the emergence of MP3s or
another new recording medium, trades or purchases of used compact discs from the
service may decline and thus harm Swapit.com's business. Swapit.com will derive
most of its revenues from fees received from sellers on trades made using the
service. Swapit.com's future revenues will depend upon the level of demand for
used and aged goods, as well as the demand for goods of the type that will be
traded through the service. The demand for used goods may fluctuate with changes
in consumer discretionary spending and other economic conditions.
Risks particular to BrightStreet.
BrightStreet may not be able to compete successfully in the consumer advertising
and promotion business due to the intense competition in the industry.
BrightStreet faces significant competition from many promotion and
advertising companies as well as on-line publishers which compete, directly or
indirectly, for consumer advertising and promotion business from advertisers and
for consumers' time and attention. Many of these companies have longer operating
histories, greater market presence, and substantially greater financial and
other resources than BrightStreet. Many of these companies, including Catalina
Marketing Corporation, Money Mailer, Val-Pak Direct Marketing Systems,
Interactive Coupon Network, Valassis Communications, Inc. and News America
Holdings Incorporated have initiated or are planning to initiate programs and
services involving the Internet. Additionally, the Internet is a relatively new
format through which retailers and consumers conduct business. As the Internet
evolves and consumers gain greater confidence in the Internet and other means of
electronic commerce, it is likely that competition will increase. Accordingly,
there can be no assurance that competition will not increase from existing
competitors, that established or new companies will not enter the market, that
competitors will not offer comparable products and services at lower prices than
BrightStreet, or that BrightStreet will be able to compete successfully with
such existing or new competitors.
28
<PAGE>
Rapid technological changes could reduce the value of BrightStreet's technology
or make it non-competitive.
The online services industry is subject to rapid and significant
changes in technology. Such changes could lead to new products and services that
compete with products proposed to be offered by BrightStreet or could lower the
cost of current competing products and services to the point where
BrightStreet's products and services could become non-competitive. In response
to these changes, BrightStreet could be required to reduce the prices of its
products or to increase its research and development expenses in an effort to
develop technological advances in its own products so that they remain
competitive in the marketplace. While BrightStreet is not aware of any
technology changes that would materially affect the attractiveness or
effectiveness of its proposed products and services, the effect of technological
changes on its business cannot be predicted. In the event that BrightStreet is
unable to continue to upgrade its products and services, it will be unable to
provide the types of products and services demanded by consumers of online
services.
USE OF PROCEEDS
We will not receive any proceeds from the sale of up to 3,722,560
shares of our common stock which are being offered for sale by 13 of our
stockholders pursuant to this registration statement. However, 295,040 of these
shares will only be issued upon the exercise of warrants. If all of these
warrants are exercised, then we will receive gross proceeds of $1,507,470. We
will use these proceeds for general corporate and working capital purposes.
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
Fourth Quarter (through December 9, 1999) 8.375 3.5625 87,169
</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 December 9, 1999, there were approximately183
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.
29
<PAGE>
CAPITALIZATION
The following table sets forth our total capitalization on an actual
basis as of September 30, 1999 and on a pro-forma basis as if the following
transactions occurred on September 30, 1999:
o We received net proceeds of 2,582,000 in October 1999 from the
sale of 2,824 shares of our Series B Preferred Stock.
o In the fourth quarter, holders of our convertible debentures
converted principal and accrued interest of $504,582 into
207,273 shares of our common stock.
o In the fourth quarter, holders of our convertible promissory
notes converted principal and accrued interest of $620,317
into 310,612 shares of our common stock.
o We issued 676,374 shares of our common stock in a private
placement with the RS Orphan Fund, LP and the RS Orphan
Offshore Fund, LP in October 1999 pursuant to which we
received gross proceeds of $676,374.
<TABLE>
<CAPTION>
September 30, 1999
---------------------------------
Actual Pro-Forma As Adjusted
-----------------------------------------------
<S> <C> <C> <C>
Debt:
Short-term, including current portion of long-term plus
accrued interest $ 1,976,316 $ 1,896,189 $ 1,896,189
Long-term, net of current portion 6,118,945 5,074,173 5,074,173
Stockholders' equity (deficit):
Preferred stock, Convertible Series B, $.001 par value
per share. At September 30, 1999, 2,000 shares issued
and outstanding; 4,824 shares issued and outstanding
on a pro-forma basis 2 5 5
Common stock, Net Value Holdings, Inc., $.001 par value
per share. At September 30, 1999, 13,371,902 shares
issued and outstanding; 14,566,161 shares issued and
outstanding as adjusted 13,372 14,566 14,566
Additional paid-in capital 32,098,486 36,480,562 36,480,562
Deferred compensation (15,109,483) (15,109,483) (15,109,483
Deficit accumulated during the development stage (17,404,513) (17,404,513) (17,404,513)
Total Stockholders' Equity (Deficit) (402,136) 3,981,137 3,981,137
-----------------------------------------------
Total Capitalization $ 7,693,125 $ 10,951,499 $10,951,499
===============================================
</TABLE>
30
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(unaudited)
August 31, 1998
Year Ended through
December 31, September 30,
1998 1998 1999 1999
-------------------------------------------------------------
(unaudited)
Statement of Operations Data:
<S> <C> <C> <C> <C>
Revenues $ 0 $ 0 $ 0 $ 0
Operating Expenses
Compensation and related
expenses 1,313,470 1,313,470
Professional fees 129,878 513,933 643,811
Consulting 107,849 107,849
Selling, general and
administrative expenses 10,606 1,120 319,867 330,473
Assumed obligation expense 2,618,384 1,350,000 8,289,639 10,908,023
Equity Loss 32,928 32,928
-------------------------------------------------------------
Total Operating Expenses 2,758,868 1,351,120 10,577,686 13,336,554
-------------------------------------------------------------
Loss from Operations (2,758,868) (1,351,120) (10,577,686) (13,336,554)
-------------------------------------------------------------
Other Income (Expense)
Interest Income 19,690 19,690
Interest Expense (82,082) (4,685) (3,409,507) (3,491,589)
Financing Fees (48,436) (542,624) (591,060)
-------------------------------------------------------------
Net Loss ($2,889,386) ($1,355,805) ($14,510,127) ($17,399,513)
=============================================================
Basic and diluted net loss per
common share ($0.58) ($0.59) ($1.68)
=============================================================
Basic and diluted weighted
average number of common
shares outstanding 4,993,868 2,292,535 8,647,063
=============================================================
December 31, September 30,
1998 1999
---------------------------------
Balance Sheet Data
Cash and cash equivalents 1,466 1,051,931
Working capital (deficit) (916,773) (304,732)
Total assets 2,586,188 8,177,755
Total liabilities 2,156,579 8,479,891
Notes payable and accrued
interest, net of discounts 2,049,557 8,095,261
Stockholders' deficit 429,609 (402,136)
</TABLE>
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
prospectus. The following discussion should be read in conjunction with our
audited Consolidated Financial Statements and related Notes thereto included
elsewhere in this prospectus.
General
We are an Internet holding company actively engaged in e-commerce
through a network of affiliate companies. As of September 30, 1999, we owned
interests in five e-commerce companies, which we refer to as our affiliate
companies. The presentation and content of our financial statements is largely a
function of the presentation and content of the financial statements of our
affiliate companies. To the extent our affiliate companies change the
presentation or content of their financial statements, the presentation and
content of our financial statements may also change.
Net Value, Inc. sold its entire business operations for cash,
assumption of certain liabilities, cancellation of certain stock options,
releases from employment agreements and a 12% ownership interest in a
newly-formed and capitalized company which purchased its assets. We have changed
the method of reporting our ownership interest in the operations of Net Value,
Inc. from the consolidation method to the cost method, which constitutes a
change in reporting entity under Accounting Principles Board No. 20 - Accounting
Changes. Consequently, the financial statements for all prior periods have been
restated to reflect the investment in Net Value, Inc. using the cost method and
all other financial information related to Net Value Holdings, Inc. has been
removed from this presentation. This treatment is also consistent with the
treatment afforded to companies which are in the process of an initial public
offering and spin off a subsidiary before becoming effective and then restate
prior financial statements to remove the operations which will not be part of
the registrant when it becomes effective, under SEC Staff Accounting Bulletin
No. 93, Accounting and Disclosure Regarding Discontinued Operations Accounting
(Topic 5, Section Z, Item No. 7 - Accounting for the Spin-Off of a Subsidiary).
Effect of Various Accounting Methods on our Results of Operations
The various interests that we acquire in our affiliate companies are
accounted for under three broad methods: consolidation, equity method and cost
method. The applicable accounting method is generally determined based on our
voting interest in an affiliate company.
Consolidation. Affiliate companies in which we directly or indirectly
own more than 50% of the outstanding voting securities are generally accounted
for under the consolidation method of accounting. Under this method, an
affiliate company's results of operations are reflected within our Consolidated
Statements of Operations. Net Value, Inc. was our only consolidated affiliate
company through December 31, 1998. As of September 30, 1999, Net Value, Inc. and
metacat.com, Inc. were our only consolidated partner companies.
The effect of an affiliate company's net results of operations on our
net results of operations is generally the same under either the consolidation
method of accounting or the equity method of accounting, because under each of
these methods only our share of the earnings or losses of a partner company is
reflected in our net results of operations in the Consolidated Statements of
Operations.
Equity Method. Affiliate companies whose results we do not consolidate,
but over whom we exercise significant influence, are generally accounted for
under the equity method of accounting. Whether or not we exercise significant
influence with respect to an affiliate company depends on an evaluation of
several factors including, among others, representation on the affiliate
company's board of directors and ownership level, which is generally a 20% to
50% interest in the voting securities of the affiliate company, including voting
rights associated
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<PAGE>
with our holdings in common, preferred and other convertible instruments in the
affiliate company. Under the equity method of accounting, an affiliate company's
results of operations are not reflected within our Consolidated Statements of
Operations; however, our share of the earnings or losses of the company is
reflected in the caption "Equity income (loss)" in the Consolidated Statements
of Operations. As of December 31, 1998, we did not account for any of our
affiliate companies under the equity method of accounting. As of September 30,
1999, we accounted for the following affiliate companies under this method:
o College 411.com, Inc.
o AssetExchange, Inc.
o Swapit.com, Inc.
We have representation on the board of directors of all of the above
affiliate companies.
Most of our equity method affiliate companies are in a very early stage
of development and have not generated significant revenues. All of our equity
method affiliate companies were formed in 1999 and are expected to incur
substantial losses in 1999 and 2000.
Cost Method. Affiliate companies not accounted for under either the
consolidation or the equity methods of accounting are accounted for under the
cost method of accounting. Under this method, our share of the earnings or
losses of these companies is not included in our Consolidated Statements of
Operations. As of December 31, 1998, we did not account for any of our affiliate
companies under the cost method of accounting. At September 30, 1999, we
accounted for Asia CD, Inc. under the cost method of accounting. In addition, we
plan to account for BrightStreet.com, Inc. and Swapit.com, Inc. under the cost
method of accounting.
Our cost method affiliate companies are in a very early stage of
development and have not generated significant revenues. In addition, our cost
method affiliate companies have incurred substantial losses and are expected to
continue to incur substantial losses in 1999 and 2000.
Net Results of Operations
Twelve Months Ended December 31, 1998
We did not generate any operating revenues in 1998.
We incurred a net loss of $2,889,386 in 1998. Approximately $2,618,000
of this loss was attributed to a loss on the write off of inter-company advances
to Net Value, Inc. This amount represented funds advanced to Net Value, Inc.
reduced by expenses paid by Net Value, Inc. on our behalf during 1998. An
additional $129,900 was paid for legal fees related to our merger with Net
Value, Inc. Approximately $11,000 was used for our normal operating expenditures
in our attempts to acquire interests in affiliate companies. The remaining
$131,000 was primarily related to interest expense and financing fees on
convertible debentures issued during 1998.
Nine Months Ended September 30, 1999 Compared to the Nine Months Ended September
30, 1999
We started to build our infrastructure in September 1998 when our
operations were established in Philadelphia. Comparisons of operating results
for the nine months ended September 30, 1999 and 1998 can be misleading given
our limited operating activities prior to September 1998.
During the nine months ended September 30, 1999 and for the nine months
ended September 30, 1998, we did not generate any operating revenues.
We incurred net losses of $14,510,127 during the nine months ended
September 30, 1999 and $1,355,805 during the nine months ended September 30,
1998, which was an increase of $13,154,322. This increase was
33
<PAGE>
primarily due to our assumption of debt from one of our affiliate companies
which resulted in assumed debt obligation expense of $4,368,675, a $2,570,964
increase in bad debts to affiliated companies, a $3,404,822 increase in interest
expense, a $513,933 increase in professional fees, a $542,624 increase in
financing fees, a $1,313,470 increase in compensation expense and a $426,596
increase in selling, general and administrative expenses.
Assumed debt obligation expense on assumed debt and write off of
intercompany advances increased to $8,289,639 during the nine months ended
September 30, 1999 from $1,350,000 during the nine months ended September 30,
1998, a total increase of $6,939,639. The increase was primarily due to the fact
that we issued $4,270,125 of convertible promissory notes to the holders of Net
Value, Inc.'s promissory notes in exchange for their cancellation of their Net
Value, Inc. promissory notes. The remaining $2,670,000 was attributed to both
cash advances to Net Value, Inc. and debts which we paid on behalf of Net Value,
Inc.
Interest expense, which was primarily a non-cash expense, increased to
$3,409,507 during the nine months ended September 30, 1999 from $4,685 during
the nine months ended September 30, 1998, an increase of $3,404,822. The
increase was primarily attributable to additional 1999 interest and debt
discount amortization on the convertible promissory notes issued in January
1999, additional interest and debt discount amortization on the convertible
debentures which we issued in the fourth quarter of 1998 and the first nine
months of 1999, as well as additional interest and debt discount amortization on
the convertible debentures which we issued to Founders Equity Group and its
affiliates in March 1999. The discount was the result of beneficial conversion
features attached to the convertible promissory notes and convertible debentures
that allowed those noteholders to convert their notes into shares our common
stock at below market rates.
Professional fees were $513,933 during the nine months ended September
30, 1999 and $0 during the nine months ended September 30, 1998, an increase of
$513,933. We incurred additional professional fees during the nine months ended
September 30, 1999 related to general corporate matters and preparation of a
registration statement registering the resale of shares of our common stock.
Financing fees increased by $542,624 during the nine months ended
September 30, 1999. The increase in financing fees was primarily from the
amortization of loan costs we paid in the fourth quarter of 1998 and the nine
months ended September 30, 1999 related to the issuance of the convertible
debentures we issued in the fourth quarter of 1998 and the first nine months of
1999, and the convertible debentures which we issued to Founders Equity Group
and its affiliates in March 1999. As of September 30, 1999, there was
approximately $299,000 of prepaid financing fees that will be amortized over the
remaining term of the convertible debentures.
Compensation and related expenses increased to $1,313,470 during the
nine months ended September 30, 1999 from $0 during the nine months ended
September 30, 1998, an increase of $1,313,470. This increase was primarily due
to the amortization of stock based compensation issued in connection with the
employment agreements from the addition of core management staff during our
development stage, which amounted to $1,080,286 as of September 30, 1999, while
salaries and related expenses amounted to $233,184. We recorded approximately
$16,190,000 of compensation in connection with the stock and options issued to
our management staff and consultants of which $15,109,000 has been deferred as
of September 30, 1999 and will be amortized over the terms of the employment and
consulting agreements.
Other general administrative expense increased to $427,716 during the
nine months ended September 30, 1999 from $1,120 during the nine months ended
September 30, 1998, an increase of $426,596. The increase was primarily
attributable to additional general corporate expenses incurred during our
development stage.
As of September 30, 1999, we had an accumulated deficit of $17,404,513.
We believe that approximately $13,600,000 of this amount will be available to
offset future taxable income, if any.
34
<PAGE>
Changes in Financial Position, Liquidity and Capital Resources
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. We do not expect to be able to generate
significant revenues to meet our operational needs, nor do we expect our
majority owned affiliate company to generate revenues to meet our combined
operational needs over the next twelve months. We also do not expect to receive
dividends from our affiliate companies over the next twelve months given the
nature of development stage companies. We therefor intend to obtain financing
for the next twelve to eighteen months through the sale of additional debt and
equity securities. For a more complete description of our financial condition,
see "Consolidated Audited Financial Statements."
We are a development stage enterprise and from our inception through
September 30, 1999 we have earned no revenues from our operations and have not
received any dividends from our affiliate companies. Since inception through
September 30, 1999, we received net proceeds of approximately $2,391,000 from
the sale of our equity securities. In addition, during the period from August
31, 1998 through September 30, 1999, we received approximately $9,057,000 net of
loan financing costs paid from the sale of convertible debentures. Accordingly,
net proceeds from the sale of debt and equity amounted to approximately
$11,648,000 during the period from August 31, 1998 through September 30, 1999.
During the period from January 1, 1998 through December 31, 1998, we
received gross proceeds of $2,346,500 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:
o the completion of our merger with Net Value, Inc.;
o our acquisition of at least 80% of the issued and outstanding
capital stock of BrightStreet; or
o the effective date of a registration statement registering 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:
o 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;
o 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
o two years from the date of the issuance of the convertible
debentures.
From January 1, 1999 through 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 on the same terms and
conditions. Through December 9, 1999, holders of these convertible debentures
converted an aggregate of $3,323,000 of principal and approximately $59,190 of
accrued interest into 1,382,940 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 Net Value, Inc. Accordingly, as of December 9, 1999, the unpaid principal
amount of these convertible debentures was $4,534,500. This amount will become
due at various dates in the fourth quarter of 2000 through the first quarter of
2001 if the convertible debentures are not converted prior to their maturity
date.
During October, November and December 1997, Net Value, Inc. 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.
Net Value, Inc. did not repay these promissory notes on their maturity dates.
Accrued interest on these
35
<PAGE>
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 Net Value, Inc.'s promissory notes in exchange for
their agreement to cancel Net Value, Inc. promissory notes in the aggregate
principal amount of $3,800,000 plus $470,125 of accrued interest thereon and to
release our corporation, Net Value, Inc. and the present and future officers and
directors of each corporation from any claims related to the Net Value, Inc.
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:
o the date on which the convertible promissory notes are
converted into shares of our common stock; or
o the one-year anniversary of the closing of our merger with
Net Value, Inc.
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 Net Value, Inc. promissory notes did not
participate in this exchange offering. Therefore, Net Value, Inc. anticipates
repaying the outstanding principal balance and accrued interest on the remaining
promissory notes, which amounted to $250,521 at December 31, 1998 and will
amount to $284,271 at December 31, 1999. Interest continues to accrue on these
Net Value, Inc. promissory notes at the default rate of 15% per annum. Through
December 9, 1999, holders converted these convertible promissory notes in the
aggregate principal amount of $2,792,937 plus accrued interest of $172,301 into
1,482,617 shares of our common stock and received warrants to purchase an
additional 741,315 shares of our common stock. Accordingly, as of December 9,
1999, the unpaid principal amount of these convertible promissory notes was
$1,477,188. We believe that we will close our merger with Net Value, Inc. on or
before March 31, 2000. Accordingly, this amount will become due on March 31,
2001 if the convertible promissory notes are not converted prior to their
maturity date.
On March 1, 1999, we issued four convertible promissory notes in the
aggregate principal amount of $900,000 to Founders Equity Group, Inc. and three
of its affiliates in exchange for the lender's cancellation of a promissory note
which matured on March 1, 1999 and its 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. Te convertible promissory notes
have a maturity date of March 1, 2000. Accordingly, we will be required to pay
the lenders $900,000 on March 1, 2000 if the convertible promissory notes are
not converted prior to this maturity date.
Since inception through September 30, 1999, we used approximately
$1,173,000 to fund our general corporate expenses, including salaries and wages,
professional and consulting fees and interest expense and we
36
<PAGE>
advanced approximately $6,539,000 to Net Value, Inc. to fund its operations and
development stage activities. We continued to advance funds to Net Value, Inc.
through December 3, 1999, the date of the asset sale with Net Value, Inc.
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:
o $1,000,000 to purchase an approximate 13% equity interest in
AsiaCD, Inc.
o $100,000 to purchase an approximate 10% equity interest in
College 411.com, Inc.;
o $60,000 to extend a short term loan to Cowboys and Robots,
Inc.
o $85,000 for general corporate purposes; and
o $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 fo the
loan. In July 1999, we completed a merger with Strategicus. For a complete
description of this transaction, see "TRANSACTIONS WITH OFFICERS AND DIRECTORS
AND OTHER RELATIONSHIPS-Loan and Merger Agreements with Strategicus Partners,
Inc." As a result of the merger, we now own Strategicus' investments in AsiaCD
and College 411 and 100% of the capital stock of metacat.com, Inc. Since
Strategicus as merged into us pursuant to the merger agreement, it is no longer
a legal entity and its obligations under the loan agreement with us 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 Agreement" and "MANAGEMENT - Consulting Agreements." Pursuant to each
of these agreements, we will forgive the repayment of each of Messrs. Spink 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 "TRANSACTIONS WITH
OFFICERS AND DIRECTORS AND OTHER BUSINESS RELATIONSHIPS - Forgiveness of Certain
Loans to Members of Our Management Team."
During the fourth quarter of 1999 we continued to actively pursue the
acquisition of additional equity interest in affiliate companies as follows:
o During July 1999, we loaned $60,000 to Cowboys and Robots,
Inc. We are presently negotiating the conversion of the
$60,000 loan made by Strategicus into an equity investment in
Cowboys and Robots, Inc.,
o In October 1999 we acquired a 12% interest in Webmodal, Inc.
for $350,000 in cash,
o In October 1999 we increased our ownership percentage
in College 411, Inc. to 29% of the issued and outstanding
common stock of College 411 through our exercise of warrants
to purchase 1,125,000 shares of College 411's common stock,
and
o In November 1999, we acquired a 12% interest in Swapit.com,
Inc. for $500,000 in cash.
During the period from June 1999 through December 1999, Net Value, Inc.
has failed to make required rent payments in the aggregate amount of
approximately $105,000 pursuant to the lease agreement for its Fairfield,
Connecticut office. The landlord is currently holding a security deposit of
$79,711. In November 1999, the landlord filed a lawsuit against Net Value, Inc.
seeking damages, interest, attorneys' fees and costs related to Net Value,
Inc.'s alleged breach of this lease agreement. Net Value, Inc. is presently
attempting to negotiate a settlement of this lawsuit. This settlement may
require Net Value, Inc. to forfeit its security deposit and make additional
payments. If Net Value, Inc. is unable to reach a settlement agreement with the
landlord, and it is unsuccessful in its defense of this lawsuit, then it may be
subject to a judgment equal to the remaining lease payments through the
expiration of the lease in December 2000 plus additional damages.
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On October 6, 1998, Net Value, Inc. entered into a settlement agreement with DMR
Consulting Group, Inc. Pursuant to this agreement, DMR agreed to accept $270,000
as full payment of Net Value, Inc.'s obligation of approximately $745,000 in
consulting fees incurred in connection with consulting services which DMR
provided to Net Value, Inc.. Net Value, Inc. 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 Net
Value, Inc. paid $50,000 upon executing the agreement and agreed to repay the
remaining balance upon the earlier of:
o the closing of its private placement of convertible
debentures; or
o if Net Value, Inc. is unable to close its private placement in
1999, then in quarterly installments throughout 1999.
The amended settlement agreement states that if Net Value, Inc.
breaches any of its payment obligations, then the amended settlement agreement
is terminated and Net Value, Inc. 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 Net Value, Inc. will
experience an extremely negative effect on its liquidity and financial position.
In order to fund our current operations and to satisfy our current
obligations as they come due, we consummated several equity transactions in
September and October, 1999 as follows:
o During September and October 1999, we sold 4,824 shares of our
Series B Preferred Stock for net proceeds of approximately
$4,574,000 after payment of offering costs of $250,000 in
October 1999.
o During October 1999, we sold 676,374 shares of our common
stock to the RS Orphan Fund, LP and the RS Orphan Offshore
Fund, LP for an aggregate purchase price of $676,374.
After the next six months, we expect to need additional funds for our
continuing operations and to fund current and prospective affiliate companies
through offerings of our debt and equity securities.
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 our affiliate companies is described below.
Our affiliate 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 affiliate 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 affiliate
companies on the Year 200 readiness effort has not been determined. There can be
no assurance that all necessary work will be completed in time, or that such
costs will not materially adversely impact on or more of our affiliate
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:
o Live production servers, including:
o third party hardware such as servers, hard drives
and power supplies;
o third party software such as operating systems and
databases;
o internally developed application software;
o Key infrastructure vendors, such as:
o co-location facility;
o co-location connectivity;
o Local Area Network connectivity;
o office electric system; and
o 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.
o Local Area Network servers:
o demonstration servers;
o quality assurance servers;
o development servers;
o e-mail servers; and
o DNS servers;
o Local Area Network workstations including all hardware and
software associated with personal desktop computers.
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o Other systems:
o office Local Area Network peripheral equipment,
such as printers and scanners;
o embedded systems, such as postage meters,
photocopiers, fax machines; and
o non-critical outsource vendor systems.
The most reasonably likely worst case scenario for BrightStreet is that
some of its desktop software systems will have undetected non-compliant hardware
or software attached to them. BrightStreet does not believe that the date change
to January 1, 2000 will have any other effect than to have these specific pieces
of hardware and software malfunction in an isolated fashion. In such cases, as
errors are reported, BrightStreet will remove or replace non-compliant
applications and hardware as needed. BrightStreet does not believe that a "most
reasonably likely" worst-case scenario will include any of its mission critical
systems.
BrightStreet is using its best efforts to place mirrors of its live
production servers at two completely separate co-location facilities before
January 1, 2000. In case of failure at either location, BrightStreet should have
the ability to redirect all of its traffic to one or the other facility.
Additionally, key staff from both engineering and operations will be on call
(and on automatic notification), so that in case of any failure, they will be
able to immediately address the issue.
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.
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AsiaCD, Inc.
AsiaCD, Inc. has upgraded all of its hardware and software applications
by purchasing new products that are certified as compliant. AsiaCD, Inc. has
implemented new accounting software which has also been certified as compliant.
AssetExchange, Inc.
AssetExchange, Inc. has received certification from the manufacturer or
developer of each of its hardware and software products that its systems are
compliant.
College 411.com, Inc.
College 411.com, Inc.'s system has been certified as compliant by the
manufacturer. One of College 411's servers has a time stamp dating feature which
uses a two digit format. College 411 believes that this problem will not have a
material effect on its business. College 411 has determined that all of its
remaining servers and its personal code are compliant.
Webmodal, Inc. and Swapit.com, Inc.
Webmodal, Inc. and Swapit.com, Inc. do not plan to develop or launch
their Internet websites until after January 1, 2000. Accordingly, they do not
have any Year 2000 compliance issues.
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 Net Value, Inc. stockholders, we acquired
approximately 66% of the issued and outstanding shares of Net Value, Inc.'s
common stock and 100% of the issued and outstanding shares of Net Value, Inc.'s
Series A Preferred Stock. We currently intend to merge with Net Value, Inc. on
or before March 31, 2000. Subsequent to the completion of our merger with Net
Value, Inc., we will own 100% of Net Value, Inc.'s assets and Net Value, Inc.'s
other stockholders will receive 1,659,740 shares of our common stock.
On July 30, 1999, we merged with Strategicus Partners, Inc., an Oregon
corporation. For a complete discussion of this merger, see "TRANSACTIONS WITH
OFFICERS AND DIRECTORS AND OTHER BUSINESS RELATIONSHIPS-Loan and Merger
Agreements with Strategicus Partners, Inc." As a result of our merger with
Strategicus, we now own interests in metacat.com, Inc., AsiaCD, Inc. and College
411.com, Inc. In addition, we have a new management team. For a complete
description of our management team, see "MANAGEMENT."
In September 1999, we acquired an equity interest in AssetExchange.com, Inc. In
October 1999, we acquired an equity interest in Webmodal, Inc. In November 1999,
we acquired an equity interest in Swapit.com, Inc.
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General
We are an Internet holding company which owns equity interests in, and
provides strategic management services to our affiliate companies. We primarily
assist these companies by performing the following functions:
o formulation of business models;
o introducing the companies to strategic partners;
o supporting their marketing and public relations
functions;
o providing strategic advice regarding operations and
management;
o recruiting key employees; and
o assisting with the completion of future rounds of
capital financing.
The current market environment creates significant opportunities for
our business model which brings entrepreneurs a flexible source of capital, a
hands-on management team to assist in navigating the critical early steps in a
development stage company and contacts in the Internet industry that provide
beneficial strategic alliances or resources.
Our operating strategy is to both originate concepts for new Internet
businesses that we will found and identify appropriate existing Internet
businesses, fund such businesses and develop them into a collaborative network
that leverages the collective financial, strategic planning and management
experience and key industry relationships of our management team. We currently
have ownership interests in seven Internet businesses in various stages of
development. Our corporate headquarters are located in San Francisco. We also
have an east coast satellite office, in which two of our employees are
principally engaged in identifying potential affiliate companies located on the
East Coast.
In some cases, we will identify the concept for a new Internet company
that we believe will satisfy consumer or business needs that are presently
underserved in the Internet market and that is complementary to our other
affiliate companies. We will then recruit management, fund the start-up and
development of these companies and manage their operations, taking a majority
equity interest. We will also search for and identify entrepreneurs throughout
the United States who have started companies that meet these criteria and
provide them with funding and management support to assist them in the
development of their companies. In these instances, we usually will hold a
minority interest, but will have substantial control over operations by having:
o the right to elect one or more directors,
o the right to designate outside accountants and
approval rights over attorneys, public relations
firms and other outside consultants;
o approval rights over significant corporate decisions
such as annual budgets, executive compensation,
indebtedness, capital expenditures and new
securities issuances,
o preemptive rights; and
o enhanced voting rights.
The premise of our business plan is 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 develop management teams, raise capital,
create operational excellence and manage processes in diverse areas such as
customer service, marketing, logistics management and technology.
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Our current affiliate companies include:
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 catalog and mail order businesses. Based in Portland, Oregon,
metacat currently has six 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 such as textbooks, as well as chat,
personalized news and message centers. Based in San Francisco, California,
College 411 currently has eight 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.
Net Value, Inc. Founded in 1996 as a distributer of coupons and other
promotions to consumers via the Internet, Net Value, Inc. sold substantially all
of its assets to BrightStreet.com, Inc. in December 1999. Net Value presently
has no operations and owns an equity interest in BrightStreet.com, Inc. We
anticipate completing a merger with Net Value, Inc. in the next three to six
months.
BrightStreet.com, Inc. (www.brightstreet.com). Founded in 1999,
BrightStreet develops and distributes online promotional campaigns. Based in
Mountain View, California, BrightStreet currently has 17 employees.
AsiaCD, Inc. (www.asiacd.com). Founded in 1998, AsiaCD is a leading
e-commerce company for the Asian community in the United States. Based in San
Francisco, California, AsiaCD currently has 35 employees.
Webmodal, Inc. (www.webmodal.com). Founded in 1999, Webmodal is
developing an Internet application for use by shippers in purchasing and
executing domestic full truckload intermodal freight shipments. Based in
Woodstock, Illinois, Webmodal currently has five employees.
Swapit.com, Inc. (www.swapit.com). Founded in 1999, Swapit.com is
developing a consumer-driven electronic barter exchange on the Internet. Based
in Boston, Massachusetts Swapit.com currently has four employees.
Identifying Affiliate Companies
We actively research and target both unexploited Internet business
concepts and existing development stage Internet companies that possess the
following characteristics:
o Development stage companies with current capital requirements of $1
million or less. Venture capital deals in the Internet industry have
dramatically increased both in number and size over the last four
years. Of the 332 Internet transactions completed in the first quarter
of 1999, the average investment size was approximately
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$11.5 million, (source: Ventureone, Fall 1999). Increasingly, 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, most venture capital firms are an
unattractive source of capital for companies that require only $250,000
to $1 million in capital to build the foundation of a new business.
Accordingly, these companies often turn to "friends and family"
investors, usually-consisting of a patchwork of friends, family and
high net worth investors who accept the risks associated with investing
in development stage companies. These "friends and family" and "angel"
investors typically provide limited funding and generally do not
provide any of the management and strategic services which we can
provide. With a significant equity position, board representation and
voting rights, we can play a substantial role in directing the course
of a company's development with resources not otherwise available to
the company. Thus, we believe that our services and business model will
be attractive to such entrepreneurs.
o Business models that focus on creating loyal customer relationships
through electronic content, commerce and community. Both Internet and
traditional "bricks and mortar" businesses are rewarded if their brands
command a loyal customer following which can be converted into sales
transactions. Unless Internet businesses provide sufficient value to
legitimately claim the customers or the Internet traffic as their own,
the customers of these businesses and their associated revenue streams
will choose other brands. We therefore target those businesses which
can develop brand identity and loyalty with customers.
o 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 that will
begin to use the Internet as a medium for sales and the
distribution of products. We focus our efforts on developing or
locating companies that service industries which we believe should
begin or increase using the Internet to sell their products and
services. Internet companies that capitalize on these transition
industries can gain a competitive advantage and create significant
business value to their customers.
o 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.
o Management team whose values mirror our belief in the importance of
passion, commitment and highly-effective performance. We seek
long-term relationships with hard working entrepreneurs who recognize
that it takes more than capital to develop a successful business. We
target companies managed by individuals who recognize that creating an
Internet business requires that management focus on teamwork and that
management recognize the value of management and operations experts who
can facilitate operational excellence, developing relationships with
other Internet-based companies both within and outside of the company's
industry and managing processes in areas as diverse as brand
development, sales, marketing, management and technology. We generally
seek individuals with management experience in both the Internet space
and in the industry or "domain" in which their company will operate. In
those instances in which we identify a concept and form and fund a
company to develop the concept, we will recruit entrepreneurial
management for the company that has these characteristics. We believe
it is important for the management teams of our affiliate companies to
have experience in the Internet space so that they can provide our
affiliate companies with a strong understanding of e-commerce. We
believe that it is important for the management teams of our affiliate
companies to have "domain"
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experience so that they can provide our affiliate companies with an
established reputation within the industries which our respective
affiliate companies operate as well as an extensive network of contacts
within these industries.
Competition
We face competition for capital from 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 affiliate companies. If we cannot acquire interests in or
internally develop promising companies, then our strategy to develop and build a
collaborative network of affiliate companies may not succeed.
Competition for Internet products and services is intense. As the
market for e-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.
In addition, some of our affiliate 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 affiliate companies.
We expect that additional companies will offer competing solutions on a
stand-alone or combined basis in the future. Furthermore, our affiliate
companies' competitors may develop Internet products or services that are
superior to, or have greater market acceptance than, the solutions offered by
our affiliate companies. If our affiliate companies are unable to compete
successfully against their competitors, then our affiliate companies may fail.
Many of our affiliate companies' competitors have greater brand
recognition and greater financial, marketing and other resources than our
affiliate companies. This may place our affiliate companies at a disadvantage in
responding to their competitors' pricing strategies, technological advances,
advertising campaigns, strategic partnerships and other initiatives.
BrightStreet faces significant competition from many promotion and
advertising companies as well as on-line publishers which compete, directly or
indirectly, for consumer advertising and promotion business from advertisers and
for consumers' time and attention. Competitors include Catalina Marketing
Corporation, Money Mailer, Val-Pak Direct Marketing Systems, Interactive Coupon
Network, Valassis Communications, Inc. and News America Holdings Incorporated,
who to date primarily operate by distribution of coupons in printed form through
mailings, newspaper inserts and other mass media. These competitors and others
may initiate programs and services involving the Internet which would compete
directly with BrightStreet. Additionally, the Internet is a relatively new
format through which retailers and consumers conduct business. As the Internet
evolves and consumers gain greater confidence in the Internet and other means of
electronic commerce, it is likely that competition will increase.
Webmodal faces competition from at least 50 intermodal marketing
companies such as Hub Group and Mark VII Transportation, Inc., approximately
five large intermodal-enabled trucking companies such as J.B. Hunt
Transportation Services, Inc. and Schneider National, numerous railroads and
trucking companies and third-party logistics providers, as well as
transportation-related e-commerce ventures such as The National Transportation
Exchange, Inc., RouteGuide.com and FreightQuote. Many actual and potential
competitors possess advantages such as existing business relationships and
substantially greater financial resources. Some of these companies have
introduced on-line capabilities which offer some of the services intended to be
offered by Webmodal or which offer services which are similar to Webmodal's
intended services to customers outside of Webmodal's target intermodal
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market. These companies could expand their marketing and operational efforts or
existing online capabilities to develop a system similar to Webmodal's intended
system. However, Webmodal is not aware of a competitor who has developed or
introduced a product concept for intermodal transportation that includes all of
Webmodal's intended product capabilities. Webmodal believes it will have
operational advantages that will allow it to compete effectively. For example,
Webmodal expects to realize considerably greater marketing and customer service
staff productivity than traditional transportation and transportation marketing
companies. Webmodal believes an existing transportation intermediary interested
in deploying a similar business model would risk significant profit margin
erosion and disruption of existing selling processes.
College 411 has several principal competitors, including College Club,
MyBytes and Student Advantage. College Club seeks to create virtual college
communities online to enhance the educational experience of college students.
MyBytes provides free academic resources, community-building capabilities,
communications tools, lifestyle services and original content to college
students. Student Advantage, originally an off-line provider of retail discounts
to college students at stores in the areas around college campuses, is building
a similar on-line presence. Each of these Internet websites provides products
and services similar to those provided by College 411. In addition to these
entities, College 411 will compete secondarily with many other online providers
of content that appeals to college students and with print and electronic media
including television and radio, newspapers and magazines that target young
adults. College 411's ability to compete will be dependent on its ability to
provide content and services that appeal to college students. In order to do so,
College 411 will have a staff of recent college graduates evaluating and
producing its content and services.
metacat.com, Inc. competes with a wide variety of online and offline
sources for mail order products. Competition will include literally thousands of
sources from which consumers can make purchases, including traditional "bricks
and mortar" stores, print-based mail order catalogs, individual merchants'
online catalogs and online aggregators of products and catalogs. metacat
directly competes with online competitors including catalogcity.com and
Catalog.com. Catalogcity.com has indexed thousands of print catalog titles on
their Internet website. Each catalog offers a limited number of products for
direct sale through the catalogcity Internet website, with links to the catalog
merchant's own Internet website (if one exists). Catalogcity targets well-known
retailers such as Sharper Image, Land's End and Hammacher Schlemmer, many of
whom have their own Internet websites that compete directly with catalogcity.
Metacat targets smaller merchants. In addition, metacat is not organized by
catalog, permitting consumers to make a more directed search by product.
Finally, metacat intends to offer for direct sale all products offered in the
catalogs of its merchants rather than a selected few products from each
merchant. Catalog.com provides a searchable index of catalogs and hosts Internet
websites for each listed catalog. Consumers are not able to conduct a search by
product and direct purchases from the Catalog.com Internet website are limited.
Catalog.com also has targeted larger merchants than those that metacat intends
to do business with. Metacat believes that the significant differences in the
product mix and ease of purchase that its Internet website will provide will
permit it to compete effectively with these online merchants.
AsiaCD competes generally with all retailers of music titles that
include Asian selections. Most mass market retailers, including "bricks and
mortar" retailers such as Walmart, HMV and Borders, and online retailers such as
Amazon.com, carry a limited number of Asian titles and therefore compete only
slightly with AsiaCD. If a large, well-funded company launches an Internet
website directed at sales of Asian music titles to the Asian population in the
United States, it will compete directly with AsiaCD and could reduce AsiaCD's
revenues and cause an increase in AsiaCD's marketing expenses in response.
However, AsiaCD is not aware of any Internet website that is proposing to
materially increase its Asian music offerings or launch an Asia-specific
Internet website. As AsiaCD becomes a more prominent player in the online music
space, it is likely to experience increased competition, either from larger
entities with broad offerings that include Asian titles or from other
Asia-specific Internet websites. AsiaCD believes that it will have a significant
competitive advantage due to its status as the first such Internet website and
its use of local language that captures and enhances the visitor's experience.
AssetExchange competes for financial asset transaction business with an
existing highly fragmented marketplace of buyers and sellers working directly or
through a variety of intermediaries to complete transactions.
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No competing online or offline "marketplace" for such assets currently exists.
However, AssetExchange believes that other providers will enter this market,
especially if AssetExchange's service proves to be popular with buyers and
sellers of financial assets. The online asset brokerage business is new and
rapidly evolving and it is likely that other entities will emerge and attempt to
compete in this market. As there are a limited number of active buyers of credit
card portfolios, it will continue to be feasible for buyers and sellers to make
direct contact to negotiate transactions without using AssetExchange or a
competing service, although AssetExchange believes that the demonstrated
efficiencies and cost-saving potential of its service will be attractive even to
sophisticated buyers and sellers. Other potential competitors include businesses
currently conducting online mortgage portfolio auctions and loan participations
who may choose to enter the market for credit card portfolios.
Swapit.com expects competition in the market for trading and sales over
the Internet to intensify in the future. Though its business concept can be
differentiated from existing person-to-person trading services, barriers to
entry are relatively low, and the necessary hardware and software is
commercially available. Services similar to Swapit.com could therefore appear at
any time. In addition Swapit.com expects that it will compete heavily with
existing person-to-person trading services including eBay, Yahoo!, Auctions,
Amazon.com, Excite, Inc., Auction Universe and a number of other small services.
It will also compete indirectly with business-to-consumer online auction
services such as Onsale, First Auction, Surplus Auction and uBid. It potentially
faces competition from any number of large online communities and services that
have expertise in developing online commerce and in facilitating online trading
and who could rapidly develop and launch services similar to Swapit.com prior to
or after Swapit.com's appearance. Some current and many potential competitors
have longer company operating histories, larger customer bases and greater brand
recognition in other business and Internet markets than Swapit.com. Some of
these competitors also have significantly greater financial, marketing,
technical and other resources.
Benefits Of Our Services
Affiliation with us will provide our affiliate companies the following
benefits:
o Hands-on strategic, operational and technology expertise. Our
management team is experienced in assisting Internet companies
in the implementation and understanding of areas such as
strategic planning, sales, marketing, partnership strategy,
capital planning, brand development, management, technology
implementation, negotiations and divestiture/acquisition
planning. Companies which they have assisted in addition to
our affiliate companies include:
o AdAuction.com
o Intervista
o AuctionNet.com
o Noosh
o HealthyPlanet.com
o HomePortfolio.com
o Interworld
o iconjohn.com
o epylon.com
By sharing the lessons learned from these experiences, we
believe that we can help companies efficiently implement and
improve their business plans.
o Speed and flexibility. As entrepreneurs who are experienced in
the capital raising process, our management team recognizes
the importance of rapid yet prudent funding decisions. Our
goal is to make funding decisions and to deliver funds to
those companies which we choose to fund within two weeks of
receiving a business plan and completing our due diligence
review of the prospective candidate. In addition to acting
quickly and prudently, we believe in providing a high degree
of flexibility to our affiliate companies. For example,
although we will encourage
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our affiliate companies to take full advantage of our
resources, we will not require the management teams of our
affiliate companies to move their operations to be near our
offices, as is common in the venture capital industry.
Although it may be easier for us to assist our affiliate
companies if they are located nearby, we believe that we can
efficiently communicate our ideas and knowledge to our
affiliate companies located throughout the country.
o 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. The
members of our management team sit on either the board of
directors or board of advisers of public and private Internet
companies. As a result of these activities, our management
team has participated in transactions involving alliances
among Internet companies and possess an extensive contact list
consisting of individuals who work in the Internet industry.
Through this network of relationships and experiences, our
management team can provide superior business assistance to
our affiliate companies.
o Business experience. Members of our management team are part
of a generation that has spent its entire professional career
using computers and technology. Collectively, we have spent
over twenty years in the Internet industry. 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 development stage companies on
the Internet that will develop and produce commercially needed
products. In addition, members of our management team are
seasoned in fundamental business principles due to their
experience at firms such as:
o Goldman, Sachs & Co.;
o Merrill Lynch, Pierce, Fenner & Smith,
Inc.;
o Venture Partners;
o Booz-Allen and Hamilton;
o Bank of America;
o Bankers Trust;
o CNBC;
o Ziff Davis & Publishing (ZD Net);
o Wild Wild Web;
o Lycos;
o WhoWhere.com; and
o Diamond Technology Partners, Inc.
We believe that this 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.
Our Affiliation Process
We intend to follow a four-step process for selecting and acquiring
interests in affiliate companies. First, we identify and evaluate potential
affiliate companies which meet our fundamental criteria, strategy and product
commercialization potential. Once a target company is identified, we perform due
diligence on the target opportunity and its senior management team. Once we
determine to proceed, we develop a management and operating plan with that team.
After closing, we provide support both at a management and 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.
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1. Transaction Sourcing
We believe that the following factors will enable us to identify
high-quality potential affiliate companies:
o Industry Relationships. We intend to maintain and
further develop relationships with industry leaders
in the high technology and Internet communities. Our
management team has utilized these working
relationships in over a dozen previous ventures in
the Internet industry and intends to use these
relationships as a source of new opportunities.
o Executives. Our management team has 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 their own perspectives and market
intelligence on the Internet industry.
o Industry Consultants. Our management team has and
will continue to have working relationships with many
specialized industry consultants who we expect to be
positioned to refer opportunities to us.
o Ability to Internally Generate Opportunities. Members
of our management team will identify and explore
potential e-commerce business ideas that have the
potential to compliment our business strategy.
Promising ideas will be further developed. As members
of our management team develop these ideas, we will
provide necessary capital, management and operational
services and recruit managers to execute the
developed operating strategies.
2. Due Diligence
Once we have identified a target company or opportunity for our
network, we will perform an extensive due diligence review on the target
company.
Throughout the due diligence process, our management team will interact
with the management and/or owners of the potential affiliate company to analyze
its business and the ability of its existing management to partner with our
management team.
o Thorough Analysis. Our management team is involved in
all components of the due diligence process,
including management, commercial, financial, legal
and operational due diligence. In addition to
reviewing all of the potential affiliate company's
existing contracts, business plans and financial
projections, we conduct extensive interviews with all
members of the potential affiliate company's
management team and perform market research covering
the industry in which the potential affiliate company
operates.
o Assessment of Operations. An important component of
our due diligence process is to assess the
assumptions underlying a potential affiliate
company's business model and growth strategy. We
evaluate each assumption to determine whether the
potential affiliate company's business model presents
a viable business opportunity. In addition, we
determine whether the potential affiliate company's
business model is capable of being efficiently
implemented in the e-commerce field.
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o Utilizing Management's Network. Our management
team's relationships and experiences will help us
evaluate a potential affiliate company's management,
technology and competitive environment.
The due diligence process with respect to internally generated
opportunities will involve market research and assessment of the assumptions
underlying the business model and growth strategy.
In addition, from time to time, we may extend short term secured and
unsecured loans to potential affiliate companies to satisfy their short term
financing needs while we perform our due diligence review of the candidate
company.
3. 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 affiliate company
and assist them in or expand the development of an operating plan for the
affiliate company.
o Close Working Relationship with Management. We intend
to pursue relationships with affiliate companies
where we can develop a close working relationship
with the management team during the due diligence
process. In conjunction with the management team of
the potential affiliate company, we expect to develop
realistic budgets and operating assumptions and to
design and develop an operating plan based on our
experience with Internet start-up companies in areas
such as marketing, technology, financial, partnership
and operations.
o Equity Participation. We intend to take an active
role in structuring equity-based incentives for
members of the management team of affiliate
companies. We expect that senior management of all
affiliate companies will own significant equity in
their company. We believe that it is crucial for all
members of the affiliate company's senior management
to have an equity stake in their company in order to
support a team approach to the project.
4. Development and Ongoing Support
Following our decision to acquire an interest in a target company or
develop an internally generated opportunity, our management team will work
closely with senior management of the affiliate company in the implementation of
an operating plan. We expect that this mentoring process will be integral to the
success of each of our affiliate companies. This process will consist of the
following components:
o Broaden and Develop Management Teams. We intend to actively
support affiliate companies in the recruitment and acquisition
of additional management and personnel needed to execute an
agreed upon operating plan and to pursue target opportunities.
We will have in-house recruitment professionals to assist
affiliate companies in recruitment and retention of personnel.
As the affiliate companies graduate from the development stage
to mature operating businesses, their management teams must be
expanded and solidified. We believe that we will be able to
assist our affiliate companies in identifying the need for,
finding and developing qualified personnel to manage their
companies.
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o 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 affiliate companies in implementing
their operating plans and refining and focusing the detailed
components of these plans as the affiliate companies develop.
o Developing Strategic Relationships. In the Internet industry,
the development of strategic relationships is crucial to the
success of a company's business model. We plan to use our
management team's experience to strategically align our
affiliate companies with other Internet companies that will
allow them to realize their full growth potential.
Disposition of Interests
Although we intend to invest in affiliate companies on a long-term
basis, we will negotiate rights that will enable us to dispose of all or a
portion of our interest in an affiliate company. The decision to sell will be
based on a number of factors, including whether the affiliate company continues
to fit within our business strategy and complements our network of affiliate
companies, whether our assets represented by the interest in the affiliate
company can be better applied to benefit other affiliate companies or to fund
new investments and whether we need to dispose of an interest in order not to be
required to register as an investment company.
Our Affiliate Companies
We currently own equity in each of the following affiliate companies:
<TABLE>
<CAPTION>
Approximate
% of Amount of
Date(s) of Equity Capital Stock
Affiliate company Location Investment Acquired Purchased
- ----------------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
METACAT.COM, INC. PORTLAND, OR June 1999 100% $ 250,000
COLLEGE 411.COM, INC. SAN FRANCISCO, CA June 1999 and 29% $ 250,000
September 1999
ASSETEXCHANGE, INC. PORTLAND, OR September 1999 20% $ 420,000
ASIACD, INC. SAN FRANCISCO, CA June 1999 11% $1,000,000
WEBMODAL, INC. WOODSTOCK, IL October 1999 12% $ 350,000
SWAPIT.COM, INC. BOSTON, MA November 1999 12% $ 500,000
</TABLE>
In addition, we own approximately 66% of the issued and outstanding
common stock and 100% of the issued and outstanding Series A Preferred Stock of
Net Value, Inc. We acquired this ownership interest through a series of share
exchange transactions with stockholders of
Net Value, Inc. In December 1999, Net Value, Inc. sold substantially all of its
assets, including the name BrightStreet.com, Inc., to Promotions Acquisition
Inc., a Delaware corporation formed by the former management of Net Value, Inc.
Subsequent to this transaction, Promotions Acquisition Inc. changed its name to
BrightStreet.com, Inc. As a result of this transaction, Net Value, Inc. owns
approximately 12% of BrightStreet's common stock on a fully diluted basis. Net
Value, Inc. does not have any operations. We plan to complete a
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merger with Net Value, Inc. within three to six months pursuant to which we will
issue .4 shares of our common stock for every share of Net Value, Inc. common
stock tendered to us by the existing Net Value, Inc. stockholders.
metacat.com, Inc.
metacat is an online superstore for small catalogs. It offers a
one-stop shopping Internet website that allows consumers to browse and purchase
a wide variety of items. metacat has entered into merchant relationships with 12
multi-catalog and retail companies whose combined product offerings consist of
an aggregate of approximately 11,000 product SKU bar codes. metacat offers a
wide 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, it will provide consumers with a convenient
and useful way to browse or shop over the Internet. metacat anticipates
launching its Internet website in December 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 Internet website.
metacat is building an online store by aggregating the content of
thousands of small, print-based mail order catalogs into a database. This
database contains product descriptions and allows consumers to browse, obtain
information regarding the products and purchase the products directly from one
Internet website. metacat intends to form relationships with many different
catalogs and to use the pre-established distribution and inventory expertise of
individual catalogs to market products. 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 a company that brings together a collection of useful information
and the ability to purchase products and services related to the information
presented, metacat serves as an intermediary between catalog retailers and
Internet customers. As the popularity of its Internet website grows, metacat
hopes to capitalize on the economies of scale possible in Internet retailing.
Economies of scale exist when a company experiences decreasing per-unit costs as
its total sales unit volume increases. Internet retailers can generally
experience economies of scale in their marketing, customer service and
technology functions. Marketing costs generally decrease on a per-unit basis as
Internet retailers grow, due to the increasing strength of their brand name via
word-of-mouth, and the decreasing per-unit costs of advertising as individual
advertising purchases increase in size. Customer service costs decrease on a
per-unit basis as staffing requirements can be spread over an expanded customer
base. Finally, since technology costs are generally a one-time investment that
is required to build an Internet website, this investment becomes a smaller
percentage of per unit costs as the company's sales volume increases.
metacat expects to focus on pre-existing distribution channels for the
many product categories too small, specialized, or diffuse to be exploited by
"category killers." A "category killer" is a retailer that attempts to present a
selection of merchandise that is so broad that it covers all consumer needs in a
given product category. For example, Toys "R" Us has often been described as a
"category killer" in the toys and entertainment retailing space. In the Internet
space, "category killer" refers to an Internet website that brings together
substantially all relevant information and product/service providers for a given
category at one, unified Internet website. For example, Amazon.com, Inc.
provides consumers with an Internet website that provides all of the information
and service necessary to purchase books and compact discs. Our management team
anticipates that metacat will establish itself as an important shopping
destination on the Internet for specialized and unique products through:
o A User-Friendly Interface: metacat is developing a
user-friendly interface that will include a full- featured
shopping cart, cookie-based tracking of past purchases to
facilitate payment processing and approval of credit card
orders while the consumer is on metacat's Internet website.
o Customer Service: metacat will focus on being responsive to
customer's needs throughout the ordering process. metacat will
accurately fill its product orders and promptly respond to
customers' questions and complaints regarding their purchases
through its Internet website.
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metacat plans to invest in customer service software as well
as training programs for its customer service staff. In this
manner, metacat hopes to present a unified, consistently
positive message to its customers regarding service issues.
Finally, customer service will be delivered by hiring
sufficient staff to handle service requirements efficiently
and in a courteous manner.
o A Concerted Branding Campaign: metacat plans to execute
targeted marketing campaigns through which it seeks to
establish its brand. metacat plans to establish its initial
customer marketing at upscale, female consumers. metacat plans
to initiate its first marketing campaign in the Spring of
2000. Its goal is to work with Internet websites which serve
as links or portals to many other Internet websites and other
companies that will increase traffic to its Internet website.
metacat will seek to develop advertising relationships with
these entities that will include significant pay-
for-performance components such as revenue sharing agreements.
metacat plans to generate revenues by charging retailers who sell
products on its Internet website a commission calculated based on the gross
retail revenue of transactions completed on its Internet website. In the future,
metacat plans to develop additional revenue streams from selling advertisements
on its Internet website and charging product placement fees. metacat does not
expect to generate revenues from these sources until the third quarter of 2000.
We currently own 100% of the issued and outstanding common stock of
metacat. As of September 30, 1999, metacat has not recognized any revenues, had
minimal assets, had net losses of $120,000 (unaudited) for the nine months ended
September 30, 1999, and had an accumulated deficit of $120,000 (unaudited).
College 411.com, Inc.
According to the U.S. Department of Education, in 1995 there were
approximately 13.9 million college students in the United States. This amount is
projected to increase to 16.1 million by 2007 for an average annual growth rate
of 1.2%. College students have significant buying power and influence in our
economy. Jupiter Communications estimates that United States college students
spend $100 billion annually and online student spending is expected to increase
to $2.5 billion by 2002.
College 41l's goal is to provide college students with an Internet
website that enables them to link to a large collection of student-oriented
resources on the Internet. College 411 intends to provide a wide array of
information and products and services that are useful to a college student.
College 411's Internet website provides the following content to college
students:
o news;
o research information;
o career counseling;
o procrastination tips; and
o dating tips.
College 411 has designed and launched several communication
applications on its Internet website that provide the following services:
o Proprietary search techniques are search methods developed by
College 411 that allow students to find more information about
a particular product or topic. For example, Comparison Book
Finder is a textbook price comparison tool which allows
students to obtain and compare prices for textbook titles from
multiple electronic stores (i.e., Amazon.com,
Barnesandnoble.com, etc.),
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o Communication applications such as Instant Messenger, an
application that allows college students to send messages to
each other,
o an Academics Research Engine that allows students to instantly
access information regarding over 10,000 topics, and
o a College Localization Tool which allows students to instantly
access information about their college or university.
College 411 is currently designing additional content sections of its
Internet website which will provide:
o auction services;
o online radio broadcasts
o classified advertisements
o travel guides, and
o game services
College 411 is attempting to enter into relationships with original equipment
manufacturers whereby College 411 will license its products and services to
these manufacturers for use with their equipment. College 411 believes that
these co-branded relationships will be beneficial because they will help to
direct users to College 411's Internet website. College 411's Internet website
became operational in October 1999 and plans to begin adding the additional
content sections described above in January 2000. College 411 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 shares of College 411's common stock. This
represents approximately 29% of College 411's issued and outstanding common
stock. As of September 30, 1999, College 411 had not generated any revenues, had
assets of $92,278, net losses of approximately $100,000 (unaudited) for the nine
months ended September 30, 1999 and had an accumulated deficit of approximately
$100,000 (unaudited).
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. AssetExchange's network will initially focus on
credit card portfolios. AssetExchange's Internet website, which was launched in
August 1999, now has approximately 100 registered members who own portfolios
consisting of a combined total of greater than 60% of the outstanding general
purpose credit card debt in the United States. The registered members are
entities that are generally in the market to purchase portfolios. In addition,
AssetExchange's Internet website currently has three loan portfolios listed for
sale. There are currently two pending transactions priced at approximately
$20,000,000 each, at least one of which AssetExchange believes will close during
the first quarter of 2000.
Financial institutions regularly buy and sell a variety of loan
portfolios from each other. These loan portfolios include credit card accounts,
automobile loans, mortgages, small business loans and student loans. Financial
institutions purchase and sell these assets for both strategic and tactical
purposes. The volume of these transactions among financial institutions has been
increasing. This increase in transaction volume has been driven by the banking
and financial industry's trend toward specialization, consolidation and risk
management goals.
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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 involving credit
card portfolios. Credit card portfolios generally consist of consumer accounts
associated with a particular financial institution'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 $32 billion in asset value. This represented an
approximate 55% increase over 1997 transactions. AssetExchange is currently
targeting loan portfolios valued at between $5,000,000 and $200,000,000 for
listing on its Internet-based service. AssetExchange believes that this is an
appropriate portfolio value to target because investment bankers and brokers
generally charge expensive fees that make selling portfolios in this valuation
range cost prohibitive to the selling financial institution. AssetExchange
believes that financial institutions will view its Internet-based service as a
viable alternative for selling credit card portfolios in this value range.
AssetExchange believes that the total value of credit card portfolios in this
range is approximately $5 billion. 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 anticipates that its primary customers will include
banks, finance companies, thrifts, community banks, 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 market
participants. This practice allows AssetExchange to provide an impartial and
powerful tool for gaining market exposure.
AssetExchange anticipates that its primary source of revenues will be
commissions on transactions completed on its Internet website. Based on
discussions with financial institutions and brokers, 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. In
addition to the direct selling efforts of AssetExchange's employees, these
marketing efforts will include advertising in trade journals and direct mail
marketing programs. As of September 30, 1999, AssetExchange had not generated
any revenues, had assets of $439,233, net losses for the nine months ended
September 30, 1999 of $48,529 (unaudited) and had an accumulated deficit of
48,529 (unaudited).
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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
AssetExchange's issued and outstanding shares of common stock.
Net Value, Inc./BrightStreet.com, Inc.
Asset Sale Transaction
On December 3, 1999, Net Value, Inc. (f/k/a BrightStreet.com, Inc.)
sold substantially all of its assets to Promotions Acquisition, Inc., a Delaware
corporation formed by the former management team of Net Value, Inc. for the
purpose of acquiring the assets of Net Value, Inc. and succeeding to its
business. In exchange for substantially all of its assets, Net Value, Inc.
received:
o $2,000,000;
o the assumption by Promotions Acquisition, Inc. of Net
Value, Inc. liabilities presently valued at
approximately $1,600,000;
o the release from all of Net Value, Inc.'s employees
of all of Net Value, Inc.'s obligations under
employment agreements entered into by Net Value, Inc.
and these employees;
o the cancellation of all issued and outstanding Net
Value, Inc. stock options held by Net Value, Inc.'s
employees; and
o 2,958,819 shares of Promotions Acquisition, Inc.
common stock equal to an approximate 12% ownership
interest in Promotions Acquisition, Inc. calculated
on a fully diluted basis.
Simultaneous with this transaction, Promotions Acquisition Corp.
consummated the following transactions:
o the issuance to its management team of options and
restricted stock grants representing an approximate
25% ownership interest of Promotions Acquisition Inc.
calculated on a fully diluted basis; and
o an equity financing transaction in which Promotions
Acquisition Inc. received equity investments in the
aggregate of $17,000,000 for shares of Promotions
Acquisition Inc.'s Series A Preferred Stock
representing an approximate 63% ownership interest in
Promotions Acquisition, Inc. calculated on a fully
diluted basis.
The shares of common stock which Net Value, Inc. received in this
transaction are entitled to the same registration, preemptive and other rights
as the holders of Promotion Acquisition Inc.'s Series A Preferred Stock. As a
result of this transaction, Net Value, Inc. no longer has any operations and no
longer has any obligations to consultants or employees who were employed or
engaged by Net Value, Inc. on the closing date of this transaction. Accordingly,
we do not anticipate providing any additional financial support to Net Value,
Inc. or BrightStreet.com, Inc. Net Value, Inc. plans to use the $2,000,000
proceeds it received in this transaction to satisfy its existing obligations
which were not assumed by Promotions Acquisition Inc. and will retain any
remaining amounts as working capital. Alternatively, NetValue, Inc. may issue
additional equity to satisfy these liabilities. We then plan to complete a
merger with Net Value, Inc. pursuant to which we will issue .4 shares of our
common stock for every share of Net Value, Inc. common stock tendered to us by
the existing Net Value, Inc. stockholders. We currently own approximately 66% of
the issued and outstanding shares of Net Value, Inc.'s common stock and 100% of
the issued and outstanding shares of Net Value, Inc.'s Series A Preferred Stock.
Net Value, Inc.'s Series A Preferred Stock has the following rights and
preferences:
o Liquidation preference of $1.00 per share;
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o Convertible at the option of either Net
Value, Inc. or the holder into 12.5 shares
of Net Value, Inc.'s common stock; and
o No dividends or voting rights.
Subsequent to this merger, we will own 100% of Net Value, Inc.'s assets
and Net Value, Inc.'s other stockholders will receive 1,659,740 shares of our
common stock.
Subsequent to the completion of the sale of Net Value, Inc.'s assets to
Promotions Acquisition, Inc., Promotions Acquisition, Inc. changed its name to
BrightStreet.com, Inc.
BrightStreet.com, Inc.
BrightStreet enables manufacturers, retailers and other Internet
websites to deliver, track, and analyze promotions targeted to Internet users.
BrightStreet's technology delivers its promotional offers to customers via the
Internet. BrightStreet operates a permission-based system which requires
consumers to register before they are permitted to receive promotional offers.
BrightStreet's technology allows its customers to track and analyze consumer
behavior by reporting the amount and type of promotional offers that each
consumer views, prints and redeems. BrightStreet licenses its services directly
to manufacturers, retailers, and Internet websites that publish non-product
related information for consumers. BrightStreet also offers a network of
affiliated Internet websites that distributes promotional offers for
manufacturers and retailers.
BrightStreet markets an Internet based service that allows
manufacturers, retailers, and Internet websites that publish non-product related
information for consumers 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 as
a prerequisite to receiving valuable promotions, such as discounts on
merchandise and free product samples.
In addition to allowing consumers to register and download offers via
its customers' Internet websites, BrightStreet has created the BrightStreet
Network, a promotional network of affiliated Internet websites. The BrightStreet
Network offers customers who want a wider distribution of their promotions the
ability to place the promotions on the Internet websites of companies with whom
BrightStreet has a relationship. BrightStreet licenses a service from a third
party that allows its customers to create promotions. This system then delivers
these promotions to the affiliated network websites which are authorized to
display these promotions and deliver them to consumers. In these situations,
BrightStreet serves as an intermediary between its customers and consumers.
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:
o licensing fees from licensing its technology
platform and promotion services, and
o network fees from transactions,
sponsorships, and other marketing programs
on affiliate Internet websites.
As of September 30, 1999, BrightStreet had assets of approximately
$34,000 (unaudited), had not generated any revenues, had no net losses or income
(unaudited) for the nine months ended September 30, 1999, and had an accumulated
deficit of $0 (unaudited).
AsiaCD, Inc.
AsiaCD is a 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
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enjoy media from other cultures. AsiaCD is focused on delivering quality service
and the best prices to its customers. AsiaCD has over 24,000 customers and has
historically experienced customer growth of approximately 85% per calendar
quarter since AsiaCD's inception. Management believes that AsiaCD is poised to
expand its United States 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, www.asiacd.com, in May 1998. AsiaCD currently has 35
employees working in three offices located in the following cities:
o San Francisco (22);
o Hong Kong (11); and
o Taiwan (2).
AsiaCD has over 24,000 customers who have purchased products from its
Internet website. Approximately 44% of these customers have returned to AsiaCD's
Internet website and made at least one additional purchase. The average order
size for each AsiaCD customer is approximately $40. AsiaCD expects to experience
continued sales growth as a result of its aggressive marketing in the United
States. AsiaCD currently plans to initiate a marketing campaign that will
include:
o Television and radio commercials;
o Print advertisements;
o Public relations and event sponsorships; and
o Internet advertisements.
AsiaCD also plans to expand into other Asian markets where it will
apply its concept of "cross-cultural sales." By providing convenient,
inexpensive access to a broad range of titles "foreign" to a given market,
AsiaCD taps into the increasingly global nature of mass media and uses the
Internet to fulfill a need that is not adequately serviced in the traditional
"bricks and mortar" world. In the United States, AsiaCD's Internet website
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. AsiaCD has established accounts with three major
record companies and five movie production companies in Hong Kong. AsiaCD
purchases all products which it sells in Hong Kong and Taiwan either directly
from these companies or from authorized distributors of these companies. AsiaCD
intends to utilize its presence in multiple nations to increase distribution and
purchasing power. AsiaCD currently sells compact discs, digital video discs and
videocassettes. If AsiaCD completes its proposed financing, then it expects to
introduce gifts, comic books, toys, games and magazines as new product offerings
on its Internet website in 2000. In addition, AsiaCD plans to offer electronics
on its Internet website in 2001. AsiaCD plans to launch a business-to-business
Internet website in the first quarter of 2000 and plans to expand its market to
include Japan, Korea, China and other Asian countries.
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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 11% of AsiaCD's issued
and outstanding shares of common stock. We are also entitled to receive a
warrant 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. Through September 30, 1999, AsiaCD had generated
approximately $1,473,845 in revenues (unaudited). AsiaCD's losses for the nine
months ended September 30, 1999 were approximately $271,478 (unaudited). As of
September 30, 1999, AsiaCD's accumulated deficit was approximately $380,789
(unaudited).
Webmodal, Inc.
Webmodal is developing an Internet application for use by shippers in
purchasing and executing domestic full-truckload intermodal freight shipments.
Domestic intermodal shipping involves the movement of freight over long
distances in the following manner:
o via truck from an origin point to the nearest railroad
hub;
o then via railroad for a majority of the trip; and
o via truck from the destination railroad hub to the
freight's final destination.
Intermodal shipping provides shippers with an opportunity to achieve
significant cost reductions in comparison to shipping freight via highway-only
trucking. However, intermodal shipping is presently characterized by a complex
and inefficient purchasing and execution process.
Webmodal is in the process of building an Internet application that it
anticipates will improve the process of evaluating and purchasing intermodal
transportation services. This interface will allow shippers to:
o input their specific transportation needs;
o view relevant transportation alternatives which may
satisfy those needs;
o assemble the service components of an intermodal
shipment, including an origin trucking carrier, a
railroad carrier and a destination trucking carrier;
and
o execute an order for transportation services.
Today, shippers generally purchase intermodal transportation through
marketing intermediaries. The marketing intermediaries perform logistical
coordination tasks using labor intensive marketing and customer service
processes involving telephone and facsimile communications with customers and
carriers. In using these traditional intermediaries to purchase transportation
services, shippers do not generally have access to information on prices and
schedules associated with underlying transportation services. As a result,
shippers are typically unable to confirm that optimal service selections are
being made on their behalf. In addition, because shippers using traditional
intermediaries are not typically made aware of the costs associated with the
underlying transportation services, they are unable to readily observe the fee
that is being paid to the intermediary for management of their shipments.
Webmodal's services will allow shippers to replace their dependence on
these traditional marketing intermediaries with an on-line solution which will
provide complete information regarding carrier rates, schedules and service
performance records. Analogous to an online travel agent, Webmodal plans to
eliminate the need for cumbersome research and negotiation with marketing
intermediaries by collecting all relevant information into a single
user-friendly database. Webmodal will also reduce the manpower costs associated
with traditional marketing intermediaries. Webmodal's service will replace the
telephone, facsimile and other labor-intensive processes and communications
necessary to initiate and coordinate intermodal shipments with immediate,
automated digital connections with carriers
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In addition to creating an Internet application that it believes will
simplify the purchase and execution of domestic full-truckload intermodal
transportation, Webmodal is also positioned to expand into related market
segments such as:
o over-the-road trucking;
o railroad shipping; and
o international container shipping.
Webmodal also plans to offer related products such as:
o online traffic analysis tools for shipping
customers; and
o multi-carrier shipment coordination product
for marketing to carriers and intermediaries.
By replacing labor-intensive marketing and carrier coordination
functions with a simple Internet application, Webmodal hopes to streamline the
relationship between shippers and carriers and lower the costs associated with
intermodal freight transportation. Webmodal is currently designing its
technology and expects to launch its Internet website in 2000.
We currently own 1,221 shares of Webmodal's common stock. This
represents approximately 12% of Webmodal's issued and outstanding common stock.
As of September 30, 1999, Webmodal had not generated any revenues , had assets
of approximately $220,000 (unaudited), net losses of approximately $70,000
(unaudited) for the nine months ended September 30, 1999 and an accumulated
deficit of approximately $70,000 (unaudited). Douglas Spink, a member of our
Board of directors, currently sits on Webmodal's Board of Directors.
Swapit.com
Swapit.com is creating a consumer-driven electronic barter exchange on
the Internet. Swapit.com believes that this service will enable the swap or
sale of consumer goods between individuals. Swapit.com 's goal is to build a
service that attempts to consolidate the fragmented $180 billion (DLJ)
secondhand distribution market. Swapit.com's service will first permit the
trading of music, movies, books and games, and will then diversify into other
consumer products. Swapit.com intends to generate revenues from:
o listing, transaction and referral fees;
o direct sales; and
o advertising revenues
Swapit.com's service will provide an environment that enables a
three-party exchange-based system. Consumers willing to trade will submit their
products to a central repository/warehouse. Once the consumer submits his
products into the warehouse, he can use the service to identify other consumer
goods of like value which he can then withdraw from the warehouse. Swapit.com
believes that using this three-party exchange system will exponentially increase
the chances of a successful trade, thereby generating a higher level of
revenues. Swapit.com believes that its Internet website will be fully
operational in April 2000.
We currently own 132,941 shares of Swapit.com 's Series A Convertible
Preferred Stock, which we are entitled to convert into 132,941 shares of
Swapit.com's common stock at any time. In addition, we currently own 26,589
shares of Swapit.com's common stock. This represents an aggregate of
approximately 12% of Swapit.com's issued and outstanding common stock on a
fully-diluted basis. In addition, we have the contractual
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right to vote an additional 258,411 shares of Swapit.com's common stock held by
Thomas Aley, our Executive Vice President, Business Development, representing
approximately an additional 19% of its common stock on a fully-diluted basis. As
of November 30, 1999, Swapit.com had not generated any revenue, had assets of
$479,048 and had an accumulated deficit of approximately $40,000 (unaudited).
Investment Company Act of 1940
The Investment Company Act of 1940 regulates mutual funds and other
entities which meet the definition of an "investment company." An "investment
company" generally includes any entity that is engaged primarily in the business
of investing, reinvesting and trading in securities. The rules under the
Investment Company Act provide in part that an entity is presumed not to be an
investment company if 45% or less of the value of its total assets (excluding
government securities and cash) consists of, and 45% or less of its income over
the last four quarters is derived from, securities other than either government
securities or securities issued by entities that it does not control which are
not themselves engaged in the business of investing in securities. As the
regulations governing the relationship between an investment company and the
entities in which it invests are inconsistent with the manner in which we intend
to provide services to our affiliate companies, it is critical to our business
plan that we not be an investment company subject to the Investment Company Act.
We will be considered to control an entity if we own more than 25% of
its voting securities. Under current regulations, we are considered to control
metacat, College411 and Net Value, Inc. Prior to the sale of Net Value, Inc.'s
assets to BrightStreet, the assets and income of our non-controlled affiliate
companies did not exceed the limits described above. As a result of the sale,
the assets and income of our non-controlled affiliate companies currently exceed
those limits. Under current regulations, we have a "safe harbor" period of one
year during which we will not be considered an investment company, provided that
we have a bona fide intent to primarily engage in a business other than that of
investing, reinvesting and trading in securities as soon as reasonably possible.
Our board of directors has adopted a resolution confirming this intent. We
intend to meet this standard by structuring all future affiliate company
investments to include at least a 25% voting percentage, board representation,
approval rights over material decisions and other features that will give us
"control" for purposes of the Investment Company Act. In this manner, we will
maintain the assets of and income derived from our non-controlled affiliate
companies below 45% of our total assets and income. However, fluctuations in the
value of our interests in our affiliate companies may make it difficult for us
to accomplish and maintain this goal. Accordingly, in order to satisfy this goal
we may from time to time dispose of interests in some of our non-controlled
affiliate companies.
The regulations under the Investment Company Act provide an exemption
from the definition of an investment company for any entity which the Securities
and Exchange Commission finds is primarily engaged in a business other than
investing in securities. We believe that we are primarily engaged in the
e-commerce business through the activities of our affiliate companies and the
services we provide to them. We may apply to the Securities and Exchange
Commission for this exemption. If we are granted this exemption, we may have
greater latitude in structuring investments in affiliate companies and may not
be compelled to dispose of interests in non- controlled affiliate companies in
order to maintain our non-investment company status.
Employees
As of December 9, 1999, excluding our affiliate companies, we had six
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.
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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 Epylon.com, Inc., a corporation owned by
Stephen George, a director of Net Value Holdings, Inc., at no expense.
In November 1997, Net Value, Inc. 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, Net Value, Inc. 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. Net Value,
Inc. vacated this office space and ceased making rent payments under this lease
in June 1999. On November 23, 1999, the landlord filed a lawsuit against Net
Value, Inc. seeking damages, interest, attorneys' fees and costs, related to Net
Value, Inc.'s alleged breach of this lease agreement.
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 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.
On August 23, 1999, coolsavings.com, Inc. filed an action against Net
Value, Inc. (f/k/a BrightStreet.com, Inc.) in the United States District Court
for the Northern District of Illinois, Eastern Division, alleging that Net
Value, Inc. had infringed upon United States Letters Patent No. 5,761,648
entitled "Interactive Marketing Network and Process Using Electronic
Certificates" held by coolsavings. The complaint alleges that Net Value, Inc.,
through its Internet website and products, has committed acts of infringement
by:
o performing or completing steps of the methods and
processes described and claimed in Patent No.
5,761,648;
o by actively inducing others to practice the methods
and processes described and claimed in Patent No.
5,761,648 by, among other things, performing or
completing steps of such methods and processes; and
o by offering to sell or selling a system or service
for offering and providing targeted electronic
certificates such as coupons, for use in practicing
the methods and processes described and claimed in
Patent No. 5,761,648.
The complaint seeks both a preliminary and permanent injunction
prohibiting Net Value, Inc. from further acts of infringement, as well as
damages. On November 23, 1999, Net Value, Inc. filed its answer to this
complaint as well as a counterclaim against coolsavings.com, Inc. seeking a
declaratory judgment of invalidity and noninfringement of Patent No. 5,761,648.
Neither a discovery schedule nor a trial have been set in this matter. Net
Value, Inc. cannot estimate the amount of damages that it may incur if the court
issues a final judgment concluding that Net Value, Inc. has infringed on
coolsavings' patent. In addition, based on its estimate of the cost of defending
this type of litigation, Net Value, Inc. may decide to settle this case for an
amount that, although substantially less than the damages sought by coolsavings,
may be significant. Pursuant to the Asset Purchase Agreement which Net Value,
Inc. entered with BrightStreet.com, inc. (f/k/a Promotion Acquisition, Inc.)
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BrightStreet has agreed to assume all liabilities related to this lawsuit,
including all legal expenses incurred in defending against these claims.
On November 23, 1999, The Bronson Road Group filed an action against
Net Value, Inc. in Superior Court, State of Connecticut. The Bronson Road Group
is the landlord of Net Value, Inc.'s Fairfield, Connecticut office. The
complaint seeks damages, interest, attorneys' fees and costs related to Net
Value, Inc.'s alleged breach of the lease agreement which the parties entered
into in November 1997. The complaint alleges that Net Value, Inc. has breached
this lease agreement by failing to make required rent payments since June 1,
1999. Pursuant to the Asset Purchase Agreement which Net Value, Inc. entered
into with BrightStreet.com, Inc., Net Value, Inc. agreed to assume all
liabilities related to this lawsuit, including all legal expenses incurred in
defending against these claims.
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 Net Value, Inc.'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 Net Value, Inc., we engaged LJ Soldinger
Associates as our independent accountant. LJ Soldinger Associates has completed
the audit of our consolidated financial statements for the year ended December
31, 1998. To review our consolidated audited financial statements, see
"Consolidated Audited Financial Statements."
MANAGEMENT
Directors and Executive Officers
Our directors and executive officers, their ages and positions are set
forth below:
Andrew P. Panzo 35 Chairman of the Board of Directors and
Chief Executive Officer
Lee Hansen 32 President
Darr Aley 35 Executive Vice President, Business
Development and Director
Thomas Aley 35 Executive Vice President, Business
Development
Barry Uphoff 33 Director
Douglas Spink 29 Chief Technology Officer and Director
Stephen George 32 Director
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.
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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. 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 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.
Thomas Aley has served as our Executive Vice President for Business
Development since November 22, 1999. Prior to joining our management team, Mr.
Aley was Executive Vice President of Marketing at Wild Web, Inc. from June 1997
through November 1999 where he oversaw business development including
operations, marketing and sales for Wild Web's online and television divisions.
In November 1998, Mr. Aley played an instrumental role in the sale of WildWeb to
GT Interactive Software. From June 1995 to June 1997, Mr. Aley was Director of
Electronic Commerce at Ziff-Davis where he managed the Company's Net Buyer
initiatives and ZDNet service. From January 1994 to June 1995, Mr. Aley was the
Director of Marketing for Eliza Corporation, where he sold speech recognition
technology to cable and television companies in the interactive television
industry. From January 1992 to January 1994, Mr. Aley worked at Ono-Sendai
Corporation. From October 1990 to January 1992, Mr. Aley worked at Shiva
Corporation. Mr. Aley currently serves on Swapit.com, Inc.'s Board of Directors.
Mr. Aley received an MBA in High Technology Marketing and Operations from
Northeastern University.
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., an
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.
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,
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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 currently serves on Webmodal's Board of Directors. Mr.
Spink received an MBA from The University of Chicago.
Stephen George has served as a member of our Board of Directors since
July 1999. Mr. George is also the chief executive officer of Epylon.com, Inc., a
business to business San Francisco Bay-area e-commerce company. Prior to forming
Epylon.com, Inc., 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 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:
o 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 of Net
Value Holdings on May 28, 2000;
o the entire principal amount plus accrued interest of this
loan if his employment is terminated in breach of the
employment agreement; or
o 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 our employee 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.
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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 2000. 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 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 900,000 shares
of common stock pursuant to a stock option plan that it intends to implement in
2000. 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:
o the fifth anniversary of their vesting date; or
o 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.
In November 1999, Net\ Value Holdings entered into a one-year
employment agreement with Thomas Aley pursuant to which Mr. Aley will serve as
an Executive Vice President of Net Value Holdings. In addition to an annual
salary of $150,000, Mr. Aley's employment agreement provides for bonus
compensation at the discretion of the Board of Directors. Pursuant to his
employment agreement, Mr. Aley is entitled to fringe benefits including
participation in pension, profit sharing and bonus plans, as applicable, and
life insurance, hospitalization, major medical, paid vacation and expense
reimbursement.
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 "TRANSACTIONS WITH
OFFICERS AND DIRECTORS AND OTHER BUSINESS RELATIONSHIPS." 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:
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o 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;
o 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
o 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 Advisory Board. In this capacity, Mr.
Stephens will review and advise us regarding our business and prospects and the
business and prospects of our affiliate 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:
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.
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<PAGE>
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.
Advisory Board
We are currently in the process of establishing an Advisory Board. The
members of our Advisory Board will provide us and our affiliate companies with
strategic guidance in all aspects of our operations. Current members of our
Advisory Board include Paul Stephens, Warren Zide and Tom Cohen.
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 for:
o for a breach of the director's duty of loyalty to our
corporation or its stockholders;
o for acts or omissions by the director not in good
faith or which involve intentional
misconduct or a knowing violation of law;
o for a willful or negligent declaration of an unlawful
dividend, stock purchase or redemption; or
o 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.
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<PAGE>
SECURITY OWNERSHIP OF EXECUTIVE OFFICERS, DIRECTORS
AND BENEFICIAL OWNERS OF GREATER THAN 5% OF OUR COMMON STOCK
The following table sets forth information with respect to the
beneficial ownership of our common stock owned, as of December 9, 1999, by:
o the holders of more than 5% of our common stock;
o each of our directors;
o our executive officers; and
o all directors and executive officers of our company
as a group.
Prior to this offering, as of December 9, 1999, 13,109,861 shares of
our common stock were issued and outstanding. Assuming the consummation of this
offering, as of December 9, 1999, an aggregate of 13,109,861 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 834,644 6.4
10 Gilston Road Owner
London, United Kingdom
Rozel International Holdings, Ltd. Beneficial 2,950,950 22.5
Whitehill House Owner
Newby Road, Industrial Estate
Hazel Grove, Stockport
Cheshire, United Kingdom
SK7 5DA
Andrew P. Panzo (2) Officer, 141,663 1.1
8 Pennsford Lane Director
Media, PA 19063
Douglas Spink (3) Officer, 725,013 5.5
15455 NW Greenbrier Parkway Director
Suite 210
Beaverton, OR 97006
Barry Uphoff (2) Director 142,584 1.1
4080 Winberie Avenue
Naperville, IL 60564
Darr Aley (2) Director 142,584 1.1
615 Howard Avenue
Brulingame, CA 94010
Stephen George (2) Director 142,584 1.1
5 Morning Sun Avenue
Mill Valley, CA 94941
</TABLE>
69
<PAGE>
<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>
Lee Hansen (2) Director -0- *
1475 Vallejo Street, #3
San Francisco, CA 94109
Thomas Aley (2) Officer -0- *
260 Elsinore Street
Concord, MA 01742
Tonga Partners, L.P. Beneficial 824,963 5.9
c/o Cannell Capital Management Owner
600 California Street
14th Floor
San Francisco, CA 94108
Attn: J. Carlo Cannell
RS Orphan Fund, LP Beneficial 983,458 7.0
388 Market Street Owner
Suite 200
San Francisco, CA 94111
Attn: Paul H. Stephens
All directors and executive 1,294,428 9.8
officers as a group
(7 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) 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 828,708
Thomas Aley 828,708
Stephen George 757,416
Lee Hansen 900,000
Andrew Panzo 1,080,000
Barry Uphoff 307,416
We anticipate that our board of directors will approve our stock option
plan on or about January 1, 2000.
(3) Includes 578,027 shares of vested common stock and 146,986 shares of
common stock which will vest within 60 days of December 9, 1999. Mr.
Spink's ownership of these shares will vest within 60 days.
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<PAGE>
Does not include 1,322,863 shares of common stock. Mr. Spink's
ownership of these shares will not vest within 60 days of December 9,
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. These
shares of our common stock are scheduled to vest pro rata on a monthly
basis commencing on February 28, 2000 and ending on May 31, 2001.
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 December 9, 1999 and the number of shares of our common stock which may be
offered for sale pursuant to this prospectus by the selling stockholders.
The shares listed for Messrs. Behrendt, Jaekel and Markman represent
shares of common stock which are presently owned by each of these individuals.
Other than the shares listed for each of these individuals, 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. The remaining
selling stockholders own shares of our Series B Preferred Stock and common stock
purchase warrants. We cannot determine the actual number of our shares of common
stock issuable upon conversion of our Series B Preferred Stock. This number will
change based on the unanimous election by the holders of the Series B Preferred
Stock to exercise their one-time right to reset the conversion price to the
greater of the current market price of our common stock or $2.50 per share of
the Series B Preferred Stock. 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.
The number of shares of our common stock issuable upon conversion of
the Series B Preferred Stock is calculated by dividing the liquidation value of
$1,000 per share of the Series B Preferred Stock by the conversion price per
share. Since there are 4,824 shares of Series B Preferred Stock issued and
outstanding, the total liquidation value of the Series B Preferred Stock is
$4,824,000. Accordingly, if the holders had converted all of the shares of the
Series B Preferred Stock on December 9, 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. This table is
prepared assuming:
o that the holders of the Series B Preferred Stock will
convert their shares of our Series B Preferred Stock
at the conversion floor price of $2.50 per share into
1,929,600 shares of our common stock; and
o that the holders of Series B Preferred Stock will
exercise all 295,040 issued and outstanding warrants.
Pursuant to the Registration Rights Agreement which we entered into
with the holders of the Series B Preferred Stock, we are required to register
the resale of 2,750,000 shares of our common stock on behalf of the holders of
the Series B Preferred Stock. However, this obligation was conditioned upon the
holders purchasing a total of 5,000 shares of our Series B Preferred Stock.
Since we only sold 4,824 shares of our common stock, we are only obligated to
register 2,653,200 shares of our common stock on behalf of the holders of the
Series B Preferred Stock and the warrants. We allocated the difference between
this amount and the 2,224,640 shares identified above of 428,560 to the holders
of the Series B Preferred Stock on a pro rata basis.
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
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<PAGE>
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 may exceed 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.
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.
None of the selling stockholders is an officer or director of our
company. Other than Paul Stephens, who manages the RS Orphan Fund L.P. and the
RS Orphan Offshore Fund, L.P. and is a member of our Advisory Board, none of the
selling stockholders has had any material relationship with our company, our
affiliate companies or our predecessors within the last three years.
<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 (2)
10 Gilston Road
London, U.K. SW1695R 834,644 6.4 27,000 *
Juergen Jaekel (3)
51 Valley Road
Athenton, CA 94027 229,533 1.8 27,000 *
Gary E. Markman (4)
424 Charles Lane
Wynnewood, PA 19096 59,183 * -0- *
Tonga Partners, L.P. (5)
c/o Cannell Capital Management
600 California Street
14th Floor
San Francisco, CA 94108
Attn: J. Carlo Cannell 824,963 5.9 -0- *
Yeoman Ventures, Ltd. (6)
P.O. Box 146
Road Town, Tortola
British Virgin Islands
Attn: Giora Lavie 137,449 1.0 -0- *
</TABLE>
72
<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>
Lightline Limited (7)
P.O. Box 146
Road Town, Tortola
British Virgin Islands
Attn: Giora Lavie 137,449 1.0 -0- *
Little Wing LP (8)
c/o Quilcap Corp.
375 Park Avenue
Suite 1404
New York, NY 10152
Attn: Parker Quillen 247,568 1.9 -0- *
Little Wing Too LP (9)
c/o Quilcap Corp.
375 Park Avenue
Suite 1404
New York, NY 10152
Attn: Parker Quillen 82,523 * -0- *
Tradewinds Fund, LLC (10)
c/o Quilcap Corp.
375 Park Avenue
Suite 1404
New York, NY 10152
Attn: Parker Quillen 82,523 * -0- *
JDN Partners, L.P. (11)
2420 Camino Ramon, Suite 222
San Raman, CA 94583 371,220 2.8 -0- *
Attn: John Nguyen
Bayhill Fund, Ltd. (12)
2420 Camino Ramon, Suite 222
San Raman, CA 94583
Attn: John Nguyen 41,129 * -0- *
RS Orphan Fund, L.P. (13)
388 Market Street
Suite 200
San Francisco, CA 94111
Attn: Paul H. Stephens 983,458 7.0 473,462 2.8
</TABLE>
73
<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>
RS Orphan Offshore Fund,
L.P. (14)
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 3.1 202,912 1.2
--------- ---- ------- ----
TOTAL 4,452,934 716,374
========= =======
</TABLE>
- ----------
* Less than one percent.
(1) Calculated in accordance with Rule 13d-3(d)(i) of the Securities Exchange
Act of 1934.
(2) Sven Behrendt has sole voting and investment control over these securities.
(3) Juergen Jaekel has sole voting and investment control over these
securities.
(4) Gary Markman has sole voting and investment control over these securities.
(5) J. Carlo Cannell has sole voting and investment control over these
securities.
(6) Giora Lavie has sole voting and investment control over these securities.
(7) Giora Lavie has sole voting and investment control over these securities.
(8) Parker Quillen has sole voting and investment control over these
securities.
(9) Parker Quillen has sole voting and investment control over these
securities.
(10) Parker Quillen has sole voting and investment control over these
securities.
(11) John Nguyen has sole voting and investment control over these securities.
(12) John Nguyen has sole voting and investment control over these securities.
(13) Paul H. Stephens has sole voting and investment control over these
securities.
(14) Paul H. Stephens has sole voting and investment control over these
securities.
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<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:
o block transactions;
o 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;
o privately negotiated transactions;
o through the writing of options on the shares;
o short sales; or
o any combination of these transactions
The sale price to the public in these transactions may be:
o the market price prevailing at the time of sale;
o a price related to the prevailing market price;
o negotiated prices; or
o such other price as the selling stockholders
determine from time to time.
In the event that we permit or cause this registration statement to
lapse, the selling stockholders may sell shares of our common stock 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 is no assurance that any such agreement will be entered into. If a selling
stockholder enters
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<PAGE>
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 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 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 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 have agreed to indemnify the
selling stockholders holding our Series B Convertible Preferred Stock and
related Warrants against losses incurred by those selling stockholders as a
result of any inaccuracy in or breach of the representations, warranties or
covenants which we made to them in the stock purchase agreement relating to the
sale of our Series B Convertible Preferred Stock and related warrants. We have
also agreed in the related registration rights agreement to indemnify those
selling stockholders against losses incurred as a result of any untrue or
alleged untrue statement or omission of a material fact from this prospectus,
except any statements or omissions based solely upon information provided to us
by the selling stockholders or regarding the plan of distribution. To the extent
that a claim for indemnification under the registration rights agreement is
unavailable to those selling stockholders due to the failure or refusal of a
governmental authority to enforce it, we have agreed to contribute to the amount
paid or payable by those selling stockholders as a result of these losses. We
have agreed to make these contributions in an amount that is proportionate to
our relative fault with regard to any losses. Insofar as we are permitted to
indemnify the selling stockholders for liabilities arising under the Securities
Act of 1933, we have 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 unenforceable.
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.
TRANSACTIONS WITH OFFICERS AND DIRECTORS
AND OTHER BUSINESS RELATIONSHIPS
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 approximately 22.5% of our common stock.
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<PAGE>
Loan and Merger Agreements with Strategicus Partners, Inc.
On May 28, 1999, we entered into a loan agreement with Strategicus
Partners Inc. 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 College 411.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 College 411.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 College
411.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
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 capital stock
as of June 21, 1999, assuming we had 18,811,569 shares of common stock
calculated on a fully-diluted basis and 5,778,699 shares of Series A Preferred
Stock. 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 College 411.com, Inc. and to retain the services of the four
stockholders of Strategicus Partners as employees and/or consultants of our
company.
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<PAGE>
Forgiveness of 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. This amount was extended to Mr. Spink to reimburse
him for expenses which he incurred in connection with the start-up of
metacat.com, Inc. This transaction was structured as a loan to induce Mr. Spink
to remain our employee for at least one year. 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 if Mr. Spink remained an
employee of our company on the first anniversary of his employment. For a more
detailed discussion of this arrangement, see "MANAGEMENT-Employment Agreements."
In addition, in July 1999, Strategicus extended an advance to Mr. Spink in the
principal amount of approximately $185,000. We do not expect to receive payment
of this advance.
In June 1999, we extended a loan to Mr. Aley in the principal amount of
$267,000. This amount was extended to Mr. Aley as an inducement for him to leave
his prior employment. This transaction was structured as a loan to induce Mr.
Aley to remain our consultant for the duration of his engagement. 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."
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."
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Personal Investments of Members of Our Management Team in Our Affiliate
Companies
Members of our management team have made personal investments in some
of our affiliate companies. Through December 9, 1999, members of our management
team own the following equity interests in our affiliate companies:
<TABLE>
<CAPTION>
Affiliate company Equity Interest
<S> <C> <C>
Andrew P. Panzo AsiaCD 12,000 shares of common stock
Barry Uphoff AsiaCD 12,000 shares of common stock
Darr Aley AsiaCD 12,000 shares of common stock
Darr Aley College 411 50,000 stock options
Stephen George AsiaCD 12,000 shares of common stock
Stephen George College 411 37,500 stock options
Douglas Spink Webmodal 400 shares of common stock
Thomas Aley Swapit.com 258,411 shares of common stock
</TABLE>
San Francisco Office Space
We share office space in San Francisco, California with 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, which describes all material terms of our
capital stock, 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.
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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.
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:
o March 15, 2000; and
o 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:
o 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
o $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 December 9, 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 400,000 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.
The merger agreement with Strategicus Partners and Douglas Spink which
grants these registration rights, defines a change of control as the occurrence
of any one of the following:
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o any "person" as such term is used in Sections 3(a)(9)
and 13(d) of the Securities Exchange Act of 1934,
other than one of our subsidiaries or affiliates
becomes a "beneficial owner," as such term is used in
Rule 13d-3 promulgated under the Securities Exchange
Act of 1934, of 50% or more of any class of issued
and outstanding capital stock which ownership
interest constitutes 50% or more of all issued and
outstanding voting shares;
o the majority of the members of our Board of Directors
consists of individuals other than members of our
Board of Directors on July 30, 1999, provided that
persons elected to the Board of Directors whose
election or nomination was supported by one-half of
the directors at July 30, 1999 shall be considered a
member of the Board of Directors as of July 30, 1999;
and
o any event which we would be required to report
pursuant to Items 1 or 2 of Form 8-K under the
Securities Exchange Act of 1934, whether or not we
are actually required to file a Form 8-K in relation
to this transaction or event.
Upon a change of control 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 Jaekel.
We agreed to file a registration statement with the Securities and Exchange
commission registering the resale of these shares of common stock on or before
August 15,1999. We did not file this registration statement until October 7,
1999. As a result of our breach of this agreement, we issued 27,000 shares of
our common stock to each of Messrs. Behrendt and Jaekel. These shares represent
the agreed upon penalty of 10,000 shares for breaching the agreement and 10,000
shares per month until the registration statement was filed on October 7, 1999,
calculated on a daily basis.
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 1,326,432 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
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share. We may require the noteholders to convert the entire principal amount of
their convertible promissory notes, plus all accrued interest thereon, if the
market price of our common stock is $5.00 per share for a period of twenty
consecutive trading days and we have registered the resale of all shares of our
common stock issuable to the noteholders upon such mandatory conversion of the
convertible promissory notes with the Securities and Exchange Commission. 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 741,315 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 110,077 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 December 9, 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:
Shares Exercise Price
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
The exercise price of each of these warrants may be adjusted upon the
occurrence of:
o a recapitalization, reorganization, reclassification,
merger or sale of substantially all assets;
o a subdivision or combination of shares of our common
stock;
o a stock dividend;
o our issuance of additional shares of our common stock
at a price per share less than the closing bid price
per share on the date of issuance;
o our issuance of common stock equivalents pursuant to
which shares of our common stock are issuable at a
price per share that is less than the closing bid
price per share on the date of issuance; and
o any purchase or redemption of shares of our common
stock by us at a price per share which is greater
than the exercise price of the warrants.
However, the following transactions will not trigger an adjustment to the
exercise price:
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o any issuance of our securities other than for cash,
as consideration for a merger, consolidation or sale
of assets, in connection with any strategic
partnership or joint venture or in exchange for
assets, stock or joint venture interests;
o our grant of any securities pursuant to an employee
benefit plan, stock option plan, restricted stock
plan or stock purchase plan for the benefit of our
employees or directors;
o any transactions regarding the sale or exchange of
our securities at a price per share greater than the
price of the Series B Preferred Stock;
o any securities issued upon conversion of the Series B
Preferred Stock or exercise of these warrants; and
o any securities issued in connection with transactions
listed on Schedule 2.1(c) or Schedule 2.1(z) of the
Series B Convertible Preferred Stock Purchase
Agreement dated as of September 17, 1999, a copy of
which is included at Exhibit 10.19 hereto.
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
13,109,861 shares of our common stock were outstanding as of December
9, 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
transfers to immediate family members or trusts for estate planning purposes,
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 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,
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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.
Upon completion of this offering, 8,090,501 "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 90 days after the effective date of this registration statement or 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:
o 1% of the then outstanding shares of our common stock; or
o 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 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 4,872,248 shares of common
stock reserved for issuance upon the exercise of outstanding options, 2,349,050
shares of our common stock reserved for issuance upon the conversion of issued
and outstanding convertible debentures in the aggregate principal amount of
$6,911,687 and 1,326,432 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 RELATED TO THIS
OFFERING--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:
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o you are not a lawful permanent resident of the U.S. at
anytime during the calendar year;
o you do not make an election to be treated as a
resident alien; and
o 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 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:
o a non-resident alien individual;
o a foreign corporation;
o a foreign partnership; or
o 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
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.
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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.
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, then you must satisfy 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 specific 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:
o 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;
o 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
o 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 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.
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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:
o subject to the 30% withholding tax discussed above, or
o 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:
o is a U.S. person;
o derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in
the U.S.;
o is a "controlled foreign corporation" as to the
U.S.; or
o 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 LJ Soldinger Associates, independent
certified public accountants, given on the authority of said firm as experts in
auditing and accounting.
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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
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. You may obtain additional information
regarding the operation of the Public Reference Section by calling the
Securities and Exchange Commission at 1-800-SEC-0330. 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.
89
<PAGE>
================================================================================
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.
-------------------
Until _______, 2000 (90 days after the date of this prospectus), all dealers
effecting transactions in the shares of our common stock registered in this
registration statement, whether or not participating in this distribution, may
be required to deliver a prospectus. This is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters.
================================================================================
================================================================================
-------------------------------
NET VALUE HOLDINGS, INC.
3,722,560 SHARES OF COMMON STOCK
-------------
PROSPECTUS
--------------
December 17, 1999
================================================================================
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Financial Statements and
Independent Auditors' Report
Period Ended December 31, 1998
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S>
<C>
Net Value Holdings, Inc.
Independent Auditors' Report............................................................................................F2
Balance Sheets as of December 31, 1998 (audited) and September 30, 1999 (unaudited).....................................F3
Statement of Operations for the year ended December 31, 1998 (audited), for
the nine months ended September 30, 1998 and 1999 (unaudited), and the period
January 1, 1998 through September 30, 1999 (unaudited)................................................................F4
Statement of Changes in Stockholders' Deficit for the year ended December 31, 1998 (audited),
for the nine months ended September 30, 1999 (unaudited)..............................................................F5
Statements of Cash Flows for the year ended December 31, 1998 (audited), for the nine months ended
September 30, 1998 and 1999 (unaudited) and the period January 1, 1998
through September 30, 1999 (unaudited)................................................................................F7
Notes to Financial Statements...........................................................................................F8
AssetExchange.com
Independent Auditors' Report...........................................................................................F27
Balance Sheet as of September 30, 1999 (audited).......................................................................F28
Statement of Operations for the for the period March 12, 1999 (date of inception) through
through September 30, 1999 (unaudited)...............................................................................F29
Statement of Changes in Stockholders' Equity for the period March 12, 1999 (date of inception)
through September 30, 1999 (unaudited)...............................................................................F30
Statements of Cash Flows for the period March 12, 1999 (date of inception) through
through September 30, 1999 (unaudited)...............................................................................F31
Notes to Financial Statements..........................................................................................F32
College411.com, Inc.
Independent Auditors' Report...........................................................................................F36
Balance Sheet as of September 30, 1999 (audited).......................................................................F37
Statement of Operations for the for the period April 13, 1999 (date of inception) through
September 30, 1999 (unaudited).......................................................................................F38
Statement of Changes in Stockholders' Equity for the period April 13, 1999 (date of inception)
through September 30, 1999 (unaudited)...............................................................................F39
Statements of Cash Flows for the period April 13, 1999 (date of inception) through
September 30, 1999 (unaudited).......................................................................................F40
Notes to Financial Statements..........................................................................................F41
Swapit.com
Independent Auditors' Report...........................................................................................F46
Balance Sheet as of November 30, 1999 (audited)........................................................................F47
Notes to Financial Statements..........................................................................................F48
</TABLE>
- F1 -
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Net Value Holdings, Inc.
We have audited the accompanying balance sheet of Net Value Holdings, Inc. (a
development stage entity) as of December 31, 1998, and the related statement of
operations, stockholders' equity and cash flows for the year 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 audit.
We conducted our audit 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, 1998, and the results of its operations, stockholders' equity and
cash flows for the year 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 (except Notes 2 and 15
for which the date is December 3, 1999)
- F2 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Balance Sheets
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 1,466 $ 1,051,931
Loan receivable - related parties - 577,000
Loan receivable 200,000 60,000
Prepaid financing fees, net 170,182 298,935
Prepaid expenses - 52,786
Other - 15,562
---------- ------------
Total Current Assets 371,648 2,056,214
Property and Equipment, Net - 41,411
Ownership Interests in Affiliate Companies 2,639,104 5,680,069
Intangibles, Net - 227,863
Deferred Registration Costs - 65,746
Deposits - 6,452
---------- ------------
$3,010,752 $ 8,077,755
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Short-term borrowings - other $ $ 392,000
Stock subscription payable to Affiliate Company - 250,000
Notes payable, net of discounts 940,000 858,139
Notes payable - related party 200,000 -
Long-term debt due within one year - 71,287
Accrued interest 41,399 404,890
Accounts payable, accrued salaries and other expenses 107,022 384,630
---------- ------------
Total Current Liabilities 1,288,421 2,360,946
---------- ------------
Long-term debt, net of discounts and portion included in current liabilities 868,158 6,118,945
---------- ------------
Commitments and Contingencies
Stockholders' Equity (Deficit)
Series A Preferred stock, $.001 par value, At December 31, 1998,
2,519,852 shares issued and outstanding; 1,000,000 shares authorized 2,520 -
Series B Preferred stock, $.001 par value, At September 30, 1999,
2,000 shares issued and outstanding; 5,000 shares authorized - 2
Common stock, $.001 par value At December 31, 1998 and September 30, 1999,
6,969,852 and 13,371,902 shares issued and outstanding, respectively;
50,000,000 shares authorized 6,970 13,372
Additional paid-in capital 3,739,069 32,098,486
Deferred compensation - (15,109,483)
Deficit accumulated during the development stage (2,894,386) (17,404,513)
---------- ------------
Total Stockholders' Equity (Deficit) 854,173 (402,136)
---------- ------------
$3,010,752 $ 8,077,755
========== ============
</TABLE>
The accompanying notes are an integral
part of the financial statements.
- F3 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Statement of Operations
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended September 30, January 1, 1998
December 31, ----------------------------- through
1998 1998 1999 September 30, 1999
------------- ------------ -------------- ------------------
(Unaudited) (Unaudited) (Unaudited)
Revenues $ - $ - $ - $ -
----------- ---------- ------------ ------------
Operating Expenses
<S> <C> <C> <C> <C>
Compensation and related expenses - - 1,313,470 1,313,470
Professional fees 129,878 - 513,933 643,811
Consulting - - 107,849 107,849
Selling, general and administrative 10,606 1,120 319,867 330,473
Assumed obligation expense - - 4,368,675 4,368,675
Bad debt expense - affiliated company 2,618,384 1,350,000 3,920,964 6,539,348
Equity loss - - 32,928 32,928
----------- ----------- ------------ ------------
Total Operating Expenses 2,758,868 1,351,120 10,577,686 13,336,554
----------- ----------- ------------ ------------
Loss From Operations (2,758,868) (1,351,120) (10,577,686) (13,336,554)
Other Income (Expense)
Interest income - 19,690 19,690
Interest expense (82,082) (4,685) (3,409,507) (3,491,589)
Financing fees (48,436) - (542,624) (591,060)
----------- ----------- ------------ ------------
Total Other Expense (130,518) (4,685) (3,932,441) (4,062,959)
----------- ----------- ------------ ------------
Net Loss $(2,889,386) $(1,355,805) $(14,510,127) $(17,399,513)
=========== =========== ============ ============
Basic and Diluted Net Loss Per
Common Share $ (.58) $ (.59) $ (1.68)
=========== =========== ============
Basic and Diluted Weighted Average
Number of Common Shares Outstanding 4,993,868 2,292,535 8,647,063
=========== =========== ============
</TABLE>
The accompanying notes are an integral
part of the financial statements.
- F4 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Statements of Changes in Stockholders' Deficit
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------ -------------------------
Shares Amount Shares Amount
---------- --------- ------------ --------
<S> <C> <C> <C> <C>
Balances at December 31,
1997, brought forward - $ - 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 Net Value, Inc. preferred stock 500,000 500 1,000,000 1,000
Acquisition of Net Value, Inc.
common stock 2,019,852 2,020 2,019,852 2,020
Debt discount arising from
convertible debt offering - - - -
Net loss - - - -
---------- --------- --------- --------
Balances at December 31, 1998 2,519,852 $ 2,520 6,969,852 $ 6,970
---------- --------- --------- --------
</TABLE>
<PAGE>
[RESTUBED FOR ABOVE]
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Paid-In Deferred Development
Capital Compensation Stage Total
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Balances at December 31,
1997, brought forward $ 4,000 $ - $ (5,000) $ -
Common stock issued in connection
with 504 offering (net of offering
costs of $60,570) 526,480 - - 529,430
Exchange of Net Value, Inc. preferred
stock - - - 1,500
Acquisition of Net Value, Inc.
common stock 2,633,564 - - 2,637,604
Debt discount arising from
convertible debt offering 575,025 - - 575,025
Net loss - - (2,889,386) (2,889,386)
---------- --------- ----------- -----------
Balances at December 31, 1998 $3,739,069 $ - $(2,894,386) $ 854,173
---------- --------- ----------- -----------
</TABLE>
The accompanying notes are an integral
part of the financial statements.
- F5 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Statements of Changes in Stockholders' Deficit
<TABLE>
<CAPTION>
Preferred Stock Common Stock
---------------------- ------------------------
Shares Amount Shares Amount
--------- ------- --------- --------
<S> <C> <C> <C> <C>
Balances at December 31, 1998 2,519,852 $2,520 6,969,852 $ 6,970
Issuance of common stock - - 60,250 61
Common stock issued in connection
with the conversion of convertible
debt and accrued interest - - 1,175,668 1,175
Common stock issued in connection
with the conversion of exchange
notes and accrued interest - - 1,172,455 1,172
Debt discount arising from
convertible debt offering - - - -
Debt discount related to the
exchange notes - - - -
Debt discount related to Founders'
Equity note - - - -
Compensatory common stock and
options issued - - 1,763,822 1,764
Common stock issued in connection
with the conversion of accrued
interest - - 6,138 6
Common and preferred stock issued in
connection with the Strategicus
transaction 184,627 185 601,029 601
Conversion of Series A preferred stock (2,704,479) (2,705) 1,622,687 1,623
Issuance of Series B preferred stock 2,000 2 - -
Amortization of deferred
compensation - - - -
Financing fee - - - -
Net loss - - - -
--------- ------ ---------- -------
Balances at September 30, 1999
(Unaudited) 2,000 $ 2 13,371,901 $13,372
--------- ------ ---------- -------
</TABLE>
<PAGE>
[RESTUBBED FOR ABOVE]
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Paid-In Deferred Development
Capital Compensation Stage Total
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1998 $ 3,739,069 $ - $ (2,894,386) $ 854,173
Issuance of common stock 87,788 - - 87,849
Common stock issued in connection
with the conversion of convertible
debt and accrued interest 2,876,432 - - 2,877,607
Common stock issued in connection
with the conversion of exchange
notes and accrued interest 2,343,738 - - 2,344,910
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 and
options issued 16,188,005 (16,189,769) - -
Common stock issued in connection
with the conversion of accrued
interest 30,078 - - 30,084
Common and preferred stock issued in
connection with the Strategicus
transaction 1,501,787 - - 1,502,573
Conversion of Series A preferred stoc 1,082 - - -
Issuance of Series B preferred stock 1,861,370 - - 1,861,372
Amortization of deferred
compensation - 1,080,286 - 1,080,286
Financing fee 175,500 - - 175,500
Net loss - - (14,510,127) (14,510,127)
----------- ------------ ------------ ------------
Balances at September 30, 1999
(Unaudited) $32,098,486 $(15,109,483) $(17,404,513) $ (402,136)
----------- ------------ ------------ ------------
</TABLE>
All stock issued as consideration for goods and services received was accounted
for using either the fair value of the equity instruments issued or the fair
value of the goods and services received, whichever was more reliably measured.
The accompanying notes are an integral
part of the financial statements.
- F6 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended September 30, January 1, 1998
December 31, ----------------------------- through
1998 1998 1999 September 30, 1999
------------ ------------ ------------- ------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net Loss $(2,889,386) $(1,355,805) $(14,510,127) $(17,399,513)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization - - 15,003 15,003
Amortization of financing fees 48,436 - 542,624 591,060
Amortization of note payable discount 40,683 - 2,819,545 2,860,228
Interest expense paid with stock issuance - - 181,445 181,445
Compensatory common stock,
options and warrants issued and issuable - - 1,168,135 1,168,135
Assumed obligation expense - - 4,368,675 4,368,675
Equity loss - - 32,928 32,928
Change in assets and liabilities
Increase in
Other current assets and deposits (218,618) - (25,571) (244,189)
Other noncurrent assets - - (70,326) (70,326)
Increase in
Accounts payable and accrued expenses 107,022 - 271,981 379,003
Accrued interest 41,399 4,685 363,491 404,890
----------- ----------- ------------ ------------
Total Adjustments 18,922 4,685 9,667,930 9,686,852
----------- ----------- ------------ ------------
Net Cash Used in Operating Activities (2,870,464) (1,351,120) (4,842,197) (7,712,661)
----------- ----------- ------------ ------------
Cash Flows from Investing Activities
Loans to related parties - - (577,000) (577,000)
Other loans made (200,000) - (60,000) (260,000)
Repayment of loans - - 200,000 200,000
Ownership Interests in Affiliate Companies - - (1,571,320) (1,571,320)
Cash assumed from acquisitions - - 2,425 2,425
Purchases of furniture and equipment - - (32,157) (32,157)
----------- ----------- ------------ ------------
Cash Used in Investing Activities (200,000) - (2,038,052) (2,238,052)
----------- ----------- ------------ ------------
Cash Flows from Financing Activities
Proceeds from note payable - related party 200,000 - - 200,000
Repayment of note payable - related party - - (200,000) (200,000)
Proceeds from notes payable 1,304,000 950,600 - 1,304,000
Repayment of notes payable (364,000) - (40,000) (404,000)
Proceeds from convertible debentures 1,402,500 - 6,846,210 8,248,710
Principal payments of long-term debt - - (40,991) (40,991)
Net proceeds from issuance of stock and
warrants 529,430 495,000 - 529,430
Proceeds from sale of preferred stock - - 1,861,372 1,861,372
Payment of financing fees - - (495,877) (495,877)
----------- ----------- ------------ ------------
Cash Provided by Financing Activities 3,071,930 1,445,600 7,930,714 11,002,644
----------- ----------- ------------ ------------
Net Increase in Cash and Cash Equivalents 1,466 94,480 1,050,465 1,051,931
Cash and Cash Equivalents at Beginning
of Period - - 1,466 -
----------- ----------- ------------ ------------
Cash and Cash Equivalents at End of Period $ 1,466 $ 94,480 $ 1,051,931 $ 1,051,931
=========== =========== ============ ============
Cash Paid for Interest $ - $ - $ 45,026 $ 45,026
=========== =========== ============ ============
Cash Paid for Taxes $ - $ - $ - $ -
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral
part of the financial statements.
- F7 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 1 - DESCRIPTION OF THE BUSINESS
History
Net Value Holdings, Inc. (the "Company") was incorporated under the laws of the
state of Florida on December 20, 1991and reincorporated in the state of Delaware
on October 8, 1998. The Company had been previously named SUNCL, Inc.
On August 31, 1998, the Company entered into a letter of intent to merge with
Net Value, Inc., formerly named BrightStreet.com, Inc. (the "Merger"). In
contemplation of the Merger, the shareholders of the Company agreed to change
the corporation's name from SUNCL, Inc. to Net Value Holdings, Inc. The terms of
the letter of intent provided that the shareholders of Net Value, Inc. would
receive a mutually agreed-upon portion of the equity of the Company, and that
the Company would be the surviving legal entity in the Merger.
As of December 31, 1998, the Company had entered into share exchange agreements
with twenty Net Value, Inc. shareholders, who tendered approximately 66% of the
issued and outstanding shares of common stock and 100% of the issued and
outstanding shares of preferred stock of Net Value, Inc. to the Company ("Share
Exchanges"). The Company expects to enter into a merger agreement with Net
Value, Inc. whereby the remaining shareholders of Net Value, Inc. will receive
the Company's securities on the same terms as contained in the Share Exchanges.
Terms of the Share Exchanges provided that the Net Value, Inc. shareholders
exchange four shares of Net Value, Inc. common stock for one share of the
Company's common stock and one share of the Company's Series A convertible
preferred stock ("Convertible Preferred Stock"). Each holder of the Company's
Convertible Preferred Stock would be entitled to receive up to one share of the
Company's common stock based upon the achievement of certain performance
objectives. The Company would be able to convert each share of Convertible
Preferred Stock into one share of common stock at any time.
Net Value, Inc., a development stage enterprise, was 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. Net Value, Inc.
has incurred losses since its inception.
On July 30, 1999, as part of a step transaction to obtain an ownership interest
in three unrelated Internet companies, the Company acquired Strategicus
Partners, Inc. ("Strategicus"). Strategicus was an Oregon corporation that was
formed in August 1998, had minimal assets, was in the process of developing
Internet operations of its own through its wholly-owned subsidiary, Metacat.com,
Inc. ("Metacat"), and which had the opportunity to consummate transactions in
two other Internet companies in which the Company desired to obtain interests.
Prior to the merger the Company advanced funds to Strategicus which it
principally used to acquire the desired ownership interests. At the date of the
merger, Strategicus had ownership interests in three Internet businesses in
various stages of development, Metacat, Asia CD, Inc. ("Asia CD") and
College411.com, Inc. ("College411").
In September, October and November 1999, the Company exercised warrants to
purchase additional shares of common stock in College411 and acquired equity
interests in three more Internet businesses, Asset Exchange, Inc. ("Asset
Exchange"), Webmodal, Inc. ("Webmodal") and Swapit.com, Inc. ("Swapit").
On December 3, 1999, Net Value, Inc. sold substantially all of its assets and
its business, which included the name BrightStreet.com, Inc. (see Note 4).
Nature of Operations
The Company was formed as a Florida corporation on December 20, 1991. In 1992,
the Company failed to file its annual report with the State of Florida and was
administratively dissolved on October 9, 1992. On June 15, 1998, the Company
filed all required reports and paid all deficient annual fees and penalties and
was reinstated as a corporation in the State of Florida. Accordingly, from
October 9, 1992 through December 31, 1997, the Company had no operations and
generated no revenues or expenses. The Company currently is an Internet holding
company which owns equity interests in and provides strategic management
services to development stage Internet companies.
- F8 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
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. The
Company's dependence on outside financing or a business combination, along with
limited opportunities to invest in viable enterprises, 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.
Net Value, Inc. sold substantially all of its assets for cash, assumption of
certain liabilities, cancellation of certain stock options, release of
employment obligations, and a 12% ownership interest in Promotions Acquisition,
Inc., a newly-formed and capitalized company. The Company has therefore changed
the method of reporting its ownership interest in the operations of Net Value,
Inc. from the consolidation method to the cost method, which constitutes a
change in reporting entity under Accounting Principles Board No. 20 - Accounting
Changes. Consequently, the financial statements for all prior periods have been
restated to reflect the investment in Net Value, Inc. using the cost method, and
all other financial information related to Net Value has been removed from the
presentation. This treatment is consistent with the treatment afforded to
companies which are in the process of an initial public offering and spin off a
subsidiary before becoming effective, and then restate prior financial
statements to remove the operations which will not be part of the registrant
when this offering becomes effective, under SEC Staff Accounting Bulletin No.
93, Accounting and Disclosure Regarding Discontinued Operations Accounting
(Topic 5, Section 2, Item No. 7 - Accounting for the Spin-Off of a Subsidiary).
The Company was formed as a Florida corporation on December 20, 1991. In 1992,
the Company failed to file its annual report with the State of Florida and was
administratively dissolved on October 9, 1992. On June 15, 1998, the Company
filed all required reports and paid all deficient annual fees and penalties and
was reinstated as a corporation in the State of Florida. Accordingly, from
October 9, 1992 through December 31, 1997, the Company had no operations and
generated no revenues or expenses. Accordingly, no financial statements have
been presented herein for 1996 and 1997.
Interim Information
The interim consolidated financial data as of September 30, 1999 and for the
nine months ended September 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.
Principles of Consolidation
The financial statements are consolidated as of September 30, 1999 and for the
nine months ended September 30, 1999 to include the accounts of the Company and
its wholly-owned subsidiary, Metacat. The various interests that the Company
acquires in other entities ("Affiliate Companies") are accounted for under three
broad methods: consolidation, equity method and cost method. The applicable
accounting method is generally determined based on the Company's voting interest
in the Affiliate Company.
Consolidation
Affiliate Companies in which the Company directly or indirectly owns
more than 50% of the outstanding voting securities are generally
accounted for under the consolidation method of accounting. Under this
method, an Affiliate Company's results of operations are reflected
within the Company's Consolidated Statement of Operations. All
significant intercompany accounts and transactions have been eliminated.
- F9 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Equity Method
Affiliate Companies whose results are not consolidated, but over whom the
Company exercises significant influence, are accounted for under the
equity method of accounting. Whether or not the Company exercises
significant influence with respect to the Affiliate Company depends on an
evaluation of several factors including, among others, representation on
the Affiliate Company's Board of Directors and the Company's ownership
level, which is generally a 20% to 50% interest in the voting securities
of the Affiliate Company, including voting rights associated with the
Company's holdings in common, preferred and other convertible instruments
in the Affiliate Company. Under the equity method of accounting, an
Affiliate Company's results of operations are not reflected within the
Company's Consolidated Statements of Operations; however, the Company's
share of the earnings or losses of the Affiliate Company is reflected in
the caption "Equity loss" in the Consolidated Statements of Operations.
The amount by which the Company's carrying value exceeds its share of the
underlying net assets of Affiliate Companies accounted for under the
consolidation or equity method of accounting is amortized on a
straight-line basis over three years, which adjusts the Company's share
of the Affiliate Company's earnings or losses.
Cost Method
Affiliate Companies not accounted for under the consolidation or the
equity method of accounting are accounted for under the cost method of
accounting. Under this method, the Company's share of the earnings or
losses of such Affiliate Companies is not included in the Consolidated
Statements of Operations.
Evaluations
The Company is continuously evaluating the carrying costs of it ownership
interest in its Affiliate Companies. The evaluation consists of possible
impairment based on the lack of the achievement of business plan objectives, the
value of each ownership interest in the Affiliate Company relative to carrying
value, the Affiliate Company's financial condition and prospects, and other
relative factors.
Development Stage Enterprise
The Company is a Development Stage Enterprise, as defined in Statement of
Financial Accounting Standards No. 7 ("SFAS No. 7"). Under SFAS No. 7, certain
additional financial information is required to be included in the financial
statements which would normally be presented from the inception of the Company
to the current balance sheet date. However, Footnote 7 of SFAS No. 7 provides
that dormant enterprises that commence development stage activities should
disclose the required cumulative financial information from the inception of the
development stage. The Company started development stage activities in 1998 by
raising capital through a private placement offering in order to actively pursue
a merger with Net Value, Inc. as well as pursue other potential business
combinations and investments.
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.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with an original maturity of
90 days or less at the time of purchase to be cash equivalents. Cash and cash
equivalents at September 30, 1999 were invested principally in money market
funds.
- F10 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss Per Share
Loss per share is calculated in accordance with Statement of Financial
Accounting Standards No. 128 "Earnings Per Share." Basic loss per share is
computed based upon the weighted average number of shares of common stock
outstanding for the period and excludes any potential dilution. Diluted earnings
per share reflect potential dilution from the exercise of conversion of
securities into common stock.
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.
Prepaid Financing Fees
Prepaid financing fees include commissions, placement fees, professional fees
and other consideration incurred by the Company on borrowings received. These
prepaid financing fees are being charged to expense over the remaining term of
the outstanding borrowings.
Intangibles
Goodwill is defined as the excess of cost over net assets of the businesses
being acquired. Goodwill is being amortized on a straight-line basis over a
three-year period. There was no goodwill at December 31, 1998.
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
-----
Computer hardware 4
Office furniture and equipment 5
Equipment acquired under long-term capital lease arrangements is recorded at
amounts equal to the net present value of the future minimum lease payments
using the interest rate implicit in the lease. Amortization is provided by use
of the straight-line method over the estimated useful lives of the related
assets.
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 two reportable segments. The Company's two reportable
segments consist of Affiliate Company operations and general Company operations,
representing the expenses of providing strategic and operational support and
related administrative functions.
Income Taxes
The Company accounts for its income taxes under Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes." Income taxes are
recorded in the period in which the related transactions have been recognized in
the financial statements, net of the valuation allowances which have been
recorded against deferred tax assets. Deferred tax assets and/or liabilities are
recorded for the expected future tax consequences of temporary differences
between the tax basis and the financial reporting of assets and liabilities. At
December 31, 1998, deferred tax assets, relating primarily to the benefits of
operating loss carryforwards and accrual of guaranteed obligations, have been
offset by a valuation reserve because the future utilization of these assets
cannot be determined.
- F11 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock-Based Compensation
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.
The Company has 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. The Company had no
compensation expense for 1998, and therefore the Company's net loss and net loss
per share would have been the same under the fair value provisions of SFAS 123.
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 $981,459 at September 30, 1999.
Accounting for Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards Board No. 121,
the Company records impairment losses on long-lived assets used in operations
when indications of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the asset's carrying
amount.
Recent Accounting Pronouncements
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position or cash flows.
NOTE 3 - CONTINGENCY - GOING CONCERN
At December 31, 1998 and at September 30, 1999, the Company had significant
liabilities and an accumulated deficit. The Company's management expects to
obtain additional financing from future private offerings and to utilize the
proceeds of its future offerings to facilitate a business combination, pay
certain obligations, invest in other companies and fund cash requirements. There
can be no assurance that the Company will obtain such additional financing or
complete a business combination. The failure of the Company to raise additional
financing would require the Company to adjust its business plan, may require the
Company to adjust its current course of action, or may require the Company to
cease operations and liquidate. 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 - SALE OF SUBSTANTIALLY ALL OF THE ASSETS OF NET VALUE, INC.
On December 3, 1999, Net Value, Inc. sold substantially all of its assets to
Promotions Acquisitions, Inc. ("Promotions"), a Delaware corporation which was
formed by the former management team of Net Value, Inc. in connection with a $17
million investment in Promotions by outside investors. In exchange for
substantially all of its assets, Net Value, Inc. received $2 million in cash,
the assumption by Promotions of approximately $2 million of Net Value, Inc.
liabilities, shares of Promotions' common stock equal to a 14.3% ownership
interest in Promotions, calculated on a fully-diluted basis, cancellation of all
Net Value, Inc. stock options held by Net Value, Inc. employees, and the release
by Net Value, Inc. of all obligations to all employees and consultants who were
employed or engaged as of the closing date of this transaction. As a result of
the transaction, Net Value, Inc. no longer has any operations nor any
obligations to consultants or employees that were engaged or employed by Net
Value, Inc. as of the closing date of this transaction. Management intends to
use the $2 million of proceeds
- F12 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 4 - SALE OF SUBSTANTIALLY ALL OF THE ASSETS OF NET VALUE, INC. (Continued)
to satisfy Net Value, Inc.'s existing obligations of approximately $2 million
which were not assumed by Promotions. Subsequent to the completion of the sale,
Promotions changed its name to BrightStreet.com, Inc. and Net Value, Inc.
changed its name from BrightStreet.com, Inc. to Net Value, Inc. At December 31,
1998 and September 30, 1999, 66% of Net Value, Inc.'s 14.3% ownership interest
in Promotions has been reflected on the Company's balance sheets as a result of
the Company's ownership interest in Net Value, Inc. The Company has recorded the
cost of its ownership interest in Promotions at $1.35 per share, which was based
on a recent unrelated equity investment received by Promotions. The Company also
included in the cost of its investment professional fees in the amount of
$75,170.
The Company plans to complete a merger with Net Value, Inc. by acquiring the
remaining outstanding shares of common stock on the same terms and conditions as
the Share Exchange transactions (see Note 1). Immediately subsequent to the sale
of substantially all of its assets, stockholders unrelated to the Company owned
4,149,350 shares of common stock outstanding which the Company plans on
acquiring upon completion of the Merger as well as warrants to purchase
1,822,722 shares of its common stock at prices ranging from $1.50 through $4.00
and options to acquire 989,250 shares of common stock at prices ranging from
$.63 through $7.00. Included in the outstanding warrants are warrants to acquire
1,060,222 shares of Net Value, Inc. common stock that have been granted to an
affiliate of the Company's Chief Executive Officer.
NOTE 5 - LOAN RECEIVABLE - RELATED PARTIES
In May 1999, Strategicus loaned $310,000 to one of its officers. The loan
accrued interest at 9% per annum and was due on July 30, 1999. In connection
with the Company's merger with Strategicus, the Company assumed the loan and
entered into an employment agreement with the officer whereby the Company agreed
not to demand repayment on the loan during the employment period. The Company
also agreed to forgive the loan principal, plus all accrued interest thereon, on
the first anniversary of the officer's employment, provided that the agreement
had not been terminated.
In June 1999, the Company loaned $267,000 to another officer of Strategicus. In
connection with the Company's merger with Strategicus, the officer entered into
a consulting agreement with the Company and the Company agreed not to demand
repayment of the loan during the term of the consulting agreement. The Company
also agreed to forgive the loan principal and accrued interest thereon ratably
over the first three-year period of the consulting agreement.
NOTE 6 - LOAN AND ADVANCE RECEIVABLE
In December 1998, the Company made a non-interest bearing, unsecured loan of
$200,000 to a stockholder. The loan was outstanding as of December 31, 1998 and
repaid during March and April of 1999.
In July 1999, the Company made a non-interest bearing, unsecured advance of
$60,000 to a potential future investee company. The advance remained outstanding
as of September 30, 1999.
NOTE 7 - OWNERSHIP INTERESTS AND ADVANCES IN INVESTMENTS
The following summarizes the Company's ownership interests in Affiliated
Companies accounted for under the equity method or cost method of accounting.
The ownership interests are classified according to applicable accounting
methods at December 31, 1998 and September 30, 1999. Cost basis represents the
Company's original acquisition cost less any impairment charges in such
companies.
- F13 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 7 - OWNERSHIP INTERESTS AND ADVANCES IN INVESTMENTS (Continued)
<TABLE>
<CAPTION>
December 31, 1998 September 30, 1999
(Unaudited)
-------------------------------- ----------------------------
Carrying Cost Basis Carrying Cost Basis
Value Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Equity Method
College411 $ - $ - $ 430,275 $ 459,745
Asset Exchange - - 396,542 400,001
---------- ---------- ---------- ----------
- - 826,817 859,746
---------- ---------- ---------- ----------
Cost Method
Net Value, Inc. 2,639,104 2,639,104 2,714,274 2,714,274
Asia CD - - 2,138,978 2,138,978
---------- ---------- ---------- ----------
2,639,104 2,639,104 4,853,252 4,853,252
---------- ---------- ---------- ----------
$2,639,104 $2,639,104 $5,680,069 $5,712,998
========== ========== ========== ==========
</TABLE>
The following summarized financial information for Affiliate Companies accounted
for under the equity method of accounting at December 31, 1998 and September 30,
1999 has been compiled from the financial statements of the respective
companies:
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1999
December 31, -------------------------------------------------
1998 College411 Asset Exchange Combined
-------------- ------------ ---------------- ----------
<S> <C> <C> <C> <C>
Current Assets $ - $ 60,497 $179,127 $239,624
Noncurrent Assets - 31,782 10,106 41,888
-------- -------- -------- --------
Total Assets $ - $ 92,279 $189,233 $281,512
======== ======== ======== ========
Current Liabilities $ - $ 8,046 $ 36,762 $ 44,808
Stockholders' Equity - 84,233 152,471 236,704
-------- -------- -------- --------
Total Liabilities and
Stockholders' Equity $ - $ 92,279 $189,233 $281,512
======== ======== ======== ========
</TABLE>
- F14 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 7 - OWNERSHIP INTERESTS AND ADVANCES IN INVESTMENTS (Continued)
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
September 30, 1999
December 31, ----------------------------------------------------
1998 College411 Asset Exchange Combined
--------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ - $ - $ - $ -
Net Loss - (100,017) (48,529) (148,546)
======== ========= ======== =========
Loss Attributable to the
Company
Company $ - $ (29,470) $ (3,458) $ (32,928)
======== ========= ======== =========
</TABLE>
NOTE 8 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
Computer Equipment $ - $27,897
Office Furniture - 15,791
-------- -------
- 43,688
Less Accumulated Depreciation - (2,277)
-------- -------
$ - $41,411
======== =======
Depreciation expense for 1998 was $0 and $2,277 for the nine-month period ended
September 30, 1999.
NOTE 9 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the financial statements 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:
- F15 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 9 - INCOME TAXES (Continued)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1998 1998 1999
---------------- ---------------- ---------------
<S> <C> <C> <C>
Deferred Tax Assets (Liabilities)
Temporary differences
Assumption of liabilities $ 459,000 $ 890,000 $ -
Amortization of financing fees - 2,000 -
Interest income from related party - 20,000 (5,000)
Losses from equity investments - - 11,000
Deferred compensation - - 367,000
--------- --------- -----------
Total 459,000 912,000 373,000
Federal and State Deferred Tax Benefits
Arising from Net Operating Loss
Carryforwards 2,000 56,000 4,570,000
--------- --------- -----------
461,000 968,000 4,943,000
Valuation Allowance (461,000) (968,000) (4,943,000)
--------- --------- -----------
Net Deferred Tax Asset $ - $ - $ -
========= ========= ===========
</TABLE>
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 34%:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1998 1998 1999
---------------- --------------- ---------------
<S> <C> <C> <C>
Federal income tax benefit at
statutory rate $ 461,000 $ 982,000 $4,934,000
Discount from amortization of
beneficial conversion - (14,000) (959,000)
Valuation allowance (461,000) (968,000) 3,975,000)
--------- --------- ----------
Income tax benefit $ - $ - $ -
========= ========= ==========
Effective income tax rate 0% 0% 0%
========= ========= ==========
</TABLE>
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Subsequent to the sale of substantially all of the assets of Net Value, Inc.
(see Note 4), Net Value, Inc. remained liable for approximately $2 million of
liabilities. Included in these liabilities is an ongoing lease obligation for
vacated office space at Net Value, Inc.'s previous headquarters. On November 23,
1999, the landlord filed a lawsuit against Net Value, Inc. seeking to recover
damages and costs related to an alleged breach of the lease.
- F16 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)
Net Value, Inc. also remains liable for an obligation due to DMR Consulting
Group, Inc. ("DMR") in connection with consulting services which DMR provided to
Net Value, Inc. According to a settlement agreement amended on December 3, 1998,
Net Value, Inc. has a remaining outstanding balance of $170,000 due to DMR. Net
Value, Inc. did not make the required payments to DMR, and by the terms of the
amended settlement agreement, DMR may assert a claim against Net Value, Inc. for
an additional $475,000. Management believes that Net Value, Inc. has rights of
offset against all balances that may be due to DMR, and has recorded a liability
to DMR on Net Value's books and records of $170,000.
Upon the contemplated Share Exchanges with the remaining Net Value, Inc.
stockholders and the completion of the Merger, any liabilities of Net Value,
Inc. will become liabilities of the Company.
NOTE 11 - NOTES AND LOANS PAYABLE
Notes and loans payable consisted of the following:
December 31, September 30,
1998 1999
-------------- ---------------
(Unaudited)
Convertible Debt Offering (a) $ 1,402,500 $ 5,017,500
Rozel (b) 200,000 -
FAC Enterprises (c) 40,000 -
FEG (d) 900,000 900,000
Transamerica (e) - 100,336
Exchange Notes (f) - 2,038,969
Short-Term Borrowings (g) - 392,000
----------- -----------
2,542,500 8,448,805
Less discount on notes payable (534,342) (1,008,433)
----------- -----------
2,008,158 7,440,372
Less amount due within one year (1,140,000) (1,321,426)
----------- -----------
Noncurrent portion $ 868,158 $ 6,118,945
=========== ===========
(a) In October 1998, the Company 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 into the
Company's common stock at any time by the holders at a conversion price of
$2.00 per share. The Company 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 Net Value,
Inc. by the Company; 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 the Company 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. The Company 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. During 1999, holders of these Debentures
converted the aggregate principal amount of $240,000 and the accrued
interest thereon of $7,448 into 123,724 shares of the Company's common
stock.
- F17 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 11 - NOTES AND LOANS PAYABLE (Continued)
In the first quarter of 1999, the Company 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, the
Company sold additional Debentures in the aggregate principal amount of
$6,215,000 as of September 30, 1999. In 1999, holders of these Debentures
converted the aggregate principal amount of $2,600,000 and the accrued
interest thereon of $30,159 into 1,051,943 shares of the Company's common
stock.
In connection with these two offerings of Debentures, the Company paid
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 nine-month period ended September 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
$129,049 and $216,477 at December 31, 1998 and September 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 nine months ended September 30, 1999 amounted to $18,436 and
$414,595, 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 March 1, 2000, 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 nine months ended September 30, 1999 amounted
to an aggregate of $575,025 and $893,920, respectively, based upon a fair
market value for the Company's common stock of $2.82 per share, as
determined by an independent valuation company. Amortization of the discount
amounted to $69,110 and $923,146 in 1998 and for the nine-month period ended
September 30, 1999, respectively, and has been reflected as interest expense
in the accompanying statements of operations. At December 31, 1998 and
September 30, 1999, the unexpired portion of the discount amounted to
$505,915 and $476,689, respectively, and has been reflected on the balance
sheet as a reduction in notes payable. The effective interest rate on the
Debentures approximated 63% in 1998 and ranged from between 21% to 63% for
the nine months ended September 30, 1999.
(b) In December 1998, the Company borrowed $200,000 from Rozel International
Holdings Limited ("Rozel"), a related party. The loan was non-interest
bearing and was repaid in February 1999.
<PAGE>
(c) In 1998, the Company borrowed $40,000 from FAC Enterprises, Inc. The loan
accrued simple interest at a rate of 10% per annum, and was repaid in
February 1999.
(d) In September 1998, the Company 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"). Interest expense on the
Founders' Note amounted to $27,616 in 1998 and $22,500 in 1999 through March
1. The entire interest expense was paid in March 1999. The Company 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
two months ended March 1, 1999 amounted to $30,000 and $15,000,
respectively. An affiliate of a shareholder of the Company guaranteed the
Founders' Note and the accrued interest thereon.
On March 1, 1999, the Company 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. 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 the Company elects to exercise its conversion rights;
(iii) the one-year anniversary of the consummation of the Merger; or (iv)
March 1, 2000, if the Merger has not been consummated by that date. An
affiliate of a shareholder of the Company guaranteed the convertible
promissory note, including accrued interest. The Company 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 the Company's common stock at a
price equal to 80% of the bid price of the Company's 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 the
Company's common
- F18 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 11 - NOTES AND LOANS PAYABLE (Continued)
stock at a conversion rate of $2.50 per share. The Company may require the
holder to convert the entire principal amount of the convertible promissory
note, plus all accrued interest thereon, upon the Company's common stock
attaining certain price and volume requirements and upon the registration
for resale of all shares of the Company's 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 the Company 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 the Company's obligations pursuant to the Founders' Note, the Company
issued a warrant to purchase 90,000 shares of the Company's common stock at
an exercise price of $2.50 per share and a warrant to purchase 90,000 shares
of the Company's 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 the Company's common stock issued upon the exercise
of either of these warrants. An affiliate of the holder of the convertible
promissory note currently owns 160,000 shares of the Company's common 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 March 1, 2000, 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
nine months ended September 30, 1999 amounted to $102,375 and the unexpired
portion of the financing fee at September 30, 1999 was $73,125.
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 March 1, 2000, the date the Merger is expected to
become effective and conversion of the promissory note is expected to occur.
The discount related to the beneficial conversion feature for the
convertible promissory note amounted to $115,200, based upon a fair market
value for the Company's common stock of $2.82 per share as determined by an
independent valuation company. Amortization of the discount amounted to
$73,339 for the nine months ended September 30, 1999 and has been reflected
as interest expense in the accompanying statements of operations. At
September 30, 1999, the unexpired portion of the discount amounted to
$41,861 and has been reflected on the balance sheet as a reduction in notes
payable. The effective interest rate on the convertible promissory note
approximated 26% during the nine-month period ended September 30, 1999.
<PAGE>
(e) In May 1998, Net Value, Inc. financed $175,500 of a three-year insurance
premium, amounting to $197,500, for the liability coverage of its directors
and officers. In 1999, the binder was rewritten to cover the directors and
officers of the Company and all of the Company's majority-owned subsidiaries
effective October 1998, and correspondingly, the financing liability was
assumed by the Company in 1999. The financing accrues interest at 7.76% per
annum, and requires monthly installment payments of $5,923. Interest expense
on the loan amounted to $6,399 for the first nine months of 1999.
(f) On January 7, 1999, the Company offered the holders of certain promissory
notes previously issued by Net Value, Inc. an exchange of their existing
promissory notes for promissory notes issued by the Company through a
private offering ("Exchange Notes"). The principal balances for each of the
Exchange Notes was equivalent to the principal balances on the Net Value,
Inc. notes, 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 the
Company's common stock at a conversion rate of $2.00 per share at any time.
The Company may convert the principal and accrued interest on the Exchange
Notes into shares of the Company's common stock at a rate of $2.00 per
share, upon the Company's 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 the Company 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 the Company issue
to the holders of the Exchange Notes warrants to purchase one-half of one
share of the Company's 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 period subsequent to the
effective date of the Merger, unless prior written agreement from American
Maple Leaf ("AML") is obtained. As of April 30, 1999, $4,270,125 of Exchange
Notes had been issued by the Company, which replaced $3,800,000 of principal
and $470,125 of accrued interest on the Net Value, Inc. promissory notes.
The remaining holders of the Net Value, Inc. promissory notes will not be
participating in the offering of the Exchange Notes. Therefore, as a result
of the sale of the Net Value, Inc. assets (see Note 4), Net Value, Inc.
anticipates making payment on the remaining outstanding principal balances
and accrued interest thereon. Net Value, Inc. will be required to pay
default interest on the outstanding balance of the remaining Net Value, Inc.
promissory notes.
- F19 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 11 - NOTES AND LOANS PAYABLE (Continued)
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 March 1, 2000, 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 nine months ended September 30, 1999 amounted to
$2,284,517, based upon a fair market value for the Company's common stock of
$2.82 per share, as determined by an independent valuation company.
Amortization of the discount amounted to $1,794,634 for the nine months
ended September 30, 1999 and is reflected as interest expense in the
accompanying statements of operations. At September 30, 1999, the unexpired
portion of the discount amounted to $489,883 and has been reflected as a
reduction in notes payable in the accompanying balance sheet. The effective
interest rate on the Exchange Notes approximated 122% during the nine-month
period ended September 30, 1999. Interest incurred on the Exchange Notes,
exclusive of amortization on the debt discount, amounted to $295,575 for the
nine months ended September 30, 1999. Exchange Warrants to acquire 586,228
shares were outstanding at September 30, 1999.
(g) From July 1999 through September 1999, the Company borrowed $392,000 in the
form of non-interest bearing advances from three of its shareholders.
$380,000 of these advances were repaid in October 1999.
NOTE 12 - CAPITAL STOCK ACTIVITY
In September and October 1998, the Company sold an aggregate of 2,950,000 shares
of common stock for an aggregate purchase price of $590,000 ($.20 per share),
less approximately $60,570 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 Net
Value, Inc. and the Company, Rozel exchanged all of its Net Value, Inc. Series A
preferred shares for 1,000,000 shares of the Company's common stock and 500,000
shares of the Company's Convertible Preferred Stock.
As of December 31, 1998, the Company entered into share exchange agreements with
twenty Net Value, Inc. shareholders. The Company exchanged 2,019,852 shares of
common stock for approximately 66% of the issued and outstanding shares of
common stock and 100% of the issued and outstanding Series A preferred stock of
Net Value, Inc.
In March 1999 through September 1999, certain holders of the Debentures from
both offerings converted the principal amount of $2,840,000 and accrued interest
thereon of $37,607 into 1,175,668 shares of the Company's common stock (see Note
11).
In the period May 1999 through September 1999, holders of Exchange Notes (see
Note 11) converted principal and accrued interest of $2,344,910 into 1,172,455
shares of the Company's common stock and 586,228 Exchange Warrants. From October
1999 through December 10, 1999, an additional $620,350 of principal and interest
was exchanged for 310,175 shares of the Company's common stock and 155,088
Exchange Warrants.
On July 30, 1999, the Company issued 184,627 Series A preferred stock and
601,029 shares of common stock in connection with the merger with Strategicus.
In connection with the Strategicus merger, a principal with Strategicus signed
an employment agreement with the Company and was issued 1,641,310 shares of
common stock and 504,187 shares of the Company's Series A preferred stock.
Subsequently, the principal agreed to exchange his preferred shares for an
additional 302,512 shares of the Company's common stock. In September 1999, the
principal agreed to reduce his common stock shares to 1,763,822.
In July 1999, the Company issued 6,138 shares of the Company's common stock at
the request of the Founders' Note noteholders as payment for $30,084 of accrued
interest which was due on July 1, 1999 (see Note 11).
Pursuant to an offering by the Company in August and September 1999, all of the
outstanding Series A Preferred Stock was exchanged at a rate of one share of
Series A Preferred Stock for the equivalent of .6 of a share of the Company's
common stock (the "Preferred Exchange").
In September 1999, the Company issued 4,000 shares of its common stock as
consideration for the extension of a Net Value, Inc. note payable.
- F20 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 12 - CAPITAL STOCK ACTIVITY (Continued)
In September 1999, the Company issued 3,750 shares of its common stock to a
former employee of Net Value, Inc. as consideration for entering into a
settlement agreement regarding his employment with Net Value, Inc.
In September 1999, the Company issued 6,250 shares of its common stock to each
of two consultants in exchange for consulting services rendered.
The Company intends to file a registration statement with the SEC to register
shares of its common stock previously issued to certain shareholders. In August
through September 1999, the Company issued an aggregate of 40,000 shares of its
common stock to two such shareholders for failing to meet an agreed-upon
deadline for the filing. An additional 14,000 shares were issued in October
1999.
<TABLE>
<CAPTION>
Grant Date Exercise Price Expiration
Warrants Granted and Outstanding Shares Date Exercisable per Share Date
- -------------------------------- -------- ----- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Granted [see Note 11d] 90,000 3/1/99 3/1/99 $ 2.50 2/28/2002
Granted [see Note 11d] 90,000 3/1/99 3/1/99 $ 5.00 2/28/2002
Granted [see Note 11f] 586,228 5/99-9/99 5/99-9/99 $ 6.00 5/2002-9/2002
Granted [see Note 20] 110,498 9/99 9/99 $4.25 - 4.875 9/2004
-------
Balance at September 30, 1999
(Unaudited) 876,726
</TABLE>
A summary of stock options for which the Company is contractually obligated to
issue under a stock option plan yet to be approved by the Company's stockholders
as of September 30, 1999 (unaudited) is as follows:
Exercise Grant
Price Date Total Earned
-------- ----- --------- -------
[see Note 20] $ 1.00 6/99 1,080,000 120,000
[see Note 19] $ 1.00 8/99 5,715,876
[see Note 20] $ 1.00 9/99 900,000 90,000
Preferred Stock
As of December 31, 1998, the Company 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
the Company's Board of Directors from time to time. As of December 31, 1998, the
Company had 2,519,852 issued and outstanding shares of Convertible Preferred
Stock (see Note 20).
In September 1999, the Company entered into a convertible preferred stock
purchase agreement with certain investors to raise a maximum of $5,000,000.
2,000 Series B shares were issued and outstanding as of September 30, 1999. (See
Note 20)
Loss Per Share
The Company has adopted SFAS 128, 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 anti-dilutive 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:
Exercise/ December 31,
Conversion Price 1998
------------------- -------------------
Convertible preferred stock .6 common shares $1,511,911
Convertible debt $2.00 701,250
----------
$2,213,161
==========
- F21 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 13 - RELATED PARTIES
Related party transactions not disclosed elsewhere in the financial statements
and notes are as follows:
On December 2, 1998, the Company borrowed $200,000 from Rozel in the form of a
non-interest bearing loan (see Note 11).
NOTE 14 - STOCK SUBSCRIPTION PAYABLE
On September 23, 1999, the Company acquired a 20% interest in AssetExchange,
Inc. for $420,000. At September 30, 1999, $250,000 of the acquisition price had
not yet been paid. The Company paid the balance in full on October 1, 1999. This
amount is reflected as a stock subscription payable on the September 30, 1999
balance sheet.
NOTE 15 - ASSUMED DEBT OBLIGATION EXPENSE AND BAD DEBT EXPENSE - AFFILIATED
COMPANY
Assumed Obligation Expense
During 1999, the Company assumed $4,368,675 of principal and accrued interest
related to two note obligations of Net Value, Inc. $4,270,125 of the assumed
debt relates to the Exchange Notes (see Note 11f). The remaining $98,550 relates
to $141,327 of the Tranamerica note assumed net of $42,777 of related assets
acquired (see Note 11e). The Company recorded the liabilities for the Exchange
Notes and the Transamerica note along with a corresponding entry to assumed
obligation expense amounting to $4,368,675.
Bad Debt Expense - Affiliated Company
During 1998 and 1999, the Company advanced $6,539,348 in funds to Net Value,
Inc. Subsequent to the sale of substantially all of its assets, Net Value, Inc.
had no ability to repay the advances. Management has therefore written off the
remaining advances receivable and recorded a corresponding bad debt expense of
$2,618,384 in the year ended December 31, 1998, and $1,350,000 and $3,920,964 in
the nine months ended September 30, 1998 and 1999, respectively.
NOTE 16 - OPERATING LEASES
The Company shares office space for its principal executive offices in San
Francisco, California with a related party at no expense. The Company also
subleases office space in Philadelphia, Pennsylvania on a month to month basis
at a rate of $2,000 per month.
In April 1999, Strategicus entered into a lease agreement on behalf of Metacat
for office space in Portland, Oregon. The monthly rent through April 2000 is
$1,200 and $1,248 through April 2001, the date the lease terminates.
NOTE 17 - STOCK OPTION PLAN
The Company is contractually obligated to issue options under a stock option
plan yet to be approved by the Company's stockholders (see Notes 12, 19 and 20).
In June 1999, Metacat adopted a Stock Option Plan (the "Plan") which provides
for the granting of options to employees, officers and directors of Metacat. The
number of shares which can be purchased under this plan is limited to 50,000
shares of Metacat common stock and 50,000 shares of Metacat Series B preferred
stock. The Plan is intended to qualify as an "incentive stock option plan" under
Section 422 of the Internal Revenue Code. The exercise prices of the options
granted under the Plan are to be determined by the Board of Directors or other
Plan administrators but shall not be lower than one hundred percent of the fair
market value of a share of common stock on the date the option is granted for
employees and not less than one hundred and ten percent for officers and
directors with greater than ten percent voting power. The options under the Plan
vest immediately upon grant unless otherwise specified and are valid for ten
years, except for officers and directors
- F22 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 17 - STOCK OPTION PLAN (Continued)
with greater than ten percent voting power, which options expire five years
after grant. Through September 1999, Metacat issued options to purchase 27,025
shares of its Series B preferred stock to one of its directors.
NOTE 18 - OPERATING SEGMENT INFORMATION
The following summarizes information relating to the Company's segments. All
significant activity has been eliminated. Assets are owned or allocated assets
are used by each operating segment.
<TABLE>
<CAPTION>
September 30,
December 31, ---------------------------
1998 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Affiliate Company Operations
Operating Expenses
Compensation and related expense $ - $ - $ 55,598
Professional fees - - 200
Consulting - - -
Selling, general and administrative - - 10,167
Assumed obligation expense - - -
----------- ----------- ------------
Operating Loss - Affiliate Company
Operations Before Equity Income - - (65,965)
Other Income (Expense)
Interest expense - - (1,065)
Equity loss - - (32,928)
----------- ------------ ------------
Total Other Expense - - 33,993
----------- ------------ ------------
Net Loss - Affiliate Company Operations $ - $ - $ (99,958)
=========== =========== ============
General Net Value Holdings Operations
Operating Expenses
Compensation and related expense $ - $ - $ 1,257,872
Professional fees 129,878 - 513,733
Consulting - - 107,849
Selling, general and administrative 10,606 1,120 309,700
Assumed obligation expense 2,618,384 1,350,000 8,289,639
----------- ------------ ------------
Operating Loss - General Net Value Holdings (2,758,868) (1,351,120) (10,478,793)
Other Income (Expense)
Interest expense, net (82,082) (4,685) (3,388,752)
Financing fees (48,436) - (542,624)
----------- ------------ ------------
Total Other Expense 130,518 4,685 3,931,376
----------- ------------ ------------
Net Loss - General Net Value Holdings Operations $(2,889,386) $(1,355,805) $(14,410,169)
=========== =========== ============
Total Assets
Affiliate Company operations $ - $ 38,618
General Net Value Holdings Operations 2,586,188 7,614,573
----------- ------------
$ 2,586,188 $ 7,653,191
=========== ============
</TABLE>
- F23 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 19 - SUBSEQUENT ACQUISITION (UNAUDITED)
As part of a step transaction to obtain an ownership interest in three unrelated
Internet companies, the Company entered into a letter of intent on May 28, 1999
with Strategicus and a principal of Strategicus ("Principal"), whereby the
Company 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 through its wholly-owned
subsidiary, Metacat, and which had the opportunity to consummate transactions in
two other Internet companies which the Company desired to obtain. Under the
terms of the agreement and as part of a step transaction, the Company entered
into a loan agreement with Strategicus. The loan agreement 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% per annum, and is to be
forgiven subject to the Principal remaining an employee of the Company through
May 2000. Of the remaining amounts loaned to Strategicus, $1,000,000 was used to
acquire a 12% interest in AsiaCD, $100,000 was used to acquire an initial 14%
interest in College411, and the balance utilized to pay professional fees
related to the Strategicus Merger and fund certain operating expenses and a
$60,000 advance to a potential future investee company. In connection with the
acquisitions, Strategicus also received warrants to acquire additional shares of
AsiaCD and College411 common stock for aggregate purchase prices of $300,000 and
$150,000, respectively. In September 1999, the Company exercised the College411
warrant, and as a result, the Company's ownership interest in College411 then
increased to approximately 29%. The Company also loaned $267,000 to a
Strategicus shareholder. This loan bears simple interest at a rate of 9% per
annum and is to be forgiven ratably over a three-year period which is equivalent
to the period of the shareholder's consulting agreement with the Company. The
merger with Strategicus was completed in July 1999 and as a result of the
merger, Strategicus no longer exists as a legal entity and the loan agreement
between Strategicus and the Company has been discharged. The Company's common
stock exchanged for Strategicus stock was valued at $2.50 per share and was
allocated to the investments in Metacat, AsiaCD and College411. The value of the
Company's preferred stock exchanged was $0 based on the conversion requirements
of obtaining certain performance goals prior to conversion.
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 the Company. 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 the Company's 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
the Company's common stock in accordance with the Preferred Exchange.
Additionally, the Principal received 1,641,310 shares of the Company's common
stock and 504,187 shares of Convertible Preferred Stock, and the three remaining
shareholders each received 1,760,763 shares of the Company's common stock and
540,882 shares of Convertible Preferred Stock as additional consideration. The
additional consideration was to vest over the periods of their 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 the Company
at an exercise price of $1.00 per share. These agreements, as well as a stock
option plan, are subject to the approval of the Company's shareholders. The
additional consideration vests over a 48-month period. As of September 30, 1999,
options to acquire 5,715,876 shares were included in these agreements.
NOTE 20 - EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITORS'
REPORT
Effective June 1, 1999, the Company's Chief Executive Officer entered into an
employment agreement with the Company. The employment agreement provides that
the President will receive a specified annual salary along with options to
acquire 1,200,000 shares of the Company's common stock at an exercise price of
$1.00 per share, of which 120,000 options are to vest immediately and the
remaining options are to 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 are to have an exercise price that will be less than the fair
market value of the common stock at the date of grant, which result in
compensation expense of $240,700 for the nine months ended September 30, 1999.
In September 1999, the President agreed to reduce his option award from
1,200,000 shares to 1,080,000 shares. The stock option plan is subject to
approval of the Company's shareholders.
- F24 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 20 - EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE INDEPENDENT
AUDITORS' REPORT (Continued)
In August 1999, pursuant to a private offering by the Company, 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.
In September 1999, the Company 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 the Company's 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 the Company 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 the Company's common stock. In
addition, the Principal agreed to the cancellation of 180,000 shares of his
Company common stock. The stock option plan is subject to the approval of the
Company's shareholders.
In September 1999, the Company 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 the Company's 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 the Company's common stock at a conversion price equal to the lower of the
average closing bid price of the Company's 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 the
Company's 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 Company's common stock for a two-day period immediately
preceding the receipt by the Company 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 the Company's 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,
the Company 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. The Company 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. 2,000 Series B
Shares were issued and outstanding and Series B Warrants to purchase 110,498
shares had been granted as of September 30, 1999.
In September 1999, the Company agreed to acquire convertible preferred stock in
Asset Exchange, 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 was $420,000. If this preferred stock is
converted, the Company would own approximately 20% of Asset Exchange. 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 is modified.
In October 1999, the Company exercised warrants to purchase additional shares of
common stock in College411. The additional investment in College411was $75,000
and increased the Company's ownership interest to 29% for a total cost of
$420,000.
In October 1999, the Company purchased an approximate 11% interest in Webmodal
directly from the Startegicus Principal, a related party, for $250,000 and
purchased an additional 1% of Webmodal's common stock for $100,000 from
Webmodal. Webmodal is a development stage company intending to develop an
Internet application for use by shippers in purchasing and executing domestic
full-truckload intermodal freight shipments.
- F25 -
<PAGE>
Net Value Holdings, Inc.
(A Development Stage Entity)
Notes to Financial Statements
(Information as of September 30, 1999 and for the Nine-Month Periods
Ended September 30, 1998 and 1999 is Unaudited)
NOTE 20 - EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE INDEPENDENT
AUDITORS' REPORT (Continued)
In October 1999, the Company 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 who 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 October 1999, the Company issued warrants to purchase 110,077 shares of
common stock of Montrose Capital Management, Ltd. in connection with the Series
B Preferred Stock private placement offering. The warrants have an exercise
price of $5.00 per share and are exercisable for a period of three years from
the date of issuance.
In November 1999, the Company purchase an 11% interest in Swapit for $500,000.
Swapit is a development stage company intending to develop a consumer-driven
electronic barter exchange on the Internet.
In November 1999, the Company entered into a one-year employment agreement with
its Executive Vice President. In accordance with the employment agreement, the
Executive Vice President is to receive a salary at a specified amount.
On December 3, 1999, Net Value sold substantially all of its assets
(see Note 4).
- F26 -
<PAGE>
To the Directors and Officers
ASSET EXCHANGE, INC.
310 SW 4th Avenue
Portland, OR 97204
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Asset Exchange, Inc. (A
Development Stage Company) as of September 30, 1999. This financial statement is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
Because we were not engaged to audit the statements of operations, stockholders
equity, and cash flows, we did not extend our auditing procedures to enable us
to express an opinion on results of operations and cash flows for the period
March 12, 1999 (Inception) to September 30, 1999. Accordingly, we express no
opinion on them.
In our opinion, the balance sheet referred to in the first paragraph presents
fairly, in all material respects, the financial position of Asset Exchange, Inc.
(A Development Stage Company) as of September 30, 1999, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note D to the
financial statements, the Company has incurred losses in its development stage,
and will need to raise additional capital to complete its development
activities. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans regarding those matters also
are described in Note D. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
MORGENSTERN & ASSOCIATES
Certified Public Accountants
December 6, 1999
- F27 -
<PAGE>
Asset Exchange, Inc.
(A Development Stage Company)
BALANCE SHEET
September 30, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 175,645
Stock subscriptions receivable 250,000
Prepaid expenses 2,482
---------
Total current assets 428,127
PROPERTY AND EQUIPMENT, NET 10,106
DEPOSITS 1,000
---------
TOTAL ASSETS $ 439,233
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 29,347
Accrued expenses 247
Loans payable - officers 7,168
---------
Total current liabilities 36,762
---------
COMMITMENTS AND CONTINGENCIES (NOTE D)
STOCKHOLDER'S EQUITY:
Preferred stock, $.0001 par value; 4,000,000 shares authorized,
290,323 shares issued and outstanding 29
Common stock, $.0001 par value; 10,000,000 shares authorized,
1,000,000 shares issued and outstanding 100
Additional paid-in capital 450,871
Deficit accumulated during the development stage (48,529)
---------
Total stockholders' equity 402,471
---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 439,233
=========
</TABLE>
The accompanying notes are an integral part of the financial statements
- F28 -
<PAGE>
Asset Exchange, Inc.
(A Development Stage Company)
STATEMENT OF OPERATIONS
(UNAUDITED)
From March 12, 1999 (Inception) to September 30, 1999
<TABLE>
<CAPTION>
<S> <C>
REVENUES $ 0
---------
OPERATING EXPENSES
Bank charges 25
Conferences 976
Consulting 1,757
Depreciation 692
Dues and subscriptions 125
Interest 392
Internet service providers 2,638
Office 5,182
Payroll 24,000
Payroll processing fees 77
Professional fees 27,373
Rent 1,695
Tax and licenses 100
Tax on salaries 1,836
Travel and entertainment 370
Telephone 1,436
---------
Total operating expenses 68,674
---------
NET LOSS FROM OPERATONS BEFORE EXTRAORDINARY ITEM (68,674)
---------
EXTRAORDINARY ITEM - Debt extinguishment (NOTE F) 20,145
---------
NET LOSS TO COMMON STOCKHOLDERS $ (48,529)
=========
Basic and diluted net loss from operations per common share $ (0.0989)
Basic and diltued extraordinary gain per common share 0.0290
---------
Basic and diluted net loss per common share $ (0.0699)
=========
Basic and diluted weighted average number of common shares outstanding 694,581
=========
</TABLE>
- F29 -
<PAGE>
Asset Exchange, Inc.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
September 30, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Preferred Stock Common Stock Paid-In Development
Shares Amount Shares Amount Capital Stage Total
------------- ------------ ------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 12, 1999 - - - - - - -
Common stock issued - - 1,000,000 $ 100 $ 900 - $ 1,000
Preferred stock issued 290,323 $ 29 - - 449,971 - 450,000
Net loss for period - - - - - $ (48,529) (48,529)
------------- ------------ ------------- ----------- ------------- ------------- -------------
Balance at September 30, 1999 290,323 $ 29 1,000,000 $ 100 $ 450,871 $ (48,529) $ 402,471
============= ============ ============= =========== ============= ============= =============
</TABLE>
- F30 -
<PAGE>
Asset Exchange, Inc.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
(UNAUDITED)
From March 12, 1999 (Inception) to September 30, 1999
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (68,674)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation/amortization 692
Non-cash interest expense on debt extinguishment 145
Changes in assets and liabilities:
Prepaid expenses (2,482)
Deposits (1,000)
Accounts payable 29,347
Accrued expenses 247
---------
Net cash provided / (used) by operating activities (41,725)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of computer equipment and furniture and fixtures (10,798)
---------
Net cash provided / (used) by investing activities (10,798)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt extinguished 20,000
Proceeds from officers loans 7,168
Proceeds from the issuance of common stock 1,000
Proceeds from the issuance of preferred stock 200,000
---------
Net cash provided / (used) by financing activities 228,168
---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 175,645
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 0
---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 175,645
=========
</TABLE>
- F31 -
<PAGE>
Asset Exchange, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Asset Exchange, Inc., a Delaware corporation, was incorporated on March
12, 1999. Asset Exchange is a development stage company which, through the
Internet, allows financial institutions to buy and sell loan portfolios
and other assets among themselves. The Company's website provides matches
between buyers and sellers of these loan portfolios. The website allows
medium and small sized banks to participate in these markets. The Company
anticipates that its customer base will consist of banks, finance
companies thrifts, community banks, credit unions, and other financial
institutions. The Company intends to generate revenue from commissions on
the buying and selling of these instruments on its website.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments having original
maturities of three months or less to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that subject the Company to potential concentrations
of credit risk consist principally of cash. Cash consists of deposits with
a large United States financial institution that management believes is
credit worthy. The account is insured by the Federal Deposit Insurance
Corporation up to a maximum of $100,000. At September 30, 1999, the
Company had an uninsured cash balance of $75,645.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is provided using the straight-line method for financial
reporting purposes at rates based on the following estimated useful lives:
Computer equipment and software 3 years
Furniture and fixtures 7 years
Office equipment 7 years
For federal income tax purposes, depreciation is computed using the
modified accelerated cost recovery system.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
stock subscriptions receivable, accounts payable and borrowings, are
carried at cost, which approximates fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
- F32 -
<PAGE>
Asset Exchange, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(Continued)
SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 131, "Disclosures About Segments of an Enterprise and Related
Information," during 1999. 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.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income," during 1999. SFAS 130
establishes standards for reporting comprehensive income and its
components in financial statements. Comprehensive income, as defined,
includes all changes in equity (net assets) during a period from non-owner
sources. To date, the Company has not had any transactions that are
required to be reported in comprehensive income.
REVENUE RECOGNITION
The Company recognizes revenues when earned or when services performed,
provided no significant obligations remain, and collectibility is
probable.
INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes". SFAS 109 requires a company to recognize deferred tax
liabilities and assets for the expected future tax consequences of
temporary differences between the financial statement carrying amounts and
tax basis of assets and liabilities and operating losses available to
offset future taxable income, using enacted tax rates in effect in the
years in which the differences are expected to reverse. A valuation
allowance related to a deferred tax asset is recorded when it is more
likely than not that some portion or all of the deferred tax asset will
not be realized.
START-UP COSTS
In accordance with AICPA Statement of Position 98-5, "Reporting on the
Cost of Start-up Activities", the Company expenses all start-up
activities, including organizational costs, as they are incurred.
LOSS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share" requires presentation of basic loss per share and diluted loss
per share for the period presented. Basic net income (loss) per share is
computed by dividing the net income (loss) available to common
stockholders for the period by the weighted average number of common
shares outstanding during the period. Incremental common shares issuable
upon the exercise of stock options and warrants, are included in the
computation of diluted net income (loss) loss per share to the extent such
shares are dilutive.
CONCENTRATIONS
Concentrations not disclosed elsewhere in the financial statements are as
follows:
The Company plans to generate income from one source which utilizes a
single medium. Lack of website (product) development or customer interest
could have a materially adverse effect on the Company.
- F33 -
<PAGE>
Asset Exchange, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(Continued)
B. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
Computer hardware 8,483
Computer software 1,384
Office equipment 382
Furniture and fixtures 549
------
10,798
Less Accumulated Depreciation (692)
------
10,106
======
Depreciation expense for the period March 12, 1999 (Inception) through
September 30, 1999 was $692.
C. INCOME TAXES
For Federal income tax purposes start-up costs must be amortized over not
less than 60 months. The Company has recognized a deferred tax benefit for
start-up costs to be amortized over 60 months for tax purposes. However,
as it is not more likely than not that the deferred tax asset will be
utilized, management has established a full valuation reserve of
approximately $10,000.
D. COMMITMENTS AND CONTINGENCIES
GOING CONCERN:
Since March 12, 1999 (Inception), the Company has been in the development
stage and the principal activities have consisted of raising capital and
developing its Internet-based website.
The accompanying financial statements have been prepared on the basis of a
going concern, which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. The Company
is not yet generating revenues from website operations and, at September
30, 1999, had accumulated a deficit from its operating activities.
Continuation of the Company as a going concern is dependent upon, among
other things, obtaining additional capital, achieving market acceptance of
its product and achieving satisfactory levels of profitable operations.
The financial statements do not contain any adjustments relating to the
realization of assets and liquidation of liabilities that may be necessary
should the Company be unable to continue as a going concern.
LEASES:
The Company leases two office facilities, both under operating leases.
One lease has a term of one year, expiring on July 12, 2000. The entire
amount for this lease has been paid in full and is being expensed over the
term of the lease. The monthly rental expense is $184.
The other lease has a term of one year, expiring on August 31, 2000.
Future minimum annual lease payments, as of September 30, 1999, were as
follows:
1999 $1,641
2000 $3,829
- F34 -
<PAGE>
Asset Exchange, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(Continued)
E. STOCKHOLDERS' EQUITY
The Company's Articles of Incorporation authorizes the issuance of
10,000,000 shares of Common Stock, $0.0001 par value per share, of which
1,000,000 were outstanding as of September 30, 1999. Holders of shares of
Common Stock are entitled to one vote for each share on all matters to be
voted on by the stockholders.
The Company issued 1,000,000 shares of common stock at $0.001 per share on
May 13, 1999 to various founders for a total cash contribution of $1,000.
The Company's Articles of Incorporation authorizes the issuance of
4,000,000 shares of "Series A Preferred Stock", $0.0001 par value per
share, of which 290,323 shares were outstanding as of September 30, 1999.
Holders of each share of "Series A Preferred Stock" are entitled to vote
on all matters at stockholder's meetings with the exception of directors.
So long as at least 100,000 shares of "Series A Preferred Stock" is
outstanding, the holders of a majority of the "Series A Preferred Stock"
shall be entitled to elect one member of the Board of Directors. Holders
of each share of the "Series A Preferred Stock" shall convert their shares
to common stock at the conversion price set forth in the Amended and
Restated Articles of Incorporation. The conversion price at September 30,
1999 was $1.55.
The Company issued 290,323 shares of "Series A Preferred Stock" at $1.55
per share on September 23, 1999. There was $250,000 still due from this
private placement on September 30, 1999. This amount was paid in full on
October 1, 1999.
F. EXTRAORDINARY ITEM
The Company realized an extraordinary gain from debt extinguishment in the
amount $20,145 for the period March 12, 1999 (Inception) to September 30,
1999. On August 11, 1999, the Company received $20,000 cash in exchange
for an 8% promissory note payable in full on February 11, 2000. A
provision in the note called for the closing of the "Series A Preferred
Stock Purchase Agreement" (with same party) within thirty days of the
note. Failure to close the agreement, would cause the entire note, with
unpaid accrued interest, to be forgiven. The "Series A Preferred Stock
Purchase Agreement", closed on September 23, 1999, forty-three days after
the signed promissory note. Accrued interest amounted to $145 during this
period.
G. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share for the period March 12, 1999 (Inception) to September
30, 1999:
<TABLE>
<CAPTION>
<S> <C>
Numerator:
Numerator for basic and diluted earnings per share - net loss from operation ($ 68,674)
Numerator for basic and diluted earnings per share - extraordinary gain 20,145
---------
Numerator for basic and diluted earnings per share - net loss ($ 48,529)
=========
Denominator:
Denominator for basic and diluted earnings per share:
Weighted average shares outstanding: 694,581
=========
</TABLE>
H. RELATED PARTY TRANSACTIONS
The Company had debt outstanding to it's shareholders on September 30,
1999 in the amount of $7,168. The loans accrue interest at the rate of 8%
per annum. The loans were subsequently paid back to the shareholders on
November 1, 1999.
The Company paid salaries to the top three majority shareholders in the
amount of $24,000 for services for the period March 12, 1999 (Inception)
to September 30, 1999.
- F35 -
<PAGE>
To the Directors and Officers
COLLEGE411. COM, INC.
1085 Mission Street
San Francisco, CA 94103
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of College411.com, Inc. (A
Development Stage Company) as of September 30, 1999. This financial statement is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
Because we were not engaged to audit the statements of operations, stockholders
equity, and cash flows, we did not extend our auditing procedures to enable us
to express an opinion on results of operations and cash flows for the period
April 13, 1999 (Inception) to September 30, 1999. Accordingly, we express no
opinion on them.
In our opinion, the balance sheet referred to in the first paragraph presents
fairly, in all material respects, the financial position of College411.com, Inc.
(A Development Stage Company) as of September 30, 1999, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note C to the
financial statements, the Company has incurred losses in its development stage,
and will need to raise additional capital to complete its development
activities. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans regarding those matters also
are described in Note C. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
MORGENSTERN & ASSOCIATES
Certified Public Accountants
November 30, 1999
- F36 -
<PAGE>
College411.com, Inc.
(A Development Stage Company)
BALANCE SHEET
September 30, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 59,497
Prepaid expenses 1,000
---------
Total current assets 60,497
PROPERTY AND EQUIPMENT, NET 22,281
DEPOSITS 9,500
---------
TOTAL ASSETS $ 92,278
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,695
Accrued expenses 5,350
---------
Total current liabilities 8,045
---------
COMMITMENTS AND CONTINGENCIES (NOTE C)
STOCKHOLDER'S EQUITY:
Common stock, $.001 par value; 15,00,000 shares authorized,
11,875,000 shares issued and outstanding 11,875
Additional paid-in capital 172,375
Deficit accumulated during the development stage (100,017)
---------
Total stockholders' equity 84,233
---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 92,278
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- F37 -
<PAGE>
College411.com, Inc.
(A Development Stage Company)
STATEMENT OF OPERATIONS
(UNAUDITED)
From April 13, 1999 (Inception) to September 30, 1999
<TABLE>
<CAPTION>
<S> <C>
REVENUES $ 300
------------
OPERATING EXPENSES
Bank charges 65
Consulting 69,572
Depreciation 1,969
Dues and subscriptions 25
Insurance 517
Miscellaneous 585
Office 860
Payroll 5,350
Payroll processing fees 1,500
Professional fees 15,486
Software 311
Travel and entertainment 1,170
Telephone 2,907
------------
Total operating expenses 100,317
------------
NET LOSS TO COMMON STOCKHOLDERS $ (100,017)
============
Basic and diluted net loss per common share $ (0.0100)
============
Basic and diluted weighted average number of common shares outstanding 10,049,806
============
</TABLE>
- F38 -
<PAGE>
College411.Com, Inc.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
September 30, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-In Development
Shares Amount Capital Stage Total
--------------- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, April 13, 1999 - - - - -
Common stock granted for services 9,250,000 $ 9,250 - - $ 9,250
Common stock issued in private placements 2,625,000 2,625 172,375 - 175,000
Net loss for period - - - (100,017) (100,017)
--------------- ---------------- --------------- --------------- ---------------
Balance at September 30, 1999 11,875,000 $ 11,875 $ 172,375 $ (100,017) $ 84,233
=============== ================ =============== =============== ===============
</TABLE>
- F39 -
<PAGE>
College411.com, Inc.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
(UNAUDITED)
From April 13, 1999 (Inception) to September 30, 1999
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(100,017)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation/amortization 1,969
Common stock issued for services 9,250
Changes in assets and liabilities:
Prepaid expenses (1,000)
Deposits (9,500)
Accounts payable 2,695
Accrued expenses 5,351
---------
Net cash provided / (used) by operating activities (91,252)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of computer equipment (24,251)
---------
Net cash provided / (used) by investing activities (24,251)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of stock 175,000
---------
Net cash provided / (used) by financing activities 175,000
---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 59,497
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 0
---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 59,497
=========
</TABLE>
- F40 -
<PAGE>
College411.com, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
College411.com, Inc., a Delaware corporation, was incorporated on April
13, 1999. College411.com is a development stage company which intends to
provide, through the Internet, a wide array of information, products and
services that are useful to college students. The Company's website
includes: 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. The Company intends to generate
revenue from its website through six different sources: e-commerce,
chargeable services, affiliate programs, targeted advertising, sponsorship
fees, and syndication fees from its website.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments having original
maturities of three months or less to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that subject the Company to potential concentrations
of credit risk consist principally of cash. Cash consists of deposits with
a large United States financial institution that management believes is
credit worthy. At September 30, 1999, the Company had no significant
concentrations of credit risk.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents
and accounts payable and borrowings, are carried at cost, which
approximates fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is provided using the straight-line method for financial
reporting purposes at rates based on the following estimated useful lives:
Computer equipment 3 years
For federal income tax purposes, depreciation is computed using the
modified accelerated cost recovery system.
INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes". SFAS 109 requires a company to recognize deferred tax
liabilities and assets for the expected future tax consequences of
temporary differences between the financial statement carrying amounts and
tax basis of assets and liabilities and operating losses available to
offset future taxable income, using enacted tax rates in effect in the
years in which the differences are expected to reverse. A valuation
allowance related to a deferred tax asset is recorded when it is more
likely than not that some portion or all of the deferred tax asset will
not be realized.
- F41 -
<PAGE>
College411.com, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(Continued)
REVENUE RECOGNITION
The Company recognizes revenues when earned or when services performed,
provided no significant obligations remain, and collectibility is
probable.
START-UP COSTS
In accordance with AICPA Statement of Position 98-5, "Reporting on the
Cost of Start-up Activities", the Company expenses all start-up
activities, including organizational costs, as they are incurred.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income," during 1999. SFAS 130
establishes standards for reporting comprehensive income and its
components in financial statements. Comprehensive income, as defined,
includes all changes in equity (net assets) during a period from non-owner
sources. To date, the Company has not had any transactions that are
required to be reported in comprehensive income.
LOSS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share" requires presentation of basic loss per share and diluted loss
per share for the period presented. Basic net income (loss) per share is
computed by dividing the net income (loss) available to common
stockholders for the period by the weighted average number of common
shares outstanding during the period. Incremental common shares issuable
upon the exercise of stock options and warrants, are included in the
computation of diluted net income (loss) loss per share to the extent such
shares are dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 131, "Disclosures About Segments of an Enterprise and Related
Information," during 1999. 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.
CONCENTRATIONS
Concentrations not disclosed elsewhere in the financial statements are as
follows:
The Company plans to generate income from six sources. All of these
sources, both under development and currently offered to generate income,
utilize the same medium. Lack of product (website) development or customer
interest could have a materially adverse effect on the Company.
- F42 -
<PAGE>
College411.com, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(Continued)
B. INCOME TAXES
For Federal income tax purposes start-up costs must be amortized over not
less than 60 months. The Company has recognized a deferred tax benefit for
start-up costs to be amortized over 60 months for tax purposes. However,
as it is not more likely than not that the deferred tax asset will be
utilized, management has established a full valuation reserve of
approximately $5,000.
C. CONTINGENCY - GOING CONCERN
Since April 13, 1999 (inception), the Company has been in the development
stage and the principal activities have consisted of raising capital and
developing its Internet-based website.
The accompanying financial statements have been prepared on the basis of a
going concern, which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. The Company
is not yet generating significant revenues from website operations and, at
September 30, 1999, had accumulated a deficit from its operating
activities. Continuation of the Company as a going concern is dependent
upon, among other things, obtaining additional capital, achieving market
acceptance of its product and achieving satisfactory levels of profitable
operations. As discussed in Note H, the Company is in late stage
negotiations in closing its next round of financing. The financial
statements do not contain any adjustments relating to the realization of
assets and liquidation of liabilities that may be necessary should the
Company be unable to continue as a going concern.
D. STOCKHOLDERS' EQUITY
The Company's Articles of Incorporation authorizes the issuance of
15,000,000 shares of Common Stock, $0.001 par value per share, of which
11,875,000 were outstanding as of September 30, 1999. Holders of shares of
Common Stock are entitled to one vote for each share on all matters to be
voted on by the stockholders.
The Company issued 9,250,000 shares of common stock at $0.001 per share on
April 13, 1999 to its founders for intellectual property contributed to
the Company. The total fair market value of the property contributed
amounted to $9,250.00.
The Company issued 3,750,000 shares of common stock at $0.067 per share
between June 21, 1999 and October 6, 1999.
E. STOCK OPTIONS AND WARRANTS
The Company accounts for its stock option plan in accordance with the
provisions of APB Opinion No. 25, "Accounting for Stock Issued to
Employees". The exercise price of options granted under the Option Plan is
determined at the discretion of the Company, and is typically based on the
estimated fair value of the stock at the date of grant. The Company has
reserved 2,000,000 shares to be offered through the plan. Options expire
at the earlier of two events: (a) ninety days after the employee or
consultant terminates their services or (b) ten years after the options
vest. Compensation expense is recognized when the exercise price of
options is less than the fair value of the underlying stock on the date of
grant. Since the exercise price is based on estimated fair value, no
compensation cost has been recognized.
While the Company continues to apply APB Opinion No. 25, Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation", requires the Company to provide pro-forma
information regarding net income (loss) as if compensation cost for the
Company's stock option plan had been determined in accordance with the
fair value based method prescribed by SFAS No. 123. Since the option price
is either greater than or equal to the fair value of both the underlying
stock and the option, no compensation expense would be recognized under
either APB 25 or SFAS 123. Thus, no pro-forma information has been
presented.
- F43 -
<PAGE>
College411.com, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(Continued)
The following summarizes information about the Company's stock options at
September 30, 1999:
(a) EMPLOYEE OPTIONS
During the period ended September 30, 1999 the Company granted options to
thirteen employees. A summary of the status of the Company's stock options
as of September 30, 1999, and changes during the period is as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVG
SHARES EXERCISE PRICE
------ --------------
<S> <C> <C>
Outstanding at April 13, 1999 0 $ 0.000
Granted 595,000 $ 0.031
Exercised 0 $ 0.000
Forfeited (171,250) ($ 0.016)
--------- -------------
Outstanding at September 30, 1999 423,750 $ 0.036
========= =============
Options exercisable at September 30, 1999 72,500 $ 0.010
========= =============
</TABLE>
(b) NON-EMPLOYEE OPTIONS
During the period ended September 30, 1999 the Company granted options to
certain non-employees. A summary of the status of the Company's stock
options as of September 30, 1999, and changes during the period is as
follows:
<TABLE>
<CAPTION>
WEIGHTED-AVG
SHARES EXERCISE PRICE
------ --------------
<S> <C> <C>
Outstanding at April 13, 1999 0 $ 0.000
Granted 550,000 $ 0.011
Exercised 0 $ 0.000
Forfeited 0 $ 0.000
------- -----------
Outstanding at September 30, 1999 550,000 $ 0.011
======= ===========
Options exercisable at September 30, 1999 56,250 $ 0.010
======= ===========
</TABLE>
Stock Options during the period ended September 30, 1999 are summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED-AVG
SHARES EXERCISE PRICE
------ --------------
<S> <C> <C>
Outstanding at April 13, 1999 0 $ 0.000
Granted 1,145,000 $ 0.021
Exercised 0 $ 0.000
Forfeited ( 171,250) ($ 0.011)
---------- -------------
Outstanding at September 30, 1999 973,750 $ 0.022
========== =============
Options exercisable at September 30, 1999 128,750 $ 0.010
========== =============
</TABLE>
- F44 -
<PAGE>
College411.com, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(Continued)
F. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share for the period April 13, 1999 (inception) to September
30, 1999:
<TABLE>
<CAPTION>
<S> <C>
Numerator:
Numerator for basic and diluted earnings per share - net loss ($ 100,017)
============
Denominator:
Denominator for basic and diluted earnings per share:
Weighted average shares outstanding: 10,049,806
============
</TABLE>
G. RELATED PARTY TRANSACTIONS
The Company has entered into a one year, non-binding agreement with
Epylon.com who has agreed to pay the cost of renting office space for the
Company. Stephen George, a member of Net Value Holding's board of
directors, is a 15% owner in Epylon.com. Currently, netValue Holdings,
Inc. owns 29% of the outstanding common stock of the company. This
agreement expires one year from the date of the Common Stock Purchase
Agreement between the Company and Net Value Holdings, Inc.
(July 28, 2000).
During the period ended September 30, 1999, the Company paid approximately
$14,000 for consulting services from two shareholders.
H. SUBSEQUENT EVENTS (UNAUDITED)
The company is in late-stage negotiations to close its next round of
financing. At the time of this statement, the Company expects to raise an
additional $1,100,000 in equity financing during December 1999 to help
support expansion.
- F45 -
<PAGE>
To the Directors and Officers
SWAPIT. COM, INC.
Five Clock Tower Place, Fourth Floor
Maynard, MA 01754
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of SwapIt.com, Inc. (A
Development Stage Company) as of November 30, 1999. This financial statement is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to in the first paragraph presents
fairly, in all material respects, the financial position of SwapIt.com, Inc. (A
Development Stage Company) as of November 30, 1999, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note E to the
financial statements, the Company has incurred losses in its development stage,
and will need to raise additional capital to complete its development
activities. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans regarding those matters also
are described in Note E. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
MORGENSTERN & ASSOCIATES
Certified Public Accountants
December 7, 1999
- F46 -
<PAGE>
SwapIt.com, Inc.
(A Development Stage Company)
BALANCE SHEET
November 30, 1999
ASSETS
CURRENT ASSETS
Cash $ 454,549
Prepaid expenses 1,124
---------
Total current assets 455,673
PROPERTY AND EQUIPMENT, NET 2,075
DEPOSITS 21,300
---------
TOTAL ASSETS $ 479,048
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 30,537
Accrued payroll liabilities 11,505
---------
Total current liabilities 42,042
---------
COMMITMENTS AND CONTINGENCIES (NOTE E)
STOCKHOLDER'S EQUITY:
Preferred stock, $0.001 par value; 332,500 shares authorized,
132,941 shares issued and outstanding 13
Common stock, $0.001 par value; 1,667,500 shares authorized
975,000 shares issued and outstanding 975
Additional paid-in capital 516,112
Deferred compensation (2,078)
Deficit accumulated during the development stage (78,016)
---------
Total stockholders' equity 437,006
---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 479,048
=========
The accompanying notes are an integral part of this balance sheet
- F47 -
<PAGE>
SwapIt.com, Inc.
(A Development Stage Company)
NOTES TO BALANCE SHEET
November 30, 1999
A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
SwapIt.com, Inc., a Delaware corporation, was incorporated on October 28,
1999. SwapIt.com, Inc. is a development stage company which intends to
create an electronic barter exchange marketplace on the Internet. The
Company intends to make available for barter, music CDs, movies, and
books, and plans to initially target their website to college students.
The Company intends to generate revenue from its website through the
following sources: transaction fees, advertising revenues, commissions on
referrals, and direct sales.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments having original
maturities of three months or less to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that subject the Company to potential concentrations
of credit risk consist principally of cash. Cash consists of deposits with
a large United States financial institution that is insured by the Federal
Deposit Insurance Company up to a maximum of $100,000. At November 30,
1999, the Company had an uninsured cash balance of $354,549.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
prepaid expenses, and accounts payable and borrowings, are carried at
cost, which approximates fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is provided using the straight-line method for financial
reporting purposes at rates based on the following estimated useful lives:
Furniture and fixtures 7 years
For federal income tax purposes, depreciation is computed using the
modified accelerated cost recovery system.
START-UP COSTS
In accordance with AICPA Statement of Position 98-5, "Reporting on the
Cost of Start-up Activities", the Company expenses all start-up
activities, including organizational costs, as they are incurred.
INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes". SFAS 109 requires a company to recognize deferred tax
liabilities and assets for the expected future tax consequences of
temporary differences between the financial statement carrying amounts and
tax basis of assets and liabilities and operating losses available to
offset future taxable income, using enacted tax rates in effect in the
years in which the differences are expected to reverse. A valuation
allowance related to a deferred tax asset is recorded when it is more
likely than not that some portion or all of the deferred tax asset will
not be realized.
- F48 -
<PAGE>
SwapIt.com, Inc.
(A Development Stage Company)
NOTES TO BALANCE SHEET
November 30, 1999
(Continued)
DEFERRED COMPENSATION
The Company has issued common stock to certain employees and consultants
in exchange for future services. The Company has recorded the aggregate
amount of the total fair market value of the stock issued as deferred
compensation. The amounts recorded as deferred compensation are then
amortized over the appropriate vesting period (generally four years).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 131, "Disclosures About Segments of an Enterprise and Related
Information," during 1999. 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.
CONCENTRATIONS
Concentrations not disclosed elsewhere in the financial statements are as
follows:
The Company plans to generate income from various sources that utilizes
the same medium. Lack of product (website) development or customer
interest could have a materially adverse effect on the Company.
B. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
Furniture and fixtures $2,100
Less Accumulated Depreciation (25)
------
$2,075
======
C. DEPOSITS
Deposits at November 30, 1999, consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Deposit for the URL name "swapit.com", money held in escrow $10,000
Rental deposit for lease signed December 4, 1999 11,300
-------
$21,300
=======
</TABLE>
D. INCOME TAXES
For Federal income tax purposes, start-up costs must be amortized over not
less than 60 months. The Company has recognized a deferred tax benefit for
start-up costs to be amortized over 60 months for tax purposes. However,
as it is not more likely than not that the deferred tax asset will be
utilized, management has established a full valuation reserve of
approximately $40,000.
- F49 -
<PAGE>
SwapIt.com, Inc.
(A Development Stage Company)
NOTES TO BALANCE SHEET
November 30, 1999
(Continued)
E. COMMITMENTS AND CONTINGENCIES
GOING CONCERN:
Since October 28, 1999 (Inception), the Company has been in the
development stage and the principal activities have consisted of raising
capital. The Company is still in the process of developing its website.
The accompanying financial statements have been prepared on the basis of a
going concern, which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. The Company
is not yet generating revenues and, at November 30, 1999, had accumulated
a deficit from its operating activities. Continuation of the Company as a
going concern is dependent upon, among other things, obtaining additional
capital, achieving market acceptance of its product and achieving
satisfactory levels of profitable operations. The financial statements do
not contain any adjustments relating to the realization of assets and
liquidation of liabilities that may be necessary should the Company be
unable to continue as a going concern.
LEASES:
The Company currently leases its office facility under an operating lease
signed on December 2, 1999 (see NOTE H).
The lease has a term of five years, expiring on December 31, 2004. The
monthly rental cost is $12,648. Future minimum annual lease payments for
the next five years is as follows:
2000 $151,771
2001 $151,771
2002 $151,771
2003 $151,771
2004 $151,771
F. STOCKHOLDERS' EQUITY
The Company's Articles of Incorporation authorizes the issuance of
1,667,500 shares of Common Stock, $0.001 par value per share, of which
975,000 were outstanding as of November 30, 1999. Holders of shares of
Common Stock are entitled to one vote for each share on all matters to be
voted on by the stockholders.
The Company issued 855,000 shares of common stock at $0.0175 per share on
November 12, 1999 to its founders for an aggregate purchase price of
$15,000.
The Company issued 120,000 shares of common stock at $0.0175 per share on
November 12, 1999 to various employees and contractors in exchange for
future services. The rights associated with the common stock shares (i.e.
- voting, dividends, etc.) were subsequently assigned back to the Company.
The common stock shares will revert back to each person based on a
bi-annual-four-year vesting schedule. Upon termination of services, all
unvested shares shall be forfeited to the Company. The fair market value
of the stock, on the grant date, was valued at $0.0175 per share. The
Company has treated the aggregate amount of $2,100 as deferred
compensation (see NOTE A) with respect to the assignment of shares.
- F50 -
<PAGE>
SwapIt.com, Inc.
(A Development Stage Company)
NOTES TO BALANCE SHEET
November 30, 1999
(Continued)
The Company's Articles of Incorporation authorizes the issuance of 332,500
shares of "Series A Preferred Stock", $0.001 par value per share, of which
132,941 shares were outstanding as of November 30, 1999. Holders of each
share of "Series A Preferred Stock" are entitled to vote on all matters at
stockholder's meetings. Holders of each share of the "Series A Preferred
Stock" shall convert their shares to common stock at the earliest of:
their own option or upon the first underwritten public offering pursuant
to an effective registration statement filed under the Securities Act of
1933. The conversion price varies as stated in the Amended and Restated
Articles of Incorporation. The conversion price at November 30, 1999 was
$3.761.
The Company issued 132,941 shares of "Series A Preferred Stock" at $3.761
per share on November 23, 1999 for a total purchase price of $500,000.
G. STOCK OPTION PLAN
The Company accounts for its stock option plan in accordance with the
provisions of APB Opinion No. 25, "Accounting for Stock Issued to
Employees". The exercise price of options granted under the Option Plan is
determined at the discretion of the Company, and in the case of Incentive
Stock Options, the amount will not be less than 100% of the fair market
value on the date of grant. The Company has reserved 155,000 shares to be
offered through the plan. Compensation expense is recognized when the
exercise price of options is less than the fair value of the underlying
stock on the date of grant. As of November 30, 1999, the Company had not
yet granted any options to employees or consultants.
H. SUBSEQUENT EVENTS (UNAUDITED)
The Company entered into a five year lease agreement for its office space
on December 2, 1999 (see NOTE E). The Company paid an additional $13,995
for the deposit on this lease. An additional deposit amount equal to one
month's rent, $12,648, is due to the lessor by March 31, 2000.
- F51 -
<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
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
===========
*All expenses other than the Securities and Exchange
Commission Registration Fee are estimated.
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.
II - 1
<PAGE>
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
15 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 Founders Equity Group, Inc. 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 Founders
Equity Group, Inc. 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 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 500,000 shares of our preferred stock to Rozel International Holdings
Limited 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 20 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 ten 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 December 9, 1999,
holders of four convertible debentures issued in this offering have converted
their debentures in the principal amount of $290,000 and the accrued interest
thereon into 150,924 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 34 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
December 9, 1999,
II - 2
<PAGE>
holders of ten convertible debentures issued in this offering have converted
their debentures in the principal amount of $3,033,000 plus accrued interest
into 1,232,016 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 79 accredited
investors in exchange for their cancellation of matured promissory notes which
were issued by Net Value, Inc. in October, November and December 1997 and their
agreement to release us, Net Value, Inc. and the present and future officers and
directors of each corporation from any claims related to their Net Value, Inc.
promissory notes. Each participant in this offering received a convertible
promissory note with a principal amount equal to the principal amount of their
Net Value, Inc. 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 the
trading of our common stock at a price per share of at least $5.00 for 20
consecutive trading days 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 with the Securities and Exchange Commission. 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 from the date of issuance at an exercise price of
$6.00 per share. As of December 9, 1999, holders of convertible promissory notes
issued in this offering have converted their promissory notes in the principal
amount of $2,792,937, plus accrued interest into 1,482,619 shares of our common
stock and we issued warrants to purchase 741,315 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 53 of 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 and October 1999, we issued 74,250 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 and warrants to purchase 110,077 shares of
our common stock 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
II - 3
<PAGE>
Exhibit
Number Document
- ------- --------
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
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* Amended and Restated 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.
II - 4
<PAGE>
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 College 411.com,
Inc. and Strategicus Partners, Inc., dated July 28, 1999
10.17* AssetExchange, Inc. Series A Preferred Stock Purchase
Agreement, dated September 10, 1999
10.18* AssetExchange. 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
10.21* Form of Warrant
10.22 Employment Agreement with Tom Aley dated November 22, 1999
10.23 Amended and Restated Shareholders' Agreement by and between
Merus Partners, Inc., Chris R. Kravas, Net Value Holdings, Inc.
and Webmodal, Inc. dated as of October 11, 1999
10.24 Stock Purchase Agreement between Merus Partners, Inc. and Net
Value Holdings, Inc. dated as of October 11, 1999
10.25 Stock Purchase Agreement between Net Value Holdings, Inc. and
Webmodal, Inc. dated as of October 11, 1999
10.26 Series A Convertible Preferred Stock Purchase Agreement by and
between Swapit.com, Inc. and Net Value Holdings, Inc. dated as
of November 23, 1999
10.27 Investor Rights Agreement by and between Swapit.com, Inc. and
Net Value Holdings, Inc. dated as of November 23, 1999
II - 5
<PAGE>
10.28 Co-Sale Agreement by and among Net Value Holdings, Inc.,
Swapit.com, Inc. and the principal stockholders of Swapit.com,
Inc. dated as of November 23, 1999
10.29 Agreement for Purchase and Sale of Assets by and among
Promotions Acquisitions, Inc., BrightStreet.com, Inc. and Net
Value Holdings, Inc. dated as of December 3, 1999
10.30 Stockholders Agreement by and among Promotions Acquisitions,
Inc. and certain stockholders dated as of December 3, 1999.
10.31 Registration Rights Agreement dated as of December 3, 1999
10.32 Common Stock Purchase Agreement dated as of October 1, 1999
10.33 Consulting Agreement dated as of October 1, 1999
11.1 Statement re: computation of per share earnings
16 Letter from Barry L. Friedman, PC dated November 23, 1999
21.1 Subsidiaries of Net Value Holdings, Inc.
23.1 Consent of L.J. Soldinger Associates regarding Net Value
Holdings, Inc. dated December 17, 1999
23.2 Consent of Morgenstern & Associates regarding College 411.com,
Inc. dated December 17, 1999
23.3 Consent of Morgenstern & Associates regarding AssetExchange,
Inc. dated December 17, 1999
23.4 Consent of Morgenstern & Associates regarding Swapit.com, Inc.
dated December 17, 1999
24.1* Power of Attorney, included on the signature page hereof
27.1 Financial Data Schedule
- ----------------
* Previously filed
** To be filed on Amendment
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.
II - 6
<PAGE>
(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.
(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 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 - 7
<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 December 17, 1999.
NET VALUE HOLDINGS, INC.
BY: /s/ Andrew P. Panzo
-------------------------------------------
Andrew P. Panzo
Chairman of the Board of Directors,
Chief Executive Officer and Chief Financial
Officer (Principal Financial and Account
Officer)
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 indicated:
SIGNATURE TITLE
- --------- -----
/s/ Andrew P. Panzo Chairman of the Board of Directors,
- ------------------------ Chief Executive Officer and Chief
Andrew P. Panzo Financial Officer (Principal
Executive, Financial and Accounting
Officer)
/s/ Barry Uphoff * Director
- ------------------------
Barry Uphoff
/s/ Douglas Spink* Chief Technology Officer and Director
- ------------------------
Douglas Spink
/s/ Darr Aley* Executive Vice President, Business
- ------------------------ Development and Director
Darr Aley
/s/ Stephen George* Director
- ------------------------
Stephen George
* By: Andrew P. Panzo, as power of attorney
II - 8
<PAGE>
- ------------- --------------
NUMBER SHARES
- ------------- --------------
NETVALUE HOLDINGS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
-------------------- -----------------------
COMMON STOCK CUSIP 64120C 10
-------------------- -----------------------
- ---------------------
THIS CERTIFIES THAT:
- ---------------------
- -------------
is owner of
- -------------
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF $.001 PAR VALUE EACH OF
NETVALUE HOLDINGS, INC.
transferrable 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 fascimile 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
[SEAL] BY:
AUTHORIZED SIGNATURE
/s/ XXXXXXXXXXXXX /s/ XXXXXXXXXXXXXX
- ----------------- ------------------
SECRETARY PRESIDENT
SPECIMEN
NOT NEGOTIABLE
<PAGE>
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT -...............Custodian..................
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants
in common Act..................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, ___________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ Shares
of the stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _________________
_____________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERNATION OR ENLARGEMENT OR ANY
CHANGE WHATSOEVER.
THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER, UPON REQUEST AND WITHOUT
CHARGE, A FULL STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES AND
LIMITATIONS OF THE SHARES OF EACH CLASS AND SERIES AUTHORIZED TO BE ISSUED, SO
FAR AS THE SAME HAVE BEEN DETERMINED, AND OF THE AUTHORITY, IF ANY, OF THE BOARD
TO DIVIDE THE SHARES INTO CLASSES OR SERIES AND TO DETERMINE AND CHANGE THE
RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF ANY CLASS OR SERIES. SUCH
REQUEST MAY BE MADE TO THE SECRETARY OF THE CORPORATION OR TO THE TRANSFER AGENT
NAMED ON THIS CERTIFICATE.
- --------------------------------------------------------------------------------
THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE
FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST
COMPANY OR A MEMBER FIRM OF A NATIONAL OR REGIONAL OR OTHER RECOGNIZED STOCK
EXCHANGE IN CONFORMANCE WITH A SIGNATURE GUARANTEE MEDALLION PROGRAM.
- --------------------------------------------------------------------------------
STOCK MARKET INFORMATION EXCHANGE
www.stockinformation.com
<PAGE>
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.
FORM OF CONVERTIBLE
PROMISSORY NOTE
$______________ January ______, 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
_________________ ("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) 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.
<PAGE>
(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 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
-2-
<PAGE>
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.
(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.
-3-
<PAGE>
(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.
(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
-4-
<PAGE>
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.
(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.
-5-
<PAGE>
(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:
(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.
-6-
<PAGE>
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.
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.
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<PAGE>
(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
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<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.
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<PAGE>
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.
(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.
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<PAGE>
(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
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 two-year anniversary of this Note 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 $2.50
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.
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<PAGE>
(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.
(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.
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<PAGE>
(c) 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.
(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:
(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
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<PAGE>
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 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 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:
(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;
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<PAGE>
(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.
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
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<PAGE>
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.
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
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.
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<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement@) is made as of October 19,
1999 by NET VALUE HOLDINGS, INC., a Delaware corporation (the "Employer@), and
THOMAS ALEY 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 November 1, 1999.
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<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.
"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 one year, 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 Executive Vice
President 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 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
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<PAGE>
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.
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
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<PAGE>
(or those aggregated for a single convention, seminar or other business trip)
greater than $2,500 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.
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,
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<PAGE>
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 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
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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 or Termination by Employer Without Cause. If this Agreement is
terminated by Executive due to a material breach of this Agreement by Employer
or by Employer without cause, 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 three months
from the date of termination.
(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 previously to Executive prior to
termination of this Agreement, for three months from the date of termination.
(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
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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.
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 of Internet businesses ("Internet Businesses"), (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 any "primary" services
or products offered by the Employer or a subsidiary or affiliate of Employer
during the Employment Period and during the period ending six months subsequent
to 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 Businesses. 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.
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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 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: Thomas Aley
206 Elsinore Street
Concord, MA 01742
Facsimile No.:
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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
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.
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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 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/ Andrew P. Panzo
----------------------------------------
Andrew P. Panzo
Chief Executive Officer and President
EMPLOYEE:
/s/ Thomas Aley
----------------------------------------
Thomas Aley, individually
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<PAGE>
SCHEDULE 8
EMPLOYMENT AGREEMENT
None
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<PAGE>
EXHIBIT A
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 13. 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 14. 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 15. 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.
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Section 16. 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 17. 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 18. 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 19. 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 20. 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
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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 21. 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 22. 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 23. 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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AMENDED AND RESTATED
SHAREHOLDERS AGREEMENT
THIS AMENDED AND RESTATED SHAREHOLDERS AGREEMENT (this
"Agreement") is made and entered into as of October 11, 1999, by and among MERUS
PARTNERS, INC., an Oregon corporation ("Merus"), CHRIS R. KRAVAS ("CRK"), NET
VALUE HOLDINGS, INC., a Delaware corporation ("Net Value") and WEBMODAL, INC., a
Delaware corporation (the "Corporation") and amends and restates in its entirety
the Shareholders Agreement dated as of July 30, 1999 among Merus, CRK and the
Corporation (the "Original Shareholders Agreement").
RECITALS:
WHEREAS, pursuant to the terms and provisions of that certain
Subscription Agreement, dated as of July 30, 1999, by and between Merus and the
Corporation, Merus purchased shares of Common Stock of the Corporation (the
"Common Stock"); and
WHEREAS, pursuant to the terms and provisions of that certain
Subscription Agreement, dated as of July 29, 1999, by and between CRK and the
Corporation, CRK purchased shares of Common Stock of the Corporation; and
WHEREAS, Net Value has purchased shares of Common Stock from
the Corporation pursuant to a Stock Purchase Agreement dated as of October 11,
1999 and has purchased, or has agreed to purchase, certain shares of Common
Stock directly from Merus; and
WHEREAS, in order to reflect the revised share ownership
structure of the Corporation, Merus, CRK, Net Value and the Corporation wish to
amend and restate the Shareholders Agreement of the Corporation;
NOW THEREFORE, in consideration of the foregoing and the
mutual covenants, agreements and warranties herein contained, Merus, CRK, Net
Value and the Corporation agree as follows, with such agreement covering all
shares of Common Stock now owned or hereafter acquired by Merus, CRK and Net
Value (including, without limitation, the shares of Common Stock which Net Value
has purchased, or has agreed to purchase, from Merus):
ARTICLE I.
SHARE OWNERSHIP
The percentage ownership of Merus, the percentage ownership of
Net Value and the percentage of ownership of CRK shall be subject to dilution on
a proportionate basis for the sale, exchange, or issuance of any capital stock
of the Corporation, whether now authorized or not, and any securities of any
type whatsoever that are, or may become, convertible or exchangeable for capital
stock, and for any rights, options, or warrants to purchase, subscribe for, or
otherwise acquire
<PAGE>
capital stock, including, without limitation, the issuance of options,
restricted stock or other equity based incentives to employees, consultants and
advisors of the Corporation.
ARTICLE II.
THE LOAN
A. The Corporation has executed a Note in the form attached
hereto evidencing a loan (the "Loan") to the Corporation from Merus in the
amount of Two-Hundred Forty-Five Thousand Five Hundred Eighty-Eight Dollars and
Twenty-Three Cents ($245,588.23). The outstanding principal of the Loan will be
payable on the tenth anniversary hereof and will bear interest at the rate of
eight percent (8%) per annum, payable in arrears commencing on the third
anniversary and on each anniversary thereafter, and at maturity.
B. The option to purchase 18 additional shares of Common Stock
(on a pre-stock split basis) at an aggregate price of $1,245,588.23, granted to
Merus pursuant to Article II.B of the Original Shareholders Agreement, is null
and void and of no further effect.
ARTICLE III.
USE OF PROCEEDS
The Corporation shall use the proceeds of the subscriptions
and purchases of its capital stock referred to in the recitals of this Agreement
and the Loan for all startup costs of the Corporation, including without
limitation the following:
A. Accounting, legal, and other costs incurred in connection
with formation of the Corporation.
B. Costs of capital raising efforts including documentation,
investment agreements, etc.
C. Development of the Corporation business plan.
D. Research on intermodal freight transportation and
electronic commerce activities as necessary to develop and refine the
Corporation's business plan and related product offerings.
E. Research, design, and development of technical platform
necessary to support anticipated business plan and product offerings, including:
1. Website design;
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2. Internet interface with information systems of shipper
customers; and
3. Internet interface with information systems of vendor or
partner transportation companies (railroads, trucking companies, steamship
companies, third party logistics companies, equipment providers, etc.).
F. Creation of the Corporation's initial website.
G. Public relations or advertising expenditures associated
with the launch of the Corporation and the Corporation's product offerings.
H. Rent, utilities, telecommunications, insurance, accounting
services, legal services, and any other administrative expenses associated with
establishing and maintaining the Corporation's offices or the Corporation's
ongoing business.
I. Procurement of computers, telephones, fax machines, office
equipment, furniture, and other fixtures for the Corporation's offices.
J. Salaries, insurance benefits, and payroll costs for
anticipated startup staffing potentially including:
1. President, Chairman of Board of Directors, and Chief
Executive Officer;
2. Executive Vice President of Marketing;
3. Executive Vice President of Operations;
4. Executive Vice President of Information Systems;
5. Executive Vice President of Finance;
6. Office Manager and/or administrative support employees
as required;
7. Customer Service Managers and staffing as necessary to
support the Corporation's product requirements;
8. Supplemental staffing as necessary to support marketing,
operations, information systems, office administration, or any other of the
Corporation's requirements at the discretion of the Chief Executive Officer, and
9. All actual staffing levels and the timing of staff
hirings will be determined by ongoing workload requirements and availability of
qualified resources and funding.
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K. Executive recruiter commissions or fees.
L. Travel, lodging, meals, etc.
M. Other reasonable and necessary costs to implement the
Corporation's business plan.
ARTICLE IV.
MERUS' AND NET VALUE'S RESPONSIBILITIES
Merus and Net Value will each be responsible for using their
respective reasonable best efforts to provide financing, strategic, and
operational assistance to the Corporation to formally launch its business plan,
for outlining the Corporation's technology, operations, and resources necessary
to support the business, and for providing operations and resources necessary to
secure funding for future growth, including without limitation the provision of
strategic and operational assistance:
A. Provide long term strategy and vision and advice and assist
in raising capital.
B. Develop, review, and refine the Corporation's business
plan.
C. Provide strategic advice concerning critical partnerships.
D. Assist with capital planning and fund-raising.
E. Assist in development of exit strategy (merger/IPO) as
appropriate.
F. Assist in development of infrastructure and resources.
G. Assist in development of necessary corporate requirements.
H. Assist in recruitment of top tier persons to fill resource
gaps.
I. Assist in development of capital requirements and
procurement.
J. Develop marketing plan and strategy.
K. Create the Corporation's brand awareness through
advertising and promotions.
L. Provide technological and operational advice in support as
appropriate.
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ARTICLE V.
ACKNOWLEDGMENT OF RISK
A. Merus acknowledges for itself and for its shareholders,
agents, employees and affiliates, that the investment of seed money or other
financial assets in the Webmodal concept and/or the Corporation, or the lending
of money to be used in furtherance of the Webmodal concept or the Corporation's
business, is wholly speculative and may result in complete loss of invested or
loaned funds or assets.
B. Merus acknowledges for itself and for its shareholders,
agents, employees and affiliates, that the anticipated business plan and any
perceived value of the Corporation is based on an assessment of the
transportation industry and associated transportation e-commerce activities that
may be incorrect or incomplete, and, furthermore, that this incorrect or
incomplete assessment could result in a complete loss of invested or loaned
funds, time, or any other resources brought into the venture by Merus, CRK or
Net Value or any other entity.
C. Merus acknowledges for itself and for its shareholders,
agents, employees and affiliates, that any involvement in the activities of the
Webmodal venture and any investment or loan of time, expertise, intellectual
capital, or other resources by Merus, its shareholders, agents, employees and
affiliates in the Webmodal venture or the Corporation, is wholly speculative and
may result in no return on, or compensation for, such invested time, expertise,
intellectual capital, or other resources.
D. Net Value acknowledges for itself and for its shareholders,
agents, employees and affiliates, that the investment of seed money or other
financial assets in the Webmodal concept and/or the Corporation, or the lending
of money to be used in furtherance of the Webmodal concept or the Corporation's
business, is wholly speculative and may result in complete loss of invested or
loaned funds or assets.
E. Net Value acknowledges for itself and for its shareholders,
agents, employees and affiliates, that the anticipated business plan and any
perceived value of the Corporation is based on an assessment of the
transportation industry and associated transportation e-commerce activities that
may be incorrect or incomplete, and, furthermore, that this incorrect or
incomplete assessment could result in a complete loss of invested or loaned
funds, time, or any other resources brought into the venture by Net Value, CRK
or Merus or any other entity.
F. Net Value acknowledges for itself and for its shareholders,
agents, employees and affiliates, that any involvement in the activities of the
Webmodal venture and any investment or loan of time, expertise, intellectual
capital, or other resources by Net Value, its shareholders, agents, employees
and affiliates in the Webmodal venture or the Corporation, is wholly speculative
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and may result in no return on, or compensation for, such invested time,
expertise, intellectual capital, or other resources.
ARTICLE VI.
CONSENT TO TRANSFER
Notwithstanding any other provision of this Agreement,
including without limitation, Articles VII and VIII of this Agreement, CRK and
the Corporation must consent to any sale, gift, pledge or other transfer of
shares of Common Stock by any stockholder, which consent may not be unreasonably
withheld.
ARTICLE VII.
RIGHT OF FIRST REFUSAL
If either Merus or Net Value shall at any time decide to sell
any of its respective shares of Common Stock to a third party, it shall give CRK
and the Corporation 60 days written notice of the terms of the proposed sale,
including, without limitation, the price per share and the identity of the
proposed purchaser (a "Right of First Refusal Notice"). CRK and/or the
Corporation shall have the right to purchase all (but not less than all) such
shares of Common Stock as are proposed to be sold on identical terms to those
set forth in the Right of First Refusal Notice, with such shares being allocated
among CRK and the Corporation in such proportions as CRK and the Corporation
shall elect. CRK and the Corporation shall notify Merus or Net Value, as
applicable, of their intention to exercise this right of first refusal within 30
days following receipt of the Right of First Refusal Notice. If CRK or the
Corporation elect to purchase shares pursuant to this right of first refusal, it
must close the purchase within 60 days of the date they received the Right of
First Refusal Notice. If CRK and the Corporation do not purchase the shares of
Common Stock proposed to be sold pursuant to the terms of this Article VII,
Merus or Net Value may sell such shares on the terms indicated in the Right of
First Refusal Notice; provided (i) that the consent referred to in Article VI of
this Agreement has been obtained, (ii) the closing of such sale occurs within 90
days of receipt by CRK and the Corporation of the Right of First Refusal Notice,
(iii) the purchaser becomes a party to this Agreement on terms comparable to
those that applied to the seller, and (iv) the sale is closed on terms identical
to that set forth in the Right of First Refusal Notice. Any change in proposed
sale terms or the purchaser from that set forth in a Right of First Refusal
Notice requires the new commencement of the procedures set forth in this Article
VII. This Article VII shall terminate once the Corporation closes its initial
public offering.
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ARTICLE VIII.
TAG-ALONG/DRAG-ALONG RIGHTS
A. If CRK, Merus or Net Value (in such capacity, a "Selling
Stockholder") propose to effect a sale or other transfer of Common Stock to any
person (other than to CRK, Merus, Net Value, the Corporation or any of their
respective subsidiaries or affiliates), the Selling Stockholder shall offer each
of the other stockholders the opportunity to sell to the purchaser the tag-along
portion of their shares of Common Stock for the same consideration per share and
otherwise on the same terms and conditions upon which the Selling Stockholder
sells its shares of Common Stock. The "Tag-Along Portion" shall be that number
of shares of Common Stock which is equal to (a) the total number of shares of
Common Stock held by such other stockholder multiplied by (b) a fraction the
numerator of which is the total number of shares of Common Stock that the
Selling Stockholder proposes to sell and the denominator of which is the total
number of shares of Common Stock held by the Selling Stockholder. In the event
that the purchaser is not willing to purchase all shares of Common Stock being
offered pursuant to the above formula, the "Tag-Along Portion" shall be (c) the
number of shares of Common Stock the purchaser is willing to purchase multiplied
by (d) a fraction the numerator of which is the number of shares of Common Stock
that the Selling Stockholder or other stockholder electing tag-along rights
pursuant to this Article VIII, as applicable, is trying to sell and the
denominator of which is the total number of shares of Common Stock that the
Selling Stockholder and all other stockholders electing to exercise tag-along
rights pursuant to this Article VIII wish to sell.
B. If CRK proposes to effect a sale or other transfer of all
shares of Common Stock held by him, CRK may require each and every other
stockholder of the Corporation to sell or transfer to such purchaser all shares
of Common Stock held by them for the same consideration per share and otherwise
on the same terms and conditions, including without limitation, delivery date,
upon which CRK sells his shares of Common Stock. To exercise this right, CRK
shall provide each stockholder with 30 days written notice of the proposed sale.
The delivery of such notice shall not obligate CRK to close such sale of Common
Stock.
ARTICLE IX.
PIGGYBACK REGISTRATION
A. If the Corporation proposes to register any security under
the Securities Act of 1933 (the "Securities Act") on any registration form
(otherwise than for the registration of securities to be offered and sold
pursuant to (i) an employee benefit plan, (ii) a dividend or interest
reinvestment plan, (iii) other similar plans or (iv) reclassifications of
securities, mergers, consolidations and acquisitions of assets on Form S-4 or
any successor thereto or (v) the Corporation's initial public offering; provided
that in the event any shareholders of the Corporation are registering shares for
resale as part of the initial public offering, each of Merus, CRK and Net Value
shall have the rights set forth in this Article IX, with respect to a pro rata
portion (determined
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based on relative holdings of Common Stock) of all shares of Common Stock
covered by the initial public offering registration statement to be resold by
persons other than the Corporation) prescribed by the Securities and Exchange
Commission permitting a secondary offering or distribution, not less than 20
days prior to each such registration, the Corporation shall give to each of
Merus, CRK and Net Value (the "Piggyback Stockholders") written notice of such
proposal which shall describe in detail the proposed registration and
distribution (including those jurisdictions where registration or qualification
under the securities or blue sky laws is intended) and, upon the written request
of any Piggyback Stockholder given within 10 days after the date of such notice,
proceed to include in such registration such number of the shares of Common
Stock as have been requested by such Piggyback Stockholders to be included in
such registration. In its request, each Piggyback Stockholder shall describe
briefly its proposed disposition of its Common Stock. The Corporation shall in
each instance use reasonably commercial efforts to cause such shares of Common
Stock to be registered under the Securities Act, all to the extent necessary to
permit the sale or other disposition thereof (in the manner stated in such
request) by a prospective seller of the securities so registered. Each Piggyback
Stockholder participating in a registration agrees to execute an underwriting
agreement with such underwriter that is (i) reasonably satisfactory to the
Company and (ii) in customary form. Nothing in this Article IX shall be deemed
to require the Corporation to proceed with any registration of its securities
after giving the notice herein provided. The piggyback registration rights
contained in this Article IX shall not be applicable to the extent that a
Piggyback Stockholder is able to sell shares of Common Stock pursuant to Rule
144 promulgated pursuant to the Securities Act.
B. If the managing underwriter (who shall be selected by the
Corporation in its sole discretion) advises the Corporation that, in its
opinion, the inclusion of the shares of Common Stock requested to be included in
such registration by the Piggyback Stockholders with the securities being
registered by the Corporation and other prospective sellers would materially
adversely affect the distribution or pricing of all such securities, then: (i)
if such registration has been initially proposed by the Corporation, the
Corporation shall first include in such registration the number of securities
sought to be registered by the Corporation and thereafter, to the extent
permitted by the managing underwriter, shall include in the registration such
number of shares of Common Stock owned by the Piggyback Stockholders and such
securities of any other security holders of the Corporation pro rata based on
the number of securities each originally requested to be registered, or (ii) if
such registration has been initially proposed by a holder of securities entitled
to request a registration, the Corporation shall include in the registration, to
the extent permitted by the managing underwriter, the number of shares of each
such holder of securities, the Corporation, each Piggyback Stockholder and each
other security holders of the Corporation with registration rights pro rata
based on the number of securities each originally requested to be registered.
C. To the extent the provisions of Article IX.A are
applicable, the Corporation shall pay the following expenses in connection
therewith: (i) all expenses incident to filing with the National Association of
Securities Dealers, Inc., (ii) registration fees, (iii) reasonable printing
expenses, and (iv) accounting and legal fees and expenses of the Corporation
(but not of the Piggyback Holders) in connection with such registration;
provided, however, the Corporation shall
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<PAGE>
not be liable for (a) any discounts or commissions to any underwriter, or (b)
any transfer taxes incurred in respect of the shares of Common Stock sold by the
Piggyback Holders.
D. Each Piggyback Holder agrees (i) not to effect any public
sale or distribution of or otherwise dispose of any shares of Common Stock
during the seven days prior to or 180 days after the date any registration
statement of the Corporation has become effective under the Securities Act,
except as part of such registration.
E. In connection with any registration of securities under
this Article IX, the Corporation shall indemnify each participating Piggyback
Holder, including each person, if any, who is an officer or director of, or who
controls, such Piggyback Holders within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, against all losses, claims,
damages, liabilities and expenses (including reasonable costs or investigation
and reasonable attorneys' fees and expenses, whether in an action brought by a
third party or by the parties hereto), arising, directly or indirectly, out of
or based upon (i) any untrue, or alleged untrue, statement of a material fact
contained in any registration statement, preliminary prospectus or notification
or offering circular (as amended or supplemented if the Corporation shall have
furnished any amendments or supplements thereto) or (ii) any omission, or
alleged omission, to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; except insofar as
such losses, claims, damages, liabilities or expenses arise out of or are based
upon any untrue statement or alleged untrue statement or omission or alleged
omission based solely upon information furnished in writing to the Corporation
by such Piggyback Holder expressly for use therein.
Each participating Piggyback Holder shall indemnify the
Corporation, including each person, if any, who is an officer or director of the
Corporation or who controls the Corporation within the meaning of Section 15 of
the Securities act or Section 20 of the Exchange Act, against all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation and reasonable attorneys' fees and expenses, whether in an action
brought by a third party or by the parties hereto), arising out of or based upon
(i) any untrue, or alleged untrue, statement of a material fact contained in any
registration statement, preliminary prospectus or notification or offering
circular (as amended or supplemented if the Corporation shall have furnished any
amendments or supplements thereto) or (ii) any omission, or alleged omission, to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; but only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was based
solely upon information furnished in writing to the Corporation by such
Piggyback Holder expressly for use therein.
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<PAGE>
ARTICLE X.
MISCELLANEOUS
A. Ratification of Agreement. Merus, Net Value and CRK shall
vote their shares so as to cause the Corporation to adopt and ratify all of the
terms of this Agreement.
B. Assignment. Except with the other party's prior written
consent, a party may not assign any rights or delegate any duties under this
Agreement.
C. Attorney's Fees. If any suit or action is filed by any
party to enforce this Agreement or otherwise with respect to the subject matter
of this Agreement, the prevailing party shall be entitled to recover reasonable
attorney fees incurred in preparation or in prosecution or defense of such suit
or action as fixed by the trial court, and if any appeal is taken from the
decision of the trial court, reasonable attorney fees as fixed by the appellate
court.
D. Amendments. This Agreement may be amended only by an
instrument in writing executed by all the parties.
E. Entire Agreement. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter of this
Agreement and supersedes any and all prior understandings and agreements,
whether written or oral, between the parties with respect to such subject
matter.
F. Counterparts; Facsimile Signatures. This Agreement 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. Facsimile signatures shall be binding.
G. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any respect for any reason, the validity and
enforceability of any such provision in any other respect and of the remaining
provisions of this Agreement shall not be in any way impaired.
H. Waiver. A provision of this Agreement may be waived only by
a written instrument executed by the party waiving compliance. No waiver of any
provision of this Agreement shall constitute a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing waiver.
Failure to enforce any provision of this Agreement shall not operate as a waiver
of such provision or any other provision.
I. Governing Law; Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware.
The parties agree that the federal
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<PAGE>
and state courts sitting in the State of Illinois shall have exclusive personal
and subject matter jurisdiction over all claims or disputes arising out of or in
connection with this Agreement, the subscription for shares in the Corporation
made by Merus, the Loan or the Note, or the subject matter hereof or thereof.
The parties hereto hereby agree (i) to submit to the personal jurisdiction of
such courts and to service of process effected in accordance with the laws of
such State, (ii) to waive any objection to such jurisdiction and any defense of
forum non conveniens in connection therewith and (iii) to be bound by any
judgment rendered by any such court.
J. Notices. Any notice, request, instruction or other document
to be given hereunder by a party hereto shall be in writing and shall be deemed
to have been given, (a) when received if given in person or by courier or a
courier service, (b) on the date of confirmed transmission if sent by telex,
facsimile or other wire transmission or (c) three (3) Business Days after being
deposited in the U.S. mail, certified or registered mail, postage prepaid:
(a) If to CRK or the Corporation, addressed as follows:
Webmodal, Inc.
129 East Calhoun Street, Unit B
Woodstock, IL 60098
Attn: Chris R. Kravas
Facsimile No.: (815) 334-9219
with a copy to:
Mayer, Brown & Platt
190 S. LaSalle Street
Chicago, IL 60603
Attn: James J. Junewicz, Esq.
Facsimile No.: (312) 706-8157
(b) If to Merus, addressed as follows:
Merus Partners, Inc.
15455 N.W. Greenbrier Parkway
Suite 210
Beaverton, OR 97006
Attn: Douglas B. Spink
Facsimile No.: (800) 893-8895
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<PAGE>
(c) If to Net Value, addressed as follows:
Net Value Holdings, Inc.
Two Penn Center Plaza
Suite 605
Philadelphia, PA 19102
Facsimile No.: (215) 564-3133
or to such other person or address as a party hereto may designate for
itself by notice given as herein provided.
K. Information Requirements. So long as Net Value is a
shareholder, the Corporation and its management shall provide to Net Value and
its representatives such information concerning the Corporation, its assets,
operations and prospects, and access to the premises and information of the
Corporation, as Net Value shall reasonably require to prepare materially
accurate and complete disclosures of Net Value's investment in the Corporation
in accordance with federal and state securities laws.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first set forth above.
MERUS PARTNERS, INC.
By: /s/ Douglas Spink
------------------------------
Name: Douglas Spink
Title: President
/s/ Chris R. Kravas
--------------------------------------
Chris R. Kravas
NET VALUE HOLDINGS, INC.
By: /s/ Andrew P. Panzo
----------------------------------
Name: Andrew P. Panzo
Title: President
WEBMODAL, INC.
By: /s/ Chris R. Kravas
----------------------------------
Name: Chris R. Kravas
Title: President
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<PAGE>
STOCK PURCHASE AGREEMENT
THIS AGREEMENT, dated as of the 11th day of October, 1999, by
and between MERUS PARTNERS, INC., an Oregon corporation ("Merus") and NET VALUE
HOLDINGS, INC., a Delaware corporation ("Net Value").
BACKGROUND
----------
Merus is the holder of 1,500 shares of the issued and
outstanding common stock, par value $.0001 per share ("Common Stock") of
Webmodal, Inc., a Delaware corporation ("Webmodal"). Merus has agreed to sell to
Net Value, and Net Value has agreed to purchase, 1,100 shares of Common Stock
(the "Shares") on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises set
forth herein and intending to be legally bound hereby, the parties agree as
follows:
1. Purchase of Shares.
(a) Net Value hereby agrees to purchase the Shares from Merus
for a purchase price of $227.27 per Share, for an aggregate purchase price of
$250,000 (the "Purchase Price").
(b) Upon payment of the Purchase Price, Merus shall deliver to
Net Value a certificate or certificates evidencing the Shares, duly endorsed for
transfer or accompanied by duly executed stock powers.
2. Net Value Representations and Warranties. Net Value, in order
to induce Merus to enter into this Agreement and complete the transactions
contemplated hereby, represents and warrants as follows:
(a) Net Value is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
full corporate power and authority to execute and deliver this Agreement and to
assume and perform its obligations hereunder.
(b) All actions of the directors and shareholders of Net Value
necessary to authorize the execution and delivery of this Agreement have been
taken, and this Agreement constitutes the legal, valid and binding agreement of
Net Value enforceable against Net Value in accordance with its terms.
(c) Neither the execution nor delivery of this Agreement by
Net Value, nor the performance by Net Value of any of the transactions
contemplated hereby (i) will result in a violation of the certificate of
incorporation or by-laws of Net Value, (ii) conflicts with, or constitutes a
breach or default under any applicable judgment, order, writ, injunction or
decree of any court or any applicable law or any applicable rule or regulation
of any administrative agency or governmental or regulatory authority or (iii)
violates, conflicts with, or constitutes a default (or an event or condition
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<PAGE>
that, with notice or lapse of time or both, would constitute a default) under,
any contract, commitment, understanding, arrangement, agreement or restriction
of any kind or character to which Net Value is a party or may be bound.
3. Merus Representations and Warranties. Merus, in order to induce Net
Value to enter into this Agreement and complete the transactions contemplated
hereby, represents and warrants as follows:
(a) Merus is a corporation duly organized, validly existing and in
good standing under the laws of the State of Oregon and has full corporate power
and authority to execute and deliver this Agreement and to assume and perform
its obligations hereunder.
(b) All actions of the directors and shareholders of Merus necessary
to authorize the execution and delivery of this Agreement have been taken, and
this Agreement constitutes the legal, valid and binding agreement of Merus
enforceable against Merus in accordance with its terms.
(c) Neither the execution nor delivery of this Agreement by Merus,
nor the performance by Merus of any of the transactions contemplated hereby (i)
will result in a violation of the certificate of incorporation or by-laws of
Merus, (ii) conflicts with, or constitutes a breach or default under any
applicable judgment, order, writ, injunction or decree of any court or any
applicable law or any applicable rule or regulation of any administrative agency
or governmental or regulatory authority or (iii) violates, conflicts with, or
constitutes a default (or an event or condition that, with notice or lapse of
time or both, would constitute a default) under, any contract, commitment,
understanding, arrangement, agreement or restriction of any kind or character to
which Merus is a party or may be bound.
(d) Merus is the lawful owner, of record and beneficially, of the
Shares free and clear of any security interest, lien, pledge, encumbrance or
other adverse claim or interest and not subject to any restriction on Merus'
ability to transfer full record and beneficial ownership of the Shares to Net
Value pursuant to this Agreement.
(e) As of the date of this Agreement, the Shares represent 11%
percent of the aggregate issued and outstanding shares of capital stock of
Webmodal.
4. Miscellaneous Terms and Conditions.
(a) This Agreement represents the entire understanding of the
parties hereto as to the subject matter hereof and supersedes any and all other
oral or written agreements and understandings as to such subject matter.
(b) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, successors and
assigns.
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<PAGE>
(c) This Agreement will be governed by the laws of the State of
Delaware, without regard to conflicts of law principles.
(d) At the request of a party, the other party shall deliver any
further instruments of transfer and take all reasonable actions as may be
necessary or appropriate to effectuate the transactions contemplated by this
Agreement.
(e) This Agreement may be executed and delivered by facsimile and in
counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of such shall together constitute
one and the same instrument.
(f) The captions and headings of the various Sections of this
Agreement are for ease of reference only, and shall not be used to interpret or
supplement any of the terms hereof.
IN WITNESS WHEREOF, the parties hereto, intending to be legally
bound hereby, have executed this Agreement as of the date first written above.
NET VALUE HOLDINGS, INC.
By: /s/ Andrew P. Panzo
--------------------------
Andrew P. Panzo, President
MERUS PARTNERS, INC.
By: /s/ Douglas Spink
--------------------------
Douglas Spink, President
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is dated as
of October 11, 1999 and is by and among Net Value Holdings, Inc., a Delaware
corporation, (the "Buyer"), and Webmodal, Inc., a Delaware corporation (the
"Company").
WHEREAS, the Buyer wishes to buy 121 shares of Common Stock of
the Company (after giving effect to the stock split) (the "Shares"); and
WHEREAS, the Company believes it is in the best interests of
the Company to sell the Shares to the Buyer;
NOW THEREFORE, in consideration of the foregoing and the
mutual covenants, agreements and warranties contained herein, the parties agree
as follows:
1. Sale and Purchase. Subject to all the terms and conditions
of this Agreement, the Company hereby agrees to sell the Shares to the Buyer,
and the Buyer agrees to purchase the Shares, for an aggregate purchase price of
$100,000 (the "Purchase Price"). The Purchase Price shall be payable by
certified or cashiers check or wire transfer, at the option of the Buyer, upon
the execution of this Agreement. Delivery of the certificate evidencing the
Shares shall take place as soon as reasonably practical following execution of
this Agreement and receipt of payment of the Purchase Price.
2. Representations of the Company. In order to induce the sale
of the Shares to the Buyer, the Company represents and warrants to the Buyer as
follows:
(a) This Agreement has been duly and validly executed
and delivered by the Company, and, assuming due authorization,
execution and delivery of this Agreement by the Buyer, this
Agreement constitutes the legal, valid, and binding obligation
of the Company, enforceable in accordance with its terms,
except as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization or similar
laws from time to time in effect which affect creditors'
rights generally, and by legal and equitable limitations on
the availability of specific remedies.
(b) The execution, delivery and performance by the
Company of this Agreement do not and will not: (i) violate any
decree or judgment of any court or other governmental
authority applicable to or binding on the Company; (ii)
violate any law; or (iii) violate any contract to which the
Company is a party or by which the Company or any of its
assets or properties are bound.
(c) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware.
<PAGE>
(d) Prior to the issuance of the Shares to Net Value,
the authorized capital stock of the Company (after giving
effect to the stock split) consists solely of 100,000 shares
of Common Stock of which 10,000 shares are outstanding. There
are no outstanding securities or obligations convertible into,
options or warrants to purchase, or preemptive rights or other
rights to subscribe for or to purchase, shares of the
Company's capital stock or any securities or obligations
convertible into shares of the Company's capital stock (except
that the Company has reached agreements to issue options for
approximately 15% of the capital stock of the Company to
certain prospective key managers and advisors and the Company
had granted an option to Merus Partners, Inc. ("Merus"), but
such option is being eliminated pursuant to the Amended and
Restated Stockholders Agreement being executed
contemporaneously with this Agreement). There are no contracts
or commitments to issue or sell shares of the Company's
capital stock or securities or obligations convertible into,
options or warrants to purchase, or preemptive rights or other
rights to subscribe for or to purchase, shares of the
Company's capital stock or any securities or obligations
convertible into shares of the Company's capital stock.
(e) Upon issuance of the Shares following receipt by
the Company of the Purchase Price, the Shares will be duly
authorized and validly issued and fully paid and
nonassessable.
3. Representations of Buyer. In order to induce the Company to
sell the Shares to the Buyer, the Buyer represents and warrants to the Company
as follows:
(a) The Buyer and any of its affiliates, if
applicable, are acquiring the Shares solely for their own
accounts, for investment only and not with a view to resale in
connection with a distribution thereof as that term is defined
in the Securities Act of 1933 (the "Securities Act") and the
rules and regulations of the Securities and Exchange
Commission thereunder. The Buyer has no present intention to
sell or transfer any of its shares of stock in the Company and
has neither authorized nor taken any steps to do so or with an
intent to do so. The Buyer acknowledges that the Shares to be
purchased pursuant to this Agreement have not been registered
under the Securities Act of 1933, as amended, or any
applicable state securities law and may not be transferred or
sold except pursuant to an effective registration statement
under the Securities Act or exemption therefrom and that the
certificates representing the Shares may contain a legend to
that effect. The Buyer is an "accredited investor," as such
term is defined in Regulation D promulgated pursuant to the
Securities Act. The Buyer has such knowledge and experience in
financial and business matters so as to be capable of
evaluating the merits and risks of an investment in the Shares
and of protecting the Buyer's interest in connection with the
purchase of the Shares. It has been called to the Buyer's
attention in connection with its investment in the Company
that such investment is speculative in nature and involves a
high degree of risk and the Buyer is aware that the Company
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<PAGE>
does not have an operating history. The Buyer understands that
no federal or state agency has passed upon or made any
recommendation or endorsement relating to an investment in the
Shares. The Buyer has adequate means of providing for its
current needs and contingencies, and has no need now, and
anticipates no need in the foreseeable future, to sell the
Shares, and the Buyer currently has sufficient financial
liquidity to bear the economic risks of this investment
indefinitely and, at the present time, can afford a complete
loss of its investment in the Company.
(b) This Agreement has been duly and validly executed
and delivered by the Buyer, and assuming due authorization,
execution and delivery of this Agreement by the Company, this
Agreement constitutes the legal, valid and binding obligation
of the Buyer, enforceable in accordance with its terms, except
as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization or similar
laws in effect which affect the enforcement of creditors'
rights generally and by equitable limitations on the
availability of specific remedies.
(c) The execution, delivery and performance by the
Buyer of this Agreement do not and will not (i) violate any
decree or judgment of any court or other governmental
authority applicable to or binding on the Buyer; (ii) violate
any law; or (iii) violate any contract to which the Buyer is a
party or by which the Buyer or any of its assets or properties
are bound.
(d) Neither the Buyer nor any person acting on behalf
of the Buyer has retained any broker in connection with the
transactions contemplated by this Agreement. Neither the
Company nor any affiliate, employee, agent, or representative
of the Company nor the Buyer has or shall have any liability
with respect to any brokerage or finder's fee or other
commission in connection with any of the transactions
contemplated by this Agreement.
(e) The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware.
(f) The Buyer has purchased, or agreed to purchase,
11 shares (on a pre-stock split basis) of Common Stock of the
Company from Merus for $250,000.
4. Amendment; Assignment. This Agreement may be amended,
modified or supplemented but only in writing signed by the Company and the
Buyer. No party to this Agreement may assign any of its rights or obligations
under this Agreement without the prior consent of the other party.
5. Notices. Any notice, request, instruction or other document
to be given hereunder by a party hereto shall be in writing and shall be deemed
to have been given, (a) when received if given in person or by courier or a
courier service, (b) on the date of confirmed
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transmission if sent by telex, facsimile or other wire transmission or (c) three
(3) Business Days after being deposited in the U.S. mail, certified or
registered mail, postage prepaid:
(a) If to the Company, addressed as follows:
Webmodal, Inc.
129 East Calhoun Street, Unit B
Woodstock, IL 60098
Attn: Chris R. Kravas
Facsimile No.: (815) 334-9219
with a copy to:
Mayer, Brown & Platt
190 S. LaSalle Street
Chicago, IL 60603
Attn: James J. Junewicz, Esq.
Facsimile No.: (312) 706-8157
(b) If to the Buyer, addressed as follows:
Net Value Holdings, Inc.
Two Penn Center Plaza
Suite 605
Philadelphia, PA 19102
Facsimile No.: (215) 564-3133
or to such other person or address as a party hereto may designate for
itself by notice given as herein provided.
6. Counterparts; Facsimile Signatures. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same Agreement.
Facsimile signatures shall be binding.
7. Governing Law; Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware,
without giving effect to principles of conflict of law. The parties agree that
the federal and state courts sitting in the State of Illinois shall have
exclusive personal and subject matter jurisdiction over all claims or disputes
arising out of or in connection with this Agreement, or the subject matter
hereof. The parties hereto hereby agree (i) to submit to the personal
jurisdiction of such courts and to service of process effected in accordance
with the laws of such State, (ii) to waive any objection to such jurisdiction
and any defense of forum non conveniens in connection therewith and (iii) to be
bound by any judgment rendered by any such court.
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8. Severability. If any provision of this Agreement shall be
held invalid, illegal or unenforceable, the validity, legality or enforceability
of the other provisions hereof shall not be affected thereby, and there shall be
deemed substituted for the provision at issue a valid, legal and enforceable
provision as similar as possible to the provision at issue.
9. Remedies Cumulative. Unless otherwise specified, the
remedies provided in this Agreement shall be cumulative and shall not preclude
the assertion or exercise of any other rights or remedies available by law, in
equity or otherwise.
10. Entire Understanding. This Agreement and the amended and
restated shareholders agreement of the Company dated as of the date hereof, set
forth the entire agreement and understanding of the parties hereto and supersede
any and all prior agreements, arrangements and understandings among the parties.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first above written.
NET VALUE HOLDINGS, INC.
By: /s/ Andrew P. Panzo
----------------------------------
Its: President
---------------------------------
WEBMODAL, INC.
By: /s/ Chris R. Kravas
----------------------------------
Its: President
---------------------------------
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SERIES A CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
THIS SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this
"Agreement") is made and entered into as of November 23, 1999, by and between
SWAPIT.COM, INC., a Delaware corporation (the "Company") and NET VALUE HOLDINGS,
INC., a Delaware corporation (the "Investor").
RECITALS
The Company desires to sell to the Investor, and the Investor desires
to purchase from the Company, shares of the Company's Series A Convertible
Preferred Stock on the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. AGREEMENT TO PURCHASE AND SELL STOCK.
1.1 Authorization. As of the Closing (as defined below),
the Company will have authorized the issuance, pursuant to the terms and
conditions of this Agreement, of up to Three Hundred Thirty Two Thousand Five
Hundred (332,500) shares of the Company's Series A Convertible Preferred Stock,
$0.001 par value per share (the "Series A Stock") having the rights,
preferences, privileges and restrictions set forth in the Restated Certificate
of Incorporation of the Company attached to this Agreement as Exhibit A (the
"Series A Certificate").
1.2 Agreement to Purchase and Sell. The Company agrees to
sell to the Investor at the Closing, and the Investor agrees to purchase from
the Company at the Closing, 132,941 shares of Series A Stock, at a price of
$3.761 per share, or an aggregate price of $500,000. The shares of Series A
Stock purchased and sold pursuant to this Agreement will be collectively
referred to as the "Purchased Shares" and the shares of Common Stock issuable
upon conversion of the Purchased Shares will be collectively referred to as the
"Conversion Shares."
2. CLOSING. The purchase and sale of the Purchased Shares will
take place at the offices of Erickson Schaffer Peterson Hempel & Israel PC,
counsel to the Company, at 20 William Street, Suite 150, Wellesley,
Massachusetts 02481 at 9:00 a.m. Eastern Time, on November ____, 1999, or at
such other time and place as the Company and the Investor mutually agree upon
(which time and place are referred to in this Agreement as the "Closing"). At
the Closing, the Company will deliver to the Investor certificates representing
132,941 Purchased Shares against delivery to the Company by the Investor of the
full purchase price of the Purchased Shares less all
<PAGE>
costs payable pursuant to Section 7.9, paid by (i) a wire transfer of funds to
the Company or (ii) certified bank check.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Investor that the statements in the
following paragraphs of this Section 3 are all true and correct:
3.1 Organization, Good Standing and Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to own its properties and assets and to carry on its business as
now conducted and as presently proposed to be conducted. The Company is duly
qualified and in good standing to do business as a foreign corporation in each
jurisdiction where failure to be so qualified would have a material adverse
effect on its financial condition, business, prospects or operations.
3.2 Capitalization. Upon filing the Series A Certificate,
immediately prior to the Closing, the capitalization of the Company will consist
of the following:
(a) Preferred Stock. A total of Three Hundred Thirty
Two Thousand Five Hundred (332,500) authorized shares of preferred stock, $0.001
par value per share, designated as Series A Stock, none of which will be issued
and outstanding. The rights, preferences and privileges of the Series A Stock
will be as stated in the Series A Certificate and as provided by law.
(b) Common Stock. A total of One Million Six Hundred
Sixty Seven Thousand Five Hundred (1,667,500) authorized shares of common stock,
$0.001 par value per share (the "Common Stock "), of which Nine Hundred Seventy
Five Thousand (975,000) shares are issued and outstanding.
(c) Options, Warrants, Reserved Shares. Except as set
forth on Schedule 3.2(c), there are not outstanding any options, warrants,
rights (including conversion or preemptive rights) or agreements for the
purchase or acquisition from the Company of any shares of its capital stock or
any securities convertible into or ultimately exchangeable or exercisable for
any shares of the Company's capital stock. Except as set forth on Schedule
3.2(c), no shares of the Company's outstanding capital stock, or stock issuable
upon exercise or exchange of any outstanding options, warrants or rights, or
other stock issuable by the Company, are subject to any rights of first refusal
or other rights to purchase such stock (whether in favor of the Company or any
other person), pursuant to any agreement or commitment of the Company.
(d) Outstanding Security Holders. Attached to this
Agreement as Schedule 3.2(d) is a complete list of all outstanding stockholders,
option holders, warrant holders, convertible note holders an d other security
holders of the Company as of immediately prior to the Closing, which schedule
lists the type of instruments, certificate numbers in sequential order (if
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applicable), the dates of issuance, the names of holders and the number of
Shares held or to be held upon exercise of such instrument.
3.3 Subsidiaries. Except as set forth on Schedule 3.3, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, trust, joint venture, ass ociation, or
other entity.
3.4 Due Authorization. All corporate action on the part of
the Company, its officers, directors and stockholders necessary for the
authorization, execution, delivery of, and the performance of all obligations of
the Company under, this Agreement, the Investor Rights Agreement (as defined in
Section 5.14) and the Co-Sale Agreement (as defined in Section 5.15),
(collectively, the "Related Agreements") and the authorization, issuance,
reservation for issuance and delivery of all of the Purchased Shares being sold
under this Agreement and of the Conversion Shares has been taken or will be
taken prior to the Closing, and this Agreement constitutes, and the Related
Agreements, when executed, will constitute, valid and legally binding
obligations of the Company, enforceable in accordance with their respective
terms, except as may be limited by (i) applicable bankruptcy, insolvency,
reorganization or others laws of general application relating to or affecting
the enforcement of creditors' rights generally and (ii) the effect of rules of
law governing the availability of equitable remedies.
3.5 Valid Issuance of Stock.
(a) The Purchased Shares, when issued, sold and
delivered in accordance with the terms of this Agreement for the consideration
provided for herein, will be duly and validly issued, fully paid and
nonassessable. The Conversion Shares have been duly and validly reserved for
issuance and, upon issuance in accordance with the terms of the Series A
Certificate, will be duly and validly issued, fully paid and nonassessable.
(b) Based in part on the representations made by the
Investor in Section 4 hereof, the Purchased Shares and (assuming no change in
applicable law and no unlawful distribution of Purchased Shares by the Investor
or other parties) the Conversion Shares will be issued in full compliance with
the registration and prospectus delivery requirements of the U.S. Securities Act
of 1933, as amended (the "1933 Act") and the registration and qualification
requirements of all applicable state securities laws; provided that, with
respect to the Conversion Shares, no commission or other remuneration is paid or
given, directly or indirectly, for soliciting the issuance of Conversion Shares
upon the conversion of the Purchased Shares and no additional consideration is
paid for the Conversion Shares other than surrender of the applicable Purchased
Shares upon conversion thereof in accordance with the Series A Certificate.
(c) The outstanding shares of the capital stock of the
Company are duly and validly issued, fully paid and nonassessable, and such
shares of capital stock, and all outstanding options, warrants, convertible
notes and other securities of the Company, have been issued in full compliance
with the registration and prospectus delivery requirements of the 1933 Act
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<PAGE>
or in compliance with applicable exemptions therefrom, the registration and
qualification requirements of all applicable securities laws of states of the
United States and all other provisions of applicable securities laws of States
of the United States, including, without limitation, anti-fraud provisions.
3.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement and the Related Agreements, except for such
qualifications or filings under the 1933 Act and the regulations thereunder and
all other applicable securities laws of states of the United States as may be
required in connection with the transactions contemplated by this Agreement. All
such qualifications and filings will, in the case of qualifications, be
effective on the Closing and will, in the case of filings, be made within the
time prescribed by law.
3.7 Litigation. Except as set forth on Schedule 3.7, there
is no action, suit, proceeding, claim, arbitration or investigation ("Action")
pending or, to the best of the Company's Knowledge (as defined below), currently
threatened against the Company, its activities, properties or assets or, to the
best of the Company's Knowledge, against any officer, director or employee of
the Company in connection with such officer's, director's or employee's
relationship with, or actions taken on behalf of, the Company. Except as set
forth on Schedule 3.7, to the best of the Company's Knowledge, there is no
factual or legal basis for any such Action that might result, individually or in
the aggregate, in any material adverse change in the business, properties,
assets, financial condition, affairs or prospects of the Company. By way of
example but not by way of limitation, there are no Actions pending or, to the
best of the Company's Knowledge, threatened (or any basis therefor known to the
Company) relating to the prior employment of any of the Company's employees or
consultants, their use in connection with the Company's business of any
information, technology or techniques allegedly proprietary to any of their
former employers, clients or other parties, or their obligations under any
agreements with prior employers, clients or other parties. The Company is not a
party to or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality and there is no
Action by the Company currently pending or which the Company intends to
initiate. For the purposes of this Agreement, "Knowledge" means (i) the actual
knowledge of such party's partners, officers, directors, principals, affiliates
or agents; and (ii) the knowledge that a prudent business person would have
obtained in the conduct of his or her business after making reasonable inquiry
and exercising reasonable diligence with respect to the particular matter in
question.
3.8 Employee Intellectual Property Covenants. Each
employee, officer, consultant and contractor of the Company identified on
Schedule 3.8 has entered into and executed Employee Intellectual Property
Covenants in the form attached to this Agreement as Exhibit B or an employment
or consulting agreement containing substantially similar terms.
3.9 Status of Proprietary Assets.
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<PAGE>
(a) Ownership. Except as set forth on Schedule 3.9(a),
the Company has full title and ownership of, or has license to, all patents,
patent applications, trademarks, service marks, trade names, copyrights, moral
rights, mask works, trade secrets, confidential and proprietary information,
compositions of matter, formulas, designs, proprietary rights, know-how and
processes (all of the foregoing collectively referred to as the "Proprietary
Assets") necessary to enable it to carry on its business as now conducted and as
presently proposed to be conducted, without any conflict with or infringement of
the rights of others. A complete list of all the Company's Proprietary Assets is
set forth on Schedule 3.9(a) to this Agreement. To the best of the Company's
Knowledge, no third party has any ownership right, title, interest, claim in or
lien on any of the Company's Proprietary Assets and the Company has taken, and
in the future the Company will use its best efforts to take, all steps
reasonably necessary to preserve its legal rights in, and the secrecy of, all
its Proprietary Assets, except those for which disclosure is required for
legitimate business or legal reasons.
(b) Licenses; Other Agreements. Except as set forth on
Schedule 3.9(b), the Company has not granted, and, there are not outstanding,
any options, licenses or agreements of any kind relating to any Proprietary
Asset of the Company, nor is the Company bound by or a party to any option,
license or agreement of any kind with respect to any of its Proprietary Assets.
The Company is not obligated to pay any royalties or other payments to third
parties with respect to the marketing, sale, distribution, manufacture, license
or use of any Proprietary Asset or any other property or rights.
(c) No Infringement. To the best of the Company's
Knowledge, the Company has not violated or infringed, and is not currently
violating or infringing, and the Company has not received any communications
alleging that the Company (or any of its employees or consultants) has violated
or infringed or, by conducting its business as proposed, would violate or
infringe, any Proprietary Asset of any other person or entity.
(d) No Breach by Employee. The Company is not aware
that any employee or consultant of the Company is obligated under any agreement
(including licenses, covenants or commitments of any nature) or subject to any
judgment, decree or order of any court or administrative agency, or any other
restriction that would interfere with the use of his or her best efforts to
carry out his or her duties for the Company or to promote the interests of the
Company or that would conflict with the Company's business as proposed to be
conducted. The carrying on of the Company's business by the employees and
contractors of the Company and the conduct of the Company business as presently
proposed, will not, to the best of the Company's Knowledge, conflict with or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, any contract, covenant or instrument under which any of such
employees or contractors or the Company is now obligated. The Company does not
believe it is or will be necessary to utilize any inventions of any employees of
the Company (or persons the Company currently intends to hire) made prior to
their employment by the Company which have not otherwise become property of the
Company. At no time during the conception of or reduction of any of the
Proprietary Assets to practice was any developer, inventor or other contributor
to such patents operating under any grants from any
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<PAGE>
governmental entity or agency or private source, performing research sponsored
by any governmental entity or agency or private source or subject to any
employment agreement or invention assignment or nondisclosure agreement or other
obligation with any third party that could adversely affect the Company's rights
in such Proprietary Assets.
3.10 Compliance with Law and Charter Documents. The Company
is not in violation or default of any provisions of its Certificate of
Incorporation or Bylaws, both as amended, and to the best of the Company's
Knowledge, the Company is in compliance with all applicable statutes, laws,
regulations and executive orders of the United States of America and all states,
foreign countries or other governmental bodies and agencies having jurisdiction
over the Company's business or properties. The Company has not received any
notice of any violation of such statutes, laws, regulations or orders which has
not been remedied prior to the date hereof. The execution, delivery and
performance of this Agreement and the Related Agreements and the consummation of
the transactions contemplated hereby or thereby will not result in any such
violation or default, or be in conflict with or constitute, with or without the
passage of time or the giving of notice or both, either a default under the
Company's Certificate of Incorporation or Bylaws, or any agreement or contract
of the Company, or, to the best of the Company's Knowledge, a violation of any
statutes, laws, regulations or orders, or an event which results in the creation
of any lien, charge or encumbrance upon any asset of the Company.
3.11 Material Agreements.
(a) List of Material Agreements. Attached to this
Agreement as Schedule 3.11 is a complete list of all agreements, contracts,
leases, licenses, instruments and commitments (oral or written) to which the
Company is a party or is bound that, individually or in the aggregate, are
material to the business, properties, financial condition, results of operation,
affairs or prospects of the Company ("Material Agreements"); provided that for
purposes of this Section 3.11 only, no agreement under which the only remaining
obligation of the Company is to make a payment of money in the amount of $5,000
or less will be deemed to be material to its business, properties, financial
condition or results of operations if the failure to make such payment will not
result in the loss by the Company of any rights that are material to the conduct
of its business.
(b) No Breach. The Company has not breached, nor does
the Company have any Knowledge of any claim or threat that the Company has
breached, any term or condition of (i) any Material Agreement set forth in
Schedule 3.11 or (ii) any other agreement, contract, lease, license, instrument
or commitment that, individually or in the aggregate, would have a material
adverse effect on the business, properties, financial condition, results of
operations or affairs or prospects of the Company. Each Material Agreement set
forth in Schedule 3.11 is in full force and effect and, to the Company's
Knowledge, no other party to such Material Agreement is in default thereunder.
The Company is not a party to any agreement that restricts its ability to market
or sell any of its products (whether by territorial restriction or otherwise).
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3.12 Registration Rights. Except as provided in the
Investor Rights Agreement, the Company has not granted or agreed to grant to any
person or entity any rights (including piggyback registration rights) to have
any securities of the Company registered with the United States Securities and
Exchange Commission ("SEC") or any other governmental authority.
3.13 Charter Documents; Minutes. The Certificate of
Incorporation and the Bylaws of the Company are in the form previously provided
to the Investor. The minute books of the Company provided to the Investor
contain a complete summary of all meetings, consents and actions of the board of
directors and the stockholders of the Company since the time of its
incorporation, accurately reflecting all transactions referred to in such
minutes in all material respects.
3.14 Title to Property and Assets. The Company owns its
properties and assets free and clear of all mortgages, deeds of trust, liens,
encumbrances, security interests and claims except for statutory liens for the
payment of current taxes that are not yet delinquent and liens, encumbrances and
security interests which arise in the ordinary course of business and which do
not affect material properties and assets of the Company. With respect to the
property and assets it leases, the Company is in compliance with such leases
and, to the best of the Company's Knowledge, the Company holds valid leasehold
interests in such assets free of any liens, encumbrances, security interests or
claims of any party other than the lessors of such property and assets.
3.15 Financial Statements. The Company has no historical
financial statements.
3.16 Certain Actions. Except as set forth on Schedule 3.16,
, the Company has not: (i) declared or paid any dividends, or authorized or made
any distribution upon or with respect to any class or series of its capital
stock; (ii) incurred any indebtedness for money borrowed or incurred any other
liabilities individually in excess of $10,000 in the aggregate; (iii) made any
loans or advances to any person, other than ordinary advances for travel
expenses; (iv) sold, exchanged or otherwise disposed of any material assets or
rights other than the sale of inventory in the ordinary course of its business;
or (v) entered into any transactions with any of its officers, directors or
employees or any entity controlled by any of such individuals.
3.17 Activities. Except as set forth on Schedule 3.17, the
Company has not:
(a) formed or acquired or disposed of any interest in
any corporation, partnership, joint venture, or other entity;
(b) written up, written down, or written off the book
value of any amount of assets;
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(c) declared, paid, or set aside for payment any
dividend or distribution with respect to its capital stock;
(d) redeemed, purchased, or otherwise acquired, or
sold, granted, or otherwise disposed of, directly or indirectly, any of its
capital stock or securities or any rights to acquire such capital stock or
securities, or agreed to changes in the terms and conditions of any such rights;
(e) increased the compensation of or paid or accrued
any bonus to any employee or contributed or accrued or contributed to any
employee benefit plan, other than in accordance with policies, practices, or
requirements established and in effect as of the Closing Date;
(f) entered into any employment, compensation,
consulting or collective bargaining agreement with any person or group;
(g) entered into, adopted, or materially amended any
employee benefit plan; or
(h) entered into any other material commitment or
transaction not disclosed elsewhere herein.
In addition to the foregoing, there has not been:
(i) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of the Company (as
presently conducted and as presently proposed to be conducted);
(j) any waiver by the Company of a valuable right or
of a material debt owed to it;
(k) any satisfaction or discharge of any lien, claim
or encumbrance or payment of any obligation by the Company, except such a
satisfaction, discharge or payment made in the ordinary course of business that
is not material to the assets, properties, financial condition, operating
results or business of the Company;
(l) any material change or amendment to a material
agreement or arrangement by which the Company or any of its assets or properties
is bound or subject, except for changes or amendments which are expressly
provided for or disclosed in this Agreement; or
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<PAGE>
(m) to the Company's Knowledge, any other event or
condition of any character which would materially and adversely affect the
assets, properties, financial condition, operating results or business of the
Company.
3.18 ERISA Plans. Schedule 3.18 identifies all employee
benefit plans or arrangements applicable to the employees of the Company, and
all material fixed or contingent liabilities or obligations of the Company with
respect to any person now or formerly employed by the Company, including pension
or thrift plans, individual or supplemental pension or accrued compensation
arrangements, contributions to hospitalization or other health or life insurance
programs, incentive plans, bonus arrangements, and vacation, sick -leave,
disability, and termination arrangements or policies, including workers'
compensation policies. The Company shall furnish or make available to the
Investor true and complete copies of all written documents or information with
respect to employee matters and arrangements, including without limitation all
employee handbooks, rules, policies, plan documents, trust agreements,
employment agreements, summary plan descriptions, and descriptions of any
unwritten plans identified in Schedule 3.18. Any employee benefits and welfare
plans or arrangements identified in Schedule 3.18 were established and have been
executed, managed, and administered without material exception in accordance
with all applicable requirements of the Internal Revenue Code of 1986, as
amended (the "Code"), and the Employee Retirement Income Security Act of 1974,
as amended, and other applicable laws. There is no governmental audit or
examination of any of such plans or arrangements pending, nor, to the Knowledge
of the Company, threatened. There exists no action, suit, or claim (other than
routine claims for benefits) with respect to any of such plans or arrangements
pending, or, to the Knowledge of the Company, threatened, against any of such
plans or arrangements, and the Company knows of no facts which could give rise
to any such action, suit, or claim.
3.19 Insurance. Within ten (10) days of entering into a
lease or other arrangement for the use or acquisition of any office space for
use by the business, the Company will put in place, and thereafter will maintain
in full force and effect, fire and casualty insurance policies as is customary
for the type of business engaged in by the Company, with extended coverage,
sufficient in amount (subject to reasonable deductibles) to allow it to replace
any of its properties that might be damaged or destroyed. True and complete
copies of all such insurance policies have previously been furnished to the
Investor and notice of any termination or threatened termination of such
policies has been made known to the Investor.
3.20 Tax Returns and Payments. Neither the Company, nor any
entity to whose liabilities the Company has succeeded or assumed, has filed or
been included in a consolidated, unitary, or combined tax return with another
person. Except as set forth on Schedule 3.20, the Company represents and
warrants that: (a) the Company has filed all tax returns and reports required to
have been filed by or for it; including but not limited to those with respect to
income, payroll, property, employee withholding, social security, unemployment,
franchise, excise, use, and sales taxes, and has either paid in full all taxes
that have become due as reflected on any such return or report (including any
interest and penalties with respect thereto shown to be due) or has fully
accrued on its books or has established adequate reserves for all taxes payable
but not
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yet due; (b) all material information set forth in such returns or reports is
accurate and complete; (c) the Company has paid or made adequate provision for
all taxes, additions to tax, penalties, and interest payable by the Company; (d)
to the best of the Company's Knowledge, no unpaid tax deficiency has been
asserted against or with respect to the Company by any taxing authority, and the
Company has not received written notice of any such assertion; (e) the Company
has collected or withheld all amounts required to be collected or withheld by it
for any taxes, and to the extent required by law, all such amounts have been
paid to the appropriate governmental agencies or set aside in appropriate
accounts for future payment when due; (f) the Company is in compliance with, and
its records contain all information and documents necessary to comply with, all
applicable information reporting and tax withholding requirements; (g) the books
and records of the Company fully and properly reflect its liability for all
accrued taxes, additions to tax, penalties, and interest; (h) the Company has
not granted, nor is it subject to, any waiver of the period of limitations for
the assessment of tax for any currently open taxable period; (i) the Company has
not made or entered into, and holds no asset subject to, a consent filed
pursuant to Section 341(f) of the Code and the regulations thereunder or a "safe
harbor lease" subject to former Section 168(f)(8) of the Internal Revenue Code
of 1954, as amended before the Tax Reform Act of 1986, and the regulations
thereunder; (j) the Company is not required to include in income any amount for
an adjustment pursuant to Section 481 of the Code or the regulations thereunder;
and (k) the Company is not a party to, or obligated under, any agreement or
other arrangement providing for the payment of any amount that would be an
"excess parachute payment" under Section 280G of the Code.
3.21 Employee Matters.
(a) The Company is not bound by or subject to any
contract, commitment or arrangement with any labor union, and to the Company's
Knowledge, no labor union has requested, sought or attempted to represent any
employees, representatives or agents of the Company. There is no strike or other
labor dispute involving the Company pending nor, to the Company's Knowledge,
threatened, nor is the Company aware of any labor organization activity
involving its employees.
(b) The Company is not aware that any officer or
employee intends to terminate his or her employment with the Company, nor does
the Company have any present intention to terminate the employment of any of its
officers or employees. Schedule 3.21(b) identifies all employees and consultants
of the Company and the title, term (if other than at will) and compensation of
each.
(c) After due inquiry, to the Company's Knowledge, the
Company (i) is in full compliance with all applicable laws respecting employment
and employment practices, terms and conditions of employment, and wages and
hours; (ii) is in full compliance with all of its obligations under applicable
workers compensation laws, rules, and regulations; and (iii) is not engaged in
any unfair labor practice.
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(d) To the Company's Knowledge, no current employee,
director or officer has been indicted or convicted of a felony or misdemeanor
(other than traffic violations).
3.22 Environmental Matters.
The Company has no leased or owned properties, and has
not owned, leased or operated any facilities at any time prior to the Closing.
3.23 Interested Party Transactions. To the Company's
Knowledge,
(a) Except as disclosed on Schedule 3.23, no officer,
employee or director of the Company or any "affiliate" or "associate" (as those
terms are defined in Rule 405 of the 1933 Act) has had, either directly or
indirectly, a material interest in: (i) any person or entity which purchases
from or sells, licenses or furnishes to the Company any goods, property,
technology, intellectual or other property rights or services; or (ii) any
contract or agreement to which the Company is a party or by which it may be
bound or affected.
(b) the Company has no indebtedness to or with an
officer, employee, director, affiliate or associate.
3.24 Use of Proceeds. The Company shall use the proceeds
from the sale of the Purchased Shares for the purposes identified on Schedule
3.24.
3.25 Disclosure. This Agreement and the Schedules and
Exhibits hereto (when read together) do not contain any untrue statement of a
material fact and do not omit to state a material fact necessary to make the
statements therein or herein not misleading. To the Company's Knowledge, the
financial projections contained in the Business Plan, attached hereto as
Schedule 3.25 (as supplemented through the date hereof, the "Business Plan "),
fairly present its management's good faith estimates as of the date of the
Business Plan and as of the date of this Agreement.
3.26 Real Property Holding Corporation Status. Since its
inception, the Company has not been a "United States real property holding
corporation," as defined in Section 897(c)(2) of the Code, and in Section
1.897-2(b) of the Treasury Regulations issued thereunder (the "Regulations"),
and the Company has filed with the Internal Revenue Service all statements, if
any, with its United States income tax returns which are required under Section
1.897-2(h) of the Regulations.
3.27 Tax Elections. The Company has not elected pursuant to
the Code, to be treated as an "S" corporation or a collapsible corporation
pursuant to Section 341(f) or Section 1362(a) of the Code, nor has it made any
other elections pursuant to the Code (other than elections which relate solely
to matters of accounting, depreciation or amortization) which would have a
material affect on the Company, its financial condition, its business as
presently conducted or presently properties or material assets.
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3.28 No Material Undisclosed Liabilities.
(a) There is no liability or obligation of the Company
of any nature, whether absolute, accrued, contingent, or otherwise in the amount
of $5,000 or more, other than closing costs associated with this Agreement and
the contractual obligations disclosed on Schedule 3.11.
(b) The Company is not signatory to, and is not in any
manner a guarantor, endorser, assumptor or otherwise primarily or secondarily
liable for or responsible for the payment of, any notes payable or other
obligations.
3.29 Accounts Receivable. The Company does not have any
accounts receivable as of the date hereof.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF
INVESTOR. The Investor hereby represents and warrants to, and agree with, the
Company that:
4.1 Authorization. This Agreement constitutes the
Investor's valid and legally binding obligation, enforceable in accordance with
its terms except as may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting the
enforcement of creditors' rights generally and (ii) the effect of rules of law
governing the availability of equitable remedies. The Investor represents that
it has full power and authority to enter into this Agreement and the Related
Agreements.
4.2 Purchase for Own Account. The Purchased Shares to be
purchased by the Investor hereunder will be acquired for investment for the
Investor's own account, not as a nominee or agent, and not with a view to the
public resale or distribution thereof within the meaning of the 1933 Act, and
the Investor has no present intention of selling, granting any participation in,
or otherwise distributing the same. The Investor also represents that it has not
been formed for the specific purpose of acquiring the Purchased Shares.
4.3 Disclosure of Information. The Investor has received or
has had full access to all the information it considers necessary or appropriate
to make an informed investment decision with respect to the Purchased Shares to
be purchased by the Investor under this Agreement. The Investor further has had
an opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Purchased Shares and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify any
information furnished to the Investor or to which the Investor had access. The
foregoing, however, does not in any way limit or modify the representations and
warranties made by the Company in Section 3.
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4.4 Accredited Investor Status. The Investor is an
"accredited investor" within the meaning of Regulation D promulgated under the
1933 Act.
4.5 Investment Experience. The Investor understands that
the acquisition of the Purchased Shares involves substantial risk. The Investor:
(i) has experience as an investor in securities of companies in the development
stage and acknowledges that it is able to fend for itself, can bear the economic
risk of its acquisition of the Purchased Shares and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of this acquisition of the Purchased Shares and protecting its
own interests in connection with this acquisition and/or (ii) has a preexisting
personal or business relationship with the Company and certain of its officers,
directors or controlling persons of a nature and duration that enables the
Investor to be aware of the character, business acumen and financial
circumstances of such persons.
4.6 Restricted Securities. The Investor understands that
the Purchased Shares are characterized as "restricted securities" under the 1933
Act inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under the 1933 Act and applicable rules and
regulations thereunder such securities may be resold without registration under
the 1933 Act only in certain limited circumstances. In this connection, the
Investor represents that it is familiar with Rule 144 of the rules and
regulations promulgated under the 1933 Act ("Rule 144"), as presently in effect,
and understands the resale limitations imposed thereby and by the 1933 Act. The
Investor understands that the Company is under no obligation to register any of
the securities sold hereunder except as provided in the Investor Rights
Agreement. The Investor understands that no public market now exists for any of
the Purchased Shares and that it is uncertain whether a public market will ever
exist for the Purchased Shares or the Conversion Shares.
4.7 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, the Investor further agrees not to
make any disposition of all or any portion of the Purchased Shares or the
Conversion Shares unless and until:
(a) there is then in effect a registration statement
under the 1933 Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(b) (i) the 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 (ii) the Investor
shall have furnished the Company, at the expense of the Investor or its
transferees, with an opinion of counsel, reasonably satisfactory to the Company,
that such disposition will not require registration of such securities under the
1933 Act.
Notwithstanding the provisions of paragraphs (a) and (b)
above, no such registration statement or opinion of counsel shall be required:
(i) for any transfer of any Purchased Shares or Conversion Shares in compliance
with Rule 144 or Rule 144A; or (ii) for any transfer of any Purchased Shares or
Conversion Shares by the Investor to (A) a partner or member of such
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Investor, (B) a retired partner of such Investor who retires after the date
hereof, or (C) the estate of any such partner or member; provided that in each
of the foregoing cases the transferee agrees in writing to be subject to the
terms of this Section 4 (other than Section 4.4) to the same extent as if the
transferee were an original Investor hereunder.
4.8 Legends. It is understood that the certificates
evidencing the Purchased Shares and the Conversion Shares will bear the legends
set forth below:
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT
THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION
OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT
ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
(b) Any legend required by state securities laws,
including a legend substantially in the form of the following:
THE SHARES EVIDENCED BY THIS CERTIFICATE: (1) ARE CONVERTIBLE INTO
SHARES OF COMMON STOCK OF THE COMPANY AT THE OPTION OF THE HOLDER AT ANY TIME
PRIOR TO AUTOMATIC CONVERSION THEREOF; AND (2) AUTOMATICALLY CONVERT INTO COMMON
STOCK OF THE COMPANY IN THE EVENT OF A PUBLIC OFFERING MEETING CERTAIN
REQUIREMENTS OR UPON CERTAIN CONSENTS OF THE HOLDERS OF THE COMPANY'S PREFERRED
STOCK; ALL PURSUANT TO AND UPON THE TERMS AND CONDITIONS SPECIFIED IN THE
COMPANY'S CERTIFICATE OF DESIGNATION. A COPY OF SUCH CERTIFICATE OF DESIGNATION
MAY BE OBTAINED, WITHOUT CHARGE, AT THE COMPANY'S PRINCIPAL OFFICE.
The legend set forth in (a) above shall be removed by the
Company from any certificate evidencing Purchased Shares or Conversion Shares
upon delivery to the Company of an opinion by counsel, reasonably satisfactory
to the Company, that a registration statement under the 1933 Act is at that time
in effect with respect to the legended security or that such security can be
freely transferred in a public sale without such a registration statement being
in effect and that such transfer will not jeopardize the exemption or exemptions
from registration pursuant to which the Company issued the Purchased Shares or
Conversion Shares.
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5. CONDITIONS TO INVESTOR'S OBLIGATIONS AT CLOSING. The
obligations of the Investor to the Company under this Agreement are subject to
the fulfillment or waiver, on or before the Closing, of each of the following
conditions, the waiver of which shall not be effective against the Investor if
the Investor does not consent to such waiver, which consent may be given by
written communication to the Company or its counsel:
5.1 Representations and Warranties True. Each of the
representations and warranties of the Company contained in Section 3 shall be
true and correct on and as 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.
5.2 Due Diligence. The Investor shall have completed, to
its sole satisfaction, its due diligence of the Company.
5.3 Employee Confidentiality Agreements. As provided in
Section 3.8 above, the Company shall have furnished the Investor with copies of
the Employee Intellectual Property Covenants signed by each employee, officer,
consultant or contractor of the Company identified on Schedule 3.8. At closing,
Howard A. Schneider and Winston Kevin Wells will execute and deliver employment
agreements acceptable to the Investor.
5.4 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 and shall have obtained all approvals, consents and qualifications
necessary to complete the purchase and sale described herein.
5.5 Series A Certificate. The Series A Certificate shall
have been duly adopted by the Company by all necessary corporate action of its
Board of Directors and stockholders, and shall have been duly filed with and
accepted by the Delaware Secretary of State.
5.6 Compliance Certificate. The Company shall have
delivered to the Investor at the Closing a certificate signed on its behalf by
its President, Chief Executive Officer, or Chief Financial Officer certifying
that the conditions specified in Sections 5.1 and 5.3 through 5.6 have been
fulfilled and stating that there shall have been no material adverse change in
the business, affairs, prospects, operations, properties, assets or condition of
the Company.
5.7 Securities Exemptions. The offer and sale of the
Purchased Shares to the Investor pursuant to this Agreement shall be exempt from
the registration requirements of the 1933 Act and the registration and/or
qualification requirements of all other applicable state securities laws.
5.8 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 Investor and to the counsel for the
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Investor, and they shall each have received all such counterpart originals and
certified or other copies of such documents as they may reasonably request. Such
documents shall include (but not be limited to) the following:
(a) Certified Charter Documents. A copy of the
Certificate of Incorporation, Series A Certificate and Bylaws of the Company (as
amended through the date of the Closing), certified by the Secretary of the
Company as true and correct copies thereof as of the Closing.
(b) Secretary's Incumbency Certificate. A certificate
of the Secretary or an Assistant Secretary or other officer of the Company
certifying the names of the officers of the Company authorized to sign this
Agreement, the certificates for the Purchased Shares and the other documents,
instruments or certificates to be delivered pursuant to this Agreement by the
Company or any of its officers, together with the true signatures of such
officers.
(c) Corporate Actions. A copy of the resolutions of the
Board of Directors and the stockholders of the Company evidencing the approval
of the Series A Certificate, the approval of this Agreement, the Related
Agreements, the issuance of the Purchased Shares and the other matters
contemplated hereby, certified by the Secretary of the Company to be true,
complete and correct.
(d) Good Standing Certificates. A certificate of good
standing of the Company issued by the Delaware Secretary of State, dated no
earlier than ten (10) days prior to the date of Closing.
5.9 Ownership of Technology. The Investor shall have
received from the Company all documents and other materials requested by the
Investor in writing for the purpose of examining and determining the Company's
rights in and to any technology, product and Proprietary Assets now used,
proposed to be used in, or necessary to, the Company's business as now conducted
and proposed to be conducted, and the status of the Company's ownership rights
in and to all such technology, products and Proprietary Assets shall be
reasonably satisfactory to the Investor.
5.10 Board of Directors. All appropriate action shall be
taken to ensure that the Company's Board of Directors consists of Howard
Schneider, Winston Kevin Wells and Tom Aley following the Closing.
5.11 No Material Change. There shall have been no material
adverse change in the business, affairs, prospects, operations, properties,
assets or condition of the Company.
5.12 Opinion of Company Counsel. The Investor shall have
received an opinion from Erickson Schaffer Peterson Hempel & Israel PC, counsel
for the Company, dated as of the date of the Closing, in the form attached
hereto as Exhibit C.
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5.13 Investor Rights Agreement. The Company and the
Investor shall have executed and delivered the Investor Rights Agreement in the
form attached to this Agreement as Exhibit D (the "Investor Rights Agreement").
5.14 Co-Sale Agreement. The Company, the stockholders of
the Company named therein and the Investor shall have executed and delivered the
Co-Sale Agreement in the form attached as Exhibit E (the "Co-Sale Agreement").
5.15 Strategic Plan. The Company and the Investor shall
have commenced mutually developing a Strategic Plan for the Company. The Company
covenants and agrees to continue mutual development of the strategic Plan
following Closing. The Strategic Plan shall be inserted in the Company's minute
books for reference and be updated on an annual basis.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to the Investor under this Agreement are subject to
the fulfillment or waiver, on or before the Closing, of each of the following
conditions, the waiver of which shall not be effective against the Company if
the Company does not consent to such waiver, which consent may be given by
written communication to the Investor or its counsel:
6.1 Representations and Warranties. The representations and
warranties of the Investor contained in Section 4 shall be true and correct on
the date of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
6.2 Payment of Purchase Price. The Investor shall have
delivered to the Company the full purchase price of $500,000 less all costs
payable pursuant to Section 7.9, in accordance with the provisions of Section 2.
6.3 Series A Certificate. The Series A Certificate shall
have been duly adopted by the Company by all necessary corporate action of its
Board of Directors and stockholders, and shall have been duly filed with and
accepted by the Delaware Secretary of State.
6.4 Securities Exemptions. The offer and sale of the
Purchased Shares to the Investor pursuant to this Agreement shall be exempt from
the registration requirements of the 1933 Act and the registration and/or
qualification requirements of all other applicable state securities laws.
6.5 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 Company and to the Company's legal counsel, and the Company
shall have received all such counterpart originals and certified or other copies
of such documents as it may reasonably request.
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6.6 Investor Rights Agreement. The Company and the Investor
shall have executed and delivered the Investor Rights Agreement.
6.7 Co-Sale Agreement. The Company, the stockholders of the
Company named therein and the Investor shall have executed and delivered the
Co-Sale Agreement.
7. MISCELLANEOUS.
7.1 Survival of Warranties. The representations, warranties
and covenants of the Company and the Investor contained in or made pursuant to
this Agreement shall survive the execution and delivery of this Agreement and
the Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investor, its counsel or the Company,
as the case may be.
7.2 Successors and Assigns. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
7.3 Governing Law; Venue; Waiver of Jury Trial. This
Agreement and the Related Agreements shall be governed by and construed under
the internal laws of the State of Delaware, without reference to principles of
conflict of laws or choice of laws. The venue for any claim, controversy or
dispute which arises between the parties hereto (with respect to this Agreement
or any Related Agreement) shall be the United States District Court for the
District of Delaware (or state court if federal jurisdiction does not apply) and
the parties hereby consent to the jurisdiction of such court and waive any
objection to such venue. THE PARTIES TO THIS AGREEMENT HEREBY WAIVE THEIR RIGHT
TO A TRIAL BY JURY WITH RESPECT TO DISPUTES ARISING UNDER THIS AGREEMENT AND THE
RELATED AGREEMENTS AND CONSENT TO A BENCH TRIAL WITH THE APPROPRIATE JUDGE
ACTING AS THE FINDER OF FACT.
7.4 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.5 Headings. The headings and captions used in this Ag
reement are used for convenience only and are not to be considered in construing
or interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules shall, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by this reference.
7.6 Notices. Any notice, request or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if personally delivered or if deposited in the U.S. mail by
registered or certified mail, return receipt requested, postage prepaid, as
follows:
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<TABLE>
<CAPTION>
<S> <C>
If to the Investor: Net Value Holdings, Inc.
2 Penn Center Plaza
Suite 605
Philadelphia, PA 19103
Attention: President
with a copy to: Klehr, Harrison, Harvey, Branzburg & Ellers, LLP
(which shall not constitute 260 S. Broad Street
notice hereunder) Philadelphia, Pennsylvania 19102
Attention: Michael C. Forman, Esq.
If to the Company: SwapIt.com, Inc.
32 Crane Road
Littleton, Massachusetts 01460
Attention: Howard A. Schneider, President
with a copy to: Erickson Schaffer Peterson Hempel & Israel PC
(which shall not constitute 20 William Street, Suite 150
notice hereunder) Wellesley, Massachusetts 02481
Attention: Paul T. Hempel, Esquire
</TABLE>
Any party hereto (and such party's permitted assigns) may by notice so
given change its address for future notices hereunder. Notice shall conclusively
be deemed to have been given when personally delivered or when deposited in the
mail in the mail in the manner set forth above.
7.7 No Finder's Fees. Neither the Investor, the Company, or
any officer, director, or employee of the Investor or the Company (i) employed
any broker or finder, or (ii) incurred any liability whatsoever, for any
brokerage fees, commissions, or finders' fees in connection with the
transactions contemplated hereby. The Investor agrees to indemnify and to hold
harmless the Company from any liability for any commission or compensation in
the nature of a finders' or broker's fee (and any asserted liability) for which
the Investor or any of its officers, partners, employees, or representatives is
responsible. The Company agrees to indemnify and hold harmless the Investor from
any liability for any commission or compensation in the nature of a finder's or
broker's fee (and any asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
7.8 Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the Related
Agreements or the Series A Certificate, the prevailing party shall be entitled
to reasonable attorneys' fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.
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7.9 Costs, Expenses. The Company shall pay, or reimburse
the Investor, for all costs and out-of pocket expenses of the Investor incurred
in connection with (i) the Investor's due diligence performed in connection with
its proposed investment in the Company; and (ii) the negotiation, preparation,
execution and delivery of this Agreement, the Related Agreements and the Series
A Certificate (including without limitation, the fees and expenses of counsel to
the Investor), such fees and expenses not to exceed $15,000. The commissions,
fees, costs and expenses identified in this Section 7.9 of this Agreement shall
be paid at closing out of the purchase price to be delivered by the Investor.
7.10 Amendments and Waivers. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investor.
Any amendment or waiver effected in accordance with this Section 7.10 shall be
binding upon each holder of any Purchased Shares and/or Conversion Shares at the
time outstanding, each future holder of such securities, and the Company.
7.11 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision(s)
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
7.12 Entire Agreement. This Agreement, together with all
exhibits and schedules hereto, constitutes the entire agreement and
understanding of the parties with respect to the subject matter hereof and
supersedes any and all prior negotiations, correspondence, agreements,
understandings duties or obligations between the parties with respect to the
subject matter hereof.
7.13 Further Assurances. From and after the date of this
Agreement, upon the request of the Investor or the Company, the Company and the
Investor shall execute and deliver such instruments, documents or 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.
7.14 Mutual Drafting. This Agreement is the result of the
joint efforts of the Company and the Investor, and each provision hereof has
been subject to the mutual consultation, negotiation and agreement of the
parties and there shall be no construction against any party based on any
presumption of the party's involvement in the drafting thereof.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this Series A
Convertible Preferred Stock Purchase Agreement as of the date first above
written.
THE COMPANY:
SWAPIT.COM, INC.,
a Delaware corporation
By: /s/ Howard A. Schneider
-------------------------------
Howard A. Schneider, President
THE INVESTOR:
NET VALUE HOLDINGS, INC.,
a Delaware corporation
By: /s/ Andrew P. Panzo
-------------------------------
Andrew P. Panzo, President
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LIST OF SCHEDULES AND EXHIBITS
<TABLE>
<CAPTION>
SCHEDULES
<S> <C> <C>
Schedule 3.2(c) - Outstanding Warrants, Options and
Reserved Shares
Schedule 3.2(d) - Outstanding Security Holders
Schedule 3.7 - Litigation
Schedule 3.8 Key Employees
Schedule 3.9(a) - Ownership of Proprietary Assets
Schedule 3.9(b) Licenses, Other Agreements relating to Proprietary Assets
Schedule 3.11 - List of Material Contracts
Schedule 3.16 - Certain Actions
Schedule 3.17 - Activities
Schedule 3.18 - ERISA Plans
Schedule 3.20 - Tax Matters
Schedule 3.21(b) - Employee Matters
Schedule 3.23 - Interested Party Transactions
Schedule 3.24 - Use of Proceeds
Schedule 3.25 - Business Plan
EXHIBITS
Exhibit A - Series A Certificate
Exhibit B - Form of Invention Assignment and Confidentiality Agreement
Exhibit C - Form of Legal Opinion
Exhibit D - Form of Investor Rights Agreement
Exhibit E - Form of Co-Sale Agreement
</TABLE>
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INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of this 23rd day of November, 1999, by and between SWAPIT.COM, INC., a
Delaware corporation (the "Company") and NET VALUE HOLDINGS, INC., a Delaware
corporation (the "Investor").
RECITALS
A. The Investor has agreed to purchase from the Company, and the
Company has agreed to sell to the Investor, One Hundred Thirty Two Thousand Nine
Hundred Forty One (132,941) shares of the Company's Series A Convertible
Preferred Stock, par value $0.001 per share (the "Series A Stock") on the terms
and conditions set forth in that certain Series A Convertible Preferred Stock
Purchase Agreement, of even date herewith, by and between the Company and the
Investor (the "Series A Agreement"). Capitalized terms used herein but not
otherwise defined shall have the meaning given such terms in the Series A
Agreement.
B. The Series A Agreement provides that the Investor shall be granted
certain information, registration rights and rights of first refusal, all as
more fully set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. INFORMATION RIGHTS.
1.1. Financial Information. The Company covenants and agrees
that, commencing on the date of this Agreement, for so long as the Investor
holds any shares of Series A Stock and/or shares of Common Stock of the Company
issued upon the conversion of such shares of Series A Stock, the Company will:
(a) Annual Reports. Furnish to the Investor, as soon
as practicable and in any event within ninety (90) days after the end of each
fiscal year of the Company, a Balance Sheet as of the end of such fiscal year, a
Statement of Income and a Statement of Cash Flows of the Company for such year,
setting forth in each case in comparative form the figures from the Company's
previous fiscal year (if any), all prepared in accordance with generally
accepted accounting principles and practices and audited by an independent
certified public accountant selected by the Company and acceptable to the
Investor. Draft copies of the annual Balance Sheet, Statement of Income and
Statement of Cash Flows, if any, shall be furnished to the Investor immediately
following their receipt by the Company.
(b) Quarterly Reports. Furnish to the Investor as
soon as practicable, and in any case within thirty-five (35) days of the end of
each fiscal quarter of the Company
<PAGE>
(except the last quarter of the Company's fiscal year), quarterly and
year-to-date unaudited financial statements, including an unaudited Balance
Sheet, an unaudited Statement of Income and an unaudited Statement of Cash
Flows, together with a management report thereon.
(c) Monthly Reports. Furnish to the Investor within
twenty (20) days of the end of each calendar month, monthly and year-to-date
unaudited financial statements, including an unaudited Balance Sheet, an
unaudited Statement of Income and an unaudited Statement of Cash Flows, together
with an unaudited management report thereon (including a budget variance
analysis and management's discussion and analysis).
(d) Annual Budget. Furnish to the Investor, as soon
as practicable and in any event no later than forty-five (45) days before the
close of each fiscal year of the Company, an annual operating plan and budget,
prepared on a quarterly basis, for the next immediate fiscal year, and on a
basis consistent with prior periods (including, among other items, appropriate
reserves, accruals and provisions for income taxes). The Company shall also
furnish to the Investor, within a reasonable time of its preparation, any
amendments to the annual budget that have been prepared at the discretion of or
for presentation to the Board. Such budget shall include underlying assumptions
and a qualitative description of the Company's plan by the Chief Executive
Officer, Chief Financial Officer, Chief Accounting Officer or Controller in
support of that budget.
(e) Material Events. The Company will notify the
Investor, as soon as possible and in any event within ten (10) days, of (i) the
existence and status of any litigation, pending or threatened, which could, in
the event of an unfavorable outcome, have a material adverse effect upon the
financial condition or results of operations of the Company considered in the
aggregate, (ii) any material change in any material fact or circumstance
represented or warranted in this Agreement and (iii) a default or any event or
occurrence which with lapse of time or notice or both could become a default
under the Series A Agreement. Such notice shall contain a reasonably detailed
statement outlining such default or event, and the Company's proposed response.
(f) Confidentiality. The Investor agrees to hold all
information received pursuant to this Agreement in confidence, and not to use or
disclose any of such information to any third party, except to the extent such
information may be made publicly available by the Company; provided, however,
that the Investor may, in the ordinary course of business, provide the financial
results of the Company to third parties in the same manner such information is
provided by the Investor with respect to its portfolio companies.
(g) Substitute Financials. In the event the Company
fails to provide the reports required by Section 1.1, the Investor may give the
Company notice requesting immediate delivery of such reports. If the Company
fails to deliver such reports within a two- week period after receipt of such
notice from the Investor, then the Investor, shall have the right and authority,
at the Company's sole expense, to request an audit by a nationally recognized
accounting firm of its choice (the expense of which shall not exceed the usual
and customary
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expenses associated with such an audit), such that the reports are produced to
the satisfaction of the Investor.
(h) Other Information. The Company shall provide
such other financial data and operational information as may reasonably be
requested in writing by the Investor within twenty (20) days after the later of
i) the close of each calendar month and ii) the date of the Investor's request.
The Company shall provide to the Investor, promptly upon request, such other
information as the Investor shall reasonably request in order for the
preparation of annual, quarterly and other reports filed by the Investor under
the Securities Act of 1933 and the Securities Exchange Act of 1934.
(i) Variance Reports; Certifications. Each of the
financial statements and other reports described in this Section 1.1 shall be
accompanied by a report of the Chief Financial Officer, Chief Accounting Officer
or Controller of the Company explaining any material variances in such financial
statement or report from the Company's operating plan and budget for the quarter
covered and stating that such financial statement or report fairly presents the
financial position and financial results of the Company for the period covered.
(j) Company's Failure to Comply. In the event that
the Company fails to provide any information required by this Section 1.1, it
shall reimburse the Investor for all fees and expenses of attorneys and
accountants incurred in the preparation of those financial statement and
management reports necessary for the Investor to comply with its reporting
requirements.
1.2. Inspection Rights. The Company shall permit a designated
representative of the Investor, at the Investor's expense, to visit and inspect
the Company's properties, to examine its books of account, operational records,
and reports, but in no event more than four times during any calendar year, and
to discuss the business, operations, and financial affairs of the Company with
its respective officers, all at such reasonable times as may be requested by the
Investor. The Company will provide the Investor's representatives with any
additional information, opinions, certifications, and documents, in addition to
those herein mentioned, relating to the operation of the Company as may be
reasonably requested.
1.3. Termination of Certain Rights. The Company's obligations
under Sections 1.1 and 1.2 above will terminate upon (i) the consummation of a
Qualifying IPO (as defined in Section 5(b) of the Company's Series A
Certificate) or (ii) a consolidation or merger of the Company with or into any
other corporation in which the holders of record of the Company's outstanding
shares of stock immediately before such consolidation or merger hold (by virtue
of securities issued as consideration in such transaction or otherwise) less
than a majority of the voting power of the surviving corporation of such
consolidation or merger, or the sale of all or substantially all of the assets
of the Company (a "Change of Control Event").
1.4. Rule 144A Information, PORTAL. At all times during which
the Company is neither subject to the reporting requirements of Section 13 or
15(d) of the Securities
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Exchange Act of 1934, as amended (the "Exchange Act"), nor exempt from reporting
pursuant to Rule 12g3-2(b) under the Exchange Act, provide in written form, upon
the written request of the Investor, or a prospective purchaser of securities of
the Company from the Investor, all information required by Rule 144A(d)(4)(i) of
the Rules and Regulations promulgated under the Securities Act (the "144A
Information"); the Company further agrees, upon written request, to cooperate
with and assist the Investor or any member of the National Association of
Securities Dealers, Inc. system for Private Offerings Resales and Trading
through Automated Linkages ("PORTAL") in applying to designate and thereafter
maintaining the eligibility of the Company's securities for trading through
PORTAL. With respect to each, the Company's obligations under this Section 1.4
shall at all times be contingent upon the Investor's obtaining from a
prospective purchaser an agreement to use its commercially reasonable efforts to
safeguard the 144A Information from disclosure to anyone other than employees of
the prospective purchaser who require access to the 144A Information for the
sole purpose of evaluating its purchase of the Company's securities.
2. REGISTRATION RIGHTS.
2.1. Definitions. For purposes of this Section 2.1:
(a) Registration. The terms "register,"
"registered," and "registration" refer to a registration effected by preparing
and filing a registration statement in compliance with the Securities Act, and
the declaration or ordering of effectiveness of such registration statement.
(b) Registrable Securities. The term "Registrable
Securities" means: (1) all the shares of Common Stock of the Company issued or
issuable upon the conversion of any shares of Series A Stock issued under the
Series A Agreement that are now owned or may hereafter be acquired by the
Investor or the Investor's permitted successors and assigns; and (2) any shares
of Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
all such shares of Common Stock described in clause (1) of this Section 2.1(b),
excluding in all cases, however, any Registrable Securities sold by a person in
a transaction in which rights under this Section 2.1 are not assigned in
accordance with this Agreement or any Registrable Securities sold to the public
or sold pursuant to Rule 144 promulgated under the Securities Act.
(c) Registrable Securities Then Outstanding. The
number of shares of "Registrable Securities Then Outstanding" shall mean the
number of shares of Common Stock which are Registrable Securities and (1) are
then issued and outstanding or (2) are then issuable pursuant to the exercise or
conversion of then outstanding and then exercisable options, warrants or
convertible securities.
(d) Holder. The term "Holder" means any person
owning of record Registrable Securities that have not been sold to the public or
pursuant to Rule 144 promulgated under the Securities Act or any assignee of
record of such Registrable Securities to whom rights
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under this Section 2 have been duly assigned in accordance with this Agreement;
provided, however, that for purposes of this Agreement, a record holder of
shares of Series A Stock convertible into such Registrable Securities shall be
deemed to be the Holder of such Registrable Securities; provided, further, that
the Company shall in no event be obligated to register shares of Series A Stock,
and that Holders of Registrable Securities will not be required to convert their
shares of Series A Stock into Common Stock in order to exercise the registration
rights granted hereunder, until immediately before the closing of the offering
to which the registration relates.
(e) Form S-3. The term "Form S-3" means such form
under the Securities Act as is in effect on the date hereof or any successor
registration form under the Securities Act subsequently adopted by the SEC which
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
(f) Securities Act. The term "Securities Act" means
the Securities Act of 1933, as amended.
(g) SEC. The term "SEC" or "Commission" means the
U.S. Securities and Exchange Commission.
2.2. Demand Registration.
(a) Request by Holders. If the Company shall receive
at any time after ninety (90) days after the effective date of the Company's
initial public offering of its securities pursuant to a registration filed under
the Securities Act, a written request from the Holders of at least a majority of
the Registrable Securities Then Outstanding that the Company file a registration
statement under the Securities Act covering the registration of Registrable
Securities pursuant to this Section 2.2 then the Company shall, within ten (10)
business days of the receipt of such written request, give written notice of
such request ("Request Notice") to all Holders, and effect, as soon as
practicable, the registration under the Securities Act of all Registrable
Securities which Holders request to be registered and included in such
registration by written notice given such Holders to the Company within twenty
(20) days after receipt of the Request Notice, subject only to the limitations
of this Section 2.2.
(b) Underwriting. If the Holders initiating the
registration request under this Section 2.2 ("Initiating Holders") intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, then they shall so advise the Company as a part of their request
made pursuant to this Section 2.2 and the Company shall include such information
in the written notice referred to in Section 2.2(a). In such event, the right of
any Holder to include its Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriters selected for such underwriting by
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the Company and a majority in interest of the Initiating Holders.
Notwithstanding any other provision of this Section 2.2 to the contrary, if the
underwriter(s) advise(s) the Company in writing that marketing factors require a
limitation of the number of securities to be underwritten then the Company shall
so advise all Holders of Registrable Securities which would otherwise be
registered and underwritten pursuant hereto, and the number of Registrable
Securities that may be included in the underwriting shall be reduced as required
by the underwriter(s) and allocated among the Holders of Registrable Securities
on a pro rata basis according to the number of Registrable Securities Then
Outstanding held by each Holder requesting registration (including the
Initiating Holders); provided, however, that the number of shares of Registrable
Securities to be included in such underwriting and registration shall not be
reduced unless all other securities of the Company are first entirely excluded
from the underwriting and registration. Any Registrable Securities excluded and
withdrawn from such underwriting shall be withdrawn from the registration.
(c) Prior Registrations and Announced Registrations.
If, prior to the time of any request by holders of Registrable Securities
pursuant to this Section 2.2, the Company has publicly announced its intention
to register any of its securities for a public offering under the Securities Act
in which Investor had the right to participate pursuant to Section 2.3 hereof,
no registration of Registrable Securities shall be initiated pursuant to this
Section 2.2 until 120 days after the effective date of the registration so
announced unless the Company is no longer proceeding diligently to effect such
registration, whether such registration is for the sale of securities for the
Company's own account or for the account of others.
(d) Maximum Number of Demand Registrations. The
Company is obligated to effect only one (1) Demand Registration pursuant to this
Section 2.2.
(e) Deferral. Notwithstanding anything to the
contrary contained in the preceding subsection (c), if the Company shall furnish
to Holders requesting the filing of a registration statement pursuant to this
Section 2.2, a certificate signed by the President or Chief Executive Officer of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
stockholders for such registration statement to be filed and it is, therefore,
essential to defer the filing of such registration statement, then the Company
shall have the right to defer such filing for a period of not more than 120 days
after receipt of the request of the Initiating Holders; provided, however, that
the Company may not utilize this right more than once in any twelve (12) month
period.
(f) Expenses. All expenses incurred in connection
with a registration pursuant to this Section 2.2, including without limitation
all registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders (excluding underwriters'
discounts and commissions), shall be borne by the Company. Each Holder
participating in a registration pursuant to this Section 2.2 shall bear such
Holder's proportionate share (based on the total number of shares sold in such
registration other than for the account of
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the Company) of all discounts, commissions or other amounts payable to
underwriters or brokers in connection with such offering. Notwithstanding the
foregoing, the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to this Section 2.2 if the registration
request is subsequently withdrawn at the request of the Holders of a majority of
the Registrable Securities requested to be registered; provided however, that if
at the time of such withdrawal, the Holders have learned of a material adverse
change in the condition, business, or prospects of the Company not known to the
Holders at the time of their request for such registration and have withdrawn
their request for registration with reasonable promptness after learning of such
material adverse change, then the Holders shall not be required to pay any of
such expenses and shall retain their rights pursuant to this Section 2.2.
2.3. Piggyback Registrations.
(a) Registration Rights. The Company shall notify
all Holders of Registrable Securities in writing at least thirty (30) days prior
to filing any registration statement under the Securities Act for purposes of
effecting a public offering of securities of the Company, including, but not
limited to, registration statements relating to secondary offerings of
securities of the Company, but specifically excluding registration statements
relating to: (i) any registration under Section 2.2 or Section 2.4 of this
Agreement; or (ii) any employee benefit plan, corporate reorganization or
acquisition, and will afford each such Holder an opportunity to include in such
registration statement all or any part of the Registrable Securities then held
by such Holder. Each Holder desiring to include in any such registration
statement all or any part of the Registrable Securities held by such Holder
shall, within twenty (20) days after receipt of the above-described notice from
the Company, so notify the Company in writing, and in such notice shall inform
the Company of the number of Registrable Securities such Holder wishes to
include in such registration statement. If a Holder decides not to include all
of its Registrable Securities in any registration statement thereafter filed by
the Company, such Holder shall nevertheless continue to have the right to
include any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
(b) Underwriting. If a registration statement under
which the Company gives notice under this Section 2.3 is for an underwritten
offering, then the Company shall so advise the Holders of Registrable
Securities. In such event, the right of any such Holder's Registrable Securities
to be included in a registration pursuant to this Section 2.3 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the managing underwriter or underwriter(s) selected for
such underwriting. Notwithstanding any other provision of this Agreement, if the
managing underwriter determines in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of
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<PAGE>
shares that may be included in the registration and the underwriting shall be
allocated, first, to the Company, and second, to each of the Holders requesting
inclusion of their Registrable Securities in such registration statement on a
pro rata basis based on the total number of Registrable Securities then held by
each such Holder; provided, however, that the right of the underwriters to
exclude shares (including Registrable Securities) from the registration and
underwriting as described above shall be restricted so that (i) the number of
Registrable Securities included in any such registration is not reduced below
ten percent (10%) of the shares included in the registration, except for a
registration relating to the Company's initial public offering from which all
Registrable Securities shall be excluded; and (ii) all shares that are not
Registrable Securities and are held by persons who are employees or directors of
the Company (or any subsidiary of the Company) shall first be excluded from such
registration and underwriting before any Registrable Securities are so excluded.
If any Holder disapproves of the terms of any such underwriting, such Holder may
elect to withdraw therefrom by written notice to the Company and the
underwriter, delivered at least ten (10) business days prior to the effective
date of the registration statement. Any Registrable Securities excluded or
withdrawn from such underwriting shall be excluded and withdrawn from the
registration. For any Holder which is a partnership or corporation, the
partners, retired partners and stockholders of such Holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "Holder,"
and any pro rata reduction with respect to such "Holder" shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such "Holder," as defined in this sentence.
(c) Expenses. All expenses incurred in connection
with a registration pursuant to this Section 2.3 (excluding underwriters' and
brokers' discounts and commissions), including, without limitation all federal
and "blue sky" registration and qualification fees, printers' and accounting
fees, fees and disbursements of counsel for the Company and reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company.
2.4. Form S-3 Registration. In case the Company shall receive
from any Holder or Holders of at least a majority of all Registrable Securities
Then Outstanding a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, then the Company will:
(a) Notice. Promptly give written notice of the
proposed registration and the Holder's or Holders' request therefor, and any
related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) Registration. As soon as practicable, effect
such registration and all such qualifications and compliances 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
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<PAGE>
any other Holder or Holders joining in such request as are specified in a
written request given within twenty (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 2.4:
(i) if Form S-3 is not available for such
offering by the Holders;
(ii) if the Holders, together with the
holders of any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other securities
(if any) at an aggregate price to the public of less than $500,000;
(iii) if the Company shall furnish to the
Holders a certificate signed by the President or Chief Executive Officer of the
Company stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to 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
statement no more than once during any twelve month period for a period of not
more than 120 days after receipt of the request of the Holder or Holders under
this Section 2.4;
(iv) if the Company has, within the twelve
(12) month period preceding the date of such request, already effected one (1)
registration on Form S-3 for the Holders pursuant to this Section 2.4; or
(v) in any particular jurisdiction in which
the Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) Expenses. Subject to the foregoing, the Company
shall file a Form S-3 registration statement covering the Registrable Securities
and other securities so requested to be registered pursuant to this Section 2.4
as soon as practicable after receipt of the request or requests of the Holders
for such registration. The Company shall pay all expenses incurred in connection
with each registration requested pursuant to this Section 2.4, (excluding
underwriters' or brokers' discounts and commissions), including without
limitation all filing, registration and qualification, printers' and accounting
fees and the reasonable fees and disbursements of one counsel for the selling
Holder or Holders and counsel for the Company.
(d) Not Demand Registration. Form S-3 registrations
shall not be deemed to be a demand registration as described in Section 2.2
above.
(e) Number of Form S-3 Registrations. Upon request
in accordance with this Section 2.4, the Company is obligated to effect one such
registration annually pursuant to this Section 2.4.
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2.5. Obligations of the Company. Whenever required, upon
request in accordance with this Section 2.5, to effect the registration of any
Registrable Securities under this Agreement, the Company shall, as expeditiously
and as reasonably as possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its reasonable
efforts to 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 ninety (90)
days.
(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 comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
(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
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
(e) 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(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities 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.
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is
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customarily given to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities and (ii) a "comfort" letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
2.6. Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to Sections 2.2, 2.3
or 2.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to timely effect
the registration of their Registrable Securities.
2.7. Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 2.
2.8. Indemnification. In the event any Registrable Securities
are included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) By the Company. To the extent permitted by law,
the Company will indemnify and hold harmless each Holder, the partners, officers
and directors of each Holder, any underwriter (as defined in the Securities Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended, (the "1934 Act"), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively 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 not misleading, or
(iii) any violation or alleged violation by
the Company of the Securities Act, the 1934 Act, any federal or state securities
law or any rule or regulation promulgated under the Securities Act, the 1934 Act
or any federal or state securities law in connection with the offering covered
by such registration statement; and the Company will reimburse each such Holder,
partner, officer or director, underwriter or controlling person for any
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legal or other expenses reasonably incurred by them, as incurred, in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
Section 2.8 shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
such Holder, partner, officer, director, underwriter or controlling person of
such Holder, including without limitation, any information furnished by any
Holder of the Company pursuant to Section 2.6 hereof.
(b) By Selling Holders. To the extent permitted by
law, each selling Holder will indemnify and hold harmless the Company, each of
its directors, each of its officers and employees who have signed or otherwise
participated in the preparation of, the registration statement, each person, if
any, who controls the Company within the meaning of the Securities Act, any
underwriter and any other Holder selling securities under such registration
statement or any of such other Holder's partners, directors or officers or any
person who controls such Holder within the meaning of the Securities Act or the
1934 Act (collectively "Company Indemnitee"), against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such
Company Indemnitee may become subject under the Securities 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 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 Company Indemnitee in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section 2.8
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; and provided, further,
that the total amounts payable in indemnity by a Holder under this Section 2.8
in respect of any Violation shall not exceed the gross proceeds received by such
Holder in the registered offering out of which such Violation arises.
(c) Notice. Promptly after receipt by an indemnified
party under this Section 2.8 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
2.8, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees
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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 conflict of interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section 2.8, 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 2.8.
(d) Defect Eliminated in Final Prospectus. The
foregoing indemnity agreement of the Holders is subject to the conditions that,
insofar as it relates to: (i) any Violation made in a prospectus in which the
Company is selling securities; and (ii) any Violation made in a preliminary
prospectus but eliminated or remedied in the amended prospectus on file with the
SEC at the time the registration statement in question becomes effective or the
amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of the
Company if a copy of the Final Prospectus was furnished to the Holders and was
not furnished by the Company to the person asserting the loss, liability, claim
or damage at or prior to the time such action is required by the Securities Act.
(e) Contribution. In order to provide for just and
equitable contribution to joint liability under the Securities Act in any case
in which either (i) any Holder exercising rights under this Agreement, or any
controlling person of any such Holder, makes a claim for indemnification
pursuant to this Section 2.8, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 2.8 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling Holder
or any such controlling person in circumstances for which indemnification is
provided under this Section 2.8; then, and in each such case, the Company and
such Holder will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that such Holder is responsible for the portion represented
by the percentage that the public offering price of its Registrable Securities
offered by and sold under the registration statement bears to the public
offering price of all securities offered by and sold under such registration
statement, and the Company and other selling Holders are responsible for the
remaining portion; provided, however, that, in any such case, (a) no such Holder
will be required to contribute any amount in excess of the public offering price
of all such Registrable Securities offered and sold by such Holder pursuant to
such registration statement; and (b) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
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(f) Survival. The obligations of the Company and
Holders under this Section 2.8 shall survive the completion of any offering of
Registrable Securities in a registration statement, and otherwise.
2.9. "Lock-up" Agreement. Each Holder hereby agrees that it
shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities or other shares of stock of the Company then owned by
such Holder (other than to donees or partners of the Holder who agree to be
similarly bound) for up to one hundred eighty (180) days following the effective
date of a registration statement of the Company filed under the Securities Act;
provided, however, that:
(a) such agreement shall be applicable only to the
first such registration statement of the Company which covers securities to be
sold on its behalf to the public in an underwritten offering but not to
Registrable Securities sold pursuant to such registration statement; and
(b) all officers, directors then holding Common Stock
and all holders of more than 1% of the outstanding capital stock of the Company
enter into similar agreements.
In order to enforce the foregoing covenant, the
Company shall have the right to place restrictive legends on the certificates
representing the shares subject to this Section and to impose stop transfer
instructions with respect to the Registrable Securities and such other shares of
stock of each Holder (and the shares or securities of every other person subject
to the foregoing restriction) until the end of such period.
2.10. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to:
(a) Make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times after the effective date of the first registration under the
Securities Act filed by the Company for an offering of its securities to the
general public;
(b) Use its best efforts to file with the Commission
in a timely manner all reports and other documents required of the Company under
the Securities Act and the 1934 Act (at any time after it has become subject to
such reporting requirements); and
(c) So long as a Holder owns any Registrable
Securities, furnish to the Holder forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements of said Rule
144 (at any time after 90 days after the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the 1934 Act (at any time
after it has become subject to the
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reporting requirements of the 1934 Act), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration (at any time after the Company has become subject to the
reporting requirements of the 1934 Act).
2.11. Termination of the Company's Obligations. The Company
shall have no obligations pursuant to Sections 2.2 through 2.4 with respect to:
(a) any request or requests for registration made by any Holder on a date more
than five (5) years after the closing date of a Qualifying IPO; (b) any
Registrable Securities proposed to be sold by a Holder in a registration
pursuant to Section 2.2, 2.3 or 2.4 to the extent that, in the opinion of
counsel to the Company, such Registrable Securities may be sold in a three-month
period without registration under the Securities Act pursuant to Rule 144 under
the Securities Act, or under any replacement rule promulgated by the SEC
permitting the resale of restricted securities without the necessity of a
registration statement; or (c), in connection with any particular registration
undertaken by the Company, any Holder who fails to provide promptly the Company
such information as the Company may reasonably request at any time to enable the
Company to comply with any applicable law or regulation or to facilitate
preparation and filing of said registration.
2.12. Limitations on Subsequent Registration Rights. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of at least sixty-six and two-thirds percent (66
2/3%) of the Registrable Securities Then Outstanding, enter into any agreement
with any holder or prospective holder of any securities of the Company which
would allow such holder or prospective holder (a) to include such securities in
any registration filed under Section 2.2 hereof, unless under the terms of such
agreement, such holder or prospective holder may include such securities in any
such registration only to the extent that the inclusion of his securities will
not reduce the amount of the Registrable Securities of the Holders which is
included, or (b) to make a demand registration which could result in such
registration statement being declared effective prior to the earlier of either
of the dates set forth in Section 2.2(a), or within one hundred twenty (120)
days of the effective date of any registration effected pursuant to Section 2.2.
3. PREEMPTIVE RIGHT.
3.1. General. Each Holder and any party to whom such Holder's
rights under this Section 3.1 have been duly assigned in accordance with Section
4.1(b) (each such Holder or assignee being hereinafter referred to as a "Rights
Holder") shall have the right of first refusal to purchase such Rights Holder's
Pro Rata Share (as defined below), of all (or any part) of any "New Securities"
(as defined in Section 3.2) that the Company may from time to time issue after
[the date of this Agreement]. A Rights Holder's "Pro Rata Share" for purposes of
this right of first refusal shall mean a fraction, the numerator of which is (a)
the number of Registrable Securities as to which such Rights Holder is the
Holder (or is deemed to be the Holder under Section 2.1(d)), and the denominator
of which is (b) the number of shares of common stock of
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the Company equal to the sum of (i) the total number of shares of common stock
of the Company then outstanding plus (ii) the total number of shares of common
stock of the Company into which all then outstanding shares of Series A Stock of
the Company are then convertible.
3.2. New Securities. "New Securities" shall mean any common
stock or preferred stock of the Company, whether now authorized or not, and
rights, options or warrants to purchase such common stock or preferred stock,
and securities of any type whatsoever that are, or may become, convertible or
exchangeable into such common stock or preferred Stock; provided, however, that
the term "New Securities" does not include:
(i) up to 155,000 shares of the Company's
Common Stock (or options or warrants therefor) issued to employees, officers,
directors, contractors, advisors or consultants of the Company pursuant to
incentive agreements or plans approved by the Board of Directors of the Company;
(ii) any shares of Series A Stock issued
under the Series A Agreement, as such agreement may be amended;
(iii) the initial issuance by the Company of
shares of Series A Stock to other purchasers for an aggregate purchase price of
not more than $750,000 on or before December 31, 1999;
(iv) any securities issuable upon conversion
of or with respect to any then outstanding shares of Series A Stock of the
Company or Common Stock or other securities issuable upon conversion thereof;
(v) any securities issuable upon exercise of
any options, warrants or rights to purchase any securities of the Company
outstanding on the date of this Agreement ("Warrant Securities") and any
securities issuable upon the conversion of any Warrant Securities;
(vi) shares of the Company's Common Stock or
Series A Stock issued in connection with any stock split or stock dividend or
similar event;
(vii) securities offered by the Company to
the public pursuant to a registration statement filed under the Securities Act;
or
(viii) securities issued pursuant to
strategic alliances or the acquisition of another corporation or entity by the
Company by consolidation, merger, purchase of all or substantially all of the
assets, or other reorganization in which the Company acquires, in a single
transaction or series of related transactions, all or substantially all of the
assets of such other corporation or entity or fifty-one percent (51%) or more of
the voting power of such other corporation or entity or fifty-one percent (51%)
or more of the equity ownership of such other entity, provided that, such
strategic alliance or acquisition was approved by (A) at least one of
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the Company's Series A Directors (as defined below) or (B) by holders of a
majority of the outstanding shares of Series A Stock.
3.3. Procedures. In the event that the Company proposes to
undertake an issuance of New Securities, it shall give to each Rights Holder
written notice of its intention to issue New Securities (the "Notice"),
describing the type of New Securities and the price and the general terms upon
which the Company proposes to issue such New Securities. Each Rights Holder
shall have ten (10) days from the date of mailing of any such Notice to agree in
writing to purchase such Rights Holder's 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 (not to exceed such Rights Holder's Pro Rata Share). If any
Rights Holder fails to so agree in writing within such ten (10) day period to
purchase such Rights Holder's full Pro Rata Share of an offering of New
Securities (a "Nonpurchasing Holder"), then such Nonpurchasing Holder shall
forfeit the right hereunder to purchase that part of his Pro Rata Share of such
New Securities that he did not so agree to purchase and the Company shall
promptly give each Rights Holder who has timely agreed to purchase his full Pro
Rata Share of such offering of New Securities (a "Purchasing Holder") written
notice of the failure of any Nonpurchasing Holder to purchase such Nonpurchasing
Rights Holder's full Pro Rata Share of such offering of New Securities (the
"Overallotment Notice"). Each Purchasing Holder shall have a right of
overallotment such that such Purchasing Holder may agree to purchase a portion
of the Nonpurchasing Holders' unpurchased Pro Rata Shares of such offering on a
pro rata basis according to the relative Pro Rata Shares of the Purchasing
Rights Holders, at any time within five (5) days after receiving the
Overallotment Notice.
3.4. Failure to Exercise. To the extent that the Rights
Holders fail to exercise in full the right of first refusal within such ten (10)
plus five (5) day period, then the Company shall have 120 days thereafter to
sell the New Securities with respect to which the Rights Holders' rights of
first refusal hereunder were not exercised, at a price and upon general terms
not materially more favorable to the purchasers thereof than specified in the
Company's Notice to the Rights Holders. In the event that the Company has not
issued and sold the New Securities within such 120 day period, then the Company
shall not thereafter issue or sell any New Securities without again first
offering such New Securities to the Rights Holders pursuant to this Section 3.4.
If any Rights Holder fails to exercise its right of first refusal with respect
to any New Securities in full (but not including any right of overallotment),
and such New Securities are either purchased by other Rights Holders or issued
and sold in full by the Company under the terms of this Section, such Rights
Holder shall have no further right of first refusal with respect to New
Securities.
3.5. Termination. This right of first refusal shall terminate
(a) upon consummation of a Qualifying IPO, or (b) upon a Change of Control
Event.
4. ASSIGNMENT AND AMENDMENT.
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4.1. Assignment. Notwithstanding anything herein to the
contrary:
(a) Information Rights. The rights of the Investor
under Section 1 hereof may be assigned only to (i) a Related Party (as defined
below) or (ii) a party who acquires from the Investor (or the Investor's
permitted assigns) at least ten percent (10%) of the Series A Stock or the
equivalent number (on an as-converted basis) of shares of Common Stock of the
Company issued upon the conversion of such shares of Series A Stock.
(b) Registration Rights; Preemptive Rights. The
registration rights of a Holder under Section 2 hereof and the preemptive rights
of a Rights Holder under Section 3 hereof may be assigned only to a party who
acquires at least ten percent (10%) of the Series A Stock or an equivalent
number (on an as-converted basis) of Registrable Securities issued upon
conversion thereof; provided, however, that no party may be assigned any of
rights under Section 4.1 unless the Company is given written notice by the
assigning party at the time of such assignment stating the name and address of
the assignee and identifying the securities of the Company as to which the
rights in question are being assigned; and provided, further that any such
assignee shall receive such assigned rights subject to all the terms and
conditions of this Agreement, including without limitation the provisions of
this Section 4.1.
4.2. Amendment of Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Holders holding shares of Series A Stock or
Conversion Stock representing or convertible into a majority of all the
Investor's Shares (as defined below) as of the date of any proposed amendment.
As used herein, the term "Investor's Shares" shall mean the shares of Common
Stock then issuable upon conversion of all then outstanding shares of Series A
Stock issued under the Series A Agreement plus all then outstanding shares of
Conversion Stock that were issued upon the conversion of any shares of Series A
Stock issued under the Series A Agreement. Any amendment or waiver effected in
accordance with this Section 4.2 shall be binding upon the Investor, each
Holder, each permitted successor or assignee of the Investor or Holder and the
Company.
4.3. Related Party. As used herein, the term "Related Party"
with respect to any Holder means (i) any person or entity that, directly or
indirectly, through one or more intermediaries, has voting control of, or is
under common voting control with, such Holder; or (ii) a trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners or owners
or persons or entities holding controlling interest of which consist of any
Holder and/or such other persons or entities referred to in the immediately
preceding clause (i); and (iii) any Holders' current partners, stockholders or
members as the case may be, pro rata in accordance with the current distribution
provision of such entities charter documents.
5. COVENANTS OF THE COMPANY.
5.1. Board of Directors; Meetings.
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(a) So long as the Investor or its assignee
holds shares of Series A Stock, the Company will use its best efforts to cause
promptly the election to its Board of Directors and maintenance in office one
(1) person designated by the Investor (the "Investor Director"). The Company
shall cause the Board of Directors to meet at least once every fiscal quarter.
(b) Special Voting Rights. The Company
shall not, without the approval, by vote or written consent, of the Investor
Director:
(1) amend its Certificate of Incorporation
in any manner that would alter or change any of the rights, preferences,
privileges or restrictions of the Series A Preferred Stock;
(2) reclassify any outstanding shares of
securities of the Corporation into shares having rights, preferences or
privileges senior to or on a parity with the Series A Preferred Stock;
(3) authorize or issue any additional Series
A Preferred Stock or any other stock having rights or preferences senior to or
on a parity with the Series A Preferred Stock;
(4) merge or consolidate with or into any
corporation;
(5) sell all or substantially all the
Corporation's assets in a single transaction or series of related transactions;
(6) liquidate or dissolve;
(7) declare or pay any dividends (other than
dividends payable solely in shares of Common Stock) on or declare or make any
other distribution (other than Permitted Repurchases), directly or indirectly,
on account of any shares of Common Stock now or hereafter outstanding;
(8) repurchase any outstanding shares of the
Corporation's capital stock (other than Permitted Repurchases);
(9) pay any bonuses to officers, directors
or employees of the Corporation not contemplated in an annual budget delivered
to the Investor pursuant to Section 1;
(10) award stock options, stock appreciation
rights or similar employee benefits or determine vesting schedules, exercise
prices or similar features; provided that the Company shall have the right to
issue or grant such stock options, stock appreciation rights or similar employee
benefits convertible into up to an aggregate of 155,000 shares of Common Stock;
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(11) pledge its assets or guarantee the
obligations of any other individual or entity;
(12) incur indebtedness (other than trade
payables) in excess of $1,000,000 in the aggregate, including (A) the execution
of any promissory note, loan agreement or other agreement evidencing
indebtedness, (B) drawing upon a line of credit or similar credit facility, or
(C) causing a letter of credit to be issued in the Corporation's name; or
(13) amend the Corporation's Bylaws to alter
any rights of the Investor Director or the holders of the Series A Preferred
Stock or to increase the size of the Board to more than seven (7) directors.
5.2. Minutes. The Company will deliver to the Investor copies
of the complete minutes of all meetings of the Company's Board of Directors
(including all committees thereof) and stockholders no later than the earlier
of: (i) thirty (30) days after any such meeting; or (ii) the next successive
board or stockholder meeting, as applicable.
5.3. Board Committees. The Investor shall have one
representative appointed to the audit and executive committees of the Board of
Directors, each committee to consist of not more than four members.
5.4. Bylaws. The Company shall at all times cause its By-laws
to provide that, (a) unless otherwise required by the laws of the State of
Delaware, the holders of at least fifty percent (50%) of the Series A Stock then
outstanding shall be entitled to call a special meeting of the Board of
Directors or stockholders of the Company and (b) the number of directors fixed
in accordance therewith shall in no event conflict with any of the terms or
provisions of the Series A Stock as set forth in the Series A Certificate. The
Company shall at all times maintain provisions in its Bylaws or Certificate of
Incorporation indemnifying all directors against liability and absolving all
directors from liability to the Company and its stockholders to the maximum
extent permitted under the laws of the State of Delaware. To the extent that
such coverage is available on commercially reasonable terms, the Company shall
purchase, and at all times maintain, directors and officers liability insurance
with coverage limits customary for similarly situated companies, but in no event
less than $2,000,000.
5.5. Investor's Expenses. Following the Closing, any
reasonable expenses incurred by the Investor or its representatives on behalf of
the Company, including reasonable expenses associated with attendance at
meetings of the Board of Directors (other than observer expenses if the Investor
no longer has a representative elected to the Board), trade shows or similar
meetings or events, shall be borne by the Company.
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5.6. Vesting of Stock Options. Without the consent of the
Board of Directors (including at least one Series A Director), the Company shall
not award stock options which deviate from the following vesting schedule: all
options shall vest over a four (4) year period.
5.7. Salary Increases. Without the consent of the Board of
Directors, the Company will not increase the base salary of any officer by more
than 10 percent (10%) per year.
5.8. Subsidiaries or Joint Ventures. The Company will not,
without the prior approval of the Board of Directors, establish or invest in any
subsidiary or joint venture.
5.9. Conduct of Business. The Company will duly observe and
conform to or cause to be observed or conformed to all valid requirements of all
governmental authorities relative to the conduct of the business of the Company
or to its properties or assets, the failure to observe or conform to which would
have a materially adverse effect on the business of the Company, and will
maintain and keep in full force and effect all licenses and permits necessary to
the proper conduct of the business of the Company.
5.10. Preservation of Corporate Existence. The Company shall
preserve and maintain its respective corporate existence, rights, franchises and
privileges in its jurisdiction of incorporation, and will qualify and remain
qualified as a foreign corporation in every jurisdiction in which such
qualification is necessary in view of the business and operations of the Company
or the ownership of their respective properties.
5.11. Performance Under Other Documents. The Company will
promptly pay or perform or cause to be performed all payments and obligations
required of it under the terms, agreements and covenants of the Series A
Agreement, the Related Agreements and the Series A Certificate.
5.12. Performance of Obligations. The Company will promptly
perform or cause to be performed every commitment, undertaking, agreement or
covenant of the Company with any third person whether or not specifically
referred to in this Agreement, the non-performance of which could cause the
acceleration of indebtedness of the Company; provided, however, that (unless and
until foreclosure, sale or similar proceedings have been commenced) the Company
shall have the right in good faith to contest the obligation to perform any such
commitment, undertaking, agreement or covenant.
5.13. Payment of Taxes and Accounts. The Company will pay or
cause to be paid all taxes, assessments, and governmental charges or levies
imposed upon the Company or upon its respective income, profits, or properties
before the same shall become delinquent; provided, however, that (unless and
until foreclosure, sale or similar proceedings have been commended) nothing
herein shall require the Company to pay or cause to be paid any such tax,
assessment, charge, levy or account so long as the validity thereof shall be
contested in good
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faith by appropriate proceedings and the Company has set aside on its books and
maintained adequate reserves with respect thereto.
5.14. Maintenance of Property. The Company will maintain or
cause to be maintained the real and personal property which is required for the
business of the Company in good repair, working order and condition, and from
time to time will make or cause to be made all repairs, renewals, and
replacements that are necessary and proper.
5.15. Insurance on Properties. The Company has and will
maintain or cause to be maintained insurance with reputable insurance companies
on such of the properties of the Company in such amounts and against such risks
as is deemed sufficient by the Company's management and as is satisfactory to
the Investor. The Company will furnish to the Investor, upon request,
certificates signed by the President or the Chief Financial Officer of the
Company setting forth a list of all insurance in force on the properties of the
Company and containing a general schedule of property insured, risks insured
against and amount of insurance then in force.
5.16. Authorized Capital Stock. The Company covenants that it
shall at all times reserve and keep available out of its authorized but unissued
Common Stock, solely for the purpose of effecting the exercise of the Series A
Stock, such number of shares of Common Stock as shall from time to time be
issuable upon the exercise of all of the Series A Stock, as the case may be.
5.17. Taxes and Costs. The Company shall pay all taxes which
may be imposed with respect to the issuance and delivery of shares of Common
Stock upon conversion of the Series A Stock; provided, however, that the Company
shall not be required, in any event, to pay any transfer or other taxes by
reason of issuance of such shares of Common Stock in a name or names other than
the name of the holder of the Series A Stock surrendered for exchange.
5.18. Proprietary Assets. The Company shall take all steps
reasonably necessary to preserve and protect all of its intellectual property,
including without limitation all patents, copyrights, trade secrets, trademarks,
tradenames, and servicemarks used in its business.
5.19 Liquidation and Dissolution. The Company will take no
action to place the Company or any subsidiary in dissolution, liquidation, or
receivership.
5.20. New Businesses. The Company will not, without the prior
approval of the Board of Directors, directly or indirectly, engage in any
business other than the business in which it is presently engaged.
5.21. Fiscal Year and Accounting Methods. The Company will not
change its fiscal year or method of accounting (other than immaterial changes in
methods), except to the extent necessary to comply with generally accepted
accounting principles.
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5.22. Loans, Advances and Investments. The Company will not,
without the prior approval of the Board of Directors (including the Investor
Director), directly or indirectly, make any loan or advance to, or invest in,
any person who is a stockholder, director, or officer (or a relative of any such
person) of the Company, other than advances to employees for travel and other
expenses incurred in the ordinary course of business.
5.23. Pension Reform Act. The Company will not permit (i) the
funding requirements under ERISA with respect to any employee benefit plan
established or maintained by the Company or any subsidiary to be less than the
minimum required by ERISA or the regulations thereunder, or (ii) any employee
benefit plan established or maintained by the Company to be subject to
involuntary termination proceedings.
5.24. Restrictive Assignments. The Company will not, without
the prior approval of the Board of Directors (including the Investor Director),
enter into or become obligated under any agreement or contract, including
(without limitation) any loan agreement, promissory note (or other evidence of
indebtedness), mortgage, security agreement, or lease, which either (a)
precludes or prevents the Investor from curing (on behalf of the Company)
defaults, breaches or failures to perform, or (b) by its terms prevents or
restricts the Company from performing its obligations under the Series A
Agreement.
5.25. Termination. The covenants in this Section 5 shall
terminate (a) upon consummation of a Qualifying IPO, or (b) Change of Control
Event.
6. GENERAL PROVISIONS.
6.1. Notices. Any notice, request or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if personally delivered or if deposited in the U.S. mail by
registered or certified mail, return receipt requested, postage prepaid, as
follows:
(x) if to the Investor, at:
Net Value Holdings, Inc.
2 Penn Center Plaza
Suite 605
Philadelphia, PA 19103
Attention: President
with a copy to: Klehr, Harrison, Harvey, Branzburg & Ellers, LLP
(which shall not constitute 260 S. Broad Street
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notice hereunder) Philadelphia, PA 19102
Attention: Michael C. Forman, Esquire
(b) if to the Company, at:
SwapIt.com, Inc
32 Crane Road
Littleton, MA 01460
Attention: Howard Schneider, President
with a copy to: Erickson Schaffer Peterson Hempel & Israel PC
(which shall not constitute 20 William Street, Suite 150
notice hereunder) Wellesley, MA 02481
Attention: Paul T. Hempel, Esquire
Any party hereto (and such party's permitted assigns) may by notice so given
change its address for future notices hereunder. Notice shall conclusively be
deemed to have been given when personally delivered or when deposited in the
mail in the manner set forth above.
6.2. Entire Agreement. This Agreement, together with all the
Exhibits hereto, constitutes and contains the entire agreement and understanding
of the parties with respect to the subject matter hereof and supersedes any and
all prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the subject matter hereof.
6.3. Governing Law. This Agreement shall be governed by a
construed exclusively in accordance with the internal laws of the State of
Delaware, excluding that body of law relating to conflict of laws and choice of
law.
6.4. Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, then such provision(s) shall
be excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
6.5. Third Parties. Nothing in this Agreement, express or
implied, is intended to confer upon any person, other than the parties hereto
and their successors and assigns, any rights or remedies under or by reason of
this Agreement.
6.6. Successors and Assigns. Subject to the provisions of
Section 4.1, the provisions of this Agreement shall inure to the benefit of, and
shall be binding upon, the successors and permitted assigns of the parties
hereto.
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6.7. Captions. The captions to sections of this Agreement have
been inserted for identification and reference purposes only and shall not be
used to construe or interpret this Agreement.
6.8. Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.
6.9. Costs and Attorneys' Fees. In the event that any action,
suit or other proceeding is instituted concerning or arising out of this
Agreement or any transaction contemplated hereunder, the prevailing party shall
recover all of such party's costs and attorneys' fees incurred in each such
action, suit or other proceeding, including any and all appeals or petitions
therefrom.
6.10. Adjustments for Stock Splits, Etc. Wherever in this
Agreement there is a reference to a specific number of shares of Common Stock or
Series A Stock of the Company of any class or series, then, upon the occurrence
of any subdivision, combination or stock dividend of such class or series of
stock, the specific number of shares so referenced in this Agreement shall
automatically be proportionally adjusted to reflect the affect on the
outstanding shares of such class or series of stock by such subdivision,
combination or stock dividend.
6.11. Aggregation of Stock. All shares held or acquired by
affiliated entities or persons shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Investor Rights Agreement as of the date and year first above written.
THE COMPANY:
SWAPIT.COM, INC.,
a Delaware corporation
By: /s/ Howard A. Schneider
------------------------------
Howard A. Schneider, President
THE INVESTOR:
NET VALUE HOLDINGS, INC.,
a Delaware corporation
By: /s/ Andrew P. Panzo
-----------------------------
Andrew P. Panzo, President
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<PAGE>
CO-SALE AGREEMENT
THIS CO-SALE AGREEMENT (this "Agreement") is made this 23rd day of
November, 1999, by and among NET VALUE HOLDINGS, INC., a Delaware corporation
(the "Investor"), the individuals and entities identified as Principal
Stockholders on Schedule A hereto (each, a "Principal Stockholder," and
collectively, the "Principal Stockholders") and SWAPIT.COM, INC., a Delaware
corporation (the "Company").
RECITALS
A. Concurrently with the execution hereof, the Company and the Investor have
entered into that certain Series A Convertible Preferred Stock Purchase
Agreement (the "Series A Agreement"), pursuant to which the Investor will
purchase 132,941 shares of Series A Convertible Preferred Stock of the Company.
Capitalized terms used herein, but not otherwise defined, shall have the meaning
given such terms in the Series A Agreement.
B. The Principal Stockholders are presently the legal or beneficial owners
collectively of 855,000 shares of the outstanding Common Stock of the Company.
C. To induce the Investor to make the proposed investment, the Principal
Stockholders have agreed to grant the Investor the opportunity to participate,
upon the terms and conditions set forth in this Agreement, in subsequent sales
of the Common Stock made by the Principal Stockholders.
AGREEMENT
NOW, THEREFORE, for and in consideration of the premises, covenants and
obligations contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. SALES BY PRINCIPAL STOCKHOLDERS
1.1 Notice of Purchase Offers. Should any of the Principal Stockholders
propose to accept one or more bona fide offers (collectively, a "Purchase
Offer") from any persons to purchase shares of the Company's Common Stock from
such Principal Stockholder (a "Purchase Offeror"), then the Principal
Stockholder or Principal Stockholders shall promptly notify the Investor in
writing of the terms and conditions of such Purchase Offer.
1.2 Right to Participate. The Investor shall have the right,
exercisable upon written notice to such selling Principal Stockholder or
Principal Stockholders within thirty (30) business days after receipt of the
notice of the Purchase Offer, to participate in the Principal Stockholder's sale
of Common Stock on the same terms and conditions. To the extent the Investor
exercises such right of participation, the number of shares of Common Stock
which the Principal Stockholder may sell
<PAGE>
pursuant to the Purchase Offer shall be correspondingly reduced. The right of
participation of the Investor shall be subject to the following terms and
conditions:
(a) The Investor may sell all or any part of that number of
shares of Common Stock equal to the product obtained by multiplying (i) the
aggregate number of shares of Common Stock covered by the Purchase Offer, by
(ii) a fraction, the numerator of which is the number of shares of Common Stock
of the Company at the time owned by the Investor, and the denominator of which
is the combined number of shares of Common Stock of the Company at the time
owned by the selling Principal Stockholder (including shares transferred to
Permitted Transferees as defined below) and the Investor. For the purposes of
making such computation, the Investor shall be deemed to own the number of
shares of Common Stock into which the Series A Stock held by the Investor is at
the time convertible.
(b) The Investor may participate in the sale by delivering to
the Principal Stockholder for transfer to the Purchase Offeror one or more
certificates, properly endorsed for transfer, which represent:
(i) the number of shares of Common Stock which the
Investor elects to sell pursuant to this Section 1.2; or
(ii) the number of shares of Series A Stock which is
at such time convertible into the number of shares of Common Stock which the
Investor elects to sell pursuant to this Section 1.2; together with written
notice of the Investor's election to convert such shares into shares of Common
Stock. Such certificates and written notice shall be forwarded to the Company,
and the Company shall deliver to the Principal Stockholder certificates
representing that number of shares of Common Stock which the Investor has
elected to sell.
1.3 Consummation of Sale. The stock certificate or certificates which
the Investor delivers to the selling Principal Stockholder or Principal
Stockholders pursuant to Section 1.2 shall be transferred by the selling
Principal Stockholder or Principal Stockholders to the Purchase Offeror in
consummation of the sale of the Common Stock pursuant to the terms and
conditions specified in the Section 1.1 notice to the Investor, and the selling
Principal Stockholder or Principal Stockholders shall promptly thereafter remit
to the participating Investor that portion of the sale proceeds to which the
Investor is entitled by reason of its participation in such sale, net of a pro
rata share of all expenses incurred in connection with such sale. To the extent
that any Purchase Offeror prevents such assignment or otherwise refuses to
purchase shares from the Investor, the Principal Stockholder(s) shall not sell
to such Purchase Offeror unless and until, simultaneously with such sale, the
Principal Stockholder shall purchase such shares from the participating
Investor.
1.4 Ongoing Rights. The exercise or non-exercise of the rights of the
Investor hereunder to participate in one or more sales of Common Stock made by a
Principal Stockholder shall not adversely affect its right to participate in
subsequent Common Stock sales by a Principal Stockholder pursuant to Section 1.1
hereof.
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<PAGE>
1.5 Permitted Exemptions. The participation rights of the Investor
shall not apply to (a) any pledge of Common Stock made by a Principal
Stockholder pursuant to a bona fide loan transaction which creates a mere
security interest, (b) any transfer of Common Stock to the Company pursuant to a
written agreement between the Company and a Principal Stockholder providing for
the right of such repurchase or to the Principal Stockholder's ancestors or
descendants or spouse or to a trustee for their benefit, (c) any bona fide gift
of Common Stock; provided, that (i) the Principal Stockholder shall inform the
Investor of such pledge, transfer or gift prior to effecting it and (ii) the
pledgee, transferee or donee (collectively, the "Permitted Transferees") shall
furnish the Investor with a written agreement to be bound by and comply with all
provisions of this Agreement applicable to the Principal Stockholders, or (d)
any transfer between parties to this Agreement. Such transferred shares shall
remain subject to this Agreement and the Permitted Transferees shall be treated
as "Principal Stockholders" for purposes of this Agreement.
2. PROHIBITED TRANSFERS
2.1 Treatment of Prohibited Transfers. In the event a Principal
Stockholder should sell any Common Stock in contravention of the participation
rights of the Investor under this Agreement (a "Prohibited Transfer"), the
Investor, in addition to such other remedies as may be available at law, in
equity or hereunder, shall have the put option provided in Section 2.2 below,
and a Principal Stockholder shall be bound by the applicable provisions of such
put option.
2.2 Put Option. In the event of a Prohibited Transfer, the Investor
shall have the right to sell to the selling Principal Stockholder(s) a number of
shares of Common Stock (either directly or through delivery of convertible
Preferred Stock) equal to the number of shares the Investor would have been
entitled to transfer to the Purchase Offeror in the Prohibited Transfer pursuant
to the terms hereof. Such sale shall be made on the following terms and
conditions:
(a) The price per share at which the shares are to be sold to
the selling Principal Stockholder or Principal Stockholders shall be equal to
the price per share paid by the purchaser to the selling Principal Stockholder
or Principal Stockholders in the Prohibited Transfer. The selling Principal
Stockholder or Principal Stockholders shall also reimburse the selling Investor
for any and all fees and expenses, including legal fees and expenses, incurred
pursuant to the exercise or the attempted exercise of such Investor's rights
under this Section 2.
(b) Within sixty (60) days after the later of the dates on
which the Investor (i) receives notice from a Principal Stockholder of the
Prohibited Transfer, or (ii) otherwise becomes aware of the Prohibited Transfer,
the Investor shall, if exercising the put option created hereby, deliver to the
selling Principal Stockholder or Principal Stockholders the certificate or
certificates representing shares to be sold, each certificate to be properly
endorsed for transfer, together with notice of and documentation for
reimbursable expenses.
(c) The selling Principal Stockholder(s) shall, upon receipt
of the certificate or certificates for the shares to be sold by the Investor,
pursuant to Section 2.2(b), pay the aggregate
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<PAGE>
purchase price therefor and the amount of reimbursable fees and expenses, as
specified in Section 2.2(a), by certified check or bank draft made payable to
the order of the Investor.
3. LEGENDED CERTIFICATES
3.1 Legend. Each certificate representing shares of the Common Stock of
the Company now or hereafter owned by a Principal Stockholder or issued to any
Permitted Transferee pursuant to Section 1.5 shall be endorsed with the
following legend:
"THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A
CERTAIN CO-SALE AGREEMENT BY AND BETWEEN THE STOCKHOLDERS, THE
CORPORATION AND CERTAIN HOLDERS OF PREFERRED STOCK OF THE
CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION."
Each Principal Stockholder agrees that the Company may instruct its
transfer agent to impose transfer restrictions on the shares represented by
certificates bearing this legend to enforce the provisions of this Agreement and
the Company agrees to promptly do so.
3.2 Legend Removal. The Section 3.1 legend shall be removed upon
termination of this Agreement in accordance with the provisions of Section 4.1.
4. MISCELLANEOUS PROVISIONS
4.1 Termination of Co-Sale Rights. The rights of the Investor under
this Agreement and the obligations of a Principal Stockholder with respect to
the Investor shall terminate at such time as the Investor shall no longer be the
owner of any shares of capital stock of the Company. Unless sooner terminated in
accordance with the preceding sentence, this Agreement shall terminate upon the
occurrence of any one of the following events:
(a) the consummation of a Qualifying IPO (as defined in
Section 5(b)(1) of the Series A Certificate); or
(b) the five-year anniversary of the date of this Agreement.
4.2 Notices. Any notice required or permitted to be given to a party
pursuant to the provisions of this Agreement shall be in writing and shall be
effective upon facsimile delivery, personal delivery or upon deposit in the U.S.
mail, postage prepaid and properly addressed to the party to be notified as set
forth below such party's signature or at such other address as such party may
designate by ten (10) days' advance written notice to the other parties hereto.
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<PAGE>
4.3 Successors and Assigns. This Agreement and the rights and
obligations of the parties hereunder shall inure to the benefit of, and be
binding upon, their respective successors, assigns and legal representatives.
The Investor shall be entitled to assign its rights under this Agreement to any
Related Party. As used herein, the term "Related Party" shall mean (i) any
person or entity that, directly or indirectly, through one or more
intermediaries, has voting control of, or is under common voting control with,
the Investor; or (ii) a trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, or owners, or persons or entities holding
controlling interest of which consist of the Investor and/or such other persons
or entities referred to in the immediately preceding clause (i); and (iii) the
Investor's current partners, stockholders or members, pro rata in accordance
with the current distribution provision of such entities' charter documents.
4.4 Severability. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
4.5 Adjustments for Stock Splits, Etc. Wherever in this Agreement there
is a reference to a specific number of shares of Common Stock or Series A Stock
of the Company of any class or series, then, upon the occurrence of any
subdivision, combination or stock dividend of such class or series of stock, the
specific number of shares so referenced in this Agreement shall automatically be
proportionally adjusted to reflect the effect on the outstanding shares of such
class or series of stock by such subdivision, combination or stock dividend.
4.6 Aggregation of Stock. All shares held or acquired by affiliated
entities or persons shall be aggregated together for the purpose of determining
the availability of any rights under this Agreement.
4.7 Amendments. Any amendment or modification of this Agreement shall
be effective only if evidenced by a written instrument executed by duly
authorized representatives of the parties hereto. Any waiver by a party of its
rights hereunder shall be effective only if evidenced by a written instrument
executed by a duly authorized representative of such party. In no event shall
such waiver of any rights hereunder constitute the waiver of such rights in any
future instance unless the waiver so specifies in writing.
4.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware, without regard to
that body of law relating to conflict of law or choice of law.
4.9 Other Obligations of Company. The Company agrees to use its best
efforts to enforce the terms of this Agreement, to inform the Investor of any
breach hereof and to assist the Investor in the exercise of its rights and
performance of its obligations under Section 2 hereof.
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<PAGE>
4.10 Attorney Fees. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
4.11 Ownership. Each Principal Stockholder represents and warrants that
such Principal Stockholder is the sole legal and beneficial owner of the shares
of stock subject to this Agreement and that no other person has any interest
(other than a community property interest, if the law of a community property
state is applicable) in such shares.
4.12 Entire Agreement. This Agreement constitutes the entire agreement
between the parties relative to the specific subject matter hereof. To the
extent this Agreement conflicts with any previous agreement among the parties
relative to the specific subject matter hereof, this Agreement shall control.
4.13 Mutual Drafting. This Agreement is the result of the joint efforts
of the Company, the Investor and the Principal Stockholders and each provision
hereof has been subject to the mutual consultation, negotiation and agreement of
the parties and there shall be no construction against any party based on any
presumption of the party's involvement in the drafting thereof.
[SIGNATURE PAGES FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Co-Sale Agreement on
the day and year indicated above.
THE COMPANY:
SWAPIT.COM, INC.
a Delaware corporation
By: /s/ Howard A. Schneider
-----------------------
Name: Howard A. Schneider
Title: President
Address:
32 Crane Road
Littleton, MA 01460
THE PRINCIPAL STOCKHOLDERS:
/s/ Howard A. Schneider
-----------------------
Howard A. Schneider
Address:
32 Crane Road
Littleton, MA 01460
/s/ Thomas Aley
-----------------------
Thomas Aley
Address:
206 Elsinore Street
Concord, MA 01742
(Signatures continue on following page)
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<PAGE>
/s/ Winston Kevin Wells
---------------------------
Winston Kevin Wells
Address:
16 Captain Miles Lane
Concord, MA 01742
THE INVESTOR:
NET VALUE HOLDINGS, INC.,
a Delaware corporation
By:/s/ Andrew P. Panzo
------------------------
Name: Andrew P. Panzo
Title: President
Address:
2 Penn Center Plaza
Suite 605
Philadelphia, PA 19103
-8-
<PAGE>
SCHEDULE A
INVESTOR
Name and Address Series A Shares
---------------- ---------------
Net Value Holdings, Inc. 132,941
2 Penn Center Plaza
Suite 605
Philadelphia, PA 19103
TOTAL: 132,941
-------
PRINCIPAL STOCKHOLDERS
Name and Address Common Shares
---------------- -------------
Howard A. Schneider 285,000
32 Crane Road
Littleton, MA 01460
Thomas Aley 285,000
206 Elsinore Street
Concord, MA 01742
Winston Kevin Wells 285,000
16 Captain Miles Lane
Concord, MA 01742
TOTAL: 855,000
-------
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<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
This Agreement For Purchase and Sale of Assets (this "Agreement") is
made as of December 3, 1999, by and among Promotions Acquisition, Inc., a
Delaware corporation ("Purchaser"), BrightStreet.com, Inc., a Delaware
corporation ("Seller"), and Net Value Holdings, Inc., a Delaware corporation
("Holdings"), with reference to the following facts:
A. Seller is engaged in the business of providing Internet-based
promotional products and services. Holdings is the majority owner of Seller.
Purchaser has been formed by the former management of Seller (with the express
approval of Holdings and Seller) for the purpose of acquiring and succeeding to
the business of Seller.
B. Purchaser desires to purchase from Seller and Seller desires to sell
to Purchaser, on the terms and subject to the conditions of this Agreement, all
right, title and interest in and to substantially all of the assets of Seller,
subject to certain liabilities;
NOW THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties hereinafter contained, the parties hereto agree
as follows:
1. TRANSFER OF ASSETS. Subject to the terms and conditions set forth in this
Agreement, Seller agrees to sell, convey, transfer, assign, and deliver to
Purchaser, and Purchaser agrees to purchase from Seller, all right, title and
interest of Seller in and to all of the assets, properties, and business of
Seller of every kind, character, and description, whether tangible, intangible,
real, personal, or mixed, and wherever located, described in this Section 1,
free and clear of any liens, security interests or encumbrances, all of which
assets, properties and business are sometimes collectively referred to in this
Agreement as the "Assets."
1.1 Included Assets. The Assets shall include, but not be limited to,
all right, title and interest of Seller in and to all of the following assets,
wherever located, owned by Seller, whether tangible or intangible, used or held
for use in connection with Seller's business, whether or not such assets are in
the possession or control of Seller (the parties acknowledge that the following
list is intended to cover the different types of assets generally applicable to
Seller's type of business and inclusion of any particular item on such list does
not imply that Seller owns such type of asset):
(a) Products. All computer software, program products and
components (including hardware) thereof and all interests therein owned by
Seller, as well as any and all predecessor versions of the foregoing and all
computer software and program products under development (whether or not
actually marketed) and all related source and object code (collectively, the
"Products").
(b) Documentation. All specifications and documents
necessary for the use and maintenance of the Products to assure performance of
the functions they were designed to perform, including, but not limited to, all
user guides, narrative descriptions, file layouts, logic flow
<PAGE>
diagrams, source and load modules, output reports, test or other data, test
programs and other relevant information (collectively, the "Documentation").
(c) Customer and Sales Data. All of Seller's customer
lists, advertising and marketing materials, sales tools and advertising and
other data on its customers and potential customers related to the Products
including, without limitation, all samples, catalogs, brochures, manuals, sales
materials and other related items previously or currently used, or proposed for
use in or incident to the sale, design, manufacture, distribution of the
Products (collectively, "Customer Data").
(d) Intellectual Property. Any and all trade or service
marks, logos, domain names or names used by Seller in connection with its
business or operations, and all trade or service mark registrations (and any
applications therefor) associated therewith, the Customer Data, all marketing
rights, copyrights, copyright registrations, copyright applications, patent
rights (including, without limitation, issued patents, applications, divisions,
continuations and continuations-in-part, reissues, patents of addition, utility
models and inventors' certificates), drawings and designs and vendor lists, and
the goodwill associated with any of the foregoing (collectively, "Intellectual
Property"); provided, however, that the filed trademarks "NetValue" and
"NetValue Design" and the domain name "netvalueinc.com" shall not be included in
the Assets.
(e) Assigned Agreements. (i) All existing license and
maintenance agreements with Seller's customers worldwide that relate to the
Products, (ii) all dealer/distributor and supplier agreements relating to the
Products, (iii) all existing non-competitive or confidentiality contracts or
agreements (including, but not limited to, contracts or agreements with direct
sales personnel, product support personnel, engineering personnel and officers
and directors of Seller), (iv) all existing insurance policies, and (v) all
contracts and rights under joint venture agreements or similar arrangements and
(vi) all existing other contracts or agreements inuring to Seller's benefit in
connection with its business (collectively, the "Assigned Agreements"), other
than those agreements or contracts which are designated as "Non-Assigned
Agreements" on Exhibit B hereto.
(f) Receivables. Any and all receivables of any kind
whatsoever owned by Seller, including, without limitation, all license and
maintenance fee receivables arising from the Assigned Agreements or otherwise
derived from the Products or any receivables associated with advances to
employees or consultants (collectively, "Receivables").
(g) Inventories and Supplies. All inventories of raw
materials, finished product (both software and hardware) components, third party
software development or production tools, completed parts, subassemblies,
parts-in-process, finished goods, maintenance supplies, office supplies,
production supplies and engineering supplies applicable to the business or
operations of Seller (collectively, "Inventories").
(h) Fixed Assets. All machinery and equipment (including
computer equipment), hardware, furniture and fixtures, engineering equipment,
tools, and vehicles of all types,
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<PAGE>
whether or not such items are fully depreciated or written off for book
purposes, that are used in the design, manufacture or operations of Seller's
business or in the maintenance or operations of its properties or facilities
(collectively, "Fixed Assets").
(i) Leases and Purchase Options. All leases of all types
and all options to purchase equipment, facilities, automobiles or other property
used, or held for use in, the operation of Seller's business.
(j) Corporate Name. The use of Seller's corporate name
and any derivations or combinations thereof, including the name "BrightStreet."
(k) Warranties and Guarantees. Any and all transferable
warranties and guarantees arising from or relating to the acquisition or
purchase of any assets or services by or for Seller. In the event any such
warranties or guarantees are not transferable, Seller will use its best efforts
to obtain for Purchaser, and to cooperate with Purchaser in obtaining, the
benefit of any such warranties and guarantees not transferred.
(l) Open Orders. All rights under uncompleted sales
contracts, agreements or orders including the right to the income to be received
by Seller for the manufacture and/or sale of any item and the right to all
orders to be received from any proposals or bids prepared by or for Seller for
the manufacture, design or sale of any item (collectively, "Orders").
(m) Books and Records. All books, records, correspondence
and other files pertaining to the business or operation of Seller, excluding
corporate minute books of Seller, all personnel records, books of account, and
company-wide tax records (collectively, "Excluded Records"); provided, however,
that Purchaser shall be entitled to access to and the right to make copies of
such excluded items as pertain to the business of Seller before or after the
Closing; provided further that Seller shall furnish to Purchaser copies of
personnel records of all persons currently employed by Seller. After the
Closing, Seller shall be entitled to access to and to make copies of such items
delivered to Purchaser to the extent necessary or useful in preparing its tax
returns and financial reports and for other proper corporate purposes.
(n) Cash and Cash Equivalents. All cash on hand, bank
account deposits, certificates of deposits, or other cash equivalents, as well
as all prepaid expenses and deposits (collectively, "Deposits").
(o) Goodwill. All goodwill of Seller's business.
(p) State Unemployment Contract Balances. All contract
balances of or inuring to Seller under any state unemployment compensation plan
or fund.
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<PAGE>
(q) Other. All favorable business relationships, causes
of action, judgments, claims and demands of whatever nature; all obligations of
the present and former officers and employees of Seller and of non-affiliated
individuals to Seller.
1.2 Excluded Assets. The previously described Assets shall
not include:
(a) the consideration to be delivered to Seller pursuant
to this Agreement;
(b) Seller's Certificate of Incorporation, corporate
seals, minute books, stock books, Excluded Records and other corporate records
having exclusively to do with the corporate organization and capitalization of
Seller;
(c) Shares of the capital stock of Seller, including
shares held by Seller as treasury shares.
1.3 Non-Assignment of Certain Agreements. Notwithstanding anything to
the contrary in this Agreement, to the extent that assignment hereunder of any
of the Assets shall require the consent of any other party, or in the event that
any of the same are nonassignable as designated as a "Nonassignable Agreement"
in Exhibit B ("Nonassignable Agreements"), neither this Agreement nor any action
taken pursuant to its provisions shall constitute an assignment or agreement to
assign if such assignment or attempted assignment would constitute a breach
thereof or result in the loss or diminution thereof; provided, however, that in
each such case, Seller shall notify Holdings in writing in advance of the
Closing (as such term is defined below) of the existence of any agreements with
respect to which it has not obtained any necessary consent to assignment and
Seller and Holdings shall use their best efforts to obtain the consent of such
other party to an assignment to Purchaser. If any such consent is not obtained
prior to the Closing, Purchaser may elect not to proceed with the Closing in its
discretion, without any further liability to Seller. In the event that Purchaser
elects to proceed with the Closing, Seller and Holdings shall cooperate with
Purchaser (without any additional expense to Purchaser) in any reasonable
arrangement designed to provide for Purchaser the benefits under any such
agreement, lease, contract, contractual right, claim, cause of action or the
like, as the case may be, with respect to any such asset or property including,
without limitation, entering into such instruments as may be necessary to
effect, to the extent permitted by law, an equitable assignment by Seller to
Purchaser of all of Seller's rights, benefits, title and interest in and to any
such Nonassignable Agreement, and where necessary or appropriate, to designate
Purchaser as the agent of Seller for the purpose or completing, fulfilling and
discharging all of Seller's rights and liabilities under any such Nonassignable
Agreement. Nothing contained herein shall require Purchaser to consummate the
transaction contemplated herein in the event all necessary consents have not
been obtained.
1.4 Closing. The purchase and sale of the Assets contemplated
hereunder shall take place at the offices of Carr & Ferrell, LLP, 2225 E.
Bayshore Road, Palo Alto, California, at 2:00 p.m. on December __, 1999, or at
such other time and place as the Seller and Purchaser shall mutually agree,
either orally or in writing (which time and place are designated as the
"Closing").
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<PAGE>
2. CONSIDERATION FOR TRANSFER. The consideration for the transfer of the
Assets (the "Purchase Price") shall be as follows:
(i) $2.0 million in cash paid at the Closing via certified
or cashier's check or wire transfer;
(ii) Two Million, Nine Hundred Fifty Eight Thousand, Eight
Hundred Nineteen (2,958,819) shares of Purchaser's Common
Stock (hereinafter referred to as the "Shares"), which is
equal to 12% of the outstanding capital stock of Purchaser
(calculated on a fully-diluted, as converted to Common Stock
basis (i.e., taking into account all outstanding options,
warrants, restricted stock grants, convertible securities,
and options reserved for issuance under the 1999 Stock
Option Plan)) assuming the sale of $17,000,000 of
Purchaser's Series A Preferred Stock (the "Series A Round");
such Shares to be delivered to Seller at Closing; provided,
however, that in the event that less than $17,000,000 of
Purchaser's Series A Preferred Stock is sold at the Closing
referred to in Section 9.7, Seller shall receive at closing
only that number of Shares equal to 12% of the outstanding
capital stock of Purchaser (calculated in the manner
described above) based on the number of shares of Series A
Preferred Stock actually issued, with additional Shares to
be issued under Section 12.6; and
(iii) the assumption by Purchaser of those liabilities
listed on Exhibit C (the "Assumed Liabilities"). Purchaser
shall provide, at the Closing, an undertaking ("Instrument
of Assumption") pursuant to which Purchaser shall assume and
agree to pay or discharge the Assumed Liabilities (which
undertaking shall be in a form reasonably satisfactory to
Seller and Seller's counsel).
Except for the Assumed Liabilities, Purchaser shall not assume any other
obligations or liabilities of Seller, including without limitation (i) any
obligations or liabilities under any Non-Assigned Agreement, (ii) any claims or
pending litigation or proceedings relating to the business and operations of
Seller prior to the Closing, (iii) any obligations or liabilities of Seller
under any pension, retirement, profit-sharing, deferred compensation, vacation,
severance, bonus, incentive, medical, vision, dental, disability, life insurance
or any other employee benefit plan as defined in Section 3(3) of ERISA (as
defined herein), (iv) any obligations or liabilities of Seller under any
collective bargaining agreements, (v) any credit or loan agreements, note
purchase agreements, indentures, capital leases, or other financing
arrangements, (vi) any agreements entered into or after the date hereof by
Seller in violation of the terms of this Agreement, or (vii) any other
obligations and liabilities that are not set forth on Exhibit C as Assumed
Liabilities, and all such obligations and liabilities shall remain and be the
obligations and liabilities solely of Seller.
3. ALLOCATION AND TAXES.
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3.1 Allocation of Purchase Price. The Purchase Price of the Assets
shall be allocated among the Assets as set forth on Exhibit D. The portion of
the price consisting of the assumption of liabilities shall be allocated among
the Assets in the same proportions as the cash portion of the consideration is
allocated as set forth above. Each of the parties agrees to report this
transaction for state and federal tax purposes in accordance with this
allocation of the purchase price.
3.2 Excise and Property Taxes. Purchaser shall pay all sales and use
taxes (if any) arising out of the transfer of the Assets. State and local
personal property taxes on the Assets for tax periods including the date of
Closing shall be pro rated between Seller and Purchaser as of the Closing, with
any net difference paid by the appropriate party at Closing or within thirty
(30) days following the determination of such net difference. Purchaser shall
not be responsible for any business, occupation, withholding, property or
similar tax, or any taxes of any kind related to any period before the Closing.
4. REPRESENTATIONS AND WARRANTIES OF SELLER AND HOLDINGS. As used
in this Section, the expression "to the best of its knowledge" or similar
phrases mean as to matters of fact that, (i) with respect to Seller, following
due investigation, Seller finds no reason to believe that the representation
made is factually incorrect or misleading in any manner and (ii) with respect to
Holdings, based on the actual knowledge of Holdings officers and directors,
Holdings finds no reason to believe that the representation made is factually
incorrect or misleading in any manner; but beyond that Holdings has made no
independent factual investigation; provided that the knowledge of R.Scott Wills,
Greg Roberts and any other employee or consultant hired or engaged by Scott
Wills or any other employee of the Seller with hiring authority after December
31, 1998, shall not be imputed by implication to Seller or Holdings. Except as
specifically disclosed on Exhibit E, Seller and Holdings, jointly and severally,
represent and warrant that:
4.1 Organization, Good Standing and Qualification. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware, has all necessary corporate powers to own its properties and to
carry on its business as now owned and operated by it, and is duly qualified to
do intrastate business and is in good standing in all jurisdictions in which the
nature of Seller's business or of its properties makes such qualification
necessary and in which the failure to be so qualified would have a material
adverse effect on Seller's financial conditions or operations.
4.2 Subsidiaries. Seller does not own, directly or indirectly, any
interest or investment (whether equity or debt) in any corporation, partnership,
limited liability company, business, trust, or other entity.
4.3 Financial Statements. Exhibit A to this Agreement includes the
balance sheet of Seller as of December 31, 1998, and its statement of operations
and statement of cash flows for the year ended December 31, 1998, as well as the
unaudited balance sheet of Seller as of June 30, 1999, and its statement of
operations and statement of cash flows for the six month period ended June 30,
1999 (collectively, the "Financial Statements"). To the best of Holdings' and
Seller's knowledge,
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the Financial Statements have been prepared in accordance with generally
accepted accounting principles, consistently applied, and fairly present the
financial position of Seller as of the date and for the period thereof. To the
best of Seller's and Holdings' knowledge all material liabilities of Seller
which existed as of June 30, 1999 are set forth in Seller's balance sheet dated
as of June 30, 1999 and no other liability normally disclosed on a balance sheet
and in excess of $1,000 existed on June 30, 1999. Holdings, on its own behalf
and on behalf of its officers and directors, represents that, except for
liabilities of a non-material nature previously disclosed to Scott Wills, it has
not incurred any liabilities for the account of BrightStreet, and that it has
not incurred any material liabilities on behalf of BrightStreet which are not
reflected in the Financial Statements.
4.4 Absence of Specified Changes. To the best of Holdings' and
Seller's knowledge, and except as contemplated by this Agreement, since June 30,
1999 there has not been any:
(a) Transaction by Seller except in the ordinary course of
business as conducted on that date;
(b) Material adverse change in the financial condition,
liabilities, assets, business, or prospects of Seller;
(c) Labor trouble or claim of wrongful discharge or other
unlawful labor practice or action;
(d) Declaration, setting aside, or payment of a dividend
or other distribution in respect to the shares of Seller, or any direct or
indirect redemption, purchase, or other acquisition by Seller of any of its
shares;
(e) Increase in the salary or other compensation payable
or to become payable by Seller to any of its officers, directors, or employees,
or the declaration, payment, or commitment or obligation of any kind for the
payment by Seller, of a bonus or other additional salary or compensation to any
such person;
(f) Sale or transfer of any asset of Seller except in the
ordinary course of business;
(g) Amendment or termination of any contract, agreement,
or license to which Seller is a party, except in the ordinary course of
business;
(h) Loan by Seller to any person or entity, or guaranty by
Seller of any loan;
(i) Waiver or release of any material right or material
claim of Seller, except in the ordinary course of business;
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(j) Commencement or notice or threat of commencement of
any governmental proceeding against or investigation of Seller or its affairs;
(l) Other event or condition of any character that has or
might reasonably have a material and adverse effect on the financial condition,
business, assets or prospects of Seller;
(m) Issuance or sale by Seller of any of its shares of
common stock or of any other of its securities; or
(n) Agreement by Seller to do any of the things described
in the preceding clauses (a) through (m).
4.5 Taxes. The following representations, warranties and
agreements are made with respect to tax matters (such representations are made
without qualification with respect to all taxing authorities other than those
authorities located within the State of California; such representations are
made to the best of Holdings' and Seller's knowledge with respect to tax
obligations to any taxing authorities located within the State of California):
Filing of Tax Returns. Seller has timely completed
and filed with the appropriate taxing authorities all returns in respect of any
and all taxes ("Taxes") required to be filed through the date hereof and will
timely file any such returns required to be filed on or prior to the Closing.
Such returns and other information filed in respect of any Taxes are complete
and accurate in all material respects. Seller has not requested or been granted
any extension of time within which to file any such returns (including, without
limitation, information returns) in respect of Taxes which have not been filed.
Payment of Taxes. As of the Closing Date, all
amounts required to be paid by Seller to taxing authorities or others, whether
or not shown on any return, on or before the date hereof, have been timely paid,
or will be timely paid, or an adequate reserve has been established therefor,
and Seller has no material liability for Taxes in excess of the amounts so paid
or reserves so established. Seller has complied with all applicable laws, rules
and regulations relating to the payment and withholding of Taxes, including
timely payment of amounts owed to and timely amounts withheld from employees,
independent contractors, creditors, stockholders and other third parties.
Audits, Investigations or Claims. No audits,
investigations, issues, disputes or claims have been raised (and are currently
pending) by any taxing authority in connection with any returns in respect of
Taxes of Seller. No extension of time with respect to any assessment of Taxes or
deficiency or waiver of a statute of limitations relating to any return in
respect of Taxes has been given by or requested from Seller. All deficiencies
asserted or assessments made as a result of any examinations have been fully
paid, or are fully reflected as a liability in the Seller's Financial
Statements, or are being contested and an adequate reserve therefore has been
established and is
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reflected fully as a liability in the Seller's Financial Statements. Seller has
not entered into any transaction already recharacterized or which could be
recharacterized for tax purposes on the grounds of tax avoidance, bad faith or
tax fraud.
Liens. There are no liens for Taxes (other than for
current Taxes not yet due and payable) on any assets of Seller.
4.6 Real Property. Seller owns no interest in real property other
than its leasehold interest in and to that certain real property leased by
Seller under that certain Lease dated November, 1997 between Seller and the
Bronson Road Group, and that certain Lease dated July 20, 1999 between Seller
and Jack Dymond Associates.
4.7 Tangible Personal Property. To the best of Holdings' and Seller's
knowledge, Exhibit F to this Agreement is a complete and accurate schedule
describing and specifying the location of all trucks, automobiles, machinery,
equipment (including computer equipment), hardware, furniture, supplies, tools,
drawings and all other tangible personal property owned by, in the possession
of, or used by Seller in connection with its businesses. To the best of
Holdings' and Seller's knowledge, the property listed in Exhibit F constitutes
all such tangible personal property necessary for the conduct by Seller of its
business as now conducted. To the best of Holdings' and Seller's knowledge,
except as indicated in Exhibit F, no personal property used by Seller in
connection with its business is held under any lease, security agreement,
conditional sales contract, or other title retention or security arrangement, or
is located other than in the possession of Seller or its employees. To the best
of Holdings' and Seller's knowledge, each of the items of personal property
described in Exhibit F is in good operating condition and repair (normal wear
and tear excepted), and there exists no condition which interferes with its
economic value or use. To the best of Holdings' and Seller's knowledge, each
lease or other agreement related to such personal property in full force and
effect.
4.8 Computer Software and Data Bases. To the best of Holdings' and
Seller's knowledge, Exhibit G to this Agreement contains a list of all of
Seller's computer software and data bases and related documentation and
materials which are owned by Seller or used by Seller in the operation of its
business. To the best of Holdings' and Seller's knowledge, except as set forth
in Exhibit G, Seller is the sole owner and original developer of all such
software programs and materials, such programs and materials either are or may
be protected by copyright registration and the actual and contemplated use
thereof does not conflict with or infringe upon or otherwise violate any rights
of others. To the best of Holdings' and Seller's knowledge, the information
utilized by Seller in the construction of Seller's data bases was lawfully
obtained and Seller has the lawful right to use the information.
4.9 Intellectual Property.
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(a) Intellectual Property. Exhibit H lists all of the
registered or applied for registration Intellectual Property owned or licensed
by Seller, listing for each jurisdiction in which Seller has registered, or
filed an application or registration with respect to, such Intellectual Property
with the applicable governmental authority and indicating whether such
Intellectual Property is owned or licensed by Seller. Except for routine
licenses to customers and as otherwise set forth on Exhibit H Seller is the sole
and exclusive owner (legally and beneficially) of, and has the sole and
exclusive right to use, all of its Intellectual Property. Seller's Intellectual
Property does not contain any derivative works or other matter in which a third
party could claim superior, prior or joint ownership, and is not otherwise
subject to any licenses, liens, mortgages, pledges, encumbrances, claims,
restrictions or charges of any kind. Such Intellectual Property includes all the
rights in intellectual property, including without limitation copyright, patent,
trademark or trade name (but excluding any rights in commercially available
software used by Seller in the operation of its business and not resold or
relicensed to other parties or incorporated into any software products developed
by Seller) that have been used in connection with, or are required for, the
current operation of Seller's business.
(b) Royalties and Licenses. Seller has no obligation to
compensate any person for the use of any such Intellectual Property nor has
Seller granted to any person any license, warrant or other rights to use in any
manner any of its Intellectual Property, whether requiring the payment of
royalties or not. Exhibit H sets forth the amount of any royalty or license fees
payable by Seller for use of any Intellectual Property that are licensed in
whole or in part by Seller.
(c) Use and Protection of Intellectual Property. The
Intellectual Property will not cease to be valid rights of Seller prior to and
after the consummation of this Agreement by reason of the execution, delivery
and performance of this Agreement or the transfer and sale of the Assets to
Purchaser. Neither Seller nor any present or former employee nor consultant of
Seller owns or has any proprietary, financial or other interest, direct or
indirect, in any of the Intellectual Property. To the best of Seller's
knowledge, the use by Seller of the Intellectual Property does not and will not
conflict with, infringe upon or otherwise violate the rights of any third party
in or to such Intellectual Property. There are not, and it is expected that
after the Closing there will not be, any restrictions on the right of Seller to
sell, license, sublicense, use, lease or rent the Intellectual Property, other
than ordinary restrictions with respect to Intellectual Property licensed by
Seller.
(d) Domain Names. Set forth on Exhibit I hereto is a
complete and accurate list of all domain names owned by Seller (the "Domain
Names"). Seller has and will transfer to Purchaser at the Closing, good and
marketable title to the Domain Names, free and clear of all encumbrances;
provided, however, that the domain name "netvalueinc.com" shall be retained by
Seller. The Domain Names, and their current use, sale, disclosure, or display,
do not infringe or misappropriate any trademark, trade secret, or other
intellectual property right of any third party.
(e) Seller has in force all license or other agreements
necessary for the performance of Seller's services and the manufacture,
protection, distribution and license and sale of all of Seller's products and
services; and
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(f) All right, title and interest in and to any and all of
the writings, programs, documentation, trademarks, trade names, trade secrets,
copyrights and copyright applications being used by Seller are owned or licensed
by Seller, and Seller has taken all steps reasonably necessary to protect its
interests therein.
4.10 Trade Secret Protection. To the best of Holdings' and Seller's
knowledge, Seller has taken all reasonable security measures to protect the
secrecy, confidentiality, and value of its trade secrets; any of Seller's
employees and any other persons who either alone or in concert with others,
developed, invented, discovered, derived, programmed, or designed these trade
secrets, or who have knowledge of or access to information relating to them,
have been put on notice and have entered, or will prior to the Closing enter,
into agreements that these trade secrets are proprietary to Seller and not to be
divulged or misused. To the best of Holdings' and Seller's knowledge, all these
trade secrets are presently valid and protectible, and are not part of the
public knowledge or literature, nor to Seller or Holdings' knowledge have they
been used, divulged, or appropriated for the benefit of any past or present
employees or other persons, or to the detriment of Seller. To the best of
Holdings' and Seller's knowledge, Seller is not making use of any confidential
information or trade secret of any former employer of any officer or director or
any present or past employee of Seller.
4.11 Title to Assets. Seller has good and marketable title to all the
Assets, which constitute all the assets and interests in assets that are used in
the business of Seller. All the Assets are free and clear of mortgages, liens,
pledges, charges, encumbrances, equities, claims, easements, rights of way,
covenants, conditions, or restrictions, except for (i) any liens related to
current taxes not yet due and payable; and (ii) possible minor matters that, in
the aggregate, are not substantial in amount and do not materially detract from
or interfere with the value or the present or intended use of any of these
assets, nor materially impair business operations. To the best of Holdings' and
Seller's knowledge, all tangible personal property of Seller is in good
operating condition and repair, ordinary wear and tear excepted. To the best of
Holdings' and Seller's knowledge, no officer, director, or employee of Seller
owns, or has any interest, directly or indirectly, in any of the property owned
by or used by Seller or any copyrights, patents, trademarks, trade names or
trade secrets used by Seller.
4.12 Existing Employment Contracts. To the best of Holdings' and
Seller's knowledge, Exhibit J to this Agreement contains a list of all
employment contracts and collective bargaining agreements, and all pension,
bonus, profit-sharing, stock option, or other agreements or arrangements
providing for employee remuneration or benefits to which Seller is a party or is
bound. To the best of Holdings' and Seller's knowledge, all these contracts and
arrangements are in full force and effect, and neither Seller, nor any other
party is in default under them. To the best of Holdings' and Seller's knowledge,
there have been no claims of defaults and there are no facts or conditions which
if continued, or on notice, will result in a default under these contracts or
arrangements. To the best of Holdings' and Seller's knowledge, Seller does not
maintain or contribute to any employee pension or profit-sharing plans for any
of its employees.
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4.13 Labor Relations; Employees. To the best of Holdings' and
Seller's knowledge, except as set forth in Exhibit J, (1) Seller has paid in
full to, or accrued on behalf of, all employees all wages, salaries,
commissions, bonuses and other direct compensation for all services performed by
them to the date hereof and all amounts required to be reimbursed to such
employees; (2) upon termination of the employment of any employee, Seller will
not, by reason of anything done prior to the Closing, be liable to any employee
for "severance pay" or any other payments except for accrued vacation pay; (3)
Seller is in substantial compliance with all federal, state, local and foreign
laws and regulations respecting employment and employment practices, terms and
conditions of employment and wages and hours; (4) there is no unfair labor
practice complaint pending against Seller before the National Labor Relations
Board or any comparable state, local or foreign agency; (5) there is no labor
strike, dispute, slowdown or stoppage actually pending or threatened against or
involving Seller; (6) no labor representation question is pending respecting the
employees of Seller; (7) no grievance which might have an adverse effect on
Seller or the conduct of its business nor any arbitration proceeding arising out
of or under collective bargaining agreements is pending and no claim therefor
has been asserted; and (8) no collective bargaining agreement is currently being
negotiated by Seller.
4.14 Other Contracts. To the best of Holdings' and Seller's
knowledge, Seller is not a party to, nor is any of its property bound by, any
distributor's or manufacturer's representative or agency agreement, any output
or requirements agreement, any agreement not entered into in the ordinary course
of business, any indenture, mortgage, deed of trust, lease, or any agreement
requiring the performance by Seller of any obligation for a period of time
extending beyond one year from the Closing or calling for consideration of more
than $10,000, except the agreements listed in Exhibit K, copies of which have
been furnished or made available to Purchaser. To the best of Seller's
knowledge, there is no default or event which, with the lapse of time or the
giving of notice or both, would constitute a material default by any party to
any of these agreements. To the best or Holdings' and Seller's knowledge, Seller
has not received notice that any party to any of these agreements intends (i) to
cancel or terminate any of these agreements or (ii) to exercise or not exercise
any options under any of these agreements in such a manner as to have a
materially adverse effect upon the business, properties or financial condition
of Seller. Notwithstanding the knowledge qualifiers contained in this
representation, the foregoing representations are made by Seller and Holdings
without any qualification or limitation as to knowledge with respect to any
credit or loan agreements, note purchase agreements, indentures, capital leases,
mortgages, debt, equity or other financing arrangements of Seller.
4.15 Compliance with Laws. To the best of Holdings' and Seller's
knowledge, the business of Seller has not violated, and as presently conducted
does not violate, any federal, state, local or foreign laws, regulations or
orders, the violation of which would have a material adverse effect upon Seller
nor has Seller received notice of any violation which remains uncorrected.
4.16 Litigation. There is no suit, action, arbitration, or legal,
administrative, or other proceeding or governmental investigation pending or, to
the best knowledge of Seller, threatened against or affecting Seller or any of
its business, assets or financial condition. Seller is not in default
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with respect to any order, writ, injunction, or decree of any federal, state,
local, or foreign court, department, agency, or instrumentality issued with
respect to Seller. Seller is not presently engaged in any legal action to
recover moneys due to it or damages sustained by it.
4.17 Agreement Will Not Cause Breach or Violation. To the best of
Holdings' and Seller's knowledge, the execution and delivery of this Agreement
and consummation of the transactions contemplated hereby will not result in or
constitute any of the following: (i) a breach of any term or provision of this
Agreement; (ii) a default or an event which, with the lapse of time or the
giving of notice or both, would be a default, breach, or violation of the
certificate of incorporation or bylaws of Seller or of any lease, license,
promissory note, conditional sales contract, commitment, indenture, mortgage,
deed of trust, or other agreement, instrument, or arrangement to which Seller is
a party or by which Seller or the Assets are bound; (iii) an event that would
permit any party to terminate any agreement or to accelerate the maturity of any
indebtedness or other obligation of Seller; (iv) the creation or imposition of
any lien, charge or encumbrance on any of the properties, whether tangible or
intangible, of Seller; or (v) the violation of any law, judgment, order or
decree affecting the business of Seller. Notwithstanding the knowledge
qualifiers contained in this representation, the foregoing representations are
made by Seller and Holdings without any qualification or limitation as to
knowledge with respect to the certificate of incorporation or bylaws of Seller
or any credit or loan agreements, note purchase agreements, indentures, capital
leases, mortgages, debt, equity or other financing arrangements of Seller.
4.18 Authority and Consents. Seller has the right, power, legal
capacity and authority to enter into, and perform its obligations under this
Agreement and, to the best of Holdings' and Seller's knowledge, no approvals or
consents of or assignments by any persons (including, without limitation, any
federal, state or local governmental or administrative authorities) are
necessary in connection with it. Notwithstanding the knowledge qualifiers
contained in this representation, the foregoing representations are made by
Seller and Holdings without any qualification or limitation as to knowledge with
respect to any approvals, consents or assignments required from any federal,
state or local governmental or administrative authorities or any parties to any
credit or loan agreements, note purchase agreements, indentures, capital leases,
mortgages, debt, equity or other financing arrangements of Seller The execution
and delivery of this Agreement by Seller has been duly authorized by its Board
of Directors.
4.19 Authority. To the best of Holdings' and Seller's knowledge,
Exhibit L to this Agreement lists (i) the names and addresses of all persons
holding a power of attorney on behalf of Seller; and (ii) the names and
addresses of all banks or other financial institutions in which Seller has an
account, deposit or safe-deposit box, with the names of all persons authorized
to draw on these accounts or deposits or to have access to these boxes.
4.20 Insurance. To the best of Holdings' and Seller's knowledge, all
insurance coverage applicable to Seller, its business and assets is in full
force and effect, insures Seller in reasonably sufficient amounts against all
risks usually insured against by persons operating similar businesses or
properties of similar size
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in the localities where such businesses or properties are located, provides
coverage as may be required by applicable law or regulations and by any and all
contracts or agreements to which Seller is a party and has been issued by
insurers of recognized responsibility. To the best of Holdings' and Seller's
knowledge, there is no default under any such coverage nor has there been any
failure to give notice or present any claim under any such coverage in a due and
timely fashion. To the best of Holdings' and Seller's knowledge, there are no
outstanding unpaid premiums except in the ordinary course of business and no
notice of cancellation or non-renewal of any such coverage has been received. To
the best of Holdings' and Seller's knowledge, there are no provisions in such
insurance policies for retroactive or retrospective premium adjustments. To the
best of Holdings' and Seller's knowledge, all products liability, general
liability and workers' compensation insurance policies maintained by Seller have
been occurrence policies and not claims made policies. To the best of Holdings'
and Seller's knowledge, there are no outstanding performance bonds covering or
issued for the benefit of Seller. To the best of Holdings' and Seller's
knowledge, there are no facts upon which an insurer might be justified in
reducing coverage or increasing premiums on existing policies or binders. To the
best of Holdings' and Seller's knowledge, Seller has no insurance claims filed
(i) since June 30, 1999 or (ii) prior to such date but not yet indemnified, and
Seller has entered into no insurance agreements and is not covered by any
insurance which shall or may be terminated due to the transfer of the Seller
Assets. To the best of Holdings' and Seller's knowledge, nothing has been done
or omitted to be done which would make any insurance policy void or voidable. To
the best of Holdings' and Seller's knowledge, Seller has properly declared to
each appropriate insurance company any event that could justify an insurance
claim
4.21 Year 2000. To the best of Holdings' and Seller's knowledge, any
software or hardware or equipment currently in use by Seller, and being assigned
to the Purchaser will satisfy all of the following:
(a) When properly used in accordance with associated documentation,
will correctly recognize and process dates of December 31, 1999 and beyond (the
"Millennial Dates"), without ambiguity, interruption, abnormalities or invalid
or incorrect results, and with full recognition of leap year dates; and
(b) The occurrence in or use by such software, hardware or equipment of
Millennial Dates will not adversely affect the performance or functioning
thereof (including with respect to date-dependent data, computations, input,
output and calculating, comparing and sequencing functions).
4.22 Environmental Matters.
(a) To the best of Holdings' and Seller's knowledge,
during the period that Seller has leased or owned its properties, there have
been no disposals, releases or threatened releases of Hazardous Materials (as
defined below) on, from or under such properties. Seller has no knowledge or any
presence, disposals, releases or threatened releases of Hazardous Materials on,
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from or under any of such properties, which may have occurred prior to Seller
having taken possession of any of such properties. For purposes of this
Agreement, the terms "disposal," "release," and "threatened release" shall have
the definitions assigned thereto by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. ss. 9601 et seq., as amended
("CERCLA"). For the purposes of this Section "Hazardous Materials" shall mean
any hazardous or toxic substance, material or waste which is or becomes prior to
the Closing regulated under, or defined as a "hazardous substance," "pollutant,"
"contaminant," "toxic chemical," "hazardous material," "toxic substance," or
"hazardous chemical" under (1) CERCLA; (2) the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. Section 11001 et seq.; (3) the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et seq.; (4) the Toxic Substances
Control Act, 15 U.S.C. Section 2601 et seq.; (5) the Occupational Safety and
Health Act of 1970, 29 U.S.C. Section 651 et seq.; (6) regulations promulgated
under any of the above statutes; or (7) any applicable state or local statute,
ordinance, rule, or regulation that has a scope or purpose similar to those
identified above.
(b) To the best of Holdings' and Seller's knowledge,
neither Seller nor any of Seller's properties is in violation of any federal,
state, or local law, ordinance, regulation, or order relating to industrial
hygiene or to the environmental conditions on, under or about such properties,
including, but not limited to, soil and ground water condition. To the best of
Holdings' and Seller's knowledge, during the time that Seller has owned or
leased its properties, neither Seller nor, to Seller's knowledge, any third
party, has used, generated, manufactured or stored on, under or about such
properties or transported to or from such properties any Hazardous Materials.
(c) To the best of Holdings' and Seller's knowledge,
during the time that Seller has owned or leased its properties, there has been
no litigation brought or threatened against Seller, or any settlement reached by
Seller with, any party or parties alleging the presence, disposal, release or
threatened release of any Hazardous Materials on, from or under any of such
properties.
4.23 Full Disclosure. Neither Seller, Holdings, nor any of Seller's
officers, directors, employees or agents has withheld from Purchaser any
material facts relating to Seller's assets, liabilities, business, operations,
financial condition or prospects. None of the representations, warranties or
statements made by or on behalf of Seller or Holdings or made in any document,
certificate, memorandum or exhibit furnished or to be furnished by Seller or
Holdings, or on their behalf, pursuant to this Agreement contains or will
contain any untrue statement of a material fact or omits or will omit any
material fact the omission of which would be misleading.
4.24 Brokers, Finders. The transactions contemplated hereby were not
submitted to Seller or Holdings by any broker, finder or other person entitled
to a commission, fee or like payment thereon and were not, with the consent of
Seller or Holdings, submitted to Purchaser by any broker, finder or other
person, and the actions of Seller have not, to the best of Seller's knowledge,
given rise to any claim by any person against Seller for a commission, fee or
like payment.
4.25 Investment-Related Representations and Warranties.
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(a) Seller is experienced in evaluating start-up companies
such as Purchaser, is able to fend for itself in transactions such as the one
contemplated by this Agreement, has such knowledge and experience in financial
and business matters that Seller is capable of evaluating the merits and risks
of its prospective investment in the Shares, and has the ability to bear the
economic risks of the investment.
(b) Seller is acquiring the Shares for investment for
Seller's own account and not with the view to, or for resale in connection with,
any distribution thereof. Seller understands that the Shares have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent as expressed herein. Seller does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participation to any third person with respect to any of the Shares. Seller
understands and acknowledges that the offering of the Shares pursuant to this
Agreement will not be registered under the Securities Act on the ground that the
sale provided for in this Agreement and the issuance of securities hereunder is
exempt from the registration requirements of the Securities Act.
(c) Seller acknowledges that the Shares must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. Seller is aware of the provisions
of Rule 144 promulgated pursuant to the Securities Act which permit limited
resale of shares purchased in a private placement subject to the satisfaction of
certain conditions. Seller covenants that, in the absence of an effective
registration statement covering the stock in question, such persons will sell,
transfer, or otherwise dispose of the Shares only in a manner consistent with
Seller's representations and covenants set forth in this Section.
(d) Seller understands that no public market now exists
for any of the securities issued by Purchaser, and that no public offering is
currently contemplated.
(e) Seller has received and reviewed such information
about Purchaser and have had an opportunity to discuss Purchaser's business,
management and financial affairs with its management and to review the
Purchaser's facilities, and to conduct such investigation into the business and
prospects of Purchaser as Seller deems relevant. Seller accepts the
responsibility for conducting such an investigation. To the extent Seller has
not sought information regarding any particular matter, such parties hereby
represent that they had no interest in doing so and that such matters are not
material to them in connection with this investment.
(f) Seller and Holdings acknowledge that the transactions
contemplated herein may have significant federal, state or other tax
consequences upon such persons, and that no advice as to what such tax
consequences may be has been given by Purchaser. Seller and Holdings have been
advised to consult with their own tax advisors concerning their own particular
tax consequences of the transactions contemplated herein.
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5. PURCHASER'S REPRESENTATIONS AND WARRANTIES. Purchaser represents and
warrants that:
5.1 Organization and Good Standing. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of Delaware, has
all necessary corporate powers to own its properties and to carry on its
business as now owned and operated by it, and is duly qualified to do intrastate
business and is in good standing in all jurisdictions in which the nature of
Purchaser's business or of its properties makes such qualification necessary and
in which the failure to be so qualified would have a material adverse effect on
Purchaser's financial condition or operations.
5.2 Authority and Authorization of Purchaser. Purchaser has the
corporate power and authority to execute this Agreement and perform its
obligations hereunder and consummate the transactions contemplated hereby, and
the execution and delivery of this Agreement, the consummation of the
transactions contemplated hereby and the compliance by Purchaser with the terms
of this Agreement will not conflict with or result in a breach of any terms of,
or constitute a default under, Purchaser's certificate of incorporation or
bylaws, or any agreement, obligation or instrument to which Purchaser is a party
or by which it is bound. All necessary and appropriate corporate action has been
taken by Purchaser with respect to the execution and delivery of this Agreement,
and this Agreement constitutes a valid and binding obligation of Purchaser
enforceable in accordance with its terms except as limited by bankruptcy,
insolvency, moratorium, reorganization and other laws affecting the rights and
remedies of creditors and by general equity principles.
5.3 Litigation. There is no claim, litigation, investigation,
inquiry, action, suit or proceeding, administrative or judicial, pending or, to
the knowledge of Purchaser, threatened against Purchaser, at law or in equity,
before any federal, state or local court or regulatory agency, or other
governmental authority, which might have an adverse effect on its ability to
perform any of its obligations under this Agreement or upon the consummation of
the transactions contemplated by this Agreement.
5.4 Brokers, Finders. The transactions contemplated hereby were not
submitted to Purchaser by any broker, finder or other person entitled to a
commission, fee or like payment thereon and were not, with the consent of
Purchaser, submitted to Seller by any broker, finder or other person, and the
actions of Purchaser have not, to the best of Purchaser's knowledge, given rise
to any claim by any person against Seller for a commission, fee or like payment.
5.5 Consents. No approvals or consents of or assignments by any
persons (including, without limitation, any federal, state or local governmental
or administrative authorities) are necessary in connection with the consummation
of transaction contemplated hereunder by Purchaser.
5.6 Capitalization. As of the date hereof, the authorized capital
stock of Purchaser consists of Fifty-five Million (55,000,000) shares of capital
stock: Thirty-five Million
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(35,000,000) shares of Common Stock, $0.001 par value ("Common Stock"), of which
5,707,000 shares are outstanding; Twenty Million (20,000,000) shares of
Preferred Stock, $0.001 par value, Twelve Million, Six Hundred Thousand
(12,600,000) of which shares are designated as Series A Preferred Stock ("Series
A Preferred Stock"), all of which are issued and will be outstanding, assuming
the sale of $17,000,000 of Purchaser's Series A Preferred Stock. All such issued
and outstanding securities have been duly authorized and validly issued, are
fully paid and nonassessable, and were issued in compliance with all applicable
state and federal laws concerning the issuance of securities. The rights,
privileges and preferences of the Series A Preferred Stock are as set forth in
the Certificate of Incorporation previously delivered to Seller, and no
amendment thereto has been approved by Purchaser's Board of Directors. Except
for the Stockholders Agreement and the Registration Rights Agreement, there is
no other agreement which grants any additional rights to the Series A Preferred
Stock. Purchaser has reserved and authorized the issuance of Three Million,
Three Hundred Seventy One Thousand (3,371,000) shares of Common Stock for
issuance to officers, directors, employees and consultants pursuant to a stock
option and/or purchase plan or other arrangements approved by Purchaser's Board
of Directors. Except for (i) the conversion privileges of the Series A Preferred
Stock (the "Preferred Stock"), (ii) rights of first refusal granted to the
purchasers of the Preferred Stock, (iii) options granted pursuant to the
above-described stock option plan, there are no preemptive rights or outstanding
rights, options, warrants, conversion rights or agreements for the purchase or
acquisition from Purchaser of any shares of its capital stock or any securities
convertible into or ultimately exchangeable or exercisable for any shares of
Purchaser's capital stock. Schedule 1 hereto sets forth a true, correct and
complete listing of all current holders of Purchaser's equity securities,
options or warrants. There are no contracts, agreements, arrangement or
understandings, oral or written, which grant or permit the Management Team (as
defined in Section 12.6) to purchase in excess of the Management Interest (as
defined in Section 12.6) upon consummation of the Series A Round.
6. "MARKET STAND-OFF" AGREEMENT. Seller and Holdings agree in connection with
any registration of Purchaser's Common Stock that, upon the request of the
underwriters managing any public offering of Purchaser's Common Stock, Seller
and Holdings will not sell or otherwise dispose of any Shares without the prior
written consent of such underwriters for a period of not more than 180 days
after the effective date of such registration and subject to all restrictions as
the underwriters may specify; provided, that all holders of 2% of more of
Purchaser's Common Stock, and Series A Preferred Stock on an as-converted basis,
enter into the same agreement.
7. SELLER'S OBLIGATIONS BEFORE CLOSING. Seller covenants that from the date
of this Agreement until the Closing:
7.1 Purchaser's Access to Premises and Information. Purchaser and its
counsel, accountants, and other representatives shall have full access during
normal business hours to all properties, books, accounts, records, contracts and
documents of or relating to Seller. Seller shall furnish or cause to be
furnished to Purchaser and its representatives all data and information
concerning the business, finances, and properties of Seller that may reasonably
be requested.
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7.2 Conduct of Business in Normal Course. Seller will carry on its
business and activities diligently and in substantially the same manner as they
previously have been carried out, and shall not make or institute any unusual or
novel methods of manufacture, purchase, sale, lease, management, accounting, or
operation that will vary materially from those methods used by Seller as of the
date of this Agreement without the written consent of Purchaser; provided,
however, that Holdings is under no obligation to provide additional funding to
finance the future operations of Seller.
7.3 Preservation of Business and Relationships. Seller will use
reasonable best efforts, without making any commitments on behalf of Purchaser,
to preserve its business organization intact, to keep available to Seller its
present officers and employees, and to preserve its present relationships with
suppliers, customers, and others having business relationships with Seller.
7.4 Maintenance and Insurance. Seller will continue to carry its
existing insurance, subject to variations in amounts required by the ordinary
operations of its business.
7.5 Employees and Compensation. Seller shall not do, or agree to do,
any of the following acts without Purchaser's written consent: (i) grant any
increase in salaries payable or to become payable to any officer, employee,
consultant, sales agent or representative of Seller, (ii) increase benefits
payable to any officer, employee, consultant, sales agent or representative of
Seller under any bonus or pension plan or other contract or commitment, or (iii)
modify any collective bargaining agreement to which Seller is a party or by
which Seller may be bound.
7.6 New Transactions. Seller shall not, without Purchaser's written
consent, do or agree to do any of the following acts:
(a) Enter into any contract, commitment or transaction not
in the usual and ordinary course of its business; or
(b) Enter into any contract, commitment or transaction in
the usual and ordinary course of business involving an amount exceeding $10,000,
individually, or $50,000 in the aggregate; or
(c) Make any capital expenditures in excess of $5,000 for
any single item or $10,000 in the aggregate, or enter into any leases of capital
equipment or property under which the annual lease charge is in excess of
$5,000; or
(d) Sell or dispose of any capital assets with a net book
value in excess of $5,000, individually, or $10,000 in the aggregate.
7.7 Payment of Liabilities and Waiver of Claims. Seller shall not
do, or agree to do, any of the following acts: (i) pay any obligation or
liability, fixed or contingent, other than current
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liabilities; (ii) waive or compromise any material right or material claim; or
(iii) cancel without full payment, any note, loan or other material obligation
owing to Seller.
7.8 Existing Agreements. Without Purchaser's written consent, Seller
shall not modify, amend, cancel or terminate any of its existing contracts or
agreements, or agree to do any of these acts.
7.9 Consent of Others. As soon as reasonably practical after the
execution and delivery of this Agreement, and in any event on or before the
Closing, Seller will obtain the written consents of or assignments by the
persons described in Exhibit M to this Agreement and will furnish to Purchaser
executed copies of those consents and assignments.
7.10 Confidentiality Agreements. As soon as reasonably practical
after the execution and delivery of this Agreement, and in any event on or
before the Closing, Seller will obtain confidentiality agreements in form and
substance reasonably satisfactory to Purchaser from each officer, director and
employee of Seller and will furnish to Purchaser executed copies of such
agreements.
7.11 Shareholder Approvals. Holdings hereby represents and warrants
that it owns a majority of the outstanding Common Stock of Seller, that it has
formally approved and authorized the sale of substantially all the property and
assets of Seller to Purchaser on the terms and conditions provided in this
Agreement, and that no other shareholder action of Seller or Holdings is
required in connection therewith.
8. CONDITIONS PRECEDENT TO PURCHASER'S PERFORMANCE. The obligations of
Purchaser to purchase the Assets under this Agreement are subject to the
satisfaction, at or before the Closing, of all the conditions set out below in
this Section. Purchaser may waive any or all of these conditions in whole or in
part without prior notice; provided, however, that no such waiver of a condition
shall constitute a waiver by Purchaser of any of its other rights or remedies,
at law or in equity, if Seller shall be in default of any of its
representations, warranties, or covenants under this Agreement.
8.1 Accuracies of Seller's Representations and Warranties. All
representations and warranties by Seller or Holdings in this Agreement or in any
written statement that shall be delivered to Purchaser by Seller or Holdings
under this Agreement shall be true on and as of the Closing as though made at
that time.
8.2 Performance by Seller. Seller shall have performed, satisfied,
and complied with all covenants, agreements, and conditions required by this
Agreement to be performed or complied with by it on or before the Closing.
8.3 Certification by Seller. Purchaser shall have received a
certificate, dated the Closing Date, executed by Seller's president and
Holding's president certifying, in such detail as
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Purchaser and its counsel may reasonably request, that the conditions specified
in paragraph 8.1 and 8.2 have been fulfilled.
8.4 Opinion of Seller's Counsel. Purchaser shall have received from
Klehr, Harrison, Harvey, Branzburg & Ellers, counsel for Seller and Holdings, an
opinion dated the Closing Date, in form and substance satisfactory to Purchaser
and its counsel, that:
(a) Seller and Holdings are each a corporation duly
organized and validly existing and in good standing under the laws of the State
of Delaware, and Seller has all necessary corporate power to own its properties
as now owned and operate its business as now operated and is duly qualified or
licensed to do business as a foreign corporation in each jurisdiction where the
nature of its business or assets makes such qualification or license necessary
or advisable except where the failure to be so qualified or licensed will not
have a material adverse effect on Seller;
(b) All corporate proceedings required by law or by the
provisions of this Agreement to be taken by Seller and Holdings on or before the
Closing, in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement, have been duly
and validly taken;
(c) Seller and Holdings each have the corporate power and
authority to enter into the Agreement and perform their respective obligations
thereunder;
(d) Every consent, approval, authorization, or order of
any court or government agency or body that is required for the consummation by
Seller and Holdings of the transactions contemplated by this Agreement has been
obtained and will be in effect on the Closing;
(e) This Agreement has been duly and validly authorized,
executed and delivered by Seller and Holdings, and is valid and binding upon
Seller and Holdings and enforceable in accordance with its terms, except as
limited by bankruptcy and insolvency laws and by other laws affecting the rights
of creditors generally;
(f) To the best of such counsel's knowledge, the Company's
representation and warranty in Section 4.16 hereof is materially true and
correct;
(g) Neither the execution nor delivery of this Agreement
nor the performance of Seller's obligations hereunder will constitute (i) a
default or an event that, with notice or lapse of time or both, would constitute
a default under or violation or breach of Seller's or Holdings certificate of
incorporation or bylaws, or, to the best of such counsel's knowledge, under any
material indenture, license, lease, franchise, mortgage, instrument or other
agreement to which Seller or Holdings is a party, or by which it or the
properties of Seller or Holdings may be bound and which has been identified to
such counsel as a material agreement as detailed in Exhibit N ("Material
Agreements") or (ii) to the best of such counsel's knowledge, any event that
would permit any party to any Material Agreement or instrument to terminate it
or to accelerate the maturity of any
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indebtedness or other obligation of Seller or Holdings, or (iii) to the best of
such counsel's knowledge, an event that would result in the creation or
imposition of any lien, charge, or encumbrance on any asset of Seller; and
(h) In rendering its opinion, counsel for Seller may rely,
as to factual matters, on certificates of governmental agencies and others of
Purchaser.
8.5 Absence of Litigation. No action, suit or proceeding before any
court or any governmental body or authority, pertaining to the transaction
contemplated by this Agreement or to its consummation, shall have been
instituted on or before the Closing.
8.6 Corporate Approval. The execution and delivery of this Agreement
by Seller and Holdings, and the performance of its covenants and obligations
hereunder, shall have been duly authorized by all necessary corporate action,
and Purchaser shall have received copies of all resolutions pertaining to that
authorization, certified by the secretary of Seller and Holdings.
8.7 Good Standing Certificate. Purchaser shall have received a good
standing certificates, as of a date not more than 3 days before the Closing, of
the Delaware Secretary of State for Seller.
8.8 Consents. Seller shall have obtained and delivered to Purchaser
all necessary agreements and consents of any parties to the consummation of the
transaction contemplated by this Agreement, or otherwise pertaining to the
matters covered by it that Purchaser, in its sole discretion, deems necessary to
consummate the transaction.
8.9 Approval of Documentation. The form and substance of all
certificates, instruments, opinions, and other documents delivered to Purchaser
under this Agreement shall be satisfactory in all reasonable respects to
Purchaser and its counsel.
8.10 Government Approvals. Every consent, approval, authorization, or
order of any court or government agency or body that is required for the
consummation by Seller of the transactions contemplated by this Agreement (other
than such consents, approvals, authorizations or orders which are required to be
obtained by Purchaser hereunder) has been obtained and will be in effect on the
Closing.
8.11 Noncompete. Seller and Holdings shall have entered into a
Noncompetition Agreement in the form attached as Exhibit O hereto (the
"Noncompetition Agreement").
8.12 Termination of Employment Agreements and Stock Options. On or
before the Closing Date, all existing consulting and employment agreements and
arrangements between Seller and its employees and consultants, and any related
guarantee or such agreements and arrangements, shall have been terminated. In
addition, all stock options or other interests in Seller or Holdings owned by
Seller employees or consultants shall have been canceled pursuant to a release
agreement
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signed by such employee or consultant, and such employees and consultants shall
have surrendered and relinquished all such stock options or interests for
cancellation.
9. CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE. The obligations of Seller to
sell and transfer the assets under this Agreement are subject to the
satisfaction, at or before the closing, of all the following conditions. Seller
may waive any or all of these conditions in whole or in part without prior
notice.
9.1 Accuracy of Purchaser's Representations and Warranties. All
representations and warranties by Purchaser contained in this Agreement or in
any written statement delivered by Purchaser under this Agreement shall be true
on and as of the Closing as though such representations and warranties were made
on and as of that date.
9.2 Purchaser's Performance. Purchaser shall have performed and
complied with all covenants and agreements, and satisfied all conditions that it
is required by this Agreement to perform, comply with or satisfy, before or at
the Closing.
9.3 Certification By Purchaser. Seller shall have received a
certificate, dated the Closing, executed by Purchaser's president certifying in
such detail as Seller and its counsel may reasonably request, that the
conditions specified in paragraphs 9.1 and 9.2 have been fulfilled.
9.4 Opinion of Purchaser's Counsel. Purchaser shall have furnished
Seller with an opinion, dated the Closing, of Carr & Ferrell LLP, counsel for
Purchaser, in form and substance satisfactory to Seller and its counsel, to the
effect that:
(a) Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of Delaware, has all necessary
corporate powers to own its properties and to carry on its business as now owned
and operated by it, and is duly qualified to do intrastate business and is in
good standing in all jurisdictions in which the nature of Purchaser's business
or of its properties makes such qualification necessary and in which the failure
to be so qualified would have a material adverse effect on Purchaser's financial
conditions or operations;
(b) All corporate proceedings required by law or by the
provisions of this Agreement to be taken by Purchaser on or before the Closing,
in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement, have been duly
and validly taken;
(c) Purchaser has the corporate power and authority to
enter into this Agreement, perform its obligations hereunder and acquire the
Assets for the consideration set forth herein;
(d) Every consent, approval, authorization, or order of
any court or government agency or body that is required for the consummation by
Purchaser of the transactions
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contemplated by this Agreement (other than such consents, approvals,
authorizations or orders which are required to be obtained by Seller or Holdings
hereunder) has been obtained and will be in effect on the Closing;
(e) This Agreement has been duly and validly authorized,
executed and delivered by Purchaser, and is valid and binding upon Purchaser and
enforceable in accordance with its terms, except as limited by bankruptcy and
insolvency laws and by other laws affecting the rights of creditors generally;
(f) The consummation of the transactions contemplated by
this Agreement does not violate or contravene any of the provisions of any
charter, bylaw or resolution of Purchaser or, to the best of counsel's
knowledge, of any indenture, agreement, judgment, or order to which Purchaser is
a party or by which Purchaser is bound.
(g) As of the date hereof, the authorized capital stock of
Purchaser consists of Fifty-five Million (55,000,000) shares of capital stock:
Thirty-five Million (35,000,000) shares of Common Stock, $0.001 par value
("Common Stock"), of which 5,707,000 shares are outstanding; Twenty Million
(20,000,000) shares of Preferred Stock, $0.001 par value, Twelve Million, Six
Hundred Thousand (12,600,000) of which shares are designated as Series A
Preferred Stock ("Series A Preferred Stock"), all of which are issued and will
be outstanding, assuming the sale of $17,000,000 of Purchaser's Series A
Preferred Stock. All such issued and outstanding securities have been duly
authorized and validly issued, are fully paid and nonassessable, and were issued
in compliance with all applicable state and federal laws concerning the issuance
of securities. The rights, privileges and preferences of the Series A Preferred
Stock are as set forth in the Certificate of Incorporation previously delivered
to Seller, and no amendment thereto has been approved by Purchaser's Board of
Directors. Except for the Stockholders Agreement and the Registration Rights
Agreement, there is no other agreement which grants any additional rights to the
Series A Preferred Stock. Purchaser has reserved and authorized the issuance of
Three Million, Three Hundred Seventy One Thousand (3,371,000) shares of Common
Stock for issuance to officers, directors, employees and consultants pursuant to
a stock option and/or purchase plan or other arrangements approved by
Purchaser's Board of Directors. Except for (i) the conversion privileges of the
Series A Preferred Stock (the "Preferred Stock"), (ii) rights of first refusal
granted to the purchasers of the Preferred Stock, (iii) options granted pursuant
to the above-described stock option plan, there are no preemptive rights or
outstanding rights, options, warrants, conversion rights or agreements for the
purchase or acquisition from Purchaser of any shares of its capital stock or any
securities convertible into or ultimately exchangeable or exercisable for any
shares of Purchaser's capital stock.
(h) Neither the execution nor delivery of this Agreement
nor the performance of Purchaser's obligations hereunder will constitute (i) a
default or an event that, with notice or lapse of time or both, would constitute
a default under or violation or breach of Purchaser's certificate of
incorporation or bylaws, or, to the best of such counsel's knowledge, under any
material indenture, license, lease, franchise, mortgage, instrument or other
agreement to which Purchaser is a party immediately prior to the execution and
delivery of this Agreement, or by which it or the properties
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of Purchaser at such time may be bound and which has been identified to such
counsel as a material agreement ("Material Agreement"), or (ii) to the best of
such counsel's knowledge, any event that would permit any party to any Material
Agreement or instrument to terminate it or to accelerate the maturity of any
indebtedness or other obligation of Purchaser, or (iii) to the best of such
counsel's knowledge, an event that would result in the creation or imposition of
any lien, charge, or encumbrance on any asset owned by Purchaser immediately
prior to the execution and delivery of this Agreement; and
In rendering its opinion, counsel for Purchaser may rely, as to factual matters,
on certificates of governmental authorities and officers of Purchaser.
9.5 Termination of Employment Agreements and Stock Options. On or
before the Closing Date, all existing consulting and employment agreements and
arrangements between Seller and its employees and consultants, and any related
guarantee or such agreements and arrangements, shall have been terminated. In
addition, all stock options or other interests in Seller or Holdings owned by
Seller employees or consultants initially hired or engaged by Seller after June
1, 1998, shall have been canceled pursuant to a release agreement signed by such
employee or consultant, and such employees and consultants shall have
surrendered and relinquished all such stock options or interests for
cancellation.
9.6 Absence of Litigation. No action, suit or proceeding before any
court or any governmental body or authority, pertaining to the transaction
contemplated by this Agreement or to its consummation (other than any action,
suit or proceeding instituted by any present or former officer, director,
employee, shareholder or creditor of Seller), shall have been instituted or
threatened on or before the Closing.
9.7 Series A Closing. The closing of the issuance of Series A
Preferred Stock for an aggregate gross purchase price of not less than
$12,000,000 shall be occurring concurrently with the closing of this Agreement.
10 SELLER'S OBLIGATIONS AT CLOSING.
10.1 Seller's Deliveries At Closing. At the Closing, Seller shall
deliver or cause to be delivered to Purchaser:
(a) Instruments of assignment and transfer of all of the
Assets of Seller to be transferred hereunder including, without limitation, (i)
general bills of sale, vesting in Purchaser good and marketable title to all the
assets, properties, goodwill and business referred to in paragraph 1; (ii)
appropriate endorsements and assignments of the accounts receivable, contracts,
leases, licenses, agreements (including confidentiality and similar agreements),
permits, plans, commitments and other binding arrangements included in the
Assets; and (iii) specific bills of sale, endorsements and assignments
transferring to Purchaser the patents, trademarks, copyrights, software
licenses, licenses and other rights of Seller; and
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(b) All software and databases included in the Assets,
either transmitted electronically or delivered by common carrier to a location
outside the State of California designated by the Purchaser prior to the
Closing, in which event Purchaser will duplicate such software and databases
from the materials delivered by the Seller and Purchaser will not return the
original copies to or use them in California; and
(c) The opinion of Seller's counsel, dated the Closing, as
provided for in paragraph 8.4; and
(d) The Noncompetition Agreement, as provided for in
paragraph 8.11.
(e) The certificate of Seller's president, dated the
Closing, as provided for in paragraph 8.3.
Simultaneously with the consummation of the transfer, Seller, through
its officers, agents and employees, will put Purchaser into full possession and
enjoyment of all properties and assets to be conveyed and transferred by this
Agreement.
10.2 Further Assurances. Seller, at any time before or after the
Closing, will execute, acknowledge and deliver any further deeds, assignments,
conveyances and other assurances, documents and instruments of transfer
reasonably requested by Purchaser and will take any other action consistent with
the terms of this Agreement that may reasonably be requested by Purchaser for
the purpose of assigning, transferring, granting conveying and confirming to
Purchaser, or reducing to possession, any or all property and assets to be
conveyed and transferred by this Agreement. If requested by Purchaser, Seller
further agrees to prosecute or otherwise enforce in its own name for the benefit
of Purchaser any claims, rights or benefits that are transferred to Purchaser by
this Agreement and that require prosecution or enforcement in Seller's name. Any
prosecution or enforcement of claims, rights or benefits under this paragraph
shall be solely at Purchaser's expense, unless the prosecution or enforcement is
made necessary by a breach of this agreement by Seller.
11. PURCHASER'S OBLIGATIONS AT CLOSING. At the Closing, Purchaser shall
deliver to Seller the following instruments and documents against delivery of
the items specified in paragraph 10.1:
(a) A cashier's or certified check in the amount of $2,000,000 or, in
the alternative, Purchaser shall cause such amount to be wire transferred to
Seller in accordance with Seller's written instructions;
(b) The Instrument of Assumption;
(c) The opinion of Purchaser's counsel, dated the Closing, as
provided for in paragraph 9.4; and
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(d) The certificate of Purchaser's president, dated the Closing, as
provided for in paragraph 9.3.
12. OBLIGATIONS AFTER CLOSING.
12.1 Seller's and Holdings' Indemnities.
(a) Seller and Holdings shall jointly and severally indemnify,
defend, and hold harmless Purchaser against and in respect of any and all
claims, demands, losses, costs, expenses, obligations, liabilities, damages,
recoveries, and deficiencies, including interest, penalties, and reasonable
attorneys' fees which arise, result from, or relate to (i) any liabilities of
Seller other than the Assumed Liabilities or (ii) any failure by Seller or
Holdings to perform any of their representations, warranties, covenants, or
agreements in this Agreement or in any schedule, certificate, exhibit, or other
instrument furnished or to be furnished by Seller under this Agreement
("Purchaser Losses"). Notwithstanding any other provision of this Agreement,
Seller and Holdings shall not be liable to Purchaser with respect to Purchaser
Losses unless, and then only to the extent that, Purchaser Losses exceed $50,000
in the aggregate. Seller and Holdings agree to pay all Purchaser Losses which
result from the failure of Seller or Holdings to pay liabilities of Seller other
than the Assumed Liabilities without regard to the $50,000 requirement.
(b) Seller and Holdings shall be obligated to indemnify Purchaser
with respect to a claim made under Section 12.1(a)(ii) only for Purchaser Losses
as to which the Purchaser has made a written claim hereunder against Seller or
Holdings within one (1) year after the Closing. The limitation set forth in this
Section 12.1(b) shall not apply to claims for Purchaser Losses based on (i) a
breach of the representations and warranties contained in Section 4.11, which
claims shall survive without limitation of time; or (ii) with respect to
Sections 4.5 and 4.21, which claims shall survive for thirty days after the
statute of limitations period applicable to the particular matter with respect
to which a claim is made.
(c) Seller and Holdings shall not be liable for any Purchaser Losses
described in Section 12.1(a)(ii) to the extent that the aggregate liability of
Seller and Holdings with respect to such Purchaser Losses would exceed the sum
of (i) $2,000,000, plus (ii) the product of $1.35 multiplied by the number of
shares of Common Stock of Purchaser to be issued to Seller pursuant to Section
2(ii) hereof; provided, however, that the foregoing limitation shall not apply
to any Purchaser Losses described in Section 12.1(a)(i).
(d) The first $2,000,000, in the aggregate, recovered by Purchaser
from Seller and/or Holdings for claims made by the Purchaser under Section
12.1(a)(ii) for Purchaser Losses shall be paid by Seller and/or Holdings in
cash. To the extent that Purchaser recovers from Seller and/or Holdings for
claims made under Section 12.1(a)(ii) for Purchaser Losses that, individually or
in the aggregate, exceed $2,000,000, such amount in excess of $2,000,000 shall
be paid by Seller and/or Holdings, as appropriate, in shares of Common Stock of
the Purchaser issued to Seller pursuant to Section 2(ii) hereof, which shares
shall be valued at $1.35 per share for all purposes of determining the number of
shares of Common Stock that are to be delivered by Seller and/or Holdings in
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satisfaction of Purchaser's claims hereunder; provided, however, if, and only to
the extent that, Seller and/or Holdings has transferred shares of Common Stock
of the Purchaser to unaffiliated third parties for fair value such that Seller
and/or Holdings do not then hold sufficient shares of Common Stock of the
Purchaser to pay for such claims raised by Purchaser in excess of $2,000,000,
Seller and/or Holdings shall pay in cash the portion of such excess which is not
discharged through the delivery of shares of Common Stock; provided further,
however, that if Seller and/or Holdings receive notice from Purchaser of claims
for Purchaser Losses in excess of $2,000,000, Seller and/or Holdings shall not
transfer any additional shares of Common Stock if such transfer would result in
Seller and/or Holdings holding Common Stock having a value, in the aggregate, as
determined in accordance with this Section 12.1(d), less than the amount of
Purchaser Losses claimed by Purchaser in good faith that are in excess of
$2,000,000.
12.2 Purchaser's Indemnities.
(a) Purchaser shall indemnify, defend, and hold harmless Seller
against and in respect of any and all claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries, and deficiencies, including
interest, penalties, and reasonable attorneys' fees which arise from, result
from or relate to any failure of Purchaser to satisfy an Assumed Liability or
any breach of, or failure by Purchaser to perform any of its representations,
warranties, covenants, or agreements in this Agreement or in any schedule,
certificate, exhibit, or other instrument furnished or to be furnished by Seller
under this Agreement ("Seller Losses"). Notwithstanding any other provision of
this Agreement, Purchaser shall not be liable to Seller with respect to Seller
Losses other than for failure to satisfy Assumed Liabilities unless, and then
only to the extent that such Seller Losses exceed $50,000 in the aggregate.
(b) Purchaser shall be obligated to indemnify Seller and Holdings
with respect to a claim made under Section 12.2(a)(ii) only for Seller Losses as
to which the Seller or Holdings has made a written claim hereunder against
Purchaser within one (1) year after the Closing. The limitation set forth in
this Section 12.1(b) shall not apply to claims for Seller Losses based on a
failure to satisfy Assumed Liabilities, which claims shall survive for thirty
days after the statute of limitations period applicable to the particular matter
with respect to which a claim is made.
12.3 Exclusive Remedy, Limitation on Damages. The parties agree that
the remedies set forth in Sections 12.1 and 12.2 shall be the parties' exclusive
remedies for any claims covered by those Sections. In no event shall any party
be liable for loss of profit or other indirect, special or consequential
damages.
12.4 Change of Seller's Name. Seller and Holdings agrees that after
the Closing it shall not use or employ in any manner directly or indirectly
"BrightStreet.com, Inc." or other business name or style involving the word
"BrightStreet", and that it will take and cause to be taken all necessary action
by its Board of Directors, shareholders and any other persons in order to make
this change in Seller's name within 60 days of the Closing, it being agreed that
Seller and Holdings shall
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not use the name "BrightStreet" in connection with the sale of any products
after the date of the Closing.
12.5 Sales and Use Tax on Prior Sales. Seller agrees to use its best
efforts to furnish to Purchaser within 90 days following the Closing a clearance
certificate from the California Board of Equalization and any related
certificates that Purchaser may reasonably request as evidence that all sales
and use tax liabilities of Seller accruing before the Closing have been fully
satisfied or provided for. Within 120 days after the Closing, if Purchaser
receives a notice from the California Board of Equalization of an amount that
must be paid as a condition of the issuance of such certificate, Seller shall
immediately, upon written notice, pay such amount to Purchaser.
12.6 Securities-Related Covenants. In the event that Purchaser raises
less than $17 million in gross proceeds at the Series A Round Closing described
in Section 9.7, then at each subsequent Series A Round closing up to an
aggregate of $17 million, Purchaser shall issue subsequent Shares to Sellers to
maintain Seller's 12% interest calculated as described in Section 2(ii) above.
In the event that Purchaser raises less than $17 million in gross proceeds in
the Series A Round, then in all subsequent rounds of financings which Purchaser
completes until it raises an aggregate total of $17 million in gross proceeds,
Seller's interest in Purchaser (on a fully-diluted, as converted to Common Stock
basis, taking into account all options, warrants, restricted stock grants and
convertible securities outstanding as of the Closing Date) shall not be reduced
below 12% of the outstanding capital stock of Purchaser. Purchaser further
covenants that if the number of shares of outstanding common stock, options,
warrants, restricted stock grants and convertible securities issued or granted
to or reserved for future issuance (including pursuant to any employee benefit
plan or similar arrangement) for officers, directors, consultants, employees and
agents of Purchaser as of October 31, 1999 (the "Management Team") represent
more than 27.07% of the outstanding capital stock of Purchaser upon consummation
of the Series A Round (calculated on a fully-diluted, as converted to Common
Stock basis, assuming the sale of $17 million in the Series A Round) (the
"Management Interest"), then Purchaser shall issue to Seller, in addition to the
Shares, that number of shares of Purchaser Common Stock equal to 3% of the
outstanding capital stock of Purchaser (calculated following the Series A Round
on a fully-diluted, as converted to Common Stock basis). In addition, with
respect to all shares of Purchaser Common Stock issued to Seller as contemplated
in this Agreement, Seller shall be granted such additional registration,
pre-emptive and similar rights pursuant to an Investor's Rights Agreement or
similar agreement(s) that are afforded the purchasers of securities in the
Series A Round. Purchaser hereby represents and warrants that there are no
contracts, agreements, arrangements or understandings, oral or written, which
grant or permit the Management Team to purchase securities of the Company upon
consummation of the Series A Round except as disclosed in Schedule 1 hereto.
13. EXPENSES. Each of the parties shall pay all costs and expenses incurred
or to be incurred by it in negotiating and preparing this Agreement and in
closing and carrying out the transactions contemplated by this Agreement.
Notwithstanding the foregoing, in the event the transaction contemplated by this
Agreement is not consummated as a result of a breach or default of any
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representation, warranty or obligation hereunder, the breaching or defaulting
party shall bear all expenses of the other party associated with the execution
and delivery of this Agreement.
14. FORM OF AGREEMENT.
14.1 Effect of Headings. The subject headings of the paragraphs and
subparagraphs of this Agreement are included for purposes of convenience only,
and shall not affect the construction or interpretation of any of its
provisions.
14.2 Entire Agreement; Modification; Waiver. This Agreement
constitutes the entire agreement between the parties pertaining to the subject
matter contained in it and supersedes all prior and contemporaneous agreements,
representations and understandings of the parties. No supplement, modification
or amendment of this Agreement shall be binding unless executed in writing by
all the parties. No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute, a waiver of any other provisions, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall be
binding unless executed in writing by the party making the waiver.
14.3 Counterparts. This Agreement may be executed contemporaneously
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
15. PARTIES.
15.1 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 or
subrogation or action over against any party to this Agreement.
15.2 Assignment. This Agreement and each and every covenant, term and
condition herein is binding upon and inures to the benefit of the parties hereto
and their respective successors (including, any succeeding owners of the
Shares), but neither this Agreement nor any rights or obligations hereunder may
be assigned, directly, indirectly, voluntarily or by operation of law, by Seller
or Holdings without the prior written consent of Purchaser.
16. REMEDIES.
16.1 Recovery of Litigation Costs. If any legal action or any
arbitration or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and
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other costs incurred in that action or proceeding, in addition to any other
relief to which it or they may be entitled.
16.2 Conditions Permitting Termination. Either party may on the
Closing terminate this Agreement, without liability to the other:
(a) if any bona fide action or proceeding shall be pending
against the other party on the Closing that is reasonably likely to result in an
unfavorable judgment, decree or order that would prevent or make unlawful the
carrying out of this Agreement;
(b) if the conditions to such party's obligations
hereunder have not been satisfied by the Closing (including any postponement or
extension thereof);
(c) the Closing has not occurred prior to January 3, 2000;
provided that the terminating party is not in breach of any of its obligations
hereunder and is otherwise ready, willing and able to perform its obligations in
connection with consummate the sale of assets contemplated herein.
16.3 Defaults Permitting Termination. If either Purchaser or Seller
materially defaults in the due and timely performance of any of its warranties,
covenants, or agreements under this Agreement, the nondefaulting party or
parties may on the Closing Date give notice of termination of this Agreement, in
the manner provided in Section 18. The notice shall specify with particularity
the default or defaults on which the notice is based. The termination shall be
effective five days after the Closing, unless the specified default or defaults
have been cured on or before this effective date for termination.
16.4 Specific Performance. In addition to any and all remedies
hereunder or under applicable law, all of which shall be cumulative and
exercisable concurrently, any party hereto shall be entitled to seek injunctive
relief and/or an award compelling specific performance from a court of competent
jurisdiction or for the purpose of enforcing another party's obligations
hereunder stopping or preventing any existing or anticipated breach of the terms
of this Agreement, which rights shall not preclude the additional right of
Purchaser recovering damages for any breach.
17. NATURE AND SURVIVAL OF REPRESENTATIVES AND WARRANTIES. All
representations, warranties, covenants, and agreements of the parties contained
in this Agreement, or in any instrument, certificate, opinion or other writing
provided for in it, shall survive the Closing.
18. NOTICES. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given
on the date of service or delivery if served personally on or delivered to the
party to whom notice is to be given via service or nationally recognized
overnight courier or confirmed facsimile transmission, or on the third day after
mailing if mailed to the party to whom notice is to be given, by first class
mail, registered or certified, postage prepaid, and properly addressed as
follows:
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To Seller or Holdings: Net Value Holdings, Inc.
2 Penn Center Plaza, Suite 605
Philadelphia, Pennsylvania 19102
Attention: Andrew Panzo
with a copy to: Klehr, Harrison, Harvey, Branzburg & Ellers LLP
260 S. Broad Street
Philadelphia, PA 19102
Fax: (215) 568-6603
Attention: Michael C. Forman, Esq.
To Purchaser: Promotions Acquisition, Inc.
480 San Antonio Road, Suite 210
Mountain View, California 94040
Attention: R. Scott Wills
with a copy to: Barry A. Carr, Esq.
Carr & Ferrell, LLP
2225 East Bayshore Road, Second Floor
Palo Alto, California 94303
Fax: 650-812-3444
Any party may change its address for purposes of this paragraph by giving the
other parties written notice of the new address in the manner set forth above.
19. GOVERNING LAW. This Agreement shall be construed in accordance with, and
governed by, the laws of the State of Delaware, excluding the body of law know
as conflicts of law.
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IN WITNESS WHEREOF, the parties to this Agreement have duly executed it
on the day and year first above written.
PROMOTIONS ACQUISITION, INC., BRIGHTSTREET.COM, INC.,
a Delaware corporation a Delaware corporation
By:/s/ R. Scott Wills By:/s/ Andrew P. Panzo
------------------------- ----------------------
R. Scott Wills, President Andrew P. Panzo, Chief Executive Officer
NET VALUE HOLDINGS, INC.,
a Delaware corporation
By:/s/ Andrew P. Panzo
----------------------
Andrew P. Panzo, President
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SCHEDULE OF EXHIBITS & SCHEDULES
EXHIBIT A - Financial Statement
EXHIBIT B - Non-Assigned and Nonassignable Agreements
EXHIBIT C - Assumed Liabilities
EXHIBIT D - Allocation of Purchase Price
EXHIBIT E - Exceptions to Representations and Warranties
EXHIBIT F - Description of Owned and Leased Tangible
Personal Property
EXHIBIT G - Data Bases and Computer Software
EXHIBIT H - Intellectual Property
EXHIBIT I - Domain Names
EXHIBIT J - Employees and Employment Compensation,
Employment Contracts, Collective Bargaining
Agreements and Other Documents Conferring
Employee Benefits
EXHIBIT K - Material Contracts
EXHIBIT L - Powers of Attorney, Bank Accounts and Safe
Deposit Boxes
EXHIBIT M - Necessary Consents
EXHIBIT N - Material Agreements
EXHIBIT O - Noncompetition Agreement
SCHEDULE 1 - List of Purchaser Securityholders
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Schedule 1
List of Purchaser Securityholders
Common Stock: No. of Shares
R. Scott Wills 3,496,000
Greg Roberts 1,621,000
Terry Pittman 220,000
Mark LaPolla 220,000
Tina Star 48,000
Barry Carr 60,000
Ajit Shah 40,000
Baldwin Chang 2,000
Subtotal: 5,707,000
Options/Warrants:
Joe Wofford 60,000
CJ Butcher 40,000
Marc Paris 30,000
Belle Marino 20,000
Danny Thorton 20,000
Monica Noble 20,000
Dan Marshall 20,000
Richard Gale 16,000
Heidi Stamper 2,000
Jennifer Vendetti 14,000 starts 11/15
Melanie Sheehy 40,000 starts 11/17
Anne Jennings 20,000 starts 11/22
Subtotal: 302,000
Series A Preferred Stock:
Cox Target Media, Inc. 7,411,764
Central Newspapers, Inc. 741,393
The McClatchy Company 1,112,089
Sandler Capital Partners IV, L.P. 1,183,704
Sandler Capital Partners IV FTE, L.P 482,963
Sandler Internet Partners, L.P. 1,668,087
Subtotal: 12,600,000
TOTAL: 18,609,000
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Exhibit 10.30
<PAGE>
STOCKHOLDERS AGREEMENT
BY AND AMONG
PROMOTIONS ACQUISITION, INC.,
AND CERTAIN STOCKHOLDERS
Dated as of December 3, 1999
<PAGE>
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "Agreement"), dated as of December
__, 1999, by and among Promotions Acquisition, Inc., a Delaware corporation (the
"Company"), Cox Target Media, Inc. ("Cox"), Sandler Capital Partners IV, L.P.
("SCP IV"), Sandler Capital Partners IV FTE, L.P. ("SCP IV FTE"), Sandler
Internet Partners, L.P. ("SIP"), The McClatchy Company, a Delaware corporation
("McClatchy"), Central Newspapers, Inc., a Arizona corporation ("Central") (Cox,
SCP IV, SCP IV FTE, SIP, McClatchy and Central collectively referred to herein,
together with their transferees, as the "Investors"), and those parties listed
on Schedule 1 attached hereto (the "Existing Stockholders").
WHEREAS, concurrently with the execution and delivery of this Agreement
and pursuant to a Stock Purchase Agreement, dated as of December __, 1999 (the
"Stock Purchase Agreement"), by and among the Company and the Investors, the
Company has agreed to issue and sell to the Investors, and the Investors have
severally agreed to purchase from the Company, certain shares of the Company's
Series A Convertible Preferred Stock, par value $0.001 per share (the "Series A
Preferred Stock"), subject to the terms and conditions set forth in the Stock
Purchase Agreement;
WHEREAS, the obligations of the Investors to enter into the Stock
Purchase Agreement and purchase the Series A Preferred Stock is conditioned upon
the execution and delivery by each of the parties hereto of this Agreement; and
WHEREAS, the parties hereto desire to set forth their mutual agreement
regarding various matters relating to the Company, including certain
restrictions with respect to the transfer and ownership of shares of the
Company's capital stock, corporate governance and certain other matters.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Affiliate" means, with respect to any Person, any Person that,
directly or indirectly, controls, is controlled by or is under common control
with such first-named Person. For the purposes of this definition, "control"
(including with correlative meanings, the terms "controlled by" and "under
common control with") shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether
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through the ownership of voting securities or by contract or otherwise. In
addition, the Company shall not be deemed to be an "Affiliate" of any Investor.
"Board" means the Board of Directors of the Company, as constituted
from time to time.
"Bylaws" means the Company's Bylaws, as the same may hereafter be
amended in accordance with applicable laws and the terms thereof and hereof.
"Commission" means the U.S. Securities and Exchange Commission.
"Common Stock" means the common stock, par value $0.001 per share, of
the Company.
"Competitor" means any of the following or their controlled Affiliates:
ClipperMagazine, Inc., CouponClipper.com, Money Mailer LLC, H.O.T. Coupons LLC,
Advo, Inc., Harte-Hanks, Inc.
"Co-Sale Shares" means the shares of capital stock of the Company
proposed to be Transferred to a Third Party subject to Section 2.2(a) of this
Agreement.
"Co-Seller" has the meaning set forth in Section 2.2(c) of this
Agreement.
"Election Notice" has the meaning set forth in Section 2.2(c) of this
Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
including the rules and regulations of the Commission promulgated thereunder.
"Existing Stockholder Shares" means, collectively: (i) the Restricted
Shares and (ii) any other shares of Common Stock held by any Existing
Stockholder or any Permitted Transferee thereof, including shares of Common
Stock issuable upon conversion of any option, warrant or other convertible
security granted or issued by the Company, whether, in the case of each of the
foregoing clauses (i) and (ii), outstanding as of the date of this Agreement or
granted or issued thereafter.
"Fully-Diluted Basis" gives effect, without duplication, to (i) all
shares of Common Stock outstanding at the time of determination plus (ii) all
shares of Common Stock issuable upon conversion of the Series A Preferred Stock
or any other convertible securities of the Company or upon the exercise of any
option, warrant or similar right (whether or not presently exercisable) to
acquire shares of Common Stock, as if such Series A Preferred Stock or other
convertible securities had been so converted or such option, warrant or similar
right had been so exercised, including the effect of stock splits, stock
dividends, combinations, recapitalizations, reclassifications, mergers,
consolidations or other similar events previously occurring.
"Investor Group" means the Investors and their transferees who have
acquired Series A Preferred Stock in accordance with this Agreement, as a group.
"Issuance Notice" has the meaning set forth in Section 2.3(c) of this
Agreement.
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"Management Stockholders" means Scott Wills, Greg Roberts and those
Existing Stockholders who are designated on Schedule 1 attached hereto as
Management Stockholders.
"Notice of Transfer" has the meaning set forth in Section 2.2(b) of
this Agreement.
"Participation Notice" has the meaning set forth in Section 2.3(c) of
this Agreement.
"Permitted Transferee" has the meaning set forth in Section 2.4(b) of
this Agreement.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, trust, estate, limited liability
partnership, joint stock company, unincorporated organization or government or
any agency or political subdivision thereof.
"Purchase Offeror" has the meaning set forth in Section 2.2(b) of this
Agreement.
"Qualified Public Offering" means the closing of a firm commitment
underwritten public offering, pursuant to an effective registration statement
under the Securities Act, covering the offer and sale by the Company of Common
Stock to the public in which the initial public offering price per share of
Common Stock is at least equal to $[4.05] per share of Common Stock (subject to
appropriate adjustment for stock splits, stock dividends, stock combinations,
reclassifications, recapitalizations, mergers, consolidations or other similar
events) and which results in aggregate gross proceeds to the Company of at least
$20,000,000.
"Restricted Shares" means all shares of Common Stock held by the
Management Stockholders and any Permitted Transferees of the Management
Stockholders, including shares of Common Stock issuable upon conversion of any
option, warrant or other convertible security granted or issued by the Company,
whether outstanding as of the date of this Agreement or granted or issued
thereafter for any reason, including, without limitation, any shares of capital
stock subsequently issued to such Management Stockholder by reason of a stock
split, stock dividend, stock combination, recapitalization, reclassification,
merger, consolidation or other similar event.
"Securities Act" means the Securities Act of 1933, as amended,
including the rules and regulations of the Commission promulgated thereunder.
"Seller" has the meaning set forth in Section 2.2(b) of this Agreement.
"Series A Preferred Stock" means all authorized and issued shares of
the Company's Series A Convertible Preferred Stock, par value $0.001 per share.
"Stock Purchase Agreement" means that certain Stock Purchase Agreement,
dated as of December 3, 1999, by and among the Company and the Investors.
"Stockholders" means the Investors, the Existing Stockholders and such
other Persons that become parties to this Agreement pursuant to the terms of
this Agreement.
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"Subsidiary" means, with respect to the Company, (i) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by the Company and/or one or
more Subsidiaries of the Company and (ii) any partnership, limited liability
company, association, joint venture or other entity (a) in which the Company
and/or one or more Subsidiaries of the Company has more than a 50% equity
interest at the time or (b) as to which the Company and/or one or more of its
Subsidiaries serves as general partner or manager or otherwise has the power to
direct or cause the direction of the management and policies of such entity by
contract or otherwise.
"Third Party" has the meaning set forth in Section 2.2(a) of this
Agreement.
"Transfer" (including with correlative meanings the terms
"Transferred", "Transferee" and "Transferor") means any transfer, sale,
assignment, pledge, encumbrance or other disposition of Existing Stockholder
Shares, or any portion of the ownership interest therein, irrespective of
whether any of the foregoing are effected voluntarily or involuntarily, by
operation of law or otherwise, or whether inter vivos or upon death.
ARTICLE 2
TRANSFERS OF STOCK
2.1 Transfer of Shares by Management Stockholders.
(a) No Management Stockholder shall be permitted to Transfer
any Restricted Shares at any time during the period between the date hereof and
the date that is three years from the date hereof (the "Lockup Period");
provided, however, that a Management Stockholder may Transfer Restricted Shares
during the Lockup Period in accordance with the provisions of Section 2.4(a).
After the expiration of the Lockup Period, a Management Stockholder shall be
permitted to transfer its shares of Common Stock subject to the provisions of
Section 2.2.
2.2 Tag-Along Rights.
(a) Each of BrightStreet.com, Inc., Net Value Holdings, Inc.
and, after expiration of the Lockup Period, Scott Wills, Greg Roberts and any
other Management Stockholder shall be permitted to Transfer shares of capital
stock of the Company (or any interest therein) to any other Person that is not a
Permitted Transferee of such Transferor Stockholder (a "Third Party") only if
such Transfer is made in accordance with this Section 2.2. Such shares of
capital stock being Transferred pursuant to this paragraph (a) are hereinafter
referred to as "Co- Sale Shares."
(b) The Transferor Stockholder(s) (the "Seller") seeking to
effect a Transfer of Co-Sale Shares to a Third Party shall deliver a written
notice (the "Notice of Transfer") to the Company prior to making any such
Transfer of Co-Sale Shares. The Notice of Transfer will
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contain a copy of the definitive documentation pursuant to which the Co-Sale
Shares will be Transferred and will state the following: (i) the Seller's bona
fide intention to Transfer the Co- Sale Shares; (ii) the name and address of the
prospective transferee (the "Purchase Offeror"); (iii) the number of Co-Sale
Shares to be Transferred; (iv) the expected closing date of the transaction; and
(v) confirmation that the Purchase Offeror has been informed of the provisions
of this Section 2.2 and has agreed to purchase any and all shares of Preferred
Stock and Common Stock proposed to be sold in accordance with the terms of this
Section 2.2, but no more than the number of shares of Preferred Stock and Common
Stock that the Purchase Offeror had originally offered to purchase. The Company
shall promptly, and in any event within five (5) days after receipt of such
Notice of Transfer, deliver a copy of such Notice of Transfer to the Investors.
(c) Any Investor may elect to participate in the Transfer
contemplated by paragraph (b) above by delivering a written notice (an "Election
Notice") to the Seller and the Company within ten (10) days after receipt by
such Stockholder of such Notice of Transfer, and each such Investor (each a
"Co-Seller") may elect to Transfer in such contemplated Transfer up to that
number of shares of Preferred Stock or Common Stock, as the case may be
(referred to herein as "Tag-Along Shares"), that represents on a Fully-Diluted
Basis, the number of shares of Common Stock equal to the product of (a) the
number of shares of Common Stock represented by the Co-Sale Shares proposed to
be sold by the Seller multiplied by (b) a fraction, the numerator of which is
the total number of shares of Common Stock issued and/or issuable to such
Co-Seller on a Fully-Diluted Basis and the denominator of which is the total
number of shares of Common Stock issued and/or issuable to the Seller and to all
Co-Sellers on a Fully- Diluted Basis. If any Investor fails to deliver an
Election Notice by the end of the tenth (10th) day after receipt of a Notice of
Transfer, such Investor shall be deemed to have elected not to participate in
the Transfer covered by such Election Notice.
(d) Each Co-Seller participating in a Transfer shall deliver
to the Purchase Offeror at a closing to be held at the offices of the Company
(or such other place as the parties agree), one or more certificates, properly
endorsed for Transfer, which represent the number of Tag-Along Shares which the
Co-Seller elects to Transfer pursuant to this Section 2.2. Such certificates
shall be transferred by the Seller to the Purchase Offeror simultaneously with
the consummation of the Transfer of the Co-Sale Shares pursuant to the terms and
conditions specified in the Notice of Transfer against receipt by the Co-Sellers
of the proceeds of the Transfer of their respective Tag-Along Shares. If there
is to be an agreement of sale or similar instrument with respect to the proposed
Transfer (a "Sale Agreement"), the Seller will furnish a copy of the Sale
Agreement in its then current form to the Company with the Notice of Transfer,
and the Company shall furnish a copy thereof to the other Stockholders. As
promptly as practicable after receipt of an Election Notice, if the Sale
Agreement has not previously been executed, the Seller shall furnish the
Co-Sellers with successive drafts of the Sale Agreement, if any, as available.
As a condition to making an Election Notice and being eligible to participate in
a Transfer, each Co-Seller shall represent and warrant to the Purchase Offeror
with respect to the Tag-Along Shares being disposed of by such Co-Seller that
the transferee of the Tag-Along Shares (or interests therein) is receiving good
and marketable title to such Tag-Along Shares (or interests therein), free and
clear of all pledges, security interests or other liens created by such
Co-Seller. Each Co-Seller shall accept a proportionate delegation of any duties
of the Seller under any Sale Agreement (including any indemnification
obligations); provided, however, that
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(a) no Co-Seller need accept joint liability with respect to representations,
warranties or covenants (including without limitation indemnification
obligations) of the Seller or any other Co-Sellers, it being agreed that such
Sale Agreement shall provide that the liability of such Co- Seller in connection
with the sale shall be several only and shall not in any event exceed such
Co-Seller's pro rata share of any liability and (b) each Co-Seller shall be
required only to make representations or warranties to, or enter into
indemnification or contribution arrangements with, the Purchase Offeror relating
to the Sale Agreement which are reasonable in the context of the proposed sale
including, without limitation, a representation and warranty with respect to the
shares or other equity interests being disposed of by such Co-Seller that the
Transferee of the shares or other equity interests evidenced thereby is
receiving good and marketable title to such shares or other equity interests,
free and clear of all pledges, security interests or other liens. The Seller
shall use its commercially reasonable efforts to limit the liability of each
Co-Seller participating in the sale to the proceeds received by such Co-Seller.
To the extent that any prospective Transferee or Transferees prohibit assignment
and delegation of such Sale Agreement or otherwise refuse to purchase any
Tag-Along Shares from a Co-Seller, the Seller shall not sell to such prospective
Transferee or Transferees any interest in the Company unless and until,
simultaneously with such sale, the Seller shall purchase from such Co-Seller the
Tag- Along Shares such Co-Seller would otherwise have been able to sell
hereunder for the same consideration and on the same terms and conditions as the
proposed transfer described in the Notice or Transfer.
(e) The exercise or non-exercise of the rights of the
Investors hereunder to participate in one or more Transfers of Co-Sale Shares
made by a Seller shall not adversely affect their rights to participate in
subsequent Transfers of Co-Sale Shares by Investors which meet the conditions
specified in this Section 2.2.
(f) Any Transfer made pursuant to paragraph(a) of this Section
2.2 shall be consummated on the terms set forth in the Notice of Transfer. The
Company shall use reasonable efforts to aid such closing, including, but not
limited to, exchanging a Co-Seller's certificates for new certificates in
requested denominations.
2.3 Preemptive Rights.
(a) The Company hereby grants to each Investor and to
BrightStreet.com, Inc. (each, a "Preemptive Right Holder") a preemptive right to
purchase such Preemptive Right Holder's pro rata share of all or any part of any
New Securities (as defined below) which the Company may, from time to time,
propose to issue and sell. Each Preemptive Right Holder's pro rata share, for
purposes of this repurchase right, is a fraction equal to the number of shares
of Common Stock issued or issuable to such Preemptive Right Holder on a
Fully-Diluted Basis divided by the total number of shares of Common Stock of the
Company on a Fully-Diluted Basis then outstanding.
(b) Except as set forth in the next sentence, "New Securities"
shall mean any and all shares of capital stock of the Company, including Common
Stock, whether now authorized or not, and any securities containing rights or
options to purchase any shares of Common Stock, and securities of any type
whatsoever that are, or may become, convertible into
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or exchangeable for any shares of Common Stock. Notwithstanding the foregoing,
"New Securities" does not include: (i) securities to be offered to the public
pursuant to a Qualified Public Offering; (ii) shares of Common Stock issued on
conversion of outstanding shares of Preferred Stock; (iii) stock issued pursuant
to any rights or agreements, including without limitation convertible
securities, options and warrants, provided that the preemptive rights
established by this Section 2.3 shall apply with respect to the initial
issuance, sale or grant by the Company of interests in its capital stock
pursuant to such rights or agreements; (iv) stock issued to management and
employees of the Company pursuant to the Company's 1999 Stock Option Plan and
any other employee benefit plans or agreements that may be approved after the
date hereof by the Board; (v) stock issued pursuant to credit or financing
arrangements that may be approved after the date hereof by the Board; (vi) stock
issued in connection with any stock split, stock dividend, recapitalization or
reclassification by the Company that has been approved by the Board; (vii)
Common Stock that is being issued concurrently with the execution of this
Agreement by the Company to BrightStreet.com, Inc. in connection with that
certain Agreement for Purchase and Sale of Assets, dated as of December 3, 1999,
among the Company, BrightStreet.com, Inc. and Net Value Holdings, Inc. or (viii)
the Series A Preferred Stock that is being issued to the Investors concurrently
with the execution of this Agreement by the Company in connection with the
transactions contemplated by the Stock Purchase Agreement.
(c) In the event the Company proposes to undertake an issuance
of New Securities, it shall give each Preemptive Right Holder at least thirty
(30) days prior written notice of its intention, describing the type of New
Securities, and the price and terms upon which the Company proposes to issue the
same (each, an "Issuance Notice"). Each Preemptive Right Holder shall be
entitled to purchase up to its respective pro rata share of such New Securities
for the same price and upon the same terms specified in the Issuance Notice and
at the same time as the securities are issued by delivery of written notice to
the Company of such election within fifteen (15) days after receipt of the
Issuance Notice and stating therein the quantity of New Securities to be
purchased. (each, a "Participation Notice"). If a Preemptive Right Holder has
elected to purchase any New Securities pursuant to this paragraph (c), the sale
of such securities shall be consummated as soon as practicable (but in any event
within thirty (30) days) after the delivery of the Participation Notice.
(d) If a Preemptive Right Holder fails to exercise such
preemptive right within said fifteen (15) 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 sixty (60) days from the date of said agreement) to sell the New
Securities not elected to be purchased by such Preemptive Right Holder at the
price and upon the terms no more favorable to the purchasers of such securities
than specified in the Issuance Notice. In the event the Company has not sold the
New Securities or entered into an agreement to sell the New Securities within
said ninety (90) day period (or sold and issued New Securities in accordance
with the foregoing within sixty (60) days from the date of said agreement), the
Company shall not thereafter issue or sell any of such New Securities, without
first offering such securities in the manner provided above.
(e) The preemptive rights granted under this Section 2.3 shall
expire upon the closing of, and shall not apply to, a Qualified Public Offering.
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2.4 Permitted Transfers.
(a) The transfer restrictions provided for in this Article 2
with respect to any Stockholder will not apply to the following Transfers:
(i) Any Transfer of Restricted Shares by a Management
Stockholder to the spouse, child or heir, legatee or executor or administrator
of the estate of such Management Stockholder, or the trustee of a trust or a
family partnership created for the benefit of such Management Stockholder or any
such other Person, without consideration in money or money's worth, such as by
gift, bequest or devise; provided, however, that as a condition precedent to any
such Transfer, such Transferee (and, in the case of the death of a Management
Stockholder, the executor or administrator of his or her estate) shall have
agreed in writing that the transfer restrictions provided for in this Article 2
will thereafter be fully binding and enforceable against such Transferee and
such Transferred Restricted Shares and shall have executed and delivered to the
Company, as a condition to its acquisition of such Restricted Shares, an
instrument in form and substance reasonably satisfactory to the Company
confirming that such Transferee takes such Restricted Shares, or interest
therein, subject to, and agrees to be bound by, all the terms, conditions and
obligations of this Agreement.
(ii) Any Transfer of Restricted Shares by a Management
Stockholder to the Company pursuant to any agreements approved by the Board
relating to the repurchase of such Restricted Shares.
(iii) Any Transfer of Restricted Shares by Scott Wills or
Greg Roberts to the Company pursuant to an Indemnification and Stock Pledge
Agreement, dated as of December 3, 1999, by and between Scott Wills, Greg
Roberts, and the Company, or to Holdings pursuant to a Certificate and
Indemnification Agreement, dated as of December 3, 1999, by and between Scott
Wills, Greg Roberts and Holdings, and an Indemnification Agreement, dated as of
December 3, 1999, by and between Scott Wills, Greg Roberts and Holdings.
(iv) Any Transfer made by any Investor to any Person upon
or immediately following the sale of all or substantially all the assets of the
Company.
(v) Any Transfer made by any Investor to any other
Person; provided, however, that as a condition precedent to any such Transfer,
such Transferee shall have executed and delivered to the Company an instrument
in form and substance reasonably satisfactory to the Company confirming that
such Transferee agrees to be bound by, all the terms, conditions and obligations
of this Agreement applicable to the Transferor Investor.
(vi) Any Transfer by an Existing Stockholder, other than
a Management Stockholder, to any Affiliate; provided, however, that as a
condition precedent to any such Transfer, such Transferee shall have executed
and delivered to the Company an instrument in form and substance reasonably
satisfactory to the Company confirming that such Transferee agrees to be bound
by, all the terms, conditions and obligations of this Agreement applicable to
the Transferor Existing Stockholder.
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(b) All Transferees permitted under this Section 2.4 are
collectively referred to herein as "Permitted Transferees."
(c) Notwithstanding the foregoing provisions of this Section 2.4,
the restrictions imposed by Article 2 upon the Transfer by any Stockholder of
any part of, or interest in, the Company's capital stock shall terminate upon
the closing of, and shall not apply to, a Qualified Public Offering; provided,
however, that such termination shall not be deemed to affect any customary
lockup arrangements that any Stockholder may have entered into with the Company
or its underwriters in connection with a Qualified Public Offering. In
connection with the termination of restrictions on Transfer of the Company's
capital stock provided for hereunder, the holder of a certificate representing
such capital stock as to which such restrictions shall have terminated shall be
entitled to receive from the Company, without expense to such holder, one or
more new certificates for such capital stock not bearing the restrictive legend
set forth in Section 2.5.
2.5 Restrictive Legend. Each certificate for Common Stock issued to
each Stockholder other than the Investors (whose stock certificates shall be
legended as provided under the Stock Purchase Agreement), or to any subsequent
Permitted Transferee of such certificate, shall be stamped or otherwise
imprinted with the following restrictive legend:
"The securities represented by this certificate have been acquired for
investment and have not been registered pursuant to the Securities Act of 1933,
as amended (the "Act"), or any applicable state statutes. Such securities may
not be sold, transferred or otherwise disposed of unless (a) (i) a registration
statement under the Act or applicable state securities laws shall have become
effective with regard thereto, or (ii) an exemption from registration exists
under the Act (or the regulations promulgated thereunder) and applicable state
securities laws and such exemption is applicable thereto, and (b) such transfer
otherwise complies with that certain Stockholders Agreement, dated as of
December __, 1999, by and among Promotions Acquisition, Inc. and certain of its
stockholders."
Each such certificate also shall be stamped or imprinted with any
legend required by the State of California, including any legend required by the
California Department of Corporations and Sections 417 and 418 of the California
Corporations Code or any other state securities laws. Any legend endorsed on a
certificate as described herein and the stop transfer instructions with respect
to such legended shares shall be removed, and Company shall issue a certificate
without such legend to the holder of such shares if such shares are registered
and sold under the Securities Act of 1933 and a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933 is available or if such
holder satisfies the requirements of Rule 144 promulgated thereunder.
2.6 Right of First Offer. If the Company desires (i) to effect a
merger, consolidation or similar business combination with a Competitor as a
result of which the stockholders of the Company immediately prior to such
transaction would not continue to hold more than 50% of the total voting equity
of the surviving entity resulting from such transaction, or (ii) to effect a
sale of all or substantially all of the assets of the Company to any Competitor,
then the following procedures shall apply:
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(a) Prior to effecting any of the foregoing transactions, the
Company shall first submit to Cox a written offer to effect any such merger,
consolidation or other business combination transaction with Cox, or to sell
such assets to Cox, as the case may be, with such written offer by the Company
to specify the value of the capital stock and/or the assets of the Company, as
the case may be, upon which such a transaction would be based (the "ROFO
Valuation").
(b) Cox shall have the exclusive right (the "Right of First Offer")
to accept or reject such offer at any time during the thirty (30) day period
following delivery of written notice from the Company to Cox of such offer.
(c) In the event that Cox rejects such offer within said thirty
(30) day period, the Company shall have ninety (90) days thereafter to enter
into a binding agreement for a merger, consolidation or similar business
combination, or for a sale of all or substantially all of the assets of the
Company, at a price that does not reflect a value of the capital stock or assets
of the Company, as the case may be, that is lower than the ROFO Valuation. In
the event the Company has not entered into such a binding agreement within said
ninety (90) day period, the Company shall not thereafter enter into a binding
agreement for a merger, consolidation or similar business combination or a sale
of all or substantially all of the assets of the Company, without first
complying with the procedures set forth above in this Section 2.6.
(d) The Right of First Offer granted to Cox under this Section 2.6
shall expire upon the earlier to occur of (i) the date as of which Cox and its
Affiliates cease to hold, in the aggregate, at least 20% of the Common Stock
then outstanding, determined on a Fully-Diluted Basis, or (ii) the consummation
of a Qualified Public Offering.
2.7 Transfer of Rights. The rights granted to each Investor and to the
Existing Stockholders under this Article 2 shall inure to the benefit of any of
its respective Permitted Transferees as though such Permitted Transferee were
the same type of Stockholder as the Transferor; provided, however, that such
Permitted Transferee shall have complied with the terms and conditions of
Section 2.5 hereof to the extent applicable thereto.
ARTICLE 3
BOARD OF DIRECTORS
3.1 Composition of Board of Directors. Each of the parties hereto
agrees to vote all of the shares of capital stock of the Company now owned or
hereafter acquired by such party, and the Company agrees to take all actions
necessary, in order to cause and maintain the election of persons to the Board
in accordance with the following provisions:
(a) The Board shall consist of not more than seven (7) members. All
Stockholders shall comply with the provisions of this Article 3 to ensure that
nominees of the parties set forth in this Article 3 are elected to (or removed
from) the Board. The board of directors, if any, of any Subsidiary of the
Company (a "Sub Board") shall be the same as that of the Board.
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(b) The holders of a majority in interest of the outstanding shares
of Series A Preferred Stock shall have the right to elect four (4) persons to
the Board (the "Series A Designees"), which Series A Designees shall consist of:
(i) two (2) persons to be designated by Cox, which shall initially be William
Disbrow and M. Todd Croom; (ii) one (1) person designated by Sandler, which
shall initially be Samantha McCuen; and one (1) person designated by McClatchy,
which shall initially be Christian A. Hendricks.
(c) The holders of a majority in interest of the outstanding shares
of Common Stock held by the parties to this Agreement shall have the right to
elect the remaining three (3) persons to the Board (the "Common Stock
Designees"), which initially shall consist of the following persons: (i) Scott
Wills; (ii) Greg Roberts; and (iii) a third person who shall be a "strategic"
representative who is not an employee or affiliate of the Company (the
"Strategic Representative").
(d) Notwithstanding the foregoing provisions of this Section 3.1,
as long as Cox and its Affiliates hold, in the aggregate, at least 80% of the
Series A Preferred Stock then outstanding, then (i) three (3) of the four (4)
Series A Designees shall be designated by Cox, with the fourth Series A Designee
to be designated by a majority in interest of the remaining Investors, and (ii)
the Strategic Representative shall be jointly selected by Cox and the holders of
a majority in interest of the outstanding shares of Common Stock held by the
parties to this Agreement.
3.2 Removal. Except as provided for in Section 3.3, each director
designated as aforesaid by any Stockholder or group of Stockholders and duly
elected to the Board shall be subject to removal only at the request of the
Stockholder or group of Stockholders which designated such director.
3.3 Election of Directors. Each Stockholder shall vote all of its
shares of the capital stock of the Company for the election (or removal) of the
nominees designated as provided in Section 3.1 hereof and, in the event of a
vacancy in the Board created by the death, resignation or removal of a director,
shall vote its shares of the capital stock of the Company for the election of a
nominee to be designated by the Stockholder or group of Stockholders which
designated the director whose position has become vacant (unless such vacancy
has resulted from the termination of the power of such Stockholder or group of
Stockholders to nominate such director). If any Stockholder or group of
Stockholders, as the case may be, fails to designate a nominee to fill a
directorship pursuant to the terms of this Article 3, the election of an
individual to such directorship shall be accomplished in accordance with the
Company's Bylaws, the Amended and Restated Certificate of Incorporation of the
Company and applicable law; provided that such Stockholder or group of
Stockholders, as the case may be, may replace such individual as a director with
a nominee pursuant to this Article 3. In the event that any provision of the
Company's Bylaws or the Amended and Restated Certificate of Incorporation of the
Company is inconsistent with any provision of this Article 3, the Stockholders
and the Company shall take such action as may be necessary to amend such
provision to remedy such inconsistency. The Company shall take such lawful
action as shall be reasonably required in order to facilitate the designation,
removal and election of directors as contemplated by this Agreement.
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3.4 Committees. The Stockholders shall cause the Board and any Sub
Board to establish a Compensation Committee and an Audit Committee. Each such
committee will consist of directors designated by the vote of directors
designated by the holders of a majority of the Series A Preferred Stock. Any
committees of the Board or a Sub Board (other than the Compensation Committee
and the Audit Committee) shall be created only upon the approval of the holders
of a majority of the Series A Preferred Stock, and the composition of such
committee (if any) shall consist of not more than three Persons, at least one of
which will be a director that is a Series A Designee.
3.5 Expenses. The Company shall reimburse the directors designated by
the Investors for their reasonable out-of-pocket expenses incurred in attending
meetings of the Board or any committee thereof.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE
STOCKHOLDERS AND THE COMPANY
The Company and each Stockholder (each, a "Representing Party") hereby
severally represents and warrants to each other Representing Party as follows:
4.1 Organization, Qualification and Power. Each Representing Party
(other than any Representing Party which is an individual) is a corporation or
limited partnership, as the case may be, duly organized, validly existing and in
good standing under the laws of the state of its organization, and it has the
requisite corporate or partnership power and authority, as the case may be, to
own and hold its properties, and to carry on its business in all material
respects as conducted or presently proposed to be conducted. Each Representing
Party (other than any Representing Party which is an individual) has requisite
corporate or partnership power and authority to execute, deliver and perform
this Agreement.
4.2 Authorization of Agreement; No Conflict. The execution, delivery
and performance by each Representing Party of this Agreement have been duly
authorized by all requisite corporate, partnership and individual action, as the
case may be, of the Representing Party, if any, and will not violate any
provision of law, any order of any court or other agency of government, any of
such Representing Party's organizational documents, if any, or any provision of
any indenture, agreement or other instrument to which such Representing Party or
any of such Representing Party's properties or assets is bound, or conflict,
result in a breach of, or constitute (with due notice or lapse of time or both)
a default under any such indenture, agreement or other instrument. Each
Stockholder (i) represents that such Stockholder has not granted and is not a
party to any proxy, voting trust or other agreement that is inconsistent with or
conflicts with the provisions of this Agreement, and (ii) agrees that (y) it
shall not grant any proxy or become party to any voting trust or other agreement
which is inconsistent with or conflicts with the provisions of this Agreement,
and (z) any such grant shall be void.
4.3 Validity. This Agreement has been duly executed and delivered by
each Representing Party and constitutes a legal, valid and binding obligation of
such Representing Party, enforceable against such Representing Party in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
moratorium, or other similar laws affecting the enforcement of
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creditors' rights generally and except as to the extent the availability of
equitable remedies may be limited by general principles of equity.
ARTICLE 5
MISCELLANEOUS
5.1 Furnishing of Financial Statements and Information. The Company
will deliver to each Investor (or Permitted Transferee thereof) who holds or has
purchased at least 200,000 shares (subject to appropriate adjustment in the case
of stock splits, stock dividends, stock combinations, reclassifications and
recapitalizations) of Series A Preferred Stock, and to BrightStreet.com, Inc.:
(a) as soon as available, but in any event within thirty (30) days
after the end of each monthly accounting period in each fiscal year, unaudited
statements of income, operations and cash flows of the Company for such monthly
period and for the period from the beginning of the fiscal year to the end of
such month, and unaudited balance sheets of the Company as of the end of such
monthly period, setting forth in each case comparisons to the annual business
plan and operating budget for the Company and to the corresponding period in the
preceding fiscal year, and all such statements shall be prepared in accordance
with GAAP (provided, however, that such statements need not comply with the
footnote disclosure requirements of GAAP), along with monthly operating reports
containing such information as such holder of Series A Preferred Stock may
reasonably request;
(b) as soon as available, but in any event within forty-five (45)
days after the end of each quarterly accounting period in each fiscal year,
unaudited statements of income, operations and cash flows of the Company for
such quarterly period and for the period from the beginning of the fiscal year
to the end of such quarter, and unaudited balance sheets of the Company as of
the end of such monthly period, setting forth in each case comparisons to the
annual business plan and operating budget for the Company and to the
corresponding period in the preceding fiscal year, and all such statements shall
be prepared in accordance with GAAP (provided, however, that such statements
need not comply with the footnote disclosure requirements of GAAP);
(c) as soon as available, but in any event within ninety (90) days
after the end of each fiscal year, audited statements of income, operations,
retained earnings and cash flows of the Company for such fiscal year and balance
sheets of the Company as of the end of such fiscal year, setting forth in each
case comparisons to the annual business plan and operating budget of the
preceding fiscal year, all prepared in accordance with GAAP, all in reasonable
detail and duly certified by the Accountants, who shall have given the Company
an opinion, unqualified as to the scope of the audit, regarding such statements;
(d) annually, promptly after adoption thereof by the Company's
Board of Directors, a copy of the Company's annual financial or business plan
and operating budget for the following fiscal year;
(e) promptly after the Company learns of the commencement or
written threats of the commencement of any material lawsuit, legal or equitable,
or of any material administrative, arbitration or other proceeding against the
Company or its business, assets or properties, written notice of the nature and
extent of such suit or proceeding;
(f) promptly upon transmission thereof, copies of all reports,
proxy statements, registration statements and notifications filed by it with the
Securities and Exchange
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Commission pursuant to any act administered by the Securities and Exchange
Commission or furnished to stockholders of the Company or to any national
securities exchange;
(g) with reasonable promptness, such other financial data relating
to the business, affairs and financial condition of the Company and such other
information as may be available to the Company and as from time to time such
holder of Series A Preferred Stock or BrightStreet.com, Inc. may reasonably
request. If the Company establishes or otherwise acquires any subsidiaries, all
references in this Section 5.1 to financial statements shall be deemed to refer
to consolidated and consolidating financial statements (except that the Company
need not provide separate annual audited consolidating financial statements).
5.2 Access to Company Records. Each Investor (or Permitted Transferee
thereof) who holds or has purchased at least 200,000 shares (subject to
appropriate adjustment in the case of stock splits, stock dividends, stock
combinations, reclassifications and recapitalizations) of Series A Preferred
Stock and BrightStreet.com, Inc. shall be entitled to review the financial and
corporate books and records of the Company and to meet with the executive
officers and independent accountants of the Company for purposes reasonably
related to such Stockholder's ownership of Common Stock or Preferred Stock,
which review and/or meetings shall take place at reasonable times during the
normal business hours of the Company and in such a manner as to not unduly
interfere with the conduct of the Company's business; provided, however, that
the Company may condition access to certain confidential or proprietary
information upon the execution of a confidentiality agreement by the Investor in
form and substance reasonably acceptable to the Company.
5.3 Entire Agreement; Amendment. This Agreement embodies the entire
agreement of the parties hereto with respect to the subject matter hereof. Any
provision of this Agreement may be amended, waived or modified, and this
Agreement may be terminated, if, but only if, such amendment, waiver or
modification or termination is in writing and is signed by: (i) the holders of a
majority of the Series A Preferred Stock; and (ii) the holders of a majority of
the shares held by the Existing Stockholders; whenever any provision of this
Agreement requires action or approval by the holders of a specified number of
Series A Preferred Stock or Existing Stockholder Shares, such action or approval
may be evidenced by a written consent executed by the requisite holders of
Series A Preferred Stock or Existing Stockholder Shares, without any requirement
of a meeting or prior notice to the other holders of such shares in accordance
with Section 141(f) of the Delaware General Corporation Law. The parties hereto
intend, agree and understand that this Agreement amends and supersedes and
replaces in its entirety any and all prior agreements pertaining to the subject
matter hereof.
5.4 Binding Effect; Benefits. This Agreement and all the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective heirs, legal representatives, successors and permitted assigns.
Except as expressly provided herein, nothing in this Agreement is intended to
confer on any Persons, other than the parties hereto or their respective
successors and assigns, any rights, remedies, obligations or liabilities under
or by reason of this Agreement.
5.5 Recapitalization and Exchanges Affecting the Common Stock. All the
provisions of this Agreement shall apply, to the full extent set forth herein
with respect to the Existing Stockholder Shares, the Common Stock, the Series A
Preferred Stock and any and all other securities of the Company or any successor
or assign of the Company (whether by merger,
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consolidation, sale of assets or otherwise) which may be issued in respect of,
in exchange for, or in substitution of the Existing Stockholder Shares, the
Common Stock, the Series A Preferred Stock, or such other securities or by
reason of any stock split, stock dividend, combination, recapitalization,
reclassification, merger, consolidation or other similar event.
5.6 Notices. All notices, requests, consents, and other communications
hereunder shall be in writing and shall be deemed effectively given and received
when delivered in person or by national overnight courier service or by
certified or registered mail, return receipt requested, or by telecopier,
addressed as follows:
(a) if to the Company, at
Promotions Acquisition, Inc.
480 San Antonio Road, Suite 250
Mountain View, California 94040-1218
Attention: R. Scott Wills
Facsimile: (650) 917-4123
with a copy to:
Carr & Ferrell, LLP
2225 East Bayshore Road, Second Floor
Palo Alto, California 94303
Attention: Barry A. Carr, Esq.
Facsimile: (650) 812-3444
(b) if to Cox:
Cox Target Media, Inc.
c/o Cox Enterprises, Inc.
1400 Lake Hearn Drive, N.E.
Atlanta, Georgia 30319
Attention: Dean H. Eisner
M. Todd Croom
Facsimile: (404) 843-5256
with a copy to:
Dow, Lohnes & Albertson, PLLC 1200 New Hampshire
Avenue, N.W.
Suite 800
Washington, D.C. 20036
Attention: Edward J. O'Connell, Esq.
Facsimile: (202) 776-2222
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<PAGE>
(c) To any other Stockholder: The address reflected on the records
of the Company, or such other address or addresses as shall have been furnished
in writing by such party to the Company and to the other parties to this
Agreement.
5.7 Severability. The invalidity, illegality or unenforceability of one
or more of the provisions of this Agreement in any jurisdiction shall not affect
the validity, legality or enforceability of the remainders of this Agreement in
such jurisdiction or the validity, legality or enforceability of this Agreement,
including any such provision, in any other jurisdiction, it being intended that
all rights and obligations of the parties hereunder shall be enforceable to the
fullest extent permitted by law.
5.8 Headings. The headings of the sections of this Agreement are
inserted for convenience only and shall not constitute a part of this Agreement.
5.9 Counterparts. This Agreement may be in two or more counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one and the same instrument.
5.10 APPLICABLE LAW. THE LAWS OF THE STATE OF DELAWARE SHALL GOVERN THE
INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF THIS AGREEMENT,
REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER PRINCIPLES OF CONFLICTS OF
LAW.
5.11 Further Assurances. Each party hereto shall do and perform or
cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments, and
documents as any other party hereto reasonably may request in order to carry out
the intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
5.12 Specific Performance. Each of the parties hereto acknowledges and
agrees that in the event of any breach of this Agreement, the non-breaching
party would be irreparably harmed and could not be made whole by monetary
damages. It is accordingly agreed that the parties hereto will waive the defense
in any action for specific performance that a remedy at law would be adequate
and that the parties hereto, in addition to any other remedy to which they may
be entitled at law or in equity, shall be entitled to compel specific
performance of this Agreement in any arbitration of this Agreement or in any
action instituted in any court of the United States or any state thereof having
subject matter jurisdiction of such action.
5.13 Rights Cumulative; Waiver. The rights and remedies of the
Stockholders and the Company under this Agreement shall be cumulative and not
exclusive of any rights or remedies which any party hereto would otherwise have
hereunder or at law or in equity or by statute, and no failure or delay by any
such party in exercising any right or remedy shall impair any such right or
remedy or operate as a waiver of such right or remedy, nor shall any single or
partial exercise of any power or right preclude such party's other or further
exercise or the exercise of any other power or right. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any preceding or succeeding breach and no failure by
any party hereto to exercise any right or privilege hereunder shall be deemed a
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<PAGE>
waiver of such party's rights or privileges hereunder or shall be deemed a
waiver of such party's rights to exercise the same at any subsequent time or
times hereunder.
5.14 Construction. The use of the singular or plural or masculine,
feminine or neuter gender shall not be given an exclusionary meaning and, where
applicable, shall be intended to include the appropriate number or gender, as
the case may be.
5.15 Group Actions. For purposes of this Agreement, any action to be
taken by a group of Stockholders shall be determined by the vote of the holders
of a majority of such group, unless a greater percentage shall have been
expressly set forth in this Agreement with respect to such action.
5.16 Termination. This Agreement will automatically terminate and be of
no further force or effect immediately after the consummation of a Qualified
Public Offering.
[SIGNATURE PAGES FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective duly authorized officers or
representatives as of the date first written above.
PROMOTIONS ACQUISITION, INC.
By: /s/
----------------------------
Name:
Title:
COX TARGET MEDIA, INC.
By: /s/
----------------------
Name:
Title:
SANDLER CAPITAL PARTNERS IV, L.P.
By: Sandler Investment Partners, L.P., General Partner
By: Sandler Capital Management, General Partner
By: MJDM Corp., a General Partner
By: /s/ Edward G. Grinacoff
----------------------------
Edward G. Grinacoff
President
SANDLER CAPITAL PARTNERS IV FTE, L.P.
By: Sandler Investment Partners, L.P., General Partner
By: Sandler Capital Management, General Partner
By: MJDM Corp., a General Partner
By: /s/ Edward G. Grinacoff
----------------------------------
Edward G. Grinacoff
President
SANDLER INTERNET PARTNERS, L.P.
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<PAGE>
By: Sandler Investment Partners, L.P., General Partner
By: Sandler Capital Management, General Partner
By: MJDM Corp., General Partner
By: /s/ Edward G. Grinacoff
---------------------------------
Name: Edward G. Grinacoff
Title: President
BRIGHTSTREET.COM, INC.
By: /s/ Andrew P. Panzo
----------------------------------
Name: Andrew P. Panzo
Title:
THE MCCLATCHY COMPANY
By: /s/
------------------------------
Name:
Title:
CENTRAL NEWSPAPERS, INC.
By: /s/
------------------------------
Name:
Title:
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into
as of December 3, 1999, by and among Promotions Acquisition, Inc., a Delaware
corporation (the "Company"), Cox Target Media, Inc. ("Cox"), Sandler Capital
Partners IV, L.P. ("SCP IV"), Sandler Capital Partners IV FTE, L.P. ("SCP IV
FTE"), Sandler Internet Partners, L.P. ("SIP"), BrightStreet.com, Inc., a
Delaware corporation ("BrightStreet"), The McClatchy Company, a Delaware
corporation ("McClatchy"), and Central Newspapers, Inc., an Arizona corporation
("Central") (Cox, SCP IV, SCP IV FTE, SIP, BrightStreet, McClatchy and Central
collectively referred to herein, together with their transferees, as the
"Investors").
WITNESSETH:
WHEREAS, the Company has entered into that certain Stock Purchase
Agreement, dated as of the date hereof (the "Stock Purchase Agreement"), with
certain of the Investors pursuant to which the Company has agreed to issue and
sell to such Investors shares of the Company's Series A Convertible Preferred
Stock, par value $0.001 per share (the "Series A Preferred Stock");
WHEREAS, the Company has agreed to grant certain registration rights
with respect to the shares of the Company's Common Stock, par value $0.01 per
share, (the "Common Stock") issuable upon conversion of the Series A Preferred
Stock issued to the Investors pursuant to the Stock Purchase Agreement, as well
as Common Stock to be issued to BrightStreet concurrently with the sale of
BrightStreet's assets to the Company;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties, intending to be legally bound, hereby agree as follows:
ARTICLE 1
DEFINITIONS
As used herein, the following terms shall have the following respective
meanings:
1.1 "Commission" shall mean the Securities and Exchange Commissions, or
any other successor federal agency at the time administering the Securities Act.
1.2 "Common Stock" shall mean the Company's common stock, par value
$0.001 per share.
1.3 "Exchange Act" shall mean the Securities and Exchange Act of 1934,
as amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
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<PAGE>
1.4 "Holders" shall mean and include each of the Series A Preferred
Stockholders, BrightStreet, Net Value Holdings, Inc., a Delaware corporation
("Holdings"), and any transferee thereof who holds Registrable Securities, and
any other person or entity that shall have executed this Agreement in accordance
with Article 10 hereof and whose name appears on the Schedule of Registration
Rights Holders attached hereto as Exhibit A.
1.5 "Initiating Holders" shall mean any Holder or Holders who in the
aggregate own not less than thirty-five percent (35%) of the Registrable
Securities.
1.6 "Qualified Public Offering" means the closing of a firm commitment
underwritten public offering, pursuant to an effective registration statement
under the Securities Act, covering the offer and sale by the Company of Common
Stock to the public in which the initial public offering price per share of
Common Stock is at least equal to [$4.05] per share of Common Stock (subject to
appropriate adjustment for stock splits, stock dividends, stock combinations,
reclassifications, recapitalizations, mergers, consolidations or other similar
events) and which results in aggregate gross proceeds to the Company of at least
$20,000,000.
1.7 The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing with the Commission a registration
statement in compliance with the Securities Act, and the declaration or ordering
by the Commission of the effectiveness of such registration statement.
1.8 "Registrable Securities" means any and all shares of Common Stock:
(i) issued or issuable upon conversion of the Series A Preferred Stock; (ii)
issued to BrightStreet in connection with the sale of BrightStreet's assets to
the Company; (iii) issued or issuable with respect to the Series A Preferred
Stock upon any stock split, stock dividend, recapitalization, reclassification,
merger, consolidation or other similar event; and (iv) otherwise held or
acquired by any of the Holders; excluding in all cases, however, Registrable
Securities sold by a Holder to the public pursuant to a registered offering or
pursuant to Rule 144 promulgated under the Securities Act.
1.9 "Registration Expenses" shall mean all expenses incurred by the
Company in complying with Articles 2 and 3 hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of legal counsel for the Company, fees and
disbursements of one special legal counsel for the selling Holders, blue sky
fees and expenses, and the expense of any special audits incident to or required
by any such registration (but excluding the compensation of regular employees of
the Company, which shall be paid in any event by the Company).
1.10 "S-3 Registration Expenses" shall mean all expenses incurred by
the Company in complying with Article 4 hereof, including, without limitation,
all registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of legal counsel for the Company, fees and disbursements
of one special legal counsel for the selling Holders, blue sky fees and
expenses, and the expense of any special audits incident to or required by any
such
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<PAGE>
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
1.11 "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
1.12 "Selling Expenses" shall mean all underwriting fees, discounts,
selling commissions and stock transfer taxes applicable to the Registrable
Securities registered by the Holders.
ARTICLE 2
REQUESTED REGISTRATION
2.1 Request for Registration. Beginning on the earlier of (i) the date
which is 180 days following the consummation of a Qualified Public Offering or
(ii) the date which the third anniversary of this Agreement, Initiating Holders
may request registration in accordance with this Article 2. In the event the
Company shall receive from the Initiating Holders a written request that the
Company effect any registration, qualification or compliance with respect to
Registrable Securities, the Company will:
(a) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(b) use its best efforts to effect such registration, qualification
or compliance as soon as practicable (including, without limitation, undertaking
to file post-effective amendments, appropriate qualifications under applicable
blue sky or other state securities laws, and appropriate compliance with
applicable regulations issued under the Securities Act, and any other
governmental requirements or regulations) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request received by the Company
within 15 days after the receipt of the written notice from the Company
described in Section 2.1(a); provided, however, that the Company shall not be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Article 2:
(i) in any particular jurisdiction in which the Company would
be required to execute a general consent to service of process in effecting such
registration, qualification or compliance, unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(ii) within one hundred and eighty (180) days immediately
following the effective date of any registration statement pertaining to a
firmly underwritten offering of securities of the Company for its own account
(or such lesser period as the managing underwriters of such offering will
allow);
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<PAGE>
(iii) after the Company has effected three (3) such requested
registrations pursuant to this Article 2 (not including registrations on Form
S-3), each such registration has been declared or ordered effective, and the
Registrable Securities offered pursuant to each such registration have been
sold, or if the Company has effected any requested registration (other than a
registration for a Qualified Public Offering) pursuant to this Agreement during
the previous six-month period (or such shorter period as the managing
underwriter of the Company's most recent public offering will allow); or
(iv) if the Company then meets the eligibility requirements
applicable to the use of Form S-3 in connection with such registration and is
able to effect such requested registration pursuant to Article 4 hereof.
(c) Subject to the foregoing clauses (i) through (iv), the Company
shall file a registration statement covering the Registrable Securities so
requested to be registered as soon as practicable after receipt of the request
of the Initiating Holders; provided, however, that if the Company shall furnish
to such Holders a certificate signed by the President or Chief Executive Officer
of the Company stating that in the good faith judgment of the Board of Directors
of the Company, it would be detrimental to the Company and its stockholders for
such registration statement to be filed, the Company shall have the right to
defer such filing for a period of not more than 180 days after receipt of the
request of the Initiating Holders; provided, further, that the Company shall not
be permitted to exercise such deferral right under this Section 2.1(c) or
Section 4.1(c) hereof more than once in any 365-day period.
2.2 Underwriting.
(a) The distribution of the Registrable Securities covered by the
request of the Initiating Holders shall be effected by means of the method of
distribution selected by the Holders holding a majority of the Registrable
Securities covered by such registration. If such distribution is effected by
means of an underwriting, the right of any Holder to registration pursuant to
this Article 2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise agreed by the Initiating Holders) to the extent
provided herein.
(b) If such distribution is effected by means of an underwriting,
the Company (together with all Holders proposing to distribute their securities
through such underwriting) shall enter into an underwriting agreement in
customary form with a managing underwriter of nationally recognized standing
selected for such underwriting by a majority in interest of the Initiating
Holders and approved by the Company, which approval shall not be unreasonably
withheld. Notwithstanding any other provision of this Article 2, if the managing
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
underwriters may exclude shares requested to be included in such registration.
The number of shares of Registrable Securities to be included in the
registration and underwriting shall be allocated first amongst the Initiating
Holders who have requested registration of Registrable Securities and then
amongst the other Holders who have requested registration of Registrable
Securities in such registration and underwriting in
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<PAGE>
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement. No Registrable Securities excluded from the underwriting by reason of
the managing underwriter's marketing limitation shall be included in such
registration.
(c) If any Holder disapproves of the terms of the underwriting,
such person may elect to withdraw therefrom by written notice to the Company,
the managing underwriter and the Initiating Holders. The Registrable Securities
and/or other securities so withdrawn shall also be withdrawn from registration;
provided, however, that if by the withdrawal of such Registrable Securities a
greater number of Registrable Securities held by other Holders may be included
in such registration (up to the maximum of any limitation imposed by the
underwriters), then the Company shall offer to all Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportion used in determining the
underwriter limitation in this Section 2.2.
2.3 Inclusion of Shares by Company. If the distribution of Registrable
Securities is being effected by means of an underwriting and if the managing
underwriter has not limited the number of Registrable Securities to be
underwritten, the Company may include securities for its own account or for the
account of others in such registration if the managing underwriter so agrees.
The inclusion of such shares shall be on the same terms as the registration of
shares held by the Initiating Holders. In the event that the underwriters
exclude some of the securities to be registered, the securities to be sold for
the account of the Company and any other holders shall be excluded in their
entirety prior to the exclusion of any Registrable Securities.
2.4 Cancellation of Registration. A majority in interest of the
Initiating Holders shall have the right to cancel a proposed registration of
Registrable Securities pursuant to Article 2 when, in their discretion, market
conditions are so unfavorable as to be seriously detrimental to an offering
pursuant to such registration. Such cancellation of a registration shall not be
counted as one of the three (3) such requested registrations pursuant to Section
2.1(b)(iii) if the Initiating Holders for such registration pay all Registration
Expenses associated with such registration.
ARTICLE 3
COMPANY REGISTRATION
3.1 Notice of Registration to Holders. If at any time or from time to
time the Company shall determine to register any of its securities, either for
its own account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans on Form S-8 (or any
successor form) or (ii) a registration relating solely to a Commission Rule 145
transaction on Form S-4 (or any successor form), the Company will:
(a) promptly give to each Holder written notice thereof, and
(b) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable
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<PAGE>
Securities specified in a written request or requests, made within 30 days after
receipt of such written notice from the Company described in Section 3.1(a), by
any Holder or Holders.
3.2 Underwriting. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders as a part of the written notice given pursuant to Section
3.1(a). In such event, the right of any Holder to registration pursuant to this
Article 3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company)
enter into an underwriting agreement in customary form with the managing
underwriter selected for such underwriting by the Company.
(a) Notwithstanding any other provision of this Article 3, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the underwriter may exclude some or all
Registrable Securities from such registration and underwriting. The Company
shall so advise all Holders of Registrable Securities, and the number of shares
of Common Stock to be included in such registration shall be allocated as
follows: first, for the account of the Company, all shares of Common Stock
proposed to be sold by the Company; second, for the account of the Holders
participating in such registration, the number of shares of Common Stock
requested to be included in the registration by such Holders; third, for the
account of the Management Stockholders in proportion, as nearly as practicable,
to the respective amounts of Registrable Securities that are proposed to be
offered and sold by such Holders of Registrable Securities at the time of filing
the registration statement; and fourth, for the account of any other
stockholders of the Company participating in such registration, the number of
shares of Common Stock requested to be included in the registration by such
other stockholders in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities that are proposed to be offered and sold by
such other stockholders of Registrable Securities at the time of filing the
registration statement. No Registrable Securities excluded from the underwriting
by reason of the underwriters' marketing limitation shall be included in such
registration.
(b) The Company shall so advise all Holders and the other holders
distributing their securities through such underwriting of any such limitation,
and the number of shares of Registrable Securities held by Holders that may be
included in the registration. If any Holder disapproves of the terms of any such
underwriting, such Holder may elect to withdraw therefrom by written notice to
the Company and the managing underwriter. Any securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration, but the Holder
shall continue to be bound by Article 8 hereof.
(c) The Company shall have the right to terminate or withdraw any
registration initiated by it under this Article 3 prior to the effectiveness of
such registration, whether or not a Holder has elected to include Registrable
Securities in such registration.
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<PAGE>
ARTICLE 4
REGISTRATION ON FORM S-3
4.1 Request for Registration.
(a) In addition to the rights set forth in Articles 2 and 3 hereof,
if a Holder or Holders request that the Company file a registration statement on
Form S-3 (or any successor to Form S-3) for a public offering of shares of
Registrable Securities having an aggregate offering price of at least $1,000,000
(based on the then current market price) and the Company is a registrant
entitled to use Form S-3 (or any successor form to Form S-3) to register such
shares for such an offering, the Company shall use its best efforts to cause
such shares to be registered for the offering as soon as practicable on Form S-3
(or any such successor form to Form S-3).
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Article 4:
(i) in any particular jurisdiction in which the Company would
be required to execute a general consent to service of process in effecting such
registration, qualification or compliance, unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(ii) if the Company, within ten (10) days of the receipt of the
request of the Holder or Holders, gives notice of its bona fide intention to
effect the filing of a registration statement with the Commission within
forty-five (45) days of receipt of such request (other than with respect to a
registration statement relating to a Rule 145 transaction or an offering solely
to employees);
(iii) during the period starting with the date of filing of,
and ending on a date which is 180 days following the effective date of, a
registration statement described in (ii) above or filed pursuant to this Article
4 or Articles 2 or 3 hereof (or such shorter period as the managing underwriter
of the Company's most recent public offering may agree), provided that the
Company is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective and provided, further, that no other
person or entity could require the Company to file a registration statement in
such period;
(c) Subject to the foregoing clauses (b) (i) through (iii), the
Company shall file a registration statement on Form S-3 covering the Registrable
Securities so requested to be registered as soon as practicable after receipt of
the request of the Holders; provided, however, that if the Company shall furnish
to such Holders a certificate signed by the President or Chief Executive Officer
of the Company stating that in the good faith judgment of the Board of Directors
of the Company, it would be detrimental to the Company and its stockholders for
such registration statement to be filed on or before the date filing would be
required, and it is therefore essential to defer the filing of such registration
statement, the Company shall have the right to defer such filing for a period of
not more than 90 days after receipt of the request of the Holders;
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<PAGE>
provided, further, that the Company shall not be permitted to exercise such
deferral right under this Section 4.1(c) or Section 2.1(c) hereof more than once
in any 360-day period.
4.2 Underwriting.
(a) The distribution of the Registrable Securities covered by the
registration on Form S-3 shall be effected by means of the method of
distribution selected by the Holders holding a majority of the Registrable
Securities covered by such registration. If such distribution is effected by
means of an underwriting, the right of any Holder to registration pursuant to
this Article 4 shall be conditioned upon such Holder's participation in such
underwriting, if any, and the inclusion of such Holder's Registrable Securities
in such underwriting.
(b) If the distribution of the Registrable Securities pursuant to
this Section 4.2 is effected by means of an underwriting, the Company (together
with all Holders proposing to distribute their securities through such
underwriting) shall enter into an underwriting agreement in customary form with
a managing underwriter of nationally recognized standing selected for such
underwriting by a majority in interest of the Holders requesting registration on
Form S-3 and approved by the Company, which approval shall not be unreasonably
withheld. Notwithstanding any other provision of this Article 4, if the managing
underwriter advises the Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the underwriters may
exclude some or all of the shares requested to be included in such registration,
and the number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all Holders thereof in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement. No Registrable Securities excluded from the underwriting by reason of
the managing underwriter's marketing limitation shall be included in such
registration.
(c) If the distribution of the Registrable Securities pursuant to
this Section 4.2 is effected by means of an underwriting and if any Holder of
Registrable Securities disapproves of the terms of the underwriting, such person
may elect to withdraw therefrom by written notice to the Company, the managing
underwriter and the Holders. The Registrable Securities and/or other securities
so withdrawn shall also be withdrawn from registration; provided, however, that
if by the withdrawal of such Registrable Securities a greater number of
Registrable Securities held by other Holders may be included in such
registration (up to the maximum of any limitation imposed by the underwriters),
then the Company shall offer to all Holders who have included Registrable
Securities in the registration the right to include additional Registrable
Securities in the same proportion used in determining the underwriter limitation
in this Section 4.2.
4.3 Inclusion of Shares by Company. If the distribution of the
Registrable Securities pursuant to this Article 4 is effected by means of an
underwriting and if the managing underwriter has not limited the number of
Registrable Securities to be underwritten, the Company may include securities
for its own account or for the account of others in such registration if the
managing underwriter so agrees and if the number of Registrable Securities held
by Holders requesting registration on Form S-3 which would otherwise have been
included
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<PAGE>
in such registration and underwriting will not thereby be limited. The inclusion
of such shares shall be on the same terms as the registration of shares held by
the Holders requesting such registration. In the event that the underwriters
exclude some of the securities to be registered on Form S-3, the securities to
be sold for the account of the Company and any other holders shall be excluded
in their entirety prior to the exclusion of any Registrable Securities.
ARTICLE 5
EXPENSES OF REGISTRATION
All Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Article 2 and Article 3 hereof and all
S-3 Registration Expenses shall be borne by the Company. All Selling Expenses
relating to Registrable Securities registered by the Holders shall be borne by
the Holders of such Registrable Securities pro rata on the basis of the number
of shares so registered.
ARTICLE 6
REGISTRATION PROCEDURES
(a) In the case of each registration effected by the Company pursuant
to this Agreement, the Company will keep each Holder advised in writing as to
the initiation of each registration and as to the completion thereof. The
Company agrees to use its best efforts to effect or cause such registration to
permit the sale of the Registrable Securities covered thereby by the Holders
thereof in accordance with the intended method or methods of distribution
thereof described in such registration statement. In connection with any
registration of any Registrable Securities pursuant to Section 2, 3 or 4 hereof,
the Company shall, as soon as reasonably possible:
(i) prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its efforts to
cause such registration statement filed to become effective (provided that
before filing a registration statement or prospectus or any amendments or
supplements thereto, the company comply with subparagraph (iii) of this
paragraph (a)) as soon as reasonably possible thereafter;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus included therein
as may be necessary to effect and maintain the effectiveness of such
registration statement as may be required by the applicable rules and
regulations of the Commission and the instructions applicable to the form of
such registration statement, and furnish to the holders of the Registrable
Securities covered thereby copies of any such supplement or amendment prior to
this being used and/or filed with the Commission; and comply with the provisions
of the Securities Act with respect to the disposition of all the Registrable
Securities to be included in such registration statement;
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(iii) provide (A) the Holders of the Registrable Securities to
be included in such registration statement, (B) the underwriters (which term,
for purposes of this Agreement, shall include a person deemed to be an
underwriter within the meaning of Section 2(11) of the Securities Act), if any,
thereof, (C) the sales or placement agent, if any, therefor, (D) one counsel for
such underwriters or agent, and (E) not more than one counsel for all the
Holders of such Registrable Securities, the opportunity to participate in the
preparation of such registration statement, each prospectus included therein or
filed with the Commission, and each amendment or supplement thereto;
(iv) for a reasonable period prior to the filing of such
registration statement, and throughout the period specified above, make
available for inspection by the parties referred to in Section 6(a)(iii) above
such financial and other information and books and records of the Company, and
cause the officers, directors, employees, counsel and independent certified
public accountants of the Company to respond to such inquiries, as shall be
reasonably necessary, in the judgment of the respective counsel referred to in
such Section 6(a)(iii), to conduct a reasonable investigation within the meaning
of the Securities Act; provided, however, that each such party shall be required
to maintain in confidence and not disclose to any other person or entity any
information or records reasonably designated by the Company in writing as being
confidential, until such time as (a) such information becomes a matter of public
record (whether by virtue of its inclusion in such registration statement or
otherwise), or (b) such party shall be required so to disclose such information
pursuant to the subpoena or order of any court or other governmental agency or
body having jurisdiction over the matter, or (c) such information is required to
be set forth in such registration statement or the prospectus included therein
or in an amendment to such registration statement or an amendment or supplement
to such prospectus in order that such registration statement, prospectus,
amendment or supplement, as the case may be, does not include an untrue
statement of a material fact or omit to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
and provided, further, that the Company need not make such information
available, nor need it cause any officer, director or employee to respond to
such inquiry, unless each such Holder of Registrable Securities to be included
in a registration statement hereunder and such counsel, upon the Company's
request, execute and deliver to the Company an undertaking to substantially the
same effect contained in the second preceding proviso;
(v) promptly notify the Holders of Registrable Securities to be
included in a registration statement hereunder, the sales or placement agent, if
any, therefor and the managing underwriter of the securities being sold and
confirm such advice in writing, (A) when such registration statement or the
prospectus included therein or any prospectus amendment or supplement or
post-effective amendment has been filed, and, with respect to such registration
statement or any post-effective amendment, when the same has become effective,
(B) of any comments by the Commission and by the blue sky or securities
commissioner or regulator of any state with respect thereto or any request by
the Commission for amendments or supplements to such registration statement or
the prospectus or for additional information, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of such registration
statement or the initiation of any proceedings for that purpose, (D) of the
receipt by the Company of any notification with respect to the suspension of the
qualification of the
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Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, or (E) if it shall be the case,
at any time when a prospectus is required to be delivered under the Securities
Act, that such registration statement, prospectus, or any document incorporated
by reference, in any of the foregoing contains an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(vi) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of such registration statement or any
post-effective amendment thereto or of any order suspending or preventing the
use of ant related prospectus or suspending the qualification of any Registrable
Securities included in such registration statement for sale in any jurisdiction
at the earliest practicable date;
(vii) if requested by any managing underwriter or underwriter,
any placement or sales agent or any Holder of Registrable Securities to be
included in a registration statement, promptly incorporate in a prospectus,
prospectus supplement or post-effective amendment such information as is
required by the applicable rules and regulations of the Commission and as such
managing underwriter or underwriters, such agent or such Holder may reasonably
specify should be included therein relating to the terms of the sale of the
Registrable Securities included thereunder, including, without limitation,
information with respect to the number of Registrable Securities being sold by
such Holder or agent or to such underwriters, the name and description of such
Holder, the offering price of such Registrable Securities and any discount,
commission or other compensation payable in respect thereof, the purchase price
being paid therefor by such underwriters and with respect to any other terms of
the offering of the Registrable Securities to be sold in such offering; and make
all required filings of such prospectus; prospectus supplement or post-effective
amendment promptly after notification of the matters to be incorporated in such
prospectus, prospectus supplement or post-effective amendment;
(viii) furnish to each Holder of Registrable Securities to be
included in such registration statement hereunder, each placement or sales
agent, if any, therefor, each underwriter, if any, thereof and the counsel
referred to in Section 6(a)(iii) an executed copy of such registration
statement, each such amendment and supplement thereto (in each case excluding
all exhibits and documents incorporated by reference) and such number of copies
of the registration statement (excluding exhibits thereto and documents
incorporated by reference therein unless specifically so requested by such
holder, agent or underwriter, as the case may be) of the prospectus included in
such registration statement (including each preliminary prospectus and any
summary prospectus), in conformity with the requirements of the Securities Act,
as such Holder, agent, if any, and underwriter, if any, may reasonably request
in order to facilitate the disposition of the Registrable Securities owned by
such Holder sold by such agent or underwritten by such underwriter and to permit
such Holder, agent and underwriter to satisfy the prospectus delivery
requirements of the Securities Act; and the Company hereby consents to the use
of such prospectus and any amendment or supplement thereto by each such Holder
and by any such agent and underwriter, in each case in the form most recently
provided to such party by the Company, in connection with the offering and sale
of the Registrable Securities covered by
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the prospectus (including such preliminary and summary prospectus) or any
supplement or amendment thereto;
(ix) use its best efforts to (A) register or qualify the
Registrable Securities to be included in such registration statement under such
other securities laws or blue sky laws of such jurisdictions to be designated by
the Holders of a majority of such Registrable Securities participating in such
registration and each placement or sales agent, if any, therefor and
underwriter, if any, thereof, as any Holder and each underwriter, if any, of the
securities being sold shall reasonably request, (B) keep such registrations or
qualifications in effect and comply with such laws so as to permit the
continuance of offers, sales and dealings therein in such jurisdictions for so
long as may be necessary to enable such Holder, agent or underwriter to complete
its distribution of the Registrable Securities pursuant to such registration
statement and (C) take any and all such actions as may be reasonably necessary
or advisable to enable such Holder, agent, if any, and underwriter to consummate
the disposition in such jurisdictions of such Registrable Securities; provided,
however, that the Company shall not be required for any such purpose to (1)
qualify generally to do business as a foreign company or a broker-dealer in any
jurisdiction wherein it would not otherwise be required to qualify but for the
requirements of this Section 6(a)(ix), or (2) subject itself to taxation in any
such jurisdiction;
(x) cooperate with the Holders of the Registrable Securities to
be included in a registration statement hereunder and the managing underwriters
to facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold, which certificates shall be printed,
lithographed or engraved, or produced by any combination of such methods, on
steel engraved borders and which shall not bear any restrictive legends; and
enable such Registrable Securities to be in such denominations and registered in
such names as the managing underwriters may request at least two business days
prior to any sale of the Registrable Securities;
(xi) provide a CUSIP number for all Registrable Securities, not
later than the effective date of the registration statement;
(xii) enter into one or more underwriting agreements,
engagement letters, agency agreements, "best efforts" underwriting agreements or
similar agreements, as appropriate, and take such other actions in connection
therewith as the Holders of at least a majority of the Registrable Securities
being sold shall reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities;
(xiii) whether or not an agreement of the type referred to in
the preceding subsection if entered into and whether or not any portion of the
offering contemplated by such registration statement is an underwritten offering
or is made though a placement or sales agent or any other entity, (A) make such
representations and warranties to the Holders of such Registrable Securities and
the placement or sales agent, if any, therefor and the underwriters, if any,
thereof in form, substance and scope as are customarily made in connection with
any offering of equity securities pursuant to any appropriate agreement and/or
to a registration statement filed on the form applicable to such registration
statement; (B) obtain an opinion of
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counsel to the Company in customary form and covering such matters, of the type
customarily covered by such an opinion, as the managing underwriters, if any,
and as the Holders of at least a majority of such Registrable Securities may
reasonably request, addressed to such Holders and the placement or sales agent,
if any, therefor and the underwriters, if any, thereof and dated the effective
date of such registration statement (and if such registration statement
contemplates an underwritten offering of a party or of all of the Registrable
Securities, dated the date of the closing under the underwriting agreement
relating thereto) (it being agreed that the matters to be covered by such
opinion shall include, without limitation, the due organization of the Company,
and its subsidiaries, if any; the qualification of the Company, and its
subsidiaries, if any, to transact business as foreign companies; the due
authorization, execution and delivery of this agreement and of any agreement of
the typed referred to in Section 6(a)(xii) hereof; the due authorization, valid
issuance, and the fully paid status of the Registrable Securities of the
Company; the absence of material legal or governmental proceedings involving the
Company; the absence to the knowledge of such counsel of a breach by the Company
or its subsidiaries of, or a default under, agreements binding the Company or
any subsidiary; the absence of governmental approvals required to be obtained in
connection with the registration statement, the offering and sale of the
Registrable Securities, this Agreement or any agreement of the type referred to
in Section 6(a)(xii) hereof; the compliance as to form of such registration
statement and any documents incorporated by reference therein with the
requirements of the Securities Act; the effectiveness of such registration
statement under the Securities Act; and, as of the date of the opinion and of
the registration statement or most recent post-effective amendment thereto, as
the case may be, the absence, to the knowledge of such counsel, from such
registration statement and the prospectus included therein, as then amendment or
supplemented, and from the documents incorporated by reference therein of an
untrue statement of a material fact or the omission to state therein a material
fact necessary to make the statements therein not misleading (in case of such
documents, in the light of the circumstances existing at the time that such
documents were filed with the Commission under the Exchange Act)); (C) obtain a
"cold" comfort letter or letters from the independent certified public
accountants of the Company addressed to the Holders and the placement or sales
agent, if any, therefor and the underwriters, if any, thereof, dated (I) the
effective date of such registration statement and (II) the effective date of any
prospectus supplement to the prospectus included in such registration statement
or post-effective amendment to such registration statement which includes
unaudited or audited financial statements as of a date or for a period
subsequent to that of the latest such statements included in such prospectus
(and, if such registration statement contemplates an underwritten offering
pursuant to any prospectus supplement to the prospectus included in such
registration statement or post-effective amendment to such registration
statement which includes unaudited or audited financial statements as of a date
or for a period subsequent to that of the latest such statements included in
such prospectus, dated the date of the closing under the underwriting agreement
relating thereto), such letter or letters to be in customary form and covering
such matters of the type customarily covered by letters of such type; (D)
deliver such documents and certificates, including officers' certificates, as
may be reasonably requested by Holders of at least a majority of the Registrable
Securities being sold and the placement or sales agent, if any, therefor and the
managing underwriters, if any, thereof to evidence the accuracy of the
representations and warranties made pursuant to clause (A) above and the
compliance with or satisfaction of any agreements or conditions contained in the
underwriting agreement or other agreement entered
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into by the Company; and (E) undertake such obligations relating to expense
reimbursement, indemnification and contribution as are provided in Sections 5
and 7 hereof;
(xiv) notify in writing each Holder of Registrable Securities
of any proposal by the Company to amend or waive any provision of this Agreement
and of any amendment or waiver effected pursuant thereto, each of which notices
shall contain the text of the amendment or waiver proposed or effected, as the
case may be;
(xv) engage to act on behalf of the Company with respect to the
Registrable Securities to be so registered a registrar and transfer agent having
such duties and responsibilities (including, without limitation, registration of
transfers and maintenance of stock registers) as are customarily discharged by
such an agent, and to enter into such agreements and to offer such indemnities
as are customary in respect thereof; and
(xvi) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
Holders, as soon as practicable, but in any event not later than 18 months after
the effective date of such registration statement, an earnings statement
covering a period of at least twelve months which shall satisfy the provisions
of Section 6(a) of the Securities Act (including, at the option of the Company,
pursuant to Rule 158 thereunder).
(b) In the event that the Company would be required, pursuant to
Section 6(a)(v)(F) above, to notify the Holders of Registrable Securities
included in a registration statement hereunder, the sales or placement agent, if
any, and the managing underwriters, if any, of the securities being sold, the
Company shall prepare and furnish to each such Holder, to each such agent, if
any, and to each underwriter, if any, a reasonable number of copies of a
prospectus supplement or amendment so that, as thereafter delivered to the
purchasers of Registrable Securities, such prospectus shall not 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 not misleading in
light of the circumstances then existing. Each Holder agrees that upon receipt
of any notice from the Company pursuant to Section 6(a)(v)(F) hereof, such
Holder shall forthwith discontinue the distribution of Registrable Securities
until such Holder shall have received copies of such amended or supplemented
registration statement or prospectus, and if so directed by the Company, such
Holder shall deliver to the Company (at the Company's expense) all copies, other
than permanent file copies, then in such Holder's possession of the prospectus
covering such Registrable Securities at the time of receipt of such notice.
(c) The Company may require each Holder of Registrable Securities
as to which any registration is being effected to furnish to the Company such
information regarding such Holder and such Holder's method of distribution of
such Registrable Securities as the Company may from time to time reasonably
request in writing but only to the extent that such information is required in
order to comply with the Securities Act. Each such Holder agrees to notify the
Company as promptly as practicable of any inaccuracy or change in information
previously furnished by such Holder to the Company or of the occurrence of any
event in either case as a result of which any prospectus relating to such
registration contains or would contain an
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untrue statement of a material fact regarding such Holder or the distribution of
such Registrable Securities or omits to state any material fact regarding such
Holder or the distribution of such Registrable Securities required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing, and promptly to furnish to the Company any
additional information required to correct and update any previously furnished
information or required so that such prospectus shall not contain, with respect
to such Holder or the distribution of such Registrable Securities, an untrue
statement or a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing.
ARTICLE 7
INDEMNIFICATION
7.1 The Company will indemnify each Holder, each of its officers and
directors and partners, and such Holder's legal counsel and independent
accountants, if any, and each person controlling any such persons within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages and liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereof, incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein, a material fact
required to be stated therein or necessary to make the statements therein, not
misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act or any state securities laws applicable to
the Company and relating to action or inaction by the Company in connection with
any such registration, qualification or compliance, and will reimburse each such
Holder, each of its officers and directors and partners and such Holder's legal
counsel and independent accountants, and each person controlling any such
persons, each such underwriter and each person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by such Holder or
underwriter and expressly intended for use in such registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereof.
7.2 Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers and its legal counsel and independent accountants, each underwriter, if
any, of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
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Section 15 of the Securities Act, and each other such Holder, each of its
officers, directors, partners, legal counsel and independent accountants, if
any, and each person controlling such Holder within the meaning of Section 15 of
the Securities Act, against all expenses, claims, losses, damages and
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Holders, such directors, officers, partners, legal counsel,
independent accountants, underwriters or control persons for any legal or any
other expenses reasonably incurred in connection with investigating, preparing
or defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular, other document or amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company by such Holder and expressly intended for use in such
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereof; provided, however, that the obligations of each
Holder hereunder shall be limited to an amount equal to the proceeds to such
Holder of Registrable Securities sold as contemplated herein.
7.3 Each party entitled to indemnification under this Section 7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld). The Indemnified Party may participate in such defense at such party's
expense; provided, however, that the Indemnifying Party shall bear the expense
of such defense of the Indemnified Party if representation of both parties by
the same counsel would be inappropriate due to actual or potential conflicts of
interest. The failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this
Agreement, unless such failure is prejudicial to the ability of the Indemnifying
Party to defend the action. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect of such
claim or litigation.
7.4 If the indemnification provided for in Section 7.1 or 7.2 is
unavailable or insufficient to hold harmless an Indemnified Party, then each
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of the expenses, claims, losses, damages or
liabilities (or actions or proceedings in respect thereof) referred to in
Section 7.1 or 7.2, in such proportion as is appropriate to reflect the relative
fault of the Company on the
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one hand and the sellers of Registrable Securities on the other hand in
connection with statements or omissions which resulted in such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) or
expenses, as well as any other relevant equitable considerations. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or the sellers of Registrable Securities and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The Company and the Holders agree that it would
not be just and equitable if contributions pursuant to this Section 7.4 were to
be determined by pro rata allocation (even if all Sellers of Registrable
Securities were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in the first sentence of this Section 7.4. The amount paid by an
Indemnified Party as a result of the expenses, claims, losses, damages or
liabilities (or actions or proceedings in respect thereof) referred to in the
first sentence of this Section 7.4 shall be deemed to include any legal or other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any claim, action or proceeding which is the subject
of this Section 7.4. 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 obligations of sellers of Registrable Securities to
contribute pursuant to this Section 7.4 shall be several in proportion to the
respective amount of Registrable Securities sold by them pursuant to a
registration statement.
ARTICLE 8
RULE 144 REPORTING
With a view to making available the benefits of certain rules and
regulations of the Commission which may at any time permit the sale of
securities of the Company to the public without registration, after such time as
a public market exists for the Common Stock of the Company, the Company agrees
to:
8.1 Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date of the first registration under the Securities Act filed by
the Company for an offering of its securities to the general public; and
8.2 Use its best efforts to then file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
8.3 So long as a Holder owns any Registrable Securities, furnish to the
Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 (at any time after
ninety (90) days following the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time
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after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company as a Holder may reasonably request in availing itself
of any rule or regulation of the Commission allowing a Holder to sell any such
securities without registration.
ARTICLE 9
TRANSFER OF REGISTRATION RIGHTS
The rights to cause the Company to register Registrable Securities
granted Holders under Articles 2, 3 and 4 hereof may be assigned in connection
with any transfer or assignment of the Holder's Registrable Securities. All
transferees and assignees of the rights to cause the Company to register
Registrable Securities granted Holders under Articles 2, 3 and 4 hereof, as a
condition to the transfer of such rights, shall agree in writing to be bound by
the agreements set forth herein.
ARTICLE 10
LIMITATIONS ON REGISTRATION RIGHTS
GRANTED TO OTHER SECURITIES
The parties hereto agree that additional holders may, with the consent
of the Company and the holders of a majority of the Registrable Securities then
outstanding, be added as parties to this Agreement with respect to any or all
securities of the Company held by them; provided, however, that from and after
the date of this Agreement, the Company shall not without the prior written
consent of the holders of a majority of the Registrable Securities then
outstanding, enter into any agreement with any holder or prospective holder of
any securities of the Company providing for the grant to such holder of
registration rights superior to, or pari passu with, those granted herein. Any
additional parties shall execute a counterpart of this Agreement, and upon
execution by such additional parties and by the Company, shall be considered
Holders for purposes of this Agreement, and shall be added to the Schedule of
Registration Rights Holders.
ARTICLE 11
MISCELLANEOUS
11.1 GOVERNING LAW. THE LAWS OF THE STATE OF DELAWARE SHALL GOVERN THE
INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF THIS AGREEMENT,
REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER PRINCIPLES OF CONFLICTS OF
LAW.
11.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
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11.3 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof.
11.4 Termination. The obligations of the Company to register
Registrable Securities under this Agreement shall terminate on the tenth
anniversary of the date of this Agreement. In addition, the right of any Holder
to request registration or inclusion in any registration shall not be
exercisable by a Holder during any period in which (i) after the closing of the
first Qualified Public Offering of Common Stock of the Company, all shares of
Registrable Securities held or entitled to be held upon conversion by such
Holder may immediately be sold without limitation under Rule 144(k) under the
Securities Act and (ii) the Company's Common Stock is traded on the New York
Stock Exchange, the American Stock Exchange, or The Nasdaq National Market.
11.5 Notices. All notices, requests, consents, and other communications
hereunder shall be in writing and shall be deemed effectively given and received
when delivered in person or by national overnight courier service or by
certified or registered mail, return receipt requested, or by telecopier,
addressed as follows:
(a) if to the Company, at
Promotions Acquisition, Inc.
480 San Antonio Road, Suite 250
Mountain View, California 94040-1218
Attention: R. Scott Wills
Facsimile: (650) 917-4123
with a copy to:
Carr & Ferrell, LLP
2225 East Bayshore Road, Second Floor
Palo Alto, California 94303
Attention: Barry A. Carr, Esq.
Facsimile: (650) 812-3444
(b) if to Cox:
Cox Target Media, Inc.
c/o Cox Enterprises, Inc.
1400 Lake Hearn Drive, N.E.
Atlanta, Georgia 30319
Attention: Dean H. Eisner
M. Todd Croom
Facsimile: (404) 843-5256
with a copy to:
Dow, Lohnes & Albertson, PLLC 1200 New Hampshire
Avenue, N.W.
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Suite 800
Washington, D.C. 20036
Attention: Edward J. O'Connell, Esq.
Facsimile: (202) 776-2222
(c) To any other Holder: The address reflected on the records
of the Company, or such other address or addresses as shall have been furnished
in writing by such party to the Company and to the other parties to this
Agreement.
11.6 Severability. The invalidity, illegality or unenforceability of
one or more of the provisions of this Agreement in any jurisdiction shall not
affect the validity, legality or enforceability of the remainder of this
Agreement in such jurisdiction or the validity, legality or enforceability of
this Agreement, including any such provision, in any other jurisdiction, it
being intended that all rights and obligations of the parties hereunder shall be
enforceable to the fullest extent permitted by law.
11.7 Titles and Subtitles. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
11.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
constitute one instrument.
11.9 "Market Stand-Off" Agreement. Each Holder agrees, if requested by
the Company and underwriter of Common Stock (or other securities) of the Company
in connection with the Company's first Qualified Public Offering not to sell or
otherwise transfer or dispose of any Common Stock of the Company held by such
Holder during the one hundred eighty (180) day period following the effective
date of a registration statement of the Company filed under the Securities Act
without the prior consent of such underwriter, provided, however, that all
Holders and officers and directors of the Company shall also have agreed to
enter into similar agreements. Such agreement shall be in writing in a form
reasonably satisfactory to the Company and such underwriter. The Company may
impose stop-transfer instructions with respect to the shares (or securities)
subject to the foregoing restriction until the end of said one hundred eighty
(180) day period.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective duly authorized officers or
representatives as of the date first written above.
PROMOTIONS ACQUISITION, INC.
By: /s/
----------------------------------
Name:
Title:
COX TARGET MEDIA, INC.
By: /s/
----------------------------------
Name:
Title:
SANDLER CAPITAL PARTNERS IV, L.P.
By: Sandler Investment Partners, L.P., General Partner
By: Sandler Capital Management, General Partner
By: MJDM Corp., a General Partner
By: /s/ Edward G. Grinacoff
------------------------------------
Edward G. Grinacoff
President
SANDLER CAPITAL PARTNERS IV FTE, L.P.
By: Sandler Investment Partners, L.P., General Partner
By: Sandler Capital Management, General Partner
By: MJDM Corp., a General Partner
By: /s/ Edward G. Grinacoff
---------------------------------
Edward G. Grinacoff
President
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<PAGE>
SANDLER INTERNET PARTNERS, L.P.
By: Sandler Investment Partners, L.P., General Partner
By: Sandler Capital Management, General Partner
By: MJDM Corp., General Partner
By: /s/ Edward G. Grinacoff
-----------------------------------
Name: Edward G. Grinacoff
Title: President
BRIGHTSTREET.COM, INC.
By: /s/ Andrew P. Panzo
-----------------------------------
Name: Andrew P. Panzo
Title:
THE MCCLATCHY COMPANY
By: /s/
-----------------------------------
Name:
Title:
CENTRAL NEWSPAPERS, INC.
By: /s/
------------------------------------
Name:
Title:
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<PAGE>
EXHIBIT A
Schedule of Registration Rights Holders
---------------------------------------
Cox Target Media, Inc.
Sandler Capital Partners IV, L.P.
Sandler Capital Partners IV FTE, L.P.
Sandler Internet Partners, L.P.
BrightStreet.com, Inc.
The McClatchy Company
Central Newspapers, Inc.
-23-
<PAGE>
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (the "Agreement") is dated as of
October 1, 1999 by and among Net Value Holdings, Inc., a Delaware corporation
(the "Company"), and each of the purchasers whose names are set forth on Exhibit
A hereto (individually, a "Purchaser" and collectively, the "Purchasers").
BACKGROUND
1. Reference is made to the Series B Convertible Stock Purchase
Agreement (the "Preferred Agreement") dated as of September 17, 1999 among the
Company and the purchasers named therein.
2. Simultaneously with the closing of the transactions contemplated
hereby, the Purchasers are purchasing shares of the Series B Convertible
Preferred Stock, par value $.001 per share, of the Company at a closing (the
"Preferred Closing") pursuant to the Preferred Agreement and Paul H. Stephen
("Mr. Stephen"), the managing director of each of the Purchasers, is entering
into a consulting agreement (the "Consulting Agreement") with the Company.
The parties hereto agree as follows:
ARTICLE I.
Purchase and Sale of Common 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 (the "Shares") of the
Company's Common Stock, par value $.001 per share (the "Common Stock") at a
purchase price of $1.00 per Share. 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.
Section 1.2 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
Shares set forth opposite their respective names on Exhibit A. The aggregate
purchase price of the Shares being acquired by each Purchaser is set forth
opposite such Purchaser's name on Exhibit A (each a "Purchase Price", and
collectively referred to as the "Purchase Prices"). The closing of the purchase
and sale of the Shares to be acquired by the Purchasers from the Company shall
take place at the offices of Klehr, Harrison, Harvey, Branzburg & Ellers LLP,
(i) simultaneously with the Second Tranche Closing (as defined in the Preferred
Agreement ) or (ii) such other time and place or on such date as the Purchasers
and the Company may agree upon (the "Closing Date"), subject to the satisfaction
(or waiver) of the applicable
<PAGE>
conditions set forth in Article IV hereof. On the Closing Date, each Purchaser
shall pay such Purchaser's Purchase Price by wire transfer to the Company, in
accordance with the Company's written wiring instructions, against delivery of
such Purchaser's Shares and the Company shall deliver such Shares against
delivery of such Purchase Price.
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.
(b) Authorization and Power. The Company has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue and sell the Shares in accordance with the terms hereof. The execution,
delivery and performance of this Agreement by the Company and the consummation
by it of the transactions contemplated hereby 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.
This Agreement constitutes 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) Issuance of Shares. The Shares to be issued at the Closing
have been duly authorized by all necessary corporate action and, when paid for
or issued in accordance with the terms hereof, the Shares shall be validly
issued and outstanding, fully paid and nonassessable
(d) No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated herein do not (i) violate any provision of the
Company's Articles or Bylaws, (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 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 law, rule
or regulation or any judgment or decree of any court or governmental agency
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
-2-
<PAGE>
not, individually or in the aggregate, have a material adverse effect on the
Company. The Company 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 or issue and sell the Shares in accordance with the terms
hereof (other than any filings which may be required to be made by the Company
with the Commission or state securities administrators subsequent to the
Closing, and any registration statement which may be filed pursuant hereto);
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.
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 and to purchase the
Shares being sold to it hereunder. The execution, delivery and performance of
this Agreement, by such Purchaser and the consummation by it of the transactions
contemplated hereby 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 has been duly executed and delivered by the Purchasers. This
Agreement constitutes 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 by such Purchaser, and the consummation by such Purchaser of the
transactions contemplated herein do not (i) violate any provision 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 or to purchase
the Shares in accordance with the terms hereof,
-3-
<PAGE>
provided that for purposes of the representation 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 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 nor a present arrangement (whether
or not legally binding) or intention to effect any distribution of the Shares 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 for any minimum or other specific term and reserves
the right to dispose of the Shares 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 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 must
be held indefinitely unless such Shares 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 without
either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(g) 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.
-4-
<PAGE>
ARTICLE III.
Covenants
-5-
<PAGE>
Section 3.1 Transfer or Resale. Each Purchaser severally, and not
jointly, understands that (i) the sale or resale of the Shares have not been and
are not being registered under the Securities Act or any state securities laws,
and agrees that the Shares may not be transferred unless (a) the resale of the
Shares 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 to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration; or (c) the Shares 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 Article V).
ARTICLE IV.
Conditions
Section 4.1 Conditions Precedent to the Obligation of the Company to
Sell the Shares at the Closing. The obligation hereunder of the Company to issue
and sell the Shares to the Purchasers is subject to the satisfaction or waiver,
at or before the 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 Purchaser's Representations and
Warranties. The representations and warranties of each Purchaser shall be true
and correct in all material respects as of the date when made and as of the
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 Purchasers. Each 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 Closing, including having
paid by wire transfer of funds in accordance with this Agreement the Purchase
Price set forth opposite such Purchaser's name on Exhibit A, such Purchaser
shall have executed and delivered this Agreement 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) Second Tranche Closing; Consulting Agreement. The Second
Tranche Closing shall have occurred and Mr. Stephen shall have executed and
delivered the Consulting Agreement to the Company.
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to
Purchase the Shares at the Closing. The obligation hereunder of each Purchaser
to acquire and pay for the
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<PAGE>
Shares are subject to the satisfaction or waiver, at or before the 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 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 required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing.
(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) Second Tranche Closing; Consulting Agreement. The Second
Tranche Closing shall have occurred and the Company shall have executed and
delivered to Mr. Stephen the Consulting Agreement.
-7-
<PAGE>
ARTICLE V.
Registration Rights
Section 5.1 Piggyback Registration Rights. If, at any time following
the Closing Date, the Company proposes to file with the Commission a
registration statement relating to an offering of its equity securities under
the Securities Act on any form (other than Form S-4 or Form S-8 or their then
equivalents) on which the Shares may be registered, it shall give the Purchasers
written notice of its intention to file such registration statement. If either
Purchaser so elects, by written notice to the Company given within fifteen (15)
days after their receipt of such notice from the Company, such Purchaser may
elect to have all or any portion of such Purchaser's Shares registered by such
registration statement if such registration statement becomes effective (but the
Company shall have no obligation to cause or attempt to cause such registration
statement to become or remain effective). The registration rights set forth in
this Article V shall also apply to any shares of Common Stock issued as a result
of stock dividends, stock splits or other capital adjustments or exchanges in
connection with the Shares.
Section 5.2 Expenses. The registration referred to in Section 5.1 shall
be accomplished at the sole expense of the Company except that the Purchasers
who own the Shares so registered shall pay whatever additional costs (including
filing fees) are incurred by the Company solely as a result of the inclusion of
such Shares in the registration statement.
Section 5.3 Underwritten Offerings. If other securities being
registered by such registration statement are being sold publicly through one or
more investment banking firms serving as underwriters, the Purchasers who own
the Shares to be included in such registration statement must agree to sell
their Shares through such underwriters and the Purchasers who do not elect to
have Shares registered will agree upon the request of such underwriters, to
defer the public sale of their Shares for a period of one hundred twenty (120)
days following the effective date of the registration statement. The Company
shall have no obligation to amend such registration statement after it becomes
effective to reflect subsequent events and the any Purchaser owning registered
Shares will not make any sales in reliance on such registration statement if
Buyer has advised such Purchasers that the information in the registration
statement is no longer current. If any Purchaser shall request inclusion of any
Shares held by such Purchaser in the registration of other securities of Company
and such proposed registration by Company is, in whole or in part, an
underwritten public offering, and if the managing underwriter determines and
advises the Company in writing that inclusion in such registration of all
proposed securities (including securities being offered by or on behalf of
Company and securities covered by requests for registration) would adversely
affect the marketability of the offering of the securities proposed to be
registered by the Company, then such Purchaser shall be entitled to participate
pro rata (based on the number of shares owned by the respective holders) with
the other shareholders having similar piggyback incidental registration rights
with respect to such registration to the extent the managing underwriter
determines that such Shares may be included without such adverse effect and
subject to any demand registration rights.
Section 5.4 Exclusions. Notwithstanding anything herein to the
contrary, the Company shall not be required to register any Shares on any
registration statement filed pursuant to the
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<PAGE>
Registration Rights Agreement dated as of September 17, 1999 between the Company
and the investors party thereto. Notwithstanding anything herein to the
contrary, the Company shall not be required to register any Shares if counsel
for the Company opines that such Shares may be sold publicly by the Purchaser
owning such Shares without registration under the Securities Act (including
reliance on Rule 144 under the Securities Act), of if the Company, at its
expense, procures a "no-action" letter from the Securities and Exchange
Commission indicating that the Staff will take no action if the Shares are sold
without registration.
Section 5.5 Indemnity. If any Shares are registered, the Purchasers
owning such Shares and the Company will enter into a cross indemnity agreement
in form and substance satisfactory to counsel for the Company, by which the
Company will indemnify such Purchasers against any liability arising under the
1933 Act, except to the extent that liability arises in connection with
information supplied to the Company by such Purchasers or their agents, and such
Purchasers shall indemnify the Company in connection with such latter
information.
Section 5.6 Transfer. The registration right granted by this Agreement
shall be for the benefit of the Purchasers only and may not be transferred in
connection with any transfer of the Shares or otherwise.
ARTICLE VI.
Stock Certificate Legend
Section 6.1 Legend. Each certificate representing the Shares 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):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND SAID SHARES CANNOT BE
SOLD, TRANSFERRED, DISPOSED OF, PLEDGED OR HYPOTHECATED IN ANY MANNER
WHATSOEVER UNLESS REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR, IF IN THE OPINION OF COMPANY COUNSEL, AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS IS IN FACT APPLICABLE TO SAID SHARES.
The Company agrees to reissue certificates representing the Shares,
without the legend set forth above if at such time, prior to making any transfer
of any Shares 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 this
Agreement. The legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any Shares upon which
it is stamped if, unless otherwise required by state securities laws, (a) the
sale of such Shares is registered under the Securities Act (including
registration pursuant to Rule 416 thereunder) as contemplated hereby (b) such
holder provides the Company with an opinion of counsel, in form, substance and
scope customary for
-9-
<PAGE>
opinions of counsel in comparable transactions, to the effect that a sale or
transfer of such Shares may be made without registration under the Securities
Act; or (c) such holder provides the Company with reasonable assurances that
such Shares can be sold under Rule 144(k). Each Purchaser agrees to sell all
Shares, 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 and the effectiveness of a registration statement covering such Shares 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 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 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.
ARTICLE VII.
Termination
Section 7.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the 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 Closing shall not have been consummated by the
Closing Date, as long as the failure to so consummate is not the fault of the
terminating party.
Section 7.3 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 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 7.3 shall be deemed to release the Company or any
Purchaser from any liability for any breach under this 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.
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<PAGE>
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.
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
-11-
<PAGE>
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
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.
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 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 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 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
-12-
<PAGE>
set forth herein 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 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
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 Shares then
outstanding.
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. Forman, 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
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.
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.
-13-
<PAGE>
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 Closing, the assignment by a
party to this Agreement of any rights hereunder shall not affect the obligations
of such party under 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 covenants, representations and warranties of
the Company and the Purchasers shall survive indefinitely.
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 delivery
shall cause 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 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 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 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.
-14-
<PAGE>
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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-15-
<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: /s/ Andrew P. Panzo
-----------------------------
Name: Andrew P. Panzo
Title: President
<PAGE>
PURCHASERS:
RS ORPHAN FUND, L.P.,
a California limited partnership
By: /s/ Paul H. Stephen
-------------------------------------
Name: Paul H. Stephen
Title: Managing Director
RS ORPHAN OFFSHORE FUND, L.P.,
a Cayman Islands exempted limited partnership
By: /s/ Paul H. Stephens
--------------------------------------
Name: Paul H. Stephen
Title: Managing Director
<PAGE>
EXHIBIT A to the
COMMON STOCK PURCHASE AGREEMENT
FOR NET VALUE HOLDINGS, INC.
Names and Address Number of
of Purchaser Shares Purchased Purchase Price
----------------- ---------------- --------------
RS ORPHAN FUND, LP. 473,462 $473,462
a California limited partnership
388 Market Street
Suite 200
San Francisco, CA 94111
Attn: Paul H. Stephen, Managing Director
General Partner
Phone: 415-591-2727
Fax: 415-591-2852
Residence: California
RS ORPHAN OFFSHORE FUND, L.P. 202,912 $202,912
388 Market Street
Suite 200
San Francisco, CA 94111
Attn: Paul H. Stephen, Managing Director
General Partner
Phone: 415-591-2727
Fax: 415-591-2852
Residence: Cayman Islands
<PAGE>
CONSULTING AGREEMENT
This Consulting Agreement (this "Agreement") is made as of October 1,
1999 by NET VALUE HOLDINGS, INC., a Delaware corporation (the "Company"), and
PAUL H. STEPHEN (the "Advisor").
BACKGROUND
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is advisable and in the best interest of the Company to enter
into a consulting agreement with the Advisor pursuant to which he will serve on
the Company's Board of Advisors, assist the Company in locating strategic
investors, assist the Company in locating potential partner companies and
perform such other services as the Board, the Chief Executive Officer or the
President of the Company may direct;
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Company has sold shares of the Company's common stock, $.001 par
value per share ("Common Stock"), to the RS Orphan Fund, L.P. and the RS Orphan
Offshore Fund, L.P. (collectively the "Purchasers") pursuant to a Common Stock
Purchase Agreement dated the date hereof between the Company and the Purchasers,
the Advisor is the managing director of the Purchasers and the execution and
delivery of this Agreement is a condition precedent to the obligations of the
parties to such Common Stock Purchase Agreement;
WHEREAS, the Advisor desires to provide such services to the Company;
NOW THEREFORE, in consideration of the facts, mutual promises and
covenants contained herein and intending to be legally bound hereby, the Company
and the Advisor agree as follows:
1. ENGAGEMENT AND DUTIES.
(a) The Company hereby appoints the Advisor as an advisor to
the Company and as a member of the Company's Board of Advisors, whereby the
Advisor shall, from time to time, to the extent reasonably requested by the
Company, provide those management and financial advisory services to the Company
which are set forth in Section 1(b) hereof. The Advisor hereby accepts such
appointment and agrees to provide each of the services required to be provided
by him under this Agreement and to make himself available from time-to-time, on
a part-time basis, to consult with the management and Board of Directors to the
Company in connection with such services.
(b) Upon the reasonable request of the Board, the Chief
Executive Officer or the President of the Company, the Advisor hereby agrees to
provide the following services to the Company:
(i) review periodically the business, operations,
financial condition and prospects of the Company, its subsidiaries and any
entities in which the Company has made investments (each a "Portfolio Company");
-1-
<PAGE>
(ii) assist the Company in the planning, structuring
and negotiation of each potential acquisition by the Company of, or any
investment by the Company in, another business operating within the Company's
industry or any related industry including, without limitation, any Portfolio
Company;
(iii) assist the Company in seeking out and
negotiating with potential financing sources in connection with the financing of
any transaction referred to in clause (ii) above; and
(iv) provide to the Company such other management
and financial advisory services as may be reasonably requested by the Board, the
Chief Executive Officer or the President of the Company.
2. NATURE OF RELATIONSHIP. Notwithstanding the services provided by the
Advisor, the Advisor shall be deemed to be an independent contractor and, unless
otherwise expressly authorized by the Company's Board of Directors, shall not be
authorized to manage the affairs of, act in the name of, or bind the Company.
The Company shall not be obligated to follow or accept any advice or
recommendation made by the Advisor, and the management, policies and operations
of the Company shall be the sole responsibility of the Board of Directors and
the management of the Company. The obligations of the Advisor to the Company are
not exclusive, and the Advisor may, in his sole discretion, render the same or
similar services to any other person or entity. Nothing set forth in this
Agreement shall be deemed to prohibit the Advisor from serving any other person
or entity in any capacity the Advisor may deem appropriate or from conducting
his business and affairs in any manner he may elect, whether or not such
activities might involve an actual or potential conflict of interest vis-a-vis
the Company or any of its subsidiaries.
3. TERM. Subject to the termination provisions of Section 6 hereof, the
initial term of this Agreement shall commence on the date hereof and continue
for a period of three (3) years following the date hereof.
4. COMPENSATION AND EXPENSES.
(a) No additional compensation shall be paid to the Advisor by the
Company in consideration of his services hereunder. The Company shall pay or
reimburse the Advisor for all Expenses (as defined below) in accordance with
Section 4(b) below.
(b) The term "Expenses" shall mean all fees, costs and expenses
reasonably incurred by the Advisor in connection with his provision of services
hereunder, including, without limitation: (i) all travel and other out-of-pocket
costs and expenses incurred by the Advisor in connection herewith, and (ii) all
losses that are the subject of indemnification pursuant to this Agreement. The
Company shall reimburse the Advisor promptly for all Expenses upon the Advisor's
presentation of invoices or other documents reasonably evidencing such Expenses.
5. INDEMNIFICATION, ETC. The Company 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 Company indemnify the
Advisor to the same extent as if he were an officer of the Company. The Company
agrees that it shall not amend its By-laws in any manner
-2-
<PAGE>
that will materially adversely affect the Advisor's rights to indemnification
thereunder. This is not intended to alter the nature of the Advisor's
relationship to the Company described in Section 2 hereof.
6. TERMINATION. Notwithstanding anything to the contrary contained in
this Agreement, this Agreement may be terminated by either the Advisor or the
Company upon at least one (1) month prior written notice to the other party.
7. NOTICES. Any notice, request, demand, waiver, consent, approval or
other communication which is required or permitted hereunder shall be in writing
and shall be deemed given only if delivered personally to the address set forth
below (to the attention of the person identified below) or sent by telefax,
telegram or by registered or certified mail, postage prepaid, return receipt
requested as follows:
If to 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 Advisor: Paul H. Stephen
RS Investment Management
388 Market Street, Suite 200
San Francisco, CA 94111
Facsimile No.: (415) 591-2852
or to such other address as the addressee may have specified in a notice duly
given to the sender and to counsel as provided herein. Any notice, request,
demand, waiver, consent, approval or other communication given (a) personally
shall be effective when delivered, (b) by mail or telegram shall be effective
when receive and (c) by telecopy shall be effective when the appropriate
telecopy answer back or confirmation is received.
8. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof. It supersedes any
prior agreement or understanding among them, and it may not be modified or
amended in any manner other than by an instrument in writing signed by both
parties hereto, or their respective successors or assigns, or otherwise as
provided herein.
9. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED
AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA, WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES THEREOF.
-3-
<PAGE>
10. SUCCESSORS AND ASSIGNS. Except as herein otherwise specifically
provided, this Agreement shall be binding upon and inure to the benefit of the
parties and their legal representatives, heirs, administrators, executors,
successors and assigns.
11. CAPTIONS. Captions contained in this Agreement are inserted only as
a matter of convenience and in no way define, limit or extend the scope or
intent of this Agreement or any provision hereof.
12. SEVERABILITY. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those to which it is held invalid, shall
not be affected thereby.
13. WAIVERS. No provision of this Agreement shall be deemed to have
been waived unless such waiver is contained in a written notice given to the
party claiming such waiver, and no such waiver shall be deemed to be a waiver of
any other or further obligation or liability of the party or parties in whose
favor the waiver was given.
14. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall constitute one and the same instrument. This Agreement may be
executed by facsimile signatures, each of which shall be deemed an original copy
of this Agreement.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
COMPANY:
NET VALUE HOLDINGS, INC.
By: /s/ Andrew P. Panzo
--------------------------
Andrew P. Panzo
Chief Executive Officer
and President
ADVISOR:
/s/ Paul S. Stephens
------------------------------
Paul H. Stephens, individually
-5-
<PAGE>
Exhibit 11
Computation of Net Loss Per Share
Nine Months
Year Ended Ended
December 31, September 30,
1998 1999
------------ -------------
Net loss ..................................... (2,889,386) (14,510,127)
========== ===========
Weighted average number of common shares
outstanding ................................ 4,993,868 8,647,063
========== ===========
Net loss per common shares outstanding ....... $ (.58) $ (1.68)
========== ===========
*In 1998 the Company adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share" for all applicable periods presented in the accompanying
financial statements. See Note 12 to the Company's financial statements included
herein.
<PAGE>
BARRY L. FRIEDMAN, P.C.
1582 Tulita Drive
Las Vegas, NV 89123
November 23, 1999
Ms. Elaine Wolff
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549
Dear Ms. Wolff:
I have read the section "Independent Accountants" in the Registration Statement
(Amendment No. 1 to Form S-1 No. 333-88629) of Net Value Holdings, Inc. for the
registration of 3,772,560 shares of common stock, $.001 par value, and am in
agreement with the statement contained in the first paragraph therein. We have
no basis to agree or disagree with other statements of the Registrant contained
in the second paragraph therein.
Very truly yours,
BARRY L. FRIEDMAN, P.C.
/s/ Barry L. Friedman
- -------------------------
Barry L. Freidman
<PAGE>
Conducts Business
Subsidiary State of Incorporation Under the Name
- ---------- ---------------------- -----------------
Net Value, Inc. Delaware Net Value, Inc.
metacat.com, Inc. Oregon metacat.com
<PAGE>
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.
333-88629) and related Prospectus of Net Value Holdings, Inc. for the
registration of 3,722,560 shares of its common stock.
LJ SOLDINGER ASSOCIATES
Arlington Heights, Illinois
December 17, 1999, 1999
<PAGE>
[LETTERHEAD OF MORGENSTERN & ASSOCIATES]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have included our report dated November 30, 1999 accompanying the financial
statements of College411.com, Inc. contained in this Registration Statement, and
we consent to the use of the aforementioned report in this Registration
Statement and Prospectus, and to the use of our name as it appears under the
captions "selected Financial Data" and "Experts".
MORGENSTERN & ASSOCIATES
Certified Public Accountants
December 17, 1999
<PAGE>
[LETTERHEAD OF MORGENSTERN & ASSOCIATES]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have included our report dated December 6, 1999 accompanying the financial
statements of Asset Exchange, Inc. contained in this Registration Statement, and
we consent to the use of the aforementioned report in this Registration
Statement and Prospectus, and to the use of our name as it appears under the
captions "selected Financial Data" and "Experts".
MORGENSTERN & ASSOCIATES
Certified Public Accountants
December 17, 1999
<PAGE>
[LETTERHEAD OF MORGENSTERN & ASSOCIATES]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have included our report dated December 7, 1999 accompanying the balance
sheet of SwapIt.com, Inc. contained in this Registration Statement, and we
consent to the use of the aforementioned report in this Registration Statement
and Prospectus, and to the use of our name as it appears under the captions
"selected Financial Data" and "Experts".
MORGENSTERN & ASSOCIATES
Certified Public Accountants
December 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 1,466 1,051,931
<SECURITIES> 0 0
<RECEIVABLES> 200,000 637,000
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 371,648 2,056,214
<PP&E> 0 43,688
<DEPRECIATION> 0 2,277
<TOTAL-ASSETS> 2,586,188 7,653,191
<CURRENT-LIABILITIES> 1,288,421 2,360,946
<BONDS> 868,158 6,118,945
2,520 0
0 2
<COMMON> 6,970 13,372
<OTHER-SE> 3,314,505 16,564,439
<TOTAL-LIABILITY-AND-EQUITY> 2,586,188 7,653,191
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 140,484 2,288,047
<LOSS-PROVISION> 2,618,384 8,289,686
<INTEREST-EXPENSE> 82,082 3,409,507
<INCOME-PRETAX> (2,889,386) (14,510,127)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,889,386) (14,510,127)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,889,386) (14,510,127)
<EPS-BASIC> (0.58) (1.68)
<EPS-DILUTED> (0.58) (1.68)
</TABLE>
