<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 2000.
REGISTRATION NO. 333-91177
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TAKE TO AUCTION.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 7389 65-0924433
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
5555 ANGLERS AVENUE, SUITE 16
FORT LAUDERDALE, FLORIDA 33312
(954) 987-0654
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ALBERT FRIEDMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
5555 ANGLERS AVENUE, SUITE 16
FORT LAUDERDALE, FLORIDA 33312
(954) 987-0654
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
KEITH WASSERSTROM, ESQ. JOEL D. MAYERSOHN, ESQ.
BAKER & MCKENZIE ATLAS, PEARLMAN, TROP & BORKSON, P.A
1200 BRICKELL AVENUE, SUITE 1900 200 EAST LAS OLAS BOULEVARD, SUITE 1900
MIAMI, FLORIDA 33131 FORT LAUDERDALE, FLORIDA 33301
FACSIMILE NUMBER: (305) 789-8953 FACSIMILE NUMBER: (954) 766-7800
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, please check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the 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 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common shares, par value $0.001 per share.............................. $11,960,000 $3,157.44
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</TABLE>
(1) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the
amount of the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED MAY 22, 2000
1,300,000 SHARES
[LOGO OMITTED]
COMMON SHARES
------------------------
This is an initial public offering of our common shares.
Prior to the offering, there has been no public market for the common
shares. We have been approved to list our shares on the American Stock Exchange
under the symbol TTA. We currently estimate that the initial public offering
price will be between $6.00 and $8.00 per share. For factors to be considered in
determining the initial public offering price, see 'Underwriting.'
SEE 'RISK FACTORS' BEGINNING ON PAGE 4 TO READ ABOUT CERTAIN FACTORS YOU
SHOULD CONSIDER BEFORE BUYING THESE SECURITIES.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Initial public offering price.......................................................... $ 7.00 $ 9,100,000
Underwriting discounts................................................................. $ 0.49 $ 637,000
Proceeds, before expenses, to Take to Auction.com...................................... $ 6.51 $ 8,463,000
</TABLE>
The underwriters may, under certain circumstances, purchase up to an
additional 195,000 common shares from Take to Auction.com solely to cover
over-allotments.
------------------------
The underwriters expect to deliver the shares in ,
on , 2000.
NOBLE INTERNATIONAL INVESTMENTS, INC.
THE DATE OF THIS PROSPECTUS IS , 2000.
The information contained in this prospectus is not complete and may be changed.
We have filed a registration statement relating to these securities with the
U.S. Securities and Exchange Commission. 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 securities, and we are not
soliciting offers to buy securities, in any State where the offer or sale is not
permitted.
<PAGE>
<TABLE>
<S> <C> <C>
Step 1 Register Step 6 Spread the Word
Sign-Up and become <-- Tell your friends and family
a TaketoAuction(sm) Member. about our community.
| ^
| |
v |
Step 2 Select Product
Choose an item from our Step 5 Collect your Profit
Online catalog of collectibles and We handle billing and collection.
specialty merchandise.
| ^
| |
v |
Step 3 TaketoAuction(sm)
With one click send your item to Step 4 SOLD!
auction. No obligation to purchase --> The item is packaged and
the item if it is not sold at shipped from our warehouse to
auction. the buyer.
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights the material information about our business and
this offering, but you should read the entire prospectus, including the
financial statements and the notes to those statements appearing elsewhere in
this prospectus, before deciding to purchase our common shares. Unless otherwise
specifically stated, the information in this prospectus assumes (A) that the
underwriters will not exercise their over-allotment option, no options are
presently exercisable under our stock option plan and no warrants have been
converted or convertible securities exercised. (B) a 1,000-for-one stock-split
of our outstanding common shares effected on August 26, 1999 and (C) a
subsequent 2.326530644-for-one stock split of our outstanding common shares
effected on November 3, 1999 and (D) a subsequent 1-for-3 reverse stock split of
our outstanding common shares effected on May 4, 2000. You should carefully
consider the information set forth under the heading 'Risk Factors.'
OUR BUSINESS
We are an Internet-based community providing our entrepreneurial members an
online catalog of authentic collectibles and factory-new specialty merchandise
to sell at online auction sites, such as eBay(sm), FairMarket(sm), Amazon(sm)
and Yahoo!(sm). eBay, FairMarket, Amazon and Yahoo! are registered service marks
of eBay Inc., FairMarket, Inc., Amazon.com, Inc. and Yahoo! Inc., respectively.
Currently, we have no formal relationship or agreement with any of these online
auction sites.
Our members pay an annual membership fee and, at no additional cost, they
select merchandise up to their membership dollar limit from our Web site that we
then list automatically on their behalf on a popular online auction site for one
week at a time. Each membership lasts for one year. Our members have the ability
to earn money by selling items through popular online auction sites at prices in
excess of the prices listed on our Web site. Our business model is distinct from
and complements the more than 200 online auction sites. We do not merely provide
a forum for buyers and sellers to meet, but rather we provide a total solution
for our members where they can take our merchandise and list it on popular
online auction sites. By doing this, we provide the various online auctions with
additional merchandise available to be placed for auction on their sites. We
intend to develop and expand our online membership base under the Take to
Auction brand by attracting Internet users who can earn additional income
through our Web site. We create Web site affinity by offering our members the
ability to follow their portfolio of merchandise currently listed on online
auction sites and to track their accumulated profits from completed online
auctions. In the near future we intend to conduct monthly and annual
competitions for the purpose of keeping members returning to our Web site.
We are a development stage company, having launched our Web site in July
1999. We provide our members with a total solution to take items to online
auction sites. Our principal sources of revenues are membership fees, the
purchase of additional credits and the sale of products. In the future, we also
anticipate receiving fees from third parties for advertising their products and
services on our Web site. As our membership base expands and the volume of
merchandise increases, our purchasing power and economies of scale should enable
us to offer a broader array of merchandise at even better prices.
We believe that our approach will appeal to Web users, create community
affinity and increase user traffic on online auction sites because:
o we provide members with a broad array of merchandise (currently 3,000
types of items) to take to online auctions;
o members never have to purchase or take possession of the merchandise;
o members do not have to take extensive steps to list items online such as
photographing the item, scanning or cropping the photograph, writing the
copy, setting the price, setting the length of auction, setting the
minimum bid, setting the delivery options, and setting the payment
options;
o we facilitate transactions, free of charge to the member, by accepting
credit cards and electronic checks and by handling shipping and
delivery; and
o our service is designed to promote an active membership community to
provide a positive environment for advertising and electronic commerce.
3
<PAGE>
RISK FACTORS
Our risks can be divided into the following three broad areas--risks
related to our business--risks related to our industry--and risks related to
this offering. For a more in depth discussion and listing of the risk factors,
please see 'Risk Factors.' Some of the most important risk factors include the
following:
o our limited operating history makes it difficult to evaluate our
business;
o we had an accumulated deficit of approximately $1.6 million as of March
31, 2000 and we anticipate that our losses will continue;
o we have received a going concern opinion from our independent auditors
that expresses substantial doubt as to our ability to continue as a
going concern as a result of our operating losses;
o because our business model is unproven, we cannot assure you that our
revenues will grow or that we will become profitable;
o concerns about Web security pose risks to our entire business;
o governmental regulation and legal uncertainties relating to the Web
could increase our costs of transmitting data and increase our legal and
regulatory expenditures and could decrease our membership base;
o we may not be able to maintain a listing on the American Stock
Exchange, so you may not be able to sell your shares easily;
o possible volatility of our stock price could harm our shareholders; and
o we will need to raise additional capital which may affect our
shareholders, and our business will be harmed if we are unable to obtain
additional capital.
OUR STRATEGY
Our strategy is to use our innovative business model to capitalize on the
current popularity of online person-to-person auction sites. We believe we are
the only online business which enables its members to sell, for a profit,
products that they do not own or possess at online auction sites. Our strategy
includes the following key elements:
o take advantage of our innovative business model by providing our members
with a total solution to sell products at online auction sites to
attract more members;
o grow the Take to Auction.com community and increase the membership base;
o promote the Take to Auction.com brand;
o forge business relationships with leading online auction sites to
improve brand-name recognition and the efficiency of our network
systems;
o enhance the Take to Auction.com Web site features and functionality by
adding unique content to our membership community; and
o generate revenues from the sale of online advertising.
OUR CORPORATE HISTORY
Take to Auction.com, Inc. was incorporated in Florida in June 1999. Our
principal executive offices are located at 5555 Anglers Avenue, Suite 16, Fort
Lauderdale, Florida 33312. Our telephone number is (954) 987-0654, and our Web
site is located at www.taketoauction.com. The information contained on our Web
site is not incorporated by reference into this prospectus.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common shares offered by Take to
Auction.com............................. 1,300,000 Shares
Common shares to be outstanding after this
offering................................ 7,300,000 Shares
Use of proceeds........................... Fund the development of our network infrastructure, implement our
growth strategy, launch a targeted advertisement campaign, increase
our inventory and for working capital, general administrative and
other expenses. Please see 'Use of Proceeds.'
Reserved American Stock Exchange symbol... TTA
</TABLE>
5
<PAGE>
SUMMARY FINANCIAL DATA
The following summary of the financial data for our business should be read
in conjunction with 'Management's Discussion and Analysis of Financial Condition
and Results of Operations' and our financial statements and the accompanying
notes to those statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD
JUNE 2, 1999 FROM JANUARY 1, 2000
(DATE OF INCEPTION) THROUGH MARCH 31,
THROUGH DECEMBER 31, 1999 2000
--------------------------- --------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.................................................... $ 70,067 $ 421,733
Operating expenses.............................................. (483,687) (717,738)
----------- ------------
Net loss........................................................ (549,662) (1,056,317)
=========== ============
Basic and diluted loss per share................................ $ (0.10) $ (0.18)
=========== ============
Weighted average number of
common shares outstanding.................................. 5,696,766 6,000,000
=========== ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999 MARCH 31, 2000
----------------- -----------------------------------
ACTUAL ACTUAL AS ADJUSTED(1)
----------------- ----------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................... $ 856,949 $ 363,752 $ 7,553,752
Working capital................................................. 1,288,032 532,347 7,722,347
Total assets.................................................... 2,579,739 3,308,836 10,498,836
Shareholders' equity............................................ 1,150,338 656,021 7,846,021
</TABLE>
- ------------------
(1) Adjusted to give effect to the sale of the common shares offered by us (at
the assumed initial public offering price of $7.00 per share), and the
application of the estimated net proceeds therefrom as set forth under 'Use
of Proceeds.'
------------------------
We have applied for registration of the service marks Take to Auction.com,
Take to Auction, Take2Auction, and Take2Auction.com with the U.S. Patent and
Trademark Office. We have also applied for a U.S. patent registration of our
method for providing merchandise to online auction sites. We cannot assure you
that a patent will be issued to us, or, if issued, will provide us with all of
the protections that we have sought. This prospectus also includes tradenames
and trademarks that belong to other companies. Use or display by us of other
parties' trademarks, tradenames or products is not intended to, and does not
imply a relationship with, or endorsement or sponsorship of, Take to Auction by
the trademark or tradename owners.
6
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus before
you decide to invest in our common shares. If any of the following risks occur,
our business, results of operations and financial condition could be harmed.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS
We commenced operations in June 1999 and launched our Web site in July
1999. There are no period-to-period comparisons of our operating results from
which to evaluate our performance. An investor in our common shares must
consider the risks, uncertainties, expenses and difficulties frequently
encountered by companies in their early stages of development, particularly
companies in new and rapidly evolving markets such as online commerce. These
risks include depleting our cash reserves, lower than expected revenues and
earnings and not being able to pay expenses as they come due, as well as the
following:
o we may not be able to establish and grow our membership base;
o we may not be able to establish and maintain commercial relationships
with suppliers of merchandise to increase or maintain the number of
items listed on our service;
o we may not be able to maintain and enhance our brand and implement and
execute our business and marketing strategy;
o we may not be able to continue to develop and upgrade our technology and
information processing systems;
o we may not be able to provide superior customer service;
o we may not be able to secure adequate financing to fund growth;
o we may not be able to respond effectively to competitive developments
and a rapidly changing market; and
o we may not be able to attract qualified personnel, and if attracted, we
may not be able to integrate, retain and motivate such personnel.
Our failure to accomplish any of these objectives would harm our business,
financial condition and results of operations.
WE HAVE AN ACCUMULATED DEFICIT AND WE ANTICIPATE THAT OUR LOSSES WILL CONTINUE
We launched our Web site in July 1999 and had only approximately 300
members as of March 31, 2000, representing approximately $250,000 of annual
membership fees. We have only generated revenues of approximately $490,000
through March 31, 2000. Therefore, we have not achieved profitability and expect
to incur operating losses for the foreseeable future. We incurred net losses of
approximately $1.6 million for the period from June 2, 1999 (inception) through
March 31, 2000. We expect to continue to incur significant operating and capital
expenditures and net operating losses arising from initial development costs,
technology improvements and implementation of our business strategy. We
currently forecast an increased loss of approximately $7 million for fiscal year
2000. Our current and future expense levels are based largely on our investment
plans and estimates of future revenues and are, to a large extent, fixed. We
estimate fixed expenses over the next 12 months to be approximately $3.7
million. We may be unable to adjust spending in a timely manner to compensate
for any unexpected revenue shortfall. Accordingly, any significant shortfall in
revenues relative to our planned expenditures would have an immediate harmful
effect on our business, financial condition and results of operations. Further,
as a strategic response to changes in the competitive environment, we may from
time to time make certain pricing, service or marketing decisions that could
harm our short-term or medium-term financial condition and results of
operations.
7
<PAGE>
We may not achieve profitability. Even if we do so, we may never sustain or
increase profitability on a quarterly or annual basis in the future. If revenues
grow slower than we anticipate, or if operating expenses exceed our expectations
or cannot be adjusted accordingly, our business, financial condition and results
of operations will be harmed. Please see 'Management's Discussion and Analysis
of Financial Condition and Results of Operations.'
WE RECEIVED A GOING CONCERN OPINION FROM OUR INDEPENDENT AUDITORS
We received an opinion from our independent auditors on our December 31,
1999 financial statements expressing substantial doubt as to our ability to
continue as a going concern as a result of our operating losses during the
development stage and our need for substantial amounts of additional funding to
continue our operations.
WE MAY FACE COMPETITION FROM EXISTING ONLINE AUCTION SITES OR NEW
PERSON-TO-PERSON TRADING WEB SITES WHICH MAY HARM OUR BUSINESS
Currently we believe that we are the only entity using our innovative
business model. However, we could face competition from existing online auction
sites or new person-to-person trading Web sites that may provide the Take to
Auction concept in the future. In the event that existing online auction sites
begin to provide the Take to Auction concept in the future, they could attempt
to block us from accessing their auction sites. Barriers to entry are relatively
low and future competitors could launch new sites at a relatively low cost using
commercially available software. Likewise, it would not be costly for existing
online auction sites to modify their format to provide the Take to Auction
concept. Many of the major online auction sites, if they were to compete with us
in the future, have longer operating histories, larger user bases, longer
relationships with consumers, greater brand or name recognition and
significantly greater financial, technical and marketing resources than we do.
Competitive pressures created by any one of these companies, or by new entries
using the Take to Auction concept, could harm our business, financial condition
and results of operations. Please see 'Business--Competition.'
WE EXPECT TO GROW RAPIDLY AND MANAGING OUR GROWTH MAY BE DIFFICULT
We expect to grow rapidly by expanding our membership base. This growth is
likely to place a significant strain on our resources and systems. To manage the
expected growth of our operations and personnel, we will be required to improve
existing and implement new transaction processing, operational and financial
systems, procedures and controls, and to augment, train and manage our growing
employee base. We also will be required to expand our finance, administrative
and operations staff.
We may have to cease accepting new members if we fail to meet internally
set minimum inventory requirements. In such case, prospective members will be
placed on a waiting list until we are able to stock sufficient inventory. Each
prospective member on the waiting list will be contacted and granted membership
status once we determine that our inventory is sufficiently stocked.
OUR SUCCESS IS DEPENDENT UPON OUR MANAGEMENT TEAM WHO HAVE ONLY RECENTLY STARTED
WORKING TOGETHER IN THIS RELATIVELY NEW INDUSTRY
Our success is dependent upon our management team which has only recently
started working together in this relatively new industry. All members of our
senior management recently joined us. Although our executive management team has
some experience in operating businesses engaged in electronic commerce, due to
the relatively short-lived nature of the electronic commerce industry, it is
more difficult to assess and evaluate management in the electronic commerce
industry than it is in other industries. Our new employees include a number of
key managerial, marketing, planning, technical and operations personnel who have
not yet been fully integrated into our company, and we expect to add additional
key personnel in the near future. These individuals have not previously worked
together and, as a result, may not work together effectively as a team to
successfully manage our growth. Please see 'Business--Employees.'
8
<PAGE>
WE WILL HAVE BROAD DISCRETION IN ALLOCATING THE PROCEEDS OF THIS OFFERING
We have allocated a portion of the net proceeds of this offering for use as
working capital. As to such funds, you will be relying on our judgment and
discretion without specific information as to the uses which are proposed to be
made of such funds. Please see 'Use of Proceeds.'
IF WE ARE UNABLE TO ADEQUATELY ASSESS THE DEMAND FOR MERCHANDISE LISTED ON OUR
WEB SITE, OUR BUSINESS WOULD BE HARMED
We intend to rely on the expertise of our purchasing and marketing
professionals to select and purchase merchandise that is saleable on online
auction sites. Our evaluation of market demand for merchandise will be based on
internal periodic reports that will contain an analysis of the most popular
items sold at major online auction sites and our projections of new consumer
trends. The volume and type of merchandise that we maintain in our inventory
will also be based on these evaluations and projections. The lack of market
acceptance for the items of merchandise selected and purchased by us would
significantly reduce our revenues and, therefore, harm our business, results of
operation and financial condition. Please see 'Business--Purchasing and
Inventory.'
DIFFICULTIES ASSOCIATED WITH OUR BRAND DEVELOPMENT MAY HARM OUR ABILITY TO
ATTRACT MEMBERS
We believe that our growth will depend on the strengthening of our brand
which is critical to achieving widespread acceptance of Take to Auction.com,
particularly in light of the competitive nature of the online commerce industry.
Promoting and positioning our brand will depend largely on the success of our
marketing efforts and our ability to provide high quality services. To promote
our brand, we will need to increase our marketing budget and otherwise increase
our financial commitment to create and maintain brand loyalty among users. We
intend to increase our marketing efforts and budget as our membership base
expands. Over the next 12 months, we are estimating our marketing expenses to be
$100,000. Brand promotion activities may not yield increased revenues and any
such revenues may not offset the expenses incurred by us in attempting to build
our brand. Further, new users attracted to Take to Auction.com may not conduct
transactions through our Web site on a regular basis. If we fail to promote and
maintain our brand or if we incur substantial expenses in excess of $100,000 in
an attempt to promote and maintain our brand or if our future strategic
relationships fail to promote our brand or increase brand recognition, our
business, financial condition and results of operations would be harmed. Please
see 'Business--Take to Auction Strategy.'
BECAUSE OUR BUSINESS MODEL IS UNPROVEN, WE CANNOT ASSURE YOU THAT OUR REVENUES
WILL GROW OR THAT WE WILL BECOME PROFITABLE
Our business model depends upon our ability to leverage and to expand our
network of members, suppliers, manufacturers, wholesalers and online advertisers
to generate multiple revenue streams. The potential profitability of this
business model is unproven, and to be successful we must, among other things,
develop and market additional products and services to existing members
effectively. Furthermore, we may be forced by competitive pressures, industry
consolidation or otherwise, to change our business model, in which case our
financial results could be harmed. Our business model may not be successful and
we may not achieve revenue growth or profitability.
MANY OF THE ONLINE AUCTION SITES THAT ARE ACCESSED BY OUR MEMBERS THROUGH OUR
SERVICES ARE EMERGING INTERNET COMPANIES THAT REPRESENT BUSINESS AND CREDIT
RISKS
We expect to derive a significant portion of our revenues from the sale of
memberships and additional credits to Web users who want to earn additional
income by taking merchandise to online auction sites. Many of these online
auction sites have limited operating histories, are operating at a loss and have
limited access to capital. If the online auction sites or our online advertising
customer base experience financial difficulties or fail to experience commercial
success, we may lose a significant source of revenue and our business will
suffer. Ultimately, the success of these entities is entirely outside our
control.
9
<PAGE>
THE REVENUE EXPECTED FROM ONLINE ADVERTISING MAY NOT MATERIALIZE
We also plan to generate revenues from the sale of advertising and
navigation services to other Internet companies, including Web site owners,
Internet retailers, Internet portals and regional Internet Service Providers. It
is anticipated that this will be a relatively minor revenue stream which will
not severely impact us if it does not materialize. To date, we have derived no
revenues from such online advertising. In the future, we may have 'per click'
arrangements whereby a company is permitted to display its banner on our Web
site and we are compensated based on the number of 'clicks' or 'hits' on the
banner.
OUR SUCCESS DEPENDS ON THE SUCCESS OF ONLINE AUCTION WEB SITES, AND THE MARKET
FOR ONLINE AUCTION SITES IS DEVELOPING AND DEPENDS ON THE CONTINUED GROWTH OF
ONLINE PERSON-TO-PERSON COMMERCE
Our business depends on the continued growth and success of online auction
sites. The growth and popularity of online auctions, if maintained, should allow
us to retain members who are interested in making money by taking goods to
online auction sites. Online auction sites are part of a developing market
which, like us, depends on the continued growth of online person-to-person
commerce. The market for the sale of goods over the Internet, particularly
through person-to-person trading, is a new and emerging market. The future
revenues and profits of online auction sites and, consequently, our revenues and
profits, are substantially dependent upon the widespread acceptance and use of
the Internet and other online services as a medium for commerce by consumers.
Rapid growth in the use of and interest in the Web, the Internet and other
online services is a recent phenomenon and this acceptance and use may not
continue to develop. A sufficiently broad base of consumers may not adopt, and
continue to use, the Internet as a medium of commerce. Demand and market
acceptance for recently introduced services and products over the Internet are
subject to a high level of uncertainty, and few proven services and products
exist. Growth in our member base relies on attracting consumers who have
historically used traditional means of commerce to purchase goods and on
entrepreneurial individuals who may desire to augment their income. We will only
be successful if these consumers and entrepreneurs accept and use novel ways of
conducting business and exchanging information.
WEB USERS MAY BE RELUCTANT TO JOIN ONLINE COMMUNITIES THAT PROMISE MONEY-MAKING
OPPORTUNITIES
With the variety of online person-to-person trading services available
today, Web users may have grown weary of the opportunities presented to them on
the Internet and may be reluctant to join online communities that promise
money-making opportunities. To some extent, we believe that this may be
indicative of the standard reluctance of consumers to respond to marketing
campaigns with money-making claims, as opposed to any systemic reluctance by Web
users as a separate population. However, regardless of whether it pertains to
Web users or the general consumer population, such weariness or reluctance may
have a detrimental effect on our ability to attract and retain members. We will
only be successful if Web users can overcome such reluctance and be convinced
that the opportunity presented to them is genuine.
CHANGES IN CONSUMER TRENDS MAY HARM OUR BUSINESS
The popularity of certain categories of items, such as toys, dolls and
memorabilia, among consumers may vary over time due to perceived scarcity,
subjective value, and societal and consumer trends in general. A decline in the
popularity of, or demand for, certain collectibles or other specialty items
taken to auction through our service could reduce the overall volume of
transactions on our Web site, resulting in reduced revenues. Certain consumer
'fads' may temporarily inflate the volume of certain types of items provided on
our service, placing a significant strain upon our infrastructure and
transaction capacity. The decline of a 'fad' would leave us with a large
inventory of unsaleable goods and could harm our business, financial condition
and results of operations.
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UNEXPECTED INCREASES IN TRAFFIC MAY STRESS OUR SYSTEMS
We intend to generate a high volume of traffic and transactions on the Take
to Auction.com service. Accordingly, the satisfactory performance, reliability
and availability of our Web site, processing systems and network infrastructure
are critical to our reputation and our ability to attract and retain large
numbers of members who take merchandise to online auction sites while
maintaining adequate customer service levels. Our revenues depend on the number
of items listed by us, the number of members that join our service, the success
of our members in completing online auction transactions and our ability to
attract online advertisers. Any system interruptions that result in the
unavailability of our service or reduced member activity would reduce the volume
of items taken to online auction sites and online auction sales completed and
could affect the average selling price of the items. Interruptions of service
may also diminish the attractiveness of our services. The online auction sites
have experienced, and our service will likely experience, periodic system
interruptions, which we believe will continue to occur from time to time. Since
the opening of our Web site to the public in January 2000, we have experienced
only one interruption of service, which lasted approximately 8 hours. Any
substantial increase in the volume of traffic on our Web site or in the number
of members selecting merchandise to take to online auction sites will require us
to expand and upgrade our technology, transaction processing systems and network
infrastructure. We may be unable to accurately project the rate or timing of
increases, if any, in the use of our service or expand and upgrade our systems
and infrastructure to accommodate such increases in a timely manner. Any failure
to expand or upgrade our systems could harm our business, financial condition
and results of operations. Please see 'Business--Operations and Technology.'
WE MAY BE UNABLE TO RESPOND TO THE RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRY
Our market is characterized by rapidly changing technology, evolving
industry standards, frequent new service and product announcements,
introductions and enhancements and changing customer demands. Accordingly, our
future success will depend on our ability to adapt to rapidly changing
technologies, to adapt our services to evolving industry standards and to
continually improve the performance, features and reliability of our service in
response to competitive service and product offerings and evolving demands of
the marketplace. Our failure to adapt to these changes would harm our business,
financial condition and results of operations. In addition, the widespread
adoption of new Internet, networking or telecommunications technologies or other
technological changes could require substantial expenditures by us to modify or
adapt our services or infrastructure, which could strain our resources, require
us to modify our business plan and harm our business, financial condition and
results of operations. Please see 'Business--Operations and Technology.'
RISKS RELATED TO OUR INDUSTRY
CONCERNS ABOUT WEB SECURITY POSE RISKS TO OUR ENTIRE BUSINESS
A significant barrier to the public's acceptance of online commerce and
communications is the secure transmission of confidential information over
public networks. We expect that a significant number of buyers of merchandise
auctioned by our members will authorize us to bill their credit card accounts
directly for all transaction fees charged by us. We rely on encryption and
authentication technology licensed from a third party to provide the security
and authentication technology to effect secure transmission of confidential
information, including buyer credit card numbers. Advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments may result in a compromise or breach of the technology used by us
to protect customer transaction data. If any such compromise of our security
were to occur, it could harm our reputation and, therefore, our business,
financial condition and results of operations. Please see 'Business Operations
and Technology.'
OUR OPERATING RESULTS WOULD BE HARMED IF WE EXPERIENCE SIGNIFICANT CREDIT CARD
FRAUD
Under current practices, we are liable for fraudulent credit card
transactions because we do not require a customer's signature to authorize a
transaction. Our failure to adequately control fraudulent credit card
transactions would harm our business, financial condition and results of
operations. Although we do not
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maintain a reserve fund to cover potential fraudulent credit card transactions,
we have never experienced a fraudulent credit card transaction. If such loss
would exist in the future, we would record the loss in the period incurred.
WE DEPEND ON THE CONTINUING DEVELOPMENT OF THE WEB INFRASTRUCTURE, AND THE
UNAVAILABILITY OF TECHNOLOGY TO MEET THE GROWTH IN USE OF THE WEB FOR ONLINE
COMMERCE MAY REDUCE OUR REVENUES AND PROFITS
The success of our service will depend in large part upon the development
and maintenance of the Web infrastructure, such as a reliable network backbone
with the necessary speed, data capacity and security. We also depend on timely
development of complementary products, such as high speed modems, for providing
reliable Web access and services. Because global commerce and the online
exchange of information is new and evolving, it is difficult to predict with any
assurance whether the Web will prove to be a viable commercial marketplace in
the long-term. The Web has experienced, and is expected to continue to
experience, significant growth in the numbers of users and amount of traffic. To
the extent that the Web continues to experience increased numbers of users,
frequency of use or increased bandwidth requirements of users, the Web
infrastructure may not continue to be able to support the demands placed on it
by this continued growth and the performance or reliability of the Web may be
compromised. The infrastructure or complementary products or services necessary
to make the Web a viable commercial marketplace for the long-term may not be
developed and, even if they are developed, the Web may not become a viable
commercial marketplace for services such as those offered by us. If the
necessary infrastructure, standard or protocols or complementary products,
services or facilities are not developed, or if the Web does not become a viable
commercial marketplace, our business, financial condition and results of
operations will be harmed. Even if the infrastructure, standards or protocols or
complementary products, services or facilities are developed and the Web becomes
a viable commercial marketplace in the long term, we might be required to incur
substantial expenditures in order to adapt our service to changing Web
technologies, which could harm our business, financial condition and results of
operations. Please see 'Business--Industry Background.'
LEGAL RISKS ASSOCIATED WITH INFORMATION DISSEMINATED THROUGH OUR SERVICE MAY
HARM OUR BUSINESS
The law relating to the liability of online services companies for
information carried on or disseminated through their services is currently
unsettled. It is possible that claims could be made against online services
companies under both United States and foreign law for defamation, libel,
invasion of privacy, negligence, copyright or trademark infringement, or other
theories based on the nature and content of the materials disseminated through
their services. Several private lawsuits seeking to impose such liability upon
other online services companies are currently pending. In addition, legislation
has been proposed in several states, including California, Maryland, Nevada,
Virginia and Washington that imposes liability for or prohibits the transmission
over the Internet of certain types of unsolicited e-mail or advertisements. The
imposition upon us and other online service providers of potential liability for
information carried on or disseminated through their services could require us
to implement measures to reduce our exposure to such liability, which may
require us to expend substantial resources and/or to discontinue certain service
offerings. In addition, the increased attention focused upon liability issues as
a result of these lawsuits and legislative proposals could impact the growth of
Internet use. We do not carry liability insurance. Therefore, any costs incurred
by us as a result of such liability or asserted liability could harm our
business, financial condition and results of operations. Please see
'Business--Government Regulation' and '--Privacy Policy.'
GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES RELATING TO THE WEB COULD
INCREASE OUR COSTS OF TRANSMITTING DATA AND INCREASE OUR LEGAL AND REGULATORY
EXPENDITURES AND COULD DECREASE OUR MEMBERSHIP BASE
Government regulation of communications and commerce on the Internet varies
greatly from country to country. Unlike some countries and the European Union,
the United States Congress has, to date, enacted relatively few laws expressly
aimed at e-commerce, although many bills expressly aimed at e-commerce are
currently pending. There is no assurance that these pending bills will become
law or how they may impact us if they do. An example of one of the laws aimed at
e-commerce enacted by the United States Congress, the
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Trademark Cyberpiracy Prevention Act of 1999, seeks to help trademark owners
protect their intellectual property against 'cybersquatters' who register
Internet domain names resembling famous trademarks in order to extort money from
or defame the trademark owner. Due to the increasing popularity and use of the
Internet and other online services, it is possible that a number of laws and
regulations may be adopted with respect to the Internet or other online services
covering issues such as user privacy, freedom of expression, pricing, content
and quality of products and services, taxation, advertising, intellectual
property rights, enforceability of contracts and information security. Because
our services are accessible worldwide, and we facilitate sales of goods to users
worldwide, any jurisdiction in which our services can be accessed or are used
may seek to impose its laws on us and to enforce those laws in proceedings in
those countries where we could be forced to defend ourselves. Please see
'Business--Government Regulation.'
THE IMPOSITION OF SALES AND OTHER TAXES ON OUR BUSINESS OR ON PRODUCTS WE OFFER
TO OUR MEMBERS AND ON INTERNET SERVICES GENERALLY COULD IMPAIR THE GROWTH OF
ELECTRONIC COMMERCE
We do not collect sales or other similar taxes with respect to goods sold
through our service. However, one or more states or countries may seek to impose
sales tax collection obligations on out-of-state companies which engage in or
facilitate online commerce, and a number of proposals have been made at the
Federal, state and local level, as well as in foreign jurisdictions, that would
impose additional taxes on the sale of goods and services through the Internet.
In addition, a bill was introduced in the U.S. Congress in July 1999 that would
impose a 5% Federal tax on sales by a merchant over the Internet that are not
otherwise taxable. These proposals, if adopted, could substantially impair the
growth of electronic commerce, and could harm our opportunity to derive
financial benefit from such activities. Moreover, a successful assertion by one
or more states or any foreign country that we should collect sales or other
taxes on the exchange of merchandise on our system could harm our business,
financial condition and results of operations. Please see 'Business--Government
Regulation.'
INTERNATIONAL BARRIERS MAY INCREASE OUR COSTS AND RISKS OF DOING BUSINESS
Although we do not ship goods internationally, our primary international
risk results from having international members who are subject to the laws of
another jurisdiction, and facilitating transactions related to the sale of goods
to users worldwide. As a result, we may be subject to significant costs and
risks with respect to potentially complex personal data privacy protection and
online contracting regulatory requirements, currency exchange controls and other
trade barriers. For example, in the context of international data privacy
regulations, if certain countries extend the extra-territorial application of
their data protection laws and regulations to our business, we may be forced to
restrict our membership by excluding persons resident in such countries from
becoming members. In other instances, we may be required to construct costly
additions to our Web site in order to comply with local laws on data privacy,
advertising and on-line contracting, such as having a separate series of Web
pages in the local languages where laws require that we make disclosures or post
online agreements or privacy policies (and similar consumer notification
requirements) in the local language of the member. We may also determine that in
order to comply with local data protection laws, which prohibit the transfer of
personally identifying information of our members outside of their home
jurisdiction, we may have to set up and maintain separate databases in such
countries. We may also have to customize our software programs to address
country-specific requirements for tracking and documenting transactions, as well
as take into account currency exchange issues.
WE MAY BE SUBJECT TO LIABILITY FOR PRODUCTS WHOSE SALE WE FACILITATE
Buyers of our products may sue us if they are harmed by any of the products
whose sales we facilitate. Although we do not manufacture these products, we are
exposed to potential liability. Liability claims could require us to spend
significant time and money in litigation and to pay significant damages, which
could harm our business, financial condition and results of operations. Although
we intend to disclaim all warranties and rely on the manufacturers to fulfill
their warranty obligations, we cannot be certain that the manufacturers will be
able to fulfill their warranty obligations. In addition, we believe that some
disclaimers may be unenforceable under the laws of certain foreign
jurisdictions. Please see 'Business--Product and Service Warranties.'
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OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR
BRAND-BUILDING EFFORTS AND ABILITY TO COMPETE EFFECTIVELY
We regard the protection of our copyrights, service marks, trademarks,
trade dress and trade secrets as critical to our future success, and rely on a
combination of copyright, trademark, service mark and trade secret laws and
contractual restrictions to establish and protect our proprietary rights in
products and services. We have applied for registration of the service marks
Take to Auction.com, Take to Auction, Take2Auction and Take2Auction.com with the
U.S. Patent and Trademark Office. We have also applied for a U.S. patent
registration on our method for providing merchandise to online auction sites.
The patent may not be issued to us, or, if issued, it may not provide us with
all of the protections that we have sought. Please see 'Business--Intellectual
Property Rights.'
We have entered into confidentiality and invention assignment agreements
with our employees and contractors, and nondisclosure agreements with parties
with which we conduct business to limit access to and disclosure of our
proprietary information. These contractual arrangements or the other steps taken
by us to protect our intellectual property may be insufficient to prevent
misappropriation of our technology and may not deter independent third-party
development of similar technologies. To date, we have not been notified that our
technologies infringe the proprietary rights of third parties, but third parties
may claim infringement by us with respect to past, current or future
technologies. We expect that participants in our markets will be
increasingly subject to infringement claims as the number of services and
competitors in our industry segment grows. Any such claim, whether meritorious
or not, could be time-consuming, result in costly litigation, cause service
upgrade delays or require us to enter into royalty or licensing agreements.
These royalty or licensing agreements might not be available on terms that are
acceptable or favorable to us. As a result, any such claim could harm our
business, financial condition and results of operations. Please see
'Business--Intellectual Property Rights.'
THE ISSUANCE AND ENFORCEMENT OF BROAD PATENTS COULD FORCE US TO MAKE CERTAIN
CHANGES IN THE WAY WE IMPLEMENT OUR BUSINESS MODEL
The U.S. Patent Office recently issued several business-method patents
having an impact on business conducted on the Internet, among them the
business-method patents relating to 'one click' on-line shopping transactions
(i.e. the ability to complete on-line transactions with a single mouse click)
and 'affiliate' transactions (whereby third party affiliates provide certain
services, including book reviews, on-line) issued to Amazon.com. While we do not
believe that any of the business process patents issued to date will directly
impact the way we conduct our business, there are no assurances that the U.S.
Patent Office will not issue additional business-method patents which could have
an adverse impact on our business, forcing us to modify some of our business
activities in order to avoid possible future claims of patent infringement. The
recent granting of such patents is still being challenged. Furthermore, the
likelihood and ability to enforce such broad patents remains undetermined.
Nonetheless, the continued granting of such broad patents could, in the future,
force us to change our method of advertising, as well as other important aspects
of our business, or face the risk of litigation.
WE COULD STILL FACE PROBLEMS RELATED TO THE YEAR 2000 ISSUE WHICH COULD BE
DISRUPTIVE TO OUR BUSINESS OPERATIONS
To date, we have not experienced any problems as a result of the
commencement of the Year 2000. Nevertheless, computer experts have warned that
there may still be residual consequences stemming from the change in centuries
and, if these consequences become widespread, they could result in a decrease in
sales of our services, increased operating expenses and other business
interruptions. Year 2000 problems would also decrease our reputation for
reliability when we are trying to grow the membership base. We have not
developed any specific contingency plan for Year 2000 issues. Please see
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Impact of Year 2000.'
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RISKS RELATED TO THIS OFFERING
WE MAY NOT BE ABLE TO MAINTAIN A LISTING ON THE AMERICAN STOCK EXCHANGE, SO YOU
MAY NOT BE ABLE TO SELL YOUR SHARES EASILY
Because we may not be able to maintain a listing on the American Stock
Exchange ('AMEX'), your shares may be difficult or impossible to sell. Trading
in our common shares will be conducted on the AMEX after the initial offering
period. However, if we are unable to maintain this listing in the future, we
believe that our common shares may then trade on the over-the-counter market in
the so-called 'pink sheets' or the OTC Bulletin Board, which was established for
securities that do not meet the AMEX's and other exchanges' listing
requirements. Consequently, selling your common shares would be more difficult
because smaller quantities of common shares could be bought and sold,
transactions could be delayed, and coverage of us by securities analysts and
news media may be reduced. As a result, shareholders may not be able to sell
their shares, which illiquidity may cause a decreased trading price and larger
spreads in the bid and ask price for our common shares.
INVESTORS MAY BE UNABLE TO SELL OUR COMMON SHARES BECAUSE OF THE LOW PRICE
Although we will initially be listed on the AMEX, we cannot assure you that
we will be able to maintain this listing. In such event, our shares may trade
only on the over-the-counter market in the so-called 'pink sheets' or on the OTC
Bulletin Board. The effects of not being eligible for trading on the AMEX
include the limited release of the market prices of our stock and limited news
coverage of us. Ineligibility may also restrict investors' interest in our stock
and materially adversely affect the trading market and prices for our stock and
our ability to issue additional securities or to secure additional financing.
IF THE TRADING PRICE OF OUR COMMON STOCK DROPS BELOW A CERTAIN LEVEL WE MAY
BECOME SUBJECT TO THE PENNY STOCK RULE
If the trading price of our common stock is less than $5.00 per share, our
common stock could become subject to Rule 15g-9 under the Securities and
Exchange Act of 1934, as amended. That rule, otherwise known as the 'Penny Stock
Rule,' requires that broker-dealers satisfy special sales practice requirements,
including making individualized written suitability determinations and receiving
purchasers' written consents, prior to any transaction. If our common stock is
deemed to be a penny stock under the Securities Enforcement and Penny Stock
Reform Act of 1990, this would require additional disclosure in connection with
trades in our common stock, including the delivery of a disclosure schedule
explaining the nature and risks of the penny stock market. Such requirements
could severely limit the liquidity of our common stock, the ability of
broker-dealers to sell our common shares and the ability of purchasers in this
offering to sell their securities in the secondary market.
WE MAY BE UNABLE TO SELL SHARES IN SOME STATES IN FUTURE OFFERINGS DUE TO BLUE
SKY REGULATIONS
If, subsequent to the initial offering, we become unable to list our shares
on the AMEX, we will attempt to register and trade on another national exchange.
If that proves unsuccessful, we will have to register the common shares in any
state where we desire to sell our common shares. We must also register our
officers and directors as broker dealers in any state in which we seek to sell
our common shares or seek an exemption to such registration. If a registration
of the common shares in various states is not approved, it will not be possible
for us to sell the common shares in those states. In such an event, we intend to
use our best efforts to register in every state where we believe there is a
significant market for our common shares. Should any or all common share
registrations not be approved, this would prohibit us from selling the common
shares offered for sale in such jurisdictions, would make it more difficult for
you to sell your common shares generally and could adversely affect the overall
success of those future offerings.
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POSSIBLE VOLATILITY OF OUR STOCK PRICE COULD HARM OUR SHAREHOLDERS
The stock markets in general, and the market for Internet-related and
technology companies in particular, have experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating
performance of such companies. The trading prices of many technology stocks are
at or near historical highs and reflect valuations substantially above
historical levels. These trading prices and valuations
may not be sustained. These broad market and industry factors may harm the
market price of our common shares, regardless of our operating performance.
Market fluctuations, as well as general political and economic conditions such
as recession or interest rate or currency rate fluctuations, may also harm the
market price of our common shares. In the past, following periods of volatility
in the market price of a company's securities, securities class-action
litigation has often been instituted against the company. This litigation, if
instituted, could result in substantial costs and a diversion of management's
attention and resources, which would harm our business, financial condition and
results of operations.
CONTROL BY PRINCIPAL SHAREHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS COULD HARM
OUR SHAREHOLDERS
Upon completion of this offering, our executive officers and directors and
greater-than-five-percent shareholders will, in the aggregate, own approximately
45% of the outstanding common shares (43% if the underwriters' over-allotment
option is exercised in full). Further, our bylaws provide for a classified board
of directors which is controlled by our founders. This means that the board of
directors is divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the board of directors
will be elected each year. This makes it more difficult to gain control of the
board of directors and may delay, defer or prevent a change in control of our
company. As a result, the executive officers, directors and
greater-than-five-percent shareholders, acting together, will have the ability
to control most, if not all, matters submitted to shareholders and directors for
approval (including the election and removal of directors and officers and any
merger, consolidation or sale of all or substantially all of our assets) and to
control our management and affairs. Accordingly, this concentration of
ownership, as well as the classified board of directors, may have the effect of
delaying, deferring or preventing a change in our control, impede a merger,
consolidation, takeover or other business combination involving us or discourage
a potential acquirer from making a tender offer or otherwise attempting to
obtain our control, which in turn could harm the market price of our common
shares. The following four individuals own greater than 5% of Take to Auction:
Horacio Groisman (Vice Chairman and Director); Albert Friedman (President, CEO
and Director); Hugo Calemczuk (Director); and Magdalena Zafir. In addition, Ilia
Lekach (Chairman and Director) owns all of Pacific Investments, which in turn
owns greater than 5% of Take to Auction. Please see 'Management' and 'Principal
Shareholders.'
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD HARM OUR STOCK PRICE
Sales of substantial amounts of common shares (including shares issued upon
the exercise of outstanding options) in the public market after this offering
could harm the market price of our common shares. These sales also might make it
more difficult for us to sell equity or equity-related securities in the future
at a time and price that we deem appropriate. In addition to the common shares
we are offering (assuming no exercise of the underwriters' over-allotment
option), as of the date of this prospectus, there will be 6,000,000 common
shares outstanding, all of which are 'restricted securities' under the
Securities Act of 1933, as amended. Notwithstanding any earlier eligibility for
sale under the provisions of Rule 144, due to lock-up agreements with the
representatives of the underwriters, none of the restricted securities will be
available for sale in the public market until at least 180 days after the date
the registration statement is declared effective by the Securities and Exchange
Commission. Following the expiration of the 180 day lock-up agreements, all of
the restricted securities will be available for sale in the public market,
subject to our right to repurchase unvested shares and subject to certain volume
limitations pursuant to Rule 144. In addition, as of the date of this
prospectus, there were outstanding options to purchase 850,000 common shares,
none of which were immediately exercisable or exercisable within 60 days of the
date of this prospectus. Notwithstanding any earlier eligibility for sale under
the provisions of Rule 144(k), due to lock-up agreements with the
representatives of the underwriters, none of the outstanding options will be
available for sale in the public market until at least 180 days after the date
the registration statement is declared effective by the of the
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Securities and Exchange Commission. Following the expiration of the 180 day
lock-up agreements, none of the outstanding options will be available for sale
in the public market until the expiration of the applicable holding periods
under Rule 144(k) of the Securities Act. The representative of the several
underwriters acting together may, in their sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-up
agreements. Such waiver may occur for certain types of transactions, including a
secondary offering or merger or acquisition of Take to Auction, or for other
reasons all in the underwriters' sole discretion. Although there is no preset
level of stock price which will trigger a waiver of the lock-up agreements, a
substantial rise in the price of our stock may be one of the factors the
underwriters will consider in determining whether to waive the lock-up
agreements. Another factor the underwriters may consider would be the ability of
the market to sustain additional stock in the public float. Immediately after
this offering, we intend to register approximately 2,442,857 common shares
subject to outstanding options and reserved for issuance under our stock option
and purchase plans. Please see 'Shares Eligible for Future Sale.'
WE WILL NEED TO RAISE ADDITIONAL CAPITAL WHICH MAY AFFECT OUR SHAREHOLDERS, AND
OUR BUSINESS WILL BE HARMED IF WE ARE UNABLE TO OBTAIN ADDITIONAL CAPITAL
We currently anticipate that the net proceeds of this offering, together
with our available funds, will be sufficient to meet our anticipated needs for
working capital, capital expenditures and business expansion through at least
the next 12 months. Thereafter, we will need to raise additional funds. We may
need to raise additional funds sooner in order to fund more rapid expansion, to
develop new or enhanced services or products, to respond to competitive
pressures or to acquire complementary products, businesses or technologies. If
additional funds are raised through the issuance of equity or convertible debt
securities, your percentage ownership will be reduced, you may experience
additional dilution and these securities may have rights, preferences and
privileges senior to those of the common shares. Additional financing may not be
available on terms favorable to us or at all. If we are unable to maintain our
listing of common stock on the AMEX, it may be more difficult to raise
additional funds. If adequate funds are not available or are not available on
acceptable terms, we may not be able to fund our expansion, take advantage of
unanticipated acquisition opportunities, develop or enhance services or products
or respond to competitive pressures. Our inability to raise additional capital
on acceptable terms could harm our business, financial condition and results of
operations. Please see 'Management's Discussion and Analysis of Financial
Conditions and Results of Operations--Liquidity and Capital Resources.'
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION AND MAY FACE FURTHER DILUTION
The initial public offering price of the common shares paid by you is
substantially higher than the net tangible book value per outstanding share of
our common shares. Purchasers of the common shares in this offering will suffer
immediate and substantial dilution of $5.93 per share in the net tangible book
value of the common shares from the initial public offering price, assuming an
initial public offering price of $7.00 per share. To the extent that outstanding
options to purchase our common shares are exercised, there may be further
dilution. Please see 'Dilution.'
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made some statements in this prospectus, including some under
'Prospectus Summary,' 'Risk Factors,' 'Management's Discussion and Analysis of
Financial Condition and Results of Operations,' 'Business' and elsewhere, which
constitute forward-looking statements. These statements involve known and
unknown risks, uncertainties and other factors that may cause our actual
results, levels of activity, performance or achievements to be materially
different from any results, levels of activity, performance or achievements
expressed or implied by any forward-looking statements. These factors include,
among other things, those listed under 'Risk Factors,' 'Market Data' and
elsewhere in this prospectus. In some cases, you can identify forward-looking
statements by terminology such as 'may,' 'will,' 'should,' 'could,' 'expects,'
'hopes,' 'intends,' 'plans,' 'anticipates,' 'believes,' 'estimates,' 'predicts,'
'potential' or 'continue' or the negative of these terms or other comparable
terminology. Although we believe that the expectations reflected in
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Furthermore, we undertake no
obligation to update publicly any forward-looking statements for any reason,
unless required to do so by law.
MARKET DATA
This prospectus contains market data related to Take to Auction.com and the
Internet. This data has been included in the studies published by the Internet
market research firms of International Data Corporation and Forrester Research,
Inc. This market data includes projections that are based on a number of
assumptions. These assumptions include that:
o the number of people online and the total number of hours spent online
will increase significantly over the next five years;
o the use of online auction sites will increase;
o Internet security and privacy concerns will be adequately addressed; and
o no catastrophic failure of the Internet will occur.
If any one or more of these assumptions turns out to be incorrect, actual
results may differ significantly from the projections based on these
assumptions.
USE OF PROCEEDS
At an assumed initial public offering price of $7.00 per share, we estimate
that the net proceeds to us from the sale of the common shares will be
approximately $7.2 million (approximately $8.4 million if the over-allotment
option is exercised in full) after deducting the estimated underwriting discount
and estimated offering expenses. We intend to use the net proceeds in
approximately the following manner:
Inventory....................................................... $ 5,475,000
Salaries........................................................ 475,000
Network Infrastructure.......................................... 410,000
Marketing/advertising........................................... 50,000
Working capital................................................. 790,000
Within the above categories, we intend that our management will have broad
discretion in the application of the net proceeds. Remaining amounts, if any,
will be used for general corporate purposes. Pending such uses, we intend to
invest the net proceeds from this offering in short-term, interest-bearing,
investment-grade securities. Please see 'Risk Factors--Risks Related to this
Offering--We will likely need to raise additional capital which may affect
shareholders, and our business will be harmed if we are unable to obtain
additional capital.'
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock. We
presently intend to retain future earnings, if any, to finance the expansion of
our business and fund operating losses and do not anticipate paying any cash
dividends in the foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000:
o on an actual basis;
o on an as adjusted basis to reflect the estimated net proceeds from the
sale of the common shares offered by us after deducting the underwriting
discount and estimated offering expenses payable by us. Please see 'Use
of Proceeds.'
You should read this information together with our financial statements and the
accompanying notes to those statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 2000
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued
and outstanding actual, pro forma and as adjusted.............................. $ -- $ --
Common stock, $0.001 par value, 50,000,000 shares authorized, 6,000,000 shares
issued and outstanding actual; 7,300,000 shares issued and outstanding as
adjusted....................................................................... 6,000 7,300
Additional paid-in capital........................................................ 2,256,000 9,444,700
Accumulated deficit............................................................... (1,605,979) (1,605,979)
----------- -----------
Total stockholders' equity..................................................... 656,021 7,846,021
----------- -----------
Total stockholders' equity..................................................... $ 656,021 $ 7,846,021
----------- -----------
----------- -----------
</TABLE>
19
<PAGE>
DILUTION
Our net tangible book value as of March 31, 2000 was approximately $0.7
million or $0.11 per common share. Net tangible book value per share represents
the amount of total tangible assets less total liabilities, divided by the
number of common shares outstanding.
After giving effect to the sale of common shares offered by us at an
assumed initial public offering price of $7.00 per share, and the application of
the estimated net proceeds therefrom, our net tangible book value as of March
31, 2000, would have been approximately $7.8 million or $1.07 per common share.
This represents an immediate increase in net tangible book value of $0.96 per
share to existing shareholders and an immediate dilution of $5.93 per share to
new shareholders purchasing common shares in this offering. The following table
illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................................ $ 7.00
Net tangible book value per share prior to this offering............................. $ 0.11
Increase per share attributable to new shareholders.................................. 0.96
---------
Net tangible book value per share after this offering.................................. 1.07
---------
Total net tangible book value dilution per share to new shareholders................... $ 5.93
---------
---------
</TABLE>
The following table summarizes as of March 31, 2000, on the pro forma basis
described above, the number of common shares purchased from us, the total
consideration paid to us and the average price per share paid by existing
shareholders and by investors purchasing common shares in this offering (before
deducting the estimated offering expenses):
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
-----------------------------------
SHARES PURCHASED AVERAGE
-------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders......................... 6,000,000 82.2% $ 1,700,000 15.7% $0.28
New investors(1).............................. 1,300,000 17.8 9,100,000 84.3 7.00
--------- ------- ----------- ------- ---------
Total....................................... 7,300,000 100.0% $10,800,000 100.0%
--------- ------- ----------- -------
--------- ------- ----------- -------
</TABLE>
- ------------------
(1) If the underwriters' over-allotment is exercised in full, the number of
shares held by new investors will be increased to 1,495,000, or 19.9% of the
total common shares to be outstanding after this offering.
The foregoing discussion and tables assume no exercise of any stock options
or warrants outstanding as of the date of this prospectus. As of the date of
this prospectus, there were options outstanding to purchase a total of 850,000
common shares with a weighted average exercise price of $5.93 per share and
warrants outstanding to purchase 200,000 common shares at an exercise price
equal to the assumed initial offering price, less the underwriter's gross
commissions and warrants outstanding to purchase 20,000 common shares at an
exercise price equal to the assumed initial offering price. To the extent that
any of these options or warrants are exercised, there will be further dilution
to new investors in this offering.
20
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with,
and are qualified by reference to, the financial statements and notes thereto
and 'Management's Discussion and Analysis of Financial Condition and Results of
Operations' appearing elsewhere in this prospectus. The financial statement data
as of December 31, 1999 and for the period from June 2, 1999 (date of inception)
through December 31, 1999 are derived from, and are qualified by reference to,
the audited financial statements of Take to Auction.com (which report includes
an explanatory paragraph related to our ability to continue as a going concern)
included elsewhere in this prospectus (excluding the balance sheet as adjusted,
which gives effect to the sale of common shares offered by us).
The statement of operations data for the three-month period ended March 31,
2000 and the balance sheet data as of March 31, 2000 have been derived from our
unaudited financial statements included elsewhere in this prospectus. In the
opinion of our management, the unaudited financial statements include all normal
and recurring adjustments necessary for a fair presentation of results for such
period. The selected financial and operating data for the three-month period
ended March 31, 2000 are not necessarily indicative of the results to be
expected for fiscal year ending December 31, 2000.
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JUNE 2, 1999 FOR THE PERIOD
(DATE OF INCEPTION) FROM JANUARY 1, 2000
THROUGH DECEMBER 31, 1999 THROUGH MARCH 31, 2000
------------------------- ----------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................................. $ 70,067 $ 421,733
Cost of net revenues......................................... 136,042 653,678
------------ ----------------------
Gross margin.............................................. (65,975) (231,945)
------------ ----------------------
Operating expenses:
General and administrative................................ 383,630 536,666
Auction fees.............................................. 5,727 19,910
Sales and marketing....................................... 19,061 72,361
Fulfillment............................................... 42,632 67,191
Web site development expenses............................. 32,637 21,610
------------ ----------------------
Total operating expenses..................................... 483,687 717,738
------------ ----------------------
Net loss from operations..................................... (549,662) (949,683)
Interest, net................................................ -- (106,634)
Net loss..................................................... $(549,662) $ (1,056,317)
------------ ----------------------
------------ ----------------------
Basic and diluted loss per common share...................... $ (0.10) $ (0.18)
------------ ----------------------
------------ ----------------------
Weighted average number of common shares outstanding......... 5,696,766 6,000,000
------------ ----------------------
------------ ----------------------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 2000
DECEMBER 31, 1999 -------------------------
----------------- AS
ACTUAL ACTUAL ADJUSTED(1)
----------------- ---------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................... $ 856,949 $ 363,752 $ 7,553,752
Working capital................................................ 1,288,032 532,347 7,722,347
Total assets................................................... 2,579,739 3,308,836 10,498,836
Shareholders' equity........................................... 1,150,338 656,021 7,846,021
</TABLE>
- ------------------
(1) Adjusted to give effect to the sale of the common shares offered by us (at
the assumed initial public offering price of $7.00 per share), and the
application of the estimated net proceeds therefrom as set forth under 'Use
of Proceeds.'
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations is based upon and should be read in conjunction with our financial
statements and their related notes included elsewhere in this prospectus.
OVERVIEW
Take to Auction.com, Inc. was formed as a Florida corporation in June 1999
and operates its online service under the name of 'Take to Auction.com'.
We are a development stage company, having launched our Web site in July
1999. Our operations for the period from June 2, 1999 through March 31, 2000
were primarily limited to organizing our company, raising operating capital,
hiring initial management and employees and refining our business model. We also
began to target potential customers and to build and promote our
interactive-based community and brand through word-of-mouth marketing efforts,
as well as repeat business.
We provide our members with a total solution to take items to online
auction sites. Our revenues are from memberships purchased by our members,
additional credits purchased by existing members and sales of products. In the
future, we also anticipate receiving fees from third parties for online
advertising. We believe that word-of-mouth and repeat business from existing
members are the most effective means of implementing our growth strategy.
Members purchase membership credits to enable them to select items to take to an
online auction site. Each annual membership costs a minimum of $100.00 and
allows a member to take any number of items which have an aggregate value of
$100.00 or less from our Web site to an online auction site for one week at a
time. Each membership lasts for one year.
In order for a member to recoup his or her entire membership fee, he or she
must earn $100.00 from auctions over the course of the membership term. By
accumulating additional credits, the member will be eligible to list multiple
items and/or items that have greater value. The total number of credits and,
consequently, our revenues depend upon our members' interest in listing multiple
items at one time or seeking more valuable merchandise. That is because the more
credits a member purchases, the more (both in number and value) items he or she
can send to auction. The more credits a member purchases, the more revenues are
generated for Take to Auction.
Our rate of expense growth will follow revenue growth and will be primarily
driven by increases in membership and by the volume of successful online
transactions completed by existing members. That is because the more members we
have, the more expenses we incur, such as listing fees, customer service,
merchandise and warehouse expenses. In the short term, we intend to increase our
expenses significantly in an effort to attain a high level of revenue growth.
RESULTS OF OPERATIONS
Net revenues. Net revenues include the membership fees charged to our
members, prorated over the annual membership, and the sale of products to our
members upon a successfully completed auction. Net revenues amounted to
approximately $422,000 and $70,000 for the periods from January 1, 2000 through
March 31, 2000 and from June 2, 1999 through December 31, 1999, respectively. We
had approximately 5,400 and 600 completed transactions during the periods from
January 1, 2000 through March 31, 2000 and from June 2, 1999 through December
31, 1999, respectively, at an average sale price of approximately $75 and $97,
respectively.
Cost of net revenues. Cost of net revenues consist primarily of the cost
of the merchandise sold and inbound shipping costs related to those items. Cost
of net revenues amounted to approximately $654,000 and $136,000 for the periods
from January 1, 2000 through March 31, 2000 and from June 2, 1999 through
December 31, 1999, respectively. We believe that offering our members attractive
pricing is a key component to our success. The majority of our negative margins
is attributable to offering our current members discounted pricing to promote
our brand during our development stage. We believe our gross margin will improve
as we improve our supply chain management, including buying directly from the
manufacturers and
22
<PAGE>
taking advantage of volume purchase discounts. We expect to realize positive
margins from the sale of products in the future, although we cannot assure you
that this will prove to be the case.
General and administrative expenses. General and administrative expenses
consist of payroll and related expenses for executive, accounting and
administrative personnel, professional fees and other general corporate
expenses. General and administrative expenses amounted to approximately $537,000
and $384,000 for the periods from January 31, 2000 through March 31, 2000 and
from June 2, 1999 through December 31, 1999, respectively. General and
administrative expenses will continue to increase as we expand our staff and
incur additional costs to support the growth of the business.
Auction fees. Auction fees consist of fees incurred for posting and
selling items at on line auction sites. Auction fees amounted to approximately
$20,000 and $6,000 for the periods from January 1, 2000 through March 31, 2000
and from June 2, 1999 through December 31, 1999, respectively. Auction fees will
continue to increase as the number of items listed and sold at on line auction
sites increase through our increased membership base.
Sales and marketing. Sales and marketing expenses consist of fees incurred
for advertising and promotion. Sales and marketing expenses amounted to
approximately $72,000 and $19,000 for the periods from January 31, 2000 through
March 31, 2000 and from June 2, 1999 through December 31, 1999, respectively.
Sales and marketing expenses will continue to increase as we increase our
marketing efforts to attract new members.
Fulfillment fees. Fulfillment fees consist of fees incurred to implement
our outsource agreement with our third party warehousing facility and to
warehouse, fulfill and ship products to the highest bidders for completed
auctions. Fulfillment fees amounted to approximately $67,000 and $43,000 for the
periods from January 31, 2000 through March 31, 2000 and from June 2, 1999
through December 31, 1999. Fulfillment fees will continue to increase as our
sales increase.
Web site development expenses. Web site development expenses consists
principally of expenses incurred to develop our network operations and systems
and telecommunications infrastructure. Web site development expenses amounted to
approximately $22,000 and $33,000 for the periods from January 31, 2000 through
March 31, 2000 and from June 2, 1999 through December 31, 1999, respectively.
Web site development expenses are expected to increase as we increase our
network infrastructure to facilitate our operations.
Income taxes. We were incorporated in June 1999 and have not yet filed a
federal income tax return or a State of Florida income tax return. Our 1999
fiscal year ended on December 31, 1999. We expect to have operating losses for
the foreseeable future and do not expect to have any federal or state income tax
liability until we are profitable and utilize our operating loss carry forwards.
Net loss. As a result of the factors discussed above, primarily relating
to the general corporate expenses incurred in our start up activities, the net
loss totaled approximately $1,056,000 and $550,000 for the periods from January
1, 2000 through March 31, 2000 and from June 2, 1999 through December 31, 1999,
respectively. We received an opinion from our independent auditors on our
December 31, 1999 financial statements expressing substanital doubt as to our
ability to continue as a going concern as a result of, among other matters, our
operating losses during the development stage and our need for substantial
amounts of additional funding to continue our operations. We expect to incur net
losses for the foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements are acquiring merchandise and
maintaining and improving our Web site.
We used cash of approximately $1,317,000 and $349,000 from operating
activities for the periods from January 1, 2000 through March 31, 2000 and June
2, 1999 through December 31, 1999, respectively. This was primarily the result
of a loss of approximately $1,056,000 and $550,000 for the periods from January
1, 2000 through March 31, 2000 and June 2, 1999 through December 31, 1999,
respectively. The additional
23
<PAGE>
changes in other operating assets and liabilities were principally related to
increases in accounts payable and accrued expenses offset by an increase in
inventory.
We used cash in investing activities of approximately $598,000 and $191,000
during the periods from January 1, 2000 through March 31, 2000 and June 2, 1999
through December 31, 1999, primarily related to the purchase of computer
hardware and software.
Cash provided by financing activities for the period from June 2, 1999
through December 31, 1999 was approximately $1,397,000. This was the result of
proceeds received on our stock subscriptions receivable (relating to our initial
capitalization) in the amount of approximately $364,000, proceeds received from
the sale of our common shares to SLI.com Ventures Ltd. in the amount of
$350,000, proceeds received from the sale of our common shares to Dominion
Income Management in the amount of $350,000, and proceeds received on a note and
warrant purchase agreement (the 'Note') in the amount of $1,000,000 from E Com
Ventures, Inc. (formerly Perfumania, Inc.), a company related through common
chairman of the board, offset by payments made for offering costs of
approximately $668,000. The Note expires two years from its effective date,
bears interest at 6% per annum and is convertible into our common shares at the
conversion price equal to the price per share of our assumed initial public
offering, less the underwriters' gross commissions. In connection with the Note,
we issued a warrant for the purchase of a total of 100,000 shares of common
stock at a price equal to our assumed initial public offering price, less the
underwriters' gross commissions.
Cash provided by financing activities for the period from January 1, 2000
through March 31, 2000 was approximately $1,421,000. This was the result of
proceeds received on our stock subscriptions receivable (relating to our initial
capitalization) in the amount of approximately $635,000, proceeds received on an
additional Note in the amount of $1,000,000 from E Com Ventures, Inc. (formerly
Perfumania, Inc.), offset by payments made for offering costs of approximately
$214,000. The additional Note issued during the period from January 1, 2000
through March 31, 2000 has the same terms as the Note issued during the period
from June 2, 1999 through December 31, 1999.
The two $1 million Notes from E Com Ventures, Inc. were the only debt
facility available to us as of March 31, 2000. The sale of common shares to
SLI.com Ventures Ltd. and Dominion Income Management was not part of the August
26, 1999 $1 million initial capitalization.
We believe that funds generated from our initial capitalization, other
private placements, operations and the net proceeds of this offering will be
sufficient to finance our current and anticipated operations for at least 12
months after this offering. Our long-term capital requirements beyond this
period will depend on numerous factors, including, but not limited to, the
following:
o The ability to expand our member base;
o The cost of upgrades to our Web site; and
o The level of expenditures for sales and marketing and other factors.
Without the proceeds from this offering, we will not have sufficient funds
to fund operations for the next twelve months. We would need to raise additional
funds by incurring debt or through other public or private offerings of our
capital stock. We may not be able to do either on terms favorable to us, if at
all. Please see 'Risk Factors--We will need to raise additional capital which
may affect our shareholders . . .' for a more detailed discussion of our ability
to raise capital to meet long-term capital requirements.
Although we do not have any current plans for a secondary offering, we may
seek such an offering in the future. There is no preset level of stock price
which will operate as a trigger to such offering, although a substantial rise in
the price of our stock may be one of the factors we will consider in determining
whether to seek a secondary offering. Another factor we may consider would be
the ability of our stock to sustain dilution.
24
<PAGE>
IMPACT OF YEAR 2000
Even though the date is now past January 1, 2000, and we have not
experienced any immediate adverse impact from the transition to the Year 2000,
we cannot provide complete assurance that we have not been affected in a manner
that is not yet apparent. Furthermore, although the date is now past February
29, 2000, and we have not experienced any immediate adverse impact from the leap
year, we cannot provide complete assurance that we have not been affected in a
manner that is not yet apparent. We have tested our software and our internal
systems for potential problems relating to the Year 2000 and the leap year that
occurred in 2000 and do not believe that we will experience any date related
problems. In addition, we do not believe that we will incur material costs in
the future because of date related problems. Nonetheless, we will continue to
monitor our compliance and compliance of our third party vendors and licensors
of material hardware and software services for date related problems.
We have developed testing procedures for all software and other systems
that we believe might be affected by Year 2000 or leap year issues. Since third
parties developed and currently support many of the systems that we use, a
significant part of this effort has been and will be to ensure that these
third-party systems are Year 2000 and leap year compliant. We received
assurances that the existing third-party software and the existing hardware are
Year 2000 and leap year compliant through a combination of representations by
these third parties regarding their products' Year 2000 and leap year
compliance, as well as specific testing of these systems.
Based on the above actions, we have not developed a formal contingency plan
to be implemented as part of our efforts to identify and correct date related
problems affecting our internal systems. However, all of our data is backed-up
so that we should be able to restore all data and normal service activity in the
event of a service interruption related to date related problems. Based on the
actions taken to date, and the lack of any problems to date, we are reasonably
certain that we have identified and resolved all date related problems that
could harm our business.
25
<PAGE>
BUSINESS
TAKE TO AUCTION.COM
We are an Internet-based community providing our entrepreneurial members an
online catalog of authentic collectibles and factory-new specialty merchandise
to sell at online auction sites, such as eBay(sm), FairMarket(sm), Amazon(sm)
and Yahoo!(sm). Our members pay an annual membership fee and, each week, if they
so choose, at no additional cost, select from more than 3,000 types of items in
more than 10 categories of merchandise from our Web site that we then list
automatically on a popular online auction site for one week at a time for the
duration of the one-year membership. Our business model is distinct from and
complements the more than 200 online auction sites. We intend to develop and
expand our online membership base under the Take to Auction brand by attracting
Internet users who can earn additional income through our Web site. We create
significant Web site affinity by offering our members the ability to follow
their portfolio of merchandise currently listed on online auction sites and to
track their accumulated profits from completed online auctions. We believe that
adding monthly and annual competitions, category indices and personalized
features such as the ability to track portfolios and members' profits will keep
members returning to our Web site.
We are a development stage company, having launched our Web site in July
1999. We provide our members with a total solution to take items to online
auction sites. Our principal sources of revenues are derived from membership
fees, the purchase of additional credits and sales of products. In the future,
we also anticipate receiving fees from third parties for advertising their
products and services on our Web site. As our membership base expands and the
volume of merchandise increases, our purchasing power and economies of scale
should enable us to offer a broader array of merchandise at even better prices.
INDUSTRY BACKGROUND
The Internet has emerged as a global medium enabling millions of people
worldwide to share information, communicate and conduct business electronically.
It also provides businesses with an attractive means of selling and marketing
their products. International Data Corporation, or IDC, estimates that the
number of Web users worldwide will grow to approximately 508 million by the year
2003. This growth is expected to be driven by the large and growing number of
PCs installed in homes and offices, the decreasing cost of PCs, easier, faster
and cheaper access to the Internet, improvements in network infrastructure, the
proliferation of Internet content and the increasing familiarity and acceptance
of the Internet by businesses and consumers. The Internet has a number of unique
characteristics that differentiate it from traditional media: users communicate
or access information without geographic or temporal limitations; users access
dynamic and interactive content on a real-time basis; and users communicate and
interact instantaneously with a single individual or with entire groups of
individuals. As a result of these characteristics, Web usage is expected to
continue to grow.
The growing adoption of the Web represents an opportunity for businesses to
conduct commerce over the Internet. IDC estimates that the total value of
commerce over the Internet will increase to approximately $1 trillion worldwide
by the year 2003.
Online auction sites like eBay, the only online auction site we currently
use, pioneered person-to-person trading of a wide range of goods over the
Internet using an efficient and entertaining auction format and has grown into
the largest and most popular person-to-person trading community on the Internet.
Although eBay is the only online auction site we currently use, we do not have
any formal agreement with eBay or any other online auction site. We believe that
there are currently over 200 online auction sites on the Internet. Online
auction services permit sellers to list items for sale, buyers to bid for and
purchase items of interest and all auction users to browse through listed items
from any place in the world at any time. Online auction sites offer buyers a
large selection of new and used items that can be difficult and costly to find
through traditional means such as classified advertisements, collectibles shows,
garage sales and flea markets or through intermediaries, such as auction houses
and local dealer shops. Online auction sites also enable sellers to reach a
larger number of potential buyers more cost-effectively than traditional
person-to-person trading
26
<PAGE>
forums. However, the volume of activity on existing online auction sites is
subject to some of the following limitations:
o Sellers on online auction sites own the listed merchandise and must pay
all listing fees assessed by certain online auction sites;
o Sellers of products own a limited supply of merchandise to place on
online auction sites;
o If the online auction of an item is unsuccessful, the seller continues to
own the item;
o Sellers of products are responsible for the collection of the purchase
price and the delivery of the merchandise to buyers;
o Sellers do not know the buyer so they are unsure whether the buyer will
pay for the merchandise;
o Sellers do not have an automatic and secure payment system;
o Buyers must rely on the sellers to make sure that the items purchased are
in good condition and are actually delivered;
o In many cases, the process of listing an item on an online auction site
is typically limited to users with some degree of Internet experience,
especially when a seller wants a photograph of the item to appear on the
auction site; and
o Sellers can earn a profit only after deducting the price paid by them for
the merchandise and the related listing fees and other expenses.
THE TAKE TO AUCTION.COM SOLUTION
We capitalize on the success of online auction sites by supplying these
online auction markets with many categories of collectibles and factory-new
specialty merchandise. Using our purchasing expertise, we supply entrepreneurial
members with items to bring to auction.
We believe that the Take to Auction concept will appeal to Web users,
create community affinity and increase user traffic on online auction sites for
the following reasons:
We provide members with a broad array of merchandise to take to online
auctions
While a typical seller has limited items to place for auction, we
currently provide our members with over 3,000 types of items of merchandise
in a broad array of categories from which to make a selection. The
merchandise categories include the following:
<TABLE>
<S> <C>
Autos and Auto Products Great Collections
Antiques Jewelry, Gemstones
Art Photo & Electronics
Books, Movies, Music Pottery & Glass
Coins, Stamps Sports Memorabilia
Collectibles Toys, Plush
Dolls, Figurines
</TABLE>
In addition to providing single items, we also expect to offer bundled items
of merchandise from time to time to lower the reserve price of each item
and, therefore, improve the chances of a successful online auction.
Members never have to purchase or take possession of the merchandise
Unlike traditional auction settings where sellers place their own
items up for auction, our members enter our Web site, browse through a
product catalog and select an item to be listed at an online auction site.
If the item does not sell, the item returns to our electronic warehouse
automatically without the member incurring any expenses. There is no
additional cost to the member and, therefore, no risk to have items listed
at an online auction site because the minimum bid prices always cover the
value of the
27
<PAGE>
merchandise. The differential between the reserve price and the highest
bid, the spread, constitutes a member's profit.
Members do not have to take complicated steps to list items online
To list an item on a traditional online auction site, information
about the seller and the particular item must be entered into the system.
Sellers are not required to include a photograph of the item they wish to
take to auction, however, they often do to increase the salability of the
item. If a seller desires to include a photograph of the item, a digital
photograph of the item must be taken by the seller and then fitted
according to the required layout of the online auction site. We facilitate
the auction process because, once a member registers, the only thing he or
she has to do is select an item from our product catalog and choose from a
drop down menu the auction site where he or she desires to place the item
(presently, only eBay). Once an item is selected and the member has chosen
the online auction site, we automatically register the member and the
item's specifications on the online auction site, providing membership
information, a photograph and a description of the item.
We facilitate transactions by accepting credit cards and electronic checks
and by handling shipping and delivery
Buyers of our merchandise have the ability to pay by credit card or
electronic check protected by security services such as VeriSign, Inc. and
SSL Security Systems. This payment medium is not offered by online auction
sites because a typical seller is small and, therefore, not equipped to
have a credit card processing system or the ability to receive an
electronic check. We also package and ship the merchandise to the buyer, at
the buyer's expense.
Our service is designed to promote an active membership community to
provide a positive environment for advertising and commerce
We intend to encourage active participation in our community and to
offer a number of programs to increase levels of participation. We
currently provide our members with a personalized auction tracking page
which advises members of the status of their current auctions, as well as a
status report of the sales completed and profits earned to date. In the
near future, we intend to provide monthly and annual competitions, category
indices and other personalized features designed to keep members returning
to our Web site.
We believe that all of these features will appeal to advertisers and
consumers because advertisers will be able to specifically target their
advertisements based upon the information members provide us in their
applications and by tracking merchandise taken by our members to other
auction sites. Additionally, the banner ads and hyperlinks will not require
a member to leave our Web site in order to visit an advertiser or sponsor's
Web site.
In addition to the aforementioned reasons, ultimately we believe our
concept will increase traffic to online auction sites because the seller
does not have to own the merchandise being auctioned, but rather consigns
it to an online auction site at no risk. Without our concept, the seller
must own the merchandise sent to auction. Sellers invariably can only own a
finite amount of products to take to auction. We permit a whole new
population (those who do not own any merchandise that they wish to sell) to
participate as sellers in online auctions. We further believe that our
concept will attract a more entrepreneurial population who join to make
money, as opposed to the hobbyists and collectors who make up a significant
portion of the current online auction population. We believe that an
increase in user traffic on online auction sites will increase our
membership base because such an increase will expose us to a larger
population. Each bid sent by a member to an online auction site is
accompanied by a banner identifying us. Please see 'Marketing and
Advertising.' The more online auction participants, the more who will see
our banner. The more online auction participants who become familiar with
us through our banners, the more, we hope, who will want to become members.
It is the anticipated synergy between increasing traffic and increasing
membership which we believe we can capitalize on. Further, a greater number
of members of online auction sites leads to more potential buyers, which
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should, in turn, result in higher prices that our members may be able to
obtain for their goods. The more money our members make, the more credits
they may purchase, the more friends they may tell, and thus, the more
business which may be generated.
TAKE TO AUCTION STRATEGY
Our objective is to become a leading Internet based community offering a
broad array of products and services to our members. Our strategy includes the
following key elements:
Grow the Take to Auction community and increase the membership base
Because we intend to derive a large portion of our revenues from the
sale of membership credits, our success depends on our ability to grow our
membership base. We intend to use 'word-of-mouth' referrals and targeted
marketing to buyers of our merchandise posted on online auction sites to
expand our membership community.
Promote the Take to Auction brand
We believe that building greater awareness of our brand within and
beyond the Take to Auction.com community is critical to maintaining and
expanding our user base and promoting online advertising revenues. We
believe that controlled growth of the Take to Auction.com community and
brand will maximize customer satisfaction and promote our brand. All
merchandise listed by us on online auction sites will contain a banner
which provides hyperlink access to our Web site. We also intend to use a
portion of the proceeds from the offering to launch an advertising campaign
to increase our membership base.
Forge business relationships with online auction sites and other partners
to improve brand-name recognition and the efficiency of our network
systems
Although we do not have any yet, we intend to form business
relationships with online auction sites to improve our 'brand name'
recognition and the performance and efficiency of our network systems.
These business relationships would mainly consist of arrangements with
online auction sites in the following areas: cross marketing; discounted
fees; direct electronic interfacing; and mutual name protection. We believe
that business relationships with online auction sites will improve brand
name recognition by enabling our members to benefit from enhanced services
provided by online auction sites, including special recognition in the
'featured auctions' Web page of online auction sites and allowing us to
place our banner in each auction posted by us on behalf of our members.
Another important aspect of a business relationship with an online auction
site may consist of mutual name protection, whereby an online auction site
would agree to help protect the Take to Auction name by prohibiting sellers
or buyers, other than our members, from using Take to Auction as any part
of their listing name. We believe that business relationships with online
auction sites will improve the efficiency and performance of our network
systems by enabling us to communicate more directly, or better interface
with online auction sites. An interface is the place at which independent
systems meet or communicate. Currently, for our system to communicate with
an online auction site, we emulate a browser or a standard manual posting
used by all auction house users. This 'browser emulating' technique is
troublesome when it comes to numerous automated posting, because the
web/e-mail interface (the interface used by regular members) is slow and
prone to data loss. A business relationship with an online auction site may
permit us the use of a better interface, such as a custom made program
specifically designed to integrate our systems properly, also commonly
referred to as an application programming interface (API). Our use of an
online auction site's API would allow us to communicate more directly with
such site's back end (possibly directly with their database), as opposed to
simulating a person when communicating with the site. Interfacing using an
online auction site's API will bypass their normal web/e-mail interface.
This eliminates data loss, waiting for responses from the site, errors
caused by previously unannounced protocol changes, transfer of faulty data
and increases our Web site's processing power, thus increasing the
efficiency or throughput.
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Leverage our innovative business model
We believe that our business model provides a number of competitive
advantages. We have a unique appeal to entrepreneurial Web users because we
can provide them with the means to earn additional income at no additional
risk other than the amounts members pay for membership credits. Our current
volume of activity is approximately 42,000 transactions, based on the
current level of membership on an annualized basis. We completed
approximately 6,000 transactions during the period from June 2, 1999
through March 31, 2000. Our current variety of merchandise equals over
3,000 types of items. As we increase our volume of activity and the variety
of merchandise available to take to online auction sites, we expect to
purchase merchandise at a greater discount, thereby increasing the
potential profits of the members.
Enhance the Take to Auction.com Web site features and functionality by
adding unique content to our membership
We intend to update and enhance the features and functionality of our
Web site frequently to continue to improve the user's trading experience by
introducing features such as new category-specific content. For example, we
intend to provide stock quotes, a 'tell your story' section and category
indexing. The category indexing we intend to offer will show the recent
sales trends in many of the categories of items we offer for auction. We
also intend to provide a real time confirmation of a completed auction to
our members and to the buyer, which will include a link for the buyer to
click to facilitate payment. We will continue to refine system response and
transaction processing time by investing in our infrastructure to
accommodate additional users, content and online auction sites. The system
response time refers to the speed and functionality of our Web site. The
transaction processing time refers to the processing time for all types of
transactions which can be accomplished on our Web site, such as signing up
for membership, purchasing additional credits and taking items to auction.
We believe that our format and Web site encourage users and members to
return on a frequent basis to review the inventory of items available to
them, to check the status of on-going auctions and to track their
historical success. The regular rotation of merchandise also encourages
customers to revisit the site frequently. Further, we anticipate that our
online advertising customers will benefit from our ability to provide
targeted marketing opportunities.
Generate revenues from the sale of online advertising
We intend to generate a minor portion of our revenues from online
advertising by leveraging our user database to enable Internet retailers to
advertise their products to our members. Our system provides these
retailers with information about the spending habits of our members based
on information obtained by tracking the posting habits of our members. We
do not provide retailers with personally identifiable information about our
users. Currently, we provide our members with an auction portfolio tracking
page. In the future, we intend to provide to our members with a stock
portfolio tracking system, a 'tell your story' section and category
indexing. These current and future features, we believe, will foster
community affinity by encouraging our members to spend more time on our Web
site. These factors, we believe, will appeal to Internet retailers that
desire to advertise their products because we can provide them with the
opportunity for a relatively captive audience. Currently, we have
arrangements with two entities whereby these entities display their banner
on our Web site. To date, we have derived no revenues from such online
advertising. Please see 'Risk Factors - Revenue expected from online
advertising may not materialize' for a more detailed discussion of our
online advertising.
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THE TAKE TO AUCTION SERVICE
Our platform is an Internet-based community supplying merchandise to
entrepreneurial members through an online catalog of collectibles and
factory-new specialty merchandise. The following describes our purchase and sale
process:
What can be taken to auction
Our service will offer our members numerous product categories. We
expect the number of product categories to grow in the future. Each
category below has numerous subcategories. Merchandise is available
individually or as bundled items. Current product categories include:
Autos and Auto Products Great Collections
Antiques Jewelry, Gemstones
Art Photo & Electronics
Books, Movies, Music Pottery & Glass
Coins, Stamps Sports Memorabilia
Collectibles Toys, Plush
Dolls, Figurines
REGISTRATION
Members purchase membership credits to enable them to select an item to
take to an online auction site. An annual membership costs a minimum of $100.00
for 100 credits, which allows a member to take any number of items which have an
aggregate value of $100.00 or less from our Web site to an online auction site
for one week at a time for the duration of the one-year membership. In addition,
as a member purchases additional credits, the member will be eligible to list
additional items or items that have greater value and/or are more difficult to
find. Initially, each additional credit beyond the membership fee costs $1.
However, the cost of additional credits will be prorated based on when they are
purchased within the members' membership term. Additional credits may be
purchased in 25 credit increments. The user interface clearly indicates to the
member how much it will cost to purchase additional credits. The number of
credits and, consequently, our revenues depend upon our members' interest in
listing multiple items at one time or more valuable items.
SELECTING AN ITEM
With the purchase of a membership, a member can access our site and select
one or more items from our fully automated catalog and post such merchandise on
an online auction site. Members select items based on the number of their
credits. Each credit is valued at $1.00. A member's membership, which costs a
minimum of $100.00, equals 100 credits. Additional credits can be purchased as
set forth in the above section. Members can increase their selling power by
purchasing additional credits. Additional credits allow members to list multiple
items simultaneously or items of greater value, always based on the number of
accumulated credits. For example, if a member purchases an additional 100
credits, such member would have 200 credits, 100 credits from his or her
membership fee plus the additional credits. Since the credits are valued at
$1.00, the member may now take any number of items which have an aggregate value
of $200.00 or less from our Web site to an online auction once a week for the
duration of the member's annual membership.
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TAKING AN ITEM TO AUCTION
Members can take an item they choose to an online auction site by clicking
on the item, causing a drop-down menu to list the popular online auction sites
to which members can choose to take the selected merchandise (presently, only
eBay). By highlighting and clicking on the online auction site, the item, with
its description and reference information (including minimum bids for opening
price and member information), is transferred to the auction site automatically.
Our domain name and the member's user name are displayed on the online auction
site to identify to potential buyers that a Take to Auction.com member is
placing the item on the online auction site. Our personalized Web address
ensures member anonymity and informs potential bidders that the item is backed
by the Take to Auction brand name. Of course, our backing will only become
relevant to online bidders if Take to Auction.com gains brand name recognition
as a safe and reliable company with which to do business. In order to reduce
possible competition between our members, we do not allow more than one unit of
the same item to be listed at the same online auction site within a certain
amount of time, usually 17.5 hours.
SELLING AN ITEM AT AUCTION
Once the item is listed on an auction site, buyers from around the world
may bid on the item according to the rules of the selected online auction site,
usually 24 hours a day, seven days a week.
HOW TRANSACTIONS ARE COMPLETED
At the end of an auction period, if a bid meets or exceeds the minimum
price, we automatically notify the buyer and the member via e-mail and the buyer
can then consummate the transaction through Take to Auction.com. The member does
not take possession of the item being sold and is not responsible for the
collection of the buyer's payment for the item. We arrange for the shipment and
payment collection for the item. We accept electronic checks and credit cards.
We charge the buyer handling and shipping fees for the merchandise.
COMMUNICATIONS WITH THE WINNING BIDDER
With the delivery of the merchandise, the winning bidder receives a letter
thanking him or her for purchasing an item from us, inviting the buyer to join
Take to Auction.com and explaining our services.
MARKETING AND ADVERTISING
To promote the Take to Auction.com brand and to attract traffic and new
members, we currently employ 'word-of-mouth' marketing. In addition, we also
have banners and links on our members' listings at the online auction sites. We
believe that these links will provide additional traffic to our Web site. In the
near future we intend to use a portion of the proceeds from this offering to
expand our marketing department and to target specific Web users with
traditional and Web-based marketing programs.
We believe that 'word-of-mouth' referrals is the most effective means to
attract new members because referrals by existing members lend credibility to
our service and brand name by demonstrating to potential members that other
individuals have successfully used our service. We believe that we would impair
the quality of our service and the level of customer satisfaction if we were to
embark on a high-profile advertising campaign that generates attention in the
short-term, placing too great a burden on our existing infrastructure. We
believe that we can only achieve sustainable growth by proving to potential
users that others have benefited from our services and their experience was very
satisfactory through positive feedback on the online auctions. Likewise, we
believe that the marketing of our services to buyers of Take to Auction
merchandise on online auction sites will be effective because buyers know from
experience that the Take to Auction.com service works. Please see 'Risk
Factors--Unexpected increases in traffic may stress our systems.'
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CUSTOMER SUPPORT
We provide customer service and support. Customer support is offered
through a toll-free telephone number and an e-mail address which are monitored
by our staff from 9:00 a.m. to 5:00 p.m., from Monday through Friday. Most
customer support inquiries are handled via e-mail, with customer inquiries
typically being answered within one business day after submission. We also offer
an online tutorial for new Take to Auction.com users.
OPERATIONS AND TECHNOLOGY
We are operating our first generation user interface and transaction
processing system that is based on internally-developed proprietary software.
Our system currently handles all aspects of the Take to Auction process
including notification of members via e-mail when they initially register for
the service, confirmation of the selection of the merchandise to take to
auction, registration of the item on an online auction site and notification to
our selling member and the buyer upon the successful completion of an auction.
The system maintains member registration information, billing accounts, current
auctions and historical listings. All data is regularly archived to a data
warehouse. Complete listings of all items for sale are generated on a daily
basis. The system sends electronic invoices to all buyers of merchandise sold by
our members via e-mail immediately after auction.
Our system has been designed around industry standard architectures and has
been designed to reduce downtime in the event of outages or catastrophic
occurrences. Our service is designed to be available 24 hours a day, seven days
a week. Our system hardware is hosted at a third party facility in Cary, North
Carolina, which provides redundant communications lines and emergency power
backup. Our system consists of one database running SQL relational database
management systems and a suite of Dual and Quad PentiumIII-based Microsoft(TM)
Internet servers running Windows NT operating system. Our Internet servers also
utilize VeriSign, Inc. SSL digital certificates for authentication. We have a
load balancing Web system with redundant servers to provide for fault tolerance.
Dell(TM) currently provides all of our hardware and we use both 6300 and 2400
series servers.
We are in the process of implementing a second-generation system using
internal resources. We expect this to cost approximately $250,000. The two main
reasons for the upgrade of the system are fault tolerance and scalability. Due
to the amount of data that must be stored and the expected volume of
transactions we expect to experience, we will replace our current Microsoft SQL
database server with Oracle's 8i database server, which will also allow for
better scalability. We are also in the process of mirroring the entire Web
system on a different geographical location for added redundancy. We continually
evaluate the latest technologies to provide the smartest solution available. In
the near future, we will out grow our Microsoft based solution, and we will
migrate to Sun Micro Systems running the Solaris operating systems, Zeus for our
Web services and Chili soft for ASP with an Oracle DB backend.
PURCHASING AND INVENTORY
Purchasing
Our management has an aggregate of 45 years experience in sourcing products
for the resale market. Ilia Lekach has 30 years retail and wholesale experience;
Albert Friedman has 6 years retail, wholesale and manufacturing experience; and
Kevin Caricato has 9 years retail and wholesale experience. The items of
merchandise posted at our Web site will be purchased by us from manufacturers
and wholesalers on the open market. By that we mean that we will not commit to
purchase from a small group of manufacturers or wholesalers, but rather make our
purchasing decisions solely based on the best prices offered for quality
merchandise. Because the types of products listed on our Web site are generally
available from a large number of wholesalers and manufacturers, we believe that
we can leverage our management's purchasing expertise to obtain better prices
for these products by purchasing them in the open market. Therefore, we have not
entered, and do not expect to enter, into any medium- or long-term supply
agreements with any manufacturers or wholesalers of products. Also, because of
the broad array of products we intend to carry and since we do not have a
catalog, the need to carry specific items is minimal. If an item is not readily
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available to us, we may choose to discontinue the item or suspend it temporarily
from our product offerings. We may, however, enter into strategic alliances with
some manufacturers from time to time to source unique merchandise to be listed
on our Web site. Please see 'Certain Relationships--Exito Enterprises Sourcing
Arrangement.'
Inventory
We believe that we will be able to maintain an adequate inventory of
merchandise, which we will purchase from wholesalers and suppliers in the open
market (as discussed above), to meet projected demand. We believe that our
inventory will be adequate to meet the projected demand of our members and
potential buyers. Effective November 3, 1999, we entered into a six-month
service agreement with 2000 Logistics, Inc., an unrelated third party, to
outsource our warehouse and distribution functions, which such agreement has
been extended through November 2, 2000 and will automatically renew for
successive one-year terms. This service agreement includes order processing,
inventory management, warehousing, fulfillment and shipping of product. The
agreement is variable, based on volume of sales. We estimate the total cost of
these services will be approximately $600,000 during the initial term of the
agreement (through November 2, 2000). The majority of costs related to this
agreement are variable and thus based on the volume of sales.
PRODUCT AND SERVICE WARRANTIES
When buyers purchase our merchandise on online auction sites, we pass on to
these buyers the warranties made by the manufacturers of the merchandise. We do
not provide and assertively disclaim separate additional warranties.
COMPETITION
We believe that we are the only entity currently using our innovative
business model. However, we could face competition from existing online auction
sites or new person-to-person trading Web sites that may provide the Take to
Auction concept in the future. In the event that existing online auction sites
begin to provide the Take to Auction concept in the future, they could attempt
to block us from accessing their auction sites. Barriers to entry are relatively
low and future competitors could launch new sites at a relatively low cost using
commercially available software. Likewise, it would not be costly for existing
online auction sites to modify their format to provide the Take to Auction
concept. Many of the major online auction sites, if they were to compete with us
in the future, have longer operating histories, larger user bases, longer
relationships with consumers, greater brand or name recognition and
significantly greater financial, technical and marketing resources than we do.
Competitive pressures created by any one of these companies, or by new entries
using the Take to Auction concept, could harm our business, financial condition
and results of operations.
Future competitors may include various online person-to-person auction
services that also serve as online clearing houses or sales and distribution
channels and auction sites for manufacturers and suppliers of a variety of
products, including First Auction(TM) (the auction site for Internet Shopping
Network, a wholly-owned subsidiary of the Home Shopping Network) and Ubid, Inc.,
an online auction site of surplus electronic and computer products. Other future
competitors may include business-to-consumer online auction services such as
Onsale and Surplus Auction. We may also face competition from a number of large
online communities and services that have expertise in developing online
commerce and in facilitating online person-to-person interaction. Certain of
these companies, including eBay(sm), FairMarket(sm), Amazon.com(sm), AOL(sm),
Microsoft(sm) and Yahoo!(sm), currently offer a variety of business-to-consumer
trading services and classified ad services, and certain of these companies
could introduce the Take to Auction concept in the future. Other large companies
with strong brand recognition and experience in online commerce, such as Cendant
Corporation, QVC and large newspaper or media companies may also seek to compete
in the online auction market, and upon doing so, introduce the Take to Auction
concept. Competitive pressures created by any one of these companies, or by new
entries using the Take to Auction concept, could harm our business, financial
condition and results of operations.
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We believe that the principal competitive factors in the online auction
market are volume and selection of goods, population of buyers and sellers,
community cohesion and interaction, customer service, reliability of delivery
and payment by users, brand recognition, Web site convenience and accessibility,
price, quality of search tools and system reliability. Many of our potential
competitors have longer operating histories, larger customer bases, greater
brand recognition and significantly greater financial, marketing, technical and
other resources than us. In addition, 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 the
use of Internet and other online services increases and consolidates. Therefore,
certain of our potential competitors may be able to devote greater resources to
marketing and promotional campaigns, adopt more aggressive pricing policies or
may try to attract traffic by offering services for free and devote
substantially more resources to Web site and systems development than us.
Increased competition may result in reduced operating margins, loss of market
share and diminished value in our brand. We may be unable to compete
successfully against future competitors. Further, as a strategic response to
changes in the competitive environment, we may, from time to time, make certain
pricing, service or marketing decisions or acquisitions that could harm our
business, financial condition and results of operations. New technologies and
the expansion of existing technologies may increase the competitive pressures on
us by enabling potential competitors to offer a lower-cost service. Certain
Web-based applications that direct Internet traffic to certain Web sites may
channel users to trading services that may compete with us in the future. In
addition, companies that control access to transactions through network access
or Web browsers could promote our future competitors or charge us substantial
fees for inclusion. Any and all of these events could harm our business,
financial condition and results of operations. Please see 'Risk Factors--We may
face competition from existing online auction sites or new person-to-person
trading Web sites which may harm our business.'
INTELLECTUAL PROPERTY
We regard the protection of our copyrights, service marks, trademarks,
trade dress and trade secrets as critical to our future success and rely on a
combination of copyright, trademark, service mark and trade secret laws and
contractual restrictions to establish and protect our proprietary rights in
products and services. We have also entered into confidentiality and invention
assignment agreements with our employees and contractors, and nondisclosure
agreements with our suppliers and strategic partners to limit access to and
disclosure of our proprietary information. These contractual arrangements or the
other steps taken by us to protect our intellectual property may be insufficient
to prevent misappropriation of our technology or to deter independent
third-party development of similar technologies. We are actively pursuing the
registration of our trademarks and service marks in the United States. We intend
to pursue the registration of our trademarks and service marks internationally
following completion of this offering, starting with Argentina, Australia,
Brazil, Canada, the European Union, Japan, Mexico, New Zealand and Venezuela. We
have applied for a U.S. patent registration of our proprietary system for taking
merchandise to online auction sites. This patent may not be issued to us or, if
issued, may not provide us with all of the protections that we have sought. We
have also applied for the registration of the service marks 'Take2Auction' and
'Take2Auction.com.' Effective trademark, service mark, copyright and trade
secret protection may not be available in every country in which our services
are made available online. We may license in the future certain of our
proprietary rights, such as trademarks or copyrighted material, to third
parties. We also rely on certain technologies that we license from third
parties, such as Microsoft, the suppliers of key database technology, the
operating system and specific hardware components for the Take to Auction
service.
PRIVACY POLICY
We believe that issues relating to privacy and use of personal information
relating to Internet users are becoming increasingly important as the Internet
and its commercial use grow. We have adopted a detailed privacy policy that
outlines how we use information concerning our members and the extent to which
other registered members may have access to this information. Members must
acknowledge and agree to this policy when registering for the Take to Auction
service. We do not sell or rent any personally identifiable information about
our users to any third party. We use information about our members for internal
purposes only in order to improve our marketing and promotional efforts, to
statistically analyze site usage, and to improve content, product offerings and
site layout.
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GOVERNMENT REGULATION
Government regulation of communications and commerce on the Internet varies
greatly from country to country. Some countries, such as the United States, have
not adopted many laws and regulations to specifically regulate online
communications and commerce. Due to the increasing popularity and use of the
Internet and other online services, however, it is possible that a number of
laws and regulations may be adopted with respect to the Internet or other online
services covering issues such as user privacy, freedom of expression, pricing,
content and quality of products and services, taxation, advertising,
intellectual property rights, enforceability of contracts, and information
security. Because our services are accessible worldwide, and we facilitate sales
of goods to users worldwide, any jurisdiction in which our services can be
accessed or are used may seek to impose its laws on us and to enforce those laws
in proceedings in those countries, where we could be forced to defend ourselves.
For example, a country may seek to extend the extra-territorial application of
its data protection laws and regulations to our business. As a result, in order
to avoid possible liability for non-compliance, we may be forced to restrict our
membership to exclude residents of such country from becoming a member. In other
instances, we may be required to construct costly additions to our Web site in
order to comply with local laws on data privacy, advertising and on-line
contracting. This might require us to have separate Web pages in the local
languages where laws require that we make disclosures or post on-line agreements
or privacy policies (and similar consumer notification requirements) in the
local language of the member. We may also determine that in order to comply with
local data protection laws, which prohibit the transfer of personally
identifying information of our members outside of a particular country, we may
have to set up and maintain separate databases in such country. We may also have
to customize our software programs to address country-specific requirements for
tracking and documenting transactions, as well as take into account currency
exchange issues.
There have been several attempts to regulate the distribution of 'indecent'
materials to minors over the Internet, including the Communications Decency Act
of 1996, or CDA and the Children's Online Privacy Protection Act, or COPPA.
While large portions of the CDA have been struck down as unconstitutional, COPPA
went into effect on April 21, 2000. Moreover, other laws on this subject have
been and are likely to continue to be proposed and enacted by the legislatures
of the various states. The nature of legislation on this subject and the manner
in which it may be interpreted and enforced cannot be fully determined and,
therefore, such legislation could subject us and/or our customers to potential
liability, which in turn could harm our business, financial condition and
results of operations. The adoption of any such laws or regulations might also
decrease the rate of growth of Internet use, which in turn could decrease the
demand for our service or increase the cost of doing business or in some other
manner harm our business, financial condition and results of operations. In
addition, applicability to the Internet of existing laws governing issues such
as property ownership, copyrights and other intellectual property issues,
taxation, libel, obscenity and personal privacy is uncertain. The vast majority
of such laws were adopted prior to the advent of the Internet and related
technologies and, as a result, do not contemplate or address the unique issues
of the Internet and related technologies.
Some countries have enacted laws or regulations that limit the use of
personal user information gathered online or require online services to
establish privacy policies. The European Union recently enacted its own privacy
regulations. Several U.S. states have also proposed legislation that would
impose such limits. The Federal Trade Commission has also initiated action
against at least one online service regarding the manner in which personal
information is collected from users and provided to third parties. Changes to
existing laws or the passage of new laws intended to address these issues,
including some recently proposed changes, could create uncertainty in the
marketplace that could reduce demand for our services or increase the cost of
doing business as a result of litigation costs or increased service delivery
costs, or could in some other manner harm our business, financial condition and
results of operations.
In addition, because our services are accessible worldwide and we
facilitate sales of goods to users worldwide, other jurisdictions may claim that
we are required to qualify to do business as a foreign corporation in a
particular state or foreign country. We are qualified to do business in one
state in the United States. Our failure to qualify as a foreign corporation in a
jurisdiction where we are required to do so could subject us to taxes and
penalties for the failure to qualify and could result in our inability to
enforce contracts in such jurisdictions. Any such new legislation or regulation,
or the application of laws or regulations from
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jurisdictions whose laws do not currently apply to our business could harm our
business, financial condition and results of operations.
Several telecommunications companies have asked the U.S. Federal
Communications Commission to regulate Internet service providers and online
service providers in a manner similar to long distance telephone carriers and to
impose access fees and universal service obligations on these companies.
Imposition of such fees or obligations could increase the cost of transmitting
data over the Internet, which would reduce Internet usage and harm our business,
financial condition and results of operations.
In addition, numerous states, including California, have regulations
regarding the manner in which 'auctions' may be conducted and the liability of
'auctioneers' in conducting such auctions. We do not believe that such
regulations, which were adopted prior to the advent of the Internet, govern the
operations of our business nor have any claims been filed by any state implying
that we are subject to such legislation. However, a state may attempt to impose
these regulations upon us in the future and this imposition may harm our
business, financial condition and results of operations. Please see 'Risk
Factors--Governmental regulation and legal uncertainties relating to the Web
could increase our costs of transmitting data and increase our legal and
regulatory expenditures and could decrease our membership base.'
EMPLOYEES
As of the date of the prospectus, we had approximately 40 employees,
including our President and Chief Executive Officer, Chief Financial Officer and
Chief Technology Officer. We have never had a work stoppage and no employees are
represented under collective bargaining agreements. We consider our relations
with our employees to be good. Please see 'Management--Employment Arrangements.'
FACILITIES
Our principal administrative, marketing and product development facilities
are located in approximately 2,000 square feet of leased office space in Miami,
Florida. Currently, we are lessees under a one year lease expiring in August
2000. We have an option to terminate the lease after February 2000. Our monthly
lease payment during the initial term of this lease is approximately $2,000.
During January 2000, we notified the lessor that we would terminate the lease
during February 2000. On December 28, 1999, we entered into a five year lease
agreement for approximately 11,000 square feet of office space in Fort
Lauderdale, Florida. Monthly lease payments during the initial term of the lease
is approximately $12,500. We believe that our current facilities will be
adequate to meet our current needs.
LEGAL PROCEEDINGS
We are not currently a party to any formal legal proceedings. However, a
breach of contract lawsuit has been threatened by USinternetworking, Inc.
('USi'), a developer of Web sites. We signed a contract, effective as of
September 23, 1999, with USi for the development of our second generation user
interface, as well as certain other services (the 'USi Agreement').
Subsequently, we notified USi that we were terminating the USi Agreement (as per
the terms of the USi Agreement) for material breach of USi's obligations
thereunder. The parties are currently discussing a resolution of the matter. We
believe that we have meritorious defenses, as well as counterclaims, to any
claim which may be brought by USi, and if any such claim is brought, we will
defend it vigorously. However, if USi successfully pursues its claim against us,
it may have a material adverse effect on us and the operation of our business.
37
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding our executive
officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
Ilia Lekach..................................... 50 Chairman of the Board of Directors and Class II
Director
Horacio Groisman................................ 46 Vice-Chairman of the Board of Directors and
Class III Director
Albert Friedman................................. 27 President, Chief Executive Officer and Class III
Director
Mitchell Morgan................................. 29 Vice-President, Chief Financial Officer and
Class II Director
Jonathan Geller................................. 23 Vice-President, Chief Technology Officer and
Class I Director
Hugo Calemczuk.................................. 48 Class I Director
Garrick Hileman................................. 26 Class I Director
Miguel Cauvi.................................... 38 Class II Director
Alan Blaustein.................................. 54 Class III Director
</TABLE>
Each director will hold office until their term expires and until his or
her successor at an annual meeting of shareholders is elected and qualified or
until his or her earlier resignation or removal. Each officer serves at the
discretion of the board of directors.
Ilia Lekach has been our Chairman of the Board and a Class II director
since October 1999. Mr. Lekach is a co-founder of Perfumania, Inc. (currently E
Com Ventures, Inc.) and was Perfumania, Inc.'s Chairman of the Board and Chief
Executive Officer from its incorporation in 1988 until his resignation in April
1994. In October 1998, Mr. Lekach was re-appointed Perfumania, Inc.'s Chairman
of the Board and Chief Executive Officer. Mr. Lekach served as Chairman of the
Board of L. Luria & Son, Inc., a South Florida-based catalog retailer from
January 1997 through August 1997. Mr. Lekach also serves as Chairman of the
Board and Chief Executive Officer of Parlux Fragrances, Inc., a publicly traded
manufacturer of fragrance and related products since 1990.
In August 1996 ORM Inc., and its affiliates, of which Mr. Lekach is a
principal, purchased a controlling interest in L. Luria & Son, Inc., a catalog
retailer with serious financial problems. On August 13, 1997, L. Luria & Son,
Inc. filed for relief under Chapter 11 of the Bankruptcy Code and has since been
liquidated.
Dr. Horacio Groisman served as our Chairman of the Board of Directors from
August 1999 until October 1999 and has been a Class III director since August
1999. Since October 1999, Dr. Groisman has served as Vice-Chairman of our Board
of Directors. Dr. Groisman has been a practicing physician since 1984, after
having received specialty training at Georgetown University. Since June 1994,
Dr. Groisman has been President of Otolaryngology, Head and Neck Associates, in
Miami, Florida. From January 1997 to December 1997, Dr. Groisman was President
and Chief of Staff of Cedars Medical Center in Miami, Florida. Since January
1991, Dr. Groisman has been Chief of Services at Cedars Medical Center. In
addition, Dr. Groisman has been a director of E Com Ventures, Inc. (formerly
Perfumania, Inc.) since March 1999.
Albert Friedman has been our President and Chief Executive Officer and a
director since July 1999 and a Class III director since August 1999. Prior to
joining us, Mr. Friedman served as Chief Operating Officer, Interim Chief
Financial Officer and director of Perfumania.com from its inception in January
1999 until June 1999. From April 1998 until January 1999, Mr. Friedman was
President of Corporate Communications Solutions, Inc., an investment banking
firm. From January 1997 until April 1998, Mr. Friedman was Executive Vice
President and Chief Financial Officer of L. Luria & Son, Inc., a catalog
showroom, where Mr. Friedman also served as a director. From June 1996 to
December 1996, Mr. Friedman served as an analyst for ORM, Inc., an
investment-banking boutique. From June 1994 to June 1996, Mr. Friedman was Vice
President of Art and Precision, Inc., a manufacturer and distributor of fine
jewelry.
38
<PAGE>
On August 13, 1997, L. Luria & Son, Inc. filed for relief under Chapter 11
of the Bankruptcy Code and was liquidated. Mr. Friedman was the senior officer
in charge of managing the liquidation process of L. Luria & Son, Inc.
Mitchell Morgan has been our Vice-President, Chief Financial Officer and a
Class II director since August 1999. From January 1994 to August 1999, Mr.
Morgan held various positions in PriceWaterhouseCoopers, LLP, most recently as
business assurance manager. Mr. Morgan holds a degree in accounting from the
University of Florida. Mr. Morgan is a Certified Public Accountant.
Jonathan Geller has been our Vice President, Chief Technology Officer and a
Class I director since October 1999. From January 1998 until September 1999, Mr.
Geller was co-founder of Jackpot S.A, Lima Peru, a privately owned company
specializing in the development of Web pages, providing high bandwidth Internet
connections and custom Web applications, where he served as Chief Executive
Officer. From May 1995 to August 1995, in addition to his several internships,
Mr. Geller co-founded Serious Fun, Inc., an online casino Web site that he
designed. From January 1994 until December 1997, Mr. Geller attended college at
North Carolina State University where he graduated with a degree in Industrial
Engineering.
Hugo Calemczuk has been our Senior Vice President of Merchandising and a
Class I director since August 1999. Mr. Calemczuk resigned as our Senior Vice
President of Merchandising effective January 2000. Mr. Calemczuk has been
President of Exito Enterprises, a distributor of watches and electronics, since
its founding in 1987. From 1984 to 1987, Mr. Calemczuk was President of Levimar,
a distributor of duty-free merchandise, including watches, jewelry, perfumes,
electronics and collectibles.
Garrick Hileman has been a Class I director since October 21, 1999. Since
September 1999, Mr. Hileman has been Vice President of Business Development for
ZERO.NET, specializing in business development, start-up financing, merger and
acquisition analysis and management consulting. He currently serves on the board
of directors of three of ZERO.NET's portfolio companies: Envision Development
Corporation, Take to Auction.com, Inc., and b2bstores.com. From August 1996
until August 1999, Mr. Hileman was employed at Montgomery Securities where he
worked in both the Corporate Finance and Equity Research departments. Mr.
Hileman received his BA in Business Administration from the University of
Washington where he also served as student body president.
Miguel Cauvi has been a Class II director since February 15, 2000. Mr.
Cauvi is currently employed with IBM Global Services since October 1999. From
October 1994 until October 1999, Mr. Cauvi was an independent consultant. During
this time Mr. Cauvi worked for Hencorp Beckstone & Co., a privately held
securities firm and Groupo Ormeno, a large Peruvian bus transportation company.
From July 1993 until October 1994, Mr. Cauvi was the Chief Information Officer
for JE Seagram & Sons, Inc. (Spain) and a member of the JE Seagram & Sons, Inc.
worldwide re-engineering team. From January 1991 until June 1993, Mr. Cauvi was
the Director of Organization and Information Systems with CPC Spain, S.A. an
affiliate of Corn Product Corporation USA, the manufacturer and distributor of
Mazzola and Hellman's brands. From October 1989 until January 1991 Mr. Cauvi was
a manager with Ernst & Young consulting division. From January 1984 until March
1989 Mr. Cauvi was an Experienced Senior of Arthur Andersen & Co. consulting
division.
Alan Blaustein has been a Class III director since February 15, 2000. Mr.
Blaustein is currently the President & CEO (founder) of Convergence2net, LLC, a
startup company that focuses on outsourcing of network-centric applications and
services. As a Network Service Provider, C2Net provides e-business and network
services for the mid tier carriers, enterprise, commercial and Internet
businesses. From 1991 to 1999, Mr. Blaustein was President, CEO & Vice Chairman
(founder) of Maxnet Communication Systems, a company specializing in the network
augmentation services of large, complex network systems for the Fortune 1000.
Mr. Blaustein has more than 20 years experience in data communication, with
positions in advance engineering, sales, systems and marketing with Motorola
(ISG), ITT and Exxon Enterprise (Periphonics).
CLASSIFIED BOARD OF DIRECTORS
Our board of directors is divided into three classes of directors serving
staggered three-year terms. As a result, approximately one-third of the board of
directors will be elected each year. These provisions, together with provisions
of our amended and restated articles of incorporation and bylaws, allow the
board of directors
39
<PAGE>
to fill vacancies or increase the size of the board of directors, and may deter
or hinder a shareholder from removing incumbent directors and filling such
vacancies with its own nominees in order to gain control of the board.
Our board has resolved that Hugo Calemczuk, Jonathan Geller and Garrick
Hileman will serve as Class I Directors whose terms expire at the 2000 annual
meeting of shareholders. Mr. Lekach, Mr. Morgan and Mr. Cauvi will serve as
Class II directors whose terms expire at the 2001 annual meeting of
shareholders. Mr. Friedman, Dr. Groisman and Mr. Blaustein will serve as Class
III directors whose terms expire at the 2002 annual meeting of shareholders.
BOARD COMMITTEES
The audit committee of our board of directors consists of Mr. Cauvi, Mr.
Blaustein and Dr. Groisman. The audit committee reviews our financial statements
and accounting practices, makes recommendations to the board of directors
regarding the selection of independent auditors and reviews the results and
scope of the audit and other services provided by our independent auditors. The
compensation committee of our board of directors consists of Mr. Lekach and Dr.
Horacio Groisman. The compensation committee makes recommendations to the board
of directors concerning salaries and incentive compensation for our officers and
employees and administers our employee benefit plans. As of the date of this
prospectus, our board of directors has performed all functions of the
compensation and audit committees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the compensation committee of the board of directors
was at any time since our formation an officer or employee of ours. Ilia Lekach,
our Chairman of the Board of Directors, and Horacio Groisman, our Vice-Chairman
of the Board of Directors, serve as members of the board of directors of E Com
Ventures, Inc. (formerly Perfumania, Inc.). There is no business relationship
between us and E Com Ventures, Inc., other than the two $1,000,000 advances
further described in Certain Transactions--E Com Ventures, Inc. Advances.
DIRECTOR COMPENSATION
Our independent directors receive cash compensation in the amount of $2,500
and options to purchase 5,000 common shares per year for their services as
directors, and are reimbursed for their reasonable expenses for attending our
board of directors and board committee meetings. Directors compensation is paid
at the end of each year. To date, our directors have not received any
compensation in the form of options for director services. Our independent
directors will be compensated in part with options at the end of this year, at
the initial public offering price. Subsequent to the initial public offering,
the exercise price of the options which form part of the compensation paid to
directors will be based on the market value at the time the options are granted.
The market value will be based on the trading price at the time the options are
granted when our stock is traded on a recognized stock exchange.
EMPLOYMENT ARRANGEMENTS
In August 1999, each of Messrs. Albert Friedman, President, Chief Executive
Officer and director and Mitchell Morgan, Vice President, Chief Financial
Officer and director, entered into executive employment agreements with Take to
Auction.com. Each agreement has a term of three years unless terminated earlier
for cause, death, disability or upon a change in control of Take to Auction.com.
Mr. Friedman's agreement provides for an initial base salary of $125,000. Mr.
Morgan's agreement provides for an initial base salary of $120,000. The above
salaries are subject to annual increases equal to the greater of 5% or the
annual increase in the consumer price index plus other annual increases, if any,
as determined by the Compensation Committee in its sole discretion. In addition,
Mr. Friedman and Mr. Morgan were granted non-qualified stock options to purchase
a total of 75,000 and 175,000 common shares, respectively, exercisable at a
weighted average price of $5.08 and $5.40, per share, respectively, one third of
which vest on each of the first, second and third anniversaries of the
agreements.
In October 1999, Jonathan Geller, our Chief Technology Officer, entered
into an executive employment agreement with Take to Auction.com. The agreement
has a term of three years and provides for an initial base salary of $120,000
subject to annual increases equal to the greater of 5% or the annual increase in
the
40
<PAGE>
consumer price index. In addition, Mr. Geller was granted non-qualified stock
options to purchase a total of 175,000 common shares, exercisable at a weighted
average price of $5.21 per share, one third of which vest on each of the first,
second and third anniversaries of the agreement.
In the event any of these individuals terminate the agreement (i) within
180 days from the date a person or entity acquires the beneficial ownership of
20 percent or more of the then outstanding common shares or 20 percent or more
of the voting power, or (ii) pursuant to certain transactions (including a
merger or a sale of substantially all the assets) approved by the shareholders,
they will be entitled to receive severance compensation in the amount of 200
percent of their annual base salary.
A committee of our Board of Directors determined the exercise price of the
options granted to the employees was the fair market value of the common stock
on the date of grant.
EXECUTIVE COMPENSATION
We commenced operations in June 1999, and no individual employed by us,
including our President and Chief Executive Officer, has been awarded, paid or
earned salary and bonus in excess of $100,000 since our inception. From July 31,
1999 through May 1, 2000, our President and Chief Executive Officer has earned
approximately $104,000 from us.
OPTION GRANTS FROM JUNE 2, 1999 TO MAY 15, 2000
The following table sets forth grants of stock options to our President and
Chief Executive Officer and our two most highly compensated executive officers,
other than our President and Chief Executive Officer, from inception to May 15,
2000. We have never granted any stock appreciation rights. The weighted average
exercise price of each option is equal to $5.27 per share. The potential
realizable value is calculated based upon the term of the option at its time of
grant (seven years). It is calculated assuming that the value of common shares
on the date of our initial public offering appreciates at the indicated annual
rate compounded annually for the entire term of the option and that the option
is exercised and sold on the last day of its term for the appreciated stock
price. These numbers are calculated based on the requirements of the Securities
and Exchange Commission and do not reflect our estimate of future stock price
growth.
<TABLE>
<CAPTION>
OPTION GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------ VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENTAGE OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE PRICE TERM (1) (2)
OPTIONS EMPLOYEES IN PER SHARE EXPIRATION --------------------------
NAME GRANTED (#) PERIOD (%)(1) ($/SH)(3) DATE 5%($) 10%($)
- --------------------------- ----------- ------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Albert Friedman............ 25,000 2.94% $ 1.23 08/01/06 $ 246,243 $ 341,025
50,000 5.88% 7.00 05/03/07 492,485 682,051
----------- ------ ---------- ----------
75,000 8.82% 738,728 1,023,076
----------- ------ ---------- ----------
----------- ------ ---------- ----------
Mitchell Morgan............ 48,469 5.70% $ 1.23 08/01/06 477,405 661,167
9,864 1.16% 7.00 01/31/07 97,157 134,555
116,667 13.73% 7.00 05/03/07 1,149,135 1,591,457
----------- ------ ---------- ----------
175,000 20.59% 1,723,697 2,387,179
----------- ------ ---------- ----------
----------- ------ ---------- ----------
Jonathan Geller............ 54,286 6.39% $ 1.23 10/01/06 534,701 740,516
4,047 0.47% 7.00 01/31/07 39,861 55,206
116,667 13.73% 7.00 05/03/07 1,149,135 1,591,457
----------- ------ ---------- ----------
175,000 20.59% 1,723,697 2,387,179
----------- ------ ---------- ----------
----------- ------ ---------- ----------
</TABLE>
- ------------------
(1) Potential realizable value is based on the assumption that the common share
price appreciates at the annual rate shown (compounded annually) from the
date of grant until the end of the option term. The amounts have been
calculated based on the requirements promulgated by the Securities and
Exchange Commission. The actual value, if any, a named executive officer may
realize will depend on the excess
(Footnotes continued on next page)
41
<PAGE>
(Footnotes continued from previous page)
of the shares on the date of exercise. Accordingly, there is no assurance
that the value realized will be at or near the potential realizable value as
calculated in the table.
(2) These options have a term of seven years from the date of grant.
(3) The exercise price of the options granted was the fair market value of the
common stock on the date of grant, as determined by a committee of our Board
of Directors. Factors used by our board in determining the fair market value
include, but are not limited to, our status as a development stage company
and the purchase price of recent sales of our common shares.
The following table provides certain summary information concerning stock
options held as of May 15, 2000 by our President and Chief Executive Officer and
our two most highly compensated executive officers, other than our President and
Chief Executive Officer. No options have been exercised as of May 15, 2000 by
any of the officers. The value of unexercised in-the-money options at May 15,
2000 is based on the value of the common shares at the date of this offering.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT MAY 15, 2000 MAY 15, 2000
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------- ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Albert Friedman.................................... -- 75,000 -- --
Mitchell Morgan.................................... -- 175,000 -- --
Jonathan Geller.................................... -- 175,000 -- --
</TABLE>
EMPLOYEE BENEFIT PLANS
1999 Stock Option Plan
In August 1999, the Board adopted the 1999 Stock Option Plan, or Option
Plan. At that time, 2,442,857 common shares were reserved for issuance under the
Option Plan. Shares covered by any option granted under the Option Plan which
expires unexercised become available again for grant under the Option Plan. As
of May 15, 2000, options to purchase 850,000 common shares were outstanding with
a weighted average exercise price of $5.93 per share, and 1,592,857 shares were
available for future grants.
SIMPLE IRA Plan
We sponsor the Take to Auction.com, Inc. SIMPLE IRA Plan, a defined
contribution plan provided pursuant to the requirements of the Internal Revenue
Code of 1986, as amended. All employees eligible to participate may enter the
SIMPLE IRA Plan as of the first day of any month. Participants may make pre-tax
contributions to the SIMPLE IRA Plan subject to a statutorily prescribed annual
limit. We will make matching contributions, not to exceed 3% of a participant's
annual compensation, to the SIMPLE IRA Plan. Each participant is fully vested in
their account, including the participant's contributions, our matching
contribution and the investment earnings thereon. Contributions by the
participants or by us to the SIMPLE IRA Plan, and the income earned on such
contributions, are generally not taxable to the participants until withdrawn.
Contributions by us are generally deductible by us when made. The participant's
and our contributions are held in an IRA. We made a matching contribution to the
SIMPLE IRA Plan for Fiscal 1999 of approximately $5,100 during January 2000.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
ss.607.0850 of the Florida Business Corporation Act, or FBCA, permits, in
general, a Florida corporation to indemnify any person who was or is a party to
any action or proceeding by reason of the fact that he or she was a director or
officer of the corporation, or served another entity in any capacity at the
request of the corporation, against liability incurred in connection with such
proceeding including the estimated expenses of litigating the proceeding to
conclusion and the expenses actually and reasonably incurred in connection with
the defense or settlement of such proceeding, including any appeal thereof, if
such person acted in good faith
42
<PAGE>
for a purpose he or she reasonably believed to be in, or not opposed to, the
best interest of the corporation and, in criminal actions or proceedings,
additionally had no reasonable cause to believe that his or her conduct was
unlawful. ss.607.0850(6) of the FBCA permits the corporation to pay such costs
or expenses in advance of a final disposition of such action or proceeding upon
receipt of an undertaking by or on behalf of the director or officer to repay
such amount as and to the extent required by statute. ss.607.0850 of the FBCA
provides that the indemnification and advancement of expense provisions
contained in the FBCA shall not be deemed exclusive of any rights to which a
director or officer seeking indemnification or advancement of expenses may be
entitled.
Our amended and restated articles of incorporation provide, in general,
that we shall indemnify, to the fullest extent permitted by ss.607.0850 of the
FBCA, any and all persons whom it shall have the power to indemnify under that
section from and against any and all of the expenses, liabilities or other
matters referred to in or covered by said section. Our amended and restated
articles of incorporation also provide that the indemnification provided for
therein shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any by-law, agreement, vote of shareholders or
disinterested directors or otherwise, both as to actions taken in his or her
official capacity and as to acts in another capacity while holding such office.
In accordance with that provision of our amended and restated articles of
incorporation, we shall indemnify any officer or director (including officers
and directors serving another corporation, partnership, joint venture, trust, or
other enterprise in any capacity at our request) made, or threatened to be made,
a party to an action or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that he or she was serving in any of those
capacities against judgments, fines, amounts paid in settlement and reasonable
expenses (including attorney's fees) incurred as a result of such action or
proceeding. Indemnification would not be available if a judgment or other final
adjudication adverse to such director or officer establishes that (i) his or her
acts were committed in bad faith or were the result of active and deliberate
dishonesty or (ii) he or she personally gained in fact a financial profit or
other advantage to which he or she was not legally entitled.
Prior to the completion of this offering, we intend to enter into
indemnification agreements with each of our current directors and officers to
give these directors and officers additional contractual assurances regarding
the scope of the indemnification set forth in our amended and restated articles
of incorporation and bylaws and to provide additional procedural protections. At
present, there is no pending litigation or proceeding involving a director,
officer or employee of Take to Auction.com regarding which indemnification is
sought, nor are we aware of any threatened litigation that may result in claims
for indemnification.
With approval of our board of directors, upon completion of this offering,
we expect to obtain directors' and officers' liability insurance.
43
<PAGE>
CERTAIN TRANSACTIONS
Since our inception in June 1999, there has not been nor is there currently
proposed any transaction or series of similar transactions to which we were or
are to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than 5% of our common shares had
or will have a direct or indirect interest other than (i) compensation
arrangements, which are described where required under 'Management' and (ii) the
transactions described below.
SALES OF SECURITIES
Since our inception, we have made the following sales of our common shares
to our officers, directors and beneficial owners of 5% or more of all
outstanding common shares that were not registered under the Securities Act. The
common shares issued and listed hereunder reflect a split on a 1,000-to-1 basis
on August 26, 1999 and split on a 2.326530644-for-1 basis on November 3, 1999
and a reverse split on a 1-for-3 basis on May 4, 2000.
On August 26, 1999, we sold an aggregate of 5,427,796 common shares under
Rule 506, Regulation D, promulgated under the Securities Act, at a purchase
price of $0.18 per common share to certain sophisticated and accredited
investors, including the following officers, directors and beneficial owners of
5% or more of our issued and outstanding common shares:
<TABLE>
<CAPTION>
PURCHASE TOTAL TOTAL
SHARES PRICE PER SHARE PROCEEDS VALUE (4)
---------- --------------- -------- -----------
<S> <C> <C> <C> <C>
Horacio Groisman (1)........................... 542,857 $0.18 $100,000 $ 3,800,000
Albert Friedman (2)............................ 379,224 0.18 69,857 2,654,568
Hugo Calemczuk (1)............................. 380,000 0.18 70,000 2,660,000
Pacific Investments (3)........................ 1,520,000 0.18 280,000 10,640,000
Magdalena Zafir................................ 542,857 0.18 100,000 3,800,000
</TABLE>
(1) Messrs. Groisman and Calemczuk have served as directors of Take to
Auction.com since August 1999.
(2) Mr. Friedman has been our President, Chief Executive Officer and director
since July 1999.
(3) Pacific Investments is owned 100% by Ilia Lekach. Mr. Lekach has been our
Chairman of the Board and director since October 1999.
(4) Total value is based on the aggregate value (rounded to account for stock
splits) of the common shares at the assumed initial public offering price of
$7.00 per share.
STOCK OPTIONS ISSUED TO DIRECTORS AND OFFICERS
The following directors and officers were awarded options to purchase the
following number of common shares:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE TOTAL TOTAL
GRANT DATE SHARES (1) PER SHARE PROCEEDS VALUE (7)
---------- ---------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Horacio Groisman.................... (5) 45,000 $5.08 $ 228,450 $ 315,000
Albert Friedman (4)................. (5) 75,000 5.08 380,750 525,000
Hugo Calemczuk...................... (5) 45,000 5.08 228,450 315,000
Mitchell Morgan (4)................. (2) 175,000 5.40 945,332 1,225,000
Jonathan Geller (4)................. (3) 175,000 5.21 911,772 1,225,000
Ilia Lekach......................... (6) 270,000 7.00 1,890,000 1,890,000
</TABLE>
- ------------------
(1) All of such options vest equally over a three year period commencing one
year from the date of grant.
(2) Mr. Morgan was awarded options to purchase 48,469 common shares on August
25, 1999 at an exercise price of $1.23 per share and an additional 126,531
common shares during the period from January 1, 2000 through May 15, 2000 at
an exercise price of $7.00 per share.
(Footnotes continued on next page)
44
<PAGE>
(Footnotes continued from previous page)
(3) Mr. Geller was awarded options to purchase 54,286 common shares on October
1, 1999 at an exercise price of $1.23 per share and an additional 120,714
common shares during the period from January 1, 2000 through May 15, 2000 at
an exercise price of $7.00 per share.
(4) Options were issued pursuant to employment agreements with Take to
Auction.com.
(5) Messers. Friedman, Groisman and Calemczuk were awarded options to purchase
25,000, 15,000 and 15,000 common shares, respectively, on August 25, 1999 at
an exercise price of $1.23 per share, and an additional 50,000, 30,000 and
30,000 common shares during the period from January 1, 2000 through May 15,
2000 at an exercise price of $7.00 per share.
(6) Mr. Lekach was awarded options to purchase 90,000 common shares on January
31, 2000 at an exercise price of $7.00 per share and an additional 180,000
common shares on May 15, 2000 at an exercise price of $7.00 per share.
(7) Total value is based on the aggregate value (rounded to account for stock
splits) of the common shares at the assumed initial public offering price of
$7.00 per share.
EXITO ENTERPRISES SOURCING ARRANGEMENT
From time to time, we purchase merchandise from Exito Enterprises or Exito,
a distributor of watches and electronics. Hugo Calemczuk, a director of Take to
Auction, is the President and majority shareholder of Exito. We have purchased
approximately $72,000 of merchandise from Exito as of December 31, 1999. We
intend to purchase more items of merchandise from Exito in the future if the
terms and conditions of such proposed purchases are acceptable to us. All
purchases from Exito are made in the open market and all such transactions are
at 'arms-length' and on terms and at prices we could readily obtain from
unaffiliated third parties. We are not now, and have never been, under an
obligation to purchase merchandise from Exito. During March 2000, we loaned Mr.
Calemczuk approximately $66,000. This amount is due on demand.
E COM VENTURES, INC. ADVANCES
We received an advance of $1 million on December 21, 1999 from E Com
Ventures, Inc. (formerly Perfumania, Inc.) and an additional advance of $1
million on March 9, 2000. The chairman of the board of E Com Ventures, Inc. is
also the chairman of the board of Take to Auction. These advances were
structured into two separate two-year convertible note agreements during May
2000, bearing interest at six percent (6%) per annum. Unless converted into
equity, these advances represent our only debt facility. E Com Ventures, Inc.
will have the right to convert all, but not less than all, of the principal
amount into shares of our common stock at the conversion price equal to our
contemplated initial public offering price, less the underwriters' gross
commissions. We have received written acnowledgment from E com Ventures, Inc. of
its intent to convert both note agreements into shares of our common stock
within 14 days of our initial public offering. In addition, we have agreed to
grant a total of 200,000 warrants to E Com Ventures, Inc. at the contemplated
initial public offering price, less the underwriters' gross commissions. These
warrants expire one year from the effective date of our contemplated initial
public offering. Assuming that the notes are converted and all warrants are
exercised, E Com Ventures, Inc. will own approximately seven percent (7%) of our
outstanding common shares (6% if the underwriters' over-allotment option is
exercised in full).
EMPLOYMENT AGREEMENTS BETWEEN US AND OUR OFFICERS AND DIRECTORS
Pursuant to employment agreements between Take to Auction.com and each of
Messers. Friedman, Morgan and Geller, our executive officers and directors, we
have agreed to pay an initial annual base salary to them in the amount of
$125,000, $120,000 and $120,000, respectively.
45
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information known to us with respect
to the beneficial ownership of our common shares as of May 15, 2000 by (i) each
shareholder known by us to be the beneficial owner of more than 5% of our common
shares, (ii) each director of Take to Auction.com and (iii) all executive
officers and directors as a group. The information in the following table
assumes (i) a 1,000-for-one stock split of our outstanding common shares
effected on August 26, 1999 (ii) a subsequent 2.326530644-for-one stock split of
our outstanding common shares effected on November 3, 1999 and (iii) a
subsequent 1-for-3 reverse stock split of our outstanding common shares
effectived on May 4, 2000.
<TABLE>
<CAPTION>
COMMON SHARES COMMON SHARES
BENEFICIALLY OWNED BEFORE BENEFICIALLY OWNED AFTER
THE OFFERING(2) THE OFFERING(2)
-------------------------- --------------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENTAGE(3) NUMBER PERCENTAGE(3)
- --------------------------------------------------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Horacio Groisman(3)...................................... 542,857 8.59% 542,857 7.13%
Albert Friedman(3)....................................... 380,000 6.02% 380,000 4.99%
Mitchell H. Morgan(4).................................... 0 (*) 0 (*)
Hugo Calemczuk(3)........................................ 380,000 6.02% 380,000 4.99%
Magdalena Zafir.......................................... 542,857 8.59% 542,857 7.13%
Pacific Investments(5)................................... 1,520,000 24.06% 1,520,000 19.95%
Jonathan Geller(6)....................................... 0 (*) 0 (*)
E Com Ventures(7)........................................ 317,460 5.03% 317,460 4.17%
Executive officers and directors as a group
(7 persons)............................................ 2,822,857 44.68% 2,822,857 37.06%
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1%.
(1) Unless otherwise noted, the address of each shareholder is our address,
which is 5555 Anglers Avenue, Suite 16, Fort Lauderdale, Florida 33312.
(2) Percentage of ownership is based on 6,317,460 shares outstanding as of
December 31, 1999 prior to the offering and 7,617,460 shares after the
offering (includes 317,460 shares assumed outstanding in connection with
the convertible note agreements with E Com Ventures, Inc.). Common shares
subject to options currently exercisable or exercisable within 60 days of
May 15, 2000 are deemed outstanding for the purpose of computing the
percentage ownership of the person holding such options, but are not deemed
outstanding for computing the percentage ownership of any other person. No
options issued by us to date are exercisable within 60 days of May 15,
2000. Unless otherwise indicated below, the persons and entities named in
the table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable.
(3) Does not include options to purchase a total of 45,000, 45,000 and 75,000
shares granted to Messrs. Groisman, Calemczuk and Friedman, respectively, on
August 25, 1999 and May 4, 2000, one third of which vest on the first,
second and third anniversary of the date of grant.
(4) Does not include options to purchase 175,000 common shares, granted to Mr.
Morgan on August 25, 1999 (48,469 shares), January 31, 2000 (9,864 shares)
and May 4, 2000 (116,667 shares), one third of which vest on the first,
second and third anniversary of the date of grant.
(5) The address of this shareholder is 5555 Anglers Avenue, Suite 16, Fort
Lauderdale, Florida 33312. Ilia Lekach, our Chairman of the Board of
Directors, owns 100 percent of the issued and outstanding shares of common
stock of Pacific Investments. Does not include options to purchase 270,000
shares granted to Mr. Lekach (90,000 shares on January 31, 2000 and 180,000
shares on May 4, 2000), one third of which vests on the first, second and
third anniversary of the date of grant.
(6) Does not include options to purchase 175,000 common shares, granted to Mr.
Geller on October 1, 1999 (54,286 shares), January 31, 2000 (4,047 shares)
and May 4, 2000 (116,667), one third of which vest on the first, second and
third anniversary of the date of grant.
(7) Assumes beneficial ownersip of shares through conversion of promissory
notes within 14 days of our initial public offering at the assumed
initial public offering price, less underwriters' gross commissions. E Com
Ventures, Inc.'s address is 11701 N.W. 101st Road, Miami, Florida 33178.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 50 million common shares, $0.001
par value per share, and 10 million preferred shares, $0.001 par value per
share. As of May 15, 2000, there were outstanding 6,000,000 common shares held
of record by 27 shareholders and options to purchase 850,000 common shares. As
of May 15, 2000, there were no issued and outstanding preferred shares.
COMMON SHARES
Subject to preferences that may apply to preferred shares outstanding at
the time, the holders of our outstanding common shares are entitled to receive
dividends out of assets legally available therefor at such times and in such
amounts as the board of directors may from time to time determine. Each
shareholder is entitled to one vote for each common share held on all matters
submitted to a vote of shareholders. Cumulative voting for the election of
directors is not provided for in our amended and restated articles of
incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election. The holders of common
shares are not entitled to preemptive rights and are not subject to conversion
or redemption. Upon a liquidation, dissolution or winding-up of Take to
Auction.com, the assets legally available for distribution to shareholders are
distributable ratably among the holders of the common shares and any
participating preferred shares outstanding at that time after payment of
liquidation preferences, if any, on any outstanding preferred shares and payment
of other claims of creditors. Each outstanding common share is, and all common
shares to be outstanding upon completion of this offering will be, duly
authorized, fully paid and nonassessable.
PREFERRED SHARES
We are authorized to provide for the issuance of preferred shares in one or
more series, to establish from time to time the number of shares to be included
in each such series, to fix the rights, preferences and privileges of the shares
of each wholly unissued series and any qualifications, limitations or
restrictions thereon, and to increase or decrease the number of shares of any
such series (but not below the number of shares of such series then outstanding)
without any further vote or action by the shareholders. Our board of directors
may authorize the issuance of preferred shares with voting or conversion rights
that could significantly affect your voting power or your other rights. The
issuance of preferred shares, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could, among other things,
have the effect of delaying, deferring or preventing a change in control of Take
to Auction.com and may harm the market price of the common shares and the voting
and other rights of the holders of common shares. We have no current plans to
issue any preferred shares.
WARRANTS
In connection with this offering, we have agreed to sell to the
representative the underwriter warrant to purchase up to 130,000 common shares.
The nominal consideration for this is $130 ($.001 per share). The underwriter
warrant is exercisable for a period of four years commencing one year after the
date of this prospectus at an exercise price per share equal to $7.70 (based on
the mid range price) (110% of the public offering price). The underwriter
warrant may not be sold, transferred, assigned, pledged, or hypothecated for a
period of 12 months from the date of this prospectus, except to members of the
selling group. The underwriter warrant grants to the representative, with
respect to the registration under the Securities Act of the securities directly
and indirectly issuable upon exercise of the underwriter warrant, one demand
registration right during the exercise period, as well as piggyback registration
rights at any time. The underwriter warrant contains anti-dilution provisions
providing for adjustments of the exercise price and number of shares issuable on
exercise of the underwriter's warrant, upon the occurrence of some events,
including stock dividends, stock splits, and recapitalizations. The holders of
the underwriter warrant have no voting, dividend, or other rights as a
shareholder with respect to shares of common stock underlying the underwriter
warrant, unless the underwriter warrant shall have been exercised.
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<PAGE>
REGISTRATION RIGHTS
Pursuant to the underwriting agreement between us and the representative of
the underwriters in this offering, we have agreed to sell to the representative
one demand registration right during the exercise period as well as 'piggy-back'
registration rights at any time. Please see '-- Warrants.' No options or common
shares issued prior to this offering are covered by any registration rights
agreements.
CERTAIN ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF FLORIDA LAW AND THE TAKE
TO AUCTION.COM'S AMENDED AND RESTATED ARTICLES OF INCORPORATION AND BYLAWS
PROVISIONS
Some provisions of Florida law and of our amended and restated articles of
incorporation and amended and restated bylaws, which provisions are summarized
in the following paragraphs, may be deemed to have an anti-takeover effect and
may delay, defer or prevent a tender offer or takeover attempt that a
shareholder might consider it in its best interest, including those attempts
that might result in a premium over the market price for the shares held by
shareholders.
CLASSIFIED BOARD OF DIRECTORS
According to our amended and restated articles of incorporation and amended
and restated bylaws, our board of directors is divided into three classes of
directors serving staggered three-year terms. As a result, approximately
one-third of the board of directors will be elected each year. These provisions,
when coupled with the provision authorizing the board of directors to fill
vacant directorships or increase the size of the board of directors, may deter a
shareholder from removing incumbent directors and simultaneously gaining control
of the board of directors by filling the vacancies created by such removal with
its own nominees.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued common shares and preferred stock are available
for future issuance without shareholder approval. These additional shares may be
utilized for a variety of corporate purposes, including future public offerings
to raise additional capital, corporate acquisitions and employee benefit plans.
The existence of authorized but unissued common shares and preferred stock could
render more difficult or discourage an attempt to obtain control of us by means
of a proxy contest, tender offer, merger or otherwise. Such attempts may have
resulted in a premium over the market price for the shares held by shareholders.
ANTI-TAKEOVER PROVISIONS UNDER FLORIDA LAW
We are subject to several anti-takeover provisions under Florida law that
apply to public corporations organized under Florida law unless the corporation
has elected to opt out of those provisions in its articles of incorporation or
its bylaws. We have not elected to opt out of these provisions.
The FBCA prohibits the voting of shares in a publicly held Florida
corporation that are acquired in a 'control share acquisition' unless the board
of directors approves the control share acquisition or the holders of a majority
of the corporation's voting shares approve the granting of voting rights to the
acquiring party. A 'control share acquisition' is defined as an acquisition that
immediately thereafter entitles the acquiring party, directly or indirectly, to
vote in the election of directors within any of the following ranges of voting
power:
o 1/5 or more but less than 1/3;
o 1/3 or more but less than a majority;
o a majority or more; or
o There are some exceptions to the 'control share acquisition' rules.
The FBCA also contains an 'affiliated transaction' provision that prohibits
a publicly-held Florida corporation from engaging in a broad range of business
combinations or other extraordinary corporate transactions with an 'interested
shareholder' unless:
o the transaction is approved by a majority of disinterested directors
before the person becomes an interested shareholder;
o the corporation has not had more than 300 stockholders of record during
the past three years;
48
<PAGE>
o the interested shareholder has owned at least 80% of the corporation's
outstanding voting shares for at least five years;
o the interested shareholder is the beneficial owner of at least 90% of the
voting shares (excluding shares acquired directly from the corporation in
a transaction not approved by a majority of the disinterested directors);
o consideration is paid to the holders of the corporation's shares equal to
the highest amount per share paid by the interested shareholder for the
acquisition of the corporation's shares in the last two years or the fair
market value of the shares, and other specified conditions are met; or
o the transaction is approved by the holders of two-thirds of the company's
voting shares other than those owned by the interested shareholder.
An 'interested shareholder' is defined as a person who, together with
affiliates and associates, beneficially owns more than 10% of a company's
outstanding voting shares. The FBCA defines 'beneficial ownership' in more
detail.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common shares is American Stock
Transfer & Trust Company. Its address is 40 Wall Street, New York, New York
10005, and its telephone number is (212) 936-5100.
LISTING
We have been approved to list our common shares on the AMEX under the
trading symbol TTA.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common shares, and
therefore a significant public market for the common shares may not develop or
be sustained after this offering. Future sales of substantial amounts of common
shares (including shares issued upon exercise of outstanding options) in the
public market after this offering could harm market prices prevailing from time
to time and could impair our ability to raise additional capital through the
sale of our equity securities. As described below, no shares currently
outstanding will be available for sale immediately after this offering due to
certain contractual and other restrictions on resale.
Upon completion of this offering, we will have outstanding 7,300,000 common
shares, assuming no exercise of the underwriters' over-allotment option and no
exercise of outstanding options. Of these shares, the 1,300,000 shares sold in
this offering will be freely tradable without restriction under the Securities
Act unless purchased by 'affiliates' of Take to Auction.com. An 'affiliate' is a
person that directly or indirectly through one or more intermediaries, controls,
or is controlled by, or is under common control with Take to Auction.com. The
remaining shares held by existing shareholders are subject to lock-up agreements
generally providing that, with certain limited exceptions, the shareholder will
not (i) offer to sell, sell, contract to sell, pledge or otherwise dispose of
any common shares owned of record or beneficially prior to the offering or any
securities convertible into or exchangeable for such common shares, (ii)
establish a 'put equivalent position' with respect to such common shares within
the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934, as
amended, or (iii) publicly announce an intention to take any of the actions set
forth in (i) or (ii) for a period of 180 days following the date the
registration statement is declared effective by the Securities and Exchange
Commission without the prior written consent of Noble International Investments,
Inc. acting alone or each of the above listed representatives acting together.
As a result of these lock-up agreements, notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144 and 144(k), none of these
shares will be saleable until 180 days after the date the registration statement
is declared effective by the Securities and Exchange Commission. Beginning 180
days after the date the registration statement is declared effective by the
Securities and Exchange Commission, all of these shares will be eligible for
sale in the public market, subject to our right to repurchase unvested shares
and subject to certain volume limitations pursuant to Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned restricted shares for at least one year (nobody in
our case has held shares for more than one year) would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of (i) 1% of the number of common shares then outstanding (which will
equal approximately 73,000 shares immediately after this offering) or (ii) the
average weekly trading volume of the common shares during the four calendar
weeks preceding the filing of a Form 144 with respect to such sale. Sales under
Rule 144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about Take to
Auction.com. Under Rule 144(k), a person who is not deemed to have been an
affiliate of Take to Auction.com at any time during the three months preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
two years, is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Immediately after this offering, we intend to file a registration statement
under the Securities Act covering common shares subject to outstanding options
under the Option Plan. Based on the number of shares subject to outstanding
options at May 15, 2000 and currently reserved for issuance under all such
plans, such registration statement would cover approximately 2,442,857 shares.
This registration statement will automatically become effective upon filing.
Accordingly, shares registered under such registration statement will be
available for sale in the open market immediately after the 180-day lock-up
agreements expire. Also beginning six months after the date of this offering,
certain holders of common shares will be entitled to certain rights with respect
to registration of such common shares for offer and sale to the public. See
'Description of Capital Stock--Registration Rights.'
50
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the underwriting
agreement, we have agreed to sell to each of the underwriters named below, and
each of the underwriters, for which Noble International Investments, Inc.
('Noble International') is acting as a representative, has severally, and not
jointly, agreed to purchase the number of shares offered in this offering set
forth opposite their respective names below.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- -------------------------------------------------------------------------------------------- ---------
<S> <C>
Noble International Investments, Inc........................................................
............................................................................................
Total.................................................................................. $1,300,000
</TABLE>
A copy of the underwriting agreement will be filed by amendment as an
exhibit to the registration statement of which this prospectus is a part. The
underwriting agreement provides that the obligation of the underwriters to
purchase the common shares is subject to some conditions. The underwriters shall
be obligated to purchase all of the common shares (other than those covered by
the underwriters' over-allotment option described below), if any are purchased.
Noble International has advised us that the underwriters propose to offer
the common shares to the public at the initial public offering price on the
cover page of this prospectus and that they may allow some dealers who are
members of the NASD, and some foreign dealers, concessions not in excess of
$ per share, of which amount a sum not in excess of $ per
share may in turn be reallowed by such dealers to other dealers who are members
of the NASD and to some foreign dealers. After the commencement of this
offering, the offering price, the concession to selected dealers, and the
reallowance to other dealers may be changed by Noble International.
We have agreed to indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the underwriters may be required to make in this regard.
We have agreed to pay to Noble International an expense allowance on a
non-accountable basis, equal to 3% of the gross proceeds derived from the sale
of the 1,300,000 shares offered in this offering (or 1,495,000 common shares if
the underwriters' over-allotment option is exercised in full). We paid an
advance on this allowance in the amount of $50,000.
The following table provides information regarding the amount of the
discount we will pay to the underwriters:
<TABLE>
<CAPTION>
TOTAL WITHOUT TOTAL WITH
DISCOUNT EXERCISE OF OVER- EXERCISE OF OVER-
PER SHARE ALLOTMENT OPTION ALLOTMENT OPTION
--------- ----------------- -----------------
<S> <C> <C> <C>
Take to Auction......................................... $0.49 $ 637,000 $ 732,550
</TABLE>
51
<PAGE>
The following table sets forth the amount and nature of other forms of
compensation we will pay to Noble International in connection with the offering:
<TABLE>
<CAPTION>
TYPE OF COMPENSATION TERMS TOTAL AMOUNT
- ------------------------- ---------------------------------------- ----------------------------------------
<S> <C> <C>
Non-Accountable Expenses 3% of the gross proceeds of the offering $273,000 ($313,950 if the underwriters'
over-allotment option is exercised in
full)
Underwriter Option(1) Option to purchase up to 130,000 Depending upon the market price of
shares at an exercise price of 110% of common stock at the time of exercise
the initial public offering price
Commissions 7% of the gross proceeds of the offering $637,000 ($732,550 if the underwriters'
over-allotment option is exercised in
full)
Finders Fee(2) $50,000 upon completion of the offering $50,000 upon completion of the offering
with Noble International as underwriter with Noble International as underwriter
</TABLE>
- ------------------
(1) Underwriter Option is issued to Noble International.
(2) To be paid to CLR Associates, Inc. ('CLR'), upon completion of the offering
with Noble International as underwriter. CLR is an entity unaffiliated with
both Noble International and Take to Auction.
We have also agreed to pay some of Noble International's expenses in
connection with this offering, including expenses in connection with qualifying
the common shares offered in this offering for sale under the laws of such
states as Noble International may designate, the placement of tombstone
advertisements and preparing bound volumes of the public offering documents. We
estimate that the total expenses of the offering, excluding the underwriting
discount, will be approximately $1,000,000.
In connection with this offering, we have agreed to sell to Noble
International for nominal consideration, the underwriter warrant to purchase up
to 130,000 common shares. The underwriter warrant is exercisable for a period of
four years commencing one year after the date of this prospectus at an exercise
price per share equal to $7.70 (based on the mid range price) (110% of the
public offering price). The underwriter warrant may not be sold, transferred,
assigned, pledged, or hypothecated for a period of 12 months from the date of
this prospectus, except to members of the selling group. The underwriter warrant
grants to the representative, with respect to the registration under the
Securities Act of the securities directly and indirectly issuable upon exercise
of the underwriter warrant, one demand registration right during the exercise
period, as well as piggyback registration rights for five years from the date of
this prospectus. The underwriter warrant contains anti-dilution provisions
providing for adjustments of the exercise price and number of shares issuable on
exercise of the underwriter warrant, upon the occurrence of some events,
including stock dividends, stock splits, and recapitalizations. The holders of
the underwriter warrant have no voting, dividend, or other rights as a
shareholder with respect to common shares underlying the underwriter warrant,
unless the underwriter warrant shall have been exercised.
In connection with this offering, we have granted Noble International the
right, for the three-year period commencing on the closing date of this
offering, at Noble International's option, to designate a member of our board of
directors, or to appoint an observer to attend all meetings of our board of
directors. This designee has the right to notice of all meetings of the board of
directors and to receive reimbursement for all out-of-pocket expenses incurred
to attend these meetings. In addition, the designee will be entitled to
indemnification to the same extent as our directors.
Noble International has advised us that the underwriters do not intend to
confirm sales of the common shares offered in this offering to any account over
which they exercise discretionary authority.
52
<PAGE>
We, and each of our officers, directors, and shareholders, have agreed not
to offer, assign, issue, sell, hypothecate, or otherwise dispose of any common
shares, securities of Take to Auction convertible into, or exercisable or
exchangeable for, common shares, or common shares received upon conversion,
exercise, or exchange of these securities, to the public without the prior
written consent of Noble International for a period of at least six months after
the date of this prospectus.
We have also granted to the underwriters an option, exercisable during the
45-day period commencing on the date of this prospectus, to purchase at the
public offering price per share, less the underwriting discount, up to an
aggregate of 195,000 common shares. To the extent this option is exercised, the
underwriters will become obligated, subject to some conditions, to purchase
additional common shares. The underwriters may exercise this right of purchase
only for the purpose of covering over-allotments, if any, made in connection
with the sale of common shares. Purchases of common shares upon exercise of the
over-allotment option will result in the realization of additional compensation
by the underwriters.
Noble International has informed us that they do not expect discretionary
sales by the underwriters to exceed five percent of the shares offered by this
prospectus.
The underwriters have reserved for sale up to 700,000 shares for our
employees, directors and friends and family, as well as business associates of
ours. These reserved shares will be sold at the public offering price that
appears on the cover of this prospectus. The number of shares available for sale
to the general public in the offering will be reduced to the extent reserved
shares are purchased by such persons. The underwriters will offer to the general
public, on the same terms as other shares offered by this prospectus, any
reserved shares that are not purchased by such persons. Such shares will not be
subject to any lock-up agreements.
Rules of the Securities and Exchange Commission may limit the ability of
the underwriters to bid for or purchase shares before the distribution of the
shares is completed. However, the underwriters may engage in the following
activities in accordance with the rules:
o Stabilizing transactions. The underwriters may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the common
shares, so long as stabilizing bids do not exceed a specified maximum.
o Over-allotments and syndicate coverage transactions. The underwriters
may create a short position in the common shares by selling more shares
than are set forth on the cover page of this prospectus. If a short
position is created in connection with the offering, the representative
may engage in syndicate covering transactions by purchasing common shares
in the open market. The representative may also elect to reduce any short
position by exercising all or part of the over-allotment option.
o Penalty bids. If the representative purchases common shares in the open
market in a stabilizing transaction or syndicate coverage transaction,
they may reclaim a selling concession from the underwriters and selling
group members who sold those common shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price of
the common shares to be higher than it would be in the absence of such
transactions. The imposition of a penalty bid might also have an effect on the
price of the common shares if it discourages resales of the common shares.
Neither we nor the underwriters make any representation or prediction as to
the effect that the transactions described above may have on the price of the
common shares. These transactions may occur on the American Stock Exchange, in
the event that we maintain a listing with them, or otherwise. If such
transactions are commenced, they may be discontinued without notice at any time.
We and the underwriters expect that the common shares will be ready for
delivery on the fourth business day following the date of this prospectus. Under
Securities and Exchange Commission regulations, secondary market trades are
required to settle in three business days following the trade date (commonly
referred to as 'T-3'), unless the parties to the trade agree to a different
settlement cycle. As noted above, the common shares will settle in T-3.
Therefore, purchasers who wish to trade on the date of this prospectus or during
the next three succeeding business days must specify an alternate settlement
cycle at the time of the
53
<PAGE>
trade to prevent a failed settlement. Purchasers of the shares who wish to trade
shares on the date of this prospectus or during the next 3 succeeding business
days should consult their own advisors.
Prior to this offering, there has been no public market for the common
shares. Consequently, the initial public offering price was determined by
negotiations among us and the representative of the underwriters. The principal
factors considered in determining the initial public offering price of the
common shares were our record of operations, our current financial condition,
our future prospects, our markets, the economic conditions in and future
prospects for the industry in which Take to Auction competes, our management and
currently prevailing general conditions in the equity securities markets,
including current market valuations of publicly traded companies considered
comparable to us. However, the public offering price of the units does not
necessarily bear any relationship to our assets, net worth, earnings, book
value, or other criteria of value applicable to us and should not be considered
an indication of the actual value of the common stock. As a result, the prices
at which the shares will sell in the public market after this offering may be
lower than the price at which they are sold by the underwriters and an active
trading market in the common stock may not develop or continue after this
offering.
LEGAL MATTERS
The validity of the issuance of the common shares offered hereby will be
passed upon for us by Baker & McKenzie, Miami, Florida. Atlas Pearlman, P.A. has
served as counsel to Noble International in connection with this offering.
EXPERTS
The financial statements included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein (which report expresses an unqualified opinion and includes an
explanatory paragraph referring to our ability to continue as a going concern),
and has been so included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common shares
offered hereby. This prospectus does not contain all of the information set
forth in the registration statement and accompanying exhibits and schedule. For
further information with respect to us and our common shares, we refer you to
the registration statement and the accompanying exhibits and schedule.
Statements contained in this prospectus regarding the contents of any contract
or any other document filed as an exhibit to which we refer are not necessarily
complete. In each instance, we refer you to the copy of such contract or other
document filed as an exhibit to the registration statement, and each statement
is qualified in all respects by that reference. Copies of the registration
statement and the accompanying exhibits and schedule may be inspected without
charge at the Securities and Exchange Commission's principal office in
Washington, D.C. or obtained at prescribed rates from the Public Reference
Section of the Securities and Exchange Commission, at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Securities and Exchange Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants, such as us, that file electronically with the
Securities and Exchange Commission. The address of this Web site is http:
//www.sec.gov.
54
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................................................... F-2
Balance Sheets as of December 31, 1999 and March 31, 2000 (unaudited)...................................... F-3
Statements of Operations for the period from June 2, 1999 (date of inception) through December 31, 1999,
for the three-month period ended March 31, 2000 (unaudited) and for the cumulative period from June 2,
1999 (date of inception) to March 31, 2000 (unaudited)................................................... F-4
Statements of Changes in Shareholders' Equity for the period from June 2, 1999 (date of inception) through
December 31, 1999 and for the three-month period ended March 31, 2000 (unaudited)........................ F-5
Statements of Cash Flows for the period from June 2, 1999 (date of inception) through December 31, 1999,
for the three-month period ended March 31, 2000 (unaudited) and for the cumulative period from June 2,
1999 (date of inception) to March 31, 2000 (unaudited)................................................... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Shareholders of Take to Auction.com, Inc.
We have audited the accompanying balance sheet of Take to Auction.com, Inc. (a
development stage enterprise) (the 'Company') as of December 31, 1999, and the
related statements of operations, changes in shareholders' equity and cash flows
for the period from June 2, 1999 (date of inception) through December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Take to Auction.com, Inc. (a development
stage enterprise) as of December 31, 1999, and the results of its operations and
its cash flows for the period from June 2, 1999 (date of inception) through
December 31, 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. The Company is a development stage
enterprise engaged in developing and marketing an internet-based community to
sell merchandise at online auction sites. As discussed in Note 2 to the
financial statements, the Company has incurred losses since inception, and its
ability to successfully complete its development program and, ultimately, obtain
profitable operations is dependent upon future events, including completing
product development, verifying market acceptance, achieving a level of
memberships adequate to support the Company's cost structure and obtaining
adequate financing to fulfill its development activities, which raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
DELOITTE & TOUCHE LLP
Miami, Florida
February 11, 2000
(February 25, 2000, as to
collection of the stock
subscriptions described in
Note 8, March 9, 2000, as to
the note agreements described
in Note 5 and May 4, 2000, as
to the 1-for-3 reverse stock
split described in Note 2 and
Note 8)
F-2
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 856,949 $ 363,752
Accounts receivable................................................................ 5,964 30,449
Stock subscription receivable...................................................... 635,466 --
Inventory.......................................................................... 200,429 1,148,587
Prepaid expenses and other current assets.......................................... 18,625 117,957
------------ -----------
Total current assets............................................................ 1,717,433 1,660,745
Prepaid offering costs............................................................... 667,842 882,268
Property and equipment, net.......................................................... 186,041 755,955
Other................................................................................ 8,423 9,868
------------ -----------
Total assets.................................................................... $2,579,739 $ 3,308,836
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................... $ 289,719 $ 669,004
Accrued expenses................................................................ 54,362 252,178
Accrued professional fees.......................................................... 55,000 45,000
Deferred revenue................................................................... 30,320 162,216
------------ -----------
Total current liabilities....................................................... 429,401 1,128,398
Notes payable to affiliate, net of unamortized fair value of stock purchase
warrants........................................................................... 1,000,000 1,524,417
------------ -----------
Total liabilities............................................................... 1,429,401 2,652,815
------------ -----------
Commitments and Contingencies (Note 6)............................................... -- --
Shareholders' equity:
Preferred shares, $0.001 par value, 10 million shares authorized, no shares issued
and outstanding................................................................. -- --
Common shares, $0.001 par value, 50 million shares authorized, 6,000,000 shares
issued and outstanding.......................................................... 6,000 6,000
Additional paid-in capital......................................................... 1,694,000 2,256,000
Accumulated deficit................................................................ (549,662) (1,605,979)
------------ -----------
Total shareholders' equity...................................................... 1,150,338 656,021
------------ -----------
Total liabilities and shareholders' equity...................................... $2,579,739 $ 3,308,836
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JUNE 2, 1999 FOR THE PERIOD
(DATE OF FOR THE THREE- FROM JUNE 2, 1999
INCEPTION) MONTH PERIOD (DATE OF INCEPTION)
THROUGH ENDED THROUGH
DECEMBER 31, 1999 MARCH 31, 2000 MARCH 31, 2000
----------------- -------------- -------------------
(UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C>
Net revenues............................................... $ 70,067 $ 421,733 $ 491,800
Cost of net revenues....................................... 136,042 653,678 789,720
----------------- -------------- -------------------
Gross margin............................................. (65,975) (231,945) (297,920)
----------------- -------------- -------------------
Operating expenses:
General and administrative expenses...................... 383,630 536,666 920,296
Auction fees............................................. 5,727 19,910 25,637
Sales and marketing...................................... 19,061 72,361 91,422
Fulfillment.............................................. 42,632 67,191 109,823
Web site development expenses............................ 32,637 21,610 54,247
----------------- -------------- -------------------
Total operating expenses.............................. 483,687 717,738 1,201,425
----------------- -------------- -------------------
Net loss from operations................................... (549,662) (949,683) (1,499,345)
Interest, net.............................................. -- (106,634) (106,634)
----------------- -------------- -------------------
Net loss................................................... $ (549,662) $ (1,056,317) $(1,605,979)
----------------- -------------- -------------------
----------------- -------------- -------------------
Basic and diluted loss per common share:................... $ (0.10) $ (0.18) $ (0.28)
----------------- -------------- -------------------
----------------- -------------- -------------------
Weighted average number of common shares
outstanding.............................................. 5,696,766 6,000,000 5,787,836
----------------- -------------- -------------------
----------------- -------------- -------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM JUNE 2, 1999 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1999
AND FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at June 2, 1999 (date of
inception)................................. 5,428,572 $ 5,429 $ 994,571 $ -- $ 1,000,000
Issuance of common shares.................... 571,428 571 699,429 -- 700,000
Net loss for the period from June 2, 1999
(date of inception) through December 31,
1999....................................... -- -- -- (549,662) (549,662)
---------- ------- ---------- ----------- -----------
Balance at December 31, 1999................. 6,000,000 6,000 1,694,000 (549,662) 1,150,338
Fair value of stock purchase warrants
issued..................................... -- -- 562,000 -- 562,000
Net loss for the three-month period ended
March 31, 2000 (unaudited)................. -- -- -- (1,056,317) (1,056,317)
---------- ------- ---------- ----------- -----------
Balance at March 31, 2000 (unaudited)........ 6,000,000 $ 6,000 $2,256,000 $(1,605,979) $ 656,021
---------- ------- ---------- ----------- -----------
---------- ------- ---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JUNE 2, 1999 FOR THE PERIOD FROM
(DATE OF FOR THE JUNE 2, 1999
INCEPTION) THREE-MONTH PERIOD (DATE OF INCEPTION)
THROUGH ENDED THROUGH
DECEMBER 31, 1999 MARCH 31, 2000 MARCH 31, 2000
----------------- ------------------ -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................ $ (549,662) $ (1,056,317) $(1,605,979)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................... 4,886 27,727 32,613
Amortization of stock purchase warrants.......... -- 86,417 86,417
Inventory writedown.............................. 39,000 91,000 130,000
Change in operating assets and liabilities:
Accounts receivable............................ (5,964) (24,485) (30,449)
Inventory...................................... (239,429) (1,039,158) (1,278,587)
Prepaid expenses and other current assets...... (18,625) (99,332) (117,957)
Other assets................................... (8,423) (1,445) (9,868)
Accounts payable............................... 289,719 379,285 669,004
Accrued expenses............................... 54,362 197,816 252,178
Accrued professional fees...................... 55,000 (10,000) 45,000
Deferred revenue............................... 30,320 131,896 162,216
----------------- ------------------ -------------------
Net cash used in operating activities....... (348,816) (1,316,596) (1,665,412)
----------------- ------------------ -------------------
Cash flows from investing activities:
Purchase of property and equipment............... (190,927) (597,641) (788,568)
----------------- ------------------ -------------------
Net cash used in investing activities.......... (190,927) (597,641) (788,568)
Cash flows from financing activities:
Proceeds from issuance of common stock......... 1,064,534 635,466 1,700,000
Payments for offering costs.................... (667,842) (214,426) (882,268)
Net borrowings from affiliate.................. 1,000,000 1,000,000 2,000,000
----------------- ------------------ -------------------
Net cash provided by financing activities... 1,396,692 1,421,040 2,817,732
----------------- ------------------ -------------------
Net increase (decrease) in cash and cash
equivalents......................................... 856,949 (493,197) 363,752
Cash and cash equivalents at beginning of period...... -- 856,949 --
----------------- ------------------ -------------------
Cash and cash equivalents at end of period............ $ 856,949 $ 363,752 $ 363,752
----------------- ------------------ -------------------
----------------- ------------------ -------------------
</TABLE>
Supplemental cash flow information:
o No amounts were paid for interest or income taxes during 1999 and for the
three-month period ended March 31, 2000.
o During the three-month period ended March 31, 2000, the Company recorded
$475,583 net of amortization to additional paid-in capital in connection
with the issuance of stock purchase warrants.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS:
Take to Auction.com, Inc. (the 'Company') was incorporated in the State of
Florida on June 2, 1999. The Company is a development stage enterprise intending
to operate in the internet-based community providing its entrepreneurial members
with an online catalog of authentic collectibles and factory-new specialty
merchandise to sell at online auction sites. The Company is in the process of
developing its network infrastructure and implementing various growth
strategies.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES:
Significant accounting policies and practices used by the Company in the
preparation of the accompanying financial statements are as follows:
BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company has been in operation for less than one year and
incurred a net loss of approximately $550,000 during the period from June 2,
1999 (date of inception) through December 31, 1999. In addition, the Company has
not yet completed product development or verified market acceptance.
These factors, among others, may indicate that the Company will be unable
to continue as a going concern for a reasonable period of time. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty. The Company's continuation as a going concern is dependent
upon future events, including completing product development, verifying market
acceptance, achieving a level of memberships adequate to support the Company's
cost structure and obtaining adequate financing to fulfill its development
activities to successfully operate in the internet-based community. The Company
is in the process of filing an initial public offering, the proceeds of which
will be used toward its development activities. However, there can be no
assurance that such offering will be successful or that the ultimate proceeds
will prove to be adequate.
Effective August 26, 1999, the Company declared a share dividend of an
aggregate of 6,993,000 common shares, $0.001 par value, immediately payable to
its shareholders of record in order to effect the equivalent of a 1,000-for-1
stock split to increase the number of common shares outstanding from 7,000
shares to 7,000,000 shares. On November 3, 1999, the Company declared a share
dividend of an aggregate of 10,263,158 common shares, $0.001 par value,
immediately payable to its shareholders of record in order to effect the
equivalent of a 2.326530644-for-1 stock split to increase the number of common
shares outstanding from 7,736,842 shares to 18,000,000 shares. On May 4, 2000,
the Company declared a 1-for-3 reverse stock split to decrease the number of
common shares outstanding from 18,000,000 to 6,000,000 shares. Shareholders'
equity gives retroactive recognition to the stock splits as of June 2, 1999.
INTERIM FINANCIAL STATEMENTS
The financial statements for the three-month period ended March 31, 2000
and all related footnote information for this period is unaudited and reflect
all normal and recurring adjustments which are, in the opinion of management,
necessary for a fair presentation of the financial position, operating results
and cash flows for the interim period. The results of operations for the
three-month period ended March 31, 2000 is not necessarily indicative of the
results to be achieved for the entire fiscal year ending December 31, 2000.
F-7
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED):
MANAGEMENT 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.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
BASIC AND DILUTED NET LOSS PER SHARE
Basic and diluted net loss per share is computed by dividing the net loss
available to common shareholders for the period by the weighted average number
of common shares outstanding for the period. The calculation of basic and
diluted net loss per share excludes common shares issuable upon exercise of
employee stock options as the effect of the exercise would be antidilutive.
INVENTORY
Inventory, consisting of finished goods, is stated at the lower of cost or
market, cost being determined based on a moving average cost basis which
approximates the first-in, first-out method. The cost of inventory includes
product cost and freight charges. The Company recorded a provision of
approximately $39,000 and $91,000 for the period from June 2, 1999 (date of
inception) through December 31, 1999, and the three-month period ended March 31,
2000, respectively, to reduce the carrying value of inventory to its net
realizable value. Provision for potentially slow moving or damaged inventory is
recorded based on management's analysis of inventory levels, turnover ratios and
through specific identification of slow moving merchandise.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost, less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the related assets. Costs of major additions and improvements
are capitalized and expenditures for maintenance and repairs which do not extend
the useful life of the asset are expensed when incurred. Gains or losses arising
from sales or retirements are included in income currently. The Company reviews
its long-lived assets for impairment on a periodic basis and records an
impairment loss to operations if the sum of the expected future undiscounted
cash flows is less than the carrying amount of the asset. An impairment loss
would be recognized to reduce the carrying amount of the impaired asset to its
fair value. To date, no such impairment losses have been recorded.
SOFTWARE DEVELOPMENT COSTS
In accordance with Statement of Position 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use ('SOP 98-1'), the
Company capitalizes acquired and internally developed or modified software
solely to meet the Company's internal needs integral to the Company's Web site.
The Company capitalizes certain internal and external costs directly associated
with developing or modifying the internal use software, which begins with the
application development stage and ends when the project is substantially
complete and ready for its intended use. The amount of costs capitalized in 1999
relating to internal use software in process was approximately $130,000,
consisting principally of software
F-8
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED):
purchased from an external vendor, and is included in Property and Equipment,
net in the accompanying Balance Sheets (see Note 3). As of December 31, 1999, no
internal use software development projects were ready for their intended uses
and therefore, no amortization cost related to this software is included in the
accompanying Statements of Operations. The ongoing assessment of recoverability
of capitalized software development costs require considerable judgment by
management with respect to certain external factors, including, but not limited
to, estimated economic life and changes in software and hardware technologies.
REVENUE RECOGNITION
Revenues from membership fees are deferred at the time of billing and are
recognized ratably over the term of annual membership. Revenues related to
auction sales are recorded at the sales price to the member and recognized at
the time that the product is shipped to the highest bidder. In December 1999,
the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101,
'Revenue Recognition in Financial Statements,' providing guidance with respect
to revenue recognition issues and disclosures. The Company believes that its
existing accounting policies comply with the requirements of this published
guidance.
SALES AND MARKETING EXPENSES
Marketing and sales expenses, which consist primarily of advertising and
promotional costs, are charged to operations as incurred.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for
deferred income taxes. Under this method, deferred tax assets and liabilities
are determined based on the difference between the financial statement and tax
bases of assets and liabilities using tax rates in effect for the year in which
the differences are expected to reverse. A valuation allowance is established
when it is more likely than not that some or all of the deferred tax assets will
not be realized.
SIMPLE IRA PLAN
The Company sponsors the Take to Auction.com, Inc. SIMPLE IRA Plan (the
'Plan'), a defined contribution plan provided pursuant to the requirements of
the Internal Revenue Code of 1986, as amended. All employees eligible to
participate may enter the Plan as of the first day of any month. Participants
may make pre-tax contributions to the Plan subject to a statutorily prescribed
annual limit. The Company is required to make matching contributions, not to
exceed 3% of a participant's annual compensation, to the Plan. Each participant
is fully vested in their account, including the participant's contributions, the
Company's matching contribution and the investment earnings thereon.
Contributions by the participants or by the Company to the Plan, and the income
earned on such contributions, are generally not taxable to the participants
until withdrawn. Contributions by the Company are generally deductible by the
Company when made. The participant's and the Company's contributions are held in
an IRA. The Company accrued a matching contribution to the Plan as of December
31, 1999 of approximately $5,100, which represents the total contribution made
to the Plan by the Company for the period from June 2, 1999 (date of inception)
through December 31, 1999.
F-9
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED):
START UP COSTS
The Company expensed all start up costs as incurred.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, 'Reporting
Comprehensive Income' ('SFAS No. 130'), establishes standards for recording and
display of comprehensive income and its components. SFAS No. 130 requires
certain components of equity to be recorded as other comprehensive income. The
Company has no other comprehensive income during the period from June 2, 1999
(date of inception) through December 31, 1999.
SEGMENT REPORTING
Statement of Financial Accounting Standards No. 131, 'Disclosures about
Segments of an Enterprise and Related Information' ('SFAS No. 131'), establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Company
operated in one operating segment during 1999.
NOTE 3. PROPERTY AND EQUIPMENT:
Property and equipment include the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
(IN YEARS) DECEMBER 31, 1999 MARCH 31, 2000
------------ ----------------- --------------
<S> <C> <C> <C>
Computer equipment............................ 3 $ 42,609 $310,520
Computer software............................. 3 130,257 367,874
Furniture and fixtures........................ 5 9,292 44,414
Telecommunication equipment................... 3 8,769 8,769
Leasehold improvements........................ 5 -- 56,991
----------------- --------------
190,927 788,568
Less: accumulated depreciation................ (4,886) (32,613)
----------------- --------------
Property and equipment, net................... $ 186,041 $755,955
----------------- --------------
----------------- --------------
</TABLE>
As discussed in Note 1, the Company capitalizes certain costs in connection
with internal use software which will be amortized when the software is
available for use or project modules are implemented. As of December 31, 1999,
approximately $130,000 related to internal use software in process not yet
implemented is included within Software Development Costs in the above table.
F-10
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. INCOME TAXES:
The income tax provision differs from the amount obtained by applying the
statutory Federal income tax rate to pretax income as follows:
<TABLE>
<CAPTION>
PERIOD FROM FOR THE
JUNE 2, 1999 THREE-MONTH
(DATE OF INCEPTION) PERIOD ENDED
TO DECEMBER 31, 1999 MARCH 31, 2000
-------------------- --------------
<S> <C> <C>
Benefit at Federal statutory rates................ $ 186,885 $ 359,148
State income taxes, net of Federal benefit........ 19,952 38,344
-------------------- --------------
206,837 397,492
Valuation allowance............................... (206,837) (397,492)
-------------------- --------------
$ -- $ --
-------------------- --------------
-------------------- --------------
</TABLE>
The primary components of temporary differences which give rise to the
Company's net deferred tax assets at December 31, 1999 and March 31, 2000 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 MARCH 31, 2000
-------------------- --------------
<S> <C> <C>
Deferred tax assets:
Net operating losses carryforward............... $ 206,837 $ 397,492
-------------------- --------------
Total deferred tax assets.................... 206,837 397,492
Valuation allowance............................. (206,837) (397,492)
-------------------- --------------
$ -- $ --
-------------------- --------------
-------------------- --------------
</TABLE>
The Company provides a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. The Company has
established a valuation allowance against deferred tax assets of $206,837 and
$397,492 at December 31, 1999 and March 31, 2000, respectively.
The Company has Federal and State net operating loss carryforwards of
approximately $550,000 at December 31, 1999, both of which will begin to expire
in the year 2019.
NOTE 5. RELATED PARTY TRANSACTION:
The Company received an advance of $1 million on December 21, 1999 from E
Com Ventures, Inc. (formerly Perfumania, Inc.) and an additional advance of $1
million on March 9, 2000. The chairman of the board of E Com Ventures, Inc. is
also the chairman of the board of Take to Auction. These advances were
structured into two separate two-year convertible note agreements, each bearing
interest at six percent (6%) per annum. Unless converted into equity, these
advances represent the Company's only debt facility, E Com Ventures, Inc. will
have the right to convert all, but not less than all, of the principal amount
into shares of the Company's common stock at the conversion price equal to the
Company's contemplated initial public offering price, less the underwriters'
gross commissions. In addition, the Company agreed to grant a total of 200,000
warrants to E Com Ventures, Inc. at the contemplated initial public offering
price, less the underwriters' gross commissions. These warrants expiring one
year from the effective date of the Company's contemplated initial public
offering, have been recorded at an estimated fair value of $562,000, using an
option pricing model and will be amortized over the life of the notes.
The Company purchases inventory in the normal course of business with a
company owned by a shareholder of the Company. During the period from June 2,
1999 through December 31, 1999 and the three-month period ended March 31, 2000,
the Company purchased approximately $72,000 and $14,000, respectively, of
inventory from this company.
F-11
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. RELATED PARTY TRANSACTION--(CONTINUED):
During March 2000, the Company loaned a shareholder approximately $66,000.
This amount is due on demand and is classified as prepaid expenses and other
current assets in the accompanying balance sheet.
NOTE 6. COMMITMENTS:
Effective August 25, 1999, the Company entered into employment agreements
with two executives for a three year initial term. On October 1, 1999, the
Company entered into an Employment Agreement with another executive for a
three-year term. The aggregate annual base salaries are $365,000. A total of
127,755 options to purchase common shares were granted (73,469 options were
granted on August 26, 1999 and 54,286 options were granted on October 1, 1999)
at a weighted average exercise price equal to $1.23 per share. These Options
vest over a three-year period from the date of grant. Upon a change of control
of the Company (as defined in the agreements), the executives will be entitled
to receive severance compensation in the amount of 200 percent of their annual
base salaries.
On December 28, 1999, the Company entered into a five year operating lease
agreement for its corporate headquarters. Monthly rent payments are
approximately $12,500 over this agreement.
Effective September 23, 1999, the Company entered into a 60 month service
agreement ('the USi Agreement') with USinternetworking, Inc. ('USi'), a software
and network provider, to develop and host the Company's Web site. The Company
paid an initial fee of $40,000 and the USi Agreement was for 60 equal monthly
service fee payments of $41,000 commencing on December 15, 1999 through December
14, 2004 (the 'Initial Period'). During December 1999, the Company notified USi
that it was terminating the USi Agreement (as per the terms of the USi
Agreement) for material breach of its obligations thereunder. A breach of
contract lawsuit has been threatened by USi. The Company and USi are currently
discussing a resolution of the matter. The Company believes that it has
meritorious defenses, as well as counterclaims, to any claim which may be
brought by USi, and if any such claim is brought, the Company will defend it
vigorously. However, if USi successfully pursues its claim against the Company,
it may have a material adverse effect on the Company and the operaiton of its
business.
On October 29, 1999, the Company entered into an agreement with ZeroDotNet,
Inc. ('ZeroDotNet') to provide financial advisory and strategic planning
services to the Company. The term of the agreement is one year. The Company paid
a $350,000 retainer fee to ZeroDotNet as compensation for services rendered
under this agreement.
Effective November 3, 1999, the Company entered into a six-month service
agreement to outsource its warehouse and distribution functions. This service
agreement includes order processing, inventory management, warehousing,
fulfillment and shipping of product. The Company paid an initial implementation
fee of $38,500 in connection with this agreement and the agreement will
automatically renew for successive one-year terms.
NOTE 7. STOCK OPTION PLAN:
Effective August 1999, the Company adopted the 1999 Stock Option Plan (the
'Option Plan'). Officers, key employees and nonemployee consultants may be
granted stock options, stock appreciation rights, stock awards, performance
shares and performance units under the Option Plan. The Company has reserved
2,442,857 common shares for issuance under the Option Plan, subject to further
antidilution adjustments.
The Company will grant 5,000 non-qualified stock options to each
non-employee director nominee of the Company. The options will allow such
directors to purchase the common shares at an exercise price equal to the
contemplated initial public offering (the 'Offering') price. These options will
have a term of ten years and vest on the date of grant.
F-12
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. STOCK OPTION PLAN--(CONTINUED):
Prior to establishment of a Compensation Committee (the 'Committee') of the
Board of Directors, the Option Plan will be administered by the Board of
Directors of the Company. The Board of Directors or the Committee will be
authorized to determine, among other things, the key employees to whom, and the
time at which, options and other benefits are to be granted, the number of
shares subject to each option, the applicable vesting schedule and the exercise
price. The Board of Directors or the Committee will also determine the treatment
to be afforded to a participant in the Option Plan in the event of termination
of employment for any reason, including death, disability or retirement. Under
the Option Plan the maximum term of an incentive stock option is seven years and
the maximum term of a nonqualified stock option is seven years.
The Board of Directors has the power to amend the Option Plan from time to
time. Shareholder approval of an amendment is only required to the extent that
it is necessary to maintain the Option Plan's status as a protected plan under
applicable securities laws or the Option Plan's status as a qualified plan under
applicable tax laws.
As of December 31, 1999, options to purchase an aggregate of 157,755 shares
have been granted under the Option Plan to employees of the Company at a
weighted average exercise price equal to $1.23 per share. These options have a
life of seven years and vest over a three-year term. Subsequent to December 31,
1999, options to purchase an aggregate of 692,245 shares were granted at the
contemplated initial public offering price.
Statement of Financial Accounting Standards No. 123, Accounting for Stock
Based Compensation ('SFAS No. 123'), encourages, but does not require, companies
to record compensation cost for stock-based employee compensation plans at fair
value. The Company will measure compensation expense for the stock plan using
the intrinsic value method prescribed by Accounting Principal Board Opinion No.
25, 'Accounting for Stock Issued to Employees' ('APB No. 25'). Accordingly,
compensation expense for qualified and non-qualified employee stock options
granted under the Option Plan is equal to the difference between the fair market
value of the stock at the date of grant and the amount an employee must pay to
acquire the stock.
The fair value of each option grant under the Company's Stock Plans is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions used for grants in 1999:
<TABLE>
<S> <C>
Expected volatility..................................... 100.0%
Risk-free interest rate................................. 6.0%
Dividend yield.......................................... 0.0%
Expected life........................................... 7 years
</TABLE>
F-13
<PAGE>
TAKE TO AUCTION.COM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. STOCK OPTION PLAN--(CONTINUED):
A summary of the status of the Company's Stock Plan as of December 31, 1999
is presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------- --------------
<S> <C> <C>
Outstanding on June 2, 1999............................................................. -- $ --
Granted................................................................................. 157,755 1.23
Exercised............................................................................... -- --
Forfeited............................................................................... -- --
------- ------
Outstanding on December 31, 1999........................................................ 157,755 $ 1.23
------- ------
------- ------
Options exercisable on December 31, 1999................................................ --
-------
-------
Weighted-average fair-value of options granted during the period........................ $ 1.05
-------
-------
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------- -------------------------
WEIGHTED-AVERAGE WEIGHTED-
RANGE OF NUMBER REMAINING NUMBER AVERAGE
EXERCISE OUTSTANDING AT CONTRACTUAL LIFE WEIGHTED-AVERAGE EXERCISABLE EXERCISE
PRICES 12/31/99 (YEARS) EXERCISE PRICE AT 12/31/99 PRICE
- --------- -------------- ---------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$1.23 157,755 6.70 $ 1.23 -- $--
</TABLE>
Had compensation cost for the Company's Stock Plans been determined based
on the fair value at the grant dates for awards under the Stock Plans consistent
with the method prescribed by SFAS 123, the Company's net loss and net loss per
share (diluted) for the period from June 2, 1999 (date of inception) through
December 31, 1999 would have been reduced to the proforma amounts indicated
below:
<TABLE>
<S> <C>
Net loss:
As reported........................................ $ (549,662)
Proforma........................................... (560,876)
Diluted net loss per common share:
As reported........................................ $ (0.10)
Proforma........................................... (0.10)
</TABLE>
The effects of applying SFAS 123 in this proforma disclosure are not
indicative of future amounts. The Company anticipates that additional awards
will be granted in future years.
NOTE 8. CAPITAL STOCK:
The Company concluded its $1 million initial capitalization on August 26,
1999, of which $364,534 was received by December 31, 1999. All shares issued in
connection with the initial capitalization were given effect to the 1,000-for-1
stock split, the 2.326530644-for-1 stock split and the 1-for-3 reverse stock
split (See Note 2). The remaining balance of $635,466 was collected in full by
February 25, 2000 and is classified as an asset in the accompanying balance
sheet as of December 31, 1999.
Subsequent to the initial capitalization, the Company sold 571,428 common
shares for $700,000.
On August 25, 1999 the Company's shareholders approved an increase in the
number of authorized common shares from 7,500 shares to 50 million shares and a
reduction in the par value per share of common stock from $1 to $0.001. The
Company also authorized 10 million shares, par value $0.001 per share, of
preferred stock.
F-14
<PAGE>
[INSIDE OF BACK COVER]
[ARTWORK]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, COMMON SHARES ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF
THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY
SALE OF OUR COMMON SHARES. TAKE TO AUCTION.COM, INC.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary............................. 3
Risk Factors................................... 4
Special Note Regarding Forward-Looking
Statements................................... 18
Market Data.................................... 18
Use of Proceeds................................ 18
Dividend Policy................................ 18
Capitalization................................. 19
Dilution....................................... 20
Selected Financial Data........................ 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 22
Business....................................... 26
Management..................................... 38
Certain Transactions........................... 44
Principal Shareholders......................... 46
Description of Capital Stock................... 47
Shares Eligible for Future Sale................ 50
Underwriting................................... 51
Legal Matters.................................. 54
Experts........................................ 54
Additional Information......................... 54
Index to Financial Statements.................. F-1
Until , 2000 (25 days after the date of this prospectus), all dealers that
buy, sell or trade our common shares, whether or not participating in this
offering, may be required to deliver a prospectus. This requirement is in
addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,300,000 SHARES
[TAKETOAUCTION LOGO]
COMMON SHARES
------------------------
P R O S P E C T U S
------------------------
NOBLE INTERNATIONAL
INVESTMENTS, INC.
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses to be paid by Take to
Auction.com in connection with the registration of the common shares hereunder.
All of the amounts shown are estimates, except for the Securities and Exchange
Commission registration fee, the NASD filing fee and the American Stock Exchange
filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.................. $ 3,157.44**
NASD filing fee...................................................... 1,696.00
American Stock Exchange filing fee................................... 15,000.00
Accounting fees and expenses......................................... 125,000.00
Legal fees and expenses.............................................. 450,000.00
Road show expenses................................................... 100,000.00
Printing and engraving expenses...................................... 75,000.00
Blue sky fees and expenses........................................... 0.00
Transfer agent and registrar fees and expenses....................... 5,000
Miscellaneous........................................................ 50,000.00
-------------
Total........................................................... $ 824,853.44
=============
</TABLE>
- ------------------
* Payment already made.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
ss.607.0850 of the Florida Business Corporation Act (the 'FBCA') permits,
in general, a Florida corporation to indemnify any person who was or is a party
to any action or proceeding by reason of the fact that he or she was a director
or officer of the corporation, or served another entity in any capacity at the
request of the corporation, against liability incurred in connection with such
proceeding including the estimated expenses of litigating the proceeding to
conclusion and the expenses, actually and reasonably incurred in connection with
the defense or settlement of such proceeding, including any appeal thereof, if
such person acted in good faith, for a purpose he or she reasonably believed to
be in, or not opposed to, the best interest of the corporation and, in criminal
actions or proceedings, in addition had non reasonable cause to believe that his
or he conduct was unlawful. ss.607.0850(6) of the FBCA permits the corporation
to pay in advance of a final disposition of such action or proceeding upon
receipt of any undertaking by or on behalf of the director or officer to prepay
such amount as, and to the extent, required by statute. ss.607.0850 of the FBCA
provides that the indemnification and advancement of expense provisions
contained in the FBCA shall not be deemed exclusive of any rights to which a
director or officer seeking indemnification or advancement of expenses may be
entitled.
Our Amended and Restated Articles of Incorporation provide, in general,
that we shall indemnify, to the fullest extent permitted by ss.607.0850 of the
FBCA, any and all persons whom we shall have the power to indemnify under said
section from and against any and all of the expenses, liabilities or other
matters referred to in, or covered by, said section. The Amended and Restated
Articles of Incorporation also provide that the indemnification provided for
therein shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any By-Law, agreement, vote of shareholders or
disinterested directors or otherwise, both as to actions taken in his or her
official capacity and as to acts in another capacity while holding such office.
In accordance with our Amended and Restated Articles of Incorporation, we
shall indemnify any officer or director (including officers and directors
serving another corporation, partnership, joint venture, trust, or other
enterprise in any capacity at the company's request) made, or threatened to be
made, a party to an
II-1
<PAGE>
action or proceeding (whether civil, criminal, administrative or investigative)
by reason of the fact that he or she was serving in any of those capacities
against judgments, fines, amounts paid in settlement and reasonable expenses
(including attorney's fees) incurred as a result of such action or proceeding.
Indemnification would not be available if a judgment or other final adjudication
adverse to such director or officer establishes that (i) his or her acts were
committed in bad faith or were the result of active and deliberate dishonesty or
(ii) he or she personally gained in fact a financial profit or other advantage
to which he or she was not legally entitled.
We intend to enter into Indemnification Agreements with each of our current
directors and officers to give these directors and officers additional
contractual assurances regarding the scope of the indemnification set forth in
our Amended and Restated Articles of Incorporation and to provide additional
procedural protections. At present, there is no pending litigation or proceeding
involving a director, officer or employee of Take to Auction.com regarding which
indemnification is sought, nor are we aware of any threatened litigation that
may result in claims for indemnification.
We also refer you to Section of the Underwriting Agreement, which
provides for the indemnification of our officers, directors and controlling
persons against certain liabilities. The indemnification provision in our
Amended and Restated Articles of Incorporation, Amended and Restated Bylaws and
the Indemnification Agreements entered into between us and each of our directors
and officers may be sufficiently broad to permit indemnification of our
directors and officers for liabilities arising under the Securities Act.
We, with approval by our Board of Directors, expect to obtain directors'
and officers' liability insurance.
See also the undertakings set out in response to Item 17.
We refer you to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
- ------------------------------------------------------------------------------------ ------
<S> <C>
Form of Underwriting Agreement...................................................... 1.01
Amended and Restated Articles of Incorporation as currently in effect............... 3.01
Amended and Restated Bylaws as currently in effect.................................. 3.02
Form of Indemnification Agreement to be entered into by Registrant with each of its
directors and executive officers.................................................. 10.06
Registrant's 1999 Stock Option Plan and related documents........................... 10.07
</TABLE>
II-2
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following table sets forth information regarding all securities sold by
us since our inception on June 2, 1999:
<TABLE>
<CAPTION>
AGGREGATE
PURCHASE PRICE
NUMBER OF AND FORM OF
NAME OF PURCHASERS DATE OF SALE TITLE OF SECURITIES SECURITIES*(1) CONSIDERATION
- ----------------------------------------------- ------------ ------------------- -------------- -----------------
<S> <C> <C> <C> <C>
Albert Friedman................................ 7/10/99 Common Stock 776 $ 142.86/Cash
Pacific Investments............................ 8/26/99 Common Stock 1,520,000 $ 280,005.60/Cash
Horacio Groisman............................... 8/26/99 Common Stock 542,857 $100,002.001/Cash
Magdelena Zafir................................ 8/26/99 Common Stock 542,857 $100,002.001/Cash
Albert Friedman................................ 8/26/99 Common Stock 379,224 $ 69,858.54/Cash
Hugo Calemczuk................................. 8/26/99 Common Stock 380,000 $ 70,001.40/Cash
Pesia Leder.................................... 8/26/99 Common Stock 271,429 $ 50,001.00/Cash
Sharon Lallouz................................. 8/26/99 Common Stock 217,143 $ 40,000.80/Cash
Maurice Alcavez................................ 8/26/99 Common Stock 217,143 $ 40,000.80/Cash
Dr. Michelle Fisher............................ 8/26/99 Common Stock 81,429 $ 15,000.30/Cash
Nadine Lallouz................................. 8/26/99 Common Stock 81,429 $ 15,000.30/Cash
Zouhir Beidoun................................. 8/26/99 Common Stock 162,857 $ 30,000.60/Cash
Isaac Lekach................................... 8/26/99 Common Stock 108,571 $ 20,000.40/Cash
David Lekach................................... 8/26/99 Common Stock 108,571 $ 20,000.40/Cash
Jassi Lekach................................... 8/26/99 Common Stock 108,571 $ 20,000.40/Cash
The Joseph Trust............................... 8/26/99 Common Stock 108,571 $ 20,000.40/Cash
(Issac Shalom)
Hannah Lekach.................................. 8/26/99 Common Stock 108,571 $ 20,000.40/Cash
Rachmil Lekach................................. 8/26/99 Common Stock 108,571 $ 20,000.40/Cash
Dr. Bernard Weinbach........................... 8/26/99 Common Stock 54,286 $ 10,000.20/Cash
Mayi De La Vega................................ 8/26/99 Common Stock 54,286 $ 10,000.20/Cash
Glenn Gopman................................... 8/26/99 Common Stock 54,286 $ 10,000.20/Cash
Israel Lewin................................... 8/26/99 Common Stock 54,286 $ 10,000.20/Cash
Alice Lekach................................... 8/26/99 Common Stock 54,286 $ 10,000.20/Cash
Andrea Koplowitz............................... 8/26/99 Common Stock 54,286 $ 10,000.20/Cash
Gabriel Groisman............................... 8/26/99 Common Stock 27,143 $ 5,000.10/Cash
Melissa Groisman............................... 8/26/99 Common Stock 27,143 $ 5,000.10/Cash
SLI.com Venture I, Ltd......................... 8/26/99 Common Stock 285,714 $ 350,000 Cash
Dominion Income Mgmt.(2)....................... 10/20/99 Common Stock 285,714 $ 350,000 Cash
--------------
6,000,000
</TABLE>
- ------------------
* On June 6, 1999 we sold 100 shares of Common Stock to Sharon J. Lallouz who
transferred the common shares back to us on July 10, 1999.
(1) Assumes 1,000 for stock split effective August 26, 1999, 2.326530644 for 1
stock split effective November 3, 1999 and 1 for 3 reverse stock split
effective May 4, 2000.
(2) The shares of Common Stock purchased by Dominion Income Management were
transferred to ZeroDotNet, Inc., a wholly owned subsidiary of Dominion
Income Management, as of April 10, 2000.
No common shares were issued to Registrant's officers, directors, employees
and consultants pursuant to the exercise of stock options granted under the
Option Plan.
All other sales were made in reliance on Section 4(2) of the Securities Act
and/or Regulation D promulgated under the Securities Act. These sales were made
without general solicitation or advertising. Each purchaser was a sophisticated
investor with access to all relevant information necessary to evaluate the
investment and represented to the Registrant that the shares were being acquired
for investment.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<C> <S>
1.01 Form of Underwriting Agreement.
3.01 Amended and Restated Articles of Incorporation as currently in effect.**
3.02 Amended and Restated Bylaws as currently in effect.
4.01 Form of Specimen Certificate for common shares.
4.02 Form of Lock-up Agreement.
4.03 Form of Underwriters Warrant.
5.01 Opinion of Baker & McKenzie regarding legality of the securities being registered.
10.01 Executive Employment Agreement between Registrant and Albert Friedman dated August 25, 1999.**
10.02 Executive Employment Agreement between Registrant and Mitchell H. Morgan dated August 25, 1999.**
10.03 Executive Employment Agreement between Registrant and Jonathan Geller dated October 1, 1999.**
10.04 Office Building Net Lease between Anglers Office Park, Inc., a Florida corporation doing business as
Anglers Corporate Center, and the Registrant dated December 28, 1999.**
10.05 Form of Indemnification Agreement to be entered into by Registrant with each of its directors and
executive officers.**
10.06 Registrant's 1999 Stock Option Plan and related documents.**
10.07 Stock Purchase Agreement between Registrant and SLI.com Venture I, Ltd. dated August 26, 1999.**
10.08 Stock Purchase Agreement between Registrant and Dominion Income Management dated October 20, 1999.**
10.09 Form of Stock Option Agreement and related schedule.***
10.10 Form of Warrant Agreement.**
10.11 Financial Advisory and Strategic Planning Services Agreement between Registrant and ZeroDotNet, Inc.
dated October 29, 1999.**
10.12 Note and Warrant Purchase Agreement, Convertible Promissory Note and Warrant between the Registrant and
E Com Ventures, Inc. dated December 21, 1999.
10.13 Note and Warrant Purchase Agreement, Convertible Promissory Note and Warrant between the Registrant and
E Com Ventures, Inc. dated March 9, 2000.
23.01 Consent of Baker & McKenzie (included in Exhibit 5.01).
23.02 Consent of Deloitte & Touche LLP.
24.01 Power of Attorney (see Page II-6 of this Registration Statement).
27.01 Financial Data Schedule.
</TABLE>
- ------------------
* To be filed by amendment.
** Previously filed.
*** Revised schedule only to be filed with this Amendment.
(b) Financial statement schedules.
No financial statement schedules are provided because the information
called for is not required or is shown either in the financial statements or the
notes thereto.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Take to
Auction.com pursuant to the provisions described under Item 14 above, or
otherwise, 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 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
Take to Auction.com of expenses incurred or paid by a director, officer or
controlling person of Take to Auction.com 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, we will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
We hereby undertake that:
(1) We will provide to the underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and
registered in such names as required by the underwriters to permit
prompt delivery to each purchaser.
(2) For purposes of determining any liability under the Securities Act, 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 Take to Auction.com pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(3) For the purpose of determining any liability under the Securities Act,
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-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
TAKE TO AUCTION.COM HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT
LAUDERDALE, STATE OF FLORIDA, ON THE 19TH DAY OF MAY, 2000.
TAKE TO AUCTION.COM, INC.
By: /S/ ALBERT FRIEDMAN
-----------------------------------
Albert Friedman,
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS THAT EACH INDIVIDUAL WHOSE SIGNATURE
APPEARS BELOW CONSTITUTES AND APPOINTS ALBERT FRIEDMAN AND MITCHELL H. MORGAN,
AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS WITH
FULL POWER OF SUBSTITUTION, FOR HIM OR HER AND IN HIS OR HER NAME, PLACE AND
STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING
POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO SIGN ANY
REGISTRATION STATEMENT FOR THE SAME OFFERING COVERED BY THE REGISTRATION
STATEMENT THAT IS TO BE EFFECTIVE UPON FILING PURSUANT TO RULE 462(B)
PROMULGATED UNDER THE SECURITIES ACT, AND ALL POST-EFFECTIVE AMENDMENTS THERETO,
AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND ALL DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT
OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR HIS, HER OR THEIR SUBSTITUTE OR
SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE OR BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ ------------------------------------------------- -------------
<C> <S> <C>
Principal Executive Officer
/S/ ALBERT FRIEDMAN President, Chief Executive Officer and Director May 19, 2000
- ------------------------------------------
Albert Friedman
Principal Financial Officer and Principal
Accounting Officer
/S/ MITCHELL MORGAN Vice President, Chief Financial Officer and May 19, 2000
- ------------------------------------------ Director
Mitchell Morgan
/S/ JONATHAN GELLER Vice President, Chief Technology Officer and May 19, 2000
- ------------------------------------------ Director
Jonathan Geller
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ ------------------------------------------------- -------------
<C> <S> <C>
ADDITIONAL DIRECTORS
/S/ HORACIO GROISMAN Director May 19, 2000
- ------------------------------------------
Horacio Groisman
/S/ ILIA LEKACH Director May 19, 2000
- ------------------------------------------
Ilia Lekach
/S/ GARRICK HILEMAN Director May 19, 2000
- ------------------------------------------
Garrick Hileman
/S/ HUGO CALEMCZUK Director May 19, 2000
- ------------------------------------------
Hugo Calemczuk
/S/ MIGUEL CAUVI Director May 19, 2000
- ------------------------------------------
Miguel Cauvi
/S/ ALAN BLAUSTEIN Director May 19, 2000
- ------------------------------------------
Alan Blaustein
</TABLE>
II-7
UNDERWRITING AGREEMENT
between
TAKE TO AUCTION.COM, INC.
and
NOBLE INTERNATIONAL INVESTMENTS, INC.
Dated: _______, 2000
<PAGE>
TAKE TO AUCTION.COM, INC.
1,300,000 Shares of Common Stock
UNDERWRITING AGREEMENT
----------------------
Boca Raton, Florida
__________, 2000
Noble International Investments, Inc.
1801 Clint Moore Road, Suite 110
Boca Raton, Florida 33487
Ladies and Gentlemen:
The undersigned, Take to Auction. com, Inc. ("Company"), hereby
confirms its agreement with Noble International Investments, Inc. ("NII"), as
representative for the underwriters named in Schedule 1 attached hereto (the
"Underwriters") as follows:
1. Purchase and Sale of Securities.
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1.1 Firm Shares.
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1.1.1 Purchase of Firm Shares. On the basis of the
representations and warranties herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to issue and sell, and the
Underwriters agree to purchase, an aggregate of 1,300,000 shares of the
Company's common stock ("Firm Shares") at a purchase price (net of the
underwriting discount) of $______ per Firm Share. The Underwriters, severally
and not jointly, agree to purchase from the Company the number of Firm Shares
set forth opposite their respective names on Schedule I attached hereto.
1.1.2 Payment and Delivery. Delivery and payment for the Firm
Shares shall be made at 10:00 a.m., Eastern Boca Raton, Florida time, on or
before the third business day following the date the Firm Shares commence
trading or at such earlier time as the Underwriters shall determine, or at such
other time as shall be agreed upon by the Underwriters and the Company, at the
offices of the legal counsel to the Underwriters or at such other place as shall
be agreed upon by the Underwriters and the Company. The hour and date of
delivery and payment for the Firm Shares are called the "Closing Date." Payment
for the Firm Shares shall be made on the Closing Date by wire transfer or by
certified or official bank check or checks payable in New York Clearing House
(next day) Funds to the account of the Company upon delivery to the
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Underwriters of a certificate of the Company's transfer agent stating that the
Firm Shares have been registered in book entry form in such name or names and in
such denominations as are requested by the Underwriters. The Company shall not
be obligated to sell or deliver the Firm Shares except upon tender of payment by
the Underwriters for all the Firm Shares.
1.2 Over-Allotment Option.
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1.2.1 Option Shares. For the purposes of covering any
over-allotments in connection with the distribution and sale of the Firm Shares,
on the basis of the representations and warranties herein contained, but subject
to the terms conditions herein set forth, the Company hereby grants to the
Underwriters, severally and not jointly, an option ("Over-allotment Option") to
purchase up to an additional 195,000 Shares in the aggregate from the Company
("Option Shares"). Each Option is identical to a Firm Share. The Firm Shares and
the Option Shares are, collectively referred to as the "Public Shares." The
purchase price to be paid for the Option Shares will be the same price per
Option Share as the price per Firm Share set forth in Section 1.1.1 hereof.
1.2.2 Exercise of Option. The Over-allotment Option granted
pursuant to Section 1.2.1 hereof may be exercised by the Underwriters as to all
or any part of the Option Shares at any time, from time to time, within
forty-five days after the effective date ("Effective Date") of the Registration
Statement (as hereinafter defined). The Over-allotment Option granted hereunder
is for use by the Underwriters solely in covering any over-allotments in
connection with the sale and distribution of the Firm Shares. The Underwriters
will not be under any obligation to purchase any Option Shares prior to the
exercise of the Over-allotment Option. The Over-allotment Option granted hereby
may be exercised by the giving of written notice to the Company from the
Underwriters, which must be confirmed by a letter or telecopy setting forth the
number of Option Shares to be purchased, the date and time for delivery of and
payment for the Option Shares and stating that the Option Shares referred to
therein are to be used for the purpose of covering over- allotments in
connection with the distribution and sale of the Firm Shares. If such notice is
given at least two full business days prior to the Closing Date, the date set
forth therein for such delivery and payment will be the Closing Date. If such
notice is given thereafter, the date set forth therein for such delivery and
payment will not be earlier than three full business days after the date of the
notice, unless we mutually agree to an earlier date. If such delivery and
payment for the Option Shares does not occur on the Closing Date, the date and
time of the closing for such Option Shares will be as set forth in the notice
(hereinafter the "Option Closing Date"). Upon exercise of the Over-allotment
Option, subject to the terms and conditions set forth herein, the Company will
become obligated to convey to the Underwriters and the Underwriters will become
obligated to purchase the number of Option Shares specified in such notice.
1.2.3 Payment and Delivery. Payment for the Option Shares
shall be made by wire transfer or by certified or official bank check in New
York clearing house funds on the Closing Date or the Option Closing Date, as the
case may be, to the account of the Company upon delivery to the Underwriters of
a certificate of the Company's transfer agent stating that the Option Shares
have been registered in book entry form in such name or names and in such
denominations as are requested by the Underwriters.
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1.3 Underwriters' Purchase Option.
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1.3.1 Purchase Option. The Company hereby agrees to issue and
sell to the Underwriters (and/or their designees) on the Closing Date, for an
aggregate purchase price of $130, an option ("Underwriters' Purchase Option")
exercisable, at any time, in whole or in part, for a period of four years
commencing one year from the Effective Date, for the purchase of an aggregate of
130,000 Shares ("Underwriters' Shares") at an initial exercise price of 110% of
the initial offering price of a Share (i.e., $[___] per Share). The
Underwriters' Shares are identical to the Firm Shares. The Underwriters'
Purchase Option, and the Underwriters' Shares are hereinafter referred to
collectively as the "Underwriters' Securities." The Underwriters' Securities,
the Firm Shares and the Option Shares are hereinafter referred to collectively
as the "Shares."
1.3.2 Payment and Delivery. Delivery and payment for the
Underwriters' Purchase Option shall be made on the Closing Date. The Company
shall deliver to the Underwriters, upon payment therefor, certificates
evidencing the Underwriters' Purchase Option in the name or names and in such
authorized denominations as the Underwriters may request.
2. Representations and Warranties of the Company. The Company represents and
warrants to the Underwriters as follows:
2.1 Filing of Registration Statement. The Company has filed with the
Securities and Exchange Commission ("Commission") a registration statement and
an amendment or amendments thereto, on Form S-1 (File No. 333-91177), including
any related preliminary prospectus ("Preliminary Prospectus"), covering the
registration of the Shares under the Securities Act of 1933, as amended ("Act"),
which registration statement and amendments have been prepared by the Company in
conformity with the requirements of the Act, and the rules and regulations
("Regulations") of the Commission under the Act. Except as the context may
otherwise require, such registration statement, as amended, on file with the
Commission at the time the registration statement becomes effective (including
the prospectus, financial statements, schedules, exhibits and all other
documents filed as a part thereof or incorporated therein and all information
deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule
430A of the Regulations), is herein called the "Registration Statement," and the
form of the final prospectus dated the Effective Date (or, if applicable, the
form of final prospectus filed with the Commission pursuant to Rule 424 of the
Regulations), is herein called the "Prospectus." The Registration Statement has
been declared effective by the Commission under the Act.
2.2 No Stop Orders, Etc. No stop order suspending the effectiveness of
the Registration Statement or preventing or suspending the use of any
Preliminary Prospectus has been issued under the Act and no proceedings for that
purpose have been instituted or, to the best knowledge of the Company, are
pending or contemplated. No state regulatory authority has issued, to the best
knowledge of the Company, any order preventing or suspending the offering or
sale of the Shares in such jurisdiction, or threatened to institute any
proceedings with respect to such order.
2.3 Disclosures in Registration Statement.
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2.3.1 Securities Act Representation. At the time the
Registration Statement became effective and at all times subsequent thereto up
to and including the Closing Date and the Option Closing Date, if any, the
Registration Statement and the Prospectus and any amendment
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or supplement thereto contained and will contain all material statements that
are required to be stated therein in accordance with the Act and the
Regulations, and conformed and will conform in all material respects to the
requirements of the Act and the Regulations; neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, during such time
period and on such dates, contained or will contain any untrue statement of a
material fact or omitted or will omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. When any Preliminary
Prospectus was first filed with the Commission (whether filed as part of the
Registration Statement for the registration of the Shares or any amendment
thereto or pursuant to Rule 424(a) of the Regulations) and when any amendment
thereof or supplement thereto was first filed with the Commission, such
Preliminary Prospectus and any amendments thereof and supplements thereto
complied in all material respects with the applicable provisions of the Act and
the Regulations and did not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The representation and warranty made in this
Section 2.3.1 does not apply to statements made or statements omitted in
reliance upon and in conformity with written information furnished to the
Company with respect to the Underwriters by the Underwriters expressly for use
in the Registration Statement or Prospectus or any amendment thereof or
supplement thereto.
2.3.2 Disclosure of Contracts. The description in the
Registration Statement and the Prospectus of contracts and other documents is
accurate in all material respects and presents fairly the information required
to be disclosed and there are no contracts or other documents required to be
described in the Registration Statement or the Prospectus or to be filed with
the Commission as exhibits to the Registration Statement that have not been so
described or filed. Each contract or other instrument (however characterized or
described) to which the Company is a party or by which its property or business
is or may be bound or affected and (i) that is referred to in the Prospectus, or
(ii) is otherwise material to the Company's business, has been duly and validly
executed, is in full force and effect in all material respects and is
enforceable against the Company and, to the Company's knowledge, the other
parties thereto, in accordance with its terms, except (a) as such enforceability
may be limited by bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally, (b) as enforceability of any
indemnification provision may be limited under the federal and state securities
laws, and (c) that the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to the equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought, and
none of such contracts or instruments has been assigned by the Company, and
except as described in the Prospectus, neither the Company nor, to the best of
the Company's knowledge, any other party is in default thereunder and, to the
best of the Company's knowledge, no event has occurred which, with the lapse of
time or the giving of notice, or both, would constitute a default thereunder,
except, in either case, for any default that, singly or in the aggregate, would
not have a material adverse effect on the business, operations, assets,
financial condition or prospects of the Company (a "Material Adverse Effect").
None of the provisions of such contracts or instruments violates or will result
in a violation of any existing applicable law, rule, regulation, judgment, order
or decree of any governmental agency or court having jurisdiction over the
Company or any of its respective assets or businesses, including, without
limitation, those relating to environmental laws and regulations, except where
such violation, singly or in the aggregate, would not have a Material Adverse
Effect.
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2.4 Changes After Dates in Registration Statement.
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2.4.1 No Material Adverse Changes. Since the respective dates
as of which information is given in the Registration Statement and the
Prospectus, except as otherwise specifically stated therein, (i) there has been
no material adverse change in the business, operations, assets, financial
condition or prospects of the Company, including, but not limited to, a material
loss or interference with its business from fire, storm, explosion, flood or
other casualty, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, whether or not arising in the
ordinary course of business, (ii) there have been no transactions entered into
by the Company, other than those in the ordinary course of business, that are
material with respect to the condition, financial or otherwise, or to the
results of operations, business or business prospects of the Company; and (iii)
there has been no dividend or distribution of any kind declared, paid or made by
the Company on any class of capital stock or repurchase or redemption by the
Company of any class of capital stock.
2.4.2 Recent Securities Transactions, Etc. Subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, and except as may otherwise be indicated or contemplated
herein or therein, the Company has not (i) issued any securities, incurred any
liability outside the ordinary course of business or incurred any obligation,
direct or contingent, for borrowed money; or (ii) declared or paid any dividend
or made any other distribution on or in respect to its capital stock.
2.5 Independent Accountants. Deloitte & Touche LLP, whose report is
filed with the Commission as part of the Registration Statement, are independent
accountants as required by the Act and the Regulations.
2.6 Financial Statements. The financial statements, including the notes
thereto and supporting schedules included in the Registration Statement and
Prospectus, fairly present in all material respects the financial position and
the results of operations of the Company at the dates and for the periods to
which they apply; and such financial statements have been prepared in conformity
with U.S. generally accepted accounting principles, consistently applied
throughout the periods involved except as may be otherwise stated therein. The
pro forma financial information set forth in the Registration Statement and
Prospectus reflects all assumptions and adjustments relating to the business and
operations of the Company that management of the Company considers significant.
The historical financial data set forth in the Prospectus under the captions
"Prospectus Summary--Summary Financial Data", "Capitalization" and "Selected
Financial Data" fairly present in all material respects the information set
forth therein and have been compiled on a basis consistent with that of the
audited financial statements contained in the Registration Statement.
2.7 Authorized Capital; Options; Etc. The Company had at the date or
dates indicated in the Prospectus duly authorized, issued and outstanding actual
capitalization as set forth in the Registration Statement and the Prospectus.
Giving effect to the assumptions stated in the Registration Statement and the
Prospectus, the Company will have on the Closing Date the number of outstanding
securities shown to be outstanding upon completion of the offering in the
disclosure relating to capitalization set forth in the Prospectus. Except as set
forth in the Registration Statement and the Prospectus, on the Effective Date
and on the Closing Date there will be no options, warrants, or other rights to
purchase or otherwise acquire, or preemptive rights with respect to the issuance
or sale of, any shares of Common Stock of the Company, including
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any obligations to issue any shares pursuant to anti-dilution provisions, or any
security convertible into shares of Common Stock of the Company, or any
contracts or commitments to issue or sell shares of Common Stock or any such
options, warrants, rights or convertible securities.
2.8 Valid Issuance of Securities; Etc.
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2.8.1 Outstanding Securities. All issued and outstanding
securities of the Company have been duly authorized and validly issued and are
fully paid and non-assessable; the holders thereof have no rights of rescission
with respect thereto, and are not subject to personal liability by reason of
being such holders; and none of such securities were issued in violation of the
preemptive rights of any holders of any security of the Company or similar
contractual rights granted by the Company. The outstanding options and warrants
to purchase shares of Common Stock constitute the valid and binding obligations
of the Company, enforceable in accordance with their terms. The authorized
Common Stock and outstanding options and warrants to purchase shares of Common
Stock conform in all material respects to all statements relating thereto
contained in the Registration Statement and the Prospectus. The offers and sales
of the outstanding Common Stock, options and warrants to purchase shares of
Common Stock were at all relevant times either registered under the Act and
registered or qualified under the applicable state securities or Blue Sky Laws
or exempt from such registration or qualification requirements.
2.8.2 Securities Sold Pursuant to this Agreement. The Shares
have been duly authorized and, when issued and paid for in accordance with the
terms of this Agreement, will be validly issued, fully paid and non-assessable;
the holders thereof are not and will not be subject to personal liability by
reason of being such holders; the Shares are not and will not be subject to the
preemptive rights of any holders of any security of the Company or similar
contractual rights granted by the Company; and all corporate action required to
be taken for the authorization, issuance and sale of the Shares has been duly
and validly taken. When issued and paid for in accordance with the terms of this
Agreement and the Underwriters' Purchase Option, the Underwriters' Securities
will constitute a valid and binding obligation of the Company to issue and sell,
upon exercise thereof and payment of the exercise price therefor, the number of
Underwriter Shares called for thereby and the Underwriters' Purchase Option,
will be enforceable against the Company in accordance with its terms, except (i)
as such enforceability may be limited by bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally, (ii) as enforceability of
any indemnification or contribution provision may be limited under the federal
and state securities laws, and (iii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
2.9 Registration and Anti-Dilution Rights of Third Parties. Except as
described in the Prospectus, no holders of any securities of the Company or of
any options or warrants or other securities exercisable for or convertible or
exchangeable into securities of the Company (i) have the right to require the
Company to register any such securities of the Company under the Act or to
include any such securities in a registration statement to be filed by the
Company; or (ii) have rights to have the exercise or conversion prices of their
securities lowered and/or the number of securities that they may purchase
increased as a result of the issuance by the Company of securities for a price
less than such exercise or conversion price.
2.10 Validity and Binding Effect of Agreements. This Agreement and the
Underwriters' Purchase Option have been duly and validly authorized by the
Company and constitute, or when
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executed and delivered, will constitute, the valid and binding agreements of the
Company, enforceable against the Company in accordance with their respective
terms, except (i) as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, (ii) as enforceability of any indemnification or contribution
provision may be limited under the federal and state securities laws, and (iii)
that the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to the equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
2.11 No Conflicts, Etc. The execution, delivery, and performance by the
Company of this Agreement and the Underwriters' Purchase Option, the
consummation by the Company of the transactions herein and therein contemplated
and the compliance by the Company with the terms hereof and thereof do not and
will not, with or without the giving of notice or the lapse of time or both, (i)
result in a breach of, or conflict with any of the terms and provisions of, or
constitute a default under, or result in the creation, modification, termination
or imposition of any lien, charge or encumbrance upon any property or assets of
the Company pursuant to the terms of, any indenture, mortgage, deed of trust,
note, loan or credit agreement or any other agreement or instrument evidencing
an obligation for borrowed money, or any other agreement or instrument to which
the Company is a party or by which the Company may be bound or to which any of
the property or assets of the Company is subject, except where such breach,
conflict, default, creation, modification, termination or imposition, singly or
in the aggregate, would not have a Material Adverse Effect; (ii) result in any
violation of the provisions of the Articles of Incorporation of the Company
currently in effect ("Articles of Incorporation") or the bylaws of the Company
as currently in effect ("Bylaws"); (iii) violate any existing applicable law,
rule, regulation, judgment, order or decree of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company or any of its
properties or business ("Laws"), except where such violation singly or in the
aggregate, would not have a Material Adverse Effect; (iv) have any effect on any
permit, license, certificate, registration, approval, consent or franchise
(collectively, "Permits") necessary for the Company to own or lease and operate
any of its properties or to conduct its business, except for such effects as
would not, singly or in the aggregate, have a Material Adverse Effect.
2.12 No Defaults; Violations. Except as described in the Prospectus, no
default exists in the due performance and observance of any term, covenant or
condition of any license, contract, indenture, mortgage, deed of trust, note,
loan or credit agreement, or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which the
Company is a party or by which the Company may be bound or to which any of the
properties or assets of the Company is subject, except where such default,
singly or in the aggregate, would not have a Material Adverse Effect. The
Company is not in violation of any term or provision of (i) its Articles of
Incorporation or Bylaws or (ii) any franchise, license, permit, or applicable
Law, except, in the case of (ii), where such violation, singly or in the
aggregate, would not have a Material Adverse Effect.
2.13 Corporate Power; Licenses; Consents.
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2.13.1 Conduct of Business. The Company has all requisite
corporate power and authority, and has all necessary Permits of and from all
governmental or regulatory officials and bodies to own or lease its properties
and conduct its business as described in the Prospectus. The Company is, and has
been doing business, in compliance with all such Permits and all applicable
Laws. The description in the Registration Statement of federal, state and local
regulation and their effects on the Company's business as currently conducted
and as contemplated to be conducted
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is accurate in all material respects and does not omit to state a material fact
required to be stated therein or necessary, in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
2.13.2 Transactions Contemplated Herein. The Company has all
corporate power and authority to enter into this Agreement and to carry out the
provisions and conditions hereof, and all consents, authorizations, approvals
and orders required in connection therewith have been obtained. No consent,
approvals, authorizations or orders of, and no filing with, any court,
government agency or other body is required for the valid authorization,
issuance, sale and delivery of the Shares and the consummation of the
transactions and agreements contemplated by this Agreement and the Underwriters'
Purchase Option and as contemplated by the Prospectus, except with respect to
applicable federal and state securities laws.
2.14 Title to Property; Insurance. The Company has good and defensible
title to, or valid and enforceable leasehold estates in, all items of real and
personal property (tangible and intangible) owned or leased by it, free and
clear of all liens, encumbrances, claims, security interests, defects and
restrictions of any material nature whatsoever, other than those referred to in
the Prospectus (including the financial statements and notes thereto), purchase
money security interests and liens for taxes not yet due and payable. As of the
date hereof, the Company has insurance covering its properties against loss or
damage by fire, theft, damage, destruction, acts of vandalism or other casualty
and maintains insurance in commercially reasonable amounts.
2.15 Litigation; Governmental Proceedings. Except as described in the
Prospectus, there is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding pending or, to the
Company's knowledge, threatened against, or involving the properties or business
of, the Company that might, if determined adversely, have a Material Adverse
Effect, or that questions the validity of the capital stock of the Company or
this Agreement or of any action taken or to be taken by the Company pursuant to,
or in connection with, this Agreement. There are no outstanding orders,
judgments or decrees of any court, governmental agency or other tribunal,
domestic or foreign, naming the Company and enjoining the Company from taking,
or requiring the Company to take, any action, or to which the Company, its
properties or business is bound or subject, except as set forth in the
Prospectus or such as would not singly or in the aggregate, have a Material
Adverse Effect.
2.16 Good Standing. The Company has been duly organized and is validly
existing as a corporation and is in good standing under the laws of the state of
its incorporation. The Company is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which ownership or
leasing of any properties or the character of its operations requires such
qualification or licensing, except where the failure to qualify would not have a
Material Adverse Effect.
2.17 Taxes. The Company has filed all returns (as hereinafter defined)
required to be filed with taxing authorities prior to the date hereof or has
duly obtained extensions of time for the filing thereof, except where the
failure to file would not, singly or in the aggregate, have a Material Adverse
Effect. The Company has paid all taxes (as hereinafter defined) shown as due on
such returns that were filed and has paid all taxes imposed on or assessed
against the Company that are currently due, except where the failure to pay
would not, singly or in the aggregate, have a Material Adverse Effect. The
provisions for taxes payable, if any, shown on the financial statements filed
with or as part of the Registration Statement are sufficient for all accrued and
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unpaid taxes, whether or not disputed, and for all periods to and including the
dates of such financial statements. No material issues have been raised with the
Company (and to the knowledge of the Company are currently pending) by any
taxing authority in connection with any of the returns or taxes asserted as due
from the Company, and no waivers of statutes of limitation with respect to the
returns or collection of taxes have been given by or requested from the Company.
The term "taxes" mean all federal, state, local, foreign, and other net income,
gross income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, lease, service, service use, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property, windfall profits,
customs, duties or other taxes, fees, assessments, or charges of any kind
whatever, together with any interest and any penalties, additions to tax, or
additional amounts with respect thereto. The term "returns" means all returns,
declarations, reports, statements, and other documents required to be filed in
respect to taxes.
2.18 Transactions Affecting Disclosure to NASD.
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2.18.1 Finder's Fees. There are no claims, payments,
issuances, arrangements or understandings for services in the nature of a
finder's, consulting or origination fee with respect to the introduction of the
Company to the Underwriters or the sale of the Shares hereunder, except for (i)
a $50,000 payment to CLR Associates, Inc. as a finders fee and (ii) the
arrangements, agreements, understandings, payments or issuances between the
Company and the Underwriters that are described in the "Underwriting" section of
the Prospectus.
2.18.2 Payments Within Twelve Months. (i) the Company has not
made or become obligated to make any direct or indirect payments (in cash,
securities or otherwise), and (ii) there are no other arrangements, agreements,
understandings, payments or issuances pursuant to which the Company has made or
will make a payment (in cash, securities or otherwise), which would constitute
underwriting compensation under Rule 2710.
2.18.3 Use of Proceeds. No portion of the net proceeds of this
offering will be paid by the Company to any NASD member or any affiliate or
associate of any NASD member.
2.18.4 Insiders' NASD Affiliation. No officer or director of
the Company or owner of any of the Company's unregistered securities has any
direct or indirect affiliation or association with any NASD member. The Company
will advise the Underwriters and the NASD if any officer, director or
stockholder of the Company is or becomes an affiliate or associated person of an
NASD member participating in the offering.
2.19 Foreign Corrupt Practices Act. Neither the Company nor any of its
officers, directors, employees, agents or any other person acting on their
behalf has, directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the ordinary
course of business) to any customer, supplier, employee or agent of a customer
or supplier, or official or employee of any governmental agency or
instrumentality of any government (domestic or foreign) or any political party
or candidate for office (domestic or foreign) or other person who was, is, or
may be in a position to help or hinder the business of the Company (or assist it
in connection with any actual or proposed transaction) that (i) might subject
the Company to any damage or penalty in any civil, criminal or governmental
litigation or proceeding, (ii) if not given in the past, might have had a
Material Adverse Effect on the Company as reflected in any of the financial
statements contained in the Prospectus or (iii) if not continued in the future,
might have a Material Adverse Effect on the Company. The Company's internal
accounting
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controls and procedures are sufficient to cause the Company to comply with the
Foreign Corrupt Practices Act of 1977, as amended.
2.20 American Stock Exchange Eligibility. As of the Effective Date, the
Firm Shares and Underwriters' Shares have been approved for listing on The
American Stock Exchange ("AMEX"), underlying Shares have been approved for
listing on AMEX subject to notice of issuance.
2.21 Intangibles. The Company owns or possesses the licenses,
trademarks, service marks, service names, trade names, patents and patent
applications, copyrights and other intellectual property rights listed on
Schedule 2.21 (collectively, "Intangibles"). The Intangibles are the only such
rights used by the Company in its business or relating to products or services
sold or currently proposed to be sold by the Company. Intangibles that have been
registered in the United States Patent and Trademark Office have been fully
maintained and are in full force and effect. There is no claim or action by any
person pertaining to, or proceeding pending or, to the Company's knowledge,
threatened, and the Company has not received any notice of conflict with the
asserted rights of others that challenges the rights of the Company with respect
to, any of the Intangibles. To the Company's knowledge, the Intangibles and the
Company's current products, services and processes do not infringe on any
intangibles held by any third party, and no others have infringed upon the
Intangibles of the Company except for any infringements that, singly or in the
aggregate, would not have a Material Adverse Effect. The Company has in place
all confidentiality agreements with its employees, consultants and third parties
as are reasonably necessary to protect the Company's Intangibles.
2.22 Relations With Employees.
------------------------
2.22.1 Employee Matters. The Company has generally enjoyed a
satisfactory employer-employee relationship with its employees and is in
compliance with all federal, state and local laws and regulations respecting the
employment of its employees and employment practices, terms and conditions of
employment and wages and hours relating thereto, except where non- compliance,
singly or in the aggregate, would not have a Material Adverse Effect. There are
no pending investigations involving the Company by the U.S. Department of Labor
or any other governmental agency responsible for the enforcement of such
federal, state or local laws and regulations. There is no unfair labor practice
charge or complaint against the Company pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or threatened against or involving the Company or any predecessor
entity, and none has ever occurred. No question concerning representation exists
respecting the employees of the Company and no collective bargaining agreement
or modification thereof is currently being negotiated by the Company. No
grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company, if any.
2.22.2 Employee Benefit Plans. Other than as set forth in the
Registration Statement, the Company neither maintains, sponsors nor contributes
to, nor is it required to contribute to, any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan," or a
"multi-employer plan" as such terms are defined in Sections 3(2), 3(1) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). The Company does not maintain or contribute
to, and has at no time maintained or contributed to, a defined benefit plan, as
defined in Section 3(35) of ERISA. If the Company does maintain or contribute to
a defined benefit plan, any termination of
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the plan on the date hereof would not give rise to liability under Title IV of
ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Internal Revenue Code of 1986, as amended ("Code"), that could
subject the Company to any tax penalty for prohibited transactions and which has
not adequately been corrected. Each ERISA Plan is in compliance with all
material reporting, disclosure and other requirements of the Code and ERISA as
they relate to any such ERISA Plan. Determination letters have been received
from the Internal Revenue Service with respect to each ERISA Plan that is
intended to comply with Code Section 401(a), stating that such ERISA Plan and
the attendant trust are qualified thereunder. The Company has never completely
or partially withdrawn from a "multi-employer plan."
2.23 Officers' Certificate. Any certificate signed by any duly
authorized officer of the Company and delivered to you or to your counsel on the
Closing Date and the Option Closing Date, if any, shall be deemed a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
2.24 Lock-Up Agreements. The Company has delivered legally binding and
enforceable agreements pursuant to which its officers, directors and holders of
previously outstanding equity securities agree not to sell any shares of Common
Stock beneficially owned by them or securities beneficially owned by it or them
which are convertible into Common Stock of the Company for a period of six (6)
months following the Effective Date, in each case except with the consent of the
NII.
2.25 Year 2000. The Company is Year 2000 compliant, except in instances
which do not result in a Material Adverse Effect.
2.26 Related-Party Transactions. There are no business relationships or
related-party transactions involving the Company or any other person required to
be described in the Prospectus that have not been described as required.
2.27 Internal Accounting. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization, (ii) transactions are recorded as necessary in order to permit
preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
3. Covenants of the Company. The Company covenants and agrees as follows:
------------------------
3.1 Amendments to Registration Statement. The Company will deliver to
the Underwriters, prior to filing, any amendment or supplement to the
Registration Statement or Prospectus proposed to be filed after the Effective
Date and not file any such amendment or supplement to which the Underwriters
shall reasonably object.
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3.2 Federal Securities Laws.
-----------------------
3.2.1 Compliance. During the time when a Prospectus is
required to be delivered under the Act, the Company will use all reasonable
efforts to comply with all requirements imposed upon it by the Act, the
Regulations, the Securities Exchange Act of 1934, as amended ("Exchange Act"),
and the regulations under the Exchange Act, as from time to time in force, so
far as necessary to permit the continuance of sales of or dealings in the Shares
in accordance with the provisions hereof and the Prospectus. If at any time when
a Prospectus relating to the Shares is required to be delivered under the Act
any event shall have occurred as a result of which, in the opinion of counsel
for the Company or counsel for the Underwriters, the Prospectus, as then amended
or supplemented, includes 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, in light of the circumstances under which they were made,
not misleading, or if it is necessary at any time to amend the Prospectus or to
comply with the Act, the Company will notify the Underwriters promptly and
prepare and file with the Commission, subject to Section 3.1 hereof, an
appropriate amendment or supplement in accordance with Section 10 of the Act.
3.2.2 Filing of Final Prospectus. If required, the Company
shall file the Prospectus (in form and substance reasonably satisfactory to the
Underwriters) with the Commission (including the information required by Rule
430A of the Regulations) pursuant to the requirements of Rule 424 of the
Regulations; or the Company shall file a post-effective amendment to the
Registration Statement (in form and substance satisfactory to the Underwriters)
containing the information required by such Rule 430A; or, if the Company elects
to rely upon Rule 434 of the Regulations and obtains the Underwriters' consent
thereto, the Company shall file a term sheet with the Commission in the manner
and within the time period required by Rule 424(b) of the Regulations.
3.2.3 Exchange Act Registration. For a period of five years
from the Effective Date, the Company will use its commercially reasonable
efforts to maintain the registration of the Firm Shares, Option Shares, if any,
and Underwriters' Shares under the provisions of the Exchange Act.
3.3 Blue Sky Filings. The Company will endeavor in good faith, in
cooperation with the Underwriters, at or prior to the time the Registration
Statement becomes effective, to qualify the Shares for offering and sale under
the securities laws of such jurisdictions as the Underwriters may reasonably
designate, provided that no such qualification shall be required in any
jurisdiction where, as a result thereof, the Company would be subject to service
of general process or to taxation as a foreign corporation doing business in
such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Underwriters agree that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are or may be required by the
laws of such jurisdiction.
3.4 Delivery to Underwriters of Prospectuses. The Company will deliver
to each of the Underwriters, without charge, from time to time during the period
when the Prospectus is required to be delivered under the Act or the Exchange
Act, such number of copies of each Preliminary Prospectus and the Prospectus as
such Underwriter may reasonably request and, as soon as the Registration
Statement or any amendment or supplement thereto becomes effective, deliver to
each of the Underwriters two original executed Registration Statements,
including exhibits, and all post-effective amendments thereto and copies of all
exhibits filed therewith or incorporated therein by reference and all original
executed consents of certified experts.
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3.5 Events Requiring Notice to the Underwriters. The Company will
notify the Underwriters immediately and confirm the notice in writing (i) of the
effectiveness of the Registration Statement and any amendment thereto, (ii) of
the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding for that purpose, (iii) of the issuance by any
state securities commission of any proceedings for the suspension of the
qualification of the Shares for offering or sale in any jurisdiction or of the
initiation, or the threatening, of any proceeding for that purpose, (iv) of the
mailing and delivery to the Commission for filing of any amendment or supplement
to the Registration Statement or Prospectus, (v) of the receipt of any comments
or request for any additional information from the Commission, and (vi) of the
happening of any event during the period described in Section 3.4 hereof that,
in the judgment of the Company, makes any statement of a material fact made in
the Registration Statement or the Prospectus untrue or that requires the making
of any changes in the Registration Statement or the Prospectus in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. If the Commission or any state securities commission shall
enter a stop order or suspend such qualification at any time, the Company will
make every reasonable effort to obtain promptly the lifting of such order.
3.6 Review of Financial Statements. The Company, at its expense, shall
cause its regularly engaged independent certified public accountants to review
(but not audit) the Company's financial statements for each of the first three
fiscal quarters prior to the announcement of quarterly financial information,
the filing of the Company's Form 10-Q or Form 10-QSB quarterly reports and the
mailing of quarterly financial information to stockholders.
3.7 Unaudited Financials. The Company will furnish to the Underwriters
as early as practicable after the date hereof and at least three full days prior
to the Closing Date and the Option Closing Date, if any, a copy of the latest
available unaudited interim financial statements of the Company (which in no
event shall be as of a date more than thirty days prior to the Effective Date)
which have been read by the Company's independent accountants, as stated in
their letter to be furnished pursuant to Section 4.3 hereof.
3.8 Secondary Market Trading and Standard & Poor's. The Company will
take all necessary and appropriate actions to achieve accelerated publication in
Standard and Poor's Corporation Records Corporate Descriptions (within thirty
(30) days after the Effective Date) and to maintain such publication with
updated quarterly information for a period of five years from the Effective
Date, including the payment of any necessary fees and expenses. The Company
shall take such action as may be reasonably requested by the Underwriters to
obtain a secondary market trading exemption in such states as may be requested
by the Underwriter, including the payment of any necessary fees and expenses and
the filing of a Form (e.g. 25101(b)) for secondary market trading in the State
of California on the Effective Date or as soon thereafter as is permissible.
3.9 AMEX Maintenance. For a period of five years from the date hereof,
the Company will use its commercially reasonable efforts to maintain the listing
by AMEX of the Firm Shares, Option Shares, if any, and Underwriters' Shares, or
in lieu thereof NASDAQ or the NYSE.
3.10 Intentionally left blank.
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3.11 Reports to the Underwriters and Others.
--------------------------------------
3.11.1 Periodic Reports, Etc. For a period of five years from
the Effective Date, the Company will promptly furnish to the Underwriters,
copies of such financial statements and other periodic and special reports as
the Company from time to time files with any governmental authority or furnishes
generally to holders of any class of its securities (at substantially the same
time as such information is filed with the governmental authority or furnished
to security holders), and promptly furnish to the Underwriters (i) a copy of
each periodic report the Company shall be required to file with the Commission,
(ii) a copy of every press release issued by the Company, (iii) a copy of each
Form 8-K or Schedules 13D, 13G, 14D-1 or 13E-4 received or prepared by the
Company, and (iv) such additional public documents and information with respect
to the Company and the affairs of any future subsidiaries of the Company as the
Underwriters may from time to time reasonably request.
3.11.2 Transfer Sheets and Weekly Position Listings. For a
period of twelve months after the Closing Date, the Company will furnish to the
Underwriters at the Company's sole expense such transfer sheets and position
listings of the Company's Shares as the Underwriters may request, including the
daily, weekly and monthly consolidated transfer sheets of the transfer agent of
the Company and the weekly security position listings of the Depository Trust
Company.
3.12 Underwriters' Purchase Option. On the Closing Date, the Company
will execute and deliver the Underwriters' Purchase Option to the Underwriters
substantially in the form filed as an exhibit to the Registration Statement.
3.13 Disqualification of Form S-1 (or other appropriate form). For a
period equal to five years from the date hereof, the Company will use its
reasonable efforts to take such action or actions as may be necessary to permit
the Company to remain eligible to use Form S-1 (or other appropriate form) for
the registration of the Underwriters' Securities under the Act and will not take
any action or actions that may prevent the Company's use of such forms.
3.14 Payment of Expenses.
-------------------
3.14.1 General Expenses. The Company hereby agrees to pay on
the Closing Date and, to the extent not paid on the Closing Date, on the Option
Closing Date, all expenses incident to the performance of the obligations of the
Company under this Agreement, including but not limited to (i) the preparation,
printing, filing, delivery and mailing (including the payment of postage with
respect to such mailing) of the Registration Statement, any post-effective
amendments thereto, the Prospectus and the Preliminary Prospectuses, including
the cost of all copies thereof, (ii) the printing, engraving, issuance and
delivery of the Shares including any transfer or other taxes payable thereon,
(iii) costs and Underwriter's counsel fees, including qualifications under state
securities (Blue Sky) laws (which fees shall not exceed $75,000), (iv) filing
fees, costs and expenses (including reasonable fees and disbursements of the
Underwriters' counsel) incurred in registering the offering with the NASD, (v)
costs of placing "tombstone" advertisements in the Wall Street Journal, The New
York Times and a third publication to be selected by NII, (vi) fees and
disbursements of the transfer agent, (vii) the reasonable expenses associated
with "due diligence" meetings arranged by the Underwriters but not the travel,
hotel or other out-of-pocket expenses of NII personnel attending such meetings,
(viii) the preparation, binding and delivery of transaction "bibles" in
quantity, form and style satisfactory to NII and transaction lucite cubes or
similar commemorative items in a style and quantity as reasonably requested by
NII, (ix) any listing of the
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Shares on The American Stock Exchange and any securities exchange to be selected
by NII or any listing in Standard & Poor's, and (x) all other costs and expenses
incident to the performance of its obligations hereunder that are not otherwise
specifically provided for in this Section 3.14.1. Since an important part of the
public offering process is for the Company to describe appropriately and
accurately the backgrounds of the principals of the Company and the Company's
competitive position in the industry, the Company has engaged and will pay for
an investigative search firm of NII's choice to conduct an investigation of
principals of the Company mutually selected by NII and the Company. The
Underwriters may deduct from the net proceeds of the offering payable to the
Company on the Closing Date, or the Option Closing Date, if any, the expenses
set forth herein to be paid by the Company to the Underwriters and/or to third
parties.
3.14.2 Non-Accountable Expenses. The Company further agrees
that, in addition to the expenses payable pursuant to Section 3.14.1, it will
pay to the Underwriters a non- accountable expense allowance equal to three
percent (3%) of the gross proceeds received by the Company from the sale of the
Public Shares, of which $50,000 has been paid to date, and the Company will pay
the balance on the Closing Date and any additional monies owed attributable to
the Option Shares or otherwise on the Option Closing Date by certified or bank
cashier's check or, at the election of the Underwriters, by deduction from the
proceeds of the offering contemplated herein. If, for any reason whatsoever, the
offering contemplated by this Agreement is not consum mated, then the following
provisions shall apply: The Company's liability for payment to the Underwriters
of the non-accountable expense allowance shall be equal to the sum of the
Underwriters' actual out-of-pocket expenses (including, but not limited to,
counsel fees, "road- show" and due diligence expenses). The Underwriters shall
retain such part of the non- accountable expense allowance previously paid as
shall equal its actual out-of-pocket expenses. If the amount previously paid is
insufficient to cover such actual out-of-pocket expenses, the Company shall
remain liable for and promptly pay any other actual out-of-pocket expenses. If
the amount previously paid exceeds the amount of the actual out-of-pocket
expenses, the Underwriters shall promptly remit to the Company any such excess.
3.15 Application of Net Proceeds. The Company will apply the net
proceeds from the offering received by it in a manner consistent with the
application described under the caption "Use of Proceeds" in the Prospectus. The
Company hereby agrees that, except as so described, the Company will not apply
any net proceeds from the offering to pay (i) any debt for borrowed money; (ii)
any obligations (including indebtedness, both principal and any interest
thereon, for borrowed funds and unpaid salaries, fees or other compensation)
owed to any officers or directors of the Company or any of their respective
family members of affiliates (excluding salaries or fees payable on a current
basis to officers and directors in the ordinary course of the Company's
business).
3.16 Stabilization. Neither the Company, nor, to its knowledge, any of
its employees, directors or stockholders has taken or will take, directly or
indirectly, any action designed to or that has constituted or that might
reasonably be expected to cause or result in, under the Exchange Act, or
otherwise, stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares.
3.17 Internal Controls. The Company maintains and will continue to
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that: (i) transactions are executed in accordance with
management's general or specific authorization, (ii) transactions are recorded
as necessary in order to permit preparation of financial statements in
accordance with generally accepted accounting principles and to maintain
accountability for assets, (iii) access to
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assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
3.18 Sale of Securities. The Company agrees to take all reasonable
actions to prevent a private or public sale or private or public offering of any
of its securities (except by means of private transactions in connection with
which the transferee agrees to be bound by the same lockup agreement that the
transferor is bound by) owned nominally or beneficially by any of the security
holders referenced in Section 2.24 for the respective periods set forth in
Section 2.24 without obtaining the prior written consent of the Underwriters.
4. Conditions of Underwriters' Obligations. The obligations of the Underwriters
to purchase and pay for the Shares, as provided herein, shall be subject to the
continuing accuracy of the representations and warranties of the Company as of
the date hereof and as of each of the Closing Date and the Option Closing Date,
if any, to the accuracy of the statements of officers of the Company made
pursuant to the provisions hereof and to the performance by the Company of its
obligations hereunder and to the following conditions:
4.1 Regulatory Matters.
------------------
4.1.1 Effectiveness of Registration Statement. The
Registration Statement has been declared effective on the date of this Agreement
and, at each of the Closing Date and the Option Closing Date, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for such purpose shall have been instituted or shall
be pending or, to the knowledge of the Company, contemplated by the Commission
and any request on the part of the Commission for additional information shall
have been complied with to the reasonable satisfaction of Atlas Pearlman, P.A.,
counsel to the Underwriters.
4.1.2 NASD Clearance. By the Effective Date, (i) the
Underwriters shall have received clearance from the NASD as to the amount of
compensation allowable or payable to the Underwriters as described in the
Registration Statement; and (ii) NII shall have been approved as a qualified
independent underwriter for this offering.
4.1.3 No Blue Sky Stop Orders. No order suspending the sale of
the Shares in any jurisdiction designated by the Underwriters pursuant to
Section 3.3 hereof shall have been issued on either on the Closing Date or the
Option Closing Date, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
4.1.4 Unaudited Financials. The Company shall have furnished
to the Underwriters as early as practicable prior to the date hereof a copy of
the latest available unaudited interim financial statements ("Unaudited
Financials") of the Company (that in no event shall be as of a date more than 30
days prior to the Effective Date) which have been read by the Company's
independent accountants, as stated in their letter to be furnished pursuant to
Section 4.3 hereof.
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4.2 Opinion of Counsel.
------------------
4.2.1 Opinion of Company Counsel. On each of the Effective
Date, Closing Date and the Option Closing Date, if any, the Underwriters shall
have received the favorable opinion of Baker & McKenzie, counsel to the Company,
dated the Closing Date or the Option Closing Date, as the case may be, addressed
to the Underwriters and in form and substance reasonably satisfactory to Atlas
Pearlman, counsel to the Underwriters, to the effect that:
(i) The Company is a corporation validly existing and
in good standing under the laws of the State of Florida. The Company is duly
qualified and in good standing in as a foreign corporation in each jurisdiction
in which it owns or leases any real property or the character of its operations
requires such qualification or licensing, except where the failure to so qualify
does not have a Material Adverse Effect.
(ii) The Company has all corporate power and
authority to enter into this Agreement and the Underwriters' Purchase Option and
to carry out its obligations hereunder and thereunder. No consents, approvals,
authorizations or orders of, and no filings with, any court or governmental
agency or body, are required for the Company to execute, deliver and perform its
obligations under this Agreement, or to authorize, issue, sell and deliver the
Shares, and to consummate the transactions and agreements contemplated by this
Agreement or the Underwriters' Purchase Option, except for those authorizations,
approvals, consents, orders and filings as have been made or obtained and are in
full force and effect and except for such authorizations, approvals, consents,
orders and filings under the Act and the Blue Sky laws of any state or
jurisdiction in the United States in which the Shares may be offered, as to
which we express no opinion.
(iii) All issued and outstanding shares of Common
Stock of the Company have been duly authorized and validly issued and are fully
paid and non-assessable. The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus in the column titled "Actual"
under the caption "Capitalization" as of the date stated therein. To such
counsel's knowledge, all of the issued and outstanding shares of Common Stock
were issued pursuant to an exemption from the registration requirements of the
Securities Act and the rules and regulations promulgated thereunder. The holder
of all of the outstanding Company Common Stock is not subject to personal
liability under the Articles of Incorporation or Bylaws of the Company or the
Business Corporation Act of the State of Florida solely by reason of being such
a holder. None of the issued and outstanding shares of Common Stock were issued
in violation of statutory preemptive rights of any holders of such securities of
the Company or, to such counsel's knowledge, were issued in violation of similar
contractual rights granted by the Company. All of the issued and outstanding
options and warrants to purchase shares of Common Stock were validly authorized
by the Board of Directors and constitute valid and binding obligations of the
Company enforceable in accordance with their respective terms, subject to
bankruptcy, insolvency, reorganization, fraudulent conveyance and other laws of
general applicability relating to or affecting creditors' rights and to general
principles of equity.
(iv) The Shares have been duly authorized for
issuance and sale by the Company by all requisite corporate action by the
Company. When issued and delivered by the Company in accordance with the terms
of this Agreement, against payment of the consideration set forth herein, the
Shares will be fully paid and non-assessable. The holders of the Shares will not
be subject to personal liability under the Articles of Incorporation or Bylaws
of the Company or
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the Business Corporation Act of the State of Florida solely by reason of being
such holders. The Shares are not and will not be subject to the preemptive
rights of any holders of any security of the Company or, to the best of such
counsel's knowledge after due inquiry, similar contractual rights granted by the
Company. The forms of certificates used to evidence the Common Stock and
Underwriters' Purchase Option comply with the applicable requirements of the
Articles of Incorporation and Bylaws of the Company and the Business Corporation
Act of the State of Florida.
(v) To the best of such counsel's knowledge, after
due inquiry, except as fully disclosed in the Prospectus, no holders of any
securities of the Company or of any options, warrants or other securities of the
Company exercisable for or convertible or exchangeable into securities of the
Company (i) have the right to require the Company to register any such
securities of the Company under the Act or to include any such securities in a
registration statement filed by the Company, or (ii) have rights to have the
exercise or conversion prices of their securities lowered and/or the number of
securities that they may purchase increased as a result of the issuance by the
Company of securities for a price less than such exercise or conversion price.
(vi) The Public Shares and Underwriters Shares have
been approved for listing on the American Stock Exchange.
(vii) This Agreement and the Underwriters' Purchase
Option have each been duly and validly authorized and, when executed and
delivered by the Company, will constitute valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, subject to, in each case: (i) bankruptcy, insolvency, reorganization,
fraudulent conveyance and other laws of general applicability relating to or
affecting creditors' rights and to general principles of equity, (ii) the fact
that the indemnification and contribution provisions set forth in this Agreement
and the Underwriters' Purchase Option may be limited under federal and
applicable state securities laws and by public policy, and (iii) the fact that
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
(viii) The execution, delivery and performance by the
Company of this Agreement and the Underwriters' Purchase Option, the issuance
and sale of the Shares, the performance by the Company of its obligations
hereunder and thereunder (other than the performance by the Company of its
obligations under the indemnification and contribution provisions of this
Agreement and the Underwriters' Purchase Option, as to which no opinion need be
rendered), do not and will not, (a) result in any violation of the provisions of
the Articles of Incorporation or the Bylaws of the Company, (b) to such
counsel's knowledge, will not constitute a breach of, or a default under, or
result in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to any material contracts,
agreements, instruments, leases or licenses filed by the Company or incorporated
by reference as exhibits to the Registration Statement, or (c) to such counsel's
knowledge, will not result in any violation of any law, administrative
regulation or administrative or court decree applicable to the Company (other
than the Blue Sky or securities laws or regulations of the various states, as to
which counsel need not express any opinion).
(ix) The Registration Statement, each Preliminary
Prospectus and the Prospectus and any post-effective amendments or supplements
thereto (other than the financial statements and supporting schedules included
therein, or the financial statements and supporting schedules included in
exhibits to or excluded from the Registration Statement, as to which no
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opinion need be rendered) comply as to form in all material respects with the
applicable requirements of the Act and Regulations. The disclosure in the
Prospectus has been reviewed by such counsel, and insofar as such disclosure
constitutes matters of law, summaries of legal matters, summaries of the
Company's Articles of Incorporation or of Bylaw provisions, or legal
conclusions, such statements have been reviewed by such counsel and fairly
present and summarize, in all material respects, the matters referred to therein
and are correct in all material respects. To such counsel's knowledge, there are
no contracts or documents to which the Company is a party required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement pursuant to the Act or the Regulations
that are not so described or filed as required and there is no statute or
regulation or legal or governmental proceeding required to be described in the
Regulation Statement and Prospectus that is not so described as required.
(x) The Registration Statement is effective under the
Act, and, to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or threatened under the Act
by the Commission.
(xi) The Company has all requisite corporate power
and authority, and has all necessary authorizations, approvals, orders,
licenses, certificates and permits of and from all governmental or regulatory
officials and bodies to own or lease its properties and conduct its business as
described in the Registration Statement and Prospectus, except to the extent
that the lack of such authorizations, approvals, orders, licenses, certificates
and permits would, singularly or in the aggregate, not have a Material, Adverse
Effect on the Company. To the best of such counsel's knowledge, the Company is,
and has been, conducting its activities in material compliance with all such
authorizations, approvals, orders, licenses, certificates and permits, and with
all federal, state and local laws and regulations. The Company is not in
violation of its Articles of Incorporation or Bylaws. To such counsel's
knowledge, the Company is not (i) in violation of or any law, rule, regulation,
judgment, administrative regulation or administrative or court decree applicable
to the Company, or (ii) except as described in the Prospectus, in default in the
performance or observance of any obligation, agreement, covenant or condition
contain in any material contracts, agreements, instruments, leases and licenses
to which the Company is a party or by which the Company or any of its properties
or assets may be bound, except in each such case for such violations or defaults
as would not, singly or in the aggregate, result in a Material Adverse Effect.
(xii) To the best of such counsel's knowledge, after
due inquiry, except as set forth in the Prospectus, there is no action, suit or
proceeding pending or threatened against the Company that might reasonably be
expected to have a Material Adverse Effect on the Company.
(xiii) To the best of such counsel's knowledge, after
due inquiry, the Company owns or possesses, free and clear of all liens or
encumbrances and rights thereto or therein by third parties, other than as
described in the Registration Statement and Prospectus, the requisite licenses
or other rights to use all patents, licenses, intangibles and other rights
necessary to conduct its business (including, without limitation, any such
licenses or rights described in the Registration Statement and Prospectus as
being licensed to or owned or possessed by the Company), and there is no claim
or action by any person pertaining to, or preceding, pending or to the best of
such counsel's knowledge after due inquiry threatened, which challenges the
exclusive rights of the Company with respect to any Intangibles used in the
conduct of its business
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(including without limitation any such licenses or rights described in the
Registration Statement and Prospectus as being owned or possessed by the
Company); to the best of such counsel's knowledge, after due inquiry, the
Company's services and processes do not infringe on any Intangibles held by
third parties except as discussed in the Registration Statement and Prospectus;
and the Company's Intangibles which have been registered in the United States
Patent and Trademark Office have been fully maintained and are in full force and
effect.
(xiv) To the best of such counsel's knowledge, after
due inquiry, except as described in the Registration Statement and Prospectus,
the Company does not own an interest in any corporation, partnership, joint
venture, trust or other business entity.
(xv) To the best of such counsel's knowledge, after
due inquiry except as described in the Prospectus, there are no claims,
payments, issuances, arrangements or understandings for services in the nature
of a finder's or origination fee with respect to the sale of the Shares
hereunder or financial consulting arrangements or any other arrangements,
agreements, understandings, payments or issuances that may affect the
Underwriters' compensation, as determined by the NASD.
(xvi) Counsel has participated in conferences with
officers and other representatives of the Company, and representatives of the
independent public accountants for the Company at which the contents of the
Registration Statement, the Prospectus and related matters were discussed and
although such counsel is not passing upon and does not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Registration Statement and Prospectus (except as otherwise set forth in this
opinion), no facts have come to the attention of such counsel which lead them to
believe that either the Registration Statement or the Prospectus or any
amendment or supplement thereto, as of the date of such opinion, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading (it being
understood that such counsel need express no opinion with respect to the
financial statements and schedules and other financial and statistical data
included in the Registration Statement or Prospectus).
(xvii) The Company has, to such counsel's knowledge,
good and marketable title to, or valid and enforceable leasehold estates in, all
items of real and personal property (tangible and intangible) stated in the
Registration Statement and Prospectus to be owned or leased by it, free and
clear of all liens, encumbrances, claims, security interests, defects and
restrictions of any material nature whatsoever, other than those referred to in
the Registration Statement and Prospectus and liens for taxes not yet due and
payable.
Unless the context clearly indicates otherwise, the term
"Company" as used in this Section 4.2.1 shall include and be deemed to be made
with respect to each subsidiary of the Company. The opinion of counsel for the
Company and any opinion relied upon by such counsel for the Company shall
include a statement to the effect that it may be relied upon counsel for the
Underwriters in its opinion delivered to the Underwriters.
4.3 Cold Comfort Letter.
-------------------
4.3.1 Cold Comfort Letter of Deloitte & Touche LLP. At the
time this Agreement is executed, and at each of the Closing Date and the Option
Closing Date, if any, the Underwriters
20
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shall have received a letter, addressed to them and in form and substance
satisfactory in all respects (including the non-material nature of the changes
or decreases, if any, referred to in clause (iii) below) to the Underwriters and
to Atlas Pearlman, counsel to the Underwriters, from Deloitte & Touche LLP
dated, respectively, as of the date of this Agreement and as of the Effective
Date, Closing Date and the Option Closing Date, if any:
(i) Confirming that they are independent certified
public accountants with respect to the Company within the meaning of the Act and
the applicable Regulations;
(ii) Stating that in their opinion the financial
statements and the financial statement schedules of the Company included (or
incorporated by reference) in the Registration Statement and Prospectus comply
as to form in all material respects with the applicable accounting requirements
of the Act and the published Regulations thereunder;
(iii) Stating that, based on the performance of
procedures specified by the American Institute of Certified Public Accountants
for a review of the latest available unaudited interim financial statements of
the Company (as described in Statement on Auditing Standards ("SAS") No.
71--Interim Financial Information), with an indication of the date of the latest
available unaudited interim financial statements, a reading of the latest
available minutes of the stockholders and board of directors and the various
committees of the board of directors, consultations with officers and other
employees of the Company responsible for financial and accounting matters and
other specified procedures and inquiries, nothing has come to their attention
that would lead them to believe that (a) the unaudited financial statements of
the Company included or incorporated by reference in the Registration Statement
do not comply as to form in all material respects with the applicable accounting
requirements of the Act and the Regulations or any material modification should
be made to the unaudited interim financial statements included in the
Registration Statement for them to be in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that of
the audited financial statements of the Company included or incorporated by
reference in the Registration Statement, (b) at a date not later than five days
prior to the Effective Date, Closing Date or Option Closing Date, as the case
may be, there was any change in the capital stock, increase in long-term debt or
any decreases in net current assets (working capital) or in stockholders' equity
of the Company as compared with amounts shown on the _____________ condensed
balance sheet included in the Registration Statement, (c) for the period from
____________ to a specified date not later than five days prior to the Effective
Date, Closing Date or Option Closing Date, as the case may be, there were any
decreases in net earnings or net earnings per share of Common Stock, in each
case as compared with the corresponding period in the preceding year and as
compared with the corresponding period in the preceding quarter, and if there
was any decrease, setting forth the amount of such decrease;
(iv) Stating that in their opinion all of the pro
forma financial information included in the Registration Statement and
Prospectus comply as to form in all material respects with the applicable
accounting requirements of the Act and the published Regulations thereunder;
(v) Setting forth, at a date not later than five days
prior to the Effective Date, the amount of liabilities of the Company;
(vi) Stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and earnings, statements and
other financial information
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pertaining to the Company set forth in the Prospectus in each case to the extent
that such amounts, numbers, percentages, statements and information may be
derived from the general accounting records and work sheets of the Company with
the results obtained from the application of specified readings, inquiries and
other appropriate procedures (which procedures do not constitute an examination
in accordance with generally accepted auditing standards) set forth in the
letter and found them to be in agreement;
(vii) Statements as to such other matters incident to
the transaction contemplated hereby as you may reasonably request.
4.4 Officers' Certificates.
----------------------
4.4.1 Officers' Certificate. At each of the Closing Date and
the Option Closing Date, if any, the Underwriters shall have received a
certificate of the Company signed by the Chairman of the Board or the President
and the Secretary of the Company, dated the Closing Date or the Option Closing
Date, as the case may be, respectively, to the effect that the Company has
performed all covenants and complied with all conditions required by this
Agreement to be performed or complied with by the Company prior to and as of the
Closing Date, or the Option Closing Date, as the case may be, and that the
conditions set forth in Section 4.5 hereof have been satisfied as of such date
and that, as of the Closing Date and the Option Closing Date, as the case may
be, the representations and warranties of the Company set forth in Section 2
hereof are true and correct. In addition, the Underwriters will have received
such other and further certificates of officers of the Company as the
Underwriters may reasonably request.
4.4.2 Secretary's Certificate. At each of the Closing Date and
the Option Closing Date, if any, the Underwriters shall have received a
certificate of the Company signed by the Secretary of the Company, dated the
Closing Date or the Option Date, as the case may be, respectively, certifying
(i) that the Bylaws and Articles of Incorporation of the Company are true and
complete, have not been modified and are in full force and effect, (ii) that the
resolutions relating to the public offering contemplated by this Agreement are
in full force and effect and have not been modified, (iii) all correspondence
between the Company or its counsel and the Commission, (iv) all correspondence
between the Company or its counsel and the NASD concerning inclusion of the
Shares on the American Stock Exchange, and (v) as to the incumbency of the
officers of the Company. The documents referred to in such certificate shall be
attached to such certificate.
4.5 No Material Changes. Prior to and on each of the Closing Date and
the Option Closing Date, if any, (i) there shall have been no material adverse
change or development involving a prospective material change in the business,
operations, assets, financial condition or prospects of the Company from the
latest dates as of which such condition is set forth in the Registration
Statement and Prospectus, (ii) there shall have been no transaction, not in the
ordinary course of business, entered into by the Company from the latest date as
of which the financial condition of the Company is set forth in the Registration
Statement and Prospectus which is materially adverse to the Company, taken as a
whole, (iii) the Company shall not be in default under any provision of any
instrument relating to any outstanding indebtedness which default would have a
Material Adverse Effect on the Company, (iv) no material amount of the assets of
the Company shall have been pledged or mortgaged, except as set forth in the
Registration Statement and Prospectus, (v) no action suit or proceeding, at law
or in equity, shall have been pending or threatened against the Company or
affecting any of its property or business before or by any court or federal or
state commission, board or other administrative agency wherein an unfavorable
decision, ruling or
22
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finding may materially adversely affect the business, operations, prospects or
financial condition or income of the Company, except as set forth in the
Registration Statement and Prospectus, (vi) no stop order shall have been issued
under the Act and no proceedings therefor shall have been initiated or
threatened by the Commission, and (vii) the Registration Statement and the
Prospectus and any amendments or supplements thereto contain all material
statements that are required to be stated therein in accordance with the Act and
the Regulations and conform in all material respects to the requirements of the
Act and the Regulations, and neither the Registration Statement nor the
Prospectus nor any amendment or supplement thereto contains any 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, in light of the
circumstances under which they were made, not misleading.
4.6 Delivery of Underwriters' Purchase Option. The Company shall have
delivered to the Underwriters an executed copy of the Underwriters' Purchase
Option dated the Closing Date.
4.7 Opinion of Counsel for the Underwriters. All proceedings taken in
connection with the authorization, issuance or sale of the Shares as herein
contemplated shall be reasonably satisfactory in form and substance to the
Underwriters and to Atlas Pearlman, counsel for the Underwriters, and you shall
have received from such counsel a favorable opinion, dated the Closing Date and
the Option Closing Date, if any, with respect to such of these proceedings as
you may reasonably require. On or prior to the Effective Date, the Closing Date
and the Option Closing Date, as the case may be, counsel for the Underwriters
shall have been furnished such documents, certificates and opinions as they may
reasonably require for the purpose of enabling them to review or pass upon the
matters referred to in this Section 4.7, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions herein contained.
5. Indemnification.
---------------
5.1 Indemnification of the Underwriters. Subject to the conditions set
forth below, the Company agrees to indemnify and hold harmless each of the
Underwriters, its directors, officers, agents and employees and each person, if
any, who controls any Underwriter ("controlling person") within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, against any and all
loss, claim, damage, liability and expense whatsoever (including but not limited
to any and all legal or other expenses reasonably incurred in investigating,
preparing or defending against any litigation, or any claims whatsoever
commenced or threatened, whether arising out of any action between either of the
Underwriters and the Company or between either of the Underwriters and any third
party or otherwise) to which they or any of them may become subject under the
Act, the Exchange Act or any other statute or at common law or otherwise or
under the laws of foreign countries (including in settlement of any litigation,
if such settlement is effected with the written consent of the Company), arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact (i) contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time each may be amended and
supplemented, and including any information deemed to be a part thereof pursuant
to Rule 430A or Rule 434 of the Regulations); (ii) contained in any
post-effective amendment or amendments or any new registration statement and
prospectus in which are included securities of the Company issued or issuable
upon exercise of the Underwriters' Purchase Option; (iii) contained in any
application or other document or written communication (in this Section 5
collectively called "application") executed by the Company or based upon written
information furnished by the Company in any
23
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jurisdiction in order to qualify the Shares or this offering under the
securities laws thereof or filed with the Commission, any state securities
commission or agency, the NASD (including Nasdaq and NASD Regulation, Inc.) or
any securities exchange; or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; (iv) based in whole or in part upon any inaccuracy in the
representations and warranties of the Company contained herein; (v) based in
whole or in part upon any failure of the Company to perform its obligations
hereunder or under law; or (vi) based in whole or in part on any act or failure
to act or any alleged act or failure to act by any Underwriter in connection
with, or relating in any manner to, the Common Stock or the offering
contemplated hereby, and that is included as part of or referred to in any loss,
claim, damage, liability or action arising out of or based upon any matter
covered by clauses (i), (ii) or (iii) above; provided that the Company shall not
be liable under this clause (vi) to the extent that a court of competent
jurisdiction shall have determined by a final judgment that such loss, claim,
damage, liability or action resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such Underwriter through its bad faith
or willful misconduct; provided, however, that the foregoing indemnity agreement
shall not apply to any loss, claim, damage, liability or expense to the extent,
but only to the extent, arising out of or based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon,
and in strict conformity with, written information furnished to the Company with
respect to any Underwriter by or on behalf of such Underwriter expressly for use
in any Preliminary Prospectus, the Registration Statement or Prospectus, or any
amendment or supplement thereof, or in any application, as the case may be, and
provided further, that with respect to any preliminary prospectus, the foregoing
indemnity agreement shall not inure to the benefit of any Underwriter from whom
the person asserting any loss, claim, damage, liability or expense purchased
Shares, or any person controlling such Underwriter, if copies of the Prospectus
were timely delivered to the Underwriters pursuant to Section 3.4 and a copy of
the Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by or on
behalf of such Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the Shares to
such person, and if the Prospectus (as so amended or supplemented) would have
cured the defect giving rise to such loss, claim, damage, liability or expense.
The indemnity agreement set forth in this Section 5.1 shall be in addition to
any liabilities that the Company may otherwise have. The Company agrees promptly
to notify the Underwriters of the commencement of any litigation or proceedings
against the Company or any of its officers, directors or controlling persons in
connection with the issue and sale of the Shares or in connection with the
Registration Statement or Prospectus.
5.2 Indemnification of the Company. Each Underwriter, severally and not
jointly, agrees to indemnify and hold harmless the Company against any and all
loss, liability, claim, damage and expense described in the foregoing indemnity
from the Company to the several Underwriters, as incurred, but only with respect
to untrue statements or omissions, or alleged untrue statements or omissions,
directly relating to the transactions effected by the Underwriters in connection
with this offering made in any Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment or supplement thereto or in any
application in reliance upon, and in strict conformity with, written information
furnished to the Company with respect to such Underwriter by or on behalf of
such Underwriter expressly for use in such Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment or supplement thereto or
in any such application. The indemnity agreement set forth in this Section 5.2
shall be in addition to any liabilities that each Underwriter may otherwise
have.
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5.3 Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 5 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 5, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability that
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 5 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnifying party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
upon advice of legal counsel that a conflict may arise between the positions of
the indemnifying party and the indemnified party in conducting the defense of
any such action or that there may be legal defenses available to it and/or other
indemnified parties that are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of such indemnifying party's election so as to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will be liable to such indemnified party under this Section 5 for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the employment of such counsel by the
indemnified party shall have been authorized in writing by the indemnifying
party in connection with the defense of such action, or (ii) the indemnifying
party shall not have employed counsel to have charge of the defense of such
action, or (iii) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them which are different
from or additional to those available to the indemnifying party (in which case
the indemnifying party shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
the fees and expenses of not more than one additional firm of attorneys selected
by the indemnified party and/or controlling person thereof shall be borne by the
indemnifying party.
5.4 Settlements. The indemnifying party under this Section 5 shall not
be liable for any settlement of any proceedings effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
against any loss, claim, damage, liability or expense by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by Section
5.3 hereof, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such indemnifying
party of the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnifying party in accordance with such request prior to the
date of such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement, compromise or consent
to the entry of judgment in any pending or threatened action, suit or proceeding
in respect of which any indemnified party is or could have been a party or
indemnity was or could have been sought hereunder by such indemnified party,
unless such settlement, compromise or consent includes an
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unconditional release of such indemnified party from all liability on claims
that are the subject matter of such action, suit or proceeding.
5.5 Contribution.
------------
5.5.1 Contribution Rights. In order to provide for just and
equitable contribution under the Act in any case in which (i) any person
entitled to indemnification under this Section 5 makes claim for indemnification
pursuant hereto 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 5 provides for indemnification in such case, or (ii) contribution
under the Act, the Exchange Act or otherwise may be required on the part of any
such person in circumstances for which indemnification is provided under this
Section 5, then, and in each such case, the Company and the Underwriters shall
contribute to the aggregate losses, liabilities, claims, damages and expenses of
the nature contemplated by said indemnity agreement incurred by the Company and
the Underwriters, as incurred, in such proportions that each Underwriter is
responsible for that portion represented by the percentage that the underwriting
discount appearing on the cover page of the Prospectus bears to the initial
offering price appearing thereon and the Company is responsible for the balance;
provided, that, no person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. Notwith standing
the provisions of this Section 5.5.1, each Underwriter shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages that such Underwriter has otherwise
been required to pay in respect of such losses, liabilities, claims, damages and
expenses. For purposes of this Section, each director, officer and employee of
each Underwriter, and each person, if any, who controls each Underwriter within
the meaning of Section 15 of the Act, shall have the same rights to contribution
as the Underwriters.
5.5.2 Contribution Procedure. Within fifteen days after
receipt by any party to this Agreement (or its representative) of notice of the
commencement of any action, suit or proceeding, such party will, if a claim for
contribution in respect thereof is to be made against another party
("contributing party"), notify the contributing party of the commencement
thereof, but the omission to so notify the contributing party will not relieve
it from any liability that it may have to any other party other than for
contribution hereunder. In case any such action, suit or proceeding is brought
against any party, and such party notifies a contributing party or its
representative of the commencement thereof within the aforesaid fifteen days,
the contributing party will be entitled to participate therein with the
notifying party and any other contributing party similarly notified. Any such
contributing party shall not be liable to any party seeking contribution on
account of any settlement of any claim, action or proceeding that was effected
by the party seeking contribution without the written consent of such
contributing party. The contribution provisions contained in this Section are
intended to supersede, to the extent permitted by law, any right to contribution
under the Act, the Exchange Act or otherwise available.
6. Default by an Underwriter. If any Underwriter shall default in its
obligations to purchase Securities hereunder, the non-defaulting Underwriters
may, in its discretion, arrange for itself or another party or parties to
purchase such Securities on the terms contained herein. In the event that within
one business day after such default the non-defaulting Underwriters do not
arrange for the purchase of the shares of Common Stock and Warrants as to which
such default relates, this
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Agreement will thereupon terminate automatically (but only with respect to the
obligations relating to the Option Securities if such default occurs after the
Closing Date) without liability on the part of the Company (except as provided
in Sections 3.15 and 5.1 hereof) or the one-defaulting Underwriter, but nothing
herein shall relieve the defaulting Underwriter of its liability, if any, to the
non-defaulting Underwriter and to the Company for damages occasioned by its
default.
7. Additional Covenants.
--------------------
7.1 Press Releases. The Company will not issue a press release or
engage in any other publicity (other than customary advertisements for its
products and services) until 25 days after the Effective Date without Atlas
Pearlman's prior consent.
7.2 Board Designee. The Company will, commencing on the Closing Date,
permit NII for a three year period to designate a member to the Company's Board
of Directors, or to appoint an observer to attend all meetings of the Company's
Board of Directors. This designee has the right to notice of all meetings of the
Board of Directors and to receive reimbursement for all out of pocket expenses
incurred to attend any meetings. In addition, the designee will be entitled to
indemnification to the same extent as the Company's directors.
7.3 Share Issuance. Commencing on the Closing Date and for a period of
six months thereafter, the Company will not, without the prior written consent
of NII, sell or otherwise dispose of any of its shares of common stock or
securities of the Company convertible into or exercisable or exchangeable for
common shares, expedited as an exchange of these securities.
8. Representations and Agreements to Survive Delivery. Except as the context
otherwise requires, all representations, warranties and agreements contained in
this Agreement shall be deemed to be representations, warranties and agreements
at the Closing Dates and such representations, warranties and agreements of the
Underwriters and Company, including the indemnity agreements contained in
Section 5 hereof, shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any Underwriter, the Company or any
controlling person, and shall survive termination of this Agreement or the
issuance and delivery of the Shares to the several Underwriters until the
earlier of the expiration of any applicable statute of limitations and the
seventh anniversary of the later of the Closing Date or the Option Closing Date,
if any, at which time the representations, warranties and agreements shall
terminate and be of no further force and effect.
9. Effective Date of This Agreement and Termination Thereof.
--------------------------------------------------------
9.1 Effective Date. This Agreement shall become effective on the
Effective Date at the time that the Registration Statement is declared
effective.
9.2 Termination. NII shall have the right to terminate this Agreement
at any time prior to any Closing Date if (i) market conditions are unsuitable
for such offering at the price per Share or range set forth on the cover of the
Prospectus and the Company cannot agree on another price or structure, (ii)
material adverse information not previously disclosed to NII comes to its
attention relating to the Company, its management or its position in the
industry which would preclude a successful public offering, (iii) a material
adverse change has occurred in the financial condition, business or prospects of
the Company, (iv) the Company has breached any of its representations,
warranties or obligations hereunder, or failed to expeditiously proceed with the
offering or to
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cooperate with NII in requesting effectiveness of the Registration Statement at
such time as NII may reasonably deem appropriate, or (v) if any domestic or
international event or act or occurrence has materially disrupted, or in your
opinion will in the immediate future materially disrupt, general securities
markets in the United States, or (vi) if trading on the American Stock Exchange,
the Nasdaq National Market, Nasdaq SmallCap Market or in the over-the-counter
market shall have been suspended, or minimum or maximum prices for trading shall
have been fixed, or maximum ranges for prices for Shares shall have been fixed,
or maximum ranges for prices for Shares shall have been required on the
over-the-counter market by the NASD or by order of the Commission or any other
government authority having jurisdiction, or (vii) if the United States shall
have become involved in a war or major hostilities, or (viii) if a banking
moratorium has been declared by a New York State or federal authority, or (ix)
if a moratorium on foreign exchange trading has been declared that materially
adversely impacts the United States securities market, or (x) if the Company
shall have sustained a material loss by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act that, whether or
not such loss shall have been insured, will, in your opinion, make it
inadvisable to proceed with the delivery of the Shares.
9.3 Expenses. In the event that this Agreement shall not be carried out
for any reason whatsoever, within the time specified herein or any extensions
thereof pursuant to the terms hereof, the obligations of the Company to pay the
expenses related to the transactions contemplated herein shall be governed by
Section 3.14 hereof.
9.4 Indemnification. Notwithstanding any contrary provision contained
in this Agreement, any election hereunder or any termination of this Agreement,
and whether or not this Agreement is otherwise carried out, the provisions of
Section 5 shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
10. Miscellaneous.
-------------
10.1 Notices. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and shall be mailed, delivered or
telecopied and confirmed
If to the Underwriter:
Noble International Investments, Inc.
1801 Clint Moore Road, Suite 110
Boca Raton, Florida 33487
Attention: Nico Pronk
Copy to:
Atlas Pearlman, P.A.
350 East Las Olas Boulevard
Suite 1700
Fort Lauderdale, Florida 33301
Attention: Joel D. Mayersohn, Esq.
If to the Company:
Take to Auction.com, Inc.
5555 Anglers Avenue, Suite 16
Fort Lauderdale, Florida 33312
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Copy to:
Baker & McKenzie
1200 Brickell Avenue, Suite 1900
Miami, Florida 33131
Attention: Keith Wasserstrom, Esq.
10.2 Headings. The headings contained herein are for the sole purpose
of convenience of reference, and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Agreement.
10.3 Amendment. This Agreement may be amended only by a written
instrument executed by each of the parties hereto.
10.4 Entire Agreement. This Agreement (together with the other
agreements and documents being delivered pursuant to or in connection with this
Agreement) constitute the entire agreement of the parties hereto with respect to
the subject matter hereof and supersedes all prior agreements and understandings
of the parties, oral and written, with respect to the subject matter hereof.
10.5 Binding Effect. This Agreement shall inure solely to the benefit
of and shall be binding upon, the Underwriters, the Company, the controlling
persons, directors and officers referred to in Section 5 hereof, and their
respective successors, legal Underwriters and assigns, and no other person shall
have or be construed to have any legal or equitable right, remedy or claim under
or in respect of or by virtue of this Agreement or any provisions herein
contained.
10.6 Governing Law; Jurisdiction. This Agreement shall be governed by
and construed and enforced in accordance with the law of the State of Florida,
without giving effect to principles of conflicts of law. Each of the parties
hereto hereby agrees that any action, proceeding or claim against it arising out
of or relating in any way to this Agreement shall be brought and enforced in the
courts of the State of Florida in and for Palm Beach County, and irrevocably
submits to such jurisdiction, which jurisdiction shall be exclusive. Each of the
parties hereto hereby waives any objection to such exclusive jurisdiction and
that such courts represent an inconvenient forum. Any such process or summons to
be served upon the Company may be served by transmitting a copy thereof by
registered or certified mail, return receipt requested, postage prepaid,
addressed to it at the address set forth in Section 10.1 hereof. Such mailing
shall be deemed personal service and shall be legal and binding upon the Company
in any action, proceeding or claim. The parties hereto agree that the prevailing
party(ies) in any such action shall be entitled to recover from the other
party(ies) all of its reasonable attorneys' fees and expenses relating to such
action or proceeding and/or incurred in connection with the preparation
therefor.
10.7 Execution in Counterparts. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement, and shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
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10.8 Waiver, Etc. The failure of any of the parties hereto at any time
to enforce any of the provisions of this Agreement shall not be deemed or
construed to be a waiver of any such provision, nor to in any way affect the
validity of this Agreement or any provision hereof or the right of any of the
parties hereto thereafter to enforce each and every provision of this Agreement.
No waiver of any breach, non-compliance or non-fulfillment of any of the
provisions of this Agreement shall be effective unless set forth in a written
instrument executed by the party or parties against whom or which enforcement of
such waiver is sought; and no waiver of any such breach, non- compliance or
non-fulfillment shall be construed or deemed to be a waiver of any other or
subsequent breach, non-compliance or non-fulfillment.
If the foregoing correctly sets forth the understanding
between the Underwriters and the Company, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement between us.
Very truly yours,
TAKE TO AUCTION.COM, INC.
By:
-----------------------
Albert Friedman
President and Chief Executive Officer
Accepted as of the date first above written.
Boca Raton, Florida
NOBLE INTERNATIONAL INVESTMENTS, INC.
By:
-------------------------------
Name:
Title:
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SCHEDULE I
TAKE TO AUCTION.COM., INC.
1,300,000 Shares
Number of Firm Shares
Underwriter to Be Purchased
- ----------- ---------------
Noble International Investments, Inc.
---------
1,300,000
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SCHEDULE 2.21
Intangibles
-----------
32
EXHIBIT 3.02
AMENDED AND RESTATED
BY-LAWS
OF
TAKE TO AUCTION.COM, INC.
ARTICLE I
Offices
Section 1. Registered Office. The initial registered office of Take to
Auction.com, Inc., a Florida corporation (the "Corporation"), shall be located
in the City of Miami, State of Florida.
Section 2. Other Offices. The Corporation may also have offices at such other
places, either within or without the State of Florida, as the Board of Directors
of the Corporation (the "Board of Directors") may from time to time determine or
as the business of the Corporation may require.
ARTICLE II
Meetings of Shareholders
Section 1. Annual Meetings. All annual meetings of the shareholders of the
corporation for the election of directors and for such other business as may
properly come before the meeting shall be held (i) on the fourth Friday of May
of each calendar year at 10:00 a.m., Eastern time, or on such other date or at
such other time as may be fixed, from time to time, by the Board of Directors,
and (ii) at such place, within or without the State of Florida, as may be
designated by or on behalf of the Board of Directors and stated in the notice of
meeting or in a duly executed waiver of notice thereof.
Section 2. Special Meetings. Except as otherwise required by law and subject to
the rights of the holders of the Preferred Stock, special meetings of
shareholders of the Corporation may be called only by (i) the Board pursuant to
a resolution approved by a majority of the entire Board, (ii) the Corporation's
Chief Executive Officer or (iii) the holders of at least one-third of the
outstanding shares of capital stock of the Corporation. Special meetings of
shareholders may be held at such time and date, and at such place, within or
without the State of Florida, as shall be designated by the Board of Directors
and set forth in the notice of meeting required pursuant to Section 3 of this
Article. Notwithstanding anything contained in these Bylaws to the contrary,
this Article II, Section 2 shall not be altered, amended or repealed except by
an affirmative vote of at least two-thirds of the outstanding shares of capital
stock of the Corporation entitled to vote at a shareholders' meeting duly called
for such purpose. Only such business as is set forth in the notice of a special
meeting may be transacted at such Special Meeting
Section 3. Notice. A written notice of each meeting of shareholders shall be
given to each shareholder entitled to vote at the meeting, at the address as it
appears on the stock transfer records of the Corporation, not less than ten (10)
nor more than sixty (60) days before the date of
<PAGE>
the meeting, by or at the direction of the President, the Secretary or the
officer or persons calling the meeting. The notice so given shall state the
date, time and place of the meeting and, in the case of a special shareholders'
meeting, the purpose or purposes for which the meeting is called.
Section 4. Waiver of Notice. Shareholders may waive notice of any meeting before
or after the date and time specified in the written notice of meeting. Any such
waiver of notice must be in writing, be signed by the shareholder entitled to
the notice and be delivered to the Corporation for inclusion in the appropriate
corporate records. Neither the business to be transacted at, nor the purpose of,
any shareholders' meeting need be specified in any written waiver of notice.
Attendance of a person at a shareholders' meeting shall constitute a waiver of
notice of such meeting, unless the shareholder at the beginning of the meeting
objects to holding the meeting or transacting business at the meeting.
Section 5. Record Date. For the purpose of determining shareholders entitled to
notice of or to vote at a shareholders' meeting, to demand a special meeting, to
act by written consent or to take any other action, the Board of Directors may
fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than seventy (70) days nor,
in the case of a shareholders' meeting, less than ten (10) days, prior to the
date on which the particular action requiring such determination of shareholders
is to be taken. If no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a shareholders' meeting, then the record
date for such shall be the close of business on the day before the first notice
is delivered to shareholders.
Section 6. Quorum. A majority of the shares entitled to vote on a matter,
represented in person or by proxy, shall constitute a quorum for action on that
matter at a meeting of shareholders. If a quorum is not present or represented
at a meeting of shareholders, the holders of a majority of the shares
represented, and who would be entitled to vote at a meeting if a quorum were
present, may adjourn the meeting from time to time. The shareholders present at
a duly organized meeting may continue to transact business notwithstanding the
withdrawal of some shareholders prior to adjournment, but in no event shall a
quorum consist of the holders of less than one-third (1/3) of the shares
entitled to vote and thus represented at such meeting.
Section 7. Voting. If a quorum is present, action on a matter, other than the
election of directors, shall be approved if the votes cast by the shareholders
represented at the meeting and entitled to vote on the subject matter favoring
the action exceeds the votes cast opposing the action, unless a greater number
of affirmative votes or voting by classes is required by Florida law or by the
Articles of Incorporation. Directors shall be elected by plurality vote in
accordance with Article III, Section 3 of these Bylaws. Each outstanding share
shall be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders, unless otherwise provided under the Articles of Incorporation (or
any resolution authorizing any class or series of Preferred Stock) or under
Florida law.
Section 8. Proxies. A shareholder entitled to vote at any meeting of
shareholders or any adjournment thereof may vote in person or by proxy. A
shareholder may appoint a proxy to vote or otherwise act for him by signing an
appointment form, either personally or by his
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attorney-in-fact. An appointment of proxy is effective when received by the
Secretary or other officer or agent authorized to tabulate votes.
Section 9. No Shareholder Action Without A Meeting. Any action required or
permitted to be taken by the shareholders of the Corporation shall be taken at a
duly called annual or special meeting of such holders and may not be taken by
any consent in writing by such holders. Notwithstanding anything contained in
these Bylaws to the contrary, this Article II, Section 9 shall not be altered,
amended or repealed except by an affirmative vote of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote at a
shareholders' meeting duly called for such purpose.
Section 10. Advance Notice of Shareholder Proposed Business at Annual Meeting.
At an annual meeting of the shareholders, only such business shall be conducted
as shall have been properly brought before the meeting. To be properly brought
before an annual meeting, business must be either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting by a shareholder. In addition to any other applicable requirements,
for business to be properly brought before an annual meeting by a shareholder,
the shareholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation, not less than sixty (60) days nor more than ninety (90) days prior
to the meeting; provided, however, that in the event that less than seventy (70)
days' notice or prior public disclosure of the date of the meeting is given or
made to shareholders, notice by the shareholder to be timely must be so received
not later than the close of business on the tenth (10th) day following the day
on which such notice of the date of the annual meeting was mailed or such public
disclosure was made, whichever first occurs. A shareholder's notice to the
Secretary shall set forth as to each matter the shareholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of the shareholder
proposing such business, (iii) the class and number of shares of the Corporation
which are beneficially owned by the shareholder, and (iv) any material interest
of the shareholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Article II, Section 10; provided, however, that
nothing in this Article II, Section 10 shall be deemed to preclude discussion by
any shareholder of any business properly brought before the annual meeting in
accordance with said procedure.
The Chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Article II, Section
10, and if he should so determine, he shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.
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Notwithstanding anything contained in the Bylaws to the contrary, this
Article II, Section 10 shall not be altered, amended or repealed except by an
affirmative vote of at least two-thirds of the outstanding shares of capital
stock of the Corporation entitled to vote thereon.
ARTICLE III
Directors
Section 1. Powers. All corporate powers shall be exercised by or under the
authority of, and the business and affairs of the Corporation shall be managed
under the direction of, the Board of Directors. Directors must be individuals
who are at least 18 years of age but need not be residents of Florida or
shareholders of the Corporation.
Section 2. Compensation. Directors of the Corporation who also serve as officers
or members of management ("employee directors") shall serve as directors without
compensation. Non-employee directors of the Corporation shall be entitled to
receive such compensation and benefits as is from time to time determined by the
Board. The employee directors may be paid their expenses, if any, and the
non-employee directors may be paid a fee and expenses, if any, of attendance at
each meeting of the Board of Directors or of any committee. No such payments
shall preclude any director from serving in any other capacity and receiving
compensation therefor.
Section 3. Number, Election & Term. The Corporation's Board shall consist of not
less than three nor more than twelve members, with the exact number to be fixed
from time to time in accordance with a resolution adopted by a majority of the
entire Board. No decrease in the number of directors shall have the effect of
shortening the term of any incumbent director. The Board shall be divided into
three classes. The number of directors elected to each class shall be as nearly
equal in number as possible. Each director in the first class shall be elected
to an initial term expiring at the next ensuing annual meeting of shareholders,
each director in the second class shall be elected to an initial term expiring
at the annual meeting of shareholders held one year thereafter and each director
in the third class shall be elected to an initial term expiring at the annual
meeting of shareholders held one year thereafter, in each case until his or her
successor is duly elected and qualified or until his or her earlier resignation,
death, incapacity or removal from office. The Corporation will use its best
efforts to have an uneven number of directors on the Corporation's Board after
the third class of directors is elected. Upon the expiration of the initial
terms of office for each class of directors, the successor directors of each
class shall be elected for a full term of three years, to serve until their
successors are duly elected and qualified or until their earlier resignation,
death, incapacity or removal from office. The Board shall apportion any increase
or decrease in the number of directors among the classes as nearly equal in
number as possible.
Section 4. Vacancies. Whenever any vacancy on the Board shall occur due to
death, resignation, retirement, disqualification, removal, increase in the
number of directors, or otherwise, a majority of the remaining directors in
office, although less than a quorum of the Board, may fill the vacancy for the
balance of the unexpired term, at which time a successor or successors shall be
duly elected by the shareholders and qualified. Notwithstanding the
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<PAGE>
provisions of any other Article hereof, only the remaining directors of the
Corporation shall have the authority, in accordance with the procedure stated
herein, to fill any vacancy that arises on the Board.
Section 5. Removal of Directors. A director may be removed from office prior to
the expiration of his or her term: (i) only for cause; and (ii) only upon the
affirmative vote of at least two-thirds of the outstanding shares of capital
stock of the Corporation entitled to vote for the election of directors.
Section 6. Quorum and Voting. A majority of the number of directors fixed by or
in accordance with these Bylaws shall constitute a quorum for the transaction of
business at any meeting of directors. If a quorum is present when a vote is
taken, the affirmative vote of a majority of the directors present shall be the
act of the Board of Directors.
Section 7. Deemed Assent. A director who is present at a meeting of the Board of
Directors or a committee of the Board of Directors when corporate action is
taken is deemed to have assented to the action taken unless (i) the director
objects at the beginning of the meeting (or promptly upon his arrival) to the
holding of the meeting or transacting specified business at the meeting, or (ii)
the director votes against or abstains from the action taken.
Section 8. Committees. The Board of Directors, by resolution adopted by a
majority of the full Board of Directors, may designate from among its members an
executive committee, a compensation committee, an audit committee and one or
more other committees each of which must have at least two members and, to the
extent provided in the designating resolution, shall have and may exercise all
the authority of the Board of Directors, except such authority as may be
reserved to the Board of Directors under Florida law.
(a) Executive Committee. The Board of Directors by resolution
may designate one or more directors to constitute an executive committee, which
committee, to the extent provided in such resolution, shall have and may
exercise all powers and authority of the Board of Directors in the management of
the business and affairs of the Corporation, except where action of the Board of
Directors is required by statute.
(b) Other Committees. The Board of Directors may by resolution
create other committees for such terms and with such powers and duties as the
board shall deem appropriate.
(c) Organization of Committees. The chairman of all committees
of the Board of Directors shall be chosen by the members thereof. Each committee
shall elect a secretary, who shall be either a member of the committee or the
secretary of the Company. The chairman of each committee shall preside at all
meetings of such committee.
(d) Meetings. Regular meetings of each committee may be held
without the giving of notice if a day of the week, a time, and a place shall
have been established by the committee for such meetings. Special meetings (and,
if the requirements of the preceding
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<PAGE>
sentence have not been met, regular meetings) shall be called as provided in
Section 9 with respect to notices of special meetings of the Board of Directors.
(e) Quorum and Manner of Acting. A majority of the members of
each committee shall be present either in person or by telephone, radio,
television, or similar means of communication, at each meeting of such committee
in order to constitute a quorum for the transaction of business. The act of a
majority of the members so present at a meeting at which a quorum is present
shall be the act of such committee. The members of each committee shall act only
as a committee, and shall have no power or authority, as such, by virtue of
their membership on the committee.
(f) Action by Written Consent. Any action required or
permitted to be taken by any committee may be taken without a meeting if a
consent in writing, setting forth the action so taken, is signed by all the
members of the committee.
(g) Record of Committee Action; Reports. Each committee shall
maintain a record, which need not be in the form of complete minutes, of the
action taken by it at each meeting, which record shall include the date, time
and place of the meeting, the names of the members present and absent, the
action considered, and the number of votes cast for and against the adoption of
the action considered. All action by each committee shall be reported to the
Board of Directors at its meeting next succeeding such action, such report to be
in sufficient detail as to enable the board to be informed of the conduct of the
Corporation's business and affairs since the last meeting of the board.
(h) Removal. Any member of any committee may be removed from
such committee, either with or without cause, at any time by resolution adopted
by a majority of the whole Board of Directors at any meeting of the board.
(i) Vacancies. Any vacancy in any committee shall be filled by
the Board of Directors in the manner prescribed by these Bylaws.
Section 9. Meetings. Regular and special meetings of the Board of Directors
shall be held at the principal place of business of the Corporation or at any
other place, within or without the State of Florida, designated by the person or
persons entitled to give notice of or otherwise call the meeting. Meetings of
the Board of Directors may be called by the President or by any two directors.
Members of the Board of Directors (and any committee of the Board) may
participate in a meeting of the Board (or any committee of the Board) by means
of a conference telephone or similar communications equipment through which all
persons participating may simultaneously hear each other during the meeting;
participation by these means constitutes presence in person at the meeting.
Section 10. Notice of Meetings. Regular meetings of the Board of Directors may
be held without notice of the date, time, place or purpose of the meeting, so
long as the date, time and place of such meetings are fixed generally by the
Board of Directors. Special meetings of the Board of Directors must be preceded
by at least two (2) days' written notice of the date, time and
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place of the meeting. The notice need not describe either the business to be
transacted at or the purpose of the special meeting.
Section 11. Waiver of Notice. Notice of a meeting of the Board of Directors need
not be given to a director who signs a waiver of notice either before or after
the meeting. Attendance of a director at a meeting shall constitute a waiver of
notice of that meeting and a waiver of any and all objections to the place of
the meeting, the time of the meeting and the manner in which it has been called
or convened, except when a director states, at the beginning of the meeting or
promptly upon arrival at the meeting, any objection to the transaction of
business because the meeting is not lawfully called or convened. The waiver of
notice need not describe either the business to be transacted at or the purpose
of the special meeting.
Section 12. Director Action Without a Meeting. Any action required or permitted
to be taken at a meeting of the Board of Directors (or a committee of the Board)
may be taken without a meeting if the action is taken by the written consent of
all members of the Board of Directors (or of the committee of the Board). The
action must be evidenced by one or more written consents describing the action
to be taken and signed by each director (or committee member), which consent(s)
shall be filed in the minutes of the proceedings of the Board. The action taken
shall be deemed effective when the last director signs the consent, unless the
consent specifies otherwise.
Section 13. Shareholder Nominations for Director Candidates. Only persons who
are nominated in accordance with the following procedures shall be eligible for
election as directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of shareholders by or at
the direction of the Board of Directors by any nominating committee or person
appointed by the Board of Directors or by any shareholder of the Corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Article III, Section 13. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a shareholder's notice shall be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than sixty (60) days nor more than ninety (90) days prior to the meeting;
provided, however, that in the event that less than seventy (70) days' notice or
prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the tenth (10th) day following the date on
which such notice of the date of the meeting was mailed or such public
disclosure was made, whichever first occurs. Such shareholder's notice to the
Secretary shall set forth (a) as to each person whom the shareholder proposes to
nominate for election or re-election as a director, (i) the name, age, business
address and residence address of the person, (ii) the principal occupation or
employment of the persons, (iii) the class and number of shares of capital stock
of the Corporation which are beneficially owned by the person, (iv) the consent
of each nominee to serve as a director of the Corporation if so elected, and (v)
any other information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to Rule 14a under
the Securities Exchange Act of 1934, as amended; and (b) as to the shareholder
giving the notice, (i) the name and record address of shareholder, and (ii) the
class and number of shares of capital stock of the Corporation which are
beneficially owned by the
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shareholder. The Corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the Corporation to determine
the eligibility of such proposed nominee to serve as director of the
Corporation. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth herein.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
Section 14. Amendments. Notwithstanding anything contained in the Bylaws to the
contrary, this Article III shall not be altered, amended or repealed except by
an affirmative vote of at least two-thirds of the outstanding shares of capital
stock of the Corporation entitled to vote thereon.
ARTICLE IV
Officers
Section 1. Enumeration of Officers. The officers of the Corporation shall
consist of a, President, Secretaries, Chief Financial Officer, Chief Technology
Officer and a Treasurer, and if elected by the Board of Directors by resolution,
a Chairman. Such other officers and assistant officers and agents as may be
deemed necessary or desirable may be appointed by the Board of Directors. Any
two or more offices may be held by the same person.
Section 2. Duties. The officers of the Corporation shall have the following
duties:
The Chairman of the Board of Directors. The Chairman shall
preside at all meetings of the board of directors and shareholders. The Chairman
shall supervise the carrying out of the policies adopted or approved by the
Board of Directors, and shall assist the Board of Directors in formulating,
evaluating, developing and overseeing the implementation of the short- and
long-term goals of the Corporation, subject to the direction and control of the
Board of Directors. The Chairman shall have all powers and perform all duties
commonly incident to the office of chairman of the board of directors. The
Chairman shall also have and may exercise such further powers and duties as from
time to time may be conferred upon, or assigned to, him by the Board of
Directors not inconsistent with these Bylaws. Absent a Board of Director
resolution to the contrary, the Chairman shall be the chief executive officer of
the Corporation.
The President and Chief Executive Officer. The President and
Chief Executive Officer of the Corporation, if designated or appointed, shall be
the principal executive officer of the Corporation, with general executive
powers and duties regarding the Corporation, subject to these Bylaws, subject to
the direction of the Chairman and subject to the direction and control of the
Board of Directors. The President and Chief Executive Officer shall have general
and active management of the day-to-day business, operations and affairs of the
Corporation, subject to the direction of the Chairman. The President and Chief
Executive Officer shall report to the Chairman and, at meetings of the Board of
Directors, to the Board of Directors, and shall see to it
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that all properly authorized directions of the Chairman and all orders and
resolutions of the Board of Directors are implemented and carried into effect.
Subject to the foregoing the President and Chief Executive Officer shall have
all powers and perform all duties commonly incident to the office of chief
executive officer of the Corporation. The President and Chief Executive Officer
shall also have and may exercise such further powers and duties as from time to
time may be conferred upon, or assigned to, him by the Board of Directors not
inconsistent with these Bylaws. Absent a Board of Director resolution to the
contrary, the Chairman shall be the chief executive officer of the Corporation.
The President and Chief Executive Officer shall have the authority, in the name
and on behalf of the Corporation, to enter into leases, contracts and
commitments in the ordinary course of the Corporation's business. In the absence
or disability of the Chairman, the Chief Executive Officer shall preside at
meetings of shareholders and, if a director, shall preside at meetings of the
Board of Directors.
Each Vice President, if any, shall have such powers and perform such
duties as the Board of Directors shall from time to time designate. In the
absence or disability of the President, a Vice President specifically designated
by the vote of the Board of Directors shall have the powers and shall exercise
the duties of the President.
The Secretary shall have custody of and shall maintain all of the
corporate records (except the financial records), shall record the minutes of
all meetings of the shareholders and the Board of Directors, shall authenticate
records of the Corporation, shall send all notices of meetings and shall perform
such other duties as are prescribed by the Board of Directors or the President,
under whose supervision he shall be.
The Chief Financial Officer. The Chief Financial Officer shall be
responsible for maintaining the financial integrity of the Corporation, shall
prepare the financial plans for the Corporation and shall monitor the financial
performance of the Corporation and its subsidiaries, as well as performing such
other duties as may be prescribed by the Board, the Chairman of the Board, the
Chief Executive Officer or the President.
The Chief Technology Officer. The Chief Technology Officer shall be
responsible for software and web site product development, establishment of
technology standards for the Corporation's products and services, and
development of strategic plans in connection with the establishment, maintenance
and improvement of the Corporation's network infrastructure, as well as
performing such other duties as may be prescribed by the Board, the Chairman of
the Board, the Chief Executive Officer or the President.
The Chief Operating Officer. The Chief Operating Officer shall be the
chief operating officer of the Corporations, and shall have the primary
responsibility for the management of the operations of the business of the
Corporation.
The Treasurer shall have custody of all corporate funds, securities and
financial records, shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositaries as may be designated by the Board of Directors. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper
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vouchers for such disbursements, and shall render an account of all his
transactions as treasurer and of the financial condition of the Corporation at
regular meetings of the Board or when the Board of Directors so requests. The
Treasurer shall also perform such other duties as are prescribed by the Board of
Directors.
Each Assistant Secretary and Assistant Treasurer, if any, shall be
appointed by the Board of Directors and shall have such powers and shall perform
such duties as shall be assigned to them by the Board of Directors.
Section 3. Resignation of Officer. An officer may resign at any time by
delivering notice to the Corporation. The resignation shall be effective upon
receipt, unless the notice specifies a later effective date acceptable to the
Board. If the resignation is effective at a later date and the Corporation
accepts the future effective date, the Board of Directors may fill the pending
vacancy before the effective date provided the Board of Directors provides that
the successor officer does not take office until the future effective date.
Section 4. Removal of Officer. The Board of Directors may remove any officer at
any time with or without cause.
Section 5. Compensation. The compensation of officers shall be fixed from time
to time at the discretion of the Board of Directors. The Board of Directors may
enter into employment agreements with any officer of the Corporation.
ARTICLE V
Stock Certificates
Section 1. Issuance. Every holder of shares in this Corporation shall be
entitled to have a certificate representing all shares to which he is entitled.
No certificate shall be issued for any share until the consideration therefor
has been fully paid.
Section 2. Form. Certificates representing shares in this Corporation shall be
signed by the President and the Secretary of the Corporation, or any other
officer so designated by the Board of Directors.
Section 3. Legends for Preferences and Restrictions on Transfer. If the
Corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the Corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided by law, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the Corporation shall issue to represent such class or
series of stock, a statement that the Corporation will furnish without charge to
each shareholder who so requests the powers, designations, preferences and
relative, participating, optional, or other
10
<PAGE>
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
A written restriction on the transfer or registration of transfer of a
security of the Corporation, if permitted by law and noted conspicuously on the
certificate representing the security may be enforced against the holder of the
restricted security or any successor or transferee of the holder including an
executor, administrator, trustee, guardian or other fiduciary entrusted with
like responsibility for the person or estate of the holder. Unless noted
conspicuously on the certificate representing the security, a restriction, even
though permitted by law, is ineffective except against a person with actual
knowledge of the restriction. If the Corporation issues any shares that are not
registered under the Securities Act of 1933, as amended, and registered or
qualified under the applicable state securities laws, the transfer of any such
shares shall be restricted substantially in accordance with the following
legend:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER
THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE LAW, OR (2) AT
HOLDER'S EXPENSE, AN OPINION (SATISFACTORY TO THE CORPORATION) OF
COUNSEL (SATISFACTORY TO THE CORPORATION) THAT REGISTRATION IS NOT
REQUIRED."
Section 4. Facsimile Signatures. Any and all signatures on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon such certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of the issue.
Section 5. Registered Shareholders. The Corporation shall be entitled to treat
the holder of record of shares as the holder in fact and, except as otherwise
provided by the laws of Florida, shall not be bound to recognize any equitable
or other claim to or interest in the shares.
Section 6. Transfer of Shares. Shares of the Corporation shall be transferred on
its books only after the surrender to the Corporation or the transfer agent of
the share certificates duly endorsed by the holder of record or
attorney-in-fact. If the surrendered certificates are canceled, new certificates
shall be issued to the person entitled to them, and the transaction recorded on
the books of the Corporation.
Section 7. Lost, Stolen or Destroyed Certificates. If a shareholder claims to
have lost or destroyed a certificate of shares issued by the Corporation, a new
certificate shall be issued upon delivery to the Corporation of an affidavit of
that fact by the person claiming the certificate of stock to be lost, stolen or
destroyed, and, at the discretion of the Board of Directors, upon the deposit of
a bond or other indemnity as the Board reasonably requires.
11
<PAGE>
ARTICLE VI
Distributions
The Board of Directors may, in its sole judgment and discretion, from
time to time authorize and declare, and the Corporation may pay, distributions
on its outstanding shares in cash, property or its own shares, unless the
distribution, after giving it effect, would result in (i) the Corporation being
unable to pay its debts as they become due in the usual course of business, or
(ii) a violation of applicable law.
ARTICLE VII
Corporate Records
The Corporation shall keep as permanent records minutes of all meetings
of its shareholders and Board of Directors, a record of all actions taken by the
shareholders or Board of Directors without a meeting, and a record of all
actions taken by a committee of the Board of Directors in place of the Board of
Directors on behalf of the Corporation. The Corporation shall also maintain
accurate accounting records and a record of its shareholders in a form that
permits preparation of a list of the names and addresses of all shareholders in
alphabetical order by class of shares showing the number and series of shares
held by each.
ARTICLE VIII
Indemnification of Officers,
Directors, Employees and Agents
Section 1. Indemnification. The Corporation shall, and does hereby, indemnify
and hold harmless to the fullest extent permitted or authorized by current or
future legislation or current or future judicial or administrative decisions
(but, in the case of any such future legislation or decisions, only to the
extent that it permits the Corporation to provide broader indemnification rights
than permitted prior to such legislation or decisions), each person (including
here and hereinafter, the heirs, executors, administrators, personal
representatives or estate of such person) who was or is a party, or is
threatened to be made a party, or was or is a witness, to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "Proceeding"), from, against and in respect
of any liability (which for purposes of this Article shall include any judgment,
settlement, penalty or fine) or cost, charge or expense (including attorneys'
fees and expenses) asserted against him or incurred by him by reason of the fact
that such indemnified person (1) is or was a director or officer of the
Corporation or (2) is or was an employee or agent of the Corporation as to whom
the Corporation has agreed in writing to grant such indemnity or (3) is or was
serving, at the request of the Corporation, as a director, officer, employee or
trustee of another corporation, partnership, joint venture, trust
12
<PAGE>
or other enterprise (including serving as a fiduciary of an employee benefit
plan) or is or was serving as an agent of such other corporation, partnership,
joint venture, trust or other enterprise, in each case, as to whom the
Corporation has agreed in writing to grant such indemnity. Each director,
officer, employee or agent of the Corporation as to whom indemnification rights
have been granted under this Section 1 of this Article shall be referred to as
an "Indemnified Person".
Notwithstanding the foregoing, except as specified in Section 3 of this
Article, the Corporation shall not be required to indemnify an Indemnified
Person in connection with a Proceeding (or any part thereof) initiated by such
Indemnified Person unless the authorization for such Proceeding (or any part
thereof) was not denied by the Board of Directors of the Corporation within
sixty (60) days after receipt of notice thereof from such Indemnified Person
stating his intent to initiate such Proceeding and only then upon such terms and
conditions as the Board of Directors may deem appropriate.
Section 2. Advance of Costs, Charges and Expenses. Costs, charges and expenses
(including attorneys' fees and expenses) incurred by an officer or director who
is an Indemnified Person in defending a Proceeding shall be paid by the
Corporation, to the fullest extent permitted or authorized by current or future
legislation or current or future judicial or administrative decisions (but, in
the case of any such future legislation or decisions, only to the extent that it
permits the Corporation to provide broader rights to advance costs, charges and
expenses than permitted prior to such legislation or decisions), in advance of
the final disposition of such Proceeding, upon receipt of an undertaking by or
on behalf of the Indemnified Person to repay all amounts so advanced in the
event that it shall ultimately be determined that such person is not entitled to
be indemnified by the Corporation as authorized in this Article. The Corporation
may, upon approval of the Indemnified Person, authorize the Corporation's
counsel to represent such person in any Proceeding, whether or not the
Corporation is a party to such Proceeding. Such authorization may be made by the
Chairman of the Board, unless he is a party to such Proceeding, or by the Board
of Directors by majority vote, including directors who are parties to such
Proceeding.
Section 3. Procedure For Indemnification. Any indemnification or advance under
this Article shall be made promptly and in any event within forty-five (45) days
upon the written request of the Indemnified Person. The right to indemnification
or advances as granted by this Article shall be enforceable by the Indemnified
Person in any court of competent jurisdiction, if the Corporation denies such
request under this Article, in whole or in part, or if no disposition thereof is
made within forty-five (45) days. Such Indemnified Person's costs and expenses
incurred in connection with successfully establishing his right to
indemnification or advances, in whole or in part, in any such action shall also
be indemnified by the Corporation. It shall be a defense to any such action that
the claimant has not met the standard of conduct, if any, required by current or
future legislation or by current or future judicial or administrative decisions
for indemnification (but, in the case of any such future legislation or
decisions, only to the extent that it does not impose a more stringent standard
of conduct than permitted prior to such legislation or decision), but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors or any committee thereof, its
independent legal counsel, and its shareholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct, if any, nor the fact that there has been an
13
<PAGE>
actual determination by the Corporation (including its Board of Directors or any
committee thereof, its independent legal counsel, or its shareholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
Section 4. Rights Not Exclusive; Contract Right; Survival. The indemnification
provided by this Article shall not be deemed exclusive of any other rights to
which those indemnified may be entitled under any agreement, vote of
shareholders or disinterested directors or otherwise, both as to actions in such
person's official capacity and as to actions in another capacity while holding
such office, and shall continue as to an Indemnified Person who has ceased to be
a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors, administrators, personal representatives and estate of such
person. All rights to indemnification and advances under this Article shall be
deemed to be a contract between the Corporation and each Indemnified Person who
serves or served in such capacity at any time while this Article is in effect
and, as such, are enforceable against the Corporation. Any repeal or
modification of this Article or any repeal or modification of relevant
provisions of Florida's corporation law or any other applicable laws shall not
in any way diminish these rights to indemnification of or advances to such
Indemnified Person, or the obligations of the Corporation arising hereunder, for
claims relating to matters occurring prior to such repeals or modification.
Section 5. Insurance. The Corporation may 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, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise (including serving as a
fiduciary of an employee benefit plan), with respect to 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 or the
applicable provisions of Florida law.
Section 6. Savings Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify and hold harmless, and make advances
to, each Indemnified Person as to costs, charges and expenses (including
attorneys' fees), liabilities, judgments, fines and amounts paid in settlement
with respect to any Proceeding, including any action by or in the right of the
Corporation, to the full extent permitted by any applicable portion of this
Article that shall not have been invalidated and as otherwise permitted by
applicable law.
ARTICLE IX
Miscellaneous
Section 1. Corporate Seal. The corporate seal of the Corporation shall be
circular in form and shall include the name and jurisdiction of incorporation of
the Corporation.
Section 2. Fiscal Year. The fiscal year of the Corporation shall end on December
31 of each calendar year, unless otherwise fixed by resolution of the Board of
Directors.
14
<PAGE>
Section 3. Checks. All checks, drafts or other orders for the payment of money,
notes or other evidences of indebtedness issued in the name of the Corporation
shall be signed by the President, the Treasurer or such other officer(s) or
agent(s) of the Corporation as shall be determined from time to time by
resolution of the Board of Directors.
ARTICLE X
Amendment
The Board shall have the power to adopt, amend or repeal the Bylaws or
any part hereof. Certain provisions of the Bylaws, as stated herein, may not be
altered, amended or repealed except by the affirmative vote of at least
two-thirds of the outstanding shares of capital stock of the Corporation
entitled to vote at a shareholders' meeting duly called for such purpose. Except
for such provisions requiring a two-thirds vote to alter, amend or repeal, the
Bylaws may be altered, amended or repealed, and new bylaws may be adopted, by
the shareholders upon the affirmative vote of at least a majority of the
outstanding shares of capital stock of the Corporation entitled to vote at a
shareholders' meeting duly called for such purpose. Notwithstanding anything
contained in these Bylaws to the contrary, this Article X shall not be altered,
amended or repealed except by an affirmative vote of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote at a
shareholders' meeting duly called for such purpose.
15
TAKETO AUCTION(SM)
----------------------
WWW.TAKETOAUCTION.COM
Take to Auction.com, Inc.
a Florida corporation
Number Shares
SEE REVERSE FOR CERTAIN DEFINITIONS
COMMON CUSIP 874052 10 3
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF
Take to Auction.com, Inc.
Transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney on surrender of this certificate properly endorsed.
This certificate and the shares represented hereby are issued and shall be held
subject to all the provisions of the Amended and Restated Articles of
Incorporation and the Bylaws of the Corporation and all amendments from time to
time thereto, to all of which (the holder, by acceptance hereof, assents. This
certificate shall not be valid until countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation are the signatures of
its duly authorized officers.
DATED:
[Take To Auction.com, Inc. Corporate Seal Omitted]
/s/ Mitchell Morgan /s/ Albert Friedman
CHIEF FINANCIAL OFFICER AND SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
BY
AUTHORIZED SIGNATURE
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
<PAGE>
The Corporation will furnish to any shareholder upon request and
without charge a full statement; (a) the designations, preferences, limitations,
and relative rights of the shares of each class of stock authorized to be issued
by the Corporation; (b) the variations of the relative rights and preferences
between the shares of each series, if the Corporation is authorized to issue any
preferred class in series and so far as the same have been fixed and determined;
and (c) the authority of the Board of Directors to fix and determine the
relative rights and preferences of subsequent series.
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 under Uniform Gifts to Minors
of survivorship and not as tenants Act _______________________________________
in common (State)
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 Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated____________________________
______________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED: _____________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM). PURSUANT TO S.E.C RULE 17Ad-15.
</TABLE>
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED
OR DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
FORM OF
LOCKUP AGREEMENT
May _____, 2000
Noble International Investments, Inc.
1810 Clint Moore Road, Suite 110
Boca Raton, FL 33487
Gentlemen:
In order to induce you and Take to Auction.com, Inc., a Florida
corporation (the "Company"), to enter into an underwriting agreement with
respect to the public offering (the "Offering") of 1,300,000 shares of common
stock (excluding 195,000 issuable solely to cover over-allotments, if any),
$.001 par value (the "Common Stock"), of the Company, I hereby agree that for
the period of six (6) months commencing on the date on which the Company's
registration statement under the Securities Act of 1933, as amended (the "Act"),
with respect to the Offering, becomes effective under the Act (the "Effective
Date"), I will not, without your prior written consent, offer, sell, contract to
sell, grant any option for the sale of, pledge, hypothecate, transfer or
otherwise dispose of, directly or indirectly, any shares of Common Stock or any
security or other instrument which by its terms is convertible into, or
exercisable or exchangeable for, shares of Common Stock or other securities of
the Company, including, without limitation, any shares of Common Stock issuable
pursuant to the terms of any stock options. In order to enable you to enforce
the aforesaid restrictions on transfer, I hereby agree that the Company may
impose stop-transfer instructions with respect to the securities of the Company
owned beneficially or of record by me, and affix to the certificates evidencing
such securities a restrictive legend to such effect, in each case until the end
of such six (6) month period.
This letter agreement shall be governed by, and construed in accordance
with, the laws of the State of Florida, without giving effect to conflict of law
principles.
----------------------------------------
Signature
----------------------------------------
Name (please print or type)
----------------------------------------
Address (please print or type)
----------------------------------------
Print Social Security Number or Taxpayer
Identification Number
THE SHARES EVIDENCED BY THIS INSTRUMENT MAY NOT BE SOLD OR OFFERED FOR SALE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT") AND APPLICABLE SECURITIES
LAWS OF ANY STATE OR JURISDICTION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THE REGISTERED HOLDER OF THIS PURCHASE OPTION BY ITS ACCEPTANCE HEREOF, AGREES
THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE OPTION EXCEPT AS HEREIN
PROVIDED.
VOID AFTER 5:00 P.M. EASTERN TIME, _______________, 2005.
PURCHASE OPTION
For the Purchase of
130,000 Shares of Common Stock
of
TAKE TO AUCTION.COM, INC.
(A Florida Corporation)
1. Purchase Option.
----------------
THIS CERTIFIES THAT, in consideration of $130.00 duly paid by
or on behalf of _____________________ ("Holder"), as registered owner of this
Purchase Option ("Purchase Option"), to Take to Auction.com, Inc. ("Company"),
Holder is entitled, at any time or from time to time at or after ___________ __,
2001 ("Commencement Date"), and at or before 5:00 p.m., Eastern Time,
_____________ __, 2005 ("Expiration Date"), but not thereafter, to subscribe
for, purchase and receive, in whole or in part, up to 130,000 shares ("Shares")
of the common stock of the Company, $.001 par value ("Common Stock"), which have
been registered together with the Purchase Option on the registration statement
on Form S-1 (File No. 333-91177) ("Registration Statement"), which was declared
effective ("Effective Date") by the Securities and Exchange Commission on
________ __, 2000. If the Expiration Date is a day on which banking institutions
are authorized by law to close, then this Purchase Option may be exercised on
the next succeeding day which is not such a day in accordance with the terms
herein. During the period ending on the Expiration Date, the Company agrees not
to take any action that would terminate the Purchase Option. This Purchase
Option is initially exercisable at $____ per Share purchased (110% of the
initial public offering price per shares of Common Stock); provided, however,
that upon the occurrence of any of the events specified in Section 6 hereof, the
rights granted by this Purchase Option, including the exercise price and the
number of Shares to be received upon such exercise, shall be adjusted as therein
specified. The term "Exercise Price" shall mean the initial exercise price or
the adjusted exercise price, depending on the context.
<PAGE>
2. Exercise.
---------
2.1 Exercise Form. In order to exercise this Purchase Option, the
exercise form attached hereto must be duly executed and completed and delivered
to the Company, together with this Purchase Option and payment of the Exercise
Price in cash or by certified check or official bank check for the Shares being
purchased. If the subscription rights represented hereby shall not be exercised
at or before 5:00 p.m., Eastern time, on the Expiration Date this Purchase
Option shall become and be void without further force or effect, and all rights
represented hereby shall cease and expire.
2.2 Legend. Each certificate for the Shares purchased under this
Purchase Option shall bear a legend as follows unless such Shares have been
registered under the Securities Act, as amended:
"The Shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act") or applicable state law. The Shares may not be offered
for sale, sold or otherwise transferred except pursuant to an
effective registration statement under the Act, or pursuant to
an exemption from registration under the Act and applicable
state law."
2.3 Cashless Exercise.
------------------
2.3.1 Conversion Right.
-----------------
2.3.1.1 Determination of Amount. In lieu of the
payment of the Exercise Price in the manner required by Section 2.1, the Holder
shall have the right (but not the obligation) to convert any exercisable but
unexercised portion of this Purchase Option into securities ("Conversion Right")
as follows: Upon exercise of the Conversion Right, the Company shall deliver to
the Holder (without payment by the Holder of any of the Exercise Price in cash)
that number of Shares equal to the quotient obtained by dividing (x) the "Value"
(as defined below) of the portion of the Purchase Option being converted by (y)
the "Market Price" (as defined below). The "Value" of the portion of the
Purchase Option being converted shall equal the remainder derived from
subtracting (a) the Exercise Price multiplied by the number of Shares underlying
the portion of the Purchase Option being converted from (b) the Market Price of
the Shares, multiplied by the number of Shares underlying the portion of the
Purchase Option being converted. As used herein, the term "Market Price" shall
be deemed to be the last reported sale price of the Shares on the date prior to
the date the Conversion Right is exercised, or, in case no such reported sale
takes place on such day, the average of the last reported sale prices for the
immediately preceding three trading days, in either case as officially reported
by the principal securities exchange on which the Shares are listed or admitted
to trading, or, if the Shares are not listed or admitted to trading on any
national securities exchange or if any such exchange on which the Shares are
listed is not their principal trading market, the last reported sale price as
furnished by the National Association of Securities Dealers, Inc. ("NASD")
through the Nasdaq National Market or SmallCap Market, or, if applicable, the
OTC Bulletin Board, or if the Shares are not listed or admitted to trading on
any of the foregoing markets, or similar organization, as determined in good
faith by resolution of the Board of Directors of the Company, based on the best
information available to it.
2.3.1.2 Exercise of Conversion Right. The Conversion
Right may be exercised by the Holder on any business day on or after the
Commencement Date and not later
2
<PAGE>
than the Expiration Date by delivering to the Company this Purchase Option with
a duly executed exercise form attached hereto with the conversion section
completed.
3. Transfer.
---------
3.1 General Restrictions. The registered Holder of this Purchase
Option, by its acceptance hereof, agrees that it will not sell, transfer or
assign or hypothecate this Purchase Option prior to the Commencement Date to
anyone other than (i) an officer of Noble International Investments, Inc., the
underwriter of the public offering with respect to which this Purchase Option
has been issued ("Underwriter") or an officer or partner of any Selected Dealer
in connection with the Company's public offering with respect to which this
Purchase Option has been issued, or (ii) any Selected Dealer. On and after the
Commencement Date, transfers to others may be made subject to compliance with or
exemptions from applicable securities laws. In order to make any permitted
assignment, the Holder must deliver to the Company the assignment form attached
hereto duly executed and completed, together with the Purchase Option and
payment of all transfer taxes, if any, payable in connection therewith. The
Company shall immediately transfer this Purchase Option on the books of the
Company and shall execute and deliver a new Purchase Option or Purchase Options
of like tenor to the appropriate assignee(s) expressly evidencing the right to
purchase the aggregate number of Shares purchasable hereunder or such portion of
such number as shall be contemplated by any such assignment.
3.2 Restrictions Imposed by the Act. This Purchase Option and the
Shares underlying this Purchase Option shall not be transferred unless and until
(i) the Company has received the opinion of counsel for the Holder that this
Purchase Option or the Shares, as the case may be, may be transferred pursuant
to an exemption from registration under the Act and applicable state law, the
availability of which is established to the reasonable satisfaction of the
Company (the Company hereby agreeing that the opinion of Atlas Pearlman shall be
deemed satisfactory evidence of the availability of an exemption), or (ii) a
registration statement relating to such Purchase Option or Shares, as the case
may be, has been filed by the Company and declared effective by the Securities
and Exchange Commission and compliance with applicable state law.
4. New Purchase Options to be Issued.
----------------------------------
4.1 Partial Exercise or Transfer. Subject to the restrictions in
Section 3 hereof, this Purchase Option may be exercised or assigned in whole or
in part. In the event of the exercise or assignment hereof in part only, upon
surrender of this Purchase Option for cancellation, together with the duly
executed exercise or assignment form and funds sufficient to pay the Exercise
Price, the Company shall cause to be delivered to the Holder without charge a
new Purchase Option of like tenor to this Purchase Option in the name of the
Holder evidencing the right of the Holder to purchase the aggregate number of
Shares purchasable hereunder as to which this Purchase Option has not been
exercised or assigned.
4.2 Lost Certificate. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Purchase Option and of reasonably satisfactory indemnification, the Company
shall execute and deliver a new Purchase Option of like tenor and date. Any such
new Purchase Option executed and delivered as a result of such loss, theft,
mutilation or destruction shall constitute a substitute contractual obligation
on the part of the Company.
3
<PAGE>
5. Registration Rights.
--------------------
5.1 Demand Registration.
--------------------
5.1.1 Grant of Right. The Company, during the entire period
between the first and fifth anniversaries of the Effective Date, upon written
demand ("Demand Notice") of the Holder(s) of more than 50% of the Purchase
Options and/or the underlying Shares ("Majority Holders"), agrees to register
all or any portion of the Purchase Options requested by the Majority Holders in
the Demand Notice and all of the Shares underlying such Purchase Options
(collectively the "Registrable Shares"). On such occasions, the Company will
file a Registration Statement covering the Registrable Shares within sixty days
after receipt of the Demand Notice and use its best efforts to have such
registration statement declared effective promptly thereafter. If the Company
fails to comply with the provisions of this Section 5.1.1, the Company shall, in
addition to any other equitable or other relief available to the Holder(s), be
liable for any and all incidental, special and consequential damages sustained
by the Holder(s). A demand for registration may be made at any time during a
period of four years beginning one year from the Effective Date. The Company
covenants and agrees to give written notice of its receipt of any Demand Notice
by any Holder(s) to all other registered Holders of the Purchase Options and/or
the Registrable Shares within ten days from the date of the receipt of any such
Demand Notice.
5.1.2 Terms. The Company shall bear all fees and expenses
attendant to registering the Registrable Shares, but the Holders shall pay any
and all underwriting commissions and the expenses of any legal counsel selected
by the Holders to represent them in connection with the sale of the Registrable
Shares. The Company agrees to use its best efforts to cause the filings required
herein to become effective promptly and to qualify or register the Registrable
Shares in such States as are reasonably requested by the Holder(s); provided,
however, that in no event shall the Company be required to register the
Registrable Shares in a State in which such registration would cause (i) the
Company to be obligated to register or license to do business in such State, or
(ii) the principal stockholders of the Company to be obligated to escrow their
shares of capital stock of the Company. The Company shall cause any registration
statement filed pursuant to the demand rights granted under Section 5.1.1 to
remain effective for a period of at least nine consecutive months from the date
that the Holders of the Registrable Shares covered by such registration
statement are first given the opportunity to sell all of such securities.
5.2 "Piggy-Back" Registration.
--------------------------
5.2.1 Grant of Right. In addition to the demand right of
registration, the Holders of the Purchase Options shall have the right for a
period of four years commencing one year from the Effective Date, to include the
Registrable Securities as part of any other registration of securities filed by
the Company (other than in connection with a transaction contemplated by Rule
145(a) promulgated under the Act or pursuant to Form S-8); provided, however,
that if, in the written opinion of the Company's managing underwriter or
underwriters, if any, for such offering, the inclusion of the Shares, when added
to the securities being registered by the Company or the selling stockholder(s),
will exceed the maximum amount of the Company's securities which can be marketed
(i) at a price reasonably related to their then current market value, or (ii)
without materially and adversely affecting the entire offering, the Company
shall nevertheless register all or any portion of the Shares required to be so
registered but such Shares shall not be sold by the Holders until 60 days after
the registration statement for such offering has become effective and provided
further that, if any securities are registered for sale on behalf of other
stockholders in such
4
<PAGE>
offering and such stockholders have not agreed to defer such sale until the
expiration of such 60- day period, the number of securities to be sold by all
stockholders in such public offering during such 60-day period shall be
apportioned pro rata among all such selling stockholders, including all holders
of the Shares, according to the total amount of securities of the Company owned
by said selling stockholders, including all holders of the Shares.
Notwithstanding the foregoing, if, pursuant to a written agreement executed
prior to the date of this letter, the Company is prohibited from registering the
Registrable Shares and, after using its diligent efforts, the Company is unable
to obtain a waiver of such prohibition, then the Company will not be obligated
to register the Registrable Shares.
5.2.2 Terms. The Company shall bear all fees and expenses
attendant to registering the Registrable Shares, but the Holders shall pay any
and all underwriting commissions and the expenses of any legal counsel selected
by the Holders to represent them in connection with the sale of the Registrable
Shares. In the event of such a proposed registration, the Company shall furnish
the then Holders of outstanding Registrable Shares with not less than thirty
days written notice prior to the proposed date of filing of such registration
statement. Such notice to the Holders shall continue to be given for each
registration statement filed by the Company until such time as all of the Shares
have been sold by the Holder. The holders of the Shares shall exercise the
"piggy-back" rights provided for herein by giving written notice, within twenty
days of the receipt of the Company's notice of its intention to file a
registration statement. The Company shall cause any registration statement filed
pursuant to the above "piggyback" rights to remain effective for at least nine
months from the date that the Holders of the Shares are first given the
opportunity to sell all of such securities.
5.3 General Terms.
--------------
5.3.1 Indemnification. The Company shall indemnify the
Holder(s) of the Shares to be sold pursuant to any registration statement
hereunder and each person, if any, who controls such Holders within the meaning
of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of
1934, as amended ("Exchange Act"), against all loss, claim, damage, expense or
liability (including all reasonable attorneys' fees and other expenses
reasonably incurred in investigating, preparing or defending against any claim
or litigation, commenced or threatened, whether arising out of any action
between either of the Underwriters and the Company or between either of the
Underwriters and any third party or otherwise) to which any of them may become
subject under the Act, the Exchange Act or otherwise, arising from such
registration statement but only to the same extent and with the same effect as
the provisions pursuant to which the Company has agreed to indemnify the
Underwriters contained in Sections 5.1 and 5.5 of the Underwriting Agreement
between the Underwriters and the Company, dated the Effective Date. The
Holder(s) of the Shares to be sold pursuant to such registration statement, and
their successors and assigns, shall severally, and not jointly, indemnify the
Company, against all loss, claim, damage, expense or liability (including all
reasonable attorneys' fees and other expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, in writing, for specific inclusion in such registration statement to
the same extent and with the same effect as the provisions contained in Sections
5.2 and 5.5 of the Underwriting Agreement pursuant to which the Underwriters
have agreed to indemnify the Company.
5
<PAGE>
5.3.2 Exercise of Purchase Options. Nothing contained in this
Purchase Option shall be construed as requiring the Holder(s) to exercise their
Purchase Options prior to or after the initial filing of any registration
statement or the effectiveness thereof.
5.3.3 Exclusivity. The Company shall not permit the inclusion
of any securities other than the Registrable Shares to be included in any
registration statement filed pursuant to Section 5.1 hereof without the prior
written consent of the Majority Holders of the Registrable Shares.
5.3.4 Documents Delivered to Holders. The Company shall
furnish to each Holder participating in any of the foregoing offerings and to
each underwriter of any such offering, if any, a signed counterpart, addressed
to such Holder or underwriter, of (i) an opinion of counsel to the Company,
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, an opinion dated the date
of the closing under any underwriting agreement related thereto), and (ii) a
"cold comfort" letter dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, a letter
dated the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities. The Company shall also deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriter copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the NASD. Such
investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable times
and as often as any such Holder shall reasonably request.
5.3.5 Underwriting Agreement. The Company shall enter into an
underwriting agreement with the managing underwriter(s) selected by any Holders
whose Registrable Shares are being registered pursuant to this Section 5. Such
agreement shall be reasonably satisfactory in form and substance to the Company,
each Holder and such managing underwriters, and shall contain such
representations, warranties and covenants by the Company and such other terms as
are customarily contained in agreements of that type used by the managing
underwriter. The Holders shall be parties to any underwriting agreement relating
to an underwritten sale of their Shares and may, at their option, require that
any or all the representations, warranties and covenants of the Company to or
for the benefit of such underwriters shall also be made to and for the benefit
of such Holders. Such Holders shall not be required to make any representations
or warranties to or agreements with the Company or the underwriters except as
they may relate to such Holders, their shares and their intended methods of
distribution.
5.3.6 Documents to be Delivered by Holder(s). Each of the
Holder(s) participating in any of the foregoing offerings shall furnish to the
Company a completed and executed
6
<PAGE>
questionnaire provided by the Company requesting information customarily sought
of selling securityholders.
6. Adjustments.
------------
6.1 Adjustments to Exercise Price and Number of Shares. The Exercise
Price and the number of Shares underlying the Purchase Option shall be subject
to adjustment from time to time as hereinafter set forth:
6.1.1 Stock Dividends - Split-Ups. If after the date hereof,
and subject to the provisions of Section 6.2 below, the number of outstanding
shares of Common Stock is increased by a stock dividend payable in shares of
Common Stock or by a split-up of shares of Common Stock or other similar event,
then, on the effective date of such stock dividend or split-up, the number of
Shares issuable on exercise of the Purchase Option shall be increased in
proportion to such increase in outstanding shares.
6.1.2 Aggregation of Shares. If after the date hereof, and
subject to the provisions of Section 6.2, the number of outstanding shares of
Common Stock is decreased by a consolidation, combination or reclassification of
shares of Common Stock or other similar event, then, upon the effective date of
such consolidation, combination or reclassification, the number of Shares
issuable on exercise of the Purchase Option shall be decreased in proportion to
such decrease in outstanding shares.
6.1.3 Adjustments in Exercise Price. Whenever the number of
Shares purchasable upon the exercise of this Purchase Option is adjusted, as
provided in this Section 6.1, the Exercise Price shall be adjusted (to the
nearest cent) by multiplying such Exercise Price immediately prior to such
adjustment by a fraction (x) the numerator of which shall be the number of
Shares purchasable upon the exercise of this Purchase Option immediately prior
to such adjustment, and (y) the denominator of which shall be the number of
Shares so purchasable immediately thereafter.
6.1.4 Replacement of Shares Upon Reorganization, etc. If after
the date hereof any capital reorganization or reclassification of the Common
Stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation or other similar event shall be effected, then, as a condition of
such reorganization, reclassification, consolidation, merger, or sale, lawful
and fair provision shall be made whereby the Holders shall thereafter have the
right to purchase and receive, upon the basis and upon the terms and conditions
specified in the Purchase Option and in lieu of the securities of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented thereby, such shares of stock, securities, or assets as may
be issued or payable with respect to or in exchange for the number of securities
equal to the number of securities immediately theretofore purchasable and
receivable upon the exercise of the rights represented by the Purchase Option,
had such reorganization, reclassification, consolidation, merger, or sale not
taken place and in such event appropriate provision shall be made with respect
to the rights and interests of the Holders to the end that the provisions hereof
(including, without limitation, provisions for adjustments of the Exercise Price
and of the number of securities purchas able upon the exercise of the Purchase
Option) shall thereafter be applicable, as nearly as may be in relation to any
share of stock, securities, or assets thereafter deliverable upon the exercise
hereof. The Company shall not effect any such consolidation, merger, or sale
unless prior to the
7
<PAGE>
consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger, or the corporation purchasing such
assets, shall assume by written instrument executed and delivered to the Holders
evidencing its obligation to deliver such shares of stock, securities, or assets
as, in accordance with the foregoing provisions, such Holders may be entitled to
purchase. The provisions of this Section 6.1.4 shall similarly apply to
successive reclassifications, reorganizations, mergers or consolidations, sales
or other transfers.
6.1.5 Changes in Form of Purchase Option. This form of
Purchase Option need not be changed because of any change pursuant to this
Section, and Purchase Options issued after such change may state the same
Exercise Price and the same number of Shares as are stated in the Purchase
Options initially issued pursuant to this Agreement. The acceptance by any
Holder of the issuance of new Purchase Options reflecting a required or
permissive change shall not be deemed to waive any rights to a prior adjustment
or the computation thereof.
6.2 Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of Shares, upon the
exercise or transfer of the Purchase Option, nor shall it be required to issue
scrip or pay cash in lieu of any fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated by rounding any
fraction up or down to the nearest whole number of Shares.
7. Reservation and Listing. The Company shall at all times reserve and keep
available out of its authorized shares of Common Stock, solely for the purpose
of issuance upon exercise of the Purchase Options, such number of shares of
Common Stock or other securities, properties or rights as shall be issuable upon
the exercise hereof. The Company covenants and agrees that, upon exercise of the
Purchase Options and payment of the Exercise Price herefor, all shares of Common
Stock and other securities issuable upon such exercise shall be duly and validly
issued, fully paid and non-assessable and not subject to preemptive rights of
any stockholder. As long as the Purchase Options shall be outstanding, the
Company shall use its best efforts to cause all Shares, issuable upon exercise
of the Purchase Options to be listed on all securities exchanges (or, if
applicable on the Nasdaq National Market or SmallCap Market or OTC Bulletin
Board) on which the Common Stock issued to the public in connection herewith are
then listed and/or quoted.
8. Certain Notice Requirements.
----------------------------
8.1 Holder's Right to Receive Notice. Nothing herein shall be construed
as conferring upon the Holders the right to vote or consent or to receive notice
as a stockholder for the election of directors or any other matter, or as having
any rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Purchase Options and their exercise, any of the
events described in Section 8.2 shall occur, then, in one or more of said
events, the Company shall give written notice of such event at least fifteen
days prior to the date fixed as a record date or the date of closing the
transfer books for the determination of the stockholders entitled to such
dividend, distribution, conversion or exchange of securities or subscription
rights, or entitled to vote on such proposed dissolution, liquidation, winding
up or sale. Such notice shall specify such record date or the date of the
closing of the transfer books, as the case may be.
8.2 Events Requiring Notice. The Company shall be required to give the
notice described in this Section 8 upon one or more of the following events: (i)
if the Company shall take a record of the holders of its shares of Common Stock
for the purpose of entitling them to receive
8
<PAGE>
a dividend or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of retained earnings, as indicated by
the accounting treatment of such dividend or distribution on the books of the
Company, or (ii) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any option,
right or warrant to subscribe therefor, or (iii) a dissolution, liquidation or
winding up of the Company (other than in connection with a consolidation or
merger) or a sale of all or substantially all of its property, assets and
business shall be proposed.
8.3 Notice of Change in Exercise Price. The Company shall, promptly
after an event requiring a change in the Exercise Price pursuant to Section 6.1
hereof, send notice to the Holders of such event and change ("Price Notice").
The Price Notice shall describe the event causing the change and the method of
calculating same and shall be certified as being true and accurate by the
Company's President and Chief Financial Officer.
8.4 Transmittal of Notices. All notices, requests, consents and other
communications under this Purchase Option shall be in writing and shall be
deemed to have been duly made on the date of delivery if delivered personally or
sent by overnight courier, with acknowledgment of receipt to the party to which
notice is given, or on the fifth day after mailing if mailed to the party to
whom notice is to be given, by registered or certified mail, return receipt
requested, postage prepaid and properly addressed as follows: (i) if to the
registered Holder of the Purchase Option, to the address of such Holder as shown
on the books of the Company, or (ii) if to the Company, to its principal
executive office.
9. Miscellaneous.
--------------
9.1 Amendments. The Underwriters may from time to time supplement or
amend this Purchase Option in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, or to make any other provisions in regard to
matters or questions arising hereunder which the Underwriters may deem necessary
or desirable and which the Underwriters deem shall not adversely affect the
interest of the Holders. All other modifications or amendments shall require the
written consent of the party against whom enforcement of the modification or
amendment is sought.
9.2 Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Purchase Option.
9.3 Entire Agreement. This Purchase Option (together with the other
agreements and documents being delivered pursuant to or in connection with this
Purchase Option) constitutes the entire agreement of the parties hereto with
respect to the subject matter hereof, and supersedes all prior agreements and
understandings of the parties, oral and written, with respect to the subject
matter hereof.
9.4 Binding Effect. This Purchase Option shall inure solely to the
benefit of and shall be binding upon, the Holder and the Company and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Purchase Option or any provisions
herein contained.
9
<PAGE>
9.5 Governing Law; Submission to Jurisdiction. This Purchase Option
shall be governed by and construed and enforced in accordance with the laws of
the State of Florida without giving effect to conflict of laws. The Company
hereby agrees that any action, proceeding or claim against it arising out of, or
relating in any way to this Purchase Option shall be brought and enforced in the
courts of the State of Florida in and for Palm Beach County, and irrevocably
submits to such jurisdiction, which jurisdiction shall be exclusive. The Company
hereby waives any objection to such exclusive jurisdiction and that such courts
represent an inconvenient forum. Any process or summons to be served upon the
Company may be served by transmitting a copy thereof by registered or certified
mail, return receipt requested, postage prepaid, addressed to it at the address
set forth in Section 8 hereof. Such mailing shall be deemed personal service and
shall be legal and binding upon the Company in any action, proceeding or claim.
The Company agrees that the prevailing party(ies) in any such action shall be
entitled to recover from the other party(ies) all of its reasonable attorneys'
fees and expenses relating to such action or proceeding and/or incurred in
connection with the preparation therefor.
9.6 Waiver, Etc. The failure of the Company or the Holder to at any
time enforce any of the provisions of this Purchase Option shall not be deemed
or construed to be a waiver of any such provision, nor to in any way affect the
validity of this Purchase Option or any provision hereof or the right of the
Company or any Holder to thereafter enforce each and every provision of this
Purchase Option. No waiver of any breach, non-compliance or non-fulfillment of
any of the provisions of this Purchase Option shall be effective unless set
forth in a written instrument executed by the party or parties against whom or
which enforcement of such waiver is sought; and no waiver of any such breach,
non-compliance or non-fulfillment shall be construed or deemed to be a waiver of
any other or subsequent breach, non-compliance or non-fulfillment.
9.7 Execution in Counterparts. This Purchase Option may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement, and shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
IN WITNESS WHEREOF, the Company has caused this Purchase
Option to be signed by its duly authorized officer as of the _____ day of
____________, 2000.
TAKE TO AUCTION.COM, INC.
By:
-----------------------
Albert Friedman
President and Chief Executive Officer
10
<PAGE>
Form to be used to exercise Purchase Option:
Take to Auction.com, Inc.
2335 N.W. 107th Avenue
Miami, Florida 33172
Date:
-------------------------------
The undersigned hereby elects irrevocably to exercise the
within Purchase Option and to purchase ____ Shares of the Common Stock of Take
to Auction.com, Inc. ("Company") and hereby makes payment of $____________ (at
the rate of $_________ per Share of Common Stock) in payment of the Exercise
Price pursuant thereto. Please issue the Shares as to which this Purchase Option
is exercised in accordance with the instructions given below.
or
The undersigned hereby elects irrevocably to exercise the
within Purchase Option and to purchase _________ Shares of Common Stock of the
Company by surrender of the unexercised portion of the within Purchase Option
(with a "Value" of $__________ based on a "Market Price" of $___________).
Please issue the Shares in accordance with the instructions given below.
-------------------------------
Signature
-------------------------------
Signature Guaranteed
NOTICE: The signature to this form must correspond with the
name as written upon the face of the within Purchase Option in every particular
without alteration or enlargement or any change whatsoever.
11
[Baker & McKenzie Letterhead]
May 19, 2000
Take To Auction.com, Inc.
2335 N.W. 107th Avenue
Suite 2M-23
Miami, Florida 33172
Gentlemen:
Take To Auction.com, Inc., a Florida corporation (the "Company"), is
filing with the Securities and Exchange Commission a Registration Statement on
Form S-1 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Act"). Such Registration Statement relates to the registration by
the Company of 1,300,000 common shares, par value $.001 per share (the "Common
Shares"). We have acted as counsel to the Company in connection with the
preparation and filing of the Registration Statement.
In connection with the rendering of this opinion, we have examined,
considered and relied upon copies of the following documents (collectively, the
"Documents"): (i) the Company's Articles of Incorporation, as amended, and the
bylaws, as amended; (ii) resolutions of the Company's Board of Directors
authorizing the offering, issuance and registration of the Common Shares; (iii)
the Registration Statement and schedules and exhibits thereto; and (iv) such
other documents and instruments that we have deemed necessary for the expression
of the opinions herein contained. In making the foregoing examinations, we have
assumed without investigation, the genuineness of all signatures and the
authenticity of all documents submitted to us as originals, the conformity to
authentic original documents of all documents submitted to us as copies, and the
veracity of the documents. As to various questions of fact material to the
opinion expressed below, we have relied, to the extent we deemed reasonably
appropriate, upon the representations or certificates of officers and/or
directors of the Company and upon documents, records and instruments furnished
to us by the Company, without independently verifying the accuracy of such
certificates, documents, records or instruments.
Based upon the foregoing, and subject to the qualifications set forth
below, we are of the opinion that: (i) the Common Shares have been duly and
validly authorized; and (ii) when issued and delivered in accordance with the
terms of the Underwriting Agreement filed as Exhibit 1.01 to the Registration
Statement, the Common Stock will be validly issued, fully paid and
nonassessable.
Although we have acted as counsel to the Company in connection with the
preparation and filing of the Registration Statement, our engagement has been
limited to certain matters about which we have been consulted. Consequently,
there may exist matters of a legal nature involving the Company in which we have
not been consulted and have not represented the Company. We express no opinion
as to the laws of any jurisdiction other than the laws of the State of Florida.
This opinion letter is limited to the matters stated herein and no opinions may
be implied or inferred beyond the matters expressly stated herein. The opinions
expressed herein are given as of this date.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" in the prospectus comprising a part of the Registration Statement. In
giving such consent, we do not thereby admit that we are included within the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations promulgated thereunder.
Sincerely,
/s/ Baker & McKenzie
-------------------------
BAKER & MCKENZIE
Exhibit 10.09
<TABLE>
<CAPTION>
Optionee Position Options Exercise Price Grant Date
<S> <C> <C> <C> <C>
Albert Friedman CEO/Pres 25,000 $ 1.23 08/26/1999
Albert Friedman CEO/Pres 50,000 7.00 05/04/2000
Mitchell Morgan CFO 48,469 1.23 08/26/1999
Mitchell Morgan CFO 9,864 7.00 01/31/2000
Mitchell Morgan CFO 116,667 7.00 05/04/2000
Hugo Calemczuk Director 15,000 1.23 08/26/1999
Hugo Calemczuk Director 30,000 7.00 05/04/2000
Horacio Groisman Vice Chairman 15,000 1.23 08/26/1999
Horacio Groisman Vice Chairman 30,000 7.00 05/04/2000
Jonathan Geller CTO 54,286 1.23 08/26/1999
Jonathan Geller CTO 4,047 7.00 01/31/2000
Jonathan Geller CTO 116,667 7.00 05/04/2000
Ilia Lekach Chairman 90,000 1.23 08/26/1999
Ilia Lekach Chairman 180,000 7.00 05/04/2000
Reinaldo Romeu Controller 10,000 7.00 01/18/2000
Reinaldo Romeu Controller 20,000 7.00 05/04/2000
Kevin Caricato Merchandising 5,000 7.00 01/04/2000
Kevin Caricato Merchandising 10,000 7.00 05/04/2000
Jason Kline MIS 3,333 7.00 01/25/2000
Jason Kline MIS 6,667 7.00 05/04/2000
Nicolae Paraschiv MIS 3,333 7.00 01/25/2000
Nicolae Paraschiv MIS 6,667 7.00 05/04/2000
-------------------
850,000
===================
</TABLE>
EXHIBIT 10.12
NOTE AND WARRANT
PURCHASE AGREEMENT
THIS NOTE PURCHASE AND OPTION AGREEMENT ("Agreement") is made and
entered into as of the 21st day of December, 1999, by and between E COM
VENTURES, INC., a Florida Corporation ("Lender"), and TAKE TO AUCTION.COM, INC.,
a Florida corporation (the "Corporation").
RECITALS
A. Lender desires to lend to Corporation, and the Corporation desires
to borrow from Lender an amount equal to One Million Dollars ($1,000,000) (the
"Principal Amount") upon the terms and conditions set forth herein.
B. In connection with the loan, the Corporation shall deliver to Lender
a convertible promissory note in the aggregate principal amount of One Million
Dollars ($1,000,000) (the "Promissory Note").
C. In connection with the loan, the Corporation shall issue a Warrant
for the purchase of shares of the Corporation's Common Stock (the "Common
Shares") following the consummation of the initial public offering of the Common
Shares (the "IPO").
AGREEMENT
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements set forth in this Agreement, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
Section 1. Loan. At the "Closing" (as defined below), the Corporation
shall deliver to the Lender the Promissory Note, which note shall be in the form
attached hereto as Exhibit A (the "Promissory Note").
Section 2. Warrant. At the Closing, the Corporation shall deliver to
the Lender a warrant in the form attached hereto as Exhibit B (the "Warrant").
Section 3. Closing. The closing of the loan by the Lender to the
Corporation described herein and the sale of the Warrant by the Corporation to
Lender (the "Closing") shall occur at such time and place as the Corporation
shall designate by written notice to the undersigned. At the Closing, the
Corporation shall deliver the Lender the Promissory Note and the Warrant.
Lender, upon proper tender of the Promissory Note and the Warrant from the
Corporation, shall tender payment of the Principal Amount in cash or by official
bank check or money order (or such other form of consideration as may be
mutually agreed upon by the parties) less any portion
<PAGE>
previously paid to the Corporation prior to the date of the Closing. Corporation
shall pay all stamp taxes arising in connection with the issuance of the
Promissory Note.
Section 4. Representations, Warranties and Covenants of Lender. Lender
hereby represents and warrants to the Corporation as follows:
(a) State Securities Laws. Lender received this Agreement and
first learned of the offer of the sale of the Promissory Note and the Warrant
(together, the "Offered Securities") in Florida. Lender executed and will
execute all documents contemplated hereby in Florida, and intends that the laws
of Florida govern this offering of Offered Securities.
Lender understands, agrees and acknowledges that the
Offered Securities have not been registered under the Florida Securities Act and
that such securities are being offered in reliance upon exemption provisions
contained therein which the Corporation believes are available. Any sale made
pursuant to such exemption provisions is voidable by Lender within three
business days after the first tender of consideration is made by Lender to the
issuer, an agent of the issuer or an escrow agent. A withdrawal within such
three day period will be without any further liability to any person. To
accomplish this withdrawal, a Lender need only send a letter or telegram to the
Corporation at the address set forth in this Agreement, indicating his or her
intention to withdraw.
Such letter or telegram should be sent and postmarked
prior to the end of the aforementioned third business day. It is advisable to
send such letter by certified mail, return receipt requested, to ensure that it
is received and also to evidence the date it was mailed. If the request is made
orally, in person or by telephone, to a representative of the Corporation, a
written confirmation that the request has been received will be requested.
(b) Authority. Lender has the capacity, power and authority to
execute this Agreement and perform its obligations hereunder. This Agreement has
been duly executed and delivered by Lender and (assuming the due execution and
delivery hereof by the Corporation) constitutes a valid and binding obligation
of Lender enforceable against Lender in accordance with its terms.
(c) Acquisition for Investment. Lender shall acquire the
Offered Securities for investment solely for Lender's account and not for
distribution to others.
(d) Restrictions on Transfer. Lender understands that Lender
must bear the economic risk of the purchase of the Offered Securities for an
indefinite period of time because, except as provided in this Agreement, (i) the
Corporation's sale of the Offered Securities to Lender will not be registered
under the Securities Act of 1933, as amended (the "Act"), and applicable state
securities laws in reliance on Lender's representations; (ii) the Offered
Securities may not be sold, transferred, pledged, or otherwise disposed of
without the consent of the Corporation and an opinion of counsel for or
satisfactory to the Corporation that registration under the Act or any
applicable state securities laws is not required (provided that no opinion shall
be required if the Offered Securities are disposed of in accordance with Rule
144 under the Act); (iii) the Corporation neither has an obligation to register
a sale of the Offered Securities nor
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has it agreed to do so in the future; and (iv) the exemption provided in Rule
144 under the Act is not presently available for the resale of any Offered
Securities.
(e) Certain Risk Factors. Lender understands the speculative
nature of and risks involved in the proposed investment in and loan to the
Corporation, and all matters relating to the structure and the operations of the
Corporation have been discussed and explained to Lender's satisfaction. Lender
specifically acknowledges, understands and agrees that, (i) that no return on
investment (other than payment of interest under the Promissory Note), whether
through distributions, appreciation, transferability or otherwise, and no
above-average or other performance, by, through or of the Corporation, has been
promised, assured, represented or warranted by the Corporation or any director,
officer, employee, agent or representative thereof; (ii) that there is no
present public or other market for the Offered Securities and that there may
never be a public or other market for the Offered Securities; and (iii) that the
purchase of the Offered Securities is a highly speculative investment, involving
a high degree of risk, and is suitable only for persons of adequate financial
means who are able to bear the economic risks inherent in such an investment and
have no need for liquidity in this investment in that, among other things, (a)
such persons may not be able to liquidate their investment in the event of an
emergency or otherwise, (b) transferability is extremely limited, and (c) in the
event of a disposition or otherwise, such persons could sustain a complete loss
of their entire investment.
(f) Restrictive Legends. Lender understands that the Offered
Securities the Note Shares, and the shares to be issued upon exercise of the
Warrant (the "Warrant Shares", and together, the "Issued Shares") if issued,
will each bear a restrictive legend prohibiting the transfer thereof except in
compliance with applicable state and federal securities laws.
(g) Access to Information. Lender has been offered, and up to
the date of purchase shall be offered, the opportunity to ask questions of, and
receive answers from, the Corporation and to obtain any additional information,
to the extent that the Corporation possesses such information or could have
acquired it without unreasonable effort or expense, necessary to verify the
accuracy of the information contained in the documents delivered to Lender and
has in general had access to all information Lender has deemed material to an
investment decision with respect to the purchase of the Offered Securities.
(h) Investment Experience. Lender acknowledges that it is able
to fend for itself, can bear the economic risk of its investment in the Offered
Securities, and has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of an investment
in the Shares. Lender represents that Lender is an "accredited investor" within
the meaning of such term under paragraph (a)(1), (a)(2), (a)(3), (a)(7) or
(a)(8) of Rule 501 under Regulation D under the Securities Act.
Section 5. Representations, Warranties and Covenants of the
Corporation.
In order to induce the Lender into this Agreement, the Corporation
represents and warrants to and agrees with the Lender as follows:
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(a) Existence and Good Standing. The Corporation is duly
organized, validly existing and in good standing, or the equivalent thereof,
under the laws of the State of Florida. The Corporation has the requisite power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted and as proposed to be conducted. The Corporation
is duly qualified or licensed to do business and is in good standing, or the
equivalent thereof, and is authorized to do business, in each jurisdiction in
which the character or location of the properties owned, leased or operated by
the Corporation or the nature of the business conducted by such entity makes
such qualification or license necessary, except where any such failure to be
duly qualified or licensed or in good standing, or the equivalent thereof, would
not have a material adverse effect on the business, operations, financial
condition or results of operations of the Corporation, taken as a whole, or on
the ability of the Corporation to perform its obligations under the Agreement (a
"Material Adverse Effect").
(b) Authority. The Corporation hereby represents and warrants
to Lender that, the Corporation has the power and authority to execute and
deliver this Agreement, the Note and the Warrant and to perform its obligations
hereunder and thereunder. The execution, delivery and performance of this
Agreement, the Note and the Warrant by the Corporation and the performance of
its obligations hereunder and thereunder have been duly authorized and approved
by all necessary action (including, without limitation, all action of the Board
of Directors, or the equivalent thereof, and shareholders or other required
persons of the Corporation) and no other action on the part of such persons is
necessary to authorize the execution, delivery and performance of this
Agreement, the Note and the Warrant by the Corporation. This Agreement, the Note
and the Warrant have been duly executed and delivered by the Corporation and,
assuming due execution thereof by the other parties thereto, are the valid and
binding obligations of the Corporation enforceable against the Corporation in
accordance with their terms, except to the extent that enforceability may be
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding brought in equity or at law). The Corporation has
reserved a sufficient number of shares of its Common Stock for issuance upon
conversion of the Note and Exercise of the Warrant. Upon the issuance of the
Issued Shares, such shares shall be duly authorized, validly issued, fully paid
and nonassessable.
(c) Rule 144. Following the consummation of the IPO (assuming
such IPO occurs) and during such time as the Corporation is a public company
with its securities registered under the Act, the Corporation will use
commercially reasonable efforts to ensure that it is in compliance with the
requirements of Rule 144 under the Act applicable to the issuer of securities,
so as to facilitate non-registered sales of the Corporation's securities held by
the Lender, consistent with the limitations and requirements of Rule 144 under
the Act. Nothing in this Section 5(c) shall be deemed as either (i) any
representation or warranty that the Corporation will become a public corporation
with securities registered under the Act, or (ii) any covenant or agreement by
the Corporation to register, under federal or state securities laws or
otherwise, any of the Corporation's securities issued to, or held by, the
Lender.
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(d) Financial Statements. Attached hereto as Exhibit C are the
Corporation's audited financial statements (balance sheet and statement of
operations, statement of changes in shareholders' equity and statement of cash
flows, including notes thereto) as at its most recent audit date (the "Audit
Date") (the "Financial Statements"). The Financial Statements have been prepared
in accordance with United States generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods indicated and with
each other, except that the unaudited Financial Statements may not contain all
footnotes required by GAAP. The Financial Statements fairly present the
financial condition, stockholders' equity and cash flows and operating results
of the Corporation as of the date, and for the periods, indicated therein. Other
than as disclosed in the Financial Statements, the Corporation has no material
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to the Audit Date and (ii) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under GAAP to be reflected in the Financial Statements, which, in
both cases, individually or in the aggregate, are not material to the financial
condition or operating results of the Corporation.
Each of the balance sheets included in the Financial
Statements (including any related notes and schedules) fairly presents the
financial position of the Corporation as of its date and each of the statements
of operations, shareholders' equity (deficit) and cash flows included in or
incorporated by reference into the Financial Statements (including any related
notes and schedules) fairly presented the results of operations, retained
earnings or cash flows, as the case may be, of the entity or entities to which
it relates for the periods set forth therein, in each case in accordance with
GAAP consistently applied during the periods involved, except as may be noted
therein and except, in the case of the unaudited statements, subject to normal
recurring year-end adjustments.
The capitalization of the Corporation is as set forth in
Exhibit D attached hereto.
(e) Consents and Approvals; no Violations. The execution and
delivery of this Agreement, the Note and the Warrant by the Corporation and
compliance by the Corporation with the terms and provisions hereof and thereof
and the issuance of the Note Shares and Warrant Shares by the Corporation and
the consummation of the transactions contemplated hereby and thereby do not and
will not (a) violate or contravene any provision of the articles of
incorporation or bylaws of the Corporation, (b) violate or contravene any
statute, rule, regulation, licensing requirement, order or decree of any court,
arbitrator or any other public body or authority by which the Corporation is
bound or by which any of its properties or assets are bound, (c) require any
filing with, or permit, consent authorization, qualification or approval of, or
exemption from, or the giving of any notice to, any governmental or regulatory
body, agency or authority, or any other person (other than required filings
under the Act or the Exchange Act of 1934, as amended (the "1934 Act") which
have been or prior to the Closing will be made) or (d) result in a violation or
breach of, conflict with, constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation,
payment or acceleration) under, or result in the creation of any encumbrance
upon any of the properties or assets of the Corporation under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
franchise, permit, agreement, lease, franchise agreement or any
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other instrument or obligation to which the Corporation is bound, or by which it
or any of its properties or assets may be bound.
(f) Compliance with Laws. The Corporation is in compliance in
all material respects with all applicable laws, regulations, licensing
requirements, orders, judgments and decrees and has obtained all required
governmental approvals and permits in each jurisdiction in which they currently
do business, in each case except where the failure to do so would not have a
Material Adverse Effect on the Corporation. Without limiting the generality of
the foregoing, the Corporation is in compliance in all respects with the United
States Foreign Corrupt Practices Act of 1977, as amended.
(g) Employment Relations. The Corporation is in substantial
compliance with all federal, state or other applicable laws, domestic or
foreign, respecting employment and employment practices, terms and conditions of
employment and wages and hours, and has not, and is not, engaged in any unfair
labor practice and there is no labor strike, dispute, slowdown or stoppage
actually pending or threatened against or involving the Corporation.
(h) Securities Law Compliance. Assuming that the
representations set forth in Section 5 are true and correct, the offering,
issuance, sale and delivery of the Promissory Note and Warrant and the Warrant
Shares and the Note Shares to the Lender is exempt from the registration
requirements of the Act. The Corporation has complied with, or is exempt from,
all registration requirements of all applicable state securities laws, or
foreign securities law, in connection with the offering, issue, sale and
delivery of the Shares.
(i) Broker's or Finder's Fees. No agent, broker, person or
firm acting on behalf of the Corporation is, or will be, entitled to any
commission or broker's or finder's fees from the Corporation, or from any person
controlling, controlled by or under common control with the Corporation, in
connection with the transactions contemplated hereby.
(j) Corporation Registration.
(i) Notice; Registration Rights. If (but without any
obligation to do so) the Corporation proposes to register (including, without
limitation, for this purpose a registration effected by the Corporation for
shareholders other than the Lender) any of its stock or other securities under
the Act in connection with the public offering of such securities (other than a
registration relating solely to the sale of securities to participants in a
Corporation stock plan, a registration relating to a corporate reorganization or
other transaction under Rule 145 of the Act, a registration on any form that
does not include substantially the same information as would be required to be
included in a registration statement covering the sale of the Issued Shares or a
registration in which the only Common Stock being registered is Common Stock
issuable upon conversion of debt securities that are also being registered), the
Corporation shall, at such time, promptly give Lender written notice of such
registration. Upon the written request of Lender given within twenty (20) days
after mailing of such notice by the Corporation in accordance with Section 7,
the Corporation shall, subject to the provisions of Section 1.3(c), use all
commercially reasonable efforts to cause to be registered under the Act all of
the Issued Shares that Lender has requested to be registered. Notwithstanding
the foregoing, the rights set
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forth in this Section 5(c) shall not be available (i) after the fifth
anniversary of the IPO and (ii) if Lender is permitted, under applicable
securities laws (including Rule 144 or any successor rule promulgated under the
Act), to sell the Issued Shares for which Holder is seeking registration on an
unrestricted basis as to amount and method of sale in the four week period
immediately prior to the effective date of the Corporation's registration. The
expenses of any such registration hereunder shall be borne by the Corporation.
(ii) Right to Terminate Registration. The Corporation
shall have the right to terminate or withdraw any registration initiated by it
under this Section 5(c) prior to the effectiveness of such registration whether
or not Lender has elected to include securities in such registration.
(iii) Underwriting Requirements. In connection with
any offering involving an underwriting of shares of the Corporation's capital
stock, the Corporation shall not be required under this Section 5(c) to include
any of the Lender's securities in such underwriting unless it accepts the terms
of the underwriting as agreed upon between the Corporation and the underwriters
selected by it (or by other persons entitled to select the underwriters) and
enter into an underwriting agreement in customary form with an underwriter or
underwriters selected by the Corporation, and then only in such quantity as the
underwriters determine in their sole discretion will not jeopardize the success
of the offering by the Corporation. If the total amount of securities, including
the Issued Shares together with shares held by other persons (such persons,
together with the Lender, the "Holders") with rights similar to those granted to
Lender hereunder (collectively, the "Registrable Securities") requested by
Lender to be included in such offering exceeds the amount of securities sold
other than by the Corporation that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Corporation
shall be required to include in the offering only that number of such
securities, including Registrable Securities, that the underwriters determine in
their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned as follows: first, to the Corporation;
second, to the selling Holders, on a pro rata basis based on the total number of
Registrable Securities held by such selling Holders or in such other proportions
as shall mutually be agreed to by such selling Holders; third, to any other
shareholder of the Corporation (other than a Holder on a pro rata basis). For
purposes of the preceding parenthetical concerning apportionment, for any
selling shareholder that is a Holder of Registrable Securities and that is a
partnership or corporation, the partners, retired partners and shareholders 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 "selling Holder," and any pro rata reduction with respect
to such "selling Holder" shall be based upon the aggregate amount of Registrable
Securities owned by all such related entities and individuals.
(k) S-3 Registration Rights. If Lender makes a written request
that the Corporation effect a registration on Form S-3 with respect to Issued
Shares that have been held by Lender for one year or more and which cannot be
sold without restrictions as to amount or method of sale pursuant to Rule 144 of
the Securities Act or if the Corporation is otherwise required to effect a
registration on Form S-3 the Corporation shall:
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(i) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(ii) use commercially reasonable best efforts to
effect, as soon as practicable, 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 Holders' Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any other Holders joining in such request as
are specified in a written request given within fifteen (15) days after receipt
of such written notice from the Corporation, provided, however, that the
Corporation shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this Section 5(k).
(A) if Form S-3 is not available under
applicable rules and regulations of the SEC for such offering by the
Holders;
(B) if the Holders, together with the
holders of any other securities of the Corporation entitled to
inclusion in such registration, propose to sell Registrable Securities
and such other securities (if any) at an aggregate price to the public
(net before deduction of underwriters' discounts or commissions) of
less than $500,000;
(C) if the Corporation shall furnish to the
Holders a certificate signed by the Chief Executive Officer or Chairman
of the Board of the Corporation stating that in the good faith judgment
of a majority of the Board of Directors of the Corporation, it would be
detrimental to the Corporation and its shareholders for such Form S-3
Registration to be effected at such time, in which event the
Corporation shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than one hundred twenty
(120) days after receipt of the request of the Holder or Holders under
this Section 5(d); provided, however, that the Corporation shall not
utilize this right more than once in any twelve month period;
(D) if the Corporation has, within the six
(6) month period preceding the date of such request, already effected
one registration on Form S-3 for the Holders; or
(E) if the Corporation would be required to
qualify to execute a general consent to service of process, unless the
Corporation is already subject to service of process in such
jurisdiction and except as may be required under the Act.
(iii) Subject to the foregoing, the Corporation shall
file a registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders.
(iv) Notwithstanding anything herein to the contrary,
(i) the Corporation shall have the right from time to time to require any Holder
of Registrable Securities not to sell Registrable Securities pursuant to any
Form S-3 or to suspend the effectiveness
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thereof during the period starting with the date 30 days prior to the
Corporation's good faith estimate, as certified in writing by an executive
officer of the Corporation to the Holders of Registrable Securities, of the
proposed date of filing of a registration statement or a preliminary prospectus
supplement relating to an underwritten public offering of equity securities of
the Corporation for the account of the Corporation, and ending on the date 120
days following the delivery of such estimate and (ii) the Corporation shall be
entitled to require the Holders of Registrable Securities not to sell
Registrable Securities pursuant to any Form S-3 or to suspend the effectiveness
thereof (but not for a period exceeding 90 days) if the Corporation determines,
based on the opinion of legal counsel, that such offering or continued
effectiveness would interfere with any material financing, acquisition,
disposition, corporate reorganization or other material transaction involving
the Corporation or any of its subsidiaries because public disclosure thereof
would be required prior to the time such disclosure might otherwise be required.
In any event, the Corporation shall not be entitled to exercise the rights
granted to the Corporation pursuant to this Section 5(d)(iv) more than two times
in any one year period.
Upon the request of the Lender, the Corporation shall
cause to be delivered to the Lender a customary opinion of counsel and auditors
"cold comfort" letter in connection with the effectiveness of each registration
statement pursuant to which Lender sells securities.
(1) At the date of the final Prospectus relating to the initial public
offering of the Corporation's common stock, $.001 par value (the "Prospectus"),
the Prospectus will not contain a false or misleading statement of a material
fact or omit to state any material fact necessary in order to make the
statements made in such Prospectus, in light of the circumstances under which
they were made, not misleading, provided, however, that no forecast shall be
deemed to be misleading unless any such forecast was not based on reasonable
assumptions when made or was not prepared in good faith. Notwithstanding any
other provision herein, the Lender hereby expressly agrees that the Lender has
not relied on any registration statement or other document filed in connection
with the initial public offering of the Corporation's common shares in
connection with its decision to enter into this agreement.
Section 6. Indemnification for Third Party claims.
(a) To the extent permitted by law, the Corporation
will indemnify and hold harmless each Holder, any underwriter (as defined in the
Act) for such Holder and each person, if any, who controls such Holder or such
Holder's securities or such underwriter within the meaning of the Act or the
1934 Act, and each officer, director, agent, employee and partner of the
foregoing against any losses, claims, damages or liabilities (joint or several)
to which they may become subject 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 or any other document prepared by the Corporation incident
to such registration, (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
Corporation of the Act,
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the 1934 Act, any state securities law or any rule or regulation promulgated
under the Act, or the 1934 Act or any state securities law, and the Corporation
will pay to each such indemnified person any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 6 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 Corporation (which consent
shall not be unreasonably withheld), nor shall the Corporation 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 information furnished by such Holder, underwriter or
controlling person in writing expressly for use in such registration or for use
in direct connection with such registration.
(b) To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Corporation, each of its directors,
each of its officers each person, if any, who controls the Corporation within
the meaning of the Act, any underwriter and any controlling person of any such
underwriter, against any losses, claims, damages or liabilities (joint or
several) to which any of the foregoing persons may become subject 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 information furnished in writing by such Holder expressly for
use in connection with such registration, and each such Holder will pay to each
such indemnified party any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 6 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.
(c) Promptly after receipt by an indemnified party
under this Subsection (l) 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 6
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
together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests 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 receipt of notice 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
6 (to the extent of such prejudice), but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 6. No
indemnifying party, in the defense of any claim or litigation, shall, except
with the consent of each indemnified party,
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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 to such
claim or litigation. Each indemnified party shall furnish such information
regarding itself or the claim in question as an indemnifying party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this
Section 6 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
Section 7. Legend. The Promissory Note and the Warrant shall bear the
legend substantially in the form described below.
"THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE SOLD OR TRANSFERRED OR OFFERED FOR SALE OR
TRANSFER UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES
ACT AND OTHER APPLICABLE SECURITIES LAWS WITH RESPECT TO SUCH
SECURITIES IS THEN IN EFFECT, OR IN THE OPINION OF COUNSEL,
SUCH REGISTRATION UNDER THE SECURITIES ACT AND OTHER
APPLICABLE SECURITIES LAWS IS NOT REQUIRED."
The Corporation may also cause to be imposed upon such certificates such other
legends as counsel to the Corporation shall determine to be required under the
provisions of any federal securities act or any state law.
Section 8. Notice. Any notice or demand required to be given hereunder
shall be in writing and shall be deemed to have been duly given and received, if
given by hand, when a writing containing such notice is received by the person
to whom addressed or, is given by mail,
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two (2) business days after a certified or registered letter containing such
notice, with postage prepaid, is deposited in the United States mails, addressed
to:
To the Corporation: Take to Auction.com, Inc.
5555 Anglers Avenue, Suite 16
Fort Lauderdale, Florida 33312
Attn: Albert Friedman, President
Telephone: (954) 987-0654
Telecopier: (954) 987-8407
With a copy to: Baker & McKenzie,
1200 Brickell Avenue, 19th Floor
Miami, Florida 33131
Telecopier: (305) 789-8953
Attention: Keith Wasserstrom, Esq.
To Lender: E Com Ventures, Inc.
11701 N.W. 101st Road
Miami, Florida 33178
Attn: Donovan Chin, CFO
Telecopier: (305) 888-0628
Any party may change its address for the purposes of this Agreement by giving
notice of such change of address to the other parties in the manner herein
provided for giving notice. Time shall be of the essence with respect to all
time periods specified for the giving of notices to the Corporation hereunder.
Section 9. Miscellaneous.
(a) Modification. This Agreement may only be amended,
terminated or modified by the written consent of all parties.
(b) Successors. This Agreement cannot be assigned, transferred
or otherwise conveyed by either party without the consent of the other party
which consent shall not be unreasonably withheld. This Agreement shall be
binding upon the parties hereto, their heirs, administrators, successors,
executors and assigns, and the parties hereto do covenant and agree that they
themselves and their respective heirs, executors, successors, administrators and
assigns will execute any and all instruments, releases, assignments and consents
that may be reasonably required of them to more fully execute the provisions of
this Agreement.
(c) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall serve as an original for all purposes,
but all copies of which shall constitute but one and the same Agreement.
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<PAGE>
(d) Headings. All headings set forth in this Agreement are
intended for convenience only and shall not control or affect the meaning,
construction or effect of this Agreement or of any of the provisions thereof.
(e) Governing Law. This Agreement shall be governed by and
shall be construed and enforced in accordance with the laws of the State of
Florida. To the fullest extent permitted by law, the subscriber and the
Corporation hereby (a) submit to the jurisdiction of the Florida and United
States courts for the Florida judicial circuit and the federal district,
respectively, wherein lies Miami-Dade County, Florida for purposes of any legal
action or proceeding brought under this Agreement and (b) agree that exclusive
venue of any such action or proceeding may be laid in Miami-Dade County, Florida
and waive any claim that the same is an inconvenient forum.
(f) Entire Agreement. This Agreement, the Note and the Warrant
constitute the entire Agreement of the parties hereto with respect to the
subject matter hereof, and it is hereby agreed that any prior oral or written
agreements concerning the sale or disposition of the Stock shall be null and
void.
(g) Specific Performance; Fees. Consequently, the parties
hereto agree that an action for specific performance of the purchase and sale
obligations created by this Agreement is a proper remedy for the breach of its
provisions. If the parties to this Agreement are forced to institute legal
proceedings to enforce their rights in accordance with the provisions of this
Agreement, the prevailing party shall be entitled to recover their reasonable
attorneys' fees and court costs incurred in enforcing such rights.
(h) Indemnification. Each party shall indemnify and hold each
other and their respective affiliated companies, officers, directors, employees,
stockholders and agents harmless from all liabilities, claims, costs, damages
and expenses, including reasonable attorney's fees and costs, at both the trial
and appellate levels, arising out of any breach on the part of the either party
with respect to any of their respective representations or obligations under
this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have hereunto set
their names as of the date first above written.
TAKE TO AUCTION.COM, INC.
By: /s/ Albert Friedman
-------------------------------
Name: Albert Friedman
-----------------------------
Title: CEO/President
----------------------------
E COM VENTURES, INC.
By: /s/ Ilia Lekach
-------------------------------
Name: Ilia Lekach
-----------------------------
Title: CEO
----------------------------
14
<PAGE>
EXHIBIT A
FORM OF PROMISSORY NOTE
Please See Attached
<PAGE>
EXHIBIT B
FORM OF WARRANT
Please See Attached
<PAGE>
EXHIBIT C
FINANCIAL STATEMENTS
Please See Attached
<PAGE>
EXHIBIT D
CAPITALIZATION OF THE CORPORATION
Please See Attached
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
TRANSFERRED OR DEFERRED FOR SALE OR TRANSFER IN VIOLATION OF ANY FEDERAL OR
STATE SECURITIES LAWS.
TAKE TO AUCTION.COM, INC.
CONVERTIBLE
PROMISSORY NOTE
$1,000,000 December 21, 1999
TAKE TO AUCTION.COM INC., a Florida corporation (hereinafter
called the "Obligor"), for value received, hereby promises to pay to E Com
Ventures, Inc. (the "Holder") the principal sum of ONE MILLION DOLLARS
($1,000,000) (the "Principal Balance"). The Principal Balance shall be payable
on December 20, 2001. Interest on the Principal Balance shall accrue from the
date hereof at a rate of six percent (6% per annum) and shall be payable
semi-annually on the twenty-first (21st) day of each June and December,
commencing June 21, 2000 and continuing up to and including the Payment Date
("Payment Date").
All payments of principal and interest shall be in such coin
or currency of the United States of America as at the time of payment shall be
legal tender for payment of public and private debts, and shall be made at the
address of the Holder in accordance with Section 7 below.
1. Note. This Note is the "Promissory Note" issued pursuant to
a Note and Warrant Purchase Agreement dated as of December 21, 1999 (the "Note
Purchase Agreement"), by and between the Obligor and the Holder, and is subject
to the terms and conditions of the Note Purchase Agreement.
2. Conversion. During the Subscription Period (as defined
below), the Holder shall have the right to convert all, but not less than all,
of the Principal Amount hereof into shares of the Obligor's common stock, $.001
par value (the "Common Stock") at the conversion price per share equal to the
price to public specified on the cover page of the final prospectus of the
Company's Registration Statement (No. 333-91177) (the "Registration Statement")
relating to the initial public offering of the Common Stock, less the
underwriters' gross commissions (the "IPO Price") for one share of Common Stock,
upon surrender of this Note, at the principal office of the Company, accompanied
by written notice of conversion in the form attached hereto as Schedule I, duly
executed by the Holder or its duly authorized attorney-in-fact (the process by
which the Holder may exercise its right to convert this Note into shares of
<PAGE>
Common Stock is defined as a "Conversion Election"). The shares of Common Stock
into which this Note converts shall be delivered to Holder or its order not more
than seven (7) days after the date the Conversion Election is complete. No
adjustments in respect of dividends or any other event will be made upon any
conversion. Accrued and unpaid interest hereon shall not be convertible into
Common Stock of the Company; however, the Holder shall be entitled to receive
any accrued and unpaid interest to the date of conversion and the conversion of
this Note will not extinguish that contractual right, which interest shall be
paid on the date that the shares of Common Stock into which this Note is
converted are delivered. For purposes of this Agreement, the Subscription Period
shall be the 14 days immediately following the effective date of the
Registration Statement. Obligor shall give Holder notice of such effective date
not more than 1 day after the declaration thereof. The Subscription Period shall
be extended one day for each day that such notice is not timely given by
Obligor.
3. Default. If any of the following events shall occur and be
continuing (each such event, an "Event of Default"):
(a) the Obligor fails to repay any installment of the
Principal Balance when due hereunder.
(b) the Obligor fails to make any installment of interest
within ten (10) days after the due date thereof.
(c) the Obligor violates any other covenant, agreement or
condition contained in this Note or the Note Purchase Agreement and such
violation remains uncured for ten (10) Business Days after receipt of written
notice from the Holder, which notice shall specify the conduct required to cure
such violation; or
(d) the Obligor shall be adjudicated insolvent, or fails to
pay or admits in writing its inability to pay its debts as they mature (whether
at stated maturity; upon acceleration or otherwise), makes a general assignment
for the benefit of creditors; or the Obligor shall apply for or consent to the
appointment of any receiver, custodian, trustee or similar officer for it or for
all or any substantial part of its property, or such receiver, custodian,
trustee or similar officer shall be appointed without the application or consent
of the Obligor; or the Obligor shall institute (by petition, application,
answer, consent or otherwise), or take any action to authorize the institution
of, any bankruptcy, insolvency, reorganization, arrangement, readjustment of
debt, dissolution, liquidation or similar proceeding relating to the Obligor
under the laws of any jurisdiction; or any such proceeding shall be instituted
(by petition, application or otherwise) against the Obligor and such proceeding
shall not be dismissed within sixty (60) days after being instituted;
then, (i) upon the occurrence of any Event of Default described in clause (c) of
this Section, the unpaid Principal Balance and accrued and unpaid interest shall
automatically become immediately due and payable, without presentment, demand,
protest, notice of intent to accelerate, notice of acceleration or further
notice of any kind, all of which are hereby expressly waived by the Obligor, and
(ii) upon the occurrence of
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<PAGE>
any other Event of Default, the Holder may, at its option, by written notice to
the Obligor declare the entire unpaid Principal Balance, together with accrued
and unpaid interest, to be forthwith due and payable, whereupon all such amounts
shall become and be forthwith due and payable, without presentment, demand,
protest, notice of intent to accelerate, notice of acceleration or further
notice of any kind, all of which are hereby expressly waived by the Obligor.
During the period that an Event of Default shall exist, the Principal balance
shall bear interest at a rate of 12% per annum.
4. Prepayment; Redemption. At any time after the Subscription
Period, this Note may, at the option of the Obligor, be redeemed prior to
maturity as a whole or in part at the principal office of the Obligor, upon the
notice provided herein.
5. Waiver of Trial by Jury. THE HOLDER HEREBY AND THE OBLIGOR
BY ACCEPTANCE OF THIS NOTE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE
RIGHT EITHER MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREOF, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF EITHER PARTY.
6. No Oral Modification; Assignment. This Note cannot be
changed or modified other than pursuant to a written instrument signed by the
parties hereto. This Note cannot be assigned by the Obligor, in whole or in
part, unless the Holder shall consent in writing prior to such assignment.
7. Successors and Assigns. This Note shall be binding upon and
inure to the benefit of the Obligor, the Holder and their respective successors
and assigns.
8. Notice. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or by Federal Express, Express Mail or
similar overnight delivery or courier service or delivered (in person or by
telecopy, telex or similar communications equipment) against receipt to the
party to whom it is to be given, (i) if to the Holder, at 11701 N.W. 101st Road,
Miami, Florida 33178, Attention: Albert Friedman, President, telecopy (954)
987-8407 and (ii) if to the Obligor, at 5555 Anglers Avenue, Suite 16, Fort
Lauderdale, Florida 33312, Attention: Donovan Chin, CFO, telecopy (305) 888-0628
and (iii) in either case, to such other address as the party shall have
furnished in writing in accordance with the provisions of this Section. Any
notice or other communication given by certified mail shall be deemed given at
the time of certification thereof, except for a notice changing a party's
address, which shall be deemed given at the time of receipt thereof. Any notice
given by other means permitted by this Section shall be deemed given at the time
of receipt thereof.
9. Applicable Law. This Agreement shall for all purposes be
construed and interpreted in accordance with the laws of the State of Florida,
without
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<PAGE>
regard to any conflict of law rule or principle that would give effect to the
laws of another jurisdiction.
IN WITNESS WHEREOF, TAKE TO AUCTION.COM, INC. has caused this
Note to be signed in its corporate name by one of its officers thereunto duly
authorized and to be dated as of the date first above written.
TAKE TO AUCTION.COM, INC.
By: /s/ Albert Friedman
-------------------------------
Name: Albert Friedman
Title: CEO/President
4
<PAGE>
SCHEDULE I
CONVERSION NOTICE FORM
The undersigned hereby irrevocably elects to convert all of the Principal Amount
into shares of the Obligor's Common Stock at the IPO Price. This conversion form
shall not be effective unless delivered to Obligor in conformance with the terms
of the Note, including, without limitation, the surrender of the Note to
Obligor. Terms not defined herein shall have the meaning set forth in that
certain Convertible Promissory Note between Take to Auction.com. Inc. and E Com
Ventures, Inc., dated December 21, 1999.
-----------------------------------
Signature
-----------------------------------
Date
<PAGE>
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THE SECURITIES ACT
OR AN OPINION OF COUNSEL IS OBTAINED STATING THAT SUCH DISPOSITION IS IN
COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
December 21, 1999
TAKE TO AUCTION. COM, INC.
Warrant for the Purchase of Shares of Common Stock
No. 1
FOR VALUE RECEIVED, TAKE TO AUCTION.COM, INC., INC., a Florida
corporation (the "Company"), hereby certifies that E Com Ventures, Inc. (the
"Holder") is entitled, subject to the provisions of this Warrant, to purchase
from the Company, up to Three Hundred Thousand (300,000), as adjusted pursuant
to Section 6, fully paid and non-assessable shares of Common Stock at a price
per share equal to the price to public specified on the cover page of the final
prospectus of the Company's Registration Statement (the "Registration
Statement") relating to the initial public offering of the Common Shares less
the underwriters' gross commissions (the "IPO Price"), as adjusted pursuant to
Section 6.
The term "Common Stock" means the Company's Common Stock, par value
$0.001 per share. The shares of Common Stock deliverable upon such exercise are
hereinafter referred to as the "Warrant Shares." The term "Other Securities"
means any other equity or debt securities that may be issued by the Company in
addition thereto or in substitution for the Warrant Shares. The term "Company"
means and includes the corporation named above as well as (i) any immediate or
more remote successor corporation resulting from the merger or consolidation of
such corporation (or any immediate or more remote successor corporation of such
corporation) with another corporation, or (ii) any corporation to which such
corporation (or any immediate or more remote successor corporation of such
corporation) has transferred its property or assets as an entirety or
substantially as an entirety.
<PAGE>
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute an additional contractual obligation on
the part of the Company, whether or not this Warrant so lost, stolen, destroyed
or mutilated shall be at any time enforceable by anyone.
The Holder agrees with the Company that this Warrant is issued, and all
the rights hereunder shall be held subject to, all of the conditions,
limitations and provisions set forth herein.
1. Exercise of Warrant. This Warrant may be exercised in whole or in
part at any time, or from time to time during the period (the "Subscription
Period") commencing on the business day immediately following the effective date
of the Registration Statement and expiring 5:00 p.m. Eastern Standard Time on
the first anniversary of the effective date of the Registration Statement by
presentation and surrender of this Warrant to the Company at its principal
office, or at the office of its stock transfer agent, if any, with the Warrant
Exercise Form attached hereto duly executed and accompanied by payment (either
in cash or by certified or official bank check, payable to the order of the
Company) of the exercise price for the number of shares specified in such form
and instruments of transfer, if appropriate, duly executed by the Holder or his
or her duly authorized attorney. If this Warrant should be exercised in part
only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the rights of the Holder thereof to
purchase the balance of the shares purchasable hereunder. In no event shall
fractional shares or scrip representing fractional shares be issued upon
exercise of this Warrant. Upon receipt by the Company of this Warrant, together
with the Exercise Price, at its office, or by the stock transfer agent of the
Company at its office, in proper form for exercise, (a "Conforming Exercise")
the Holder shall be deemed to be the holder of record of the shares of Common
Stock issuable upon such exercise, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
shares of Common Stock shall not then be actually delivered to the Holder which
certificates shall be delivered to Holder or its order not more than three (3)
business days after a Conforming Exercise. The Company shall pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on exercise of this Warrant.
2. Reservation of Shares. The Company will at all times reserve for
issuance and delivery upon exercise of this Warrant all shares of Common Stock
or other shares of capital stock of the Company (and Other Securities) from time
to time receivable upon exercise of this Warrant. All such shares (and Other
Securities) shall be duly authorized and, when issued upon such exercise, shall
be validly issued, fully paid and non-assessable and free of all preemptive
rights.
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<PAGE>
3. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant. The Company shall not be obligated to register the shares of the
Warrant Stock or Other Securities, except as set forth in that certain Note and
Warrant Purchase Agreement, dated as of the date hereof between the Company and
the Holder.
4. Transfer to Comply with the Securities Act. This Warrant and any
Warrant Stock or Other Securities may not be sold, transferred, pledged,
hypothecated or otherwise disposed of except as follows: (a) to a person who, in
the opinion of counsel to the Company, is a person to whom this Warrant or the
Warrant Shares or Other Securities may legally be transferred without
registration and without the delivery of a current prospectus under the
Securities Act with respect thereto and then only against receipt of an
agreement of such person to comply with the provisions of this Section 4 with
respect to any resale or other disposition of such securities; or (b) to any
person upon delivery of a prospectus then meeting the requirements of the
Securities Act relating to such securities and the offering thereof for such
sale or disposition, and thereafter to all successive assignees.
5. Legend. Upon exercise of any of the Warrants and the issuance of any
of the shares of Warrant Shares or Other Securities, all certificates
representing such securities shall bear on the face thereof substantially the
following legend to the extent applicable:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR
OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE
PROVISIONS OF THAT ACT OR DISPOSED OF PURSUANT TO RULE 144
UNDER THAT ACT OR UNLESS AN OPINION OF COUNSEL TO THE
CORPORATION IS OBTAINED STATING THAT SUCH DISPOSITION IS IN
COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
6. Anti-Dilution Provisions.
(a) Adjustment for Recapitalization. If the Company shall at
any time, after the date hereof, subdivide its outstanding shares of Common
Stock by recapitalization, reclassification or split-up thereof, or if the
Company shall declare a stock dividend or distribute shares of Common Stock to
its stockholders, the number of Warrant Shares then subject to this Warrant
immediately prior to such subdivision shall be proportionately increased and the
exercise price shall be proportionately decreased, and if the Company shall at
any time combine, after the date hereof, the outstanding shares of Common Stock
by recapitalization, reclassification or combination thereof, the number of
Warrant shares then subject to this Warrant immediately prior to such
combination shall be proportionately decreased and the exercise price shall be
proportionately increased. Any such adjustments pursuant to this Section
3
<PAGE>
4(a) shall be effective at the close of business on the effective date of such
subdivision or combination or if any adjustment is the result of a stock
dividend or distribution then the effective date for such adjustment based
thereon shall be the record date therefor.
(b) Adjustment for Reorganization, Consolidation, Merger, Etc.
In case of any reorganization of the Company or in case the Company shall
consolidate with or merge into another corporation or convey all or
substantially all of its assets to another corporation, then, and in each such
case, the Holder upon the exercise of this Warrant at any time after the
consummation of such reorganization, consolidation, merger or conveyance, shall
be entitled to receive, in lieu of the Warrant Shares issuable upon the exercise
of this Warrant prior to such consummation, the securities or property to which
the Holder would have been entitled upon such consummation if the Holder had
exercised this Warrant immediately prior thereto; in each such case, the terms
of this Warrant shall be applicable to the securities or property receivable
upon the exercise of this Warrant after such consummation.
(c) No Adjustment for Stock Issuances. Except as otherwise
expressly provided herein, the issuance by the Company of shares of its capital
stock of any class, or securities convertible into shares of capital stock of
any class, either in connection with the direct sale (including in connection
with the Company's initial public offering) or upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or obligations of
the Company convertible into such shares or other securities, shall not affect
this Warrant, and no adjustment by reason thereof shall be made with respect to
the number of or exercise price of Warrant Shares then subject to this Warrant.
(d) No Effect on Corporate Actions. Without limiting the
generality of the foregoing, the existence of this Warrant shall not affect in
any manner the right or power of the Company to approve or the Company to make,
authorize or consummate (i) any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business; (ii) any merger or consolidation of the Company; (iii) any issuance by
the Company of debt securities, or preferred or preference stock that would rank
above the Warrant Shares subject to outstanding Warrants; (iv) the dissolution
or liquidation of the Company; (v) any sale, transfer or assignment of all or
any part of the assets or business of the Company or (vi) any other corporate
act or proceeding, whether of a similar character or otherwise.
(e) The Company shall give Holder notice of any adjustment
pursuant to this Section 6, not more than ten (10) days thereafter.
7. Notices. All notices required hereunder shall be in writing and
shall be deemed given when telegraphed, delivered personally or within two days
after mailing when mailed by certified or registered mail, return receipt
requested, to the Company at its principal office, or to the Holder at the
address set forth on the record books of the Company, or at such other address
of which the Company or the Holder has been advised by notice hereunder.
8. Applicable Law. The Warrant is issued under and shall for all
purposes be governed by and construed in accordance with the laws of the State
of Florida, without giving effect to the choice of law rules thereof.
4
<PAGE>
IN WITNESS HEREOF, the Company has caused this Warrant to be signed on
its behalf, in its corporate name, by its duly authorized officer, all as of the
day and year first above written.
TAKE TO AUCTION.COM, INC.
By: /s/ Albert Friedman
------------------------------
Name: Albert Friedman
-----------------------------
Title: CEO/President
----------------------------
5
<PAGE>
WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the within Warrant to the
extent of purchasing ____________ shares of Common Stock of Take to Auction.com,
Inc., a Florida corporation, and hereby makes payment of $____________ in
payment therefor.
-----------------------------------
Signature
-----------------------------------
Signature, if jointly held
-----------------------------------
Date
INSTRUCTIONS FOR ISSUANCE OF STOCK
(if other than to the registered holder of the within Warrant and permitted by
Take to Auction.Com, Inc.)
Name
---------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
Social Security or
Taxpayer Identification Number
-------------------------------------------------
6
EXHIBIT 10.13
NOTE AND WARRANT
PURCHASE AGREEMENT
THIS NOTE PURCHASE AND OPTION AGREEMENT ("Agreement") is made and
entered into as of the 9th day of March, 2000, by and between E COM VENTURES,
INC., a Florida Corporation ("Lender"), and TAKE TO AUCTION.COM, INC., a Florida
corporation (the "Corporation").
RECITALS
A. Lender desires to lend to Corporation, and the Corporation desires
to borrow from Lender an amount equal to One Million Dollars ($1,000,000) (the
"Principal Amount") upon the terms and conditions set forth herein.
B. In connection with the loan, the Corporation shall deliver to Lender
a convertible promissory note in the aggregate principal amount of One Million
Dollars ($1,000,000) (the "Promissory Note").
C. In connection with the loan, the Corporation shall issue a Warrant
for the purchase of shares of the Corporation's Common Stock (the "Common
Shares") following the consummation of the initial public offering of the Common
Shares (the "IPO").
AGREEMENT
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements set forth in this Agreement, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
Section 1. Loan. At the "Closing" (as defined below), the Corporation
shall deliver to the Lender the Promissory Note, which note shall be in the form
attached hereto as Exhibit A (the "Promissory Note").
Section 2. Warrant. At the Closing, the Corporation shall deliver to
the Lender a warrant in the form attached hereto as Exhibit B (the "Warrant").
Section 3. Closing. The closing of the loan by the Lender to the
Corporation described herein and the sale of the Warrant by the Corporation to
Lender (the "Closing") shall occur at such time and place as the Corporation
shall designate by written notice to the undersigned. At the Closing, the
Corporation shall deliver the Lender the Promissory Note and the Warrant.
Lender, upon proper tender of the Promissory Note and the Warrant from the
Corporation, shall tender payment of the Principal Amount in cash or by official
bank check or money order (or such other form of consideration as may be
mutually agreed upon by the parties) less any portion
<PAGE>
previously paid to the Corporation prior to the date of the Closing. Corporation
shall pay all stamp taxes arising in connection with the issuance of the
Promissory Note.
Section 4. Representations, Warranties and Covenants of Lender. Lender
hereby represents and warrants to the Corporation as follows:
(a) State Securities Laws. Lender received this Agreement and
first learned of the offer of the sale of the Promissory Note and the Warrant
(together, the "Offered Securities") in Florida. Lender executed and will
execute all documents contemplated hereby in Florida, and intends that the laws
of Florida govern this offering of Offered Securities.
Lender understands, agrees and acknowledges that the
Offered Securities have not been registered under the Florida Securities Act and
that such securities are being offered in reliance upon exemption provisions
contained therein which the Corporation believes are available. Any sale made
pursuant to such exemption provisions is voidable by Lender within three
business days after the first tender of consideration is made by Lender to the
issuer, an agent of the issuer or an escrow agent. A withdrawal within such
three day period will be without any further liability to any person. To
accomplish this withdrawal, a Lender need only send a letter or telegram to the
Corporation at the address set forth in this Agreement, indicating his or her
intention to withdraw.
Such letter or telegram should be sent and postmarked
prior to the end of the aforementioned third business day. It is advisable to
send such letter by certified mail, return receipt requested, to ensure that it
is received and also to evidence the date it was mailed. If the request is made
orally, in person or by telephone, to a representative of the Corporation, a
written confirmation that the request has been received will be requested.
(b) Authority. Lender has the capacity, power and authority to
execute this Agreement and perform its obligations hereunder. This Agreement has
been duly executed and delivered by Lender and (assuming the due execution and
delivery hereof by the Corporation) constitutes a valid and binding obligation
of Lender enforceable against Lender in accordance with its terms.
(c) Acquisition for Investment. Lender shall acquire the
Offered Securities for investment solely for Lender's account and not for
distribution to others.
(d) Restrictions on Transfer. Lender understands that Lender
must bear the economic risk of the purchase of the Offered Securities for an
indefinite period of time because, except as provided in this Agreement, (i) the
Corporation's sale of the Offered Securities to Lender will not be registered
under the Securities Act of 1933, as amended (the "Act"), and applicable state
securities laws in reliance on Lender's representations; (ii) the Offered
Securities may not be sold, transferred, pledged, or otherwise disposed of
without the consent of the Corporation and an opinion of counsel for or
satisfactory to the Corporation that registration under the Act or any
applicable state securities laws is not required (provided that no opinion shall
be required if the Offered Securities are disposed of in accordance with Rule
144 under the Act); (iii) the Corporation neither has an obligation to register
a sale of the Offered Securities nor
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<PAGE>
has it agreed to do so in the future; and (iv) the exemption provided in Rule
144 under the Act is not presently available for the resale of any Offered
Securities.
(e) Certain Risk Factors. Lender understands the speculative
nature of and risks involved in the proposed investment in and loan to the
Corporation, and all matters relating to the structure and the operations of the
Corporation have been discussed and explained to Lender's satisfaction. Lender
specifically acknowledges, understands and agrees that, (i) that no return on
investment (other than payment of interest under the Promissory Note), whether
through distributions, appreciation, transferability or otherwise, and no
above-average or other performance, by, through or of the Corporation, has been
promised, assured, represented or warranted by the Corporation or any director,
officer, employee, agent or representative thereof; (ii) that there is no
present public or other market for the Offered Securities and that there may
never be a public or other market for the Offered Securities; and (iii) that the
purchase of the Offered Securities is a highly speculative investment, involving
a high degree of risk, and is suitable only for persons of adequate financial
means who are able to bear the economic risks inherent in such an investment and
have no need for liquidity in this investment in that, among other things, (a)
such persons may not be able to liquidate their investment in the event of an
emergency or otherwise, (b) transferability is extremely limited, and (c) in the
event of a disposition or otherwise, such persons could sustain a complete loss
of their entire investment.
(f) Restrictive Legends. Lender understands that the Offered
Securities the Note Shares, and the shares to be issued upon exercise of the
Warrant (the "Warrant Shares", and together, the "Issued Shares") if issued,
will each bear a restrictive legend prohibiting the transfer thereof except in
compliance with applicable state and federal securities laws.
(g) Access to Information. Lender has been offered, and up to
the date of purchase shall be offered, the opportunity to ask questions of, and
receive answers from, the Corporation and to obtain any additional information,
to the extent that the Corporation possesses such information or could have
acquired it without unreasonable effort or expense, necessary to verify the
accuracy of the information contained in the documents delivered to Lender and
has in general had access to all information Lender has deemed material to an
investment decision with respect to the purchase of the Offered Securities.
(h) Investment Experience. Lender acknowledges that it is able
to fend for itself, can bear the economic risk of its investment in the Offered
Securities, and has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of an investment
in the Shares. Lender represents that Lender is an "accredited investor" within
the meaning of such term under paragraph (a)(1), (a)(2), (a)(3), (a)(7) or
(a)(8) of Rule 501 under Regulation D under the Securities Act.
Section 5. Representations, Warranties and Covenants of the
Corporation.
In order to induce the Lender into this Agreement, the Corporation
represents and warrants to and agrees with the Lender as follows:
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(a) Existence and Good Standing. The Corporation is duly
organized, validly existing and in good standing, or the equivalent thereof,
under the laws of the State of Florida. The Corporation has the requisite power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted and as proposed to be conducted. The Corporation
is duly qualified or licensed to do business and is in good standing, or the
equivalent thereof, and is authorized to do business, in each jurisdiction in
which the character or location of the properties owned, leased or operated by
the Corporation or the nature of the business conducted by such entity makes
such qualification or license necessary, except where any such failure to be
duly qualified or licensed or in good standing, or the equivalent thereof, would
not have a material adverse effect on the business, operations, financial
condition or results of operations of the Corporation, taken as a whole, or on
the ability of the Corporation to perform its obligations under the Agreement (a
"Material Adverse Effect").
(b) Authority. The Corporation hereby represents and warrants
to Lender that, the Corporation has the power and authority to execute and
deliver this Agreement, the Note and the Warrant and to perform its obligations
hereunder and thereunder. The execution, delivery and performance of this
Agreement, the Note and the Warrant by the Corporation and the performance of
its obligations hereunder and thereunder have been duly authorized and approved
by all necessary action (including, without limitation, all action of the Board
of Directors, or the equivalent thereof, and shareholders or other required
persons of the Corporation) and no other action on the part of such persons is
necessary to authorize the execution, delivery and performance of this
Agreement, the Note and the Warrant by the Corporation. This Agreement, the Note
and the Warrant have been duly executed and delivered by the Corporation and,
assuming due execution thereof by the other parties thereto, are the valid and
binding obligations of the Corporation enforceable against the Corporation in
accordance with their terms, except to the extent that enforceability may be
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding brought in equity or at law). The Corporation has
reserved a sufficient number of shares of its Common Stock for issuance upon
conversion of the Note and Exercise of the Warrant. Upon the issuance of the
Issued Shares, such shares shall be duly authorized, validly issued, fully paid
and nonassessable.
(c) Rule 144. Following the consummation of the IPO (assuming
such IPO occurs) and during such time as the Corporation is a public company
with its securities registered under the Act, the Corporation will use
commercially reasonable efforts to ensure that it is in compliance with the
requirements of Rule 144 under the Act applicable to the issuer of securities,
so as to facilitate non-registered sales of the Corporation's securities held by
the Lender, consistent with the limitations and requirements of Rule 144 under
the Act. Nothing in this Section 5(c) shall be deemed as either (i) any
representation or warranty that the Corporation will become a public corporation
with securities registered under the Act, or (ii) any covenant or agreement by
the Corporation to register, under federal or state securities laws or
otherwise, any of the Corporation's securities issued to, or held by, the
Lender.
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(d) Financial Statements. Attached hereto as Exhibit C are the
Corporation's audited financial statements (balance sheet and statement of
operations, statement of changes in shareholders' equity and statement of cash
flows, including notes thereto) as at its most recent audit date (the "Audit
Date") (the "Financial Statements"). The Financial Statements have been prepared
in accordance with United States generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods indicated and with
each other, except that the unaudited Financial Statements may not contain all
footnotes required by GAAP. The Financial Statements fairly present the
financial condition, stockholders' equity and cash flows and operating results
of the Corporation as of the date, and for the periods, indicated therein. Other
than as disclosed in the Financial Statements, the Corporation has no material
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to the Audit Date and (ii) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under GAAP to be reflected in the Financial Statements, which, in
both cases, individually or in the aggregate, are not material to the financial
condition or operating results of the Corporation.
Each of the balance sheets included in the Financial
Statements (including any related notes and schedules) fairly presents the
financial position of the Corporation as of its date and each of the statements
of operations, shareholders' equity (deficit) and cash flows included in or
incorporated by reference into the Financial Statements (including any related
notes and schedules) fairly presented the results of operations, retained
earnings or cash flows, as the case may be, of the entity or entities to which
it relates for the periods set forth therein, in each case in accordance with
GAAP consistently applied during the periods involved, except as may be noted
therein and except, in the case of the unaudited statements, subject to normal
recurring year-end adjustments.
The capitalization of the Corporation is as set forth in
Exhibit D attached hereto.
(e) Consents and Approvals; no Violations. The execution and
delivery of this Agreement, the Note and the Warrant by the Corporation and
compliance by the Corporation with the terms and provisions hereof and thereof
and the issuance of the Note Shares and Warrant Shares by the Corporation and
the consummation of the transactions contemplated hereby and thereby do not and
will not (a) violate or contravene any provision of the articles of
incorporation or bylaws of the Corporation, (b) violate or contravene any
statute, rule, regulation, licensing requirement, order or decree of any court,
arbitrator or any other public body or authority by which the Corporation is
bound or by which any of its properties or assets are bound, (c) require any
filing with, or permit, consent authorization, qualification or approval of, or
exemption from, or the giving of any notice to, any governmental or regulatory
body, agency or authority, or any other person (other than required filings
under the Act or the Exchange Act of 1934, as amended (the "1934 Act") which
have been or prior to the Closing will be made) or (d) result in a violation or
breach of, conflict with, constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation,
payment or acceleration) under, or result in the creation of any encumbrance
upon any of the properties or assets of the Corporation under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
franchise, permit, agreement, lease, franchise agreement or any
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other instrument or obligation to which the Corporation is bound, or by which it
or any of its properties or assets may be bound.
(f) Compliance with Laws. The Corporation is in compliance in
all material respects with all applicable laws, regulations, licensing
requirements, orders, judgments and decrees and has obtained all required
governmental approvals and permits in each jurisdiction in which they currently
do business, in each case except where the failure to do so would not have a
Material Adverse Effect on the Corporation. Without limiting the generality of
the foregoing, the Corporation is in compliance in all respects with the United
States Foreign Corrupt Practices Act of 1977, as amended.
(g) Employment Relations. The Corporation is in substantial
compliance with all federal, state or other applicable laws, domestic or
foreign, respecting employment and employment practices, terms and conditions of
employment and wages and hours, and has not, and is not, engaged in any unfair
labor practice and there is no labor strike, dispute, slowdown or stoppage
actually pending or threatened against or involving the Corporation.
(h) Securities Law Compliance. Assuming that the
representations set forth in Section 5 are true and correct, the offering,
issuance, sale and delivery of the Promissory Note and Warrant and the Warrant
Shares and the Note Shares to the Lender is exempt from the registration
requirements of the Act. The Corporation has complied with, or is exempt from,
all registration requirements of all applicable state securities laws, or
foreign securities law, in connection with the offering, issue, sale and
delivery of the Shares.
(i) Broker's or Finder's Fees. No agent, broker, person or
firm acting on behalf of the Corporation is, or will be, entitled to any
commission or broker's or finder's fees from the Corporation, or from any person
controlling, controlled by or under common control with the Corporation, in
connection with the transactions contemplated hereby.
(j) Corporation Registration.
(i) Notice; Registration Rights. If (but without any
obligation to do so) the Corporation proposes to register (including, without
limitation, for this purpose a registration effected by the Corporation for
shareholders other than the Lender) any of its stock or other securities under
the Act in connection with the public offering of such securities (other than a
registration relating solely to the sale of securities to participants in a
Corporation stock plan, a registration relating to a corporate reorganization or
other transaction under Rule 145 of the Act, a registration on any form that
does not include substantially the same information as would be required to be
included in a registration statement covering the sale of the Issued Shares or a
registration in which the only Common Stock being registered is Common Stock
issuable upon conversion of debt securities that are also being registered), the
Corporation shall, at such time, promptly give Lender written notice of such
registration. Upon the written request of Lender given within twenty (20) days
after mailing of such notice by the Corporation in accordance with Section 7,
the Corporation shall, subject to the provisions of Section 1.3(c), use all
commercially reasonable efforts to cause to be registered under the Act all of
the Issued Shares that Lender has requested to be registered. Notwithstanding
the foregoing, the rights set
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forth in this Section 5(c) shall not be available (i) after the fifth
anniversary of the IPO and (ii) if Lender is permitted, under applicable
securities laws (including Rule 144 or any successor rule promulgated under the
Act), to sell the Issued Shares for which Holder is seeking registration on an
unrestricted basis as to amount and method of sale in the four week period
immediately prior to the effective date of the Corporation's registration. The
expenses of any such registration hereunder shall be borne by the Corporation.
(ii) Right to Terminate Registration. The Corporation
shall have the right to terminate or withdraw any registration initiated by it
under this Section 5(c) prior to the effectiveness of such registration whether
or not Lender has elected to include securities in such registration.
(iii) Underwriting Requirements. In connection with
any offering involving an underwriting of shares of the Corporation's capital
stock, the Corporation shall not be required under this Section 5(c) to include
any of the Lender's securities in such underwriting unless it accepts the terms
of the underwriting as agreed upon between the Corporation and the underwriters
selected by it (or by other persons entitled to select the underwriters) and
enter into an underwriting agreement in customary form with an underwriter or
underwriters selected by the Corporation, and then only in such quantity as the
underwriters determine in their sole discretion will not jeopardize the success
of the offering by the Corporation. If the total amount of securities, including
the Issued Shares together with shares held by other persons (such persons,
together with the Lender, the "Holders") with rights similar to those granted to
Lender hereunder (collectively, the "Registrable Securities") requested by
Lender to be included in such offering exceeds the amount of securities sold
other than by the Corporation that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Corporation
shall be required to include in the offering only that number of such
securities, including Registrable Securities, that the underwriters determine in
their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned as follows: first, to the Corporation;
second, to the selling Holders, on a pro rata basis based on the total number of
Registrable Securities held by such selling Holders or in such other proportions
as shall mutually be agreed to by such selling Holders; third, to any other
shareholder of the Corporation (other than a Holder on a pro rata basis). For
purposes of the preceding parenthetical concerning apportionment, for any
selling shareholder that is a Holder of Registrable Securities and that is a
partnership or corporation, the partners, retired partners and shareholders 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 "selling Holder," and any pro rata reduction with respect
to such "selling Holder" shall be based upon the aggregate amount of Registrable
Securities owned by all such related entities and individuals.
(k) S-3 Registration Rights. If Lender makes a written request
that the Corporation effect a registration on Form S-3 with respect to Issued
Shares that have been held by Lender for one year or more and which cannot be
sold without restrictions as to amount or method of sale pursuant to Rule 144 of
the Securities Act or if the Corporation is otherwise required to effect a
registration on Form S-3 the Corporation shall:
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(i) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(ii) use commercially reasonable best efforts to
effect, as soon as practicable, 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 Holders' Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any other Holders joining in such request as
are specified in a written request given within fifteen (15) days after receipt
of such written notice from the Corporation, provided, however, that the
Corporation shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this Section 5(k).
(A) if Form S-3 is not available under
applicable rules and regulations of the SEC for such offering by the
Holders;
(B) if the Holders, together with the
holders of any other securities of the Corporation entitled to
inclusion in such registration, propose to sell Registrable Securities
and such other securities (if any) at an aggregate price to the public
(net before deduction of underwriters' discounts or commissions) of
less than $500,000;
(C) if the Corporation shall furnish to the
Holders a certificate signed by the Chief Executive Officer or Chairman
of the Board of the Corporation stating that in the good faith judgment
of a majority of the Board of Directors of the Corporation, it would be
detrimental to the Corporation and its shareholders for such Form S-3
Registration to be effected at such time, in which event the
Corporation shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than one hundred twenty
(120) days after receipt of the request of the Holder or Holders under
this Section 5(d); provided, however, that the Corporation shall not
utilize this right more than once in any twelve month period;
(D) if the Corporation has, within the six
(6) month period preceding the date of such request, already effected
one registration on Form S-3 for the Holders; or
(E) if the Corporation would be required to
qualify to execute a general consent to service of process, unless the
Corporation is already subject to service of process in such
jurisdiction and except as may be required under the Act.
(iii) Subject to the foregoing, the Corporation shall
file a registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders.
(iv) Notwithstanding anything herein to the contrary,
(i) the Corporation shall have the right from time to time to require any Holder
of Registrable Securities not to sell Registrable Securities pursuant to any
Form S-3 or to suspend the effectiveness
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thereof during the period starting with the date 30 days prior to the
Corporation's good faith estimate, as certified in writing by an executive
officer of the Corporation to the Holders of Registrable Securities, of the
proposed date of filing of a registration statement or a preliminary prospectus
supplement relating to an underwritten public offering of equity securities of
the Corporation for the account of the Corporation, and ending on the date 120
days following the delivery of such estimate and (ii) the Corporation shall be
entitled to require the Holders of Registrable Securities not to sell
Registrable Securities pursuant to any Form S-3 or to suspend the effectiveness
thereof (but not for a period exceeding 90 days) if the Corporation determines,
based on the opinion of legal counsel, that such offering or continued
effectiveness would interfere with any material financing, acquisition,
disposition, corporate reorganization or other material transaction involving
the Corporation or any of its subsidiaries because public disclosure thereof
would be required prior to the time such disclosure might otherwise be required.
In any event, the Corporation shall not be entitled to exercise the rights
granted to the Corporation pursuant to this Section 5(d)(iv) more than two times
in any one year period.
Upon the request of the Lender, the Corporation shall
cause to be delivered to the Lender a customary opinion of counsel and auditors
"cold comfort" letter in connection with the effectiveness of each registration
statement pursuant to which Lender sells securities.
(1) At the date of the final Prospectus relating to the
initial public offering of the Corporation's common stock, $.001 par value (the
"Prospectus"), the Prospectus will not contain a false or misleading statement
of a material fact or omit to state any material fact necessary in order to make
the statements made in such Prospectus, in light of the circumstances under
which they were made, not misleading, provided, however, that no forecast shall
be deemed to be misleading unless any such forecast was not based on reasonable
assumptions when made or was not prepared in good faith. Notwithstanding any
other provision herein, the Lender hereby expressly agrees that the Lender has
not relied on any registration statement or other document filed in connection
with the initial public offering of the Corporation's common shares in
connection with its decision to enter into this agreement.
Section 6. Indemnification for Third Party claims.
(a) To the extent permitted by law, the Corporation
will indemnify and hold harmless each Holder, any underwriter (as defined in the
Act) for such Holder and each person, if any, who controls such Holder or such
Holder's securities or such underwriter within the meaning of the Act or the
1934 Act, and each officer, director, agent, employee and partner of the
foregoing against any losses, claims, damages or liabilities (joint or several)
to which they may become subject 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 or any other document prepared by the Corporation incident
to such registration, (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
Corporation of the Act,
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the 1934 Act, any state securities law or any rule or regulation promulgated
under the Act, or the 1934 Act or any state securities law, and the Corporation
will pay to each such indemnified person any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 6 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 Corporation (which consent
shall not be unreasonably withheld), nor shall the Corporation 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 information furnished by such Holder, underwriter or
controlling person in writing expressly for use in such registration or for use
in direct connection with such registration.
(b) To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Corporation, each of its directors,
each of its officers each person, if any, who controls the Corporation within
the meaning of the Act, any underwriter and any controlling person of any such
underwriter, against any losses, claims, damages or liabilities (joint or
several) to which any of the foregoing persons may become subject 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 information furnished in writing by such Holder expressly for
use in connection with such registration, and each such Holder will pay to each
such indemnified party any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 6 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.
(c) Promptly after receipt by an indemnified party
under this Subsection (l) 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 6
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
together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests 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 receipt of notice 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
6 (to the extent of such prejudice), but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 6. No
indemnifying party, in the defense of any claim or litigation, shall, except
with the consent of each indemnified party,
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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 to such
claim or litigation. Each indemnified party shall furnish such information
regarding itself or the claim in question as an indemnifying party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this
Section 6 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
Section 7. Legend. The Promissory Note and the Warrant shall bear the
legend substantially in the form described below.
"THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE SOLD OR TRANSFERRED OR OFFERED FOR SALE OR
TRANSFER UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES
ACT AND OTHER APPLICABLE SECURITIES LAWS WITH RESPECT TO SUCH
SECURITIES IS THEN IN EFFECT, OR IN THE OPINION OF COUNSEL,
SUCH REGISTRATION UNDER THE SECURITIES ACT AND OTHER
APPLICABLE SECURITIES LAWS IS NOT REQUIRED."
The Corporation may also cause to be imposed upon such certificates such other
legends as counsel to the Corporation shall determine to be required under the
provisions of any federal securities act or any state law.
Section 8. Notice. Any notice or demand required to be given hereunder
shall be in writing and shall be deemed to have been duly given and received, if
given by hand, when a writing containing such notice is received by the person
to whom addressed or, is given by mail,
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two (2) business days after a certified or registered letter containing such
notice, with postage prepaid, is deposited in the United States mails, addressed
to:
To the Corporation: Take to Auction.com, Inc.
5555 Anglers Avenue, Suite 16
Fort Lauderdale, Florida 33312
Attn: Albert Friedman, President
Telephone: (954) 987-0654
Telecopier: (954) 987-8407
With a copy to: Baker & McKenzie,
1200 Brickell Avenue, 19th Floor
Miami, Florida 33131
Telecopier: (305) 789-8953
Attention: Keith Wasserstrom, Esq.
To Lender: E Com Ventures, Inc.
11701 N.W. 101st Road
Miami, Florida 33178
Attn: Donovan Chin, CFO
Telecopier: (305) 888-0628
Any party may change its address for the purposes of this Agreement by giving
notice of such change of address to the other parties in the manner herein
provided for giving notice. Time shall be of the essence with respect to all
time periods specified for the giving of notices to the Corporation hereunder.
Section 9. Miscellaneous.
(a) Modification. This Agreement may only be amended,
terminated or modified by the written consent of all parties.
(b) Successors. This Agreement cannot be assigned, transferred
or otherwise conveyed by either party without the consent of the other party
which consent shall not be unreasonably withheld. This Agreement shall be
binding upon the parties hereto, their heirs, administrators, successors,
executors and assigns, and the parties hereto do covenant and agree that they
themselves and their respective heirs, executors, successors, administrators and
assigns will execute any and all instruments, releases, assignments and consents
that may be reasonably required of them to more fully execute the provisions of
this Agreement.
(c) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall serve as an original for all purposes,
but all copies of which shall constitute but one and the same Agreement.
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(d) Headings. All headings set forth in this Agreement are
intended for convenience only and shall not control or affect the meaning,
construction or effect of this Agreement or of any of the provisions thereof.
(e) Governing Law. This Agreement shall be governed by and
shall be construed and enforced in accordance with the laws of the State of
Florida. To the fullest extent permitted by law, the subscriber and the
Corporation hereby (a) submit to the jurisdiction of the Florida and United
States courts for the Florida judicial circuit and the federal district,
respectively, wherein lies Miami-Dade County, Florida for purposes of any legal
action or proceeding brought under this Agreement and (b) agree that exclusive
venue of any such action or proceeding may be laid in Miami-Dade County, Florida
and waive any claim that the same is an inconvenient forum.
(f) Entire Agreement. This Agreement, the Note and the Warrant
constitute the entire Agreement of the parties hereto with respect to the
subject matter hereof, and it is hereby agreed that any prior oral or written
agreements concerning the sale or disposition of the Stock shall be null and
void.
(g) Specific Performance; Fees. Consequently, the parties
hereto agree that an action for specific performance of the purchase and sale
obligations created by this Agreement is a proper remedy for the breach of its
provisions. If the parties to this Agreement are forced to institute legal
proceedings to enforce their rights in accordance with the provisions of this
Agreement, the prevailing party shall be entitled to recover their reasonable
attorneys' fees and court costs incurred in enforcing such rights.
(h) Indemnification. Each party shall indemnify and hold each
other and their respective affiliated companies, officers, directors, employees,
stockholders and agents harmless from all liabilities, claims, costs, damages
and expenses, including reasonable attorney's fees and costs, at both the trial
and appellate levels, arising out of any breach on the part of the either party
with respect to any of their respective representations or obligations under
this Agreement.
13
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have hereunto set
their names as of the date first above written.
TAKE TO AUCTION.COM, INC.
By: /s/ Albert Friedman
-------------------------------
Name: Albert Friedman
-----------------------------
Title: CEO/President
----------------------------
E COM VENTURES, INC.
By: /s/ Ilia Lekach
-------------------------------
Name: Ilia Lekach
-----------------------------
Title: CEO
----------------------------
14
<PAGE>
EXHIBIT A
FORM OF PROMISSORY NOTE
Please See Attached
<PAGE>
EXHIBIT B
FORM OF WARRANT
Please See Attached
<PAGE>
EXHIBIT C
FINANCIAL STATEMENTS
Please See Attached
<PAGE>
EXHIBIT D
CAPITALIZATION OF THE CORPORATION
Please See Attached
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
TRANSFERRED OR DEFERRED FOR SALE OR TRANSFER IN VIOLATION OF ANY FEDERAL OR
STATE SECURITIES LAWS.
TAKE TO AUCTION.COM, INC.
CONVERTIBLE
PROMISSORY NOTE
$1,000,000 March 9, 2000
TAKE TO AUCTION.COM INC., a Florida corporation (hereinafter
called the "Obligor"), for value received, hereby promises to pay to E Com
Ventures, Inc. (the "Holder") the principal sum of ONE MILLION DOLLARS
($1,000,000) (the "Principal Balance"). The Principal Balance shall be payable
on March 8, 2002. Interest on the Principal Balance shall accrue from the date
hereof at a rate of six percent (6% per annum) and shall be payable
semi-annually on the (9th) day of each September and March, commencing September
9, 2000 and continuing up to and including the Payment Date ("Payment Date").
All payments of principal and interest shall be in such coin
or currency of the United States of America as at the time of payment shall be
legal tender for payment of public and private debts, and shall be made at the
address of the Holder in accordance with Section 7 below.
1. Note. This Note is the "Promissory Note" issued pursuant to
a Note and Warrant Purchase Agreement dated as of March 9, 2000 (the "Note
Purchase Agreement"), by and between the Obligor and the Holder, and is subject
to the terms and conditions of the Note Purchase Agreement.
2. Conversion. During the Subscription Period (as defined
below), the Holder shall have the right to convert all, but not less than all,
of the Principal Amount hereof into shares of the Obligor's common stock, $.001
par value (the "Common Stock") at the conversion price per share equal to the
price to public specified on the cover page of the final prospectus of the
Company's Registration Statement (No. 333-91177) (the "Registration Statement")
relating to the initial public offering of the Common Stock, less the
underwriters' gross commissions (the "IPO Price") for one share of Common Stock,
upon surrender of this Note, at the principal office of the Company, accompanied
by written notice of conversion in the form attached hereto as Schedule I, duly
executed by the Holder or its duly authorized attorney-in-fact (the process by
which the Holder may exercise its right to convert this Note into shares of
<PAGE>
Common Stock is defined as a "Conversion Election"). The shares of Common Stock
into which this Note converts shall be delivered to Holder or its order not more
than seven (7) days after the date the Conversion Election is complete. No
adjustments in respect of dividends or any other event will be made upon any
conversion. Accrued and unpaid interest hereon shall not be convertible into
Common Stock of the Company; however, the Holder shall be entitled to receive
any accrued and unpaid interest to the date of conversion and the conversion of
this Note will not extinguish that contractual right, which interest shall be
paid on the date that the shares of Common Stock into which this Note is
converted are delivered. For purposes of this Agreement, the Subscription Period
shall be the 14 days immediately following the effective date of the
Registration Statement. Obligor shall give Holder notice of such effective date
not more than 1 day after the declaration thereof. The Subscription Period shall
be extended one day for each day that such notice is not timely given by
Obligor.
3. Default. If any of the following events shall occur and be
continuing (each such event, an "Event of Default"):
(a) the Obligor fails to repay any installment of the
Principal Balance when due hereunder.
(b) the Obligor fails to make any installment of interest
within ten (10) days after the due date thereof.
(c) the Obligor violates any other covenant, agreement or
condition contained in this Note or the Note Purchase Agreement and such
violation remains uncured for ten (10) Business Days after receipt of written
notice from the Holder, which notice shall specify the conduct required to cure
such violation; or
(d) the Obligor shall be adjudicated insolvent, or fails to
pay or admits in writing its inability to pay its debts as they mature (whether
at stated maturity; upon acceleration or otherwise), makes a general assignment
for the benefit of creditors; or the Obligor shall apply for or consent to the
appointment of any receiver, custodian, trustee or similar officer for it or for
all or any substantial part of its property, or such receiver, custodian,
trustee or similar officer shall be appointed without the application or consent
of the Obligor; or the Obligor shall institute (by petition, application,
answer, consent or otherwise), or take any action to authorize the institution
of, any bankruptcy, insolvency, reorganization, arrangement, readjustment of
debt, dissolution, liquidation or similar proceeding relating to the Obligor
under the laws of any jurisdiction; or any such proceeding shall be instituted
(by petition, application or otherwise) against the Obligor and such proceeding
shall not be dismissed within sixty (60) days after being instituted;
then, (i) upon the occurrence of any Event of Default described in clause (c) of
this Section, the unpaid Principal Balance and accrued and unpaid interest shall
automatically become immediately due and payable, without presentment, demand,
protest, notice of intent to accelerate, notice of acceleration or further
notice of any kind, all of which are hereby expressly waived by the Obligor, and
(ii) upon the occurrence of any other Event of Default, the Holder may, at its
option, by written notice to the Obligor
2
<PAGE>
declare the entire unpaid Principal Balance, together with accrued and unpaid
interest, to be forthwith due and payable, whereupon all such amounts shall
become and be forthwith due and payable, without presentment, demand, protest,
notice of intent to accelerate, notice of acceleration or further notice of any
kind, all of which are hereby expressly waived by the Obligor. During the period
that an Event of Default shall exist, the Principal balance shall bear interest
at a rate of 12% per annum.
4. Prepayment; Redemption. At any time after the Subscription
Period, this Note may, at the option of the Obligor, be redeemed prior to
maturity as a whole or in part at the principal office of the Obligor, upon the
notice provided herein.
5. Waiver of Trial by Jury. THE HOLDER HEREBY AND THE OBLIGOR
BY ACCEPTANCE OF THIS NOTE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE
RIGHT EITHER MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREOF, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF EITHER PARTY.
6. No Oral Modification; Assignment. This Note cannot be
changed or modified other than pursuant to a written instrument signed by the
parties hereto. This Note cannot be assigned by the Obligor, in whole or in
part, unless the Holder shall consent in writing prior to such assignment.
7. Successors and Assigns. This Note shall be binding upon and
inure to the benefit of the Obligor, the Holder and their respective successors
and assigns.
8. Notice. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or by Federal Express, Express Mail or
similar overnight delivery or courier service or delivered (in person or by
telecopy, telex or similar communications equipment) against receipt to the
party to whom it is to be given, (i) if to the Holder, at 11701 N.W. 101st Road,
Miami, Florida 33178, Attention: Donovan Chin, CFO, telecopy (305) 888-0628 and
(ii) if to the Obligor, at 5555 Anglers Avenue, Suite 16, Fort Lauderdale,
Florida 33312, Attention: Albert Friedman, President, telecopy (954) 987-8407
and (iii) in either case, to such other address as the party shall have
furnished in writing in accordance with the provisions of this Section. Any
notice or other communication given by certified mail shall be deemed given at
the time of certification thereof, except for a notice changing a party's
address, which shall be deemed given at the time of receipt thereof. Any notice
given by other means permitted by this Section shall be deemed given at the time
of receipt thereof.
9. Applicable Law. This Agreement shall for all purposes be
construed and interpreted in accordance with the laws of the State of Florida,
without regard to any conflict of law rule or principle that would give effect
to the laws of another jurisdiction.
3
<PAGE>
IN WITNESS WHEREOF, TAKE TO AUCTION.COM, INC. has caused this
Note to be signed in its corporate name by one of its officers thereunto duly
authorized and to be dated as of the date first above written.
TAKE TO AUCTION.COM, INC.
By: /s/ Albert Friedman
-------------------------------
Name: Albert Friedman
Title: CEO/President
4
<PAGE>
SCHEDULE I
CONVERSION NOTICE FORM
The undersigned hereby irrevocably elects to convert all of the Principal Amount
into shares of the Obligor's Common Stock at the IPO Price. This conversion form
shall not be effective unless delivered to Obligor in conformance with the terms
of the Note, including, without limitation, the surrender of the Note to
Obligor. Terms not defined herein shall have the meaning set forth in that
certain Convertible Promissory Note between Take to Auction.com. Inc. and E Com
Ventures, Inc., dated March 9, 2000.
-----------------------------------
Signature
-----------------------------------
Date
<PAGE>
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THE SECURITIES ACT
OR AN OPINION OF COUNSEL IS OBTAINED STATING THAT SUCH DISPOSITION IS IN
COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
March 9, 2000
TAKE TO AUCTION. COM, INC.
Warrant for the Purchase of Shares of Common Stock
No. 1
FOR VALUE RECEIVED, TAKE TO AUCTION.COM, INC., INC., a Florida
corporation (the "Company"), hereby certifies that E Com Ventures, Inc. (the
"Holder") is entitled, subject to the provisions of this Warrant, to purchase
from the Company, up to Three Hundred Thousand (300,000), as adjusted pursuant
to Section 6, fully paid and non-assessable shares of Common Stock at a price
per share equal to the price to public specified on the cover page of the final
prospectus of the Company's Registration Statement (the "Registration
Statement") relating to the initial public offering of the Common Shares less
the underwriters' gross commissions (the "IPO Price"), as adjusted pursuant to
Section 6.
The term "Common Stock" means the Company's Common Stock, par value
$0.001 per share. The shares of Common Stock deliverable upon such exercise are
hereinafter referred to as the "Warrant Shares." The term "Other Securities"
means any other equity or debt securities that may be issued by the Company in
addition thereto or in substitution for the Warrant Shares. The term "Company"
means and includes the corporation named above as well as (i) any immediate or
more remote successor corporation resulting from the merger or consolidation of
such corporation (or any immediate or more remote successor corporation of such
corporation) with another corporation, or (ii) any corporation to which such
corporation (or any immediate or more remote successor corporation of such
corporation) has transferred its property or assets as an entirety or
substantially as an entirety.
<PAGE>
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute an additional contractual obligation on
the part of the Company, whether or not this Warrant so lost, stolen, destroyed
or mutilated shall be at any time enforceable by anyone.
The Holder agrees with the Company that this Warrant is issued, and all
the rights hereunder shall be held subject to, all of the conditions,
limitations and provisions set forth herein.
1. Exercise of Warrant. This Warrant may be exercised in whole or in
part at any time, or from time to time during the period (the "Subscription
Period") commencing on the business day immediately following the effective date
of the Registration Statement and expiring 5:00 p.m. Eastern Standard Time on
the first anniversary of the effective date of the Registration Statement by
presentation and surrender of this Warrant to the Company at its principal
office, or at the office of its stock transfer agent, if any, with the Warrant
Exercise Form attached hereto duly executed and accompanied by payment (either
in cash or by certified or official bank check, payable to the order of the
Company) of the exercise price for the number of shares specified in such form
and instruments of transfer, if appropriate, duly executed by the Holder or his
or her duly authorized attorney. If this Warrant should be exercised in part
only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the rights of the Holder thereof to
purchase the balance of the shares purchasable hereunder. In no event shall
fractional shares or scrip representing fractional shares be issued upon
exercise of this Warrant. Upon receipt by the Company of this Warrant, together
with the Exercise Price, at its office, or by the stock transfer agent of the
Company at its office, in proper form for exercise, (a "Conforming Exercise")
the Holder shall be deemed to be the holder of record of the shares of Common
Stock issuable upon such exercise, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
shares of Common Stock shall not then be actually delivered to the Holder which
certificates shall be delivered to Holder or its order not more than three (3)
business days after a Conforming Exercise. The Company shall pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on exercise of this Warrant.
2. Reservation of Shares. The Company will at all times reserve for
issuance and delivery upon exercise of this Warrant all shares of Common Stock
or other shares of capital stock of the Company (and Other Securities) from time
to time receivable upon exercise of this Warrant. All such shares (and Other
Securities) shall be duly authorized and, when issued upon such exercise, shall
be validly issued, fully paid and non-assessable and free of all preemptive
rights.
2
<PAGE>
3. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant. The Company shall not be obligated to register the shares of the
Warrant Stock or Other Securities, except as set forth in that certain Note and
Warrant Purchase Agreement, dated as of the date hereof between the Company and
the Holder.
4. Transfer to Comply with the Securities Act. This Warrant and any
Warrant Stock or Other Securities may not be sold, transferred, pledged,
hypothecated or otherwise disposed of except as follows: (a) to a person who, in
the opinion of counsel to the Company, is a person to whom this Warrant or the
Warrant Shares or Other Securities may legally be transferred without
registration and without the delivery of a current prospectus under the
Securities Act with respect thereto and then only against receipt of an
agreement of such person to comply with the provisions of this Section 4 with
respect to any resale or other disposition of such securities; or (b) to any
person upon delivery of a prospectus then meeting the requirements of the
Securities Act relating to such securities and the offering thereof for such
sale or disposition, and thereafter to all successive assignees.
5. Legend. Upon exercise of any of the Warrants and the issuance of any
of the shares of Warrant Shares or Other Securities, all certificates
representing such securities shall bear on the face thereof substantially the
following legend to the extent applicable:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR
OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE
PROVISIONS OF THAT ACT OR DISPOSED OF PURSUANT TO RULE 144
UNDER THAT ACT OR UNLESS AN OPINION OF COUNSEL TO THE
CORPORATION IS OBTAINED STATING THAT SUCH DISPOSITION IS IN
COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
6. Anti-Dilution Provisions.
(a) Adjustment for Recapitalization. If the Company shall at
any time, after the date hereof, subdivide its outstanding shares of Common
Stock by recapitalization, reclassification or split-up thereof, or if the
Company shall declare a stock dividend or distribute shares of Common Stock to
its stockholders, the number of Warrant Shares then subject to this Warrant
immediately prior to such subdivision shall be proportionately increased and the
exercise price shall be proportionately decreased, and if the Company shall at
any time combine, after the date hereof, the outstanding shares of Common Stock
by recapitalization, reclassification or combination thereof, the number of
Warrant shares then subject to this Warrant immediately prior to such
combination shall be proportionately decreased and the exercise price shall be
proportionately increased. Any such adjustments pursuant to this Section 4(a)
3
<PAGE>
shall be effective at the close of business on the effective date of such
subdivision or combination or if any adjustment is the result of a stock
dividend or distribution then the effective date for such adjustment based
thereon shall be the record date therefor.
(b) Adjustment for Reorganization, Consolidation, Merger, Etc.
In case of any reorganization of the Company or in case the Company shall
consolidate with or merge into another corporation or convey all or
substantially all of its assets to another corporation, then, and in each such
case, the Holder upon the exercise of this Warrant at any time after the
consummation of such reorganization, consolidation, merger or conveyance, shall
be entitled to receive, in lieu of the Warrant Shares issuable upon the exercise
of this Warrant prior to such consummation, the securities or property to which
the Holder would have been entitled upon such consummation if the Holder had
exercised this Warrant immediately prior thereto; in each such case, the terms
of this Warrant shall be applicable to the securities or property receivable
upon the exercise of this Warrant after such consummation.
(c) No Adjustment for Stock Issuances. Except as otherwise
expressly provided herein, the issuance by the Company of shares of its capital
stock of any class, or securities convertible into shares of capital stock of
any class, either in connection with the direct sale (including in connection
with the Company's initial public offering) or upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or obligations of
the Company convertible into such shares or other securities, shall not affect
this Warrant, and no adjustment by reason thereof shall be made with respect to
the number of or exercise price of Warrant Shares then subject to this Warrant.
(d) No Effect on Corporate Actions. Without limiting the
generality of the foregoing, the existence of this Warrant shall not affect in
any manner the right or power of the Company to approve or the Company to make,
authorize or consummate (i) any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business; (ii) any merger or consolidation of the Company; (iii) any issuance by
the Company of debt securities, or preferred or preference stock that would rank
above the Warrant Shares subject to outstanding Warrants; (iv) the dissolution
or liquidation of the Company; (v) any sale, transfer or assignment of all or
any part of the assets or business of the Company or (vi) any other corporate
act or proceeding, whether of a similar character or otherwise.
(e) The Company shall give Holder notice of any adjustment
pursuant to this Section 6, not more than ten (10) days thereafter.
7. Notices. All notices required hereunder shall be in writing and
shall be deemed given when telegraphed, delivered personally or within two days
after mailing when mailed by certified or registered mail, return receipt
requested, to the Company at its principal office, or to the Holder at the
address set forth on the record books of the Company, or at such other address
of which the Company or the Holder has been advised by notice hereunder.
8. Applicable Law. The Warrant is issued under and shall for all
purposes be governed by and construed in accordance with the laws of the State
of Florida, without giving effect to the choice of law rules thereof.
4
<PAGE>
IN WITNESS HEREOF, the Company has caused this Warrant to be signed on
its behalf, in its corporate name, by its duly authorized officer, all as of the
day and year first above written.
TAKE TO AUCTION.COM, INC.
By: /s/ Albert Friedman
-------------------------------
Name: Albert Friedman
-----------------------------
Title: CEO/President
----------------------------
5
<PAGE>
WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the within Warrant to the
extent of purchasing ____________ shares of Common Stock of Take to Auction.com,
Inc., a Florida corporation, and hereby makes payment of $____________ in
payment therefor.
-----------------------------------
Signature
-----------------------------------
Signature, if jointly held
-----------------------------------
Date
INSTRUCTIONS FOR ISSUANCE OF STOCK
(if other than to the registered holder of the within Warrant and permitted by
Take to Auction.Com, Inc.)
Name
---------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
Social Security or
Taxpayer Identification Number
-------------------------------------------------
6
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-91177 of Take to Auction.com, Inc. of our report dated February 11, 2000
(February 25, 2000 as to collection of the stock subscriptions described in Note
8, March 9, 2000 as to the note agreements described in Note 5 and May 4, 2000
as to the 1-for-3 reverse stock split described in Note 2 and Note 8) (which
report expresses an unqualified opinion and includes an explanatory paragraph
relating to the Company's ability to continue as a going concern), appearing in
the Prospectus, which is a part of such Registration Statement, and to the
reference to us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
- --------------------------
Deloitte & Touche LLP
Miami, Florida
May 19, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from the Company's
financial statements as of December 31, 1999 and the period from June 2, 1999
(date of inception) through December 31, 1999 and is qualified in its entirety
by reference to such financial statements and notes thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jun-2-1999
<PERIOD-END> Dec-31-1999
<CASH> 856,949
<SECURITIES> 0
<RECEIVABLES> 641,430
<ALLOWANCES> 0
<INVENTORY> 200,429
<CURRENT-ASSETS> 1,717,433
<PP&E> 186,041
<DEPRECIATION> 4,886
<TOTAL-ASSETS> 2,579,739
<CURRENT-LIABILITIES> 1,429,401
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> 1,144,338
<TOTAL-LIABILITY-AND-EQUITY> 2,579,739
<SALES> 70,067
<TOTAL-REVENUES> 70,067
<CGS> 136,042
<TOTAL-COSTS> 136,042
<OTHER-EXPENSES> 483,687
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (549,662)
<INCOME-TAX> 0
<INCOME-CONTINUING> (549,662)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (549,662)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
