<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 6, 1999
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
b2bstores.com Inc.
(NAME OF ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7389 11-3500746
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE) IDENTIFICATION NUMBER)
</TABLE>
------------------------
<TABLE>
<S> <C>
249 EAST OCEAN BOULEVARD WOO JIN KIM, CEO
LONG BEACH, CALIFORNIA 90802 b2bstores.com Inc.
562/491-7180 249 EAST OCEAN BOULEVARD
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S LONG BEACH, CALIFORNIA 90802
PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL PLACE OF BUSINESS) 562/491-7180
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
</TABLE>
------------------------
Copies to:
<TABLE>
<S> <C>
DAVID ALAN MILLER, ESQ. LAWRENCE FISHER, ESQ.
GRAUBARD MOLLEN & MILLER ORRICK, HERRINGTON & SUTCLIFFE LLP
600 THIRD AVENUE 666 FIFTH AVENUE
NEW YORK, NEW YORK 10016 NEW YORK, NEW YORK 10103
TELEPHONE: (212) 818-8800 TELEPHONE: (212) 506-5000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
possible after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement 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 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
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common stock, par value $0.01...................... 3,500,000 $10.00 $35,000,000 $ 9,730.00
Common stock(2).................................... 525,000 10.00 5,250,000 1,460.00
Representatives' warrants to purchase shares of
common stock(3).................................... 350,000 .0001 -- --
Common stock(4).................................... 350,000 12.00 4,200,000 1,168.00
Total...................................................................................................... $12,358.00
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 of the Securities Act of 1933, as amended.
(2) Represents the shares of our common stock that may be purchased by the
underwriters solely to cover over-allotments, if any.
(3) No registration fee is required pursuant to Rule 457(g) under the Securities
Act.
(4) Represents the shares of our common stock purchasable by the representatives
upon exercise of warrants being issued to them in connection with this
offering.
------------------------
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 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 SEC, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1999
PROSPECTUS
3,500,000 SHARES
b2bstores.com Inc.
COMMON STOCK
------------------------
[Logo]
This is the initial public offering of shares of our common stock. In
considering this offering, you should know that:
o we are offering 3,500,000 shares;
o no public market exists for our shares prior to this offering;
o we have applied to have the shares quoted on the Nasdaq National Market
under the symbol "BTBC";
o we anticipate that the per-share price will be $10.00; and
o we have granted the underwriters a 45-day option to purchase up to
525,000 additional shares of our common stock solely to cover
over-allotments, if any.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price.............................................................. $ $
Underwriting discount and commissions.............................................. $ $
Proceeds to b2bstores.com Inc...................................................... $ $
</TABLE>
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
Gaines, Berland Inc. on behalf of the underwriters, expects to deliver the
shares on or about November , 1999.
GAINES, BERLAND INC. NOLAN SECURITIES, INC.
------------------------
The date of this prospectus is , 1999
<PAGE>
[THIS PAGE IS THE INSIDE COVER OF THE PROSPECTUS AND CONTAINS ARTWORK DEPICTING
EXAMPLES OF WEB PAGES AVAILABLE AT WWW.B2BSTORES.COM]
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 8
Use of Proceeds............................................................................................ 17
Dividend Policy............................................................................................ 18
Dilution................................................................................................... 19
Capitalization............................................................................................. 20
Plan of Operations......................................................................................... 21
Business................................................................................................... 27
Management................................................................................................. 36
Principal Stockholders..................................................................................... 41
Certain Transactions....................................................................................... 42
Description of Securities.................................................................................. 44
Underwriting............................................................................................... 45
Where You Can Find More Information........................................................................ 47
Legal Matters.............................................................................................. 48
Experts.................................................................................................... 48
Index to Financial Statements.............................................................................. F-1
</TABLE>
---------------------------------------------
Some of the statements under "Prospectus Summary," "Risk Factors," "Plan of
Operations" and "Business" and elsewhere in this prospectus are forward-looking
statements that involve risks and uncertainties. These forward-looking
statements include statements about our plans, objectives, expectations,
intentions and assumptions and other statements contained in this prospectus
that are not statements of historical fact. You can identify these statements by
words such as "may," "will," "should," "estimates," "plans," "expects,"
"believes," "intends" and similar expressions. We cannot guarantee future
results, levels of activity, performance or achievements. Our actual results and
the timing of certain events may differ significantly from the results discussed
in the forward-looking statements. Factors that might cause such a discrepancy
include those discussed in "Risk Factors" and elsewhere in this prospectus. You
are cautioned not to place undue reliance on any forward-looking statements.
---------------------------------------------
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, SHARES OF COMMON STOCK 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 COMMON STOCK.
---------------------------------------------
UNTIL , 1999, ALL DEALERS SELLING SHARES OF THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information you
should consider before investing in our common stock. You should read the entire
prospectus carefully, including the "Risk Factors" section. Unless otherwise
noted, the information in this prospectus (a) gives effect to a 4-for-3 split of
our common stock on September 28, 1999 and (b) assumes no exercise of the
underwriters' over-allotment option.
GENERAL
b2bstores.com(Trademark) is a branded Internet web site specifically
designed to assist business customers in the operation and development of their
businesses. b2bstores.com provides user-friendly online access to business
products and supplies, and will be expanded to provide access to business
services, auctions and business-related information and content. Our objective
is to become a leading, one-stop Internet destination that enables business
customers to conduct e-commerce, communications and other online interaction
with their customers, suppliers and colleagues. We began our commercial
operations in September 1999 and have generated only nominal revenues to date.
We offer an expanding range of products for purchase online, the supply and
delivery of which is accomplished through fulfillment arrangements with vendors
and other third parties. We currently offer business and business-related
products in the following categories:
<TABLE>
<S> <C>
o office supplies o office furniture
o janitorial supplies o safety and industrial supplies
o computer supplies o desktop computer systems
o notebook computer systems o computer peripherals
o software o financial products
</TABLE>
We believe that b2bstores.com will provide business customers with the
combined abilities to purchase a broad range of quality products, access a wide
variety of business-related services and research comprehensive business
information, all at a single, user-friendly web site.
OUR OPPORTUNITY
Historically, businesses have had to access a number of separate,
traditional (i.e., non-Internet) sources to obtain the products, supplies,
services and information necessary for their operations. Businesses are now
increasingly utilizing the Internet as a valuable tool to access these sources
and to operate more efficiently. Currently, the vast majority of business web
sites focus on the offering of one of the following three types of business
solutions:
o Product sites. These web sites focus primarily on the online sale of
products. Many of these web sites historically have focused on computer
hardware and software, with limited diversification into other products.
These web sites are often designed for the retail consumer, with little
specialization in products intended for business customers.
o Service referral sites. These web sites focus primarily on the referral
of business customers to services provided by other companies. Most of
these web sites historically have functioned as simple directories and
have offered referrals in only a limited number of business categories to
business customers in a limited number of geographical locations.
Typically, the listings on these web sites have no detailed information
about the businesses to which they are referring business customers.
o Business content sites. These web sites primarily offer business
customers access to a wide array of articles, information and news
services that are aimed at the business customer. These web sites seek to
generate revenues through the sale of business information and by
attracting high-volume traffic and then leveraging this traffic into
advertising revenue.
4
<PAGE>
OUR OBJECTIVE AND STRATEGY
We are creating an easy-to-use Internet web site that will provide our
business customers access to quality products, a premier network of business
services and a broad menu of business content. Our objective is to become a
leading, one-stop Internet destination for business customers--a place where
they conduct their business-to-business transactions, build relationships with
customers, suppliers and colleagues, and conduct their business-related
research. The key elements of our strategy include:
CREATING AWARENESS OF THE B2BSTORES.COM BRAND. Our marketing efforts
strive to present b2bstores.com as an enjoyable, easy-to-use Internet site that
helps businesses work more efficiently and cost effectively. We intend to use a
significant portion of the proceeds of this offering to build awareness of our
brand and to drive traffic to our web site.
EXPANDING OUR PRODUCT OFFERINGS. We regularly seek to expand our product
offering categories and the breadth of products available in these categories
through the creation of relationships with vendors and distributors. We
anticipate that the sale of products through our web site will account for the
majority of our revenues. We also intend to introduce auction capabilities to
our web site, thereby increasing the types of products available at
b2bstores.com and providing our business customers with the opportunity to
transact business directly with one another.
CREATING AND EXPANDING OUR BUSINESS REFERRAL SERVICES. Beginning in the
fourth quarter of 1999, we will begin to offer our business customers access to
many business services, on a referral basis. It is anticipated that these
service will include 401(k) consulting; accounting; insurance; advertising;
leasing services; brokerage services; legal services; and telecommunications
services. Our customers will be able to research service providers and interact
with them and, in many cases, engage their services without leaving our web
site.
CREATING MARKETING AND DISTRIBUTION ALLIANCES. In order to increase the
number of business customers that visit our web site, and to enhance our product
and service offerings and e-commerce infrastructure, we are actively pursuing
relationships with, among others, providers of business products; providers of
business and professional services; proprietary online services; operators of
leading Internet portals; and producers of Internet content.
ENHANCING WEB SITE UTILITY THROUGH THE CREATION OF COMMUNITY AND THE
PROVISION OF BUSINESS CONTENT. Our web site strives to create community among
our business customers and their customers, suppliers and colleagues. Our web
site's community and business information functions are designed to provide easy
interaction between the business customer and the web site, and the business
customer and other business customers. Our web site also will provide our
business customers with access to highly specific information and interactive
capabilities that would be impossible or cost prohibitive to provide in other
mediums, such as trade journals or broadcast.
CREATING AND EXPLOITING ADVERTISING REVENUE OPPORTUNITIES. Our web site is
specifically designed for business customers and we will spend a significant
amount of capital on marketing efforts designed to drive business customer
traffic to our site. We believe that a concentrated user base of business
customers will possess characteristics highly desirable to business-to-business
advertisers, and will differentiate our web site from most other e-commerce web
sites.
PROVIDING VENDOR MANAGEMENT SERVICES FOR OTHER WEB SITES. We intend to
utilize our capabilities in the management of vendor relationships to provide
commerce management services to other web sites. We will allow other
business-related web sites to access our product offerings and offer these
products to their own users. Product orders placed through these web sites will
be processed through our systems, and fulfilled by our fulfillment agents. We
will charge our web site partners negotiated commissions based on sales of our
product offerings generated through their web sites.
ACQUIRING COMPLEMENTARY CONTENT AND TECHNOLOGY. We will regularly seek to
acquire business content and e-commerce technologies that are complementary to
our business focus and
5
<PAGE>
objective. We may acquire content and/or technologies through the purchase of
assets or the acquisition of companies possessing these assets. We may pay for
any such asset purchase or acquisition in cash, through the issuance of our
securities or a combination of cash and securities.
CORPORATE BACKGROUND
b2bstores.com Inc. was formed under the laws of the State of Delaware in
June 1999. Our principal offices are located at 249 East Ocean Boulevard,
Suite 620, Long Beach, California 90802. Our phone number is 562-491-7180. Our
web site is available at http://www.b2bstores.com. Information contained in our
web site is not part of this prospectus.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered(1)................... 3,500,000 shares
Common stock outstanding prior to the
offering................................ 4,021,643 shares
Common stock to be outstanding after the
offering(1)(2).......................... 7,521,643 shares
Use of proceeds........................... We intend to use the net proceeds of this offering: (a) for sales and
marketing, including brand promotion; (b) to fund the development of
our web site and customer support operations; (c) to repay loans made
to us by a principal stockholder; (d) for the payment of cash bonuses
to certain officers; and (e) for working capital and general
corporate purposes.
Proposed Nasdaq National Market symbol.... BTBC
</TABLE>
- ------------------
(1) If the underwriters fully exercise their over-allotment option to purchase
additional shares, the total number of shares to be offered in this offering
would be 4,025,000 and the total number of shares outstanding after this
offering would be 8,046,643.
(2) Does not include (a) 1,000,000 shares of common stock issuable upon exercise
of options that will be granted to certain officers on the date the
registration statement of which this prospectus is a part is declared
effective by the SEC (at a per-share price equal to 80% of the offering
price in this offering), (b) 200,000 shares of common stock issuable upon
exercise of options that may be granted to certain officers during 2000
under our 1999 Performance Equity Plan upon the attainment by us of certain
operational and financial criteria (at a per-share price equal to the last
sale price of a share of common stock as reported on Nasdaq on the last
trading day prior to the date of grant), (c) 1,800,000 additional shares of
common stock that would be issuable upon exercise of other options that we
may grant under our plan and (d) 350,000 shares of common stock issuable
upon exercise of warrants being issued to the representatives in connection
with this offering.
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
This summary financial information should be read in conjunction with "Plan
of Operations" and our financial statements and notes thereto and other
financial information included elsewhere in this prospectus. The financial
information as of August 31, 1999 has been derived from our audited financial
statements included elsewhere in this prospectus. The historical results
presented in this prospectus are not necessarily indicative of our future
financial position or results of operations.
BALANCE SHEET DATA
<TABLE>
<CAPTION>
AUGUST 31, 1999
----------------------------
ACTUAL AS ADJUSTED(1)
-------- --------------
<S> <C> <C>
Working capital.................................................................. $365,849 $ 30,905,685
Total assets..................................................................... 753,906 31,061,455
Total liabilities................................................................ 303,272 123,436
Stockholders' equity............................................................. 450,634 30,990,570
</TABLE>
- ------------------
(1) Gives effect to the sale of 3,500,000 shares of our common stock in the
offering, our receipt of net proceeds of $30,675,000 (assuming an offering
price of $10.00 per share), and the application of a portion of the net
proceeds to (a) repay debt of approximately $185,000 to a principal
stockholder of our company and (b) pay cash bonuses aggregating $130,000
that will be due to certain of our executive officers. See "Use of
Proceeds," "Capitalization" and "Certain Transactions."
We began our commercial operations in September 1999 and have generated
only nominal revenues to date. Accordingly, our income statement information is
not presented since it is not meaningful.
7
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making a
decision to invest in our company. Our business, financial conditions or results
of operations could be materially adversely affected by any of these risks as
well as others. You should be able to bear a complete loss of your investment.
WE HAVE A VERY SHORT OPERATING HISTORY UPON WHICH YOU CAN EVALUATE US.
We have a very limited operating history, having commenced commercial
operations in September 1999. Accordingly, there are no meaningful financial
results which you can use to evaluate the merits of making an investment in us.
Our business prospects are subject to all the risks, expenses and uncertainties
encountered by any new company, as well as the risks of operating in the rapidly
evolving markets for Internet products and services. These risks include:
o the failure to develop brand name recognition and reputation;
o the failure to achieve market acceptance of our products and services;
o a slow down in general consumer acceptance of the Internet as a vehicle
for commerce; and
o an inability to grow and adapt our business and technology to evolving
consumer demand.
We may not be successful in addressing these risks or the other risks set
forth herein.
WE EXPECT TO SPEND A LARGE AMOUNT OF MONEY IN ADVANCE OF ANY SIGNIFICANT
REVENUES AS WE INTRODUCE OUR BUSINESS.
We offer products and services through our web site, b2bstores.com. We
expect to incur significant operating expenses and make relatively high capital
expenditures as we develop our Internet business and brand and expand our sales
and marketing capabilities. These operating expenses and capital expenditures
will initially outpace revenues and result in significant losses in the near
term.
We expect to incur significant net losses during 1999. In connection with
the granting of options to certain officers on the effective date of the
registration statement of which this prospectus is a part, we will incur
non-cash compensation charges over the vesting period of such options based on
the excess of the market price established on the effective date and the
exercise price of such options. Based on an assumed market price of $10.00,
these charges to operations will be $400,000, $750,000, $425,000 and $425,000 in
1999, 2000, 2001 and 2002, respectively. In connection with the issuance of
21,643 shares of common stock to consultants and directors in September 1999,
we will record a non-cash compensation charge to operations of $216,430. In
addition, upon consummation of this offering, we will be required to pay cash
bonuses aggregating $130,000 to certain officers, further increasing our losses
during 1999. There can be no assurance that we will ever achieve or maintain
profitability.
THERE IS AN EXPLANATORY PARAGRAPH IN OUR INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS' REPORT RELATING TO OUR ABILITY TO CONTINUE AS A GOING CONCERN.
Our independent certified public accountants' report for the period from
our inception (June 28, 1999) through August 31, 1999 states that our limited
working capital position prior to our receipt of the net proceeds of this
offering raises substantial doubt about our ability to continue as a going
concern. Accordingly, the continuation of our operations is dependent upon our
receipt of the net proceeds of this offering.
WE WILL NEED TO RAISE ADDITIONAL CAPITAL THROUGH EQUITY AND/OR DEBT OFFERINGS.
During the periods that we experience net losses, we expect to be dependent
upon sales of our capital stock and borrowings to finance our working capital
requirements. Based upon current plans and assumptions relating to our business
plan, we anticipate that the net proceeds of this offering, together with our
existing capital resources, will satisfy our capital requirements for at least
the 18-month period following the consummation of this offering.
We expect to raise additional capital in 2001, which may be in the form of
equity or debt financing. However, if our plans change or our assumptions prove
to be inaccurate, we may need to seek additional financing sooner than currently
anticipated or curtail our operations. If financing is not available when and as
we require, we could be forced to slow down the growth of our business, reduce
our operations, or suspend operations entirely. Any issuance of equity
securities
8
<PAGE>
would dilute the interest of our stockholders. Additionally, if we incur debt,
our company will become subject to risks that our cash flow may be insufficient
to pay the principal and interest on any such debt.
WE OPERATE IN A VERY COMPETITIVE INDUSTRY.
The business-to-business e-commerce market is new, rapidly evolving and
intensely competitive, and we expect competition to intensify in the future.
Barriers to entry are minimal, and competitors may develop and offer similar
services in the future. Our business could be severely harmed if we are not able
to compete successfully against current or future competitors. Although we
believe that there are opportunities for several providers of products and
services similar to ours, a single provider may come to dominate the market.
Increased competition is likely to result in price reductions, reduced
gross margins and greater difficulty in attaining and retaining market share,
any of which could harm our business. Our competitors vary in size and in the
scope and breadth of the services they offer. In addition to competition from
several e-commerce trade communities, we primarily encounter competition from
business related e-commerce web sites such as PurchasePro.com, VerticalNet and
OnVia.com, enterprise software purchasing systems providers such as Ariba,
Commerce One and TRADE'ex, large Internet companies such as Yahoo.com, E-Bay and
AOL, and traditional business product vendors, such as Office Depot and Staples,
who are establishing their own Internet presence.
Virtually all of our current and potential competitors have longer
operating histories, larger customer bases and greater brand recognition in
business and Internet markets and significantly greater financial, marketing,
technical and other resources. Our competitors may be able to devote
significantly greater resources to marketing and promotional campaigns, may
adopt more aggressive pricing policies or may try to attract users by offering
services for free and may devote substantially more resources to product
development.
WE WILL NEED TO EXPAND OUR SYSTEMS AND INTRODUCE NEW SERVICES AND PRODUCTS IN A
TIMELY MANNER IN ORDER TO COMPETE.
The e-commerce marketplace is characterized by rapid technological change,
changes in customer requirements, frequent new service and product introductions
and evolving industry standards. Accordingly, we must be able to develop new
services and products that address the increasingly sophisticated and varied
needs of our customers and prospective customers.
The development and enhancement of services and products entails
significant risks, including:
o the inability to effectively adapt new technologies to our business;
o the failure to conform our products and services to evolving industry
standards;
o the inability to develop, introduce and market new products and services
or enhancements on a timely basis; and
o the nonacceptance by the market of new products and services.
9
<PAGE>
If we fail to recognize or address the need for new product or service
introductions, or if we encounter any of the foregoing problems, our business
and financial condition could be materially adversely affected.
WE DEPEND ON THIRD-PARTIES FOR DELIVERY OF OUR PRODUCTS AND SERVICES. WE SHARE
CERTAIN OF OUR REVENUES WITH A SERVICE PROVIDER.
Our business and growth depend, in part, on the capacity, reliability and
security of our technology backbone, a large part of which is currently provided
through Netgateway, Inc. Netgateway has a contractual obligation to provide us
with certain web design, commerce and web hosting services of sufficient
capacity to meet our needs at specified service levels. If Netgateway is unable
to fulfill its obligations for any reason and we cannot secure alternative
sources for these services in a timely fashion or on acceptable terms, we may
have to curtail our operations or limit the development of our site and
expansion of our products and service offerings. During the term of our
agreement with Netgateway, we are obligated to share equally with Netgateway all
advertising and "click-through" revenues generated through our web site. See
"Plan of Operations--Expenses--Website and technology development costs."
We use fulfillment agents (i.e., vendors and other third parties) to
supply, package and ship the products sold through our web site. We do not
manufacture or ship any of our own products. Therefore, we are wholly dependent
on our fulfillment agents with respect to the timely and accurate fulfillment of
orders and the shipment and delivery of products. While we believe there are
numerous vendors for each type of product offered through our web site, the
failure on the part of current vendors to fulfill orders could disrupt our
business or harm our reputation. We may not be able to replace vendors as
necessary on a timely basis or on acceptable terms.
DISRUPTION IN ANY ELEMENT OF OUR TECHNOLOGY BACKBONE COULD HARM OUR BUSINESS OR
LIMIT OUR GROWTH.
Our business is highly dependent on our systems to process, on a daily
basis, transactions across numerous and diverse markets. We will rely heavily on
our data processing systems, as well as our telecommunications systems. If any
of these systems do not operate properly or are unavailable due to problems with
our physical infrastructure, we could suffer disruptions to our business,
liabilities to clients, regulatory interventions or damage to our reputation and
the development of our brand name, any and all of which could have a material
adverse effect on our business operations and limit our ability to grow.
We also must ensure that our business customers do not experience
significant or frequent disruptions in their access to our web site. Our web
site could become inaccessible for numerous reasons, including as a result of
failure of our servers and/or software. Web site failures could result in loss
of existing customers and opportunities to garner additional customers.
Accordingly, any failure to have adequate systems in place to ensure the
constant monitoring and maintenance of, and accessibility to, our web site could
have a material adverse effect on our business and financial results.
Access to our web site is also directly dependent on the operating
condition of the Internet. Our success, therefore, will depend in part upon the
development and maintenance of the Internet's infrastructure to cope with
increased user traffic. This will require a reliable network backbone possessing
the necessary bandwidth, and the timely development of complementary products,
such as high-speed modems, for providing reliable Internet access and services
to business customers. The Internet has experienced a variety of outages and
other delays as a result of damage to or congestion on portions of its
infrastructure and could face similar outages and delays in the future, which
could have a material adverse effect on our business and financial condition.
WE MAY NOT BE ABLE TO DEVELOP AND MAINTAIN MARKETING RELATIONSHIPS WITH OTHER
INTERNET COMPANIES.
Our strategy for expanding brand recognition through online advertising
depends to some extent on our relationship with other Internet companies. We
plan to enter into marketing agreements with these companies that will permit us
to advertise our web site, products and services on their web pages. There can
be no assurance that we will be able to negotiate these
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<PAGE>
agreements on favorable terms or at all. Additionally, other e-commerce
companies that advertise on popular web sites may have exclusive advertising
relationships with such web sites or may otherwise object to our attempts to
enter into marketing agreements or relationships with such web sites. If we
cannot secure or maintain these marketing agreements on favorable terms, our
business prospects could be substantially harmed.
WE CANNOT BE CERTAIN THAT THE MARKET WILL ACCEPT OUR INTERNET-BASED PRODUCTS AND
SERVICES. FURTHER, THE SUCCESS OF OUR BUSINESS WILL DEPEND ON CONTINUED GROWTH
OF INTERNET COMMERCE IN GENERAL.
The market for both Internet-based product and service offerings and
business information services are at early stages of development and are rapidly
evolving. Consequently, demand and market acceptance for recently introduced
products and services are subject to a high level of uncertainty. Because these
markets are new and evolving, it is difficult to predict the future growth (if
any) and the future size of these markets. We cannot assure you that these
markets will continue to develop or become sustainable. Sales of many of our
products and services will depend upon the acceptance of the Internet as a
widely used medium for commerce and communication. A number of factors could
prevent such acceptance, including the following:
o e-commerce is at an early stage and buyers may be unwilling to shift
their purchasing from traditional vendors to online vendors;
o the necessary network infrastructure for substantial growth in usage of
the Internet may not be adequately developed;
o increased government regulation or taxation may adversely affect the
viability of e-commerce;
o insufficient availability of telecommunication services or changes in
telecommunication services could result in slower response times for
Internet users or increased costs; and
o adverse publicity and consumer concern about the security of e-commerce
transactions could discourage its acceptance and growth.
WE CANNOT BE CERTAIN THAT OUR NETWORK SECURITY SYSTEMS WILL NOT BE CIRCUMVENTED.
The need to securely transmit confidential information over the Internet
has been a significant barrier to e-commerce and communications. We are
potentially vulnerable to attempts by unauthorized computer users to penetrate
our network security. If successful, those individuals could misappropriate
proprietary information or cause interruptions in our services. We may be
required to expend significant capital and resources to protect against the
threat of such security breaches or to alleviate resulting problems. In addition
to security breaches, inadvertent transmission of computer viruses could expose
us to the risk of disruption of our business, loss and possible liability.
Continued concerns over the security of Internet transactions and the privacy of
its users may also inhibit the growth of the Internet generally as a means of
conducting commercial transactions.
Our systems, the systems we license from third parties and the systems of
our vendors rely upon encryption and authentication technology, including public
key cryptography technology licensed from other parties, to provide the security
and authentication necessary to effect secure transmission of confidential
information over the Internet. Advances in computer capabilities, new
discoveries in the field of cryptography or other developments could result in a
compromise or breach of the procedures used to protect customer transaction
data. If any compromise of the security of any of these systems occurs, our
business, financial condition and operating results could be materially
adversely affected.
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<PAGE>
WE MAY BE LIABLE IF THIRD PARTIES MISAPPROPRIATE OUR BUSINESS CUSTOMERS'
PERSONAL INFORMATION.
If third parties were able to penetrate our network security or otherwise
misappropriate our business customer's personal information or credit card
information, we could be subject to liability. This could include claims for
unauthorized purchases with credit card information, impersonation or other
similar fraud claims. They could also include claims for violation of data
protection rights. These claims could result in litigation.
OUR ABILITY TO COLLECT PERSONAL AND OTHER DATA ON BUSINESS CUSTOMERS MAY BE
RESTRICTED AND MAY HINDER OUR ABILITY TO GENERATE E-COMMERCE OR ADVERTISING
REVENUE.
We must comply with applicable data protection legislation, which limits
our ability to collect and use personal information relating to our customers.
Increased awareness on the part of the public of privacy issues and changes to
legislation with which we may have to comply could impact our ability to use
such personal information for the benefit of our business, which could affect
our financial results.
WE MAY BE SUED FOR INFORMATION RETRIEVED FROM OUR WEB SITE.
Claims for defamation, negligence, copyright or trademark infringement,
personal injury or claims based on other legal theories could be brought against
us for the information we publish on our web site. These types of claims have
been brought, sometimes successfully, against online services in the past. We
also could be subjected to claims based upon the content that is accessible from
our web site through links to other web sites or through content and materials
that may be posted by members in chat rooms or bulletin boards. Our insurance,
which covers commercial general liability, may not adequately protect us against
these types of claims.
WE COULD FACE PRODUCT LIABILITY CLAIMS FOR PRODUCTS SOLD THROUGH OUR WEB SITE.
Business customers may sue us if any of the products that we sell are
defective, fail to perform properly or injure the user. Liability claims could
require us to spend significant time and money in litigation or to pay
significant damages. As a result, any such claims, whether or not successful,
could seriously damage our reputation and our business.
THE MARKET FOR INTERNET ADVERTISING IS UNCERTAIN.
We expect to derive revenues from advertising. However, the demand and
market acceptance for Internet advertising is uncertain. There are currently no
standards for the measurement of the effectiveness of Internet advertising, and
the industry may need to develop standard measurements to support and promote
Internet advertising as a significant advertising medium. If such standards do
not develop, existing advertisers may not continue their levels of Internet
advertising. Advertisers in general may determine that Internet-based
advertising does not market their products and services as effectively as
traditional media advertising. Furthermore, advertisers that have relied upon
traditional advertising media may be reluctant to advertise on the Internet. Our
business would be adversely affected if the market for Internet advertising does
not continue to grow or we do not generate sufficient traffic of the type
attractive to Internet advertisers.
WE ARE DEPENDENT UPON OUR ABILITY TO RECRUIT AND RETAIN KEY PERSONNEL.
We are highly dependent on the efforts of Woo Jin Kim, our Chief Executive
Officer, and our other executive officers. The loss of his services or the
services of our other executive officers would have a material adverse effect on
our operations. Our business will also require us to hire and retain additional
highly skilled personnel. The recruitment and retention of management personnel
experienced in the operation of Internet and e-commerce businesses, as well as
proficient software design personnel and other technology personnel, are
particularly important to our performance and success. Competition for talented
personnel is intense. The inability to recruit and
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<PAGE>
retain experienced personnel in the future could have a material adverse effect
on our business, financial condition and operating results.
OUR EXECUTIVE OFFICERS LACK SIGNIFICANT MANAGEMENT EXPERIENCE AND MAY ENCOUNTER
DIFFICULTY IN MANAGING OUR GROWTH.
None of our executive officers has significant experience in managing a
company or overseeing a company's rapid growth. The growth of our business may
place a significant strain on our management team and our systems and resources
and will require us to expand our operational and financial systems, procedures
and controls. Our inability to add additional hardware and software to upgrade
our existing technology or network infrastructure to accommodate increased
traffic may cause decreased levels of customer service and satisfaction. We also
intend to introduce additional or enhanced features and services to retain
current business customers and attract new business customers to our web site.
If we introduce a feature or a service that is not favorably received or which
contains errors, our current business customers may not use our web site as
frequently and we may not be successful in attracting new business customers. We
also may experience difficulties that could delay or prevent us from introducing
new services and features. If business customers encounter difficulty with or do
not accept new services or features, our business, results of operations and
financial condition could be adversely affected. Our failure to manage our
growth and expansion could adversely affect our business, results of operations
and financial condition.
OUR INTELLECTUAL PROPERTY IS IMPORTANT TO OUR BUSINESS AND MUST BE PROTECTED.
We regard the protection of our intellectual property, including our URL
"www.b2bstores.com" and our "b2bstores.com" trademark, as critical to our
success. We also rely on the proprietary technology of third parties, including
Netgateway. Unauthorized use of the intellectual property used in our business
by third parties may damage our brand and our reputation. We rely on
intellectual property laws and confidentiality and license agreements with our
employees, customers, partners and others to protect our intellectual property
rights. Despite our precautions, it may be possible for third parties to obtain
and use our intellectual property or the intellectual property of our
third-party providers without authorization.
Our inability to protect our "b2bstores.com" domain name in particular may
adversely affect our business. The market for registering Internet domain names
in the United States and in foreign countries has become increasingly
competitive and is expected to undergo further changes in the near future. We
expect that the requirements for registering Internet domain names will be
affected, as well. The relationship between regulations governing Internet
domain names and laws protecting trademarks and similar proprietary rights is
unclear. We may be unable to prevent third parties from acquiring Internet
domain names that are similar to, infringe upon or otherwise decrease the value
of our Internet domain name, the trademarks and other intellectual property
rights used by us and we may need to protect our rights through litigation.
We are also subject to the risk of adverse claims and litigation alleging
infringement of the intellectual property rights we use. The resolution of any
infringement claims may result in lengthy and costly litigation. Moreover,
resolution of a claim may require us to obtain a license to use those
intellectual property rights or possibly to cease using those rights altogether.
Any of those events could have a material adverse effect on our business,
results of operations and financial condition.
IT IS IMPORTANT THAT WE BUILD AWARENESS OF OUR BRAND AND BUSINESS.
Although we intend to devote significant capital to creating and
maintaining brand loyalty and raising awareness of our products and services,
our failure to advertise and market our web site or brand effectively could
cause our business to suffer. Our success in promoting our brand also will
depend on our success in providing our customers with quality products and
services and a high-
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<PAGE>
level of customer satisfaction. Creating brand awareness for a brand containing
the term "b2b" may prove difficult if the markets confuse, or are unable to
differentiate among, the numerous web sites branded with the term "b2b."
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD ADD ADDITIONAL COSTS TO
DOING BUSINESS ON THE INTERNET.
The laws governing Internet transactions remain largely unsettled, even in
areas where there has been some legislative action. The adoption or modification
of laws or regulations relating to the Internet could increase our costs and
administrative burdens. It may take years to determine whether and how existing
laws such as those governing intellectual property, privacy, libel, consumer
protection and taxation apply to the Internet.
Laws and regulations directly applicable to communications or commerce
conducted over the Internet are becoming more prevalent. We must comply with new
regulations in the United States and other countries where we may conduct
business. The growth and development of the business-to-business e-commerce
market may result in the adoption of stringent laws governing consumer
protection and the taxation of e-commerce. Noncompliance with any newly adopted
laws and regulations could expose us to significant liabilities.
OUR BUSINESS COULD BE SIGNIFICANTLY DISRUPTED IF OUR SYSTEMS OR THE SYSTEMS OF
OTHERS PROVE NOT TO BE YEAR 2000 COMPLIANT.
We may realize exposure and risk if the systems on which we are dependent
to conduct our operations are not Year 2000 compliant. We are largely dependent
on our ability to conduct our operations through the Internet, therefore any
significant disruption of this computer infrastructure caused by the Year 2000
problem could significantly interfere with our business operations. Our
potential areas of exposure include products purchased from third parties,
computers, software, telephone systems and other equipment used internally. If
our present efforts to address Year 2000 compliance issues are not successful,
or if vendors with whom we conduct business do not successfully address such
issues, our business, operating results and financial position could be
materially and adversely affected.
WE WILL HAVE BROAD DISCRETION TO APPLY THE PROCEEDS OF THIS OFFERING. SOME OF
THE PROCEEDS WILL BE USED TO PAY A DEBT OWED TO A PRINCIPAL STOCKHOLDER OF OUR
COMPANY AND CASH BONUSES TO CERTAIN OF OUR OFFICERS.
We intend to use the net proceeds from this offering for the development of
our web site, technology backbone, brand identity and general corporate
purposes. Accordingly, our management will have significant flexibility in
applying such proceeds. The failure of our management to apply such funds
effectively could have a material adverse effect on our business, results of
operations and financial condition. Additionally, approximately $185,000 of the
net proceeds of this offering will be used to repay debt owed to one of our
principal stockholders and $130,000 will be used to pay cash bonuses to certain
of our officers that will be due upon consummation of this offering.
Accordingly, an aggregate of approximately $315,000 of the net proceeds will not
be available for use in connection with the development of our web site and
business operations.
YOU WILL BE PAYING MORE ON A PER-SHARE BASIS THAN EXISTING STOCKHOLDERS,
RESULTING IN AN IMMEDIATE DILUTION TO YOUR INVESTMENT.
Since the net tangible book value per share of common stock immediately
after completion of the offering will be significantly less than the per-share
offering price paid by investors in the offering, the investors will suffer
immediate and substantial dilution in their investment in our common stock.
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<PAGE>
THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR SHARES AND AN ACTIVE TRADING
MARKET FOR OUR SHARES MAY NOT DEVELOP.
Prior to this offering, there has been no public market for our shares.
Although we have applied for quotation of our common stock on the Nasdaq
National Market, there can be no assurance that this application will be
approved, and even if approved, we can give no assurance that an active trading
market for our shares will develop or, if developed, be sustained following the
closing of this offering. If an active trading market is not developed or
maintained, the liquidity and trading price of the shares could be adversely
affected. The offer price, which may bear no relationship to the price at which
the shares will trade upon completion of this offering, was determined by
negotiations between us and the underwriters, based upon factors that may not be
indicative of future market performance.
UPON COMPLETION OF THIS OFFERING, OUR CHAIRMAN OF THE BOARD WILL CONTROL OUR
COMPANY. HE IS ALSO CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER OF OUR
PRINCIPAL STOCKHOLDER, WHICH COULD CREATE CONFLICTS OF INTEREST.
Richard Kandel, our Chairman of the Board, is also Chairman of the Board
and Chief Executive Officer of Enviro-Clean of America, Inc., a principal
stockholder of our company. Mr. Kandel is deemed to beneficially own the shares
of our common stock he holds directly as well as the shares of common stock
owned by other entities he controls, including Enviro-Clean. Accordingly,
Mr. Kandel beneficially owns approximately 80.4% of our outstanding common stock
prior to this offering, and will own approximately 43.0% upon completion of this
offering. He will be in a position to significantly influence any matter put to
a vote of our stockholders, including with respect to the election of our
directors.
Enviro-Clean maintains an online presence at www.b2bgoods.com and through
this web site sells products related to its janitorial and sanitary maintenance
operations and certain other products, all of which are also available through
our web site. Although Enviro-Clean is generally obligated to refrain from
selling its products online other than through its www.b2bgoods.com web site and
our web site for as long as it owns at least 10% of our common stock, there
could be conflicts of interest as a result of Mr. Kandel's positions with us and
Enviro-Clean and his fiduciary responsibilities arising from such positions.
Enviro-Clean has furnished certain of our vendors with guarantees with
respect to our obligations to them as part of our early stage development and
creation of our initial vendor relationships. Although we anticipate that our
receipt of the net proceeds of this offering will eliminate our need to supply
similar guarantees to vendors in the future, if such guarantees should be
necessary, Enviro-Clean has no obligation, and may not have the financial
ability, to provide them.
OUR SHARE PRICE IS EXPECTED TO BE HIGHLY VOLATILE.
The price of shares sold in an initial public offering is frequently
subject to significant volatility for a period of time following the initial
public offering. In addition, the stock market has from time to time experienced
significant price and volume fluctuations, which have particularly affected the
market prices of the shares of Internet-sector companies and which may be
unrelated to the operating performance of such companies. Furthermore, our
operating results and prospects from time to time may be below the expectations
of public market analysts and investors. Any such event could result in a
material decline in the price of our shares.
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<PAGE>
WE CURRENTLY DO NOT PLAN TO PAY CASH DIVIDENDS ON OUR SHARES.
We have never declared or paid any cash dividends on our shares and do not
anticipate paying cash dividends in the foreseeable future.
EXERCISE OF OPTIONS AND WARRANTS MAY ADVERSELY AFFECT OUR STOCK PRICE AND WILL
DILUTE YOUR PERCENTAGE OF OWNERSHIP.
At the date of consummation of this offering, there will be outstanding
options to purchase 1,000,000 shares of our common stock and we have obligations
under existing employment agreements which may cause us to grant additional
options to purchase up to 200,000 shares of our common stock under our 1999
Performance Equity Plan during 2000. We also may grant options to purchase up to
an additional 1,800,000 shares of common stock under our plan and other options
and warrants to purchase common stock outside of the plan. We will also issue
warrants to the representatives to purchase up to 350,000 shares of our common
stock in connection with this offering. The exercise of these securities, and
the exercise or conversion of additional stock options, warrants or convertible
securities that we may issue in the future, may adversely affect the market
price for our common stock and will dilute the percentage ownership of our other
stockholders. The dilutive effect upon the exercise of these securities might
adversely affect our ability to obtain additional capital. The holders of these
securities may be expected to exercise them when we would be able to obtain
additional equity capital on terms more favorable than these securities.
SALES OF A LARGE NUMBER OF SHARES IN THE PUBLIC MARKET COULD REDUCE OUR STOCK
PRICE.
Substantially all of the 4,021,643 shares of our common stock outstanding
prior to this offering will be saleable under Rule 144 of the Securities Act
after June 2000, with the balance becoming saleable in August and September
2000. Although the holders of such common stock have signed agreements with the
underwriters pursuant to which they are restricted from selling any such common
stock during the 12-month period following consummation of this offering, the
underwriters can consent to the waiver of these restrictions at any time without
notice. Sales or the expectation of sales of a substantial number of shares of
our common stock in the public market could adversely affect the prevailing
market price of our common stock.
OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER OF OUR COMPANY.
Provisions in our certificate of incorporation and bylaws may have the
effect of delaying or preventing a change of control or changes in our
management that a stockholder might consider favorable. These provisions
include, among others:
o the division of the board of directors into three separate classes;
o the right of the board to elect a director to fill a space created by the
expansion of the board;
o the ability of the board to alter our bylaws; and
o the ability of the board to issue series of preferred stock without
stockholder approval.
Furthermore, because we are incorporated in Delaware, we are subject to the
provisions of Section 203 of the Delaware General Corporation Law. These
provisions prohibit certain significant stockholders, in particular those owning
15% or more of the outstanding voting stock, from consummating a merger or
combination with a corporation unless:
o 66 2/3% of the shares of voting stock not owned by this significant
stockholder approve the merger or combination; or
o our board of directors approves the merger or combination or the
transaction which resulted in the significant stockholder owning 15% or
more of our outstanding voting stock.
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<PAGE>
USE OF PROCEEDS
Assuming an offering price of $10.00 per share, we estimate that we will
receive net proceeds from the sale of shares in this offering of approximately
$30,675,000 (approximately $35,373,750 if the underwriters exercise their
over-allotment option in full), after deducting underwriting discounts and
commissions and other expenses payable by us estimated at approximately
$4,325,000 (approximately $4,876,250 if the underwriters exercise the
over-allotment option in full). We intend to use the net proceeds as follows
(assuming no exercise of the over-allotment option):
<TABLE>
<CAPTION>
APPLICATION OF PROCEEDS AMOUNT PERCENT
- ---------------------------------------------------------------------------- ----------- -------
<S> <C> <C>
Sales and marketing......................................................... $18,000,000 58.7%
Development of our web site and customer support operations................. 2,500,000 8.1
Repayment of debt to principal stockholder.................................. 185,000 0.6
Payment of bonuses to certain officers...................................... 130,000 0.4
Working capital and general corporate purposes.............................. 9,860,000 32.2
----------- -----
Total..................................................................... $30,675,000 100%
----------- -----
----------- -----
</TABLE>
We intend to use approximately $18,000,000 of the net proceeds for sales
and marketing activities and operations. An important part of these activities
will be the development of the "b2bstores.com" brand and promotion of our web
site and product and service offerings. These activities include the advertising
of our web site in trade journals and magazines, direct mailings to businesses,
and online marketing initiatives. This portion of the proceeds will also be used
for the hiring of sales and marketing personnel and for any up-front payments
that may be required by fulfillment agents prior to their actual delivery of
products to our customers.
We intend to use approximately $2,500,000 of the proceeds for the continued
technological development of our web site, including the in-house development of
proprietary software and related technologies, the hiring of design and
technology personnel, and the purchase and/or leasing of hardware and
third-party technologies that we believe will enhance our web site's ease of
use, presentation, e-commerce and information capabilities and sense of
community. This portion of the proceeds also will be used for the expansion of
our customer support operations, including our 24-hour customer service
telephone operations and live, online customer service chat area.
We will use approximately $185,000 of the net proceeds to repay loans made
to us by Enviro-Clean, a principal stockholder of our company whose Chairman of
the Board and Chief Executive Officer is Richard Kandel, our Chairman of the
Board. These loans were made in the aggregate principal amount of approximately
$180,000 in June and July 1999 and bear interest at the annual rate of 8%. All
principal (together with interest due on such principal) is payable by us on the
earlier of (a) December 31, 1999 and (b) the date this offering is consummated.
We will use approximately $130,000 of the net proceeds to pay cash bonuses
to certain of our officers, as required under their employment agreements.
We intend to use the remaining net proceeds for working capital and general
corporate purposes, which will include salaries of additional management and
back-office personnel, and expansion of our financial and accounting
infrastructure. Our management will have broad discretion in allocating the
proceeds to be applied for working capital and general corporate purposes. A
portion of the net proceeds allocated to our working capital and for general
corporate purposes also may be applied to acquisitions, investments or strategic
alliances domestically or abroad which have not yet been identified. If the
underwriters exercise their over-allotment option in full, we intend to use the
net proceeds from the sale of the shares sold pursuant to the exercise of the
over-allotment option for working capital and general corporate purposes.
Based upon current plans and assumptions relating to our business plan, we
anticipate that the net proceeds of this offering, together with our existing
capital resources, will satisfy our capital requirements for at least the
18-month period following the consummation of this offering.
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However, if our plans change or our assumptions prove to be inaccurate, we may
need to seek additional financing sooner than currently anticipated or curtail
our operations.
Pending application of the net proceeds as described above, we intend to
invest the net proceeds in short-term, interest-bearing investment grade
securities, money market accounts, certificates of deposit, or direct or
guaranteed obligations of the United States government.
DIVIDEND POLICY
We expect to retain all earnings generated by our operation for the
development and growth of our business, and do not anticipate paying any cash
dividends to our stockholders in the foreseeable future. The payment of future
dividends on the common stock and the rate of such dividends, if any, will be
determined by our board of directors in light of our earnings, financial
condition, capital requirements and other factors.
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<PAGE>
DILUTION
A company's net tangible book value is equal to its total tangible assets
minus its total liabilities. A company's net tangible book value per share is
calculated by dividing its net tangible book value by the total number of shares
of common stock outstanding. As of August 31, 1999, we had a net tangible book
value of $398,183, or approximately $.10 per share of common stock.
As of August 31, 1999, after adjusting for the issuance of 3,500,000 shares
of our common stock in this offering (at an assumed offering price of $10.00 per
share) and the receipt by us of the net proceeds from this offering (and the
application of a portion thereof to repay certain debt and pay bonuses to
certain executive officers), our as adjusted net tangible book value, would have
been approximately $30,938,019, or approximately $4.13 per share of common
stock. This represents an immediate increase in our net tangible book value of
approximately $4.03 per share of common stock to existing stockholders and an
immediate dilution of approximately $5.87 per share, or approximately 59%, to
new investors purchasing shares in this offering. The following table
illustrates this dilution using an assumed public offering price of $10.00 per
share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................................... $ 10.00
Net tangible book value per share as of August 31, 1999................... .10
Increase per share attributable to sale of shares in this offering........ 4.03
---------
As adjusted net tangible book value per share of common stock after this
offering........................................................................ $ 4.13
---------
Dilution per share of common stock to investors in this offering.................. $ 5.87
---------
---------
</TABLE>
Assuming the exercise in full of the underwriters' over allotment option,
the as adjusted net tangible book value of our company at August 31, 1999 would
have been approximately $4.44 per share, representing an immediate increase in
net tangible book value of $4.34 per share to our company's existing
stockholders and an immediate dilution in net tangible book value of $5.56 per
share to new investors.
The following table summarizes, as of August 31, 1999, the number and
percentage of shares of common stock purchased from our company, the amount and
percentage of the cash consideration paid, and the average price per share paid
by existing stockholders and by new investors pursuant to this offering. The
calculation below is based on an assumed initial public offering price of $10.00
per share, before deducting the estimated underwriting discount and offering
expenses paid by our company.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CASH CONSIDERATION AVERAGE
---------------------- ------------------------ PRICE
NUMBER(1) PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 4,000,000 53.3% $ 636,000 1.8% $ 0.16
New investors....................... 3,500,000 46.7% 35,000,000 98.2% 10.00
----------- ----- ----------- -----
Total............................. 7,500,000 100.0% $35,636,000 100.0%
----------- ----- ----------- -----
----------- ----- ----------- -----
</TABLE>
- ------------------
(1) Does not include (a) 1,000,000 shares of common stock issuable upon exercise
of options that will be granted to certain officers on the date the registration
statement of which this prospectus is a part is declared effective by the SEC
(at a per-share price equal to 80% of the offering price in this offering), (b)
200,000 shares of common stock issuable upon exercise of options that may be
granted to certain officers during 2000 under our 1999 Performance Equity Plan
upon the attainment by us of certain operational and financial criteria (at a
per-share price equal to the last sale price of a share of common stock as
reported on Nasdaq on the last trading day prior to the date of grant), (c)
1,800,000 additional shares of common stock that would be issuable upon exercise
of other options that we may grant under our plan, (d) 350,000 shares of common
stock issuable upon exercise of warrants being issued to the representatives in
connection with this offering and (e) 21,643 shares of common stock issued to
certain consultants and directors in September 1999. To the extent that any of
these options or warrants are exercised, there will be further dilution to new
investors. Please see "Capitalization," "Management-1999 Performance Equity
Plan" and notes 4 and 6 to our company's financial statements.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of August 31, 1999 on
an actual and as adjusted basis. The as adjusted column shows our capitalization
adjusted to reflect the issuance of the 3,500,000 shares in this offering (at an
assumed public offering price of $10.00 per share) and the initial application
of a portion of the proceeds of this offering to (a) repay all of our short-term
debt, and (b) pay cash bonuses that will be due to certain executive officers.
You should read this information together with our company's financial
statements and the notes thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AUGUST 31, 1999
----------------------------
ACTUAL AS ADJUSTED
---------- --------------
<S> <C> <C>
Short-term debt.................................................................. $ 179,836 $ --
---------- ------------
---------- ------------
Stockholders' equity:
Preferred stock, par value $0.01 per share, 5,000,000 shares authorized; no
shares issued (actual and as adjusted)...................................... -- --
Common stock, par value $0.01 per share, 25,000,000 shares authorized;
4,000,000 issued and outstanding (actual); and 7,500,000 shares issued and
outstanding, as adjusted(1)................................................. 40,000 75,000
Additional paid-in capital..................................................... 2,497,500 33,137,500
Deficit accumulated during development stage................................... (2,086,866) (2,221,930)
---------- ------------
Total stockholders' equity.................................................. 450,634 30,990,570
---------- ------------
Total capitalization........................................................ $ 450,634 $ 30,990,570
---------- ------------
---------- ------------
</TABLE>
- ------------------
(1) Does not include (a) 1,000,000 shares of common stock issuable upon exercise
of options that will be granted to certain officers on the date the
registration statement of which this prospectus is a part is declared
effective by the SEC (at a per-share price equal to 80% of the offering
price in this offering), (b) 200,000 shares of common stock issuable upon
exercise of options that may be granted to certain officers during 2000
under our 1999 Performance Equity Plan upon the attainment by us of certain
operational and financial criteria (at a per-share price equal to the last
sale price of a share of common stock as reported on Nasdaq on the last
trading day prior to the date of grant), (c) 1,800,000 additional shares of
common stock that would be issuable upon exercise of other options that we
may grant under our plan and (d) 350,000 shares of common stock issuable
upon exercise of warrants being issued to the representatives in connection
with this offering.
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PLAN OF OPERATIONS
You should read the following discussion together with the rest of this
prospectus, including the financial statements and related notes thereto and the
other financial information included elsewhere in this prospectus. In addition
to historical information, this discussion contains forward-looking statements
based on current expectations, which involve risks and uncertainties. Our actual
results could differ materially from those anticipated by such forward-looking
information due to competitive factors, risks associated with our expansion
plans and other factors discussed under "Risk Factors" and elsewhere in this
prospectus.
OVERVIEW
b2bstores.com is a branded Internet web site specifically designed to
assist business customers in the operation and development of their businesses.
We began our commercial operations in September 1999 and have generated only
nominal revenues to date.
b2bstores.com provides user-friendly online access to business products and
supplies. In the fourth quarter of 1999, we will be expanding our web site to
increase the range of our product offerings, introduce auction capabilities and
begin providing service referrals and value-added business content.
It is anticipated that our web site will provide our business customers
with all of our initial, proposed functions by the first quarter of 2000.
Thereafter, we will continue to enhance our features and expand our product and
service offerings in order to continue to provide our business customers with
leading-edge e-commerce capabilities, community functions and timely business
content.
Our objective is to become a leading, one-stop Internet destination that
enables business customers to conduct e-commerce, communications and other
online interaction with their customers, suppliers and colleagues.
SOURCES OF REVENUE
We believe that we will derive our revenues from the following sources:
o product sales;
o service referral fees and commissions;
o advertising; and
o "click through" fees.
PRODUCT SALES
We sell products from our expanding catalog of products--from cleaning
products to office supplies to computers. We also intend to provide our business
customers with the ability to purchase ancillary products such as flowers,
collectibles and vacation packages. We expect a substantial majority of our
revenue to come from the online sale of products.
SERVICE REFERRAL FEES
We will provide our business customers with access to a broad range of
business services, such as 401(k) planning, human resource outsourcing,
recruiting services and corporate event planning. Subject to regulation in
applicable industries, we will generate revenues from our service referral
activities through the collection of commissions and referral fees from the
service providers to which we direct our business customers.
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ADVERTISING REVENUE
Revenue from advertising on the Internet is driven by the size and quality
of a web site's audience. We believe that our target audience--business
customers--will give us the ability to structure attractive transactions with
advertisers. Advertising revenue will be earned from the sale of advertising
banners, pop-up windows and sponsorship or promotional rights placed on our web
site. We believe that advertising revenue will be an important source of our
revenue in the future. In order to effectively sell advertising on our web site,
we believe we will need to consistently achieve more than 1,000,000 hits per
month. The rates that we charge our advertisers for the placement of the
advertisements at our web site will range from $0.005 to $0.02 per hit, based
upon the amount of advertising purchased and the relative placement of such
advertising within our web site. During the term of our agreement with
Netgateway, we are obligated to share equally with Netgateway all advertising
revenue generated through our web site.
"CLICK-THROUGH" REVENUE
We will participate in affiliate programs with online retail partners by
placing "click-through" tags in our b2bstores.com web site. When a business
customer points his or her mouse to one of these click-through tags and clicks
the mouse, he or she is brought to the e- commerce web site of one of our retail
partners. Our click-through tags will allow us to generate revenues through the
collection of sales commissions from our click-through retail partners.
Commissions from our click-through initiatives will vary. During the term of our
agreement with Netgateway, we are obligated to share equally with Netgateway all
revenues generated through our "click-through" arrangements.
EXPENSES
Our expenses are composed of:
o salaries;
o sales and marketing costs;
o costs of products;
o web site and technology development costs;
o customer satisfaction operations; and
o general and administrative costs.
SALARIES
We believe that there are four key components to our success. They are:
o effective marketing of the web site (to vendors, advertisers and business
customers);
o efficient management of vendors and fulfillment agents (i.e., the
entities that will supply and distribute products purchased on our own
storefronts located at our web site);
o availability of useful and attractive web site features and leading-edge
technology; and
o effective execution of our operations.
In order to excel in all of these areas, we must hire talented personnel.
Competition for qualified, experienced personnel in the high-tech market is
intense. In order to compete effectively in this labor market, we must provide
generous compensation plans. Accordingly, we will incur significant expense in
hiring and retaining the personnel we need to grow our business.
SALES AND MARKETING COSTS
The development of our brand name, the creation of traffic to our web site
and the promotion of our business, products and services, will require
significant sales and marketing efforts. Accordingly, we will incur significant
expenses in connection with advertising, promotional and
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public relations activities, merchandising, market research and consultancy and
customer database management.
COSTS OF PRODUCTS
We account for each product sold through our web site as a sale by us
directly to our business customer and the entire amount paid by such customer to
us for the product is accounted by us as revenue. The product order is actually
fulfilled by one of our fulfillment agents, which charges us a negotiated price
for the product. Generally, upon shipment of a product from one of our
fulfillment agent's premises, we assume title to the product, and accordingly,
risk of loss, until it is received by our business customer. The amounts we are
charged by our vendors for the products we purchase from them are expensed by us
as part of our cost of sales.
WEB SITE AND TECHNOLOGY DEVELOPMENT COSTS
Competition for user traffic among business-related web sites is intense.
Web sites can differentiate themselves from others by providing users with an
online experience that is easy, efficient and useful. By providing an online
experience that is also informative and entertaining and visually pleasing, web
sites can increase the percentage of first time users that return to the web
site again and again. The quality of the online experience is directly related
to the underlying technologies utilized by the web site. Such technology
includes web site content, design, operational software, transaction processing
systems and telecommunications infrastructure. We will be required to
consistently update our hardware and software systems in order to deliver
leading-edge technical solutions on our web site and provide users with an
online experience superior to that provided by competitors. Accordingly, we will
incur significant ongoing expense with respect to our technology.
Currently, we rely heavily on Netgateway for our technical infrastructure
and to host and deliver our web site. For these services we paid Netgateway an
up-front fee, with additional nominal operating fees payable to Netgateway based
on the number of hits on our web site. We also are required to pay Netgateway a
small percentage of all revenues generated from sales (varying according to
sales volume) processed through our e-commerce backbone, whether as result of
sales of products by us or sales by other web sites to which we provide vendor
management or processing services. During the term of our agreement with
Netgateway, we are obligated to share equally with Netgateway all advertising
and "click-through" revenues generated through our web site.
We believe that by initially outsourcing a large portion of our technology
infrastructure, we will be able to reduce the up-front costs associated with
constructing and expanding a complex e-commerce and business information
community, pay for a large portion of the services provided by third-party
technology providers only as we generate revenues from our web site, and harness
the proven experience of these technology providers. Over time, as our web site
and operations mature, we intend to internally develop or otherwise internalize
a significant portion of the technology used to operate our business.
CUSTOMER SATISFACTION OPERATIONS
In order to effectively compete with traditional retailers, as well as
overcome any hesitancy potential customers may have in purchasing products over
the Internet, we have implemented a customer satisfaction program. We believe
that most e-commerce companies do not provide users with real customer service.
We intend to differentiate our web site from other business web sites by
providing live, attentive customer service. Our customer satisfaction system
manages customer service issues 24 hours a day, seven days a week both in person
and online. We will incur substantial ongoing costs in connection with the
operation of this system, including fees payable to companies to which we
outsource parts of our customer satisfaction program.
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As part of our customer satisfaction program, we plan to offer customers
the guarantee that they will get the products they ordered, in a timely fashion,
and in working order. If our customers are dissatisfied with a product, they
will have 30 days to return it, and we will refund their money. Accordingly, we
may be required to make significant reserves for returns and to defer
recognition of revenues for certain periods of time.
GENERAL AND ADMINISTRATIVE COSTS
We will incur significant expense in connection with the salary, benefits
and staff costs for general management and administrative employees, costs
relating to our facilities and professional services.
RESULTS OF OPERATIONS
We have a very limited operating history and our activities to date have
been limited to launching our service, establishing relationships with
e-commerce partners and refining our product presentation. As a result, our
historical financial information is not necessarily indicative of our future
financial performance.
We expect to incur significant net losses during 1999. In connection with
the granting of options to certain officers on the effective date of the
registration statement of which this prospectus is a part, we will incur
non-cash compensation charges over the vesting period of such options based on
the excess of the market price established on the effective date and the
exercise price of such options. Based on an assumed market price of $10.00,
these charges to operations will be $400,000, $750,000, $425,000 and $425,000 in
1999, 2000, 2001 and 2002, respectively. In connection with the issuance of
21,643 shares of common stock to consultants and directors in September 1999, we
will record a non-cash compensation charge to operations of $216,430. In
addition, upon consummation of this offering, we will be required to pay cash
bonuses aggregating $130,000 to certain officers, further increasing our losses
during 1999. There can be no assurance that we will ever achieve or maintain
profitability.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, our working capital requirements have been satisfied
through capital contributions by our current stockholders, including Richard
Kandel, our Chairman of the Board, and Enviro-Clean of America Corp., a
principal stockholder of our company, and loans made to us by Enviro-Clean.
Mr. Kandel is also Chairman of the Board and Chief Executive Officer of Enviro-
Clean.
In June 1999, we sold 3,666,667 shares of our common stock to Mr. Kandel,
Enviro-Clean and others for $27,500 in the form of $11,000 cash and the transfer
to us of all right, title and interest in www.b2bstores.com and all related
assets, including intellectual property.
In June and July 1999, Enviro-Clean made loans to us in the aggregate
principal amount of approximately $180,000. These loans bear interest at the
rate of 8% per annum and are repayable on the earlier of (a) December 31, 1999
and (b) the date this offering is consummated.
In August 1999, we raised proceeds of $625,000 through the sale of 333,333
shares of our common stock to Mr. Kandel and other affiliates of Enviro-Clean at
$1.88 per share.
In September 1999, we issued (a) an aggregate of 16,643 shares of our
common stock to certain persons in consideration of services rendered by them to
our company, including certain persons who also render services to or are
employed by Enviro-Clean, and (b) 2,500 shares of our common stock to each of
John Higgins and Phillip Ellett in consideration of their becoming directors of
our company.
Our working capital at August 31, 1999 was $365,849. Our independent
certified public accountants' report for the period from our inception
(June 28, 1999) through August 31, 1999
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states that our limited working capital position prior to our receipt of the net
proceeds of this offering raises substantial doubt about our ability to continue
as a going concern. Accordingly, the continuation of our operations is dependent
upon our receipt of the net proceeds of this offering. Based upon current plans
and assumptions relating to our business plan, we anticipate that the net
proceeds of this offering, together with our existing capital resources, will
satisfy our capital requirements for at least the 18-month period following the
consummation of this offering. However, if our plans change or our assumptions
prove to be inaccurate, we may need to seek additional financing sooner than
currently anticipated or curtail our operations.
We expect to raise additional capital in 2001, which may be in the form of
equity or debt financing. Any issuance of equity securities would dilute the
interest of our stockholders. Additionally, if we incur debt, our company will
become subject to risks that our cash flow may be insufficient to pay the
principal and interest on any such debt. If financing is not available when and
as we require, we could be forced to slow down the growth of our business or
suspend operations entirely.
SEASONALITY
Although we have a limited operating history, we expect to experience
seasonal variations in our e-commerce and advertising revenue, especially during
the summer period, when user traffic levels are expected to decline. Our
e-commerce revenue may be affected by stronger consumer goods sales during the
fourth calendar quarter of the year. In addition, our advertising revenue may
experience the same seasonal and cyclical patterns as those in traditional
media, where advertising increases ahead of the year-end holiday buying season.
YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the Year
2000. We utilize software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the Year 2000
problem. We also depend on telecommunications providers to maintain network
reliability.
Our Year 2000 compliance program covers proprietary and internal systems as
well as third party systems.
PROPRIETARY AND INTERNAL SYSTEMS
Our program involves the following phases:
Systems Review. We are in the process of doing a comprehensive review of
all internal financial, informational and operational systems. To date, we have
not found any Year 2000 problems.
Testing. This phase involves defining test plans, establishing a test
environment, developing test cases, performing testing and certifying and
documenting the results. We expect to complete testing by November 1999.
Contingency Planning. This phase involves reducing the risk of Year
2000-induced business disruption by confirming that we are able to produce a
minimum acceptable level of service in the event of internal or external
critical systems failure. We expect to complete contingency planning by November
1999.
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THIRD PARTY SYSTEMS
Third parties provide and support much of our service, therefore, a large
part of our Year 2000 program involves confirming that these third party systems
are Year 2000 compliant. In particular, we depend on telecommunications
providers to maintain network reliability and Netgateway to manage the computer
servers for our web site. Netgateway has informed us that it has completed the
evaluation of its own internal Year 2000 compliance and that it expects to be
fully Year 2000 compliant by the end of November 1999.
YEAR 2000 COMPLIANCE COSTS
We have not incurred any costs to date in connection with revising our
systems to ensure that they are Year 2000 complaint. We do not expect to incur
any significant costs in connection with our ongoing efforts to ensure that our
systems and the systems of our third-party technology suppliers are Year 2000
complaint.
YEAR 2000 RISKS
There can be no assurance that we will be completely successful in our
efforts to address Year 2000 issues in our proprietary and internal systems. In
addition, we depend significantly on a number of third parties. An extended Year
2000-related disruption could cause our business customers to seek alternative
web sites or cause an unmanageable burden on our technical and customer support
services. This could materially and adversely affect our business, financial
condition and results of operations.
In addition, there can be no assurance that governmental bodies, utility
companies, Internet access companies and others outside of our control will be
Year 2000 compliant. The failure by such entities to be Year 2000 compliant
could result in a systemic failure beyond our control, such as prolonged
Internet, telecommunications or electrical failure. This could prevent us from
delivering our services to our customers and decrease the use of the Internet or
prevent users from accessing web sites. This could materially and adversely
affect our business, financial condition and results of operations.
It is likely that the computer equipment used by some of our business
customers may not be Year 2000 compliant. As a result, some of our business
customers may not be able to access our service for some time during the
beginning of 2000 which may result in a decrease in the number of our active
registered accounts and in our revenue generally.
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BUSINESS
GENERAL
b2bstores.com(Trademark) is a branded Internet web site specifically
designed to assist business customers in the operation and development of their
businesses. b2bstores.com provides user-friendly online access to business
products and supplies, and will be expanded to provide access to business
services, auctions and business-related information and content. Our objective
is to become a leading, one-stop Internet destination that enables business
customers to conduct e-commerce, communications and other online interaction
with their customers, suppliers and colleagues. We began our commercial
operations in September 1999 and have generated only nominal revenues to date.
OUR OPPORTUNITY
THE GROWTH OF THE INTERNET
The Internet is a mass communications medium, enabling millions of people
worldwide to share information and interact with one another. This ability to
interact serves to create community among individuals with similar interests and
objectives. Jupiter Communications projects that the number of Internet
users in the United States will grow from 80 million in 1998 to 150 million in
2003.
The interactive nature of the Internet allows online merchants to
communicate effectively with one another, and with customers, and allows
advertisers to target customer bases having specific demographic characteristics
and interests. As a result, the Internet is emerging as an attractive, and in
many cases, preferred medium for the transaction of business, including
e-commerce activities. Business-to-business electronic commerce, according to
Forrester Research, is projected to grow from $100 billion in 1999 to
$1.3 trillion in 2003.
THE ADVENT OF BUSINESS WEB SITES
Historically, businesses have had to go to a number of separate,
traditional sources to obtain the products, supplies, services and information
necessary for their operations. Similarly, they have used a variety of
traditional channels, such as trade magazine, trade shows, buyer's guides,
direct mail initiatives and trade journals for the advertising and marketing of
their products and services. While these traditional channels have historically
served a valuable purpose in facilitating commerce, information delivery and
communication, they have inherent inefficiencies. These inefficiencies include
the following:
o Trade magazines have limited circulation and are not published in
real-time;
o Trade shows are held infrequently and are expensive for attendees and
exhibitors;
o Buyer's guides are cumbersome to search and provide limited depth of
product and vendor content;
o Direct mail responses often provide limited information about the
prospective customer; and
o Trade journal advertising can be cost prohibitive for smaller
advertisers.
Businesses are now increasingly utilizing the Internet as a valuable tool
to access customers and suppliers, to communicate with partners and to operate
more efficiently. Currently, the vast majority of business web sites focus on
the offering of one of the following three types of solutions:
o Product sites. These web sites focus primarily on the online sale of
products. Many of these web sites historically have focused on computer
hardware and software, with limited diversification into other products.
These web sites are often designed for the retail consumer, with little
specialization in products intended for business customers.
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o Service referral sites. These web sites focus primarily on the referral
of business customers to services provided by other companies. Most of
these web sites historically have functioned as simple directories and
have offered referrals in only a limited number of business categories to
business customers in a limited number of geographical locations.
Typically, the listings on these web sites have no detailed information
about the businesses to which they are referring business customers.
o Business content sites. These web sites primarily offer business
customers access to a wide array of articles, information and news
services that are aimed at the business customer. These web sites seek to
generate revenues through the sale of business information and by
attracting high-volume traffic and then leveraging this traffic into
advertising revenue.
We believe that b2bstores.com will provide business customers with the
combined abilities to purchase a broad range of quality products, access a wide
variety of business-related services and research comprehensive business
information, all at a single, user-friendly web site.
OUR OBJECTIVE AND STRATEGY
We are creating an easy-to-use Internet web site that provides our business
customers with access to quality products and supplies, a premier network of
business services and a broad menu of business content. Our objective is to
become a leading one-stop Internet destination for business customers--a place
where they conduct their business-to-business transactions, build relationships
with customers, suppliers and colleagues, and conduct their business-related
research. The key elements of our strategy include:
CREATING AWARENESS OF THE B2BSTORES.COM BRAND. It is imperative that we
create awareness of the b2bstores.com brand in order to attract business
customers to our web site, garner advertisers for our web pages and place our
company in a favorable position when creating our relationships with vendors and
other fulfillment partners. We intend to conduct extensive marketing activities,
including the placement of advertisements online and in print publications such
as trade journals, in order to create and enhance awareness of the b2bstores.com
brand. Our marketing efforts strive to present b2bstores.com as an enjoyable,
easy-to-use Internet web site that helps businesses work more efficiently and
cost effectively. We intend to use a significant portion of the proceeds of this
offering to build awareness of our brand and drive traffic to our web site.
EXPANDING OUR PRODUCT OFFERINGS. We regularly seek to expand our product
offering categories and the breadth of products available in these categories
through the creation of relationships with vendors and distributors. We
anticipate that the sale of products and supplies through our web site will
account for the majority of our revenues. We also will be introducing auction
capabilities to our web site, thereby increasing the types of products available
at b2bstores.com and providing our business customers with the opportunity to
transact business directly with one another. We believe that one of
b2bstores.com's competitive strengths will be our highly diverse product mix,
allowing us to offer low margin commodity products as well as higher-margin
specialty goods.
CREATING AND EXPANDING OUR BUSINESS REFERRAL SERVICES. Beginning in the
fourth quarter of 1999, we will begin to offer our business customers access to
many business services on a referral basis. It is currently anticipated that
these service will include 401(k) consulting; accounting; insurance;
advertising; leasing services; brokerage services; legal services; and
telecommunications services. Our customers will be able to research service
providers and interact with them and, in many cases, engage their services
without leaving our web site.
CREATING MARKETING AND DISTRIBUTION ALLIANCES. In order to increase the
number of business customers that visit our web site, and to enhance our product
and service offerings and e-commerce infrastructure, we are actively pursuing
relationships with:
o providers of business, business related and ancillary products;
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o suppliers of industry specific raw materials and raw goods;
o providers of business and professional services;
o proprietary online services;
o operators of leading Internet portals; and
o producers of Internet content.
ENHANCING WEB SITE UTILITY THROUGH THE CREATION OF COMMUNITY AND THE
PROVISION OF BUSINESS CONTENT. Our web site strives to create community among
our business customers and their customers, suppliers and colleagues. Our web
site's community and business information functions are designed to provide easy
interaction between the business customer and the web site, and the business
customer and other business customers. Our web site also will provide our
business customers with access to highly specific information and interactive
capabilities that would be impossible or cost prohibitive to provide in other
mediums, such as trade journals or broadcast.
CREATING AND EXPLOITING ADVERTISING REVENUE OPPORTUNITIES. Our web site is
specifically designed for business customers and we will spend a significant
amount of capital on marketing efforts designed to drive business customer
traffic to our site. We believe that a concentrated user base of business
customers will possess characteristics highly desirable to business-to-business
advertisers, and will differentiate our web site from most other e-commerce web
sites.
PROVIDING VENDOR MANAGEMENT SERVICES FOR OTHER WEB SITES. We intend to
utilize our capabilities in the management of vendor relationships to provide
commerce management services to other web sites. We will allow other
business-related web sites to access our product offerings and offer these
products to their own users. Product orders placed through these web sites will
be processed through our systems, and fulfilled by our fulfillment agents. We
will charge our e-commerce web site partners negotiated commissions based on
sales of our product offerings generated through their web sites.
ACQUIRING COMPLEMENTARY CONTENT AND TECHNOLOGY. We will regularly seek to
acquire business content and e-commerce technologies that are complementary to
our business focus and community objective. We may acquire content and/or
technologies through the purchase of assets or the acquisition of companies
possessing these assets. We may pay for any such asset purchase or acquisition
in cash, through the issuance of our securities or a combination of cash and
securities.
THE B2BSTORES.COM WEB SITE
Our web site moves business-to-business transactions and other business
operations away from traditional modes to the Internet. Our web site is designed
as a community mall--a place where business customers can visit a "virtual
storefront" or product categories of their choice, seek out services from
respected professionals, research issues important to their business and meet
and communicate with customers, suppliers, colleagues and competitors. We strive
to make our web site user friendly and to create an experience that is highly
useful, efficient, enjoyable and informative for the business customer.
PRODUCT CATEGORIES
Our business customers have access to a growing number of product
categories online. The products in these categories are sold by us. All product
fulfillment will be done through our vendors and other third parties.
The various product catalogs available at our web site are designed to be
visually attractive, informative and easy to use. Our online product catalogs
also provide our vendors with the ability to monitor and evaluate e-commerce
activity, and provide our web site advertisers with the ability to track the
number of visitors and leads generated from a particular catalog, product
category or banner advertisement.
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We currently offer business and business-related products in the following
categories:
<TABLE>
<S> <C>
o office supplies o office furniture
o janitorial supplies o safety and industrial supplies
o computer supplies o desktop computer systems
o notebook computer systems o computer peripherals
o software o financial products
</TABLE>
During 2000, we intend to expand our product offerings to include the
following additional categories:
<TABLE>
<S> <C>
o books o pre-paid calling cards
o printing supplies o executive travel accessories
o promotional products o fitness products
o time management products o stationery
o videos o magazine subscriptions
o travel
o music
</TABLE>
SERVICE REFERRALS
The operation of a business requires not only the purchase of supplies and
business products, but also the use of professional services. In the fourth
quarter of 1999, we will begin to offer our business customers online access to
business and professional services on a referral basis. The service categories
will include, among others, the following:
<TABLE>
<S> <C>
o 401(k) consulting and products o human resources consulting
o accounting services o insurance brokerage services
o advertising agencies o Internet service providers
o leasing services o brokerage services
o legal services o telecommunications services
o commercial real estate brokerages o marketing agencies and services
o computer networking services o computer repair services
o e-commerce Merchant Hosting o payroll services
o event planning services o executive recruiters
</TABLE>
BUSINESS CONTENT AND COMMUNITY
We believe that the creation of an active online community at our web site
and the provision of valuable business information will create loyalty among our
business customers and promote repeat visitation and web site use. We are
therefore designing our web site to provide business customers with access to:
o information and reviews relating to products and services offered through
our web site;
o e-commerce tools and solutions to help business customers buy and sell
products and services through the Internet efficiently and
cost-effectively;
o industry specific news and publications;
o chat rooms and bulletin boards, where industry specific and general
topics relevant to the community interest are discussed;
o an events calendar, which publishes the dates, time and other relevant
information relating to events that are important to web site users, such
as trade shows, online chat sessions and news and other television
programming broadcasts covering topics important to business customers.
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o a personal calendar, which is a customizable interactive calendar that
allows the business customer to schedule and keep track of important
dates, times and other information and receive e-mail reminders of such
information;
o classified advertisements, where job listings and other business relevant
advertising may be placed and reviewed;
o educational resource centers;
o up to the minute national and regional news;
o stock quotes;
o yellow and white page directory services;
o business products and services auction web site;
o franchise and other business opportunities; and
o trade association newsletters and information.
SALES AND MARKETING
SALES AND DISTRIBUTION
When an order is placed at our web site, the order is electronically
processed by our systems and then forwarded to the inventory management system
of one of our fulfillment agents. Our fulfillment agent then packages and
delivers the order to the business customer. We bill the business customer
directly and collect the purchase price. We pay our fulfillment agents directly
for their services and supplies.
Business services accessible through our web site will be provided to our
business customers by third-party professionals and other businesses. Subject to
regulation in applicable industries, we will generate revenues from our service
referral activities through the collection of commissions and referral fees from
the service providers to which we direct our business customers.
As is the case with most web sites, we also will place "click-through" tags
in our b2bstores.com web site. When a business customer points his or her mouse
to one of these click-through tags and clicks the mouse, he or she will be
brought to the e-commerce web site of one of our retail partners. These
click-through tags will allow b2bstores.com to generate revenues through the
collection of sales commissions from our click-through retail partners.
MARKETING
We will use a variety of marketing programs to increase awareness of the
"b2bstores.com" brand and to drive traffic to our web site. Our marketing
strategy contains a mix of print advertising, outbound e-mail, telemarketing,
new media banner campaigns, trade shows and direct mail. We also will
participate in industry specific events, industry association activities and
partnerships with interactive services companies. We believe that forming
strategic marketing and distribution alliances with partners in the Internet,
print publishing and industry associations will be important for rapid market
penetration.
CUSTOMER SATISFACTION
In order to effectively compete with traditional retailers, as well as
overcome any hesitancy potential customers may have in purchasing products over
the Internet, we have implemented a customer satisfaction program. We believe
that most e-commerce companies do not provide users with real customer service.
We intend to differentiate our web site from other business web sites by
providing live, attentive customer service. Our customer satisfaction system
manages customer service issues 24 hours a day, seven days a week both in person
and online. We will incur
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substantial ongoing costs in connection with the operation of this system,
including fees payable to companies to which we outsource parts of our customer
satisfaction program.
As part of our customer satisfaction program, we plan to offer customers
the guarantee that they will get the products they ordered, in a timely fashion,
and in working order. If our customers are dissatisfied with a product, they
will have 30 days to return it, and we will refund their money.
TECHNOLOGY
We have entered, and continue to seek to enter, into relationships with
technology providers in connection with the development, operation and
maintenance of our web site.
We rely on Netgateway for the design, development, maintenance and hosting
of our web site. As part of this relationship, we also have use of Netgateway's
state-of-the-art data center and its experienced staff of software and
e-commerce technology developers. For these services we paid Netgateway an
up-front fee, with additional nominal operating fees payable to Netgateway based
on the number of hits on our web site. We also are required to pay Netgateway a
small percentage of all revenues generated from sales (varying according to
sales volume) processed through our e-commerce backbone, whether as result of
sales of products by us or sales by other web sites to which we provide vendor
management or processing services. During the term of our agreement with
Netgateway, we are obligated to share equally with Netgateway all advertising
and "click-through" revenues generated through our web site.
We believe that by initially outsourcing a large portion of our technology
infrastructure on this basis, we are able to reduce the up-front costs
associated with constructing and expanding a complex e-commerce and business
information community, pay for a large portion of these services only as we
generate revenues from our web site, and harness the proven experience of these
technology providers. Over time, as our web site and operations mature, we
intend to internally develop or otherwise internalize a significant portion of
the technology used to operate our business.
We are assembling a staff of in-house designers and programers to
continually add functionality to our site. Our technology staff updates our
site's look and feel, and ensures that all content stays current and useful. We
believe that an internal technology staff will enable us to address specific
customer requirements for functionality, as well as handle custom integration
issues which may arise from large vendor partners or business customers.
In structuring our technology backbone, we ensure that the resulting
platform has the following characteristics:
Scalability. We require our backbone to be scalable for the rapid
deployment of functions, features and content as required to meet the demand of
our business customers while maintaining desired performance standards. In the
rapidly changing Internet environment, the ability to update an application to
stay current with new technologies is important. Our site system and related
technologies allow for the addition, modification, or replacement of web site
based applications in a cost-efficient and expeditious manner.
Reliability and Security. We use leading-edge software to protect our Web
servers. The majority of our hardware and software is maintained by Netgateway,
which provides us with professional data center hosting facilities and redundant
high-speed Internet connectivity. Netgateway monitors and supports our systems
24 hours a day, seven days a week.
We also are currently developing our own content and web site management
tools to facilitate the maintenance and updating of our web site.
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PROPRIETARY RIGHTS
We regard the protection of our intellectual property, including our URL
"www.b2bstores.com" and our "b2bstores.com" trademark, as critical to our
success. We also rely on the proprietary technology of third parties, including
Netgateway. Unauthorized use of the intellectual property used in our business
by third parties may damage our brand and our reputation. We rely on
intellectual property laws and confidentiality and license agreements with our
employees, customers, partners and others to protect our intellectual property
rights.
GOVERNMENT REGULATION
The laws governing Internet transactions remain largely unsettled, even in
areas where there has been some legislative action. The adoption or modification
of laws or regulations relating to the Internet could increase our costs and
administrative burdens. It may take years to determine whether and how existing
laws such as those governing intellectual property, privacy, libel, consumer
protection and taxation apply to the Internet.
For example, although not yet enacted, Congress is considering laws
regarding Internet taxation. In addition, various jurisdictions already have
enacted laws that are not specifically directed to electronic commerce but that
could affect our business. The applicability of many of these laws to the
Internet is uncertain and could expose us to substantial liability.
The growth of the Internet and electronic commerce, coupled with publicity
regarding Internet fraud, may lead to the enactment of more stringent consumer
protection laws. These laws may impose additional burdens on our business.
Several telecommunications carriers are seeking to have telecommunications
over the Internet regulated by the Federal Communications Commission in the same
manner as other telecommunications services. Additionally, local telephone
carriers have petitioned the Federal Communications Commission to regulate
Internet service providers and online service providers in a manner similar to
long distance telephone carriers and to impose access fees on such providers. If
either of these petitions are granted, the costs of communicating on the
Internet could increase substantially. This, in turn, could slow the growth of
use of the Internet. Any such legislation or regulation could materially
adversely affect our business.
COMPETITION
Our web site competes with numerous other web sites that offer any
combination of e-commerce capabilities, business content and online community
access. Our competitors vary in size and in the scope and breadth of the
services they offer. In addition to competition from several e-commerce trade
communities, we primarily encounter competition from business related e-
commerce web sites such as PurchasePro.com, VerticalNet and OnVia.com,
enterprise software purchasing systems providers such as Ariba, Commerce One and
TRADE'ex, large Internet companies such as Yahoo.com, E-Bay and AOL, and
traditional business product vendors, such as Office Depot and Staples, who are
establishing their own Internet presence.
E-COMMERCE
The markets for business products and services offered through traditional
channels and Internet channels are intensely competitive. We expect competition
in these markets to increase.
There are few barriers to the business e-commerce market. The rapid growth
of the Internet in general, and online e-commerce activity specifically, has
attracted the attention of numerous companies, including business product
manufacturers and suppliers who have historically operated through traditional
channels. Competitors could enter into exclusive distribution arrangements with
our vendors and deny us access to their products. Increased competition also
could result in pricing pressures, increased marketing expenditures and loss of
market share, and could have a material adverse effect on our company.
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COMMUNITY SERVICES
The market for community services is highly competitive, and we expect
competition to continue to increase significantly. There are no substantial
barriers to entry in these markets. We compete with many providers of community
services, including companies that attempt, as we do, to target specific types
of consumers, such as businesses consumers.
CONTENT AND INFORMATION
A large number of web sites and online services offer information features
and content, such as news, stock quotes, industry specific content, Yellow
Pages, e-mail listings, job listing and other content and features that are
competitive with the content we plan to offer.
ADVERTISING OPPORTUNITIES
We compete with all of the foregoing types of companies for advertisers. We
also compete with traditional media such as television, radio and print for a
share of advertisers' total advertising budgets. We believe the number of
companies selling web-based advertising and the available inventory of
advertising space have increased substantially during recent periods.
We believe that the principal competitive factors in our markets are:
o brand recognition;
o ease of use;
o comprehensiveness;
o breadth and quality of products, services and content offered;
o access to customers; and
o with respect to advertisers and sponsors, the number of users, duration
and frequency of visits and user demographics.
Many of our competitors in all of our target markets have significantly
greater financial, technical, marketing and distribution resources. In addition,
providers of Internet tools and services may be acquired by, receive investments
from, or enter into other commercial relationships with larger, well-established
and well-financed companies.
EMPLOYEES
As of September 30, 1999, we had six full-time employees and one part-time
employee. We also use six to eight independent contractors on a
project-to-project basis. We consider our relationships with our employees to be
good. None of our employees are covered by collective bargaining agreements.
PROPERTIES
Our corporate headquarters are located in approximately 4,000 square feet
of space at 249 East Ocean Boulevard, Long Beach California. We lease these
premises at a monthly rental of $6,381. Currently all servers utilized in the
operation of our site are managed by Netgateway and housed at an Exodus
Communications data center in Irvine, California. Our server location is
monitored 24 hours a day, seven days per week, and connected to multiple,
redundant Internet access points and power sources.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------- --- -----------------------------------------------
<S> <C> <C>
Richard Kandel................................. 47 Chairman of the Board and Director
Woo Jin Kim.................................... 32 Chief Executive Officer, President and Director
Jeffrey Crandell............................... 32 Chief Technology Officer
Mark Voorhis................................... 52 Chief Financial Officer and Chief Operating
Officer
Shannon Jessup................................. 29 Executive Vice President--Business Development
Brian Wharton.................................. 32 Senior Vice President--Technology Development
John Higgins................................... 53 Director
Phillip Ellett................................. 45 Director
</TABLE>
Richard Kandel founded our company in June 1999 and has been our Chairman
of the Board since inception. He also was our President from inception until
August 1999. From 1974 through 1998, Mr. Kandel was the owner and president of
Kandel and Son, Inc., a sanitary supply distributor in the New York metropolitan
region. In January 1999, Mr. Kandel sold Kandel and Son to Enviro-Clean, a
distributor of janitorial and sanitary maintenance supplies and a principal
stockholder of our company. Mr. Kandel served as President of Enviro-Clean from
January 1999 through September 1999. In September 1999, Mr. Kandel became the
Chairman of the Board and Chief Executive Officer of Enviro-Clean. He received
his Bachelor of Science degree from Michigan State University.
Woo Jin Kim has served as our Chief Executive Officer, President and a
Director since August 1999. From December 1998 until joining our company in
August 1999, Mr. Kim was the Senior Vice President of Channel Development at
Netgateway, Inc., a provider of e-commerce, web design and web hosting services.
From June 1998 to December 1998, Mr. Kim was the Director of Channel Sales for
Admor Memory Corporation, a supplier of third-party memory products. From
November 1996 to May 1998, Mr. Kim served as the Director of Distribution Sales
for TechWorks, Inc., a manufacturer of third-party computer memory products.
From November 1994 to November 1996, Mr. Kim was a Senior Product Manager for
Merisel, Inc., a distributor of computer products. From December 1992 to
November 1994, Mr. Kim served as the Director of Marketing for MIC Systems and
Software Corp, a provider of dealership automation systems to the automotive,
motorcycle and marine industries.
Jeffrey Crandell has served as our Chief Technology Officer since August
1999. From June 1998 until joining our company in August 1999, he was Senior
Vice President of E-commerce for Netgateway. From June 1996 to June 1998, he
served as the Chief Operating Officer of Digital Genesis, Inc., a provider of
e-commerce services. From October 1994 to June 1996, Mr. Crandell was the
Manager of Application Systems at Mattel Toys, a toy and games manufacturer.
From June 1992 to October 1994, he was a Systems Engineer for Alisa Systems (now
Fabrik Communications) an Internet e-mail service provider. From January 1990 to
June 1992, he was a systems Operator for Dresser Industries Inc., a supplier of
equipment and services for the energy industry. Mr. Crandell received his
Bachelor of Science degree in computer science from the University of Maryland.
Mark Voorhis has served as our Chief Financial Officer and Chief Operating
Officer since September 1999. In March 1999, Mr. Voorhis founded PC HouseCalls,
Inc., an Internet-based
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computer service company, where he served as Chairman and Chief Financial
Officer until joining our company in September 1999. From November 1997 until
February 1999, he served as Chief Financial Officer and Chief Operating Officer
for Admor. From October 1994 until November 1997, Mr. Voorhis was an independent
consultant. From November 1983 until September 1994, Mr. Voorhis worked with
Montano Securities Corporation in several different capacities, including as
Chief Operating Officer and Chief Financial Officer. Mr. Voorhis has a Bachelor
of Arts degree in business administration from California State University.
Shannon Jessup has served as our Executive Vice President of Business
Development since August 1999. From January 1999 until joining our company in
August 1999, she was the Vice President of Channel Marketing for Netgateway.
From August 1994 to January 1999, she held several executive positions at
Merisel, including Director of Product Marketing from June 1998 to January 1999
and Director of North American Strategic Operations from January 1998 to June
1998. Prior to joining Merisel, from February 1992 to August 1994, she was the
Manager of Sales and Marketing for ADAM systems, a value added reseller and
software solutions provider in the health care industry. Ms. Jessup received her
Bachelor of Arts degree in economics from the University of California.
Brian Wharton has served as our Executive Vice President of Technology
Development since August 1999. Mr. Wharton is also currently a member of
Microsoft's Internet Advisory Board. From June 1998 until joining our company in
August 1999, Mr. Wharton was the Senior Vice President of Development at
Netgateway. From June 1996 to June 1998, Mr. Wharton was the Chief Technology
Officer at Digital Genesis, a provider of e-commerce services, which was
acquired by Netgateway in June 1998. From May 1992 to June 1996, Mr. Wharton was
the Lead Developer at Mattel Toys. From May 1990 to May 1992, Mr. Wharton was
the Manager of Research and Development at Tarp Information Systems Inc., a
software development company. Mr. Wharton received his Bachelor of Science
degree in computer science from the University of Maryland.
John Higgins has served as a director of our company since September 1999.
Since May 1998, Mr. Higgins has been an Executive Vice President and a partner
at MMDI, Inc. (d/b/a Reliant Innovations ), a corporate reseller of computer
products. From March 1997 to April 1998, Mr. Higgins served as the Executive
Vice President of Sales and Marketing for TechWorks. From February 1996 to
February 1997, Mr. Higgins was the Senior Vice President of Sales for Bell
Microproducts Inc., an industrial distributor of storage products to high-end
value added and corporate resellers. From June 1993 to January 1996, he was
Senior Vice President of Sales and Marketing at NCD Inc., a computer
distributor, which was acquired by Ameriquest Corp. during his tenure.
Phillip Ellett has served as a director of our company since September
1999. Mr. Ellett is currently an Executive Vice President (and president of the
Americas division) for Ingram Micro Inc., a wholesale distributor of computer
equipment, for which Mr. Ellett has worked since January 1996. From September
1989 to December 1995, Mr. Ellett held several positions with Gates F.A. (later
Gates/Arrow after its acquisition by Arrow Electronics), including as President
of Gates/Arrow (from August 1994 to December 1995) and President and Chief
Executive Officer of Gates F.A. (from October 1990 to August 1994). Mr. Ellett
received his HNC (English equivalent of bachelor of arts degree) in electrical
engineering from the Upper Thames College of Technology in England.
BOARD OF DIRECTORS AND COMMITTEES
Our Board of Directors is divided into three classes, each of which
generally serves for a term of three years, with only one class of directors
being elected in each year. The term of office of the first class of directors
(class I), currently consisting of Mr. Kandel, will expire in 2002, the term of
office of the second class of directors (class II), currently consisting of
Mr. Kim, will expire in
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2001, and the term of office of the third class of directors (class III),
currently consisting of Messrs. Higgins and Ellett, will expire in 2000. In each
case, each director will hold office until the next annual meeting of
stockholders at which his class of directors is to be elected, or until his
successor is duly qualified and appointed.
The board maintains an audit committee, currently composed of Messrs.
Higgins, Ellett and Kandel. The board also maintains a compensation committee
composed of Messrs. Higgins, Ellett and Kandel.
The responsibilities of the audit committee include, in addition to such
other duties as the board may specify:
o recommending to the board the appointment of independent certified public
accountants;
o reviewing the timing, scope and results of the independent certified
public accountants' audit examination and the related fees;
o reviewing periodic comments and recommendations by our independent
certified public accountants and our responses thereto;
o reviewing the scope and adequacy of internal accounting controls and
internal auditing activities; and
o making recommendations to the board with respect to significant changes
in accounting policies and procedures.
The responsibilities of the compensation committee include, in addition to
such other duties as the board may specify:
o reviewing and recommending to the Board the salaries, compensation and
benefits of our executive officers and key employees;
o reviewing any related party transactions on an ongoing basis for
potential conflicts of interest; and
o administering our stock option plans, if not administered by the full
board.
COMPENSATION OF DIRECTORS
Non-employee directors will be reimbursed for reasonable travel and lodging
expenses incurred in attending meetings of the board of directors and any
committee on which they may serve. Each non-employee director also will receive
$500 for each board or committee meeting he attends. Each director also will be
eligible to receive grants of options at the discretion of the compensation
committee. In September 1999, we issued 2,500 shares of our common stock to each
of Messrs. Higgins and Ellett in consideration of their becoming directors of
our company.
EXECUTIVE COMPENSATION
Woo Jin Kim, our Chief Executive Officer, entered into a three-year
employment agreement with us effective in August 1999. Pursuant to the terms of
this agreement, Mr. Kim receives an annual base salary of $150,000, which will
increase on November 1, 1999 to $175,000. Mr. Kim is also entitled to receive
aggregate bonuses of up to $75,000 upon the attainment by our company of certain
objectives, including $25,000 upon the hiring of qualified persons to fill
certain key management positions (which has been accomplished) and $25,000 upon
consummation of this offering. On the date the registration statement of which
this prospectus is a part is declared effective by the SEC, Mr. Kim will receive
options to purchase an aggregate of 300,000 shares of our common stock at a
per-share price equal to 80% of the offering price in this offering. Options to
purchase 150,000 of these shares will vest at the time of grant. Options to
purchase an additional 50,000 shares will vest in each of August 2000, 2001 and
2002.
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We anticipate that Richard Kandel, our Chairman of the Board, will enter
into a three-year employment agreement with us effective the date this offering
is consummated. Pursuant to the terms of this agreement, Mr. Kandel will be
required to devote only 50% of his business time to the operations of our
company. Mr. Kandel is also Chairman of the Board and Chief Executive Officer of
Enviro-Clean, our principal stockholder. There could be conflicts of interest as
a result of Mr. Kandel's positions with us and Enviro-Clean and his fiduciary
responsibilities arising from such positions. During the three years of
employment he will receive an annual base salary of $150,000, $200,000 and
$250,000, respectively.
Jeffrey Crandell, our Chief Technology Officer, entered into a three-year
employment agreement with us in August 1999. Pursuant to the terms of this
agreement, Mr. Crandell receives an annual base salary of $110,000, which will
increase on November 1, 1999 to $130,000. Mr. Crandell is also entitled to
receive aggregate bonuses of up to $70,000 upon the attainment by our company of
certain performance objectives, including $20,000 on the date this offering is
consummated. On the date the registration statement of which this prospectus is
a part is declared effective by the SEC, Mr. Crandell will receive options to
purchase an aggregate of 175,000 shares of our common stock at a per-share price
equal to 80% of the offering price in this offering. Options to purchase 87,500
shares, 43,750 shares and 43,750 shares, respectively, will vest in each of
August 2000, 2001 and 2002. Mr. Crandell is also entitled to receive additional
options to purchase up to 50,000 additional shares (at a per-share price equal
to the last sale price of a share of common stock as reported on NASDAQ on the
last trading day prior to the date of grant) during 2000 upon the attainment by
our company of certain performance objectives.
Mark Voorhis, our Chief Financial Officer and Chief Operating Officer,
entered into a three-year employment agreement with us in September 1999.
Pursuant to the terms of this agreement, Mr. Voorhis receives an annual base
salary of $120,000, which will increase on November 1, 1999 to $140,000.
Mr. Voorhis is also entitled to receive aggregate bonuses of up to $70,000 upon
the attainment by our company of certain performance objectives, including
$20,000 on the date this offering is consummated. On the date the registration
statement of which this prospectus is a part is declared effective by the SEC,
Mr. Voorhis will receive options to purchase an aggregate of 175,000 shares of
our common stock at a per-share price equal to 80% of the offering price in this
offering. Options to purchase 87,500 shares, 43,750 shares and 43,750 shares,
respectively, will vest in each of September 2000, 2001 and 2002. Mr. Voorhis is
also entitled to receive additional options to purchase up to 50,000 additional
shares (at a per-share price equal to the last sale price of a share of common
stock as reported on NASDAQ on the last trading day prior to the date of grant)
during 2000 upon the attainment by our company of certain performance
objectives.
Shannon Jessup, our Executive Vice President of Business Development,
entered into a three-year employment agreement with us in August 1999. Pursuant
to the terms of this agreement, Ms. Jessup receives an annual base salary of
$110,000, which will increase on November 1, 1999 to $130,000. Ms. Jessup is
also entitled to receive aggregate bonuses of up to $70,000 upon the attainment
by our company of certain performance objectives, including $20,000 on the date
this offering is consummated. On the date the registration statement of which
this prospectus is a part is declared effective by the SEC, Ms. Jessup will
receive options to purchase an aggregate of 175,000 shares of our common stock
at a per-share price equal to 80% of the offering price in this offering.
Options to purchase 50,000 of these shares will vest at the time of grant.
Options to purchase an additional 62,500 shares, 31,250 shares and 31,250
shares, respectively, will vest in each of August 2000, 2001 and 2002.
Ms. Jessup is also entitled to receive additional options to purchase up to
50,000 additional shares (at a per-share price equal to the last sale price of a
share of common stock as reported on NASDAQ on the last trading day prior to the
date of grant) during 2000 upon the attainment by our company of certain
performance objectives.
Brian Wharton, our Executive Vice President of Technology Development,
entered into a three-year employment agreement with us in August 1999. Pursuant
to the terms of this agreement, Mr. Wharton receives an annual base salary of
$110,000, which will increase on November 1, 1999 to $130,000. Mr. Wharton is
also entitled to receive aggregate bonuses of up to $70,000 upon the attainment
by our company of certain performance objectives, including $20,000 on the date
this offering is consummated. On the date the registration statement of which
this prospectus is a part is declared effective by the SEC, Mr. Wharton will
receive options to purchase an aggregate of
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175,000 shares of our common stock at a per-share price equal to 80% of the
offering price in this offering. Options to purchase 87,500 shares, 43,750
shares and 43,750 shares, respectively, will vest in each of August 2000, 2001
and 2002. Mr. Wharton is also entitled to receive additional options to purchase
up to 50,000 additional shares (at a per-share price equal to the last sale
price of a share of common stock as reported on NASDAQ on the last trading day
prior to the date of grant) during 2000 upon the attainment by our company of
certain performance objectives.
1999 PERFORMANCE EQUITY PLAN
In September 1999, the board of directors adopted, and the stockholders
approved our 1999 Performance Equity Plan. The plan authorizes the granting of
awards of up to 2,000,000 shares of common stock to our key employees, officers,
directors and consultants. Awards consist of stock options (both nonqualified
options and options intended to qualify as "incentive" stock options under
Section 422 of the Internal Revenue Code of 1986, as amended), restricted stock
awards, deferred stock awards, stock appreciation rights and other stock-based
awards, as described in the plan. As of the date of this prospectus, no options
are outstanding under the plan. We are obligated to grant options to purchase up
to an aggregate of 200,000 shares of common stock under our plan to certain
officers in 2000 if we achieve certain operating objectives. All such grants
will be at the fair market value of our common stock at the date of grant. No
person may be awarded options to purchase more than 200,000 shares of common
stock under the plan in any year.
The plan is administered by the board of directors which determines the
persons to whom awards will be granted, the number of awards to be granted and
the specific terms of each grant, including the vesting thereof, subject to the
provisions of the plan.
In connection with incentive stock options, the exercise price of each
option may not be less than 100% of the fair market value of the common stock on
the date of grant (or 110% of the fair market value in the case of a grantee
holding more than 10% of our outstanding stock). The aggregate fair market value
of shares for which incentive stock options are exercisable for the first time
by such employee during any calendar year may not exceed $100,000. Nonqualified
stock options granted under the plan may be granted at a price determined by the
board of directors, not to be less than the fair market value of the common
stock on the date of grant.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Our by-laws includes certain provisions permitted pursuant to the Delaware
General Corporate law whereby our officers and directors are to be indemnified
against certain liabilities. These provisions of the by-laws have no effect on
any director's liability under federal securities laws or the availability of
equitable remedies, such as injunction or recission, for breach of fiduciary
duty. We believe that these provisions will facilitate our ability to continue
to attract and retain qualified individuals to serve as our directors and
officers.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore
unenforceable.
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PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this prospectus, the
number of shares of our outstanding common stock beneficially owned by (i) each
of our directors; (ii) each person who is known by us to beneficially own 5% or
more of our common stock; and (iii) all of our directors and executive officers
as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
AMOUNT AND NATURE SHARES OWNED(2)
OF BENEFICIAL ---------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP(2) BEFORE OFFERING AFTER OFFERING
- -------------------------------------------------------- ----------------- --------------- --------------
<S> <C> <C> <C>
Richard Kandel(3)....................................... 3,233,333 80.4% 43.0%
Woo Jin Kim(4).......................................... 150,000 3.7% 2.0%
Enviro-Clean of America, Inc.
211 Park Avenue
Hicksville, New York 11802............................ 2,000,000 49.7% 26.6%
Randall Davis(5)
c/o Enviro-Clean of America, Inc.
211 Park Avenue
Hicksville, New York 11802............................ 2,333,333 58.0% 31.0%
John Higgins............................................ 2,500 * *
Phillip Ellett.......................................... 2,500 * *
All executive officers and directors as a group (eight
persons)(6)........................................... 3,438,333 81.4% 44.5%
</TABLE>
- ------------------
* Less than 1%.
(1) The address for each specified person, if not included under each person's
name, is c/o our company at 249 East Ocean Boulevard, Suite 620, Long Beach,
California 90802.
(2) A person is deemed to be the beneficial owner of voting securities that can
be acquired by such person within 60 days from the date of this prospectus
upon the exercise of options. Each beneficial owner's percentage ownership
is determined by assuming that the options held by such person (but not
those held by any other person) and which are exercisable within 60 days of
the date of this prospectus have been exercised. Unless otherwise noted, we
believe that all persons named in the table have sole voting and investment
power with respect to all shares of common stock beneficially owned by them.
(3) Represents (a) 1,066,666 shares owned directly by Mr. Kandel, (b) 100,000
shares owned by profit sharing plans controlled by Mr. Kandel on behalf of
other companies owned by him, (c) 66,667 shares owned by another entity
controlled by Mr. Kandel, and (d) 2,000,000 shares owned by Enviro-Clean.
(4) Represents shares issuable upon exercise of options that will vest upon
consummation of this offering. Does not include 150,000 shares issuable upon
exercise of options that will vest in three equal annual installments
commencing in August 2000.
(5) Represents (a) 333,333 shares owned directly by Mr. Davis and (b) 2,000,000
shares owned by Enviro-Clean, a company of which Mr. Davis is President and
a principal stockholder.
(6) Includes all the shares beneficially owned by Messrs. Kandel, Kim, Higgins
and Ellett. Also includes 50,000 shares issuable to Shannon Jessup, our
Executive Vice President of Business Development, upon exercise of the
options that will vest upon consummation of this offering. Does not include
the shares specifically excluded in footnote (4). Also does not include
(a) 125,000 shares issuable to Ms. Jessup upon exercise of options that will
vest in annual installments commencing in August 2000, (b) 175,000 shares
issuable to Brian Wharton, our Executive Vice President of Technology
Development, that will vest in annual installments
(Footnotes continued on next page)
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<PAGE>
(Footnotes continued from previous page)
commencing in August 2000, (c) 175,000 shares issuable to Jeffrey Crandell,
our Chief Technology Officer, that will vest in annual installments
commencing in August 2000, and (d) 175,000 shares issuable to Mark Voorhis,
our Chief Financial Officer and Chief Operating Officer, that will vest in
annual installments commencing in September 2000.
CERTAIN TRANSACTIONS
THE FOUNDING OF OUR COMPANY
Our company was founded by Richard Kandel, our Chairman of the Board, in
June 1999. Mr. Kandel also is the Chairman of the Board and Chief Executive
Officer and a principal stockholder of Enviro-Clean. Randall Davis, a principal
stockholder of our company, is also President and a principal stockholder of
Enviro-Clean. Steven Etra, a stockholder of our company, also is a director of
Enviro-Clean.
EARLY FINANCING OF OUR COMPANY
Since our inception in June 1999, our working capital requirements had been
satisfied through capital contributions made by our current stockholders,
including Mr. Kandel, Mr. Davis, Enviro-Clean and certain of its other
affiliates, and loans made to us by Enviro-Clean. In June 1999, Mr. Kandel,
Mr. Davis, Mr. Etra, Enviro-Clean and others purchased an aggregate of 3,666,667
shares of our common stock for $27,500 in the form of $11,000 in cash and the
transfer to us of all of rights and interest in www.b2bstores.com and all
related assets, including intellectual property.
In June and July 1999, Enviro-Clean made loans to us in the aggregate
principal amount of approximately $180,000. These loans bear interest at the
rate of 8% per annum and are repayable on the earlier of (i) December 31, 1999
and (ii) the date this offering is consummated. A portion of the proceeds of
this offering will be used to repay these loans, together with interest due
thereon.
In August 1999, we consummated a financing in which we raised proceeds of
$625,000 through the sale of 333,333 shares of our common stock to Mr. Kandel,
Mr. Etra and certain other persons.
In September 1999, we issued an aggregate of 16,643 shares of our common
stock to certain persons in consideration of services rendered by them to our
company, including certain persons who also render services to or are employed
by Enviro-Clean, and 2,500 shares of our common stock to each of John Higgins
and Phillip Ellett in consideration of their becoming directors of our company.
ENVIRO-CLEAN IS ONE OF OUR FULFILLMENT AGENTS
Enviro-Clean is one of our fulfillment agents for janitorial and sanitary
maintenance products and certain other products offered through our web site.
All Enviro-Clean products purchased through our web site are distributed
directly to our customers by Enviro-Clean through this fulfilment relationship.
Enviro-Clean charges us a price for each such product equal to its cost for such
products. Enviro-Clean also is entitled to receive a payment from us equal to a
negotiated percentage of all revenues generated by us through the sale of
products supplied through Enviro-Clean, on a basis comparable to the percentage
of revenue sharing that we negotiate with other fulfillment agents. We
anticipate entering into an agreement with Enviro-Clean evidencing this
arrangement prior to consummation of the offering.
41
<PAGE>
ENVIRO-CLEAN HAS GUARANTEED CERTAIN OF OUR OBLIGATIONS
Enviro-Clean has furnished certain of our vendors with guarantees with
respect to our obligations to them as part of our early stage development and
creation of our initial vendor relationships. Although we anticipate that our
receipt of the net proceeds of this offering will eliminate our need to supply
similar guarantees to vendors in the future, if such guarantees should be
necessary, Enviro-Clean has no obligation, and may not have the financial
ability, to provide them.
ENVIRO-CLEAN OPERATES ITS OWN BUSINESS PRODUCTS WEB SITE
Enviro-Clean operates its own product web site at www.b2bgoods.com. This
web site offers janitorial, sanitary maintenance and products in a limited
number of other categories, all of which are also available at the b2bstores.com
web site. Enviro-Clean's web site also offers hyperlink access to our web site.
We anticipate entering into an agreement with Enviro-Clean prior to the
consummation of this offering pursuant to which Enviro-Clean will agree that,
until such time as Enviro-Clean owns less than 10% of our outstanding common
stock, it is generally prohibited from selling its own products through any web
sites other than its own or ours, and from offering any other types of products
at its own web site.
We provide Enviro-Clean with web site transaction processing and e-commerce
services for its b2bgoods.com web site through our e-commerce backbone. For
these services we receive from Enviro-Clean a fee equal to the greater of
(i) 10% of Enviro-Clean's revenues generated through e-commerce activities
conducted through www.b2bgoods.com and (ii) 50% of Enviro-Clean's gross profits
generated through e-commerce activities conducted at www.b2bgoods.com. The terms
of this arrangement will be evidenced in the aforementioned agreement.
42
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
Our authorized capital stock consists of 25,000,000 shares of common stock,
$.01 par value per share, and 5,000,000 shares of preferred stock, $.01 par
value per share. Upon consummation of this offering, there will be outstanding
7,521,643 shares of common stock (assuming no exercise of the underwriters'
over-allotment option) and no shares of preferred stock.
COMMON STOCK
The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by our stockholders. The holders of common stock do not
have cumulative voting rights, which means that the holders of more than 50% of
such outstanding shares can elect all of our directors. The holders of our
common stock are entitled to receive such dividends, if any, as may be declared
from time to time by the board of directors out of funds legally available
therefor. In the event we are liquidated or dissolved, the holders of our common
stock are entitled to receive all assets available for distribution to the
stockholders. The holders of common stock have no preemptive or other
subscription rights, and there are no conversion rights or redemption or sinking
fund provisions with respect to the common stock. All outstanding shares of
common stock are, and the shares offered hereby are, validly issued, fully paid
and nonassessable.
PREFERRED STOCK
Pursuant to our certificate of incorporation, we are authorized to issue
preferred stock, which may be issued from time to time in one or more series
upon authorization by the board of directors. The board of directors, without
further approval of the stockholders, is authorized to fix the dividend rights
and terms, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, and any other rights, preferences, privileges and
restrictions applicable to each series of preferred stock. The issuance of
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes could, among other things, adversely
affect the voting power of the holders of common stock and, under certain
circumstances, make it more difficult for a third party to gain control of our
company, discourage bids for our common stock at a premium or otherwise
adversely affect the market price of the common stock.
SHARES AVAILABLE FOR FUTURE SALE
Substantially all of the 4,021,643 shares of our common stock outstanding
prior to this offering will become saleable under Rule 144 of the Securities Act
in June 2000, with the balance becoming saleable in August and September 2000.
Although the holders of such common stock have signed agreements with the
underwriters pursuant to which they are restricted from selling any such common
stock during the 12-months period following consummation of this offering, sales
or the expectation of sales of a substantial number of shares of our common
stock in the public market could adversely affect the prevailing market price of
our common stock.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person who has owned restricted
shares of common stock beneficially for at least one year is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of the then average weekly trading volume and 1% of the total number of
outstanding shares of the same class. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about us. A person who has not been one of our
affiliates for at least the three months immediately preceding the sale and who
has beneficially owned shares of common stock for at least two years is entitled
to sell such shares under Rule 144 without regard to any of the limitations
described above.
43
<PAGE>
TRANSFER AGENT
Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York
10004, acts as transfer agent for our common stock.
DIVIDENDS
We have never paid a cash dividend on common stock and do not anticipate
paying any dividends in the near future.
UNDERWRITING
Subject to the terms and conditions contained in the underwriting
agreement, b2bstores.com Inc. has agreed to sell to each of the underwriters
named below, and each of the underwriters, for which Gaines, Berland Inc. and
Nolan Securities, Inc. are acting as representatives, 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
NAME OF SHARES
- ----------------------------------------------------------------------------------------- ---------
<S> <C>
Gaines, Berland Inc......................................................................
Nolan Securities, Inc....................................................................
---------
Total 3,500,000
---------
---------
</TABLE>
A copy of the underwriting agreement has been filed as an exhibit to this
registration statement. The underwriting agreement provides that the obligation
of the underwriters to purchase the shares is subject to some conditions. The
underwriters shall be obligated to purchase all of the shares (other than those
covered by the underwriters' over-allotment option described below), if any are
purchased.
The representatives have advised us that the underwriters propose to offer
the 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 the representatives. The representatives have informed us that they
do not expect discretionary sales by the underwriters to exceed five percent of
the shares offered by this prospectus.
We have agreed to pay to the representatives an expense allowance on a
non-accountable basis, equal to 2.0% of the gross proceeds derived from the sale
of shares offered in this offering. We paid an advance on this allowance in the
amount of $50,000.
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 and commissions
and the non-accountable expense allowance, up to an aggregate of 525,000 shares
of common stock. To the extent this option is exercised, the underwriters will
become obligated, subject to some conditions, to purchase additional shares of
common stock in approximately the same proportion as set forth in the above
table. 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 shares.
44
<PAGE>
The following table provides information regarding the amount of the
discount to be paid to the underwriters by b2bstores.com:
<TABLE>
<CAPTION>
TOTAL WITHOUT TOTAL WITH
EXERCISE OF EXERCISE OF
DISCOUNT OVER-ALLOTMENT OVER-ALLOTMENT
PER SHARE OPTION OPTION
--------- -------------- --------------
<S> <C> <C> <C>
b2bstores.com.................................................... $ $ $
</TABLE>
We have also agreed to sell to the representatives for nominal
consideration, the representatives' warrants to purchase up to 350,000 shares of
common stock. The representatives' warrants are exercisable for a period of four
years commencing one year after the date of this prospectus at an exercise price
per share equal to $ (120% of the public offering price). The
representatives' warrants may not be sold, transferred, assigned, pledged, or
hypothecated for a period of 12 months from the date of this prospectus, except
to officers or partners of the members of the selling group. b2bstores.com has
granted to the representatives one demand registration right at b2bstores.com's
expense for a period of five years from the effective date of this offering and
piggyback registration rights for a period of five years from the effective date
of this offering with respect to registration under the Securities Act of the
securities directly or indirectly issuable upon exercise of the representatives'
warrants. The representatives' warrants contain anti-dilution provisions
providing for adjustments of the exercise price and number of shares issuable on
exercise of the representatives' warrants, upon the occurrence of some events,
including stock dividends, stock splits, and recapitalizations. The holders of
the representatives' warrants have no voting, dividend, or other rights as a
stockholder with respect to shares of common stock underlying the
representatives' warrants, unless the representatives' warrants shall have been
exercised.
In connection with this offering, we have granted the representatives the
right to designate one person for election to our Board of Directors for the
three-year period commencing on the closing date of this offering. In the event
the representatives elect not to exercise this right, then they may 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.
We, and each of our officers, directors, and stockholders, have entered
into lock-up agreements under which we and they have agreed not to offer,
assign, issue, sell, hypothecate, or otherwise dispose of any shares of common
stock, securities of b2bstores.com convertible into, or exercisable or
exchangeable for, shares of common stock, or shares of common stock received
upon conversion, exercise, or exchange of these securities, to the public
without the prior written consent of the representatives for a period of at
least twelve months after the date of this prospectus, provided, however, that
such parties may transfer securities of b2bstores.com, or a beneficial interest
therein, in a private transaction pursuant to an exemption from registration
(other than Rule 144) provided that the transferee agrees in writing to be bound
by the terms of the lock-up agreement. The representatives may, at any time and
without notice, waive the terms of the lock-up agreements.
Before this offering, there has been no public market for the common stock
of b2bstores.com. The public offering price, negotiated between b2bstores.com
and the representatives, is based upon b2bstores.com's financial and operating
history and condition, its prospects, the prospects for the industry we are in
and prevailing market conditions.
45
<PAGE>
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 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 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 representatives may engage
in syndicate covering transactions by purchasing shares in the open
market. The representatives may also elect to reduce any short position
by exercising all or part of the over-allotment option.
o Penalty Bids. If the representatives purchase 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 shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price of
the 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
shares if it discourages resales of the shares.
Neither we nor the underwriters makes any representation or prediction as
to the effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market, in the
over-the-counter market or on any trading market. If such transactions are
commenced, they may be discontinued without notice at any time.
We have agreed to indemnify the underwriters against some liabilities,
including civil liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in this respect.
WHERE YOU CAN FIND MORE INFORMATION
We will file annual, quarterly and special reports, proxy statements and
other information with the SEC. Our SEC filings will be available to the public
over the Internet at the SEC's web site at http://www.sec.gov. You may also read
and copy any document we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. These documents are also available at the
public reference rooms at the SEC's regional offices in New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available at the offices
of the Nasdaq National Market in Washington, D.C.
We have filed a registration statement on Form SB-2 under the Securities
Act of 1933 with the SEC. This prospectus is part of that registration statement
and, as permitted by the SEC's rules, does not contain all of the information
included in the registration statement. For further information about us and our
common stock, you may refer to the registration statement and its exhibits and
schedules. You can review and copy these documents at the public reference
facilities maintained by the SEC or on the SEC's web site as described above.
This prospectus may contain summaries of contracts or other documents.
Because they are summaries, they will not contain all of the information that
may be important to you. If you would like complete information about a contract
or other document, you should read the copy filed as an exhibit to the
registration statement or incorporated in the registration statement by
reference.
46
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with this offering are being passed
upon by the law firm of Graubard Mollen & Miller, New York, New York. Orrick,
Herrington & Sutcliffe LLP is acting as counsel for the underwriters in
connection with the offering.
EXPERTS
The financial statements included in this prospectus and in the
registration statement have been audited by BDO Seidman, LLP, independent
certified public accountants to the extent and for the period set forth in their
report (which contains an explanatory paragraph indicating substantial doubt
about the company continuing as a going concern) appearing elsewhere herein and
in the registration statement, and are included in reliance upon such report
given upon the authority of said firm as experts in auditing and accounting.
47
<PAGE>
b2bstores.com Inc.
<TABLE>
<CAPTION>
INDEX
-----
<S> <C>
Report Of Independent Certified Public Accountants........................................................ F-2
Financial statements:
Balance Sheet........................................................................................... F-3
Statement of Loss....................................................................................... F-4
Statement of Stockholders' Equity....................................................................... F-5
Statement of Cash Flows................................................................................. F-6
Summary of Business and Significant Accounting Policies................................................. F-7
Notes to Financial Statements........................................................................... F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders
b2bstores.com Inc.
Long Beach, California
We have audited the accompanying balance sheet of b2bstores.com Inc., a company
in the development stage, as of August 31, 1999, and the related statements of
loss, stockholders' equity and cash flows for the period from June 28, 1999
(inception) to August 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, the financial statements referred to above present fairly, in
all material respects, the financial position of b2bstores.com Inc. at August
31, 1999, and the results of its operations and its cash flows for the period
from June 28, 1999 (inception) to August 31, 1999, in conformity with generally
accepted accounting principles.
As discussed in Note 1, the accompanying financial statements have been prepared
assuming b2bstores.com Inc. will continue as a going concern. The Company is in
the development stage and has had nominal revenues from operations and will
require substantial additional funds for development and marketing of its
products. These matters raise substantial doubt about its ability to continue as
a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty. The Company is pursuing
sources of additional financing (see Note 4) and there can be no assurance that
any such financing will be available to the Company on commercially reasonable
terms, or at all. Any inability to obtain additional financing will have a
material effect on the Company, including possibly requiring the Company to
significantly curtail or cease operations.
/s/ BDO Seidman, LLP
New York, New York
September 30, 1999
F-2
<PAGE>
b2bstores.com Inc.
BALANCE SHEET
<TABLE>
<CAPTION>
AUGUST 31, 1999
---------------
<S> <C>
ASSETS
Current:
Cash.......................................................................................... $ 669,121
Security deposit................................................................................ 25,525
Deferred offering costs (Note 5)................................................................ 52,451
Property and equipment.......................................................................... 6,809
-----------
$ 753,906
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses.............................................................................. $ 123,436
Due to principal stockholder (Note 2)......................................................... 179,836
-----------
Total current liabilities....................................................................... 303,272
-----------
Commitments (Note 3)
Stockholders' equity (Notes 4 and 6):
Preferred stock, $.01 par value--shares authorized 5,000,000; none issued..................... --
Common stock, $.01 par value--shares authorized 25,000,000; issued 4,000,000.................. 40,000
Additional paid-in capital.................................................................... 2,497,500
Deficit accumulated during the development stage.............................................. (2,086,866)
-----------
Total stockholders' equity...................................................................... 450,634
-----------
$ 753,906
-----------
-----------
</TABLE>
See accompanying summary of business and significant accounting policies and
notes to financial statements.
F-3
<PAGE>
b2bstores.com Inc.
STATEMENT OF LOSS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 28,
1999
(INCEPTION)
TO
AUGUST 31,
1999
-----------
<S> <C>
Operating expenses:
General and administrative........................................................... $ 31,875
Sales and marketing.................................................................. 23,060
Start-up costs....................................................................... 130,431
Stock-based compensation (Note 4).................................................... 1,901,500
-----------
Total operating expenses............................................................. 2,086,866
-----------
Net loss............................................................................... $(2,086,866)
-----------
-----------
Loss per share (basic and diluted)..................................................... $ (.56)
-----------
-----------
Weighted average common shares outstanding (basic and diluted)......................... 3,712,820
-----------
-----------
</TABLE>
See accompanying summary of business and significant accounting policies and
notes to financial statements.
F-4
<PAGE>
b2bstores.com Inc.
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM JUNE 28, 1999 (INCEPTION) TO AUGUST 31, 1999
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE TOTAL
-------------------- PAID-IN DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL STAGE EQUITY
--------- ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock to founding
stockholders:
June 29, 1999.......................... 3,666,667 $36,667 $ -- $ -- $ 36,667
August 23, 1999........................ 333,333 3,333 2,497,500 -- 2,500,833
Net loss................................. -- -- -- (2,086,866) (2,086,866)
--------- ------- ---------- ----------- -----------
Balance, August 31, 1999................. 4,000,000 $40,000 $2,497,500 $(2,086,866) $ 450,634
--------- ------- ---------- ----------- -----------
--------- ------- ---------- ----------- -----------
</TABLE>
See accompanying summary of business and significant accounting policies and
notes to financial statements.
F-5
<PAGE>
b2bstores.com Inc.
STATEMENT OF CASH FLOWS
PERIOD FROM JUNE 28, 1999 (INCEPTION) TO AUGUST 31, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss........................................................................................ $(2,086,866)
-----------
Adjustments to reconcile net loss to net cash used in operating activities:
Expense recognized in connection with issuance of common stock at a price below the
estimated fair value.................................................................... 1,901,500
Changes in assets and liabilities:
Increase in security deposit........................................................... (25,525)
Increase in accrued expenses........................................................... 123,436
-----------
Total adjustments...................................................................... 1,999,411
-----------
Net cash used in operating activities.................................................. (87,455)
-----------
Cash flows from investing activities:
Capital expenditures............................................................................ (6,809)
-----------
Cash flows from financing activities:
Deferred offering costs......................................................................... (52,451)
Loans from principal stockholders............................................................... 179,836
Proceeds from issuance of common stock to founding stockholders................................. 636,000
-----------
Net cash provided by financing activities......................................................... 763,385
-----------
Net increase in cash.............................................................................. 669,121
Cash, beginning of period......................................................................... --
-----------
Cash, end of period............................................................................... $ 669,121
-----------
-----------
</TABLE>
See accompanying summary of business and significant accounting policies and
notes to financial statements.
F-6
<PAGE>
b2bstores.com Inc.
SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business
b2bstores.com Inc. ("b2bstores" or the "Company") a development stage
enterprise was incorporated on June 28, 1999 under the laws of the State of
Delaware. b2bstores is a branded Internet web site specifically designed to
assist business customers in the operation and development of their businesses.
The Company currently provides user-friendly online access to business products
and supplies, and will be expanded to provide access to business services,
auctions and business-related information and content.
Basis of Presentation
The financial statements have been prepared in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 7,
"Accounting and Reporting by Development Stage Enterprises," which requires
development stage enterprises to employ the same accounting principles as
operating companies.
Property and Equipment
Property and equipment are stated at cost. Depreciation will be computed
using the straight-line method over the estimated useful lives of the assets,
which range from two to five years.
Fair Value of Financial Instruments
The carrying amounts of financial instruments, including cash and due to
principal stockholder, approximated fair value as of August 31, 1999 because of
the relatively short maturity of the instruments.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures 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.
Comprehensive Income
The Company is required to report comprehensive income under SFAS No. 130,
"Reporting Comprehensive Income", which establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. There were no
items of comprehensive income during the period presented.
Income Taxes
The Company uses the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes". Deferred income tax assets and liabilities are
recognized based on the temporary differences between the financial statement
and income tax bases of assets, liabilities and carryforwards using enacted tax
rates. Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount expected to be realized.
The Company has net operating losses ("NOL") of approximately $60,000 which
expire in 2019. The deferred tax asset resulting from this NOL has been offset
with a valuation allowance.
F-7
<PAGE>
b2bstores.com Inc.
SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Loss Per Share
Basic loss per share is based only on the average number of common shares
outstanding for the period. Diluted loss per share is similar to basic loss per
share except that the weighted average number of common shares outstanding is
increased to include the weighted average number of additional common shares
that would have been outstanding if dilutive potential common shares, such as
options and warrants, have been issued. Dilutive potential common shares are
excluded from the computation if their effect is antidilutive.
Stock-Based Compensation
The Company accounts for its stock option awards under the intrinsic value
based method of accounting prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees". Under the intrinsic value
based method, compensation cost is the excess, if any, of the fair market value
of the stock at grant date or other measurement date over the amount an employee
must pay to acquire the stock. The Company will make pro forma disclosures of
net income and earnings per share as if the fair value based method of
accounting had been applied, as required by Statement of Financial Accounting
No. 123, "Accounting for Stock-Based Compensation."
F-8
<PAGE>
b2bstores.com Inc.
NOTES TO FINANCIAL STATEMENTS
1. GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is in the development
stage and has had no revenues from operations since inception. There can be no
assurance that the Company will be able to obtain the substantial additional
capital resources necessary to pursue its business plan or that any assumptions
relating to its business plan will prove to be accurate. The Company is pursuing
sources of additional financing (see Note 4) and there can be no assurance that
any such financing will be available to the Company on commercially reasonable
terms, or at all. Any inability to obtain additional financing will have a
material adverse effect on the Company, including possibly requiring the Company
to significantly curtail or cease operations.
These factors raise substantial doubt about the ability of the Company to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
2. DUE TO PRINCIPAL STOCKHOLDER
At August 31, 1999, the Company had a promissory note payable to one
stockholder of $179,836 that bears interest at the rate of 8% per year.
Principal and interest are due and payable on the earlier of (i) December 31,
1999 or (ii) the date the Company consummates an offering of its equity
securities yielding gross proceeds of at least $2,000,000.
3. COMMITMENTS
Employment Agreements
In August and September 1999, the Company entered into employment
agreements with certain key employees providing for future minimum annual
compensation as follows:
<TABLE>
<CAPTION>
YEAR ENDING AUGUST 31,
- ----------------------
<S> <C>
2000............................................................................................... $ 820,000
2001............................................................................................... 895,000
2002............................................................................................... 945,000
----------
$2,660,000
----------
----------
</TABLE>
Certain of these employees are entitled to receive aggregate bonuses of up
to $355,000 upon the attainment by the Company of certain objectives, including
the hiring of certain key employees and the consummation of an initial public
offering ("IPO"), of the Company's common stock. Of this amount, $25,000 has
been subsequently earned and $105,000 will be earned upon consummation of the
IPO. These amounts will be paid out of the proceeds of the IPO.
These employees will also be granted on the effective date of the
registration statement for the Company's IPO (the "Effective Date") stock
options to purchase 1,000,000 shares of the Company's common stock at an
exercise price equal to 80% of the market price established on the Effective
Date. The options will have a contractual life of approximately 10 years. Of
these options, 200,000 will vest at the time of grant. The remaining options
will vest over a period of three years. In connection with the issuance of these
options, the Company will record compensation expense based on the excess of the
fair market value on the Effective Date and the exercise price of such options.
The agreements also provide for certain key employees, for each calendar
quarter during calendar year 2000, to be granted options under the 1999
Performance Equity Plan
F-9
<PAGE>
b2bstores.com Inc.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. COMMITMENTS--(CONTINUED)
(the "Plan") (See Note 6) (if they are still employed) to purchase 50,000 shares
of common stock at a per share price equal to the last sales price of the
Company's common stock on the last trading day prior to the date of grant,
assuming the successful completion of the IPO, or fair value.
Lease Commitments
The Company leases office space for its corporate headquarters in Long
Beach, California under an operating lease through August 2001. The minimum
lease payments required under noncancellable operating leases for the years
subsequent to August 31, 1999 are:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING August 31,
- -----------------------------
<S> <C>
2000................................................................................................. $ 77,000
2001................................................................................................. 77,000
--------
$154,000
--------
--------
</TABLE>
Total rent expense for the period ending August 31, 1999 was $3,000.
Service Agreement
During July 1999, the Company entered into an e-commerce system service
agreement with Netgateway pursuant to which Netgateway designs, develops,
maintains and houses the Company's web site. For these services the Company has
paid an up-front fee with additional nominal operating fees payable to
Netgateway based on the number of hits on the web site. Netgateway will also be
entitled to a small percentage of all revenues generated from sales (varying
according to sales volume) processed through the Company's e-commerce
infrastructure, whether as a result of sales of products by the Company or sales
by other web sites to which the Company provides vendor management or processing
services. The Company is also obligated to share equally with Netgateway all
advertising and "click-through" revenues generated through the Company's web
site. This service agreement extends through February 2001 and is subject to
automatic renewals for successive one-year terms unless terminated by either
party with six months notice prior to the lapse of the initial term or any
renewal term thereafter.
4. STOCKHOLDERS' EQUITY
Capital Stock
On June 28, 1999, the Company's Board of Directors authorized capital stock
consisting of 25,000,000 shares of common stock, $.01 par value per share, and
5,000,000 shares of preferred stock, $.01 par value per share.
Issuance of Common Stock
On June 29, 1999, the founding stockholders of the Company purchased
3,666,667 shares of common stock with an original par value of $27,500 for
$11,000 in cash with $16,500 recorded as a non-cash compensation charge to
operations for the intellectual property provided by the founding stockholders
and their services rendered in the formation of the Company. In connection with
the stock split of the Company's common stock (see Note 6), the Company recorded
an additional non-cash compensation charge to operations of approximately
$9,000.
On August 23, 1999, the Company sold 333,333 shares of its common stock for
$625,000 to certain investors including its Chairman and certain affiliates. In
connection with the August 23, 1999 issuance, the Company recorded a non-cash
compensation charge to operations of
F-10
<PAGE>
b2bstores.com Inc.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. STOCKHOLDERS' EQUITY--(CONTINUED)
approximately $1,875,000, representing the difference between the selling price
of the stock and its estimated fair value. In connection with the stock split of
the Company's common stock see Note 6, the Company recorded an additional
non-cash compensation charge to operations of approximately $1,000.
5. DEFERRED OFFERING COSTS
The Company has incurred costs of $52,451, in connection with the IPO
(see Note 4). Upon consummation of the IPO, the deferred offering costs will be
charged to equity. Should the IPO prove to be unsuccessful, these deferred
costs, as well as additional expenses to be incurred, will be charged to
operations.
6. SUBSEQUENT EVENTS
Initial Public Offering
On September 27, 1999, the Board of Directors authorized the management of
the Company to file a registration statement for the IPO of the Company's common
stock. The Company plans to raise gross proceeds of $35,000,000. There can be no
assurance that the financing will occur. The Company plans to issue 350,000
common stock purchase warrants to representatives of the underwriters in
connection with the IPO.
Stock Split
The Company's Board of Directors authorized a 4 for 3 split of its common
stock in the form of a stock dividend, effective September 28, 1999. All shares
and per-share amounts in the accompanying financial statements have been
restated to give effect to the stock split.
Issuance of Common Stock
In September 1999, the Company issued an aggregate of 16,643 shares of
common stock to consultants in connection with services rendered to the Company
and 5,000 shares to directors. The shares were valued at $10 per share.
1999 Performance Equity Plan
On September 30, 1999, the Board of Directors and stockholders approved the
Plan. The Plan authorizes the granting of awards up to 2,000,000 shares of
common stock to key employees, officers, directors and consultants. Awards
consist of stock options (both nonqualified options and options intended to
qualify as "Incentive" stock options under Section 422 of the Internal Revenue
Code of 1986, as amended), registered stock awards, deferred stock awards, stock
appreciation rights and other stock-based awards, as described in the Plan. No
options have been granted under the Plan.
F-11
<PAGE>
3,500,000 SHARES
b2bstores.com Inc.
COMMON STOCK
[LOGO]
------------------------
PROSPECTUS
------------------------
GAINES, BERLAND INC. NOLAN SECURITIES, INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law, as amended, authorizes
the Registrant to indemnify any director or officer under certain prescribed
circumstances and subject to certain limitations against certain costs and
expenses, including attorneys' fees actually and reasonably incurred in
connection with any action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which such person is a party by reason of
being a director or officer of the Registrant if it is determined that such
person acted in accordance with the applicable standard of conduct set forth in
such statutory provisions. Article IV of the Registrant's By-Laws extends such
indemnities to the full extent permitted by Delaware law.
The Registrant may also purchase and maintain insurance for the benefit of
any director or officer which may cover claims for which the Registrant could
not indemnify such persons.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following statement sets forth the estimated expenses in connection
with the offering described in the Registration Statement, all of which will be
borne by the Registrant.
<TABLE>
<S> <C>
Securities and Exchange Commission Filing Fee............ $ 12,358
Nasdaq Filing Fees....................................... 69,375
NASD Filing Fees......................................... 4,945
Accountants' Fees........................................ 100,000
Legal Fees............................................... 175,000
Printing and engraving................................... 200,000
Transfer Agent........................................... 10,000
Blue Sky Fees............................................ 50,000
Miscellaneous............................................ 28,322
--------
Total............................................... $650,000
--------
--------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
We were formed in June 1999. In our initial round of capitalization on
June 28, 1999, we sold an aggregate of 3,666,667 shares of common stock for
$27,500 in the form of $11,000 cash and the transfer to us of all right, title
and interest in www.b2bstores.com and all related assets, including intellectual
property, in reliance on the exemption under Section 4(2) of the Securities Act
of 1933. No placement agent was engaged and no commissions were paid. The shares
were issued as follows:
<TABLE>
<CAPTION>
HOLDER NUMBER OF SHARES
- -------------------------------------------------- ----------------
<S> <C>
Richard Kandel.................................... 1,000,000
Randall Davis..................................... 333,333
Steven Etra....................................... 66,667
Enviro-Clean...................................... 2,000,000
C. Walter Stursburg............................... 66,667
HOM Advisors...................................... 133,333
Mint Corp. of NY.................................. 66,667
----------
Total........................................ 3,666,667
----------
----------
</TABLE>
II-1
<PAGE>
In August 1999, we raised additional capital of $625,000 through the
issuance of 333,333 shares of common stock at $1.88 per share in reliance on the
exemption under Section 4(2). No placement agent was engaged and no commissions
were paid. The shares were issued as follows:
<TABLE>
<CAPTION>
HOLDER NUMBER OF SHARES
- -------------------------------------------------- ----------------
<S> <C>
Richard Kandel.................................... 66,666
K&S PSP........................................... 100,000
SRK Associates.................................... 10,667
Steven Etra....................................... 92,000
Richard Etra...................................... 26,667
Kenneth Etra...................................... 37,333
----------
333,333
----------
----------
</TABLE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
1.1 -- Form of Underwriting Agreement
3.1 -- Certificate of Incorporation
3.1(a) -- Amendment to Certificate of Incorporation*
3.2 -- By-Laws
4.1 -- Specimen Common Stock Certificate*
4.2 -- Form of Representatives' Warrant Agreement, including form of Repesentatives' Warrant
5.1 -- Opinion of Graubard Mollen & Miller*
10.1 -- Employment Agreement with Woo Jin Kim
10.2 -- Employment Agreement with Richard Kandel*
10.3 -- Employment Agreement with Shannon Jessup
10.4 -- Employment Agreement with Brian Wharton
10.5 -- Employment Agreement with Jeffrey Crandell
10.6 -- Employment Agreement with Mark Voorhis
10.7 -- Form of Stock Option Agreement with Woo Jin Kim
10.8 -- Form of Stock Option Agreement with Shannon Jessup
10.9 -- Form of Stock Option Agreement with Brian Wharton
10.10 -- Form of Stock Option Agreement with Jeffrey Crandell
10.11 -- Form of Stock Option Agreement with Mark Voorhis
10.12 -- Services Agreement with Netgateway(1)
10.13 -- Lease for 249 East Ocean Boulevard, Long Beach, California
10.14 -- Web Site Services Agreement between b2bstores.com and Enviro-Clean*(1)
10.15 -- 1999 Performance Equity Plan
23.1 -- Consent of Graubard Mollen & Miller
(included in the Opinion filed as Exhibit 5)*
23.2 -- Consent of BDO Seidman, LLP
27.1 -- Financial Data Schedule
</TABLE>
- ------------------
* To be filed by amendment.
(1) We have requested or will request confidential treatment from the SEC for
certain portions of these agreements.
II-2
<PAGE>
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the registration statement is on Form S-3, Form S-8 or Form F-3, and
the information required to be included in post-effective amendment by
those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(iv) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) To provide to the underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to
each purchaser.
II-3
<PAGE>
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS OF FILING ON FORM SB-2 AND HAS AUTHORIZED THIS REGISTRATION
STATEMENT OR AMENDMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE
CITY OF NEW YORK ON THE 5TH DAY OF OCTOBER 1999.
b2bstores.com Inc.
By: /s/ Richard Kandel
----------------------------------
Richard Kandel
Chairman of the Board
KNOW ALL PERSONS BY THESE PRESENTS, that the persons whose signatures
appear below each severally constitutes and appoints Richard Kandel and Woo Jin
Kim, and each of them, as true and lawful attorneys-in-fact and agents, with
full powers of substitution and resubstitution, for them in their name, place
and stead, in any and all capacities, to sign any and all amendments (including
pre-effective and post-effective amendments) to this registration statement and
to sign any registration statement (and any post-effective amendments)relating
to the same offering as this registration statement that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the
same, with all exhibits, and other 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 they might or could do in
person, hereby ratifying and confirming all which said attorneys-in-fact and
agents, or any of them, or their substitute or substitutes, may lawfully do, or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act, this
registration statement or amendment was signed by the following persons in the
capacities and on the dates stated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------------- -------------------
<C> <S> <C>
/s/ Richard Kandel
- ---------------------------------------- Chairman of the Board and October 5, 1999
Richard Kandal Director
/s/ Woo Jin Kim
- ---------------------------------------- Chief Executive Officer, October 5, 1999
Woo Jin Kim President and Director
/s/ Mark Voorhis
- ---------------------------------------- Chief Financial Officer and October 5, 1999
Mark Voorhis Chief Operating Officer
- --------------------------------------- Director October 5, 1999
John Higgins
/s/ Phillip Ellett
- --------------------------------------- Director October 5, 1999
Phillip Ellett
</TABLE>
II-4
<PAGE>
[FORM OF UNDERWRITING AGREEMENT]
[SUBJECT TO ADDITIONAL REVIEW]
3,500,000 Shares of Common Stock
b2bstores.com Inc.
UNDERWRITING AGREEMENT
New York, New York
____________, 1999
GAINES, BERLAND INC.
NOLAN SECURITIES, INC.
As Representatives of the Several
Underwriters listed on Schedule A hereto
c/o Gaines, Berland Inc.
1055 Stewart Avenue
Bethpage, New York 11714
Ladies and Gentlemen:
b2bstores.com Inc., a Delaware corporation (the "Company"), confirms its
agreement with Gaines, Berland Inc. and Nolan Securities, Inc. ("the
Representatives") and each of the underwriters named in Schedule A hereto
(collectively, the "Underwriters," which term shall also include any underwriter
substituted as hereinafter provided in Section 11), for whom Gaines, Berland
Inc. and Nolan Securities, Inc. are acting as representatives (the
"Representatives"), with respect to the sale by the Company and the purchase by
the Underwriters, acting severally and not jointly, of the respective numbers of
shares of the Company's common stock, $.01 par value per share ("Common Stock"),
set forth in Schedule A hereto. Such shares of Common Stock are hereinafter
referred to as the "Firm Shares."
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also sell to the Underwriters, acting severally and not jointly,
up to an additional 525,000 shares of Common Stock for the purpose of covering
over-allotments, if any (the "Option Shares"). The Firm Shares and the Option
Shares are sometimes hereinafter referred to as the "Shares." The Company also
proposes to issue and sell to Gaines, Berland Inc. and Nolan Securities, Inc.
warrants (the "Representatives' Warrants") pursuant to the Representatives'
Warrant Agreement (the "Representatives' Warrant Agreement") for the purchase of
an additional 350,000 shares of Common Stock. The shares of Common Stock
issuable upon exercise of the Representatives'
<PAGE>
Warrants are hereinafter referred to as the "Representatives' Shares." The Firm
Shares, the Option Shares, the Representatives' Warrants and the
Representatives' Shares (collectively, hereinafter referred to as the
"Securities") are more fully described in the Registration Statement and the
Prospectus referred to below.
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, each of the Underwriters as of the date
hereof, and as of the Closing Date (hereinafter defined) and the Option Closing
Date (hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No. 333-[______]), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Firm Shares and the Option Shares under the Securities Act of 1933, as
amended (the "Act"), which registration statement and amendment or amendments
have been prepared by the Company in conformity with the requirements of the
Act, and the rules and regulations (the "Regulations") of the Commission under
the Act. The Company will promptly file a further amendment to said registration
statement in the form heretofore delivered to the Underwriters, and will not
file any other amendment thereto to which the Underwriters shall have objected
in writing after having been furnished with a copy thereof. 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 (including, but
not limited to those documents or information incorporated by reference therein)
and all information deemed to be a part thereof as of such time pursuant to
paragraph (b) of Rule 430(A) of the Regulations)), is hereinafter called the
"Registration Statement", and the form of prospectus in the form first filed
with the Commission pursuant to Rule 424(b) of the Regulations, is hereinafter
called the "Prospectus." For purposes hereof, "Rules and Regulations" mean the
rules and regulations adopted by the Commission under either the Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or the Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or to the Company's knowledge, threatened. Each of the Preliminary Prospectus,
Registration Statement and Prospectus at the time of filing thereof conformed
with the requirements of the Act and the Rules and Regulations, and none of the
Preliminary Prospectus, Registration Statement or Prospectus at the time of
filing thereof contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein and necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, provided, however, that this representation and warranty 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 or on behalf of the Underwriters expressly for use in such
Preliminary Prospectus, Registration Statement or Prospectus.
2
<PAGE>
(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date and each Option Closing Date, if
any, and during such longer period as the Prospectus may be required to be
delivered in connection with sales by the Underwriters or a dealer, the
Registration Statement and the Prospectus will contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and will conform to the requirements of the Act and the Rules and
Regulations; neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, will contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, provided, however, that this
representation and warranty does not apply to statements made or statements
omitted in reliance upon and in conformity with information furnished to the
Company in writing by or on behalf of any Underwriter expressly for use in the
Preliminary Prospectus, Registration Statement or Prospectus or any amendment
thereof or supplement thereto.
(d) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the state of its incorporation.
The Company does not own an interest in any corporation, partnership, trust,
joint venture or other business entity. The Company is duly qualified and
licensed and in good standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of any properties or the character of its
operations requires such qualification or licensing. The Company has all
requisite corporate power and authority, and the Company has obtained any and
all necessary authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or regulatory officials and
bodies (including, without limitation, those having jurisdiction over
environmental or similar matters), 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 authorizations, approvals, orders,
licenses, certificates, franchises and permits and all federal, state and local
laws, rules and regulations; the Company has not received any notice of
proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, position, prospects, value, operation,
properties, business or results of operations of the Company. The disclosures in
the Registration Statement concerning the effects of federal, state and local
laws, rules and regulations on the Company's business as currently conducted and
as contemplated are correct in all material respects and do not omit to state a
material fact necessary to make the statements contained therein not misleading
in light of the circumstances in which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and the Option Closing Date, if any, based upon the
assumptions set forth therein, and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement,
the Representatives' Warrant Agreement and as described in the Prospectus. The
Securities and all other securities issued or issuable by the Company conform
or, when issued and paid for, will conform, in all respects to all statements
with respect thereto contained in the Registration Statement and the Prospectus.
3
<PAGE>
All issued and outstanding securities of the Company have been duly authorized
and validly issued and are fully paid and non-assessable and 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
Securities are not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when issued, paid for
and delivered in accordance with the terms hereof, will be validly issued, fully
paid and non-assessable and will conform to the description thereof contained in
the Prospectus; the holders thereof will not be subject to any liability solely
by reason of being such holders; all corporate action required to be taken for
the authorization, issue and sale of the Securities has been duly and validly
taken; and the certificates representing the Securities will be in due and
proper form. Upon the issuance and delivery pursuant to the terms hereof of the
Securities to be sold by the Company hereunder, the Underwriters or the
Representatives, as the case may be, will acquire good and marketable title to
such Securities free and clear of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever.
(f) The financial statements, including the related notes and
schedules thereto, included in the Registration Statement, each Preliminary
Prospectus and the Prospectus fairly present the financial position, income,
changes in cash flow, changes in stockholders' equity, and the results of
operations of the Company at the respective dates and for the respective periods
to which they apply and the pro forma financial information included in the
Registration Statement and Prospectus presents fairly, on a basis consistent
with that of the audited financial statements included therein, what the
Company's pro forma capitalization would have been for the respective periods
and as of the respective dates to which they apply after giving effect to the
adjustments described therein. Such financial statements have been prepared in
conformity with generally accepted accounting principles and the Rules and
Regulations, consistently applied throughout the periods involved. There has
been no adverse change or development involving a material prospective change in
the condition, financial or otherwise, or in the earnings, position, prospects,
value, operation, properties, business, or results of operations of the Company
whether or not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the Prospectus,
and the outstanding debt, the property, both tangible and intangible, and the
business of the Company conform in all material respects to the descriptions
thereof contained in the Registration Statement and the Prospectus. Financial
information set forth in the Prospectus under the headings "Summary Financial
Information," "Capitalization," and "Plan of Operations" fairly present, on the
basis stated in the Prospectus, the information set forth therein, have been
derived from or compiled on a basis consistent with that of the audited
financial statements included in the Prospectus.
(g) The Company (i) has paid all federal, state, local, and foreign
taxes for which it is liable and for which payment is due, including, but not
limited to, withholding taxes and amounts payable under Chapters 21 through 24
of the Internal Revenue Code of 1986 (the "Code"), and has furnished all
information returns it is required to furnish pursuant to the Code, (ii) has
established adequate reserves for such taxes which are not due and payable, and
(iii) does not have any tax deficiency or claims outstanding, proposed or
assessed against it.
4
<PAGE>
(h) No transfer tax, stamp duty or other similar tax is payable by
or on behalf of the Underwriters in connection with (i) the issuance by the
Company of the Securities, (ii) the purchase by the Underwriters of the
Securities to be sold by the Company hereunder and the purchase by the
Representatives of the Representatives' Warrants from the Company, (iii) the
consummation by the Company of any of its obligations under this Agreement or
the Representatives' Warrant Agreement, or (iv) resales of the Shares in
connection with the distribution contemplated hereby.
(i) The Company maintains insurance policies, including, but not
limited to, general liability, product liability and property insurance, which
insures the Company and its employees, against such losses and risks generally
insured against by comparable businesses. The Company (A) has not failed to give
notice or present any insurance claim with respect to any matter, including but
not limited to the Company's business, property or employees, under the
insurance policy or surety bond in a due and timely manner, (B) does not have
any disputes or claims against any underwriter of such insurance policies or
surety bonds or has not failed to pay any premiums due and payable thereunder,
or (C) has not failed to comply with all conditions contained in such insurance
policies and surety bonds. There are no facts or circumstances under any such
insurance policy or surety bond which would relieve any insurer of its
obligation to satisfy in full any valid claim of the Company.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those involving environmental or similar matters), domestic or
foreign, pending or threatened against (or circumstances that may give rise to
the same), or involving the properties or business of, the Company which (i)
questions the validity of the capital stock of the Company, this Agreement or
the Representatives' Warrant Agreement or of any action taken or to be taken by
the Company pursuant to or in connection with this Agreement or the
Representatives' Warrant Agreement, (ii) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in all
material respects), or (iii) might materially and adversely affect the
condition, financial or otherwise, or the earnings, position, prospects,
stockholders' equity, value, operation, properties, business or results of
operations of the Company.
(k) The Company has full legal right, corporate power and authority
to authorize, issue, deliver and sell the Securities, enter into this Agreement
and the Representatives' Warrant Agreement and to consummate the transactions
provided for in such agreements; and this Agreement and the Representatives'
Warrant Agreement have each been duly and properly authorized, executed and
delivered by the Company. Each of this Agreement and the Representatives'
Warrant Agreement constitutes a legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its terms, except (i)
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar laws affecting
creditors' rights generally, (ii) as enforceability of any indemnification or
contribution provisions may be limited under applicable laws or the public
policies underlying such laws and (iii) that the remedies 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
proceedings may be brought. None of the Company's issue and sale of the
Securities, execution or delivery of this Agreement or the Representatives'
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Warrant Agreement, its performance hereunder and thereunder, its consummation of
the transactions contemplated herein and therein, or the conduct of its business
as described in the Registration Statement, the Prospectus, and any amendments
or supplements thereto, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon, any property
or assets (tangible or intangible) of the Company pursuant to the terms of, (i)
the articles of incorporation or by-laws of the Company, (ii) any license,
contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other agreement or
instrument to which the Company is a party or by which it is or may be bound or
to which any of its properties or assets (tangible or intangible) is or may be
subject, or any indebtedness, or (iii) any statute, judgment, decree, order,
rule or regulation applicable to the Company of any arbitrator, court,
regulatory body or administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction over the Company or
any of its activities or properties.
(l) Except as described in the Prospectus, no consent, approval,
authorization or order of, and no filing with, any court, regulatory body,
government agency or other body, domestic or foreign, is required for the
issuance of the Shares pursuant to the Prospectus and the Registration
Statement, the issuance of the Representatives' Warrants, the performance of
this Agreement and the Representatives' Warrant Agreement and the transactions
contemplated hereby and thereby, including without limitation, any waiver of any
preemptive, first refusal or other rights that any entity or person may have for
the issue and/or sale of any of the Shares or the Representatives' Warrants,
except such as have been or may be obtained under the Act or may be required
under state securities or Blue Sky laws in connection with the Underwriters'
purchase and distribution of the Shares, and the Representatives' Warrants to be
sold by the Company hereunder and under the Representatives' Warrant Agreement.
(m) All executed agreements, contracts or other documents or copies
of executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which any of its assets, properties or business may be subject have
been duly and validly authorized, executed and delivered by the Company, and
constitute the legal, valid and binding agreements of the Company, enforceable
against the Company, in accordance with their respective terms. The descriptions
in the Registration Statement of agreements, contracts and other documents are
accurate in all material respects and fairly present the information required to
be shown with respect thereto on Form SB-2, and there are no contracts or other
documents which are required by the Act to be described in the Registration
Statement or filed as exhibits to the Registration Statement which are not
described or filed as required, and the exhibits which have been filed are in
all material respects complete and correct copies of the documents of which they
purport to be copies.
(n) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, (ii) entered into any transaction other than in
the ordinary course of business, or (iii) declared or paid any dividend or made
any
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other distribution on or in respect of its capital stock of any class, and there
has not been any change in the capital stock, or any material change in the debt
(long or short term) or liabilities or material adverse change in or affecting
the general affairs, management, financial operations, stockholders' equity or
results of operations of the Company.
(o) No default exists in the due performance and observance of any
term, covenant or condition of any license, contract, indenture, mortgage,
installment sale agreement, lease, deed of trust, voting trust agreement,
stockholders agreement, partnership agreement, note, loan or credit agreement,
purchase order, or any other agreement or instrument evidencing an obligation
for borrowed money, or any other material agreement or instrument to which the
Company is a party or by which the Company may be bound or to which the property
or assets (tangible or intangible) of the Company is subject or affected.
(p) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and is in compliance with all
federal, state, local, and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and
hours. 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, local, or foreign 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
representation question 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.
No labor dispute with the employees of the Company exists, or, is imminent.
(q) Except as described in the Prospectus, the Company does not
maintain, sponsor or contribute to any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan," or a
"multiemployer 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, now or
at any time previously, to a defined benefit plan, as defined in Section 3(35)
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 Code, which could subject the Company to any tax penalty on
prohibited transactions and which has not adequately been corrected. Each ERISA
Plan is in compliance with all 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 which 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 "multiemployer plan."
(r) Neither the Company nor any of its employees, directors,
stockholders, partners, or affiliates (within the meaning of the Rules and
Regulations) of any of the foregoing has taken or will take, directly or
indirectly, any action designed to or which has constituted or
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which might 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 Securities or otherwise.
(s) Except as otherwise disclosed in the Prospectus, none of the
patents, patent applications, trademarks, service marks, service names, trade
names and copyrights, and none of the licenses and rights to the foregoing
presently owned or held by the Company are in dispute or are in any conflict
with the right of any other person or entity. Except as otherwise disclosed in
the Prospectus, the Company (i) owns or has the right to use, free and clear of
all liens, charges, claims, encumbrances, pledges, security interests, defects
or other restrictions or equities of any kind whatsoever, all patents, patent
applications, trademarks, service marks, service names, trade names and
copyrights, technology and licenses and rights with respect to the foregoing,
used in the conduct of its business as now conducted or proposed to be conducted
without infringing upon or otherwise acting adversely to the right or claimed
right of any person, corporation or other entity under or with respect to any of
the foregoing and (ii) is not obligated or under any liability whatsoever to
make any payment by way of royalties, fees or otherwise to any owner or licensee
of, or other claimant to, any patent, patent application, trademark, service
mark, service name, trade name, copyright, know-how, technology or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
(t) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental or other proceeding, domestic or
foreign, pending or threatened (or circumstances that may give rise to the same)
against the Company which challenges the exclusive rights of the Company with
respect to any trademarks, trade names, service marks, service names,
copyrights, patents, patent applications or licenses or rights to the foregoing
used in the conduct of its business, or which challenge the right of the Company
to use any technology presently used or contemplated to be used in the conduct
of its business.
(u) The Company owns and has the unrestricted right to use all trade
secrets, know-how (including all other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), inventions,
technology, designs, processes, works of authorship, computer programs and
technical data and information (collectively herein "intellectual property")
that are material to the development, manufacture, operation and sale of all
products and services sold or proposed to be sold by the Company, free and clear
of and without violating any right, lien, or claim of others, including without
limitation, former employers of its employees; provided, however, that the
possibility exists that other persons or entities, completely independently of
the Company, or its employees or agents, could have developed trade secrets or
items of technical information similar or identical to those of the Company. The
Company is not aware of any such development of similar or identical trade
secrets or technical information by others.
(v) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus, to be owned or leased by it free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects, or other
restrictions or equities of any kind whatsoever, other than those referred to in
the Prospectus, taxes, lessor's interests and liens for taxes not yet due and
payable.
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(w) BDO Seidman LLP whose report is filed with the Commission as a
part of the Registration Statement, are independent certified public accountants
as required by the Act and the Rules and Regulations.
(x) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which all officers and directors and all
holder of shares of the Common Stock of the Company, or securities exercisable
or exchangeable for or convertible into shares of Common Stock, agreed not to
offer to sell, sell, transfer, hypothecate or otherwise encumber or dispose of
any such securities (either pursuant to Rule 144 of the Rules and Regulations or
otherwise) for a period of twelve (12) months following the effective date of
the Registration Statement without the prior written consent of the
Representatives and the Company; provided, however, that the parties to such
agreements may transfer such securities, or a beneficial interest therein, in a
private transaction pursuant to an exemption (other than Rule 144) provided that
the transferee agrees to be bound by the terms of the agreement. The Company
will cause the Transfer Agent, as defined below, to mark an appropriate legend
on the face of stock certificates representing all of such securities and to
place "stop transfer" orders on the Company's stock ledgers. During the twelve
(12) month period commencing on the effective date of the Registration
Statement, the Company shall not, without the prior written consent of the
Representatives, sell, contract or offer to sell, issue, transfer, assign,
pledge, distribute, or otherwise dispose of, directly or indirectly, any shares
of Common Stock or any options, rights or warrants with respect to any shares of
Common Stock, except up to (i)_________ shares of Common Stock issuable upon
exercise of outstanding stock options and (ii)_________ shares of Common Stock
reserved for future issuance under the Company's 1999 Performance Equity Plan.
(y) Except as described in the Prospectus under "Underwriting,"
there are no claims, payments, issuances, arrangements or understandings,
whether oral or written, for services in the nature of a finder's or origination
fee with respect to the sale of the Securities hereunder or any other
arrangements, agreements, understandings, payments or issuance with respect to
the Company or any of its officers, directors, stockholders, partners, employees
or affiliates that may affect the Underwriters' compensation, as determined by
the National Association of Securities Dealers, Inc. ("NASD").
(z) The Common Stock has been approved for quotation on the [Nasdaq
National Market ("Nasdaq")].
(aa) Neither the Company nor any of its officers, employees, agents,
or any other person acting on behalf of the Company, 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 (domestic or foreign) 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 the Company in
connection with any actual or proposed transaction) which (a) might subject the
Company, or any other such person to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign), (b) if
not given in the past, might have had a materially adverse effect on the assets,
business or operations of the
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Company, or (c) if not continued in the future, might adversely affect the
assets, business, operations or prospects of the Company. The Company's internal
accounting controls are sufficient to cause the Company to comply with the
Foreign Corrupt Practices Act of 1977, as amended.
(bb) Except as set forth in the Prospectus, no officer, director or
stockholder of the Company, or any "affiliate" or "associate" (as these terms
are defined in Rule 405 promulgated under the Rules and Regulations) of any of
the foregoing persons or entities has or has had, either directly or indirectly,
(i) an interest in any person or entity which (A) furnishes or sells services or
products which are furnished or sold or are proposed to be furnished or sold by
the Company, or (B) purchases from or sells or furnishes to the Company any
goods or services, or (ii) a beneficial interest in any contract or agreement to
which the Company is a party or by which it may be bound or affected. Except as
set forth in the Prospectus under "Certain Transactions," there are no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company and any officer, director, or Principal Stockholder (as such term is
defined in the Prospectus) of the Company or any partner, affiliate or associate
of any of the foregoing persons or entities.
(cc) Any certificate signed by any officer of the Company, and
delivered to the Underwriters or to Underwriters' Counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the Underwriters
as to the matters covered thereby.
(dd) The minute books of the Company have been made available to the
Underwriters and contains a complete summary of all meetings and actions of the
directors, stockholders, audit committee, compensation committee and any other
committee of the Board of Directors of the Company, respectively, since the time
of its incorporation, and reflects all transactions referred to in such minutes
accurately in all material respects.
(ee) Except and to the extent described in the Prospectus, no
holders of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement under the Act and no person or entity holds any
anti-dilution rights with respect to any securities of the Company.
2. Purchase, Sale and Delivery of the Securities and Representatives'
Warrants.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$______ [91.5% of the initial public offering price] per share of Common Stock,
that number of Firm Shares set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Firm Shares which such Underwriter
may become obligated to purchase pursuant to the provisions of Section 11
hereof.
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(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of the
Option Shares. The option granted hereby will expire 45 days after (i) the date
the Registration Statement becomes effective, if the Company has elected not to
rely on Rule 430A under the Rules and Regulations, or (ii) the date of this
Agreement if the Company has elected to rely upon Rule 430A under the Rules and
Regulations, and may be exercised in whole or in part from time to time only for
the purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Firm Shares upon notice by the Representatives
to the Company setting forth the number of Option Shares as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for any such Option Shares. Any such time and date of delivery (an
"Option Closing Date") shall be determined by the Representatives, but shall not
be later than seven full business days after the exercise of said option, nor in
any event prior to the Closing Date, as hereinafter defined, unless otherwise
agreed upon by the Representatives and the Company. Nothing herein contained
shall obligate the Underwriters to make any over-allotments. No Option Shares
shall be delivered unless the Firm Shares shall be simultaneously delivered or
shall theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates
for, the Firm Shares shall be made at the offices of Gaines, Berland Inc. at
1055 Stewart Avenue, Bethpage, New York 11714, or at such other place as shall
be agreed upon by the Representatives and the Company. Such delivery and payment
shall be made at 10:00 a.m. (New York City time) on _______________, 1999 or at
such other time and date as shall be agreed upon by the Representatives and the
Company, but not less than three (3) nor more than seven (7) full business days
after the effective date of the Registration Statement (such time and date of
payment and delivery being herein called "Closing Date"). In addition, in the
event that any or all of the Option Shares are purchased by the Underwriters,
payment of the purchase price for, and delivery of certificates for, such Option
Shares shall be made at the above mentioned office of the Representatives or at
such other place as shall be agreed upon by the Representatives and the Company
on each Option Closing Date as specified in the notice from the Representatives
to the Company. Delivery of the certificates for the Firm Shares and the Option
Shares, if any, shall be made to the Underwriters against payment by the
Underwriters, severally and not jointly, of the purchase price for the Firm
Shares and the Option Shares, if any, to the order of the Company for the Firm
Shares and the Option Shares, if any, by New York Clearing House funds. In the
event such option is exercised, each of the Underwriters, acting severally and
not jointly, shall purchase that proportion of the total number of Option Shares
then being purchased which the number of Firm Shares set forth in Schedule A
hereto opposite the name of such Underwriter bears to the total number of Firm
Shares, subject in each case to such adjustments as the Representatives in its
discretion shall make to eliminate any sales or purchases of fractional shares.
Certificates for the Firm Shares and the Option Shares, if any, shall be in
definitive, fully registered form, shall bear no restrictive legends and shall
be in such denominations and registered in such names as the Underwriters may
request in writing at least two (2) business days prior to the Closing Date or
the relevant Option Closing Date, as the case may be. The certificates for the
Firm Shares and the Option Shares, if any, shall be made available to the
Representatives at such office or such other place as the Representatives may
designate for
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inspection, checking and packaging no later than 9:30 a.m. on the last business
day prior to Closing Date or the relevant Option Closing Date, as the case may
be.
(d) On the Closing Date, the Company shall issue and sell to the
Representatives, Representatives' Warrants at a purchase price of $.0001 per
warrant, which warrants shall entitle the holders thereof to purchase an
aggregate of 350,000 shares of Common Stock. The Representatives' Warrants shall
be exercisable for a period of four years commencing one year from the effective
date of the Registration Statement at a price equaling [one hundred twenty
percent (120%)] of the initial public offering price of the shares of Common
Stock. The Representatives' Warrant Agreement and form of Warrant Certificate
shall be substantially in the form filed as Exhibit 4.2 to the Registration
Statement. Payment for the Representatives' Warrants shall be made on the
Closing Date.
3. Public Offering of the Shares. As soon after the Registration Statement
becomes effective as the Representatives deem advisable, the Underwriters shall
make a public offering of the Shares (other than to residents of or in any
jurisdiction in which qualification of the Shares is required and has not become
effective) at the price and upon the other terms set forth in the Prospectus.
The Representatives may from time to time increase or decrease the public
offering price after distribution of the Shares has been completed to such
extent as the Representatives, in their discretion deem advisable. The
Underwriters may enter into one of more agreements as the Underwriters, in each
of their sole discretion, deem advisable with one or more broker-dealers who
shall act as dealers in connection with such public offering.
4. Covenants and Agreements of the Company.
The Company covenants and agrees with each of the Underwriters as
follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Act or Exchange
Act before termination of the offering of the Shares by the Underwriters of
which the Representatives shall not previously have been advised and furnished
with a copy, or to which the Representatives shall have objected or which is not
in compliance with the Act, the Exchange Act and the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Representatives and confirm the notice in writing,
(i) when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective, (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose, (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Securities for offering or sale in
any jurisdiction or
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of the initiation, or the threatening, of any proceeding for that purpose, (iv)
of the receipt of any comments from the Commission; and (v) of any request by
the Commission for any amendment to the Registration Statement or any amendment
or supplement to the Prospectus or for additional information. If the Commission
or any state securities commission authority shall enter a stop order or suspend
such qualification at any time, the Company will make every effort to obtain
promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representatives) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Representatives,
pursuant to Rule 424(b)(4)) not later than the Commission's close of business on
the earlier of (i) the second business day following the execution and delivery
of this Agreement and (ii) the fifteenth business day after the effective date
of the Registration Statement.
(d) The Company will give the Representatives notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Securities which
differs from the corresponding prospectus on file at the Commission at the time
the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Rules and
Regulations), and will furnish the Representatives with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such prospectus to
which the Representatives or Orrick, Herrington & Sutcliffe LLP ("Underwriters'
Counsel"), shall object.
(e) The Company shall endeavor in good faith, in cooperation with
the Representatives, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Representatives may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose; provided,
however, the Company shall not be required to qualify as a foreign corporation
or file a general or limited consent to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Representatives 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 reasonably be required by
the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus relating
to the Securities is required to be delivered under the Act, any event shall
have occurred as a result of
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which, in the opinion of counsel for the Company or Underwriters' Counsel, 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 the light of the circumstances
under which they were made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Act, the Company will notify the
Representatives promptly and prepare and file with the Commission an appropriate
amendment or supplement in accordance with Section 10 of the Act, each such
amendment or supplement to be satisfactory to Underwriters' Counsel, and the
Company will furnish to the Underwriters copies of such amendment or supplement
as soon as available and in such quantities as the Underwriters may request.
(g) As soon as practicable, but in any event not later than 45 days
after the end of the 12-month period beginning on the day after the end of the
fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Representatives, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules
and Regulations, which statement need not be audited unless required by the Act,
covering a period of at least 12 consecutive months after the effective date of
the Registration Statement.
(h) During a period of seven years after the date hereof, the
Company will furnish to its stockholders annual reports (including financial
statements audited by independent public accountants) and will deliver to the
Representatives:
(i) concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter
in the form furnished to the Company's stockholders and certified by
the Company's principal financial or accounting officer;
(ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company for such fiscal
year, accompanied by a copy of the report thereon of independent
certified public accountants;
(iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the
NASD or any securities exchange;
(v) every press release and every material news item or
article of interest to the financial community in respect of the
Company, or its affairs which was released or prepared by or on
behalf of the Company; and
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(vi) any additional information of a public nature concerning
the Company (and any future subsidiary) or its businesses which the
Representatives may request.
During such five (5)-year period, if the Company has an active
subsidiary, the foregoing financial statements will be on a consolidated basis
to the extent that the accounts of the Company and its subsidiary are
consolidated, and will be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(i) The Company will maintain a Transfer Agent and, if necessary
under the jurisdiction of incorporation of the Company, a Registrar (which may
be the same entity as the Transfer Agent) for its Common Stock.
(j) The Company will furnish to the Representatives or on the
Representatives' order, without charge, at such place as the Representatives may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as reasonably available and in such quantities as the Representatives may
request.
(k) On or before the effective date of the Registration Statement,
the Company shall provide the Representatives with true copies of duly executed,
legally binding and enforceable agreements pursuant to which for a period of
twelve (12) months from the effective date of the Registration Statement all
officers and directors of the Company and all holders of shares of the Common
Stock of the Company or securities exercisable or exchangeable for or
convertible into shares of Common Stock issued and outstanding will not offer to
sell, sell, transfer, hypothecate or otherwise encumber or dispose of any such
securities (either pursuant to Rule 144 of the Rules and Regulations or
otherwise) without the prior written consent of the Representatives
(collectively, the "Lock-up Agreements"). On or before the Closing Date, the
Company shall deliver instructions to the Transfer Agent authorizing it to place
appropriate legends on the certificates representing the securities subject to
the Lock-up Agreements and to place appropriate stop transfer orders on the
Company's ledgers. During the twelve (12) month period commencing with the
effective date of the Registration Statement, the Company shall not, without the
prior written consent of the Representatives, sell, contract or offer to sell,
issue, transfer, assign, pledge, hypothecate, distribute, or otherwise dispose
of, directly or indirectly, any shares of Common Stock or any options, rights or
warrants with respect to any shares of Common Stock except up to (i)________
shares of Common Stock issuable upon exercise of outstanding stock options, and
(ii)________ shares of Common Stock reserved for future issuance under the
Company's 1999 Performance Equity Plan. During the twelve (12) month period
commencing with the effective date of the Registration Statement, the Company
shall not file any registration statement with the Securities and Exchange
Commission on Form S-8 without the prior written consent of the Representatives.
(l) Neither the Company, nor any of its officers, directors,
stockholders, nor any of their respective affiliates (within the meaning of the
Rules and Regulations) will take, directly or indirectly, any action designed
to, or which might in the future reasonably be
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expected to cause or result in, stabilization or manipulation of the price of
any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. Except as described in the Prospectus, no portion
of the net proceeds will be used, directly or indirectly, to acquire any
securities issued by the Company or any securities of Enviro-Clean of America,
Inc. The Company agrees that for a period of eighteen (18) months, it will not
permit any subsidiary of the Company to purchase, redeem or otherwise acquire or
retire for value any equity securities of the Company.
(n) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a Form SR as may be
required pursuant to Rule 463 under the Act) from time to time, under the Act,
the Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and Regulations.
(o) The Company shall furnish to the Representatives as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, 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 (30)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in their letter to be
furnished pursuant to Section 6(i) hereof.
(p) The Company shall cause the Common Stock to be quoted on Nasdaq
or a National Securities exchange and for a period of seven (7) years from the
date hereof, and use its best efforts to maintain the Nasdaq quotation or
exchange listing of the Common Stock to the extent outstanding.
(q) For a period of five (5) years from the Closing Date, the
Company shall furnish to the Representatives at the Representatives' request and
at the Company's sole expense, (i) daily consolidated transfer sheets relating
to the Common Stock, (ii) the list of holders of all of the Company's securities
and (iii) a Blue Sky "Trading Survey" for secondary sales of the Company's
securities prepared by counsel to the Company.
(r) As soon as practicable, but in no event more than 30 days from
the effective date of the Registration Statement, take all necessary and
appropriate actions to be included in Standard and Poor's Corporation
Descriptions and Moody's OTC Manual and to continue such inclusion for a period
of not less than seven (7) years.
(s) The Company hereby agrees that it will not for a period of
twelve (12) months from the effective date of the Registration Statement, adopt,
propose to adopt or otherwise permit to exist any employee, officer, director,
consultant or compensation plan or arrangement permitting the grant, issue or
sale of any shares of Common Stock or other securities of the Company (i) in an
amount greater than an aggregate of 2,000,000 shares of
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Common Stock, (ii) at an exercise or sale price per share less than the fair
market value of the Common Stock on the date of grant or sale, (iii) to any
direct or indirect beneficial holder on the date hereof of more than 10% of the
issued and outstanding shares of Common Stock, (iv) with the payment for such
securities with any form of consideration other than cash, (v) upon payment of
less than the full purchase or exercise price for such shares of Common Stock or
other securities of the Company.
(t) Until the completion of the distribution of the Shares, and for
25 days thereafter, the Company shall not without the prior written consent of
the Representatives and Underwriters' Counsel, issue, directly or indirectly,
any press release or other communication or hold any press conference with
respect to the Company or its activities or the offering contemplated hereby.
(u) For a period equal to the lesser of (i) seven (7) years from the
date hereof, and (ii) the sale to the public of the Representatives' Shares, the
Company will not take any action or actions which may prevent or disqualify the
Company's use of Form S-1 (or other appropriate form) for the registration under
the Act of the Representatives' Shares.
(v) For a period of three (3) years from the Effective Date the
Representatives shall be permitted to designate one person for election to the
Company's Board of Directors. In the event the Representatives elect not to
exercise this right, then the Representatives may designate one person to attend
the meetings of the Company's Board of Directors. Such designee shall be
entitled to attend all Company Board of Director meetings and to receive all
notices and other communications sent by the Company to members of its Board of
Directors. The Company shall reimburse the designee of the Representatives for
its out-of-pocket expenses incurred in connection with attendance of meetings of
the Company's Board of Directors.
(w) The Company agrees that for a period of eighteen (18) months
from the effective date of the Registration Statement, it will not without prior
written consent of the Representatives declare or pay any dividend or make any
distribution on any equity securities of the Company.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing Date and
the Option Closing Date (to the extent not paid at the Closing Date) all
expenses and fees (other than fees of Underwriters' Counsel, except as provided
in (iv) below) incident to the performance of the obligations of the Company
under this Agreement and the Representatives' Warrant Agreement, including,
without limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing, (including mailing and handling charges)
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments and
supplements thereto and the printing, mailing (including the payment of postage
with respect thereto) and delivery of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreements, and related documents, including
the cost of all copies thereof and of the Preliminary Prospectuses and of the
Prospectus and any amendments thereof or supplements thereto supplied to the
Underwriters and such dealers as the Underwriters
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<PAGE>
may request, in such quantities as the Representatives may request, (iii) the
printing, engraving, issuance and delivery of the Securities, (iv) the
qualification of the Securities under state or foreign securities or "Blue Sky"
laws and determination of the status of such securities under legal investment
laws, including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and disbursements and fees of counsel in connection therewith,
(v) costs and expenses in connection with due diligence investigations,
including but not limited to the fees of any independent counsel or consultant
retained, (vi) fees and expenses of the transfer agent and registrar, (vii)
advertising costs and expenses, including, but not limited to costs and expenses
in connection with "Road Shows," information meetings and presentations, bound
volumes and prospectus memorabilia and tombstone advertisement expenses (viii)
applications for assignments of a rating of the Securities by qualified rating
agencies, (ix) the fees payable to the Commission and the NASD, and (x) the fees
and expenses incurred in connection with the quotation of the Securities on
Nasdaq and any other exchange.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Sections 6, 10 or 12, the Company shall
reimburse and indemnify the Representatives for all of their actual
out-of-pocket expenses, including the fees and disbursements of Underwriters'
Counsel, less any amounts already paid pursuant to Section 5(c) hereof.
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 5, it will pay to the
Representatives on the Closing Date by certified or bank cashier's check or, at
the election of the Representatives, by deduction from the proceeds of the
offering contemplated herein a non-accountable expense allowance equal to two
percent (2%) of the gross proceeds received by the Company from the sale of the
Firm Shares. In the event the Representatives elect to exercise the
over-allotment option described in Section 2(b) hereof, the Company agrees to
pay to the Representatives on the Option Closing Date (by certified or bank
cashier's check, or at the Representatives' election, by deduction from the
proceeds of the Option Shares) a non-accountable expense allowance equal to two
percent (2%) of the gross proceeds received by the Company from the sale of the
Option Shares.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, with respect to the
Company as if it had been made on and as of the Closing Date or each Option
Closing Date, as the case may be; the accuracy on and as of the Closing Date or
Option Closing Date, if any, of the statements of the officers of the Company
made pursuant to the provisions hereof; and the performance by the Company on
and as of the Closing Date and each Option Closing Date, if any, of their
respective covenants and obligations hereunder and to the following further
conditions:
(a) The Registration Statement shall have become effective not later
than 12:00 Noon, New York time, on the date of this Agreement or such later date
and time as shall be consented to in writing by the Representatives, and, at the
Closing Date and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
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<PAGE>
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 Underwriters' Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Shares and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to the Closing Date the Company
shall have provided evidence satisfactory to the Representatives of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Representatives shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representatives' opinion, is material, or omits to state a
fact which, in the Representatives' opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Representatives' opinion, is material, or omits to state a
fact which, in the Representatives' opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Representatives shall have
received from Underwriters' Counsel, such opinion or opinions with respect to
the organization of the Company, the validity of the Securities, the
Registration Statement, the Prospectus and other related matters as the
Representatives request and Underwriters' Counsel shall have received such
papers and information as they request to enable them to pass upon such matters.
(d) At the Closing Date, the Underwriters shall have received the
favorable opinion of Graubard Mollen & Miller, counsel to the Company, dated the
Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, to the effect that:
(i) the Company (A) has been duly organized and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of organization, (B) is duly qualified and licensed and
in good standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of any properties or the character of
its operations requires such qualification or licensing, and (C) has
all requisite corporate power and authority; and the Company has
obtained any and all necessary authorizations, approvals, orders,
licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including, without
limitation, those having jurisdiction over environmental or similar
matters), to own or lease its properties and conduct its business as
described in the Prospectus; the Company is and has been doing
business in material compliance with all such authorizations,
approvals, orders, licenses, certificates, franchises and permits
and all federal, state and local laws, rules and regulations; the
Company has not received any notice of proceedings relating to the
revocation or modification of any such authorization, approval,
order, license, certificate, franchise, or permit which, singly or
in the
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<PAGE>
aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially adversely affect the business, operations,
condition, financial or otherwise, or the earnings, business
affairs, position, prospects, value, operation, properties, business
or results of operations of the Company. The disclosures in the
Registration Statement concerning the effects of federal, state and
local laws, rules and regulations on the Company's business as
currently conducted and as contemplated are correct in all material
respects and do not omit to state a fact necessary to make the
statements contained therein not misleading in light of the
circumstances in which they were made;
(ii) to the best of such counsel's knowledge, the Company does
not own an interest in any other corporation, partnership, joint
venture, trust or other business entity;
(iii) the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, and any
amendment or supplement thereto, under "Capitalization" and
"Description of Securities," and is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue
any capital stock, rights, warrants, options or other securities,
except for this Agreement, the Representatives' Warrant Agreement
and as described in the Prospectus. The Securities, and all other
securities issued or issuable by the Company conform in all material
respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. 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. The
Shares, the Representatives' Warrants and the Representatives'
Shares to be sold by the Company hereunder and under the
Representatives' Warrant Agreement are not and will not be subject
to any preemptive or other similar rights of any stockholder, have
been duly authorized and, when issued, paid for and delivered in
accordance with the terms hereof, will be validly issued, fully paid
and non-assessable and conform to the description thereof contained
in the Prospectus; the holders thereof will not be subject to any
liability solely as such holders; all corporate action required to
be taken for the authorization, issue and sale of the Shares, the
Representatives' Warrants and the Representatives' Shares has been
duly and validly taken, and the certificates representing the Shares
and the Representatives' Warrants are in due and proper form. The
Representatives' Warrants constitute valid and binding obligations
of the Company to issue and sell, upon exercise thereof and payment
therefor, the number and type of securities of the Company called
for thereby. Upon the issuance and delivery pursuant to this
Agreement and the Representatives' Warrant Agreement of the Shares
and the Representatives' Warrants, respectively, to be sold by the
Company, the Underwriters and the Representatives, respectively,
will acquire good and marketable title to the Shares and the
Representatives' Warrants free and clear of any pledge, lien,
charge, claim, encumbrance, pledge, security interest, or other
restriction or equity of any kind whatsoever. No transfer tax is
payable by or on behalf of the Underwriters in
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connection with (A) the issuance by the Company of the Shares, (B)
the purchase by the Underwriters and the Representatives of the
Shares and the Representatives' Warrants, respectively, from the
Company, (C) the consummation by the Company of any of its
obligations under this Agreement or the Representatives' Warrant
Agreement, or (D) resales of the Shares in connection with the
distribution contemplated hereby;
(iv) the Registration Statement is effective under the Act,
and, if applicable, filing of all pricing information has been
timely made in the appropriate form under Rule 430A, and no stop
order suspending the use of the Preliminary Prospectus, the
Registration Statement or Prospectus or any part of any thereof or
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or
are pending or, to the best of such counsel's knowledge threatened
or contemplated under the Act;
(v) each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements
thereto (other than the financial statements and other financial and
statistical data included therein, as to which no opinion need be
rendered) comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations;
(vi) to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be
described in the Registration Statement and the Prospectus and filed
as exhibits to the Registration Statement other than those described
in the Registration Statement (or required to be filed under the
Exchange Act if upon such filing they would be incorporated, in
whole or in part, by reference therein) and the Prospectus and filed
as exhibits thereto, and the exhibits which have been filed are
correct copies of the documents of which they purport to be copies;
(B) the descriptions in the Registration Statement and the
Prospectus and any supplement or amendment thereto of contracts and
other documents to which the Company is a party or by which it is
bound, including any document to which the Company is a party or by
which it is bound, incorporated by reference into the Prospectus and
any supplement or amendment thereto, are accurate in all material
respects and fairly represent the information required to be shown
by Form SB-2; (C) there is not pending or threatened against the
Company any action, arbitration, suit, proceeding, inquiry,
investigation, litigation, governmental or other proceeding
(including, without limitation, those involving environmental or
similar matters), domestic or foreign, pending or threatened against
(or circumstances that may give rise to the same), or involving the
properties or business of the Company which (x) is required to be
disclosed in the Registration Statement which is not so disclosed,
(and such proceedings as are summarized in the Registration
Statement are accurately summarized in all material respects), (y)
questions the validity of the capital stock of the Company or this
Agreement or the Representatives' Warrant Agreement, or of any
action taken or to be taken by the Company pursuant to or in
connection with any of the foregoing; (D) no statute or regulation
or legal or governmental proceeding required to be described in the
Prospectus is not described as required; and (E) there is no action,
suit or proceeding pending, or threatened, against or affecting the
Company
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<PAGE>
before any court or arbitrator or governmental body, agency or
official (or any basis thereof known to such counsel) in which there
is a reasonable possibility of an adverse decision which may result
in a material adverse change in the condition, financial or
otherwise, or the earnings, position, prospects, stockholders'
equity, value, operation, properties, business or results of
operations of the Company, which could adversely affect the present
or prospective ability of the Company to perform its obligations
under this Agreement or the Representatives' Warrant Agreement or
which in any manner draws into question the validity or
enforceability of this Agreement or the Representatives' Warrant
Agreement;
(vii) the Company has full legal right, power and authority to
enter into each of this Agreement and the Representatives' Warrant
Agreement and to consummate the transactions provided for herein and
therein; and each of this Agreement and the Representatives' Warrant
Agreement has been duly authorized, executed and delivered by the
Company. Each of this Agreement and the Representatives' Warrant
Agreement, assuming due authorization, execution and delivery by
each other party thereto (other than the Company) constitutes a
legal, valid and binding agreement of the Company enforceable
against the Company in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal or
equitable, and except as rights to indemnity or contribution may be
limited by applicable law), and none of the Company's execution or
delivery of this Agreement and the Representatives' Warrant
Agreement, its performance hereunder or thereunder, its consummation
of the transactions contemplated herein or therein, or the conduct
of its business as described in the Registration Statement, the
Prospectus and any amendments or supplements thereto, conflicts with
or will conflict with or results or will result in any breach or
violation of any of the terms or provisions of, or constitutes or
will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security
interest, defect or other restriction or equity of any kind
whatsoever upon, any property or assets (tangible or intangible) of
the Company pursuant to the terms of, (A) the articles of
incorporation or by-laws of the Company, (B) any license, contract,
indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other
agreement or instrument to which the Company is a party or by which
it is or may be bound or to which any of its respective properties
or assets (tangible or intangible) is or may be subject, or any
indebtedness, or (C) any statute, judgement, decree, order, rule or
regulation applicable to the Company of any arbitrator, court,
regulatory body or administrative agency or other governmental
agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or
foreign, having jurisdiction over the Company or any of its
activities or properties;
(viii) except as described in the Prospectus, no consent,
approval, authorization or order of, and no filing with, any court,
regulatory body, government agency or other body (other than such as
may be required under Blue Sky laws, as to which no opinion need be
rendered) is required in connection with the issuance of the
22
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Shares pursuant to the Prospectus, the issuance of the
Representatives' Warrants, the performance of this Agreement and the
Representatives' Warrant Agreement and the transactions contemplated
hereby and thereby;
(ix) the properties and business of the Company conform in all
material respects to the description thereof contained in the
Registration Statement and the Prospectus; and the Company has good
and marketable title to, or valid and enforceable leasehold estates
in, all items of real and personal property stated in the Prospectus
to be owned or leased by it, in each case free and clear of all
liens, charges, claims, encumbrances, pledges, security interests,
defects or other restrictions or equities of any kind whatsoever,
other than those referred to in the Prospectus, and liens for taxes
not yet due and payable;
(x) to the best knowledge of such counsel, the Company is not
in breach of, or in default under, any term or provision of any
license, contract, indenture, mortgage, installment sale agreement,
deed of trust, lease, voting trust agreement, stockholders'
agreement, partnership agreement, 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
the property or assets (tangible or intangible) of the Company is
subject or affected; and the Company is not in violation of any term
or provision of its certificate of incorporation by-laws, or in
violation of any franchise, license, permit, judgment, decree,
order, statute, rule or regulation;
(xi) the statements in the Prospectus under "BUSINESS,"
"MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN TRANSACTIONS," and
"DESCRIPTION OF SECURITIES" have been reviewed by such counsel, and
insofar as they refer to statements of law, descriptions of
statutes, licenses, rules or regulations or legal conclusions, are
correct in all material respects;
(xii) the Shares have been accepted for quotation on Nasdaq;
(xiii) the Company owns or possesses, free and clear of all
liens or encumbrances and right thereto or therein by third parties,
the requisite licenses or other rights to use all material
trademarks, service marks, copyrights, service names, tradenames,
patents, patent applications and licenses necessary to conduct its
business (including without limitation any such licenses or rights
described in the Prospectus as being owned or possessed by the
Company) and there is no material claim or action by any person
pertaining to, or proceeding, pending or threatened, which
challenges the exclusive rights of the Company with respect to any
trademarks, service marks, copyrights, service names, tradenames,
patents, patent applications and licenses used in the conduct of the
Company's business (including, without limitation, any such licenses
or rights described in the Prospectus as being owned or possessed by
the Company);
(xiv) the persons listed under the caption "PRINCIPAL
STOCKHOLDERS" in the Prospectus are the respective "beneficial
owners" (as such
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phrase is defined in regulation 13d-3 under the Exchange Act) of the
securities set forth opposite their respective names thereunder as
and to the extent set forth therein;
(xv) except as described in the Prospectus, no person,
corporation, trust, partnership, association or other entity has the
right to include and/or register any securities of the Company in
the Registration Statement, require the Company to file any
registration statement or, if filed, to include any security in such
registration statement;
(xvi) 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 Securities hereunder or financial consulting
arrangement or any other arrangements, agreements, understandings,
payments or issuances that may affect the Underwriters'
compensation, as determined by the NASD;
(xvii) assuming due execution by the parties thereto other
than the Company, the Lock-up Agreements are legal, valid and
binding obligations of parties thereto, enforceable against the
party and any subsequent holder of the securities subject thereto in
accordance with its terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except
as rights to indemnity or contribution may be limited by applicable
law); and
(xviii) except as described in the Prospectus, the Company
does not (A) maintain, sponsor or contribute to any ERISA Plans, (B)
maintain or contribute, now or at any time previously, to a defined
benefit plan, as defined in Section 3(35) of ERISA, and (C) has
never completely or partially withdrawn from a "multiemployer plan".
Such counsel shall state that such 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 conferences such
counsel made inquiries of such officers, representatives and accountants and
discussed the contents of the Preliminary Prospectus, 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
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which lead
them to believe that either the Registration Statement or any amendment thereto,
at the time such Registration Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or supplement thereto as of
the date of the Preliminary Prospectus and the Prospectus, and 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 not misleading (it being understood that such counsel need
express no opinion with respect to the financial statements and schedules and
other
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financial and statistical data included in the Preliminary Prospectus, the
Registration Statement or Prospectus).
Such opinion shall not state that it is to be governed or qualified by, or
that it is otherwise subject to, any treatise, written policy or other document
relating to legal opinions, including, without limitation, the Legal Opinion
Accord of the ABA Section of Business Law (1991), or any comparable State bar
accord.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on certificates
and written statements of responsible officers of the Company, and certificates
or other written statements of officers of departments of various jurisdictions
having custody of documents respecting the corporate existence or good standing
of the Company, provided that copies of any such statements or certificates
shall be delivered to Underwriters' Counsel if requested. The opinion of such
counsel for the Company shall state that the opinion of any such other counsel
is in form satisfactory to such counsel and that the Representatives and they
are justified in relying thereon. Such opinion shall also state that
Underwriters' Counsel is entitled to rely thereon.
At each Option Closing Date, if any, the Underwriters shall have received
the favorable opinion of Graubard Mollen & Miller, counsel to the Company, dated
the Option Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel confirming as of the Option Closing Date
the statements made by Graubard Mollen & Miller in its opinion delivered on the
Closing Date.
(e) On or prior to each of the Closing Date and the Option Closing
Date, if any, Underwriters' Counsel 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 subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company, or herein contained.
(f) Prior to each of the Closing Date and each Option Closing Date,
if any, (i) there shall have been no material adverse change nor development
involving a prospective change in the condition, financial or otherwise,
prospects, stockholders' equity or the business activities of the Company,
whether or not in the ordinary course of business, 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; (iii) the Company
shall not be in default under any provision of any instrument relating to any
outstanding indebtedness; (iv) the Company shall not have issued any securities
(other than the Securities); the Company shall not have declared or paid any
dividend or made any distribution in respect of its capital stock of any class;
and there has not been any change in the capital stock
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of the Company, or any material change in the debt (long or short term) or
liabilities or obligations of the Company (contingent or otherwise); (v) 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;
(vi) no action, suit or proceeding, at law or in equity, shall have been pending
or threatened (or circumstances giving rise to same) against the Company, or
affecting any of its properties or business before or by any court or federal,
state or foreign commission, board or other administrative agency wherein an
unfavorable decision, ruling or finding may adversely affect the business,
operations, prospects or financial condition or income of the Company, except as
set forth in the Registration Statement and Prospectus; and (vii) no stop order
shall have been issued under the Act and no proceedings therefor shall have been
initiated, threatened or contemplated by the Commission.
(g) At each of the Closing Date and each Option Closing Date, if
any, the Underwriters shall have received a certificate of the Company signed by
the principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that:
(i) The representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Closing
Date or the Option Closing Date, as the case may be, and the Company
has complied with all agreements and covenants and satisfied all
conditions contained in this Agreement on its part to be performed
or satisfied at or prior to such Closing Date or Option Closing
Date, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are pending or,
to the best of each of such person's knowledge, after due inquiry
are contemplated or threatened under the Act;
(iii) The Registration Statement and the Prospectus and, if
any, each amendment and each supplement thereto, contain all
statements and information required to be included therein, and none
of the Registration Statement, the Prospectus nor any amendment or
supplement thereto includes 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 not misleading and neither
the Preliminary Prospectus nor any supplement thereto included any
untrue statement of a material fact or omitted 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; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, (a) the Company has not incurred up to and including the
Closing Date or the Option Closing Date, as the case may be, other
than in the ordinary course of its business, any material
liabilities or obligations, direct or contingent; (b) the Company
has not paid or declared any dividends or other distributions on its
capital stock; (c) the Company has not entered into any transactions
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not in the ordinary course of business; (d) there has not been any
change in the capital stock of the Company or any material change in
the debt (long or short-term) of the Company; (e) the Company has
not sustained any material loss or damage to its property or assets,
whether or not insured; (g) there is no litigation which is pending
or threatened (or circumstances giving rise to same) against the
Company, or any affiliated party of any of the foregoing which is
required to be set forth in an amended or supplemented Prospectus
which has not been set forth; and (h) there has occurred no event
required to be set forth in an amended or supplemented Prospectus
which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(g) are to such documents as amended and supplemented at the date of such
certificate.
(h) By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters, as described in the Registration Statement.
(i) At the time this Agreement is executed, the Underwriters shall
have received a letter, dated such date, addressed to the Underwriters in form
and substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriters and Underwriters' Counsel, from BDO Seidman LLP.
(i) confirming that they are independent public accountants
with respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
(ii) stating that it is their opinion that the financial
statements and supporting schedules of the Company included in the
Registration Statement comply as to form in all material respects
with the applicable accounting requirements of the Act and the Rules
and Regulations thereunder and that the Representatives may rely
upon the opinion of BDO Seidman LLP with respect to such financial
statements and supporting schedules included in the Registration
Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim
financial statements of the Company, a reading of the latest
available minutes of the stockholders and board of directors and the
various committees of the board of directors of the Company,
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 which
would lead them to believe that [(A) the unaudited financial
statements and supporting schedules of the Company included in the
Registration Statement do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the Rules and Regulations or are not fairly presented in conformity
with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements of the Company included in the Registration Statement,
or] (B) at a specified date not more than five (5) days prior to the
effective date of the Registration Statement, there has
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<PAGE>
been any change in the capital stock of the Company, any change in
the long-term debt of the Company, or any decrease in the
stockholders' equity of the Company or any decrease in the net
current assets or net assets of the Company as compared with amounts
shown in the August 31, 1999 balance sheet included in the
Registration Statement, other than as set forth in or contemplated
by the Registration Statement, or, if there was any change or
decrease, setting forth the amount of such change or decrease, and
(C) during the period from August 31, 1999 to a specified date not
more than five (5) days prior to the effective date of the
Registration Statement, there was any decrease in net revenues or
net earnings of the Company or increase in net earnings per common
share of the Company, other than as set forth in or contemplated by
the Registration Statement, or, if there was any such decrease,
setting forth the amount of such decrease;
(iv) setting forth, at a date not later than five (5) days
prior to the date of the Registration Statement, the amount of
liabilities of the Company (including a break-down of commercial
paper and notes payable to the banks);
(v) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements
and other financial information 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, including work sheets, of the
Company and excluding any questions requiring an interpretation by
legal counsel, 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; and
(vi) statements as to such other matters incident to the
transaction contemplated hereby as the Representatives may request.
(j) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from BDO Seidman LLP a letter, dated as of the
Closing Date or the Option Closing Date, as the case may be, to the effect that
they reaffirm the statements made in the letter furnished pursuant to subsection
(i) of this Section 6 except that the specified date referred to shall be a date
not more than five (5) days prior to the Closing Date or the Option Closing
Date, as the case may be, and, if the Company has elected to rely on Rule 430A
of the Rules and Regulations, to the further effect that they have carried out
procedures as specified in clause (v) of subsection (i) of this Section 6 with
respect to certain amounts, percentages and financial information as specified
by the Representatives and deemed to be a part of the Registration Statement
pursuant to Rule 430A(b) and have found such amounts, percentages and financial
information to be in agreement with the records specified in such clause (v).
(k) The Company shall have delivered to the Representatives a letter
from BDO Seidman LLP addressed to the Company stating that they have not during
the immediately preceding one year period brought to the attention of the
Company's management any
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"weakness" as defined in Statement of Auditing Standards No. 60 "Communication
of Internal Control Structure Related Matters Noted in an Audit," in any of the
Company's internal controls.
(l) On each of the Closing Date and Option Closing Date, if any,
there shall have been duly tendered to the Representatives for the several
Underwriters' accounts the appropriate number of Shares.
(m) No order suspending the sale of the Securities in any
jurisdiction designated by the Representatives pursuant to subsection (e) of
Section 4 hereof shall have been issued on either the Closing Date or the Option
Closing Date, if any, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
(n) On or before the Closing Date, the Company shall have executed
and delivered to the Representatives, (i) the Representatives' Warrant Agreement
substantially in the form filed as Exhibit 4.2 to the Registration Statement in
final form and substance satisfactory to the Representatives, and (ii) the
Representatives' Warrants in such denominations and to such designees as shall
have been provided to the Company.
(o) On or before the Closing Date, the Shares shall have been duly
approved for quotation on Nasdaq, subject to official notice of issuance.
(p) On or before the Closing Date, there shall have been delivered
to the Representatives all of the Lock-up Agreements, in form and substance
satisfactory to Underwriters' Counsel.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representatives may terminate this
Agreement or, if the Representatives so elect, they may waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 7 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the Underwriter,
including specifically each person who may be substituted for an Underwriter as
provided in Section 11 hereof), and each person, if any, who controls the
Underwriter ("controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions,
proceedings, investigations, inquiries, and suits in respect thereof),
whatsoever (including but not limited to any and all costs and expenses
whatsoever reasonably incurred in investigating, preparing or defending against
such action, proceeding, investigation, inquiry or suit, commenced or
threatened, or any claim whatsoever), as such are incurred, to which the
Underwriter or such controlling person 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, arising out of or based upon (A) any untrue statement
or alleged untrue statement of a material fact contained (i) in any Preliminary
Prospectus, the Registration Statement or the Prospectus (as from time to time
amended and supplemented); (ii) in any post-effective amendment or amendments or
any new registration statement and prospectus in which
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<PAGE>
is included securities of the Company issued or issuable upon exercise of the
Securities; or (iii) in any application or other document or written
communication (in this Section 7 collectively called "application") executed by
the Company or based upon written information furnished by the Company filed,
delivered or used in any jurisdiction in order to qualify the Securities under
the securities laws thereof or filed with the Commission, any state securities
commission or agency, Nasdaq or any other securities exchange, (B) the omission
or alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading (in the case of the
Prospectus, in the light of the circumstances under which they were made), or
(C) any breach of any representation, warranty, covenant or agreement of the
Company contained herein or in any certificate by or on behalf of the Company or
any of its officers delivered pursuant hereto unless, in the case of clause (A)
or (B) above, such statement or omission was made in reliance upon and in
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 any Prospectus, or any
amendment thereof or supplement thereto, or in any application, as the case may
be.
The indemnity agreement in this subsection (a) shall be in addition
to any liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company within the meaning of the Act, to the same extent
as the foregoing indemnity from the Company to the Underwriters but only with
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering. The
Company acknowledges that the statements with respect to the public offering of
the Securities set forth under the heading "Underwriting" and the stabilization
legend in the Prospectus have been furnished by the Underwriters expressly for
use therein and constitute the only information furnished in writing by or on
behalf of the Underwriters for inclusion in the Prospectus.
The indemnity agreement in this subsection (b) shall be in addition
to any liability which the Underwriters may have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 7, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any
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<PAGE>
such action, investigation, inquiry, suit or proceeding is brought against any
indemnified party, and it notifies an indemnifying party or parties of the
commencement thereof, the indemnifying party or parties will be entitled to
participate therein, and to the extent it may elect 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. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action at the expense of the indemnifying
party, (ii) the indemnifying parties shall not have employed counsel reasonably
satisfactory to such indemnified party to have charge of the defense of such
action within a reasonable time after notice of commencement of the 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 one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action, investigation, inquiry, suit or proceeding on behalf of
the indemnified party or parties), in any of which events such fees and expenses
of one additional counsel shall be borne by the indemnifying parties. In no
event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action,
investigation, inquiry, suit or proceeding or separate but similar or related
actions, investigations, inquiries, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances.
Anything in this Section 7 to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action effected
without its written consent; provided, however, that such consent was not
unreasonably withheld. An indemnifying party will not, without the prior written
consent of the indemnified parties, settle compromise or consent to the entry of
any judgment with respect to any pending or threatened claim, action,
investigation, inquiry, suit or proceeding in respect of which indemnification
or contribution may be sought hereunder (whether or not the indemnified parties
are actual or potential parties to such claim or action), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such claim, action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 7, 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
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions, investigations, inquiries, suits or proceedings in respect thereof) (A)
in such proportion as is appropriate to reflect the relative benefits received
by each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand, from the offering of the Securities or (B) if the
allocation provided by clause (A) above is not permitted by applicable
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<PAGE>
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of each of
the contributing parties, on the one hand, and the party to be indemnified on
the other hand in connection with the statements or omissions that resulted in
such losses, claims, damages, expenses or liabilities, as well as any other
relevant equitable considerations. In any case where the Company is the
contributing party and the Underwriters are the indemnified party, the relative
benefits received by the Company, on the one hand, and the Underwriters, on the
other, shall be deemed to be in the same proportion as the total net proceeds
from the offering of the Securities (before deducting expenses) bear to the
total underwriting discounts received by the Underwriters hereunder, as set
forth in the table on the Cover Page of the Prospectus and the underwriting
caption of the Prospectus, as the case may be. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, or by the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions, investigations, inquiries,
suits or proceedings in respect thereof) referred to above in this subdivision
(d) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action, claim, investigation, inquiry, suit or proceeding. Notwithstanding the
provisions of this subdivision (d) the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Securities purchased by the Underwriters hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person, if
any, who controls the Company within the meaning of the Act, each officer of the
Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this subparagraph (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit, inquiry,
investigation or proceeding against such party in respect to which a claim for
contribution may be made against another party or parties under this
subparagraph (d), notify such party or parties from whom contribution may be
sought, but the omission so to notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have hereunder or otherwise than under this subparagraph (d), or to
the extent that such party or parties were not adversely affected by such
omission. The contribution agreement set forth above shall be in addition to any
liabilities which any indemnifying party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter, the Company, and shall
survive termination of this Agreement or the issuance, sale and delivery of the
Securities to the Underwriters and the Representatives, as the case may be.
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9. Effective Date.
This Agreement shall become effective at 10:00 a.m., New York City
time, on the next full business day following the date hereof, or at such
earlier time after the Registration Statement becomes effective as the
Representatives, in their discretion, shall release the Securities for sale to
the public; provided, however, that the provisions of Sections 5, 7 and 10 of
this Agreement shall at all times be effective. For purposes of this Section 9,
the Shares to be purchased hereunder shall be deemed to have been so released
upon the earlier of dispatch by the Representatives of telegrams to securities
dealers releasing such shares for offering or the release by the Representatives
for publication of the first newspaper advertisement which is subsequently
published relating to the Shares.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the
Representatives shall have the right to terminate this Agreement, after the date
hereof, (i) if any domestic or international event or act or occurrence has
materially disrupted, or in the Representatives' opinion will in the immediate
future materially adversely disrupt the financial markets; or (ii) any material
adverse change in the financial markets shall have occurred; or (iii) if trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
National Association of Securities Dealers, Inc., the Boston Stock Exchange, the
Commission or any other government authority having jurisdiction; or (iv) if
trading of any of the securities of the Company shall have been suspended, or
any of the securities of the Company shall have been delisted, on any exchange
or in any over-the-counter market; or (v) if the United States shall have become
involved in a war or major hostilities, or if there shall have been an
escalation in an existing war or major hostilities or a national emergency shall
have been declared in the United States; or (vi) if a banking moratorium has
been declared by a state or federal authority; or (vii) if a moratorium in
foreign exchange trading has been declared; or (viii) if the Company shall have
sustained a loss material or substantial to the Company by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not such loss shall have been insured, will, in the
Representatives' opinion, make it inadvisable to proceed with the delivery of
the Securities; or (viii) if there shall have occurred any outbreak or
escalation of hostilities or any calamity or crisis or there shall have been
such a material adverse change in the conditions or prospects of the Company, or
such material adverse change in the general market, political or economic
conditions, in the United States or elsewhere as in the Representatives'
judgment would make it inadvisable to proceed with the offering, sale and/or
delivery of the Securities or (ix) if Woo Jin Kim shall no longer serve the
Company in his present capacity.
(b) If this Agreement is terminated by the Representatives in
accordance with the provisions of Section 10(a) the Company shall promptly
reimburse and indemnify the Representatives for all of their actual
out-of-pocket expenses, including the fees and disbursements of counsel for the
Underwriters (less amounts previously paid pursuant to Section 5(c) above).
Notwithstanding any contrary provision contained in this Agreement, if this
Agreement shall not be carried out within the time specified herein, or any
extension thereof granted to the Representatives, by reason of any failure on
the part of the Company to perform any undertaking or satisfy any condition of
this Agreement by it to be performed or satisfied
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(including, without limitation, pursuant to Section 6 or Section 12) then, the
Company shall promptly reimburse and indemnify the Representatives for all of
their actual out-of-pocket expenses, including the fees and disbursements of
counsel for the Underwriters (less amounts previously paid pursuant to Section
5(c) above). In addition, the Company shall remain liable for all Blue Sky
counsel fees and expenses and filing fees. Notwithstanding any contrary
provision contained in this Agreement, any election hereunder or any termination
of this Agreement (including, without limitation, pursuant to Sections 6, 10, 11
and 12 hereof), and whether or not this Agreement is otherwise carried out, the
provisions of Section 5 and Section 7 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.
11. Substitution of the Underwriters. If one or more of the Underwriters
shall fail (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 6, Section 10 or Section 12
hereof) to purchase the Securities which it or they are obligated to purchase on
such date under this Agreement (the "Defaulted Securities"), the Representatives
shall have the right, within 24 hours thereafter, to make arrangement for one or
more of the non-defaulting Underwriters, or any other underwriters, to purchase
all, but not less than all, of the Defaulted Securities in such amounts as may
be agreed upon and upon the terms herein set forth; if, however, the
Representatives shall not have completed such arrangements within such 24-hour
period, then:
(i) if the number of Defaulted Securities does not exceed 10% of the
total number of Firm Shares to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(ii) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Shares, this Agreement shall terminate without liability on
the part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Representatives shall have the right to
postpone the Closing Date for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
12. Default by the Company. If the Company shall fail at the Closing Date
or at any Option Closing Date, as applicable, to sell and deliver the number of
Shares which it is obligated to sell hereunder on such date, then this Agreement
shall terminate (or, if such default shall occur with respect to any Option
Shares to be purchased on an Option Closing Date, the Underwriters may at the
Representatives' option, by notice from the Representatives to the Company,
terminate the Underwriters' obligation to purchase Option Shares from the
Company on such date) without any liability on the part of any non-defaulting
party other than pursuant to Section
34
<PAGE>
5, Section 7 and Section 10 hereof. No action taken pursuant to this Section
shall relieve the Company from liability, if any, in respect of such default.
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representatives: Gaines, Berland Inc. at 1055 Stewart Avenue, Bethpage, New York
11714, Attention: Joseph Berland, and Nolan Securities, Inc., 7 Academy Street,
Salisbury CT 06068, Attention: Bruce Kelly, with a copy to Orrick, Herrington &
Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103, Attention: Lawrence
B. Fisher, Esq. Notices to the Company shall be directed to the Company: 249
East Ocean Boulevard, Long Beach, California 90802, Attention: Woo Jin Kim,
Chief Executive Officer, with a copy to Graubard Mollen & Miller, 600 Third
Avenue, New York, NY 10016, Attention: David Miller, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and shall
be binding upon, the Underwriters, the Company, and the controlling persons,
directors and officers referred to in Section 7 hereof, 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 Agreement or any provisions herein contained. No
purchaser of Securities from any Underwriter shall be deemed to be a successor
by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement and the Representatives'
Warrant Agreement constitute the entire agreement of the parties hereto and
supersede all prior written or oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may not be amended
except in a writing, signed by the Representatives and the Company.
35
<PAGE>
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 among
us.
Very truly yours,
b2bstores.com Inc.
By:
------------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written.
GAINES, BERLAND INC.
For itself and as Representative
of the Several Underwriters Named
in Schedule A hereto
By:
-----------------------------------
Name:
Title:
NOLAN SECURITIES, INC.
For itself and as Representative
of the Several Underwriters Named
in Schedule A hereto
By:
-----------------------------------
Name:
Title:
36
<PAGE>
SCHEDULE A
Number of
Underwriter Shares
- --------------------------------------------------------------------------------
Gaines, Berland Inc.
Nolan Securities, Inc.
TOTAL 3,500,000
<PAGE>
CERTIFICATE OF INCORPORATION
OF
b2bstores.com Inc.
--------------------------------------
Pursuant to Section 102 of the
Delaware General Corporation Law
--------------------------------------
The undersigned, desiring to form a corporation pursuant to the
provisions of the General Corporation Law of the State of Delaware, hereby
certifies as follows:
FIRST: The name of the Corporation is b2bstores.com Inc.
SECOND: The registered office of the Corporation is to be located at 9
East Loockerman Street, in the County of Kent at Dover, Delaware. The name of
its registered agent at that address is National Corporate Research Ltd.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation is
authorized to issue is 30,000,000 shares, which are divided into two classes
consisting of (i) 25,000,000 shares of common stock, par value $.01 per share,
and (ii) 5,000,000 shares of preferred stock, par value $.01 per share, issuable
in series as may be provided from time to time by resolution of the Board of
Directors.
FIFTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(a) The number and classification of directors shall be
determined as set forth in the By-Laws of the Corporation.
<PAGE>
(b) Election of directors need not be by ballot unless the
by-laws of the Corporation so provide.
(c) The Board of Directors shall have the power, without the
assent or vote of the stockholders, to make, alter, amend, change, add to or
repeal the by-laws of the Corporation as provided in the by-laws of the
Corporation.
(d) The directors in their discretion may submit any contract
or act for approval or ratification at any annual meeting of the stockholders or
at any meeting of the stockholders called for the purpose of considering any
such act or contract, and any contract or act that shall be approved or be
ratified by the vote of the holders of a majority of the stock of the
Corporation which is represented in person or by proxy at such meeting and
entitled to vote thereat (provided that a lawful quorum of stockholders be there
represented in person or by proxy) shall be as valid and binding upon the
Corporation and upon all the stockholders as though it had been approved or
ratified by every stockholder of the Corporation, whether or not the contract or
act would otherwise be open to legal attack because of directors= interest, or
for any other reason.
(e) In addition to the powers and authorities hereinbefore or
by statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation; subject, nevertheless, to the provisions of the
statutes of Delaware, of this Certificate of Incorporation, and to any by-laws
from time to time made by the stockholders; provided, however, that no by-law so
made shall invalidate any prior act of the directors which would have been valid
if such by-law had not been made.
SIXTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director=s
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. Neither the amendment nor repeal of this Article
7, nor the adoption of any provision of this Certificate of Incorporation
inconsistent with this Article 7, shall eliminate or reduce the effect of this
Article 7 in respect of any matter occurring, or any cause of action, suit or
claim that, but for this Article 7, would accrue or arise prior to such
amendment, repeal or adoption of an inconsistent provision.
SEVENTH: The Corporation, to the full extent permitted by Section 145
of the General Corporation Law of the State of Delaware, as amended from time to
time, shall indemnify all persons whom it may indemnify pursuant thereto.
2
<PAGE>
EIGHTH: Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them and/or between
this Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
NINTH: The name and address of the sole incorporator of the
Corporation is:
Brian L. Ross, Esq.
Graubard Moller & Miller
630 Third Avenue
New York, New York 10016
IN WITNESS WHEREOF, I have signed this Certificate of
Incorporation this 28th day of June, 1999.
-----------------------------------
Brian L. Ross, Sole Incorporator
3
<PAGE>
BY-LAWS
OF
b2bstores.com Inc.
ARTICLE I
OFFICES
1.1 Registered Office: The registered office shall be
established and maintained at 9 East Loockerman Street, Kent County, Dover,
Delaware and National Corporate Research, Ltd. shall be the registered agent of
the corporation in charge thereof.
1.2 1.2 Other Offices: The corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II
STOCKHOLDERS
2.1 Place of Stockholders' Meetings. All meetings of the
stockholders of the corporation shall be held at such place or places, within or
outside the State of Delaware as may be fixed by the Board of Directors from
time to time or as shall be specified in the respective notices thereof.
2.2 Date and Hour of Annual Meetings of Stockholders. An
annual meeting of stockholders shall be held each year at such place, either
within or without the State of Delaware, and at such time and date as the Board
of Directors, by resolution, shall determine and as set forth in the notice of
the meeting. In the event the Board of Directors fails to so determine the time,
date and place of meeting, the annual meeting of stockholders shall be held at
the main headquarters of the corporation on a day in the month of March as shall
be determined by the Board of Directors. If the date of the annual meeting shall
fall upon a legal holiday, the meeting shall be held on the next succeeding
business day.
2.3 Purposes of Annual Meetings. At each annual meeting, the
stockholders shall elect the members of the Board of Directors for the
succeeding year. At any such annual meeting any further proper business may be
transacted.
2.4 Special Meetings of Stockholders. Special meetings of the
stockholders or of any class or series thereof entitled to vote may be called by
the Chairman of the Board or by the Board of Directors, or at the request in
writing by stockholders of record owning at least 40% of the issued and
outstanding shares of Common Stock of the corporation, which request shall state
the purpose of the proposed meeting, and may be held at such time and place,
within or without the State of Delaware, as shall be stated in the notice of
meeting.
2.5 Notice of Meetings of Stockholders. Except as otherwise
expressly required or permitted by law, not less than ten days nor more than
sixty days before the date of every stockholders' meeting the Secretary shall
give to each stockholder of record entitled to vote at such meeting, written
<PAGE>
notice, served personally, by mail or by telegram, stating the place, date and
hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called. Such notice, if mailed, shall be
deemed to be given when deposited in the United States mail, postage prepaid,
directed to the stockholder at his address for notices to such stockholder as it
appears on the records of the corporation.
2.6 Quorum of Stockholders.
(a) Unless otherwise provided by the
Certificate of Incorporation or by law, at any meeting of the stockholders, the
presence in person or by proxy of stockholders entitled to cast a majority of
the votes thereat shall constitute a quorum.
(b) At any meeting of the stockholders at which
a quorum shall be present, a majority of those present in person or by proxy may
adjourn the meeting from time to time without notice other than announcement at
the meeting. In the absence of a quorum, the officer presiding thereat shall
have power to adjourn the meeting from time to time until a quorum shall be
present. Notice of any adjourned meeting, other than announcement at the
meeting, shall not be required to be given, except as provided in paragraph (d)
below and except where expressly required by law.
(c) At any adjourned session at which a quorum
shall be present, any business may be transacted which might have been
transacted at the meeting originally called but only those stockholders entitled
to vote at the meeting as originally noticed shall be entitled to vote at any
adjournment or adjournments thereof, unless a new record date is fixed by the
Board of Directors.
(d) If an adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
2.7 Chairman and Secretary of Meeting. The Chairman of the
Board, or, in his absence, the President, shall preside at meetings of the
stockholders. The Secretary or, in his absence, an Assistant Secretary, shall
act as secretary of the meeting, or if neither is present, then the presiding
officer may appoint a person to act as secretary of the meeting.
2.8 Voting by Stockholders. Except as may be otherwise
provided by the Certificate of Incorporation or these by-laws, at every meeting
of the stockholders each stockholder shall be entitled to one vote for each
share of stock standing in his name on the books of the corporation on the
record date for the meeting. All elections and questions shall be decided by the
vote of a majority in interest of the stockholders present in person or
represented by proxy and entitled to vote at the meeting.
2.9 Proxies. Any stockholder entitled to vote at any meeting
of stockholders may vote either in person or by proxy. Every proxy shall be in
writing, subscribed by the stockholder or his duly authorized attorney-in-fact,
but need not be dated, sealed, witnessed or acknowledged.
2.10 Inspectors. The election of directors and any other vote
by ballot at any meeting of the stockholders shall be supervised by at least two
inspectors. Such inspectors shall be appointed by the Board of Directors in
advance of the meeting. If one or both inspectors so appointed shall refuse to
serve or shall not be present, such appointment shall be made by the officer
presiding at the meeting.
2
<PAGE>
2.11 List of Stockholders.
(a) At least ten days before every meeting of
stockholders the Secretary shall prepare and make a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder.
(b) During ordinary business hours, for a
period of at least ten days prior to the meeting, such list shall be open to
examination by any stockholder for any purpose germane to the meeting, either at
a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held.
(c) The list shall also be produced and kept
at the time and place of the meeting during the whole time of the meeting, and
it may be inspected by any stockholder who is present.
(d) The stock ledger shall be the only evidence
as to who are the stockholders entitled to examine the stock ledger, the list
required by this Section 2.11 or the books of the corporation, or to vote in
person or by proxy at any meeting of stockholders.
2.12 Procedure at Stockholders' Meetings. Except as otherwise
provided by these by-laws or any resolutions adopted by the stockholders or
Board of Directors, the order of business and all other matters of procedure at
every meeting of stockholders shall be determined by the presiding officer. Not
less than 15 minutes following the presentation of any resolution to any meeting
of stockholders, the presiding officer may announce that further discussion on
such resolution shall be limited to not more than three persons who favor and
not more than three persons who oppose such resolution, each of whom shall be
designated by the presiding officer and shall thereupon be entitled to speak
thereon for not more than five minutes. After such persons, or such a lesser
number thereof as shall advise the presiding officer of their desire so to
speak, shall have spoken on such resolution, the presiding officer may direct a
vote on such resolution without further discussion thereon at the meeting.
2.13 Action By Consent Without Meeting. Unless otherwise
provided by the Certificate of Incorporation, any action required to be taken at
any annual or special meeting of stockholders, or any action which may be taken
at any annual or special meeting, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
2.14 Stockholder Proposals. Proposals to be submitted for
consideration at any meeting of stockholders may be made by any stockholder that
would be entitled to vote on such proposal ("Stockholder's Proposal") is
delivered to the Board of Directors by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Corporation not later than 30
days in advance of such meeting; provided, however, that if less than 30 days'
notice of such meeting was provided to stockholders, then the Stockholder's
Proposal must be delivered not later than five days after such notice is given.
Each such notice shall set forth: (a) the name and address of the stockholder
making such proposal; (b) a representation that such stockholder is a holder of
record of stock of the Corporation entitled to vote at the meeting and intends
to appear in person or by proxy at the meeting to make the proposal specified in
the notice; (c) a description of the proposal and the reasons for making such
proposal; (d) a description of all arrangements, agreements and understandings
between such stockholder and any other person pursuant to which the proposal is
being made or relating to such stockholder's ability
3
<PAGE>
or obligation to vote his stock of the Corporation at the meeting; and (e) such
other information regarding the proposal as would be required tot be included in
a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission. The chairman of any meeting of stockholders and the Board
of Directors may refuse to acknowledge and consider any stockholder proposal not
made in compliance with the foregoing procedures.
ARTICLE III
DIRECTORS
3.1 Powers of Directors. The property, business and affairs of
the corporation shall be managed by its Board of Directors which may exercise
all the powers of the corporation except such as are by the law of the State of
Delaware or the Certificate of Incorporation or these by-laws required to be
exercised or done by the stockholders.
3.2 Number, Method of Election, Terms of Office of Directors.
The number of directors which shall constitute the Board of Directors shall be
between one and five, such number to be fixed by resolution of the Board of
Directors. Each Director shall hold office until the next annual meeting of
stockholders and until his successor is elected and qualified, provided,
however, that a director may resign at any time. Directors need not be
stockholders.
3.3 Vacancies on Board of Directors; Removal.
(a) Any director may resign his office at any
time by delivering his resignation in writing to the Chairman of the Board or
the Secretary. It will take effect at the time specified therein or, if no time
is specified, it will be effective at the time of its receipt by the
corporation. The acceptance of a resignation shall not be necessary to make it
effective, unless expressly so provided in the resignation.
(b) Any vacancy, or newly created directorship
resulting from any increase in the authorized number of directors, may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and any director so chosen shall hold office until
the next annual election of directors by the stockholders and until his
successor is duly elected and qualified or until his earlier resignation or
removal.
(c) Removal. Any director may be removed with
or without cause at any time by the affirmative vote of stockholders holding of
record in the aggregate at least a majority of the outstanding shares of stock
of the corporation, given at a special meeting of the stockholders called for
that purpose.
3.4 Meetings of the Board of Directors.
(a) The Board of Directors may hold their
meetings, both regular and special, either within or outside the State of
Delaware.
(b) Regular meetings of the Board of Directors
may be held at such time and place as shall from time to time be determined by
resolution of the Board of Directors. No notice of such
4
<PAGE>
regular meetings shall be required. If the date designated for any regular
meeting be a legal holiday, then the meeting shall be held on the next day which
is not a legal holiday.
(c) The first meeting of each newly elected
Board of Directors shall be held immediately following the annual
meeting of the stockholders for the election of officers and the
transaction of such other business as may come before it. If such meeting
is held at the place of the stockholders' meeting, no notice thereof shall be
required.
(d) Special meetings of the Board of Directors
shall be held whenever called by direction of the Chairman of the Board or at
the written request of a majority of the Board of Directors.
(e) The Secretary shall give notice to each
director of any special meeting of the Board of Directors by mailing the same
at least three days before the meeting or by telegraphing, telexing,
telefaxing, or delivering the same not later than the day before the meeting.
Unless required by law, such notice need not include a statement of the
business to be transacted at, or the purpose of, any such meeting. Any and all
business may be transacted at any meeting of the Board of Directors. No notice
of any adjourned meeting need be given. No notice to or waiver by any director
shall be required with respect to any meeting at which the director is present.
3.5 Quorum and Action. Unless provided otherwise by law or the
Certificate of Incorporation, a majority of the whole board shall constitute a
quorum for the transaction of business; but if there shall be less than a quorum
at any meeting of the Board, a majority of those present may adjourn the meeting
from time to time. The vote of a majority of the directors present at any
meeting at which a quorum is present shall be necessary to constitute the act of
the Board of Directors.
3.6 Presiding Officer and Secretary of Meeting. The Chairman
of the Board, or in his absence, Chief Executive Officer, or, in their absence a
member of the Board of Directors selected by the members present, shall preside
at meetings of the Board. The Secretary shall act as secretary of the meeting,
but in his absence the presiding officer may appoint a secretary of the meeting.
3.7 Action by Consent Without Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes or proceedings of the Board or committee.
3.8 Action by Telephonic Conference. Members of the Board of
Directors, or any committee designated by such board, may participate in a
meeting of such board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in such a meeting shall
constitute presence in person at such meeting.
3.9 Committees.
(a) The Board of Directors may, by resolution
or resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of two or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any such
meeting and not disqualified from voting, whether or not he or they
5
<PAGE>
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
(b) Any such committee, to the extent provided
in the resolution or resolution of the Board of Directors, or in these by-laws,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power of authority in reference
to amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the by-laws of the corporation; and unless the
resolution, these by-laws, or the Certificate of Incorporation expressly so
provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock.
3.10 Compensation of Directors. Directors shall receive such
reasonable compensation for their service on the Board of Directors or any
committees thereof, whether in the form of salary or a fixed fee for attendance
at meetings, or both, with expenses, if any, as the Board of Directors may from
time to time determine. Nothing herein contained shall be construed to preclude
any Director from serving the corporation in any other capacity and receiving
compensation therefor.
3.11 Contracts.
(a) No contract or other transaction between
this corporation and any other corporation shall be impaired, affected or
invalidated, nor shall any director be liable in any way by reason of the fact
that any one or more of the directors of this corporation is or are interested
in, or is a director or officer, or are directors or officers of such other
corporation, provided that such facts are disclosed or made known to the Board
of Directors.
(b) Any director, personally and individually,
may be a party to or may be interested in any contract or transaction of this
corporation, and no director shall be liable in any way by reason of such
interest, provided that the fact of such interest be disclosed or made known to
the Board of Directors, and provided that the Board of Directors shall
authorize, approve or ratify such contract or transaction by the vote (not
counting the vote of any such director) of a majority of a quorum,
notwithstanding the presence of any such director at the meeting at which such
action is taken. Such director or directors may be counted in determining the
presence of a quorum at such meeting. This Section shall not be construed to
impair or invalidate or in any way affect any contract or other transaction
which would otherwise be valid under the law (common, statutory or otherwise)
applicable thereto.
ARTICLE IV
OFFICERS
4.1 Officers, Title, Elections, Terms.
(a) The elected officers of the corporation
shall be a Chairman of the Board, Chief Executive Officer, a President, one or
more Vice Presidents, a Treasurer and a Secretary, who shall be elected by the
Board of Directors at its annual meeting following the annual meeting of the
6
<PAGE>
stockholders, to serve at the pleasure of the Board or otherwise as shall be
specified by the Board at the time of such election and until their successors
are elected and qualify.
(b) The Board of Directors may elect or
appoint at any time, and from time to time, additional officers or agents with
such duties as it may deem necessary or desirable. Such additional officers
shall serve at the pleasure of the Board or otherwise as shall be specified by
the Board at the time of such election or appointment. Two or more offices may
be held by the same person.
(c) Any vacancy in any office may be filled
for the unexpired portion of the term by the Board of Directors.
(d) Any officer may resign his office at
any time. Such resignation shall be made in writing and shall take effect at the
time specified therein or, if no time be specified, at the time of its receipt
by the corporation. The acceptance of a resignation shall not be necessary to
make it effective, unless expressly so provided in the resignation.
(e) The salaries of all officers of the
corporation shall be fixed by the Board of Directors.
4.2 Removal of Elected Officers. Any elected officer may be
removed at any time, either with or without cause, by resolution adopted at any
regular or special meeting of the Board of Directors by a majority of the
directors then in office.
4.3 Duties.
(a) Chairman of the Board. The Chairman of
the Board shall be the chief executive officer of the corporation. The Chairman
of the Board of Directors shall supervise and control the overall business and
affairs of the corporation and he or she shall have and perform such other
duties as from time to time may be assigned to him by the Board of Directors.
(b) Chief Executive Officer. The Chief
Executive Officer shall be the principal executive officer of the Corporation
and, subject to the control of the Chairman of the Board and the Board of
Directors, shall supervise and control all the business and affairs of the
Corporation. He shall see that all orders and resolutions of the Board of
Directors are carried into effect (unless any such order or resolution shall
provide otherwise), and in general shall perform all duties incident to the
office of chief executive officer and such other duties as may be prescribed by
the Chairman of the Board and the Board of Directors from time to time.
(c) President. The President shall report to
the Chairman of the Board and the Chief Executive Officer. The President,
subject to the control of the Chairman of the Board and the Board of Directors,
shall supervise and control all the business and affairs of the Corporation. He
shall see that all orders and resolutions of the Board of Directors are carried
into effect (unless any such order or resolution shall provide otherwise), and
in general shall perform all duties incident to the office of president and such
other duties as may be prescribed by the Board of Directors from time to time.
(d) Vice President. Each Vice President,
if any, shall have such powers and perform such duties as the Board of Directors
may determine or as may be assigned to him by the Chairman of the Board or the
Chief Executive Officer. In the absence of the President or in the event of his
death, or inability or refusal to act, the Vice President (or in the event there
be more than one Vice President, the Vice Presidents in the order designated at
the time of their election, or in the absence of any designation, then in the
order of their election) shall perform the duties of the President, if and when
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so directed by the Chairman of the Board or the Chief Executive Officer or the
Board of Directors, and when so acting, shall have all the powers and be subject
to all the restrictions upon the President.
(e) Treasurer. The Treasurer shall (1) have
charge and custody of and be responsible for all funds and securities of the
Corporation; (2) receive and give receipts for moneys due and payable to the
Corporation from any source whatsoever; (3) deposit all such moneys in the name
of the Corporation in such banks, trust companies, or other depositaries as
shall be selected by resolution of the Board of Directors; and (4) in general
perform all duties incident to the office of treasurer and such other duties as
from time to time may be assigned to him by the Chairman of the Board, Chief
Executive Officer or by the Board of Directors. He shall, if required by the
Board of Directors, give a bond for the faithful discharge of his duties in such
sum and with such surety or sureties as the Board of Directors shall determine.
(f) Secretary. The Secretary shall (1) keep
the minutes of the meetings of the stockholders, the Board of Directors, the
Executive Committee (if designated), and all other committees, if any, of which
a secretary shall not have been appointed, in one or more books provided for
that purpose; (2) see that all notices are duly given in accordance with the
provisions of these by-laws and as required by law; (3) be custodian of the
corporate records and of the seal of the Corporation and see that the seal of
the Corporation is affixed to all documents, the execution of which on behalf of
the Corporation under its seal, is duly authorized; (4) keep a register of the
post office address of each stockholder which shall be furnished to the
Secretary by such stockholder; (5) have general charge of stock transfer books
of the Corporation; and (6) in general perform all duties incident to the office
of secretary and such other duties as from time to time may be assigned to him
by the Chairman of the Board, Chief Executive Officer or by the Board of
Directors.
(g) Assistant Secretaries and Assistant
Treasurers. At the request of the Secretary or in his absence or disability, one
or more Assistant Secretaries designated by him or by the Board of Directors
shall have all the powers of the Secretary for such period as he or it may
designate or until he or it revokes such designation. At the request of the
Treasurer or in his absence or disability, one or more Assistant Treasurers
designated by him or by the Board of Directors shall have all the powers of the
Treasurer for such period as he or it may designate or until he or it revokes
such designation. The Assistant Secretaries and Assistant Treasurers, in
general, shall perform such duties as shall be assigned to them by the Secretary
or the Treasurer, respectively, or by the Chairman of the Board, Chief Executive
Officer or the Board of Directors.
ARTICLE V
CAPITAL STOCK
5.1 Stock Certificates.
(a) Every holder of stock in the corporation
shall be entitled to have a certi ficate signed by, or in the name of, the
corporation by the Chairman, Chief Executive Officer, President or a Vice
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, certifying the number of shares owned by him.
(b) If such certificate is countersigned by a
transfer agent other than the corporation or its employee, or by a registrar
other than the corporation or its employee, the signatures of the officers of
the corporation may be facsimiles, and, if permitted by law, any other signature
may be a facsimile.
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(c) In case any officer who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer at the date of
issue.
(d) Certificates of stock shall be issued in
such form not inconsistent with the Certificate of Incorporation as shall be
approved by the Board of Directors. They shall be numbered and registered in the
order in which they are issued.
(e) All certificates surrendered to the
corporation shall be canceled with the date of cancellation, and shall be
retained by the Secretary, together with the powers of attorney to transfer and
the assignments of the shares represented by such certificates, for such period
of time as shall be prescribed from time to time by resolution of the Board of
Directors.
5.2 Record Ownership. A record of the name and address of the
holder of each certificate, the number of shares represented thereby and the
date of issue thereof shall be made on the corporation's books. The corporation
shall be entitled to treat the holder of any share of stock as the holder in
fact thereof, and accordingly shall not be bound to recognize any equitable or
other claim to or interest in any share on the part of any other person, whether
or not it shall have express or other notice thereof, except as required by law.
5.3 Transfer of Record Ownership. Transfers of stock shall be
made on the books of the corporation only by direction of the person named in
the certificate or his attorney, lawfully constituted in writing, and only upon
the surrender of the certificate therefor and a written assignment of the shares
evidenced thereby. Whenever any transfer of stock shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of the
transfer if, when the certificates are presented to the corporation for
transfer, both the transferror and transferee request the corporation to do so.
5.4 Lost, Stolen or Destroyed Certificates. Certificates
representing shares of the stock of the corporation shall be issued in place of
any certificate alleged to have been lost, stolen or destroyed in such manner
and on such terms and conditions as the Board of Directors from time to time may
authorize.
5.5 Transfer Agent; Registrar; Rules Respecting Certificates.
The corporation may maintain one or more transfer offices or agencies where
stock of the corporation shall be transferable. The corporation may also
maintain one or more registry offices where such stock shall be registered. The
Board of Directors may make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of stock certificates.
5.6 Fixing Record Date for Determination of Stockholders of
Record. The Board of Directors may fix, in advance, a date as the record date
for the purpose of determining stockholders entitled to notice of, or to vote
at, any meeting of the stockholders or any adjournment thereof, or the
stockholders entitled to receive payment of any dividend or other distribution
or the allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or to express consent to corporate
action in writing without a meeting, or in order to make a determination of the
stockholders for the purpose of any other lawful action. Such record date in any
case shall be not more than sixty days nor less than ten days before the date of
a meeting of the stockholders, nor more than sixty days prior to any other
action requiring such determination of the stockholders. A determination of
stockholders of record entitled to notice or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
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5.7 Dividends. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the Board of Directors from time to time in
their discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
Board of Directors shall deem conducive to the interests of the corporation.
ARTICLE VI
SECURITIES HELD BY THE CORPORATION
6.1 Voting. Unless the Board of Directors shall otherwise
order, the Chairman of the Board shall have full power and authority, on behalf
of the corporation, to attend, act and vote at any meeting of the stockholders
of any corporation in which the corporation may hold stock, and at such meeting
to exercise any or all rights and powers incident to the ownership of such
stock, and to execute on behalf of the corporation a proxy or proxies empowering
another or others to act as aforesaid. The Board of Directors from time to time
may confer like powers upon any other person or persons.
6.2 General Authorization to Transfer Securities Held by
the Corporation.
(a) The Chairman of the Board is authorized
and empowered to transfer, convert, endorse, sell, assign, set over and deliver
any and all shares of stock, bonds, debentures, notes, subscription warrants,
stock purchase warrants, evidence of indebtedness, or other securities now or
hereafter standing in the name of or owned by the corporation, and to make,
execute and deliver, under the seal of the corporation, any and all written
instruments of assignment and transfer necessary or proper to effectuate the
authority hereby conferred.
(b) Whenever there shall be annexed to any
instrument of assignment and transfer executed pursuant to and in accordance
with the foregoing paragraph (a), a certificate of the Secretary of the
corporation in office at the date of such certificate setting forth the
provisions of this Section 6.2 and stating that they are in full force and
effect and setting forth the names of persons who are then officers of the
corporation, then all persons to whom such instrument and annexed certificate
shall thereafter come, shall be entitled, without further inquiry or
investigation and regardless of the date of such certificate, to assume and to
act in reliance upon the assumption that the shares of stock or other securities
named in such instrument were theretofore duly and properly transferred,
endorsed, sold, assigned, set over and delivered by the corporation, and that
with respect to such securities the authority of these provisions of the by-laws
and of such officers is still in full force and effect.
ARTICLE VII
MISCELLANEOUS
7.1 Signatories. 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 such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
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7.2 Seal. The seal of the corporation shall be in such form
and shall have such content as the Board of Directors shall from time to time
determine.
7.3 Notice and Waiver of Notice. Whenever any notice of the
time, place or purpose of any meeting of the stockholders, directors or a
committee is required to be given under the law of the State of Delaware, the
Certificate of Incorporation or these by-laws, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or after
the holding thereof, or actual attendance at the meeting in person or, in the
case of any stockholder, by his attorney-in-fact, shall be deemed equivalent to
the giving of such notice to such persons.
7.4 Amendment of By-Laws.
(a) By Board of Directors. The by-laws of the
corporation may be altered, amended or repealed or new by-laws may be made or
adopted by the Board of Directors at any regular or special meeting of the
Board; provided that Section 3.3 and Section 7.4(b) of these By-Laws may be
altered, amended or repealed only by action of the stockholders acting pursuant
to Section 7.4(b) hereof.
(b) By Stockholders. The by-laws of the
corporation may also be altered, amended or repealed or new by-laws may be made
or adopted by the vote of a majority in interest of the stockholders represented
and entitled to vote upon the election of directors, at any meeting at which a
quorum is present.
(c) Indemnity. The corporation shall indemnify
its directors, officers, employees or agents to the fullest extent allowed by
law.
7.5 Fiscal Year. Except as from time to time otherwise
determined by the Board of Directors, the fiscal year of the corporation shall
end on December 31.
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[FORM OF REPRESENTATIVES' WARRANT AGREEMENT[
[SUBJECT TO ADDITIONAL REVIEW]
- --------------------------------------------------------------------------------
b2bstores.com Inc.
AND
GAINES, BERLAND INC.
AND
NOLAN SECURITIES, INC.
REPRESENTATIVES'
WARRANT AGREEMENT
Dated as of [______________], 1999
- --------------------------------------------------------------------------------
<PAGE>
REPRESENTATIVES' WARRANT AGREEMENT dated as of [______________],
1999 by and between b2bstores.com Inc., a Delaware corporation (the "Company"),
and GAINES, BERLAND INC. and NOLAN SECURITIES, INC. (hereinafter referred to as
the "Holders" or the "Representatives").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representatives or
their designees warrants ("Warrants") to purchase up to an aggregate 350,000
shares of common stock, par value $.01 per share, of the Company ("Common
Stock"); and
WHEREAS, the Representatives have agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof between Gaines, Berland Inc. and Nolan Securities, Inc., as the
Representatives of the several Underwriters named in Schedule A thereto, and the
Company to act as the Representatives in connection with the Company's proposed
public offering of up to 350,000 shares of Common Stock at a public offering
price of $10.00 per share of Common Stock (the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement will
be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representatives in consideration for, and as
part of the Representatives' compensation in connection with, the
Representatives acting as the Representatives pursuant to the Underwriting
Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by the
Representatives to the Company of an aggregate of thirty-five dollars ($35.00)
the agreements herein set forth and other good and valuable consideration,
hereby acknowledged, the parties hereto agree as follows:
<PAGE>
SECTION 1. Grant. The Representatives are hereby granted the right
to purchase, at any time from [___________], 2000 [one year from the effective
date of the registration statement], until 5:30 P.M., New York time, on
[______________], 2004 [five years from the effective date of the registration
statement], up to an aggregate of 350,000 shares of Common Stock (the "Shares")
at an initial exercise price (subject to adjustment as provided in Section 8
hereof) of $[_____] per share [120% of the public offering price per share] of
Common Stock subject to the terms and conditions of this Agreement. Except as
set forth herein, the Shares issuable upon exercise of the Warrants are in all
respects identical to the shares of Common Stock being purchased by the
Underwriters for resale to the public pursuant to the terms and provisions of
the Underwriting Agreement.
SECTION 2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A, attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
SECTION 3. Exercise of Warrant.
Section 3.1 Method of Exercise. The Warrants initially are
exercisable at an aggregate initial exercise price (subject to adjustment as
provided in Section 8 hereof) per share of Common Stock set forth in Section 6
hereof payable by certified or official bank check in New York Clearing House
funds. Upon surrender of a Warrant Certificate with the annexed Form of Election
to Purchase duly executed, together with payment of the Exercise Price (as
hereinafter defined) for the shares of Common Stock purchased at the Company's
principal offices in Long Beach, California (presently located at 249 East Ocean
Boulevard, Long Beach, California 90802) the registered holder of a Warrant
Certificate ("Holder" or "Holders") shall be entitled to receive a certificate
or certificates for the shares of Common Stock so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holder thereof, in whole or in part (but not as to fractional shares of the
Common Stock
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underlying the Warrants). Warrants may be exercised to purchase all or part of
the shares of Common Stock represented thereby. In the case of the purchase of
less than all the shares of Common Stock purchasable under any Warrant
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the shares of Common Stock purchasable thereunder.
Section 3.2 Exercise by Surrender of Warrant. In addition to
the method of payment set forth in Section 3.1 and in lieu of any cash payment
required thereunder, the Holders of the Warrants shall have the right at any
time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1 in
exchange for the number of Shares equal to the product of (x) the number of
Shares as to which the Warrants are being exercised multiplied by (y) a
fraction, the numerator of which is the Market Price (as defined in Section 3.3
below) of the Shares less the Exercise Price and the denominator of which is
such Market Price. Solely for the purposes of this paragraph, Market Price shall
be calculated either (i) on the date which the form of election attached hereto
is deemed to have been sent to the Company pursuant to Section 13 hereof
("Notice Date") or (ii) as the average of the Market Prices for each of the five
trading days preceding the Notice Date, whichever of (i) or (ii) is greater.
Section 3.3 Definition of Market Price. As used herein, the
phrase "Market Price" at any date shall be deemed to be the last reported sale
price, or, in case no such reported sale takes place on such day, the average of
the last reported sale prices for the last three (3) trading days, in either
case as officially reported by the principal securities exchange on which the
Common Stock is listed or admitted to trading or by the Nasdaq National Market
or Nasdaq SmallCap Market (as the case may be "Nasdaq"), or, if the Common Stock
is not listed or admitted to trading on any national securities exchange or
quoted by Nasdaq, the average closing bid price as furnished by the NASD through
Nasdaq or similar organization if Nasdaq is no longer reporting such
information, or if the Common Stock is not quoted on Nasdaq, as
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determined in good faith by resolution of the Board of Directors of the Company,
based on the best information available to it.
SECTION 4. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates for shares of Common Stock and/or other
securities, properties or rights underlying such Warrants, shall be made
forthwith (and in any event within five (5) business days thereafter) without
charge to the Holders thereof including, without limitation, any tax which may
be payable in respect of the issuance thereof, and such certificates shall
(subject to the provisions of Sections 5 and 7 hereof) be issued in the name of,
or in such names as may be directed by, the Holders thereof; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificates in a name other than that of the Holders, and the Company shall not
be required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
The Warrant Certificates and the certificates representing the
Shares underlying the Warrants (and/or other securities, property or rights
issuable upon the exercise of the Warrants) shall be executed on behalf of the
Company by the manual or facsimile signature of the then Chairman or Vice
Chairman of the Board of Directors or President or Vice President of the
Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
SECTION 5. Restriction On Transfer of Warrants. The Holders of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof; that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for
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a period of one (1) year from the date hereof, except to officers or partners of
members of the selling group.
SECTION 6. Exercise Price.
Section 6.1 Initial and Adjusted Exercise Price. Except as
otherwise provided in Section 8 hereof, the initial exercise price of each
Warrant shall be $[____] per share [120% of the public offering price per share]
of Common Stock. The adjusted exercise price shall be the price which shall
result from time to time from any and all adjustments of the initial exercise
price in accordance with the provisions of Section 8 hereof.
Section 6.2 Exercise Price. The term "Exercise Price" herein
shall mean the initial exercise price or the adjusted exercise price, depending
upon the context.
SECTION 7. Registration Rights.
Section 7.1 Registration Under the Securities Act of 1933. The
Warrants, the Shares, and any other securities issuable upon exercise of the
Warrants have been registered under the Securities Act of 1933, as amended (the
"Act"), pursuant to the Company's Registration Statement on Form SB-2
(Registration No. [_________]) (the "Registration Statement"). All of the
representations and warranties of the Company contained in the Underwriting
Agreement relating to the Registration Statement, the Preliminary Prospectus and
Prospectus (as such terms are defined in the Underwriting Agreement) and made as
of the dates provided therein, are hereby incorporated by reference. The Company
agrees and covenants promptly to file post effective amendments to such
Registration Statement as may be necessary to maintain the effectiveness of the
Registration Statement as long as any Warrants are outstanding. In the event
that, for any reason, whatsoever, the Company shall fail to maintain the
effectiveness of the Registration Statement, upon exercise, in part or in whole,
of the Warrants, certificates representing the Shares underlying the Warrants,
and any of the other securities
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<PAGE>
issuable upon exercise of the Warrants (collectively, the "Warrant Securities")
shall bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act"), and may not be offered or sold except pursuant to (i)
an effective registration statement under the Act, (ii) to the
extent applicable, Rule 144 under the Act (or any similar rule
under such Act relating to the disposition of securities), or
(iii) an opinion of counsel, if such opinion shall be
reasonably satisfactory to counsel to the issuer, that an
exemption from registration under such Act is available.
Section 7.2 Piggyback Registration. If, at any time commencing
after the date hereof and expiring five (5) years from the date hereof, the
Company proposes to register any of its securities under the Act (other than in
connection with a merger or pursuant to Forms S-4 or S-8) it will give written
notice by registered mail, at least thirty (30) days prior to the filing of each
such registration statement, to the Representatives and to all other Holders of
the Warrants and/or the Warrant Securities of its intention to do so. If the
Representatives or other Holders of the Warrants and/or Warrant Securities
notify the Company within twenty (20) days after receipt of any such notice of
its or their desire to include any such securities in such proposed registration
statement, the Company shall afford the Representatives and such Holders of the
Warrants and/or Warrant Securities the opportunity to have any such Warrant
Securities registered under such registration statement (sometimes referred to
herein as the "Piggyback Registration").
Notwithstanding the provisions of this Section 7.2, the Company
shall have the right at any time after it shall have given written notice
pursuant to this Section 7.2 (irrespective of whether a written request for
inclusion of any such securities shall have been made) to elect not to file any
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date thereof.
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Section 7.3 Demand Registration.
(a) At any time commencing after the date hereof and expiring
five (5) years from the effective date of the Public Offering, the Holders of
the Warrants and/or Warrant Securities representing a "Majority" (as hereinafter
defined) of such securities (assuming the exercise of all of the Warrants) shall
have the right (which right is in addition to the registration rights under
Section 7.2 hereof), exercisable by written notice to the Company, to have the
Company prepare and file with the Securities and Exchange Commission (the
"Commission"), on one occasion, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for the Representatives and Holders, in
order to comply with the provisions of the Act, so as to permit a public
offering and sale of their respective Warrant Securities for nine (9)
consecutive months by such Holders and any other Holders of the Warrants and/or
Warrant Securities who notify the Company within ten (10) days after receiving
notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
Section 7.4 Covenants of the Company With Respect to
Registration. In connection with any registration under Section 7.2 or 7.3
hereof, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within forty-five (45) days of receipt of any demand
therefor, shall use its best efforts to have any registration statements
declared effective at the earliest possible time, and shall furnish each Holder
desiring to sell Warrant Securities such number of prospectuses as shall
reasonably be requested.
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<PAGE>
(b) The Company shall pay all costs (excluding fees and
expenses of Holders' counsel and any underwriting or selling commissions), fees
and expenses in connection with all registration statements filed pursuant to
Section 7.2 and 7.3 hereof including, without limitation, the Company's legal
and accounting fees, printing expenses and blue sky fees and expenses. If the
Company shall fail to comply with the provisions of Section 7.4, the Company
shall, in addition to any other equitable or other relief available to the
Holders, be liable for any or all incidental or special damages sustained by the
Holders requesting registration of their Warrant Securities.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holders, provided that
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(d) The Company shall indemnify the Holders of the Warrant
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or 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 each of the Underwriters contained in Section 7
of the Underwriting Agreement.
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(e) The Holders of the Warrant Securities to be sold pursuant
to a registration statement, and their successors and assigns, shall severally,
and not jointly, indemnify the Company, its officers and directors and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, against all loss, claim, damage or
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 7 of the
Underwriting Agreement pursuant to which the Underwriters have agreed to
indemnify the Company.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holders to exercise their Warrants prior to the initial filing of
any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any registration
statement filed pursuant to Section 7.3 hereof, or permit any other registration
statement to be or remain effective during the effectiveness of a registration
statement filed pursuant to Section 7.3 hereof, without the prior written
consent of the Holders of the Warrants and Warrant Securities representing a
Majority of such securities.
(h) The Company shall furnish to each Holder participating in
the offering and to each underwriter, 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 the underwriting agreement), and (ii) a "cold
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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.
(i) The Company shall, as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement. The Company shall deliver promptly to each Holder
participating in the offering and to the managing underwriters, copies of all
correspondence between the Commission and the Company, its counsel or auditors
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 National Association of Securities Dealers, Inc. ("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 or underwriter shall reasonably request.
(j) The Company shall enter into an underwriting agreement
with the managing underwriters selected for such underwriting by Holders holding
a Majority of the
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Warrant Securities requested to be included in such underwriting, which may be
either of the Representatives or both Representatives. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriter(s), 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(s). The Holders shall be parties
to any underwriting agreement relating to an underwritten sale of their Warrant
Securities 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 underwriter(s) 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 underwriter(s) except as are
customarily made by selling securityholders in underwritten offerings.
(k) In addition to the Warrant Securities, upon the written
request therefor by any Holders, the Company shall include in the registration
statement any other securities of the Company held by such Holders as of the
date of filing of such registration statement, including without limitation
restricted shares of Common Stock, options, warrants or any other securities
convertible into shares of Common Stock.
(l) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrants or Warrant Securities, shall mean in excess
of fifty percent (50%) of the then outstanding Warrants or Warrant Securities
that (i) are not held by the Company, an affiliate, officer, creditor, employee
or agent thereof or any of their respective affiliates, members of their family,
persons acting as nominees or in conjunction therewith and (ii) have not been
resold to the public pursuant to a registration statement filed with the
Commission under the Act or pursuant to Rule 144.
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SECTION 8. Adjustments to Exercise Price and Number of Securities.
Section 8.1 Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding shares of Common Stock,
the Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
Section 8.2 Stock Dividends and Distributions. In case the
Company shall pay a dividend in, or make a distribution of, shares of Common
Stock or of the Company's capital stock convertible into Common Stock, the
Exercise Price shall forthwith be proportionately decreased. An adjustment made
pursuant to this Section 8.2 shall be made as of the record date for the subject
stock dividend or distribution.
Section 8.3 Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section 8,
the number of Warrant Securities issuable upon the exercise at the adjusted
exercise price of each Warrant shall be adjusted to the nearest whole number by
multiplying a number equal to the Exercise Price in effect immediately prior to
such adjustment by the number of Warrant Securities issuable upon exercise of
the Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
Section 8.4 Definition of Common Stock. For the purpose of
this Agreement, the term "Common Stock" shall mean (i) the class of stock
designated as Common Stock in the Certificate of Incorporation of the Company as
may be amended as of the date hereof, or (ii) any other class of stock resulting
from successive changes or reclassifications of such Common Stock consisting
solely of changes in par value, or from par value to no par value, or from no
par value to par value.
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Section 8.5 Merger or Consolidation. In case of any
consolidation of the Company with, or merger of the Company with, or merger of
the Company into, another corporation (other than a consolidation or merger
which does not result in any reclassification or change of the outstanding
Common Stock), the corporation formed by such consolidation or merger shall
execute and deliver to the Holders a supplemental warrant agreement providing
that the holder of each Warrant then outstanding or to be outstanding shall have
the right thereafter (until the expiration of such Warrant) to receive, upon
exercise of such Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation or merger, by a
holder of the number of shares of Common Stock of the Company for which such
Warrant might have been exercised immediately prior to such consolidation,
merger, sale or transfer. Such supplemental warrant agreement shall provide for
adjustments which shall be identical to the adjustments provided in this Section
8. The above provision of this subsection shall similarly apply to successive
consolidations or mergers.
Section 8.6 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the Exercise Price shall be made:
Upon the issuance or sale of the Warrants or the shares
of Common Stock issuable upon the exercise of the Warrants;
If the amount of said adjustment shall be less than two
cents (2(cent)) per Warrant Security, provided, however, that in
such case any adjustment that would otherwise be required then to be
made shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which, together with
any adjustment so carried forward, shall amount to at least two
cents (2(cent)) per Warrant Security.
SECTION 9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the
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registered Holders at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holders thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of any Warrant Certificate,
and, in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
SECTION 10. Elimination of Fractional Interests. The Company shall
not be required to issue certificates representing fractions of shares of Common
Stock upon the exercise of the Warrants, nor shall it be required to issue scrip
or pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock or other securities,
properties or rights.
SECTION 11. Reservation and Listing of Securities. 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 the exercise of the Warrants,
such number of shares of Common Stock or other securities, properties or rights
as shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all shares of Common Stock and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any stockholder. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Warrants to be
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listed (subject to official notice of issuance) on all securities exchanges on
which the Common Stock issued to the public in connection herewith may then be
listed and/or quoted.
SECTION 12. Notices to Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(i) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive
a dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
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 as
an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) 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,
15
<PAGE>
convertible or exchangeable 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 closing the transfer books, as the
case may be. Failure to give such notice or any defect therein shall not affect
the validity of any action taken in connection with the declaration or payment
of any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
SECTION 13. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made and sent when
delivered, or mailed by registered or certified mail, return receipt requested:
(i) If to the registered Holders of the Warrants, to the
address of such Holders as shown on the books of the Company; or
(ii) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by
notice to the Holders.
SECTION 14. Supplements and Amendments. The Company and the
Representatives may from time to time supplement or amend this Agreement without
the approval of any Holders of Warrant Certificates (other than the
Representatives) in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Representatives may deem
necessary or desirable and which the Company and the Representatives deem shall
not adversely affect the interests of the Holders of Warrant Certificates.
16
<PAGE>
SECTION 15. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
SECTION 16. Termination. This Agreement shall terminate at the close
of business on _____________, 2005. Notwithstanding the foregoing, the
indemnification provisions of Section 7 shall survive such termination until the
close of business on ______________, 2011.
SECTION 17. Governing Law; Submission to Jurisdiction. This
Agreement and each Warrant Certificate issued hereunder shall be deemed to be a
contract made under the laws of the State of New York and for all purposes shall
be construed in accordance with the laws of said State without giving effect to
the rules of said State governing the conflicts of laws.
The Company, the Representatives and the Holders hereby agree 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 New York or of the United States of America for the Southern District of New
York, and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Representatives and the Holders hereby irrevocably
waive any objection to such exclusive jurisdiction or inconvenient forum. Any
such process or summons to be served upon any of the Company, the
Representatives and the Holders (at the option of the party bringing such
action, proceeding or claim) 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 13 hereof. Such mailing
shall be deemed personal service and shall be legal and binding upon the party
so served in any action, proceeding or claim. The Company, the Representatives
and the Holders agree that the prevailing party(ies) in any such action or
proceeding shall be entitled to recover from the other
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<PAGE>
party(ies) all of its/their reasonable legal costs and expenses relating to such
action or proceeding and/or incurred in connection with the preparation
therefor.
SECTION 18. Entire Agreement; Modification. This Agreement
(including the Underwriting Agreement to the extent portions thereof are
referred to herein) contains the entire understanding between the parties hereto
with respect to the subject matter hereof and may not be modified or amended
except by a writing duly signed by the party against whom enforcement of the
modification or amendment is sought.
SECTION 19. Severability. If any provision of this Agreement shall
be held to be invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provision of this Agreement.
SECTION 20. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
SECTION 21. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Representatives and any other registered Holders of the Warrant
Certificates or Warrant Securities any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole benefit of the
Company and the Representatives and any other registered Holders of Warrant
Certificates or Warrant Securities.
SECTION 22. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and such counterparts shall together constitute but
one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
b2bstores.com Inc.
By:
-------------------------------------
Name:
Title:
Attest:
--------------------
GAINES, BERLAND INC.
By:
-------------------------------------
Name:
Title:
NOLAN SECURITIES, INC.
By:
-------------------------------------
Name:
Title:
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<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii)
AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, ______________, 2004
No. W-___ Warrants to Purchase ____ Shares of Common Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that ________, or registered
assigns, is the registered holder of ________Warrants to purchase initially, at
any time from ___________, 2000 [one year from the effective date of the
Registration Statement] until 5:30 p.m. New York time on ____________, 2004
[five years from the effective date of the Registration Statement] ("Expiration
Date"), up to __________ fully-paid and non-assessable shares of common stock,
("Common Stock") of b2bstores.com Inc., a Delaware corporation (the "Company"),
(one share of Common Stock referred to individually as a "Security" and
collectively as the "Securities") at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $____ per share [120% of
the initial public offering price per share] of Common Stock upon surrender of
this Warrant Certificate and payment of the Exercise Price at an office or
agency of the Company, but subject to the conditions set forth herein and in the
warrant agreement dated as of ______________, 1999 between the Company and
GAINES, BERLAND INC. and NOLAN SECURITIES, INC. (the "Warrant Agreement").
Payment of the Exercise Price shall be made by certified or official bank check
in New York Clearing House funds payable to the order of the Company.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
<PAGE>
The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the Holders (the words "holder" or "Holders" meaning the registered
holder or registered Holders) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered Holders hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the Holders hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed under its corporate seal.
Dated as of ___________, 1999
b2bstores.com Inc.
By:
-------------------------------------
Name:
Title:
[SEAL]
Attest:
-------------------------
Secretary
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<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
_______ shares of Common Stock;
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of b2bstores.com
Inc. in the amount of $____, all in accordance with the terms of Section 3.1 of
the Representatives' Warrant Agreement dated as of ______________, 1999 between
b2bstores.com Inc. and Gaines, Berland Inc. and Nolan Securities, Inc. The
undersigned requests that a certificate for such securities be registered in the
name of _________ whose address is ________ and that such Certificate be
delivered to _________ whose address is _________.
Dated:
Signature
-----------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
--------------------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
__________ shares of Common Stock;
and herewith tenders in payment for such securities ________ Warrants all in
accordance with the terms of Section 3.2 of the Representatives' Warrant
Agreement dated as of ___________, 1999 between b2bstores.com Inc. and Gaines,
Berland Inc. and Nolan Securities, Inc. The undersigned requests that a
certificate for such securities be registered in the name of __________whose
address is __________ and that such Certificate be delivered to _________ whose
address is ________________.
Dated:
Signature
-----------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
--------------------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED __________ hereby sells, assigns and transfers
unto
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney,
to transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated:
---------------
Signature:
-----------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
--------------------------------------------------
(Insert Social Security or Other Identifying
Number of Assignee)
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT dated July 30, 1999 between WOO JIN KIM, residing at
3813 North Studebaker Road, Long Beach, California 90808 ("Executive"), and
B2BSTORES.COM INC., a Delaware corporation having its principal office at 211
Park Avenue, Hicksville, New York 11801 ("Company").
WHEREAS, Executive possesses expertise in the areas of
e-commerce, web design and related technologies;
WHEREAS, the Company desires to avail itself of Executive's
expertise; and
WHEREAS, the Company desires to employ Executive, and
Executive desires to be employed by Company, commencing August 1, 1999 (the
"Start Date"), on the terms set forth in this Agreement.
IT IS AGREED:
1. Employment, Duties and Acceptance.
1.1 Commencing on the Start Date, the Company shall employ
Executive as its Chief Executive Officer ("CEO"). All of Executive's powers and
authority in any capacity shall at all times be subject to the direction and
control of the Company's Board of Directors. Executive shall report directly to
the Chairman of the Board ("Chairman").
1.2 The Board and the Chairman may assign to Executive such
general management and supervisory responsibilities and executive duties for the
Company or any subsidiary of the Company as are consistent with Executive's
status as CEO. The Company and Executive acknowledge that Executive's primary
functions and duties as CEO shall be the overall supervision of, and oversight
over, the creation, expansion and operation of the "b2bstores.com" website and
the general operations and employees of the Company and its subsidiaries and
divisions; provided, however, that Executive shall not supervise the Chairman.
Commencing on the Start Date and through the term of this Agreement, Executive
also shall have the right to be nominated for election as a director of the
Company and, if so elected by the stockholders of the Company, Executive shall
be obligated to serve as a director.
1.3 Executive accepts such employment and agrees to devote
substantially all of his business time, energy and attention to the performance
of his duties hereunder beginning on the Start Date. Nothing herein shall be
construed as preventing Executive from making and supervising personal
investments, provided they will not (a) require any substantial services on his
part in the operation of the affairs of the companies in which such
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investments are made, (b) interfere with the performance of Executive's duties
hereunder or (c) violate the provisions of paragraph 5.4 hereof.
2. Compensation and Benefits.
2.1 Commencing on the Start Date, the Company shall pay to
Executive a salary at the minimum annual rate of $150,000, increasing to
$175,000 on the earlier of (a) the date an initial public offering ("IPO") of
the Company's Common Stock is consummated and (b) November 1, 1999. Executive's
compensation shall be paid in equal, periodic installments in accordance with
the Company's normal payroll procedures.
2.2 As additional compensation for services to be rendered by
Executive hereunder:
(a) (i) On the date ("Effective Date") the
registration statement relating to the IPO is declared effective by the SEC, the
Company shall issue to Executive options ("Options") to purchase 300,000 shares
of its common stock ("Common Stock") for a price equal to 80% of the per-share
offering price in the IPO. The Options shall be evidenced by a Stock Option
Agreement, in the form of Exhibit A and dated the Effective Date, between the
Company and Executive ("Stock Option Agreement"). Options to purchase 150,000
shares will vest upon grant on the Effective Date. Options to purchase an
additional 50,000 shares will vest on each of the first three anniversaries of
the Start Date.
(ii) The shares of Common Stock underlying
the Options shall be included in the next Registration Statement on Form S-8
filed by the Company after the date hereof, to the extent the Company is legally
able to include such shares.
(b) The Company also shall pay Executive:
(i) $25,000 on such date that a qualified
Chief Operating Officer, Chief Technology Officer and Business
Development Manager is in the employ of the Company;
(ii) an additional $25,000 on the date the
IPO is consummated;
(iii) an additional $25,000 on such date
that the Company has at least 25 product categories sites (i.e., sites
which are not merely hyperlinks) simultaneously present and operating
at the b2bstores.com site; and
(iv) such additional bonuses as may be
determined from time to time by the Board of Directors.
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<PAGE>
2.3 Commencing on the Start Date, Executive shall be entitled
to such medical, life, disability and other benefits as are generally afforded
to other senior executives of the Company, subject to applicable waiting periods
and other conditions. Notwithstanding the foregoing, the death benefit payable
under the insurance taken on Executive's life shall be at least $350,000, with
the beneficiary designated by Executive.
2.4 Executive shall be entitled to two weeks of vacation in
each calendar year and to a reasonable number of other days off for religious
and personal reasons.
2.5 Executive shall maintain a suitable automobile for
business use. The Company shall reimburse Executive for the costs of leasing
such automobile and for all other costs associated with the use of the vehicle,
including insurance costs, repairs and maintenance (such lease and all other
costs not to exceed $1,500 per month in the aggregate). These reimbursements
shall be considered taxable income to Executive except to the extent that it is
documented to have been used by him for business purposes.
2.6 Commencing on the Start Date, the Company will pay or
reimburse Executive for all transportation, hotel and other expenses reasonably
incurred by Executive on business trips and for all other ordinary and
reasonable out-of-pocket expenses actually incurred by him in the conduct of the
business of the Company against itemized vouchers submitted with respect to any
such expenses and approved in accordance with customary procedures.
2.7 Executive acknowledges that he will be obligated to render
services hereunder wherever such services are reasonably required by the
Company, which will necessitate substantial travel by Executive, primarily in
North America.
3. Term and Termination.
3.1 The term of Executive's employment shall commence on the
Start Date and shall continue until August 1, 2002, unless sooner terminated as
herein provided. In the event of a termination of employment for any reason,
Executive's rights with respect to the Options shall be governed by the Stock
Option Agreement.
3.2 Executive's employment hereunder shall terminate on the
date of his death, in which case the Company shall pay to the legal
representative of Executive's estate (i) the base salary due Executive pursuant
to paragraph 2.1 hereof through the date of Executive's death, (ii) all earned
and previously approved but unpaid bonuses, (iii) all valid expense
reimbursements through the date of the termination of this Agreement, (iv) all
accrued but unused vacation pay and (v) all costs associated with terminating
the lease for Executive's automobile.
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<PAGE>
3.3 The Company, by notice to Executive, may terminate
Executive's employment hereunder if Executive shall fail because of illness or
incapacity to render, for six consecutive months, services of the character
contemplated by this Agreement. Notwithstanding such termination, the Company
shall pay to Executive (i) the base salary due Executive pursuant to paragraph
2.1 hereof through the date of such notice, less any amount Executive receives
for such period from any Company-sponsored or Company-paid source of insurance,
disability compensation or government program, (ii) all earned and previously
approved but unpaid bonuses, (iii) all valid expense reimbursements through the
date of the termination of this Agreement, (iv) all accrued but unused vacation
pay and (v) all costs associated with terminating the lease for Executive's
automobile.
3.4 The Company, by notice to Executive, may terminate
Executive's employment hereunder for cause. As used herein, "Cause" shall mean:
(a) the refusal or failure by Executive to carry out specific directions of the
Board or the Chairman which are of a material nature and consistent with his
status as CEO, or the refusal or failure by Executive to perform a material part
of Executive's duties hereunder; (b) the commission by Executive of a material
breach of any of the provisions of this Agreement; (c) fraud or dishonest action
by Executive in his relations with the Company or any of its subsidiaries or
affiliates, or with any customer or business contact of the Company or any of
its subsidiaries or affiliates ("dishonest" for these purposes shall mean
Executive's knowingly or recklessly making of a material misstatement or
omission for his personal benefit); or (d) the conviction of Executive of any
crime involving an act of moral turpitude. Notwithstanding the foregoing, no
"Cause" for termination shall be deemed to exist with respect to Executive's
acts described in clauses (a) or (b) above, unless the Company shall have given
written notice to Executive specifying the "Cause" with reasonable particularity
and, within thirty calendar days after such notice, Executive shall not have
cured or eliminated the problem or thing giving rise to such "Cause;" provided,
however, that a repeated breach after notice and cure of any provision of
clauses (a) or (b) above involving the same or substantially similar actions or
conduct, shall be grounds for termination for "Cause" without any additional
notice from the Company.
3.5 If Executive's employment hereunder is terminated for any
reason, then Executive shall, at the Company's request, resign as a director of
the Company and all of its subsidiaries, effective upon the occurrence of such
termination.
3.6 The Executive, by notice to the Company, may terminate
Executive's employment hereunder if a "Good Reason" exists. For purposes of this
Agreement, "Good Reason" shall mean the occurrence of any of the following
circumstances without the Executive's prior express written consent: (a) a
substantial and material adverse change in the nature of Executive's title,
duties or responsibilities with the Company that represents a demotion from his
title, duties or responsibilities as in effect immediately prior to such change;
(b) the commission by the Company of a material breach of any of the provisions
of this Agreement, (c) the movement by the Company of Executive's principal
office to a location more than 75 miles from Long Beach, California, without
Executive's consent, and (d) a transaction or related series of transactions
that have not been approved by the Company's Board
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of Directors resulting in any person or group of persons acquiring more than 35%
of the outstanding voting stock of the Company. Notwithstanding the foregoing,
no Good Reason shall be deemed to exist with respect to the Company's acts
described in clauses (a) or (b) above, unless the Executive shall have given
written notice to the Company specifying the Good Reason with reasonable
particularity and, within thirty calendar days after such notice, the Company
shall not have cured or eliminated the problem or thing giving rise to such Good
Reason; provided, however, that a repeated breach after notice and cure of any
provision of clauses (a) or (b) above involving the same or substantially
similar actions or conduct, shall be grounds for termination for Good Reason
without any additional notice from the Executive.
3.7 In the event that Executive terminates his employment
hereunder for Good Reason, pursuant to the provisions of paragraph 3.6, or the
Company terminates his employment hereunder without "Cause," as defined in
paragraph 3.4, the Company shall make a lump sum payment to Executive (or in the
case of his death, the legal representative of Executive's estate or such other
person or persons as Executive shall have designated by written notice to the
Company), equal to the then present value of all payments required under
paragraph 2.1 hereof through the longer of (a) a period of 12 months and (b) the
then remaining term of this Agreement; provided, however, that Executive's
insurance coverage shall terminate upon the Executive becoming covered under a
similar program by reason of employment elsewhere.
4. Executive Indemnity
4.1 The Company agrees to indemnify Executive and hold
Executive harmless against all costs, expenses (including, without limitation,
reasonable attorneys' fees) and liabilities (other than settlements to which the
Company does not consent, which consent shall not be unreasonably withheld)
(collectively, "Losses") reasonably incurred by Executive in connection with any
claim, action, proceeding or investigation brought against or involving
Executive with respect to, arising out of or in any way relating to Executive's
employment with the Company or Executive's service as a director of the Company;
provided, however, that the Company shall not be required to indemnify Executive
for Losses incurred as a result of Executive's intentional misconduct or gross
negligence (other than matters where Executive acted in good faith and in a
manner he reasonably believed to be in and not opposed to the Company's best
interests). Executive shall promptly notify the Company of any claim, action,
proceeding or investigation under this paragraph and the Company shall be
entitled to participate in the defense of any such claim, action, proceeding or
investigation and, if it so chooses, to assume the defense with counsel selected
by the Company; provided that Executive shall have the right to employ counsel
to represent him (at the Company's expense) if Company counsel would have a
"conflict of interest" in representing both the Company and Executive. The
Company shall not settle or compromise any claim, action, proceeding or
investigation without Executive's consent, which consent shall not be
unreasonably withheld; provided, however, that such consent shall not be
required if the settlement entails only the payment of money and the Company
fully indemnifies Executive in connection therewith. The Company further agrees
to advance any and all expenses (including, without limitation, the fees and
expenses
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of counsel) reasonably incurred by the Executive in connection with any such
claim, action, proceeding or investigation, provided Executive first enters into
an appropriate agreement for repayment of such advances if indemnification is
found not to have been available.
5. Protection of Confidential Information; Non-Competition.
5.1 Executive acknowledges that:
(a) As a result of Executive's current role as
consultant to the Company, and thereafter, Executive's employment with the
Company, he has obtained and will obtain secret and confidential information
concerning the business of the Company and its subsidiaries and affiliates
(referred to collectively in Sections 5 and 6 as the "Company"), including,
without limitation, financial information, designs and other proprietary rights,
trade secrets and "know-how," customers and sources ("Confidential
Information").
(b) The Company will suffer substantial damage which
will be difficult to compute if, during the term of this Agreement or
thereafter, Executive should enter a business competitive with the Company, or
divulge Confidential Information, or breach his obligations under Section 6.
(c) The provisions of this Agreement are reasonable
and necessary for the protection of the business of the Company.
5.2 Executive agrees that he will not at any time, either
during the term of this Agreement or thereafter, divulge to any person or entity
any Confidential Information obtained or learned by him as a result of his role
as consultant to or employment with the Company, except (i) in the course of
performing his duties hereunder, (ii) with the Company's express written
consent; (iii) to the extent that any such information is in the public domain
other than as a result of Executive's breach of any of his obligations
hereunder; or (iv) where required to be disclosed by court order, subpoena or
other government process. If Executive shall be required to make disclosure
pursuant to the provisions of clause (iv) of the preceding sentence, Executive
promptly, but in no event more than 72 hours after learning of such subpoena,
court order, or other government process, shall notify, by personal delivery or
by electronic means, confirmed by mail, the Company and, at the Company's
expense, Executive shall: (a) take all reasonably necessary and lawful steps
required by the Company to defend against the enforcement of such subpoena,
court order or other government process, and (b) permit the Company to intervene
and participate with counsel of its choice in any proceeding relating to the
enforcement thereof.
5.3 Upon termination of his employment with the Company,
Executive will promptly deliver to the Company all memoranda, notes, records,
reports, manuals, drawings, blueprints and other documents (and all copies
thereof) relating to the business of the Company and all property associated
therewith, which he may then
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possess or have under his control; provided, however, that Executive shall be
entitled to retain copies of such documents reasonably necessary to document his
financial relationship (both past and future) with the Company.
5.4 During the period commencing on the date hereof and ending
on the Non-Competition Termination Date (as hereafter defined), Executive,
without the prior written permission of the Company, shall not, anywhere in the
world, (i) be employed by, or render any services to, any person, firm or
corporation engaged in any business which is directly or indirectly in
competition with the Company in the businesses described on Schedule 5.4
("Competitive Business"); (ii) engage in any Competitive Business for his or its
own account; (iii) be associated with or interested in any Competitive Business
as an individual, partner, shareholder, creditor, director, officer, principal,
agent, employee, trustee, consultant, advisor or in any other relationship or
capacity; (iv) employ or retain, or have or cause any other person or entity to
employ or retain, any person who was employed or retained by the Company while
Executive was employed by the Company; or (v) solicit, interfere with, or
endeavor to entice away from the Company, for the benefit of a Competitive
Business, any of its customers or other persons with whom the Company has a
contractual relationship. Notwithstanding the foregoing, this provision shall
not preclude Executive from investing his personal assets in the securities of
any corporation or other business entity which is engaged in a Competitive
Business if such ownership is in compliance with the requirements set forth in
the last sentence of Section 1.3 hereof, such securities are traded on a
national stock exchange or in the over-the-counter market and if such investment
does not result in his beneficially owning, at any time, more than 1% of the
publicly-traded equity securities of such Competitive Business. The
"Non-Competition Termination Date" shall be August 1, 2003; provided, however,
that (a) if this Agreement is terminated for "Good Reason" by Executive or the
Company without "Cause," the Non-Competition Termination Date shall be the later
of the one-year anniversary of such termination and August 1, 2002, and (b) if
Executive's employment is terminated with "Cause" or Executive terminates his
employment without "Good Reason," the Non-Competition Termination Date shall be
August 1, 2004.
5.5 If Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Sections 5.2, 5.4 or 6, the Company shall
have the right and remedy:
(a) to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed by Executive that the services being rendered hereunder
to the Company are of a special, unique and extraordinary character and that any
such breach or threatened breach will cause irreparable injury to the Company
and that money damages will not provide an adequate remedy to the Company; and
(b) to require Executive to account for and pay over
to the Company all monetary damages suffered by the Company as the result of any
transactions constituting a breach of any of the provisions of Sections 5.2, 5.4
or 6, and Executive hereby agrees to account for and pay over such damages to
the Company.
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Each of the rights and remedies enumerated in this Section 5.5
shall be independent of the other, and shall be severally enforceable, and such
rights and remedies shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company under law or equity.
In connection with any legal action or proceeding arising out
of or relating to this Agreement, the prevailing party in such action or
proceeding shall be entitled to be reimbursed by the other party for the
reasonable attorneys' fees and costs incurred by the prevailing party.
5.6 If Executive violates any covenant contained in Section
5.4, the duration of such covenant so violated shall be automatically extended
for a period of time equal to the period of such violation.
5.7 If any provision of Sections 5.2 or 5.4 is held to be
unenforceable because of the scope, duration or area of its applicability, the
tribunal making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
5.8 The provisions of this paragraph 5 shall survive the
termination of this Agreement for any reason.
6. Inventions, Patents and Copyrights.
(a) All inventions and other creative works,
including any patent, copyright, trade secret, trademark or other intellectual
property rights developed or produced by Executive either alone or jointly with
others during Executive's role as consultant to or employee of the Company and
which relate to the Company's business or technology or which are derived in the
context of the Company's business or operations (collectively, the "Intellectual
Property") shall be considered to have been prepared for the Company as a part
of and in the course of Executive's role as consultant to, and thereafter,
employment with, the Company. Any such Intellectual Property shall be owned by
the Company regardless of whether it would otherwise be considered a work made
for hire. Such Intellectual Property shall include, among other things, software
and documentation therefor.
(b) The Company shall have full ownership of the
Intellectual Property, with no rights of ownership vested in Executive.
Executive agrees that in the event any Intellectual Property is determined by a
court of competent jurisdiction not to be a work for hire under the federal
copyright laws, this Agreement shall operate as an irrevocable assignment by him
to the Company of the copyright in the works, including all rights thereunder in
perpetuity. Under this irrevocable assignment, Executive hereby assigns to the
Company the sole and exclusive right, title, and interest in and to the
Intellectual Property, without further consideration, and agrees to assist the
Company in registering and from time to time enforcing all copyrights and other
rights and protections relating
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to the Intellectual Property in any and all countries. Executive agrees that in
the event of any dispute arising out of or concerning this section, no actions
by the Company or Executive undertaken for the purpose of securing, maintaining,
or preserving the copyright in the works, including but not limited to
recordation of this section with the United States Copyright Office, shall be
considered by any finder of fact or determiner of law in determining the
character of the work as work made for hire, unless expressly authorized by the
Company.
(c) Executive shall communicate to the Company
promptly and fully in writing, in such format as the Company may deem
appropriate, all Intellectual Property made or conceived by Executive whether
alone or jointly with others from the date hereof until the date this Agreement
is terminated and to assign to the Company all Intellectual Property.
(d) Executive shall make and maintain adequate
permanent records of all Intellectual Property, in the form of memoranda,
notebook entries, drawings, printouts, or reports relating thereto, in keeping
with then current Company procedures. Executive agrees that these records, as
well as the Intellectual Property, shall be and remain the property of the
Company at all times.
(e) Executive shall cooperate with and assist the
Company and its nominees, at their sole expense, during the term of this
Agreement and thereafter, in securing and protecting patent, copyright or other
similar rights in the United States and foreign countries in the Intellectual
Property. In this connection, Executive specifically agrees to execute all
papers which the Company deems necessary to protect its interests including the
execution of assignments of invention and copyrights and to give evidence and
testimony, as may be necessary, to secure and enforce the Company's rights in
the Intellectual Property. Executive hereby appoints the Company as his agent
and attorney-in-fact to act for and in Executive's behalf and stead to execute,
register, and file any applications, and to do all other lawfully permitted acts
to further the registration, prosecution, issuance, renewals, and extensions of
patents, copyrights or other protections with the same legal force and effect as
if personally executed by Executive.
(f) The provisions of this Section 6 shall survive
termination of this Agreement for any reason.
7. Miscellaneous Provisions.
7.1 All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered if delivered personally or by nationally
recognized overnight courier, by certified mail or facsimile to the parties at
the following addresses and numbers (or at such other address or number for a
party as shall be specified by like notice, except that notices of changes of
address or number shall be effective upon receipt):
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If to Executive:
Woo Jin Kim
3813 North Studebaker Road
Long Beach, California 90808
If to the Company:
b2bstores.com Inc.
211 Park Avenue
Hicksville, New York 11801
Attn: Chairman of the Board
With a copy to:
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
Attn: David Alan Miller, Esq.
7.2 This Agreement sets forth the entire agreement of the
parties relating to the employment of Executive and is intended to supersede all
prior negotiations, understandings and agreements. No provisions of this
Agreement may be waived or changed except by a writing by the party against whom
such waiver or change is sought to be enforced. The failure of any party to
require performance of any provision hereof or thereof shall in no manner affect
the right at a later time to enforce such provision.
7.3 This Agreement shall be governed by and construed under
the law of the State of New York, disregarding any principles of conflicts of
law that would otherwise provide for the application of the substantive law of
another jurisdiction. Each of the parties (i) agrees that any legal suit, action
or proceeding arising out of or relating to this Agreement shall be instituted
exclusively in New York State Supreme Court, County of New York, or in the
United States District Court for the Southern District of New York, (ii) waives
any objection to the venue of any such suit, action or proceeding and the right
to assert that such forum is not a convenient forum, and (iii) irrevocably
consents to the jurisdiction of the New York State Supreme Court, County of New
York, and the United States District Court for the Southern District of New York
in any such suit, action or proceeding. Each of the parties further agrees to
accept and acknowledge service of any and all process which may be served in any
such suit, action or proceeding in the New York State Supreme Court, County of
New York, or in the United States District Court for the Southern District of
New York and agrees that service of process upon it mailed by certified
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mail to its address shall be deemed in every respect effective service of
process upon it in any such suit, action or proceeding.
7.4 This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company. This Agreement shall not
be assignable by Executive, but shall inure to the benefit of and be binding
upon Executive's heirs and legal representatives.
7.5 Should any provision of this Agreement become legally
unenforceable, no other provision of this Agreement shall be affected, and this
Agreement shall continue as if the Agreement had been executed absent the
unenforceable provision.
7.6 If, during the term hereof, Executive is nominated to
serve as a director of the Company but fails to be elected, he shall nonetheless
be invited to attend each meeting of the Board of Directors of the Company
through the remainder of the term hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
B2BSTORES.COM INC.
------------------------------------------------
By: Richard Kandel, Chairman of the Board
------------------------------------------------
WOO JIN KIM
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SCHEDULE 5.4
The development and operation of Internet websites, the
primary purpose and focus of which is to sell products and services specifically
aimed at business clients.
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EMPLOYMENT AGREEMENT
AGREEMENT dated August 17, 1999 between SHANNON JESSUP,
residing at 250 17th Street, Seal Beach, California 90740 ("Executive"), and
B2BSTORES.COM INC., a Delaware corporation having its principal office at 211
Park Avenue, Hicksville, New York 11801 ("Company").
WHEREAS, Executive possesses expertise in the areas of
e-commerce, web design and related technologies;
WHEREAS, the Company desires to avail itself of Executive's
expertise; and
WHEREAS, the Company desires to employ Executive, and
Executive desires to be employed by Company, commencing August 17, 1999 (the
"Start Date"), on the terms set forth in this Agreement.
IT IS AGREED:
1. Employment, Duties and Acceptance.
1.1 Commencing on the Start Date, the Company shall employ
Executive as its Executive Vice President of Business Development ("EVP"). All
of Executive's powers and authority in any capacity shall at all times be
subject to the direction and control of the Company's Board of Directors.
Executive shall report directly to the Chief Executive Officer ("CEO").
1.2 The Board, the Chairman of the Board and/or CEO may assign
to Executive such responsibilities and executive duties for the Company or any
subsidiary of the Company as are consistent with Executive's status as EVP. The
Company and Executive acknowledge that Executive's primary functions and duties
as EVP shall be the supervision of the creation and expansion of the
"b2bstores.com" website and related business of the Company and its subsidiaries
and divisions.
1.3 Executive accepts such employment and agrees to devote
substantially all of her business time, energy and attention to the performance
of her duties hereunder beginning on the Start Date. Nothing herein shall be
construed as preventing Executive from making and supervising personal
investments, provided they will not (a) require any substantial services on her
part in the operation of the affairs of the companies in which such investments
are made, (b) interfere with the performance of Executive's duties hereunder or
(c) violate the provisions of paragraph 5.4 hereof.
<PAGE>
2. Compensation and Benefits.
2.1 Commencing on the Start Date, the Company shall pay to
Executive a salary at the minimum annual rate of $110,000, increasing to
$130,000 on the earlier of (a) the date an initial public offering ("IPO") of
the Company's Common Stock is consummated and (b) November 1, 1999. Executive's
compensation shall be paid in equal, periodic installments in accordance with
the Company's normal payroll procedures.
2.2 As additional compensation for services to be
rendered by Executive hereunder:
(a) (i) On the date ("Effective Date") the
registration statement relating to the IPO is declared effective by the SEC, the
Company shall issue to Executive options ("Options") to purchase 300,000 shares
of its common stock ("Common Stock") for a price equal to 80% of the per-share
offering price in the IPO. The Options shall be evidenced by a Stock Option
Agreement, in the form of Exhibit A and dated the Effective Date, between the
Company and Executive ("Stock Option Agreement"). Options to purchase 50,000
shares will vest upon grant on the Effective Date. Options to purchase the
remaining 125,000 shares will vest in three annual installments of 62,500
shares, 31,250 shares and 31,250 shares, respectively, on the first three
anniversaries of the Start Date.
(ii) The shares of Common Stock
underlying the Options shall be included in the next Registration Statement on
Form S-8 filed by the Company after the date hereof, to the extent the Company
is legally able to include such shares.
(b) The Company also shall pay Executive:
(i) $20,000 on the date the IPO is
consummated;
(ii) for each calendar quarter during
calendar year 2000 in which the criteria set forth on Schedule 1 hereto
have been satisfied, $12,500 and options to purchase 12,500 shares of
Common Stock at a per-share price equal to the average last sale price
of the Common Stock for the last 20 trading days of the quarter (such
cash and options to be paid and granted promptly after it is determined
that the criteria have been satisfied); and
(iii) such additional bonuses as may be
determined from time to time by the Board of Directors.
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2.3 Commencing on the Start Date, Executive shall be entitled
to such medical, life, disability and other benefits as are generally afforded
to other senior executives of the Company, subject to applicable waiting periods
and other conditions.
2.4 Executive shall be entitled to two weeks of vacation in
each calendar year and to a reasonable number of other days off for religious
and personal reasons.
2.5 Executive shall maintain a suitable automobile for
business use. The Company shall reimburse Executive for the costs of leasing
such automobile and for all other costs associated with the use of the vehicle,
including insurance costs, repairs and maintenance (such lease and all other
costs not to exceed $1,000 per month in the aggregate). These reimbursements
shall be considered taxable income to Executive except to the extent that it is
documented to have been used by her for business purposes.
2.6 Commencing on the Start Date, the Company will pay or
reimburse Executive for all transportation, hotel and other expenses reasonably
incurred by Executive on business trips and for all other ordinary and
reasonable out-of-pocket expenses actually incurred by her in the conduct of the
business of the Company against itemized vouchers submitted with respect to any
such expenses and approved in accordance with customary procedures.
2.7 Executive acknowledges that she will be obligated to
render services hereunder wherever such services are reasonably required by the
Company, which will necessitate substantial travel by Executive, primarily in
North America.
3. Term and Termination.
3.1 The term of Executive's employment shall commence on the
Start Date and shall continue until August 17, 2002, unless sooner terminated as
herein provided. In the event of a termination of employment for any reason,
Executive's rights with respect to the Options shall be governed by the Stock
Option Agreement.
3.2 Executive's employment hereunder shall terminate on the
date of her death, in which case the Company shall pay to the legal
representative of Executive's estate (i) the base salary due Executive pursuant
to paragraph 2.1 hereof through the date of Executive's death, (ii) all earned
and previously approved but unpaid bonuses, (iii) all valid expense
reimbursements through the date of the termination of this Agreement, (iv) all
accrued but unused vacation pay and (v) all costs associated with terminating
the lease for Executive's automobile.
3.3 The Company, by notice to Executive, may terminate
Executive's employment hereunder if Executive shall fail because of illness or
incapacity to render, for six consecutive months, services of the character
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contemplated by this Agreement. Notwithstanding such termination, the Company
shall pay to Executive (i) the base salary due Executive pursuant to paragraph
2.1 hereof through the date of such notice, less any amount Executive receives
for such period from any Company-sponsored or Company-paid source of insurance,
disability compensation or government program, (ii) all earned and previously
approved but unpaid bonuses, (iii) all valid expense reimbursements through the
date of the termination of this Agreement, (iv) all accrued but unused vacation
pay and (v) all costs associated with terminating the lease for Executive's
automobile.
3.4 The Company, by notice to Executive, may terminate
Executive's employment hereunder for cause. As used herein, "Cause" shall mean:
(a) the refusal or failure by Executive to carry out specific directions of the
Board or the Chairman which are of a material nature and consistent with her
status as EVP, or the refusal or failure by Executive to perform a material part
of Executive's duties hereunder; (b) the commission by Executive of a material
breach of any of the provisions of this Agreement; (c) fraud or dishonest action
by Executive in her relations with the Company or any of its subsidiaries or
affiliates, or with any customer or business contact of the Company or any of
its subsidiaries or affiliates ("dishonest" for these purposes shall mean
Executive's knowingly or recklessly making of a material misstatement or
omission for her personal benefit); or (d) the conviction of Executive of any
crime involving an act of moral turpitude. Notwithstanding the foregoing, no
"Cause" for termination shall be deemed to exist with respect to Executive's
acts described in clauses (a) or (b) above, unless the Company shall have given
written notice to Executive specifying the "Cause" with reasonable particularity
and, within thirty calendar days after such notice, Executive shall not have
cured or eliminated the problem or thing giving rise to such "Cause;" provided,
however, that a repeated breach after notice and cure of any provision of
clauses (a) or (b) above involving the same or substantially similar actions or
conduct, shall be grounds for termination for "Cause" without any additional
notice from the Company.
3.5 The Executive, by notice to the Company, may terminate
Executive's employment hereunder if a "Good Reason" exists. For purposes of this
Agreement, "Good Reason" shall mean the occurrence of any of the following
circumstances without the Executive's prior express written consent: (a) a
substantial and material adverse change in the nature of Executive's title,
duties or responsibilities with the Company that represents a demotion from her
title, duties or responsibilities as in effect immediately prior to such change;
(b) the commission by the Company of a material breach of any of the provisions
of this Agreement, and (c) a transaction or related series of transactions that
have not been approved by the Company's Board of Directors resulting in any
person or group of persons acquiring more than 35% the outstanding voting stock
of the Company. Notwithstanding the foregoing, no Good Reason shall be deemed to
exist with respect to the Company's acts described in clauses (a) or (b) above,
unless the Executive shall have given written notice to the Company specifying
the Good Reason with reasonable particularity and, within thirty calendar days
after such notice, the Company shall not have cured or eliminated the problem or
thing giving rise to such Good Reason; provided, however, that a repeated breach
after notice and cure of any provision of clauses (a) or (b) above involving the
same or substantially similar actions or conduct, shall be grounds for
termination for Good Reason without any additional notice from the Executive.
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3.6 In the event that Executive terminates her employment
hereunder for Good Reason, pursuant to the provisions of paragraph 3.5, or the
Company terminates her employment hereunder without "Cause," as defined in
paragraph 3.4, the Company shall continue to pay to Executive (or in the case of
her death, the legal representative of Executive's estate or such other person
or persons as Executive shall have designated by written notice to the Company),
all payments required under paragraph 2.1 hereof through the longer of (a) a
period of 12 months and (b) the then remaining term of this Agreement; provided,
however, that (i) Executive's insurance coverage shall terminate upon the
Executive becoming covered under a similar program by reason of employment
elsewhere, and (ii) the cash payments owed to Executive hereunder shall be
reduced by any compensation received by Executive for her services after the
date of termination.
4. Executive Indemnity
4.1 The Company agrees to indemnify Executive and hold
Executive harmless against all costs, expenses (including, without limitation,
reasonable attorneys' fees) and liabilities (other than settlements to which the
Company does not consent, which consent shall not be unreasonably withheld)
(collectively, "Losses") reasonably incurred by Executive in connection with any
claim, action, proceeding or investigation brought against or involving
Executive with respect to, arising out of or in any way relating to Executive's
employment with the Company or Executive's service as a director of the Company;
provided, however, that the Company shall not be required to indemnify Executive
for Losses incurred as a result of Executive's intentional misconduct or gross
negligence (other than matters where Executive acted in good faith and in a
manner she reasonably believed to be in and not opposed to the Company's best
interests). Executive shall promptly notify the Company of any claim, action,
proceeding or investigation under this paragraph and the Company shall be
entitled to participate in the defense of any such claim, action, proceeding or
investigation and, if it so chooses, to assume the defense with counsel selected
by the Company; provided that Executive shall have the right to employ counsel
to represent her (at the Company's expense) if Company counsel would have a
"conflict of interest" in representing both the Company and Executive. The
Company shall not settle or compromise any claim, action, proceeding or
investigation without Executive's consent, which consent shall not be
unreasonably withheld; provided, however, that such consent shall not be
required if the settlement entails only the payment of money and the Company
fully indemnifies Executive in connection therewith. The Company further agrees
to advance any and all expenses (including, without limitation, the fees and
expenses of counsel) reasonably incurred by the Executive in connection with any
such claim, action, proceeding or investigation, provided Executive first enters
into an appropriate agreement for repayment of such advances if indemnification
is found not to have been available.
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5. Protection of Confidential Information; Non-Competition.
5.1 Executive acknowledges that:
(a) As a result of Executive's employment with
the Company, she has obtained and will obtain secret and confidential
information concerning the business of the Company and its subsidiaries and
affiliates (referred to collectively in Sections 5 and 6 as the "Company"),
including, without limitation, financial information, designs and other
proprietary rights, trade secrets and "know-how," customers and sources
("Confidential Information").
(b) The Company will suffer substantial damage which
will be difficult to compute if, during the term of this Agreement or
thereafter, Executive should enter a business competitive with the Company, or
divulge Confidential Information, or breach her obligations under Section 6.
(c) The provisions of this Agreement are
reasonable and necessary for the protection of the business of the Company.
5.2 Executive agrees that she will not at any time, either
during the term of this Agreement or thereafter, divulge to any person or entity
any Confidential Information obtained or learned by her as a result of her
employment with the Company, except (i) in the course of performing her duties
hereunder, (ii) with the Company's express written consent; (iii) to the extent
that any such information is in the public domain other than as a result of
Executive's breach of any of her obligations hereunder; or (iv) where required
to be disclosed by court order, subpoena or other government process. If
Executive shall be required to make disclosure pursuant to the provisions of
clause (iv) of the preceding sentence, Executive promptly, but in no event more
than 72 hours after learning of such subpoena, court order, or other government
process, shall notify, by personal delivery or by electronic means, confirmed by
mail, the Company and, at the Company's expense, Executive shall: (a) take all
reasonably necessary and lawful steps required by the Company to defend against
the enforcement of such subpoena, court order or other government process, and
(b) permit the Company to intervene and participate with counsel of its choice
in any proceeding relating to the enforcement thereof.
5.3 Upon termination of her employment with the Company,
Executive will promptly deliver to the Company all memoranda, notes, records,
reports, manuals, drawings, blueprints and other documents (and all copies
thereof) relating to the business of the Company and all property associated
therewith, which she may then possess or have under her control; provided,
however, that Executive shall be entitled to retain copies of such documents
reasonably necessary to document her financial relationship (both past and
future) with the Company.
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5.4 During the period commencing on the date hereof and ending
on the Non-Competition Termination Date (as hereafter defined), Executive,
without the prior written permission of the Company, shall not, anywhere in the
world, (i) be employed by, or render any services to, any person, firm or
corporation engaged in any business which is directly or indirectly in
competition with the Company in the businesses described on Schedule 5.4
("Competitive Business"); (ii) engage in any Competitive Business for her or its
own account; (iii) be associated with or interested in any Competitive Business
as an individual, partner, shareholder, creditor, director, officer, principal,
agent, employee, trustee, consultant, advisor or in any other relationship or
capacity; (iv) employ or retain, or have or cause any other person or entity to
employ or retain, any person who was employed or retained by the Company while
Executive was employed by the Company; or (v) solicit, interfere with, or
endeavor to entice away from the Company, for the benefit of a Competitive
Business, any of its customers or other persons with whom the Company has a
contractual relationship. Notwithstanding the foregoing, this provision shall
not preclude Executive from investing her personal assets in the securities of
any corporation or other business entity which is engaged in a Competitive
Business if such ownership is in compliance with the requirements set forth in
the last sentence of Section 1.3 hereof, such securities are traded on a
national stock exchange or in the over-the-counter market and if such investment
does not result in her beneficially owning, at any time, more than 1% of the
publicly-traded equity securities of such Competitive Business. The
"Non-Competition Termination Date" shall be August 17, 2003; provided, however,
that (a) if this Agreement is terminated for "Good Reason" by Executive or the
Company without "Cause," the Non-Competition Termination Date shall be the later
of the one-year anniversary of such termination and August 17, 2002, and (b) if
Executive's employment is terminated with "Cause" or Executive terminates her
employment without "Good Reason," the Non-Competition Termination Date shall be
August 17, 2004.
5.5 If Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Sections 5.2, 5.4 or 6, the Company shall
have the right and remedy:
(a) to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed by Executive that the services being rendered hereunder
to the Company are of a special, unique and extraordinary character and that any
such breach or threatened breach will cause irreparable injury to the Company
and that money damages will not provide an adequate remedy to the Company; and
(b) to require Executive to account for and pay
over to the Company all monetary damages suffered by the Company as the result
of any transactions constituting a breach of any of the provisions of Sections
5.2, 5.4 or 6, and Executive hereby agrees to account for and pay over such
damages to the Company.
Each of the rights and remedies enumerated in this Section 5.5
shall be independent of the other, and shall be severally enforceable, and such
rights and remedies shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company under law or equity.
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In connection with any legal action or proceeding arising out
of or relating to this Agreement, the prevailing party in such action or
proceeding shall be entitled to be reimbursed by the other party for the
reasonable attorneys' fees and costs incurred by the prevailing party.
5.6 If Executive violates any covenant contained in Section
5.4, the duration of such covenant so violated shall be automatically extended
for a period of time equal to the period of such violation.
5.7 If any provision of Sections 5.2 or 5.4 is held to be
unenforceable because of the scope, duration or area of its applicability, the
tribunal making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
5.8 The provisions of this paragraph 5 shall survive the
termination of this Agreement for any reason.
6. Inventions, Patents and Copyrights.
(a) All inventions and other creative works,
including any patent, copyright, trade secret, trademark or other intellectual
property rights developed or produced by Executive either alone or jointly with
others during Executive's employment with the Company and which relate to the
Company's business or technology or which are derived in the context of the
Company's business or operations (collectively, the "Intellectual Property")
shall be considered to have been prepared for the Company as a part of and in
the course of Executive's role as consultant to, and thereafter, employment
with, the Company. Any such Intellectual Property shall be owned by the Company
regardless of whether it would otherwise be considered a work made for hire.
Such Intellectual Property shall include, among other things, software and
documentation therefor.
(b) The Company shall have full ownership of the
Intellectual Property, with no rights of ownership vested in Executive.
Executive agrees that in the event any Intellectual Property is determined by a
court of competent jurisdiction not to be a work for hire under the federal
copyright laws, this Agreement shall operate as an irrevocable assignment by her
to the Company of the copyright in the works, including all rights thereunder in
perpetuity. Under this irrevocable assignment, Executive hereby assigns to the
Company the sole and exclusive right, title, and interest in and to the
Intellectual Property, without further consideration, and agrees to assist the
Company in registering and from time to time enforcing all copyrights and other
rights and protections relating to the Intellectual Property in any and all
countries. Executive agrees that in the event of any dispute arising out of or
concerning this section, no actions by the Company or Executive undertaken for
the purpose of securing, maintaining, or preserving the copyright in the works,
including but not limited to recordation of this section with
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the United States Copyright Office, shall be considered by any finder of fact or
determiner of law in determining the character of the work as work made for
hire, unless expressly authorized by the Company.
(c) Executive shall communicate to the Company
promptly and fully in writing, in such format as the Company may deem
appropriate, all Intellectual Property made or conceived by Executive whether
alone or jointly with others from the date hereof until the date this Agreement
is terminated and to assign to the Company all Intellectual Property.
(d) Executive shall make and maintain adequate
permanent records of all Intellectual Property, in the form of memoranda,
notebook entries, drawings, printouts, or reports relating thereto, in keeping
with then current Company procedures. Executive agrees that these records, as
well as the Intellectual Property, shall be and remain the property of the
Company at all times.
(e) Executive shall cooperate with and assist
the Company and its nominees, at their sole expense, during the term of this
Agreement and thereafter, in securing and protecting patent, copyright or other
similar rights in the United States and foreign countries in the Intellectual
Property. In this connection, Executive specifically agrees to execute all
papers which the Company deems necessary to protect its interests including the
execution of assignments of invention and copyrights and to give evidence and
testimony, as may be necessary, to secure and enforce the Company's rights in
the Intellectual Property. Executive hereby appoints the Company as her agent
and attorney-in-fact to act for and in Executive's behalf and stead to execute,
register, and file any applications, and to do all other lawfully permitted acts
to further the registration, prosecution, issuance, renewals, and extensions of
patents, copyrights or other protections with the same legal force and effect as
if personally executed by Executive.
(f) The provisions of this Section 6 shall survive
termination of this Agreement for any reason.
7. Miscellaneous Provisions.
7.1 All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered if delivered personally or by nationally
recognized overnight courier, by certified mail or facsimile to the parties at
the following addresses and numbers (or at such other address or number for a
party as shall be specified by like notice, except that notices of changes of
address or number shall be effective upon receipt):
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If to Executive:
Shannon Jessup
250 17th Street
Seal Beach, California 90740
If to the Company:
b2bstores.com Inc.
211 Park Avenue
Hicksville, New York 11801
Attn: Chairman of the Board
With a copy to:
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
Attn: David Alan Miller, Esq.
7.2 This Agreement sets forth the entire agreement of the
parties relating to the employment of Executive and is intended to supersede all
prior negotiations, understandings and agreements. No provisions of this
Agreement may be waived or changed except by a writing by the party against whom
such waiver or change is sought to be enforced. The failure of any party to
require performance of any provision hereof or thereof shall in no manner affect
the right at a later time to enforce such provision.
7.3 This Agreement shall be governed by and construed under
the law of the State of New York, disregarding any principles of conflicts of
law that would otherwise provide for the application of the substantive law of
another jurisdiction. Each of the parties (i) agrees that any legal suit, action
or proceeding arising out of or relating to this Agreement shall be instituted
exclusively in New York State Supreme Court, County of New York, or in the
United States District Court for the Southern District of New York, (ii) waives
any objection to the venue of any such suit, action or proceeding and the right
to assert that such forum is not a convenient forum, and (iii) irrevocably
consents to the jurisdiction of the New York State Supreme Court, County of New
York, and the United States District Court for the Southern District of New York
in any such suit, action or proceeding. Each of the parties further agrees to
accept and acknowledge service of any and all process which may be served in any
such suit, action or proceeding in the New York State Supreme Court, County of
New York, or in the United States District Court for the Southern District of
New York and agrees that service of process upon it mailed by certified mail to
its address shall be deemed in every respect effective service of process upon
it in any such suit, action or proceeding.
7.4 This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company. This Agreement shall not
be assignable by Executive, but shall inure to the benefit of and be binding
upon Executive's heirs and legal representatives.
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7.5 Should any provision of this Agreement become legally
unenforceable, no other provision of this Agreement shall be affected, and this
Agreement shall continue as if the Agreement had been executed absent the
unenforceable provision.
7.6 If, during the term hereof, Executive is nominated to
serve as a director of the Company but fails to be elected, she shall
nonetheless be invited to attend each meeting of the Board of Directors of the
Company through the remainder of the term hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
B2BSTORES.COM INC.
----------------------------------------
By: Woo Jin Kim, Chief Executive Officer
----------------------------------------
SHANNON JESSUP
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SCHEDULE 1
<PAGE>
SCHEDULE 5.4
The development and operation of Internet websites, the
primary purpose and focus of which is to sell products and services specifically
aimed at business clients.
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT dated August 23, 1999 between BRIAN WHARTON,
residing at 2451 Myrtle Avenue, Hermosa Beach, California 90254 ("Executive"),
and B2BSTORES.COM INC., a Delaware corporation having its principal office at
211 Park Avenue, Hicksville, New York 11801 ("Company").
WHEREAS, Executive possesses expertise in the areas of
e-commerce, web design and related technologies;
WHEREAS, the Company desires to avail itself of Executive's
expertise; and
WHEREAS, the Company desires to employ Executive, and
Executive desires to be employed by Company, commencing August 23, 1999 (the
"Start Date"), on the terms set forth in this Agreement.
IT IS AGREED:
1. Employment, Duties and Acceptance.
1.1 Commencing on the Start Date, the Company shall employ
Executive as its Senior Vice President of Development ("SVP"). All of
Executive's powers and authority in any capacity shall at all times be subject
to the direction and control of the Company's Board of Directors. Executive
shall report directly to the Chief Executive Officer ("CEO").
1.2 The Board, the Chairman of the Board and/or CEO may assign
to Executive such responsibilities and executive duties for the Company or any
subsidiary of the Company as are consistent with Executive's status as SVP. The
Company and Executive acknowledge that Executive's primary functions and duties
as SVP shall be the supervision of the creation and expansion of the technology
relating to the "b2bstores.com" website and related business of the Company and
its subsidiaries and divisions.
1.3 Executive accepts such employment and agrees to devote
substantially all of his business time, energy and attention to the performance
of his duties hereunder beginning on the Start Date. Nothing herein shall be
construed as preventing Executive from making and supervising personal
investments, provided they will not (a) require any substantial services on his
part in the operation of the affairs of the companies in which such investments
are made, (b) interfere with the performance of Executive's duties hereunder or
(c) violate the provisions of paragraph 5.4 hereof.
<PAGE>
2. Compensation and Benefits.
2.1 Commencing on the Start Date, the Company shall pay
to Executive a salary at the minimum annual rate of $110,000, increasing to
$130,000 on the earlier of (a) the date an initial public offering ("IPO") of
the Company's Common Stock is consummated and (b) November 1, 1999. Executive's
compensation shall be paid in equal, periodic installments in accordance with
the Company's normal payroll procedures.
2.2 As additional compensation for services to be rendered by
Executive hereunder:
(a) (i) On the date ("Effective Date") the
registration statement relating to the IPO is declared effective by the SEC, the
Company shall issue to Executive options ("Options") to purchase 175,000 shares
of its common stock ("Common Stock") for a price equal to 80% of the per-share
offering price in the IPO. The Options shall be evidenced by a Stock Option
Agreement, in the form of Exhibit A and dated the Effective Date, between the
Company and Executive ("Stock Option Agreement"). The Options will vest in three
annual installments of 87,500 shares, 43,750 shares and 43,750 shares,
respectively, on the first three anniversaries of the Start Date.
(ii) The shares of Common Stock underlying
the Options shall be included in the next Registration Statement on Form S-8
filed by the Company after the date hereof, to the extent the Company is
legally able to include such shares.
(b) The Company also shall pay Executive:
(i) $20,000 on the date the IPO is
consummated;
(ii) for each calendar quarter during
calendar year 2000 in which the criteria set forth on Schedule 1 hereto
have been satisfied, $12,500 and options to purchase 12,500 shares of
Common Stock at a per-share price equal to the average last sale price
of the Common Stock for the last 20 trading days of the quarter (such
cash and options to be paid and granted promptly after it is determined
that the criteria have been satisfied); and
(iii) such additional bonuses as may be
determined from time to time by the Board of Directors.
2.3 Commencing on the Start Date, Executive shall be entitled
to such medical, life, disability and other benefits as are generally afforded
to other senior executives of the Company, subject to applicable waiting periods
and other conditions.
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2.4 Executive shall be entitled to two weeks of vacation in
each calendar year and to a reasonable number of other days off for religious
and personal reasons.
2.5 Executive shall maintain a suitable automobile for
business use. The Company shall reimburse Executive for the costs of leasing
such automobile and for all other costs associated with the use of the vehicle,
including insurance costs, repairs and maintenance (such lease and all other
costs not to exceed $1,000 per month in the aggregate). These reimbursements
shall be considered taxable income to Executive except to the extent that it is
documented to have been used by him for business purposes.
2.6 Commencing on the Start Date, the Company will pay or
reimburse Executive for all transportation, hotel and other expenses reasonably
incurred by Executive on business trips and for all other ordinary and
reasonable out-of-pocket expenses actually incurred by him in the conduct of the
business of the Company against itemized vouchers submitted with respect to any
such expenses and approved in accordance with customary procedures.
2.7 Executive acknowledges that he will be obligated to render
services hereunder wherever such services are reasonably required by the
Company, which will necessitate substantial travel by Executive, primarily in
North America.
3. Term and Termination.
3.1 The term of Executive's employment shall commence on the
Start Date and shall continue until August 23, 2002, unless sooner terminated as
herein provided. In the event of a termination of employment for any reason,
Executive's rights with respect to the Options shall be governed by the Stock
Option Agreement.
3.2 Executive's employment hereunder shall terminate on the
date of his death, in which case the Company shall pay to the legal
representative of Executive's estate (i) the base salary due Executive pursuant
to paragraph 2.1 hereof through the date of Executive's death, (ii) all earned
and previously approved but unpaid bonuses, (iii) all valid expense
reimbursements through the date of the termination of this Agreement, (iv) all
accrued but unused vacation pay and (v) all costs associated with terminating
the lease for Executive's automobile.
3.3 The Company, by notice to Executive, may terminate
Executive's employment hereunder if Executive shall fail because of illness or
incapacity to render, for six consecutive months, services of the character
contemplated by this Agreement. Notwithstanding such termination, the Company
shall pay to Executive (i) the base salary due Executive pursuant to paragraph
2.1 hereof through the date of such notice, less any amount Executive receives
for such period from any Company-sponsored or Company-paid source of insurance,
disability compensation or government program, (ii) all earned and previously
approved but unpaid bonuses, (iii) all valid expense
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reimbursements through the date of the termination of this Agreement, (iv) all
accrued but unused vacation pay and (v) all costs associated with terminating
the lease for Executive's automobile.
3.4 The Company, by notice to Executive, may terminate
Executive's employment hereunder for cause. As used herein, "Cause" shall mean:
(a) the refusal or failure by Executive to carry out specific directions of the
Board or the Chairman which are of a material nature and consistent with his
status as SVP, or the refusal or failure by Executive to perform a material part
of Executive's duties hereunder; (b) the commission by Executive of a material
breach of any of the provisions of this Agreement; (c) fraud or dishonest action
by Executive in his relations with the Company or any of its subsidiaries or
affiliates, or with any customer or business contact of the Company or any of
its subsidiaries or affiliates ("dishonest" for these purposes shall mean
Executive's knowingly or recklessly making of a material misstatement or
omission for his personal benefit); or (d) the conviction of Executive of any
crime involving an act of moral turpitude. Notwithstanding the foregoing, no
"Cause" for termination shall be deemed to exist with respect to Executive's
acts described in clauses (a) or (b) above, unless the Company shall have given
written notice to Executive specifying the "Cause" with reasonable particularity
and, within thirty calendar days after such notice, Executive shall not have
cured or eliminated the problem or thing giving rise to such "Cause;" provided,
however, that a repeated breach after notice and cure of any provision of
clauses (a) or (b) above involving the same or substantially similar actions or
conduct, shall be grounds for termination for "Cause" without any additional
notice from the Company.
3.5 The Executive, by notice to the Company, may terminate
Executive's employment hereunder if a "Good Reason" exists. For purposes of this
Agreement, "Good Reason" shall mean the occurrence of any of the following
circumstances without the Executive's prior express written consent: (a) a
substantial and material adverse change in the nature of Executive's title,
duties or responsibilities with the Company that represents a demotion from his
title, duties or responsibilities as in effect immediately prior to such change;
(b) the commission by the Company of a material breach of any of the provisions
of this Agreement, and (c) a transaction or related series of transactions that
have not been approved by the Company's Board of Directors resulting in any
person or group of persons acquiring more than 35% the outstanding voting stock
of the Company. Notwithstanding the foregoing, no Good Reason shall be deemed to
exist with respect to the Company's acts described in clauses (a) or (b) above,
unless the Executive shall have given written notice to the Company specifying
the Good Reason with reasonable particularity and, within thirty calendar days
after such notice, the Company shall not have cured or eliminated the problem or
thing giving rise to such Good Reason; provided, however, that a repeated breach
after notice and cure of any provision of clauses (a) or (b) above involving the
same or substantially similar actions or conduct, shall be grounds for
termination for Good Reason without any additional notice from the Executive.
3.6 In the event that Executive terminates his employment
hereunder for Good Reason, pursuant to the provisions of paragraph 3.5, or the
Company terminates his employment hereunder without "Cause," as defined in
paragraph 3.4, the Company shall continue to pay to Executive (or in the case of
his death, the legal
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representative of Executive's estate or such other person or persons as
Executive shall have designated by written notice to the Company), all payments
required under paragraph 2.1 hereof through the longer of (a) a period of 12
months and (b) the then remaining term of this Agreement; provided, however,
that (i) Executive's insurance coverage shall terminate upon the Executive
becoming covered under a similar program by reason of employment elsewhere, and
(ii) the cash payments owed to Executive hereunder shall be reduced by any
compensation received by Executive for his services after the date of
termination.
4. Executive Indemnity
4.1 The Company agrees to indemnify Executive and hold
Executive harmless against all costs, expenses (including, without limitation,
reasonable attorneys' fees) and liabilities (other than settlements to which the
Company does not consent, which consent shall not be unreasonably withheld)
(collectively, "Losses") reasonably incurred by Executive in connection with any
claim, action, proceeding or investigation brought against or involving
Executive with respect to, arising out of or in any way relating to Executive's
employment with the Company or Executive's service as a director of the Company;
provided, however, that the Company shall not be required to indemnify Executive
for Losses incurred as a result of Executive's intentional misconduct or gross
negligence (other than matters where Executive acted in good faith and in a
manner he reasonably believed to be in and not opposed to the Company's best
interests). Executive shall promptly notify the Company of any claim, action,
proceeding or investigation under this paragraph and the Company shall be
entitled to participate in the defense of any such claim, action, proceeding or
investigation and, if it so chooses, to assume the defense with counsel selected
by the Company; provided that Executive shall have the right to employ counsel
to represent him (at the Company's expense) if Company counsel would have a
"conflict of interest" in representing both the Company and Executive. The
Company shall not settle or compromise any claim, action, proceeding or
investigation without Executive's consent, which consent shall not be
unreasonably withheld; provided, however, that such consent shall not be
required if the settlement entails only the payment of money and the Company
fully indemnifies Executive in connection therewith. The Company further agrees
to advance any and all expenses (including, without limitation, the fees and
expenses of counsel) reasonably incurred by the Executive in connection with any
such claim, action, proceeding or investigation, provided Executive first enters
into an appropriate agreement for repayment of such advances if indemnification
is found not to have been available.
5. Protection of Confidential Information; Non-Competition.
5.1 Executive acknowledges that:
(a) As a result of Executive's employment with
the Company, he has obtained and will obtain secret and confidential information
concerning the business of the Company and its subsidiaries and affiliates
(referred to collectively in Sections 5 and 6 as the "Company"), including,
without limitation, financial
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information, designs and other proprietary rights, trade secrets and "know-how,"
customers and sources ("Confidential Information").
(b) The Company will suffer substantial damage
which will be difficult to compute if, during the term of this Agreement or
thereafter, Executive should enter a business competitive with the Company, or
divulge Confidential Information, or breach his obligations under Section 6.
(c) The provisions of this Agreement are
reasonable and necessary for the protection of the business of the Company.
5.2 Executive agrees that he will not at any time, either
during the term of this Agreement or thereafter, divulge to any person or entity
any Confidential Information obtained or learned by him as a result of his
employment with the Company, except (i) in the course of performing his duties
hereunder, (ii) with the Company's express written consent; (iii) to the extent
that any such information is in the public domain other than as a result of
Executive's breach of any of his obligations hereunder; or (iv) where required
to be disclosed by court order, subpoena or other government process. If
Executive shall be required to make disclosure pursuant to the provisions of
clause (iv) of the preceding sentence, Executive promptly, but in no event more
than 72 hours after learning of such subpoena, court order, or other government
process, shall notify, by personal delivery or by electronic means, confirmed by
mail, the Company and, at the Company's expense, Executive shall: (a) take all
reasonably necessary and lawful steps required by the Company to defend against
the enforcement of such subpoena, court order or other government process, and
(b) permit the Company to intervene and participate with counsel of its choice
in any proceeding relating to the enforcement thereof.
5.3 Upon termination of his employment with the Company,
Executive will promptly deliver to the Company all memoranda, notes, records,
reports, manuals, drawings, blueprints and other documents (and all copies
thereof) relating to the business of the Company and all property associated
therewith, which he may then possess or have under his control; provided,
however, that Executive shall be entitled to retain copies of such documents
reasonably necessary to document his financial relationship (both past and
future) with the Company.
5.4 During the period commencing on the date hereof and ending
on the Non-Competition Termination Date (as hereafter defined), Executive,
without the prior written permission of the Company, shall not, anywhere in the
world, (i) be employed by, or render any services to, any person, firm or
corporation engaged in any business which is directly or indirectly in
competition with the Company in the businesses described on Schedule 5.4
("Competitive Business"); (ii) engage in any Competitive Business for him or its
own account; (iii) be associated with or interested in any Competitive Business
as an individual, partner, shareholder, creditor, director, officer, principal,
agent, employee, trustee, consultant, advisor or in any other relationship or
capacity; (iv) employ or retain, or have or cause any other person or entity to
employ or retain, any person who was employed or retained by the
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Company while Executive was employed by the Company; or (v) solicit, interfere
with, or endeavor to entice away from the Company, for the benefit of a
Competitive Business, any of its customers or other persons with whom the
Company has a contractual relationship. Notwithstanding the foregoing, this
provision shall not preclude Executive from investing his personal assets in the
securities of any corporation or other business entity which is engaged in a
Competitive Business if such ownership is in compliance with the requirements
set forth in the last sentence of Section 1.3 hereof, such securities are traded
on a national stock exchange or in the over-the-counter market and if such
investment does not result in him beneficially owning, at any time, more than 1%
of the publicly-traded equity securities of such Competitive Business. The
"Non-Competition Termination Date" shall be August 23, 2003; provided, however,
that (a) if this Agreement is terminated for "Good Reason" by Executive or the
Company without "Cause," the Non-Competition Termination Date shall be the later
of the one-year anniversary of such termination and August 16, 2002, and (b) if
Executive's employment is terminated with "Cause" or Executive terminates his
employment without "Good Reason," the Non-Competition Termination Date shall be
August 23, 2004.
5.5 If Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Sections 5.2, 5.4 or 6, the Company shall
have the right and remedy:
(a) to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed by Executive that the services being rendered hereunder
to the Company are of a special, unique and extraordinary character and that any
such breach or threatened breach will cause irreparable injury to the Company
and that money damages will not provide an adequate remedy to the Company; and
(b) to require Executive to account for and pay
over to the Company all monetary damages suffered by the Company as the result
of any transactions constituting a breach of any of the provisions of Sections
5.2, 5.4 or 6, and Executive hereby agrees to account for and pay over such
damages to the Company.
Each of the rights and remedies enumerated in this Section 5.5
shall be independent of the other, and shall be severally enforceable, and such
rights and remedies shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company under law or equity.
In connection with any legal action or proceeding arising out
of or relating to this Agreement, the prevailing party in such action or
proceeding shall be entitled to be reimbursed by the other party for the
reasonable attorneys' fees and costs incurred by the prevailing party.
5.6 If Executive violates any covenant contained in Section
5.4, the duration of such covenant so violated shall be automatically extended
for a period of time equal to the period of such violation.
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5.7 If any provision of Sections 5.2 or 5.4 is held to be
unenforceable because of the scope, duration or area of its applicability, the
tribunal making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
5.8 The provisions of this paragraph 5 shall survive the
termination of this Agreement for any reason.
6. Inventions, Patents and Copyrights.
(a) All inventions and other creative works,
including any patent, copyright, trade secret, trademark or other intellectual
property rights developed or produced by Executive either alone or jointly with
others during Executive's employment with the Company and which relate to the
Company's business or technology or which are derived in the context of the
Company's business or operations (collectively, the "Intellectual Property")
shall be considered to have been prepared for the Company as a part of and in
the course of Executive's role as consultant to, and thereafter, employment
with, the Company. Any such Intellectual Property shall be owned by the Company
regardless of whether it would otherwise be considered a work made for hire.
Such Intellectual Property shall include, among other things, software and
documentation therefor.
(b) The Company shall have full ownership of the
Intellectual Property, with no rights of ownership vested in Executive.
Executive agrees that in the event any Intellectual Property is determined by a
court of competent jurisdiction not to be a work for hire under the federal
copyright laws, this Agreement shall operate as an irrevocable assignment by him
to the Company of the copyright in the works, including all rights thereunder in
perpetuity. Under this irrevocable assignment, Executive hereby assigns to the
Company the sole and exclusive right, title, and interest in and to the
Intellectual Property, without further consideration, and agrees to assist the
Company in registering and from time to time enforcing all copyrights and other
rights and protections relating to the Intellectual Property in any and all
countries. Executive agrees that in the event of any dispute arising out of or
concerning this section, no actions by the Company or Executive undertaken for
the purpose of securing, maintaining, or preserving the copyright in the works,
including but not limited to recordation of this section with the United States
Copyright Office, shall be considered by any finder of fact or determiner of law
in determining the character of the work as work made for hire, unless expressly
authorized by the Company.
(c) Executive shall communicate to the Company
promptly and fully in writing, in such format as the Company may deem
appropriate, all Intellectual Property made or conceived by Executive whether
alone or jointly with others from the date hereof until the date this Agreement
is terminated and to assign to the Company all Intellectual Property.
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(d) Executive shall make and maintain adequate
permanent records of all Intellectual Property, in the form of memoranda,
notebook entries, drawings, printouts, or reports relating thereto, in keeping
with then current Company procedures. Executive agrees that these records, as
well as the Intellectual Property, shall be and remain the property of the
Company at all times.
(e) Executive shall cooperate with and assist
the Company and its nominees, at their sole expense, during the term of this
Agreement and thereafter, in securing and protecting patent, copyright or other
similar rights in the United States and foreign countries in the Intellectual
Property. In this connection, Executive specifically agrees to execute all
papers which the Company deems necessary to protect its interests including the
execution of assignments of invention and copyrights and to give evidence and
testimony, as may be necessary, to secure and enforce the Company's rights in
the Intellectual Property. Executive hereby appoints the Company as his agent
and attorney-in-fact to act for and in Executive's behalf and stead to execute,
register, and file any applications, and to do all other lawfully permitted acts
to further the registration, prosecution, issuance, renewals, and extensions of
patents, copyrights or other protections with the same legal force and effect as
if personally executed by Executive.
(f) The provisions of this Section 6 shall survive
termination of this Agreement for any reason.
7. Miscellaneous Provisions.
7.1 All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered if delivered personally or by nationally
recognized overnight courier, by certified mail or facsimile to the parties at
the following addresses and numbers (or at such other address or number for a
party as shall be specified by like notice, except that notices of changes of
address or number shall be effective upon receipt):
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If to Executive:
Brian Wharton
2451 Myrtle Avenue
Hermosa Beach, California 90254
If to the Company:
b2bstores.com Inc.
211 Park Avenue
Hicksville, New York 11801
Attn: Chairman of the Board
With a copy to:
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
Attn: David Alan Miller, Esq.
7.2 This Agreement sets forth the entire agreement of the
parties relating to the employment of Executive and is intended to supersede all
prior negotiations, understandings and agreements. No provisions of this
Agreement may be waived or changed except by a writing by the party against whom
such waiver or change is sought to be enforced. The failure of any party to
require performance of any provision hereof or thereof shall in no manner affect
the right at a later time to enforce such provision.
7.3 This Agreement shall be governed by and construed under
the law of the State of New York, disregarding any principles of conflicts of
law that would otherwise provide for the application of the substantive law of
another jurisdiction. Each of the parties (i) agrees that any legal suit, action
or proceeding arising out of or relating to this Agreement shall be instituted
exclusively in New York State Supreme Court, County of New York, or in the
United States District Court for the Southern District of New York, (ii) waives
any objection to the venue of any such suit, action or proceeding and the right
to assert that such forum is not a convenient forum, and (iii) irrevocably
consents to the jurisdiction of the New York State Supreme Court, County of New
York, and the United States District Court for the Southern District of New York
in any such suit, action or proceeding. Each of the parties further agrees to
accept and acknowledge service of any and all process which may be served in any
such suit, action or proceeding in the New York State Supreme Court, County of
New York, or in the United States District Court for the Southern District of
New York and agrees that service of process upon it mailed by certified mail to
its address shall be deemed in every respect effective service of process upon
it in any such suit, action or proceeding.
7.4 This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company. This Agreement shall not
be assignable by Executive, but shall inure to the benefit of and be binding
upon Executive's heirs and legal representatives.
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7.5 Should any provision of this Agreement become legally
unenforceable, no other provision of this Agreement shall be affected, and this
Agreement shall continue as if the Agreement had been executed absent the
unenforceable provision.
7.6 If, during the term hereof, Executive is nominated to
serve as a director of the Company but fails to be elected, he shall nonetheless
be invited to attend each meeting of the Board of Directors of the Company
through the remainder of the term hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
B2BSTORES.COM INC.
---------------------------------------------
By: Woo Jin Kim, Chief Executive Officer
---------------------------------------------
BRIAN WHARTON
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SCHEDULE 1
<PAGE>
SCHEDULE 5.4
The development and operation of Internet websites, the
primary purpose and focus of which is to sell products and services specifically
aimed at business clients.
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT dated August 23, 1999 between JEFFREY CRANDELL,
residing at 1120 Eleventh Street, Hermosa Beach, California 90254 ("Executive"),
and B2BSTORES.COM INC., a Delaware corporation having its principal office at
211 Park Avenue, Hicksville, New York 11801 ("Company").
WHEREAS, Executive possesses expertise in the areas of
e-commerce, web design and related technologies;
WHEREAS, the Company desires to avail itself of Executive's
expertise; and
WHEREAS, the Company desires to employ Executive, and
Executive desires to be employed by Company, commencing August 23, 1999 (the
"Start Date"), on the terms set forth in this Agreement.
IT IS AGREED:
1. Employment, Duties and Acceptance.
1.1 Commencing on the Start Date, the Company shall employ
Executive as its Chief Technology Officer ("CTO"). All of Executive's powers and
authority in any capacity shall at all times be subject to the direction and
control of the Company's Board of Directors. Executive shall report directly to
the Chief Executive Officer ("CEO").
1.2 The Board, the Chairman of the Board and/or CEO may assign
to Executive such responsibilities and executive duties for the Company or any
subsidiary of the Company as are consistent with Executive's status as CTO. The
Company and Executive acknowledge that Executive's primary functions and duties
as CTO shall be the supervision of the creation and expansion of the technology
relating to the "b2bstores.com" website and related business of the Company and
its subsidiaries and divisions.
1.3 Executive accepts such employment and agrees to devote
substantially all of his business time, energy and attention to the performance
of his duties hereunder beginning on the Start Date. Nothing herein shall be
construed as preventing Executive from making and supervising personal
investments, provided they will not (a) require any substantial services on his
part in the operation of the affairs of the companies in which such investments
are made, (b) interfere with the performance of Executive's duties hereunder or
(c) violate the provisions of paragraph 5.4 hereof.
<PAGE>
2. Compensation and Benefits.
2.1 Commencing on the Start Date, the Company shall pay to
Executive a salary at the minimum annual rate of $110,000, increasing to
$130,000 on the earlier of (a) the date an initial public offering ("IPO") of
the Company's Common Stock is consummated and (b) November 1, 1999. Executive's
compensation shall be paid in equal, periodic installments in accordance with
the Company's normal payroll procedures.
2.2 As additional compensation for services to be rendered
by Executive hereunder:
(a) (i) On the date ("Effective Date") the
registration statement relating to the IPO is declared effective by the SEC, the
Company shall issue to Executive options ("Options") to purchase 175,000 shares
of its common stock ("Common Stock") for a price equal to 80% of the per-share
offering price in the IPO. The Options shall be evidenced by a Stock Option
Agreement, in the form of Exhibit A and dated the Effective Date, between the
Company and Executive ("Stock Option Agreement"). The Options will vest in three
annual installments of 87,500 shares, 43,750 shares and 43,750 shares,
respectively, on the first three anniversaries of the Start Date.
(ii) The shares of Common Stock
underlying the Options shall be included in the next Registration Statement on
Form S-8 filed by the Company after the date hereof, to the extent the Company
is legally able to include such shares.
(b) The Company also shall pay Executive:
(i) $20,000 on the date the IPO is
consummated;
(ii) for each calendar quarter during
calendar year 2000 in which the criteria set forth on Schedule 1 hereto
have been satisfied, $12,500 and options to purchase 12,500 shares of
Common Stock at a per-share price equal to the average last sale price
of the Common Stock for the last 20 trading days of the quarter (such
cash and options to be paid and granted promptly after it is determined
that the criteria have been satisfied); and
(iii) such additional bonuses as may be
determined from time to time by the Board of Directors.
2.3 Commencing on the Start Date, Executive shall be entitled
to such medical, life, disability and other benefits as are generally afforded
to other senior executives of the Company, subject to applicable waiting periods
and other conditions.
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2.4 Executive shall be entitled to two weeks of vacation in
each calendar year and to a reasonable number of other days off for religious
and personal reasons.
2.5 Executive shall maintain a suitable automobile for
business use. The Company shall reimburse Executive for the costs of leasing
such automobile and for all other costs associated with the use of the vehicle,
including insurance costs, repairs and maintenance (such lease and all other
costs not to exceed $1,000 per month in the aggregate). These reimbursements
shall be considered taxable income to Executive except to the extent that it is
documented to have been used by him for business purposes.
2.6 Commencing on the Start Date, the Company will pay or
reimburse Executive for all transportation, hotel and other expenses reasonably
incurred by Executive on business trips and for all other ordinary and
reasonable out-of-pocket expenses actually incurred by him in the conduct of the
business of the Company against itemized vouchers submitted with respect to any
such expenses and approved in accordance with customary procedures.
2.7 Executive acknowledges that he will be obligated to render
services hereunder wherever such services are reasonably required by the
Company, which will necessitate substantial travel by Executive, primarily in
North America.
3. Term and Termination.
3.1 The term of Executive's employment shall commence on the
Start Date and shall continue until August 23, 2002, unless sooner terminated as
herein provided. In the event of a termination of employment for any reason,
Executive's rights with respect to the Options shall be governed by the Stock
Option Agreement.
3.2 Executive's employment hereunder shall terminate on the
date of his death, in which case the Company shall pay to the legal
representative of Executive's estate (i) the base salary due Executive pursuant
to paragraph 2.1 hereof through the date of Executive's death, (ii) all earned
and previously approved but unpaid bonuses, (iii) all valid expense
reimbursements through the date of the termination of this Agreement, (iv) all
accrued but unused vacation pay and (v) all costs associated with terminating
the lease for Executive's automobile.
3.3 The Company, by notice to Executive, may terminate
Executive's employment hereunder if Executive shall fail because of illness or
incapacity to render, for six consecutive months, services of the character
contemplated by this Agreement. Notwithstanding such termination, the Company
shall pay to Executive (i) the base salary due Executive pursuant to paragraph
2.1 hereof through the date of such notice, less any amount Executive receives
for such period from any Company-sponsored or Company-paid source of insurance,
disability compensation or government program, (ii) all earned and previously
approved but unpaid bonuses, (iii) all valid expense
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reimbursements through the date of the termination of this Agreement, (iv) all
accrued but unused vacation pay and (v) all costs associated with terminating
the lease for Executive's automobile.
3.4 The Company, by notice to Executive, may terminate
Executive's employment hereunder for cause. As used herein, "Cause" shall mean:
(a) the refusal or failure by Executive to carry out specific directions of the
Board or the Chairman which are of a material nature and consistent with his
status as CTO, or the refusal or failure by Executive to perform a material part
of Executive's duties hereunder; (b) the commission by Executive of a material
breach of any of the provisions of this Agreement; (c) fraud or dishonest action
by Executive in his relations with the Company or any of its subsidiaries or
affiliates, or with any customer or business contact of the Company or any of
its subsidiaries or affiliates ("dishonest" for these purposes shall mean
Executive's knowingly or recklessly making of a material misstatement or
omission for his personal benefit); or (d) the conviction of Executive of any
crime involving an act of moral turpitude. Notwithstanding the foregoing, no
"Cause" for termination shall be deemed to exist with respect to Executive's
acts described in clauses (a) or (b) above, unless the Company shall have given
written notice to Executive specifying the "Cause" with reasonable particularity
and, within thirty calendar days after such notice, Executive shall not have
cured or eliminated the problem or thing giving rise to such "Cause;" provided,
however, that a repeated breach after notice and cure of any provision of
clauses (a) or (b) above involving the same or substantially similar actions or
conduct, shall be grounds for termination for "Cause" without any additional
notice from the Company.
3.5 The Executive, by notice to the Company, may terminate
Executive's employment hereunder if a "Good Reason" exists. For purposes of this
Agreement, "Good Reason" shall mean the occurrence of any of the following
circumstances without the Executive's prior express written consent: (a) a
substantial and material adverse change in the nature of Executive's title,
duties or responsibilities with the Company that represents a demotion from his
title, duties or responsibilities as in effect immediately prior to such change;
(b) the commission by the Company of a material breach of any of the provisions
of this Agreement, and (c) a transaction or related series of transactions that
have not been approved by the Company's Board of Directors resulting in any
person or group of persons acquiring more than 35% the outstanding voting stock
of the Company. Notwithstanding the foregoing, no Good Reason shall be deemed to
exist with respect to the Company's acts described in clauses (a) or (b) above,
unless the Executive shall have given written notice to the Company specifying
the Good Reason with reasonable particularity and, within thirty calendar days
after such notice, the Company shall not have cured or eliminated the problem or
thing giving rise to such Good Reason; provided, however, that a repeated breach
after notice and cure of any provision of clauses (a) or (b) above involving the
same or substantially similar actions or conduct, shall be grounds for
termination for Good Reason without any additional notice from the Executive.
3.6 In the event that Executive terminates his employment
hereunder for Good Reason, pursuant to the provisions of paragraph 3.5, or the
Company terminates his employment hereunder without "Cause," as defined in
paragraph 3.4, the Company shall continue to pay to Executive (or in the case of
his death, the legal
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representative of Executive's estate or such other person or persons as
Executive shall have designated by written notice to the Company), all payments
required under paragraph 2.1 hereof through the longer of (a) a period of 12
months and (b) the then remaining term of this Agreement; provided, however,
that (i) Executive's insurance coverage shall terminate upon the Executive
becoming covered under a similar program by reason of employment elsewhere, and
(ii) the cash payments owed to Executive hereunder shall be reduced by any
compensation received by Executive for his services after the date of
termination.
4. Executive Indemnity
4.1 The Company agrees to indemnify Executive and hold
Executive harmless against all costs, expenses (including, without limitation,
reasonable attorneys' fees) and liabilities (other than settlements to which the
Company does not consent, which consent shall not be unreasonably withheld)
(collectively, "Losses") reasonably incurred by Executive in connection with any
claim, action, proceeding or investigation brought against or involving
Executive with respect to, arising out of or in any way relating to Executive's
employment with the Company or Executive's service as a director of the Company;
provided, however, that the Company shall not be required to indemnify Executive
for Losses incurred as a result of Executive's intentional misconduct or gross
negligence (other than matters where Executive acted in good faith and in a
manner he reasonably believed to be in and not opposed to the Company's best
interests). Executive shall promptly notify the Company of any claim, action,
proceeding or investigation under this paragraph and the Company shall be
entitled to participate in the defense of any such claim, action, proceeding or
investigation and, if it so chooses, to assume the defense with counsel selected
by the Company; provided that Executive shall have the right to employ counsel
to represent him (at the Company's expense) if Company counsel would have a
"conflict of interest" in representing both the Company and Executive. The
Company shall not settle or compromise any claim, action, proceeding or
investigation without Executive's consent, which consent shall not be
unreasonably withheld; provided, however, that such consent shall not be
required if the settlement entails only the payment of money and the Company
fully indemnifies Executive in connection therewith. The Company further agrees
to advance any and all expenses (including, without limitation, the fees and
expenses of counsel) reasonably incurred by the Executive in connection with any
such claim, action, proceeding or investigation, provided Executive first enters
into an appropriate agreement for repayment of such advances if indemnification
is found not to have been available.
5. Protection of Confidential Information; Non-Competition.
5.1 Executive acknowledges that:
(a) As a result of Executive's employment with
the Company, he has obtained and will obtain secret and confidential information
concerning the business of the Company and its subsidiaries and affiliates
(referred to collectively in Sections 5 and 6 as the "Company"), including,
without limitation, financial
5
<PAGE>
information, designs and other proprietary rights, trade secrets and "know-how,"
customers and sources ("Confidential Information").
(b) The Company will suffer substantial damage which
will be difficult to compute if, during the term of this Agreement or
thereafter, Executive should enter a business competitive with the Company, or
divulge Confidential Information, or breach his obligations under Section 6.
(c) The provisions of this Agreement are reasonable
and necessary for the protection of the business of the Company.
5.2 Executive agrees that he will not at any time, either
during the term of this Agreement or thereafter, divulge to any person or entity
any Confidential Information obtained or learned by him as a result of his
employment with the Company, except (i) in the course of performing his duties
hereunder, (ii) with the Company's express written consent; (iii) to the extent
that any such information is in the public domain other than as a result of
Executive's breach of any of his obligations hereunder; or (iv) where required
to be disclosed by court order, subpoena or other government process. If
Executive shall be required to make disclosure pursuant to the provisions of
clause (iv) of the preceding sentence, Executive promptly, but in no event more
than 72 hours after learning of such subpoena, court order, or other government
process, shall notify, by personal delivery or by electronic means, confirmed by
mail, the Company and, at the Company's expense, Executive shall: (a) take all
reasonably necessary and lawful steps required by the Company to defend against
the enforcement of such subpoena, court order or other government process, and
(b) permit the Company to intervene and participate with counsel of its choice
in any proceeding relating to the enforcement thereof.
5.3 Upon termination of his employment with the Company,
Executive will promptly deliver to the Company all memoranda, notes, records,
reports, manuals, drawings, blueprints and other documents (and all copies
thereof) relating to the business of the Company and all property associated
therewith, which he may then possess or have under his control; provided,
however, that Executive shall be entitled to retain copies of such documents
reasonably necessary to document his financial relationship (both past and
future) with the Company.
5.4 During the period commencing on the date hereof and ending
on the Non-Competition Termination Date (as hereafter defined), Executive,
without the prior written permission of the Company, shall not, anywhere in the
world, (i) be employed by, or render any services to, any person, firm or
corporation engaged in any business which is directly or indirectly in
competition with the Company in the businesses described on Schedule 5.4
("Competitive Business"); (ii) engage in any Competitive Business for him or its
own account; (iii) be associated with or interested in any Competitive Business
as an individual, partner, shareholder, creditor, director, officer, principal,
agent, employee, trustee, consultant, advisor or in any other relationship or
capacity; (iv) employ or retain, or Company while Executive was employed by the
Company; or (v) solicit, interfere with, or endeavor to entice
6
<PAGE>
away from the Company, for the benefit of a Competitive Business, any of its
customers or other persons with whom the Executive from investing his personal
assets in the securities of any corporation or other business entity which is
engaged in a Competitive Business if such ownership is in compliance with the
requirements set forth in the last sentence of Section 1.3 hereof, such
securities are traded on a national stock exchange or in the over-the-counter
market and if such investment does not result in him beneficially owning, at any
time, more than 1% of the publicly-traded equity securities of such Competitive
Business. The "Non-Competition Termination Date" shall be August 23, 2003;
provided, however, that (a) if this Agreement is terminated for "Good Reason" by
Executive or the Company without "Cause," the Non-Competition Termination Date
shall be the later of the one-year anniversary of such termination and August
23, 2002, and (b) if Executive's employment is terminated with "Cause" or
Executive terminates his employment without "Good Reason," the Non-Competition
Termination Date shall be August 23, 2004.
5.5 If Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Sections 5.2, 5.4 or 6, the Company shall
have the right and remedy:
(a) to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed by Executive that the services being rendered hereunder
to the Company are of a special, unique and extraordinary character and that any
such breach or threatened breach will cause irreparable injury to the Company
and that money damages will not provide an adequate remedy to the Company; and
(b) to require Executive to account for and pay
over to the Company all monetary damages suffered by the Company as the result
of any transactions constituting a breach of any of the provisions of Sections
5.2, 5.4 or 6, and Executive hereby agrees to account for and pay over such
damages to the Company.
Each of the rights and remedies enumerated in this Section 5.5
shall be independent of the other, and shall be severally enforceable, and such
rights and remedies shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company under law or equity.
In connection with any legal action or proceeding arising out
of or relating to this Agreement, the prevailing party in such action or
proceeding shall be entitled to be reimbursed by the other party for the
reasonable attorneys' fees and costs incurred by the prevailing party.
5.6 If Executive violates any covenant contained in Section
5.4, the duration of such covenant so violated shall be automatically extended
for a period of time equal to the period of such violation.
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5.7 If any provision of Sections 5.2 or 5.4 is held to be
unenforceable because of the scope, duration or area of its applicability, the
tribunal making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
5.8 The provisions of this paragraph 5 shall survive the
termination of this Agreement for any reason.
6. Inventions, Patents and Copyrights.
(a) All inventions and other creative works,
including any patent, copyright, trade secret, trademark or other intellectual
property rights developed or produced by Executive either alone or jointly with
others during Executive's employment with the Company and which relate to the
Company's business or technology or which are derived in the context of the
Company's business or operations (collectively, the "Intellectual Property")
shall be considered to have been prepared for the Company as a part of and in
the course of Executive's role as consultant to, and thereafter, employment
with, the Company. Any such Intellectual Property shall be owned by the Company
regardless of whether it would otherwise be considered a work made for hire.
Such Intellectual Property shall include, among other things, software and
documentation therefor.
(b) The Company shall have full ownership of the
Intellectual Property, with no rights of ownership vested in Executive.
Executive agrees that in the event any Intellectual Property is determined by a
court of competent jurisdiction not to be a work for hire under the federal
copyright laws, this Agreement shall operate as an irrevocable assignment by him
to the Company of the copyright in the works, including all rights thereunder in
perpetuity. Under this irrevocable assignment, Executive hereby assigns to the
Company the sole and exclusive right, title, and interest in and to the
Intellectual Property, without further consideration, and agrees to assist the
Company in registering and from time to time enforcing all copyrights and other
rights and protections relating to the Intellectual Property in any and all
countries. Executive agrees that in the event of any dispute arising out of or
concerning this section, no actions by the Company or Executive undertaken for
the purpose of securing, maintaining, or preserving the copyright in the works,
including but not limited to recordation of this section with the United States
Copyright Office, shall be considered by any finder of fact or determiner of law
in determining the character of the work as work made for hire, unless expressly
authorized by the Company.
(c) Executive shall communicate to the Company
promptly and fully in writing, in such format as the Company may deem
appropriate, all Intellectual Property made or conceived by Executive whether
alone or jointly with others from the date hereof until the date this Agreement
is terminated and to assign to the Company all Intellectual Property.
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(d) Executive shall make and maintain adequate
permanent records of all Intellectual Property, in the form of memoranda,
notebook entries, drawings, printouts, or reports relating thereto, in keeping
with then current Company procedures. Executive agrees that these records, as
well as the Intellectual Property, shall be and remain the property of the
Company at all times.
(e) Executive shall cooperate with and assist
the Company and its nominees, at their sole expense, during the term of this
Agreement and thereafter, in securing and protecting patent, copyright or other
similar rights in the United States and foreign countries in the Intellectual
Property. In this connection, Executive specifically agrees to execute all
papers which the Company deems necessary to protect its interests including the
execution of assignments of invention and copyrights and to give evidence and
testimony, as may be necessary, to secure and enforce the Company's rights in
the Intellectual Property. Executive hereby appoints the Company as his agent
and attorney-in-fact to act for and in Executive's behalf and stead to execute,
register, and file any applications, and to do all other lawfully permitted acts
to further the registration, prosecution, issuance, renewals, and extensions of
patents, copyrights or other protections with the same legal force and effect as
if personally executed by Executive.
(f) The provisions of this Section 6 shall survive
termination of this Agreement for
any reason.
7. Miscellaneous Provisions.
7.1 All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered if delivered personally or by nationally
recognized overnight courier, by certified mail or facsimile to the parties at
the following addresses and numbers (or at such other address or number for a
party as shall be specified by like notice, except that notices of changes of
address or number shall be effective upon receipt):
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If to Executive:
Jeffrey Crandell
1120 Eleventh Street
Hermosa Beach, California 90254
If to the Company:
b2bstores.com Inc.
211 Park Avenue
Hicksville, New York 11801
Attn: Chairman of the Board
With a copy to:
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
Attn: David Alan Miller, Esq.
7.2 This Agreement sets forth the entire agreement of the
parties relating to the employment of Executive and is intended to supersede all
prior negotiations, understandings and agreements. No provisions of this
Agreement may be waived or changed except by a writing by the party against whom
such waiver or change is sought to be enforced. The failure of any party to
require performance of any provision hereof or thereof shall in no manner affect
the right at a later time to enforce such provision.
7.3 This Agreement shall be governed by and construed under
the law of the State of New York, disregarding any principles of conflicts of
law that would otherwise provide for the application of the substantive law of
another jurisdiction. Each of the parties (i) agrees that any legal suit, action
or proceeding arising out of or relating to this Agreement shall be instituted
exclusively in New York State Supreme Court, County of New York, or in the
United States District Court for the Southern District of New York, (ii) waives
any objection to the venue of any such suit, action or proceeding and the right
to assert that such forum is not a convenient forum, and (iii) irrevocably
consents to the jurisdiction of the New York State Supreme Court, County of New
York, and the United States District Court for the Southern District of New York
in any such suit, action or proceeding. Each of the parties further agrees to
accept and acknowledge service of any and all process which may be served in any
such suit, action or proceeding in the New York State Supreme Court, County of
New York, or in the United States District Court for the Southern District of
New York and agrees that service of process upon it mailed by certified mail to
its address shall be deemed in every respect effective service of process upon
it in any such suit, action or proceeding.
7.4 This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company. This Agreement shall not
be assignable by Executive, but shall inure to the benefit of and be binding
upon Executive's heirs and legal representatives.
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7.5 Should any provision of this Agreement become legally
unenforceable, no other provision of this Agreement shall be affected, and this
Agreement shall continue as if the Agreement had been executed absent the
unenforceable provision.
7.6 If, during the term hereof, Executive is nominated to
serve as a director of the Company but fails to be elected, he shall nonetheless
be invited to attend each meeting of the Board of Directors of the Company
through the remainder of the term hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
B2BSTORES.COM INC.
---------------------------------------------
By: Woo Jin Kim, Chief Executive Officer
---------------------------------------------
JEFFREY CRANDELL
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SCHEDULE 1
12
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SCHEDULE 5.4
The development and operation of Internet websites, the
primary purpose and focus of which is to sell products and services specifically
aimed at business clients.
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EMPLOYMENT AGREEMENT
AGREEMENT dated September 6, 1999 between MARK VOORHIS,
residing at 17300 17th Street, Tustin, California 92780 ("Executive"), and
B2BSTORES.COM INC., a Delaware corporation having its principal office at 211
Park Avenue, Hicksville, New York 11801 ("Company").
WHEREAS, Executive possesses expertise in the areas of
corporate finance and corporate accounting;
WHEREAS, the Company desires to avail itself of Executive's
expertise; and
WHEREAS, the Company desires to employ Executive, and
Executive desires to be employed by Company, commencing September 6, 1999 (the
"Start Date"), on the terms set forth in this Agreement.
IT IS AGREED:
1. Employment, Duties and Acceptance.
1.1 Commencing on the Start Date, the Company shall employ
Executive as its Chief Financial Officer ("CFO") and Chief Operating Officer
("COO"). All of Executive's powers and authority in any capacity shall at all
times be subject to the direction and control of the Company's Board of
Directors. Executive shall report directly to the Chief Executive Officer
("CEO").
1.2 The Board, the Chairman of the Board and/or CEO may assign
to Executive such responsibilities and executive duties for the Company or any
subsidiary of the Company as are consistent with Executive's status as CFO and
COO. The Company and Executive acknowledge that Executive's primary functions
and duties as CFO and COO shall be the supervision of the Company's financings,
accounting and day-to-day office operations of the Company and its subsidiaries
and divisions.
1.3 Executive accepts such employment and agrees to devote
substantially all of his business time, energy and attention to the performance
of his duties hereunder beginning on the Start Date. Nothing herein shall be
construed as preventing Executive from making and supervising personal
investments, provided they will not (a) require any substantial services on his
part in the operation of the affairs of the companies in which such investments
are made, (b) interfere with the performance of Executive's duties hereunder or
(c) violate the provisions of paragraph 5.4 hereof.
<PAGE>
2. Compensation and Benefits.
2.1 Commencing on the Start Date, the Company shall pay to
Executive a salary at the minimum annual rate of $120,000, increasing to
$140,000 on the earlier of (a) the date an initial public offering ("IPO") of
the Company's Common Stock is consummated and (b) November 1, 1999. Executive's
compensation shall be paid in equal, periodic installments in accordance with
the Company's normal payroll procedures.
2.2 As additional compensation for services to be
rendered by Executive hereunder:
(a) (i) On the date ("Effective Date") the
registration statement relating to the IPO is declared effective by the SEC, the
Company shall issue to Executive options ("Options") to purchase 175,000 shares
of its common stock ("Common Stock") for a price equal to 80% of the per-share
offering price in the IPO. The Options shall be evidenced by a Stock Option
Agreement, in the form of Exhibit A and dated the Effective Date, between the
Company and Executive ("Stock Option Agreement"). The Options will vest in three
annual installments of 87,500 shares, 43,750 shares and 43,750 shares,
respectively, on the first three anniversaries of the Start Date.
(ii) The shares of Common Stock
underlying the Options shall be included in the next Registration Statement on
Form S-8 filed by the Company after the date hereof, to the extent the Company
is legally able to include such shares.
(b) The Company also shall pay Executive:
(i) $20,000 on the date the IPO is
consummated;
(ii) for each calendar quarter during
calendar year 2000 in which the criteria set forth on Schedule 1 hereto
have been satisfied, $12,500 and options to purchase 12,500 shares of
Common Stock at a per-share price equal to the average last sale price
of the Common Stock for the last 20 trading days of the quarter (such
cash and options to be paid and granted promptly after it is determined
that the criteria have been satisfied); and
(iii) such additional bonuses as may be
determined from time to time by the Board of Directors.
2.3 Commencing on the Start Date, Executive shall be entitled
to such medical, life, disability and other benefits as are generally afforded
to other senior executives of the Company, subject to applicable waiting periods
and other conditions.
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2.4 Executive shall be entitled to two weeks of vacation in
each calendar year and to a reasonable number of other days off for religious
and personal reasons.
2.5 Executive shall maintain a suitable automobile for
business use. The Company shall reimburse Executive for the costs of leasing
such automobile and for all other costs associated with the use of the vehicle,
including insurance costs, repairs and maintenance (such lease and all other
costs not to exceed $1,000 per month in the aggregate). These reimbursements
shall be considered taxable income to Executive except to the extent that it is
documented to have been used by him for business purposes.
2.6 Commencing on the Start Date, the Company will pay or
reimburse Executive for all transportation, hotel and other expenses reasonably
incurred by Executive on business trips and for all other ordinary and
reasonable out-of-pocket expenses actually incurred by him in the conduct of the
business of the Company against itemized vouchers submitted with respect to any
such expenses and approved in accordance with customary procedures.
2.7 Executive acknowledges that he will be obligated to render
services hereunder wherever such services are reasonably required by the
Company, which will necessitate substantial travel by Executive, primarily in
North America.
3. Term and Termination.
3.1 The term of Executive's employment shall commence on the
Start Date and shall continue until September 6, 2002, unless sooner terminated
as herein provided. In the event of a termination of employment for any reason,
Executive's rights with respect to the Options shall be governed by the Stock
Option Agreement.
3.2 Executive's employment hereunder shall terminate on the
date of his death, in which case the Company shall pay to the legal
representative of Executive's estate (i) the base salary due Executive pursuant
to paragraph 2.1 hereof through the date of Executive's death, (ii) all earned
and previously approved but unpaid bonuses, (iii) all valid expense
reimbursements through the date of the termination of this Agreement, (iv) all
accrued but unused vacation pay and (v) all costs associated with terminating
the lease for Executive's automobile.
3.3 The Company, by notice to Executive, may terminate
Executive's employment hereunder if Executive shall fail because of illness or
incapacity to render, for six consecutive months, services of the character
contemplated by this Agreement. Notwithstanding such termination, the Company
shall pay to Executive (i) the base salary due Executive pursuant to paragraph
2.1 hereof through the date of such notice, less any amount Executive receives
for such period from any Company-sponsored or Company-paid source of insurance,
disability compensation or government program, (ii) all earned and previously
approved but unpaid bonuses, (iii) all valid expense
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reimbursements through the date of the termination of this Agreement, (iv) all
accrued but unused vacation pay and (v) all costs associated with terminating
the lease for Executive's automobile.
3.4 The Company, by notice to Executive, may terminate
Executive's employment hereunder for cause. As used herein, "Cause" shall mean:
(a) the refusal or failure by Executive to carry out specific directions of the
Board or the Chairman which are of a material nature and consistent with his
status as CTO, or the refusal or failure by Executive to perform a material part
of Executive's duties hereunder; (b) the commission by Executive of a material
breach of any of the provisions of this Agreement; (c) fraud or dishonest action
by Executive in his relations with the Company or any of its subsidiaries or
affiliates, or with any customer or business contact of the Company or any of
its subsidiaries or affiliates ("dishonest" for these purposes shall mean
Executive's knowingly or recklessly making of a material misstatement or
omission for his personal benefit); or (d) the conviction of Executive of any
crime involving an act of moral turpitude. Notwithstanding the foregoing, no
"Cause" for termination shall be deemed to exist with respect to Executive's
acts described in clauses (a) or (b) above, unless the Company shall have given
written notice to Executive specifying the "Cause" with reasonable particularity
and, within thirty calendar days after such notice, Executive shall not have
cured or eliminated the problem or thing giving rise to such "Cause;" provided,
however, that a repeated breach after notice and cure of any provision of
clauses (a) or (b) above involving the same or substantially similar actions or
conduct, shall be grounds for termination for "Cause" without any additional
notice from the Company.
3.5 The Executive, by notice to the Company, may terminate
Executive's employment hereunder if a "Good Reason" exists. For purposes of this
Agreement, "Good Reason" shall mean the occurrence of any of the following
circumstances without the Executive's prior express written consent: (a) a
substantial and material adverse change in the nature of Executive's title,
duties or responsibilities with the Company that represents a demotion from his
title, duties or responsibilities as in effect immediately prior to such change;
(b) the commission by the Company of a material breach of any of the provisions
of this Agreement, and (c) a transaction or related series of transactions that
have not been approved by the Company's Board of Directors resulting in any
person or group of persons acquiring more than 35% the outstanding voting stock
of the Company. Notwithstanding the foregoing, no Good Reason shall be deemed to
exist with respect to the Company's acts described in clauses (a) or (b) above,
unless the Executive shall have given written notice to the Company specifying
the Good Reason with reasonable particularity and, within thirty calendar days
after such notice, the Company shall not have cured or eliminated the problem or
thing giving rise to such Good Reason; provided, however, that a repeated breach
after notice and cure of any provision of clauses (a) or (b) above involving the
same or substantially similar actions or conduct, shall be grounds for
termination for Good Reason without any additional notice from the Executive.
3.6 In the event that Executive terminates his employment
hereunder for Good Reason, pursuant to the provisions of paragraph 3.5, or the
Company terminates his employment hereunder without "Cause," as defined in
paragraph 3.4, the Company shall continue to pay to Executive (or in the case of
his death, the legal
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representative of Executive's estate or such other person or persons as
Executive shall have designated by written notice to the Company), all payments
required under paragraph 2.1 hereof through the longer of (a) a period of 12
months and (b) the then remaining term of this Agreement; provided, however,
that (i) Executive's insurance coverage shall terminate upon the Executive
becoming covered under a similar program by reason of employment elsewhere, and
(ii) the cash payments owed to Executive hereunder shall be reduced by any
compensation received by Executive for his services after the date of
termination.
4. Executive Indemnity
4.1 The Company agrees to indemnify Executive and hold
Executive harmless against all costs, expenses (including, without limitation,
reasonable attorneys' fees) and liabilities (other than settlements to which the
Company does not consent, which consent shall not be unreasonably withheld)
(collectively, "Losses") reasonably incurred by Executive in connection with any
claim, action, proceeding or investigation brought against or involving
Executive with respect to, arising out of or in any way relating to Executive's
employment with the Company or Executive's service as a director of the Company;
provided, however, that the Company shall not be required to indemnify Executive
for Losses incurred as a result of Executive's intentional misconduct or gross
negligence (other than matters where Executive acted in good faith and in a
manner he reasonably believed to be in and not opposed to the Company's best
interests). Executive shall promptly notify the Company of any claim, action,
proceeding or investigation under this paragraph and the Company shall be
entitled to participate in the defense of any such claim, action, proceeding or
investigation and, if it so chooses, to assume the defense with counsel selected
by the Company; provided that Executive shall have the right to employ counsel
to represent him (at the Company's expense) if Company counsel would have a
"conflict of interest" in representing both the Company and Executive. The
Company shall not settle or compromise any claim, action, proceeding or
investigation without Executive's consent, which consent shall not be
unreasonably withheld; provided, however, that such consent shall not be
required if the settlement entails only the payment of money and the Company
fully indemnifies Executive in connection therewith. The Company further agrees
to advance any and all expenses (including, without limitation, the fees and
expenses of counsel) reasonably incurred by the Executive in connection with any
such claim, action, proceeding or investigation, provided Executive first enters
into an appropriate agreement for repayment of such advances if indemnification
is found not to have been available.
5. Protection of Confidential Information; Non-Competition.
5.1 Executive acknowledges that:
(a) As a result of Executive's employment with
the Company, he has obtained and will obtain secret and confidential information
concerning the business of the Company and its subsidiaries and affiliates
(referred to collectively in Sections 5 and 6 as the "Company"), including,
without limitation, financial
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information, designs and other proprietary rights, trade secrets and "know-how,"
customers and sources ("Confidential Information").
(b) The Company will suffer substantial damage which
will be difficult to compute
if, during the term of this Agreement or thereafter, Executive should enter a
business competitive with the Company, or divulge Confidential Information, or
breach his obligations under Section 6.
(c) The provisions of this Agreement are
reasonable and necessary for the protection of the business of the Company.
5.2 Executive agrees that he will not at any time, either
during the term of this Agreement or thereafter, divulge to any person or entity
any Confidential Information obtained or learned by him as a result of his
employment with the Company, except (i) in the course of performing his duties
hereunder, (ii) with the Company's express written consent; (iii) to the extent
that any such information is in the public domain other than as a result of
Executive's breach of any of his obligations hereunder; or (iv) where required
to be disclosed by court order, subpoena or other government process. If
Executive shall be required to make disclosure pursuant to the provisions of
clause (iv) of the preceding sentence, Executive promptly, but in no event more
than 72 hours after learning of such subpoena, court order, or other government
process, shall notify, by personal delivery or by electronic means, confirmed by
mail, the Company and, at the Company's expense, Executive shall: (a) take all
reasonably necessary and lawful steps required by the Company to defend against
the enforcement of such subpoena, court order or other government process, and
(b) permit the Company to intervene and participate with counsel of its choice
in any proceeding relating to the enforcement thereof.
5.3 Upon termination of his employment with the Company,
Executive will promptly deliver to the Company all memoranda, notes, records,
reports, manuals, drawings, blueprints and other documents (and all copies
thereof) relating to the business of the Company and all property associated
therewith, which he may then possess or have under his control; provided,
however, that Executive shall be entitled to retain copies of such documents
reasonably necessary to document his financial relationship (both past and
future) with the Company.
5.4 During the period commencing on the date hereof and ending
on the Non-Competition Termination Date (as hereafter defined), Executive,
without the prior written permission of the Company, shall not, anywhere in the
world, (i) be employed by, or render any services to, any person, firm or
corporation engaged in any business which is directly or indirectly in
competition with the Company in the businesses described on Schedule 5.4
("Competitive Business"); (ii) engage in any Competitive Business for him or its
own account; (iii) be associated with or interested in any Competitive Business
as an individual, partner, shareholder, creditor, director, officer, principal,
agent, employee, trustee, consultant, advisor or in any other relationship or
capacity; (iv) employ or retain, or have or cause any other person or entity to
employ or retain, any person who was employed or retained by the
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Company while Executive was employed by the Company; or (v) solicit, interfere
with, or endeavor to entice away from the Company, for the benefit of a
Competitive Business, any of its customers or other persons with whom the
Company has a contractual relationship. Notwithstanding the foregoing, this
provision shall not preclude Executive from investing his personal assets in the
securities of any corporation or other business entity which is engaged in a
Competitive Business if such ownership is in compliance with the requirements
set forth in the last sentence of Section 1.3 hereof, such securities are traded
on a national stock exchange or in the over-the-counter market and if such
investment does not result in him beneficially owning, at any time, more than 1%
of the publicly-traded equity securities of such Competitive Business. The
"Non-Competition Termination Date" shall be September 6, 2003; provided,
however, that (a) if this Agreement is terminated for "Good Reason" by Executive
or the Company without "Cause," the Non-Competition Termination Date shall be
the later of the one-year anniversary of such termination and September 6, 2002,
and (b) if Executive's employment is terminated with "Cause" or Executive
terminates his employment without "Good Reason," the Non-Competition Termination
Date shall be September 6, 2004.
5.5 If Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Sections 5.2, 5.4 or 6, the Company shall
have the right and remedy:
(a) to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed by Executive that the services being rendered hereunder
to the Company are of a special, unique and extraordinary character and that any
such breach or threatened breach will cause irreparable injury to the Company
and that money damages will not provide an adequate remedy to the Company; and
(b) to require Executive to account for and pay
over to the Company all monetary damages suffered by the Company as the result
of any transactions constituting a breach of any of the provisions of Sections
5.2, 5.4 or 6, and Executive hereby agrees to account for and pay over such
damages to the Company.
Each of the rights and remedies enumerated in this Section 5.5
shall be independent of the other, and shall be severally enforceable, and such
rights and remedies shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company under law or equity.
In connection with any legal action or proceeding arising out
of or relating to this Agreement, the prevailing party in such action or
proceeding shall be entitled to be reimbursed by the other party for the
reasonable attorneys' fees and costs incurred by the prevailing party.
5.6 If Executive violates any covenant contained in Section
5.4, the duration of such covenant so violated shall be automatically extended
for a period of time equal to the period of such violation.
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5.7 If any provision of Sections 5.2 or 5.4 is held to be
unenforceable because of the scope, duration or area of its applicability, the
tribunal making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
5.8 The provisions of this paragraph 5 shall survive the
termination of this Agreement for any reason.
6. Inventions, Patents and Copyrights.
(a) All inventions and other creative works,
including any patent, copyright, trade secret, trademark or other intellectual
property rights developed or produced by Executive either alone or jointly with
others during Executive's employment with the Company and which relate to the
Company's business or technology or which are derived in the context of the
Company's business or operations (collectively, the "Intellectual Property")
shall be considered to have been prepared for the Company as a part of and in
the course of Executive's role as consultant to, and thereafter, employment
with, the Company. Any such Intellectual Property shall be owned by the Company
regardless of whether it would otherwise be considered a work made for hire.
Such Intellectual Property shall include, among other things, software and
documentation therefor.
(b) The Company shall have full ownership of the
Intellectual Property, with no rights of ownership vested in Executive.
Executive agrees that in the event any Intellectual Property is determined by a
court of competent jurisdiction not to be a work for hire under the federal
copyright laws, this Agreement shall operate as an irrevocable assignment by him
to the Company of the copyright in the works, including all rights thereunder in
perpetuity. Under this irrevocable assignment, Executive hereby assigns to the
Company the sole and exclusive right, title, and interest in and to the
Intellectual Property, without further consideration, and agrees to assist the
Company in registering and from time to time enforcing all copyrights and other
rights and protections relating to the Intellectual Property in any and all
countries. Executive agrees that in the event of any dispute arising out of or
concerning this section, no actions by the Company or Executive undertaken for
the purpose of securing, maintaining, or preserving the copyright in the works,
including but not limited to recordation of this section with the United States
Copyright Office, shall be considered by any finder of fact or determiner of law
in determining the character of the work as work made for hire, unless expressly
authorized by the Company.
(c) Executive shall communicate to the Company
promptly and fully in writing, in such format as the Company may deem
appropriate, all Intellectual Property made or conceived by Executive whether
alone or jointly with others from the date hereof until the date this Agreement
is terminated and to assign to the Company all Intellectual Property.
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(d) Executive shall make and maintain adequate
permanent records of all Intellectual Property, in the form of memoranda,
notebook entries, drawings, printouts, or reports relating thereto, in keeping
with then current Company procedures. Executive agrees that these records, as
well as the Intellectual Property, shall be and remain the property of the
Company at all times.
(e) Executive shall cooperate with and assist
the Company and its nominees, at their sole expense, during the term of this
Agreement and thereafter, in securing and protecting patent, copyright or other
similar rights in the United States and foreign countries in the Intellectual
Property. In this connection, Executive specifically agrees to execute all
papers which the Company deems necessary to protect its interests including the
execution of assignments of invention and copyrights and to give evidence and
testimony, as may be necessary, to secure and enforce the Company's rights in
the Intellectual Property. Executive hereby appoints the Company as his agent
and attorney-in-fact to act for and in Executive's behalf and stead to execute,
register, and file any applications, and to do all other lawfully permitted acts
to further the registration, prosecution, issuance, renewals, and extensions of
patents, copyrights or other protections with the same legal force and effect as
if personally executed by Executive.
(f) The provisions of this Section 6 shall survive
termination of this Agreement for any reason.
7. Miscellaneous Provisions.
7.1 All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered if delivered personally or by nationally
recognized overnight courier, by certified mail or facsimile to the parties at
the following addresses and numbers (or at such other address or number for a
party as shall be specified by like notice, except that notices of changes of
address or number shall be effective upon receipt):
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If to Executive:
Mark Voorhis
17300 17th Street
Apartment J-331
Tustin, California 92780
If to the Company:
b2bstores.com Inc.
211 Park Avenue
Hicksville, New York 11801
Attn: Chairman of the Board
With a copy to:
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
Attn: David Alan Miller, Esq.
7.2 This Agreement sets forth the entire agreement of the
parties relating to the employment of Executive and is intended to supersede all
prior negotiations, understandings and agreements. No provisions of this
Agreement may be waived or changed except by a writing by the party against whom
such waiver or change is sought to be enforced. The failure of any party to
require performance of any provision hereof or thereof shall in no manner affect
the right at a later time to enforce such provision.
7.3 This Agreement shall be governed by and construed under
the law of the State of New York, disregarding any principles of conflicts of
law that would otherwise provide for the application of the substantive law of
another jurisdiction. Each of the parties (i) agrees that any legal suit, action
or proceeding arising out of or relating to this Agreement shall be instituted
exclusively in New York State Supreme Court, County of New York, or in the
United States District Court for the Southern District of New York, (ii) waives
any objection to the venue of any such suit, action or proceeding and the right
to assert that such forum is not a convenient forum, and (iii) irrevocably
consents to the jurisdiction of the New York State Supreme Court, County of New
York, and the United States District Court for the Southern District of New York
in any such suit, action or proceeding. Each of the parties further agrees to
accept and acknowledge service of any and all process which may be served in any
such suit, action or proceeding in the New York State Supreme Court, County of
New York, or in the United States District Court for the Southern District of
New York and agrees that service of process upon it mailed by certified mail to
its address shall be deemed in every respect effective service of process upon
it in any such suit, action or proceeding.
7.4 This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company. This Agreement shall not
be assignable by Executive, but shall inure to the benefit of and be binding
upon Executive's heirs and legal representatives.
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7.5 Should any provision of this Agreement become legally
unenforceable, no other provision of this Agreement shall be affected, and this
Agreement shall continue as if the Agreement had been executed absent the
unenforceable provision.
7.6 If, during the term hereof, Executive is nominated to
serve as a director of the Company but fails to be elected, he shall nonetheless
be invited to attend each meeting of the Board of Directors of the Company
through the remainder of the term hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
B2BSTORES.COM INC.
---------------------------------------------
By: Woo Jin Kim, Chief Executive Officer
---------------------------------------------
MARK VOORHIS
11
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SCHEDULE 1
<PAGE>
SCHEDULE 5.4
The development and operation of Internet websites, the
primary purpose and focus of which is to sell products and services specifically
aimed at business clients.
<PAGE>
EXHIBIT 10.7
STOCK OPTION AGREEMENT
AGREEMENT dated as of , 1999 between WOO JIN KIM,
residing at 3813 North Studebaker Road, Long Beach, California 90808 (the
"Employee" or "Grantee") and B2BSTORES.COM INC., a Delaware corporation having
its principal office at 211 Park Avenue, Hicksville, New York 11801-1408
("Company").
WHEREAS, on July 30, 1999, the Board of Directors of the
Company authorized the employment of the Employee pursuant to the terms of an
Employment Agreement executed simultaneously herewith ("Employment Agreement"),
and the grant, on the Effective Date (as defined in the Employment Agreement),
to the Employee of an option to purchase an aggregate of 300,000 of the
authorized but unissued shares of the Common Stock of the Company, $.01 par
value ("Common Stock"), on the terms and conditions set forth in this Agreement;
and
WHEREAS, the Employee desires to acquire said option on the
terms and conditions set forth in this Agreement;
IT IS AGREED:
1. Grant of Option. The Company hereby grants to the Employee
the right and option to purchase all or any part of an aggregate of 300,000
shares of Common Stock at any time from the date of vesting through , 2009
("Exercise Period"), on and subject to the terms and conditions set forth herein
("Option"). The Option is a non-qualified stock option not intended to qualify
under any section of the Internal Revenue Code of 1986, as amended, and is not
granted under any plan.
2. Exercise Price. The purchase price of each share of Common
Stock subject to the Option ("Option Shares") shall be $ .
3. Vesting and Exercisability.
(a) Options to purchase 150,000 shares vest on the
date hereof. Options to purchase an additional 50,000 shares will vest on each
of the first three anniversaries of the State Date (as defined in the Employment
Agreement).
(b) If the Employee's employment with the Company
terminates for any reason prior to the time that the Option has been fully
exercised, the unexercised portion of the Option on the date of termination of
employment (whether exercisable or not) shall immediately expire; provided,
however, that (i) if
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the Employee's employment is terminated by reason of the Employee's disability
(pursuant to Section 3.3 of the Employment Agreement), all portions of the
Option that are vested at the time of termination shall remain exercisable for a
period of one year from the date of such termination or until the expiration of
the Exercise Period, whichever is shorter; (ii) in the event of the death of the
Employee while in the employ of the Company, all portions of the Option that are
vested at the time of death shall remain exercisable by the legal representative
of the estate or by the legatee of the Employee under the will of the Employee
for a period of one year from the date of such death or until the expiration of
the Exercise Period, whichever is shorter; and (iii) in the event the Employee
is terminated without "Cause" (as defined in the Employment Agreement), or
Executive terminates his employment for "Good Reason" (as defined in the
Employment Agreement), then the Option shall become fully vested and exercisable
and may be exercised for a period of five years from the date of such
termination of employment or until the expiration of the Exercise Period,
whichever is shorter.
(c) The Board of Directors may, in the event the
Executive's employment is terminated for Cause (as provided for in the
Employment Agreement), annul the Option and, in such event, may require the
Executive to return to the Company the economic benefit of any Option Shares
purchased hereunder by the Executive within the six month period prior to the
date of termination. In such event, the Executive hereby agrees to remit to the
Company, in cash, an amount equal to the difference between the fair market
value of the Option Shares on the date of termination (or the sales price of
such Shares if the Option Shares were sold during such six month period) and the
exercise price of such Shares.
4. Rights as a Stockholder. The Employee shall not have any of
the rights of a stockholder with respect to the Option Shares until such shares
have been issued after the due exercise of the Option.
5. Dividends, Mergers, Etc.
(a) In the event of a stock split or exchange, stock
dividend, combination of shares, or any other similar change in the Common Stock
of the Company as a whole ("Stock Event"), the Board of Directors of the Company
shall make equitable, proportionate adjustments in the number and kind of shares
covered by the Option and in the option price thereunder, as it deems necessary
in order to preserve the Employee's proportionate interest in the Company and to
maintain the aggregate option price.
(b) Upon the dissolution or liquidation of the
Company, or upon the consummation of any merger, consolidation or other form of
reorganization in which the Company is not the survivor, or upon the sale of all
or substantially all of the Company's assets (the date of any such event being
referred to herein as the "Transaction Date"), then the Option shall terminate
at the close of business on the Transaction Date; provided, however, that any of
the Option Shares not vested and exercisable on the
2
<PAGE>
Transaction Date shall become immediately vested and exercisable by Employee on
the date immediately preceding the Transaction Date and Employee shall have the
right to purchase all the Option Shares as of said date on the terms set forth
in this Agreement by irrevocable written notice delivered to the Company.
6. Transferability of Option and Option Shares.
(a) The Option shall not be assignable or
transferable except in the event of the death of the Employee, by will or by the
laws of descent and distribution. No transfer of the Option by the Employee by
will or by the laws of descent and distribution shall be effective to bind the
Company unless the Company shall have been furnished with written notice thereof
and a copy of the will and such other evidence as the Company may deem necessary
to establish the validity of the transfer and the acceptance by the transferee
or transferees of the terms and conditions of the Option.
(b) The Employee hereby represents and warrants to
the Company that he is acquiring the Option for his own account and not with a
view to the distribution thereof.
(c) The Employee hereby agrees that he shall not
sell, transfer by any means or otherwise dispose of the Option Shares acquired
by him without registration under the Securities Act of 1933 ("Act"), or in the
event that they are not so registered, unless (i) an exemption from the Act is
available thereunder, and (ii) the Employee has furnished the Company with
notice of such proposed transfer and the Company's legal counsel, in its
reasonable opinion, shall deem such proposed transfer to be so exempt.
7. Registration Rights. The Company hereby grants to Employee
the right to have the Option Shares registered on the first registration
statement on Form S-8 filed by the Company during the period in which Employee
is employed by the Company or by any subsidiary thereof and the Company shall
take such action with respect to such Form S-8 as may be necessary so that, upon
exercise, the shares of Common Stock issued thereby will be freely transferrable
(subject only to applicable volume limitations contained in Rule 144 under the
Securities Act of 1933). Notwithstanding the foregoing, (i) the Company shall
have no obligation hereunder in connection with any such registration statement
unless the Option Shares can legally be registered thereby and the Employee
provides to the Company information with respect to his ownership of Option
Shares, manner of proposed disposition and such other matters as the Company
shall reasonably request for disclosure in the registration statement or any
amendment thereto; and (ii) the Company will not be obligated to prepare, file
or print any "reoffer prospectus" in connection with any "control securities" or
"restricted securities" as those terms are defined in General Instruction C to
Form S-8. The Company shall bear all fees, costs and expenses incurred by it in
connection with the filing with the Securities and Exchange Commission of such
registration statement.
3
<PAGE>
8. Employee's Acknowledgments. The Employee hereby
acknowledges that:
(a) All reports and documents required to be filed by
the Company with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934 within the last 12 months have been made
available to the Employee for his inspection.
(b) If he exercises the Option, he may have to bear
the economic risk of the investment in the Option Shares for an indefinite
period of time because the Option Shares may not have been registered under the
Act and cannot be sold by him unless they are registered under the Act or an
exemption therefrom is available thereunder.
(c) In his position with the Company, he has had both
the opportunity to ask questions of and receive answers from the officers and
directors of the Company and all persons acting on its behalf concerning the
terms and conditions of the offer made hereunder and to obtain any additional
information to the extent the Company possesses or may possess such information
or can acquire it without unreasonable effort or expense necessary to verify the
accuracy of the information obtained pursuant to subparagraph (a) above.
(d) The Company shall place stop transfer orders with
its transfer agent against the transfer of the Option Shares in the absence of
registration under the Act or an exemption therefrom.
(e) In the absence of registration under the Act, the
certificates evidencing the Option Shares shall bear the following legend:
"The Shares represented by this certificate have been acquired
for investment and have not been registered under the
Securities Act of 1933. The shares may not be sold or
transferred in the absence of such registration or an
exemption therefrom under said Act."
9. Exercise of Option.
(a) Subject to the terms and conditions of the
Agreement, the Option may be exercised by written notice to the Company at its
principal place of business. Such notice shall state the election to exercise
the Option and the number of Option Shares in respect to which it is being
exercised, and, if the Option Shares are not then registered for resale under
the Act, such notice shall contain a representation and agreement by the person
or persons so exercising the Option that the Option Shares are being purchased
for investment and not with a view to the distribution or resale thereof. Such
notice shall be accompanied by payment of the full purchase price of the Option
Shares.
4
<PAGE>
(b) Payment of the purchase price shall be made in
cash or by check, bank draft or money order payable to the order of the Company.
(c) The Company shall issue a certificate or
certificates evidencing the Option Shares as soon as practicable after the
notice and payment is received. The certificate or certificates evidencing the
Option Shares shall be registered in the name of the person or persons so
exercising the Option.
(d) The Company hereby represents and warrants to the
Employee that the Option Shares, when issued and delivered by the Company to the
Employee in accordance with the terms and conditions hereof, will be duly and
validly issued and fully paid and non-assessable.
10. Withholding Taxes. Not later than the date as of which an
amount first becomes includible in the gross income of Employee for Federal
income tax purposes with respect to the Option, Employee shall pay to the
Company, or make arrangements satisfactory to the Company regarding the payment
of, any Federal, state and local taxes of any kind required by law to be
withheld or paid with respect to such amount. The obligations of the Company
pursuant to this Agreement shall be conditional upon such payment or
arrangements with the Company and the Company shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the Employee from the Company. Any required withholding tax
shall be paid in accordance with Section 9(b) above.
11. Miscellaneous.
(a) In the event that, after the term of his
employment with the Company, Employee engages in activities that violate the
prohibitions set forth in Section 5.4 of the Employment Agreement (even if such
provisions are deemed to be unenforceable by a court of law), Employee shall be
obligated to return to the Company the economic benefit of any award which was
realized or obtained by him at any time during the period beginning on that date
which is six months prior to the date of such termination of employment.
(b) All notices provided for in this Agreement shall
be in writing, and shall be deemed to have been duly given when delivered
personally to the party to receive the same, when transmitted by electronic
means, or when mailed first class postage prepaid, by certified mail, return
receipt requested, addressed to the party to receive the same at his or its
address set forth below, or such other address as the party to receive the same
shall have specified by written notice given in the manner provided for in this
Section 12. All notices shall be deemed to have been given as of the date of
personal delivery, transmittal or mailing thereof.
5
<PAGE>
If to Employee:
Woo Jin Kim
3813 North Studebaker Road
Long Beach, California 90808
If to the Company:
b2bstores.com Inc.
211 Park Avenue
Hicksville, New York 11801-1408
Attn: Chairman of the Board
(c) This Agreement and the Employment Agreement and
other Stock Option Agreement executed simultaneously herewith set forth the
entire agreement of the parties relating to the employment of Employee and are
intended to supersede all prior negotiations, understandings and agreements. No
provisions of this Agreement or the other Stock Option Agreement or Employment
Agreement may be waived or changed except by a writing by the party against whom
such waiver or change is sought to be enforced. The failure of any party to
require performance of any provision hereof or thereof shall in no manner affect
the right at a later time to enforce such provision.
(d) This Agreement shall be governed by and construed
under the law of the State of New York, disregarding any principles of conflicts
of law that would otherwise provide for the application of the substantive law
of another jurisdiction. Each of the parties (i) agrees that any legal suit,
action or proceeding arising out of or relating to this Agreement shall be
instituted exclusively in New York State Supreme Court, County of New York, or
in the United States District Court for the Southern District of New York, (ii)
waives any objection to the venue of any such suit, action or proceeding and the
right to assert that such forum is not a convenient forum, and (iii) irrevocably
consents to the jurisdiction of the New York State Supreme Court, County of New
York, and the United States District Court for the Southern District of New York
in any such suit, action or proceeding. Each of the parties further agrees to
accept and acknowledge service of any and all process which may be served in any
such suit, action or proceeding in the New York State Supreme Court, County of
New York, or in the United States District Court for the Southern District of
New York and agrees that service of process upon it mailed by certified mail to
its address shall be deemed in every respect effective service of process upon
it in any such suit, action or proceeding.
(e) This Agreement shall inure to the benefit of and
be binding upon the successors and assigns of the Company. This Agreement shall
not be assignable by Employee, but shall inure to the benefit of and be binding
upon Employee's heirs and legal representatives.
6
<PAGE>
(f) Should any provision of this Agreement become
legally unenforceable, no other provision of this Agreement shall be affected,
and this Agreement shall continue as if the Agreement had been executed absent
the unenforceable provision.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the date first above written.
B2BSTORES.COM INC.
By:
-----------------------------
Richard Kandel
Chairman of the Board
--------------------------------
WOO JIN KIM
7
<PAGE>
EXHIBIT 10.8
STOCK OPTION AGREEMENT
AGREEMENT dated as of , 1999 between SHANNON JESSUP,
residing at 250 17th Street, Seal Beach, California 90740 (the "Employee" or
"Grantee") and B2BSTORES.COM INC., a Delaware corporation having its principal
office at 211 Park Avenue, Hicksville, New York 11801 ("Company").
WHEREAS, on August 15, 1999, the Board of Directors of the
Company authorized the employment of the Employee pursuant to the terms of an
Employment Agreement ("Employment Agreement"), and the grant, on the Effective
Date (as defined in the Employment Agreement), to the Employee an option to
purchase an aggregate of 175,000 of the authorized but unissued shares of the
Common Stock of the Company, $.01 par value ("Common Stock"), on the terms and
conditions set forth in this Agreement; and
WHEREAS, the Employee desires to acquire said option on the
terms and conditions set forth in this Agreement;
IT IS AGREED:
1. Grant of Option. The Company hereby grants to the Employee
the right and option to purchase all or any part of an aggregate of 175,000
shares of Common Stock at any time from the date of vesting through , 2009
("Exercise Period"), on and subject to the terms and conditions set forth herein
("Option"). The Option is a non-qualified stock option not intended to qualify
under any section of the Internal Revenue Code of 1986, as amended, and is not
granted under any plan.
2. Exercise Price. The purchase price of each share of Common
Stock subject to the Option ("Option Shares") shall be $ .
3. Vesting and Exercisability.
(a) Options to purchase 50,000 shares vest on the
date hereof. Options to purchase an additional 62,500 shares, 31,250 shares and
31,250 shares, respectively, will vest on each of the first three anniversaries
of the Start Date (as defined in the Employment Agreement").
(b) If the Employee's employment with the Company
terminates for any reason prior to the time that the Option has been fully
exercised, the unexercised portion of the Option on the date of termination of
employment (whether exercisable or not) shall immediately expire; provided,
however, that (i) if the Employee's employment is terminated by reason of the
Employee's disability (pursuant to Section 3.3 of the Employment Agreement), all
portions of the Option that are vested at the time of termination shall remain
<PAGE>
exercisable for a period of one year from the date of such termination or until
the expiration of the Exercise Period, whichever is shorter; (ii) in the event
of the death of the Employee while in the employ of the Company, all portions of
the Option that are vested at the time of death shall remain exercisable by the
legal representative of the estate or by the legatee of the Employee under the
will of the Employee for a period of one year from the date of such death or
until the expiration of the Exercise Period, whichever is shorter; and (iii) in
the event the Employee is terminated without "Cause" (as defined in the
Employment Agreement), or Executive terminates his employment for "Good Reason"
(as defined in the Employment Agreement), then the Option shall become fully
vested and exercisable and may be exercised for a period of five years from the
date of such termination of employment or until the expiration of the Exercise
Period, whichever is shorter.
(c) The Board of Directors may, in the event the
Executive's employment is terminated for Cause (as provided for in the
Employment Agreement), annul the Option and, in such event, may require the
Executive to return to the Company the economic benefit of any Option Shares
purchased hereunder by the Executive within the six month period prior to the
date of termination. In such event, the Executive hereby agrees to remit to the
Company, in cash, an amount equal to the difference between the fair market
value of the Option Shares on the date of termination (or the sales price of
such Shares if the Option Shares were sold during such six month period) and the
exercise price of such Shares.
4. Rights as a Stockholder. The Employee shall not have any of
the rights of a stockholder with respect to the Option Shares until such shares
have been issued after the due exercise of the Option.
5. Dividends, Mergers, Etc.
(a) In the event of a stock split or exchange, stock
dividend, combination of shares, or any other similar change in the Common Stock
of the Company as a whole ("Stock Event"), the Board of Directors of the Company
shall make equitable, proportionate adjustments in the number and kind of shares
covered by the Option and in the option price thereunder, as it deems necessary
in order to preserve the Employee's proportionate interest in the Company and to
maintain the aggregate option price.
(b) Upon the dissolution or liquidation of the Company, or
upon the consummation of any merger, consolidation or other form of
reorganization in which the Company is not the survivor, or upon the sale of all
or substantially all of the Company's assets (the date of any such event being
referred to herein as the "Transaction Date"), then the Option shall terminate
at the close of business on the Transaction Date; provided, however, that any of
the Option Shares not vested and exercisable on the Transaction Date shall
become immediately vested and exercisable by Employee on the date immediately
2
<PAGE>
preceding the Transaction Date and Employee shall have the right to purchase all
the Option Shares as of said date on the terms set forth in this Agreement by
irrevocable written notice delivered to the Company.
6. Transferability of Option and Option Shares.
(a) The Option shall not be assignable or
transferable except in the event of the death of the Employee, by will or by the
laws of descent and distribution. No transfer of the Option by the Employee by
will or by the laws of descent and distribution shall be effective to bind the
Company unless the Company shall have been furnished with written notice thereof
and a copy of the will and such other evidence as the Company may deem necessary
to establish the validity of the transfer and the acceptance by the transferee
or transferees of the terms and conditions of the Option.
(b) The Employee hereby represents and warrants to
the Company that he is acquiring the Option for his own account and not with a
view to the distribution thereof.
(c) The Employee hereby agrees that he shall not
sell, transfer by any means or otherwise dispose of the Option Shares acquired
by him without registration under the Securities Act of 1933 ("Act"), or in the
event that they are not so registered, unless (i) an exemption from the Act is
available thereunder, and (ii) the Employee has furnished the Company with
notice of such proposed transfer and the Company's legal counsel, in its
reasonable opinion, shall deem such proposed transfer to be so exempt.
7. Registration Rights. The Company hereby grants to Employee
the right to have the Option Shares registered on the first registration
statement on Form S-8 filed by the Company during the period in which Employee
is employed by the Company or by any subsidiary thereof and the Company shall
take such action with respect to such Form S-8 as may be necessary so that, upon
exercise, the shares of Common Stock issued thereby will be freely transferrable
(subject only to applicable volume limitations contained in Rule 144 under the
Securities Act of 1933). Notwithstanding the foregoing, (i) the Company shall
have no obligation hereunder in connection with any such registration statement
unless the Option Shares can legally be registered thereby and the Employee
provides to the Company information with respect to his ownership of Option
Shares, manner of proposed disposition and such other matters as the Company
shall reasonably request for disclosure in the registration statement or any
amendment thereto; and (ii) the Company will not be obligated to prepare, file
or print any "reoffer prospectus" in connection with any "control securities" or
"restricted securities" as those terms are defined in General Instruction C to
Form S-8. The Company shall bear all fees, costs and expenses incurred by it in
connection with the filing with the Securities and Exchange Commission of such
registration statement.
8. Employee's Acknowledgments. The Employee hereby
acknowledges that:
3
<PAGE>
(a) All reports and documents required to be filed by
the Company with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934 within the last 12 months have been made
available to the Employee for his inspection.
(b) If he exercises the Option, he may have to bear
the economic risk of the investment in the Option Shares for an indefinite
period of time because the Option Shares may not have been registered under the
Act and cannot be sold by him unless they are registered under the Act or an
exemption therefrom is available thereunder.
(c) In his position with the Company, he has had both
the opportunity to ask questions of and receive answers from the officers and
directors of the Company and all persons acting on its behalf concerning the
terms and conditions of the offer made hereunder and to obtain any additional
information to the extent the Company possesses or may possess such information
or can acquire it without unreasonable effort or expense necessary to verify the
accuracy of the information obtained pursuant to subparagraph (a) above.
(d) The Company shall place stop transfer orders with
its transfer agent against the transfer of the Option Shares in the absence of
registration under the Act or an exemption therefrom.
(e) In the absence of registration under the Act, the
certificates evidencing the Option Shares shall bear the following legend:
"The Shares represented by this certificate have been acquired
for investment and have not been registered under the
Securities Act of 1933. The shares may not be sold or
transferred in the absence of such registration or an
exemption therefrom under said Act."
9. Exercise of Option.
(a) Subject to the terms and conditions of the
Agreement, the Option may be exercised by written notice to the Company at its
principal place of business. Such notice shall state the election to exercise
the Option and the number of Option Shares in respect to which it is being
exercised, and, if the Option Shares are not then registered for resale under
the Act, such notice shall contain a representation and agreement by the person
or persons so exercising the Option that the Option Shares are being purchased
for investment and not with a view to the distribution or resale thereof. Such
notice shall be accompanied by payment of the full purchase price of the Option
Shares.
4
<PAGE>
(b) Payment of the purchase price shall be made in
cash or by check, bank draft or money order payable to the order of the Company.
(c) The Company shall issue a certificate or
certificates evidencing the Option Shares as soon as practicable after the
notice and payment is received. The certificate or certificates evidencing the
Option Shares shall be registered in the name of the person or persons so
exercising the Option.
(d) The Company hereby represents and warrants to the
Employee that the Option Shares, when issued and delivered by the Company to the
Employee in accordance with the terms and conditions hereof, will be duly and
validly issued and fully paid and non-assessable.
10. Withholding Taxes. Not later than the date as of which an
amount first becomes includible in the gross income of Employee for Federal
income tax purposes with respect to the Option, Employee shall pay to the
Company, or make arrangements satisfactory to the Company regarding the payment
of, any Federal, state and local taxes of any kind required by law to be
withheld or paid with respect to such amount. The obligations of the Company
pursuant to this Agreement shall be conditional upon such payment or
arrangements with the Company and the Company shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the Employee from the Company. Any required withholding tax
shall be paid in accordance with Section 9(b) above.
11. Miscellaneous.
(a) In the event that, after the term of his
employment with the Company, Employee engages in activities that violate the
prohibitions set forth in Section 5.4 of the Employment Agreement (even if such
provisions are deemed to be unenforceable by a court of law), Employee shall be
obligated to return to the Company the economic benefit of any award which was
realized or obtained by him at any time during the period beginning on that date
which is six months prior to the date of such termination of employment.
(b) All notices provided for in this Agreement shall
be in writing, and shall be deemed to have been duly given when delivered
personally to the party to receive the same, when transmitted by electronic
means, or when mailed first class postage prepaid, by certified mail, return
receipt requested, addressed to the party to receive the same at his or its
address set forth below, or such other address as the party to receive the same
shall have specified by written notice given in the manner provided for in this
Section 12. All notices shall be deemed to have been given as of the date of
personal delivery, transmittal or mailing thereof.
5
<PAGE>
If to Employee:
Shannon Jessup
250 17th Street
Seal Beach, California 90740
If to the Company:
b2bstores.com Inc.
211 Park Avenue
Hicksville, New York 11801
Attn: Chairman of the Board
(c) This Agreement and the Employment Agreement and
other Stock Option Agreement executed simultaneously herewith set forth the
entire agreement of the parties relating to the employment of Employee and are
intended to supersede all prior negotiations, understandings and agreements. No
provisions of this Agreement or the other Stock Option Agreement or Employment
Agreement may be waived or changed except by a writing by the party against whom
such waiver or change is sought to be enforced. The failure of any party to
require performance of any provision hereof or thereof shall in no manner affect
the right at a later time to enforce such provision.
(d) This Agreement shall be governed by and construed
under the law of the State of New York, disregarding any principles of conflicts
of law that would otherwise provide for the application of the substantive law
of another jurisdiction. Each of the parties (i) agrees that any legal suit,
action or proceeding arising out of or relating to this Agreement shall be
instituted exclusively in New York State Supreme Court, County of New York, or
in the United States District Court for the Southern District of New York, (ii)
waives any objection to the venue of any such suit, action or proceeding and the
right to assert that such forum is not a convenient forum, and (iii) irrevocably
consents to the jurisdiction of the New York State Supreme Court, County of New
York, and the United States District Court for the Southern District of New York
in any such suit, action or proceeding. Each of the parties further agrees to
accept and acknowledge service of any and all process which may be served in any
such suit, action or proceeding in the New York State Supreme Court, County of
New York, or in the United States District Court for the Southern District of
New York and agrees that service of process upon it mailed by certified mail to
its address shall be deemed in every respect effective service of process upon
it in any such suit, action or proceeding.
(e) This Agreement shall inure to the benefit of and
be binding upon the successors and assigns of the Company. This Agreement shall
not be assignable by Employee, but shall inure to the benefit of and be binding
upon Employee's heirs and legal representatives.
6
<PAGE>
(f) Should any provision of this Agreement become
legally unenforceable, no other provision of this Agreement shall be affected,
and this Agreement shall continue as if the Agreement had been executed absent
the unenforceable provision.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
B2BSTORES.COM INC.
By:
--------------------------------------
Woo Jin Kim, Chief Executive Officer
------------------------------------------
SHANNON JESSUP
7
<PAGE>
EXHIBIT A
STOCK OPTION AGREEMENT
AGREEMENT dated as of , 1999 between BRIAN WHARTON,
residing at 2451 Myrtle Avenue, Hermosa Beach, California 90254 (the "Employee"
or "Grantee") and B2BSTORES.COM INC., a Delaware corporation having its
principal office at 211 Park Avenue, Hicksville, New York 11801 ("Company").
WHEREAS, on August 15, 1999, the Board of Directors of the
Company authorized the employment of the Employee pursuant to the terms of an
Employment Agreement executed simultaneously herewith ("Employment Agreement"),
and the grant, on the Effective Date (as defined in the Employment Agreement),
to the Employee of an option to purchase an aggregate of 175,000 of the
authorized but unissued shares of the Common Stock of the Company, $.01 par
value ("Common Stock"), on the terms and conditions set forth in this Agreement;
and
WHEREAS, the Employee desires to acquire said option on the
terms and conditions set forth in this Agreement;
IT IS AGREED:
1. Grant of Option. The Company hereby grants to the Employee
the right and option to purchase all or any part of an aggregate of 175,000
shares of Common Stock at any time from the date of vesting through ,
2009 ("Exercise Period"), on and subject to the terms and conditions set forth
herein ("Option"). The Option is a non-qualified stock option not intended to
qualify under any section of the Internal Revenue Code of 1986, as amended, and
is not granted under any plan.
2. Exercise Price. The purchase price of each share of Common
Stock subject to the Option ("Option Shares") shall be equal to $ .
3. Vesting and Exercisability.
(a) Options to purchase 87,500 shares, 43,750 shares and
43,750 shares, respectively, will vest on the first three anniversaries of the
Start Date (as defined in the Employment Agreement).
(b) If the Employee's employment with the Company
terminates for any reason prior to the time that the Option has been fully
exercised, the unexercised portion of the Option on the date of termination of
employment (whether exercisable or not) shall immediately expire; provided,
however, that (i) if
<PAGE>
the Employee's employment is terminated by reason of the Employee's disability
(pursuant to Section 3.3 of the Employment Agreement), all portions of the
Option that are vested at the time of termination shall remain exercisable for a
period of one year from the date of such termination or until the expiration of
the Exercise Period, whichever is shorter; (ii) in the event of the death of the
Employee while in the employ of the Company, all portions of the Option that are
vested at the time of death shall remain exercisable by the legal representative
of the estate or by the legatee of the Employee under the will of the Employee
for a period of one year from the date of such death or until the expiration of
the Exercise Period, whichever is shorter; and (iii) in the event the Employee
is terminated without "Cause" (as defined in the Employment Agreement), or
Executive terminates his employment for "Good Reason" (as defined in the
Employment Agreement), then the Option shall become fully vested and exercisable
and may be exercised for a period of five years from the date of such
termination of employment or until the expiration of the Exercise Period,
whichever is shorter.
(c) The Board of Directors may, in the event the
Executive's employment is terminated for Cause (as provided for in the
Employment Agreement), annul the Option and, in such event, may require the
Executive to return to the Company the economic benefit of any Option Shares
purchased hereunder by the Executive within the six month period prior to the
date of termination. In such event, the Executive hereby agrees to remit to the
Company, in cash, an amount equal to the difference between the fair market
value of the Option Shares on the date of termination (or the sales price of
such Shares if the Option Shares were sold during such six month period) and the
exercise price of such Shares.
4. Rights as a Stockholder. The Employee shall not have any of
the rights of a stockholder with respect to the Option Shares until such shares
have been issued after the due exercise of the Option.
5. Dividends, Mergers, Etc.
(a) In the event of a stock split or exchange, stock
dividend, combination of shares, or any other similar change in the Common Stock
of the Company as a whole ("Stock Event"), the Board of Directors of the Company
shall make equitable, proportionate adjustments in the number and kind of shares
covered by the Option and in the option price thereunder, as it deems necessary
in order to preserve the Employee's proportionate interest in the Company and to
maintain the aggregate option price.
(b) Upon the dissolution or liquidation of the Company, or
upon the consummation of any merger, consolidation or other form of
reorganization in which the Company is not the survivor, or upon the sale of all
or substantially all of the Company's assets (the date of any such event being
referred to herein as the "Transaction Date"), then the Option shall terminate
at the close of business on the Transaction Date; provided, however, that any of
the Option Shares not vested and exercisable on the
2
<PAGE>
Transaction Date shall become immediately vested and exercisable by Employee on
the date immediately preceding the Transaction Date and Employee shall have the
right to purchase all the Option Shares as of said date on the terms set forth
in this Agreement by irrevocable written notice delivered to the Company.
6. Transferability of Option and Option Shares.
(a) The Option shall not be assignable or transferable
except in the event of the death of the Employee, by will or by the laws of
descent and distribution. No transfer of the Option by the Employee by will or
by the laws of descent and distribution shall be effective to bind the Company
unless the Company shall have been furnished with written notice thereof and a
copy of the will and such other evidence as the Company may deem necessary to
establish the validity of the transfer and the acceptance by the transferee or
transferees of the terms and conditions of the Option.
(b) The Employee hereby represents and warrants to the
Company that he is acquiring the Option for his own account and not with a view
to the distribution thereof.
(c) The Employee hereby agrees that he shall not sell,
transfer by any means or otherwise dispose of the Option Shares acquired by him
without registration under the Securities Act of 1933 ("Act"), or in the event
that they are not so registered, unless (i) an exemption from the Act is
available thereunder, and (ii) the Employee has furnished the Company with
notice of such proposed transfer and the Company's legal counsel, in its
reasonable opinion, shall deem such proposed transfer to be so exempt.
7. Registration Rights. The Company hereby grants to Employee
the right to have the Option Shares registered on the first registration
statement on Form S-8 filed by the Company during the period in which Employee
is employed by the Company or by any subsidiary thereof and the Company shall
take such action with respect to such Form S-8 as may be necessary so that, upon
exercise, the shares of Common Stock issued thereby will be freely transferrable
(subject only to applicable volume limitations contained in Rule 144 under the
Securities Act of 1933). Notwithstanding the foregoing, (i) the Company shall
have no obligation hereunder in connection with any such registration statement
unless the Option Shares can legally be registered thereby and the Employee
provides to the Company information with respect to his ownership of Option
Shares, manner of proposed disposition and such other matters as the Company
shall reasonably request for disclosure in the registration statement or any
amendment thereto; and (ii) the Company will not be obligated to prepare, file
or print any "reoffer prospectus" in connection with any "control securities" or
"restricted securities" as those terms are defined in General Instruction C to
Form S-8. The Company shall bear all fees, costs and expenses incurred by it in
connection with the filing with the Securities and Exchange Commission of such
registration statement.
3
<PAGE>
8. Employee's Acknowledgments. The Employee hereby
acknowledges that:
(a) All reports and documents required to be filed by the
Company with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934 within the last 12 months have been made available to the
Employee for his inspection.
(b) If he exercises the Option, he may have to bear the
economic risk of the investment in the Option Shares for an indefinite period of
time because the Option Shares may not have been registered under the Act and
cannot be sold by him unless they are registered under the Act or an exemption
therefrom is available thereunder.
(c) In his position with the Company, he has had both the
opportunity to ask questions of and receive answers from the officers and
directors of the Company and all persons acting on its behalf concerning the
terms and conditions of the offer made hereunder and to obtain any additional
information to the extent the Company possesses or may possess such information
or can acquire it without unreasonable effort or expense necessary to verify the
accuracy of the information obtained pursuant to subparagraph (a) above.
(d) The Company shall place stop transfer orders with its
transfer agent against the transfer of the Option Shares in the absence of
registration under the Act or an exemption therefrom.
(e) In the absence of registration under the Act, the
certificates evidencing the Option Shares shall bear the following legend:
"The Shares represented by this certificate have been acquired
for investment and have not been registered under the
Securities Act of 1933. The shares may not be sold or
transferred in the absence of such registration or an
exemption therefrom under said Act."
9. Exercise of Option.
(a) Subject to the terms and conditions of the Agreement,
the Option may be exercised by written notice to the Company at its principal
place of business. Such notice shall state the election to exercise the Option
and the number of Option Shares in respect to which it is being exercised, and,
if the Option Shares are not then registered for resale under the Act, such
notice shall contain a representation and agreement by the person or persons so
exercising the Option that the Option Shares are being purchased for investment
and not with a view to the distribution or resale thereof. Such notice shall be
accompanied by payment of the full purchase price of the Option Shares.
4
<PAGE>
(b) Payment of the purchase price shall be made in cash or
by check, bank draft or money order payable to the order of the Company.
(c) The Company shall issue a certificate or certificates
evidencing the Option Shares as soon as practicable after the notice and payment
is received. The certificate or certificates evidencing the Option Shares shall
be registered in the name of the person or persons so exercising the Option.
(d) The Company hereby represents and warrants to the
Employee that the Option Shares, when issued and delivered by the Company to the
Employee in accordance with the terms and conditions hereof, will be duly and
validly issued and fully paid and non-assessable.
10. Withholding Taxes. Not later than the date as of which an
amount first becomes includible in the gross income of Employee for Federal
income tax purposes with respect to the Option, Employee shall pay to the
Company, or make arrangements satisfactory to the Company regarding the payment
of, any Federal, state and local taxes of any kind required by law to be
withheld or paid with respect to such amount. The obligations of the Company
pursuant to this Agreement shall be conditional upon such payment or
arrangements with the Company and the Company shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the Employee from the Company. Any required withholding tax
shall be paid in accordance with Section 9(b) above.
11. Miscellaneous.
(a) In the event that, after the term of his employment
with the Company, Employee engages in activities that violate the prohibitions
set forth in Section 5.4 of the Employment Agreement (even if such provisions
are deemed to be unenforceable by a court of law), Employee shall be obligated
to return to the Company the economic benefit of any award which was realized or
obtained by him at any time during the period beginning on that date which is
six months prior to the date of such termination of employment.
(b) All notices provided for in this Agreement shall be in
writing, and shall be deemed to have been duly given when delivered personally
to the party to receive the same, when transmitted by electronic means, or when
mailed first class postage prepaid, by certified mail, return receipt requested,
addressed to the party to receive the same at his or its address set forth
below, or such other address as the party to receive the same shall have
specified by written notice given in the manner provided for in this Section 12.
All notices shall be deemed to have been given as of the date of personal
delivery, transmittal or mailing thereof.
5
<PAGE>
If to Employee:
Brian Wharton
2451 Myrtle Avenue
Hermosa Beach, California 90254
If to the Company:
b2bstores.com Inc.
211 Park Avenue
Hicksville, New York 11801
Attn: Chairman of the Board
(c) This Agreement and the Employment Agreement and other
Stock Option Agreement executed simultaneously herewith set forth the entire
agreement of the parties relating to the employment of Employee and are intended
to supersede all prior negotiations, understandings and agreements. No
provisions of this Agreement or the other Stock Option Agreement or Employment
Agreement may be waived or changed except by a writing by the party against whom
such waiver or change is sought to be enforced. The failure of any party to
require performance of any provision hereof or thereof shall in no manner affect
the right at a later time to enforce such provision.
(d) This Agreement shall be governed by and construed
under the law of the State of New York, disregarding any principles of conflicts
of law that would otherwise provide for the application of the substantive law
of another jurisdiction. Each of the parties (i) agrees that any legal suit,
action or proceeding arising out of or relating to this Agreement shall be
instituted exclusively in New York State Supreme Court, County of New York, or
in the United States District Court for the Southern District of New York, (ii)
waives any objection to the venue of any such suit, action or proceeding and the
right to assert that such forum is not a convenient forum, and (iii) irrevocably
consents to the jurisdiction of the New York State Supreme Court, County of New
York, and the United States District Court for the Southern District of New York
in any such suit, action or proceeding. Each of the parties further agrees to
accept and acknowledge service of any and all process which may be served in any
such suit, action or proceeding in the New York State Supreme Court, County of
New York, or in the United States District Court for the Southern District of
New York and agrees that service of process upon it mailed by certified mail to
its address shall be deemed in every respect effective service of process upon
it in any such suit, action or proceeding.
(e) This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company. This Agreement shall not
be assignable by Employee, but shall inure to the benefit of and be binding upon
Employee's heirs and legal representatives.
6
<PAGE>
(f) Should any provision of this Agreement become legally
unenforceable, no other provision of this Agreement shall be affected, and this
Agreement shall continue as if the Agreement had been executed absent the
unenforceable provision.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
B2BSTORES.COM INC.
By:
-----------------------------------
Woo Jin Kim, Chief Executive Officer
---------------------------------------
BRIAN WHARTON
7
<PAGE>
EXHIBIT 10.10
STOCK OPTION AGREEMENT
AGREEMENT dated as of , 1999 between JEFFREY CRANDELL,
residing at 1120 Eleventh Street, Hermosa Beach, California 90254 (the
"Employee" or "Grantee") and B2BSTORES.COM INC., a Delaware corporation having
its principal office at 211 Park Avenue, Hicksville, New York 11801 ("Company").
WHEREAS, on August 15, 1999, the Board of Directors of the
Company authorized the employment of the Employee pursuant to the terms of an
Employment Agreement executed simultaneously herewith ("Employment Agreement"),
and the grant, on the Effective Date (as defined in the Employment Agreement),
to the Employee of an option to purchase an aggregate of 175,000 of the
authorized but unissued shares of the Common Stock of the Company, $.01 par
value ("Common Stock"), on the terms and conditions set forth in this Agreement;
and
WHEREAS, the Employee desires to acquire said option on the
terms and conditions set forth in this Agreement;
IT IS AGREED:
1. Grant of Option. The Company hereby grants to the Employee
the right and option to purchase all or any part of an aggregate of 175,000
shares of Common Stock at any time from the date of vesting through , 2009
("Exercise Period"), on and subject to the terms and conditions set forth herein
("Option"). The Option is a non-qualified stock option not intended to qualify
under any section of the Internal Revenue Code of 1986, as amended, and is not
granted under any plan.
2. Exercise Price. The purchase price of each share of Common
Stock subject to the Option ("Option Shares") shall be equal to $ .
3. Vesting and Exercisability.
(a) Options to purchase 87,500 shares, 43,750 shares
and 43,750 shares, respectively, will vest on the first three anniversaries of
the Start Date (as defined in the Employment Agreement).
(b) If the Employee's employment with the Company
terminates for any reason prior to the time that the Option has been fully
exercised, the unexercised portion of the Option on the date of termination of
employment (whether exercisable or not) shall immediately expire; provided,
however, that (i) if the Employee's employment is terminated by reason of the
Employee's disability (pursuant to Section 3.3 of the
1
<PAGE>
Employment Agreement), all portions of the Option that are vested at the time of
termination shall remain exercisable for a period of one year from the date of
such termination or until the expiration of the Exercise Period, whichever is
shorter; (ii) in the event of the death of the Employee while in the employ of
the Company, all portions of the Option that are vested at the time of death
shall remain exercisable by the legal representative of the estate or by the
legatee of the Employee under the will of the Employee for a period of one year
from the date of such death or until the expiration of the Exercise Period,
whichever is shorter; and (iii) in the event the Employee is terminated without
"Cause" (as defined in the Employment Agreement), or Executive terminates his
employment for "Good Reason" (as defined in the Employment Agreement), then the
Option shall become fully vested and exercisable and may be exercised for a
period of five years from the date of such termination of employment or until
the expiration of the Exercise Period, whichever is shorter.
(c) The Board of Directors may, in the event the
Executive's employment is terminated for Cause (as provided for in the
Employment Agreement), annul the Option and, in such event, may require the
Executive to return to the Company the economic benefit of any Option Shares
purchased hereunder by the Executive within the six month period prior to the
date of termination. In such event, the Executive hereby agrees to remit to the
Company, in cash, an amount equal to the difference between the fair market
value of the Option Shares on the date of termination (or the sales price of
such Shares if the Option Shares were sold during such six month period) and the
exercise price of such Shares.
4. Rights as a Stockholder. The Employee shall not have any of
the rights of a stockholder with respect to the Option Shares until such shares
have been issued after the due exercise of the Option.
5. Dividends, Mergers, Etc.
(a) In the event of a stock split or exchange, stock
dividend, combination of shares, or any other similar change in the Common Stock
of the Company as a whole ("Stock Event"), the Board of Directors of the Company
shall make equitable, proportionate adjustments in the number and kind of shares
covered by the Option and in the option price thereunder, as it deems necessary
in order to preserve the Employee's proportionate interest in the Company and to
maintain the aggregate option price.
(b) Upon the dissolution or liquidation of the
Company, or upon the consummation of any merger, consolidation or other form of
reorganization in which the Company is not the survivor, or upon the sale of all
or substantially all of the Company's assets (the date of any such event being
referred to herein as the "Transaction Date"), then the Option shall terminate
at the close of business on the Transaction Date; provided, however, that any of
the Option Shares not vested and exercisable on the Transaction Date shall
become immediately vested and exercisable by Employee on the date immediately
2
<PAGE>
preceding the Transaction Date and Employee shall have the right to purchase all
the Option Shares as of said date on the terms set forth in this Agreement by
irrevocable written notice delivered to the Company.
6. Transferability of Option and Option Shares.
(a) The Option shall not be assignable or
transferable except in the event of the death of the Employee, by will or by the
laws of descent and distribution. No transfer of the Option by the Employee by
will or by the laws of descent and distribution shall be effective to bind the
Company unless the Company shall have been furnished with written notice thereof
and a copy of the will and such other evidence as the Company may deem necessary
to establish the validity of the transfer and the acceptance by the transferee
or transferees of the terms and conditions of the Option.
(b) The Employee hereby represents and warrants to
the Company that he is acquiring the Option for his own account and not with a
view to the distribution thereof.
(c) The Employee hereby agrees that he shall not
sell, transfer by any means or otherwise dispose of the Option Shares acquired
by him without registration under the Securities Act of 1933 ("Act"), or in the
event that they are not so registered, unless (i) an exemption from the Act is
available thereunder, and (ii) the Employee has furnished the Company with
notice of such proposed transfer and the Company's legal counsel, in its
reasonable opinion, shall deem such proposed transfer to be so exempt.
7. Registration Rights. The Company hereby grants to Employee
the right to have the Option Shares registered on the first registration
statement on Form S-8 filed by the Company during the period in which Employee
is employed by the Company or by any subsidiary thereof and the Company shall
take such action with respect to such Form S-8 as may be necessary so that, upon
exercise, the shares of Common Stock issued thereby will be freely transferrable
(subject only to applicable volume limitations contained in Rule 144 under the
Securities Act of 1933). Notwithstanding the foregoing, (i) the Company shall
have no obligation hereunder in connection with any such registration statement
unless the Option Shares can legally be registered thereby and the Employee
provides to the Company information with respect to his ownership of Option
Shares, manner of proposed disposition and such other matters as the Company
shall reasonably request for disclosure in the registration statement or any
amendment thereto; and (ii) the Company will not be obligated to prepare, file
or print any "reoffer prospectus" in connection with any "control securities" or
"restricted securities" as those terms are defined in General Instruction C to
Form S-8. The Company shall bear all fees, costs and expenses incurred by it in
connection with the filing with the Securities and Exchange Commission of such
registration statement.
3
<PAGE>
8. Employee's Acknowledgments. The Employee hereby
acknowledges that:
(a) All reports and documents required to be filed by
the Company with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934 within the last 12 months have been made
available to the Employee for his inspection.
(b) If he exercises the Option, he may have to bear
the economic risk of the investment in the Option Shares for an indefinite
period of time because the Option Shares may not have been registered under the
Act and cannot be sold by him unless they are registered under the Act or an
exemption therefrom is available thereunder.
(c) In his position with the Company, he has had both
the opportunity to ask questions of and receive answers from the officers and
directors of the Company and all persons acting on its behalf concerning the
terms and conditions of the offer made hereunder and to obtain any additional
information to the extent the Company possesses or may possess such information
or can acquire it without unreasonable effort or expense necessary to verify the
accuracy of the information obtained pursuant to subparagraph (a) above.
(d) The Company shall place stop transfer orders with
its transfer agent against the transfer of the Option Shares in the absence of
registration under the Act or an exemption therefrom.
(e) In the absence of registration under the Act, the
certificates evidencing the Option Shares shall bear the following legend:
"The Shares represented by this certificate have been acquired
for investment and have not been registered under the
Securities Act of 1933. The shares may not be sold or
transferred in the absence of such registration or an
exemption therefrom under said Act."
9. Exercise of Option.
(a) Subject to the terms and conditions of the
Agreement, the Option may be exercised by written notice to the Company at its
principal place of business. Such notice shall state the election to exercise
the Option and the number of Option Shares in respect to which it is being
exercised, and, if the Option Shares are not then registered for resale under
the Act, such notice shall contain a representation and agreement by the person
or persons so exercising the Option that the Option Shares are being purchased
for investment and not with a view to the distribution or resale thereof. Such
notice shall be accompanied by payment of the full purchase price of the Option
Shares.
4
<PAGE>
(b) Payment of the purchase price shall be made in
cash or by check, bank draft or money order payable to the order of the Company.
(c) The Company shall issue a certificate or
certificates evidencing the Option Shares as soon as practicable after the
notice and payment is received. The certificate or certificates evidencing the
Option Shares shall be registered in the name of the person or persons so
exercising the Option.
(d) The Company hereby represents and warrants to the
Employee that the Option Shares, when issued and delivered by the Company to the
Employee in accordance with the terms and conditions hereof, will be duly and
validly issued and fully paid and non-assessable.
10. Withholding Taxes. Not later than the date as of which an
amount first becomes includible in the gross income of Employee for Federal
income tax purposes with respect to the Option, Employee shall pay to the
Company, or make arrangements satisfactory to the Company regarding the payment
of, any Federal, state and local taxes of any kind required by law to be
withheld or paid with respect to such amount. The obligations of the Company
pursuant to this Agreement shall be conditional upon such payment or
arrangements with the Company and the Company shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the Employee from the Company. Any required withholding tax
shall be paid in accordance with Section 9(b) above.
11. Miscellaneous.
(a) In the event that, after the term of his
employment with the Company, Employee engages in activities that violate the
prohibitions set forth in Section 5.4 of the Employment Agreement (even if such
provisions are deemed to be unenforceable by a court of law), Employee shall be
obligated to return to the Company the economic benefit of any award which was
realized or obtained by him at any time during the period beginning on that date
which is six months prior to the date of such termination of employment.
(b) All notices provided for in this Agreement shall
be in writing, and shall be deemed to have been duly given when delivered
personally to the party to receive the same, when transmitted by electronic
means, or when mailed first class postage prepaid, by certified mail, return
receipt requested, addressed to the party to receive the same at his or its
address set forth below, or such other address as the party to receive the same
shall have specified by written notice given in the manner provided for in this
Section 12. All notices shall be deemed to have been given as of the date of
personal delivery, transmittal or mailing thereof.
5
<PAGE>
If to Employee:
Jeffrey Crandell
1120 Eleventh Street
Hermosa Beach, California 90254
If to the Company:
b2bstores.com Inc.
211 Park Avenue
Hicksville, New York 11801
Attn: Chairman of the Board
(c) This Agreement and the Employment Agreement and
other Stock Option Agreement executed simultaneously herewith set forth the
entire agreement of the parties relating to the employment of Employee and are
intended to supersede all prior negotiations, understandings and agreements. No
provisions of this Agreement or the other Stock Option Agreement or Employment
Agreement may be waived or changed except by a writing by the party against whom
such waiver or change is sought to be enforced. The failure of any party to
require performance of any provision hereof or thereof shall in no manner affect
the right at a later time to enforce such provision.
(d) This Agreement shall be governed by and construed
under the law of the State of New York, disregarding any principles of conflicts
of law that would otherwise provide for the application of the substantive law
of another jurisdiction. Each of the parties (i) agrees that any legal suit,
action or proceeding arising out of or relating to this Agreement shall be
instituted exclusively in New York State Supreme Court, County of New York, or
in the United States District Court for the Southern District of New York, (ii)
waives any objection to the venue of any such suit, action or proceeding and the
right to assert that such forum is not a convenient forum, and (iii) irrevocably
consents to the jurisdiction of the New York State Supreme Court, County of New
York, and the United States District Court for the Southern District of New York
in any such suit, action or proceeding. Each of the parties further agrees to
accept and acknowledge service of any and all process which may be served in any
such suit, action or proceeding in the New York State Supreme Court, County of
New York, or in the United States District Court for the Southern District of
New York and agrees that service of process upon it mailed by certified mail to
its address shall be deemed in every respect effective service of process upon
it in any such suit, action or proceeding.
(e) This Agreement shall inure to the benefit of and
be binding upon the successors and assigns of the Company. This Agreement shall
not be assignable by Employee, but shall inure to the benefit of and be binding
upon Employee's heirs and legal representatives.
6
<PAGE>
(f) Should any provision of this Agreement become
legally unenforceable, no other provision of this Agreement shall be affected,
and this Agreement shall continue as if the Agreement had been executed absent
the unenforceable provision.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
B2BSTORES.COM INC.
By:
---------------------------------------
Woo Jin Kim, Chief Executive Officer
------------------------------------------
JEFFREY CRANDELL
7
<PAGE>
EXHIBIT 10.11
STOCK OPTION AGREEMENT
AGREEMENT dated as of , 1999 between MARK VOORHIS,
residing at 17300 17th Street, Tustin, California 92780 (the "Employee" or
"Grantee") and B2BSTORES.COM INC., a Delaware corporation having its principal
office at 211 Park Avenue, Hicksville, New York 11801 ("Company").
WHEREAS, on September 3, 1999, the Board of Directors of the
Company authorized the employment of the Employee pursuant to the terms of an
Employment Agreement executed simultaneously herewith ("Employment Agreement"),
and the grant, on the Effective Date (as defined in the Employment Agreement),
to the Employee of an option to purchase an aggregate of 175,000 of the
authorized but unissued shares of the Common Stock of the Company, $.01 par
value ("Common Stock"), on the terms and conditions set forth in this Agreement;
and
WHEREAS, the Employee desires to acquire said option on the
terms and conditions set forth in this Agreement;
IT IS AGREED:
1. Grant of Option. The Company hereby grants to the Employee
the right and option to purchase all or any part of an aggregate of 175,000
shares of Common Stock at any time from the date of vesting through ,
2009 ("Exercise Period"), on and subject to the terms and conditions set forth
herein ("Option"). The Option is a non-qualified stock option not intended to
qualify under any section of the Internal Revenue Code of 1986, as amended, and
is not granted under any plan.
2. Exercise Price. The purchase price of each share of Common
Stock subject to the Option ("Option Shares") shall be equal to $ .
3. Vesting and Exercisability.
(a) Options to purchase 87,500 shares, 43,750 shares and
43,750 shares, respectively, will vest on the first three anniversaries of the
Start Date (as defined in the Employment Agreement).
(b) If the Employee's employment with the Company
terminates for any reason prior to the time that the Option has been fully
exercised, the unexercised portion of the Option on the date of termination of
employment (whether exercisable or not) shall immediately expire; provided,
however, that (i) if the Employee's employment is terminated by reason of the
Employee's disability (pursuant to Section 3.3 of the Employment Agreement), all
portions of the Option that are vested at the time of termination shall remain
<PAGE>
exercisable for a period of one year from the date of such termination or until
the expiration of the Exercise Period, whichever is shorter; (ii) in the event
of the death of the Employee while in the employ of the Company, all portions of
the Option that are vested at the time of death shall remain exercisable by the
legal representative of the estate or by the legatee of the Employee under the
will of the Employee for a period of one year from the date of such death or
until the expiration of the Exercise Period, whichever is shorter; and (iii) in
the event the Employee is terminated without "Cause" (as defined in the
Employment Agreement), or Executive terminates his employment for "Good Reason"
(as defined in the Employment Agreement), then the Option shall become fully
vested and exercisable and may be exercised for a period of five years from the
date of such termination of employment or until the expiration of the Exercise
Period, whichever is shorter.
(c) The Board of Directors may, in the event the
Executive's employment is terminated for Cause (as provided for in the
Employment Agreement), annul the Option and, in such event, may require the
Executive to return to the Company the economic benefit of any Option Shares
purchased hereunder by the Executive within the six month period prior to the
date of termination. In such event, the Executive hereby agrees to remit to the
Company, in cash, an amount equal to the difference between the fair market
value of the Option Shares on the date of termination (or the sales price of
such Shares if the Option Shares were sold during such six month period) and the
exercise price of such Shares.
4. Rights as a Stockholder. The Employee shall not have any of
the rights of a stockholder with respect to the Option Shares until such shares
have been issued after the due exercise of the Option.
5. Dividends, Mergers, Etc.
(a) In the event of a stock split or exchange, stock
dividend, combination of shares, or any other similar change in the Common Stock
of the Company as a whole ("Stock Event"), the Board of Directors of the Company
shall make equitable, proportionate adjustments in the number and kind of shares
covered by the Option and in the option price thereunder, as it deems necessary
in order to preserve the Employee's proportionate interest in the Company and to
maintain the aggregate option price.
(b) Upon the dissolution or liquidation of the Company, or
upon the consummation of any merger, consolidation or other form of
reorganization in which the Company is not the survivor, or upon the sale of all
or substantially all of the Company's assets (the date of any such event being
referred to herein as the "Transaction Date"), then the Option shall terminate
at the close of business on the Transaction Date; provided, however, that any of
the Option Shares not vested and exercisable on the Transaction Date shall
become immediately vested and exercisable by Employee on the date immediately
2
<PAGE>
preceding the Transaction Date and Employee shall have the right to purchase all
the Option Shares as of said date on the terms set forth in this Agreement by
irrevocable written notice delivered to the Company.
6. Transferability of Option and Option Shares.
(a) The Option shall not be assignable or transferable
except in the event of the death of the Employee, by will or by the laws of
descent and distribution. No transfer of the Option by the Employee by will or
by the laws of descent and distribution shall be effective to bind the Company
unless the Company shall have been furnished with written notice thereof and a
copy of the will and such other evidence as the Company may deem necessary to
establish the validity of the transfer and the acceptance by the transferee or
transferees of the terms and conditions of the Option.
(b) The Employee hereby represents and warrants to the
Company that he is acquiring the Option for his own account and not with a view
to the distribution thereof.
(c) The Employee hereby agrees that he shall not sell,
transfer by any means or otherwise dispose of the Option Shares acquired by him
without registration under the Securities Act of 1933 ("Act"), or in the event
that they are not so registered, unless (i) an exemption from the Act is
available thereunder, and (ii) the Employee has furnished the Company with
notice of such proposed transfer and the Company's legal counsel, in its
reasonable opinion, shall deem such proposed transfer to be so exempt.
7. Registration Rights. The Company hereby grants to Employee
the right to have the Option Shares registered on the first registration
statement on Form S-8 filed by the Company during the period in which Employee
is employed by the Company or by any subsidiary thereof and the Company shall
take such action with respect to such Form S-8 as may be necessary so that, upon
exercise, the shares of Common Stock issued thereby will be freely transferrable
(subject only to applicable volume limitations contained in Rule 144 under the
Securities Act of 1933). Notwithstanding the foregoing, (i) the Company shall
have no obligation hereunder in connection with any such registration statement
unless the Option Shares can legally be registered thereby and the Employee
provides to the Company information with respect to his ownership of Option
Shares, manner of proposed disposition and such other matters as the Company
shall reasonably request for disclosure in the registration statement or any
amendment thereto; and (ii) the Company will not be obligated to prepare, file
or print any "reoffer prospectus" in connection with any "control securities" or
"restricted securities" as those terms are defined in General Instruction C to
Form S-8. The Company shall bear all fees, costs and expenses incurred by it in
connection with the filing with the Securities and Exchange Commission of such
registration statement.
3
<PAGE>
8. Employee's Acknowledgments. The Employee hereby
acknowledges that:
(a) All reports and documents required to be filed by the
Company with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934 within the last 12 months have been made available to the
Employee for his inspection.
(b) If he exercises the Option, he may have to bear the
economic risk of the investment in the Option Shares for an indefinite period of
time because the Option Shares may not have been registered under the Act and
cannot be sold by him unless they are registered under the Act or an exemption
therefrom is available thereunder.
(c) In his position with the Company, he has had both the
opportunity to ask questions of and receive answers from the officers and
directors of the Company and all persons acting on its behalf concerning the
terms and conditions of the offer made hereunder and to obtain any additional
information to the extent the Company possesses or may possess such information
or can acquire it without unreasonable effort or expense necessary to verify the
accuracy of the information obtained pursuant to subparagraph (a) above.
(d) The Company shall place stop transfer orders with its
transfer agent against the transfer of the Option Shares in the absence of
registration under the Act or an exemption therefrom.
(e) In the absence of registration under the Act, the
certificates evidencing the Option Shares shall bear the following legend:
"The Shares represented by this certificate have been acquired
for investment and have not been registered under the
Securities Act of 1933. The shares may not be sold or
transferred in the absence of such registration or an
exemption therefrom under said Act."
9. Exercise of Option.
(a) Subject to the terms and conditions of the Agreement,
the Option may be exercised by written notice to the Company at its principal
place of business. Such notice shall state the election to exercise the Option
and the number of Option Shares in respect to which it is being exercised, and,
if the Option Shares are not then registered for resale under the Act, such
notice shall contain a representation and agreement by the person or persons so
exercising the Option that the Option Shares are being purchased for investment
and not with a view to the distribution or resale thereof. Such notice shall be
accompanied by payment of the full purchase price of the Option Shares.
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<PAGE>
(b) Payment of the purchase price shall be made in cash or
by check, bank draft or money order payable to the order of the Company.
(c) The Company shall issue a certificate or certificates
evidencing the Option Shares as soon as practicable after the notice and payment
is received. The certificate or certificates evidencing the Option Shares shall
be registered in the name of the person or persons so exercising the Option.
(d) The Company hereby represents and warrants to the
Employee that the Option Shares, when issued and delivered by the Company to the
Employee in accordance with the terms and conditions hereof, will be duly and
validly issued and fully paid and non-assessable.
10. Withholding Taxes. Not later than the date as of which an
amount first becomes includible in the gross income of Employee for Federal
income tax purposes with respect to the Option, Employee shall pay to the
Company, or make arrangements satisfactory to the Company regarding the payment
of, any Federal, state and local taxes of any kind required by law to be
withheld or paid with respect to such amount. The obligations of the Company
pursuant to this Agreement shall be conditional upon such payment or
arrangements with the Company and the Company shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the Employee from the Company. Any required withholding tax
shall be paid in accordance with Section 9(b) above.
11. Miscellaneous.
(a) In the event that, after the term of his employment
with the Company, Employee engages in activities that violate the prohibitions
set forth in Section 5.4 of the Employment Agreement (even if such provisions
are deemed to be unenforceable by a court of law), Employee shall be obligated
to return to the Company the economic benefit of any award which was realized or
obtained by him at any time during the period beginning on that date which is
six months prior to the date of such termination of employment.
(b) All notices provided for in this Agreement shall be in
writing, and shall be deemed to have been duly given when delivered personally
to the party to receive the same, when transmitted by electronic means, or when
mailed first class postage prepaid, by certified mail, return receipt requested,
addressed to the party to receive the same at his or its address set forth
below, or such other address as the party to receive the same shall have
specified by written notice given in the manner provided for in this Section 12.
All notices shall be deemed to have been given as of the date of personal
delivery, transmittal or mailing thereof.
5
<PAGE>
If to Employee:
Mark Voorhis
17300 17th Street
Apartment J-331
Tustin, California 92780
If to the Company:
b2bstores.com Inc.
211 Park Avenue
Hicksville, New York 11801
Attn: Chairman of the Board
(c) This Agreement and the Employment Agreement and other
Stock Option Agreement executed simultaneously herewith set forth the entire
agreement of the parties relating to the employment of Employee and are intended
to supersede all prior negotiations, understandings and agreements. No
provisions of this Agreement or the other Stock Option Agreement or Employment
Agreement may be waived or changed except by a writing by the party against whom
such waiver or change is sought to be enforced. The failure of any party to
require performance of any provision hereof or thereof shall in no manner affect
the right at a later time to enforce such provision.
(d) This Agreement shall be governed by and construed
under the law of the State of New York, disregarding any principles of conflicts
of law that would otherwise provide for the application of the substantive law
of another jurisdiction. Each of the parties (i) agrees that any legal suit,
action or proceeding arising out of or relating to this Agreement shall be
instituted exclusively in New York State Supreme Court, County of New York, or
in the United States District Court for the Southern District of New York, (ii)
waives any objection to the venue of any such suit, action or proceeding and the
right to assert that such forum is not a convenient forum, and (iii) irrevocably
consents to the jurisdiction of the New York State Supreme Court, County of New
York, and the United States District Court for the Southern District of New York
in any such suit, action or proceeding. Each of the parties further agrees to
accept and acknowledge service of any and all process which may be served in any
such suit, action or proceeding in the New York State Supreme Court, County of
New York, or in the United States District Court for the Southern District of
New York and agrees that service of process upon it mailed by certified mail to
its address shall be deemed in every respect effective service of process upon
it in any such suit, action or proceeding.
(e) This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company. This Agreement shall not
be assignable by Employee, but shall inure to the benefit of and be binding upon
Employee's heirs and legal representatives.
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<PAGE>
(f) Should any provision of this Agreement become legally
unenforceable, no other provision of this Agreement shall be affected, and this
Agreement shall continue as if the Agreement had been executed absent the
unenforceable provision.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
B2BSTORES.COM INC.
By:
-----------------------------------
Woo Jin Kim, Chief Executive Officer
---------------------------------------
MARK VOORHIS
7
<PAGE>
NOTE: CERTAIN CONFIDENTIAL TECHNICAL AND COMMERCIAL INFORMATION HAS BEEN
REDACTED FROM THIS EXHIBIT. ALL SUCH REDACTED INFORMATION IS ON FILE
WITH THE SEC.
NOTE: ASTERISK OR ASTERISKS [* * * *] INDICATE INFORMATION FOR WHICH
CONFIDENTIAL TREATMENT HAS BEEN SOUGHT
NETGATEWAY
ELECTRONIC COMMERCE SERVICES AGREEMENT
THIS ELECTRONIC COMMERCE SERVICES AGREEMENT (this "Agreement") is made
effective as of the Acceptance Date set forth in the initial eCommerce Services
Order Form ( July 28, 1999) accepted by Netgateway, a Nevada corporation
("Netgateway"), and the subscriber identified below ("Subscriber").
PARTIES:
SUBSCRIBER NAME: B2BSTORES.COM INC.
ADDRESS: 211 PARK AVENUE
HICKSVILLE, NY 11801
PHONE: (516) 931-4455
FAX: (516) 931-3530
NETGATEWAY
300 Oceangate, Suite 500
Long Beach, CA 90802
Phone: (562) 308-0010
Fax: (562) 308-0021
1. ELECTRONIC COMMERCE SERVICES.
1.1 eCommerce Services. Subject to the terms and conditions of this
Agreement, during the term of this Agreement, Netgateway will, through the
Netgateway Internet Commerce Center(TM) ("Netgateway ICC"), provide to
Subscriber the services described in the eCommerce Services Order Form(s) (the
"eCommerce Services Order Form(s)") accepted by Netgateway, or substantailly
similar services if such substantailly similar services would provide Subscriber
with substantially similar benefits (the "eCommerce Services"). All such
eCommerce Services Order Forms will be incorporated herein by this reference as
of the Acceptance Date set forth on each such form. Netgateway and Subscriber
have mutually agreed or will mutually agree upon the detailed final
specifications (the "Specifications") for the eCommerce Services and the
development timeline therefor, all of which are or will be set forth on the
attached initial eComerce Services Order Form attached hereto as Exhibit "A",
and by this reference made a part hereof.
1.2 Availability. ECommerce Services will be available to Subscriber for
inquiry and order entry functions twenty-four (24) hours a day, seven (7) days a
week. Netgateway reserves the right upon reasonable notice to Subscriber to
limit or curtail holiday or weekend availability when necessary for system
upgrades, adjustments, maintenance or other operational considerations.
1.3 Enhancements. General enhancements to existing eCommerce Services
provided hereunder, as well as new features that Netgateway incorporates into
its standard commerce processing system, regardless of whether they are
initiated by Netgateway or developed at the request of Subscriber or other
subscribers, shall be made available to Subscriber at [****]. Any new features
or services that may be developed by Netgateway during the term of this
Agreement which Netgateway intends to offer to subscribers on a limited or
optional basis may, at Netgateway's option, and subject to Subscriber's
acceptance, be made available to Subscriber at [****]. Enhancements to existing
eCommerce Services requested by Subscriber that benefit only Subscriber at the
time such enhancements are put into service shall be billed to Subscriber at
Netgateway's standard rates for programming. All enhancements to the eCommerce
Services, and any new features or services introduced by Netgateway, shall
remain the exclusive proprietary property of Netgateway.
1.4 Training. [****], Netgateway shall provide such onsite training and
other assistance, as Netgateway deems necessary to assure that Subscriber's
personnel are able to make effective use of the eCommerce Services. On-site
training shall take place at such times and places as are mutually agreeable to
the parties hereto.
1.5 Subscriber Data.
(a) Subscriber Data. Subscriber will timely supply Netgateway, in a form
acceptable to Netgateway, with all data necessary for Netgateway to perform the
ongoing services to be provided hereunder. It is the sole responsibility of
Subscriber to insure the completeness and accuracy of such data.
(b) Confidentiality. Netgateway acknowledges that all records, data, files
and other input material relating to Subscriber are confidential and shall take
reasonable steps to protect the confidentiality of such records, data, files and
other materials. Netgateway will provide reasonable security safeguards to limit
access to Subscriber's files and records to Subscriber and other authorized
parties.
(c) Protection of Subscriber Files. Netgateway will take reasonable steps to
protect against the loss or alteration of Subscriber's files, records and data
retained by Netgateway, but Subscriber recognizes that events beyond the control
of Netgateway may cause such loss or alteration. Netgateway will maintain backup
file(s) containing all the data, files and records related to Subscriber.
Subscriber's file(s), records and data shall, at no cost to Subscriber, be
released to Subscriber on an occurrence that renders Netgateway unable to
perform hereunder, or upon the termination of this Agreement as provided herein.
(d) Ownership of Data. Netgateway acknowledges that all records, data, files
and other input material relating to Subscriber and its customers are the
exclusive property of the Subscriber.
2. FEES AND BILLING.
2.1 Fees. Subscriber will pay all fees and amounts in accordance with the
eCommerce Service Provider Forms.
2.2 Billing Commencement. The Initial Development Fee shall be due and
payable in accordance with the terms set forth on the eCommerce Services Order
Form. Billing for eCommerce Services indicated in the eCommerce Services Order
Form (including the eCommerce Rate, Fees Per Hit, Banner Advertising Revenue and
Click Through Revenue, as applicable) other than the Initial Development Fee,
shall commence on the "Operational Date" indicated in the eCommerce Services
Order Form. In the event that Subscriber orders other eCommerce Services in
addition to those listed in the initial eCommerce Services Order Form, billing
for such services shall commence on the date Netgateway first provides such
additional eCommerce Services to Subscriber or as otherwise agreed to by
Subscriber and Netgateway in the applicable eCommerce Services Order Form.
2.3 Billing and Payment Terms. All amounts due under this Agreement for
eCommerce Services indicated in the eCommerce Services Order Form shall be
payable in accordance with the Billing and Payment Terms set forth on Exhibit
"B" annexed hereto, which by this reference is made a part hereof.
2.4 Taxes, Utilities and Exclusions. All charges shall be exclusive of any
federal, state or local sales, use, excise, ad valorem or personal property
taxes levied, or any fines, forfeitures or penalties assessed in connection
therewith, as a result of this Agreement or the installation or use of the
eCommerce Services provided hereunder. Any such taxes shall be paid by
Subscriber or by Netgateway for Subscriber's account, in which case Subscriber
shall reimburse Netgateway for amounts so paid. Netgateway shall provide
burstible at 1 megabit per second capacity bandwith for Subscriber's website at
no additional charge. Should Subscriber need additional bandwidth, Netgateway
shall provide or make arrangements to provide such additional bandwidth and
invoice Subscriber for such excess bandwidth and/or use beyond a 1 megabit per
second burstible line. Netgateway will provide traffic reports to Subscriber
with respect to burstible capacity. Netgateway is not responsible for providing
connectivity to Subscriber's offices.
3. SUBSCRIBER'S OBLIGATIONS.
3.1 Compliance with Laws and Rules and Regulations. Subscriber agrees that
Subscriber will comply at all times with all applicable laws and regulations and
Netgateway's general rules and regulations relating to its provision of
eCommerce Services, currently included herein as Section 10, which may be
updated and provided by Netgateway to Subscriber from time to time ("Rules and
Regulations"). Subscriber acknowledges that Netgateway exercises no control
whatsoever over the content contained in or passing through the Subscriber's web
site, storefront or mall ("ECommerce Centers"), and that it is the sole
responsibility of Subscriber to ensure that the information it transmits and
receives complies with all applicable laws and regulations.
3.2 Access and Security. Subscriber will be fully responsible for any
charges, costs, expenses (other than those included in the eCommerce Services),
and third party claims that may result from its use of, or access to, the
Netgateway Internet Commerce Center(TM), including, but not limited to, any
unauthorized use or any access devices provided by Netgateway hereunder.
NETGATEWAY /B2BSTORES.COM
Electronic Commerce Services Agreement Page 1
<PAGE>
3.3 [****]
3.4 Insurance.
(a) Minimum Levels. Within six (6) months of the date of this Agreement (the
last day of such period, the "Insurance Due Date"), Subscriber shall obtain and
keep in full force and effect during the term of this Agreement: (i)
comprehensive general liability insurance in an amount not less than $5 million
per occurrence for bodily injury and property damage; (ii) employer's liability
insurance in an amount not less than $1 million per occurrence; and (iii)
workers' compensation insurance in an amount not less than that required by
applicable law. Subscriber also agrees that it will be solely responsible for
ensuring that its agents (including contractors and subcontractors) maintain,
other insurance at levels no less than those required by applicable law and
customary in Subscriber's industry.
(b) Certificates of Insurance. On or prior to the Insurance Due Date,
Subscriber will furnish Netgateway with certificates of insurance which evidence
the minimum levels of insurance set forth above, and will notify Netgateway in
writing in the event that any such insurance policies are cancelled.
(c) Naming Netgateway as an Additional Insured. Subscriber agrees that on or
prior to the Insurance Due Date, Subscriber will cause its insurance provider(s)
to name Netgateway as an additional insured and notify Netgateway in writing of
the effective date thereof.
4. CONFIDENTIAL INFORMATION.
4.1 Confidential Information. Each party acknowledges that it will have
access to certain confidential information of the other party concerning the
other party's business, plans, customers, technology and products, including the
terms and conditions of this Agreement ("Confidential Information").
Confidential Information will include, but not be limited to, each party's
proprietary software and customer information. Each party agrees that it will
not use in any way, for its own account or the account of any third party,
except as expressly permitted by this Agreement, nor disclose to any third party
(except as required by law or to that party's attorneys, accountants and other
advisors on a need to know basis), any of the other party's Confidential
Information and will take reasonable precautions to protect the confidentiality
of such Confidential Information.
4.2 Exceptions. Information will not be deemed Confidential Information
hereunder if such information: (i) is known to the receiving party prior to
receipt from the disclosing party directly or indirectly from a source other
than one having an obligation of confidentiality to the disclosing party; (ii)
becomes known (independently of disclosure by the disclosing party) to the
receiving party directly or indirectly from a source other than one having an
obligation of confidentiality to the disclosing party; (iii) becomes publicly
known or otherwise ceases to be secret or confidential, except through a breach
of this Agreement by the receiving party; or (iv) is independently developed by
the receiving party.
5. REPRESENTATIONS AND WARRANTIES.
5.1 Warranties by Subscriber.
(a) Subscriber's Business. Subscriber represents and warrants that:
(i) Subscriber's services, products, materials, data and information
used by Subscriber in connection with this Agreement as well as Subscriber's and
its permitted customers' and users' use of the eCommerce Services (collectively,
"Subscriber's Business") does not, as of the Operational Date, and will not
during the term of this Agreement, operate in any manner that would violate any
applicable laws or regulations.
(ii) Subscriber owns or has the right to use all material contained in
the Subscriber's web site, including all text, graphics, sound, video,
programming, scripts and applets; and
(iii) The use, reproduction, distribution and transmission of the web
site, or any information or materials contained in it does not: (A) infringe or
misappropriate any copyright, patent, trademark, trade secret or any other
proprietary rights of a third party; or (B) constitute false advertising, unfair
competition, defamation, an invasion of privacy or violate a right of publicity.
(b) Rules and Regulations. Subscriber has read the Rules and Regulations
(Section 10 below) and represents and warrants that Subscriber and Subscriber's
Business are currently in full compliance with the Rules and Regulations, and
will remain so at all times during the term of this Agreement.
(c) Breach of Warranties. In the event of any breach, or reasonably
anticipated breach, of any of the foregoing warranties, in addition to any other
remedies available at law or in equity, Netgateway will have the right
immediately in Netgateway's reasonable discretion, to suspend any related
eCommerce Services if deemed reasonably necessary by Netgateway to prevent any
harm to Netgateway or its business.
5.2 Warranties and Disclaimers by Netgateway.
(a) No Other Warranty. THE ECOMMERCE SERVICES ARE PROVIDED ON AN "AS IS"
BASIS, AND SUBSCRIBER'S USE OF THE ECOMMERCE SERVICES IS AT ITS OWN RISK.
NETGATEWAY DOES NOT MAKE, AND HEREBY DISCLAIMS, ANY AND ALL OTHER EXPRESS AND/OR
IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT AND TITLE,
AND ANY WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICE.
NETGATEWAY DOES NOT WARRANT THAT THE ECOMMERCE SERVICES WILL BE UNINTERRUPTED,
ERROR-FREE OR COMPLETELY SECURE.
(b) Disclaimer of Actions Caused by and/or Under the Control of Third
Parties. NETGATEWAY DOES NOT AND CANNOT CONTROL THE FLOW OF DATA TO OR FROM
NETGATEWAY'S INTERNET COMMERCE CENTER AND OTHER PORTIONS OF THE INTERNET. SUCH
FLOW DEPENDS IN LARGE PART ON THE PERFORMANCE OF INTERNET SERVICES PROVIDED OR
CONTROLLED BY THIRD PARTIES. AT TIMES, ACTIONS OR INACTIONS CAUSED BY THESE
THIRD PARTIES CAN PRODUCE SITUATIONS IN WHICH NETGATEWAY'S SUBSCRIBERS'
CONNECTIONS TO THE INTERNET (OR PORTIONS THEREOF) MAY BE IMPAIRED OR DISRUPTED.
ALTHOUGH NETGATEWAY WILL USE COMMERCIALLY REASONABLE EFFORTS TO TAKE ACTIONS IT
DEEMS APPROPRIATE TO REMEDY AND AVOID SUCH EVENTS, NETGATEWAY CANNOT GUARANTEE
THAT THEY WILL NOT OCCUR. ACCORDINGLY, NETGATEWAY DISCLAIMS ANY AND ALL
LIABILITY RESULTING FROM OR RELATED TO SUCH EVENTS.
6. LIMITATIONS OF LIABILITY.
6.1 Exclusions. IN NO EVENT WILL NETGATEWAY BE LIABLE TO ANY THIRD PARTY FOR
ANY CLAIMS ARISING OUT OF OR RELATED TO THIS AGREEMENT, SUBSCRIBER'S BUSINESS OR
OTHERWISE, AND ANY LOST REVENUE, LOST PROFITS, REPLACEMENT GOODS, LOSS OF
TECHNOLOGY, RIGHTS OR SERVICES, INCIDENTAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL
DAMAGES, LOSS OF DATA, OR INTERRUPTION OR LOSS OF USE OF SERVICE OR SUBSCRIBER'S
BUSINESS, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER UNDER
THEORY OF CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE.
6.2 Limitations. NETGATEWAY, ITS AFFILIATES, EMPLOYEES, OFFICERS AND AGENTS
SHALL NOT BE LIABLE TO SUBSCRIBER OR TO ANY THIRD PARTY FOR ANY LOSS OR DAMAGE,
WHETHER DIRECT OR INDIRECT, RESULTING FROM DELAYS OR INTERRUPTIONS OF SERVICE
DUE TO MECHANICAL ELECTRICAL OR WIRE DEFECTS OR DIFFICULTIES, STORMS, STRIKES,
WALK-OUTS, EQUIPMENT OR SYSTEMS FAILURES, OR OTHER CAUSES OVER WHICH NETGATEWAY,
ITS AFFILIATES, EMPLOYEES, OFFICERS, OR AGENTS AGAINST WHOM LIABILITY IS SOUGHT,
HAVE NO REASONABLE CONTROL, OR FOR LOSS OR DAMAGE, DIRECT OR INDIRECT, RESULTING
FROM INACCURACIES, ERRONEOUS STATEMENTS, ERRORS OF FACTS, OMISSIONS OR ERRORS IN
THE TRANSMISSION OR DELIVERY OF ECOMMERCE SERVICES, OR ANY DATA PROVIDED AS A
PART OF THE ECOMMERCE SERVICES PURSUANT TO THIS AGREEMENT, EXCEPT TO THE EXTENT
CAUSED BY THE GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF NETGATEWAY. IN ADDITION,
IN NO EVENT SHALL NETGATEWAY BE LIABLE TO SUBSCRIBER OR TO ANY THIRD PARTY FOR
SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL LOSSES OR DAMAGES WHICH
SUBSCRIBER OR SUCH THIRD PARTY MAY INCUR OR EXPERIENCE ON ACCOUNT OF ENTERING
INTO OR RELYING ON THIS AGREEMENT OR UTILIZING THE NETGATEWAY ECOMMERCE
SERVICES, REGARDLESS OF WHETHER NETGATEWAY HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES OR WHETHER SUCH DAMAGES ARE CAUSED, IN WHOLE OR IN PART, BY THE
NEGLIGENCE OF NETGATEWAY.
6.3 Maximum Liability. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS
AGREEMENT, IN ALL CASES ARISING FROM EVENTS OCCURRING DURING THE TERM OF THIS
AGREEMENT, WHETHER BASED UPON TORT, CONTRACT WARRANTY, INDEMNITY CONTRIBUTION OR
OTHERWISE, DAMAGES SHALL BE LIMITED TO, AND SUBSCRIBER AGREES NOT TO MAKE ANY
CLAIM OR CLAIMS EXCEEDING [****], REGARDLESS OF HOW MANY CLAIMS SUBSCRIBER MAY
HAVE.
6.4 Time For Making Claims. ANY SUIT OR ACTION BY SUBSCRIBER AGAINST
NETGATEWAY, ITS AFFILIATES, OFFICERS, DIRECTORS, AGENTS, EMPLOYEES, SUCCESSORS
OR ASSIGNS, BASED UPON ANY ACT OR OMISSION ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR SERVICES PERFORMED HEREUNDER, OR ANY ALLEGED BREACH THEREOF, SHALL
BE COMMENCED WITHIN TWO (2) YEARS OF THE FIRST OCCURRENCE GIVING RISE TO SUCH
CLAIM OR BE FOREVER BARRED. THIS PROVISION DOES NOT MODIFY OR OTHERWISE AFFECT
THE LIMITATION OF NETGATEWAY'S LIABILITY SET FORTH IN SECTION 6 OR ELSEWHERE IN
THIS AGREEMENT.
6.5 Subscriber's Insurance. [Reserved].
6.6 Basis of the Bargain; Failure of Essential Purpose. Subscriber
acknowledges that Netgateway has set its prices and entered into this Agreement
in reliance upon the limitations of liability and the disclaimers of warranties
and damages set forth herein, and that the same form an essential basis of the
bargain between the parties. The parties agree that the limitations and
exclusions of liability and disclaimers specified in this Agreement will survive
and apply even if found to have failed of their essential purpose.
7. INDEMNIFICATION.
7.1 Netgateway's Indemnification of Subscriber. Netgateway will indemnify,
defend and hold Subscriber harmless from and against any and all costs,
liabilities, losses and expenses (including, but not limited to, reasonable
attorneys' fees) (collectively, "Losses") resulting from any claim, suit, action
or proceeding (each, an "Action") brought against Subscriber alleging the
infringement of any third party registered U.S. copyright or issued U.S. patent
resulting from the provision of eCommerce Services
NETGATEWAY /B2BSTORES.COM
Electronic Commerce Services Agreement Page 2
<PAGE>
pursuant to this Agreement (but excluding any infringement contributorily caused
by Subscriber's Business).
7.2 Subscriber's Indemnification of Netgateway. Subscriber will indemnify,
defend and hold Netgateway, its affiliates and customers harmless from and
against any and all Losses resulting from or arising out of Subscriber's breach
of any provision of this Agreement or any Action brought against Netgateway, its
directors, employees, affiliates or Subscribers alleging with respect to the
Subscriber's Business: (a) infringement or misappropriation of any intellectual
property rights; (b) defamation, libel, slander, obscenity, pornography or
violation of the rights of privacy or publicity; (c) spamming, or any other
offensive, harassing or illegal conduct or violation of the Rules and
Regulations; or, (d) any violation of any other applicable law or regulation.
7.3 Notice. Each party will provide the other party, prompt written notice of
the existence of any such indemnifiable event of which it becomes aware, and an
opportunity to participate in the defense thereof.
8. DISPUTE RESOLUTION.
8.1 Procedures. It is the intent of the parties that all disputes arising
under this Agreement be resolved expeditiously, amicably, and at the level
within each party's organization that is most knowledgeable about the disputed
issue. The parties understand and agree that the procedures outlined in this
Paragraph 8 are not intended to supplant the routine handling of inquiries and
complaints through informal contact with customer service representatives or
other designated personnel of the parties. Accordingly, for purposes of the
procedures set forth in this paragraph, a "dispute" is a disagreement that the
parties have been unable to resolve by the normal and routine channels
ordinarily used for such matters. Before any dispute arising under this
Agreement, other than as provided in paragraph 8.5 below, may be submitted to
arbitration, the parties shall first follow the informal and escalating
procedures set forth below.
(a) The complaining party's representative will notify the other party's
representative in writing of the dispute, and the non-complaining party will
exercise good faith efforts to resolve the matter as expeditiously as possible.
(b) In the event that such matter remains unresolved thirty (30) days after
the delivery of the complainant party's written notice, a senior representative
of each party shall meet or confer within ten (10) business days of a request
for such a meeting or conference by either party to resolve such matter.
(c) In the event that the meeting or conference specified in (b) above does
not resolve such matter, the senior officer of each party shall meet or confer
within ten (10) business days of the request for such a meeting or conference by
either party to discuss and agree upon a mutually satisfactory resolution of
such matter.
(d) If the parties are unable to reach a resolution of the dispute after
following the above procedure, or if either party fails to participate when
requested, the parties may proceed in accordance with paragraph 8.2 below.
8.2 Binding Arbitration. Except as provided in paragraph 8.5 below, any
dispute arising under this Agreement shall, after utilizing the procedures in
paragraph 8.1, be resolved by final and binding arbitration in Los Angeles,
California, before a single arbitrator selected by, and in accordance with, the
rules of commercial arbitration of the American Arbitration Association or as
otherwise provided in Paragraph 11.6. Each party shall bear its own costs in the
arbitration, including reasonable attorneys' fees, and each party shall bear
one-half of the cost of the arbitrator.
8.3 Arbitrator's Authority. The arbitrator shall have the authority to award
such damages as are not prohibited by this Agreement and may, in addition and in
a proper case, declare rights and order specific performance, but only in
accordance with the terms of this Agreement.
8.4 Enforcement of Arbitrator's Award. Any party may apply to a court of
general jurisdiction to enforce an arbitrator's award, and if enforcement is
ordered, the party against which the order is issued shall pay the costs and
expenses of the other party in obtaining such order, including reasonable
attorneys' fees.
8.5 Access to Courts. Notwithstanding the provisions of paragraphs 8.1 and
8.2 above, any action by Netgateway to enforce its rights under Paragraphs 10.1
or 10.3 of this Agreement or to enjoin any infringement of the same by
Subscriber may, at Netgateway's election, be commenced in the state or federal
courts of Los Angeles, California, and Subscriber consents to personal
jurisdiction and venue in such courts for such actions.
9. TERM AND TERMINATION.
9.1 Term. This Agreement will be effective on the date first above written
and will terminate [****] ("Initial Term") from the date Subscriber begins
processing live data through the Netgateway ICC(TM), unless earlier terminated
according to the provisions of this Section 9. This Agreement will automatically
renew for successive additional terms of [****] unless a party hereto elects not
to so renew and notifies the other party in writing of such election by a date
which is six (6) months prior to the lapse of the Initial Term or any renewal
term thereafter.
9.2 Termination. Either party will have the right to terminate this Agreement
if: (i) the other party breaches any material term or condition of this
Agreement and fails to cure such breach within thirty (30) days after receipt of
written notice of the same, except in the case of failure to pay fees, which
failure must be cured within five (5) days after receipt of written notice from
Netgateway; (ii) the other party becomes the subject of a voluntary petition in
bankruptcy or any voluntary proceeding relating to insolvency, receivership,
liquidation or composition for the benefit of creditors; or(iii) the other party
becomes the subject of an involuntary petition in bankruptcy or any involuntary
proceeding relating to insolvency, receivership, liquidation or composition for
the benefit of creditors, if such petition or proceeding is not dismissed within
sixty (60) days of filing. Subscriber shall have the right to terminate the
Agreement if the Netgateway servers which provide eCommerce Services hereunder
experience more than two percent (2%) down-time measured on an annual basis;
provided, however, that down-time shall not include time expended on regularly
scheduled maintenance and other system upgrades.
9.3 No Liability for Termination. Neither party will be liable to the other
for any termination or expiration of this Agreement in accordance with its
terms.
9.4 Effect of Termination. Upon the effective date of expiration or
termination of this Agreement: (a) Netgateway shall immediately cease providing
eCommerce Services; (b) any and all payment obligations of Subscriber under this
Agreement shall become due immediately; and (c) within thirty (30) days after
such expiration or termination, each party shall return all Confidential
Information of the other party in its possession at the time of expiration or
termination and shall not make or retain any copies of such Confidential
Information, except as required to comply with any applicable legal or
accounting record keeping requirements.
9.5 Survival. The following provisions shall survive any expiration or
termination of the Agreement: Sections 2, 3, 4, 5, 6, 7, 8, 9 and 10.
10. USE OF ECOMMERCE SERVICES - RULES AND REGULATIONS.
10.1 Proprietary Systems. Subscriber acknowledges that the software systems
utilized by Netgateway in the provision of eCommerce Services hereunder,
including the Netgateway ICC(TM), all enhancements thereto and all screens and
formats used in connection therewith, are the exclusive proprietary property of
Netgateway, and Subscriber shall not publish, disclose, display, provide access
to or otherwise make available any Netgateway eCommerce software or products
thereof, or any screens, formats, reports or printouts used, provided, produced
or supplied from or in connection therewith, to any person or entity other than
an employee of Subscriber without the prior written consent of, and on terms
acceptable to, Netgateway, which consent shall not be unreasonably withheld;
provided, however, that Subscriber may disclose to a governmental or regulatory
agency or to customers of Subscriber any information expressly prepared and
acknowledged in writing by Netgateway as having been prepared for disclosure to
such governmental or regulatory agency or to such customers. Neither party shall
disclose Subscriber's use of eCommerce Services in any advertising or
promotional materials without the prior written consent to such use, and
approval of such materials, by the other.
10.2 Use of Services Personal to Subscriber. Subscriber agrees that it will
use the services provided hereunder only in connection with its eCommerce
business, and it will not, without the express written permission of Netgateway,
sell, lease or otherwise provide or make available eCommerce Services to any
third party.
10.3 Survival of Obligations. The obligations of this Section 10 shall
survive termination of this Agreement. Subscriber understands that the
unauthorized publication or disclosure of any of Netgateway' software or copies
thereof, or the unauthorized use of eCommerce Services would cause irreparable
harm to Netgateway for which there is no adequate remedy at law. Subscriber
therefore agrees that in the event of such unauthorized disclosure or use,
Netgateway may, at its discretion and at Subscriber's expense, terminate this
Agreement, obtain immediate injunctive relief in a court of competent
jurisdiction, or take such other steps as it deems necessary to protect its
rights. If Netgateway, in its reasonable, good faith judgment, determines that
there is a material risk of such unauthorized disclosure or use, it may demand
immediate assurances, satisfactory to Netgateway, that there will be no such
unauthorized disclosure or use. In the absence of such assurance, Netgateway may
immediately terminate this Agreement and take such other actions as it deems
necessary. The rights of Netgateway hereunder are in addition to any other
remedies provided by law.
11. MISCELLANEOUS PROVISIONS.
11.1 Force Majeure. Except for the obligation to pay money, neither party
will be liable for any failure or delay in its performance under this Agreement
due to any cause beyond its reasonable control, including act of war, acts of
God, earthquake, flood, embargo, riot, sabotage, labor shortage or dispute,
governmental act or failure of the Internet, provided that the delaying party:
(a) gives the other party prompt notice of such cause, and (b) uses its
reasonable commercial efforts to correct promptly such failure or delay in
performance.
11.2 No Lease. This Agreement is a services agreement and is not intended to,
and will not constitute, a lease of any real or personal property. Subscriber
acknowledges and agrees that: (i) it has been granted only a license to use
Netgateway's ICC(TM) and any equipment provided by Netgateway in accordance with
this Agreement, (ii) Subscriber has not been granted any real property interest
in the Netgateway's ICC(TM), and (iii)
NETGATEWAY /B2BSTORES.COM
Electronic Commerce Services Agreement Page 3
<PAGE>
Subscriber has no rights as a tenant or otherwise under any real property or
landlord/tenant laws, regulations or ordinances.
11.3 Marketing. Subscriber agrees that Netgateway may refer to Subscriber by
trade name and trademark, and may briefly describe Subscriber's business, in
Netgateway's marketing materials and web site. Subscriber hereby grants
Netgateway a license to use any Subscriber trade names and trademarks solely in
connection with the rights granted to Netgateway pursuant to this Section 11.3.
11.4 Government Regulations. Subscriber will not export, re-export, transfer
or make available, whether directly or indirectly, any regulated item or
information to anyone outside the U.S. in connection with this Agreement without
first complying with all export control laws and regulations which may be
imposed by the U.S. Government and any country or organization of nations within
whose jurisdiction Subscriber operates or does business.
11.5 Non-Solicitation. Except with the prior consent of Netgateway, which
consent shall not be unreasonably withheld, during the period beginning on the
Operational Data and ending [****] in accordance with its terms, Subscriber
agrees that it will not, and will ensure that its affiliates do not, directly or
indirectly, solicit or attempt to solicit for employment any persons employed by
Netgateway during such period.
11.6 Governing Law; Dispute Resolution, Severability; Waiver. This Agreement
is made under and will be governed by and construed in accordance with the laws
of the State of California (without regard to that body of law controlling
conflicts of law) and specifically excluding from application to this Agreement
that law known as the United Nations Convention on the International Sale of
Goods. Any dispute relating to the terms, interpretation or performance of this
Agreement (other than claims for preliminary injunctive relief or other
pre-judgment remedies) will be resolved at the request of either party through
binding arbitration. Arbitration will be conducted in Los Angeles County,
California, under the rules and procedures of the Judicial Arbitration and
Mediation Society ("JAMS"). The parties will request that JAMS appoint a single
arbitrator possessing knowledge of online services agreements; provided,
however, the arbitration will proceed even if such a person is unavailable. In
the event any provision of this Agreement is held by a tribunal of competent
jurisdiction to be contrary to the law, the remaining provisions of this
Agreement will remain in full force and effect. The waiver of any breach or
default of this Agreement will not constitute a waiver of any subsequent breach
or default, and will not act to amend or negate the rights of the waiving party.
11.7 Assignment; Notices. Subscriber may not assign its rights or delegate
its duties under this Agreement either in whole or in part without the prior
written consent of Netgateway, except that Subscriber may assign this Agreement
in whole as part of a corporate reorganization, consolidation, merger or sale of
substantially all of its assets. Any attempted assignment or delegation without
such consent will be void. Netgateway may assign this Agreement in whole or
part. This Agreement will bind and inure to the benefit of each party's
successors and permitted assigns. Any notice or communication required or
permitted to be given hereunder may be delivered by hand, deposited with an
overnight courier, sent by confirmed facsimile, or mailed by registered or
certified mail, return receipt requested, postage prepaid, in each case to the
address of the receiving party indicated on the signature page hereof, or at
such other address as may hereafter be furnished in writing by either party
hereto to the other. Such notice will be deemed to have been given as of the
date it is delivered, mailed or sent, whichever is earlier.
11.8 Relationship of Parties. Netgateway and Subscriber are independent
contractors and this Agreement will not establish any relationship of
partnership, joint venture, employment, franchise or agency between Netgateway
and Subscriber. Neither Netgateway nor Subscriber will have the power to bind
the other or incur obligations on the other's behalf without the other's prior
written consent, except as otherwise expressly provided herein.
11.9 Entire Agreement; Counterparts. This Agreement, including all documents
incorporated herein by reference, constitutes the complete and exclusive
agreement between the parties with respect to the subject matter hereof, and
supersedes and replaces any and all prior or contemporaneous discussions,
negotiations, understandings and agreements, written and oral, regarding such
subject matter. This Agreement may be executed in two or more counterparts, each
of which will be deemed an original, but all of which together shall constitute
one and the same instrument.
Subscriber's and Netgateway's authorized representatives have read the foregoing
and all documents incorporated therein and agree and accept such terms effective
as of the date first above written.
SUBSCRIBER
Signature: _________________________ Signature: _____________________
Print Name: _________________________ Print Name: _____________________
Title: _________________________
NETGATEWAY
Signature: _________________________ Signature: _____________________
Print Name: _________________________ Print Name: _____________________
Title: _________________________
NETGATEWAY /B2BSTORES.COM
Electronic Commerce Services Agreement Page 4
<PAGE>
EXHIBIT "A"
ELECTRONIC COMMERCE SERVICES ORDER FORM
NETGATEWAY
ECOMMERCE SERVICES ORDER FORM
Subcriber Name: B2BSTORES.COM INC.
Form Date: July 28, 1999
Form No.: 001
GENERAL INFORMATION:
1. By submitting this eCommerce Services Order Form ("Form") to
Netgateway, Subscriber hereby places an order for the eCommerce
Services described herein pursuant to the terms and conditions of the
Electronic Commerce Services Agreement between Subscriber and
Netgateway prefixed hereto (the "ECS Agreement").
2. Billing, with the exception of Development Fees, will commence on the
Operational Date set forth below or the date that Subscriber first
begins to process transactions through the Netgateway Internet Commerce
Center, whichever occurs first.
3. Netgateway will provide the eCommerce Services pursuant to the terms
and conditions of the ECS Agreement, which incorporates this Form. The
terms of this Form supersede, and by accepting this Form, Netgateway
hereby rejects, any conflicting or additional terms provided by
Subscriber in connection with Netgateway's provision of the eCommerce
Services. If there is a conflict between this Form and any other Form
provided by Customer and accepted by Subscriber, the Form with the
latest date shall control.
4. Netgateway will not be bound by or required to provide eCommerce
Services pursuant to this Form or the ECS Agreement until each is
signed by an authorized representative of Netgateway.
SUBSCRIBER HAS READ, UNDERSTANDS AND HEREBY SUBMITS THIS ORDER.
Netgateway Communications, Inc. Confidential Page 1
<PAGE>
Submitted By: __________________________ Operational Date: __________________
(Authorized Signature)
Print Name: ____________________________
Title: ____________________________
Netgateway Acceptance
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________________________________________ Date: _____________________________
(Authorized Signature:
Netgateway Communications, Inc. Confidential Page 1
<PAGE>
NETGATEWAY
ECOMMERCE SERVICES ORDER FORM
Subscriber Name: B2BSTORES.COM INC.
Form Date: July 28, 1999
Form No.: 001
Terms:
[****]
Netgateway Communications, Inc. Confidential Page 1
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Netgateway Communications, Inc. Confidential Page 1
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Subscriber's Initials WJK
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Netgateway Communications, Inc. Confidential Page 1
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STANDARD OFFICE LEASE - GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. Basic Lease Provisions ("Basic Lease Provisions")
1.1 Parties: This Lease, dated, for reference purposes only, August 16,
1999, is made by and between DAV Vermoegensverwaltung GmbH & Co., (herein called
"Lessor") and b2bstores.com, Inc. a Delaware corporation and Enviro-Clean of
America, Inc. a Nevada corporation, doing business under the name of N/A,
(herein called "Lessee").
1.2 Premises: Suite Numbers(s) 620, 6th floors, consisting of
approximately 4,117 feet, more or less, as defined in paragraph 2 and as shown
on Exhibit "A" hereto (the "Premises").
1.3 Building: Commonly described as being located at 249 E. Ocean
Boulevard, in the City of Long Beach, County of Los Angeles, State of
California, as more particularly described in Exhibit A hereto, and as defined
in paragraph 2.
1.4 Use: administrative and accounting offices, subject to paragraph 6.
1.5 Term: twenty four (24) months commencing August 16, 1999
("Commencement Date") and ending August 15, 2001, as defined in paragraph 3.
1.6 Base Rent: $6,381.35 per month, payable on the 1st day of each month,
per paragraph 4.1.
1.8 Rent Paid Upon Execution: $6,381.35 for October 16, 1999 - November
15, 1999.
1.9 Security Deposit: $19,144.05
1.10 Lessee's Share of Operating Expense Increase: 3.8% as defined in
paragraph 4.2.
2. Premises, Parking and Common Areas.
2.1 Premises: The Premises are a portion of a building, herein sometimes
referred to as the "Building" identified in paragraph 1.3 of the Basic Lease
Provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and improvements
thereon or thereunder, are herein collectively referred to as the "Office
Building Project." Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
the real property referred to in the Basic Lease Provisions, paragraph 1.2, as
the "Premises", including rights to the Common Areas as hereinafter specified.
2.2 Vehicle Parking: So long as Lessee is not in default, and subject to
the rules and regulations attached hereto, and as established by Lessor from
time to time, Lessee shall be entitled to rent and use up to 12 parking spaces
in the Office Building Project at the monthly rate applicable from time to time
for monthly parking as set by Lessor and/or its licensee.
2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, then Lessor shall
have the right, without notice, in addition to such other rights and remedies
that it may have, to remove or tow away the vehicle involved and charge the cost
to Lessee, which cost shall be immediately payable upon demand by Lessor.
2.2.2 The monthly parking rate per parking space will be $60.00 per
month at the commencement of the term of this Lease, and is subject to change
upon five (5) days prior written notice to Lessee. Monthly parking fees shall be
payable one month in advance prior to the first day of each calendar month.
2.3 Common Areas - Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Office Building Project that are provided and designated by the Lessor
from time to time for the general non-exclusive use of Lessor, Lessee and of
other lessees of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to common
entrances, lobbies, corridors, stairways and stairwells, public restrooms,
elevator, escalators, parking areas to the extent not otherwise prohibited by
this Lease, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, ramps, driveways, landscaped areas and decorative walls.
2.4 Common Areas - Rules and Regulations. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with respect
to the Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers, and invitees to so abide and conform. Lessor or
such other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
modify, amend and enforce said rules and regulations. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees, their agents, employess and invitees of the Office Building
Project.
2.5 Common Areas - Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Building interior and exterior and Common
Areas, including, without limitation, changes in the location, size shape,
number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the boundaries
of the Office Building Project to be a part of the Common Areas, provided that
such other land and improvements have a reasonable and functional relationship
to the Office Building Project;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Office Building Project as Lessor
may, in the exercise of sound business judgment deem to be appropriate.
3. Term.
3.1 Term. The term and Commencement Date of this Lease shall be as
specified in Paragraph 1.5 of the Basic Lease Provisions.
3.2 Delay in Possession. Notwithstanding said Commencement Date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date and subject to paragraph 3.2.2, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of the Lease or
the obligations of Lessee hereunder or extend the term hereof; but in such case,
Lessee shall not be obligated to pay rent or perform any other obligation of
Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered to Lessee, as
hereinafter defined; provided, however, that if Lessor shall not have delivered
possession of the Premises within sixty (60) days following said Commencement
Date, as the same may be extended under
Initials: /s/ [ILLEGIBLE]
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FULL SERVICE-GROSS
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the terms of a Work Letter executed by Lessor and Lessee, Lessee may, at
Lessee's option, by notice in writing to Lessor within ten (10) days thereafter,
cancel this Lease, in which event the parties shall be discharged from all
obligations hereunder; provided, however, that, as to Lessee's obligations,
Lessee first reimburses Lessor for all costs incurred for Non-Standard
Improvements and, as to Lessor's obligations, Lessor shall return any money
previously deposited by Lessee (less any offsets due Lessor for Non-Standard
Improvements); and provided further, that if such written notice by Lessee is
not received by Lessor within said ten (10) day period, Lessee's right to cancel
this Lease hereunder shall terminate and be of no further force or effect.
3.2.1 Possession Tendered - Defined. Possession of the Premises
shall be deemed tendered to Lessee ("Tender of Possession") when (1) the
improvements to be provided by Lessor under this Lease are substantially
completed, (2) the Building utilities are ready for use in the Premises, (3)
Leases has reasonable access to the Premises, and (4) ten (10) days shall have
expired following advance written notice to Lessee of the occurrence of the
matters described in (1), (2) and (3), above of this paragraph 3.2.1.
3.2.2 Delays Caused by Lessee. There shall be no abatement of rent,
and the sixty (60) day period following the Commencement Date before which
Lessee's right to cancel this Lease accrues under paragraph 3.2, shall be deemed
extended to the extent of any delays caused by acts or omissions of Lessee,
Lessee's agents, employees and contractors.
3.3 Early Possession. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 Uncertain Commencement. In the event commencement of the Lease term is
defined as the completion of the improvements, Lessee and Lessor shall execute
an amendment to this Lease establishing the date of Tender of Possession (as
defined in paragraph 3.2.1) or the actual taking of possession by Lessee,
whichever first occurs, as the Commencement Date.
4. Rent.
4.1 Base Rent. Subject to adjustment as hereinafter provided in paragraph
4.3, and except as may be otherwise expressly provided in this Lease, Lessee
shall pay to Lessor the Base Rent for the Premises set forth in paragraph 1.6 of
the Basic Lease Provisions, without offset or deduction Lessee shall pay Lessor
upon execution hereof the advance Base Rent described in paragraph 1.8 of the
Basic Lease Provisions. Rent for any period during the term hereof which is for
less than one month shall be prorated based upon the actual number of days of
the calendar month involved. Rent shall be payable in lawful money of the United
States to Lessor at the address stated herein or to such other persons or at
such other places as Lessor may designate in writing.
4.2 Operating Expense Increase. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined, of
the amount by which all Operating Expenses, as hereinafter defined, for each
Comparison Year exceeds the amount of all Operating Expenses for the Base Year,
such excess being hereinafter referred to as the "Operating Expense Increase",
in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as the
percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate square footage of the
Premises by the total approximate square footage of the rentable space contained
in the Office Building Project. It is understood and agreed that the square
footage figures set forth in the Basic Lease Provisions are approximations which
Lessor and Lessee agree are reasonable and shall not be subject to revision
except in connection with an actual change in the size of the Premises or a
change in the space available for lease in the Office Building Project.
(b) "Base Year" is defined as the calendar year in which the Lease
term commences.
(c) "Comparison Year" is defined as each calendar year during the
term of this Lease subsequent to the Base Year; provided, however, Lessee shall
have no obligation to pay a share of the Operating Expense Increase applicable
to the first twelve (12) months of the Lease Term (other than such as are
mandated by a governmental authority, as to which government mandated expenses
Lessee shall pay Lessee's Share, notwithstanding they occur during the first
twelve (12) months). Lessee's Share of the Operating Expense Increase for the
first and last Comparison Years of the Lease Term shall be prorated according to
that portion of such Comparison Year as to which Lessee is responsible for a
share of such increase. And also as if the Office Building Project was 95%
occupied.
(d) "Operating Expenses" is defined, for purposes of this Lease, to
include all costs, if any, incurred by Lessor in the exercise of its reasonable
discretion, for:
(i) The operation, repair, maintenance, and replacement, in
neat, clean, safe, good order and condition, of the Office Building Project,
including but not limited to, the following:
(aa) The Common Areas, including their surfaces, coverings,
decorative items, carpets, drapes and window coverings, and including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
stairways, parkways, driveways, landscaped areas, striping, bumpers, irrigation
systems, Common Area lighting facilities, building exteriors and roofs, fences
and gates;
(bb) All heating, air conditioning, plumbing, electrical
systems, life safety equipment, telecommunication and other equipment used in
common by, or for the benefit of, lessees or occupants of the Office Building
Project, including elevators and escalators, tenant directories, fire detection
systems including sprinkler system maintenance and repair.
(ii) Trash disposal, janitorial and security services;
(iii) Any other service to be provided by Lessor that is
elsewhere in this Lease stated to be an "Operating Expense";
(iv) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof;
(v) The amount of the real property taxes to be paid by Lessor
under paragraph 10.1 hereof;
(vi) The cost of water, sewer, gas, electricity, and other
publicly mandated services to the Office Building Project;
(vii) Labor, salaries, and applicable fringe benefits and
costs, materials, supplies and tools, used in maintaining and/or cleaning the
Office Building Project and accounting and a management fee attributable to the
operation of the Office Building Project;
(viii) Replacing and/or adding improvements mandated by any
governmental agency and any repairs or removals necessitated thereby amortized
over its useful life according to Federal income tax regulations or guidelines
for depreciation thereof (including interest on the unamortized balance as is
then reasonable in the judgment of Lessor's accountants);
(ix) Replacement of equipment or improvements that have a
useful life for depreciation purposes according to Federal income tax guidelines
of five (5) years or less, as amortized over such life.
(e) Operating Expenses shall not include the costs of replacements
of equipment or improvements that have a useful life for Federal income tax
purposes in excess of five (5) years unless it is of the type described in
paragraph 4.2(d) (viii), in which case their cost shall be included as above
provided.
(f) Operating Expenses shall not include any expenses paid by any
lessee directly to third parties, or as to which Lessor is otherwise reimbursed
by any third party, other tenant, or by insurance proceeds.
(g) Lessee's Share of Operating Expense Increase shall be payable by
Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time in advance of Lessee's Share
of the Operating Expense Increase for any Comparison Year, and the same shall be
payable monthly or quarterly, as Lessor shall designate, during each Comparison
Year of the Lease term, on the same day as the Base Rent is due hereunder. In
the event that Lessee pays Lessor's estimate of Lessee's Share of Operating
Expense Increase as aforesaid, Lessor shall deliver to Lessee within sixty (60)
days after the expiration of each Comparison Year a reasonably detailed
statement showing Lessee's Share of the actual Operating Expense Increase
incurred during such year. If Lessee's payments under this paragraph 4.2(g)
during said Comparison Year exceed Lessee's Share as indicated on said
statement, Lessee shall be entitled to credit the amount of such overpayment
against Lessee's Share of Operating Expense Increase next falling due. If
Lessee's payments under this paragraph during said Comparison Year were less
than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor
the amount of the deficiency within ten (10) days after delivery by Lessor to
Lessee of said statement. Lessor and Lessee shall forthwith adjust between them
by cash payment any balance determined to exist with respect to that portion of
the last Comparison Year for which Lessee is responsible as to Operating Expense
increases, notwithstanding that the Lease term may have terminated before the
end of such Comparison Year.
Initials: /s/ EW
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5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
security deposit set forth in paragraph 1.9 of the Basic Lease Provisions as
security for Lessee's faithful performance of Lessee's obligations hereunder. If
Lessee fails to pay rent or other charges due hereunder, or otherwise defaults
with respect to any provision of this Lease, Lessor may use, apply or retain all
or any portion of said deposit for the payment of any rent or other charge in
default for the payment of any other sum to which Lessor may become obligated by
reason of Lessee's default, or to compensate Lessor for any loss or damage which
Lessor may suffer thereby. If Lessor so uses or applies all or any portion of
said deposit, Lessee shall within ten (10) days after written demand therefor
deposit cash with Lessor in an amount sufficient to restore said deposit to the
full amount then required of Lessee. If the monthly Base Rent shall, from time
to time, increase during the term of this Lease, Lessee shall, at the time of
such increase, deposit with Lessor additional money as a security deposit so
that the total amount of the security deposit held by Lessor shall at all times
bear the same proportion to the then current Base Rent as the initial security
deposit bears to the initial Base Rent set forth in paragraph 1.6 of the Basic
Lease Provisions Lessor shall not be required to keep said security deposit
separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not heretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for the purpose set
forth in paragraph 1.4 of the Basic Lease Provisions or any other use which is
reasonably comparable to that use and for no other purpose.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to
alterations or improvements made by Lessee or the use for which Lessee will
occupy the Premises, does not violate any covenants or restrictions of record,
or any applicable building code, regulation or ordinance in effect on such Lease
term Commencement Date. In the event it is determined that this warranty has
been violated, then it shall be the obligation of the Lessor, after written
notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any
such violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Lessee of the Premises.
Lessee shall conduct its business in a lawful manner and shall not use or permit
the use of the Premises or the Common Areas in any manner that will tend to
create waste or a nuisance or shall tend to disturb ether occupants of the
Office Building Project.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee in a clean condition
on the Lease Commencement Date (unless Lessee is already in possession) and
Lessor warrants to Lessee that the plumbing, lighting, air conditioning, and
heating system in the Premises shall be in good operating condition. In the
event that it is determined that this warranty has been violated, then it shall
be the obligation of Lessor, after receipt of written notice from Lessee setting
forth with specificity the nature of the violation, to promptly, at Lessor's
sole cost, rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises and the Office Building Project in their condition existing
as of the Lease Commencement Date or the date that Lessee takes possession of
the Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and that neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
7. Maintenance, Repairs, Alterations and Common Area Services.
7.1 Lessor's Obligations, Lessor shall keep the Office Building Project,
including the Premises, interior and exterior walls, roof, and common areas, and
the equipment whether used exclusively for the Premises or in common with other
premises, in good condition and repair; provided, however, Lessor shall not be
obligated to paint, repair or replace wall coverings, or to repair or replace
any improvements that are not ordinarily a part of the Building or are above
then Building standards. Except as provided in paragraph 9.5, there shall be no
abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building Project or any part
thereof. Lessee expressly waives the benefits of any statute now or hereafter in
effect which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Premises in good order, condition and repair.
7.2 Lessee's Obligations.
(a) Notwithstanding Lessor's obligation to keep the Premises in good
condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings, and to repair or replace any
Premises improvements that are not ordinarily a part of the Building or that are
above then Building standards. Lessor may, at its option, upon reasonable
notice, elect to have Lessee perform any particular such maintenance or repairs
the cost of which is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received, ordinary wear and tear excepted, clean and free of debris. Any
damage or deterioration of the Premises shall not be deemed ordinary wear and
tear if the same could have been prevented by good maintenance practices by
Lessee. Lessee shall repair any damage to the Premises occasioned by the
installation or removal of Lessee's trade fixtures, alterations, furnishings and
equipment. Except as otherwise stated in this Lease, Lessee shall leave the air
lines, power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall panelling,
ceilings and plumbing on the Premises and in good operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make
any alterations, improvements, additions, Utility Installations or repairs in,
on or about the Premises, or the Office Building Project. As used in this
paragraph 7.3 the term "Utility Installation" shall mean carpeting, window and
wall coverings, power panels, electrical distribution systems, lighting
fixtures, air conditioning, plumbing, and telephone and telecommunication wiring
and equipment. At the expiration of the term, Lessor may require the removal of
any or all of said alterations, improvements, additions or Utility
Installations, and the restoration of the Premises and the Office Building
Project to their prior condition, at Lessee's expense. Should Lessor permit
Lessee to make its own alterations, improvements, additions or Utility
Installations, Lessee shall use only such contractor as has been expressly
approved by Lessor, and Lessor may require Lessee to provide Lessor, at Lessee's
sole cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, or use a contractor not
expressly approved by Lessor, Lessor may, at any time during the term of this
Lease, require that Lessee remove any part or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Office Building Project that
Lessee shall desire to make shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent to Lessee's making
such alteration, improvement, addition or Utility Installation, the consent
shall be deemed conditioned upon Lessee acquiring a permit to do so from the
applicable governmental agencies, furnishing a copy thereof to Lessor prior to
the commencement of the work, and compliance by Lessee with all conditions of
said permit in a prompt and expeditious manner.
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(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises by Lessee, and Lessor
shall have the right to post notices of non-responsibility in or on the Premises
or the Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Office Building
Project, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises, the Building and the Office Building Project free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's reasonable attorneys fees and costs in participating in such action
if Lessor shall decide it is to Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made to the Premises by Lessee, including but
not limited to, floor coverings, panelings, doors, drapes, built-ins, moldings,
sound attenuation, and lighting and telephone or communication systems, conduit,
wiring and outlets, shall be made and done in a good and workmanlike manner and
of good and sufficient quality and materials and shall be the property of Lessor
and remain upon and be surrendered with the Premises at the expiration of the
Lease term, unless Lessor requires their removal pursuant to paragraph 7.3(a).
Provided Lessee is not in default, notwithstanding the provisions of this
paragraph 7.3(e), Lessee's personal property and equipment, other than that
which is affixed to the Premises so that it cannot be removed without material
damage to the Premises or the Building, and other than Utility Installations,
shall remain the property of Lessee and may be removed by Lessee subject to the
provisions of paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and
specifications for any alterations, improvements, additions or Utility
Installations.
7.4 Utility Additions. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building Project,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, communication systems, and fire protection and detection systems, so
long as such installations do not unreasonably interfere with Lessee's use of
the Premises.
8. Insurance; Indemnity.
8.1 Liability Insurance - Lessee. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an Insurance Services Office standard form
with Broad Form General Liability Endorsement (GL0404), or equivalent, in an
amount of not less than $1,000,000 per occurrence of bodily injury and property
damage combined or in a greater amount as reasonably determined by Lessor and
shall insure Lessee with Lessor as an additional insured against liability
arising out of the use, occupancy or maintenance of the Premises. Compliance
with the above requirement shall not, however, limit the liability of Lessee
hereunder.
8.2 Liability Insurance - Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Unit Bodily Injury and
Broad Form Property Damage Insurance, plus coverage against such other risks
Lessor deems advisable from time to time, insuring Lessor, but not Lessee,
against liability arising out of the ownership, use, occupancy or maintenance of
the Office Building Project in an amount not less than $5,000,000.00 per
occurrence.
8.3 Property Insurance - Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease for the benefit of Lessee,
replacement cost fire and extended coverage insurance, with vandalism and
malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 Property Insurance - Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss or
damage to the Office Building Project improvements, but not Lessee's personal
property, fixtures, equipment or tenant improvements, in the amount of the full
replacement cost thereof, as the same may exist from time to time, utilizing
Insurance Services Office standard form, or equivalent, providing protection
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, plate glass, and such other perils as
Lessor deems advisable or may be required by a lender having a lien on the
Office Building Project. In addition, Lessor shall obtain and keep in force,
during the term of this Lease, a policy of rental value insurance covering a
period of one year, with loss payable to Lessor, which insurance shall also
cover all Operating Expenses for said period. Lessee will not be named in any
such policies carried by Lessor and shall have no right to any proceeds
therefrom. The policies required by these paragraphs 8.2 and 8.4 shall contain
such deductibles as Lessor or the aforesaid lender may determine. In the event
that the Premises shall suffer an insured loss as defined in paragraph 9.1(f)
hereof, the deductible amounts under the applicable insurance policies shall be
deemed an Operating Expense. Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies carried by Lessor. Lessee shall
pay the entirety of any increase in the property Insurance premium for the
Office Building Project over what it was immediately prior to the commencement
of the term of this Lease if the increase is specified by Lessor's insurance
carrier as being caused by the nature of Lessee's occupancy or any act or
omission of Lessee.
8.5 Insurance Policies. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
Commencement Date of this Lease. No such policy shall be cancelable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to
the expiration of such policies, furnish Lessor with renewals thereof.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. If necessary all property insurance policies required under this Lease
shall be endorsed to so provide.
8.7 Indemnity. Except for Lessor or Lessor's agents, contractors,
employees or invitees gross negligence or willful misconduct, Lessee shall
indemnify and hold harmless Lessor and its agents, Lessor's master or ground
lessor, partners and lenders, from and against any and all claims for damage to
the person or property of anyone or any entity arising from Lessee's use of the
Office Building Project, or from the conduct of Lessee's business or from any
activity, work or things done, permitted or suffered by Lessee in or about the
Premises or elsewhere and shall further indemnify and hold harmless Lessor from
and against any and all claims, costs and expenses arising from any breach or
default in the performance of any obligation on Lessee's part to be performed
under the terms of this Lease, or arising from any act or omission of Lessee, or
any of Lessee's agents, contractors, employees or invitees, and from and against
all costs, attorney's fees, expenses and liabilities incurred by Lessor as the
result of any such use, conduct, activity, work, things done, permitted or
suffered, breach, default or negligence, and in dealing reasonably therewith,
including but not limited to the defense or pursuit of any claim or any action
or proceeding involved therein; and in case any action or proceeding be brought
against Lessor by reason of any such matter, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the Office Building Project, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new construction or the repair, alteration or improvement of any part of
the Office Building Project, or of the equipment, fixtures or appurtenances
applicable thereto, and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible, Lessor shall not be liable
for any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building Project, nor from the failure of Lessor to enforce
the provisions of any other lease of any other lessee of the Office Building
Project.
8.9 No Representation of Adequate Coverage. Lessor makes no representation
that the limits or forms of coverage of insurance specified in this paragraph 8
are adequate to cover Lessee's property or obligations under this Lease.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost
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to repair is less than fifty percent (50%) of the then Replacement Cost of the
Building.
(c) "Premises Building Total Destruction" shall mean if the Building
of which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent (50%) or more of the then Replacement Cost of
the Building.
(d) "Office Building Project Buildings" shall mean all of the
buildings on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall mean
if the Office Building Project Buildings are damaged or destroyed to the extent
that the cost to repair is fifty percent (50%) or more of the then Replacement
Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was caused
by an event required to be covered by the insurance described in paragraph 8.
The fact that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to
be spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
9.2 Premises Damage; Premises Building Partial Damage.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls into the classification of either Premises Damage
or Premises Building Partial Damage, then Lessor shall, as soon as reasonably
possible and to the extent the required materials and labor are readily
available through usual commercial channels, at Lessor's expense, repair such
damage (but not Lessee's fixtures, equipment or tenant improvements originally
paid for by Lessee) to its condition existing at the time of the damage, and
this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial Damage, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense), which
damage prevents Lessee from making any substantial use of the Premises, Lessor
may at Lessor's option either (i) repair such damage as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) give written notice to Lessee within thirty (30) days
after the date of the occurrence of such damage of Lessor's intention to cancel
and terminate this Lease as of the date of the occurrence of such damage, in
which event this Lease shall terminate as of the date of the occurrence of such
damage.
9.3 Premises Building Total Destruction; Office Building Project Total
Destruction. Subject to the provisions of paragraphs 9.4 and 9.5, if at any time
during the term of this Lease there is damage, whether or not it is an Insured
Loss, which falls into the classifications of either (i) Premises Building Total
Destruction, or (ii) Office Building Project Total Destruction, then Lessor may
at Lessor's option either (i) repair such damage or destruction as soon as
reasonably possible at Lessor's expense (to the extent the required materials
are readily available through usual commercial channels) to its condition
existing at the time of the damage, but not Lessee's fixtures, equipment or
tenant improvements, and this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after the date of
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this Lease shall terminate as of the date of the occurrence
of such damage.
9.4 Damage Near End of Term.
(a) Subject to paragraph 9.4(b), if at any time during the last
twelve (12) months of the term of this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has
an option to extend or renew this Lease, and the time within which said option
may be exercised has not yet expired, Lessee shall exercise such option, if it
is to be exercised at all, no later than twenty (20) days after the occurrence
of an Insured Loss falling within the classification of Premises Damage during
the last twelve (12) months of the term of this Lease. If Lessee duly exercises
such option during said twenty (20) day period, Lessor shall, at Lessor's
expense, repair such damage, but not Lessee's fixtures, equipment or tenant
improvements, as soon as reasonably possible and this Lease shall continue in
full force and effect. If Lessee fails to exercise such option during said
twenty (20) day period, then Lessor may at Lessor's option terminate and cancel
this Lease as of the expiration of said twenty (20) day period by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of said twenty (20) day period, notwithstanding any term or provision
in the grant of option to the contrary.
9.5 Abatement of Rent; Lessee's Remedies.
(a) In the event Lessor repairs or restores the Building or Premises
pursuant to the provisions of this paragraph 9, and any part of the Premises are
not usable (including loss of use due to loss of access or essential services),
the rent payable hereunder (including Lessee's Share of Operating Expense
Increase) for the period during which such damage, repair or restoration
continues shall be abated, provided (1) the damage was not the result of the
negligence of Lessee, and (2) such abatement shall only be to the extent the
operation and profitability of Lessee's business as operated from the Premises
is adversely affected. Except for said abatement of rent, if any, Lessee shall
have no claim against Lessor for any damage suffered by reason of any such
damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
or the Building under the provisions of this Paragraph 9 and shall not commence
such repair or restoration within ninety (90) days after such occurrence, or if
Lessor shall not complete the restoration and repair within six (6) months after
such occurrence, Lessee may at Lessee's option cancel and terminate this Lease
by giving Lessor written notice of Lessee's election to do so at any time prior
to the commencement or completion, respectively, of such repair or restoration.
In such event this Lease shall terminate as of the date of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with any
such restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 Termination - Advance Payments. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the real property tax, as defined
in paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 Additional Improvements. Lessee shall not be responsible for paying
any increase in real property tax specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Office Building Project or in any
portion thereof, as against Lessor's right to rent or other income therefrom,
and as against Lessor's business of leasing the Office Building Project. The
term "real property tax" shall also include any tax, fee, levy, assessment or
charge (i) in substitution of, partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property tax", or (ii) the nature of which was hereinbefore included within the
definition of "real property tax", or (iii) which is imposed for a service or
right not charged prior to June 1, 1978 or, if previously charged, has been
increased since June 1, 1978, or (iv) which is imposed as a result of a change
in ownership, as defined by applicable local statutes for property tax purposes,
of the Office Building Project or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such change of
ownership, or (v) which is imposed by reason of this transaction, any
modifications or changes hereto, or any transfers hereof.
10.4 Joint Assessment. If the improvements or property, the taxes for
which are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not
separately assessed, Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuations assigned in the assessor's work sheets
or such other information (which may include the cost of construction) as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
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11. Utilities.
11.1 Services Provided by Lessor. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines, water
for reasonable and normal drinking and lavatory use, and replacement light bulbs
and/or fluorescent tubes and ballasts for standard overhead fixtures.
11.2 Services Exclusive to Lessee. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately metered
to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
11.3 Hours of Service. Said services and utilities shall be provided
during generally accepted business days and hours or such other days or hours as
may hereafter be set forth. Utilities and services required at other times shall
be subject to advance request and reimbursement by Lessee to Lessor of the cost
thereof.
11.4 Excess Usage by Lessee. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion,
install at Lessee's expense supplemental equipment and/or separate metering
applicable to Lessee's excess usage or loading.
11.5 Interruptions. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13.1. "Transfer" within the meaning of this paragraph 12 shall include
the transfer or transfers aggregating: (b) if Lessee is a partnership, more than
twenty-five percent (25%) of the profit and loss participation in such
partnership.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate";
provided that before such assignment shall be effective, (a) said assignee shall
assume, in full, the obligations of Lessee under this Lease and (b) Lessor shall
be given written notice of such assignment and assumption. Any such assignment
shall not, in any way. affect or limit the liability of Lessee under the terms
of this Lease even if after such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, no assignment or subletting
shall release Lessee of Lessee's obligation hereunder or alter the primary
liability of Lessee to pay the rent and other sums due Lessor hereunder
including Lessee's Share of Operating Expense Increase, and to perform all other
obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such
assignment or subletting, nor the acceptance of rent, shall constitute a waiver
or estoppel of Lessor's right to exercise its remedies for the breach of any of
the terms or conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligation under this Lease have been guaranteed by
third parties, then an assignment or sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to such
sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent and such
action shall not relieve such persons from liability under this Lease or said
sublease; however, such persons shall not be responsible to the extent any such
amendment or modification enlarges or increases the obligations of the Lessee or
sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or anyone else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgment that no default then
exists under this Lease of the obligations to be performed by Lessee nor shall
such consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied
upon by Lessor in giving its consent to an assignment or subletting was
materially false shall, at Lessor's election, render Lessor's said consent null
and void.
12.4 Additional Terms and Conditions Applicable to Subletting. Regardless
of Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be deemed
Included in all subleases under this Lease whether or not expressly incorporated
therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided, however, that until
a default shall occur in the performance of Lessee's obligations under this
Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease, Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without an
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary Lessee
shall have no right or claim against said sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublease as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublease shall, by reason of entering into a
sublease under this Lease, be deemed for the benefit of Lessor, to have assumed
and agreed to conform and comply with each and every obligation herein to be
performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor at its option and without any obligation to
do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee under
such sublease.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
12.5 Lessor's Expenses. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys', architects', engineers' or other
consultants' fees.
12.6 Conditions to Consent. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the proposed
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assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other tenants, and (b) the proposed
assignee or sublessee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
or subletting, whichever is greater.
13. Default; Remedies.
13.1 Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee. Vacation
of the Premises shall include the failure to occupy the Premises for a
continuous period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment or
subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency), 13.1(f)
(false statement), 16(a) (estoppel certificate), 30(b) (subordination), 33
(auctions), or 41.1 (easements), all of which are hereby deemed to be material,
non-curable defaults without the necessity of any notice by Lessor to Lessee
thereof.
(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(d) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee other than those referenced in subparagraphs (b) and (c), above, where
such failure shall continue for a period of thirty (30) days after written
notice thereof from Lessor to Lessee; provided, however, that if the nature of
Lessee's noncompliance is such that more than thirty (30) days are reasonably
required for its cure, then Lessee shall not be deemed to be in default if
Lessee commenced such cure within said thirty (30) day period and thereafter
diligently pursues such cure to completion. To the extent permitted by law, such
thirty (30) day notice shall constitute the sole and exclusive notice required
to be given to Lessee under applicable Unlawful Detainer statutes.
(e)(i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 U.S.C. ss.101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed within sixty (60)
days; (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee, or its successor in interest or by any guarantor of Lessee's
obligation hereunder, was materially false.
13.2 Remedies. In the event of any material default or breach of this
Lease by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or abandoned
the Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
pursues the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operating Expense Increase or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Office Building Project. Accordingly, if any installment
of Base Rent, Operating Expense Increase, or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
14. Condemnation. If the Premises or any portion thereof or the Office Building
Project are taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs; provided that is so
much of the Premises or the Office Building Project are taken by such
condemnation as would substantially and adversely affect the operation and
profitability of Lessee's business conducted from the Premises, Lessee shall
have the option, to be exercised only in writing within thirty (30) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within thirty (30) days after the condemning authority shall
have taken possession), to terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the rent and Lessee's
Share of Operating Expense Increase shall be reduced in the proportion that the
floor area of the Premises taken bears to the total floor area of the Premises.
Common Areas taken shall be excluded from the Common Areas usable by Lessee and
no reduction of rent shall occur with respect thereto or by reason thereof.
Lessor shall have the option in its sole discretion to terminate this Lease as
of the taking of possession by the condemning authority, by giving written
notice to Lessee of such election within thirty (30) days after receipt of
notice of a taking by condemnation of any part of the Premises or the Office
Building Project. Any award for the taking of all or any part of the Premises or
the Office Building Project under the power of eminent domain or any payment
made under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any separate award for loss of or
damage to Lessee's trade fixtures, removable personal property and unamortized
tenant improvements that have been paid for by Lessee. For that purpose the cost
of such improvements shall be amortized over the original term of this Lease
excluding any options. In the event that this Lease is not terminated by reason
of such condemnation, Lessor shall to the extent of severance damages received
by Lessor in connection with such condemnation, repair any damage to the
Premises caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall pay any amount in
excess of such severance damages required to complete such repair.
15. Broker's Fee.
(a) The brokers involved in this transaction are Los Angeles Real Estate
Management, Inc. as "listing broker" and CB Richard Ellis as "cooperating
broker," licensed real estate broker(s). A "cooperating broker" is defined as
any broker other than the listing broker entitled to a share of any commission
arising under this Lease. Upon execution of this Lease by both parties, Lessor
shall pay to said brokers jointly, or in such separate shares as they may
mutually designate in writing, a fee as set forth in a separate agreement
between Lessor and said broker(s), or in the event there is no separate
agreement between Lessor and said broker(s), the
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sum of $ __________________________________, for brokerage services rendered by
said broker(s) to Lessor in this transaction.
(b) Lessor further agrees that (i) if Lessee exercises any Option, as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or (ii) if Lessee acquires any rights
to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (iii) if Lessee remains in possession of
the Premises after the expiration of the term of this Lease after having failed
to exercise an Option, or (iv) if said broker(s) are the procuring cause of any
other lease or sale entered into between the parties pertaining to the Premises
and/or any adjacent property in which Lessor has an interest, or (v) if the Base
Rent is increased, whether by agreement or operation of an escalation clause
contained herein, then as to any of said transactions or rent increases, Lessor
shall pay said broker(s) a fee in accordance with the schedule of said broker(s)
in effect at the time of execution of this Lease. Said fee shall be paid at the
time of such increased rental is determined.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also on
behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this paragraph 15. Each listing and cooperating broker
shall be a third party beneficiary of the provisions of this paragraph 15 to the
extent of their interest in any commission arising under this Lease and may
enforce that right directly against Lessor; provided, however, that all brokers
having a right to any part of such total commission shall be a necessary party
to any suit with respect thereto.
(d) Lessee and Lessor each represent and warrant to the other that neither
has had any dealings with any person, firm, broker or finder (other than the
person(s), if any, whose names are set forth in paragraph 15(a), above) in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
transaction and Lessee and Lessor do each hereby indemnify and hold the other
harmless from and against any costs, expenses, attorneys' fees or liability for
compensation or charges which may be claimed by any such unnamed broker, finder
or other similar party by reason of any dealings or actions of the indemnifying
party.
16. Estoppel Certificate.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Office Building Project or
of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance, or sell the Office Building
Project, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such title
or interest, Lessor herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. Severability. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law or judgments from the date due. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease; provided,
however, that interest shall not be payable on late charges incurred by Lessee
nor on any amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. Additional Rent. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense Increase and any other expenses payable by Lessee hereunder shall be
deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mention herein. No prior or
contemporaneous agreement or understanding pertaining to any such matter shall
be effective. This Lease may be modified in writing only, signed by the parties
in interest at the time of the modification. Except as otherwise stated in this
Lease, Lessee hereby acknowledges that neither the real estate broker listed in
paragraph 15 hereof nor any cooperating broker on this transaction nor the
Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Office Building Project and Lessee acknowledges
that Lessee assumes all responsibility regarding the Occupational Safety Health
Act, the legal use and adaptability of the Premises and the compliance thereof
with all applicable laws and regulations in effect during the term of this
Lease.
23. Notices. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to Lessee
or to Lessor at the address noted below or adjacent to the signature of the
respective parties, as the case may be. Mailed notices shall be deemed given
upon actual receipt at the address required, or forty-eight hours following
deposit in the mail, postage prepaid, whichever first occurs. Either party may
by notice to the other specify a different address for notice purposes except
that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice purposes. A copy of all notices required
or permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee.
24. Waivers. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, except that the rent payable
shall be one hundred fifty percent (150%) of the rent payable immediately
preceding the termination date of this Lease, and all Options, if any, granted
under the terms of this Lease shall be deemed terminated and be of no further
effect during said month to month tenancy.
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27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provision of paragraph 17,
this Lease shall bind the parties, their personal representatives, successors
and assign. This Lease shall be governed by the laws of the State where the
Office Building Project is located and any litigation concerning this Lease
between the parties hereto shall be initiated in the county in which the Office
Building Project is located.
30. Subordination.
(a) This Lease, and any Option or right of first refusal granted hereby,
at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of
trust, or any other hypothecation or security now or hereafter placed upon the
Office Building Project and to any and all advances made on the security thereof
and to all renewals, modifications, consolidations, replacements and extensions
thereof. Notwithstanding such subordination, Lessee's right to quiet possession
of the Premises shall not be disturbed if Lessee is not in default and so long
as Lessee shall pay the rent and observe and perform all of the provisions of
this Lease, unless this Lease is otherwise terminated pursuant to its terms. If
any mortgagee, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Option shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31. Attorneys' Fees.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial, or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the same
or separate suit, and whether or not such action is pursued to decision or
judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all other
costs and expenses incurred in the preparation and service of notices of default
and consultations in connection therewith, whether or not a legal transaction is
subsequently commenced in connection with such default.
32. Lessor's Access.
32.1 Lessor and Lessor's agents shall have the right to enter the Premises
at reasonable times for the purpose of inspecting the same, performing any
services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
Premises. Lessor may at any time place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs.
32.2 All activities of Lessor pursuant to this paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes,
and in the case of emergency to enter the Premises by any reasonably appropriate
means, and any such entry shall not be deemed a forceable or unlawful entry or
detainer of the Premises or an eviction. Lessee waives any charges for damages
or injuries or interference with Lessee's property or business in connection
therewith.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in violation
of this paragraph shall constitute a material default of this Lease.
34. Signs. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project. Lessor, at
Lessor's sole cost, shall provide Building Standard suite and directory board
signage.
35. Merger, The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Office Building Project.
39. Options.
39.1 Definition. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option of right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or the Office Building Project, or the right of first
refusal to purchase the Premises or the Office Building Project or the right of
first offer to purchase the Premises or the Office Building Project, or the
right or option to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.
39.2 Options Personal. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee; provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
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(a) Lessee shall have no right to exercise an Option notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(c) or 13.1(d) and continuing until the noncompliance alleged in
said notice of default is cured, or (ii) during the period of time commencing on
the day after a monetary obligation to Lessor is due from Lessee and unpaid
(without any necessity for notice thereof to Lessee) and continuing until the
obligation is paid, or (iii) in the event that Lessor has given to Lessee three
or more notices of default under paragraph 13.1(c), or paragraph 13.1(d),
whether or not the defaults are cured, during the 12 month period of time
immediately prior to the time that Lessee attempts to exercise the subject
Option, (iv) if Lessee has committed any non-curable breach, including without
limitation those described in paragraph 13.1(b), or is otherwise in default of
any of the terms, covenants or conditions of this Lease.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(d) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee falls thereafter to diligently prosecute said cure to completion, or
(iii) Lessor gives to Lessee three or more notices of default under paragraph
13.1(c), or paragraph 13.1(d), whether or not the defaults are cured, or (iv) if
Lessee has committed any non-curable breach, including without limitation those
described in paragraph 13.1(b), or is otherwise in default of any of the terms,
covenants and conditions of this Lease.
40. Security Measures - Lessor's Reservations.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Office Building Project or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building
Project or building in which the Premises are located upon not less than 90 days
prior written notice;
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any business
as long as such exclusive does not conflict with any rights expressly given
herein;
(d) To place such signs, notices or displays as Lessor reasonably
deems necessary or advisable upon the roof, exterior of the buildings or the
Office Building Project or on pole signs in the Common Areas;
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the Building
or the Office Building Project or their name(s) in connection with Lessee's
business;
(b) Suffer or permit anyone, except in emergency, to go upon the
roof of the Building.
41. Easements.
41.1 Lessor reserves to itself the right, from time to time, to grant such
easements, rights and dedications that Lessor deems necessary or desirable, and
to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
43. Authority. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. Conflict. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions.
45. No Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46. Lender Modification. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47. Multiple Parties. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
48. Work Letter. This Lease is supplemented by that certain Work Letter of even
date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
49. Attachments. Attached hereto are the following documents which constitute a
part of this Lease:
Addendum Paragraph 50 Lessee's Improvements
Paragraph 51 Rent Abatement
Paragraph 52 Security Deposit (continued)
Exhibits A - Premises
B - Rules & Regulations
C - Work Letter
D - Parking Exhibits
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LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL
ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR
OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LESSOR
DAV Vermoegensverwaltung GmbH & Co.
- ----------------------------------------------
By Los Angeles Real Estate Management, Inc.
- ----------------------------------------------
Its Authorized Agent
By /s/ Ed W. Whittemore
-------------------------------------------
Ed W. Whittemore
Its Executive Vice President
------------------------------------------
By
------------------------------------------
Its
------------------------------------------
Executed at
----------------------------------
on
------------------------------------------
Address 249 E. Ocean Boulevard
--------------------------------------
Long Beach, California 90802
LESSEE
b2bstores.com, Inc. a Delaware
- ----------------------------------------------
corporation and Enviro-Clean of America,
- ----------------------------------------------
Inc. a Nevada Corporation
By Woofie King
-------------------------------------------
Its CEO, b2bstores.com, Inc.
------------------------------------------
By Richard Kandil
-------------------------------------------
Its Chairman, b2bstores.com, Inc.
------------------------------------------
President, Enviroclean.
Executed at
----------------------------------
on
------------------------------------------
Address 249 E. Ocean Boulevard, Suite 620
--------------------------------------
Long Beach, California 90802
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700
South Flower Street, Suite 600, Los Angeles, CA 90017. (213) 687-8777.
Initials: /s/ EW
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ADDENDUM TO STANDARD OFFICE LEASE - GROSS DATED JUNE 21, 1999 BY AND BETWEEN DAV
VERMOGENSVERWALTUNG GmbH & CO. ("LESSOR") AND B2BSTORES.COM, INC. A DELAWARE
CORPORATION AND ENVIRO-CLEAN OF AMERICA, INC. A NEVADA CORPORATION ("LESSEE")
FOR THE PREMISES LOCATED AT 249 E. OCEAN BOULEVARD, SUITE 620, LONG BEACH,
CALIFORNIA.
50. Lessee Improvements.
Lessor shall provide Lessee an improvement allowance equal to $20,000.00.
Any unused portion of the improvement allowance shall be credited to
Lessee.
51. Rent Abatement.
One-hundred (100%) percent of the Base Rent shall be abated for the period
from August 16, 1999 - October 15, 1999.
52. Security Deposit (continued).
Lessor agrees that after the expiration of the twelfth (12th) month of the
Lease Term, $6,381.35 of the Security Deposit shall be credited against
the Base Rent for the thirteenth month of the Lease Term; provided,
however, that if at anytime during said twelve (12) month period Lessee
has been in default under Paragraph 13 of this Lease, the $6,381.35 of the
Security Deposit shall not be credited against the Base Rent for the
thirteenth month and shall remain on deposit with Lessor until the
expiration of the Lease term.
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
----------------- -----------------
Lessor's Initials Lessee's Initials
<PAGE>
STANDARD OFFICE LEASE
FLOOR PLAN
[LOGO]
[GRAPHIC OMITTED]
96125 SUITE 620-4,117 R.S.F. 1/16" = 1'-0"
[GRAPHIC OMITTED]
KEY PLAN-9TH FLOOR
- -----------
Los Angeles Floor Plan [LOGO]
Real Estate ---------------------------------------------------- --------------
Management DAV VERMOGENSVERWALTUNG GmbH MVA
- ----------- 249 E. OCEAN BOULEVARD INTERIORS
LONG BEACH, CALIFORNIA ARCHITECTURE
SPACE PLANNING
EXHIBIT A
FULL SERVICE-GROSS
REVISED
Page 1 of 1
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Initials /s/ [Illegible]
-----------
[Illegible]
-----------
[Illegible]
<PAGE>
EXHIBIT B
RULES AND REGULATIONS
1. OBSTRUCTIONS. The sidewalks, halls, passages, exits, entrances, elevator and
stairways of the Building shall not be obstructed by any of the lessees or used
by them for any purpose other than for ingress to and egress from their
respective premises. The halls, passages, exits, entrances, elevators and
stairways are not for the general public and Lessor shall, in all cases, retain
the right to control and prevent access thereto of all persons whose presence,
in the judgment of Lessor, would be prejudicial to the safety, character,
reputation and interests of the Building and its Lessees, provided that nothing
herein contained shall be construed to prevent such access to persons with whom
any Lessee normally deals in the ordinary course of its business, unless such
persons are engaged in illegal activities. No Lessee shall go upon the roof of
the Building without the prior written consent of Lessor.
2. SIGNS. No sign, placard, picture, name, advertisement or notice visible from
the exterior of any Lessee's premises shall be inscribed, painted, affixed or
otherwise displayed by any Lessee on any part of the Building without the prior
written consent of Lessor. Lessor will adopt and furnish to Lessee general
guidelines relating to signs inside the Building on the office floors. Lessee
agrees to conform to such guidelines, but may request approval of Lessor for
modifications, which approval will not be unreasonably withheld. Material
visible from outside the Building will not be permitted.
3. RESTROOMS. The restrooms, urinals, wash bowls and other apparatus shall not
be used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and the expense
of any breakage, stoppage or damage resulting from the violation of this rule
shall be born by the Lessee who, or whose employees or invitees, shall have
caused it.
4. BORING/CUTTING. Lessor will direct electricians as to where and how telephone
and telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of Lessor. The location of telephones, call boxes
and other office equipment affixed to the Building shall be subject to the
approval of Lessor.
5. INFLAMMABLE. No Lessee shall use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material other than
limited quantities thereof reasonably necessary for the operation or maintenance
of office equipment, or, without Lessor's prior written approval, use any method
of heating or air-conditioning other than that supplied by Lessor. No Lessee
shall use or keep or permit to be used or kept any foul or obnoxious gas or
substance in the Premises, or permit or suffer the Premises to be occupied or
used in a manner offensive or objectionable to Lessor or to other occupants of
the Building by reason of noise, odors or vibrations, or interfere in any way
with other Lessees or those having business therein.
6. VIBRATIONS. Lessee shall not use any machines in the Building, other than
standard office machines such as typewriters, calculators, copying machines and
similar machines, without the prior written approval of Lessor. All office
equipment and other devices of any electrical or mechanical nature shall be
placed by Lessee in the premises in setting approved by Lessor so as to absorb
or prevent any vibrations or odors within the Building.
7. KEYS-ALTER LOCKS. Lessor will furnish each Lessee free of charge with two
keys to each door lock in the premises. Lessor may make a reasonable charge for
any additional keys. No Lessee shall have any keys made. No Lessee shall alter
any lock or install a new or additional lock or any bolt on any door of its
Premises without the prior written consent of Lessor. Lessee shall, in each
case, furnish Lessor with a key for any such lock. Each Lessee, upon the
termination of its tenancy, shall deliver to Lessor all keys to doors in the
Building which have been furnished to Lessee.
8. SAFES. No furniture, freight or equipment of any kind shall be brought into
the building without the prior notice to Lessor and all moving of the same into
or out of the Building shall be done at such time and in such manner as Lessor
shall designate. Lessor shall have the right to prescribe the weight, size and
position of all safes and other heavy equipment brought into the Building and
also the times and manner of moving the same in and out of the Building. Safes
or other heavy objects shall, if considered necessary by Lessor, stand on
supports of such thickness as is necessary to properly distribute the weight.
Lessor will not be responsible for loss of or damage to any such safe or
property from any cause and all damage done to the Building by moving or
maintaining any such safe or other property shall be repaired at the expense of
Lessee.
9. JANITORIAL. No Lessee shall employ any person or persons other than the
janitor of Lessor for the purpose of cleaning the Premises, unless otherwise
agreed to by Lessor, in writing. Except with the written consent of Lessor, no
person or persons other than those approved by Lessor shall be permitted to
enter the Building for the purpose of cleaning the same. No Lessee shall cause
any unnecessary labor by reason of such Lessee's carelessness or indifference in
the preservation of good order and cleanliness. Janitor services will not be
furnished on nights when rooms are occupied after 9:30 p.m. unless, by agreement
in writing, service is extended to a later hour for specifically designated
rooms.
10. ADVERTISEMENT. Lessor shah have the right to prohibit Lessee's use of the
Building name or photo in its advertisement which, in the opinion of Lessor,
tends to impair the reputation of the Building.
11. OFF-HOUR PASS. On Saturdays, Sundays and legal holidays, and on other days
between the hours of 6:00 p.m. and 8:00 a.m. the following day, access to the
Building, or to the halls, corridors, elevators or stairways in the Building, or
to the Premises maybe refused unless the person seeking access is known to the
person or employee of the Building in charge and has a pass or is properly
identified. The Lessor shall in no case be liable for damages for any error with
regard to the admission to or exclusion from the Building or any person. In case
of invasion, mob, riot, public excitement, or other commotion, the Lessor
reserves the right to prevent access to the Building during the continuance of
same by closing of the doors or otherwise, for the safety of the Lessees and
protection of property of the Premises and the Building.
12. DRUGS/INTOXICATION. Lessor reserves the right to exclude or expel from the
Building any person who, in the judgment of Lessor, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in violation
of any of the rules and regulations of the Building.
13. DOORS CLOSED. Each Lessee shall see that the doors of its premises are
closed and locked and that all water faucets, water apparatus and utilities are
shut off before Lessee or Lessee's employees leave the Premises, so as to
prevent waste or damage, and for any default or carelessness in this regard,
Lessee shall make good all injuries sustained by other tenants or occupants of
the Building or Lessor. All Lessees shall keep the doors to the Building
corridors closed at all times except for ingress and egress.
14. WRITTEN INSTRUCTIONS. The requirements of Lessee will be attended to only
upon application to the Office of the building. Lessor's employees shall not
perform any work nor do anything outside of their regular duties unless under
special
<PAGE>
written instructions from Lessee and shall not admit any persons (tenants or
otherwise) to any office without instructions from the Lessor or its designated
building manager.
15. CANVASSING. Canvassing, soliciting, distribution of handbills, or any other
written material, and peddling in the Building are prohibited, and each Lessee
shall cooperate to prevent the same.
16. HAND TRUCKS. There shall not be used in any space, or in the public halls of
the Building, either by any Lessee or others, any hand trucks except those
equipped with rubber tiers and side guards or such other material-handling
equipment as Lessor may approve. No other vehicles of any kind shall be brought
by any Lessee into the Building or kept in or about the Premises.
17. BUILDING DIRECTORY. The directory of the Building will be provided for the
display of the name and location of Lessees and a reasonable number of the
principal officers and employees of Lessees, and Lessor reserves the right to
exclude any other names therefrom. Any additional name which Lessee shall desire
to place upon said bulletin board must first be approved by Lessor and, if so
approved, a charge will be made therefor.
18. COFFEE MACHINE. The premises shall not be used for the storage of
merchandise held for sale to the general public or for lodging. No cooking shall
be done or permitted by any Lessee on the premises, except the use by the Lessee
of Underwriter's approved equipment for brewing coffee, tea, hot chocolate and
similar beverages shall be permitted, provided that such use is in accordance
with all applicable federal, state and city laws, codes, ordinances, rules and
regulations. A timer must be connected to the outlet into which said machine is
connected to prevent the possibility of coffee pots being left on and presenting
possible fire hazards.
19. BUILDING NAME CHANGE. Lessor shall have the right, exercisable without
notice and without liability to any Lessee, to change the name and street
address of the Building.
20. WINDOW COVERING. Lessee shall not place anything or allow anything to be
placed near the glass of any window, door, partition or wall which may appear
unsightly from outside the Premises, provided, however, that Lessor may furnish
and install a Building standard window covering at all exterior windows. Lessee
shall not, without prior written consent of Lessor, cause or otherwise sunscreen
any window.
21. RADIO/TV ANTENNA. No Lessee shall install any radio or TV antenna,
loud-speaker, or other device on the roof or exterior walls of the Building
without prior written consent of Lessor.
22. FOOD. Lessee shall not prepare any food or do any cooking or install any
vending machines or permit delivery of food or beverage to Premises without the
written approval of Lessor.
23. ANIMALS. No animal or bird of any kind shall be brought into, or kept in or
about, the demised Premises or the Building.
24. PARKING AREA. Lessee's contractor, while in the Building or Premises or
Lessee's parking area, if any, shall be subject to the Rules and Regulations of
the Building and will also be subject to direction from the Lessor or its
agents, but will not be an agent or contractor of the Lessor or its agents.
25. GOVERNMENT CURTAILMENT. If, as a result of any governmental rule or
regulation or law, Lessor imposes a curtailment of services or a reduction of
energy usage, the Lessor shall comply and shall be liable for any surcharges
imposed upon Lessor for noncompliance.
26. FIRE EXTINGUISHER. Lessee shall install and maintain, at Lessee's expense,
fire extinguishers next to any duplicating machine or similar heat-producing
equipment.
27. PARKING FEE. Lessee and Lessee's agents and employees shall park only in
those areas designated by Lessor or Lessor's agents. Lessee shall pay a fine to
Lessor of $20.00 per violation for each parking violation of Lessee, Lessee's
employees, agents, invitees or licensees.
28. HVAC HOURS. Lessor shall provide Lessee electricity and HVAC for normal
operations Monday through Friday, 6:00 a.m. to 6:00 p.m. and Saturday, 9:00 a.m.
to 2:00 p.m. (EXCLUDING HOLIDAYS). Any additional usage required by Lessee must
be arranged with Lessor or its agents and shall be subject to additional charge.
Hours are subject to Lessor's change.
29. WAIVER OF RULES AND REGULATIONS. Lessor may waive any one or more of these
rules and regulations for the benefit of any particular Lessee or Lessees, but
no such waiver by Lessor shall be construed as a waiver of such Rules and
Regulations in favor of any other Lessee or Lessees, nor prevent Lessor from
thereafter enforcing any such Rules and Regulations on any or all of the Lessees
of the Building.
30. RULES AND REGULATIONS IN ADDITION TO LEASE. These Rules and Regulations are
in addition to, and shall not be construed to in any way modify or amend, in
whole or in part, the terms, covenants, agreements and conditions of any Lease
of Premises in the Building.
31. ADDING TO RULES AND REGULATIONS AT FUTURE DATE. Lessor reserves the right to
make such other and reasonable rules and regulations as in its judgment may from
time to time be needed for the safety, care and cleanliness of the Building, and
for the preservation of good order therein.
<PAGE>
WORK LETTER TO STANDARD OFFICE LEASE
Dated: August 16, 1999
By and between: DAV Vermogensverwaltung GmbH & Co. ("Lessor") and b2bstores.com,
Inc. a Delaware corporation and Enviro-Clean of America, Inc. a Nevada
corporation
The Premises shall be constructed in accordance with
EXHIBIT C
FULL SERVICE-GROSS
REVISED
Page 1 of 2
(c) 1984 - American Industrial Real Estate Association
Initials /s/ [Illegible]
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<PAGE>
EXHIBIT C
FULL SERVICE-GROSS
REVISED
Page 2 of 2
(c) 1984 - American Industrial Real Estate Association
Initials /s/ [Illegible]
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[Illegible]
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[Illegible]
<PAGE>
EXHIBIT D
PARKING
Lessee shall have the right to rent from Lessor space in the garage of said
building for automobile parking purposes. The designation and location of such
space shall be within the discretion of Lessor, Lessee and its employees will be
guaranteed to rent up to twelve (12) parking spaces in the parking garage for
the term of the Lease, and only upon written notice to Lessor within thirty (30)
days after the commencement of this Lease. Said rent shall be at $60.00 per
space for monthly automobile parking spaces. Lessor shall have the right at any
time during the term of this Lease upon giving Lessee thirty (30) days notice in
writing, to provide and furnish Lessee with space elsewhere in the garage of
said building and to remove and place Lessee in such new automobile parking
space. A condition of all such parking rights shall be in compliance with all
rules and regulations relating thereto established from time to time by Lessor,
the owner or operator of said automobile parking spaces including payment of
monthly charges, hours of usage, sticker or other identification system. Lessee
shall have the right to park in the garage the week of the Long Beach Grand Prix
(Monday through Friday only). Lessee waives all claims against Lessor for
damages, losses, and spaces of any kind whatsoever arising from or relating to
the imposition of said restrictions. Lessee will have the right to terminate any
number of parking spaces with thirty (30) days prior written notice to Lessor.
Lessee will have the right to add said spaces back to the Agreement with thirty
(30) day prior written notice to Lessor. The right to use said additional spaces
may be terminated by Lessor or Lessee by either party providing thirty (30) day
prior written notice.
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
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Lessor's Initials Lessee's Initials
<PAGE>
Approved by Board of Directors on September 27, 1999
Approved by Stockholders on September 28, 1999
b2bstores.com Inc.
1999 Performance Equity Plan
Section 1. Purpose; Definitions.
1.1 Purpose. The purpose of the b2bstores.com Inc. ("Company") 1999
Performance Equity Plan ("Plan") is to enable the Company to offer to its key
employees, officers, directors and consultants whose past, present and/or
potential contributions to the Company and its Subsidiaries have been, are or
will be important to the success of the Company, an opportunity to acquire a
proprietary interest in the Company. The various types of long-term incentive
awards which may be provided under the Plan will enable the Company to respond
to changes in compensation practices, tax laws, accounting regulations and the
size and diversity of its businesses.
1.2 Definitions. For purposes of the Plan, the following terms
shall be defined as set forth below:
(a) "Agreement" means the agreement between the Company and
the Holder setting forth the terms and conditions of an award under the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto and the regulations promulgated
thereunder.
(d) "Committee" means the Stock Option Committee of the Board
or any other committee of the Board which the Board may designate to administer
the Plan or any portion thereof. If no Committee is so designated, then all
references in this Plan to "Committee" shall mean the Board.
(e) "Common Stock" means the Common Stock of the Company, no
par value per share.
(f) "Company" means b2bstores.com Inc., a corporation
organized under the laws of the State of Delaware.
(g) "Deferred Stock" means Common Stock to be received, under
an award made pursuant to Section 8, below, at the end of a specified deferral
period.
(h) "Disability" means disability as determined under
procedures established by the Committee for purposes of the Plan.
(i) "Effective Date" means the date set forth in Section 12.1,
below.
(j) "Fair Market Value", unless otherwise required by any
applicable provision of the Code or any regulations issued thereunder, means, as
of any given date: (i) if the Common Stock is listed on a national securities
exchange or quoted on the Nasdaq National Market or Nasdaq SmallCap Market,
1
<PAGE>
the last sale price of the Common Stock in the principal trading market for the
Common Stock on such date, as reported by the exchange or Nasdaq, as the case
may be; (ii) if the Common Stock is not listed on a national securities exchange
or quoted on the Nasdaq National Market or Nasdaq SmallCap Market, but is traded
in the over-the-counter market, the closing bid price for the Common Stock on
such date, as reported by the OTC Bulletin Board or the National Quotation
Bureau, Incorporated or similar publisher of such quotations; and (iii) if the
fair market value of the Common Stock cannot be determined pursuant to clause
(i) or (ii) above, such price as the Committee shall determine, in good faith.
(k) "Holder" means a person who has received an award under
the Plan.
(l) "Incentive Stock Option" means any Stock Option intended
to be and designated as an "incentive stock option" within the meaning of
Section 422 of the Code.
(m) "Nonqualified Stock Option" means any Stock Option that is
not an Incentive Stock Option.
(n) "Normal Retirement" means retirement from active
employment with the Company or any Subsidiary on or after age 65.
(o) "Other Stock-Based Award" means an award under Section 9,
below, that is valued in whole or in part by reference to, or is otherwise based
upon, Common Stock.
(p) "Parent" means any present or future parent corporation of
the Company, as such term is defined in Section 424(e) of the Code.
(q) "Plan" means the b2bstores.com Inc. 1999 Performance
Equity Plan, as hereinafter amended from time to time.
(r) "Restricted Stock" means Common Stock, received under an
award made pursuant to Section 7, below, that is subject to restrictions under
said Section 7.
(s) "SAR Value" means the excess of the Fair Market Value (on
the exercise date) over the exercise price that the participant would have
otherwise had to pay to exercise the related Stock Option, multiplied by the
number of shares for which the Stock Appreciation Right is exercised.
(t) "Stock Appreciation Right" means the right to receive from
the Company, on surrender of all or part of the related Stock Option, without a
cash payment to the Company, a number of shares of Common Stock equal to the SAR
Value divided by the Fair Market Value (on the exercise date).
(u) "Stock Option" or "Option" means any option to purchase
shares of Common Stock which is granted pursuant to the Plan.
(v) "Stock Reload Option" means any option granted under
Section 5.3, below, as a result of the payment of the exercise price of a Stock
Option and/or the withholding tax related thereto in the form of Common Stock
owned by the Holder or the withholding of Common Stock by the Company.
(w) "Subsidiary" means any present or future subsidiary
corporation of the Company, as such term is defined in Section 424(f) of the
Code.
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<PAGE>
Section 2. Administration.
2.1 Committee Membership. The Plan shall be administered by the Board
or a Committee. Committee members shall serve for such term as the Board may in
each case determine, and shall be subject to removal at any time by the Board.
The Committee members, to the extent possible, shall be "non-employee directors"
as defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934,
as amended ("Exchange Act"), and "outside directors" within the meaning of
Section 162(m) of the Code.
2.2 Powers of Committee. The Committee shall have full authority to
award, pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock
Appreciation Rights, (iii) Restricted Stock, (iv) Deferred Stock, (v) Stock
Reload Options and/or (vi) Other Stock-Based Awards. For purposes of
illustration and not of limitation, the Committee shall have the authority
(subject to the express provisions of this Plan):
(a) to select the officers, key employees, directors and
consultants of the Company or any Subsidiary to whom Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock, Reload Stock Options
and/or Other Stock-Based Awards may from time to time be awarded hereunder.
(b) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but not
limited to, number of shares, share price or other consideration, such as other
securities of the Company or other property, any restrictions or limitations,
and any vesting, exchange, surrender, cancellation, acceleration, termination,
exercise or forfeiture provisions, as the Committee shall determine);
(c) to determine any specified performance goals or such other
factors or criteria which need to be attained for the vesting of an award
granted hereunder;
(d) to determine the terms and conditions under which awards
granted hereunder are to operate on a tandem basis and/or in conjunction with or
apart from other equity awarded under this Plan and cash awards made by the
Company or any Subsidiary outside of this Plan;
(e) to permit a Holder to elect to defer a payment under the
Plan under such rules and procedures as the Committee may establish, including
the crediting of interest on deferred amounts denominated in cash and of
dividend equivalents on deferred amounts denominated in Common Stock;
(f) to determine the extent and circumstances under which
Common Stock and other amounts payable with respect to an award hereunder shall
be deferred which may be either automatic or at the election of the Holder; and
(g) to substitute (i) new Stock Options for previously granted
Stock Options, which previously granted Stock Options have higher option
exercise prices and/or contain other less favorable terms, and (ii) new awards
of any other type for previously granted awards of the same type, which
previously granted awards are upon less favorable terms.
Notwithstanding anything contained herein to the contrary, the
Committee shall not grant to any one Holder in any one calendar year awards for
more than 200,000 shares in the aggregate.
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<PAGE>
2.3 Interpretation of Plan.
(a) Committee Authority. Subject to Section 11, below, the
Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any award issued under the Plan (and to determine the form and
substance of all Agreements relating thereto), and to otherwise supervise the
administration of the Plan. Subject to Section 11, below, all decisions made by
the Committee pursuant to the provisions of the Plan shall be made in the
Committee's sole discretion and shall be final and binding upon all persons,
including the Company, its Subsidiaries and Holders.
(b) Incentive Stock Options. Anything in the Plan to the
contrary notwithstanding, no term or provision of the Plan relating to Incentive
Stock Options (including but limited to Stock Reload Options or Stock
Appreciation rights granted in conjunction with an Incentive Stock Option) or
any Agreement providing for Incentive Stock Options shall be interpreted,
amended or altered, nor shall any discretion or authority granted under the Plan
be so exercised, so as to disqualify the Plan under Section 422 of the Code, or,
without the consent of the Holder(s) affected, to disqualify any Incentive Stock
Option under such Section 422.
(c) Rule 162(m) Limitations. Anything in the Plan to the
contrary notwithstanding, no term or provision of the Plan or any Agreement
providing for awards hereunder shall be interpreted, amended or altered, nor
should any discretion or authority granted under the Plan be exercised, so as to
disqualify the Plan under Section 162(m) of the Code.
Section 3. Stock Subject to Plan.
3.1 Number of Shares. The total number of shares of Common Stock
reserved and available for distribution under the Plan shall be 2,000,000
shares. Shares of Common Stock under the Plan may consist, in whole or in part,
of authorized and unissued shares or treasury shares. If any shares of Common
Stock that have been granted pursuant to a Stock Option cease to be subject to a
Stock Option, or if any shares of Common Stock that are subject to any Stock
Appreciation Right, Restricted Stock, Deferred Stock award, Reload Stock Option
or Other Stock-Based Award granted hereunder are forfeited or any such award
otherwise terminates without a payment being made to the Holder in the form of
Common Stock, such shares shall again be available for distribution in
connection with future grants and awards under the Plan. Only net shares issued
upon a stock-for-stock exercise (including Common Stock used for withholding
taxes) shall be counted against the number of shares available under the Plan.
3.2 Adjustment Upon Changes in Capitalization, Etc. In the event of any
change in the shares of Common Stock of the Company as a whole occurring as the
result of a stock split, reverse stock split, stock dividend payable on shares
of Common Stock, combination or exchange of shares, or other extraordinary or
unusual event occurring after the grant of an Award, the Committee shall
determine, in its sole discretion, whether such change equitably requires an
adjustment in the terms of any Award or the aggregate number of shares reserved
for issuance under the Plan. Any such adjustments will be made by the Committee,
whose determination will be final, binding and conclusive.
Section 4. Eligibility.
Awards may be made or granted to key employees, officers,
directors and consultants who are deemed to have rendered or to be able to
render significant services to the Company or its Subsidiaries and who are
deemed to have contributed or to have the potential to contribute to the success
of the
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<PAGE>
Company. No Incentive Stock Option shall be granted to any person who is not an
employee of the Company or a Subsidiary at the time of grant.
Section 5. Stock Options.
5.1 Grant and Exercise. Stock Options granted under the Plan may be of
two types: (i) Incentive Stock Options and (ii) Nonqualified Stock Options. Any
Stock Option granted under the Plan shall contain such terms, not inconsistent
with this Plan, or with respect to Incentive Stock Options, not inconsistent
with the Plan and the Code, as the Committee may from time to time approve. The
Committee shall have the authority to grant Incentive Stock Options,
Non-Qualified Stock Options, or both types of Stock Options and which may be
granted alone or in addition to other awards granted under the Plan. To the
extent that any Stock Option intended to qualify as an Incentive Stock Option
does not so qualify, it shall constitute a separate Nonqualified Stock Option.
5.2 Terms and Conditions. Stock Options granted under the Plan shall be
subject to the following terms and conditions:
(a) Option Term. The term of each Stock Option shall be fixed
by the Committee; provided, however, that an Incentive Stock Option may be
granted only within the ten-year period commencing from the Effective Date and
may only be exercised within ten years of the date of grant (or five years in
the case of an Incentive Stock Option granted to an optionee ("10% Stockholder")
who, at the time of grant, owns Common Stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company.
(b) Exercise Price. The exercise price per share of Common
Stock purchasable under a Stock Option shall be determined by the Committee at
the time of grant and may not be less than 100% of the Fair Market Value on the
day of grant; provided, however, that the exercise price of an Incentive Stock
Option granted to a 10% Stockholders shall not be less than 110% of the Fair
Market Value on the date of grant.
(c) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined by
the Committee and as set forth in Section 10, below. If the Committee provides,
in its discretion, that any Stock Option is exercisable only in installments,
i.e., that it vests over time, the Committee may waive such installment exercise
provisions at any time at or after the time of grant in whole or in part, based
upon such factors as the Committee shall determine.
(d) Method of Exercise. Subject to whatever installment,
exercise and waiting period provisions are applicable in a particular case,
Stock Options may be exercised in whole or in part at any time during the term
of the Option, by giving written notice of exercise to the Company specifying
the number of shares of Common Stock to be purchased. Such notice shall be
accompanied by payment in full of the purchase price, which shall be in cash or,
if provided in the Agreement, either in shares of Common Stock (including
Restricted Stock and other contingent awards under this Plan) or partly in cash
and partly in such Common Stock, or such other means which the Committee
determines are consistent with the Plan's purpose and applicable law. Cash
payments shall be made by wire transfer, certified or bank check or personal
check, in each case payable to the order of the Company; provided, however, that
the Company shall not be required to deliver certificates for shares of Common
Stock with respect to which an Option is exercised until the Company has
confirmed the receipt of good and available funds in payment of the purchase
price thereof. Payments in the form of Common Stock shall be valued at the Fair
Market Value on the date prior to the date of exercise. Such payments shall be
made by delivery of stock certificates in negotiable form which are effective to
transfer good and valid title thereto to the
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<PAGE>
Company, free of any liens or encumbrances. Subject to the terms of the
Agreement, the Committee may, in its sole discretion, at the request of the
Holder, deliver upon the exercise of a Nonqualified Stock Option a combination
of shares of Deferred Stock and Common Stock; provided that, notwithstanding the
provisions of Section 8 of the Plan, such Deferred Stock shall be fully vested
and not subject to forfeiture. A Holder shall have none of the rights of a
Stockholder with respect to the shares subject to the Option until such shares
shall be transferred to the Holder upon the exercise of the Option.
(e) Transferability. Except as may be set forth in the
Agreement, no Stock Option shall be transferable by the Holder other than by
will or by the laws of descent and distribution, and all Stock Options shall be
exercisable, during the Holder's lifetime, only by the Holder.
(f) Termination by Reason of Death. If a Holder's employment
by the Company or a Subsidiary terminates by reason of death, any Stock Option
held by such Holder, unless otherwise determined by the Committee at the time of
grant and set forth in the Agreement, shall thereupon automatically terminate,
except that the portion of such Stock Option which has vested on the date of
death may thereafter be exercised by the legal representative of the estate or
by the legatee of the Holder under the will of the Holder, for a period of one
year (or such other greater or lesser period as the Committee may specify at
grant) from the date of such death or until the expiration of the stated term of
such Stock Option, whichever period is the shorter.
(g) Termination by Reason of Disability. If a Holder's
employment by the Company or any Subsidiary terminates by reason of Disability,
any Stock Option held by such Holder, unless otherwise determined by the
Committee at the time of grant and set forth in the Agreement, shall thereupon
automatically terminate, except that the portion of such Stock Option which has
vested on the date of termination may thereafter be exercised by the Holder for
a period of one year (or such other greater or lesser period as the Committee
may specify at the time of grant) from the date of such termination of
employment or until the expiration of the stated term of such Stock Option,
whichever period is the shorter.
(h) Other Termination. Subject to the provisions of Section
13.3, below, and unless otherwise determined by the Committee at the time of
grant and set forth in the Agreement, if a Holder is an employee of the Company
or a Subsidiary at the time of grant and if such Holder's employment by the
Company or any Subsidiary terminates for any reason other than death or
Disability, the Stock Option shall thereupon automatically terminate, except
that if the Holder's employment is terminated by the Company or a Subsidiary
without cause or due to Normal Retirement, then the portion of such Stock Option
which has vested on the date of termination of employment may be exercised for
the lesser of three months after termination of employment or the balance of
such Stock Option's term.
(i) Additional Incentive Stock Option Limitation. In the case
of an Incentive Stock Option, the aggregate Fair Market Value (on the date of
grant of the Option) with respect to which Incentive Stock Options become
exercisable by a Holder during any calendar year (under all such plans of the
Company and its Parent and Subsidiary) shall not exceed $100,000.
(j) Buyout and Settlement Provisions. The Committee may at any
time, in its sole discretion, offer to buy out a Stock Option previously
granted, based upon such terms and conditions as the Committee shall establish
and communicate to the Holder at the time that such offer is made.
(k) Stock Option Agreement. Each grant of a Stock Option shall
be confirmed by, and shall be subject to the terms of, the Agreement executed by
the Company and the Holder.
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<PAGE>
5.3 Stock Reload Option. The Committee may also grant to the Holder
(concurrently with the grant of an Incentive Stock Option and at or after the
time of grant in the case of a Nonqualified Stock Option) a Stock Reload Option
to purchase up to the number of shares of Stock held by the Holder for at least
six months and used to pay all or part of the exercise price of an Option
("Underlying Option"). Such Stock Reload Option shall have an exercise price
equal to the Fair Market Value as of the date of exercise of the Underlying
Option. Unless the Committee determines otherwise, a Stock Reload Option may be
exercised commencing one year after it is granted and shall expire on the date
of expiration of the Underlying Option to which the Reload Option is related.
Section 6. Stock Appreciation Rights.
6.1 Grant and Exercise. The Committee may grant Stock Appreciation
Rights to participants who have been, or are being granted, Options under the
Plan as a means of allowing such participants to exercise their Options without
the need to pay the exercise price in cash. In the case of a Nonqualified Stock
Option, a Stock Appreciation Right may be granted either at or after the time of
the grant of such Nonqualified Stock Option. In the case of an Incentive Stock
Option, a Stock Appreciation Right may be granted only at the time of the grant
of such Incentive Stock Option.
6.2 Terms and Conditions. Stock Appreciation Rights shall be subject to
the following terms and conditions:
(a) Exercisability. Stock Appreciation Rights shall be
exercisable as shall be determined by the Committee and set forth in the
Agreement, subject to the limitations, if any, imposed by the Code, with respect
to related Incentive Stock Options.
(b) Termination. A Stock Appreciation Right shall terminate
and shall no longer be exercisable upon the termination or exercise of the
related Stock Option.
(c) Method of Exercise. Stock Appreciation Rights shall be
exercisable upon such terms and conditions as shall be determined by the
Committee and set forth in the Agreement and by surrendering the applicable
portion of the related Stock Option. Upon such exercise and surrender, the
Holder shall be entitled to receive a number of Option Shares equal to the SAR
Value divided by the Fair Market Value on the date the Stock Appreciation Right
is exercised.
(d) Shares Affected Upon Plan. The granting of a Stock
Appreciation Right shall not affect the number of shares of Common Stock
available under for awards under the Plan. The number of shares available for
awards under the Plan will, however, be reduced by the number of shares of
Common Stock acquirable upon exercise of the Stock Option to which such Stock
Appreciation Right relates.
Section 7. Restricted Stock.
7.1 Grant. Shares of Restricted Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the eligible persons to whom, and the time or times at which, grants of
Restricted Stock will be awarded, the number of shares to be awarded, the price
(if any) to be paid by the Holder, the time or times within which such awards
may be subject to forfeiture ("Restriction Period"), the vesting schedule and
rights to acceleration thereof, and all other terms and conditions of the
awards.
7.2 Terms and Conditions. Each Restricted Stock award shall be subject
to the following terms and conditions:
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(a) Certificates. Restricted Stock, when issued, will be
represented by a stock certificate or certificates registered in the name of the
Holder to whom such Restricted Stock shall have been awarded. During the
Restriction Period, certificates representing the Restricted Stock and any
securities constituting Retained Distributions (as defined below) shall bear a
legend to the effect that ownership of the Restricted Stock (and such Retained
Distributions), and the enjoyment of all rights appurtenant thereto, are subject
to the restrictions, terms and conditions provided in the Plan and the
Agreement. Such certificates shall be deposited by the Holder with the Company,
together with stock powers or other instruments of assignment, each endorsed in
blank, which will permit transfer to the Company of all or any portion of the
Restricted Stock and any securities constituting Retained Distributions that
shall be forfeited or that shall not become vested in accordance with the Plan
and the Agreement.
(b) Rights of Holder. Restricted Stock shall constitute issued
and outstanding shares of Common Stock for all corporate purposes. The Holder
will have the right to vote such Restricted Stock, to receive and retain all
regular cash dividends and other cash equivalent distributions as the Board may
in its sole discretion designate, pay or distribute on such Restricted Stock and
to exercise all other rights, powers and privileges of a holder of Common Stock
with respect to such Restricted Stock, with the exceptions that (i) the Holder
will not be entitled to delivery of the stock certificate or certificates
representing such Restricted Stock until the Restriction Period shall have
expired and unless all other vesting requirements with respect thereto shall
have been fulfilled; (ii) the Company will retain custody of the stock
certificate or certificates representing the Restricted Stock during the
Restriction Period; (iii) other than regular cash dividends and other cash
equivalent distributions as the Board may in its sole discretion designate, pay
or distribute, the Company will retain custody of all distributions ("Retained
Distributions") made or declared with respect to the Restricted Stock (and such
Retained Distributions will be subject to the same restrictions, terms and
conditions as are applicable to the Restricted Stock) until such time, if ever,
as the Restricted Stock with respect to which such Retained Distributions shall
have been made, paid or declared shall have become vested and with respect to
which the Restriction Period shall have expired; (iv) a breach of any of the
restrictions, terms or conditions contained in this Plan or the Agreement or
otherwise established by the Committee with respect to any Restricted Stock or
Retained Distributions will cause a forfeiture of such Restricted Stock and any
Retained Distributions with respect thereto.
(c) Vesting; Forfeiture. Upon the expiration of the
Restriction Period with respect to each award of Restricted Stock and the
satisfaction of any other applicable restrictions, terms and conditions (i) all
or part of such Restricted Stock shall become vested in accordance with the
terms of the Agreement, subject to Section 10, below, and (ii) any Retained
Distributions with respect to such Restricted Stock shall become vested to the
extent that the Restricted Stock related thereto shall have become vested,
subject to Section 10, below. Any such Restricted Stock and Retained
Distributions that do not vest shall be forfeited to the Company and the Holder
shall not thereafter have any rights with respect to such Restricted Stock and
Retained Distributions that shall have been so forfeited.
Section 8. Deferred Stock.
8.1 Grant. Shares of Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the eligible persons to whom and the time or times at which grants of Deferred
Stock will be awarded, the number of shares of Deferred Stock to be awarded to
any person, the duration of the period ("Deferral Period") during which, and the
conditions under which, receipt of the shares will be deferred, and all the
other terms and conditions of the awards.
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8.2 Terms and Conditions. Each Deferred Stock award shall be subject to
the following terms and conditions:
(a) Certificates. At the expiration of the Deferral Period (or
the Additional Deferral Period referred to in Section 8.2 (d) below, where
applicable), share certificates shall be issued and delivered to the Holder, or
his legal representative, representing the number equal to the shares covered by
the Deferred Stock award.
(b) Rights of Holder. A person entitled to receive Deferred
Stock shall not have any rights of a Stockholder by virtue of such award until
the expiration of the applicable Deferral Period and the issuance and delivery
of the certificates representing such Common Stock. The shares of Common Stock
issuable upon expiration of the Deferral Period shall not be deemed outstanding
by the Company until the expiration of such Deferral Period and the issuance and
delivery of such Common Stock to the Holder.
(c) Vesting; Forfeiture. Upon the expiration of the Deferral
Period with respect to each award of Deferred Stock and the satisfaction of any
other applicable restrictions, terms and conditions all or part of such Deferred
Stock shall become vested in accordance with the terms of the Agreement, subject
to Section 10, below. Any such Deferred Stock that does not vest shall be
forfeited to the Company and the Holder shall not thereafter have any rights
with respect to such Deferred Stock.
(d) Additional Deferral Period. A Holder may request to, and
the Committee may at any time, defer the receipt of an award (or an installment
of an award) for an additional specified period or until a specified event
("Additional Deferral Period"). Subject to any exceptions adopted by the
Committee, such request must generally be made at least one year prior to
expiration of the Deferral Period for such Deferred Stock award (or such
installment).
Section 9. Other Stock-Based Awards.
9.1 Grant and Exercise. Other Stock-Based Awards may be awarded,
subject to limitations under applicable law, that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on, or related
to, shares of Common Stock, as deemed by the Committee to be consistent with the
purposes of the Plan, including, without limitation, purchase rights, shares of
Common Stock awarded which are not subject to any restrictions or conditions,
convertible or exchangeable debentures, or other rights convertible into shares
of Common Stock and awards valued by reference to the value of securities of or
the performance of specified Subsidiaries. Other Stock-Based Awards may be
awarded either alone or in addition to or in tandem with any other awards under
this Plan or any other plan of the Company.
9.2 Eligibility for Other Stock-Based Awards. The Committee shall
determine the eligible persons to whom and the time or times at which grants of
such other stock-based awards shall be made, the number of shares of Common
Stock to be awarded pursuant to such awards, and all other terms and conditions
of the awards.
9.3 Terms and Conditions. Each other Stock-Based Award shall be subject
to such terms and conditions as may be determined by the Committee and to
Section 10, below.
9
<PAGE>
Section 10. Accelerated Vesting and Exercisability.
If any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), is or becomes the "beneficial owner" (as referred in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 25% or more of the combined voting power of the Company's
then outstanding securities in one or more transactions, and the Board does not
authorize or otherwise approve such acquisition, then, the vesting periods of
any and all Options and other Awards granted and outstanding under the Plan
shall be accelerated and all such Options and Awards will immediately and
entirely vest, and the respective holders thereof will have the immediate right
to purchase and/or receive any and all Common Stock subject to such Options and
awards on the terms set forth in this Plan and the respective agreements
respecting such Options and Awards.
Section 11. Amendment and Termination.
The Board may at any time, and from time to time, amend alter, suspend
or discontinue any of the provisions of the Plan, but no amendment, alteration,
suspension or discontinuance shall be made which would impair the rights of a
Holder under any Agreement theretofore entered into hereunder, without the
Holder's consent. Notwithstanding the foregoing, no action shall be taken
without the approval of the stockholders of the Company unless the Committee
determines that the approval of stockholders would not be necessary to retain
the benefits of Section 162(m) of the Code.
Section 12. Term of Plan.
12.1 Effective Date. The Plan shall be effective as of September 9,
1999 ("Effective Date"), subject to the approval of the Plan by the Company's
stockholders within one year after the Effective Date. Any awards granted under
the Plan prior to such approval shall be effective when made (unless otherwise
specified by the Committee at the time of grant), but shall be conditioned upon,
and subject to, such approval of the Plan by the Company's shareholders and no
awards shall vest or otherwise become free of restrictions prior to such
approval.
12.2 Termination Date. Unless terminated by the Board, this Plan shall
continue to remain effective until such time no further awards may be granted
and all awards granted under the Plan are no longer outstanding. Notwithstanding
the foregoing, grants of Incentive Stock Options may only be made during the ten
year period following the Effective Date.
Section 13. General Provisions.
13.1 Written Agreements. Each award granted under the Plan shall be
confirmed by, and shall be subject to the terms of the Agreement executed by the
Company and the Holder. The Committee may terminate any award made under the
Plan if the Agreement relating thereto is not executed and returned to the
Company within 10 days after the Agreement has been delivered to the Holder for
his or her execution.
13.2 Unfunded Status of Plan. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Holder by the Company, nothing contained herein shall
give any such Holder any rights that are greater than those of a general
creditor of the Company.
13.3 Employees.
10
<PAGE>
(a) Engaging in Competition With the Company. In the event a
Holder's employment with the Company or a Subsidiary is terminated for any
reason whatsoever, and within eighteen months after the date thereof such Holder
accepts employment with any competitor of, or otherwise engages in competition
with, the Company, the Committee, in its sole discretion, may require such
Holder to return to the Company the economic value of any award which was
realized or obtained by such Holder at any time during the period beginning on
that date which is six months prior to the date of such Holder's termination of
employment with the Company.
(b) Termination for Cause. The Committee may, in the event a
Holder's employment with the Company or a Subsidiary is terminated for cause,
annul any award granted under this Plan to such employee and, in such event, the
Committee, in its sole discretion, may require such Holder to return to the
Company the economic value of any award which was realized or obtained by such
Holder at any time during the period beginning on that date which is six months
prior to the date of such Holder's termination of employment with the Company.
(c) No Right of Employment. Nothing contained in the Plan or
in any award hereunder shall be deemed to confer upon any Holder who is an
employee of the Company or any Subsidiary any right to continued employment with
the Company or any Subsidiary, nor shall it interfere in any way with the right
of the Company or any Subsidiary to terminate the employment of any Holder who
is an employee at any time.
13.4 Investment Representations; Company Policy. The Committee may
require each person acquiring shares of Common Stock pursuant to a Stock Option
or other award under the Plan to represent to and agree with the Company in
writing that the Holder is acquiring the shares for investment without a view to
distribution thereof. Each person acquiring shares of Common Stock pursuant to a
Stock Option or other award under the Plan shall be required to abide by all
policies of the Company in effect at the time of such acquisition and thereafter
with respect to the ownership and trading of the Company's securities.
13.5 Additional Incentive Arrangements. Nothing contained in the Plan
shall prevent the Board from adopting such other or additional incentive
arrangements as it may deem desirable, including, but not limited to, the
granting of Stock Options and the awarding of Common Stock and cash otherwise
than under the Plan; and such arrangements may be either generally applicable or
applicable only in specific cases.
13.6 Withholding Taxes. Not later than the date as of which an amount
must first be included in the gross income of the Holder for Federal income tax
purposes with respect to any option or other award under the Plan, the Holder
shall pay to the Company, or make arrangements satisfactory to the Committee
regarding the payment of, any Federal, state and local taxes of any kind
required by law to be withheld or paid with respect to such amount. If permitted
by the Committee, tax withholding or payment obligations may be settled with
Common Stock, including Common Stock that is part of the award that gives rise
to the withholding requirement. The obligations of the Company under the Plan
shall be conditioned upon such payment or arrangements and the Company or the
Holder's employer (if not the Company) shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to the Holder from the Company or any Subsidiary.
13.7 Governing Law. The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of New York (without regard to choice of law provisions).
11
<PAGE>
13.8 Other Benefit Plans. Any award granted under the Plan shall not be
deemed compensation for purposes of computing benefits under any retirement plan
of the Company or any Subsidiary and shall not affect any benefits under any
other benefit plan now or subsequently in effect under which the availability or
amount of benefits is related to the level of compensation (unless required by
specific reference in any such other plan to awards under this Plan).
13.9 Non-Transferability. Except as otherwise expressly provided in the
Plan or the Agreement, no right or benefit under the Plan may be alienated,
sold, assigned, hypothecated, pledged, exchanged, transferred, encumbranced or
charged, and any attempt to alienate, sell, assign, hypothecate, pledge,
exchange, transfer, encumber or charge the same shall be void.
13.10 Applicable Laws. The obligations of the Company with respect to
all Stock Options and awards under the Plan shall be subject to (i) all
applicable laws, rules and regulations and such approvals by any governmental
agencies as may be required, including, without limitation, the Securities Act
of 1933, as amended, and (ii) the rules and regulations of any securities
exchange on which the Common Stock may be listed.
13.11 Conflicts. If any of the terms or provisions of the Plan or an
Agreement conflict with the requirements of Sections 162(m) or 422 of the Code,
then such terms or provisions shall be deemed inoperative to the extent they so
conflict with such requirements. Additionally, if this Plan or any Agreement
does not contain any provision required to be included herein under Sections
162(m) or 422 of the Code, such provision shall be deemed to be incorporated
herein and therein with the same force and effect as if such provision had been
set out at length herein and therein. If any of the terms or provisions of any
Agreement conflict with any terms or provision of the Plan, then such terms or
provisions shall be deemed inoperative to the extent they so conflict with the
requirements of the Plan. Additionally, if any Agreement does not contain any
provision required to be included therein under the Plan, such provision shall
be deemed to be incorporated therein with the same force and effect as if such
provision had been set out at length therein.
13.12 Non-Registered Stock. The shares of Common Stock to be
distributed under this Plan have not been, as of the Effective Date, registered
under the Securities Act of 1933, as amended, or any applicable state or foreign
securities laws and the Company has no obligation to any Holder to register the
Common Stock or to assist the Holder in obtaining an exemption from the various
registration requirements, or to list the Common Stock on a national securities
exchange.
12
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
b2bstores.com Inc.
Long Beach, CA
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated September 30, 1999, relating to the
financial statements of b2bstores.com Inc. (a development stage company), which
is contained in that Prospectus. Our report contains an explanatory paragraph
regarding the Company's ability to continue as a going concern.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
New York, New York
October 4, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the audited
financial statements of b2bstores.com Inc., as of August 31, 1999 and for the
period from June 28, 1999 (inception) to August 31, 1999, and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUN-28-1999
<PERIOD-END> AUG-31-1999
<CASH> 669,121
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 669,121
<PP&E> 6,809
<DEPRECIATION> 0
<TOTAL-ASSETS> 753,906
<CURRENT-LIABILITIES> 303,272
<BONDS> 0
0
0
<COMMON> 40,000
<OTHER-SE> 410,634
<TOTAL-LIABILITY-AND-EQUITY> 753,906
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 2,086,866
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,086,866)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,086,866)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,086,866)
<EPS-BASIC> (0.56)
<EPS-DILUTED> (0.56)
</TABLE>
