U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
EYECITY.COM, INC.
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(Name of Small Business Issuer in Its Charter)
Delaware 11-3327465
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
79 Express Street
Plainview, New York 11803
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(Address of Principal Executive Offices) (Zip Code)
(516) 822-5000
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(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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NONE NONE
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 par value per share
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(Title of Class)
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PART I
This Form 10-SB contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. When used in this report, the words "believe,"
"anticipate," "think," "intend," "plan," "will be" and similar expressions
identify such forward-looking statements. Such statements regarding future
events and/or the future financial performance of EyeCity are subject to certain
risks and uncertainties which could cause actual events or the actual future
results of EyeCity to differ materially from any forward-looking statement. In
light of the significant risks and uncertainties inherent in the forward-looking
statements included herein, the inclusion of such statements should not be
regarded as a representation by EyeCity or any other person that the objectives
and plans of EyeCity will be achieved.
ITEM 1. DESCRIPTION OF BUSINESS
General
EyeCity.com, Inc. ("EyeCity") is engaged in the marketing, distribution
and retail sale over the Internet of a broad range of eyewear products and
optical accessories, including brand name sunglasses, contact lenses,
binoculars, prescription eyewear, telescopes, sports and lifestyle eyewear and
hunting glasses. The annual worldwide optical product market is estimated at $50
billion. EyeCity is in the process of effecting an acquisition strategy within
the highly fragmented Internet optical industry, and has recently closed on the
acquisition of three companies retailing optical products over the Internet.
Through this strategy, as well as internal expansion, EyeCity intends to become
the leading e-commerce retailer of eyewear and optical accessories and related
content on the Internet, providing one-stop shopping for domestic and
international customers in an easy-to-shop environment, 24 hours a day, seven
days a week. EyeCity intends to acquire additional complementary businesses as
opportunities arise from time to time.
EyeCity's websites, including Peepers.com, EyeGlassPlace.com,
OpticalSite.com, SunglassSite.com and Abeam.com offer the largest online
selection of brand name sunglasses.
EyeCity coordinates and processes order fulfillment and customer service
for all of its websites through EyeCity's centralized Minnesota distribution
facility. We believe optical product retailing is well positioned to benefit
from the attractive cost structures of online retail operations. While
traditional store-based optical retailers must make significant investments in
inventory, real estate and personnel for each store location, online retailers
such as EyeCity incur significantly lower related costs. Additionally, while
traditional retailers are constrained in the amount of inventory they can carry
at each store and are therefore required to focus on a smaller selection, online
retailers such as EyeCity can offer consumers a broader range of product
offerings without having to incur as significant an investment in inventory.
EyeCity is in the process of designing and constructing its Internet
SuperSite, which will complement EyeCity's family of existing e-commerce web
sites. Each site targets various eyewear consumer niche markets. The new site,
www.eyecity.com, is anticipated to be launched in early 2000. In the short term,
the SuperSite will offer consumers one of the broadest online selections of
brand-name sunglasses, contact lenses, prescription eyewear and optical
products, as well as an extensive selection of lifestyle eyewear for golfing,
fishing and extreme sports and informative content relating to eyecare and
optical fashion and health. As part of its long term strategy, EyeCity also
intends to expand its online
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prescription lenses fulfillment service and, subject to identifying and
obtaining rights to the appropriate technology, may in the future offer
innovative "Try It On" technology, which mirrors the in-store browsing
experience by allowing consumers to choose the eyeglasses best suited to the
shape of their face. EyeCity expects to generate online traffic to its SuperSite
primarily by establishing strategic partnerships with traditional optical
companies and with major online retailers of non-optical merchandise and by
enhancing and expanding its existing portal relationships with heavily
trafficked online portals and search engines.
In addition, in September 1999 EyeCity acquired a non-exclusive three year
license from Yahoo! Inc. to use the "Yahoo!" name and logo for the distribution
and marketing of eyewear and eyewear accessories throughout the United States.
Contemporaneously with this transaction, EyeCity entered into a distributor
agreement with Sun Optics d/b/a Insight Eyeworks, Inc. under which Insight will
manufacture, market and distribute the Yahoo! eyewear and eyewear accessories in
traditional retail channels in the United States other than through the Internet
and other e-commerce channels.
The SuperSite will also carry EyeCity's patented EyeTools computer
eyeglasses, which were developed to relieve Computer Vision Syndrome ("CVS"), a
potentially debilitating condition that results in headaches, blurred vision and
eyestrain often associated with CVS. EyeTools computer eyeglasses feature a
patented lens technology that enables the computer user to focus more clearly by
minimizing glare and equalizing all sources of ambient lighting, such as from
windows and overhead sources.
From EyeCity's inception through December 1998, EyeCity's business
strategy was to become a leading producer, distributor and marketer of ergonomic
computer eyewear products designed to alleviate health related problems
associated with CVS. In January 1999, EyeCity refocused its business strategy to
capitalize on the internet retailing opportunities associated with the optical
product industry.
EyeCity was incorporated in May 1996 in New York under the name
Ergovision, Inc., and reincorporated in Delaware in April 1997 under the name
Ergovision, Inc. In May 1999, Ergovision, Inc. changed its name to EyeCity.com,
Inc. EyeCity's principal executive offices are located at 79 Express Street,
Plainview, New York 11803, and its telephone number is 516-822-5000. EyeCity
trades on the OTC Bulletin Board under the symbol "ICTY".
Optical Industry Overview
General. EyeCity believes that a substantial opportunity exists for
expanding retail sales of optical products on the Internet. The United States
optical industry serves approximately 161 million Americans with refractive
needs, approximately 101 million of whom made eyewear-related purchases within
the last year. According to the Jobson Optical Group Data Base ("Jobson"), U.S.
retail eyewear sales were approximately $15.4 billion in 1997, representing a
5.5% increase over the $14.6 billion that was spent in 1996, which 1996 sales
reflected a 5.5% increase over 1995. According to Jobson, worldwide retail sales
of optical products exceeded $50 billion in 1998.
EyeCity believes that current demographic trends, technological
innovation, medical advances and relatively attractive profit margins are
fueling the optical industry's growth. EyeCity believes that as the United
States population ages and grows in size, the demand for vision correction and
eyewear products will increase. Moreover, EyeCity believes that advances in
optical technology will spur consumer interest in high-performance optical
products.
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Sunglasses. According to Jobson, United States retail sunglass sales were
approximately $3 billion in 1997, an increase of 2% and 10% over 1996 and 1995,
respectively.
EyeCity believes that growth in sunglass sales has been primarily driven
by:
o Enhanced Fashion Lines by well-known fashion designers who have
added sunglass lines and promoted sunglasses as a key fashion
accessory;
o Heightened Health Concerns due to awareness of the harmful effects
of ultraviolet light and the further depletion of the Earth's ozone
layer, causing consumers to seek additional eye protection;
o Increased Variety of Specialized Sunglass Products to serve growing
consumer demand for specially designed sunglasses for a variety of
sports and activities; and
o Continuous Product Replacement by consumers who must continually
replace lost, stolen or broken sunglasses.
Contact Lenses. According to Jobson, in 1998 there were approximately 33
million contact lens wearers in the United States, generating domestic sales of
approximately $2.2 billion. Contact lenses have become a convenient, cost
effective alternative to eyeglasses and the number of contact lens wearers is
expected to increase as technology further improves the convenience, comfort and
fit of contact lenses. Growth in this market is due largely to the shift away
from traditional soft lenses, which generally are replaced on an annual basis,
to disposable lenses, which are replaced on a daily, weekly, or bi-weekly basis.
Traditionally, contact lenses were almost exclusively sold to consumers by
eyecare practitioners, including ophthalmologists and optometrists. Eyecare
practitioners would typically supply a patient with his or her initial pair of
contact lenses in connection with providing the patient with an eye examination
and all replacement lenses, regardless of whether the patient was given or
required another eye examination. Because the initial fitting of contact lenses
requires a prescription written by an eyecare practitioner, the initial sale of
contact lenses still takes place primarily in this manner.
Over the last decade, however, a number of alternative sellers of
replacement contact lenses have emerged, including direct marketers. Purchasing
replacement contact lenses from a direct marketer offers the convenience of
shopping at home, rapid home delivery, quick and easy telephone or Internet
ordering and competitive pricing. In addition, the growth in popularity of
disposable contact lenses, which require patients to purchase replacement lenses
more frequently, has contributed to the growth of the direct marketing channel.
Prescription Eyeglasses. The prescription eyeglass industry is highly
fragmented. In the last decade, general merchandise chains - both large discount
stores and warehouse clubs such as Wal-Mart, Price Club/Costco and Sam's
Distributors - entered the optical industry. EyeCity believes the increase in
market share of the warehouse club segment has caused both the superstore and
non-superstore chains to experience lower margins. Some chains have downsized
physically - the superstores of the late 1980's (those containing a surfacing
laboratory and offering one-hour service) have, in many instances, been replaced
by smaller stores that do not contain a surfacing laboratory to provide such
service. Accordingly, EyeCity believes non-superstore formats, including online
optical retailers, have been gaining market share at the superstores' expense.
See "Government Regulation" and "Competition" for a discussion of certain
industry practices which may adversely impact the direct marketing of contact
lenses and prescription eyeglasses, including online marketing.
<PAGE>
Business Strategy
EyeCity's business strategy includes the following key elements:
o Offer Largest Online Selection of Optical Products and Related
Merchandise: EyeCity intends to offer consumers one of the broadest
online selections of optical products including sunglasses, contact
lenses, prescriptions eyewear, lifestyle eyewear, reading glasses
and over-the-counter eyecare pharmaceuticals and related items in an
interactive and personalized environment.
o Implement E-commerce Expansion through Acquisitions: EyeCity intends
to continue to seek selective acquisitions of online optical product
retailers in order to further build market share, broaden its
product line and to benefit from operating efficiencies and
economies of scale.
o Create Strong Brand Awareness of, and Customer Loyalty Towards, the
EyeCity.com SuperSite: EyeCity believes that building brand
awareness of, and strong customer loyalty towards, its SuperSite
will be critical to attracting and expanding EyeCity's consumer
base. EyeCity intends to promote its brand identity through online
and traditional media and event sponsorships, by providing
informative content and by establishing strategic relationships with
other websites to act as their online optical retailer and related
content provider. EyeCity expects that brand awareness will also be
reinforced through sub-branding opportunities on its specialty niche
websites.
In order to foster customer loyalty, EyeCity will strive to
offer its customers compelling value through innovative use of
simple and efficient navigation and search technology, broad product
selection, high-quality content, competitive pricing and
personalized customer service. EyeCity intends to increase market
share and encourage customers to make repeat purchases through a
Frequent Buyer's Club program that will reward customers with points
that can be used as credits towards future purchases.
o Develop Strategic Industry, Website and Portal Alliances: EyeCity
intends to establish strategic alliances with global optical
companies and with online retailers of non-optical products to
attract additional users to, and increase brand awareness of, the
www.eyecity.com SuperSite. EyeCity also intends to expand and
enhance its existing relationships with online portals and search
engines to generate increased online traffic to the SuperSite.
There can be no assurance that EyeCity will be able to identify, negotiate
or obtain financing for future acquisitions, or to integrate the acquisitions
with its current business, or that the process of integrating an acquired
business, technology, service or product into EyeCity will not result in
unforeseen operating difficulties and expenditures or that the anticipated
benefits of any acquisition will be realized. EyeCity cannot guarantee that its
branding efforts and alliance strategies will be successful.
Products
EyeCity currently operates the following Web sites, offering the following
products:
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WebSites Products
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Peepers.com Brand name sunglasses
Eyeglassplace.com Brand name sunglasses
Sunglassite.com Brand name sunglasses
Abeam.com Brand name sunglasses
Opticalsite.com Prescription lenses; contact lenses;
brand name sunglasses
Binoculars.com Binoculars, telescopes, concert
glasses, night vision goggles and
riflescopes
Ergovision.com Computer glasses and eyedrops
Foggles.com Sports and lifestyle glasses
EyeCity's principal merchandising strategy is to distinguish its websites
by offering a larger and more focused selection of optical products than its
competitors. EyeCity currently carries the following merchandise lines:
o Sunglasses. EyeCity offers a wide variety of function, sport and
fashion sunglasses. The term "function" sunglasses generally refers
to the industry's more traditional and well-recognized brands and
styles, including Ray-Ban's "Wayfarer" and classic aviator
sunglasses, as well as the leading Serengeti, Revo and Vuarnet
lines. In the sports category, EyeCity sells specialized lightweight
and impact resistant sunglasses for cycling, skiing and a variety of
other sports and activities. EyeCity also offers a broad selection
of designer fashion frames for men, women and children.
o Prescription Eyeglasses. EyeCity, through its Peepers.com and
Opticalsite.com websites, offers prescription eyeglasses to online
consumers in a wide variety of fashion frames.
o Recreational Products. EyeCity's Binoculars.com website offers an
array of brand-name vision enhancing recreational products including
binoculars, telescopes, concert glasses, night vision goggles and
riflescopes, as well as specialized eyewear for hunters and aviation
pilots.
o Contact Lenses. Contact lenses can be divided into two categories,
soft lenses and hard lenses, which represent approximately 80% and
20% of U.S. wearers, respectively. EyeCity offers substantially all
of the soft and hard contact lenses produced by the leading contact
lens manufacturers, including Johnson & Johnson, CIBAVision, Wesley
Jessen/Barnes-Hind, Bausch & Lomb and CooperVision.
o EyeTools Computer Eyewear Products. EyeCity offers three different
styles of its patented EyeTools computer glasses. EyeTools are
intended to relax the eyes and ameliorate visual discomfort, focus
difficulties, headaches and other related problems associated with
CVS. EyeCity also offers EyeTools computer eye drops which are
designed to treat dry eye syndrome caused by prolonged computer use.
o Accessories. EyeCity sells cords, cleaning cloths, eyeglass cases
and other related optical accessories. EyeCity intends to increase
its optical accessory
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sales by devoting additional resources to improve the quality,
breadth and visual presentation of such merchandise.
The EyeCity.com SuperSite
www.eyecity.com, EyeCity's umbrella SuperSite, which is anticipated to be
launched in early 2000, is being designed to provide consumers with an
attractive, easy-to-shop, content-rich online optical shopping experience. As
with a physical retail store, online customers will be able to browse the
various departments of EyeCity, search for specific optical needs, view
specially promoted products, obtain product information, order products and
obtain customer service. In contrast to a physical retail store, however, an
EyeCity consumer's optical shopping experience will be had in the comfort and
convenience of his or her home or office. In addition, EyeCity intends that its
online SuperSite will have separate departments that cater to individual
interests, hobbies and lifestyles.
The SuperSite, as well as the separate niche websites operated by EyeCity,
are linked to EyeCity's centralized Minnesota distribution facility, which
handles all purchasing, order processing, fulfillment, customer service and
inventory control. Customers will be able to satisfy their eyewear needs by
visiting the Peepers.com, Eyeglassplace.com, Sunglasssite.com, Abeam.com,
Opticalsite.com, Binoculars.com, Ergovision.com and Foggles.com websites and
directly through the EyeCity SuperSite when launched. See "Distribution
Fulfillment and Inventory"
The SuperSite is being designed to provide the following:
o Browsing Section: EyeCity will organize its optical product
offerings into a simple set of departments and sub-departments. By
clicking on the department name, the consumer will quickly target
products of interest. This feature will also include special
categories containing bestsellers and manufacturers' best picks.
o Searching Section: The SuperSite will provide an interactive search
engine and a selection of search tools that will allow customers to
find items based on pre-selected criteria such as manufacturer,
product model number, style, brand, price and frame or lens color.
o Personalized Customer Section: The SuperSite will welcome customers
to the site, where they can provide demographic information which
will be used to recommend a choice of eyewear customized for that
particular user. EyeCity will automatically e-mail order
confirmations thanking the customer for the order. Customers also
will be given the option of being informed of new products and
special promotional offers.
o Contest Giveaway Section: This section of eyecity.com will feature a
contest offering giveaways of optical products. Browsers will enter
their e-mail addresses in this section and be notified by email if
they have won. The winner's name will be posted daily in this
section. EyeCity believes that this contest giveaway will increase
overall online traffic to, and enhance the brand awareness of,
EyeCity.
o Ask the Doctor Section: EyeCity intends to make available an "Ask
the Doctor" content section which will provide consumers with
product information and with the opportunity to engage in Q&A
sessions with eyecare professionals, including optometrists and
ophthalmologists. These eyecare professionals will provide customers
with general information
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regarding eye disorders, eyecare, laser vision correction and
contact lens usage, and with answers to product-specific questions.
Articles relating to these and other topics will be prominently
featured on this portion of the website.
o Children's Forum Section: EyeCity's "Children's Forum" section will
contain eyecare tests and interactive games intended to educate
children about their eyes and eye care. Children will have the
opportunity to ask questions, post messages and interact with one
another.
o "Try it on" Section: EyeCity intends, subject to identifying and
obtaining rights to the appropriate technology, to license or
independently develop technology that will allow users to scan their
photographs and to superimpose any style of glasses from EyeCity's
vast product line onto the scanned photograph. This feature is
intended to provide the online consumer with a true "in-store"
experience. This software package will also enable the customer to
try on multiple pairs of glasses simultaneously, a feature that
cannot be achieved in a physical store.
o Donate a Pair Section: EyeCity will seek charitable partners to
distribute used eyeglasses that are donated by EyeCity customers.
Customers will donate their old eyeglasses and receive a gift
certificate redeemable for purchases at EyeCity. The old eyeglasses
will then be issued, free of charge, to those in need.
See "Technology and Security" for a discussion of customer security and
privacy protocols.
There can be no assurance that the implementation of the SuperSite or
other contemplated expansions of EyeCity's operations will be completed in a
cost-effective or timely manner, that consumers will react positively to
EyeCity's sales strategy, SuperSite or family of websites or that any such plans
will be successful. Expansion of EyeCity's operations would also require
significant additional financing and operating expenses and could strain
EyeCity's management, financial and operational resources. Furthermore, any new
business or service launched by EyeCity that is not favorably received by
consumers could have an adverse effect on EyeCity's reputation and diminish the
value of its brand name.
Marketing and Promotion
EyeCity's marketing plan is to distinguish itself by offering the largest
variety of products, shopping convenience, ease-of-use and more advanced
technology than any current online optical retailer, an enhanced user experience
as compared to in-store purchasing, strategic partnerships with major online
retailers and portal relationships with exclusive key words to build significant
site traffic, and additional marketing strategies discussed below.
EyeCity's marketing strategy includes promoting and increasing EyeCity's
brand visibility and acquiring new customers by developing distribution
alliances with major portal sites, advertising on leading sites and other
traditional media, expanding EyeCity's affiliates network, and targeting linking
programs and direct marketing to existing and potential customers. EyeCity may
determine in the future to continue the flow of traffic to the acquired sites or
to point all traffic to the www.eyecity.com SuperSite.
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The key features of EyeCity's marketing strategy are:
o Customer Retention: EyeCity intends to implement a Frequent Buyer's
Club program, allowing members to receive discounts and free
merchandise based on a certain volume of purchases. This program
will also provide EyeCity with the ability to collect user
demographics to facilitate targeted marketing of a member's on-line
optical purchases. A key strategy is to incentivise contact lens
users to purchase other optical products. EyeCity intends to use an
existing technology known as a "cookie," to track basic user actions
and sessions on the EyeCity website. The "cookie" technology will be
able to restore a customer's shopping basket and on-line session
even if the customer leaves EyeCity and returns later. EyeCity
believes that the use of this technology will facilitate and
encourage customers to spontaneously visit and return to EyeCity's
website.
o Consumer Database Marketing. EyeCity will use database marketing to
learn its customers' lifestyle and preferences. After collecting
consumer data, EyeCity will send customers e-mail messages
containing discount coupons, information regarding new product
releases and special sales, in each case geared towards the
customer's previous purchasing and browsing patterns. EyeCity
intends to implement collaborative filtering software to personalize
the EyeCity website to each individual customer and provide product
recommendations derived from each customer's historical buying and
browsing patterns.
o Online and Traditional Advertising: EyeCity intends to direct online
traffic to www.eyecity.com by advertising on other websites,
including HotBot, Yahoo, Excite, Lycos and Infoseek. EyeCity intends
to use ad-server technology which will allow it to change its
advertising by delivering program code directly to the websites
hosting EyeCity's ads. Advertising websites will be chosen based on
their cost relative to their ability to generate traffic for EyeCity
and the likely audience to be targeted by advertising on such
websites. Additionally, EyeCity intends to participate in numerous
in-house and manufacturer sponsored promotions. EyeCity expects that
these promotions will be web-based and will be geared to specific
manufacturers, product categories and buyer segments. In the longer
term, EyeCity will also utilize more traditional advertising,
including television, radio and print.
o Linking and Affiliate Programs: To direct traffic to
www.eyecity.com, EyeCity intends to aggressively expand and enhance
its existing marketing linking program to create inbound links to
its website from other sites on the Web. These links allow potential
customers to simply click on the link and be connected to EyeCity
from other search engines, manufacturers' websites, community and
affinity sites and home pages. Registered affiliates are paid a
referral fee as a percentage of the net invoice amount of any sale
generated via the affiliate's link to EyeCity.
o Direct Internet Marketing: EyeCity intends to implement various
direct marketing programs that will allow it to communicate on a
regular basis with its customers. These programs will be custom
tailored to its customers' demographic profiles. An e-mail will be
sent out to all customers on a regular basis informing them of
product specials and new product arrivals. This proactive marketing
approach will allow EyeCity to alert existing customers to new
buying opportunities.
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EyeCity also participates in an "in the box" marketing program in which
EyeTools direct-sell marketing materials are inserted in Hewlett Packard
shipping packages containing new computers. This program has already begun to
generate orders from Hewlett Packard end users. EyeCity also sells the EyeTools
product line via the Internet to major corporations, and sells its Foggles
optical products for the aviation, hunting and shooting industries through
distributors, catalogues, direct advertising, retail stores and the Internet.
EyeCity believes that continuing to strengthen the EyeCity brand is
critical to achieving widespread acceptance, particularly in light of the
competitive nature of EyeCity's market. In order to implement this strategy,
EyeCity will need to effect additional significant financings. However, there
can be no assurance that EyeCity will be able to obtain financing or will be
able to do so on favorable terms. See "Management's Discussion and Analysis or
Plan of Operation" There can be no assurance that the foregoing marketing and
brand promotion activities will yield increased revenues or that any such
revenues would offset the expenses incurred by EyeCity in building this brand.
Further, there can be no assurance that any new users attracted to the SuperSite
will conduct transactions through the SuperSite or EyeCity's family of websites
on a regular basis. If EyeCity fails to promote and maintain its brand or if it
incurs substantial expenses in an attempt to promote and maintain its brand
without generating significant revenues, or if EyeCity's existing or future
strategic relationships fail to increase brand awareness, EyeCity's business,
results of operations and financial condition could be materially adversely
affected.
Distribution, Fulfillment and Inventory
EyeCity utilizes a centralized order processing, distribution,
fulfillment, customer service and warehousing facility located in Duluth,
Minnesota.
During early 2000, the acquired sites and the completed SuperSite will be
linked with one back end, which is currently under construction as part of the
SuperSite initiative. The back end will store all marketing intelligence, order
processing, inventory needs and financial data for all of EyeCity's divisions
and specific niche sites. This back end will allow for complete monitoring of
the sites. EyeCity intends to use an integrated packing and shipping system with
an on-line connection to EyeCity's management information system. This system
will monitor the in-stock status of each item ordered, process the order and
generate warehouse selection tickets and packing slips for order fulfillment
operations.
Currently, EyeCity's websites operate as independent entities and orders
are accumulated and processed by a single point of sale order fulfillment
system. Under the present system, once an order is received, EyeCity's
point-of-sale computer system checks the order against its inventory. If the
item ordered is in stock, the point-of-sale system prints an order request and a
mailing label, which are retrieved by EyeCity's staff on an ongoing basis during
business hours. Orders are shipped through one of several channels, as selected
by the customer, including regular U.S. mail, United Parcel Service, second-day
air or overnight courier, with shipping charges varying by the carrier selected.
Orders are shipped the same day that they are placed if the product is in stock.
An e-mail is also sent the same day thanking the customer for shopping at
EyeCity. If the product is not in stock, the customer is notified on the website
and alternative product suggestions are offered. If the customer desires to
order the currently out-of-stock product anyway, the product is back-ordered and
is shipped to the customer as soon as it is available.
EyeCity expects that it generally will purchase product directly from
manufacturers and distributors on an as-needed basis to fill orders. EyeCity has
analyzed its customers' buying patterns and will carry a minimal level of
inventory, stocking only the most popular items to ensure timely delivery to the
customer. EyeCity currently purchases the limited
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inventory it does carry primarily directly from manufacturers, including Ray-Ban
Sun-Optics, a Luxottica Group Company, and Canon and, to a lesser extent, from
buying groups and distributors. To the extent that EyeCity needs inventory not
in stock at the time, EyeCity contacts the manufacturer, buying group or
distributor which supplies the product and it is shipped to EyeCity. EyeCity
believes that this inventory and distribution strategy enables it to achieve
favorable pricing and optical product availability. One supplier accounted for a
significant percentage of EyeCity's sunglasses revenue in 1998 and for the first
six months of 1999. In the event that any of these suppliers could no longer
supply EyeCity with optical products, EyeCity may not be able to secure other
adequate sources of supply on a timely basis, or may not be able to obtain its
inventory on terms as favorable to EyeCity as its current supply. Either
circumstance could adversely affect EyeCity by increasing its costs or, in the
event adequate replacement supply cannot be secured, could cause EyeCity to lose
sales and customers.
EyeCity fulfills orders for prescription eyeglasses through eyeglass
grinding laboratories in the United States with whom EyeCity has non-contractual
arrangements. When an order is placed with EyeCity, EyeCity provides the
laboratory with the prescription information provided by the customer and the
frames that have been selected by the customer. Lenses are usually manufactured
by the laboratory within two to three business days if the necessary materials
are in stock; otherwise, orders are processed as soon as possible after the
materials become available.
EyeCity cannot assure you that it has anticipated all of the changing
demands that its expanding operations will impose on its receiving and
distribution system or that events beyond EyeCity's control, such as disruptions
in operations due to labor disagreements, shipping problems, fires or natural
disasters, will not result in a material adverse effect on EyeCity's business,
results of operations and financial condition.
EyeCity's success depends, in part, on its ability to provide prompt,
accurate and complete service to its customers on a competitive basis, and its
ability to purchase and promote products, manage inventory, ship products,
manage sales and marketing activities and maintain efficient operations through
its management information systems and particularly its various websites. A
significant disruption in EyeCity's management information systems or websites
could adversely affect EyeCity's relations with its customers and its ability to
manage its operations and would have a material adverse effect on EyeCity's
business, financial condition and results of operations. EyeCity's ability to
compete effectively and to manage future growth, if any, will require EyeCity to
continue to improve its financial and management controls and its reporting
systems and procedures on a timely basis and to expand, train and manage its
employee base. EyeCity's failure or inability to accomplish any of these goals
could have a material adverse effect on its business, financial condition and
results of operations.
Customer Service
EyeCity intends to offer state of the art customer service to generate
repeat customers and grow market share. The Customer Service area of the
SuperSite will contain extensive information about shopping for, ordering and
returning products. Shipping charges, payment options, and other policies will
be explained for the customer. Help buttons on every page of the site will take
customers to the specific customer service topic they need. Customers will be
able to track the current status of their orders, including getting the shipper
tracking numbers. Because the concept of Internet retail is new to many people,
EyeCity will prominently display its toll-free number throughout the site.
Customer service agents currently are and will be available to answer customer
questions about products and the shopping process.
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EyeCity is also considering implementing, subject to obtaining appropriate
financing, commercially available technology which will enable the end user to
communicate via the internet live with customer service representatives during
specially posted hours. This interactive customer service feature will enable
real time communication with the end user and allow for one to one customer
service and marketing. The system will allow the customer service representative
to respond to all customer questions asked by the customer as well as to push
certain web pages to the customer to answer all of their questions.
Currently, customers of EyeCity's websites order products by accessing
EyeCity's websites via the World Wide Web on the Internet. Once there, a
customer selects the category of products that they wish to browse (e.g.,
sunglasses, binoculars, etc.). A list of brands is then presented, from which
the customer chooses one to browse. Within each page devoted to a brand will be
either pictures and descriptions of products or a list of "catalogs," each
containing pictures and descriptions of a particular brand's products. If a
customer does not see a product that they like in a given catalog, they can
easily go back to the list of catalogs, the list of brands or to the main page
of the site. Customers who have selected all of the products that they wish to
purchase are prompted to confirm their selection and to provide billing and
shipping information through a secure Internet connection.
When ordering prescription products, customers can either enter their
prescription information online, with their doctor's name and number so that an
EyeCity employee can attempt to confirm the prescription, or the customer may
fax or mail a hard copy of their doctor's written prescription. Once the
prescription information is confirmed, if the customer is ordering prescription
eyeglasses, the frames selected by the customer are shipped to an eyeglass
grinding laboratory, where the lenses are cut, glazed, and inserted into the
frames and then shipped back to EyeCity. EyeCity then ships the finished product
to the customer.
EyeCity maintains a toll-free telephone number for taking orders, handling
customer service (including assisting customers and suggesting styles or brands
of products that might suit the customer's taste) and receiving credit card
information from those customers who choose not to provide this information via
the internet. EyeCity also accepts orders by fax and accepts payments by money
order or check.
EyeCity ships products to customers by United States mail and other
overnight delivery and surface services. In addition, EyeCity uses direct
mailings to advertise its products and receives a majority of its payments from
customers using credit cards. Any increases in shipping, postal or credit card
processing rates could have an adverse effect on EyeCity's operating results as
EyeCity may not be able to effectively pass such increases on to its customers.
Similarly, strikes or other service interruptions by these shippers could
adversely affect EyeCity's ability to market or deliver its products on a timely
basis.
Once the merchandise is delivered, the customer may return it for a full
refund for any reason if it is shipped back to EyeCity within seven days, and
for a credit against other purchases if it is shipped back within thirty days.
To date, returns have not been material to EyeCity's results of operations.
Technology and Security
Subject to obtaining additional financing, EyeCity intends to license
additional commercially available technology and integrate such technology with
EyeCity's proprietary technology solutions. EyeCity will focus its efforts on
automating as many processes as possible and increasing customer satisfaction.
<PAGE>
In connection with the development of the SuperSite and the integration of
the back end, EyeCity's management information system is being designed to
provide the following:
o Selling System. EyeCity's Internet site will use a packaged
e-commerce solution that will be customized to handle transactional
events, queries and updates to the database. All transactions will
be secured by using Secure Sockets Layer ("SSL") encryption which
will protect information while it is transmitted between the
customer and EyeCity's website.
o Ordering System. EyeCity's ordering system will retrieve ordering
information from its selling system, validate credit cards, process
orders, create and issue purchase orders to manufacturers and handle
all post-sale marketing efforts. The ordering system will also
permit orders to be taken over the telephone. The ordering system
software will be designed by EyeCity to give customer service
representatives instant access to all customer information, to
automatically update all changes to a customer's order and to inform
the customer of order status by automated e-mail communications. The
customer service and marketing departments will be able to access
this customer profile information to search and analyze customer
demographics and buying patterns in order to suggest new product
offerings to customers. The ordering system will also communicate
with EyeCity's warehousing facilities in real time for updates on
order shipments and inventory status.
o Publishing System. The publishing system will contain information
about all products offered on EyeCity's websites, including retail
price, cost, color and size characteristics, group information and
all manufacturer related information.
EyeCity employs systems administrators and network managers to monitor and
operate EyeCity's Internet site, network operations and transaction-processing
systems. The continued uninterrupted operation of EyeCity's Internet site and
transaction-processing systems is essential to its business, and failure of
these systems would have a material adverse effect on EyeCity. EyeCity expects
that its Internet connectivity will be supplied by a provider who will be
capable of offering scaleable business solutions to high volume Internet sites.
A critical issue for the success of online retailing is maintaining the
integrity of information, particularly the security of credit card numbers
furnished by consumers. EyeCity intends to secure credit card numbers while they
travel over phone lines by using SSL encryption. To deter the theft of credit
card numbers residing in EyeCity's information systems, EyeCity intends to
employ secure "fire walls" installed in EyeCity's hardware. EyeCity believes
that these fire walls will protect EyeCity's systems against "hacker" break-ins,
although there can be no assurance that these precautions will be effective.
However, any penetration of EyeCity's network security or other misappropriation
of its customers' personal information could subject EyeCity to liability.
Competition
The optical retail industry is very competitive and fragmented. EyeCity
has a variety of competitors, including ophthalmologists and optometrists in
private practice, traditional optical retail stores, including national optical
chains such as Sunglass Hut, Pearle Vision
<PAGE>
Center, Sterling Optical, LensCrafters and National Vision Association and mass
merchandisers such as Wal-Mart, Sam's and Costco. In addition, EyeCity expects
to compete with non-traditional optical retailers, such as television retailers,
mail order catalogs, direct marketers such as 1-800 Contacts, and with other
online optical retailers such as Shades.com, a subsidiary of Sunglass Hut.
EyeCity expects there to be many more online competitors in the future, as
barriers to entry are minimal, and new competitors can launch competing websites
at a relatively low cost.
EyeCity believes that the principal competitive factors in its online
market are brand recognition, product selection, convenience, price,
accessibility, customer service, quality of search tools, quality of site
content and reliability and speed of fulfillment. Many of EyeCity's current and
potential competitors have longer operating histories, larger customer bases,
greater brand recognition and significantly greater financial, marketing and
other resources than EyeCity. In addition, competitive online optical retailers
may be acquired by, receive investments from, or enter into other commercial
relationships with, larger, well-established and well-financed companies as use
of the Internet and other online services increases. Certain of EyeCity's
competitors may be able to secure merchandise from manufacturers on more
favorable terms, devote greater resources to marketing and promotional
campaigns, adopt more aggressive pricing, inventory availability and delivery
policies and devote substantially more resources to website and systems
development than EyeCity. Increased competition may result in reduced operating
margins, loss of market share and a diminished brand franchise. New technologies
and the expansion of existing technologies may increase the competitive
pressures on EyeCity.
Historically, sales of contact lenses by direct marketers have been
impeded by eyecare practitioners and contact lens manufacturers. Many eyecare
practitioners have been reluctant to provide patients with a copy of their
prescription or to release such information to direct marketers upon request,
thereby prohibiting such patients from purchasing lenses from a direct marketer.
In addition, substantially all of the major manufacturers of contact lenses have
historically refused to sell contact lenses directly to direct marketing
companies and have sought to prohibit their distributors from doing so. These
traditional barriers to the direct marketing of contact lenses may be reduced or
eliminated in the future, although there can be no assurance of that result. The
Federal Trade Commission has solicited comments regarding whether eyecare
practitioners should be required to release contact lens prescriptions to their
patients. In addition, the Attorneys General for more than 30 states have joined
in a lawsuit against the major contact lens manufacturers and certain eyecare
practitioners and their trade associations alleging that the manufacturers'
policy not to sell to direct marketers was adopted in conspiracy with eyecare
practitioners to eliminate alternative channels of trade from the contact lens
market.
EyeCity's prescription eyewear operations also compete with alternative
technologies such as surgical refractive procedures, including new refractive
laser procedures such as PRK, or photo refractive keratectomy, and LASIK, or
laser in situ keratomileusis. If surgical refractive procedures become
increasingly accepted as an effective and safe technique for permanent vision
correction, they could substantially reduce the demand for prescription eyewear
by enabling patients to avoid the ongoing cost and inconvenience of prescription
eyewear, which could have a material adverse affect on EyeCity's prescription
eyewear business.
Government Regulation
General. EyeCity is not currently subject to direct federal, state or
local regulation or laws or regulations applicable to access to or commerce on
the Internet, other than as discussed below and other than regulations
applicable to businesses generally. However, due to the increasing popularity
and use of the Internet and other online services, it is possible
<PAGE>
that a number of laws and regulations may be adopted with respect to the
Internet or other online services covering issues such as user privacy, freedom
of expression, pricing, content, quality of products and services, taxation,
advertising, intellectual property rights and information security. The adoption
of any such laws or regulations might decrease the rate of growth of Internet
use, which in turn could decrease the demand for EyeCity's products or increase
its cost of doing business or in some other manner have a material adverse
effect on EyeCity's business, results of operations and financial condition. In
addition, applicability to the Internet of existing laws governing issues such
as regulatory licensing or permit requirements, property ownership, copyrights
and other intellectual property issues, taxation, libel, obscenity and personal
privacy is uncertain. The vast majority of such laws were adopted prior to the
advent of the Internet and related technologies and, as a result, do not
contemplate or address the unique issues of the Internet and related
technologies.
At present, EyeCity does not collect sales or other similar taxes in
connection with the sale of its products to consumers located outside the state
of Minnesota. From time to time, various states have sought to impose state
sales tax collection obligations on out-of-state direct marketing or
internet-based companies such as EyeCity. A successful assertion by one or more
states that EyeCity should have collected or should be collecting sales taxes on
the sale of its products could result in additional costs and administrative
expenses to EyeCity and corresponding price increases to its customers, which
could adversely affect EyeCity's business, financial condition and results of
operations.
Several states have also proposed legislation that would limit the uses of
personal user information gathered online or require online services to
establish privacy polices. The Federal Trade Commission has also initiated
action against at least one online service regarding the manner in which
personal information is collected from users and provided to third parties.
Changes to existing laws or the passage of new laws intended to address these
issues, including some recently proposed changes, could create uncertainty in
the marketplace that could reduce demand for EyeCity's products or increase the
cost of doing business as a result of litigation costs or increased costs, or
could in some other manner have a material adverse effect on EyeCity's business,
results of operations and financial condition.
In addition, because EyeCity's websites can be accessed worldwide and
EyeCity intends to sell goods to consumers worldwide, other jurisdictions may
claim that EyeCity is subject to taxes or is required to qualify to do business
as a foreign corporation in a particular state or foreign country. EyeCity is
qualified to do business in two states in the United States, and failure by
EyeCity to qualify as a foreign corporation in a jurisdiction where it is
required to do so could subject EyeCity to penalties for the failure to qualify
and could result in the inability of EyeCity to enforce contracts in such
jurisdictions. Any such new legislation or regulation, or the application of
laws or regulations of jurisdictions whose laws do not currently apply to
EyeCity's business, could have a material adverse effect on EyeCity's business,
results of operations and financial condition.
Further, several telecommunications carriers have requested the Federal
Communications Commission to regulate telecommunications over the Internet. Due
to the increasing use of the Internet and the burden it has placed on the
current telecommunications infrastructure, telephone carriers have requested the
FCC to regulate Internet service providers and impose access fees on those
providers. If the FCC imposes access fees, the costs of using the Internet could
increase dramatically. This could result in the reduced use of the Internet as a
medium for commerce, which could adversely affect EyeCity's business operations.
Federal Regulation of Prescription Eyewear. Contact lenses and eyeglasses
are separately regulated by the Federal government. Contact lenses are regulated
by the Food and Drug Administration as "medical devices." The Food and Drug
Administration
<PAGE>
classifies medical devices as Class I, Class II or Class III and regulates them
to varying degrees, with Class I medical devices subject to the least amount of
regulation and Class III medical devices subject to the most stringent
regulations. Generally, contact lenses are classified as Class II medical
devices if intended only for daily wear and as Class III medical devices if
intended for extended wear. These regulations generally apply only to
manufacturers of contact lenses, and therefore do not directly impact EyeCity.
Federal regulations also require the labels on "medical devices" to contain
adequate instructions for their safe and proper use. However, there is an
exemption from this requirement for medical devices the use of which is not safe
except under the supervision of a practitioner licensed by law to direct the use
of such device. Devices which fall in this exception must contain as part of
their labeling the statement "Caution: Federal law restricts this device to sale
by or on the order of ," the blank to be filled in with the word physician or
other practitioner authorized by the law of the state in which the practitioner
practices to use or order the use of the device. EyeCity believes that this
exception is often misconstrued as being a federal requirement that the device
be sold only pursuant to a prescription. The Food and Drug Administration
considers contact lenses to qualify for this labeling exemption; however, there
is no federal law that requires that contact lenses be sold only pursuant to a
prescription.
Federal law requires that all dress eyewear (i.e., sunglasses or
prescription eyeglasses) be tested for impact resistance. This testing is
generally conducted by the lens manufacturer, but eyewear must be retested if a
protective or other coating is applied after initial manufacture. So long as a
retailer or optician does not manufacture or coat the eyewear, the retailer or
optician is entitled to rely on representations from the manufacturer or
laboratory, as applicable, as to the completion of all necessary impact
resistance tests on any given piece of eyewear. EyeCity's operating practice has
been to rely on these types of representations from manufacturers or
laboratories, as applicable.
State Regulation of Prescription Eyewear. Because there is no applicable
federal law that regulates the distribution of prescription eyewear, the sale
and delivery of prescription eyewear to the consumer is subject to state laws
and regulations. EyeCity intends to sell prescription eyewear to customers in
all 50 states and each sale may be subject to the laws of the state where the
customer is located. The laws and regulations governing the sale and delivery of
prescription eyewear vary from state to state, but generally can be classified
in four categories: (i) laws that require prescription eyewear only be dispensed
pursuant to a prescription; (ii) laws that require the dispenser to be licensed
by the state as an optician, optometrist, ophthalmologist or other professional
authorized to dispense prescription eyewear; (iii) laws that require
prescription eyewear be dispensed only in a face-to-face transaction and (iv)
laws with requirements that are unclear or do not specifically address the sale
and delivery of prescription eyewear. Many of the states requiring that
prescription eyewear be dispensed in face-to-face meetings or by a person
licensed by such state to dispense prescription eyewear also require that
prescription eyewear only be dispensed pursuant to a valid prescription.
The laws and regulations in a significant number of states require that
prescription eyewear only be sold to a consumer pursuant to a valid
prescription. In some states, satisfying this prescription requirement obligates
the dispenser only to verify the customer's prescription with the customer's
prescriber, while other states specifically require that a written prescription
(which, in some states, must be an original) be obtained before providing the
prescription eyewear to the customer or that the prescription must have been
written within a specified period (e.g., two years) prior to fulfillment.
EyeCity's operating practice will be to attempt to obtain a valid prescription
from each of its customers or his/her eyecare practitioner. If the customer does
not have a copy of his/her prescription, EyeCity will attempt to contact the
customer's doctor to obtain a copy of, or verify the customer's prescription.
With respect to contact lenses, if EyeCity is unable to obtain a copy
<PAGE>
of or verify the customer's prescription, EyeCity intends to complete the sale
and ship the lenses to the customer based on the prescription information
provided by the customer. EyeCity intends to retain copies of the written
prescriptions that it will receive and maintain records of its communications
with the customer's prescriber.
EyeCity expects that its ability to comply with state laws and regulations
requiring a valid prescription will be hampered because EyeCity's customers will
often be unable to get a copy of their prescription. EyeCity believes that
optometrists, ophthalmologists and other contact lens prescribers have
historically refused to release copies of a patient's contact lens prescription
to the patient. In addition, such providers have refused to release or verify
prescriptions at the request of mail order companies. Federal law requires
prescribers to release prescriptions for eyeglasses to a patient, but the issue
of whether or not a prescriber must release a contact lens prescription to the
patient, or at the patients request, is currently governed by state law. There
are approximately 22 states that require contact lens prescribers to release the
prescriptions for contact lenses to the patient. However, even in states with a
mandatory release law, EyeCity believes that many prescribers will continue to
refuse to release prescriptions to their patients or to online or mail order
contact lens distributors, including EyeCity.
In addition to requiring a valid prescription, a substantial number of
states also require that prescription eyewear only be dispensed by a person
licensed to do so under that state's laws. A dispenser may be required to be
licensed as an optometrist, ophthalmologist, optician, ophthalmic dispenser or
prescription eyewear dispenser, depending on the state in which the customer is
located. Also, certain states require that prescriptions only be filled in
facilities registered with such states. EyeCity currently employs an optician at
its Duluth, Minnesota facility; however, neither EyeCity nor any of its
employees is a licensed or registered dispenser of contact lenses in any of the
other states in which EyeCity expects to do business nor are any of EyeCity's
facilities registered with any state in connection with the dispensing of
prescription eyewear. EyeCity has not initiated the application or registration
process in any jurisdiction, but it intends to do so where appropriate. The laws
in a number of states effectively prohibit the sale of prescription eyewear
through the mail by requiring that a person licensed under that state's law to
dispense prescription eyewear be in personal attendance at the place of sale.
Lastly, there are several states in which the laws and regulations do not
specifically address the issue of who may dispense prescription eyewear or are
unclear with respect to the requirements for dispensing prescription eyewear.
For many of the laws described in this paragraph, it is not clear whether some
or all of these laws would be applicable to EyeCity or whether the states that
have enacted these laws would have jurisdiction over EyeCity.
Any action brought against EyeCity based on its failure to comply with
applicable state laws and regulations could result in significant fines or
criminal penalties to EyeCity, EyeCity being prohibited from making sales in a
particular state and/or EyeCity being required to comply with such laws. Such
required compliance could result in: (i) increased costs to EyeCity; (ii) the
loss of a substantial portion of customers for whom EyeCity is unable to obtain
or verify their prescription; and (iii) the inability to sell to customers at
all in a particular state if EyeCity cannot comply with such state's laws. The
occurrence of any of the above results could have a material adverse effect on
EyeCity's ability to sell prescription eyewear and continue to operate
profitably. Furthermore, there can be no assurance that states will not enact or
impose laws or regulations that prohibit mail order or online dispensing of
prescription eyewear or otherwise impair EyeCity's ability to sell prescription
eyewear and continue to operate profitably. EyeCity has not obtained an opinion
of counsel with regard to its compliance with applicable state laws and
regulations, and information contained herein regarding EyeCity's compliance
with applicable state laws and regulations should not be construed as being
based on an opinion of counsel.
<PAGE>
EyeCity has received a marketing clearance (as a device substantially
equivalent to an existing category of ophthalmic device) for its EyeTools(TM)
line of computer glasses from the Federal Food and Drug Administration following
a "Section 510(k) Submission."
Intellectual Property
EyeCity holds rights, title and interest to five U.S. patents for various
specialized eyeglasses, as set forth in Table I below.
EyeCity holds rights, title and interest in the United States to two
registered trademarks (Beamblockers and Design #1,196,550, filed October 13,
1998; Foggles #1,210,355 filed September 18, 1982), and to 21 trademark
applications pending in the U.S. Patent and Trademark Office, used or intended
to be used in connection with its products and services, or for which it has
obtained rights at common-law, based on use in interstate commerce, including
the "Peeper's" mark (see Table III below). EyeCity believes that such marks
represent significant value and goodwill to the company in marketing its
products and services. EyeCity has entered into confidentiality and invention
assignment agreements with its employees and contractors, and nondisclosure
agreements with parties with whom it conducts business, in order to limit access
to and disclosure of its proprietary information. However, there can be no
assurance that these contractual arrangements or the other steps taken by
EyeCity will prove sufficient to prevent misappropriation of EyeCity's
technology or to deter independent third-party development of similar
technologies.
EyeCity has rights in over thirteen domain names, certain of which it
presently uses to market its services, as set forth below in Table III. EyeCity
believes that such domain names represent significant value and goodwill to the
company in marketing its products and services. If third parties obtain rights
to use similar domain names, these third parties may confuse EyeCity's customers
and cause its customers to inadvertently place orders with these third parties,
which could result in lost sales for EyeCity and could damage its brand. Due to
the unique nature of domain names, EyeCity may have only limited proprietary
rights in its domain names, except to the extent greater protection is granted
under trademark or tradename law. As a result, EyeCity cannot assure you that it
will be able to retain the use of certain of its domain names, which could have
a material adverse affect on EyeCity's business.
EyeCity is not aware of any material adverse claims regarding any of its
trademarks or domain names with the exception of its "Peeper's" mark and
peepers.com domain name. Rights in this mark and domain name have been
challenged by American Eyewear, Inc. in an action alleging trademark
infringement filed in federal court in Dallas, Texas in July 1999. Although the
action has been filed, the parties have been discussing settlement; the
complaint has not formally been served and EyeCity therefore has not responded.
If American Eyewear elects to proceed with the action, EyeCity believes that it
has substantial defenses and may counter-claim to limit American Eyewear's
claimed rights in the trademark Peeper's. It is premature to assess the likely
outcome of the proceeding.
The following tables set forth a partial list of EyeCity's material
intellectual properties:
<PAGE>
TABLE I
PATENTS
Title Issued Expiration Patent Number
Eyewear With Translucent 9/11/84 1/11/02 4,470,673
Superior field of view
Eyewear With Translucent 9/24/85 9/24/02 4,542,964
Superior Field of View
Visual Occlusion Apparatus For 10/6/87 10/6/04 4,698,022
Pilot Training
Eyewear Having Translucent 7/11/95 1/10/14 5,432,568
Superior And Inferior Fields of
View
Night Driving Glasses 6/27/95 6/27/12 5,428,409
TABLE II
PENDING TRADEMARK APPLICATIONS
Mark Name App #
App. Date
ABEAM Pending
August 16, 1999
E AND DESIGN 75/555004
September 18, 1998
EYECITIES 75/682277
April 13, 1999
EYECITIES.COM 75/682278
April 13, 1999
EYECITY 75/673817
April 05, 1999
EYECITY.COM 75/673816
April 05, 1999
<PAGE>
EYETOOLS 75/527195
July 29, 1998
EYETOOLS 75/459288
March 30, 1998
ICITY 75/673815
April 05, 1999
ICITY.COM 75/673814
April 05, 1999
INTERNET EYES 75/525354
July 24, 1998
INTERNET GLASSES 75/525355
July 24, 1998
ON-LINE 75/527196
July 29, 1998
OPTICAL DEPOT 75/579290
October 29, 1998
OPTICALDEPOT.COM 75/650961
February 26, 1999
OPTICALSITE 75/721891
June 4, 1999
SOLUTIONS IN SIGHT 75/545184
August 31, 1998
SUNGLASSSITE Pending
August 16, 1999
GOLF 75/566222
October 06, 1998
PILOT 75/566221
October 06,1998
SHOOTING 75/566223
October 06, 1998
<PAGE>
TABLE III
DOMAIN NAMES PRESENTLY USED
abeam.com foggles.com
binoculars.com icity.com
ergovision.com opticalsite.com
eyecity.com peepers.com
eyeglassplace.com sunglasssite.com
eyeopticalzone.com
In addition, EyeCity recently acquired a three year non-exclusive license
from Yahoo! Inc. to use the "Yahoo!" name and logo for the distribution and
marketing of eyewear and eyewear accessories throughout the United States. In
connection with this license, EyeCity is required to pay to Yahoo! Inc. an
amount equal to the greater of (i) a percentage-based royalty, or (ii) a minimum
guaranteed royalty. Contemporaneously with this transaction, EyeCity entered
into a distributor agreement with Sun Optics d/b/a Insight Eyeworks, Inc., under
which Insight will manufacture, market and distribute the Yahoo! eyewear and
eyewear accessories in traditional retail channels in the United States other
than through the Internet and other e-commerce channels.
Employees
As of September 30, 1999, EyeCity employed 42 full-time employees. None of
EyeCity's employees are covered by collective bargaining agreements and EyeCity
believes that its relations with its employees are good. EyeCity is dependent to
a large degree on the services of its senior management team, particularly Mark
H. Levin, its President and Chief Executive officer, Mark R. Suroff, its Chief
Operating Officer, Executive Vice President, Secretary and Treasurer, and Daniel
D. Thralow, its Vice President of Operations. The loss of any of EyeCity's key
executives could have a material adverse effect on EyeCity.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
EyeCity is engaged in the online marketing, distribution and retail sale
over the Internet of a broad range of eyewear products and optical accessories,
including brand name sunglasses, contact lenses, binoculars, prescription
eyewear, telescopes, sports and lifestyle eyewear, and hunting glasses. The
annual worldwide optical product market is estimated at $50 billion. EyeCity is
in the process of effecting an acquisition strategy within the highly fragmented
Internet optical industry, and has recently closed on the acquisition of three
companies retailing optical products over the Internet. Through this strategy,
as well as internal expansion, EyeCity intends to become the leading retailer of
eyewear and optical accessories on the Internet, providing one-stop shopping for
domestic and international customers in an easy-to-shop environment, 24 hours a
day, seven days a week. EyeCity intends to acquire additional complementary
businesses as opportunities arise from time to time.
<PAGE>
Overview
From EyeCity's inception through December 1998, its business strategy
primarily focused on becoming a leading producer, distributor and marketer of
ergonomic computer eyewear products designed to alleviate health related
problems associated with Computer Vision Syndrome and, to a lesser extent, on
becoming a leading producer, distributor and marketer of Foggles(R) branded
optical products designed for the aviation, hunting and shooting industries.
In January 1999, EyeCity refocused its business strategy to capitalize on
the Internet retailing opportunities associated with the optical product
industry. In this regard, EyeCity acquired EyeGlassPlace.com, Inc., Peeper's
Sunglasses and Accessories, Inc. and SunSource Technology, Inc. in March 1999,
May 1999 and June 1999, respectively. In connection with these acquisitions,
EyeCity recorded goodwill of approximately $4.2 million which will be amortized
over three years from the dates of such acquisitions. In addition, in September
1999 EyeCity acquired certain assets of Impact Eyewear, LLC, including a
non-exclusive license from Yahoo! Inc. to use the "Yahoo!" name and logo for the
distribution and marketing of eyewear and eyewear accessories throughout the
United States, and will record additional goodwill to be amortized over three
years from the closing. Amortization of goodwill will have an adverse effect on
EyeCity's statement of operations for such periods.
The independent auditor's report included in this Form 10-SB raises issues
about EyeCity as a going concern due to recurring losses from operations and a
working capital deficiency. EyeCity's independent auditors have included an
explanatory paragraph in their report on EyeCity's financial statements as of
December 31, 1998, raising concern about EyeCity's ability to continue as a
going concern without additional financing. See Note 1 of "Notes to Financial
Statements".
Although EyeCity was formed in May 1996, it only initiated its current
business plan for online retail distribution of optical products in the first
quarter of 1999. Further, EyeCity only closed on the acquisitions forming the
core components of this current business during the second quarter of 1999.
EyeCity's SuperSite, www.eyecity.com, is not anticipated to launch until early
2000. As a result, there is only limited currently relevant financial and
operating information available for a potential investor to evaluate an
investment in EyeCity's common stock. In addition, EyeCity's limited operating
history and recent growth in net sales since effecting its acquisition strategy
make it difficult to forecast future operating results and reduce the relevance
of historical annual and quarter-to-quarter comparisons.
EyeCity cannot predict whether the recent rate of growth in net sales will
decrease in future periods, which could have an adverse effect on EyeCity's
performance to the extent significant anticipated increased expenses do not
generate commensurate increases in sales.
<PAGE>
In this regard, EyeCity expects to incur significant losses in the near
term as a result of, among other things, substantially higher general and
administrative expenses. In addition, in order to promote EyeCity's brand, it
will need to increase its marketing expenditures and otherwise increase its
financial commitment to creating and maintaining brand loyalty among users,
which will further adversely affect profitability. There can be no assurance
that EyeCity will be able to obtain requisite financing.
EyeCity's gross profit on sunglasses are significantly higher than its
gross profit on its other products. As EyeCity implements its business plan to
increase the scope of its product offerings, to the extent sales of such other
products become a greater portion of total sales, EyeCity's gross profits could
be adversely affected.
Results of Operations - EyeCity
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998.
Net Revenues. EyeCity's net revenues in the six months ended June 30, 1999
(the "1999 Period") were $551,937 as compared to $14,315 in the six months ended
June 30, 1998 (the "1998 Period"), an increase of $537,622. This increase was
due primarily to EyeCity's August 1998 acquisition of Foggles Inc., a producer,
distributor and marketer of optical products for the aviation, hunting and
shooting industry and EyeCity's May 1999 acquisition of Peeper's Sunglasses and
Accessories, Inc., an online optical product retailer. Sales of Foggles branded
products and sales attributable to EyeCity's Peeper's subsidiary accounted for
$88,172 and $426,578, respectively, of EyeCity's net revenues for the 1999
Period.
Cost of Revenues. EyeCity's cost of revenues in the 1999 Period was
$380,121 as compared to $7,797 in the 1998 Period, an increase of $372,324. This
increase was due primarily to costs associated with EyeCity's increased sales
volume and costs associated with product sales by EyeCity's Foggles,
EyeGlassPlace.com and Peeper's subsidiaries.
Gross Profit. EyeCity's gross profit for the 1999 Period was $171,816, as
compared to $6,518 in the 1998 Period, an increase of $165,298. This increase
was due primarily to EyeCity's increased sales levels and costs associated with
product sales by EyeCity's Foggles, EyeGlassPlace.com and Peeper's subsidiaries.
The gross profit margin in the 1999 Period decreased to 31.2% from 45.6% in
the 1998 Period. This decrease was due primarily to the lower gross profit
margins associated with 1999 sales of the Foggles branded products and with the
optical products sold by Peeper's, as compared to sales of EyeCity's ergonomic
computer eyewear products.
Operating and Other Expenses. EyeCity had marketing and sales expenses of
$126,474, general and administrative expenses of $1,092,316, depreciation and
amortization expenses of $221,946, technology and development expenses of
$125,924 and interest expenses of $50,082 in the 1999 Period as compared to
marketing and sales expenses of $88,413, general and administrative expenses of
$367,135, depreciation and amortization expenses of $1,197, technology and
development expenses of $0 and interest expenses of $1,031 in the 1998 Period.
The increase in marketing and sales
<PAGE>
expenses resulted primarily from increase in design expenses of $19,000 and
increase in advertising expenses of $13,000. The general and administrative
expense increases were primarily attributable to increases in non-cash charges
of $318,000 in consideration for consulting services, increases in salaries of
$119,000, increases in professional fees of $128,000, increases in office
related expenses of $45,000, increases in consulting fees of $37,000 and
increases in travel and related costs of $16,000. The increase in depreciation
and amortization expense is primarily attributable to amortization of goodwill
resulting from EyeCity's May 1999 acquisition of Peeper's. The foregoing
increases are primarily attributable to EyeCity having acquired the operations
of Foggles and Peeper's, and in the case of professional and consulting fees, to
EyeCity's acquisition and financing activities in 1999. The increase in interest
expenses was primarily the result of interest relating to the subordinated
convertible promissory notes issued by EyeCity during 1998. See "Liquidity and
Capital Resources."
Net Loss. As a result of the above, EyeCity had a net loss of ($1,438,958)
in the 1999 Period ($.25 loss per share on 5,690,845 weighted average basic and
fully diluted outstanding shares) as compared to a net loss of ($451,258) in the
1998 Period ($.11 loss per share on 4,030,806 weighted average basic and fully
diluted outstanding shares).
Fiscal Year Ended December 31, 1998 Compared to Fiscal Year Ended
December 31, 1997.
Net Revenues. EyeCity's net revenues in the fiscal year ended December 31,
1998 ("Fiscal 1998") were $95,974 as compared to $25,947 in the fiscal year
ended December 31, 1997 ("Fiscal 1997"), an increase of $70,027. This increase
was due primarily to EyeCity's August 1998 acquisition of Foggles, Inc., a
producer, distributor and marketer of optical products for the aviation, hunting
and shooting industries. Sales of Foggles branded products accounted for $65,550
of EyeCity's net revenues for Fiscal 1998.
Cost of Revenues. EyeCity's cost of revenues in Fiscal 1998 was $44,576 as
compared to $17,000 in Fiscal 1997, an increase of $27,576. This increase was
due primarily to costs associated with EyeCity's increased sales volume.
Gross Profit. EyeCity's gross profit for Fiscal 1998 was $51,398, as
compared to $8,947 in Fiscal 1997, an increase of $42,451. This increase was due
primarily to EyeCity's increased sales levels. The gross profit margin in Fiscal
1998 increased to 53.6% from 34.5% in Fiscal 1997. This increase was due
primarily to the higher gross profit margins associated with the Foggles branded
products as compared to the gross profit margins of the EyeTools branded
products.
Operating and Other Expenses. EyeCity had marketing and sales expenses of
$779,525, general and administrative expenses of $657,832, depreciation and
amortization expenses of $24,754 and interest expenses of $10,473 in fiscal 1998
as compared to marketing and sales expenses of $217,792, general and
administrative expenses of $252,489, depreciation and amortization expenses of
$597 and interest expenses of $4,542 in Fiscal 1997. The increase in marketing
and sales expenses resulted
<PAGE>
primarily from increases in consulting fees of $492,000 and increases in the
cost of product samples of $54,000, but was offset by decreases in other related
costs. The general and administrative expense increases were primarily
attributable to increases in non-cash charges of $205,000 in consideration for
consulting services, increases in salaries and related costs of $122,000,
increases in travel and related costs of $47,000 and increases in office related
expenses of $40,000. The increase in depreciation and amortization expense is
primarily attributable to amortization of goodwill resulting from EyeCity's
August 1998 acquisition of Foggles, Inc. The increase in interest expense was
primarily the result of interest relating to the subordinated convertible
promissory notes issued by EyeCity during 1998. See "Liquidity and Capital
Resources."
Net Loss. As a result of the above, EyeCity had a net loss of ($1,410,324)
in Fiscal 1998 ($.33 loss per share on 4,259,773 weighted average basic and
fully diluted outstanding shares) as compared to a net loss of ($466,473) in
Fiscal 1997 ($.14 loss per share on 3,264,831 weighted average basic and fully
diluted outstanding shares).
Liquidity and Capital Resources
EyeCity believes that its currently available funds will be sufficient to
meet its anticipated needs for working capital through at least December 1999.
Thereafter, EyeCity will need to raise substantial additional funds to implement
anticipated capital expenditures and business expansion.
Historically, EyeCity has financed its cash requirements primarily through
private placements of its securities. As of June 30, 1999, EyeCity has raised
$1.0 million in a 1997-1998 offering of its common stock and $2,265,000 million
in private placements of shares of its common stock. The proceeds of the private
placements are being or have been used to complete the acquisitions of
Peepers.com, Binoculars.com, EyeGlassPlace.com, SunglassSite.com,
OpticalSite.com, Abeam.com and certain assets of Impact Eyewear, to build the
EyeCity SuperSite, for initial marketing and advertising of the SuperSite, as
well as general corporate purposes.
During 1998, EyeCity issued $362,500 of subordinated convertible
promissory notes (the "Convertible Notes"). The Convertible Notes bear interest
at a rate of 10% per annum, payable quarterly, commencing January 1, 1999. The
Convertible Notes are convertible into EyeCity's common stock at a price of
$1.25 per share at the option of the holder at any time after October 1, 1999
(the "Conversion Date"). EyeCity has the right to call, redeem and prepay the
Convertible Notes if the market price of EyeCity's common stock equals or
exceeds $2.50 per share for ten consecutive trading days at any time after the
Conversion Date. The Convertible Notes are repayable in twelve quarterly
principal payments commencing on October 1, 2000. In March 1999, $25,000 of the
Convertible Notes was repaid prior to maturity.
A portion of the consideration paid by EyeCity in connection with its
acquisition of Peeper's Sunglasses and Accessories, Inc. and SunSource
Technology, Inc. was in the form of promissory notes in the amounts of $875,000
and $212,500, respectively. The $875,000 note accrues no interest, is secured by
certain assets formerly owned by
<PAGE>
Peeper's Sunglasses and Accessories, Inc. and is immediately due and payable on
the earlier of May 7, 2000 or the consummation by EyeCity of a public financing
transaction which results in gross proceeds in excess of $10,000,000. The
$212,500 note accrues no interest, is unsecured and is immediately due and
payable on the earlier of June 30, 2000 or the consummation by EyeCity of a
public financing transaction which results in gross proceeds in excess of
$10,000,000. There can be no assurance that EyeCity will have available funds to
satisfy these notes at maturity, in which event the holders could claim that
EyeCity is in breach of its obligations. Such holders could commence proceedings
against EyeCity, which could have a material adverse affect on EyeCity's
operations.
Statement of Cash Flows
EyeCity used $675,000 in cash to fund operations during the six months
ended June 30, 1999, principally to fund its net loss as well an increase in
inventories. This use of cash was offset in part by increases in depreciation
and amortization, accounts payable and accrued expenses, due primarily to the
acquisitions of EyeGlassPlace.com, Inc., Peeper's Sunglasses and Accessories,
Inc. and SunSource Technology, Inc. and EyeCity's revenue growth. EyeCity used
$442,000 and $597,000 in cash to fund operations in 1997 and 1998, respectively.
EyeCity used $1 million in cash for investing activities in the six months
ended June 30, 1999, primarily to acquire Peeper's Sunglasses and Accessories,
Inc. ($774,000, net of cash acquired) and SunSource Technology, Inc. ($164,000,
net of cash acquired). EyeCity used $6,000 and $10,000 in cash for investing
activities in 1997 and 1998, respectively.
EyeCity generated $2.5 million in cash from financing activities in the
six months ended June 30, 1999, primarily from the sale of common stock. EyeCity
generated $532,000 and $748,000 from financing activities in 1997 and 1998,
respectively.
As of June 30, 1999, EyeCity had $1 million of cash and cash equivalents.
As of June 30, 1999, EyeCity's principal commitments consisted of:
o promissory notes issued to sellers in connection with prior
acquisitions by EyeCity in the aggregate amount of $1.1 million
which mature at the earlier of dates ranging from May 7, 2000 to
June 30, 2000 or consummation by EyeCity of a public financing
transaction or transactions for gross proceeds in excess of
$10,000,000;
o $338,000 of 10% subordinated convertible promissory notes, due
October 1, 2003;
o $334,000 of deferred salary for officers. Included in this amount is
$75,000 owed to Robert Greenberg for severance pay and deferred
salaries owed to Mark Levin of $125,000, Mark Suroff of $125,000 and
Daniel Thralow of $9,000;
o $14,000 outstanding on a non-interest bearing note issued in
connection with the acquisition of certain patent display technology
payable in equal monthly installments commencing June 15, 1999;
o $16,000 outstanding at June 30, 1999 under our credit agreement that
bears interest at 9.5% plus 1.25% per annum; and
<PAGE>
o obligations outstanding under operating leases. See "Description of
Property".
As of June 30, 1999, EyeCity had a working capital deficiency of $328,265.
EyeCity will need to raise additional funds in order to satisfy EyeCity's
current obligations and to fund its business plan, including more rapid
expansion, to develop new or enhanced services or products, to respond to
competitive pressures or to acquire complementary products, businesses or
technologies. If EyeCity raises additional funds through the issuance of equity
or convertible debt securities, the percentage ownership of its current
stockholders will be reduced, its stockholders may experience additional
dilution and such securities may have rights, preferences and privileges senior
to those of its common stock. There can be no assurance that additional
financing will be available on terms favorable to EyeCity or at all. If adequate
funds are not available or are not available on acceptable terms, EyeCity may
not be able to meet its financial obligation or to continue to implement its
business plan. This inability could have a material adverse effect on EyeCity's
business, results of operations and financial condition.
Seasonality
EyeCity believes that its results of operations are somewhat seasonal in
nature, with the highest volume of purchases by consumers occurring in the
second and fourth quarters. EyeCity's limited operating history makes it
difficult to fully assess the impact of seasonality or whether or not EyeCity's
business is susceptible to cyclical fluctuations in the U.S. economy. In
addition, EyeCity believes that its rapid growth may have overshadowed whatever
seasonal or cyclical factors might have influenced its business to date. EyeCity
intends to expense all advertising costs, including all direct-mail advertising
costs, when the advertising first takes place. As a result, quarter-to-quarter
comparisons will be impacted by the timing of advertisements and related
expenses within and between quarters. There can be no assurance that seasonal or
cyclical variations in EyeCity's operations will not become more pronounced over
time or that they will not materially adversely affect its results of operations
in the future.
Year 2000 Compliance
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software used by many companies and governmental agencies may need
to be upgraded to comply with Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities.
EyeCity's State of Readiness. EyeCity has made a preliminary assessment of
the state of its operating and administrative systems, including its
telecommunications systems, its order processing and data collection systems and
its Internet-related systems, to assess its state of Year 2000 readiness.
EyeCity's assessment plan consists of:
o Evaluating its date dependent code, software and hardware and
evaluating external dependencies;
o Quality assurance testing of its internally developed software and
systems; and
<PAGE>
o Obtaining assurances or warranties from third-party vendors and
licensors of material hardware, software and services that are
related to the delivery of its services.
As part of EyeCity's effort to assess its Year 2000 readiness, EyeCity
identified its suppliers and vendors and is in the process of sending letters
requesting Year 2000 compliance statements and recording their responses, and
investigating alternative products and services for those suppliers not prepared
for Year 2000.
EyeCity's critical systems fall into five categories: transaction
processing, telecommunications, fulfillment, finance and interactive
applications. The core transaction processing and infrastructure systems are
internally maintained and hosted. EyeCity's websites are hosted at third party
hosting services located in Florida, California and New York. To date, EyeCity's
assessment has determined that these critical business systems are all Year 2000
compliant.
EyeCity's non-critical and non-information technology systems, which
include postage processing, have been tested and/or represented to EyeCity as
Year 2000 compliant.
All material commercial software and hardware on which EyeCity depends is
either Year 2000 compliant or will be upgraded to be compliant in the normal
course of business through the installation of upgrades or replacements.
EyeCity's material hardware, software and service vendors have informed EyeCity
that the products it uses, or will be using as upgrades or replacements, to
support EyeCity's operations are Year 2000 compliant. EyeCity's website hosting
services, CCI Industries, CNI Web and Visual Data, have represented to EyeCity
that their respective hardware and software systems are Year 2000 compliant.
EyeCity's internal critical business systems are dependent on the software and
hardware products of two vendors: Microsoft and Dell. Dell has represented to
EyeCity that their products are Year 2000 compliant. EyeCity's in the process of
migrating its current Microsoft software applications to Year 2000 compliant
software released by Microsoft, which EyeCity expects to be completed by
November 15, 1999.
EyeCity has contacted its major suppliers of inventory for their Year 2000
compliance. EyeCity expects to complete its assessment of these suppliers by
November 15, 1999. EyeCity's business is not dependent on any one supplier. If
one or more of these suppliers is not Year 2000 compliant, EyeCity will obtain
its inventory from alternative suppliers that are Year 2000 compliant.
Costs to Address Year 2000 Issues. To date, EyeCity has not incurred any
significant costs attributable to Year 2000 compliance. EyeCity's recent
information technology investments have been in support of its expanding
operating and decision support requirements and to the extent they involved a
replacement of an existing system, also accommodated Year 2000 compliance.
EyeCity does, however, expect to incur approximately $10,000 in the fourth
calendar quarter to make all systems Year 2000 compliant. Other than these
costs, EyeCity is not currently aware of any material operational issues or
costs associated with preparing its systems for the Year 2000. Nonetheless,
EyeCity may experience material unexpected costs caused by undetected errors or
defects in the technology used in its systems or because of the failure of a
material vendor to be Year 2000 compliant.
<PAGE>
Risks Associated with Year 2000 Issues. Notwithstanding EyeCity's Year
2000 compliance efforts, the failure of a material system or vendor, or the
Internet generally, to be Year 2000 compliant could harm the operation of
EyeCity's systems or have other unforeseen, material adverse consequences to it.
EyeCity is also subject to external Year 2000-related failures or disruptions
that might generally affect industry and commerce, such as utility or
transportation company Year 2000 compliance failures and related service
interruptions. All of these factors could materially adversely affect EyeCity's
business.
Contingency Plans. As discussed above, EyeCity is engaged in an ongoing
Year 2000 assessment and has not developed a contingency plan to address
situations that might occur if technologies on which it depends are not Year
2000 compliant.
EyeCity intends to develop a contingency plan which it expects to complete
by November 15, 1999. The results of EyeCity's Year 2000 assessment and testing,
and the responses received from third-party vendors and service providers, will
be taken into account in determining the need for and nature and extent of any
contingency plans.
Based on EyeCity's assessment done to date, EyeCity believes that the
reasonable likely worst-case scenario with respect to Year 2000 issues could be
the difficulty for customers to place orders or EyeCity to fulfill orders in the
event of disruption of power or communication facilities. Although these events
could have an adverse effect on EyeCity's business in the short-term, EyeCity
does not believe that Year 2000 issues will materially and adversely affect its
business, results of operations or financial condition over the long-term. No
assurances can be given that EyeCity's expectations will be realized.
ITEM 3. DESCRIPTION OF PROPERTY
EyeCity maintains its corporate headquarters in approximately 4,405 square
feet of commercial office space at 79 Express Street in Plainview, New York,
pursuant to a five year lease providing for rent at a rate (excluding common
charges) of $49,550 per annum for the first year, with annual percentage
increases during the term, for a rate of $58,000 in the fifth year. EyeCity has
one option to extend the lease for 2 years. The rent for the extension period is
$5,027.86 per month for the first 12 months and $5,228.98 per month for the
second 12 months.
EyeCity, through its wholly-owned subsidiary, Peeper's, Inc., maintains
approximately 10,770 square feet of office and warehouse space at 1203 London
Road in Duluth, Minnesota, pursuant to a five year lease providing for rent at
an annual rate of $51,156 through June 30, 2000, at an annual rate of $61,927
through June 30, 2001 and at a rate of $72,696 through June 30, 2004. This space
is used for customer service, sales, warehousing, shipping, order fulfillment
and general office purposes. EyeCity has five options to extend the lease for
consecutive 3-year terms each. During the renewal terms, the rent shall increase
4% annually on July 1st of each year.
ITEM 4. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 30, 1999, certain
information concerning the beneficial ownership of the common stock of EyeCity
by (i) any person (including any "group" as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended) known to be the
beneficial owner of more than 5% of such
<PAGE>
common stock, (ii) each director of EyeCity, (iii) each of the executive
officers named in the Summary Compensation Table in this document and (iv) all
directors and executive officers of EyeCity taken as a group. Each of the
stockholders has sole voting and investment power for the shares listed as
beneficially owned by them.
<PAGE>
Amount
Beneficially Percent of
Name and Address of Beneficial Owner(1) Owned Class
- --------------------------------------- ----- -----
Mark H. Levin 1,350,000(2) 15.51%
Nikos P. Mouyiaris(3) 1,350,000 15.78%
Daniel D. Thralow 1,210,159 14.14%
Mark R. Suroff 1,000,000(4) 11.49%
James J. Armenakis(5) 640,000(6) 6.97%
Robert B. Greenberg(7) 97,500(8) 1.13%
Barbara Novick(9) 91,000 1.06%
--------- -----
All executive officers and directors
as a group (six persons): 5,098,659(10) 57.33%
- ----------
(1) Except as specifically set forth, addresses for all of the listed
beneficial owners and management are care of EyeCity at its corporate
headquarters in Plainview, New York.
(2) Includes options to purchase 150,000 shares of common stock at an exercise
price of $1.10 per share under EyeCity's 1997 stock option plan.
(3) Nikos P. Mouyiaris' address is c/o Mana Products, Inc. 32-02 Queens
Boulevard, Long Island City, New York 11101.
(4) Includes options to purchase 150,000 shares of common stock at an exercise
price of $1.10 per share under EyeCity's 1997 stock option plan.
(5) James J. Armenakis' address is c/o Armenakis & Armenakis, 65 Bleecker
Street, New York, New York 10012.
(6) Includes options to purchase 450,000 shares of common stock at an exercise
price of $1.00 per share under EyeCity's 1998 stock option plan, 60,000
shares of common stock at an exercise price of $1.75 per share under
EyeCity's 1998 stock option plan, 15,000 shares of common stock at an
exercise price of $1.50 per share and 105,000 shares of common stock at an
exercise price of $3.00 per share under EyeCity's 1999 stock option plan.
(7) Robert B. Greenberg's address is 58 Starling Court, Roslyn, New York
11576.
(8) Includes 7,500 shares in the name of his minor children.
(9) Barbara Novick's address is c/o Mana Products, Inc. 32-02 Queens Blvd.,
Long Island City, New York 11101.
(10) Includes 340,000 options to purchase common stock.
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
EyeCity's directors and executive officers are as follows:
Name Age Position
---- --- --------
Mark H. Levin 27 President, Chief Executive
Officer and Director
Mark R. Suroff 26 Chief Operating Officer, Executive
Vice President, Secretary,
Treasurer and Director
Daniel D. Thralow 35 Vice President of Operations
and Director
Jon Agnes 37 Chief Technology Officer
Thomas B. Seltzer 38 Chief Merchandising Officer
Nikos P. Mouyiaris 54 Director
Barbara Novick 62 Director
Mark H. Levin serves as EyeCity's President, Chief Executive Officer and as a
member of EyeCity's Board of Directors. Mr. Levin has served as EyeCity's
President since its formation in May 1996. He also served as Chief Executive
Officer of EyeCity from inception until July 1998 at which time he became Chief
Operating Officer. In December 1998, Mr. Levin was re-elected as Chief Executive
Officer. Mr. Levin received his BBA and MBA in Marketing from Hofstra
University. From May 1993 until May 1996 Mr. Levin was President of F.M.B.
Associates, Inc., a marketing consulting firm specializing in market analysis,
competitive analysis, market research, marketing plans and management
consulting. Mr. Levin has worked with manufacturers, healthcare providers,
participants in the entertainment industry and others in a variety of service
related industries. Mr. Levin is a member of the business advisory committee of
North Shore University Hospital, Manhasset, New York.
Mark R. Suroff serves as EyeCity's Executive Vice President, Chief Operating
Officer, Secretary and Treasurer and as a member of EyeCity's Board of
Directors. Mr. Suroff has served as EyeCity's Executive Vice President,
Secretary and Treasurer since its formation in May, 1996. He also served as
Chief Operating Officer from EyeCity's inception until July, 1998. In December
1998, Mr. Suroff was re-elected as Chief Operating Officer. Previously, Mr.
Suroff served as president of Card Displays, Inc., a company that sold space for
businesses to advertise in high traffic locations in Nassau, Suffolk, and Queens
counties, New York.
Daniel D. Thralow has served as EyeCity's Vice President of Operations and a
member of EyeCity's Board of Directors since May 1999. Prior thereto, Mr.
Thralow served as president of Peeper's Sunglasses and Accessories, Inc.
Previously, Mr. Thralow was president of two privately held traditional retail
companies: The Funk Chic Boutique
<PAGE>
and Peeper's Sunglasses. Mr. Thralow graduated from the Honors Program at the
University of North Dakota.
Jon Agnes has served as EyeCity's Chief Technology Officer since July 1999.
Prior thereto, Mr. Agnes was President of Visual Data Systems Inc., a technology
consulting firm founded in March 1994 which has been active in the development
of e-commerce projects in the barter and telecommunications industries. Mr.
Agnes received an M.S. degree in Accounting and a B.S. degree in Computer
Science from Long Island University.
Thomas Seltzer has served as EyeCity's Chief Merchandising Officer since
September 1999. Prior thereto, Mr. Seltzer was a founder and member of Impact
Eyewear, LLC, a company which specialized in sales and distribution of branded
fashion sunglasses and reading glasses to retail stores. Previously, Mr. Seltzer
served as a consultant in the fashion accessory industry, was employed by Lantis
Eyewear Corporation to develop retail partnerships between large department
stores and fashion sunglass companies, and held other management positions in
the retail industry. Mr. Seltzer received a B.A. degree from Syracuse
University.
Nikos P. Mouyiaris has served as a director of EyeCity since May 1999. Mr.
Mouyiaris has been President of Mana Products, Inc., a manufacturer of cosmetic
products, since 1972.
Barbara Novick has served as a director of EyeCity since May 1999. Ms. Novick
has been Executive Vice President of Mana Products, Inc., a manufacturer of
cosmetic products, since 1980.
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
The following table summarizes all plan and non-plan compensation awarded to,
earned by or paid to EyeCity's chief executive officer and each of the other
executive officers for the fiscal year ended December 31, 1998. No bonuses or
long term payouts were awarded in the periods presented.
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
----------------------
Annual Restricted Securities
Compensation Stock Underlying
Name and Principal Position Year Salary Award(s) Options
--------------------------- ---- ------ -------- -------
<S> <C> <C> <C> <C>
Mark H. Levin 1998 $82,500 $ 0 100,000
President and Chief Executive Officer(1)
Mark R. Suroff(2)
Executive Vice President, Chief Operating 1998 $82,500 $ 0 100,000
Officer, Secretary and Treasurer
Robert B. Greenberg
Former Chief Executive Officer(3) 1998 $84,000(4) $50,000 50,000
</TABLE>
- --------
(1) Mr. Levin served as Chief Executive Officer from EyeCity's inception
through July 1, 1998, and has served as Chief Executive Officer since
December 31, 1998. To date, the salary indicated has been accrued, and not
been paid, except for $11,538 paid in 1998 for salary earned in 1997. See
"Employment Contracts" and Note 11 of Notes to Financial Statements.
(2) To date, salary indicated has been accrued, and not been paid, except for
$11,538 paid in 1998 for salary earned in 1997. See "Employment Contracts"
and Note 11 of Notes to Financial Statement.
(3) Mr. Greenberg served as Chief Executive Officer from July 1, 1998 through
December 31, 1998. See "Employment Contracts".
(4) This amount includes $9,000 in compensation received by Mr. Greenberg as a
consultant prior to becoming an employee of EyeCity on July 1, 1998.
In addition, in 1999 the Company entered into an employment agreement with
Daniel Thralow (Vice President of Operations), Jon Agnes (Chief Technology
Officer) and Thomas Seltzer (Chief Merchandising Officer). See "Employment
Agreements" for a description of their compensation arrangements.
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
<TABLE>
<CAPTION>
Number of
Securities Percent of Total
Underlying Options/SARs
Options/SARs Granted to Exercise Or Base
Granted Employees in Price
Name # Fiscal Year ($/Sh) Expiration Date
---- ------------ ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Mark H. Levin 100,000 40% $1.10 February 1, 2003
Mark R. Suroff 100,000 40% $1.10 February 1, 2003
Robert B. Greenberg 50,000 20% $1.00 March 31, 2000
</TABLE>
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Shares Options/SARs At Options/SARs at
Acquired on Value FY-End (#) FY-End ($)
Exercise Received Exercisable/ Exercisable/
Name # $ Unexercisable Unexercisable(1)
---- ----------- -------- ------------- --------------
<S> <C> <C> <C> <C>
Mark H. Levin 0 - 50,000/50,000 $23,000/$23,000
Mark R. Suroff 0 - 50,000/50,000 $23,000/$23,000
Robert B. Greenberg 0 - 50,000/0 $28,000/0
</TABLE>
There were no long-term incentive plans in effect at the end of the last fiscal
year. EyeCity does not compensate its directors for any services performed as
directors.
- ----------
(1) Fair market value of securities underlying the option (based on $1.56
public trading price on the OTC Bulletin Board) minus the exercise price
of the options at fiscal year end.
<PAGE>
Employment Contracts
Mark H. Levin entered into an employment agreement with EyeCity dated as of July
1, 1998 and effective through June 30, 2004. Under this agreement, Mr. Levin is
EyeCity's President and Chief Operating Officer, as well as a director on our
board of directors (on December 31, 1998, by unanimous consent of EyeCity's
board of directors, Mr. Levin was named Chief Executive Officer). Under his
agreement, Mr. Levin is entitled to receive a total base salary for 1998 and
1999 (and through the end of the contract term) at an annual rate of $82,500 and
$100,000 respectively. Mr. Levin's base salary may be further increased, and he
may be eligible for bonuses, in the discretion of our board of directors. Mr.
Levin is entitled to be reimbursed for costs of an automobile approved by
EyeCity. Under the Agreement, if Mr. Levin dies or is unable to perform his
duties, he or his estate will be paid, in addition to any previously earned but
unpaid salary, three months' total base salary. Mr. Levin is currently
discussing revisions to his employment agreement with EyeCity's board of
directors.
Mark R. Suroff entered into an employment agreement with EyeCity, dated as of
July 1, 1998 and effective through June 30, 2004. Under this agreement, Mr.
Suroff is EyeCity's Executive Vice President, Secretary and Treasurer, as well
as a director on our board of directors (on December 31, 1998, by unanimous
consent of EyeCity's board of directors, Mr. Suroff was also named Chief
Operating Officer). Under his agreement, Mr. Suroff is entitled to receive a
total base salary for 1998 and 1999 (and through the end of the contract term)
at an annual rate of $82,500 and $100,000 respectively. Mr. Suroff's base salary
may be further increased, and he may be eligible for bonuses, in the discretion
of our board of directors. Mr. Suroff is entitled to be reimbursed for the costs
of an automobile approved by EyeCity. Under this Agreement, if Mr. Suroff dies
or is unable to perform his duties, he or his estate will be paid, in addition
to any previously earned but unpaid salary, three months' total base salary. Mr.
Suroff is currently discussing revisions to his employment agreement with
EyeCity's board of directors.
Daniel D. Thralow entered into an employment agreement, dated as of May 7, 1999
and effective through May 6, 2002. Under this agreement, Mr. Thralow will serve
as EyeCity's Vice President of Operations. Under Mr. Thralow's employment
agreement, Mr. Thralow is entitled to receive a total base salary for 1999 (and
through the end of the contract term) at an annual rate of $100,000. Mr.
Thralow's base salary may be further increased, and he may be eligible for
bonuses, at the option and in the discretion of our board of directors. Mr.
Thralow is entitled to be reimbursed for the costs of an automobile approved by
EyeCity. Under this agreement, if Mr. Thralow dies or is unable to perform his
duties, he or his estate will be paid, in addition to any previously earned but
unpaid salary, three months' total base salary.
Jon Agnes entered into an employment agreement with EyeCity dated as of July 12,
1999 and effective through July 12, 2002. Under this agreement, Mr. Agnes will
serve as EyeCity's Chief Technology Officer. Under his agreement, Mr. Agnes is
entitled to receive a total base salary as follows: $125,000 per annum through
January 12, 2000; $150,000 per annum from January 13, 2000 through July 11,
2000; $155,000 per annum from July 12, 2000 through July 11, 2001; and $160,000
per annum from July 12, 2001 through July 12, 2002. Mr. Agnes' base salary may
be further increased, and he may be eligible for bonuses, at the option and in
the discretion of our board of directors. Mr. Agnes is also entitled to receive
240,000 options to purchase common stock of EyeCity
<PAGE>
of which 40,000 options have already vested with the balance vesting in 20,000
option increments on the 12th day of every third month during the term of the
agreement until all such options have vested. Under this agreement, Mr. Agnes is
also entitled to term life insurance during the term of the agreement in the
amount of $150,000.
Thomas B. Seltzer entered into an employment agreement with EyeCity dated as of
September 28, 1999 and effective through September 27, 2002. Under this
agreement, Mr. Seltzer will serve as EyeCity's Chief Merchandising Officer.
Under his agreement, Mr. Seltzer is entitled to receive a total base salary as
follows: $130,000 per annum from September 28, 1999 through September 27, 2000;
$160,000 per annum from September 28, 2000 through September 27, 2001; and
$180,000 per annum from September 28, 2001 through September 27, 2002. Mr.
Seltzer's base salary may be further increased, and he may be eligible for
bonuses, at the option and in the discretion of our board of directors. Mr.
Seltzer is also entitled to receive 270,000 options to purchase shares of common
stock of EyeCity, of which 22,500 options have vested with the balance vesting
in 22,500 option increments on the first day of every three-month period during
the term of the agreement. Under this agreement if Mr. Seltzer dies or is unable
to perform his duties, he or his estate will be paid, in addition to any
previously earned but unpaid salary, three months' total base salary.
Robert B. Greenberg entered into an employment agreement with EyeCity dated July
1, 1998 and effective through June 30, 2001. Under this employment agreement,
Mr. Greenberg was EyeCity's Chief Executive Officer and chairman of its board of
directors. This employment agreement and his directorship were terminated and
replaced with a severance and consultancy agreement dated as of December 31,
1998 as amended on July 1, 1999 and which was terminated on September 30, 1999.
Under Mr. Greenberg's current arrangements with EyeCity, Mr. Greenberg is
entitled to receive $75,000 as full settlement of his employment agreement, of
which $5,000 has been paid $35,000 has been credited toward the exercise of
certain stock options (as set forth below), with the balance payable in
installments commencing October 1, 1999 at the rate of $5,000 per month for
seven months. Mr. Greenberg retained 50,000 options to purchase EyeCity common
stock, of which 10,000 were exercised in July 1999 (reducing the $75,000
settlement by $10,000) and 40,000 were exercised in September 1999 (reducing the
$75,000 settlement by $25,000).
1997 Stock Option Plan
The EyeCity 1997 Stock Option Plan was adopted by our board of directors
on April 25, 1997 and approved by our shareholders on April 25, 1997. A total of
500,000 shares of our common stock are reserved for issuance upon the exercise
of stock options. As of September 30, 1999, options for 400,000 of these shares
have been granted. Options may be granted under the 1997 Stock Option Plan to
employees (including directors and officers who are employees) and consultants
of EyeCity and our present and future subsidiaries. The 1997 Stock Option Plan
is administered by our board of directors, which may choose to delegate its
authority to a committee of two or more outside directors. Subject to the
provisions of the 1997 Stock Option Plan, the board of directors (or, if
applicable, the committee) has the discretion to determine the optionees, the
type of options to be granted (incentive stock options, non-qualified stock
options, or a combination thereof), the vesting provisions, the terms of the
option grants and such other related provisions as are consistent with the 1997
Stock Option Plan. The exercise price of an incentive stock option shall be
determined by our board of directors (or, if
<PAGE>
applicable, the committee) and may not be less than the fair market value of our
common stock on the date of grant or, in the case of an optionee who
beneficially owns 10% or more of the total combined voting power of all classes
of our stock, not less than 110% of fair market value per share on the date of
grant. The exercise price of a non-qualified stock option shall be determined by
our board of directors (or, if applicable, the committee) in its discretion. No
employee may be granted options for more than 100,000 shares of our common stock
during any calendar year. In addition, no employee may be granted an option
which is an incentive stock option for shares of our common stock with a fair
market value in excess of $100,000 which first become exercisable during any
calendar year. Options terminate at such time as may be determined by our board
of directors, subject to earlier termination upon the optionee's death,
disability or termination of employment (except that the term of options which
are incentive stock options may not have a term in excess of 10 years, or five
years in the case of options granted to holders of 10% or more of the total
combined voting power of all classes of our stock). Options are not assignable
or otherwise transferable except by will or the laws of descent and
distribution. In the event of a stock dividend, split-up, combination,
reclassification, merger in which EyeCity is the surviving corporation or other
exchange of shares, the number of shares of our common stock subject to each
outstanding option and the exercise price for each such option, shall be
adjusted appropriately by our board of directors in its discretion. In the event
of a liquidation or dissolution of EyeCity or a merger in which EyeCity is not
the surviving corporation, then, unless a provision is made for the outstanding
options in such transaction, all such options shall terminate. The 1997 Stock
Option Plan will terminate on April 24, 2007 unless terminated sooner by our
board of directors. Our board of directors has determined that no additional
options will be granted under the 1997 Stock Option Plan.
1998 Non-Qualified Stock Option Plan
The EyeCity 1998 Stock Option Plan was adopted by our board of directors
on April 15, 1998. A total of 1,500,000 shares of our common stock are reserved
for issuance upon the exercise of stock options. As of September 30, 1999,
options have been granted for 1,498,250 of these shares. Options may be granted
under the 1998 Stock Option Plan to employees (including directors and officers
who are employees) and consultants of EyeCity and our present and future
subsidiaries. The 1998 Stock Option Plan is administered by our board of
directors, which may choose to delegate its authority to a committee of two or
more outside directors. Subject to the provisions of the 1998 Stock Option Plan,
the board of directors (or, if applicable, the committee) has the discretion to
determine the optionees, the vesting provisions, the terms of the option grants
and such other related provisions as are consistent with the 1998 Stock Option
Plan. The exercise price of an option shall be determined by our board of
directors (or, if applicable, the committee) in its discretion. Options
terminate such time as determined by our board of directors (or, if applicable,
the committee), subject to earlier termination upon the optionee's death,
disability or termination of employment. Options are not assignable or otherwise
transferable except by will or the laws of descent and distribution. In the
event of a stock dividend, split-up, combination, reclassification, merger in
which EyeCity is the surviving corporation or other exchange of shares, the
number of shares of our common stock subject to each outstanding option and the
exercise price for each option, shall be adjusted appropriately by our board of
directors in its discretion. In the event of a liquidation or dissolution of
EyeCity or a merger in which EyeCity is not the surviving corporation, then,
unless a provision is made for the outstanding options in such transaction, all
such options shall terminate. The 1998 Stock Option Plan will terminate at such
time as it may be terminated by our board of directors.
<PAGE>
1999 Non-Qualified Stock Option Plan
The EyeCity 1999 Stock Option Plan was adopted by our board of directors
on February 5, 1999. A total of 1,500,000 shares of our common stock are
reserved for issuance upon the exercise of stock options. As of September 30,
1999, options have been granted for 436,500 of these shares. Options may be
granted under the 1999 Stock Option Plan to employees (including directors and
officers who are employees) and consultants of EyeCity and our present and
future subsidiaries. The 1999 Stock Option Plan is administered by our board of
directors, which may choose to delegate its authority to a committee of two or
more outside directors. Subject to the provisions of the 1999 Stock Option Plan,
the board of directors (or, if applicable, the committee) has the discretion to
determine the optionees, the vesting provisions, the terms of the option grants
and such other related provisions as are consistent with the 1999 Stock Option
Plan. The exercise price of an option shall be determined by our board of
directors (or, if applicable, the committee) in its discretion. Options
terminate at such time as provided by our board of directors (or, if applicable,
the committee), subject to earlier termination upon the optionee's death,
disability or termination of employment. Options are not assignable or otherwise
transferable except by will or the laws of descent and distribution. In the
event of a stock dividend, split-up, combination, reclassification, merger in
which EyeCity is the surviving corporation or other exchange of shares, the
number of shares of our common stock subject to each outstanding option and the
exercise price for each option, shall be adjusted appropriately by our board of
directors in its discretion. In the event of a liquidation or dissolution of
EyeCity or a merger in which EyeCity is not the surviving corporation, then,
unless a provision is made for the outstanding options in such transaction, all
such options shall terminate. The 1999 Stock Option Plan will terminate at such
time as it may be terminated by our board of directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Until August 1999, EyeCity maintained 2,000 square feet of commercial
office space at One Fairchild Court in Plainview, New York. This office space
was subleased from a corporation owned by Mark R. Suroff, the Executive Vice
President, Chief Operating Officer, Secretary and Treasurer of EyeCity, and a
member of its board of directors, at a cost of approximately $1,600 per month.
This corporation was paid $16,607 and $9,000 by EyeCity under such sublease in
fiscal 1998 and for the six months ended June 30, 1999, respectively.
In February 1998, Robert B. Greenberg, the former Chief Executive Officer
of EyeCity, and a former member of its board of directors, was granted options
to purchase 140,000 shares of its common stock at an exercise price of $1.00 per
share under the 1997 Stock Option Plan in exchange for his consulting services
before becoming an employee of EyeCity. In July 1998, Mr. Greenberg received a
grant of options to purchase an additional 835,000 shares of the common stock of
EyeCity at an exercise price of $1.00 per share under the 1998 Stock Option Plan
in connection with his entering into an employment agreement to become EyeCity's
Chief Executive Officer. Pursuant to a Severance and Consultancy Agreement
between Mr. Greenberg and EyeCity, dated as of December 31, 1998, 925,000 of Mr.
Greenberg's options were terminated leaving Mr. Greenberg with options to
purchase an aggregate of 50,000 shares at an exercise price of $1.00 per share
under the 1998 Stock Option Plan, of which 10,000 were exercised in July 1999
and 40,000 were exercised in September 1999.
<PAGE>
In April 1998, Leonard W. Suroff, counsel to and a consultant for EyeCity,
was granted options to purchase 100,000 shares of the common stock of EyeCity at
an exercise price of $1.00 per share under the 1998 Stock Option Plan. In
February 1999, Leonard W. Suroff was granted options to purchase an additional
100,000 shares of the common stock of EyeCity at an exercise price of $1.00 per
share under the 1998 Stock Option Plan. Mr. Suroff is the father of Mark R.
Suroff, a director and an executive officer of EyeCity.
In March 1999, EyeCity entered into a Finders Agreement with James J.
Armenakis, a beneficial owner of over 5% of EyeCity's common stock (by virtue of
the option described below). This agreement provides that Mr. Armenakis will be
entitled to receive options to purchase 50,000 shares of the common stock of
EyeCity for every $250,000 in private equity investments in EyeCity that are
made by persons who are introduced to EyeCity by Mr. Armenakis. The exercise
price of the options to be granted to Mr. Armenakis shall be equal to the price
per share paid to EyeCity by the equity investors introduced by him. To date,
Mr. Armenakis has received under this agreement immediately exercisable options
under the 1998 and 1999 Stock Option Plans for 420,000 shares, including 300,000
shares at an exercise price of $1.00 per share which expire in March 2002,
15,000 shares at $1.50 per share which expire in June 2002, 98,000 shares at an
exercise price of $3.00 per share which expire in June 2002 and 7,000 shares at
an exercise price of $3.00 per share which expire in August, 2002.
In March 1999, EyeCity entered into a Consulting Agreement with James J.
Armenakis. Under this one-year agreement, Mr. Armenakis provides non-exclusive
legal consulting services to EyeCity in exchange for options to purchase 150,000
shares of EyeCity's common stock at an exercise price of $1.00 per share under
the 1998 Stock Option Plan. These options are immediately exercisable and expire
in March 2002. Mr. Armenakis also received options to purchase 60,000 shares of
EyeCity's common stock at an exercise price of $1.75. These options are
immediately exercisable and expire in March 2002.
In May 1999, Nikos P. Mouyiaris, a member of the board of directors of
EyeCity, was granted certain demand and piggyback registration rights in
connection with his purchase of 1,000,000 shares of common stock of EyeCity as
well as the right to nominate two members of EyeCity's board of directors. At
least one of Mr. Mouyiaris' board nominees must approve any of the following
transactions:
o any merger of EyeCity into another company where EyeCity is
not the surviving company and where the stockholders of
EyeCity do not comprise the voting majority of the surviving
company;
o a sale of all or substantially all of the assets of EyeCity;
o acquisitions by EyeCity for aggregate consideration of
$1,000,000 or more;
o the incidence or assumption by EyeCity of any obligation, debt
or guaranty to any bank or financial institution of $1,000,000
or more;
o the voluntary declaration of bankruptcy or consent to
receivership by EyeCity or similar actions by EyeCity to seek
protection from its creditors;
<PAGE>
o authorization or issuance of shares of its common stock, or
securities convertible into common stock, at a price
(including amounts paid upon conversion or exercise) less than
$1.00 per share; or
o the entering into certain types of transactions with related
parties.
Mr. Mouyiaris' right to nominate members of EyeCity's board of directors, and
the rights of those directors to approve the transactions set forth above, will
terminate upon the earlier to occur of (x) such time as Mr. Mouyiaris is the
beneficial owner of less than 825,000 shares of the common stock of EyeCity or
(y) the consummation by EyeCity of an underwritten public offering of its
securities for gross proceeds of at least $7,500,000.
In May 1999, Barbara Novick, a member of the board of directors of EyeCity
(and one of Mr. Mouyiaris' nominees to the Board), was granted certain
registration rights in connection with her purchase of 90,000 shares of common
stock of EyeCity. These registration rights include unlimited piggy-back
registration rights.
In May 1999, Apostolos Mouyiaris was granted certain registration rights
in connection with his purchase of 25,000 shares of common stock of EyeCity.
These registration rights include unlimited piggy-back registration rights. Mr.
Mouyiaris is the brother of Nikos P. Mouyiaris, a member of the board of
directors of EyeCity.
In May 1999, James J. Armenakis was granted certain registration rights in
connection with his purchase of 10,000 shares of common stock of EyeCity. These
registration rights include unlimited piggy-back registration rights.
In May 1999, Daniel D. Thralow, the Vice President of Operations of
EyeCity and a member of its board of directors, was paid $875,000 in cash
(including a $25,000 deposit made in March 1999), $875,000 in the form of a
secured promissory note and 1,210,159 shares of common stock of EyeCity in
connection with the merger of Peeper's Sunglasses and Accessories, Inc., all of
whose outstanding capital stock was owned by Mr. Thralow, with and into
Peeper's, Inc., a wholly owned subsidiary of EyeCity. The promissory note is
payable in one year and is secured by a first priority interest in all of the
intellectual and intangible property that was owned by Peepers Sunglasses and
Accessories, Inc. prior to the merger. As part of this transaction, EyeCity
agreed to have Mr. Thralow elected as a member of its board of directors and
entered into an employment agreement with him.
In September 1999, EyeCity acquired certain assets of Impact Eyewear, LLC,
one of whose members was Thomas B. Seltzer, EyeCity's Chief Merchandising
Officer, in exchange for $120,000 in cash and 166,667 shares of common stock of
EyeCity.
<PAGE>
ITEM 8. DESCRIPTION OF CAPITAL STOCK
General
EyeCity is authorized by its Certificate of Incorporation to issue
20,000,000 shares of common stock, par value $.001 per share, of which 8,552,931
were outstanding and held of record by 92 stockholders on August 31, 1999; and
1,000,000 shares of Preferred Stock, par value $.001 per share, of which no
shares are outstanding (collectively, the "Capital Stock").
EyeCity may not subdivide or combine any shares of its common stock, or
pay any dividend or retire any share or make any other distribution on any share
of its common stock, or accord any other payment, benefit or preference to any
share of its common stock, except by extending such subdivision, combination,
distribution, payment, benefit or preference equally to all shares of common
stock.
The common stock does not entitle holders to any preemptive rights upon
the issuance of other securities of EyeCity.
Common Stock
Holders of common stock are entitled to one vote per share on all matters
to be voted on by stockholders and are entitled to receive such dividends as may
be declared by the board of directors out of funds legally available therefore
and to share pro rata in any distribution to holders of Capital Stock. Except
under certain circumstances, holders of common stock do not have the power to
act by written consent. Actions required or permitted to be taken by EyeCity's
stockholders may be taken at a duly called annual or special meeting of the
stockholders or, under certain circumstances, by written consent of EyeCity's
stockholders. In the event of a liquidation, dissolution, or winding-up of
EyeCity, holders of common stock will be entitled to share pro rata in the
distribution to holders of Capital Stock of all of EyeCity's remaining assets
after the payment of all debts, liabilities, and obligations of EyeCity and the
preference distributions, if any, to holders of EyeCity's Preferred Stock.
As of September 30, 1999, Messrs. Levin, Suroff, Thralow, Mouyiaris and
Ms. Novick (each directors of EyeCity) own 4,701,159 shares of EyeCity common
stock and control approximately 54% of the aggregate voting power of all shares.
Acting together, these stockholders can effectively control substantially all
actions taken by EyeCity's stockholders, including the election of directors. In
addition, Mr. Mouyiaris has approval rights on significant corporate actions in
his capacity as a director. See "Certain Relationships and Related
Transactions". Such concentration of ownership could also have the effect of
delaying, deterring or preventing a change in control of EyeCity that might
otherwise be beneficial to stockholders and may also discourage acquisition bids
for EyeCity and limit the amount certain investors may be willing to pay for
shares of the common stock.
Preferred Stock
Pursuant to EyeCity's Certificate of Incorporation, the board of directors
has the authority to issue up to 1,000,000 shares of Preferred Stock in one or
more series with such designations, rights and preferences as may be determined
from time to time by the board of directors. Accordingly, the board of directors
is empowered, without stockholder approval, to issue Preferred Stock with
dividend, liquidation, conversion, voting or other rights that
<PAGE>
may adversely affect the voting power or other rights of the holders of
EyeCity's common stock. In the event of issuance, the Preferred Stock could be
utilized, under certain circumstances, to discourage, delay or prevent an
acquisition or change of control of EyeCity. EyeCity does not currently intend
to issue any shares of its Preferred Stock.
Dividends
EyeCity has never paid any cash dividends on its Capital Stock. For the
foreseeable future, EyeCity intends to retain all of its future earnings to
finance its operations and does not anticipate paying cash dividends.
Certain Provisions of Delaware Law
EyeCity is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law (the "DGCL"). In general, Section 203 prevents
an "interested stockholder" (defined generally as a person owning 15% or more of
EyeCity's outstanding voting stock) from engaging in a "business combination"
(as defined in Section 203) with EyeCity for three years following the date that
person became an interested stockholder unless: (i) before that person became an
interested stockholder, the board of directors approved the transaction in which
the interested stockholder became an interested stockholder or approved the
business combination, (ii) upon completion of the transaction that resulted in
the interested stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of EyeCity outstanding at the
time the transaction commenced (excluding stock held by directors who are also
officers of EyeCity and by employee stock plans that do not provide employees
with the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer) or (iii) on or following
the date on which that person became an interested stockholder, the business
combination is approved by EyeCity's board of directors and authorized at a
meeting of stockholders by the affirmative vote of the holders of at least 66
2/3% of the outstanding voting stock of EyeCity not owned by the interested
stockholder.
Under Section 203, these restrictions do not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of one of certain extraordinary transactions involving EyeCity and
a person who was not an interested stockholder during the previous three years
or who became an interested stockholder with the approval of a majority of
EyeCity's directors, if that extraordinary transaction is approved or not
opposed by a majority of the board of directors (but not less than one) who were
directors before any person became an interested stockholder in the previous
three years or who were recommended for election or elected to succeed such
directors by a majority of such directors then in office.
Under Section 162 of the DGCL, EyeCity's board of directors can, without
stockholder approval, issue authorized but unissued shares of Capital Stock,
which may have the effect of delaying, deferring or preventing a change of
control of EyeCity. EyeCity has no current plan or arrangement for the issuance
of any shares of Capital Stock other than in the ordinary course pursuant to the
Stock Option Plans.
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER STOCKHOLDER MATTERS
EyeCity's common stock is traded on the National Association of Securities
Dealers Bulletin Board market. Trading of EyeCity's common stock on the
over-the-counter market commenced in March 1998. The following table reflects
the high and low bid prices for EyeCity's common stock for each quarterly period
ended since trading commenced in March 1998. These quotations are based on
information supplied by market makers of EyeCity's common stock. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
1999 1998
Price Range Price Range
----------- -----------
Low High Low High
--- ---- --- ----
$ $ $ $
1st Quarter 0.625 6.125 0.875 1.000
2nd Quarter 3.125 9.875 0.875 1.5625
3rd Quarter 3.063 6.750 0.6875 1.625
4th Quarter 0.6875 1.875
As of the date hereof there are 93 holders of record of EyeCity's common
stock and 8,759,598 shares of common stock outstanding, of which 6,618,773 are
restricted securities under the Securities Act of 1933, as amended (the
"Securities Act"). As of the date hereof, 2,388,175 restricted securities are
eligible for sale in the public market. The remaining 4,230,598 restricted
securities will be eligible for sale from time to time thereafter in compliance
with Rule 144 under the Securities Act of 1933. Further, holders of 1,760,000 of
these restricted shares have so-called "piggy-back" registration rights which
require these shares of common stock to be registered for sale in EyeCity's
future registrations, subject to certain restrictions. In addition, as of
September 30, 1999, there were outstanding options to purchase 2,284,750 shares
of EyeCity common stock, substantially all of which are exercisable for prices
significantly less than the current trading price of EyeCity common stock on the
OTC Bulletin Board. Sales of substantial amounts of EyeCity common stock
(including shares issued upon the exercise of outstanding options) in the public
market in the future could adversely affect the market price of EyeCity common
stock. These sales also might make it more difficult for EyeCity to sell equity
or equity-related securities in the future at a time and price that EyeCity
thinks appropriate.
EyeCity has never declared any dividends and is not likely to do so in the
near future.
ITEM 2. LEGAL PROCEEDINGS
Rights in EyeCity's "Peeper's" mark and peepers.com domain name have been
challenged by American Eyewear, Inc. in an action alleging trademark
infringement filed in federal court in Dallas, Texas in July 1999. Although the
action has been filed, the parties have been discussing settlement; the
complaint has not formally been served and EyeCity therefore has not responded.
If American Eyewear elects to proceed with the action, EyeCity has substantial
defenses and may counter-claim to limit American
<PAGE>
Eyewear's claimed rights in the trademark Peeper's. It is premature to assess
the likely outcome of the proceeding.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
Under its 1997, 1998 and 1999 Stock Option Plans, EyeCity has granted an
aggregate of 2,334,750 options to various consultants and employees to purchase
shares of EyeCity's common stock at exercise prices ranging from $1.00 to $7.75.
No commissions were paid in connection with those grants. EyeCity relied on
exemptions from registration under Section 4(2) of the Securities Act of 1933.
1996
There were no sales of unregistered securities by EyeCity in 1996.
1997
In October 1997, EyeCity completed a non-underwritten private sale of
550,000 shares of its common stock to 74 individual investors. These shares were
sold at a price of $1.00 per share pursuant to Rule 504 of Regulation D of the
Securities Act of 1933.
1998
In February 1998, EyeCity privately issued 300,000 shares of its common
stock to Carousel Consulting Inc. in consideration for the provision of
marketing consulting services. EyeCity relied on exemptions from registration
under Section 4(2) of the Securities Act of 1933.
In April 1998, EyeCity completed a non-underwritten private sale of
450,000 shares of its common stock to 10 individual investors. These shares were
sold at a price of $1.00 per share pursuant to Rule 504 of Regulation D of the
Securities Act of 1933.
In August 1998, EyeCity privately issued 214,000 shares of its common
stock in connection with the acquisition of all of the outstanding capital stock
of Foggles, Inc. by EyeCity. These shares of EyeCity were issued in equal
amounts to the four individual stockholders of Foggles, Inc. EyeCity relied on
exemptions from registration under Section 4(2) of the Securities Act of 1933.
In August 1998, EyeCity privately sold $362,500 of subordinated
convertible promissory notes in a non-underwritten offering to seven individual
investors (EyeCity later repurchased $25,000 of the notes held by two of these
investors at their request). These notes may be converted on or after October 1,
1999 into shares of common stock of EyeCity at a conversion price of $1.25 per
share. EyeCity relied on Rule 506 of Regulation D under the Securities Act of
1933. All of these individual investors represented that they were accredited
investors as defined under Rule 501 of Regulation D under the Securities Act of
1933.
In September 1998, EyeCity privately issued 15,000 shares of its common
stock in connection with the acquisition of all of the outstanding capital stock
of Gilead Enterprises, Inc. by EyeCity. These shares of EyeCity were issued in
equal amounts to the three individual stockholders of Gilead Enterprises, Inc.
EyeCity relied on exemptions from registration under Section 4(2) of the
Securities Act of 1933.
<PAGE>
In November 1998, EyeCity privately issued 10,000 shares of its common
stock to Adam Levin Consulting in consideration for the provision by Levin
Consulting of marketing consulting services. EyeCity relied on exemptions from
registration under Section 4(2) of the Securities Act of 1933.
In March 1999, EyeCity privately issued 100,000 shares of its common stock
in connection with the acquisition of all of the outstanding capital stock of
EyeGlassPlace.com, Inc. by EyeCity. These shares of EyeCity were issued to the
one individual stockholder of EyeGlassPlace.com, Inc. EyeCity relied on
exemptions from registration under Section 4(2) of the Securities Act of 1933.
In March 1999, EyeCity privately issued 20,000 shares of its common stock
to Rosenman & Colin LLP, counsel to EyeCity, in consideration for the provision
of legal services. EyeCity relied on exemptions from registration under Section
4(2) of the Securities Act of 1933.
In March 1999, EyeCity privately issued 250,000 shares of its common stock
to Nikos Mouyiaris. These shares were sold for $1.00 per share, for a total
offering price of $250,000. EyeCity relied on exemptions from registration under
Section 4(2) of the Securities Act of 1933. Mr. Mouyiaris represented that he
was an accredited investor as defined under Rule 501 of Regulation D of the
Securities Act of 1933.
In April 1999, EyeCity privately issued 10,000 shares of its common stock
to Jerrold S. Pine in partial consideration for the exercise of EyeCity's option
to grant to EyeCity an exclusive license to use certain patented computer
security technology. EyeCity relied on exemptions from registration under
Section 4(2) of the Securities Act of 1933.
In May 1999, EyeCity privately issued 130,000 shares of its common stock
to Stanley Altschuler and 130,000 shares of its common stock to Richard Cooper
in consideration for services rendered by Strategic Growth International, Inc.
EyeCity relied on exemptions from registration under Section 4(2) of the
Securities Act of 1933.
In May 1999, EyeCity privately issued 1,210,159 shares of its common stock
as partial consideration for all of the capital stock of Peeper's Sunglasses and
Accessories, Inc. in connection with the merger of Peeper's Sunglasses and
Accessories, Inc. with and into Peeper's, Inc, a wholly owned subsidiary of
EyeCity. These shares of EyeCity were issued to the one individual stockholder
of Peeper's Sunglasses and Accessories, Inc. EyeCity relied on exemptions from
registration under Section 4(2) of the Securities Act of 1933.
In May 1999, EyeCity privately issued 2,105 shares of its common stock to
Thomas Gilligan as partial consideration for an assignment of all of Mr.
Gilligan's rights to an internet domain name. EyeCity relied on exemptions from
registration under Section 4(2) of the Securities Act of 1933.
In May 1999, EyeCity privately sold 1,500,000 shares of its common stock
to 11 individual investors at a price of $1.00 per share for a total offering
price of $1,500,000. In connection with these sales, EyeCity paid to James J.
Armenakis a commission in the form of options to purchase 300,000 shares of
EyeCity common stock at an exercise price of $1.00 per share under the 1998
Stock Option Plan. EyeCity relied on exemptions from registration under Section
4(2) of the Securities Act of 1933. Each of these investors represented that he
or she was an accredited investor as defined under Rule 501 of Regulation D of
the Securities Act of 1933.
In June, 1999, EyeCity privately issued 283,334 shares of its common stock
as partial consideration for all of the capital stock of SunSource Technology,
Inc. in connection with the merger of SunSource Technology, Inc. with and into
SunglassSite,
<PAGE>
Inc., a wholly owned subsidiary of EyeCity. These shares of EyeCity were issued
to the one individual stockholder of SunSource Technology, Inc. EyeCity relied
on exemptions from registration under Section 4(2) of the Securities Act of
1933.
In June 1999, EyeCity privately sold 50,000 shares of its common stock to
one individual investor. These shares were sold for $1.50 per share for a total
offering price of $75,000. EyeCity paid James J. Armenakis a commission in the
form of options to purchase 15,000 shares of EyeCity common stock at an exercise
price of $1.50 per share under the 1998 Stock Option Plan. EyeCity relied on
exemptions from registration under Section 4(2) of the Securities Act of 1933.
Such individual investor represented that he was an accredited investor as
defined under Rule 501 of Regulation D of the Securities Act of 1933.
In June 1999, EyeCity privately sold 230,000 shares of its common stock to
10 individual investors. These shares were sold for $3.00 per share, for a total
offering price of $690,000. In connection with the sale of $490,000 of these
shares, EyeCity paid to James J. Armenakis a commission in the form of options
to purchase 98,000 shares of EyeCity common stock at an exercise price of $3.00
per share under the 1999 Stock Option Plan. EyeCity relied on exemptions from
registration under Section 4(2) of the Securities Act of 1933. Each of these
investors represented that he or she was an accredited investor as defined under
Rule 501 of Regulation D of the Securities Act of 1933.
In July 1999, EyeCity privately issued 13,000 shares of its common stock
to the 1996 Joel Lebovitz Trust and 13,000 shares of its common stock to Manley
Goldfine in connection with certain improvements to certain real estate in
Duluth, Minnesota leased by EyeCity through its wholly owned subsidiary,
Peeper's, Inc. EyeCity relied on exemptions from registration under Section 4(2)
of the Securities Act of 1933.
In July and August 1999, EyeCity privately sold 47,334 shares of its
common stock to seven individual investors. These shares were sold for $3.00 per
share, for a total offering price of $142,004. In connection with the sale of
$35,000 of these shares, EyeCity will pay to James J. Armenakis a commission in
the form of options to purchase 7,000 shares of EyeCity common stock at an
exercise price of $3.00 per share under the 1999 Stock Option Plan. EyeCity
relied on exemptions from registration under Section 4(2) of the Securities Act
of 1933. Each of these investors represented that he or she was an accredited
investor as defined under Rule 501 of Regulation D of the Securities Act of
1933.
In August 1999, EyeCity privately issued 10,000 shares of its common stock
in connection with the exercise of stock options by Robert B. Greenberg. These
shares of EyeCity were issued in equal amounts to four family members of Mr.
Greenberg. EyeCity relied on exemptions from registration under Section 4(2) of
the Securities Act of 1933.
In August 1999, EyeCity privately issued 15,000 shares of its common stock
to Rosenman & Colin LLP, counsel to EyeCity, in consideration for the provision
of legal services. EyeCity relied on exemptions from registration under Section
4(2) of the Securities Act of 1933.
In September 1999, EyeCity privately issued 166,667 shares of its common
stock as partial consideration for certain assets of Impact Eyewear, LLC. These
shares of EyeCity were issued to Impact Eyewear, LLC. EyeCity relied on
exemptions from registration under Section 4(2) of the Securities Act of 1933.
In September 1999, EyeCity privately issued 40,000 shares of its common
stock in connection with the exercise of stock options by Robert B. Greenberg.
EyeCity relied on exemptions from registration under Section 4(2) of the
Securities Act of 1933.
<PAGE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
EyeCity's Certificate of Incorporation provides that, except to the extent
prohibited by the Delaware General Corporation Law, EyeCity's officers and
directors shall not be personally liable to EyeCity or its stockholders for
monetary damages for any breach of fiduciary duty as directors of EyeCity. Under
the DGCL, the directors have a fiduciary duty to EyeCity which is not eliminated
by this provision of the Certificate of Incorporation and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under the DGCL for breach of the director's
duty of loyalty to EyeCity, for acts or omissions which are found by a court of
competent jurisdiction to be not in good faith or which involve intentional
misconduct, or knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are prohibited by the DGCL. This provision
also does not affect the directors' responsibilities under any other laws, such
as the Federal securities laws or state or Federal environmental laws.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (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) arising under Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the corporation's bylaws, any agreement, a vote
of stockholders or otherwise. The Certificate of Incorporation provides that
EyeCity shall, to the fullest extent permitted by the DGCL, indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (whether civil, criminal,
administrative or investigative) by reason of the fact that such person is or
was a director or officer of EyeCity, or is or was serving at the request of
EyeCity as a director or officer of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted.
<PAGE>
PART F/S
EyeCity.com, Inc. and Subsidiaries
Financial Statements
Contents
EyeCity.com, Inc.
Report of Independent Auditors............................................. F-1
Consolidated Balance Sheets as of December 31, 1998 and
June 30, 1999 (Unaudited)................................................ F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1997 and 1998 and the Six Months Ended
June 30, 1998 and 1999 (Unaudited)....................................... F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
for the Years Ended December 31, 1997 and 1998 and the Six Months
Ended June 30, 1999 (Unaudited).......................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997 and 1998 and the Six Months Ended
June 30, 1998 and 1999 (Unaudited)....................................... F-6
Notes to Consolidated Financial Statements................................. F-8
Peeper's Sunglasses and Accessories, Inc.
Report of Independent Auditors............................................. F-25
Balance Sheets as of December 31, 1998 and May 7, 1999 (Unaudited)......... F-26
Statements of Income for the Years Ended December 31, 1997 and 1998
and the Period from January 1, 1999 to May 7, 1999 (Unaudited)........... F-27
Statements of Stockholder's Equity for the Years Ended December 31, 1997
and 1998 and the Period from January 1, 1999 to May 7, 1999 (Unaudited).. F-28
Statements of Cash Flows for the Years Ended December 31, 1997 and 1998
and the Period from January 1, 1999 to May 7, 1999 (Unaudited)........... F-29
Notes to Financial Statements.............................................. F-30
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Financial Statements (continued)
Contents
SunSource Technology, Inc.
Report of Independent Auditors............................................. F-33
Balance Sheets at December 31, 1998 and June 30, 1999 (Unaudited).......... F-34
Statements of Operations for the Period from June 13, 1997 (inception) to
December 31, 1997, the Year Ended December 31, 1998 and the Six Months
Ended June 30, 1999 (Unaudited).......................................... F-35
Statements of Stockholder's Equity for the Period from June 13, 1997
(inception) to December 31, 1997, the Year Ended December 31, 1998 and
the Six Months Ended June 30, 1999 (Unaudited)............................ F-36
Statements of Cash Flows for the Period from June 13, 1997 (inception) to
December 31, 1997, the Year Ended December 31, 1998 and the Six Months
Ended June 30, 1999 (Unaudited).......................................... F-37
Notes to Financial Statements.............................................. F-38
Foggles, Inc.
Report of Independent Auditors............................................. F-41
Balance Sheet as of August 5, 1998......................................... F-42
Statements of Operations for the Year Ended December 31, 1997 and the
Period for January 1, 1998 to August 5, 1998.............................. F-43
Statements of Stockholders' Equity for the Year Ended December 31, 1997
and the Period from January 1, 1998 to August 5, 1998.................... F-44
Statements of Cash Flows for the Year Ended December 31, 1997 and the
Period from January 1, 1998 to August 5, 1998............................ F-45
Notes to Financial Statements.............................................. F-46
Unaudited Pro Forma Consolidated Statements of Operations
Unaudited Pro Forma Consolidated Statement of Operations for the Year
Ended December 31, 1998................................................... F-49
Unaudited Pro Forma Consolidated Statement of Operations for the Six
Months Ended June 30, 1999................................................ F-50
Notes to Unaudited Pro Forma Consolidated Statements of Operations......... F-51
<PAGE>
Report of Independent Auditors
The Stockholders
EyeCity.com, Inc.
We have audited the accompanying consolidated balance sheet of EyeCity.com, and
subsidiaries as of December 31, 1998, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the two
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of EyeCity.com, Inc.
and subsidiaries at December 31, 1998, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company's
recurring losses from operations and working capital deficiency raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans as to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
New York, New York
September 28, 1999
F-1
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, June 30,
1998 1999
----------- -----------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 224,748 $1,015,915
Accounts receivable, net of allowance of $1,050
in 1998 and 1999 41,147 26,850
Inventories 100,763 433,057
Prepaid expenses 17,085 10,434
---------- ----------
Total current assets 383,743 1,486,256
Furniture and equipment, net of accumulated
depreciation of $2,863 in 1998 and $12,713 in
1999 16,714 122,452
Intangibles, net of accumulated amortization of
$22,488 in 1998 and $234,584 in 1999 141,892 4,146,433
Deferred charges 163,219 535,611
---------- ----------
$ 705,568 $6,290,752
========== ==========
See accompanying notes.
F-2
<PAGE>
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Liabilities and stockholders' (deficit) equity
Current liabilities:
Accounts payable and accrued expenses $ 265,083 $ 543,419
Accrued payroll and related taxes 94,687 108,759
Deferred salary to officers 165,000 259,011
Current portion of notes payable -- 903,332
Current portion of subordinated convertible
promissory notes 25,000 --
----------- -----------
Total current liabilities 549,770 1,814,521
Subordinated convertible promissory notes 337,500 337,500
----------- -----------
Total liabilities 887,270 2,152,021
----------- -----------
Commitments
Stockholders' (deficit) equity:
Preferred stock--$.001 par value: authorized,
1,000,000 shares; no shares issued and outstanding -- --
Common stock--$.001 par value, 20,000,000 shares
authorized, shares issued and outstanding:
4,539,000 in 1998 and 8,454,598 in 1999 4,539 8,455
Additional paid-in capital 1,756,728 7,512,203
Accumulated deficit (1,942,969) (3,381,927)
----------- -----------
Total stockholders' (deficit) equity (181,702) 4,138,731
----------- -----------
Total liabilities and stockholders' (deficit) equity $ 705,568 $ 6,290,752
=========== ===========
</TABLE>
F-3
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31, Six months ended June 30,
----------------------------- ----------------------------
1997 1998 1998 1999
------------ ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenues $ 25,947 $ 95,974 $ 14,315 $ 551,937
Cost of revenues 17,000 44,576 7,797 380,121
----------- ----------- ----------- -----------
Gross profit 8,947 51,398 6,518 171,816
----------- ----------- ----------- -----------
Operating expenses:
Marketing and sales 217,792 779,528 88,413 126,474
General and administrative 252,489 657,832 367,135 1,092,316
Depreciation and amortization 597 24,754 1,197 221,946
Technology and development -- -- -- 125,924
----------- ----------- ----------- -----------
Total operating expenses 470,878 1,462,114 456,745 1,566,660
----------- ----------- ----------- -----------
Operating loss (461,931) (1,410,716) (450,227) (1,394,844)
Other income (expense):
Interest and investment income -- 10,865 -- 5,968
Interest expense (4,542) (10,473) (1,031) (50,082)
----------- ----------- ----------- -----------
Total other income (expense) (4,542) 392 (1,031) (44,114)
----------- ----------- ----------- -----------
Net loss $ (466,473) $(1,410,324) $ (451,258) $(1,438,958)
=========== =========== =========== ===========
Basic and diluted net loss per
common share $ (.14) $ (.33) $ (.11) $ (.25)
=========== =========== =========== ===========
Shares used in the calculation
of basic and diluted net loss
per common share 3,264,831 4,259,773 4,030,806 5,690,845
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1997 and 1998 and the six
months ended June 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Total
Common Stock Additional Stockholders'
------------------ Paid-In Equity
Shares Amount Capital Deficit (Deficit)
--------- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 3,000,000 $3,000 $ 3,000 $ (66,172) $ (60,172)
Issuance of common stock for
cash, net of expenses of $18,500 550,000 550 530,950 -- 531,500
Net loss for the year ended
December 31, 1997 -- -- -- (466,473) (466,473)
--------- ------ ---------- ----------- -----------
Balance at December 31, 1997 3,550,000 3,550 533,950 (532,645) 4,855
Issuance of common stock for
cash, net of expenses of $14,736 450,000 450 434,814 -- 435,264
Issuance of common stock for
consulting services 310,000 310 204,690 -- 205,000
Issuance of common stock in
connection with acquisitions 229,000 229 173,204 -- 173,433
Issuance of stock options -- -- 410,070 -- 410,070
Net loss for the year ended
December 31, 1998 -- -- -- (1,410,324) (1,410,324)
--------- ------ ---------- ----------- -----------
Balance at December 31, 1998 4,539,000 4,539 1,756,728 (1,942,969) (181,702)
Issuance of common stock for cash
(unaudited) 2,030,000 2,030 2,512,970 -- 2,515,000
Issuance of common stock for
consulting services (unaudited) 280,000 280 129,722 -- 130,002
Issuance of common stock in
connection with acquisitions
(unaudited) 1,605,598 1,606 2,374,765 -- 2,376,371
Issuance of stock options
(unaudited) -- -- 738,018 -- 738,018
Net loss for the six months ended
June 30, 1999 (unaudited) -- -- -- (1,438,958) (1,438,958)
--------- ------ ---------- ----------- -----------
Balance at June 30, 1999
(unaudited) 8,454,598 $8,455 $7,512,203 $(3,381,927) $ 4,138,731
========= ====== ========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31, Six months ended June 30,
-------------------------- -------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $(466,473) $(1,410,324) $(451,258) $(1,438,958)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 597 24,754 1,197 221,946
Provision for doubtful accounts 1,050 -- -- --
Amortization of discount -- -- -- 33,332
Amortization of deferred charges -- 246,851 47,326 365,626
Issuance of stock for consulting
services -- 205,000 195,000 80,002
Changes in operating assets and
liabilities, excluding the effect of
acquisitions:
Accounts receivable (2,352) (32,710) (1,919) 18,821
Inventories (37,336) (60,547) 6,585 (247,929)
Prepaid expenses (21,308) 4,558 (102,245) 7,735
Accounts payable and accrued expenses 61,387 188,059 (8,665) 176,394
Accrued payroll and related taxes 22,227 71,860 65,164 14,072
Deferred salary to officers -- 165,000 -- 94,011
--------- ----------- --------- -----------
Net cash used in operating activities (442,208) (597,499) (248,815) (674,948)
--------- ----------- --------- -----------
Cash flows from investing activities
Purchase of intangibles -- -- -- (11,000)
Cash paid for acquisitions, net of cash
acquired -- 3,443 -- (967,856)
Purchases of furniture and equipment (5,981) (13,596) (11,973) (61,029)
--------- ----------- --------- -----------
Net cash used in investing activities (5,981) (10,153) (11,973) (1,039,885)
--------- ----------- --------- -----------
Cash flows from financing activities
Repayment of note payable -- (50,000) (50,000) --
Repayment of convertible subordinated
notes -- -- -- (25,000)
Proceeds from issuance of stock, net of
expenses 531,500 435,264 435,264 2,515,000
Proceeds from issuance of convertible
subordinated notes -- 362,500 -- --
Proceeds from line of credit/note payable -- -- -- 16,000
Proceeds from loan payable--related party 40,000 -- -- --
Repayment of loan payable--related party (40,000) -- -- --
--------- ----------- --------- -----------
Net cash provided by financing activities 531,500 747,764 385,264 2,506,000
--------- ----------- --------- -----------
Net increase in cash and cash equivalents 83,311 140,112 124,476 791,167
Cash and cash equivalents--beginning of
period 1,325 84,636 84,636 224,748
--------- ----------- --------- -----------
Cash and cash equivalents--end of period $ 84,636 $ 224,748 $ 209,112 $ 1,015,915
========= =========== ========= ===========
</TABLE>
F-6
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Year ended December 31, Six months ended June 30,
----------------------- -------------------------
1997 1998 1998 1999
-------- -------- -------- --------
Supplemental disclosures
Cash paid for interest $ 4,520 $ -- $ -- $ 17,764
======== ======== ======== ========
Cash paid for income taxes $ 438 $ -- $ -- $ --
======== ======== ======== ========
See accompanying notes.
F-7
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited)
1. Description of Business
EyeCity.com, Inc. and its subsidiaries (collectively "EyeCity") are engaged in
one business segment: the online marketing, distribution and sale of a broad
range of optical products and accessories, including brand name sunglasses,
contact lenses, binoculars, prescription eyewear, telescopes, sports and
lifestyle eyewear and hunting glasses.
EyeCity has incurred operating losses since its inception and its working
capital is insufficient to cover continuing operating expenses. Accordingly,
EyeCity requires additional funding from financing or other sources to cover
operating expenses until sufficient revenues are generated to cover such
expenses. The foregoing conditions raise substantial doubt as to EyeCity's
ability to continue as a going concern. The accompanying financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
EyeCity.com, Inc. and its wholly-owned subsidiaries, Foggles, Inc., Gilead
Enterprises, Inc., EyeGlassPlace.com, Inc., Peeper's, Inc. (formerly Peeper's
Sunglasses and Accessories, Inc.) and SunglassSite, Inc. (formerly SunSource
Technology, Inc.) (see Note 5). All material intercompany balances and
transactions have been eliminated in consolidation.
Interim Financial Statements
The financial statements as of June 30, 1999 and for the six months ended June
30, 1999 have been prepared by EyeCity without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position as of June 30, 1999 and the
results of operations and cash flows for the six months ended June 30,1999 have
been made. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or eliminated. The results of operations for the
six months ended June 30, 1999 are not necessarily indicative of the results to
be expected for any future interim period or for the year ending December 31,
1999.
F-8
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited)
2. Summary of Significant Accounting Policies (continued)
Cash Equivalents
EyeCity considers all highly liquid investments with a maturity of three months
or less at the date of purchase to be cash equivalents.
Revenue Recognition
Net revenues are generated by online and retail operations and primarily consist
of the selling price of merchandise, net of returns and credits, and shipping
charges. Net revenues are recognized upon shipment of the order to the
recipient. EyeCity provides an allowance for sales returns in the period of sale
based upon historical experience.
Costs of Revenues
Costs of revenues include the cost of merchandise sold from inventory and the
associated costs of inbound freight and outbound shipping.
Concentration of Credit Risk
EyeCity sells its products to a broad range of customers throughout the United
States. A significant portion of customers pay for their products through the
use of major credit cards. The timing of the cash realization and related fees
are determined based upon agreements with such major credit card companies.
Accordingly, credit losses related to the sale of merchandise are limited.
Inventories
Inventories are stated at the lower of cost (using the first-in, first-out
method of accounting) or market.
F-9
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited)
2. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the related assets,
ranging from 5 to 7 years.
Intangibles
Intangibles consist of: (i) goodwill- the excess of the purchase price over the
fair value of the net assets acquired, (ii) display technology, (iii) patents
and trademarks, and (iv) internet domain names. Amortization expense relating to
such intangibles is amortized on a straight-line basis over three years.
Long-Lived Assets
EyeCity periodically reviews the carrying value of its long-lived assets in
determining the ultimate recoverability of their unamortized values using the
future undiscounted cash flow analyses. Such a review has been performed by
management and does not indicate an impairment of such assets.
EyeCity evaluates the periods of amortization continually in determining whether
later events and circumstances warrant revised estimates of useful lives. If
estimates are changed, the unamortized costs will be allocated to the increased
or reduced number of remaining periods in the revised useful life.
Technology and Development
Technology and development costs consist of expenses associated with the design
and development of the EyeCity.com supersite. The useful life of technology and
development costs is less than one year and, accordingly, are expensed as
incurred.
F-10
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited)
2. Summary of Significant Accounting Policies (continued)
Advertising Costs
EyeCity's policy is to expense advertising costs as incurred. For the years
ended December 31, 1997 and 1998, and the six months ended June 30, 1998 and
1999, advertising expense was approximately $59,000, $12,000, $12,000 and
$25,000, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Income Taxes
Income taxes are provided using the liability method. Accordingly, deferred tax
assets and liabilities are recognized for future tax consequences attributable
to differences between the carrying amount of assets and liabilities for
financial statement and income tax purposes, as determined under enacted tax
laws and rates that will be in effect when the differences are expected to
reverse.
Stock-Based Compensation
EyeCity accounts for its stock-based employee compensation agreements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and complies with the disclosure
provisions of Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation ("SFAS 123").
F-11
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited)
3. Basic and Diluted Net Loss per Share
The following sets forth the computation of basic and diluted net loss per
share:
<TABLE>
<CAPTION>
Year ended December 31, Six months ended June 30,
------------------------- -------------------------
1997 1998 1998 1999
---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net loss $ (466,473) $(1,410,324) $(451,258) $(1,438,958)
========== =========== ========= ===========
Denominator for basic and diluted
net loss per share--weighted
average shares 3,264,831 4,259,773 4,030,806 5,690,845
========== =========== ========= ===========
Basic and diluted net loss per
share $ (.14) $ (.33) $ (.11) $ (.25)
========== =========== ========= ===========
</TABLE>
The calculation of diluted net loss per share excludes approximately 1,074,000
shares of common stock as of June 30, 1999, using the treasury stock method,
issuable upon exercise of employee stock options (see Note 9), as the effect of
such exercises would be antidilutive.
4. Subordinated Convertible Promissory Notes
During 1998, EyeCity issued $362,500 of subordinated convertible promissory
notes. The notes bear interest at 10% per annum and interest is payable
quarterly commencing January 1, 1999. The notes may be converted into shares of
EyeCity common stock at the option of the holder at a conversion price of $1.25
per share any time after October 1, 1999 (the "Conversion Date"). EyeCity has
the right to call, redeem or prepay the notes if the market price of EyeCity
common stock equals at least $2.50 per share for ten consecutive trading days at
any time after the Conversion Date. The notes are payable in 12 quarterly
principal payments commencing on October 1, 2000. EyeCity repaid $25,000 of such
notes in March 1999.
F-12
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited)
4. Subordinated Convertible Promissory Notes (continued)
Principal payments for years ending on December 31 are as follows:
1999 $ 25,000
2000 28,125
2001 112,500
2002 112,500
2003 84,375
--------
$362,500
========
5. Business Combinations
EyeCity has closed on the acquisitions described below, each of which has been
accounted for as a purchase. Accordingly, the consolidated financial statements
include the operating results of each business from the respective date of
acquisition.
On April 24, 1998, EyeCity entered into a one-year agreement whereby it licensed
the use of certain patented display technology for an initial cash payment of
$10,000 and monthly payments of $350. On April 30, 1999, EyeCity acquired such
technology for a cash payment of $10,000, the issuance of 10,000 shares of
common stock and 15 monthly payments of $1,000 beginning on June 15, 1999. In
connection with the acquisition of this technology, EyeCity recorded an
intangible asset of $35,000. Had this acquisition been consummated on January 1,
1997 or on January 1, 1998, the unaudited pro forma consolidated net revenues
and results of operations would not have been considered material for the years
ended December 31, 1997 or 1998.
On August 5, 1998, EyeCity acquired the common stock of Foggles, Inc.
("Foggles") in exchange for 214,000 shares of EyeCity's common stock. Foggles is
a distributor of specialty eyeglasses that are used in the aviation and sporting
industry. The fair value of EyeCity's common stock issued to Foggles
shareholders was approximately $165,000. The purchase has been allocated to the
assets acquired and the liabilities assumed based on the fair values at the date
of acquisition. The excess of the purchase price over the estimated fair values
of the net assets acquired of approximately $156,000 has been recorded as
goodwill.
F-13
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited)
5. Business Combinations (continued)
On September 17, 1998, EyeCity acquired all the common stock of Gilead
Enterprises, Inc. ("Gilead") in exchange for 15,000 shares of EyeCity's common
stock and options to purchase 2,500 shares of common stock at an exercise price
of $3.00 per share. (The exercise price of the options was in excess of the fair
value of the common stock on the date of grant). Gilead's assets primarily
consist of a patent and trademark relating to night driving glasses. The fair
value of EyeCity's common stock and options issued to Gilead shareholders was
approximately $8,000. Accordingly, the entire purchase price of approximately
$8,000 has been recorded as intangibles. Had this acquisition been consummated
on January 1, 1997 or on January 1, 1998, the unaudited pro forma consolidated
net revenues and results of operations would not have been considered material
for the years ended December 31, 1997 or 1998.
On March 12, 1999, EyeCity acquired all of the outstanding shares of
EyeGlassPlace.com, Inc., an Internet retailer of optical products and
accessories, for 100,000 shares of EyeCity common stock. The fair value of
EyeCity's common stock issued in connection with this acquisition was
approximately $94,000. As the acquired entity had minimal operating assets and
liabilities, the entire purchase price has been recorded as goodwill. Had this
acquisition been consummated on January 1, 1998 or on January 1, 1999, the
unaudited pro forma consolidated net revenues and results of operations would
not have been considered material for the year ended December 31, 1998 or the
six months ended June 30, 1999.
On May 7, 1999, Peeper's Sunglasses and Accessories, Inc. ("Peeper's") merged
into Peeper's, Inc., a wholly-owned subsidiary of EyeCity, for merger
consideration consisting of a cash payment of $875,000, issuance of a
non-interest bearing secured promissory note of $875,000 (see Note 6) and the
issuance of 1,210,159 shares of common stock. Peeper's is an Internet retailer
of eyewear, optical products and accessories. The total consideration paid in
connection with this merger was approximately $3,244,000. The merger
consideration has been allocated to the assets acquired and the liabilities
assumed based on the fair values at the date of merger. The excess of the merger
consideration over the estimated fair values of the net assets acquired of
$3,116,000 has been recorded as goodwill.
F-14
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited)
5. Business Combinations (continued)
In May 1999, EyeCity acquired the rights to an Internet domain name in exchange
for the issuance of 2,105 shares of common stock and a cash payment of $30,000.
The total consideration paid in connection with this acquisition was
approximately $33,000 and has been recorded as intangibles.
On June 30, 1999, the SunSource Technology, Inc. ("SunSource") merged into
SunglassSite, Inc., a wholly-owed subsidiary of EyeCity. Pursuant to the
agreement, all issued and outstanding shares of SunSource common stock were
converted in exchange for the following merger consideration: cash of $212,500,
a promissory note in the amount of $212,500 (see Note 6) and the issuance of
283,334 shares of common stock; for total consideration of $953,000. The merger
consideration has been allocated to the assets acquired and the liabilities
assumed based on the fair values at the date of merger and, accordingly, EyeCity
recorded $939,000 of goodwill.
The following table summarizes the intangibles recorded related to the
above-described acquisitions:
December 31, June 30,
1998 1999
-------------- ----------
Foggles, Inc. $ 156,000 $ 156,000
Gilead Enterprises, Inc. 8,000 8,000
EyeGlassPlace.com, Inc. -- 94,000
Peeper's Sunglasses and Accessories, Inc. -- 3,116,000
SunSource Technology, Inc. -- 939,000
Other acquisitions -- 68,000
---------- ----------
164,000 4,381,000
Less accumulated amortization 22,000 235,000
---------- ----------
$ 142,000 $4,146,000
========== ==========
F-15
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited)
5. Business Combinations (continued)
The following table reflects unaudited pro forma results of operations of
EyeCity on the basis that the Foggles, Peeper's and SunSource acquisition and
mergers had taken place at the beginning of the earliest period presented:
Six months
Year ended December 31, ended June 30,
------------------------- --------------
1997 1998 1999
--------- ----------- ------------
Net sales $ 163,463 $ 1,834,185 $ 1,580,870
========= =========== ===========
Net loss $(443,946) $(1,317,678) $(1,376,992)
========= =========== ===========
Basic and diluted net loss per
share $ (.14) $ (.31) $ (.24)
========= =========== ===========
Shares used in calculation of
basic and diluted net loss per
share 3,264,831 4,259,773 5,690,845
========= =========== ===========
In management's opinion, the unaudited pro forma results of operations are not
indicative of the actual results that would have occurred had the acquisition
and mergers been consummated on January 1, 1997, January 1, 1998 or January 1,
1999 or of the future operations of the combined companies under the management
of EyeCity.
6. Long-Term Debt
EyeCity's long-term debt obligations at June 30, 1999 are as follows:
Line of credit (1) $ 16,000
Seller financed acquisition and merger obligations (2) 887,332
--------
Total--included in current liabilities $903,332
========
(1) In October 1998, EyeCity entered into an agreement with a bank that
provides for a $50,000 line of credit collateralized by inventory,
equipment and accounts receivable. The agreement was termintated in
September 1999. Outstanding borrowings bear interest at 9.5% for the first
year and at the prime rate plus 1.25% thereafter. At December 31, 1998, no
amounts were outstanding under the line of credit.
F-16
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited)
6. Long-Term Debt (continued)
(2) In connection with the acquisition of certain patented display technology
on April 30, 1998 (see Note 5), EyeCity issued a $15,000 non-interest
bearing note of which $1,000 was paid in June 1999. The note is payable in
15 equal monthly installments commencing June 15, 1999.
In connection with the merger of Peeper's in May 1999 (see Note 5),
EyeCity issued a secured promissory note in the amount of $875,000. The
note is non-interest bearing and is due upon the earlier of the
anniversary date or the consummation of a public offering resulting in
gross proceeds in excess of $10,000,000. The carrying value of the note is
recorded net of the unamortized discount of $200,000 which is being
amortized over the term of the note. For the six months ended June 30,
1999, $33,332 of amortization expense has been recorded.
In connection with the merger of SunSource in June 1999 (see Note 5),
EyeCity issued a secured promissory note in the amount of $212,500. The
note is non-interest bearing and is due upon the earlier of the
anniversary date or the consummation of a public offering resulting in
gross proceeds in excess of $10,000,000. The carrying value of the note is
recorded net of the unamortized discount of $47,500 which is being
amortized over the term of the note. For the six months ended June 30,
1999, no amortization has been recorded.
7. Stockholders' Equity
EyeCity is authorized to issue 21,000,000 shares of stock, of which 20,000,000
is designated as common stock, par value $.001 per share, and 1,000,000 is
designated as preferred stock, par value $.001 per share. As of June 30, 1999,
EyeCity has not issued any shares of preferred stock.
During 1997, EyeCity sold 550,000 shares of its common stock to several
investors at a price of $1.00 per share for net proceeds of approximately
$532,000.
F-17
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited)
7. Stockholders' Equity (continued)
During 1998, EyeCity issued 310,000 shares of its common stock as consideration
for marketing services; the total of the consideration paid was $205,000. In
April 1998, EyeCity completed a private placement of 450,000 shares of its
common stock to several investors at a price of $1.00 per share, resulting in
net proceeds of approximately $435,000.
During 1998, EyeCity entered into several agreements with one consultant,
whereby EyeCity exchanged 300,000 shares of common stock, in addition to 12
monthly cash payments of $3,000, in return for consulting services. EyeCity
estimated the total value of the stock consideration paid to be $195,000. The
agreement commenced on February 1, 1998 and terminated on January 31, 1999. In
addition, 10,000 shares of common stock were issued to another consultant and
the consideration paid was valued at approximately $10,000.
During 1999, EyeCity issued 280,000 shares of its common stock as consideration
for consulting and legal services; the total of the consideration paid was
approximately $120,000. In addition, EyeCity issued 2,105 shares of its common
stock as partial consideration for an assignment of rights to an Internet domain
name (see Note 5).
On March 12, 1999, EyeCity sold 250,000 shares of its common stock, at a price
of $1.00 per share, for proceeds of $250,000.
In May 1999, EyeCity sold 1,500,000 shares of its common stock to several
investors at a price of $1.00 per share for proceeds of $1,500,000. In
connection with this transaction, EyeCity issued 300,000 options to an
investment advisor to purchase common stock at an exercise price of $1.00 per
share.
In June 1999, EyeCity sold 50,000 shares to one investor at a price of $1.50 per
share, for proceeds of $75,000. In connection with this transaction, EyeCity
issued 15,000 options to an investment advisor to purchase common stock at an
exercise price of $1.50 per share.
In June 1999, EyeCity sold 230,000 shares of its common stock to several
investors. These shares were sold at a price of $3.00 per share, for proceeds of
approximately $690,000. In connection with this transaction, EyeCity issued
98,000 options to an investment advisor to purchase common stock at an exercise
price of $3.00 per share.
F-18
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited)
7. Stockholders' Equity (continued)
During 1999 and in connection with the private placements, EyeCity issued
160,000 shares of common stock and stock options to purchase 413,000 shares of
common stock at exercise prices ranging from $1.00 to $3.00 per share, in return
for consulting and finders services. In addition, during 1999, EyeCity issued
120,000 shares of common stock and options to purchase 375,000 shares of common
stock at exercise prices ranging from $1.00 to $4.38 per share in return for
legal and consulting services for total consideration of approximately
$1,268,000.
8. Stock Options
EyeCity has three stock option plans (the "Plans")--The 1997 Stock Option Plan
(the "1997 Plan") provides for the granting of either incentive stock options or
nonstatutory stock options, and the 1998 and 1999 Stock Option Plans provide for
the granting of nonstatutory stock options. The 1997 Plan provides for the
granting of up to 500,000 options and the 1998 and 1999 Plans each provide for
the granting of 1,500,000 options to key employees of EyeCity (including
directors and officers) and consultants (including members of EyeCity's advisory
board) for the purchase of EyeCity common stock. Stock options granted under the
Plans may vest immediately and have a term not greater than ten years from the
date of grant or five years for a holder of more than 10% of EyeCity common
stock. Incentive stock options may be granted at an exercise price not less than
the fair market value of the underlying shares at the date of grant or for the
1997 Plan, less than 110% of the fair market value for a holder of more than 10%
of EyeCity common stock at the date of grant. The per share price of
nonstatutory stock options granted to Non-Insiders (as defined) shall be
determined by the Board of Directors. All options under the above plans have
been granted at exercise prices equal to or greater than the fair market value
of the underlying common shares at the date of grant.
F-19
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited)
8. Stock Options (continued)
The following table summarizes activity in stock options:
<TABLE>
<CAPTION>
Year ended December 31, 1998 Six Months ended June 30, 1999
---------------------------- ------------------------------
Weighted Weighted
Average Average
Shares under Exercise Shares under Exercise
Options Price Options Price
------------ ---------- ---------- --------
<S> <C> <C> <C> <C>
Balance, beginning of period -- $ -- 752,000 $ --
Granted 1,677,000 $1.03 1,228,250 $1.43
Forfeitures/expirations 925,000 $1.00 -- --
Exercised -- -- -- --
--------- ---------
Balance, end of period 752,000 $1.06 1,980,250 $1.29
========= =========
Weighted-average fair
value of options
issued during the
period $ .67 $1.01
</TABLE>
The following tables summarize information about the stock options outstanding
at December 31, 1998 and June 30, 1999:
<TABLE>
<CAPTION>
December 31, 1998 June 30, 1999
- ---------------------------------------------------- --------------------------------------
Weighted- Weighted-
Average Average
Remaining Remaining
Exercise Options Contractual Options Options Contractual Options
Price Outstanding Life Exercisable Outstanding Life Exercisable
- ------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 508,500 8.5 years 213,000 1,323,500 6.7 years 823,500
$1.10 200,000 4.1 years 100,000 400,000 4.1 years 200,000
$1.50 41,000 9.5 years 23,000 56,000 7.4 years 56,000
$1.75 -- -- -- 60,000 2.7 years 60,000
$3.00 2,500 9.7 years 2,500 100,500 3.2 years 100,500
$4.38 -- -- -- 5,000 9.8 years --
$7.75 -- -- -- 35,250 9.9 years --
------- ------- --------- ---------
752,000 338,500 1,980,250 1,240,000
======= ======= ========= =========
</TABLE>
EyeCity has reserved 3,770,000 shares of common stock for issuance of all
options and the conversion of subordinated convertible promissory notes at June
30, 1999.
F-20
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited)
8. Stock Options (continued)
Fair Value Disclosures
Pro forma information regarding net loss and net loss per share is required by
SFAS 123, which also requires that the information be determined as if EyeCity
has accounted for its stock options under the fair value method of that
statement. The fair value for these options was estimated using the
Black-Scholes method with the following assumptions: no dividend yield,
weighted-average expected life of the option of five years, volatility factor of
the expected market price of the common stock of .46, and risk-free interest
rates of 5% for the year ended December 31, 1998.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. EyeCity's pro forma
financial information is as follows:
Year ended December 31,
------------------------------------
1997 1998
----------- -----------
Net loss
As reported $ (466,473) $(1,410,324)
=========== ===========
Pro forma $ (466,473) $(1,501,014)
=========== ===========
Net loss per share
As reported $ (.14) $ (.33)
=========== ===========
Pro forma $ (.14) $ (.35)
=========== ===========
F-21
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited)
9. Income Taxes
Deferred tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted rates expected to be recovered
or settled. Significant components of EyeCity's deferred tax assets are as
follows:
December
31, 1998
---------
Net operating loss carryforward $ 512,000
Other 81,000
---------
Total deferred tax assets 593,000
Valuation allowance for deferred tax
assets (593,000)
---------
Net deferred tax assets $ --
=========
As a result of losses from operations, at December 31, 1998, EyeCity has
available a net operating loss carryforward ("NOL") of approximately $1,280,000
for Federal income tax purposes that expire in 2017 to 2018. At December 31,
1996 and 1997, EyeCity had a valuation allowance for deferred tax assets of
approximately $26,000 and $213,000, respectively.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the period in
which the NOL's can be utilized and the temporary differences become deductible.
Since EyeCity has incurred losses since inception, EyeCity has established a
valuation allowance for deferred tax assets at December 31, 1998.
F-22
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited)
10. Related Party Transactions
EyeCity leased office space on a month-to-month basis from a related entity. A
major stockholder of EyeCity also is a major stockholder of this entity. Rent
expense paid to the related entity for the years ended December 31, 1997 and
1998 and the six months ended June 30, 1998 and 1999 was approximately $14,000,
$16,000, $7,000 and $9,000, respectively. During August 1999, EyeCity relocated
its operations and no longer leases office space from such related entity.
11. Commitments
Employment Contracts
On July 1, 1998 and December 31, 1998, EyeCity amended and extended its existing
employment contracts with its president and executive vice president,
respectively, through June 30, 2004. The contracts provide for each executive to
receive a minimum annual salary of $82,500 for the year ended December 31, 1998
and a minimum annual salary of $100,000 for each year thereafter. Officer
salaries for 1998 in the amount of $165,000 have been accrued at December 31,
1998 and an additional $94,000 has been accrued for the six months ended June
30, 1999.
Additionally, during May, July and September 1999, EyeCity entered into
three-year employment agreements with three executives with base salaries
ranging from $100,000 - $130,000 per annum, increasing to $100,000 - $180,000 in
the final year.
EyeCity entered into a severance and consulting agreement with a former officer
effective December 31, 1998 and amended July 1, 1999 and September 15, 1999. The
former officer is to receive $75,000 as full settlement of his employment
agreement; cash of $40,000 payable in equal monthly installments of $5,000, and
a $35,000 credit against the exercise of 35,000 options. In addition, the former
officer will provide consulting services for a 14-month period beginning January
1, 1999. Payment for such services will be $45,000 in cash and $15,000 credited
against the exercise of 15,000 options. The former officer had retained options
to purchase 50,000 shares of common stock at an exercise price of $1.00 per
share that expires on March 31, 2000 (10,000 of which have been exercised
pursuant to the amended agreement on July 1, 1999 and 40,000 of which have been
exercised pursuant to the amended agreement on September 30, 1999) and options
to purchase 925,000 shares of common stock were canceled.
F-23
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Information as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited)
11. Commitments (continued)
Employment Contracts (continued)
In connection with the extension of the expiration date of the vested options to
the former officer, EyeCity recorded a compensation charge of $75,000 resulting
from the new measurement date.
Leases
The Company has entered into various building leases which expire at various
times through 2004. The minimum annual rental payments under the provisions of
these leases for years ending December 31 are as follows:
July 1, 1999 to December 31, 1999 $ 50,000
2000 107,000
2001 120,000
2002 127,000
2003 130,000
Thereafter 65,000
--------
$599,000
========
Rent expense, including amounts paid to a related entity (see Note 10), was
approximately $14,000, $17,000, $8,000 and $20,000 for the years ended December
31, 1997 and 1998 and for the six months ended June 30, 1998 and 1999,
respectively.
12. Subsequent Event
On September 28, 1999, EyeCity entered into an agreement with Impact Eyewear,
LLC whereby it acquired the rights, title and interest to a merchandise license
agreement with Yahoo!, Inc. for $120,000 in cash and the issuance of 166,667
shares of EyeCity common stock. Simultaneously, the Company entered into a
distributor agreement with Sun Optics d/b/a Insight Eyeworks, Inc. ("Insight")
under which Insight will manufacture, market and distribute the Yahoo! eyewear
and eyewear accessories.
F-24
<PAGE>
Report of Independent Auditors
The Stockholder
Peeper's Sunglasses and Accessories, Inc.
We have audited the accompanying balance sheet of Peeper's Sunglasses and
Accessories, Inc. as of December 31, 1998, and the related statements of income,
stockholder's equity and cash flows for each of the two years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Peeper's Sunglasses and
Accessories, Inc. at December 31, 1998, and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1998,
in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
July 30, 1999
F-25
<PAGE>
Peeper's Sunglasses and Accessories, Inc.
Balance Sheets
December May
31, 1998 7, 1999
-------- ----------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 14,156 $101,067
Inventories 147,536 69,264
Prepaid expenses 281 179
-------- --------
Total current assets 161,973 170,510
Property and equipment:
Equipment 56,272 58,844
Furniture and fixtures 4,977 4,977
-------- --------
61,249 63,821
Less accumulated depreciation 9,749 14,584
-------- --------
Net property and equipment 51,500 49,237
-------- --------
Total assets $213,473 $219,747
======== ========
Liabilities and stockholder's equity
Current liabilities:
Accounts payable $ 17,987 $ 87,619
Accrued expenses 5,215 3,332
-------- --------
Total current liabilities 23,202 90,951
Stockholder's equity:
Common stock, par value $1.00; 100 shares
authorized, issued and outstanding 100 100
Additional paid-in capital 7,887 7,887
Retained earnings 182,284 120,809
-------- --------
Total stockholder's equity 190,271 128,796
-------- --------
Total liabilities and stockholder's equity $213,473 $219,747
======== ========
See accompanying notes.
F-26
<PAGE>
Peeper's Sunglasses and Accessories, Inc.
Statements of Income
Period from
January
Year ended December 31, 1, 1999
------------------------ to May
1997 1998 7, 1999
-------- ---------- -----------
(Unaudited)
Net revenues $402,328 $1,457,114 $735,537
Cost of revenues 227,369 1,037,125 525,835
-------- ---------- --------
Gross profit 174,959 419,989 209,702
Operating expenses:
Sales and marketing 8,655 105,763 54,126
General and administrative 80,612 176,583 88,763
Depreciation and amortization 2,040 7,709 4,965
Technology and development 5,703 1,280 --
-------- ---------- --------
Total operating expenses 97,010 291,335 147,854
-------- ---------- --------
Operating income 77,949 128,654 61,848
Interest income -- 2,044 2,012
-------- ---------- --------
Net income $ 77,949 $ 130,698 $ 63,860
======== ========== ========
See accompanying notes.
F-27
<PAGE>
Peeper's Sunglasses and Accessories, Inc.
Statements of Stockholder's Equity
Years ended December 31, 1997 and 1998 and the
period from January 1, 1999 to May 7, 1999 (unaudited)
Additional
Paid-In Retained
Common Stock Capital Earnings Total
------------ ------------ -------- -----
Balance at January 1, 1997 $100 $7,887 $ -- $ 7,987
Net income for year ended
December 31, 1997 -- -- 77,949 77,949
---- ------ --------- ---------
Balance at December 31, 1997 100 7,887 77,949 85,936
Net income for year ended
December 31, 1998 -- -- 130,698 130,698
Distributions -- -- (26,363) (26,363)
---- ------ --------- ---------
Balance at December 31, 1998 100 7,887 182,284 190,271
Net income for the period
from January 1, 1999 to
May 7, 1999 -- -- 63,860 63,860
Distributions -- -- (125,335) (125,335)
---- ------ --------- ---------
Balance at May 7, 1999 $100 $7,887 $ 120,809 $ 128,796
==== ====== ========= =========
See accompanying notes.
F-28
<PAGE>
Peeper's Sunglasses and Accessories, Inc.
Statements of Cash Flows
Period from
January
Year ended December 31 1, 1999
------------------------ to May
1997 1998 7, 1999
-------- ---------- ----------
(Unaudited)
Operating activities
Net income $ 77,949 $ 130,698 $ 63,860
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 2,040 7,709 4,965
Changes in operating assets
and liabilities:
Prepaid expenses -- (281) 102
Inventories (27,765) (79,513) 78,272
Accounts payable 15,065 (14,133) 69,632
Accrued liabilities (13,825) 3,824 (1,883)
-------- --------- ---------
Net cash flows provided by
operating activities 53,464 48,304 214,948
Investing activities
Purchase of property and
equipment (21,608) (39,641) (2,702)
-------- --------- ---------
Net cash flows used in
investing activities (21,608) (39,641) (2,702)
Financing activities
Distributions to shareholders -- (26,363) (125,335)
-------- --------- ---------
Net cash flows used in
financing activities -- (26,363) (125,335)
-------- --------- ---------
Net increase (decrease) in cash 31,856 (17,700) 86,911
Cash and cash equivalents at
beginning of period -- 31,856 14,156
-------- --------- ---------
Cash and cash equivalents at
end of period $ 31,856 $ 14,156 $ 101,067
======== ========= =========
See accompanying notes.
F-29
<PAGE>
Peeper's Sunglasses and Accessories, Inc.
Notes to Financial Statements
(Information as of May 7, 1999 and the period from
January 1, 1999 to May 7, 1999 is unaudited)
1. Description of Business
Peeper's Sunglasses and Accessories, Inc. ("Peeper's") was incorporated on
January 1, 1997. Peeper's operates a retail optical store located in Duluth,
Minnesota and also sells optical products online through its Internet site.
2. Summary of Significant Accounting Policies
Interim Financial Statements
The financial statements for the period January 1, 1999 to May 7, 1999 have been
prepared by Peeper's without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the results of operations and cash flows for the aforementioned
period have been made. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or eliminated. The results of
operations for the period January 1, 1999 to May 7, 1999, are not necessarily
indicative of the results to be expected for any future interim period or for
the year ending December 31, 1999.
Cash Equivalents
Peeper's considers all highly liquid investments with a maturity of three months
or less at the date of purchase to be cash equivalents.
Revenue Recognition
Net revenues are generated by online and retail operations and consist of the
selling price of merchandise, net of returns and credits, and shipping charges.
Net revenues are recognized upon shipment. Peeper's provides an allowance for
sales returns in the period of sale, based upon historical experience.
Costs of Revenues
Costs of revenues include the cost of merchandise sold from inventory and the
associated costs of inbound freight and outbound shipping.
F-30
<PAGE>
Peeper's Sunglasses and Accessories, Inc.
Notes to Financial Statements (continued)
(Information as of May 7, 1999 and the period from
January 1, 1999 to May 7, 1999 is unaudited)
2. Summary of Significant Accounting Policies (continued)
Concentration of Credit Risk
Peeper's sells its products to a broad range of customers throughout the United
States. Generally, customers pay for their products through the use of cash or
major credit cards. The timing of the cash realization and related fees are
determined based upon agreements with such major credit card companies.
Accordingly, credit losses related to the sale of merchandise are limited.
Inventories
Inventories are stated at the lower of cost (using the first-in, first-out
method of accounting) or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the related assets,
ranging from 5 to 7 years.
Technology and Development
Technology and development costs consist of expenses associated with the
designing and development of Peeper's websites. The useful life of technology
and development costs is less than one year and, accordingly, are expensed as
incurred.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
F-31
<PAGE>
Peeper's Sunglasses and Accessories, Inc.
Notes to Financial Statements (continued)
(Information as of May 7, 1999 and the period from
January 1, 1999 to May 7, 1999 is unaudited)
2. Summary of Significant Accounting Policies (continued)
Advertising Costs
Peeper's policy is to expense advertising costs as incurred. For the years ended
December 31, 1997 and 1998 and the period from January 1, 1999 to May 7, 1999,
advertising expense was approximately $9,000, $71,000 and $40,000, respectively.
Income Taxes
For federal income tax purposes, Peeper's has elected to file as an S
corporation under the provisions of the Internal Revenue Code. A similar
election was made for Minnesota state purposes. As a result, income of Peeper's
is taxed directly to the shareholder and, accordingly, no provision for income
taxes has been made in the accompanying financial statements.
3. Merger of Business
On May 7, 1999, Peeper's merged into Peeper's, Inc. (a wholly-owed subsidiary of
EyeCity.com, Inc.) for merger consideration consisting of a cash payment of
$875,000, a promissory note in the amount of $875,000, due upon the earlier of
the anniversary date or the consummation of a public financing resulting in
gross proceeds in excess of $10,000,000, and the issuance of 1,210,159 shares of
restricted common stock.
F-32
<PAGE>
Report of Independent Auditors
Stockholder and Directors
SunSource Technology, Inc.
We have audited the accompanying balance sheet of SunSource Technology, Inc. as
of December 31, 1998, and the related statements of income, stockholder's equity
and cash flows for the year ended and the period from June 13, 1997 (inception)
to December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SunSource Technology, Inc. at
December 31, 1998, and the results of its operations and its cash flows for the
year ended and the period from June 13, 1997 (inception) to December 31, 1997,
in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
July 30, 1999
F-33
<PAGE>
SunSource Technology, Inc.
Balance Sheets
December June
31, 1998 30, 1999
-------- -----------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $29,619 $48,577
Accounts receivable 2,851 4,524
Inventories 8,496 15,101
Other assets 268 905
------- -------
Total current assets 41,234 69,107
Furniture and equipment, net of accumulated
depreciation of $227 and $639, respectively 2,042 5,322
------- -------
Total assets $43,276 $74,429
======= =======
Liabilities and stockholder's equity
Current liabilities:
Accounts payable $22,217 $60,182
Accrued expenses and other 5,627 709
------- -------
Total current liabilities 27,844 60,891
Stockholder's equity:
Common stock, par value $25; 1,500 shares
authorized, 50 shares issued and outstanding 1,250 1,250
Retained earnings 14,182 12,288
------- -------
Total stockholder's equity 15,432 13,538
------- -------
Total liabilities and stockholder's equity $43,276 $74,429
======= =======
See accompanying notes.
F-34
<PAGE>
SunSource Technology, Inc.
Statements of Operations
Period from
June 13, 1997
(inception) Year ended Six months
to December December ended June
31, 1997 31, 1998 30, 1999
------------- ---------- -----------
(Unaudited)
Net revenues $ 6,196 $ 195,791 $ 293,396
Cost of revenues 4,954 149,163 218,024
------- --------- ---------
Gross profit 1,242 46,628 75,372
Operating expenses:
Sales and marketing 454 12,030 19,925
General and administrative 1,322 15,938 57,740
Depreciation -- 227 412
------- --------- ---------
Total operating expenses 1,776 28,195 78,077
------- --------- ---------
Operating income (loss) (534) 18,433 (2,705)
Interest income (expense) -- (138) 11
------- --------- ---------
Income (loss) before income taxes (534) 18,295 (2,694)
Provision (benefit) for income
taxes -- 3,579 (800)
------- --------- ---------
Net income (loss) $ (534) $ 14,716 $ (1,894)
======= ========= =========
See accompanying notes.
F-35
<PAGE>
SunSource Technology, Inc.
Statements of Stockholder's Equity
Period from June 13, 1997 (inception) to December 31, 1997, year ended
December 31, 1998 and six months ended June 30, 1999 (unaudited)
Common Retained
Stock Earnings Total
------ ---------- --------
Issuance of common stock on June 13, 1997 $1,250 $ -- $ 1,250
Net loss for year ended December 31, 1997 -- (534) (534)
------ -------- --------
Balance at December 31, 1997 1,250 (534) 716
Net income for year ended December 31, 1998 -- 14,716 14,716
------ -------- --------
Balance at December 31, 1998 1,250 14,182 15,432
Net loss for the six months ended June 30,
1999 (unaudited) -- (1,894) (1,894)
------ -------- --------
Balance at June 30, 1999 (unaudited) $1,250 $ 12,288 $ 13,538
====== ======== ========
See accompanying notes.
F-36
<PAGE>
SunSource Technology, Inc.
Statements of Cash Flows
Period from
June 13,
1997
(inception) Year ended Six months
to December December ended June
31, 1997 31, 1998 30, 1999
------------ ---------- -----------
(Unaudited)
Operating activities
Net income (loss) $ (534) $ 14,716 $ (1,894)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation -- 227 412
Changes in operating assets
and liabilities:
Accounts receivable (229) (2,622) (1,673)
Other assets (125) (143) (637)
Inventories (3,388) (5,108) (6,605)
Accounts payable and
accrued expenses 1,255 26,589 33,047
Due to stockholder 3,996 (3,996) --
------- -------- --------
Net cash flows provided by
operating activities 975 29,663 22,650
Investing activities
Purchases of property and
equipment -- (2,269) (3,692)
------- -------- --------
Net cash flows used in
investing activities -- (2,269) (3,692)
Financing activities
Proceeds from sale of common
stock 1,250 -- --
------- -------- --------
Net cash flows provided by
financing activities 1,250 -- --
------- -------- --------
Net increase in cash 2,225 27,394 18,958
Cash and cash equivalents at
beginning of period -- 2,225 29,619
------- -------- --------
Cash and cash equivalents at
end of period $ 2,225 $ 29,619 $ 48,577
======= ======== ========
See accompanying notes.
F-37
<PAGE>
SunSource Technology, Inc.
Notes to Financial Statements
(Information as of June 30, 1999 and for the six
months ended June 30, 1999 is unaudited)
1. Description of Business
SunSource Technology, Inc. ("SunSource") was incorporated in Florida on June 13,
1997. SunSource sells sunglasses, prescription eyewear and contact lenses online
through its Internet site.
2. Summary of Significant Accounting Policies
Interim Financial Statements
The financial statements for the six months ended June 30, 1999 have been
prepared by SunSource without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the results of operations and cash flows for the six months ended
June 30, 1999 have been made. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or eliminated. The results of
operations for the six months ended June 30, 1999, are not necessarily
indicative of the results to be expected for any future interim period or for
the year ending December 31, 1999.
Cash Equivalents
SunSource considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.
Revenue Recognition
Net revenues are generated by online operations and primarily consist of the
selling price of merchandise, net of returns and credits, and shipping charges.
Net revenues are recognized upon shipment of the order to the recipient.
Costs of Revenues
Costs of revenues include the cost of merchandise sold from inventory and the
associated costs of inbound freight and outbound shipping.
F-38
<PAGE>
SunSource Technology, Inc.
Notes to Financial Statements
(Information as of June 30, 1999 and for the six
months ended June 30, 1999 is unaudited)
2. Summary of Significant Accounting Policies (continued)
Concentration of Credit Risk
SunSource sells its products to a broad range of customers throughout the United
States. The Company does not extend credit to its customers as substantially all
sales are to customers over the Internet using major credit cards. Credit losses
relating to customers have been consistently within management's expectations.
Inventories
Inventories are stated at the lower of cost (using the first-in, first-out
method of accounting) or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the related assets,
ranging from 5 to 7 years.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Advertising Costs
SunSource's policy is to expense all advertising costs when incurred. For the
year ended December 31, 1998 and the six months ended June 30, 1999,
advertising expense was approximately $3,000 and $3,000, respectively. There
were no advertising costs for the year ended December 31, 1997.
F-39
<PAGE>
SunSource Technology, Inc.
Notes to Financial Statements
(Information as of June 30, 1999 and for the six
months ended June 30, 1999 is unaudited)
2. Summary of Significant Accounting Policies (continued)
Income Taxes
For federal income tax purposes, SunSource has elected to file as a C
corporation under the provisions of the Internal Revenue Code.
3. Merger of Business
On June 30, 1999, the Company merged into SunglassSite, Inc. (a wholly-owed
subsidiary of EyeCity.com, Inc.). As per the merger agreement all issued and
outstanding shares of SunSource common stock was converted into the right to
receive the following merger consideration: cash of $212,500, a promissory note
in the amount of $212,500, due upon the earlier of the anniversary date or the
consummation of a public financing resulting in gross proceeds in excess of
$10,000,000, and the issuance of 283,334 shares of restricted common stock,
66,667 of which will be held in escrow for a period of six months following the
closing date as security for the representations, warranties and covenants made
by Rob Wilson (former owner) and SunSource.
F-40
<PAGE>
Report of Independent Auditors
The Stockholders
Foggles, Inc.
We have audited the accompanying balance sheet of Foggles, Inc. as of August 5,
1998, and the related statements of operations, stockholders' equity and cash
flows for the year ended December 31, 1997 and the period from January 1, 1998
to August 5, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Foggles, Inc. at August 5,
1998, and the results of its operations and its cash flows for the year ended
December 31, 1997 and the period from January 1, 1998 to August 5, 1998, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
July 30, 1999
F-41
<PAGE>
Foggles, Inc.
Balance Sheet
August 5, 1998
Assets
Current assets:
Cash and cash equivalents $ 3,443
Accounts receivable 7,135
Inventories 2,880
Other assets 335
-------
Total assets $13,793
=======
Liabilities and stockholders' equity
Current liabilities:
Accrued expenses $ 4,097
Other liabilities 43
-------
Total current liabilities 4,140
Stockholders' equity:
Capital stock 600
Retained earnings 9,053
-------
Total stockholders' equity 9,653
-------
Total liabilities and stockholders' equity $13,793
=======
See accompanying notes.
F-42
<PAGE>
Foggles, Inc.
Statements of Operations
Period from
Year Ended January 1, 1998
December to
31, 1997 August 5, 1998
--------- --------------
Net revenues $ 137,516 $ 85,306
Cost of revenues 81,672 33,755
--------- --------
Gross profit 55,844 51,551
Operating expenses:
Sales and marketing 31,478 16,584
General and administrative 7,175 71,750
Depreciation and amortization 2,685 --
Technology and development 4,196 --
--------- --------
Total operating expenses 45,534 88,334
--------- --------
Operating income (loss) 10,310 (36,783)
Investment income 994 905
Interest expense (348) (185)
Gain (loss) on sale of marketable securities 11,571 (16,705)
--------- --------
Net income (loss) $ 22,527 $(52,768)
========= ========
See accompanying notes.
F-43
<PAGE>
Foggles, Inc.
Statements of Stockholders' Equity
Year ended December 31, 1997 and the period from
January 1, 1998 to August 5, 1998
<TABLE>
<CAPTION>
Accumulated
Other
Common Comprehensive Retained
Stock Income Earnings Total
------ --------- ---------- ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $600 $ -- $ 206,144 $ 206,744
Distributions -- -- (16,000) (16,000)
Unrealized loss on marketable securities -- (12,478) -- (12,478)
Net income for year ended December 31, 1997 -- -- 22,527 22,527
---------
Total comprehensive income -- -- -- 10,049
---- -------- --------- ---------
Balance at December 31, 1997 600 (12,478) 212,671 200,793
Distributions -- -- (150,850) (150,850)
Unrealized gain on marketable securities -- 12,478 -- 12,478
Net loss for the period from January 1,
1998 to August 5, 1998 -- -- (52,768) (52,768)
---------
Total comprehensive loss -- -- -- (40,290)
---- -------- --------- ---------
Balance at August 5, 1998 $600 $ -- $ 9,053 $ 9,653
==== ======== ========= =========
</TABLE>
See accompanying notes.
F-44
<PAGE>
Foggles, Inc.
Statements of Cash Flows
Period from
Year Ended January 1, 1998
December to
31, 1997 August 5, 1998
---------- --------------
Operating activities
Net income (loss) $ 22,527 $ (52,768)
Adjustments to reconcile to net income
(loss) to cash provided by
operating activities:
Depreciation and amortization 4,828 --
Loss (gain) on sale of marketable
securities (11,571) 16,705
Changes in operating assets and
liabilities:
Accounts receivable 7,349 (1,828)
Inventories (3,666) 1,586
Other assets 372 (335)
Note receivable -- 136,238
Accounts payable and accrued
liabilities (3,518) (3,595)
-------- ---------
Net cash flows provided by operating
activities 16,321 96,003
Investing activities
Proceeds from sale of marketable
securities 54,196 61,356
Purchase of marketable securities (54,668) (4,043)
-------- ---------
Net cash flows (used in) provided by
investing activities (472) 57,313
Financing activities
Distributions to shareholders (16,000) (150,850)
-------- ---------
Net cash flows used in financing activities (16,000) (150,850)
-------- ---------
Net (decrease) increase in cash (151) 2,466
Cash and cash equivalents at beginning of period 1,128 977
-------- ---------
Cash and cash equivalents at end of period $ 977 $ 3,443
======== =========
See accompanying notes.
F-45
<PAGE>
Foggles, Inc.
Notes to Financial Statements
August 5, 1998
1. Description of Business
Foggles, Inc. ("Foggles") was incorporated on August 11, 1981 in the state of
Ohio. Foggles is a distributor of optical devices for pilots, hunters, etc.
2. Summary of Significant Accounting Policies
Cash Equivalents
Foggles considers all highly liquid investments with a maturity of three months
or less at the date of purchase to be cash equivalents.
Revenue Recognition
Net revenues are generated by wholesale operations and consist of the selling
price of merchandise, net of returns and credits, and include shipping charges.
Net revenues are recognized upon shipment.
Costs of Revenues
Costs of revenues include the cost of merchandise inventory and the associated
costs of inbound freight and outbound shipping.
Concentration of Credit Risk
Foggles sells it products to a broad range of customers throughout the United
States. The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Receivables are
due within 30 days. Credit losses relating to customers have been consistently
within management's expectations.
Inventories
Inventories are stated at the lower of cost (using the first-in, first-out
method of accounting) or market.
F-46
<PAGE>
Foggles, Inc.
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Technology and Development
Technology and development costs consist of expenses associated with the
designing and development of Foggles' website. The useful life of technology and
development costs is less than one year and, accordingly, are expensed as
incurred.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Advertising Costs
Foggles policy is to expense advertising costs as incurred. For the year ended
December 31, 1997 and the period from January 1, 1998 to August 5, 1998,
advertising expense approximated $17,000 and $7,000, respectively.
Income Taxes
For federal income tax purposes, Foggles has elected to file as an S corporation
under the provisions of the Internal Revenue Code. A similar election was made
for Ohio state purposes. As a result, income of Foggles is taxed directly to the
shareholders and, accordingly, no provision for income taxes has been made in
the accompanying financial statements.
F-47
<PAGE>
Foggles, Inc.
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Comprehensive Income
Effective January 1, 1997, Foggles adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income. Statement 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, the adoption of this statement has no impact on Foggles' net income
(loss) or stockholders' equity (deficit). Statement 130 requires unrealized
gains or losses on Foggles' available-for-sale securities, which prior to
adoption was reported separately in stockholders' equity, to be included in
comprehensive income. The related tax effect on comprehensive income is not
material for the periods presented. Prior year consolidated financial statements
have been restated to conform to the requirements of Statement 130.
3. Sale of Business
On August 5, 1998, all issued and outstanding shares of Foggles common stock was
sold to EyeCity.com, Inc., a New York corporation, in exchange for 214,000
common shares of EyeCity.com, Inc.
F-48
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Operations
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Peeper's
Sunglasses
and SunSource
EyeCity.com, Foggles, Accessories, Technology, Pro Forma
Inc. Inc. Inc. Inc. Adjustments Pro Forma
------------ -------- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 95,974 $ 85,306 $1,457,114 $ 195,791 $ -- $ 1,834,185
Cost of revenues 44,576 33,755 1,037,125 149,163 -- 1,264,619
----------- -------- ---------- --------- ----------- -----------
Gross profit 51,398 51,551 419,989 46,628 -- 569,566
Operating expenses:
Marketing and sales 779,528 16,584 105,763 12,030 -- 913,905
General and
administrative 657,832 71,750 176,583 15,938 -- 922,103
Depreciation and
amortization 24,754 -- 7,709 227 1,383,952 1,416,642
Technology and
development -- -- 1,280 -- -- 1,280
----------- -------- ---------- --------- ----------- -----------
Total operating expenses 1,462,114 88,334 291,335 28,195 1,383,952 3,253,930
----------- -------- ---------- --------- ----------- -----------
Operating income (loss) (1,410,716) (36,783) 128,654 18,433 (1,383,952) (2,684,364)
Other income (expense):
Interest and
investment income 10,865 905 2,044 -- -- 13,814
Interest expense (10,473) (185) -- (138) -- (10,796)
Loss on sale of
marketable
securities -- (16,705) -- -- -- (16,705)
----------- -------- ---------- --------- ----------- -----------
Total other income
(expense) 392 (15,985) 2,044 (138) -- (13,687)
Provision for income
taxes -- -- -- 3,579 -- 3,579
----------- -------- ---------- --------- ----------- -----------
Net income (loss) $(1,410,324) $(52,768) $ 130,698 $ 14,716 $(1,383,952) $(2,701,630)
=========== ======== ========== ========= =========== ===========
Basic and diluted net
loss per common share $ (.33) $ (.46)
=========== ===========
Shares used in the
calculation of basic
and diluted net loss
per common share 4,259,773 5,880,493
=========== ===========
</TABLE>
See accompanying notes
F-49
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Operations
Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Peeper's
Sunglasses and SunSource
EyeCity.com, Accessories, Technology, Pro Forma
Inc. Inc. Inc. Adjustments Pro Forma
--------------- ----------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 551,937 $735,537 $ 293,396 $ -- $ 1,580,870
Cost of revenues 380,121 525,835 218,024 -- 1,123,980
----------- -------- --------- --------- -----------
Gross profit 171,816 209,702 75,372 -- 456,890
Operating expenses:
Marketing and sales 126,474 54,126 19,925 -- 200,525
General and administrative 1,092,316 88,763 57,740 -- 1,238,819
Depreciation and
amortization 221,946 4,965 412 502,659 729,982
Technology and development 125,924 -- -- -- 125,924
----------- -------- --------- --------- -----------
Total operating expenses 1,566,660 147,854 78,077 502,659 2,295,250
----------- -------- --------- --------- -----------
Operating income (loss) (1,394,844) 61,848 (2,705) (502,659) (1,838,360)
Other income (expense):
Interest and investment
income 5,968 2,012 11 -- 7,991
Interest expense (50,082) -- -- -- (50,082)
----------- -------- --------- --------- -----------
Total other income (expense) (44,114) 2,012 11 -- (42,091)
Benefit for income taxes -- -- 800 -- 800
----------- -------- --------- --------- -----------
Net income (loss) $(1,438,958) $ 63,860 $ (1,894) $(502,659) $(1,879,651)
=========== ======== ========= ========= ===========
Basic and diluted net loss per
common share $ (.25) $ (.28)
=========== ===========
Shares used in the
calculation of basic and
diluted net loss per
common share 5,690,845 6,812,993
=========== ===========
</TABLE>
See accompanying notes.
F-50
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Consolidated
Statements of Operations
Year Ended December 31, 1998 and
the Six Months Ended June 30, 1999
1. Basis of Presentation
The unaudited pro forma statement of operations for the year ended December 31,
1998 gives effect to EyeCity's acquisitions of Foggles, Inc. ("Foggles")
Peeper's Sunglasses and Accessories, Inc. ("Peeper's") and SunSource Technology,
Inc. ("SunSource") as if they occurred on January 1, 1998. Such unaudited pro
forma financial statement sets forth the historical results of operations of
EyeCity, Peeper's and SunSource for the year ended December 31, 1998 and Foggles
for the period January 1, 1998 to August 5, 1998. The operations of Foggles for
the period August 6, 1998 to December 31, 1998 are included in the operations of
EyeCity.
The unaudited pro forma statement of operations for the six months ended June
30, 1999 gives effect to EyeCity's acquisitions of Peeper's and SunSource as if
they occurred on January 1, 1999. Such unaudited pro forma financial statement
sets forth the historical results of operations of EyeCity and SunSource for the
six months ended June 30, 1999 and Peeper's for the period January 1, 1999 to
May 7, 1999. The operations of Peeper's for the period May 8, 1999 to June 30,
1999 are included in the operations of EyeCity.
The unaudited pro forma statement of operations has been prepared by management
and should be read in conjunction with the historical financial statements of
EyeCity, Peeper's, Foggles and SunSource. This statement does not purport to be
indicative of the results of operations that might have occurred if the Foggles,
Peeper's and SunSource acquisitions were consummated on January 1, 1998 or
January 1, 1999, and does not purport to be indicative of future results.
Management believes additional synergies and operational improvements, not
reflected in the accompanying unaudited pro forma statements of operations, will
be realized by the combined companies. Such amounts cannot be reasonably
quantified and, therefore, are not reflected in the unaudited pro forma
statements of operations.
F-51
<PAGE>
EyeCity.com, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Consolidated
Statement of Operations (continued)
Year Ended December 31, 1998 and
the Six Months Ended June 30, 1999
2. Pro Forma Adjustment
The pro forma adjustment for the year ended December 31, 1998 reflects the
additional amortization required for a full year's amortization of the
intangibles acquired. Total intangibles were approximately $4,211,000 which was
allocated to goodwill with a life of 3 years. The annual amortization totals
$1,404,000.
The pro forma adjustment for the six months ended June 30, 1999 reflects the
additional amortization required for a full year's amortization of the
intangibles acquired. Total intangibles were approximately $4,055,000 which was
allocated to goodwill with a life of 3 years. The amortization for six months
totals $676,000.
3. Net Loss per Share Applicable to Common Stockholders
Pro forma net loss per share applicable to common stockholders adjusts the
weighted average shares outstanding of EyeCity's historical financial statements
for the shares issued to Foggles, Peeper's and SunSource stockholders as if such
shares were outstanding for the entire year.
F-52
<PAGE>
PART III
Item 1. Index to Exhibits
2. a. Certificate of Incorporation
b. Amendment to Certificate of Incorporation
c. Bylaws, as amended
3. Instruments Defining the Rights of Security Holders:
a. Form of Subscription Agreement used in connection with offering of
450,000 and 550,000 shares of common stock under Rule 504 of
Securities Act of 1933
b. Form of Subscription Agreement used in connection with offering of
10% Subordinated Convertible Promissory Notes
c. Form of 10% Subordinated Convertible Promissory Note
d. Purchase and Investment Agreement with Nikos P. Mouyiaris
e. Form of Purchase and Investment Agreement with other investors in
May 1999 $1,500,000 offering
f. Form of Purchase and Investment Agreement with investors in June
1999 $690,000 offering
6. a. Stock Purchase Agreement between Ergovision, Inc. and shareholders
of Foggles, Inc.
b. Stock Purchase Agreement between Ergovision, Inc. and shareholders
of Gilead Enterprises, Inc.
c. Stock Purchase Agreement by and between Ergovision, Inc. and
Leonard B. Harrington III
d. Severance and Consultancy Agreement with Robert B. Greenberg
e. Amendments to Severance and Consultancy Agreement with Robert B.
Greenberg
f. Agreement and Plan of Merger by and among Ergovision, Inc., Peeper's
Sunglasses and Accessories, Inc., Peeper's, Inc. and Daniel D.
Thralow
g. Purchase Agreement between EyeCity.com, Inc., StarSystems and Thomas
Gilligan
h. Agreement and Plan of Merger by and among EyeCity.com, Inc.,
SunglassSite, Inc., SunSource Technology, Inc. and G. Robert Wilson
<PAGE>
i. Asset Purchase and Assignment Agreement by and among EyeCity.com,
Inc., Impact Eyewear, LLC and Thomas Seltzer
j. Merchandise License Agreement among Yahoo!, Inc., Panic
Entertainment Groupe and Impact Eyewear, LLC(1),(2)
k. Distribution Agreement by and between EyeCity.com, Inc. and
SunOptics d/b/a Insight Eyeworks(1),(2)
l. Agreement between EyeCity.com and IEM, Inc.
m. Employment Agreement between Ergovision Inc. and Mark H. Levin
n. Amendment to Employment Agreement between Ergovision, Inc. and Mark
H. Levin
o. Employment Agreement between Ergovision Inc. and Mark R. Suroff
p. Amendment to Employment Agreement between Ergovision, Inc. and Mark
R. Suroff
q. Employment Agreement between Ergovision Inc. and Daniel D. Thralow
r. Finders Agreement between Ergovision, Inc. and James J. Armenakis
s. Consulting Agreement between Ergovision, Inc. and James J. Armenakis
t. Amendment to Consulting Agreement between Ergovision, Inc. and James
J. Armenakis
u. Employment Agreement between EyeCity.com, Inc. and Jon Agnes
v. Employment Agreement between EyeCity.com, Inc. and Thomas B. Seltzer
w. 1997 Qualified Stock Option Plan
x. 1998 Stock Option Plan
y. 1999 Stock Option Plan
z. Lease between First Industrial, LP. and EyeCity.com, Inc.
aa. Lease between Plaza Associates and Peeper's, Inc.
(1) To be filed by amendment.
(2) Confidential treatment has been requested with respect to certain portions
of this exhibit, which have been omitted therefrom and will be separately
filed with the Commission.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
EyeCity.com, Inc.
Dated: October 5, 1999 By /s/ Mark H. Levin
-------------------------------------
Name: Mark H. Levin
Title: President and Chief Executive
Officer
CERTIFICATE OF INCORPORATION
OF
ERGOVISION, INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the "corporation")
is Ergovision, Inc.
SECOND: The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
FOURTH: The name and the mailing address of the incorporator are as
follows:
Name Mailing Address
---- ---------------
Richard A. Rubin c/o Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
FIFTH: The corporation is to have perpetual existence.
SIXTH: The total number of shares of stock which the corporation shall
have authority to issue shall be 21,000,000, of which 20,000,000 shares shall be
common stock, par value $.001 per share, and 1,000,000 shares shall be preferred
stock, par value $.001 per share. The shares of preferred stock shall be
issuable in one or more series as determined from time to time by the Board of
Directors. The Board of Directors hereby is expressly vested with authority, by
resolution or resolutions, to establish with respect to each such series, its
designation, number, full or limited voting powers or the denial of voting
powers, and relative, participating, optional or other special rights, and any
qualifications, limitations and restrictions thereof. The authority of the Board
of Directors with respect to each series shall include, but not be limited to,
determining the following:
(i) the distinctive designations of such series and the number of
shares which shall constitute such series, which number may be
<PAGE>
increased or decreased (except where otherwise provided by the Board
of Directors in creating such series) from time to time by like
action of the Board of Directors;
(ii) whether dividends shall be payable with respect to such series
and, if so, the annual rate or amount of dividends payable on shares
of such series, whether such dividends shall be cumulative or
noncumulative, the relation which any such dividends shall bear to
dividends payable on any other series of such class or any other
class of stock or series of any other class of stock, the conditions
upon which and/or the dates when such dividends shall be payable,
the date from which dividends on cumulative series shall accrue and
be cumulative, and whether the payment of such dividends shall be in
cash, common stock, preferred stock of the same or other series, or
property;
(iii) whether such series shall be redeemable and, if so, the terms
and conditions of such redemption, including the time or times when
and the price or prices at which shares of such series may be
redeemed, and whether shares of such series shall be subject to the
operation of a retirement or sinking fund to be applied to the
purchase or redemption of such shares and, if any such retirement or
sinking fund be established, the time or times any such payments are
to be made and the terms and provisions relative to the operation
thereof;
(iv) the rights of the shares of the series in the event of
voluntary or involuntary liquidation, dissolution, or upon the
distribution of assets in connection with the winding up, of the
corporation and whether such series shall be entitled to receive a
priority in payment in the event of the liquidation, dissolution or
winding up of the affairs of the corporation and, if so, the amount
thereof;
(v) whether such series shall be convertible into or exchangeable
for shares of any other series of such class or any other class of
stock or series of any other class of stock and, if so, the terms
and conditions thereof, including the date or dates when such shares
shall be so convertible or exchangeable, and any adjustments which
shall be made, and the circumstances in which any such adjustments
shall be made, in such conversion or exchange prices or rates;
(vi) whether such series shall have any voting rights in addition to
those prescribed by law and, if so, the terms and conditions of
exercise of such voting rights; and
-2-
<PAGE>
(vii) any other designations, preferences and relative,
participating, optional or other special rights, and any
qualifications, limitations and restrictions thereof.
SEVENTH: In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the following provisions are inserted in this
Certificate of Incorporation for the regulation and conduct of the business and
affairs of the corporation:
1. Directors may be removed from office with or without cause by the
holders of a majority of the outstanding shares of capital stock of the
corporation entitled to vote at an election of directors.
2. The directors of the corporation, by the affirmative vote of a majority
of the whole board of directors of the corporation, at any regular or special
meeting, shall have the power to adopt, amend or repeal By-laws of the
corporation, provided, however, that such power of the board of directors of the
corporation shall not divest the stockholders of the corporation of their power
to adopt, amend or repeal By-laws of the corporation.
3. In addition to the powers and authorities conferred upon the board of
directors of the corporation by this Certificate of Incorporation, the board of
directors of the corporation may exercise all such powers and take all such
actions as may be exercised or taken by the corporation, subject, however, to
the provisions of the laws of the State of Delaware, this certificate of
incorporation and the By-laws of the corporation.
4. Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide.
5. The books of the corporation may be kept (subject to any provision
contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the board of directors, or in the
By-laws, of the corporation.
6. Elections of directors need not be by written ballot unless the By-laws
of the corporation shall so provide.
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
-3-
<PAGE>
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: No director of the corporation shall be liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that the foregoing shall not eliminate or limit liability of
a director (i) for any breach of such 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 Title 8 of the Delaware Code, or (iv) for any transaction from
which such director derived an improper personal benefit. If the Delaware
General Corporation Law (or any successor statute) hereafter is amended to
authorize the further elimination or limitation of the liability of directors,
then the liability of a director of the corporation, in addition to the
limitation of personal liability provided herein, shall be limited to the
fullest extent permitted by the amended Delaware Corporation Law (or successor
statute). Neither the amendment nor repeal of this Article, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article, shall eliminate or reduce the effect of this Article in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
Article, would accrue or arise, prior to such amendment, repeal or adoption of
an inconsistent provision.
TENTH: The corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by such section. To the
extent permitted by law, the indemnification provided for herein shall not be
deemed exclusive of any other rights to which any person may be entitled under
any By-law, agreement, vote of stockholders or disinterested directors or
otherwise. Such indemnification shall pertain both as to action in such person's
official capacity and as to action in another capacity while holding such office
or directorship, shall continue as to a person who has ceased to be a director,
officer, employee or agent as to action while acting in such capacity or holding
such office or directorship, and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ELEVENTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
Signed on April 8, 1997
/s/ Richard A. Rubin
--------------------------------------
Richard A. Rubin
Incorporator
-4-
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
ERGOVISION, INC.
Ergovision, Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: By the unanimous consent of the Board of Directors of Ergovision,
Inc., resolutions were duly adopted setting forth a proposed amendment to the
Certificate of Incorporation of said Corporation, declaring said amendment to be
advisable and seeking approval by holders of at least a majority of the issued
and outstanding shares of said corporation to adopt such amendment to the
Certificate of Incorporation, pursuant to Section 228(d) of the Delaware General
Corporation Law. The resolutions setting forth the proposed amendment are as
follows:
RESOLVED, that the Board of Directors deems it desirable to delete Article
First of the Certificate of Incorporation, as amended, of the Corporation and to
insert the following in its place and stead:
"FIRST: The name of the corporation is (hereafter called the
"corporation") EyeCity.com, Inc."
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
a written consent of stockholders was duly received in accordance with Section
228(d) of the General Corporation Law of the State of Delaware, and in excess of
a majority of the issued and outstanding shares of said Corporation entitled to
vote thereon, voted in favor of the adoption of said amendment to the
Certificate of Incorporation.
THIRD: The said amendment was duly adopted in accordance with the
provisions of Sections 228(d) and 242 of the General Corporation Law of the
State of Delaware.
1
<PAGE>
IN WITNESS WHEREOF, said Ergovision, Inc. has caused this Certificate to
be signed by Mark H. Levin, its President and Mark R. Suroff, its
Secretary/Treasurer, this 7th day of May, 1999.
ERGOVISION, INC.
By: /s/ Mark H. Levin
-------------------------------------
Mark H. Levin, President
By: /s/ Mark R. Suroff
-------------------------------------
Mark R. Suroff, Secretary/
Treasurer
2
BY-LAWS
OF
ERGOVISION, INC.
(A Delaware corporation)
(As amended through December 31, 1998)
ARTICLE I
STOCKHOLDERS
1. RECORD DATE FOR STOCKHOLDERS. For the purpose of determining the
stockholders entitled to (i) notice of or to vote at any meeting of stockholders
or any adjournment thereof, the directors may fix, in advance, a record date,
which shall not be more than sixty days nor less than ten days before the date
of such meeting; (ii) consent to corporate action in writing without a meeting,
the directors may fix a record date, which shall not be more than ten days after
such resolution is adopted by the Board; or (iii) receive payment of any
dividend or other distribution or allotment of any dividend or other
distribution or allotment of any rights, exercise any rights in respect of any
change, conversion or exchange of stock, or, for the purpose of any other lawful
action, the directors may fix a record date which shall not be more than sixty
days prior to such action. In no event shall the record date for any of the
above purposes precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors. If no record date is fixed, the record
date for determining stock-holders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held; the record date
for determining stockholders entitled to consent to corporation action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the first date on which a signed written consent is
delivered to the Corporation in the manner provided by the Delaware General
Corporation Law (the "General Corporation Law") and if prior action is required,
such record date shall be at the close of business on the date on which the
Board of Directors adopts a resolution taking such prior action; and the record
date for determining stockholders for any other purpose, including the purposes
described in clause (iii) above, shall be at the close of business on the day
on-which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at any
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.
2. MEANING OF CERTAIN TERMS. As used herein in respect of the right
to notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to (i) an outstanding
<PAGE>
share or shares of stock and to a holder or holders of record of outstanding
shares of stock when the Corporation has only one class of shares of stock
outstanding and (ii) any outstanding share or shares of stock and any holder or
holders of record of outstanding shares of stock of any class upon which or upon
whom the Certificate of Incorporation or a resolution of the Board of Directors
theretofore certified and effective pursuant to Section 151 of the General
Corporation Law confers such rights when the Corporation has two or more classes
or series of shares of stock outstanding or upon which or upon whom the General
Corporation Law confers such rights notwithstanding that the Certificate of
Incorporation may provide for more than one class or series of shares of stock,
one or more of which are limited or denied such rights thereunder.
3. STOCKHOLDER MEETINGS.
(a) Time. The annual meeting for the election of directors and for
the transaction of such other business as may properly come before the meeting
shall be held on the date and at the time fixed, from time to time, by the
directors. A special meeting for the transaction of such business as may
properly come before the meeting shall be held on the date and at the time fixed
by the directors.
(b) Place. Annual meetings and special meetings shall be held at
such place, within or without the State of Delaware, as the directors may, from
time to time, fix. Whenever the directors shall fail to fix such place, the
meeting shall be held at the principal executive office of the Corporation.
(c) Call. Annual meetings and special meetings may be called by the
directors or by any officer instructed by the directors to call the meeting.
(d) Notice or Waiver of Notice. Written notice of all meetings shall
be given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the Corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall, (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is to be called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, the written notice of any meeting shall be given, personally or
by mail, not less than ten days nor more than sixty days before the date of the
meeting, unless the prescribed period for notice shall have been waived. Notice
by mail shall be deemed to be given when deposited, with postage thereon
prepaid, in the United States mail directed to-the stockholder at his record
address or at such other address which he may have furnished in writing to the
Secretary of the Corporation. If a meeting is adjourned to another time, not
more than thirty days from the date of such adjournment, and/or to another
place, and if an announcement of the adjourned time and/or place is made at the
meeting, it shall not be necessary to
2
<PAGE>
give notice of the adjourned meeting unless the directors, after adjournment,
fix a new record date for the adjourned meeting. Notice need not be given to any
stockholder who submits a written waiver of notice signed by him whether before
or after the time stated therein. Attendance of a stockholder at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice.
(e) Stockholder List. The officer who has charge of the stock ledger
of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders, 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.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city or other
municipality or community 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. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. 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 or the books of the Corporation, or to vote in
person or by proxy at any meeting of stockholders.
(f) Conduct of Meeting. Meetings of the stockholders shall be
presided over by one of the following officers in the following order of
seniority, if present and acting: the Chairman of the Board, if any, the
Vice-Chairman of the Board, if any, the President, any Vice-President or, if
none of the foregoing is in office and present and acting, by a chairman to be
chosen by the stockholders. The Secretary of the Corporation, or, in his
absence, an Assistant Secretary, if any, shall act as secretary of every
meeting, but if neither the Secretary nor an Assistant Secretary is present, the
person presiding at the meeting shall appoint a secretary of the meeting.
(g) Proxy Representation. Every stockholder may authorize another
person or persons to act for him by proxy in all matters in which a stockholder
is entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent to corporate action
in writing without a meeting. Every proxy must be signed by the stockholder or
by his attorney-in-fact. No proxy shall be voted or acted upon after three years
from its date unless such proxy provides for a longer period. A duly executed
proxy shall be irrevocable if it states that it is irrevocable and if, and only
as long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally.
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(h) Inspectors. The directors, in advance of any meeting, may, but
need not, appoint one or more inspectors of election to act at the meeting or
any adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, if any, before entering upon the discharge of his duties, shall take
and sign an oath faithfully to execute the duties of inspector at such meeting
with strict impartiality and according to the best of his ability. The
inspectors, if any, shall determine the number of shares of stock outstanding
and the voting power of each, the shares of stock represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting, the inspector or inspectors, if any, shall
make a report in writing of any challenge, question or matter determined by him
or them and execute a certificate of any fact found by him or them.
(i) Quorum. Except as otherwise provided by law or the Corporation's
Certificate of Incorporation, the holders of a majority of the outstanding
shares of stock entitled to vote at the meeting, present in person or by proxy,
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
(j) Voting. Unless the Corporation's Certificate of Incorporation
provides otherwise, each share of stock shall entitle the holder thereof to one
vote. In the election of directors, a plurality of the votes present in person
or by proxy and entitled to vote on the election of directors shall elect. Any
other action shall be authorized by the affirmative vote of a majority of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the matter, except where the General Corporation Law, the Certificate of
Incorporation or these By-Laws prescribe a different percentage of votes or a
different exercise of voting power. In the election of directors, and for any
other action, voting may, if so determined by the officer presiding over the
meeting, but need not, be by written ballot.
4. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted and shall be delivered to the Corporation by delivery to its register
office in the State of Delaware, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
register office shall be
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by hand or by certified or registered mail, return receipt requested. Every
written consent shall bear the date of signature of each stockholder who signs
the consent and no consent shall be effective to take the corporate action
referred to therein unless, within sixty days of the earliest date a consent is
delivered to the Corporation in the manner prescribed by the General Corporation
Law, written consents signed by a sufficient number of stockholders to take
action are delivered to the Corporation in the manner specified above. 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.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of Directors
of the Corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the Corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder,
or a citizen or resident of the United States or the State of Delaware. The
Board of Directors shall consist of not less than one nor more than nine
persons, the exact number within such parameters to be fixed from time to time
by resolution of the Board of Directors.
3. ELECTION AND TERM. The first Board of Directors shall be elected
by the incorporator or incorporators and shall hold office until the first
annual meeting of stockholders and thereafter until their successors are elected
and qualified or until their earlier resignation or removal. Any director may
resign at any time upon written notice to the Corporation. Directors who are
elected in the interim to fill vacancies and newly created directorships, shall
hold office until the next annual meeting of stockholders and until their
successors are elected and qualified or until their earlier resignation or
removal. In the interim between annual meetings of stockholders or of special
meetings of stockholders called-for the election of directors and/or for the
removal of one or more directors and for the filling of any vacancies in that
connection, newly created directorships and any vacancies in the Board of
Directors, including unfilled vacancies resulting from the removal of directors
for cause or without cause, may be filled by the vote of a majority of the
directors then in office although less than a quorum, or by the sole remaining
director.
4. BOARD OF DIRECTORS MEETINGS.
(a) Time. Meetings shall be held at such time as the Board shall
fix.
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(b) Place. Meetings shall be held at such place within or without
the State of Delaware as shall be fixed by the Board.
(c) Call. No call shall be required for regular meetings for which
the time and place have been fixed special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman, if any, or
the President, or any two directors in office.
(d) Notice or Waiver of Notice. No notice shall be required for
regular meetings for which the time and place have been fixed. Written, oral, or
any other mode of notice of the time and place shall be given for special
meetings not less than 48 hours in advance of the time set for such meeting.
Notice need not be given to any director or to any member of a committee of
directors who submits a written waiver of notice signed by him before or after
the time for the meeting stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
(e) Chairman of The Meeting. The Chairman of the Board, if any and
if present and acting, shall preside at all meetings otherwise, the
Vice-Chairman of the Board, if any and if present and acting, or the President,
if present and acting, or any other director chosen by the Board, shall preside.
(f) Quorum. A majority of the whole Board shall constitute a quorum
except when a vacancy or vacancies prevent such majority, whereupon a majority
of the directors in office shall constitute a quorum, provided, that such
majority shall constitute at least one-third of the whole Board, except that if
the Board of Directors shall be fixed at one, one director shall constitute a
quorum. A majority of the directors present, whether or not a quorum is present,
may adjourn a meeting to another time and place.
(g) Action. Except as otherwise provided herein, in the
Corporation's Certificate of Incorporation or by the General Corporation Law,
the act of the Board shall be the act by vote of a majority of the directors
present at a meeting at which a quorum is present. The quorum and voting
provisions herein stated shall not be construed as conflicting with any
provision of the General Corporation Law or any other provision of these By-Laws
governing a meeting of the Board held or action taken (i) to fill vacancies and
newly created directorships in the Board or (ii) to consider a matter with
regard to which one of the members of the Board is an interested director (as
defined by the General Corporation Law).
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares of
capital stock of the Corporation then entitled to vote at an election of
directors.
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6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. In so doing, 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. Any committee, to the extent provided in the resolution of the Board,
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,
except any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the Corporation to be
affixed to all papers which may require it. In the absence or disqualification
of any member of any such committee or committees, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
7. MEETINGS BY TELEPHONE. Any member or members of the Board of
Directors or of any committee designated by the Board may participate in a
meeting of the Board or any such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other and participation by
conference telephone shall constitute presence in person at the meeting.
8. ACTION WITHOUT MEETINGS. 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 of proceedings of the Board or committee.
ARTICLE III
OFFICERS
1. ELECTION OF OFFICERS. All officers of the Corporation shall be
chosen by the Board of Directors. The officers of the Corporation shall consist
of the President, the Treasurer and the Secretary and, if deemed necessary,
expedient or desirable by the Board of Directors, a Chairman of the Board, a
Vice-Chairman of the Board, one or more Vice-Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers, and such other officers, with
such titles, as shall be designated by resolution of the Board of Directors
electing them. Except as may otherwise be provided in the resolution of the
Board of Directors electing him, no officer other than the Chairman or
Vice-Chairman of the Board, if any, need be a director. Any number of offices
may be held by the same person.
2. TERM OF OFFICE. Unless otherwise provided in the resolution
electing him, each officer shall be chosen for a term which shall continue until
the meeting of the Board of Directors following the next annual meeting of
stockholders and thereafter until his successor shall have been chosen and
qualified or until his earlier resignation or removal. Any officer may be
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removed with or without cause by the Board of Directors. Any vacancy in any
office may be filled by the Board of Directors.
3. DUTIES OF OFFICERS. All officers of the Corporation shall have
such powers and authority and shall perform such duties in the management and
operation of the Corporation as follows and, subject thereto, in the resolutions
of the Board of Directors designating and choosing such officers or prescribing
the powers, authority and duties of the various officers of the Corporation and,
subject to the foregoing, such powers and duties as are customarily incident to
their office:
(a) Chairman of the Board. The Chairman of the Board of Directors,
if there be one, shall preside at all meetings of the Board of Directors and
shall have such other powers and duties as may from time to time be assigned by
the Board of Directors.
(b) Vice Chairman of the Board. If the office of Chairman of the
Board be vacant, or if the Chairman of the Board be absent, the Vice Chairman of
the Board, if there be one, shall preside at meetings of the stockholders and of
the Board. He shall have such other powers and perform such duties as may be
assigned by the Board of Directors.
(c) President. The President shall be the chief executive officer of
the Corporation, and shall have such duties as customarily pertain to that
office. The President shall have general management and supervision of the
property, business and affairs of the Corporation and over its other officers,
may appoint and remove assistant officers and other agents and employees and may
execute and deliver in the name of the Corporation powers of attorney,
contracts, bonds and other obligations and instruments.
(d) Vice-President. A Vice-President may execute and deliver in the
name of the Corporation contracts and other obligations and instruments
pertaining to the regular course of the duties of said office, and shall have
such other authority as from time to time may be assigned by the Board of
Directors or the President. If the President is absent or is unable to act as
President, the Vice President next in order as designated by the Board, or in
the absence of such designation, senior in length of service in such capacity,
who shall be present and able to act, shall perform all the duties and may
exercise any of the powers of the President, subject to the control of the
Board.
(e) Treasurer. The Treasurer shall have the care and custody of all
funds and securities of the Corporation which may come into his control and he
shall deposit the same to the credit of the Corporation in such banks or other
depositary or depositories as the Board may designate. He may endorse all
commercial documents requiring endorsements for or on behalf of the Corporation
and may sign all receipts and vouchers for payments made to the Corporation. He
shall render an account of his transactions to the Board as often as it shall
require the same and shall at all reasonable times exhibit his books and
accounts to any director, and shall cause to be entered regularly in books kept
for that purpose full and accurate account of all moneys received and disbursed
by him on account of the Corporation. He shall, if required by the Board, give
the
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Corporation a bond in such sums and with such securities as shall be
satisfactory to the Board, conditioned upon the faithful performance of his
duties and for the restoration to the Corporation in case of his death,
resignation, retirement or removal from office of all books, papers, vouchers,
money and other property of whatever kind in his possession, or under his
control, belonging to the Corporation. He shall have such further powers and
duties as are incident to the position of Treasurer, subject to the control of
the Board.
(f) Secretary. The Secretary shall record the proceedings of
meetings of the Board and of the stockholders in a book kept for that purpose
and shall attend to the giving and serving of all notices of the Corporation. He
shall have custody of the seal of the Corporation and shall affix the seal to
all certificates of shares of stock of the Corporation (if required by the form
of such certificates) and to such other papers or documents as may be proper
and, when the seal is so affixed, he shall attest the same by his signature
wherever required. He shall have charge of the stock certificate book, transfer
book and stock ledger, and such other books and papers as the Board may direct.
He shall, in general, perform all duties of Secretary, subject to the control of
the Board.
(b) Assistant Officers. Any assistant officer shall have such powers
and duties of the officer such assistant officer assists as such officer or the
Board of Directors shall from time to time prescribe.
ARTICLE IV
CERTIFICATES REPRESENTING STOCK
1. SIGNATURES ON CERTIFICATES. The shares of the Corporation shall
be represented by certificates, provided that the Board of Directors of the
Corporation may provide by resolution or resolutions that some or all of any or
all classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock represented
by certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate, signed by or in the name of the Corporation by
the Chairman or Vice-Chairman of the Board of Directors, or the President or
Vice-President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the Corporation, representing the number of shares
registered in certificate form. Any or all the signatures on any such
certificate may be facsimiles. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
The name of the holder of record of the shares represented thereby, with the
number of such shares and the date of issue, shall be entered on the books of
the Corporation.
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2. REQUIRED STATEMENTS. Whenever the Corporation shall be authorized
to issue more than one class of stock or more than one series of any class of
stock and whenever the Corporation shall issue any shares of its stock as partly
paid stock, the certificate representing shares of any such class or series or
of-any such partly paid stock shall set forth thereon the statements prescribed
by the General Corporation Law. Any restrictions on the transfer or registration
of transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
3. REPLACEMENT OF CERTIFICATES. The Corporation may issue a new
certificate of stock in place of any certificate theretofore issued by it,
alleged to have been lost, stolen, or destroyed, and the Corporation may require
the owner of any lost, stolen, or destroyed certificate, or his legal
representative, to indemnify the Corporation against, or give the Corporation a
bond sufficient in the Corporation's reasonable judgment to indemnify the
Corporation against, any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate.
4. FRACTIONAL SHARE INTERESTS. The Corporation may, but shall not be
required to, issue fractions of a share. If the Corporation does not issue
fractions of a share, it shall (i) arrange for the disposition of fractional
interests by those entitled thereto, (ii) pay in cash the fair value of
fractions of a share as of the time when those entitled to receive such
fractions are determined, or (iii) issue scrip or warrants in registered or
bearer form (either represented by a certificate or uncertificated) or in bearer
form (represented by a certificate) which shall entitle the holder to receive a
certificate for a full share upon the surrender of such scrip or warrants
aggregating a full share. A certificate for a fractional share shall, but scrip
or warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the Corporation in the event of liquidation, in each case to
the extent of such fraction. The Board of Directors may cause scrip or warrants
to be issued subject to the conditions that they shall become void if not
exchanged for certificates representing full shares before a specified date, or
subject to the conditions that the shares for which scrip or warrants are
exchangeable may be sold by the Corporation and the proceeds thereof distributed
to the holders of scrip or warrants, or subject to any other conditions which
the Board of Directors may impose.
5. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the Corporation shall be made
only on the stock ledger of the Corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the Corporation or with a transfer agent or a
registrar, if any, and on surrender of the certificate or certificates for such
shares of stock properly endorsed or upon the request to transfer uncertificated
shares and the payment of all taxes due thereon.
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ARTICLE V
INDEMNIFICATION
1. GENERAL. The Corporation shall, to the fullest extent permitted
by Section 145 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all of
the expenses, liabilities or other matters referred to in or covered by such
section. To the extent permitted by law, the indemnification provided for herein
shall not be deemed exclusive of any other rights to which any person may be
entitled under any By-law, agreement, vote of stockholders or disinterested
directors or otherwise. Such indemnification shall pertain both as to action in
such person's official capacity and as to action in another capacity while
holding such office or directorship, shall continue as to a person who has
ceased to be a director, officer, employee or agent as to action while acting in
such capacity or holding such office or directorship, and shall inure to the
benefit of the heirs, executors and administrators of such a person.
2. ADVANCE OF EXPENSES. Expenses and costs incurred by any officer
referred to in Section 1 of this Article in defending a civil, criminal,
administrative or investigative action, suit or proceeding as to which the
Corporation may potentially be required to indemnify any officer or director of
the Corporation shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such person to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified by the Corporation
as authorized by this Article.
3. INSURANCE. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of, or to represent the
interests of, the Corporation against any liability asserted against such person
and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such liability under the provisions of this
Article or applicable law.
ARTICLE VI
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be
subject to change, by the Board of Directors.
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ARTICLE VIII
CONTROL OVER BY-LAWS
The directors of the Corporation, by the affirmative vote of a
majority of the whole Board of Directors of the Corporation, at any regular or
special meeting, shall have the power to adopt, amend or repeal By-Laws of the
Corporation, provided, however, that such power of the Board of Directors of the
Corporation shall not divest the stockholders of the Corporation of their power
to adopt, amend or repeal By-Laws of the Corporation.
12
SUBSCRIPTION AGREEMENT
for
ERGOVISION, INC.
Ergovision, Inc.
One Fairchild Court
Plainview, New York 11803
Attn: Mark H. Levin
President & CEO
Gentlemen:
The undersigned hereby subscribes to purchase ________* shares of Common
Stock, $.001 par value (the "Shares"), of Ergovision, Inc. (the "Company") for a
cash purchase price of $1.00 per Share. The undersigned herewith tenders to the
Company a check or money order made payable to the order of "Ergovision, Inc."
in the amount of $______________________, the total purchase price for all of
the Shares subscribed for. The undersigned represents and warrants that the
undersigned is a bona fide resident of the State of the undersigned's residence
address indicated on the reverse side. This Subscription Agreement is made on
the following terms and conditions:
1. Acceptance and Delivery of Stock Certificate. The undersigned
acknowledges that acceptance of the subscription made hereby is in the Company's
discretion. Promptly following the Company's acceptance of such subscription,
the Company is to return to the undersigned a copy of this Subscription
Agreement (as accepted by the Company) as a receipt. A physical stock
certificate representing Shares purchased is to be transmitted to the registered
holder at the address indicated on the reverse side within thirty (30) days of
the Company's receipt of this Subscription Agreement. The offering is being made
on a "best efforts" basis. Except for the 1,000 Share minimum that must be
purchased by any one investor, there is no minimum number of Shares to be sold
in the Offering. There is no provision for the escrow or refund of any monies if
less than all or a stated number of Shares are sold. As a result, the Company
may immediately utilize funds received from sales of Shares to subscribers from
whom the Company accepts subscriptions.
2. Information about the Company. The undersigned acknowledges that: (a)
prior to signing this Subscription Agreement, the undersigned received and
reviewed the Company's Offering Circular dated April 15, 1997; (b) if the
undersigned has requested the opportunity, the undersigned or a representative
of the undersigned has had a reasonable opportunity to ask questions and receive
answers from the officers of the Company and to obtain any additional
information desired, and all such questions have been answered to the
undersigned's satisfaction; and (c) if requested by the undersigned, all
documents, records and books of the Company pertaining to this investment have
been made available for inspection by the undersigned or a representative of the
undersigned during reasonable business hours at the Company's business offices.
3. High Degree of Risk. The undersigned has reviewed the risk factors
described in the Offering Circular and acknowledges that an investment in the
Shares is a speculative investment and involves a high degree of risk, and that
the Company makes no assurances whatever concerning the present or prospective
value of the Shares. The undersigned understands that the price per share of the
Shares has been arbitrarily determined by the Company and bears no relationship
to its assets, earnings, book value or other accepted criteria of value.
4. Pennsylvania Residents. If a Pennsylvania resident, the undersigned
agrees not to sell any of the Shares within a period of twelve months after the
date of the Company's acceptance of this subscription.
<PAGE>
Please register the Shares subscribed for as follows:
Name:_______________________________________ Date:__________________
As (check one):
|_| Individual |_| Tenants-in-Common |_| Existing Partnership
|_| Joint Tenants |_| Corporation |_| Trust
|_| Minor with adult custodian under the Uniform Gift to Minors Act
- -------------------------------------- --------------------------------------
Signature of Subscriber Signature of Co-Subscriber
- -------------------------------------- --------------------------------------
Name of Subscriber (Printed) Name of Co-Subscriber (Printed)
- -------------------------------------- --------------------------------------
Subscriber Tax I.D. or Co-Subscriber Tax I.D. or
Social Security Number Social Security Number
--------------------------------------
Residence Address
--------------------------------------
City or Town
--------------------------------------
State Zip Code
( )
--------------------------------------
Telephone, including area code
- --------------------------------------------------------------------------------
ACCEPTED BY ERGOVISION, INC.
By:________________________________ Date_________________________________
NOTE: Please sign your name or names exactly as you wish the Shares to be
registered. For Shares which are to be owned jointly or as tenants-in-common,
each owner should sign. If signing for a trust, partnership or corporation,
please indicate the name of such entity and the capacity in which you are
acting. If executed by a trust, a majority of the trustees; if executed by a
partnership, a general partner or by a corporation, a duly authorized officer
should sign this Subscription Agreement.
-2-
SUBSCRIPTION AGREEMENT
FOR
ERGOVISION, INC.
Ergovision, Inc.
One Fairchild Court
Plainview, New York 11803
Attn: Mark H. Levin
President & COO
Re: Subscription Agreement for the Purchase of 10% Convertible Notes
Gentlemen:
The undersigned hereby subscribes to purchase $____________ aggregate
principal amount of the 10% Subordinated Convertible Promissory Notes, due
October 1, 2003 (the "Notes") of Ergovision, Inc. (the "Company"). The Notes
being offered are more fully described in the Company's Confidential Private
Offering Memorandum (the "Memorandum") dated August 10, 1998. The undersigned
herewith tenders to the Company a check or money order made payable to the order
of "Ergovision, Inc." in the amount of $____________, the total purchase price
for all of the Notes subscribed for. The undersigned understands that monies
tendered by the undersigned and other persons subscribing to purchase Notes will
be held in escrow pending the Company's acceptance of subscriptions for a
minimum of $500,000 aggregate principal amount of Notes. If less than the
minimum is sold, the monies held in escrow will be refunded to subscribers
without interest. In the event the minimum is sold, the Company may immediately
utilize funds received from sales of Notes to subscribers from whom the Company
accepts subscriptions. This Subscription Agreement is made on the following
terms and conditions:
A. The undersigned acknowledges that acceptance of the subscription made
hereby is in the Company's discretion. Promptly following the Company's
acceptance of such subscription, the Company is to return to the undersigned a
copy of this Subscription Agreement (as accepted by the Company) as a receipt.
The Notes purchased will be transmitted to the registered holder at the address
indicated on the signature page of this Subscription Agreement within thirty
(30) days of the Company's receipt of this Subscription Agreement.
B. The undersigned acknowledges that the Notes (including the shares of
the Company's Common Stock (the "Shares") that the Company may be obligated to
issue pursuant to the undersigned's right of conversion provided in the Notes),
have not been registered under the Securities Act of 1933, as amended (the "1933
Act"), or the securities laws of any state or other jurisdiction that, absent an
exemption, would require registration, and are being offered for sale in
reliance upon exemptions from registration contained in the 1933 Act and
applicable state laws, and that the Company's reliance upon such exemptions is
based in part upon the undersigned's representations, warranties and agreements
contained in this Subscription Agreement.
C. In order to induce the Company to accept this Subscription Agreement,
the undersigned represents and warrants and covenants and agrees with, the
Company as follows:
(1) The undersigned understands and agrees that (a) the net proceeds
from the sale of Notes will be used for each of the following purposes: (i)
marketing expenses incurred in connection with the launch of its EyeTools
product line, (ii) the acquisition and integration of the business of Foggles,
(iii) the acquisition of inventory, and (iv) working capital, including the
payment for salaries and rent; (b) a minimum of $500,000 must be subscribed to
before the Company may accept the subscription hereunder; (c) this Subscription
Agreement may be accepted or rejected in whole or in part in the sole and
absoloute discretion of the Company; and (d) this Subscription Agreement and all
other documents or agreements relating to an investment by the undersigned in
the Notes (collectively, the "Subject Documents"), unless properly revoked
before closing of a sale of the Notes to the
<PAGE>
undersigned, shall be irrevocable and shall survive the undersigned's death,
disability or insolvency, except that the undersigned shall have no obligations
in the event that this Subscription Agreement is rejected by the Company.
(2) The undersigned has read carefully each of the Subject Documents
and, to the extent believed necessary, has discussed the representations,
warranties and agreements which the undersigned makes by signing them, and the
applicable limitations upon the undersigned's resale of the Notes or any part
thereof, with its counsel.
(3) The undersigned understands that no federal or state agency has
made any findings or determination regarding the fairness of the offering of the
Notes, or any recommendation or endorsement of the offering of the Notes.
(4) The undersigned is purchasing the Notes for the undersigned's
own account, with the intention of holding the Notes for investment, with no
present intention of dividing or allowing others to participate in this
investment or of reselling or otherwise participating, directly or indirectly,
in a distribution of the Notes; and shall not make any sale, transfer or other
disposition of the Notes (or any part thereof) without registration under the
1933 Act and any applicable securities laws of any state or other jurisdiction
or unless an exemption from registration is available under those laws. No
person or entity other than the undersigned has any direct or indirect
beneficial interest in the Notes subscribed for hereunder by the undersigned.
(5) The undersigned's overall commitment to investments which are
not readily marketable is not disproportionate to the undersigned's net worth,
and the undersigned's investment in the Notes will not cause such overall
commitment to become excessive.
(6) The undersigned, if an individual, has adequate means of
providing for his current needs and personal and family contingencies and has no
need for liquidity in his investment in the Notes.
(7) The undersigned is an "accredited investor" as that term is
defined in Section 501(a) under Regulation D promulgated by the Securities and
Exchange Commission under the 1933 Act. The undersigned is financially able to
bear the economic risk of this investment, including the ability to afford
holding the Notes for an indefinite period or to afford a complete loss of this
investment.
(8) The address shown under the undersigned's signature on the
signature page of this Subscription Agreement is the undersigned's principal
residence if he is an individual, or its principal business address if a
corporation or other entity.
(9) The undersigned, together with any purchaser representatives of
the undersigned (as identified herein), has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of an investment in the Units and of making an informed investment
decision with respect thereto. The undersigned acknowledges that the Memorandum
may not contain all information that is essential to making an investment
decision with respect to the Notes and that it must rely on its own examination
of the Company and the terms and conditions of the offering, regardless of the
information contained in the Memorandum, prior to making an investment decision
with respect to the Notes.
(10) The undersigned is not subscribing for the Notes as a result of
or subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine, or similar media or broadcast over
television or radio, any seminar or meeting, or any solicitation of a
subscription by a person or entity not previously known to the undersigned in
connection with investments in securities generally.
(11) The undersigned represents that in making this subscription to
purchase Notes, no oral representations or warranties have been made to it. The
undersigned acknowledges that it has been advised that no person or entity is
authorized to give any information, or to make any statement regarding the
Company or the Offering, and that any such information or statement must not be
relied upon as having been authorized by the Company, its officers, directors,
affiliates or professional advisors.
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<PAGE>
(12) The undersigned has not engaged any broker or other person or
entity that is entitled to a commission, fee or other remuneration as a result
of the execution, delivery or performance of any of the Subject Documents.
(13) The undersigned has full power and authority to execute and
deliver each of the Subject Documents, and the Subject Documents have been duly
executed and delivered by or on behalf of the undersigned and constitute legal,
valid and binding obligations of the undersigned enforceable in accordance with
their respective terms, except to the extent such enforceability may be limited
by the laws of bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally or by general principles of equity.
(14) Neither the execution, delivery nor performance of the Subject
Documents by the undersigned violates or conflicts with, creates (with or
without the giving of notice or the lapse of time, or both) a default under or a
lien or encumbrance upon any of the undersigned's assets or properties pursuant
to or requires the consent, approval or order of any government or governmental
agency or other person or entity under (x) any note, indenture, lease, license
or other material agreement to which the undersigned is a party or by which it
or any of its assets or properties is bound or (y) any statute, law, rule,
regulation or court decree binding upon or applicable to the undersigned or its
assets or properties. If the undersigned is not a natural person, the execution
and delivery by the undersigned of the Subject Documents have been duly
authorized by all necessary corporate or other action on behalf of the
undersigned and such investment will not constitute a breach or violation of, or
default under, the charter or by-laws or equivalent governing documents of the
undersigned.
(15) The undersigned has received and read the Subject Documents and
understands all of the terms of this Offering and the risks associated with the
investment, including, without limitation, the risks identified under the
heading "Risk Factors" in the Memorandum. The undersigned acknowledges that an
investment in the Notes is a speculative investment and involves a high degree
of risk, and that the Company makes no assurances whatsoever concerning the
present or prospective value of the Notes. The undersigned understands that the
Conversion Price for the Shares set forth in the Notes has been arbitrarily
determined by the Company and bears no relationship to its assets, earnings,
book value or other accepted criteria of value.
(16) The undersigned has no knowledge that the statements of the
Company contained in the Memorandum are not true and correct in all material
respects. The undersigned has consulted its own financial, legal and tax
advisors with respect to the economic, legal and tax consequences of an
investment in the Notes and has not relied on the Memorandum, the Company or the
Company's officers, directors, affiliates or professional advisors for advice as
to such consequences.
(17) The undersigned has been given the opportunity to ask questions
of, and receive answers from, the Company concerning the terms and conditions of
the Offering and to obtain additional information necessary to verify the
accuracy of the information contained in the Subject Documents or such other
information as the undersigned desired in order to evaluate the investment, and
the undersigned availed itself of such opportunity to the extent considered
appropriate in order to evaluate the merits or risks of the proposed investment,
and all of its questions and requests for documents and information have been
answered to its complete satisfaction.
(18) The undersigned has accurately completed the Accredited
Purchaser Questionnaire provided herewith and has executed such Accredited
Purchaser Questionnaire and any applicable exhibits thereto. In addition, if the
undersigned has used a financial advisor to assist it in evaluating an
investment in the Notes, such financial adviser has executed and delivered to
the Company a dated and completed Purchaser Representative Questionnaire.
- 3 -
<PAGE>
(19) The undersigned understands that even if the Company becomes a
"reporting company" under the Securities Exchange Act of 1934, as amended, the
provisions of Rule 144 promulgated under the 1933 Act to permit resales of the
Notes or Shares ( or any part thereof) are not available for at least one (1)
year and there can be no assurance that the conditions necessary to permit
routine sales of the Notes or Shares (or any part thereof) under Rule 144 will
ever be satisfied, and, if Rule 144 should become available, routine sales made
in reliance on its provisions could be made only in limited amounts and in
accordance with the terms and conditions of the Rule. The undersigned further
understands that in connection with sales of securities for which Rule 144 is
not available, compliance with some other registration exemption will be
required. The undersigned understands that the Company is under no obligation to
the undersigned to register the Notes or Shares (or any part thereof) (except as
otherwise expressly provided herein) or to comply with the conditions of Rule
144 or take any other action necessary in order to make available any exemption
for the sale of the Notes or the Shares (or any part thereof) without
registration.
(20) (a) The undersigned understands that the Notes and Shares (nor
any part thereof) have not been registered under the 1933 Act or any state or
other securities laws in reliance on exemptions for private offerings; the Notes
and Shares cannot be resold or otherwise disposed of unless they are
subsequently registered under the 1933 Act and applicable state and other
securities laws or an exemption from registration is available and Notes and the
certificate(s) representing the Shares will bear the following legend, in
addition to such other legends required under this agreement or other applicable
laws, until (i) such securities shall have been registered under the 1933 Act
and effectively disposed of in accordance with a registration statement and all
other applicable securities laws; or (ii) in the opinion of counsel reasonably
satisfactory to the Company such securities may be sold without registration
under the 1933 Act and all other applicable securities laws:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE "BLUE SKY" OR
SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME
EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (ii)
PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED
THE WRITTEN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL
APPLICABLE PROVISIONS OF THE SECURITIES ACT, AS WELL AS ANY
APPLICABLE "BLUE SKY" OR SIMILAR SECURITIES LAW."
(b) The undersigned understands that in the absence of
registration by the Company, neither the Notes nor the Shares will be registered
under the 1933 Act or any state or other securities laws; there will be no
public market for the Notes or the Shares and there is no assurance one will
develop in the future; the undersigned may have to hold the Notes or the Shares
indefinitely and it may not be possible for the undersigned to liquidate its
investment in the Company; and the undersigned should not purchase any Notes
unless it can afford a complete loss of its investment and bear the burden of
such loss for an indefinite period of time.
(21) The undersigned, if an individual, is at least 21 years of age
and has full legal capacity to enter into and perform his obligations under the
Subject Documents.
(22) The foregoing representations and warranties are true and
accurate as of the date hereof and shall be true and accurate as of the date of
delivery of this Subscription Agreement to the Company and shall survive such
delivery. If at any time prior to issuance of the Notes to the undersigned, any
representation or warranty of the undersigned shall no longer be true, the
undersigned promptly shall give written notice to the Company specifying which
representations and warranties are not true and the reason therefor, whereupon
the undersigned's subscription may be rejected or, if previously accepted, such
acceptance may be rescinded.
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<PAGE>
(23) Notwithstanding the place where this Subscription Agreement may
be executed by any of the parties hereto, all the terms and provisions of the
Subject Documents shall be construed in accordance with and governed by the laws
of the State of New York, without giving effect to its conflict of laws
principles. Any dispute which may arise out of or in connection with any of the
Subject Documents shall be adjudicated before a court located in New York City
and the parties hereby submit to the exclusive jurisdiction of the courts of the
State of New York located in New York, New York and of the federal courts in the
Southern District of New York with respect to any action or legal proceeding
commenced by any party, and irrevocably waive any objection they now or
hereafter may have respecting the venue of any such action or proceeding brought
in such a court or respecting the fact that such court is an inconvenient forum,
relating to or arising out of any of the Subject Documents or any acts or
omissions relating to the sale of the Notes, and the undersigned consents to the
service of process in any such action or legal proceeding by means of registered
or certified mail, return receipt requested, in care of the address set forth
below or such other address as the undersigned shall furnish in writing to the
Company. In the event any such action is brought, whether at law or in equity,
then the prevailing party shall be paid its reasonable attorneys' fees, expenses
and disbursements arising out of such action.
(24) THE UNDERSIGNED HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR
PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN
TORT, CONTRACT, FRAUD OR OTHERWISE) IN ANY WAY ARISING OUT OF OR IN CONNECTION
WITH ANY OF THE SUBJECT DOCUMENTS OR THE UNDERSIGNED'S PURCHASE OF THE UNITS.
(25) The undersigned acknowledges that it understands the meaning
and legal consequences of the representations, warranties, acknowledgments and
agreements contained in this Subscription Agreement and in the Accredited
Purchaser Questionnaire and hereby agrees to indemnify and hold harmless the
Company, its shareholders, officers, directors, affiliates, agents and
representatives, from and against any and all loss, damage, expense, claim,
liability, action, suit or proceeding (including the reasonable fees and
expenses of legal counsel) (collectively, "Loss") as incurred arising out of or
in any manner whatsoever connected with a breach of any representation or
warranty of the undersigned, or the undersigned's failure to perform any
obligation or agreement, contained in this Subscription Agreement, in the
Accredited Purchaser Questionnaire or in any other Subject Document. The
undersigned acknowledges that such damage could be substantial since (a) the
Notes are being offered without registration under the 1933 Act in reliance upon
the exemption pursuant to Section 4(2) of the 1933 Act for transactions by an
issuer not involving a public offering and, in various states, pursuant to
exemptions from registration, (b) the availability of such exemptions is, in
part, dependent upon the truthfulness and accuracy of the representations made
by the undersigned herein and in Accredited Purchaser Questionnaire, and (c) the
Company will rely on such representations in accepting the undersigned's
Subscription Agreement. The undersigned further agrees that in the event it
brings any action against the Company or any other person or entity in
connection with its purchase of the Notes, it will indemnify the Company and/or
any such person or entity for any and all Loss incurred by them (or any of them)
in accordance with defending such action in the event the undersigned does not
prevail in such action.
(26) The undersigned acknowledges and agrees that all information,
written and oral, concerning the Company furnished from time to time to the
undersigned, including the Subject Documents, is provided on a confidential
basis. The undersigned further acknowledges and agrees that it shall not
disclose such information, other than where such disclosure is required by law
or where such information is already available to the public other than as a
result of disclosure by the undersigned, to anyone other than the undersigned's
officers, directors, employees, legal counsel, accountants, or authorized agents
or advisors, who shall agree in writing to be bound by the provisions of this
paragraph 26.
D. Investors in this Offering will have the registration rights specified
in Annex A with respect to the Shares. These rights are personal to the
investors in this Offering and are not transferable with any of such Shares.
Annex A is hereby incorporated by reference in this Subscription Agreement.
E. Except as expressly provided herein, this Subscription Agreement and
the other Subject Documents contain the entire agreement between the parties
with respect to the transactions contemplated hereunder and supersede all prior
agreements or understandings, whether written or oral, between the parties with
respect to such subject matter. The Subscription Agreement may be amended or any
provision hereof waived only by a
- 5 -
<PAGE>
writing executed each party hereto. The terms and conditions of this
Subscription Agreement shall inure to the benefit of and be binding upon the
parties and their respective successors, heirs, executors, personal
representatives and permitted assigns.
F. No party hereto may assign this Subscription Agreement or any right,
interest, duty or obligation herein without the express written consent of each
party hereto.
G. All representations, warranties, covenants and agreements of the
parties contained herein shall survive the execution, delivery and performance
of this Subscription Agreement.
H. All notices or other communications given or made under this
Subscription Agreement shall be in writing and shall be delivered or mailed by
(i) registered or certified mail, return receipt requested, (ii) hand delivery
or (iii) by reputable overnight courier service: if to the Company, to its
address as set forth above, and if to the undersigned, to its address as set
forth on the signature page hereto. Such addresses may be changed from time to
time by a notice given in any manner set forth above. Any notice given in
accordance with this section shall be effective upon receipt.
I. This Subscription Agreement may be executed in one or more
counterparts, each of which shall constitute an original and all of which, taken
together, shall constitute the same agreement.
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<PAGE>
Please register the Notes subscribed for as follows:
Name: _________________________________________________
Date: _________________________________________________
(Please Print)
As (check one):
|_| Individual |_| Tenants-in-Common |_| Existing Partnership
|_| Joint Tenants |_| Corporation |_| Trust
|_| Minor with adult custodian under the Uniform Gift to Minors Act
______________________________________ ______________________________________
Signature of Subscriber Signature of Co-Subscriber
______________________________________ ______________________________________
Subscriber Tax I.D. or Co-Subscriber Tax I.D. or
Social Security Number Social Security Number
Residence Address (or if Entity, Principal Office)
City or Town
______________
State Zip Code
(______)
Telephone, including area code
- --------------------------------------------------------------------------------
ACCEPTED BY ERGOVISION, INC.
By:________________________________ Date__________________________________
Name:
Title:
NOTE: Please sign your name or names exactly as you wish the Notes to be
registered. For Notes which are to be owned jointly or as tenants-in-common,
each owner should sign. If signing for a trust, partnership or corporation,
please indicate the name of such trust or entity and the capacity in which you
are acting. If executed by a trust, a majority of the trustees; if executed by a
partnership, a general partner, or if executed by a corporation, a duly
authorized officer, should sign this Subscription Agreement.
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<PAGE>
ANNEX A TO SUBSCRIPTION AGREEMENT
RELATING TO ERGOVISION, INC.
Registration Rights
Ergovision, Inc. (the "Company") has issued to the subscriber (the
"Noteholder") a 10% Subordinated Convertible Promissory Note (the "Note")
pursuant to which the Company may become obligated to issue certain shares of
the Company's Common Stock (the "Shares") to Noteholder. The Noteholder will
have the registration rights set forth in this Annex A (this "Agreement") with
respect to the Shares. These registration rights are personal to the Noteholder
and are not transferable with the transfer of any of such Shares. Capitalized
terms used herein without definition shall have the meanings given to such terms
in the Subscription Agreement.
1. Definitions. The following terms shall have the following respective
meanings for purposes of this Agreement:
"Commission" shall mean the U.S. Securities and Exchange Commission.
"Effective Date" shall mean October 1, 1999.
"Exchange Act" shall mean the U.S. Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission thereunder, all as
the same shall be in effect from time to time.
"Registration Date" shall mean, with respect to each registration of
the shares constituting the Shares hereunder, the date on which the registration
statement including such Shares shall have become effective under the Securities
Act; provided, however, that if any of the Shares are included in a "shelf"
registration statement under Rule 415 under the Securities Act, the
"Registration Date" shall mean the date on which the final prospectus covering
such shares of Shares is transmitted for filing with the commission pursuant to
Rule 424(b) under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect from time to time.
2. "Piggy-Back" Registration. If at any time within the period commencing
with the Effective Date and ending on the third anniversary thereof, at which
time any Shares have not previously been registered under the Securities Act,
the Company proposes to register any of its equity securities under the
Securities Act, whether or not for sale for its own account, in a manner that
would permit registration of the Shares for sale to the public under the
Securities Act, it will, each such time, give prompt written notice to the
Noteholder of its intention to do so, which notice shall set forth the intended
method of disposition of the securities proposed to be registered by the
Company. The notice shall offer to include in such registration such number of
shares of the Shares which have not previously been registered as Noteholder may
request. The Noteholder shall advise the Company in writing within twenty (20)
days after the date of receipt of such offer from the Company, setting forth the
number of Shares, if any, for which registration is requested. The Company shall
thereupon include in such registration the number of Shares for which
registration is so requested and shall use its best efforts to effect
registration under the Securities Act of such Shares, to the extent required to
permit their public sale by the Noteholder; provided, that if, at any time after
giving written notice of its intention to register any of its equity securities
and prior to the Registration Date of the registration statement filed in
connection therewith, the Company shall determine for any reason not to register
any such equity securities, the Company shall give written notice of such
determination and, thereupon, shall be relieved of its obligation to register
any of the Shares in connection with such registration (but not of its
obligation to pay the registration expenses set forth in Section 6 hereof that
then have been incurred in connection therewith).
Each Noteholder shall be entitled to make no more than one (1) Piggyback
Registration Request, provided that if, with respect to such Piggyback
Registration Request, a Noteholder's Shares are not included in the offering
(due to a withdrawal of such request by the Noteholder, the application of the
"cut-back" provisions set
<PAGE>
forth in Section 4 herein or otherwise), such Piggyback Registration Request
shall be deemed to have not been given by such holder.
3. Registration Procedures. Whenever the Company is required by this
Agreement to effect the registration of any of the Shares, it will:
a. Registration Statement. Prepare and file with the Commission the
requisite registration statement with respect to such Shares and use its best
efforts to cause such registration statement to become and remain effective for
a period of time required for the disposition of such Shares by the Noteholder,
but not to exceed the period provided in (b) of this Section 3;
b. Amendments to Registration Statement. Prepare and file with the
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act and the Exchange Act with respect to the sale or other
disposition of the Shares covered by such registration statement until the
earlier of such time as all of such Shares have been disposed of or the
expiration of nine (9) months;
c. Distribution of Registration Statement. As soon as available,
furnish to the Noteholder such number of copies of such registration statement
and of each amendment or supplement thereto, and of each prospectus (including
each preliminary prospectus or summary prospectus) included therein, in
conformity with the requirements of the Securities Act, and such other
documents, as the Noteholder may reasonably request;
d. Blue Sky Filings. Use its best efforts to register or qualify the
Shares covered by such registration statement under such other securities or
blue sky laws of such jurisdictions within the United States as the Noteholder
shall reasonably request but not to exceed registration in four states;
(provided, however, the Company shall not be obligated to qualify as a foreign
corporation to do business under the laws of any jurisdiction in which it is not
then qualified or to file any general consent to service of process), and do
such other reasonable acts and things as may be required of it to enable the
Noteholder to consummate the disposition in such jurisdictions of the Shares
included in such registration statement;
e. Listing on Exchanges. Use its best efforts to list such Shares
included in such registration statement on any securities exchange on which the
Company Stock is then listed;
f. Opinions and Certificates. Furnish, on the date that such Shares
are delivered to the underwriters for sale pursuant to such registration or, if
the Shares are not being sold through underwriters, on the Registration Date
with respect to such Shares, if otherwise provided to underwriters, (i) if an
opinion of counsel to the Company for the purposes of such registration (or, if
no such opinion is being provided to underwriters, a certificate signed by two
executive officers of the Company), dated such date, addressed to the
underwriters, if any, and the Noteholder, stating that such registration
statement has become effective under the Securities Act and that (A) to the best
knowledge of such counsel (or officers), no stop order suspending the
effectiveness thereof has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the Securities Act, (B) the
registration statement, the related prospectus, and each amendment or supplement
thereto, comply as to form in all material respects with the requirements of the
Securities Act and the applicable rules and regulations of the Commission
thereunder (except that, in the case of an opinion of counsel, such counsel need
express no opinion as to financial statements contained therein), (C) the
descriptions in the registration statement or the prospectus, or any amendment
or supplement thereto, of all legal matters and contracts and other legal
documents or instruments are accurate and fairly present the information
required to be shown, and (D) such counsel (or officers) do not know of any
legal or governmental proceedings, pending or contemplated, required to be
described in the registration statement or prospectus, or any amendment or
supplement thereto, which are not described as required, nor of any contracts or
documents or instruments of a character required to be described in the
registration statement or prospectus or any amendment or supplement thereto, or
to be filed as exhibits to the registration statement which are not described
and filed or incorporated by reference as required; such counsel (or officers)
shall also confirm that nothing has come to their attention that would lead them
to believe that either the registration statement or the prospectus, or any
amendment or supplement thereto (other than, in the case of an opinion of
counsel, financial material as to which such counsel need make no statement)
contains any untrue statement of a material fact or omits
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<PAGE>
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which made, not misleading,
and (ii) if otherwise provided to underwriters, a letter dated such date, from
the independent certified public accountants of the Company, addressed to such
underwriters and to the Noteholder (or, if such accountants refuse to deliver
such letter to the Noteholder because they are not then deemed underwriters
under the Securities Act, then to the Company) stating that they are independent
certified public accounts within the meaning of the Securities Act and
containing such other statements as the Company and such underwriters may agree
and reasonably request which shall consist of information customarily covered in
the accountant's letters delivered to underwriters in underwritten public
offerings of securities with respect to events subsequent to the date of the
financial statements included as part of the registration statement;
g. Additional Procedures. Enter into customary agreements (including
an underwriting agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Shares; and
h. Compliance. Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security Noteholders, as soon as reasonably practicable, but no later than
eighteen (18) months after the Registration Date, an earnings statement which
shall satisfy the provisions of Section 11 (a) of the Securities Act and Rule
158 thereunder.
It shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Agreement in respect of the Shares
which are to be registered that the Noteholder shall furnish to the Company such
information regarding the Noteholder, the securities held by the Noteholder, and
the intended method of disposition thereof as the Company shall reasonably
request and as shall be required in connection with such registration by the
Company.
4. Exclusion of Shares. Notwithstanding Section 2 hereof, the following
"cut-back" provisions shall apply.
a. In connection with any offering involving an underwriting of
shares of the Company's Common Stock, the Company shall not be required under
Section 2 to include any of the Shares of the Noteholders in such underwriting
unless they accept the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it (or by other persons entitled to
select the underwriters), and then only in such quantity as the underwriters
determine in their sole discretion will not, jeopardize the success of the
offering by the Company. The registration rights granted hereunder to
Noteholders are subject to any contractual rights that the Company has granted
or may grant to any other persons, to be included in a registration of shares of
Common Stock by the Company for sale to the public under the Securities Act (the
Noteholders and such other persons being hereinafter referred to collectively as
"Holders of Registration Rights"). If the total amount of Shares requested by
Holders of Registration Rights to be included in such offering exceeds the
amount of securities sold other than by the Company that the underwriters
determine in their sole discretion is compatible with the success of the
offering, then the Company shall be required to include only that number of such
Shares which the underwriters determine in their sole discretion will not
jeopardize the success of the offering (the Shares so included to be apportioned
pro rata among the participating Holders of Registration Rights according to the
total amount of Shares entitled to be included therein owned by each of them or
in such other proportions as shall mutually be agreed to by them).
b. In the event that, pursuant to Section 4(a) hereof, the Company
refuses to register some, but not all, of such Shares as the Noteholder have
requested be registered pursuant to Sections 2 hereof, the Noteholder may elect
to have all Shares excluded from such registration.
c. In the event that, pursuant to Section 4(a) hereof, the Company
refuses to register some or all of such Shares as Noteholder has requested be
registered pursuant to Section 2 hereof, then the registration from which such
shares has been excluded shall not be deemed an opportunity to include shares in
a registration, pursuant to Section 2 hereof.
It shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Agreement in respect of the Shares
which are to be registered that the Noteholder shall furnish to the Company such
information regarding the securities held by it and the intended method of
disposition thereof as the Company shall reasonably request and as shall be
required in connection with such registration by the Company.
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<PAGE>
5. Notification to Noteholder. Whenever the Noteholder is participating as
a selling shareholder in a registration effected hereunder:
a. Notification of Suspension. The Company will notify the
Noteholder of (i) the issuance of any stop order suspending the effectiveness of
the registration statement or the institution or threatening of any proceeding
for such purpose or (ii) the receipt by the Company of any notification with
respect to the suspension of the qualification of the Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose. Immediately upon receipt of any such notice, the Noteholder shall cease
to offer or sell any Shares pursuant to the registration statement in the
jurisdiction to which such stop order or suspension relates. The Company will
use its best efforts to prevent the issuance of any such stop order or the
suspension of any such qualification and, if any such stop order is issued or
any such qualification is suspended, to obtain as soon as possible the
withdrawal or revocation thereof, and will notify the Noteholder at the earliest
practicable date of the date on which the Noteholder may offer and sell the
Shares pursuant to the registration statement.
b. Amendments to Prospectus and Delay of Sales. The Company will
notify the Noteholder promptly if any event shall occur or if any state of facts
shall exist that, in the judgment of the Company, should be set forth in any
preliminary or final prospectus then being used by the Noteholder in connection
with the sale of any Shares. Immediately upon receipt of such notice, the
Noteholder shall cease to offer or sell any Shares pursuant to such preliminary
or final prospectus, cease to deliver or use such preliminary or final
prospectus and, if so requested by the Company, use its best efforts to return
to the Company, at the Company's expense, all copies (other than permanent file
copies) of such preliminary or final prospectus. The Company will, as promptly
as practicable, take such action as may be necessary to amend or supplement such
preliminary or final prospectus in order to set forth or reflect such event or
state of facts.
c. Extended Offering Period. If, pursuant to the provisions of this
Section 5, the Noteholder is required to cease to offer or sell any Shares
pursuant to the registration statement, the termination of the period during
which such registration statement is required to be kept effective pursuant to
Section 5(b) hereof shall be postponed by a number of days equal to the number
of days during which the Noteholder is so required to cease to offer or sell
Shares.
6. Expenses. All expenses incident to performance of, or compliance with,
this Agreement, including, without limitation, all registration and filing fees
(including all filing fees incident to filing with any stock exchange or the
National Association of Securities Dealers, Inc.), listing fees and expenses,
printing expenses, fees and disbursements of counsel and accountants for the
Company, expenses of any audits incident to or required by any such registration
and expenses of complying the securities or blue sky laws of any jurisdictions,
shall be paid by the Company; provided, that the Company shall not be liable for
the fees and disbursements of counsel for the Noteholder or any transfer taxes,
fees, discounts or commissions in respect of the Shares sold by the Noteholder.
7. Indemnification.
a. Indemnification by the Company. In the event of any registration
of any Shares under the Securities Act pursuant to this Agreement, the Company
shall indemnify, defend and hold harmless the Noteholder and each other person
(including each underwriter) who participated in the offering of such Shares and
each other person, if any, who controls such participating person within the
meaning of the Securities Act, against any losses, claims, damages of
liabilities, joint or several, to which the Noteholder or any such participating
person or controlling person may become subject under the Securities Act or any
other statute or at common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any alleged untrue statement of any material fact contained, as of the
Registration Date, in any registration statement under which such securities
were registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or (ii)
any alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and shall
reimburse the Noteholder or any such participating person or controlling person
for any legal or any other expenses reasonably incurred by the Noteholder or any
such participating person or controlling person in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
any alleged
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<PAGE>
untrue statement or alleged omission made in such Registration Statement,
preliminary prospectus, prospectus or amendment or supplement in reliance upon
and in conformity with any false or incorrect written information furnished to
the Company by the Noteholder specifically for use therein or (in the case of
any registration pursuant to Section 2 if the Company is not a party to the
underwriting agreement) so furnished for such purposes by any underwriter. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Noteholder or any such participating person or
controlling person, and shall survive the transfer of such Shares by the
Noteholder.
Such indemnification with respect to any preliminary
prospectus shall not inure to the benefit of the Noteholder or, if the Company
is not a party to the underwriting agreement, of any underwriter (or any
officer, director of employee of, or person controlling, such underwriter) from
whom the person asserting any such loss, claim, damage or liability purchased
the Shares which are the subject thereof if such person did not receive a copy
of the final prospectus with respect to such Shares (or such final prospectus as
amended or supplemented) at or prior to the confirmation of the sale of such
Shares to such person (provided that such final prospectus was made available by
the Company as required by this Agreement prior to the confirmation) in any case
where such delivery is required by the Securities Act and the untrue statement
or omission of a material fact contained in such preliminary prospectus was
corrected in such final prospectus (or such final prospectus as amended or
supplemented).
b. Indemnification by the Noteholder. In the event of any
registration of any Shares under the Securities Act pursuant to this Agreement,
the Noteholder, agrees to and shall indemnify, defend and hold harmless the
Company, its directors and officers and each other person, if any, who controls
the Company within the meaning of the Securities Act against any losses, claims,
damages or liabilities, joint or several, to which the Company or any such
director or officer or any such person may become subject under the Securities
Act or any other statute or at common law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon false or incorrect information provided in writing to the Company by the
Noteholder for use in connection with such registration and which is contained,
on the Registration Date, in any Registration Statement under which Shares were
registered under the Securities Act at the request of the Noteholder, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto; provided, that the Noteholder shall not be required
pursuant to this Section 7(b) to contribute any amount in excess of the
aggregate proceeds to the Noteholder of the Shares being offered by the
Noteholder pursuant to such Registration Statement.
8. Miscellaneous.
a. No Inconsistent Agreements. The Company has not and will not
hereafter enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the Noteholder under this Agreement.
b. Attorney's Fees. In any action or proceeding brought to enforce
any provision of this Agreement or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorney's fees in addition to any other available remedy.
c. Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waiver or consents to departure from the provisions hereof may not be given
unless in writing signed by the Company and the Noteholder.
d. Notice Generally. Any notice, demand, request, consent, approval,
declaration, delivery or other communication hereunder to be made pursuant to
the provisions of this Agreement shall be sufficiently given or made if in
writing and either delivered in person with receipt acknowledged, sent by
facsimile transmission to the facsimile number set forth below as set forth
below, sent by overnight courier with receipt acknowledged, or sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Noteholder, to:
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<PAGE>
The name and address of the Noteholder indicated on the
signature page to the Subscription Agreement.
If to the Company, to:
Ergovision, Inc.
One Fairchild Court
Plainview, NY 11803
Attn: Mark H. Levin, President
Telephone No.: (516) 349-1110
Facsimile No.: (516) 349-9191
with a copy, to:
Dornbush, Mensch, Mandelstam & Schaeffer, LLP
747 Third Avenue
New York, NY 10017
Attn: Landey Strongin, Esq.
Telephone No.: (212) 759-3300
Facsimile No.: (212) 753-7673
or at such other address or facsimile transmission number as may be substituted
by notice given as herein provided. The giving of any notice required hereunder
may be waived in writing by the party entitled to receive such notice. Every
notice, demand, request, consent, approval, declaration, delivery or other
communication hereunder shall be deemed to have been duly given or served on the
date when personal delivery or facsimile transmission thereof is made or sent
and receipt thereof is acknowledged by the party entitled to receive such
notice, or upon receipt if sent by overnight courier or by mail. Failure or
delay in delivering copies of any notice, demand, request, approval,
declaration, delivery or other communication to the person designated above to
receive a copy shall in no way adversely affect the effectiveness of such
notice, demand, request, approval, .declaration, delivery or other
communication.
e. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties hereto,
provided however, that no party other than the Noteholder may request
registration of the Shares as provided by Section 2 hereof, and such
registration may only be requested with respect to Shares which (i) are owned by
the Noteholder at the time such request is made by the Noteholder and received
by the Company, and (ii) have not previously been registered (or with respect to
which registration has not previously been requested) pursuant hereto.
f. Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
g. Governing Law. This Agreement shall be governed by the laws of
the State of New York, without regard to the principles of conflicts of laws
with respect thereto.
h. Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
i. Entire Agreement. This Agreement represents the entire agreement
and understanding of the parties hereto in respect of the subject matter hereof
and thereof.
j. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
- 6 -
ERGOVISION, INC.
10% SUBORDINATED CONVERTIBLE PROMISSORY NOTE
DUE OCTOBER 1, 2003
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE "BLUE SKY" OR SECURITIES
LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED,
ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH
RESPECT TO THESE SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF FIRST
HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE CORPORATION, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL
APPLICABLE PROVISIONS OF THE SECURITIES ACT, AS WELL AS ANY APPLICABLE
"BLUE SKY" OR SIMILAR SECURITIES LAW.
$_____________ As of , 1998
Plainview, New York
FOR VALUE RECEIVED, ERGOVISION, INC., a Delaware corporation having
an address at One Fairchild Court, Plainview, New York 11803 (the "Company"),
hereby promises to pay to the order of _____________ (the "Payee"), or his
assigns or successors by operation of law or otherwise, at his address at
_____________ , or such other address as the Payee or any other holder of this
Note may hereafter designate from time to time in writing delivered to the
Company, in lawful money of the United States of America, the principal sum of
____________ ($_______ ) together with interest on the unpaid principal balance
of this Note from time to time outstanding at the rate of ten percent (10%) (or
such higher amount as may be provided below), payable as follows: Interest shall
be paid quarterly on the first day of each January, April, July and October,
commencing on January 1, 1999 and the principal of this Note shall be paid in
twelve equal, consecutive, quarterly installments of ($________ ) each on the
first day of each October, January, April and July, commencing on October 1,
2000. Interest shall be calculated on the basis of a 365 day year and on the
number of actual days elapsed and shall not be compounded.
1. CONVERSION.
1.1 Right to Convert and Conversion Price. The Payee and any other
holder hereof shall have the right, at his option, at any time on or after
October 1, 1999 (the "Conversion Date"), to convert all or any part of the
unpaid principal amount and all accrued interest of this Note into shares of the
Company's Common Stock at a price equal to $1.25 a share (the "Conversion
Price").
1.2 Manner of Exercise. In order to exercise such right of
conversion, the Payee or any other holder hereof shall surrender this Note to
the Company at the Company's then principal executive offices accompanied by a
written statement (a "Conversion Notice") (a form of which is attached hereto as
Schedule A) designating the principal amount and accrued interest (with all
accrued interest to be applied first, then all or any part of the unpaid
principal amount) of the Note to be converted and specifying the denominations
of the certificate or certificates for the shares of Common Stock issuable upon
such conversion, and the person or persons (including their addresses and
taxpayer identification numbers) in whose names the certificates are to be
registered.
1.3 Issuance of Certificates. Not later than 5 business days after
the delivery of a Conversion Notice and the receipt of this Note, the Company
shall (i) execute and deliver, or cause to be executed and delivered, to the
Payee or other holder of this Note, a certificate or certificates representing
the shares of the Company's
<PAGE>
Common Stock issuable pursuant to the terms of such Conversion Notice, and (ii)
pay to the holder hereof all accrued and unpaid interest payable with respect to
the principal amount of this Note so converted, and any sums due to the holder
hereof pursuant to Section 1.4 below with respect to fractional shares. The
effective date of any conversion shall be the date of the Conversion Notice.
1.4 Fractional Shares. No fractional shares or scrip shall be issued
upon any conversion of this Note. Rather, the Company shall pay to the holder
hereof, in cash, the Market Price (as hereinafter defined) of any such
fractional share on the Conversion Date. "Market Price" per share of the Common
Stock at any date shall be (A) if the principal trading market for such
securities is an exchange, the closing price on such exchange on such day
provided if trading of such Common Stock is listed on any consolidated tape, the
price shall be the closing price set forth on such consolidated tape or (B) if
the principal market for such securities is the over-the-counter market, the
closing bid price on such date as set forth by NASDAQ or, if the security is not
quoted on NASDAQ, the closing bid price as set forth in the NATIONAL QUOTATION
BUREAU sheet listing such securities for such day. Notwithstanding the
foregoing, if there is no reported closing bid price, then the Market Price
shall be determined as of the latest date prior to such day for which such
closing bid price is available.
1.5 Partial Conversion. In case only a portion of the unpaid
principal amount of this Note is converted, the Company shall upon conversion
execute and deliver to the Payee or any other holder of this Note together with
the certificates issuable upon conversion a new Note in principal amount equal
to the unconverted portion of this Note and otherwise identical hereto in all
respects.
1.6 Reclassification. For the purposes of this Note, the term
"Common Stock" means (i) the class of stock designated as the Common Stock of
the Company on the date hereof or (ii) any other class of stock resulting from
successive changes or reclassification of such Common Stock, or (iii) any other
stock or property into which the Common Stock of the Company may be exchangeable
or convertible by reason of any agreement, plan of reorganization, or other
transaction or occurrence.
1.7 The undersigned understands that the shares (nor any part
thereof) of Common Stock issuable upon conversion have not been registered under
the 1933 Act or any state or other securities laws in reliance on exemptions for
private offerings; the shares cannot be resold or otherwise disposed of unless
they are subsequently registered under the 1933 Act and applicable state and
other securities laws or an exemption from registration is available and the
certificate(s) representing the shares will bear the following legend, in
addition to such other legends required under this Note or other applicable
laws, until (i) such securities shall have been registered under the 1933 Act
and effectively disposed of in accordance with a registration statement and all
other applicable securities laws; or (ii) in the opinion of counsel reasonably
satisfactory to the Company such securities may be sold without registration
under the 1933 Act and all other applicable securities laws:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE "BLUE SKY" OR
SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME
EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (ii)
PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED
THE WRITTEN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL
APPLICABLE PROVISIONS OF THE SECURITIES ACT, AS WELL AS ANY
APPLICABLE "BLUE SKY" OR SIMILAR SECURITIES LAW."
2. COVENANTS OF THE COMPANY.
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<PAGE>
The Company covenants and agrees that:
(a) So long as this Note is outstanding, the Company shall, at
all times, reserve and keep available out of its authorized capital stock,
solely for the purposes of issuance upon conversion of this Note, such number of
its shares of Common Stock as shall be issuable upon the conversion of this
Note; and if at any time the number of authorized shares of Common Stock shall
not be sufficient to effect the conversion of this Note, the Company will take
such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose; the Company shall have analogous obligations with respect to
any other securities or property issuable upon conversion hereof.
(b) All shares of Common Stock which may be issued upon
conversion of this Note will, upon issuance, be validly issued, fully paid,
non-assessable and free from all taxes, liens and charges with respect to the
issuance thereof; and
(c) All original issue taxes payable in respect of the
issuance of shares upon the conversion of this Note shall be borne by the
Company.
(d) The Company will not (i) merge or consolidate with or into
any other corporation or (ii) sell or otherwise transfer its property, assets
and business substantially as an entirety to another corporation, nor shall the
Company become a wholly-owned or majority-owned subsidiary of another
corporation unless the corporation resulting from such merger or consolidation
(if not the Company), or such transferee corporation, or parent corporation, as
the case may be, shall expressly assume the due and punctual performance and
observance of each and every covenant and condition of this Note to be performed
and observed by the Company.
(e) The Company further covenants and agrees that, unless the
holder hereof shall otherwise consent in writing, from the date hereof until
payment in full of the principal of and interest on this Note will furnish to
the holder hereof:
(i) within one hundred (100) days after the end of each
fiscal year of the Company a consolidated balance sheet, a consolidated
statement of income and retained earnings and capital surplus and a consolidated
statement of cash flows for the Company and its subsidiaries together with
supporting schedules, all certified by independent certified public accountants
showing the consolidated financial condition of the Company at the close of such
year and the results of its operations on a consolidated basis during such year;
(ii) within sixty (60) days after the end of each of the
first three quarterly accounting periods in each fiscal year, an unaudited
balance sheet and profit and loss statement for the Company and its subsidiaries
prepared in accordance with generally accepted accounting principles
consistently applied.
(f) The Company will furnish to the holder hereof, together
with the financial statements furnished under subparagraph (a) above, a
certificate signed by the chief executive officer of the Company to the effect
that, to the best of such officer's knowledge, no Event of Default specified in
Article 3 hereof, nor any event which, upon notice or lapse of time or both
would constitute an Event of Default, has occurred or if any such Event of
Default has occurred, specifying the nature and extent thereof.
3. EVENTS OF DEFAULT.
In the case of the happening of any of the following events (herein
called Events of Default):
(a) any certificate, financial statement or other instrument
furnished in connection with this Note shall prove to have been false or
misleading in any material respect when delivered;
(b) default be made in the payment of any installment of
principal and interest on this Note, as and when due and payable, whether at
maturity, by acceleration or on a date fixed for prepayment or otherwise and
such default continue unremedied for a period of five days after receipt of
written notice thereof to the Company by the holder hereof;
- 3 -
<PAGE>
(c) default be made in respect of any agreement or obligation
relating to any indebtedness of the Company for borrowed money if the effect of
such default is to accelerate the maturity of such indebtedness or any such
indebtedness shall not be paid when due;
(d) except as provided in clause (b) above, default shall be
made in the due observance of performance of any other covenant, condition or
agreement on the part of the Company to be observed or performed pursuant to the
terms hereof and such default shall continue unremedied for thirty (30) days
after receipt of written notice thereof to Company by the holder hereof;
(e) one or more judgments against the Company (other than
judgments fully covered by one or more insurance policies which are in full
force and effect, owned by the Company and in which the Company is the named
insured) or any attachment against the property of the Company which interferes
materially and adversely with the conduct of the business of the Company, as a
whole remain unpaid, unstayed on appeal, undischarged, unbonded, or undismissed
for a period of sixty (60) days; or
(f) the Company makes an assignment for the benefit of
creditors; or
(g) an order, judgment, or decree is entered adjudicating the
Company bankrupt or insolvent; or
(h) the Company petitions or applies to any tribunal for the
appointment of a custodian, trustee, receiver, or liquidator of it or for any
substantial part of its assets, or commences any proceedings under any
bankruptcy, reorganization, arrangement, insolvency, dissolution, or liquidation
law of any jurisdiction, whether now or hereafter in effect or if any such
petition or application has been filed or any such case is commenced against the
Company in which there is entered an order for relief or an order, judgment or
decree which remains unstayed and in effect for more than sixty (60) days; or
(i) if any order, judgment, or decree is entered in any
proceedings against the Company decreeing the dissolution of it and such order,
judgment, or decree remains unstayed and in effect for more than sixty (60)
days;
then, and in every such event, or at any time thereafter the holder hereof may,
by written notice to the Company declare this Note to be forthwith due and
payable in full, both as to principal and interest without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived,
anything contained herein to the contrary notwithstanding.
4. REDEMPTION OPTION.
The Company shall have the right and option, upon thirty (30) days'
prior written notice to the Payee or any other holder hereof, to, at any time
thereafter, call, redeem and prepay all or a portion of the unpaid principal
amount and all accrued and unpaid interest of this Note, which remains
convertible into Common Stock if, and only if, the Market Price of the Common
Stock equals $2.50 or more for each of the ten (10) or more consecutive trading
days at any time on or after the Conversion Date. The holder hereof shall in all
events have the right during the period immediately following the date of such
notice and prior to redemption to convert all or any part of the unpaid
principal amount and all accrued interest of this Note in accordance with the
provisions of Section 1.1 hereof.
The redemption notice shall require each holder to surrender to the
Company, on the date stated in the notice at the Company's principal executive
offices, this Note representing the unpaid principal amount called for
redemption. In the event that this Note has not been surrendered for redemption
and cancellation on the applicable redemption date, this Note shall be deemed to
have been prepaid and all rights of the holder hereof shall cease and terminate,
other than the right to receive the prepayment of the unpaid principal and any
accrued interest thereon.
- 4 -
<PAGE>
5. ADJUSTMENT OF EXERCISE PRICE IN THE EVENT OF STOCK DIVIDENDS, STOCK SPLITS
AND REVERSE STOCK SPLITS.
In the case the Company shall at any time issue Common Stock or
securities convertible into Common Stock by way of dividend or other
distribution on any stock of the Company or effect a stock split or reverse
stock split of the outstanding shares of Common Stock, the Conversion Price then
in effect shall be proportionately decreased in the case of such issuance (on
the day following the date fixed for determining shareholders entitled to
receive such dividend or other distribution) or decreased in the case of such
stock split or increased in the case of such reverse stock split (on the day
that such stock split or reverse stock split shall become effective), by
multiplying the Conversion Price in effect immediately prior to the stock
dividend, stock split or reverse stock split by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately prior to
such stock dividend, stock split or reverse stock split, and the denominator of
which is the number of shares of Common Stock outstanding immediately after such
stock dividend, stock split or reverse stock split.
6. SUBORDINATION.
6.1 This Note, the indebtedness evidenced hereby, and any interest
payable hereon shall be subject and subordinate in right of payment to the
following, which is hereinafter referred to as "Senior Indebtedness": The
principal of, premium, if any, and interest on (1) borrowings or indebtedness of
the Company to any bank or other institutional lender for money borrowed,
together with all interest accruing thereon whether incurred prior or subsequent
to the commencement of any insolvency or bankruptcy proceeding under the Federal
Bankruptcy Code or any other code, statute, rule, regulation or law for the
relief of debtors, and (2) renewals, extensions, and refundings of any such
borrowings or indebtedness; except as to any such borrowings, indebtedness, or
liability in which it is provided, in the instrument creating or evidencing the
same, or pursuant to which the same is outstanding, that such indebtedness is
not senior in right of payment to this Note.
(a) Upon any distribution of assets of the Company upon any
dissolution, winding-up, liquidation or reorganization of the Company, whether
in bankruptcy, insolvency or receivership proceedings, or upon any assignment
for the benefit of creditors or any other marshalling of the assets and
liabilities of the Company, or otherwise, the holders of Senior Indebtedness
shall be entitled to receive payment in full of all principal of and premium, if
any, and interest due upon all such Senior Indebtedness before the holder of
this Note is entitled to receive any payment on account of principal, premium,
if any, or interest upon this Note, and to that end (but subject to the power of
a court of competent jurisdiction to make other equitable provision reflecting
the rights conferred in this provision upon Senior Indebtedness and the holders
thereof with respect to this Note and the holder thereof by a lawful plan of
reorganization under applicable bankruptcy law), the holders of Senior
Indebtedness shall be entitled to receive for application in payment thereof any
payment or distribution of any kind or character, whether in cash or property or
securities, which may be payable or deliverable in any such proceedings in
respect of this Note.
(b) In the event that this Note shall become due and payable
before its expressed maturity on demand of the holder thereof as the result of
the occurrence of an Event of Default, as hereinabove defined (under
circumstances when the provisions of the foregoing clause (a) shall not be
applicable), the holders of Senior Indebtedness outstanding at the time this
Note so becomes due and payable shall be entitled to receive payment in full of
all principal and premium, if any, and interest on all Senior Indebtedness
before the holder of this Note is entitled to receive any payment on account of
principal of, premium, if any, or interest on this Note. In the event an action
or proceeding shall be commenced by any holder hereof for payment due hereunder,
the holder will notify the holder of the Senior Indebtedness of the commencement
of said action or proceeding. In the event that the holder hereof obtains any
judgment against the Company, said judgment may be docketed or otherwise
perfected; however said judgment shall be subject to the terms of Section 6 of
this Note and in no event shall the holder of such judgment be permitted to
enforce such judgment against the Company or any of its assets until the holder
of Senior Indebtedness shall be paid in full.
(c) No payment shall be made on account of principal or
premium, if any, or interest on this Note (i) commencing on the date any holder
of this Note shall receive written notice from the Company or the holder of any
Senior Indebtedness of the occurrence of any Event of Default under the terms of
any
- 5 -
<PAGE>
Senior Indebtedness and continuing until such Event of Default has been fully
cured or waived in writing by the holders of such Senior Indebtedness, and (ii)
during the continuance of any default in the payment of principal or interest on
the Senior Indebtedness.
(d) Nothing contained in the foregoing paragraphs (a), (b) or
(c) shall prevent the Company from making any payment on account of the
principal or interest of this Note except during the existence of any of the
conditions described in such paragraphs (a), (b) or (c).
7. MISCELLANEOUS.
7.1 Any notice or document required to be given or delivered
hereunder shall be conclusively deemed to have been received by the Company or
the holder hereof and shall be effective on the day on which personally
delivered to such party at the address set forth above (or at such other address
as such party shall specify in a notice given as herein provided).
7.2 All covenants, agreements, representations and warranties made
herein and in any certificate or document delivered pursuant hereto shall
survive the execution and delivery to the holder of this Note and shall continue
in full force and effect so long as the Note is outstanding and unpaid. Whenever
in this Note any of the parties hereto are referred to, such reference shall be
deemed to include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of the Company which are contained in
this Agreement shall bind and inure to the benefit of the successors and assigns
of the holder hereof.
7.3 The Company agrees to pay all out-of-pocket expenses of the
holder hereof (including the reasonable fees and expenses of its counsel) in
connection with the collection of this Note.
7.4 Neither any failure nor any delay on the part of the holder in
exercising any right, power or privilege hereunder or under the Note shall
operate as a waiver thereof, nor shall a single or partial exercise thereof
preclude any other or further exercise of any other right, power or privilege.
7.5 The term "business day" shall mean any day not a Saturday,
Sunday or banking holiday in the State of New York. Should any installment of
the principal of or interest on the Note become due and payable on other than a
business day, the maturity thereof shall be extended to the next succeeding
business day, and, in the case of an installment of principal, interest shall be
payable thereon at the rate per annum herein specified during such extension.
7.6 No modification, amendment or waiver of any provision of this
Note, nor consent to any departure by the Company therefrom shall in any event
be effective unless the same shall be in writing and signed by the holder hereof
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. No notice to or demand on the Company in
any case shall entitle the Company to any other or further notice or demand in
the same, similar or other circumstances.
7.7 In case any one or more provisions contained in this Agreement
or in the Note should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and therein shall not in any way be affected or impaired thereby.
7.8 Upon receipt of evidence of the loss or destruction of this Note
reasonably satisfactory to the Company, the Company will, at the expense of the
holder hereof, and subject to the Company's receipt of indemnity reasonably
satisfactory to it, execute and deliver, in lieu thereof, a new Note of like
tenor and amount.
7.9 In the event that the Company shall fail to pay any installment
of the principal or interest hereunder when due, whether at maturity, at any
date of prepayment, by acceleration or otherwise, interest shall be payable
thereon at the demand of the holder hereof at the rate of twelve percent (12%)
until the obligation of the Company with respect to such payment has been
discharged.
7.10 This Note shall be governed by and construed and enforced under
the laws of the State of New York applicable to contracts made and to be wholly
performed in that state. The Company and the holder
- 6 -
<PAGE>
hereof hereby consent to the exclusive jurisdiction, first of the United States
District Court for the Southern District of New York and in the absence of
federal jurisdiction, of the state courts of the State of New York, County of
New York in any action relating to this Note, and the Company agrees further
that service of process or notice in any such action, suit or proceeding shall
be effective if in writing and delivered or mailed, certified or registered
mail, return receipt requested to the Company at its principal executive
offices.
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed by its duly authorized officer, all as of the day and year first above
written.
ERGOVISION, INC.
By:
Name:
Title:
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<PAGE>
Schedule A
FORM OF CONVERSION NOTICE
Date
To: ERGOVISION,INC.
One Fairchild Court
Plainview, New York 11803
Attention: Mark H. Levin
President
The undersigned, the registered holder of $___________ principal amount of
a 10% Subordinated Convertible Promissory Note (the "Note") of Ergovision, Inc.
(the "Company"), hereby
(1) elects, on the date hereof, to convert $__________ unpaid
principal amount and all accrued interest of the Note into shares of
Common Stock of the Company (representing the number of shares determined
by dividing said principal amount and accrued interest by $1.25) which
shares are to be issued in the name of the undersigned as follows:
or issued in the name of the designee of the undersigned as follows:
in certificates of the following denominations:
whose address and taxpayer identification number are:
Attached hereto is the original Note in the aggregate principal amount of
$________, which is herewith surrendered for conversion as provided in (1)
above.
FOR PARTIAL CONVERSION ONLY: *[Please issue a new Note, registered in the
name of the undersigned, in the remaining principal amount of said Note
outstanding after giving effect to this conversion, and deliver it to the
following address:
__________________________________________________]
Signature:
Print Name:
* Brackets indicate inclusion is optional.
PURCHASE AND INVESTMENT AGREEMENT
PURCHASE AND INVESTMENT AGREEMENT (this "Agreement"), dated as of
the ____ day of May, 1999, by and between Ergovision, Inc. (the "Company"), a
Delaware corporation, and Nikos Mouyiaris (the "Purchaser"), an individual
residing at 425 East 58th Street, New York, NY 10022.
W I T N E S S E T H:
WHEREAS, the Company desires to sell 1,000,000 shares of its common stock,
$.001 par value per share, (the "Common Stock") to the Purchaser, and
WHEREAS, the Purchaser has previously purchased 250,000 additional shares
of Common Stock pursuant to the Purchase and Investment Agreement with the
Company dated March 12, 1999 (the "Other Shares"); and
WHEREAS, the Purchaser, being an accredited and sophisticated investor
under the Securities Act of 1933 (the "1933 Act"), does hereby desire to
purchase such shares of Common Stock, subject to the terms and conditions set
forth herein;
NOW, THEREFORE, the following will constitute the agreement between the
Company and the Purchaser with respect to the Purchaser's investment in the
Company.
1. Purchase of Shares (a) The Purchaser hereby purchases from the Company
1,000,000 shares (the "Shares") of the Common Stock, at a price of $1.00 per
share, for a total purchase price of $1,000,000 (the "Purchase Price").
(b) Upon delivery of the Purchase Price by the Purchaser, the
Company shall deliver to the Purchaser, a certificate representing the Shares,
registered in the name of the Purchaser.
2. Board Representation (a) The Company shall increase the size of its
Board of Directors and in this regard, shall amend its Bylaws and take such
other action as is necessary to so increase the size of the Board, so that two
new members appointed to fill such vacancies shall be designated by the
Purchaser for election by the existing Board of Directors. The Purchaser's
initial designees to the Board of Directors shall be Nikos Mouyiaris and Barbara
Novick. Concurrently with the execution hereof, the Purchaser, Mark Levin and
Mark Suroff have executed and delivered a voting agreement, substantially in the
form of Exhibit A, for the purpose of electing such designees to the Company's
Board of Directors.
(b) In addition to any vote required by law, until the earlier of
(i) such date as the Purchaser shall cease to have beneficial ownership of the
right to vote at least 66% of the Shares, or (ii) the consummation by the
Company of an underwritten public offering for gross proceeds of at least
$7,500,000, the Company shall not, without the affirmative vote or written
consent of at least one of the Purchaser's designees to the Board of Directors;
(i) Effect (A) any sale of all or substantially all of the
assets of the Company, or (B) any merger or other reorganization of the Company
with or into another
<PAGE>
corporation (other than any merger following a successful tender offer for
control of the voting Common Stock of the Company) such that (x) the Company is
not the surviving corporation following such merger and (y) the shareholders of
the Company prior to such transaction own less than 50% of the outstanding
voting equity securities of the surviving corporation after such transaction;
(ii) (A) commence a voluntary case under the Federal
bankruptcy laws (as now or hereafter in effect), (B) file a petition seeking to
take advantage of any other laws, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, winding up or composition or adjustment of debts,
(C) consent to any petition filed against it in an involuntary case under such
bankruptcy laws or other laws, (D) apply for or consent to the appointment of
the taking of possession by, a receiver, custodian, trustee, liquidator or the
like of itself or of a substantial part of its assets, domestic or foreign, (E)
admit in writing its inability to pay, or generally not be paying, its debts
(other than those that are the subject of bona fide disputes) as they become
due, (F) make a general assignment for the benefit of creditors, or (G) take any
corporate action for the purpose of effecting any of the foregoing;
(iii) Create, incur, guarantee, issue, assume or in any manner
become or remain liable in respect of, any Debt, in the aggregate, to a bank or
other financial institution in excess of $1,000,000;
(iv) Except as set forth on Schedule A hereto, authorize or
issue any shares of Common Stock at a price less than $1.00 per share, or any
other security that may be converted into Common Stock, where the consideration
paid for such security, in addition to any additional consideration payable upon
conversion or exercise thereof, shall be in the aggregate less than $1.00 per
share; or
(v) Except as set forth on Schedule B hereto, purchase or
acquire, directly or indirectly, in cash, Debt, securities or any combination
thereof, in one or a series of related transactions, other than in the ordinary
course of business or related to product development, any assets of any Person
unless the aggregate purchase price therefor does not exceed $1,000,000.
(vi) Except as set forth on Schedule C hereto, enter into any
transaction between the Company and any individual stockholder, officer or
director, or any affiliate thereof (other than in connection with the providing
of legal, accounting or other professional services to the Company) involving
the commitment by the Company for the expenditure of, or the right of the
Company to receive, a sum in excess of $25,000, except, however, where such
transaction is on terms and conditions no less advantageous to the Company than
the Company could have obtained had the Company entered into such transaction
with a non-affiliated third party.
(c) The rights of the Purchaser as set forth in this Section 2 are
personal to the Purchaser and shall not survive any transfer of the Shares
whatsoever, and may not be assigned or transferred in any way, provided, that
the rights set forth in this Section 2 shall survive a transfer to a Permitted
Transferee but only if Purchaser retains beneficial ownership of the right to
vote and dispose of such shares as defined in Rule 13d-3 promulgated under the
Securities Exchange Act of 1934. Except as set forth above, any attempted
transfer or assignment of the rights set forth in this Section 2 shall be void
ab initio.
(d) For the purposes of this Section 2, the Shares shall be deemed
to include the Other Shares.
3. Notice of Transfer Subject to Section 7 hereof, and in addition to any
notice that may be required under applicable securities laws, the Purchaser
agrees that he shall notify the
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<PAGE>
Company not more than five (5) days subsequent to the transfer of any or all of
the Shares.
4. Representations and Warranties of the Purchaser. The Purchaser
represents, warrants and covenants to the Company and each of its officers,
directors, persons who control the Company and any affiliates of the foregoing
that:
(a) Either (i) the Purchaser is a director or executive officer of
the Company, (ii) the Purchaser has a net worth, inclusive of the value of the
Purchaser's homes, home furnishings and automobiles, of at least $1,000,000
(which net worth may include the Purchaser's spouse's net worth), (iii) the
Purchaser's individual income for each of the past two calendar years exceeded
$200,000 and the Purchaser reasonably expects the Purchaser's individual income
to exceed $200,000 in the current year, (iv) the Purchaser's income together
with the income of the Purchaser's spouse for each of the past two calendar
years exceed $300,000 and the Purchaser reasonably expects the Purchaser's
income together with that of the Purchaser's spouse to exceed $300,000 in the
current year, or (v) the Purchaser has such knowledge and experience in business
and financial matters that the Purchaser is capable of evaluating the merits and
risks of an investment in the Company.
(b) The Purchaser is acquiring the Shares for the Purchaser's own
account, for investment only and not with a view toward the resale or
distribution thereof.
(c) The Purchaser understands that the Shares are not registered
under the 1933 Act and may not be resold unless subsequently registered under
the 1933 Act or unless an exemption from such registration is available. The
Purchaser understands that the Shares have not been approved or disapproved by
the Securities and Exchange Commission (the "Commission"), or any other federal
or state agency, nor has the Commission or any such agency passed upon the
accuracy or adequacy of any of the information provided to the Purchaser.
(d) The Purchaser has adequate funds to provide for the Purchaser's
personal needs and does not and will not require the funds comprising the
Purchase Price for liquidity purposes. The Purchaser possesses the ability to
bear the economic risk of holding the Shares indefinitely and can afford a
complete loss of the investment contemplated hereby.
(e) In making the Purchaser's investment in the Shares, no oral
representations or warranties have been made to the Purchaser. The Purchaser
acknowledges that the Purchaser has been advised that, except for Mr. Mark Levin
and Mr. Mark Suroff, no person is authorized to give any information or to make
any statement regarding the Company's Strategic Business Plan and the
attachments thereto (the "Business Plan"), and that any information or statement
not made by such persons must not be relied upon as having been authorized by
the Company or any professional advisors or counsel thereto. The Purchaser
acknowledges that the Company makes no representations or warranties, expressed
or implied, with respect to the completeness or accuracy of the Business Plan,
as to the contents of any other written or oral communication transmitted or
made available to the Purchaser or the Purchaser's representatives, and that the
Purchaser and the Purchaser's representatives must rely on their own due
diligence of the Company and their own independent verification of the
information provided in the Business Plan and any other investigations deemed
necessary for the purpose of determining whether to proceed with the investment
in the Company. The Purchaser acknowledges that the Business Plan includes
certain statements, estimates and projections provided by the Company with
respect to anticipated future performance of the Company, which reflect various
assumptions by the Company's management concerning anticipated results, which
may or may not occur. Purchaser acknowledges that the actual performance of the
Company may be materially different from those set forth in such statements,
estimates or projections.
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<PAGE>
(f) The Purchaser has reviewed, carefully read and completed the
Investor Questionnaire attached as Exhibit B hereto. All information provided by
the Purchaser to the Company, including that contained in the Investor
Questionnaire submitted herewith, is true and correct in all material respects
as of the date hereof.
(g) INTENTIONALLY OMITTED
(h) The Purchaser is aware that all documents, records and books
pertaining to this investment are at all times available at the offices of the
Company at One Fairchild Court, Plainview, New York 11803, or at the offices of
the Company's counsel, Rosenman & Colin LLP, 575 Madison Avenue, New York, New
York 10022, Attn: Eric M. Lerner, Esq., and acknowledges that all documents,
records and books pertaining to this investment requested by the Purchaser,
including without limitation, the Company's unaudited financial statements as of
December 31, 1998 and for the year then ended, (a copy of the trial balance of
which is attached as Exhibit C hereto) and capitalization chart (a copy of which
is attached as Exhibit D hereto) have been made available to the Purchaser, and
the Purchaser has been supplied with such additional information concerning this
investment as has been requested.
(i) The Purchaser has been given the opportunity to discus the
Purchaser's investment in, and the operation of, the Company with the Company's
management and has been given all information that the Purchaser has requested
and which the Purchaser deems relevant to the Purchaser's decision to invest in
the Company.
(j) There is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of the
Purchaser who might be entitled to any fee or commission from the Company or any
of its affiliates upon consummation of the transactions contemplated by this
Agreement.
5. Representations and Warranties of the Company. The Company represents
and warrants to the Purchaser as follows:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the
corporate power and authority to own or lease all of its properties and assets
and carry on its business as it is now being conducted, except for such power
and authority the lack of which would not have a materially adverse effect on
the Company. The Company is qualified to transact business as a foreign
corporation in each jurisdiction where it is required to so qualify except for
such jurisdictions where the failure to so qualify would not have a Material
Adverse Effect. True and correct copies of the Company's Certificate of
Incorporation and Bylaws have been provided to the Purchaser.
(b) The Company has the corporate power and authority to execute and
deliver this Agreement, and all other documents hereby contemplated, to
consummate the transactions hereby and thereby contemplated and to take all
other actions required to be taken by each of them pursuant to the provisions
hereof and thereof. The execution, delivery and performance of this Agreement
and all other documents hereby contemplated to be executed by Company has been,
and the consummation by Company of the transactions hereby and thereby
contemplated has been, duly authorized by any and all necessary corporate or
other action of Company. The Board of Directors of Company has authorized and
approved the execution, delivery and performance of this Agreement and the
transactions contemplated hereby. This Agreement and all other documents hereby
contemplated to be executed by Company constitute the legal, valid and binding
obligations of Company, enforceable against Company in accordance with their
respective terms, except as such enforceability may be limited by bankruptcy,
4
<PAGE>
moratorium, insolvency, fraudulent conveyance, reorganization, or other similar
laws affecting the enforcement of creditor's rights.
(c) Neither the execution and delivery of this Agreement or any
other documents hereby contemplated nor the consummation of the transactions
hereby and thereby contemplated shall (i) constitute any violation or breach of
the Certificate of Incorporation or By-laws of the Company, (ii) constitute a
default under or a violation or breach of, or result in acceleration of any
obligation under, any provision of any contract, lease, mortgage or other
instrument to which it is a party or to which any of its assets is subject, or
(iii) violate any judgment, order, writ, injunction, decree, statute, rule or
regulation affecting Company or any of its assets, which violation, breach or
default, in the case of subclauses (ii) or (iii) of this sentence, would have a
materially adverse effect on Company.
(d) Except as would not have a Material Adverse Effect, (i) the
Company has complied with all governmental laws, statutes, policies, regulations
and rules (including, without limitation, any federal, state or local laws,
rules or regulations regulating the safety of the workplace and/or the discharge
of materials into the environment or otherwise relating to the protection of the
environment) applicable to its business as conducted on and prior to the date
hereof, (ii) the Company has maintained in full force and effect all material
licenses, approvals, permits and consents for the lawful conduct of its
business, (iii) to the best of its knowledge, the Company is not in violation of
any material governmental laws, statutes, policies, regulations or rules
applicable to the Company, and has not received any notice of any such
violation, and (iv) no authorization, approval, order, license, permit,
franchise or consent, and no registration, declaration, notice or filing by or
with any domestic or foreign governmental agency (including, without limitation,
any filing or registration pursuant to the securities or blue sky laws of the
United States of America or any state or territory thereof) by the Company is
required in connection with the execution and delivery by the Company of this
Agreement and the consummation of the transactions hereby contemplated.
(e) The capitalization of the Company, including all outstanding
stock options, is accurately and fully set forth as Exhibit D hereto or as
otherwise disclosed in the Financial Statement attached as Exhibit C hereto.
Except for the rights to acquire Common Stock pursuant to the options listed on
Exhibit D hereto, there are no outstanding options, warrants, rights (including
conversion or preemptive rights) or agreements for the purchase or acquisition
from or sale or disposition by the Company of any shares of its capital stock.
Except as set forth on Exhibit D hereto or as otherwise disclosed in the
financial statements attached as Exhibit C hereto, the Company is not a party or
subject to any agreement or understanding which affects or relates to the voting
or giving of written consent with respect to any security or by any director of
the Company. The outstanding shares of capital stock are all duly and validly
authorized and issued, fully paid, and non-assessable, and were issued in
compliance with all applicable federal and state securities laws. The Shares to
be issued to pursuant to the provisions of this Agreement will, upon such
issuance, be duly authorized, legally and validly issued, and fully paid and
nonassessable.
(f) Exhibit C hereto contains (i) the unaudited balance sheet of the
Company as of December 31, 1998, and the related statements of operations, cash
flows and shareholders' equity, including the notes thereto, for the year then
ended and (ii) the unaudited balance sheet of the Company as of February 28,
1999 and the related statements of operations, cash flows and shareholders'
equity, including the notes thereto, for the two-month period then ended, all of
which have been compiled by the Company's certified public accountant. Such
financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 1998 and February 28, 1999,
respectively, and the results of the Company's operations, cash flows and
shareholders' equity for the year ended December 31, 1998 and the two-month
period ended February 28, 1999, all in conformity with GAAP applied on a
5
<PAGE>
consistent basis, except as otherwise stated in such financial statements or the
accountant's report thereon.
(g) The Business Plan and the assumptions underlying the Business
Plan have been prepared or made in good faith and, to the Company's knowledge,
are reasonable in all material respects. No other representations are made as to
the accuracy of the statements, estimates, or projections set forth in the
Business Plan, and actual performance of the Company may be materially different
from those set forth in such statements, estimates or projections.
(h) (i) Since February 28, 1999, except as disclosed on Schedule D
there has not been:
(A) any change in the assets, liabilities, condition (financial or
otherwise), affairs, earnings, business, operations, or prospects of the
Company from that reflected in the balance sheet as at February 28, 1999,
referred to in subsection (f) above, except for changes in the ordinary
course of business (including diminution in cash position and expenses in
excess of revenues) which, either individually or in the aggregate, have
not had, or may be reasonably expected to result in, a Material Adverse
Effect;
(B) any incurrence of liabilities or obligations by the Company,
contingent or otherwise, whether due or to become due, whether by way of
guaranty, endorsement, indemnity, warranty, or otherwise, except
liabilities and obligations incurred in the ordinary course of business,
none of which has had, or is reasonably likely to result in, a Material
Adverse Effect;
(C) any increase in compensation of any of its existing officers, or
the rate of pay of its employees as a group, except as part of regular
compensation increases in the ordinary course of business;
(D) any resignation or termination of employment of any officer or
key employee of the Company;
(E) any change in the accounting methods or practices followed by
the Company;
(F) except as otherwise disclosed in the Financial Statements
attached as Exhibit C hereto, any issuance of any stock, bonds, or other
securities of the Company or options, warrants, or rights or agreements or
commitments to purchase or issue such securities or grant such options,
warrants or rights, except as described in Subsection (e); or
(G) any agreement by the Company to do or enter into any of the
foregoing.
(ii) Since the inception of the Company, except as disclosed
on Schedule E hereto, there has not been:
(A) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, operation or
business of the Company;
(B) any loans made by the Company to its employees, officers, or
directors other than advances of expenses made in the ordinary course of
business;
6
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(C) any declaration or payment of any dividend or other distribution
of the assets of the Company or any direct or indirect redemption,
purchase or acquisition of any securities of the Company;
(D) any labor organization activity or organized labor trouble;
(E) any sale, transfer, or lease of any of the Company's assets
except in the ordinary course of business, individually in excess of
$50,000, or in the aggregate in excess of $100,000, or any mortgage or
pledge of or lien imposed upon any of the Company's assets;
(F) to the best of the Company's knowledge, any other event or
condition of any character which has materially and adversely affected the
business, prospects, condition, affairs, operations, properties or assets
of the Company; or
(G) any agreement by the Company to do or enter into any of the
foregoing.
(i) Except as described on Schedule F hereto: (i) there is no
action, suit, proceeding, or investigation pending or to the Company's knowledge
currently threatened against the Company which questions the validity or
enforceability of this Agreement or the right of the Company to enter into such
agreement, or to consummate the transactions contemplated hereby, or which might
result, either individually or in the aggregate, in any Material Adverse Effect
with respect to the assets, condition, affairs, or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company, including, without limitation, actions pending or threatened involving
the prior employment of any of the Company's employees, their use in connection
with the Company's business of any information or techniques allegedly
proprietary to any of their former employers, or their obligations under any
agreements with prior employers; (ii) the Company is not a party or subject to
the provisions of any order, writ, injunction, judgment, or decree of any court
or government agency or instrumentality; and (iii) there is no action, suit,
proceeding or investigation by the Company currently pending which the Company
intends to initiate.
(j) Except as described on Schedule G, the Company has sufficient
title and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights, and processes
necessary for its business as now conducted (collectively, "Intellectual
Property Rights") without any conflict with or infringement of the rights of
others. Schedule G contains a complete list of all Intellectual Property Rights
of the Company and registrations and applications for registration therefor.
Except as shown on Schedule G, there are no outstanding options, licenses, or
agreements of any kind relating to the Company's Intellectual Property Rights,
nor is the Company bound by or a party to any options, licenses, or agreements
of any kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights, and
processes of any other Person, except the so-called "execute by opening"
software license agreements. The Company has not received any communications or
claims alleging that the Company has violated or, by conducting its business as
proposed, would violate, any of the patents, trademarks, service marks, trade
names, copyrights, or trade secrets or other proprietary rights of any other
person or entity. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants, or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of such
employee's best efforts to promote the interests of the Company, or that would
conflict with the Company's business as proposed to be conducted. Neither the
execution nor delivery of this Agreement, nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business as proposed, will, to the Company's knowledge, conflict with or result
in a breach of the terms,
7
<PAGE>
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated.
Except as described on Schedule H, the Company does not believe it is or will be
necessary to utilize any inventions of any of its employees (or people it
currently intends to hire) made prior to their employment by the Company.
(k) There is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of the
Company who might be entitled to any fee or commission from the Purchaser or any
of his affiliates upon consummation of the transactions contemplated by this
Agreement.
(l) Neither this Agreement, nor any other statements or certificates
made or delivered in connection herewith, contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
herein or therein, in light of the circumstances in which they were made, not
misleading.
6. Legend The Purchaser agrees that the certificates evidencing the Shares
shall bear the following legend restricting their transferability under the Act:
LEGEND
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("ACT"). NO SALE, OFFER TO SELL OR TRANSFER OF THE SHARES REPRESENTED BY
THIS CERTIFICATE SHALL BE MADE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT, OR AN OPINION OF COUNSEL TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
7. Registration Rights, Co-Sale Rights and Bring-Along Rights. The
Purchaser shall have the following registration rights, co-sale rights and
bring-along rights:
(a) Registration on Form S-3.
(i) Subject to Section 7(a)(ii), if at any time after 120 days
from the date hereof, the Purchaser requests, one time only, that the Company
file a registration statement on Form S-3 (or any successor form to Form S-3)
for a public offering of the Shares, the reasonably anticipated aggregate price
to the public of which would exceed 1,000,000, and provided that the Company is
a registrant entitled to use Form S-3 to register the Shares for such an
offering, the Company shall use its best efforts to cause such Shares to be
registered on such Form S-3 and, subject to Section 7(e), to cause such Shares
to be qualified in such jurisdictions as the Purchaser may reasonably request.
The Company may inform other shareholders of Common Stock of the proposed
registration and offer them the opportunity to participate. If such registration
is an underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Shares and, if applicable, other
securities requested to be included in such offering exceeds the number of
Shares and other securities, if any, which can be sold therein without adversely
affecting the marketability of the offering, the Company will include in such
registration (i) first, the number of Shares requested to be included in such
registration by the Purchaser and (ii) second, any other securities of the
Company requested to be included in such registration pro rata, if necessary, on
the basis of the number of shares of such other securities owned by each such
holder.
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(ii) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 7(a) (A) in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Act; (B) prior to the Company's first
Public Offering the gross proceeds of which are at least $7,500,000; (C) if the
Company, within ten (10) days of the receipt of the request of the Purchaser,
gives notice of its bona fide intention to effect the filing of a registration
statement with the Commission within sixty (60) days of receipt of such request
(other than with respect to a registration statement relating to a Rule 145
transaction, an offering solely to employees or any other registration which is
not appropriate for the registration of the Shares); (D) during the period
starting with the date sixty (60) days prior to the Company's estimated date of
filing of, and ending on the date six (6) months immediately following, the
effective date of any underwritten registration statement pertaining to
securities of the Company (other than a registration of securities in a Rule 145
transaction or with respect to an employee benefit plan), provided that the
Company is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or (E) if the Board, acting in good
faith, determines that such registration might reasonably be expected to have an
adverse effect on any proposal or plan to engage in any acquisition or disposal
of stock or assets or any merger, consolidation, tender offer or similar
transaction (provided, that in such event, the Purchaser shall be entitled to
withdraw his request for registration and, if such request is withdrawn, such
registration will not count as a registration requested pursuant to Section
7(a)(i) hereof). In the case contemplated by Section 7(a)(ii)(E), the Company's
obligation to use its best efforts to file a registration statement shall be
deferred for a period not to exceed ninety (90) days from the receipt of the
request to file such registration by the Purchaser; provided that the Company
may not exercise this deferral right more than once per twelve (12) month
period.
(b) "Piggyback" Registration. If at any time after the date hereof,
the Company proposes to register any of its securities (other than on Form S-4
or other applicable form in connection with a merger, or pursuant to Form S-8 or
other comparable form), the Company shall request that the managing underwriter
(if any) of such underwritten offering include the Shares in the offering
covered by such registration statement. If such managing underwriter agrees to
include the Shares in the underwritten offering, and in any event in a
non-underwritten offering, the Company shall at such time give prompt written
notice to the Purchaser of its intention to effect such registration and of the
Purchaser's right under such proposed registration, and upon the request of the
Purchaser delivered to the Company within twenty (20) business days after
receipt such notice (which request shall specify the Shares intended to be
disposed of by the Purchaser and the intended method of disposition thereof),
the Company shall include such Shares held by the Purchaser requested to be
included in such registration; provided, however, that:
(i) If, at any time after giving such written notice of the
Company's intention to register any of the Purchaser's Shares and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay the registration of the offering which includes such Shares, at its sole
election, the Company may give written notice of such determination to the
Purchaser and thereupon shall be relieved of its obligation to register any
Shares issued or issuable in connection with that particular registration (but
not from its obligation to pay registration expenses in connection therewith or
to register the Shares in a subsequent registration); and in the case of a
determination to delay a registration shall thereupon be permitted to delay
registering any Shares for the same period as the delay in respect of securities
being registered for the Company's own account.
(ii) If the managing underwriter in such underwritten offering
shall advise the Company that it declines to include a portion or all of the
Shares requested by the
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<PAGE>
Purchaser to be included in the registration statement, then registration of all
or a specified portion of the Shares shall be excluded from such registration
statement (in case of an exclusion as to a portion of the Shares, such portion
to be excluded shall be allocated among the Purchaser and any affiliates and
other selling shareholders of the Company, including securities to be registered
in such underwritten offering in proportion to the respective number of Shares
and other securities requested to be registered by each such affiliate or
shareholder). In such event the Company shall give the Purchaser prompt notice
of the number of Shares excluded from such registration at the request of the
managing underwriter. No such exclusion shall reduce the securities being
offered by the Company for its own account to be included in such registration
statement.
(iii) The Purchaser, subject to the provision of Section 7(c),
shall have the option to include the Shares in the Company's underwritten
offering. The Company shall not be required to include any of the Purchaser's
Shares in an underwritten offering of the Company's securities unless the
Purchaser accepts the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it (provided such terms are usual and
customary for selling stockholders) and the Purchaser agrees to execute such
documents in connection with such registration as the Company or the managing
underwriter may reasonably request.
(c) Cooperation with Company. The Purchaser will cooperate with the
Company in all respects in connection with this Agreement, including, timely
supplying all information reasonably requested by the Company and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Shares.
(d) Termination of Rights. The Company's obligations under Sections
7(a) and 7(b) shall terminate upon the date upon which the Shares are eligible
for resale without registration pursuant to section (k) of Rule 144 ("Rule 144")
of the 1933 Act.
(e) Registration Procedures. If and whenever the Company is required
by any of the provisions of this Agreement to effect the registration of any of
the Shares under the 1933 Act, the Company shall (except as otherwise provided
in this Agreement), as expeditiously as possible:
(i) prepare and file with the Commission a registration
statement and shall use its best efforts to cause such registration statement to
become effective and remain effective until all the Shares are sold or become
capable of being publicly sold without registration under the 1933 Act pursuant
to Rule 144(k);
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the 1933 Act with respect to the sale or other
disposition of all securities covered by such registration statement whenever
the Purchaser shall desire to sell or otherwise dispose of the same until the
earlier of (A) one year from the effectiveness of the registration statement; or
(B) all Shares owned by the Purchaser or his Permitted Transferees are eligible
for sale under Rule 144(k);
(iii) furnish to the Purchaser such numbers of copies of a
summary prospectus or other prospectus, including a preliminary prospectus or
any amendment or supplement to any prospectus, in conformity with the
requirements of the 1933 Act, and such other documents, as the Purchaser may
reasonably request in order to facilitate the public sale or other disposition
of the securities owned by the Purchaser;
10
<PAGE>
(iv) register and qualify the securities covered by such
registration statement under such other securities or blue sky laws of such
jurisdictions as the Purchaser shall reasonably request, and do any and all
other acts and things which may be necessary or advisable to enable the
Purchaser to consummate the public sale or other disposition in such
jurisdictions of the securities owned by the Purchaser, except that the Company
shall not for any such purpose be required to qualify to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified or to
file therein any general consent to service of process or to register the Shares
under the blue sky laws of any state where the Company does not have a
"secondary trading" exemption;
(v) use its best efforts to list such securities on any
securities exchange on which any securities of the Company is then listed, if
the listing of such securities is then permitted under the rules of such
exchange;
(vi) INTENTIONALLY OMITTED;
(vii) notify the Purchaser at any time when a prospectus
relating to the Shares is required to be delivered under the 1933 Act, of the
happening of any event as a result of which such prospectus contains an untrue
statement of a material fact or omits any fact necessary to make the statements
therein not misleading, whereupon the Purchaser shall not effect any further
sales of the Shares pursuant to such prospectus, and, at the request of the
Purchaser, the Company will promptly prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of the Shares,
such prospectus will not contain an untrue statement of a material fact or omit
to state any fact necessary to make the statements therein not misleading,
whereupon the Purchaser may then effect sales of the Shares pursuant to such
supplemented or amended prospectus.
(f) Black Out Periods.
(i) The Purchaser hereby agrees not to, directly or
indirectly, effect any public sale or distribution (including sales pursuant to
Rule 144) or any short sales of equity securities of the Company, or any
securities convertible into or exchangeable or exercisable for such securities,
during the seven days prior to and the 90-day period beginning on the effective
date of any "Piggyback" registration under Section 7(b) hereof for a public
offering to be underwritten on a firm commitment basis in which any of the
Shares are included (except as part of such underwritten registration), unless
the underwriters managing the registered public offering otherwise agree.
(ii) The Company shall have the right to suspend use of any
registration statement and the related prospectus if its Board of Directors
determines in good faith that there is a valid purpose for such suspension. For
purposes of this Agreement, a valid purpose shall include, but is not limited
to, a good faith determination that the registration statement may contain a
material misstatement or omission (including as a result of the Company having
under consideration a significant acquisition or disposition or other material
transaction that has not been publicly disclosed) in which case the Company may
cause the registration statement not to be used by the Purchaser until such time
as the Securities and Exchange Commission (the "Commission") has declared
effective a post-effective amendment to the registration statement filed by the
Company or if the misstatement or omission can be corrected by incorporation by
reference in the registration statement of another Commission filing of the
Company, the Company has made another filing on Form 8-K or other appropriate
form to correct such misstatement or omission.
(iii) In connection with any public offering of the Company's
securities, the Purchaser agrees, upon request of the Company or the
underwriters managing any
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<PAGE>
underwritten offering of the Company's securities, not to sell, make any short
sale of, loan, grant any option for the purchase of, or otherwise dispose of any
Shares (other than those included in the registration) without the prior written
consent of the Company or such underwriters, as the case may be, for such period
of time (not to exceed one hundred eighty (180) days in the case of the
Company's first underwritten public offering the gross proceeds of which are at
least $7,500,000, and ninety (90) days in the case of other public offerings of
the Company) from the effective date of such registration as may be requested by
the underwriters; provided that the officers and directors of the Company who
own stock of the Company and holders of five percent (5%) or more of the
Company's outstanding voting securities also agree to such restrictions.
(iv) In order to enforce the foregoing clauses 7(f)(i), (ii)
and (iii), the Company may impose stop transfer instructions with respect to the
Shares (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
(g) Expenses. All expenses incurred in any registration of the
Shares under this Agreement shall be paid by the Company, including, without
limitation, printing expenses, fees and disbursements of counsel for the
Company, expenses of any audits to which the Company shall agree or which shall
be necessary to comply with governmental requirements in connection with any
such registration, all registration and filing fees for the Shares under federal
and state securities laws, and expenses of complying with the securities or blue
sky laws of any jurisdictions pursuant to Section 7(f)(iv); provided, however,
the Company shall not be liable for (i) any discounts or commissions to any
underwriter, (ii) any stock transfer taxes incurred with respect to the Shares
sold in the offering or (iii) the fees and expenses of counsel for the
Purchaser, provided that the Company will pay the costs and expenses of Company
counsel when the Company's counsel is representing any or all selling security
holders.
(h) Indemnification. In the event the Shares are included in a
registration statement pursuant to this Agreement:
(i) Company Indemnity. Without limitation of any other
indemnity provided to the Purchaser, either in connection with the offering or
otherwise, to the extent permitted by law, the Company shall indemnify and hold
harmless the Purchaser and its affiliates, any underwriter (as defined in the
1933 Act) for the Purchaser, and each person, if any, who controls such
underwriter (within the meaning of the 1933 Act or the Securities Exchange Act
of 1934 (the "Exchange Act")), against any losses, claims, damages or
liabilities (joint or several) to which they may become subject under the 1933
Act, the Exchange Act or other federal or state law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any of the following statements, omissions or violations
(collectively a "Violation") by the Company: (A) any untrue statement or alleged
untrue statement of a material fact contained in such registration statements
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements, thereto, (B) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading or (C) any violation or alleged violation by the Company of
the 1933 Act, the Exchange Act, or any state securities law or any rule or
regulation promulgated under the 1933 Act, the Exchange Act or any State
securities law, and, in each case, the Company shall reimburse the Purchaser and
its affiliates or underwriter for any legal or other expenses incurred by them
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Purchaser in any such case for any such loss, claim, damage, liability or
action to the extent that it arises out of or is based upon (1) a Violation
which occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by the
Purchaser or (2) by the Purchaser's failure to deliver to purchasers of the
Shares a copy of the registration statement or
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<PAGE>
prospectus or any amendments or supplements thereto pursuant to Section
7(e)(vii) after the Company has furnished the Purchaser with a sufficient number
of copies of the same.
(ii) Purchaser Indemnity. The Purchaser shall indemnify and
hold harmless the Company, its affiliates, its counsel, officers, directors, and
representatives, any underwriter (as defined in the 1933 Act) and each person,
if any, who controls the Company or the underwriter (within the meaning of the
1933 Act or the Exchange Act), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the 1933
Act, the Exchange Act or any state securities law, and the Purchaser shall
reimburse the Company, affiliate, officer or director or partner, underwriter or
controlling person for any legal or other expenses liability incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action insofar as such losses, claims, damages or liabilities (or
actions and respect thereof) arise out of or are based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by the Purchaser;
provided, however, that the maximum amount of liability in respect of such
indemnification (including, but not limited to, attorneys' fees and expenses)
shall be to an amount equal to the net proceeds actually received by the
Purchaser from the sale of Shares under such registration statement.
(iii) Notice: Right to Defend. Promptly after receipt by an
indemnified party under this Section 7(h) of notice of the commencement of any
action (including any government action) such indemnified party shall, if a
claim in respect thereof made against an indemnifying party under this Section
7(h), deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in and if
the indemnifying party agrees in writing that it will be responsible for any
costs, expenses, judgments, damages and losses incurred by the indemnified party
with respect to such claim, jointly with any other indemnifying party similarly
noticed, to assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party, if the indemnified party reasonably believes that representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to the availability of separate defenses or actual or
potential conflicts of interests between such indemnified party and other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within reasonable time of the commencement of
an such action shall relieve such indemnifying party of any liability to the
indemnified party under this Agreement only if and to the extent that such
failure is prejudicial to its ability to defend such action; provided the
omission so to deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party otherwise than
under this Agreement.
(iv) Contribution. If the indemnification provided for in this
Agreement is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
hand in connection with the statements or omissions which resulted in such loss,
claim, damage or expense as well as any other relevant equitable considerations.
The relevant fault of the indemnifying party and the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, access to information and opportunity to correct
or prevent such statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f)
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of the 1933 Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
(v) Survival of Indemnity. The indemnification provided by
this Agreement shall be a continuing right to indemnification and shall survive
the registration and sale of any Shares by any person entitled to
indemnification hereunder and the expiration or termination of this Agreement.
(i) Co-Sale Rights. Subject to Section 7(l) hereof, at least 15
business days prior to any sale, transfer, assignment, pledge or other disposal
(a "Transfer") of Common Stock or of securities convertible into Common Stock by
Mark Levin or Mark Suroff (each, a "Founder") (other than (i) pursuant to an
underwritten public offering of shares of the Company registered under the 1933
Act (a "Public Offering") or (ii) sales under Rule 144 (provided that the
Founders notify the Purchaser of such sales not more than five days subsequent
to the date thereof)), the Founder making such Transfer (the "Selling
Stockholder") shall deliver a written notice (the "Sale Notice") to the
Purchaser specifying in reasonable detail the identity of the prospective
transferee(s) and the terms and conditions of the Transfer. The Purchaser may
elect to participate in the contemplated Transfer by delivering written notice
to the Selling Stockholder within 10 business days after delivery of the Sale
Notice. If the Purchaser has elected to participate in such Transfer, the
Selling Stockholder and the Purchaser shall be entitled to sell in the
contemplated Transfer, at the same price and on the same terms, a number of
shares of Common Stock equal to the product of (x) the quotient determined by
dividing the number of shares of Common Stock owned by such stockholder by the
aggregate number of shares of Common Stock owned by the stockholders
participating in such Transfer and (y) the aggregate number of shares to be sold
in the Transfer by the other Shareholders participating in the Transfer. The
Purchaser, as a condition of exercising his rights under this Section 7(i),
shall enter into such documentation as is expected by the buyer of such Shares,
including, without limitation, documentation comparable to that entered into by
the Founders; provided, that if the Purchaser, at the time of such Transfer, is
no longer an officer or director of the Company, the only representation and
warranty that the Purchaser shall be required to make in connection with any
Transfer is a warranty with respect to its ownership of the Shares to be sold by
him and his ability to convey title thereto free and clear of liens,
encumbrances or adverse claims. Each stockholder transferring shares pursuant to
this Section 7(i) shall pay its pro rata share (based on the number of shares of
Common Stock to be sold) of the expenses incurred by the stockholders in
connection with such transfer and shall be obligated to join in any
indemnification or other obligations that the transferor agrees to provide in
connection with such Transfer, provided, however, that the maximum amount of
liability in respect of any indemnification obligation (including, but not
limited to, attorneys' fees and expenses) shall be to an amount equal to the net
proceeds actually received by the Purchaser from the sale of Shares in such
transaction. Notwithstanding the generality of the foregoing, the Purchaser's
rights under this Section 7(i) shall expire and be of no further effect upon
consummation by the Company of an underwritten public offering for gross
proceeds of at least $7,500,000.
(j) INTENTIONALLY OMITTED.
(k) Bring-Along Rights. (a) If, at any time on or after the date
hereof, persons holding, in the aggregate, 80% or more of the total Common Stock
issued and outstanding, acting in concert in connection with one transaction or
a series of related transactions, desire to Transfer their Common Stock to a
third party (such transferring persons referred to as the "Transferors") at a
price (payable in cash, debt or securities, or any combination thereof) of at
least (i) 150% of the price of the Common Stock as reported on the OTC Bulletin
Board, NASDAQ, or such other exchange where the Common Stock is trading on the
day of such Transfer and (ii) 300% of the Purchaser's original cost per Share,
the Transferors shall be entitled to require the Purchaser to Transfer his
Common Stock in such transaction (a "Buy-
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Out"). The Transferors shall cause the proposed transferee(s) to accept the
Transfer of the Common Stock of the Purchaser on the same terms and conditions
as are offered by the transferee(s) to the Transferors, (except that, in the
event that the Purchaser is no longer an officer or director of the Company at
the time of such Buy-Out, the only representation and warranty that the
Purchaser shall be required to make in connection with any Buy-Out is a warranty
with respect to its ownership of the Shares, to be sold by him and his ability
to convey title thereto free and clear of liens, encumbrances or adverse
claims.) Each stockholder transferring shares pursuant to this Section 7(k)
shall pay its pro rata share (based on the number of shares of Common Stock to
be sold) of the expenses incurred by the stockholders in connection with such
transfer and shall be obligated to join in any indemnification or other
obligations that the transferor agrees to provide in connection with such
Transfer, provided, however, that the maximum amount of liability in respect of
any indemnification obligation (including, but not limited to, attorneys' fees
and expenses) shall be to an amount equal to the net proceeds actually received
by the Purchaser from the sale of Shares in such transaction. If the Transferors
elect to effect a Buy-Out:
(i) the Transferors shall deliver a notice (a "Buy-Out
Notice") to the Purchaser stating that they propose to effect Buy-Out, and
specifying the name and address of the proposed parties to such a Buy-Out,
the consideration payable in connection therewith, and attaching a copy of
all agreements and other documents between the Transferors and all of the
parties to such transaction necessary to establish the terms of such
transaction;
(ii) the Purchaser agrees that, upon receipt of a Buy-Out
Notice, he shall be obligated to sell all his Common Stock upon terms no
less favorable than the terms and conditions set forth in the Buy-Out
Notice; provided that any covenants and agreements, including, without
limitation, non-compete provisions, which do not relate to the amount and
method of payment of the consideration shall not be binding on the
Purchaser unless he expressly agrees to be bound thereby; and
(iii) the purchase price and the form of consideration for the
sale of all of the Common Stock made pursuant to a Buy-Out shall be the
same for each holder thereof in such transaction and such transaction
shall be required to be consummated on or before the later of (x) 60 days
after the giving of the Buy-Out Notice, and (y) the date which is 10 days
after the expiration or waiver of any applicable waiting period for such
transaction pursuant to the Hart-Scott-Rodino Act.
(b) Notwithstanding the generality of the foregoing, the Purchaser's
obligations under this Section 7(k) shall expire and be of no further effect
upon consummation by the Company of an underwritten public offering for gross
proceeds of at least $7,500,000.
(l) Transfer of Registration, Co-Sale Rights or Bring-Along Rights.
The rights of the Purchaser under Section 7 of this Agreement, including,
without limitation, the rights to cause the Company to register Shares under
Sections 7(a) and 7(b) and/or to participate in a Transfer pursuant to Section
7(i) and the obligations of Purchaser under Section 7(k) are personal to the
Purchaser and shall not survive any transfer of the Shares whatsoever, and may
not be assigned or transferred in any way, provided, however, that the
restrictions contained in this Section 7(l) shall not apply with respect to any
Transfer of Shares by either of the Founders or the Purchaser, pursuant to
applicable laws of descent and distribution or otherwise to such person's
spouse, former spouse and descendants (whether natural or adopted), parents and
their descendants, descendants of such brothers and sisters and any spouse of
the foregoing individuals or any trust solely for the benefit of any of the
foregoing; provided, however, that if any of the foregoing is less than 21 years
of age at the time of such proposed Transfer, then such Transfer may only be
made to a trustee of a valid trust for the benefit of the foregoing, which
15
<PAGE>
trust shall not terminate prior to the beneficiary (or beneficiaries) thereof
attaining the age of 21 (collectively, "Permitted Transferees"). Except as
permitted herein, any attempted Transfer or assignment of the rights set forth
in this Section 7 shall be void ab initio:
(m) For the purposes of this Section 7, the Shares shall be deemed
to include the Other Shares.
8. Indemnification. (i) The Purchaser shall indemnify and hold harmless
each of the Company, its directors, officers, persons controlling the Company,
any affiliate of the foregoing and any professional advisors thereto, from and
against any and all loss, damage, liability or expense, including costs and
reasonable attorneys' fees, to which any of them may be put or which they may
incur by reason of or in connection with any misrepresentation made by the
Purchaser, any breach of any of the Purchaser's warranties or the Purchaser's
failure to fulfill any of the Purchaser's covenants or agreements under this
Agreement.
(ii) The Company shall indemnify and hold harmless each of the
Purchaser, the Purchaser's affiliates and any of the Purchaser's professional
advisors from and against any and all loss, damage, liability or expense,
including costs and reasonable attorneys' fees, to which any of them may be put
or which they may incur by reason of or in connection with any misrepresentation
made by the Company, any breach of any of the Company's warranties or the
Company's failure to fulfill any of the Company's covenants or agreements under
this Agreement.
9. Definitions.
"Accommodation Obligation" shall mean, as applied to any Person and
without duplication of amounts, any obligation of such Person guaranteeing or
intended to guarantee (whether guaranteed, endorsed, co-made, discounted, or
sold with recourse to such Person) any indebtedness, lease, dividend, letter of
credit, or other obligations ("primary obligation") of any Person in any manner
whether directly or indirectly, including any obligation of such Person or on
behalf of any other person (irrespective of whether contingent), or to otherwise
assure or hold harmless the owner of such primary obligation against loss in
respect thereof. The amount of any Accommodation Obligation shall be deemed to
be an amount equal to the maximum amount of a Person's liability with respect to
the stated or determinable amount of the primary obligation for which such
Accommodation Obligation is incurred.
"Capitalized Lease" shall mean any lease of an asset by the Company
or any subsidiary as lessee which would, in conformity with GAAP, be required to
be accounted for as a capital lease an the balance sheet of tile Company or such
subsidiary.
"Debt" shall mean, with respect to any Person, without duplication:
(a) all obligations of such Person for borrowed money; (b) all obligations of
such Person evidenced by bonds, debentures, notes, or other similar instruments;
(c) all obligations of such Person in respect of letters of credit, bankers
acceptances, interest rate swaps or other financial products or similar
instruments (including reimbursement with respect thereto), except such as have
been issued to secure payment of trade payables; (d) all obligations of such
Person to pay the deferred purchase price of property or services, except trade
payables; (e) all Capitalized Lease Obligations of such Person; (f) all
obligations or liabilities of others secured by a lien on any asset owned by
such Person, whether or not such obligation or liability is assumed by such
Person; and (g) all Accommodation Obligations of such Person.
"GAAP" shall mean generally accepted accounting principles that are
(i) consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, (ii) applied on a basis
consistent with prior periods (except for
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changes in the application of such principles that have been approved by the
Company's Board of Directors), and (iii) such that, insofar as the use of
accounting principles is pertinent, a certified public accountant delivering an
audit report on such financial statements could deliver an unqualified opinion
with respect to financial statements in which such principles have been properly
applied, subject, however, to the absence or modification of footnotes and to
the possible inclusion of a "going concern" qualification.
"Material Adverse Effect" shall mean a material adverse effect on
the assets, condition (financial or otherwise), affairs, earnings, business or
operations of the Company
"Person" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature, including, as appropriate, the Company or any subsidiary thereof
10. Miscellaneous. (a) This Agreement shall be governed by and construed
in accordance with the internal laws of New York (without giving effect to the
conflict of laws rules thereof) applicable to contracts, transactions and
obligations entered into, and to be wholly performed, in New York.
(b) The Purchaser and the Company each acknowledge that their
respective representations and warranties shall survive the date of the purchase
of the Shares by the Purchaser.
(c) This Agreement contains the entire agreement between the parties
hereto with respect to the subject matter thereof. The provisions of this
Agreement may not be modified or waived except in writing and signed by both
parties hereto.
(d) This Agreement and the rights, powers and duties set forth
herein shall, except as set forth herein, bind and inure to the benefit of the
heirs, executors, administrators, legal representatives and successors of the
parties hereto. Except as set forth herein, the Purchaser may not assign any of
his rights or interests in or under this Agreement without the prior written
consent of the Company, and any attempted assignment without such consent shall
be void and without effect.
(e) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original and all of which taken together shall
constitute a single agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ERGOVISION, INC. PURCHASER
By: /s/ Mark H. Levin /s/ Nikos Mouyiaris
----------------------- --------------------------------
Name: Mark H. Levin Nikos Mouyiaris
Title: President
Address: 425 East 58th Street
New York, NY 10022
Soc. Sec. No. _______________
18
PURCHASE AND INVESTMENT AGREEMENT
PURCHASE AND INVESTMENT AGREEMENT (this "Agreement"), dated as of
the ____ day of May, 1999, by and between Ergovision, Inc. (the "Company"), a
Delaware corporation, and _______________ (the "Purchaser"), an individual
residing at _________________________________________.
W I T N E S S E T H:
WHEREAS, the Company desires to sell ______ shares of its common stock,
$.001 par value per share, (the "Common Stock") to the Purchaser, and
WHEREAS, the Purchaser, being an accredited and sophisticated investor
under the Securities Act of 1933 (the "1933 Act"), does hereby desire to
purchase such shares of Common Stock, subject to the terms and conditions set
forth herein;
NOW, THEREFORE, the following will constitute the agreement between the
Company and the Purchaser with respect to the Purchaser's investment in the
Company.
1. Purchase of Shares (a) The Purchaser hereby purchases from the Company
______ shares (the "Shares") of the Common Stock, at a price of $1.00 per share,
for a total purchase price of $______ (the "Purchase Price").
(a) The Company shall deliver to the Purchaser a certificate
representing the Shares, registered in the name of the Purchaser.
2. INTENTIONALLY OMITTED.
3. Notice of Transfer Subject to Section 7 hereof, and in addition to any
notice that may be required under applicable securities laws, the Purchaser
agrees that he shall notify the Company not more than five (5) days subsequent
to the transfer of any or all of the Shares.
4. Representations and Warranties of the Purchaser. The Purchaser
represents, warrants and covenants to the Company and each of its officers,
directors, persons who control the Company and any affiliates of the foregoing
that:
(a) Either (i) the Purchaser is a director or executive officer of
the Company, (ii) the Purchaser has a net worth, inclusive of the value of the
Purchaser's homes, home furnishings and automobiles, of at least $1,000,000
(which net worth may include the Purchaser's spouse's net worth), (iii) the
Purchaser's individual income for each of the past two calendar years exceeded
$200,000 and the Purchaser reasonably expects the Purchaser's individual income
to exceed $200,000 in the current year, (iv) the Purchaser's income together
with the income of the Purchaser's spouse for each of the past two calendar
years exceed $300,000 and the Purchaser reasonably expects the Purchaser's
income together with that of the Purchaser's spouse to exceed $300,000 in the
current year, or (v) the Purchaser has such knowledge and experience in business
and financial matters that the Purchaser is capable of evaluating the merits and
risks of an investment in the Company.
(b) The Purchaser is acquiring the Shares for the Purchaser's own
account, for investment only and not with a view toward the resale or
distribution thereof.
<PAGE>
(c) The Purchaser understands that the Shares are not registered
under the 1933 Act and may not be resold unless subsequently registered under
the 1933 Act or unless an exemption from such registration is available. The
Purchaser understands that the Shares have not been approved or disapproved by
the Securities and Exchange Commission (the "Commission"), or any other federal
or state agency, nor has the Commission or any such agency passed upon the
accuracy or adequacy of any of the information provided to the Purchaser.
(d) The Purchaser has adequate funds to provide for the Purchaser's
personal needs and does not and will not require the funds comprising the
Purchase Price for liquidity purposes. The Purchaser possesses the ability to
bear the economic risk of holding the Shares indefinitely and can afford a
complete loss of the investment contemplated hereby.
(e) In making the Purchaser's investment in the Shares, no oral
representations or warranties have been made to the Purchaser. The Purchaser
acknowledges that the Purchaser has been advised that, except for Mr. Mark Levin
and Mr. Mark Suroff, no person is authorized to give any information or to make
any statement regarding the Company's Strategic Business Plan and the
attachments thereto (the "Business Plan"), and that any information or statement
not made by such persons must not be relied upon as having been authorized by
the Company or any professional advisors or counsel thereto. The Purchaser
acknowledges that the Company makes no representations or warranties, expressed
or implied, with respect to the completeness or accuracy of the Business Plan,
as to the contents of any other written or oral communication transmitted or
made available to the Purchaser or the Purchaser's representatives, and that the
Purchaser and the Purchaser's representatives must rely on their own due
diligence of the Company and their own independent verification of the
information provided in the Business Plan and any other investigations deemed
necessary for the purpose of determining whether to proceed with the investment
in the Company. The Purchaser acknowledges that the Business Plan includes
certain statements, estimates and projections provided by the Company with
respect to anticipated future performance of the Company, which reflect various
assumptions by the Company's management concerning anticipated results, which
may or may not occur. Purchaser acknowledges that the actual performance of the
Company may be materially different from those set forth in such statements,
estimates or projections.
(f) The Purchaser has reviewed, carefully read and completed the
Investor Questionnaire attached as Exhibit B hereto. All information provided by
the Purchaser to the Company, including that contained in the Investor
Questionnaire submitted herewith, is true and correct in all material respects
as of the date hereof.
(g) INTENTIONALLY OMITTED
(h) The Purchaser is aware that all documents, records and books
pertaining to this investment are at all times available at the offices of the
Company at One Fairchild Court, Plainview, New York 11803, or at the offices of
the Company's counsel, Rosenman & Colin LLP, 575 Madison Avenue, New York, New
York 10022, Attn: Eric M. Lerner, Esq., and acknowledges that all documents,
records and books pertaining to this investment requested by the Purchaser,
including without limitation, the Company's unaudited financial statements as of
December 31, 1998 and for the year then ended, (a copy of the trial balance of
which is attached as Exhibit C hereto) and capitalization chart (a copy of which
is attached as Exhibit D hereto) have been made available to the Purchaser, and
the Purchaser has been supplied with such additional information concerning this
investment as has been requested.
(i) The Purchaser has been given the opportunity to discus the
Purchaser's investment in, and the operation of, the Company with the Company's
management and has been
2
<PAGE>
given all information that the Purchaser has requested and which the Purchaser
deems relevant to the Purchaser's decision to invest in the Company.
(j) There is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of the
Purchaser who might be entitled to any fee or commission from the Company or any
of its affiliates upon consummation of the transactions contemplated by this
Agreement.
5. Representations and Warranties of the Company. The Company represents
and warrants to the Purchaser as follows:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the
corporate power and authority to own or lease all of its properties and assets
and carry on its business as it is now being conducted, except for such power
and authority the lack of which would not have a materially adverse effect on
the Company. The Company is qualified to transact business as a foreign
corporation in each jurisdiction where it is required to so qualify except for
such jurisdictions where the failure to so qualify would not have a Material
Adverse Effect. True and correct copies of the Company's Certificate of
Incorporation and Bylaws have been provided to the Purchaser.
(b) The Company has the corporate power and authority to execute and
deliver this Agreement, and all other documents hereby contemplated, to
consummate the transactions hereby and thereby contemplated and to take all
other actions required to be taken by each of them pursuant to the provisions
hereof and thereof. The execution, delivery and performance of this Agreement
and all other documents hereby contemplated to be executed by Company has been,
and the consummation by Company of the transactions hereby and thereby
contemplated has been, duly authorized by any and all necessary corporate or
other action of Company. The Board of Directors of Company has authorized and
approved the execution, delivery and performance of this Agreement and the
transactions contemplated hereby. This Agreement and all other documents hereby
contemplated to be executed by Company constitute the legal, valid and binding
obligations of Company, enforceable against Company in accordance with their
respective terms, except as such enforceability may be limited by bankruptcy,
moratorium, insolvency, fraudulent conveyance, reorganization, or other similar
laws affecting the enforcement of creditor's rights.
(c) Neither the execution and delivery of this Agreement or any
other documents hereby contemplated nor the consummation of the transactions
hereby and thereby contemplated shall (i) constitute any violation or breach of
the Certificate of Incorporation or By-laws of the Company, (ii) constitute a
default under or a violation or breach of, or result in acceleration of any
obligation under, any provision of any contract, lease, mortgage or other
instrument to which it is a party or to which any of its assets is subject, or
(iii) violate any judgment, order, writ, injunction, decree, statute, rule or
regulation affecting Company or any of its assets, which violation, breach or
default, in the case of subclauses (ii) or (iii) of this sentence, would have a
materially adverse effect on Company.
(d) Except as would not have a Material Adverse Effect, (i) the
Company has complied with all governmental laws, statutes, policies, regulations
and rules (including, without limitation, any federal, state or local laws,
rules or regulations regulating the safety of the workplace and/or the discharge
of materials into the environment or otherwise relating to the protection of the
environment) applicable to its business as conducted on and prior to the date
hereof, (ii) the Company has maintained in full force and effect all material
licenses, approvals, permits and consents for the lawful conduct of its
business, (iii) to the best of its knowledge, the Company is not in violation of
any material governmental laws, statutes, policies, regulations or
3
<PAGE>
rules applicable to the Company, and has not received any notice of any such
violation, and (iv) no authorization, approval, order, license, permit,
franchise or consent, and no registration, declaration, notice or filing by or
with any domestic or foreign governmental agency (including, without limitation,
any filing or registration pursuant to the securities or blue sky laws of the
United States of America or any state or territory thereof) by the Company is
required in connection with the execution and delivery by the Company of this
Agreement and the consummation of the transactions hereby contemplated.
(e) The capitalization of the Company, including all outstanding
stock options, is accurately and fully set forth as Exhibit D hereto or as
otherwise disclosed in the Financial Statement attached as Exhibit C hereto.
Except for the rights to acquire Common Stock pursuant to the options listed on
Exhibit D hereto, there are no outstanding options, warrants, rights (including
conversion or preemptive rights) or agreements for the purchase or acquisition
from or sale or disposition by the Company of any shares of its capital stock.
Except as set forth on Exhibit D hereto or as otherwise disclosed in the
financial statements attached as Exhibit C hereto, the Company is not a party or
subject to any agreement or understanding which affects or relates to the voting
or giving of written consent with respect to any security or by any director of
the Company. The outstanding shares of capital stock are all duly and validly
authorized and issued, fully paid, and non-assessable, and were issued in
compliance with all applicable federal and state securities laws. The Shares to
be issued to pursuant to the provisions of this Agreement will, upon such
issuance, be duly authorized, legally and validly issued, and fully paid and
nonassessable.
(f) Exhibit C hereto contains (i) the unaudited balance sheet of the
Company as of December 31, 1998, and the related statements of operations, cash
flows and shareholders' equity, including the notes thereto, for the year then
ended and (ii) the unaudited balance sheet of the Company as of February 28,
1999 and the related statements of operations, cash flows and shareholders'
equity, including the notes thereto, for the two-month period then ended, all of
which have been compiled by the Company's certified public accountant. Such
financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 1998 and February 28, 1999,
respectively, and the results of the Company's operations, cash flows and
shareholders' equity for the year ended December 31, 1998 and the two-month
period ended February 28, 1999, all in conformity with GAAP applied on a
consistent basis, except as otherwise stated in such financial statements or the
accountant's report thereon.
(g) The Business Plan and the assumptions underlying the Business
Plan have been prepared or made in good faith and, to the Company's knowledge,
are reasonable in all material respects. No other representations are made as to
the accuracy of the statements, estimates, or projections set forth in the
Business Plan, and actual performance of the Company may be materially different
from those set forth in such statements, estimates or projections.
(h) (i) Since February 28, 1999, except as disclosed on Schedule D
there has not been:
(A) any change in the assets, liabilities, condition (financial or
otherwise), affairs, earnings, business, operations, or prospects of
the Company from that reflected in the balance sheet as at February
28, 1999, referred to in subsection (f) above, except for changes in
the ordinary course of business (including diminution in cash
position and expenses in excess of revenues) which, either
individually or in the aggregate, have not had, or may be reasonably
expected to result in, a Material Adverse Effect;
4
<PAGE>
(B) any incurrence of liabilities or obligations by the Company,
contingent or otherwise, whether due or to become due, whether by
way of guaranty, endorsement, indemnity, warranty, or otherwise,
except liabilities and obligations incurred in the ordinary course
of business, none of which has had, or is reasonably likely to
result in, a Material Adverse Effect;
(C) any increase in compensation of any of its existing officers, or the
rate of pay of its employees as a group, except as part of regular
compensation increases in the ordinary course of business;
(D) any resignation or termination of employment of any officer or key
employee of the Company;
(E) any change in the accounting methods or practices followed by the
Company;
(F) except as otherwise disclosed in the Financial Statements attached
as Exhibit C hereto, any issuance of any stock, bonds, or other
securities of the Company or options, warrants, or rights or
agreements or commitments to purchase or issue such securities or
grant such options, warrants or rights, except as described in
Subsection (e); or
(G) any agreement by the Company to do or enter into any of the
foregoing.
(ii) Since the inception of the Company, except as disclosed
on Schedule E hereto, there has not been:
(A) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties,
operation or business of the Company;
(B) any loans made by the Company to its employees, officers, or
directors other than advances of expenses made in the ordinary
course of business;
(C) any declaration or payment of any dividend or other distribution of
the assets of the Company or any direct or indirect redemption,
purchase or acquisition of any securities of the Company;
(D) any labor organization activity or organized labor trouble;
(E) any sale, transfer, or lease of any of the Company's assets except
in the ordinary course of business, individually in excess of
$50,000, or in the aggregate in excess of $100,000, or any mortgage
or pledge of or lien imposed upon any of the Company's assets;
(F) to the best of the Company's knowledge, any other event or condition
of any character which has materially and adversely affected the
business, prospects, condition, affairs, operations, properties or
assets of the Company; or
(G) any agreement by the Company to do or enter into any of the
foregoing.
(i) Except as described on Schedule F hereto: (i) there is no
action, suit, proceeding, or investigation pending or to the Company's knowledge
currently threatened against the Company which questions the validity or
enforceability of this Agreement or the right of the Company to enter into such
agreement, or to consummate the transactions contemplated hereby, or which might
result, either individually or in the aggregate, in any Material Adverse Effect
5
<PAGE>
with respect to the assets, condition, affairs, or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company, including, without limitation, actions pending or threatened involving
the prior employment of any of the Company's employees, their use in connection
with the Company's business of any information or techniques allegedly
proprietary to any of their former employers, or their obligations under any
agreements with prior employers; (ii) the Company is not a party or subject to
the provisions of any order, writ, injunction, judgment, or decree of any court
or government agency or instrumentality; and (iii) there is no action, suit,
proceeding or investigation by the Company currently pending which the Company
intends to initiate.
(j) Except as described on Schedule G, the Company has sufficient
title and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights, and processes
necessary for its business as now conducted (collectively, "Intellectual
Property Rights") without any conflict with or infringement of the rights of
others. Schedule G contains a complete list of all Intellectual Property Rights
of the Company and registrations and applications for registration therefor.
Except as shown on Schedule G, there are no outstanding options, licenses, or
agreements of any kind relating to the Company's Intellectual Property Rights,
nor is the Company bound by or a party to any options, licenses, or agreements
of any kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights, and
processes of any other Person, except the so-called "execute by opening"
software license agreements. The Company has not received any communications or
claims alleging that the Company has violated or, by conducting its business as
proposed, would violate, any of the patents, trademarks, service marks, trade
names, copyrights, or trade secrets or other proprietary rights of any other
person or entity. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants, or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of such
employee's best efforts to promote the interests of the Company, or that would
conflict with the Company's business as proposed to be conducted. Neither the
execution nor delivery of this Agreement, nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business as proposed, will, to the Company's knowledge, conflict with or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any of such employees is
now obligated. Except as described on Schedule H, the Company does not believe
it is or will be necessary to utilize any inventions of any of its employees (or
people it currently intends to hire) made prior to their employment by the
Company.
(k) There is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of the
Company who might be entitled to any fee or commission from the Purchaser or any
of his affiliates upon consummation of the transactions contemplated by this
Agreement.
(l) Neither this Agreement, nor any other statements or certificates
made or delivered in connection herewith, contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
herein or therein, in light of the circumstances in which they were made, not
misleading.
6
<PAGE>
6. Legend The Purchaser agrees that the certificates evidencing the
Shares shall bear the following legend restricting their transferability under
the Act:
LEGEND
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("ACT"). NO SALE, OFFER TO SELL OR TRANSFER OF THE SHARES REPRESENTED BY
THIS CERTIFICATE SHALL BE MADE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT, OR AN OPINION OF COUNSEL TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
7. Registration Rights, Co-Sale Rights and Bring-Along Rights. The
Purchaser shall have the following registration rights, co-sale rights and
bring-along rights:
(a) INTENTIONALLY OMITTED.
(b) "Piggyback" Registration. If at any time after the date hereof,
the Company proposes to register any of its securities (other than on Form S-4
or other applicable form in connection with a merger, or pursuant to Form S-8 or
other comparable form), the Company shall request that the managing underwriter
(if any) of such underwritten offering include the Shares in the offering
covered by such registration statement. If such managing underwriter agrees to
include the Shares in the underwritten offering, and in any event in a
non-underwritten offering, the Company shall at such time give prompt written
notice to the Purchaser of its intention to effect such registration and of the
Purchaser's right under such proposed registration, and upon the request of the
Purchaser delivered to the Company within twenty (20) business days after
receipt such notice (which request shall specify the Shares intended to be
disposed of by the Purchaser and the intended method of disposition thereof),
the Company shall include such Shares held by the Purchaser requested to be
included in such registration; provided, however, that:
(i) If, at any time after giving such written notice of the
Company's intention to register any of the Purchaser's Shares and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay the registration of the offering which includes such Shares, at its sole
election, the Company may give written notice of such determination to the
Purchaser and thereupon shall be relieved of its obligation to register any
Shares issued or issuable in connection with that particular registration (but
not from its obligation to pay registration expenses in connection therewith or
to register the Shares in a subsequent registration); and in the case of a
determination to delay a registration shall thereupon be permitted to delay
registering any Shares for the same period as the delay in respect of securities
being registered for the Company's own account.
(ii) If the managing underwriter in such underwritten offering
shall advise the Company that it declines to include a portion or all of the
Shares requested by the Purchaser to be included in the registration statement,
then registration of all or a specified portion of the Shares shall be excluded
from such registration statement (in case of an exclusion as to a portion of the
Shares, such portion to be excluded shall be allocated among the Purchaser and
any affiliates and other selling shareholders of the Company, including
securities to be registered in such underwritten offering in proportion to the
respective number of Shares and other securities requested to be registered by
each such affiliate or shareholder). In such event the Company shall give the
Purchaser prompt notice of the number of Shares excluded from such
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<PAGE>
registration at the request of the managing underwriter. No such exclusion shall
reduce the securities being offered by the Company for its own account to be
included in such registration statement.
(iii) The Purchaser, subject to the provision of Section 7(c),
shall have the option to include the Shares in the Company's underwritten
offering. The Company shall not be required to include any of the Purchaser's
Shares in an underwritten offering of the Company's securities unless the
Purchaser accepts the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it (provided such terms are usual and
customary for selling stockholders) and the Purchaser agrees to execute such
documents in connection with such registration as the Company or the managing
underwriter may reasonably request.
(c) Cooperation with Company. The Purchaser will cooperate with the
Company in all respects in connection with this Agreement, including, timely
supplying all information reasonably requested by the Company and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Shares.
(d) Termination of Rights. The Company's obligations under Sections
7(a) and 7(b) shall terminate upon the date upon which the Shares are eligible
for resale without registration pursuant to section (k) of Rule 144 ("Rule 144")
of the 1933 Act.
(e) Registration Procedures. If and whenever the Company is required
by any of the provisions of this Agreement to effect the registration of any of
the Shares under the 1933 Act, the Company shall (except as otherwise provided
in this Agreement), as expeditiously as possible:
(i) prepare and file with the Commission a registration
statement and shall use its best efforts to cause such registration statement to
become effective and remain effective until all the Shares are sold or become
capable of being publicly sold without registration under the 1933 Act pursuant
to Rule 144(k);
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the 1933 Act with respect to the sale or other
disposition of all securities covered by such registration statement whenever
the Purchaser shall desire to sell or otherwise dispose of the same until the
earlier of (A) one year from the effectiveness of the registration statement; or
(B) all Shares owned by the Purchaser or his Permitted Transferees are eligible
for sale under Rule 144(k);
(iii) furnish to the Purchaser such numbers of copies of a
summary prospectus or other prospectus, including a preliminary prospectus or
any amendment or supplement to any prospectus, in conformity with the
requirements of the 1933 Act, and such other documents, as the Purchaser may
reasonably request in order to facilitate the public sale or other disposition
of the securities owned by the Purchaser;
(iv) register and qualify the securities covered by such
registration statement under such other securities or blue sky laws of such
jurisdictions as the Purchaser shall reasonably request, and do any and all
other acts and things which may be necessary or advisable to enable the
Purchaser to consummate the public sale or other disposition in such
jurisdictions of the securities owned by the Purchaser, except that the Company
shall not for any such purpose be required to qualify to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified or to
file therein any general consent to service of process or to register the Shares
8
<PAGE>
under the blue sky laws of any state where the Company does not have a
"secondary trading" exemption;
(v) use its best efforts to list such securities on any
securities exchange on which any securities of the Company is then listed, if
the listing of such securities is then permitted under the rules of such
exchange;
(vi) INTENTIONALLY OMITTED;
(vii) notify the Purchaser at any time when a prospectus
relating to the Shares is required to be delivered under the 1933 Act, of the
happening of any event as a result of which such prospectus contains an untrue
statement of a material fact or omits any fact necessary to make the statements
therein not misleading, whereupon the Purchaser shall not effect any further
sales of the Shares pursuant to such prospectus, and, at the request of the
Purchaser, the Company will promptly prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of the Shares,
such prospectus will not contain an untrue statement of a material fact or omit
to state any fact necessary to make the statements therein not misleading,
whereupon the Purchaser may then effect sales of the Shares pursuant to such
supplemented or amended prospectus.
(f) Black Out Periods.
(i) The Purchaser hereby agrees not to, directly or
indirectly, effect any public sale or distribution (including sales pursuant to
Rule 144) or any short sales of equity securities of the Company, or any
securities convertible into or exchangeable or exercisable for such securities,
during the seven days prior to and the 90-day period beginning on the effective
date of any "Piggyback" registration under Section 7(b) hereof for a public
offering to be underwritten on a firm commitment basis in which any of the
Shares are included (except as part of such underwritten registration), unless
the underwriters managing the registered public offering otherwise agree.
(ii) The Company shall have the right to suspend use of any
registration statement and the related prospectus if its Board of Directors
determines in good faith that there is a valid purpose for such suspension. For
purposes of this Agreement, a valid purpose shall include, but is not limited
to, a good faith determination that the registration statement may contain a
material misstatement or omission (including as a result of the Company having
under consideration a significant acquisition or disposition or other material
transaction that has not been publicly disclosed) in which case the Company may
cause the registration statement not to be used by the Purchaser until such time
as the Securities and Exchange Commission (the "Commission") has declared
effective a post-effective amendment to the registration statement filed by the
Company or if the misstatement or omission can be corrected by incorporation by
reference in the registration statement of another Commission filing of the
Company, the Company has made another filing on Form 8-K or other appropriate
form to correct such misstatement or omission.
(iii) In connection with any public offering of the Company's
securities, the Purchaser agrees, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Shares (other than those included in the registration)
without the prior written consent of the Company or such underwriters, as the
case may be, for such period of time (not to exceed one hundred eighty (180)
days in the case of the Company's first underwritten public offering the gross
proceeds of which are at least $7,500,000, and ninety (90) days in the case of
other public offerings of the Company) from the effective date of such
registration as may be requested by the underwriters; provided that the
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<PAGE>
officers and directors of the Company who own stock of the Company and holders
of five percent (5%) or more of the Company's outstanding voting securities also
agree to such restrictions.
(iv) In order to enforce the foregoing clauses 7(f)(i), (ii)
and (iii), the Company may impose stop transfer instructions with respect to the
Shares (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
(g) Expenses. All expenses incurred in any registration of the
Shares under this Agreement shall be paid by the Company, including, without
limitation, printing expenses, fees and disbursements of counsel for the
Company, expenses of any audits to which the Company shall agree or which shall
be necessary to comply with governmental requirements in connection with any
such registration, all registration and filing fees for the Shares under federal
and state securities laws, and expenses of complying with the securities or blue
sky laws of any jurisdictions pursuant to Section 7(f)(iv); provided, however,
the Company shall not be liable for (i) any discounts or commissions to any
underwriter, (ii) any stock transfer taxes incurred with respect to the Shares
sold in the offering or (iii) the fees and expenses of counsel for the
Purchaser, provided that the Company will pay the costs and expenses of Company
counsel when the Company's counsel is representing any or all selling security
holders.
(h) Indemnification. In the event the Shares are included in a
registration statement pursuant to this Agreement:
(i) Company Indemnity. Without limitation of any other
indemnity provided to the Purchaser, either in connection with the offering or
otherwise, to the extent permitted by law, the Company shall indemnify and hold
harmless the Purchaser and its affiliates, any underwriter (as defined in the
1933 Act) for the Purchaser, and each person, if any, who controls such
underwriter (within the meaning of the 1933 Act or the Securities Exchange Act
of 1934 (the "Exchange Act")), against any losses, claims, damages or
liabilities (joint or several) to which they may become subject under the 1933
Act, the Exchange Act or other federal or state law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any of the following statements, omissions or violations
(collectively a "Violation") by the Company: (A) any untrue statement or alleged
untrue statement of a material fact contained in such registration statements
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements, thereto, (B) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading or (C) any violation or alleged violation by the Company of
the 1933 Act, the Exchange Act, or any state securities law or any rule or
regulation promulgated under the 1933 Act, the Exchange Act or any State
securities law, and, in each case, the Company shall reimburse the Purchaser and
its affiliates or underwriter for any legal or other expenses incurred by them
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Purchaser in any such case for any such loss, claim, damage, liability or
action to the extent that it arises out of or is based upon (1) a Violation
which occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by the
Purchaser or (2) by the Purchaser's failure to deliver to purchasers of the
Shares a copy of the registration statement or prospectus or any amendments or
supplements thereto pursuant to Section 7(e)(vii) after the Company has
furnished the Purchaser with a sufficient number of copies of the same.
(ii) Purchaser Indemnity. The Purchaser shall indemnify and
hold harmless the Company, its affiliates, its counsel, officers, directors, and
representatives, any underwriter (as defined in the 1933 Act) and each person,
if any, who controls the Company or the underwriter (within the meaning of the
1933 Act or the Exchange Act), against any losses,
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<PAGE>
claims, damages, or liabilities (joint or several) to which they may become
subject under the 1933 Act, the Exchange Act or any state securities law, and
the Purchaser shall reimburse the Company, affiliate, officer or director or
partner, underwriter or controlling person for any legal or other expenses
liability incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action insofar as such losses, claims,
damages or liabilities (or actions and respect thereof) arise out of or are
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by the Purchaser; provided, however, that the maximum amount of
liability in respect of such indemnification (including, but not limited to,
attorneys' fees and expenses) shall be to an amount equal to the net proceeds
actually received by the Purchaser from the sale of Shares under such
registration statement.
(iii) Notice: Right to Defend. Promptly after receipt by an
indemnified party under this Section 7(h) of notice of the commencement of any
action (including any government action) such indemnified party shall, if a
claim in respect thereof made against an indemnifying party under this Section
7(h), deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in and if
the indemnifying party agrees in writing that it will be responsible for any
costs, expenses, judgments, damages and losses incurred by the indemnified party
with respect to such claim, jointly with any other indemnifying party similarly
noticed, to assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party, if the indemnified party reasonably believes that representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to the availability of separate defenses or actual or
potential conflicts of interests between such indemnified party and other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within reasonable time of the commencement of
an such action shall relieve such indemnifying party of any liability to the
indemnified party under this Agreement only if and to the extent that such
failure is prejudicial to its ability to defend such action; provided the
omission so to deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party otherwise than
under this Agreement.
(iv) Contribution. If the indemnification provided for in this
Agreement is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
hand in connection with the statements or omissions which resulted in such loss,
claim, damage or expense as well as any other relevant equitable considerations.
The relevant fault of the indemnifying party and the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, access to information and opportunity to correct
or prevent such statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(v) Survival of Indemnity. The indemnification provided by
this Agreement shall be a continuing right to indemnification and shall survive
the registration and sale of any Shares by any person entitled to
indemnification hereunder and the expiration or termination of this Agreement.
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<PAGE>
(i) Co-Sale Rights. Subject to Section 7(l) hereof, at least 15
business days prior to any sale, transfer, assignment, pledge or other disposal
(a "Transfer") of Common Stock or of securities convertible into Common Stock by
Mark Levin or Mark Suroff (each, a "Founder") (other than (i) pursuant to an
underwritten public offering of shares of the Company registered under the 1933
Act (a "Public Offering") or (ii) sales under Rule 144 (provided that the
Founders notify the Purchaser of such sales not more than five days subsequent
to the date thereof)), the Founder making such Transfer (the "Selling
Stockholder") shall deliver a written notice (the "Sale Notice") to the
Purchaser specifying in reasonable detail the identity of the prospective
transferee(s) and the terms and conditions of the Transfer. The Purchaser may
elect to participate in the contemplated Transfer by delivering written notice
to the Selling Stockholder within 10 business days after delivery of the Sale
Notice. If the Purchaser has elected to participate in such Transfer, the
Selling Stockholder and the Purchaser shall be entitled to sell in the
contemplated Transfer, at the same price and on the same terms, a number of
shares of Common Stock equal to the product of (x) the quotient determined by
dividing the number of shares of Common Stock owned by such stockholder by the
aggregate number of shares of Common Stock owned by the stockholders
participating in such Transfer and (y) the aggregate number of shares to be sold
in the Transfer by the other Shareholders participating in the Transfer. The
Purchaser, as a condition of exercising his rights under this Section 7(i),
shall enter into such documentation as is expected by the buyer of such Shares,
including, without limitation, documentation comparable to that entered into by
the Founders; provided, that if the Purchaser, at the time of such Transfer, is
no longer an officer or director of the Company, the only representation and
warranty that the Purchaser shall be required to make in connection with any
Transfer is a warranty with respect to its ownership of the Shares to be sold by
him and his ability to convey title thereto free and clear of liens,
encumbrances or adverse claims. Each stockholder transferring shares pursuant to
this Section 7(i) shall pay its pro rata share (based on the number of shares of
Common Stock to be sold) of the expenses incurred by the stockholders in
connection with such transfer and shall be obligated to join in any
indemnification or other obligations that the transferor agrees to provide in
connection with such Transfer, provided, however, that the maximum amount of
liability in respect of any indemnification obligation (including, but not
limited to, attorneys' fees and expenses) shall be to an amount equal to the net
proceeds actually received by the Purchaser from the sale of Shares in such
transaction. Notwithstanding the generality of the foregoing, the Purchaser's
rights under this Section 7(i) shall expire and be of no further effect upon
consummation by the Company of an underwritten public offering for gross
proceeds of at least $7,500,000.
(j) INTENTIONALLY OMITTED.
(k) Bring-Along Rights. (a) If, at any time on or after the date
hereof, persons holding, in the aggregate, 80% or more of the total Common Stock
issued and outstanding, acting in concert in connection with one transaction or
a series of related transactions, desire to Transfer their Common Stock to a
third party (such transferring persons referred to as the "Transferors") at a
price (payable in cash, debt or securities, or any combination thereof) of at
least (i) 150% of the price of the Common Stock as reported on the OTC Bulletin
Board, NASDAQ, or such other exchange where the Common Stock is trading on the
day of such Transfer and (ii) 300% of the Purchaser's original cost per Share,
the Transferors shall be entitled to require the Purchaser to Transfer his
Common Stock in such transaction (a "Buy-Out"). The Transferors shall cause the
proposed transferee(s) to accept the Transfer of the Common Stock of the
Purchaser on the same terms and conditions as are offered by the transferee(s)
to the Transferors, (except that, in the event that the Purchaser is no longer
an officer or director of the Company at the time of such Buy-Out, the only
representation and warranty that the Purchaser shall be required to make in
connection with any Buy-Out is a warranty with respect to its ownership of the
Shares, to be sold by him and his ability to convey title thereto free and clear
of liens, encumbrances or adverse claims.) Each stockholder transferring shares
pursuant to this Section 7(k) shall pay its pro rata share (based on the number
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<PAGE>
of shares of Common Stock to be sold) of the expenses incurred by the
stockholders in connection with such transfer and shall be obligated to join in
any indemnification or other obligations that the transferor agrees to provide
in connection with such Transfer, provided, however, that the maximum amount of
liability in respect of any indemnification obligation (including, but not
limited to, attorneys' fees and expenses) shall be to an amount equal to the net
proceeds actually received by the Purchaser from the sale of Shares in such
transaction. If the Transferors elect to effect a Buy-Out:
(i) the Transferors shall deliver a notice (a "Buy-Out
Notice") to the Purchaser stating that they propose to effect Buy-Out, and
specifying the name and address of the proposed parties to such a Buy-Out,
the consideration payable in connection therewith, and attaching a copy of
all agreements and other documents between the Transferors and all of the
parties to such transaction necessary to establish the terms of such
transaction;
(ii) the Purchaser agrees that, upon receipt of a Buy-Out
Notice, he shall be obligated to sell all his Common Stock upon terms no
less favorable than the terms and conditions set forth in the Buy-Out
Notice; provided that any covenants and agreements, including, without
limitation, non-compete provisions, which do not relate to the amount and
method of payment of the consideration shall not be binding on the
Purchaser unless he expressly agrees to be bound thereby; and
(iii) the purchase price and the form of consideration for the
sale of all of the Common Stock made pursuant to a Buy-Out shall be the
same for each holder thereof in such transaction and such transaction
shall be required to be consummated on or before the later of (x) 60 days
after the giving of the Buy-Out Notice, and (y) the date which is 10 days
after the expiration or waiver of any applicable waiting period for such
transaction pursuant to the Hart-Scott-Rodino Act.
(b) Notwithstanding the generality of the foregoing, the Purchaser's
obligations under this Section 7(k) shall expire and be of no further effect
upon consummation by the Company of an underwritten public offering for gross
proceeds of at least $7,500,000.
(l) Transfer of Registration, Co-Sale Rights or Bring-Along Rights.
The rights of the Purchaser under Section 7 of this Agreement, including,
without limitation, the rights to cause the Company to register Shares under
Sections 7(a) and 7(b) and/or to participate in a Transfer pursuant to Section
7(i) and the obligations of Purchaser under Section 7(k) are personal to the
Purchaser and shall not survive any transfer of the Shares whatsoever, and may
not be assigned or transferred in any way, provided, however, that the
restrictions contained in this Section 7(l) shall not apply with respect to any
Transfer of Shares by either of the Founders or the Purchaser, pursuant to
applicable laws of descent and distribution or otherwise to such person's
spouse, former spouse and descendants (whether natural or adopted), parents and
their descendants, descendants of such brothers and sisters and any spouse of
the foregoing individuals or any trust solely for the benefit of any of the
foregoing; provided, however, that if any of the foregoing is less than 21 years
of age at the time of such proposed Transfer, then such Transfer may only be
made to a trustee of a valid trust for the benefit of the foregoing, which trust
shall not terminate prior to the beneficiary (or beneficiaries) thereof
attaining the age of 21 (collectively, "Permitted Transferees"). Except as
permitted herein, any attempted Transfer or assignment of the rights set forth
in this Section 7 shall be void ab initio:
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<PAGE>
8. Indemnification. (i) The Purchaser shall indemnify and hold harmless
each of the Company, its directors, officers, persons controlling the Company,
any affiliate of the foregoing and any professional advisors thereto, from and
against any and all loss, damage, liability or expense, including costs and
reasonable attorneys' fees, to which any of them may be put or which they may
incur by reason of or in connection with any misrepresentation made by the
Purchaser, any breach of any of the Purchaser's warranties or the Purchaser's
failure to fulfill any of the Purchaser's covenants or agreements under this
Agreement.
(ii) The Company shall indemnify and hold harmless each of the
Purchaser, the Purchaser's affiliates and any of the Purchaser's professional
advisors from and against any and all loss, damage, liability or expense,
including costs and reasonable attorneys' fees, to which any of them may be put
or which they may incur by reason of or in connection with any misrepresentation
made by the Company, any breach of any of the Company's warranties or the
Company's failure to fulfill any of the Company's covenants or agreements under
this Agreement.
9. Definitions.
"Accommodation Obligation" shall mean, as applied to any Person and
without duplication of amounts, any obligation of such Person guaranteeing or
intended to guarantee (whether guaranteed, endorsed, co-made, discounted, or
sold with recourse to such Person) any indebtedness, lease, dividend, letter of
credit, or other obligations ("primary obligation") of any Person in any manner
whether directly or indirectly, including any obligation of such Person or on
behalf of any other person (irrespective of whether contingent), or to otherwise
assure or hold harmless the owner of such primary obligation against loss in
respect thereof. The amount of any Accommodation Obligation shall be deemed to
be an amount equal to the maximum amount of a Person's liability with respect to
the stated or determinable amount of the primary obligation for which such
Accommodation Obligation is incurred.
"Capitalized Lease" shall mean any lease of an asset by the Company
or any subsidiary as lessee which would, in conformity with GAAP, be required to
be accounted for as a capital lease an the balance sheet of tile Company or such
subsidiary.
"Debt" shall mean, with respect to any Person, without duplication:
(a) all obligations of such Person for borrowed money; (b) all obligations of
such Person evidenced by bonds, debentures, notes, or other similar instruments;
(c) all obligations of such Person in respect of letters of credit, bankers
acceptances, interest rate swaps or other financial products or similar
instruments (including reimbursement with respect thereto), except such as have
been issued to secure payment of trade payables; (d) all obligations of such
Person to pay the deferred purchase price of property or services, except trade
payables; (e) all Capitalized Lease Obligations of such Person; (f) all
obligations or liabilities of others secured by a lien on any asset owned by
such Person, whether or not such obligation or liability is assumed by such
Person; and (g) all Accommodation Obligations of such Person.
"GAAP" shall mean generally accepted accounting principles that are
(i) consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, (ii) applied on a basis
consistent with prior periods (except for changes in the application of such
principles that have been approved by the Company's Board of Directors), and
(iii) such that, insofar as the use of accounting principles is pertinent, a
certified public accountant delivering an audit report on such financial
statements could deliver an unqualified opinion with respect to financial
statements in which such principles have been properly applied, subject,
however, to the absence or modification of footnotes and to the possible
inclusion of a "going concern" qualification.
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"Material Adverse Effect" shall mean a material adverse effect on
the assets, condition (financial or otherwise), affairs, earnings, business or
operations of the Company
"Person" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature, including, as appropriate, the Company or any subsidiary thereof
10. Miscellaneous. (a) This Agreement shall be governed by and construed
in accordance with the internal laws of New York (without giving effect to the
conflict of laws rules thereof) applicable to contracts, transactions and
obligations entered into, and to be wholly performed, in New York.
(b) The Purchaser and the Company each acknowledge that their
respective representations and warranties shall survive the date of the purchase
of the Shares by the Purchaser.
(c) This Agreement contains the entire agreement between the parties
hereto with respect to the subject matter thereof. The provisions of this
Agreement may not be modified or waived except in writing and signed by both
parties hereto.
(d) This Agreement and the rights, powers and duties set forth
herein shall, except as set forth herein, bind and inure to the benefit of the
heirs, executors, administrators, legal representatives and successors of the
parties hereto. Except as set forth herein, the Purchaser may not assign any of
his rights or interests in or under this Agreement without the prior written
consent of the Company, and any attempted assignment without such consent shall
be void and without effect.
(e) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original and all of which taken together shall
constitute a single agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ERGOVISION, INC. PURCHASER
By:__________________ ___________________________________
Name: Mark H. Levin By:
Title: President
Address: _____________________
__________________________
Soc. Sec. No. ___________
16
PURCHASE AND INVESTMENT AGREEMENT
_____________, 1999
The following will constitute the agreement between EyeCity.com, Inc.
("Company") and the undersigned (the "Purchaser") with respect to the
Purchaser's investment in the Company.
1. Purchaser hereby purchases from the Company __________ shares of the
Company's Common Stock, $.001 par value, (the "Shares") at a price of $3.00 per
share, for a total purchase price of $_________ (the "Purchase Price").
2. The Company shall deliver to Purchaser a certificate representing the
Shares, registered in the name of Purchaser, within five (5) business days after
Purchaser shall have paid to the Company the full Purchase Price.
3. Purchaser represents, warrants and covenants to the Company and each of
its officers, directors, persons who control the Company and any affiliates of
the foregoing that:
a. Either (i) Purchaser is a director or executive officer of the
Company, (ii) Purchaser has a net worth, inclusive of the value of Purchaser's
homes, home furnishings and automobiles, of at least $1,000,000 (which net worth
may include the Purchaser's spouse's net worth), (iii) Purchaser's individual
income for each of the past two calendar years exceeded $200,000 and Purchaser
reasonably expects Purchaser's individual income to exceed $200,000 in the
current year, (iv) Purchaser's income together with the income of Purchaser's
spouse for each of the past two calendar years exceed $300,000 and Purchaser
reasonably expects Purchaser's income together with that of Purchaser's spouse
to exceed $300,000 in the current year, or (v) the Purchaser has such knowledge
and experience in business and financial matters that Purchaser is capable of
evaluating the merits and risks of an investment in the Company.
b. Purchaser is acquiring the Shares for Purchaser's own account,
for investment only and not with a view toward the resale or distribution
thereof.
c. Purchaser understands that the Shares are not registered under
the Securities Act of 1933 (the "1933 Act") and may not be resold unless
subsequently registered under the 1933 Act or unless an exemption from such
registration is available. Purchaser understands that the Shares have not been
approved or disapproved by the Securities and Exchange Commission (the
"Commission"), or any other federal or state agency, nor has the Commission or
any such agency passed upon the accuracy or adequacy of any of the information
provided to Purchaser. Purchaser agrees that Purchaser will not attempt to
dispose of Purchaser's Shares or any interest therein, unless and until the
Shares have been validly registered with the Commission, or the Purchaser has
given the Company at least thirty (30) days prior written notice of such planned
disposition and the Company has determined that the intended disposition does
not violate the 1933 Act or the rules and regulations of the Commission
thereunder (the Company may rely on an opinion of its counsel in making such
determination).
d. The Purchaser has adequate funds to provide for the Purchaser's
personal needs and does not and will not require the funds comprising the
Purchase Price for liquidity purposes. The Purchaser possesses the ability to
bear the economic risk of holding the Shares indefinitely and can afford a
complete loss of the investment contemplated hereby.
<PAGE>
e. In making Purchaser's investment in the Shares, no oral
representations or warranties have been made to Purchaser. Purchaser
acknowledges that Purchaser has been advised that, except for Mr. Mark Levin and
Mr. Mark Suroff, no person is authorized to give any information or to make any
statement regarding the Company's Strategic Business Plan and the attachments
thereto (the "Business Plan"), and that any information or statement not made by
such persons must not be relied upon as having been authorized by the Company or
any professional advisors or counsel thereto. Purchaser acknowledges that the
Company makes no representations or warranties, expressed or implied, with
respect to the completeness or accuracy of the Business Plan as to its contents
or any other written or oral communication transmitted or made available to
Purchaser or Purchaser's representatives, and that Purchaser and Purchaser's
representatives must rely on their own due diligence of the Company and their
own independent verification of the information provided in the Business Plan
and any other investigations deemed necessary for the purpose of determining
whether to proceed with the investment in the Company. The Business Plan
includes certain statements, estimates and projections provided by the Company
with respect to anticipated future performance of the Company. Such statements,
estimates and projections reflect various assumptions by the Company's
management concerning anticipated results, which may or may not occur. No
representations are made as to the accuracy of such statements, estimates, or
projections, and actual performance of the Company may be materially different
from those set forth in such statements, estimates or projections.
f. Purchaser has reviewed, carefully read and completed the Investor
Questionnaire attached as Exhibit A hereto. All information provided by
Purchaser to the Company, including that contained in the Investor Questionnaire
submitted herewith, is true and correct in all respects as of the date hereof.
g. The address set forth below is the Purchaser's true and correct
residence. Purchaser has no present intention of becoming a resident of any
other state or jurisdiction.
h. Purchaser covenants that the foregoing representations and
warranties will be true and accurate as of, and acknowledges that such
representations and warranties shall survive, the date of his or her purchase of
the Shares.
i. Purchaser is aware that all documents, records and books
pertaining to this investment are at all times available at the offices of the
Company at One Fairchild Court, Plainview, New York 11803, or at the offices of
the Company's counsel, Rosenman & Colin LLP, 575 Madison Avenue, New York, New
York 10022, Attn: Eric M. Lerner, Esq., and acknowledges that all documents,
records and books pertaining to this investment requested by Purchaser,
including without limitation, the Company's unaudited financial statements as of
December 31, 1998 and for the year then ended, (a copy of which is attached as
Exhibit B hereto) and capitalization chart (a copy of which is attached as
Exhibit C hereto) have been made available to the Purchaser and the persons the
Purchaser has retained, if any (if applicable, such person is _________ having
an address at ______________________________) to advise Purchaser with respect
to this investment (and if any such person has been retained, such person has
provided to the Company a completed Purchaser Representative Questionnaire in
form and substance satisfactory to the Company), and the Purchaser and such
persons have been supplied with such additional information concerning this
investment as has been requested.
j. The Purchaser has been given the opportunity to discuss the
Purchaser's investment in, and the operation of, the Company with the Company's
management and has been given all information that the Purchaser has requested
and which the Purchaser deems relevant to the Purchaser's decision to invest in
the Company.
4. Purchaser agrees that the certificates evidencing the Shares shall bear
the following legend restricting their transferability under the Act:
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LEGEND
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("ACT"). NO SALE, OFFER TO SELL OR TRANSFER OF THE SHARES REPRESENTED BY
THIS CERTIFICATE SHALL BE MADE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT, OR AN OPINION OF COUNSEL TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
5. Purchaser shall indemnify and hold harmless each of the Company, its
directors, officers, persons controlling the Company, any affiliate of the
foregoing or any professional advisors thereto, from and against any and all
loss, damage, liability or expense, including costs and reasonable attorneys'
fees, to which any of them may be put or which they may incur by reason of or in
connection with any misrepresentation made by Purchaser, any breach of any of
Purchaser's warranties of Purchaser's failure to fulfill any of Purchaser's
covenants or agreements under this Agreement.
6. (a) This Agreement shall be governed by and construed in accordance
with the internal laws of New York (without giving effect to the conflict of
laws rules thereof) applicable to contracts, transactions and obligations
entered into, and to be wholly performed, in New York.
(b) This Agreement contains the entire agreement between the parties
hereto with respect to the subject matter thereof. The provisions of this
Agreement may not be modified or waived except in writing and signed by both
parties hereto.
(c) This Agreement and the rights, powers and duties set forth
herein shall, except as set forth herein, bind and inure to the benefit of the
heirs, executors, administrators, legal representatives and successors of the
parties hereto. Purchaser may not assign any of his rights or interests in or
under this Agreement without the prior written consent of the Company, and any
attempted assignment without such consent shall be void and without effect.
(d) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original and all of which taken together shall
constitute a single agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
EYECITY.COM, INC. PURCHASER
By:__________________ __________________________
Name: Mark H. Levin Name:
Title: President
Address:__________________
__________________
Soc. Sec. No. ____________
4
STOCK PURCHASE AGREEMENT
AND PLAN OF REORGANIZATION
AGREEMENT entered into as of the 5th day of August, 1998, among
Ergovision, Inc., a Delaware corporation (the "Buyer"), Foggles, Inc. an Ohio
corporation (the "Company"), and Elizabeth Lines Gilson, Richard D. Gilson,
Jerry K. Mueller, Jr., and Gerald L. Smith being the holders of all of the
issued and outstanding capital stock of the Company (the "Sellers").
RECITALS
WHEREAS, the Sellers collectively own all of the outstanding shares of
Common Stock, without par value per share, of the Company (the "Company
Shares"), and are willing to sell the Company Shares to Buyer; and
WHEREAS, the parties hereto wish to adopt an agreement pursuant to which
Buyer will acquire all of the Company Shares in exchange for shares of Buyer's
$0.001 par value Common Stock ("Buyer's Common Stock") and for other
consideration as more fully set forth herein; and
WHEREAS, for federal income tax purposes, it is intended that the Plan of
Reorganization shall qualify as a tax-free reorganization under Section 368
(a)(1)(B) of the Internal Revenue Code of 1986, as amended, and the Treasury
regulations promulgated thereunder; and
NOW, THEREFORE, in consideration for the mutual agreements contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE 1. Plan of Reorganization and Purchase and Sale of Stock
A. Plan of Reorganization
The parties to this Agreement hereby adopt a Plan of Reorganization
pursuant to the provisions of Section 368 (a)(1)(B) of the Internal Revenue Code
of 1986, as amended, and the Treasury regulations promulgated thereunder to be
effectuated in the manner hereinafter set forth. Neither the Buyer, Company nor
any of the Sellers shall intentionally take or cause to be taken any action,
whether or not at, prior to or after the Closing, which would disqualify the
Plan of Reorganization as a "pooling of interests" for financial accounting
purposes or as a tax-free "reorganization" within the meaning of Section 368 (a)
of the Code.
B. Exchange of Shares.
(a) Subject to the provisions of this Agreement, each of the Sellers
agrees to sell, and Buyer agrees to purchase, at the Closing (as defined in
Article 1.C hereof), the number of Company Shares set forth on Exhibit A hereto
next to such Seller's name. In consideration of such sale, Buyer agrees that it
will deliver to the Sellers an aggregate of Two Hundred and Fourteen Thousand
(214,000) Shares of duly authorized, validly issued, fully-paid and
non-assessable shares of Buyer's Common Stock ("Purchase Shares").
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(b) Each Seller shall receive Twenty-Five (25%) Percent of the Purchase
Shares which is equal to the percentage of the Company Shares owned by such
Seller as set forth in Exhibit A hereto.
C. Time of Closing.
The closing of the purchase and sale provided for in this Agreement
(herein called the "Closing") shall take place simultaneously with the execution
of this Agreement; provided, however, that in no event shall the Closing date be
extended beyond August 31, 1998.
D. Delivery of Company Shares.
At the Closing, the Sellers and Company shall deliver or cause to be
delivered to Buyer, among other things:
(a) certificates for all the Company Shares owned by each of the Sellers,
duly endorsed in blank for transfer, or with stock powers attached duly executed
in blank, with all signatures notarized or, at the election of Buyer, guaranteed
in the form of Exhibit B hereto;
(b) such other documents as may be required to effect a valid transfer of
the Company Shares by the Sellers, free and clear of any and all liens and
encumbrances;
(c) general releases by all officers, directors and stockholders of the
Company of any liability of the Company to them, or any claim that they may have
against the Company in the form of Exhibit C hereto; and
(d) such other documents as may be required elsewhere in this Agreement or
may be reasonably requested by Buyer.
E. Delivery of Purchase Shares.
Buyer shall deliver or cause to be delivered to Sellers, among other
things, certificates for that number of Purchase Shares as determined in Article
1.B(b) hereof within five (5) business days after the date of Closing.
F. Further Assurances.
Sellers and Buyer from time to time after the Closing, at the request of
the other party and without further consideration, shall execute and deliver
further instruments of transfer and assignment and take such other action as
such other party may reasonably require to more effectively transfer the Company
Shares to the Buyer and to otherwise consummate the transactions contemplated
herein.
ARTICLE 2. Representation and Warranties of the Company and Sellers
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Each Seller, jointly and severally, and the Company, to induce Buyer to
enter into and consummate this Agreement, represents and warrants to Buyer that:
A. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Ohio, with the power to own its
properties and carry on its business as now being conducted.
B. The Company is duly licensed or qualified and in good standing as a
foreign corporation in those states where the nature of the business transacted
by the Company makes such license or qualification necessary.
C. The Company does not have any subsidiaries or equity interest in any
other corporation or entity.
D. The Company is authorized to issue one class of Capital Stock, to wit,
Common Stock, no par value, of which Four Hundred (400) Company Shares are
issued and outstanding and owned by the Sellers and represents 100% of the
issued and outstanding Capital Stock of the Company.
E. All of the Company Shares are duly authorized, issued and outstanding
and fully paid and non-assessable.
F. The Company has no options, warrants, notes or securities outstanding
convertible into the Company's authorized and unissued Common Stock.
G. Each Seller is the lawful owner of record, and beneficially, of the
number of Company Shares set forth after his or her name on Exhibit A hereto,
free and clear of all liens, encumbrances, agreements, trusts, claims and
equities of any kind and nature.
H. Each Seller has full legal power and capacity to enter into this
Agreement and consummate all transactions set forth herein.
I. The delivery of the Shares on the date hereof in accordance with this
Agreement will vest good and marketable title to the Company Shares in Buyer,
free and clear of all liens, encumbrances, claims and equities and every kind
and nature.
J. Attached hereto on Schedule J are the financial statements of the
Company for the period ending June 30, 1998.
K. The Company has no obligations or liabilities of any kind or nature
whether accrued, fixed or contingent other than those liabilities indicated and
set forth on Schedule J and those liabilities incurred since June 30, 1998 have
been in the ordinary course of business which in the aggregate have not
adversely affected the financial condition of the Company and conduct of its
business as a whole.
L. The Company is not a party or a signatory to any lease, contract, plan,
agreement, pension plan, hospitalization plan, or any other such obligation or
commitment of any kind or nature.
M. The Company has good and marketable title to all of its properties and
assets both real and personal free and clear of any mortgage, pledge, lease,
lien, encumbrance, charge or title.
N. Since June 30, 1998, to the date hereof, there has not been:
(i) Any adverse change in the financial condition or business of the
Company other than changes occurring in the ordinary course of business;
(ii) Any disposition, issuance or grant by the Company of any of its
capital stock or of any option or right to acquire any of its capital stock, or
any acquisition or requirement for a consideration by the Company of any of its
capital stock, or any declaration or payment of any dividend or other
distribution relating to its capital stock;
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(iii) Any sale or other disposition of any asset (other than cash or
its equivalent) owned or used by the Company at the close of business as at June
30, 1998 or thereafter acquired or used, except expenditures and commitments in
the ordinary course of business;
(v) Any damage, destruction or loss adversely affecting the property
or business of the Company;
(vi) Any loans or advances by the Company to any party or person;
(vii) Any general increase by the Company in the rate or rates of
salary or compensation of employees or agents or any specific increase in the
salary or compensation of any employee or agent whose salary or compensation
after such increase would be at an annual rate in excess of Ten Thousand
($10,000) Dollars;
(viii) Any cancellation or surrender (or notice thereof) of any
policy or insurance of any kind or nature;
(ix) Any indebtedness incurred by the Company except in the ordinary
course of business, or any quaranty furnished by the Company covering the
liability of another person, party, company or corporation;
(x) Any cancellation of any indebtedness due the Company except by
full payment thereof; or
(xi) Any labor disputes of any kind or nature affecting the Company.
O. There is no action, lawsuit, proceeding or investigation pending or, to
the knowledge of each Seller, threatened against the Company or such Sellers, or
to the knowledge of any Seller any state of acts which may give rise thereto.
P. To the knowledge of each Seller:
(i) the Company has in full force and effect all governmental
licenses and permits required for the operation of its business.
(ii) a list of such licenses and permits, if any, is set forth on
Schedule P attached hereto;
(iii) no violations are or have been recorded in respect of any such
existing licenses or permits and remain uncorrected as of the date hereof;
(iv) no proceeding is pending or threatened looking toward the
revocation or limitation of any of such existing licenses or permits;
(v) the Company's properties are in compliance with all applicable
local zoning laws;
(vi) there are no violations of any laws, rules, regulations, orders
or ordinances applicable to the business or properties of the Company (including
reporting requirements of any governmental agency) which would adversely affect
the business and operations of the Company; and
(vii) there are no actions or proceedings pending or threatened
against the Company for violation of any safety or environmental control laws,
rules, regulations, orders and ordinances.
Q. The execution and performance of this Agreement will not result in a
breach of or constitute a default or violation under any:
(i) Charter, by-law, note, obligation, agreement or other document
to or by which the Company is a party or is bound or any of its properties is
subject; or
(ii) statute, decree, judgment, order or rule of any court or
governmental authority.
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R. A description of all real property owned or leased by the Company with
a brief description of the principal facilities, buildings and structures
located thereon is attached hereto as Schedule R.
S. Set forth on Schedule S a list of all automobiles, or office equipment
owned by or used in the Company's business.
T. Set forth on Schedule T is a description of all policies of life, fire,
extended coverage, public and products liability insurance or any other
insurance in force in respect of the Company or on the life of any officer,
director or Sellers of the Company and of which the Company is a beneficiary and
said policies listed on Schedule T are in full force and effect, and that the
Company is not delinquent with respect to any premium payment thereon.
U. Set forth on Schedule U is a list of the names and current annual
compensation rates of all employees of the Company whose current annual salary
rate is Five Thousand ($5,000) Dollars or more.
V. Set forth on Schedule V is a list of each bank in which the Company has
a bank account or safe deposit box, the names of all persons authorized to draw
thereon or to have access thereto, and the names of all persons holding powers
of attorney from the Company.
W. Set forth on Schedule W is a list of all officers and directors of the
Company.
X. The provisions made for taxes in the June 30, 1998 financial statements
of the Company delivered under this Agreement are sufficient for the payment of
all unpaid federal, state, county and local taxes of the Company accrued to the
date thereof, whether or not disputed. All federal, state, county and local
taxes due and payable by the Company through the date hereof have been accrued
on its books, and:
(i) there is an agreement by the Company extending the time for
assessment or payment of any tax;
(ii) the Company has filed all federal, state, county, and local tax
returns required to be filed through the date hereof;
(iii) there is no claim for additional federal, state, county or
local tax returns required to be filed through the date hereof; and
(iv) the Company has not been audited by the Internal Revenue
Service ("IRS") or other governmental authority through the year 1998.
Y. All of the real and personal property and the equipment owned by the
Company on the date hereof is indicated on Schedule Y and the Company has good
title thereto free and clear of all liens and encumbrances except as indicated
on Schedule Y.
Z. The inventory of the Company as at the date hereof is usable and being
sold for consumption by the general public.
AA. The Company to the knowledge of the Sellers has good title to all of
its Intellectual Property Rights.
(a) For purposes of Section AA, "Intellectual Property" means all patents,
patent applications, trade marks (whether registered or unregistered) or service
marks, trade secrets, trade-dress, know-how, trade mark or service mark
applications, trade names, copyrights, licenses and computer software, owned or
used by the Company.
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(b) All rights of ownership of, or material licenses to use, Intellectual
Property held by the Company are listed on Schedule AA. To the best knowledge of
the Sellers and the Company, there are no Intellectual Property rights, other
than those set forth on this schedule.
(c) Except as set forth on Schedule AA, all rights to Intellectual
Property required to be listed in Schedule AA:
(i) are owned exclusively by the Company, free and clear of any
attachments, licenses, sub-licenses or encumbrances, such that no other
person has any right or interest in or license to use or right to license
others to use any of the Intellectual Property;
(ii) are freely transferable (except as otherwise required by law);
and
(iii) are not subject to any outstanding order, decree, judgment or
stipulation.
(d) All licenses and other agreements pursuant to which any item of
Intellectual Property is licensed or used by the Company are valid, binding and
enforceable and there does not exist thereunder a default or event or condition
which, after notice or lapse of time or both, would constitute a default by any
party thereto.
(e) No proceedings to which the Company is a party have been commenced
which (i) challenge the rights of the Company in respect of the Intellectual
Property listed on Schedule AA, or (ii) charge the Company with infringement of
any other person's rights in Intellectual Property and, to the knowledge of the
Company and Sellers, no such proceeding to which the Company is not a party has
been filed, nor are any such proceedings threatened to be filed.
(f) The Company is not infringing upon any Intellectual Property rights of
any other person and, to the knowledge of the Company and Sellers, none of the
rights in Intellectual Property listed on Schedule AA is being infringed by any
other person, and the Company has received no notification or threat from any
third party with respect to any activity of the Company.
(g) Except as set forth on Schedule AA, no director, officer or employee
of the Company owns, directly or indirectly, in whole or in part, any
Intellectual Property right which the Company has used, is presently using, or
the use of which is reasonably necessary to its business as now conducted or
presently contemplated to be conducted.
BB. Each Seller is purchasing or acquiring the Shares of Buyer's Common
Stock for his or her own account for investment and not with a present view to,
or for sale in connection with, any distribution thereof in violation of the
Securities Act of 1933, as amended (the "Act"). Each Seller hereby consents to
the placing of a legend substantially similar to the following on each
certificate for the shares of Buyer's Common Stock, and each Seller agrees to
abide by the restrictions contained therein:
The shares represented by this certificate have not been registered under the
Securities Act of 1933, as amended (the "Act") and may not be sold, transferred
or assigned unless registered under the Act, pursuant to Rule 144, or an opinion
of counsel, satisfactory to the corporation, is obtained to the effect that such
sale, transfer or assignment is exempt from the registration requirements of the
Act.
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CC. Each Seller understands that the Shares of Buyer's Common Stock have
not been registered under the Act by reason of a specific exemption from the
registration provisions of the Act which depends upon, among other things, the
bona fide nature of such Seller's investment intent as expressed herein. Each
Seller acknowledges that the shares of Buyer's Common Stock can be sold only if
registered under the Act or an exemption from such registration is available.
Each Seller has been advised of or is aware of the provisions of Rule 144
promulgated under the Act, which rule permits resale of securities purchased in
a private placement subject to the satisfaction of certain conditions contained
therein.
DD. No representation or warranty made herein by any Seller or any
statement, certificate, Schedule or document furnished or to be furnished to the
Buyer herewith contains any untrue fact or statement or omits or will omit to
state any fact reasonably necessary to make the statements herein not
misleading, and shall be true and correct as though made on and as of the
Closing Date, and all copies of documents delivered hereunder are true and
complete copies.
ARTICLE 3. Representation and Warranties of Buyer
Buyer represents and warrants to the Sellers that:
A. Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all requisite
corporate power and authority to own and operate its properties, to carry on its
business as presently conducted, to enter into this Agreement and to carry out
the terms hereof.
B. There is no action, suit, proceeding or investigation pending, or to
Buyer's knowledge and belief any basis therefore or any threat thereof, which
questions the validity of this Agreement or any action taken or to be taken
pursuant hereto.
C. The execution, delivery and performance of this Agreement by Buyer has
been duly authorized by all requisite corporate action, and this Agreement
constitutes the valid and binding obligation of Buyer, enforceable in accordance
with its terms.
D. Buyer is not in violation of any term of its certificate of
incorporation or by-laws, or of any material term of any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation, applicable to
Buyer, and the execution, delivery and performance of this Agreement will not
result in any such violation.
E. Buyer is not required to obtain any consent, approval or authorization
of, or registration, qualification, designation, declaration or filing with, any
governmental authority in connection with the execution and delivery of this
Agreement or the consummation of any transaction contemplated hereby.
F. The representations, warranties and covenants of Buyer contained in
this Agreement are true and correct, as though made on as of the Closing Date,
and Buyer has no reason to believe that the representations, warranties and
covenants of Buyer contained in this Agreement contain an untrue statement of a
material fact required to be stated therein or necessary to make the statements
therein contained not misleading.
G. Buyer agrees that upon becoming a reporting company with the Securities
and Exchange Commission it shall use its best efforts to continue to maintain
such status.
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ARTICLE 4. Sellers and Company's Closing Documents
The Sellers and Company are herewith delivering to Buyer the following
documents and instruments pursuant to the terms of this Agreement:
A. All of the Shares duly endorsed for transfer before a Notary Public by
each of the respective Sellers, with the proper notarized acknowledgment and
stock transfer tax stamps affixed thereto (if so required by law), guaranteed in
the form of Exhibit B hereto.
B. A general release executed by each officer, director and Seller of the
Company releasing any claim they may have against the Company or any officer or
director of the Company (inclusive of any subsidiary of the Company), except as
may otherwise be reserved under this Agreement as set forth in Exhibit C hereto.
C. A Secretary's Certificate, as set forth in Exhibit D, dated the date
hereof duly executed by the Company to the effect that annexed to said
certificate is a true and complete copy of:
(i) the Certificate of Incorporation and all amendments thereto of
the Company;
(ii) the Company's By-Laws and all amendments thereto; and
(iii) correct and complete copy of the resolutions adopted by the
Board of Directors of the Company approving this Agreement.
D. Sellers shall deliver to Buyer, at the Closing, a complete and correct
list of all of the officers and directors of the Company and Buyer shall have
received the written resignations of such officers, directors of the Company,
which resignations will be effective no later than the Closing.
ARTICLE 5. Buyer's Closing Documents
Buyer is herewith delivering to Seller the following documents and
instruments pursuant to the terms of this Agreement:
A. Secretary's Certificate executed by Buyer's Secretary to the effect
that the execution and delivery of this Agreement and the consummation thereof
has been duly approved by the Buyer's Board of Directors as set forth in Exhibit
E hereto.
ARTICLE 6. Indemnification by Buyer
(a) Buyer hereby agrees to indemnify and hold harmless Sellers from and
against any claim, demand or liability, whether or not meritorious (and against
any costs and expenses, including, without limitation, attorney's fees incurred
in resisting any such claim, demand or liability), arising out of any action or
omission on or after the Closing by Buyer in, or resulting from, the operation
of the business purchased hereunder.
(b) Buyer shall give Sellers prompt written notice of any such claim,
demand or asserted liability and shall permit Seller to defend against any such
claim, demand or liability by counsel of its choice. Buyer shall cooperate with
Seller in such defense and shall make its books and records and personnel
available to Seller in connection therewith.
ARTICLE 7. Indemnification by Sellers
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(a) Except for liabilities disclosed on the Balance Sheet (Schedule J) or
as otherwise provided herein, Sellers hereby agree to indemnify and hold
harmless Buyer from and against any claim, demand or liability, whether or not
meritorious (and against any costs and expenses, including, without limitation,
attorney's fees incurred in resisting any such claim, demand or liability),
arising out of any action or omission before the Closing by Sellers in, or
resulting from, the operation of the business purchased hereunder.
(b) Sellers shall give Buyer prompt written notice of any such claim
demand or asserted liability and shall permit Buyer to defend against any such
claim, demand or liability by counsel of its or their choice. Sellers shall
cooperate with Buyer in such defense and shall make its books and records and
personnel available to Buyer in connection therewith.
ARTICLE 8. Survival of Warranties
All representations and warranties made herein by any of the parties or
signatories to this Agreement shall survive the date hereof and last until the
expiration of the applicable statute of limitations in such cases made and
provided for.
ARTICLE 9. Restrictive Covenant
(a) Each Seller agrees for himself that for a period of five (5) years
after the date of closing, he or she will not, directly or indirectly, own,
manage, operate, join, control, or participate in, or become affiliated as an
officer, employee, partner or otherwise in any corporation, partnership or
business entity engaged in the same or similar business as the Company anywhere
in the World other than the Company.
(b) Sellers acknowledge that the remedy at law for any breach of the
foregoing will be inadequate and that the Company and/or Buyer shall be entitled
to injunctive relief.
ARTICLE 10. Brokerage Indemnification
The parties mutually represent and warrant to each other that no broker or
finder was in any way involved with the transactions contemplated by this
Agreement.
ARTICLE 11. Consultant Agreement With Sellers.
The Company shall retain the Sellers for marketing and manufacturing
consulting services for a total sum of $30,000 under a consulting contract for a
12-month period starting the first calendar month after the Closing. This will
be paid at the rate of $2,500 per month and the services to be provided would
include assistance with the continuity of the relationship with existing
customers, existing vendors and sources for inventory. In addition, it will
include the transition of the records, inventory and business from Columbus,
Ohio to Plainview, New York. This consulting contract will cover any
compensation due to Gail James and Edward Young, regarding their services to be
performed relating to the above services. Sellers shall advise the Buyer in
writing as to the distribution of this compensation including the parties and
prorata information.
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ARTICLE 12. Product Purchasing.
The Buyer initially agrees to purchase the existing Company non-computer
products from the sources named by the Company. This would include, but not be
limited to, the glasses made for pilots and marksmen (the "Foggles Products").
Should Buyer in the future, be able to purchase, or have manufactured, or
manufacture, these Foggles Products at a price lower than the present
manufacturers or suppliers, or in an improved state of quality, Buyer will
provide Sellers with an option to meet such prices and quality before
transferring the purchasing to another source. Buyer would, of course, retain
the right to transfer its purchasing to a new source for a violation of the
Agreement by the sources named by the Company, or the failure to deliver
consistent quality or product on a timely basis.
ARTICLE 13. Miscellaneous
A. This Agreement contains the entire understanding between the parties
hereto and there have been no oral or other agreements, representations or
warranties of any kind or nature (i) concerning or relating to the contents of
this Agreement, or (ii) made or given as a condition precedent or inducement to
the signing of this Agreement, or (iii) otherwise concerning this Agreement or
the subject matter hereof.
B. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns.
C. This Agreement may be executed in one or more counterparts and all such
counterparts shall constitute one and the same instrument.
D. All Schedules and Exhibits referred to in this Agreement shall be
deemed to be annexed hereto and made a part hereof.
E. The construction and performance of this Agreement shall be governed by
the laws of the State of New York.
F. Neither party shall be deemed to have waived any provision of this
Agreement unless such waiver shall be in writing and be signed by such party. No
waiver shall be deemed a continuing waiver unless so stated in writing.
G. The Article headings set forth herein are for reference purposes only
and do not form a material part of this Agreement.
ARTICLE 14. Notice
All notices, requests, demands and other communications required or
permitted to be given (i) hereunder by any party hereto shall be in writing and
shall be deemed to have been duly given when received if delivered personally,
or (ii) on the business day following the business day sent if sent by prepaid
domestically recognized overnight receipted courier if sent domestically, or
(iii) on the third business day following the day sent if sent by prepaid
internationally recognized overnight receipted courier if sent internationally,
or (iv) when receipt telephonically acknowledged if sent by telecopier
transmission on a business day or, if not a business day, on the next following
business day, or (v) when answered back if sent by telex, if on a business day,
or if not a business day, or the next following business day, to the parties at
the following addresses (or at such other addresses as shall be specified by the
parties by like
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notice) or, (vi) by U.S. registered or certified mail, return receipt requested,
postage prepaid, to the parties at the following addresses (or at such other
addresses as shall be specified by the parties by the like notice):
If to the Sellers or to the Company, to:
Jerry K. Mueller, Jr. Elizabeth Lines Gilson
Mueller and Smith, L.P.A. 115 Lake Drive
7700 Rivers Edge Drive Oviedo, FL 32767
Columbus, Ohio 43235-1355
Tel: 614-436-0600 Tel: 407-365-1499
Fax: 614-436-0057
Gerald L. Smith Richard D. Gilson
Mueller and Smith, L.P.A. 115 Lake Drive
7700 Rivers Edge Drive Oviedo, FL 32767
Columbus, Ohio 43235-1355
Tel: 614-436-0600 Tel: 407-365-1499
Fax: 614-436-0057
If to the Buyer, to:
Ergovision, Inc.
One Fairchild Court
Plainview, NY 11803
Attn: Robert B. Greenberg, CEO
Tel: 516-349-1110
Fax: 516-349-9191
and in any case at such other address as the addressee shall have specified by
written notice. All periods of notice shall be measured from the date of
delivery thereof.
ARTICLE 15. Arbitration
A. In the event of any dispute between the parties arising out of the
construction, application, or implementation of this Agreement or any documents
related thereto, the parties shall submit their dispute to binding arbitration
before the American Arbitration Association pursuant to the commercial
arbitration rules then prevailing. Any demand for arbitration shall be in
writing, addressed to the parties affected thereby, in accordance with the
notice provisions of this Agreement.
B. Any arbitration hereunder shall be held at the offices of the American
Arbitration Association in New York County, New York if brought by the Company
or Sellers and in Columbus, Ohio if brought by the Buyer.
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IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as an instrument under seal in multiple counterparts as of the date set
forth above by their duly authorized representatives.
ERGOVISION, INC.
BY: /s/ Robert B. Greenberg
-------------------------------------
Robert B. Greenberg, Chairman and CEO
FOGGLES, INC.
BY:
-------------------------------------
Elizabeth Lines Gilson, President
SELLERS:
-----------------------------------------
Elizabeth Lines Gilson
-----------------------------------------
Richard D. Gilson
/s/ Jerry K. Mueller, Jr.
-----------------------------------------
Jerry K. Mueller, Jr.
/s/ Gerald L. Smith
-----------------------------------------
Gerald L. Smith
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IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as an instrument under seal in multiple counterparts as of the date set
forth above by their duly authorized representatives.
ERGOVISION, INC.
BY:
-------------------------------------
Robert B. Greenberg, Chairman and CEO
FOGGLES, INC.
BY: /s/ Elizabeth Lines Gilson
-------------------------------------
Elizabeth Lines Gilson, President
SELLERS:
/s/ Elizabeth Lines Gilson
-----------------------------------------
Elizabeth Lines Gilson
/s/ Richard D. Gilson
-----------------------------------------
Richard D. Gilson
-----------------------------------------
Jerry K. Mueller, Jr.
-----------------------------------------
Gerald L. Smith
12
STOCK PURCHASE AGREEMENT
AND PLAN OF REORGANIZATION
AGREEMENT entered into as of the 17th day of September, 1998 among
Ergovision, Inc., a Delaware corporation (the "Buyer"), Gilead Enterprises, Inc.
a New York corporation (the "Company"), and Fred Silverstein, Olga Silverstein
and Judith M. Lamattina being the holders of all of the issued and outstanding
capital stock of the Company (the "Sellers").
RECITALS
WHEREAS, the Sellers collectively own all of the outstanding shares of
Common Stock, without par value per share, of the Company (the "Company
Shares"), and are willing to sell the Company Shares to Buyer; and
WHEREAS, the parties hereto wish to adopt an agreement pursuant to which
Buyer will acquire all of the Company Shares in exchange for shares of Buyer's
$0.001 par value Common Stock ("Buyer's Common Stock") and for other
consideration as more fully set forth herein; and
WHEREAS, for federal income tax purposes, it is intended that the Plan of
Reorganization shall qualify as a tax-free reorganization under Section 368
(a)(1)(B) of the Internal Revenue Code of 1986, as amended, and the Treasury
regulations promulgated thereunder; and
NOW, THEREFORE, in consideration for the mutual agreements contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE 1. Plan of Reorganization and Purchase and Sale of Shares
A. Plan of Reorganization
The parties to this Agreement hereby adopt a Plan of Reorganization
pursuant to the provisions of Section 368 (a)(1)(B) of the Internal Revenue Code
of 1986, as amended, and the Treasury regulations promulgated thereunder to be
effectuated in the manner hereinafter set forth. Neither the Buyer, Company nor
any of the Sellers shall intentionally take or cause to be taken any action,
whether or not at, prior to or after the Closing, which would disqualify the
Plan of Reorganization as a "pooling of interests" for financial accounting
purposes or as a tax-free "reorganization" within the meaning of Section 368 (a)
of the Code.
B. Exchange of Shares.
(a) Subject to the provisions of this Agreement, each of the Sellers
agrees to sell, and Buyer agrees to purchase, at the Closing (as defined in
Article 1.C hereof), the number of Company Shares set forth on Exhibit A hereto
next to such Seller's name. In consideration of such sale, Buyer agrees that it
will deliver to the Sellers an aggregate of Fifteen Thousand (15,000) Shares of
duly authorized, validly issued, fully-paid and non-assessable shares of Buyer's
Common Stock ("Purchase Shares"). The Sellers shall be entitled to all stock
splits and stock dividends declared by the Buyer and the Buyer shall only issue
future shares for due consideration.
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(b) Each Seller shall receive Thirty Three and One Third (33 1/3 %)
Percent of the Purchase Shares, and the Stock Options granted in accordance with
the terms of this Agreement, which is equal to the percentage of the Company
Shares owned by such Seller as set forth in Exhibit A hereto.
C. Time of Closing.
The closing of the purchase and sale provided for in this Agreement
(herein called the "Closing") shall take place simultaneously with the execution
of this Agreement; provided, however, that in no event shall the Closing date be
extended beyond September 30, 1998.
D. Delivery of Company Shares.
At the Closing, the Sellers and Company shall deliver or cause to be
delivered to Buyer, among other things:
(a) certificates for all the Company Shares owned by each of the Sellers,
duly endorsed in blank for transfer, or with stock powers attached duly executed
in blank, with all signatures notarized or, at the election of Buyer, guaranteed
in the form of Exhibit B hereto;
(b) such other documents as may be required to effect a valid transfer of
the Company Shares by the Sellers, free and clear of any and all liens and
encumbrances;
(c) general releases by all officers, directors and stockholders of the
Company of any liability of the Company to them, or any claim that they may have
against the Company in the form of Exhibit C hereto; and
(d) such other documents as may be required elsewhere in this Agreement or
may be reasonably requested by Buyer.
E. Delivery of Purchase Shares.
Buyer shall deliver or cause to be delivered to Sellers, among other
things, certificates for that number of Purchase Shares as determined in Article
1.B (b) hereof at Closing.
F. Further Assurances.
Sellers and Buyer from time to time after the Closing, at the request of
the other party and without further consideration, shall execute and deliver
further instruments of transfer and assignment and take such other action as
such other party may reasonably require to more effectively transfer the Company
Shares to the Buyer and to otherwise consummate the transactions contemplated
herein.
ARTICLE 2. Covenants, Representation and Warranties of the Company and Sellers
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Each Seller, jointly and severally, and the Company, to induce Buyer to
enter into and consummate this Agreement, represents and warrants to Buyer that:
A. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of New York, with the power to own
its properties and carry on its business as now being conducted.
B. The authorized capital stock of the Company consists of 200
shares, per share, of which there are issued and outstanding 30 shares, all of
which are validly issued, fully paid and non-assessable and owned of record and
beneficially by Sellers, free and clear of all liens and encumbrances.
C. The execution, delivery and performance of this Agreement has
been duly authorized and approved by the Company's Board of Directors and
Sellers. The Company and Sellers have the full right, power and authority,
without further corporate action, to enter into this agreement and perform the
same, and this Agreement constitutes a valid and binding obligation of the
Company and Sellers in accordance with its terms. Neither the execution nor
delivery of this Agreement nor the performance of this Agreement will result
(with or without lapse of time or the giving of notice or both) in any breach of
any term or provision of any contract, agreement, indenture or other instrument
(including without limitation the Company's certificate of incorporation and
by-laws), or any judgment, decree or order of any court to which the Company is
a party, or by which the Company may be bound, and no consent or authorization
is required of any person, firm or corporation pursuant to any of the
aforementioned instruments to the Company and Sellers consummation of this
Agreement and the transactions contemplated hereby.
D. The Company has no subsidiaries or interest in any other
corporation, partnership, joint venture or proprietorship.
E. The Company owns outright and has good and marketable title to
all of its properties and assets free and clear of all liens and encumbrances.
F. There are no liabilities of the Company of any kind whatsoever,
whether or not accrued and whether or not determined or determinable, in respect
of which the Company may become liable on or after consummation of the
transactions contemplated by this Agreement
G. All Federal, state and local income and other taxes accrued or
asserted against the Company have been paid, or adequate reserves have been
established therefore by the Company. All tax returns required to be filed by
the Company have been filed. Sellers have no knowledge of any unassessed tax
deficiency posed or threatened against the Company. No waiver of any statute of
limitations has been given with respect to presently unexamined tax return
examinations.
H. There is no litigation or proceeding pending or threatened
against the Company relating to its business or the transaction contemplated by
this Agreement.
I. The Company to the knowledge of the Sellers has good title to all
of its Intellectual Property Rights.
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(a) For purposes of Section I, "Intellectual Property" means all patents,
patent applications, trade marks (whether registered or unregistered) or service
marks, trade secrets, trade-dress, know-how, trade mark or service mark
applications, trade names, copyrights, licenses and computer software, owned or
used by the Company.
(b) All rights of ownership of, or material licenses to use, Intellectual
Property held by the Company are listed on Schedule I. To the best knowledge of
the Sellers and the Company, there are no Intellectual Property rights, other
than those set forth on this schedule.
(c) Except as set forth on Schedule I, all rights to Intellectual Property
required to be listed in Schedule:
(i) are owned exclusively by the Company, free and clear of any
attachments, licenses, sub-licenses or encumbrances, such that no other
person has any right or interest in or license to use or right to license
others to use any of the Intellectual Property;
(ii) are freely transferable (except as otherwise required by law);
and
(iii) are not subject to any outstanding order, decree, judgment or
stipulation or
(d) All licenses and other agreements pursuant to which any item of
Intellectual Property is licensed or used by the Company are valid, binding and
enforceable and there does not exist thereunder a default or event or condition
which, after notice or lapse of time or both, would constitute a default by any
party thereto.
(e) No proceedings to which the Company is a party have been commenced
which (i) challenge the rights of the Company in respect of the Intellectual
Property listed on Schedule I, or (ii) charge the Company with infringement of
any other person's rights in Intellectual Property and, to the knowledge of the
Company and Sellers, no such proceeding to which the Company is not a party has
been filed, nor are any such proceedings threatened to be filed.
(f) Except as set forth on Schedule I, no director, officer or employee of
the Company owns, directly or indirectly, in whole or in part, any Intellectual
Property right which the Company has used, is presently using, or the use of
which is reasonably necessary to its business as now conducted or presently
contemplated to be conducted.
J. Each Seller is purchasing or acquiring the Shares of Buyer's Common
Stock for his or her own account for investment and not with a present view to,
or for sale in connection with, any distribution thereof in violation of the
Securities Act of 1933, as amended (the "Act"). Each Seller hereby consents to
the placing of a legend substantially similar to the following on each
certificate for the shares of Buyer's Common Stock, and each Seller agrees to
abide by the restrictions contained therein:
The shares represented by this certificate have not been registered under the
Securities Act of 1933, as amended (the "Act") and may not be sold, transferred
or assigned unless registered under the Act, pursuant to Rule 144, or an opinion
of counsel, satisfactory to the corporation, is obtained to the effect that such
sale, transfer or assignment is exempt from the registration requirements of the
Act.
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K. Each Seller understands that the Shares of Buyer's Common Stock have
not been registered under the Act by reason of a specific exemption from the
registration provisions of the Act which depends upon, among other things, the
bona fide nature of such Seller's investment intent as expressed herein. Each
Seller acknowledges that the shares of Buyer's Common Stock can be sold only if
registered under the Act or an exemption from such registration is available.
Each Seller has been advised of or is aware of the provisions of Rule 144
promulgated under the Act, which rule permits resale of securities purchased in
a private placement subject to the satisfaction of certain conditions contained
therein.
L. No representation or warranty made herein by any Seller or any
statement, certificate, Schedule or document furnished or to be furnished to the
Buyer herewith contains any untrue fact or statement or omits or will omit to
state any fact reasonably necessary to make the statements herein not
misleading, and shall be true and correct as though made on and as of the
Closing Date, and all copies of documents delivered hereunder are true and
complete copies.
ARTICLE 3. Representation and Warranties of Buyer
Buyer represents and warrants to the Sellers that:
A. Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all requisite
corporate power and authority to own and operate its properties, to carry on its
business as presently conducted, to enter into this Agreement and to carry out
the terms hereof.
B. There is no action, suit, proceeding or investigation pending, or to
Buyer's knowledge and belief any basis therefore or any threat thereof, which
questions the validity of this Agreement or any action taken or to be taken
pursuant hereto.
C. The execution, delivery and performance of this Agreement by Buyer has
been duly authorized by all requisite corporate action, and this Agreement
constitutes the valid and binding obligation of Buyer, enforceable in accordance
with its terms.
D. Buyer is not in violation of any term of its certificate of
incorporation or by-laws, or of any material term of any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation, applicable to
Buyer, and the execution, delivery and performance of this Agreement will not
result in any such violation.
E. Buyer is not required to obtain any consent, approval or authorization
of, or registration, qualification, designation, declaration or filing with, any
governmental authority in connection with the execution and delivery of this
Agreement or the consummation of any transaction contemplated hereby.
F. The representations, warranties and covenants of Buyer contained in
this Agreement are true and correct, as though made on as of the Closing Date,
and Buyer has no reason to believe that the representations, warranties and
covenants of Buyer contained in this Agreement contain an untrue statement of a
material fact required to be stated therein or necessary to make the statements
therein contained not misleading.
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ARTICLE 4. Sellers and Company's Closing Documents
The Sellers and Company are herewith delivering to Buyer the following
documents and instruments pursuant to the terms of this Agreement:
A. All of the Shares duly endorsed for transfer before a Notary Public by
each of the respective Sellers, with the proper notarized acknowledgment and
stock transfer tax stamps affixed thereto (if so required by law), guaranteed in
the form of Exhibit B hereto.
B. A general release executed by each officer, director and Seller of the
Company releasing any claim they may have against the Company or any officer or
director of the Company (inclusive of any subsidiary of the Company), except as
may otherwise be reserved under this Agreement, as set forth in Exhibit C
hereto.
C. A Secretary's Certificate, as set forth in Exhibit D, dated the date
hereof duly executed by the Company to the effect that annexed to said
certificate is a true and complete copy of:
(i) the Certificate of Incorporation and all amendments thereto of
the Company;
(ii) the Company's By-Laws and all amendments thereto; and
(iii) correct and complete copy of the resolutions adopted by the
Board of Directors of the Company approving this Agreement.
D. Buyer shall have received the written resignations of all officers and
directors of the Company, which resignations will be effective no later than the
Closing as set forth in Exhibit E.
ARTICLE 5. Buyer's Closing Documents
Buyer is herewith delivering to Sellers the following documents and
instruments pursuant to the terms of this Agreement:
A. Secretary's Certificate executed by Buyer's Secretary to the effect
that the execution and delivery of this Agreement and the consummation thereof
has been duly approved by the Buyer's Board of Directors as set forth in Exhibit
F hereto.
ARTICLE 6. Indemnification by Buyer
(a) Buyer hereby agrees to indemnify and hold harmless Sellers from and
against any claim, demand or liability, whether or not meritorious (and against
any costs and expenses, including, without limitation, attorney's fees incurred
in resisting any such claim, demand or liability), arising out of any action or
omission on or after the Closing by Buyer in, or resulting from, the operation
of the business purchased hereunder.
(b) Buyer shall give Sellers prompt written notice of any such claim,
demand or asserted liability and shall permit Seller to defend against any such
claim, demand or liability by counsel of its choice. Buyer shall cooperate with
Seller in such defense and shall make its books and records and personnel
available to Seller in connection therewith.
ARTICLE 7. Indemnification by Sellers
(a) Except for liabilities disclosed on the Balance Sheet (Schedule -) or
as otherwise provided herein, Sellers hereby agree to indemnify and hold
harmless Buyer from and against any claim, demand or liability, whether or not
meritorious (and against any costs and expenses,
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including, without limitation, attorney's fees incurred in resisting any such
claim, demand or liability), arising out of any action or omission before the
Closing by Sellers in, or resulting from, the operation of the business
purchased hereunder.
(b) Sellers shall give Buyer prompt written notice of any such claim
demand or asserted liability and shall permit Buyer to defend against any such
claim, demand or liability by counsel of its or their choice. Sellers shall
cooperate with Buyer in such defense and shall make its books and records and
personnel available to Buyer in connection therewith.
ARTICLE 8. Survival of Warranties
All representations and warranties made herein by any of the parties or
signatories to this Agreement shall survive the date hereof and last until the
expiration of the applicable statute of limitations in such cases made and
provided for.
ARTICLE 9. Restrictive Covenant
(a) Each Seller agrees for himself that for a period of two (2) years
after the date of Closing, he or she will not, directly or indirectly, own,
manage, operate, join, control, or participate in, or become affiliated as an
officer, employee, partner or otherwise in any corporation, partnership or
business entity engaged in the same or similar business as the Company anywhere
in the World other than the Company.
(b) Sellers acknowledge that the remedy at law for any breach of the
foregoing will be inadequate and that the Company and/or Buyer shall be entitled
to injunctive relief.
ARTICLE 10. Brokerage Indemnification
The parties mutually represent and warrant to each other that no broker or
finder was in any way involved with the transactions contemplated by this
Agreement.
ARTICLE 11. Stock Option Agreement With Sellers.
The Buyer will issue to the Fred Silverstein a total of 2,500 Stock
Options to purchase the Buyer's Common Stock at a price of $3.00 per share over
a ten (10) year exercise period at the Closing. The Buyer will make such
adjustments in the Exercise Price and in the number or kind of shares of Common
Stock or other securities covered by the Stock Options as required and exercised
in good faith, to prevent any dilution of the rights of the Seller that
otherwise would result from (a) any stock dividend, stock split combination of
shares, recapitalization or other change in the capital structure of the Buyer,
or (b) any merger, consolidation, spin-off, spin-out, split-up, reorganization,
partial or complete liquidation, or other distribution of assets.
ARTICLE 12. Miscellaneous
A. This Agreement contains the entire understanding between the parties hereto
and there have been no oral or other agreements, representations or warranties
of any kind or nature (i) concerning or relating to the contents of this
Agreement, or (ii) made or given as a condition
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precedent or inducement to the signing of this Agreement, or (iii) otherwise
concerning this Agreement or the subject matter hereof.
B. This Agreement shall be binding upon and inure to the benefit of the parties
and their respective successors, assigns, heirs and or beneficiaries.
C. This Agreement may be executed in one or more counterparts and all such
counterparts shall constitute one and the same instrument.
D. All Schedules and Exhibits referred to in this Agreement shall be deemed to
be annexed hereto and made a part hereof.
E. The construction and performance of this Agreement shall be governed by the
laws of the State of New York.
F. No change, termination or attempted waiver of any of the provisions of this
Agreement shall be binding unless in writing and signed by all parties to this
Agreement. G. The Article headings set forth herein are for reference purposes
only and do not form a material part of this Agreement.
ARTICLE 13. Notice
All notices, requests, demands and other communications required or
permitted to be given (i) hereunder by any party hereto shall be in writing and
shall be deemed to have been duly given when received if delivered personally,
or (ii) on the business day following the business day sent if sent by prepaid
domestically recognized overnight receipted courier if sent domestically, or
(iii) on the third business day following the day sent if sent by prepaid
internationally recognized overnight receipted courier if sent internationally,
or (iv) when receipt telephonically acknowledged if sent by telecopier
transmission on a business day or, if not a business day, on the next following
business day, or (v) when answered back if sent by telex, if on a business day,
or if not a business day, or the next following business day, to the parties at
the following addresses (or at such other addresses as shall be specified by the
parties by like notice) or, (vi) by U.S. registered or certified mail, return
receipt requested, postage prepaid, to the parties at the following addresses
(or at such other addresses as shall be specified by the parties by the like
notice):
If to the Sellers or to the Company, to:
Dr. Fred Silverstein Judith M. Lamattina
460 East 79th Street #17E 275 Seminary Hill Rd.
New York, NY 10021-1443 Carmel, NY 10512
Tel: 212-861-7537
Fax: 212-861-8970
Olga Silverstein
460 East 79th Street #17E
New York, NY 10021-1443
Tel: 212-861-7537
Fax: 212-861-8970
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If to the Buyer, to:
Ergovision, Inc.
One Fairchild Court
Plainview, NY 11803
Attn: Robert B. Greenberg, CEO
Tel: 516-349-1110
Fax: 516-349-9191
and in any case at such other address as the addressee shall have specified by
written notice. All periods of notice shall be measured from the date of
delivery thereof.
ARTICLE 14. Arbitration
A. In the event of any dispute between the parties arising out of the
construction, application, or implementation of this Agreement or any documents
related thereto, the parties shall submit their dispute to binding arbitration
before the American Arbitration Association pursuant to the commercial
arbitration rules then prevailing. Any demand for arbitration shall be in
writing, addressed to the parties affected thereby, in accordance with the
notice provisions of this Agreement.
B. Any arbitration hereunder shall be held at the offices of the American
Arbitration Association in New York County, New York.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as an instrument under seal in multiple counterparts as of the date set
forth above by their duly authorized representatives.
ERGOVISION, INC.
BY: /s/ Robert B. Greenberg
---------------------------------------
Robert B. Greenberg, Chairman and CEO
GILEAD ENTERPRISES, INC.
BY: /s/ Fred Silverstein
---------------------------------------
Fred Silverstein, President
SELLERS:
/s/ Fred Silverstein
-------------------------------------------
Fred Silverstein
/s/ Olga Silverstein
-------------------------------------------
Olga Silverstein
/s/ Judith M. Lamattina
-------------------------------------------
Judith M. Lamattina
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STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of the 12th
day of March, 1999, by and between Ergovision, Inc. (the "Purchaser"), a
Delaware corporation, and Leonard B. Harrington III (the "Seller") an individual
residing at 623 Camellia Circle, Florence, SC 29501
W I T N E S S E T H:
WHEREAS, the Seller has operated a business consisting of selling
eyewear, optical products and accessories over the Internet (the "Business") as
a division of Harrington's of Florence, Inc., a South Carolina corporation; and
WHEREAS, Leonard B. Harrington, Jr. and Kenneth Davenport have
caused Harrington's of Florence, Inc. (Kenneth Davenport, Leonard B. Harrington,
Jr. and Harrington's of Florence, Inc. are hereinafter each a "Principal" and
collectively, the "Principals") to transfer and the Seller has conveyed all of
the Seller's interest in certain assets used in connection with the Business to
EyeGlassPlace.com, Inc. (the "Company"), a Delaware Corporation; and
WHEREAS, the Company has issued and outstanding 100 shares of common
stock, par value $.01 per share (the "Common Stock"), constituting all of the
issued and outstanding capital stock of the Company; and
WHEREAS, the Seller is the holder of all of the issued and
outstanding Common Stock; and
WHEREAS, the Purchaser desires to acquire from the Seller, and the
Seller desires to sell to the Purchaser, one hundred percent (100%) of the
issued and outstanding shares of Common Stock (the "Purchased Shares"), on the
terms and subject to the conditions set forth herein; and
WHEREAS, the Purchaser's acquisition of the Purchased Shares (the
"Acquisition") is intended to be treated as a tax-free reorganization pursuant
to the provisions of Section 368(a) of the Internal Revenue Code of 1986, as
amended.
NOW, THEREFORE, the parties hereto hereby agree as follows:
Article 1.
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
respective meanings set forth below:
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, any successor statute thereto and all final or temporary regulations
promulgated thereunder and generally applicable published rulings entitled to
precedential effect.
"Consulting Agreement" means the agreement between Seller and
Purchaser in the form of Exhibit A hereto.
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"Environment" means soil, surface waters, ground waters, land,
stream, sediments, surface or subsurface strata and ambient air.
"Environmental Condition" means any condition with respect to the
Environment on any Facility, whether or not yet discovered, which could or does
result in any Losses (as defined in Section 9.01 hereof), including any
condition resulting from the operation of the business of the Company or the
operation of the business of any subtenant or occupant of any Facility.
"Environmental Laws" means all Governmental Rules relating to injury
to, or the protection of, real or personal property or human health or the
Environment as in effect prior to the Closing Date, including, without
limitation, all valid and lawful requirements of courts and other Governmental
Bodies pertaining to reporting, licensing, permitting, investigation,
remediation and removal of emissions, discharges, releases or threatened
releases of Hazardous Substances, chemical substances, pesticides, petroleum or
petroleum products, pollutants, contaminants or hazardous or toxic substances,
materials or wastes, whether solid, liquid or gaseous in nature, into the
Environment, or relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Substances,
pollutants, contaminants or hazardous or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature.
"Ergovision Stock" means the Common Stock, par value $0.001 per
share, of the Purchaser.
"Ergovision Stock Price" means, with respect to any business day,
the closing asked price of a share of Ergovision Stock as quoted on the Over the
Counter Bulletin Board System, the NASDAQ National Market System, the NASDAQ
Small Cap Market, or on any national securities exchange on which the Ergovision
Stock is then traded and quoted, for any such day.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, any successor statute thereto and all final or
temporary regulations promulgated thereunder and generally applicable published
rulings entitled to precedential effect.
"Escrow Agent" means Rosenman & Colin LLP.
"Escrow Agreement" means the Escrow Agreement among the Purchaser,
the Seller and the Escrow Agent in substantially the form of Exhibit B hereto.
"Facility" means any facility which is now or has heretofore been
owned or used by the Company.
"GAAP" means generally accepted accounting principles in the United
States of America in effect from time to time.
"Governmental Body" means any federal, state, local or foreign
governmental authority or regulatory body, any subdivision, agency, commission
or authority thereof (including, without limitation, environmental protection,
planning and zoning), or any quasi-governmental or private body exercising any
regulatory authority thereunder (including, without limitation, Network
Solutions, Inc.) and any person directly or indirectly owned by and subject
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to the control of any of the foregoing, or any court, arbitrator or other
judicial or quasi-judicial tribunal.
"Governmental Rules" means any statute, law, treaty, rule, code,
ordinance, regulation, policy, permit, certificate or order of any Governmental
Body or any judgment, decree, injunction, writ, order or like action of any
Governmental Body.
"Hazardous Substances" means any substance:
(a) the presence of which requires notification,
investigation, or remediation under any Environmental Law as in effect prior to
the Closing Date;
(b) which prior to the Closing Date is or becomes defined as a
"hazardous waste", "hazardous material" or "hazardous substance" or "pollutant"
or "contaminant" under any present or future Environmental Law or amendments
thereto including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") (42 U.S.C. Section 9601 et seq.), the
Resource Conservation and Recovery Act ("RCRA") (42 U.S.C. Section 6901 et
seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.) and any Environmental
Law applicable to any jurisdiction in which or from which the Company conducts
or has conducted its business;
(c) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and is
or becomes regulated by any Governmental Body under Environmental Laws prior to
the Closing Date;
(d) without limitation, which contains gasoline, diesel fuel
or other petroleum hydrocarbons or volatile organic compounds;
(e) without limitation, which contains polychlorinated
byphenyls (PCBs) or asbestos or urea formaldehyde foam insulation; or
(f) without limitation, which contains or emits radioactive
particles, waves or materials, including radon gas.
"Lien" means any mortgage, charge, pledge, lien, security interest,
claim, encumbrance or restriction, of any kind or nature.
"Release" means a general release in substantially the form of
Exhibit C hereto to be executed by the Seller and each of the directors and
officers of the Company in favor of the Purchaser.
Article 2.
PURCHASE AND SALE
Section 2.01 Closing. The closing (the "Closing") of the transactions set
forth in Section 2.02 hereof shall take place at 10:00 A.M., at the offices of
Rosenman & Colin LLP, 575 Madison Avenue, New York, New York, within ten (10)
business days of the date hereof, or on such other date as the Purchaser and the
Seller shall agree, but in any event by no later than March 31, 1999.
(Hereinafter, the date on which the Closing shall take place is referred to as
the
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"Closing Date", the time on the Closing Date when the Closing shall take place
is referred to as the "Closing Time" and such offices are referred to as the
"Closing Place.")
Section 2.02 Purchase of the Common Stock and Payment of Purchase Price.
(a) Subject to the terms and conditions and in reliance upon the representations
and warranties herein set forth, the Seller agrees to sell and deliver to the
Purchaser the Purchased Shares, as evidenced by certificates duly endorsed in
blank or accompanied by stock powers executed in blank, with signatures
guaranteed by a commercial bank or trust company, and with all necessary
transfer stamps affixed thereto, free and clear of all Liens, and the Purchaser
agrees to purchase from the Sellers the Purchased Shares in consideration of the
aggregate payment to the Seller of 100,000 shares of Ergovision Common Stock
(the "Purchase Price"). The Seller shall deliver to the Purchaser the Closing
certificates representing all of the Purchased Shares.
(b) The Seller shall deliver to the Escrow Agent at the Closing all
of the shares of Ergovision Common Stock received by the Seller from the
Purchaser as part of the Purchase Price, which shall be held by the Escrow Agent
pursuant to the terms of the Escrow Agreement.
Section 2.03 Tax-Free Reorganization. The parties intend that the
Acquisition be treated as a tax-free plan of reorganization under Section 368(a)
of the Code. The Ergovision Stock issued in the Acquisition will be issued
solely in exchange for the Purchased Shares, and no other transaction (other
than the Acquisition and as provided in this Agreement) is intended to be an
adjustment to the consideration paid for the Purchased Shares. The parties
intend that no consideration that could constitute "other property" within the
meaning of Section 356(a) of the Code is being transferred by the Purchaser for
the Purchased Shares. The parties shall not take a position on any tax return or
before any taxing authority that is inconsistent with this Section 2.03 unless
otherwise required by a final and binding determination or resolution of a
Governmental Body with appropriate jurisdiction, and each party agrees to
promptly notify the other party of any assertion by a taxing authority of a
position that is inconsistent with this Section 2.03. Section
2.04 Power of Attorney. The Seller hereby constitutes and appoints the
Purchaser the true and lawful attorney of the Seller with full power of
substitution, in the name of the Seller or in the name of the Purchaser, for the
benefit of the Purchaser and at no cost, expense or liability to Seller, subject
to Article 9 hereof, (a) to collect, assert or enforce any claim, right or title
of any kind in or to the Assets, to institute and prosecute all actions, suits
and proceedings which the Purchaser may reasonably deem proper in order to
collect, assert or enforce any such claim, right or title, and to do all such
acts and things in relation thereto as the Purchaser shall reasonably deem
advisable and (b) to take all action which the Purchaser may reasonably deem
proper in order to provide for the Purchaser the benefits of or under any of the
Assets where any required consent of a third party to the assignment thereof to
the Purchaser shall not have been obtained. The Seller acknowledges that such
powers are coupled with an interest and shall not be revocable by it in any
manner or for any reason, and that the Purchaser shall be entitled to retain for
its own account any amounts collected pursuant to such powers, including any
amounts payable as interest in respect thereof.
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Article 3.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Purchaser, that:
Section 3.01 Organization and Good Standing. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware on the date hereof and has the corporate power and authority
to own or lease all of its properties and assets and to carry on its business as
it is now being conducted.
Section 3.02 Foreign Qualification. The Company is not licensed or
qualified to do business as a foreign corporation in any jurisdiction, and the
character and location of the assets owned or leased by the Company and the
nature or conduct of the Company's business as it is now being conducted do not
make such license or qualification necessary.
Section 3.03 Capitalization; Authority of Seller. (a) The Seller has good
and valid title to all issued and outstanding shares of the Common Stock of the
Company free and clear of all Liens.
(b) The Seller has the power and authority to execute and deliver
this Agreement, the Escrow Agreement, the Release executed by the Seller and all
other documents hereby contemplated to be executed by the Seller, to consummate
the transactions hereby and thereby contemplated and to take all other actions
required to be taken by him pursuant to the provisions hereof and thereof. The
execution, delivery and performance of this Agreement and all other documents
hereby contemplated to be executed by the Seller and the Principals has been,
and the consummation by the Seller of the transactions hereby and thereby
contemplated has been, duly authorized by all necessary action, corporate or
otherwise, of the Seller and the Principals. This Agreement and all other
documents hereby contemplated to be executed by the Seller and/or the Principals
constitute the legal, valid and binding obligations of the Seller and/or the
Principals, as applicable, enforceable against the Seller and/or the Principals
in accordance with their respective terms.
Section 3.04 Corporate Instruments. The Seller has heretofore made
available to the Purchaser true and complete copies of the Certificate of
Incorporation, the By-laws and the stock transfer books of the Company.
Section 3.05 Capitalization; Options; Common Stock. (a) The Company is
authorized to issue only 100 shares of Common Stock, par value $0.01 per share,
all of which shares of Common Stock are issued and outstanding. There are no
other series or classes of capital stock of the Company authorized or issued.
(b) There are no outstanding warrants, options, contracts,
rights (pre-emptive or otherwise), calls, commitments or demands of any
character relating to any authorized and issued or unissued shares of the
capital stock of the Company or other instruments convertible into or
exchangeable for such stock, or which obligate the Company to seek authorization
to issue additional shares of any class of stock, nor will any be created by
virtue of this Agreement or the transactions hereby contemplated.
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(c) The Common Stock owned by the Seller has been duly
authorized and legally and validly issued, is fully paid and nonassessable, and
represents all of the issued and outstanding shares of capital stock of the
Corporation. None of the Common Stock has been issued in violation of the
securities or blue sky laws of the United States of America or any state or
territory thereof.
Section 3.06 No Violation of Other Instruments or Obligations. The
execution and delivery by the Seller of this Agreement or any other documents
hereby contemplated the consummation of the transactions hereby and thereby
contemplated by the Seller shall not (i) constitute any violation or breach of
the Certificate of Incorporation or the By-laws of the Company, (ii) constitute
a default under or a violation or breach of, or result in the acceleration of
any obligation under, any provision of any contract, mortgage or other
instrument to which the Seller or the Company is a party or by which any of its
assets may be affected or secured, (iii) violate any Governmental Rule affecting
the Company or any of its assets, (iv) result in the creation of any Lien on any
of the assets or properties of the Company, or (v) result in the termination of
any license, franchise, lease or permit to which the Company is a party or by
which it is bound.
Section 3.07 Compliance with Law; Consents and Approvals. The Company has
complied in all material respects with all Governmental Rules (including,
without limitation, any federal, state or local laws, rules or regulations
regulating the safety of the workplace and/or the discharge of materials into
the environment or otherwise relating to the protection of the environment)
applicable to the Company or the Business as conducted on and prior to the date
hereof. The Company has maintained in full force and effect all licenses,
approvals, permits and consents for the lawful conduct of the Business. Neither
the Company nor the Seller is in violation of any Governmental Rule applicable
to the Seller or the Company, and has not received any notice of any such
violation. Except as set forth on Schedule 3.07 hereof, no authorization,
approval, order, license, permit, franchise or consent, and no registration,
declaration, notice or filing by or with any domestic or foreign Governmental
Body (including, without limitation, any filing or registration pursuant to the
securities or blue sky laws of the United States of America or any state or
territory thereof) by the Company is required in connection with the execution
and delivery by the Seller of this Agreement and the consummation by the Seller
and the Principals of the transactions hereby contemplated.
Section 3.08 Financial Statements. Schedule 3.08 hereto contains (i) the
unaudited sales report of the Business as of December 31, 1998 (the "December
Statement"), for the year then ended and (ii) the unaudited sales report of the
Business as of February 28, 1999 (the "February Statement"), for the two-month
period then ended, all of which have been certified by the Company's president
and delivered to the Purchaser. Such sales reports present fairly, in all
material respects, the sales of the Business as of December 31, 1998 and
February 28, 1999, respectively, and the results of the Business' sales for the
year ended December 31, 1998 and the two-month period ended February 28, 1999.
Section 3.09 Accounts Receivable. Except to the extent of the amount of
the reserve for doubtful accounts reflected on Schedule 3.09, all the Accounts
Receivable of the Business reflected therein and all accounts receivable that
have arisen since the December Statement and February Statement (except Accounts
Receivable that have been collected since such date) are valid and enforceable
claims, and constitute bona fide accounts receivable resulting from the sale of
goods and services in the ordinary course of the Business' business. The
Accounts Receivable are subject to no valid defense, offsets, returns,
allowances or credits of any kind, and are fully
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collectible within 90 days from their due date, except to the extent of the
amount of the reserve, if any, for doubtful accounts reflected on Schedule 3.09.
Except for Accounts Receivable, neither the Business nor the Company has made
any loan or advance to any person.
Section 3.10 Liabilities, Borrowings and Guarantees. The Company has no
debts, liabilities or other obligations, accrued, absolute, contingent or
otherwise, due or to become due, other than liabilities disclosed or provided
for on Schedule 3.10 and liabilities incurred since February 28, 1999, in the
ordinary and usual course of its business consistent with past practice, but in
no event aggregating more than $5,000 collectively.
Section 3.11 Title to Assets; Inventories. (a) Except for Liens (i) for
any current taxes or assessments not yet delinquent or (ii) created by statute
of carriers, warehousemen, mechanics, laborers and materialmen incurred in the
ordinary course of business for sums not yet due, the Company has good and
marketable title, free and clear of all Liens, to all of its assets and personal
property.
(b) All inventories reflected on Schedule 3.11, are, and all
inventories owned by the Company as of the Closing Time shall be (i) valued at
the lower of cost or market value on a first-in, first-out basis in accordance
with GAAP and (ii) current and readily merchantable, containing no material
amount of obsolete or damaged goods which have not been written down or reserved
in conformity with GAAP. No inventory is held on consignment by the Company, as
consignee or consignor. To the Seller's knowledge, all inventory included in the
Assets is free of any material defect or other deficiency.
Section 3.12 Real Property; Leases. Except as set forth on Schedule 3.12,
the Company does not own or lease any real property.
Section 3.13 Litigation. There are no claims, actions, suits, litigations,
proceedings, audits, controversies or investigations, pending or, to the
knowledge of the Seller, threatened against or affecting the Company or any of
its assets, and the Company has not been charged with or, to the knowledge of
the Seller, threatened with a charge of any violation of, and is not under
investigation with respect to a possible violation of, any provision of any
federal, state or local law or administrative ruling or regulation relating to
its business.
Section 3.14 Taxes. (a) The Company has timely and duly filed (giving
effect to extensions duly taken) all federal, state, local or foreign tax
returns or reports required to be filed by or with respect to the Company on or
prior to the Closing Date.
(b) The tax returns and reports described in subparagraph (a)
above reflect accurately all liability for taxes, charges, fees, levies or other
assessments of any nature whatsoever (including, without limitation, all
federal, state, local and foreign income taxes, estimated taxes, excise taxes,
sales taxes, use taxes, transfer taxes, gross receipts taxes, franchise taxes,
employment and payroll related taxes, property taxes and import duties, whether
or not measured in whole or in part by net income), together with any related
penalties, interest and additions to taxes (any of the foregoing being referred
to herein as a "Tax"), for the periods covered thereby. The Company has paid all
Taxes required to be paid by it with respect to the periods covered by the
returns and reports described in subparagraph (a) above. The Company has fully
collected, withheld and/or paid over all Taxes required to be collected,
withheld and/or paid over to a taxing authority.
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(c) The Company is not currently being audited by any taxing
authority with respect to the returns and reports described in subparagraph (a)
above and there are no claims or assessments pending against the Company. The
Company has not agreed to waive or extend the statute of limitations with
respect to any Taxes or tax returns and has not filed any consent under section
341(f) of the Code (or any corresponding provision of state, local or foreign
tax law). No written claim has ever been made by a taxing authority in a
jurisdiction where the Company does not presently file Tax returns that the
Company is or may be subject to taxation by that jurisdiction. Accurate, correct
and complete copies of all tax returns and reports filed by the Company during
the five-year period preceding the Closing Date have been made available to the
Purchaser. Accurate, correct and complete copies of any closing agreements with
respect to the Company which were entered into with the Internal Revenue Service
or any other taxing authority have heretofore been furnished to the Purchaser.
Section 3.15 Insurance. The Company has insurance for its assets and
operations in amounts and for coverages customary for businesses of its kind and
size. Schedule 3.15 hereto is a complete and correct list of all policies of
insurance carried by the Company or pursuant to which the Company is a named
beneficiary or pursuant to which the business or assets of the Company are
insured and true and complete copies of which have been provided to the
Purchaser. All of such policies are in full force and effect, all premiums due
and payable in respect of such policies have been paid in full, and there exists
no default or other circumstance which would create the substantial likelihood
of the cancellation or non-renewal of any such policy. The Company has notified
such insurers of any claim known to the Company which it believes is covered by
any such insurance policy and has provided the Purchaser with a copy of such
claim.
Section 3.16 Labor Disputes. The Company is not party to a union agreement
and there are no labor unions or other organizations representing or attempting
to represent any employee of the Company. There are no work stoppages or other
labor disputes, disturbances, grievances or claims pending or, to the knowledge
of the Seller, threatened in connection with the employees of the Company. There
is no unfair labor practice charge or complaint pending or, to the knowledge of
Seller, threatened against the Company before the National Labor Relations Board
or any State Labor Relations Board. There are no claims of discrimination of any
kind pending or, to the knowledge of Seller, threatened against the Company
before any Governmental Body.
Section 3.17 Customers. Schedule 3.17 hereto is a complete and accurate
list of all agreements, understandings and commitments with all customers of the
Company.
Section 3.18 Contracts. Schedule 3.18 contains a complete and correct list
of all contracts, arrangements and agreements in effect on the date hereof (the
"Contracts") to which the Company is a party, whether written or oral, including
but not limited to agency or advertising contracts, agreements with employees,
sales representatives, suppliers, wholesalers, manufacturers and distributors,
arrangements with web hosting service providers, website designers, software
vendors or licensors, computer or technical service providers, and agreements
with factors, banks or other lending institutions. A true and complete copy of
each written Contract, and a complete and correct summary of each oral Contract,
has heretofore been made available to the Purchaser. The Company has performed
all of its obligations required to be performed by it, has paid all amounts
required to be paid by it and is not in default in any material respect under
any Contract, and no event has occurred which, with the lapse of time or the
giving of notice or both, would constitute such a default, and no other party to
any Contract is
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in default in any material respect thereunder. Each of the Contracts constitutes
a legal, valid and binding obligation of the Company and the other parties
thereto enforceable in accordance with its terms. Neither the Seller nor the
Company has received notice that any other party to any of the Contracts is in
default thereunder. None of the Contracts requires the consent of a third party
in connection with the transactions contemplated hereby.
Section 3.19 Intellectual Property. (a) The Company owns free and clear of
all Liens, possesses and has the exclusive right to use, all patents, patent
applications, patent rights, trademarks, trademark applications, trade names,
service marks, service mark applications, domain names, domain name
applications, copyrights, copyright registrations, know-how, licenses, trade
secrets, proprietary processes, computer programs and other computer software,
technology and formulae (the "Proprietary Rights") necessary, required or
desirable for the conduct of its business as presently conducted or as proposed
to be conducted. All Proprietary Rights are identified on Schedule 3.19 hereto.
The Company owns and has the sole and exclusive right to use each of the
Proprietary Rights for the categories of goods and services with respect to
which such Proprietary Rights are registered to the extent that such goods and
services are currently being used. The Seller (i) is not bound by or a party to
any options, licenses, or agreements of any kind with respect to the Proprietary
Rights and (ii) has not assigned, licensed or in any manner encumbered or
impaired any rights in the Proprietary Rights. No Proprietary Right infringes or
violates any personal, property, statutory or common law or any other rights of
any third parties (including, without limitation, copyright, trademark and the
rights of privacy and publicity), and no claim alleging any such infringement or
violation by the Company or its Proprietary Rights has been received by the
Seller or the Company.
(b) No royalties, honoraria or fees are payable to and no
consents or approvals are needed from any third persons or entities in
connection with the ownership, use or exploitation of the Proprietary Rights in
the ordinary course of the Company's business.
Section 3.20 Software. (a) Schedule 3.20 sets forth a complete and
accurate list of all software programs, systems and applications (i) designed or
developed (or in the process of being designed or developed) by employees of the
Company or by consultants on the Company's behalf (the "Company Owned Software")
or (ii) licensed by the Company from any third party (other than "off-the-shelf"
software) (the "Licensed Software") pursuant to the License Agreements specified
on Schedule 3.18, in each case that is manufactured, developed or used by the
Company in the operation of the Company's business or integrated into the
Company Owned Software or marketed, licensed or sold by the Company to third
parties (collectively, the "Software").
(b) All of the Company Owned Software are original works of
authorship and are protected by the copyright laws of the United States. The
Company owns all right, title and interest in and to the Company Owned Software,
free and clear of any Liens and, except as set forth on Schedule 3.20 hereof,
has not sold, assigned, licensed, distributed or in any other way disposed of
the Company Owned Software or subjected the Company Owned Software to any Lien,
and none of the employees or consultants referenced in Section 3.20(a) has any
interest or claim whatsoever to any of the Company Owned Software or any
component or constituent part thereof.
(c) The Licensed Software is validly held and used by the
Company and is fully and freely utilizable by the Company pursuant to the
license agreement with respect thereto without the consent of or notice to any
third party. The Company is in compliance with
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all material terms and conditions of each license with respect to the Licensed
Software, and neither the Seller nor the Company has received any notice that
the Company is in breach of any such license.
(d) To the best of Seller's knowledge, the Software does not
contain any copy protection, computer virus, malicious code or destructive
feature.
Section 3.21 Year 2000. All Software is designed to be used prior to,
during, and after calendar year 2000 and the Software will operate during each
such time period without error relating to date data, specifically including any
error relating to, or the conduct of, date data which represents or references
different centuries or more than one century. Without limiting the generality of
the foregoing, (a) the Software will not abnormally end or provide invalid or
incorrect results as a result of date data and (b) the Software will be capable,
upon installation, of accurately processing, providing and/or receiving date
data from, into, and between the twentieth and twenty-first centuries, including
the years 1999 and 2000, and leap year calculations, and (ii) the Software will
lose no functionality with respect to the introduction of records containing
dates falling before, on or after January 1, 2000, and that the Software will be
interoperable with other software and systems that may deliver records to,
receive record from or otherwise interact with the Software, including but not
limited to, back-up and archived data, date data, century recognition
calculations that accommodate same century and multi-century formulas and date
values and date data interface values that reflect the century.
Section 3.22 Licenses and Permits. The Company has all licenses, permits,
consents and approvals necessary for the Company to conduct its business as
required by any Governmental Body, and all such licenses, permits, consents and
approvals are set forth in Schedule 3.22 hereto.
Section 3.23 ERISA. (a) Except as set forth on Schedule 3.23 hereto, the
Company does not maintain, administer or contribute to, nor has it maintained,
administered or contributed to, nor do the employees of the Company receive or
expect to receive as a condition of employment, benefits pursuant to any:
employee pension benefit plan (as defined in Section 3(2) of the Employment
Retirement Income Security Act of 1974, as amended ("ERISA")) (a "Plan"),
including, without limitation, any multiemployer plan as defined in Section
3(37) of ERISA (a "Multiemployer Plan"); employee welfare benefit plan (as
defined in Section 3(1) of ERISA) (a "Welfare Plan"); or bonus, deferred
compensation, stock purchase, stock option, severance plan, salary continuation,
vacation, sick leave, fringe benefit, incentive, insurance, welfare or similar
arrangement (an "Employee Benefit Plan"). Neither the Company nor any affiliate
of the Company as determined under the Internal revenue Code of 1986, as amended
(the "Code") section 414(b), (c), (m) or (o) (an "ERISA Affiliate") maintains,
administers or contributes to, nor have any of them maintained, administered or
contributed to, nor do the employees of the Company or any ERISA Affiliate
receive or expect to receive as a condition of employment, benefits pursuant to
any Plan which is subject to section 412 of the Code or Title IV of ERISA. All
Plans, Welfare Plans and Employee Benefit Plans and any related trust agreements
or annuity contracts comply in all material respects with and are and have been
operated in accordance with each applicable provision of ERISA and the Code
(including, without limitation, requirements of Code 401(a) to the extent any
Plan is intended to conform to that section), other Federal statutes, state law
(including, without limitation, state insurance law) and the regulations and
rules promulgated pursuant thereto or in connection therewith. Neither the
Company nor any ERISA Affiliate has any notice or knowledge of any violation of
any of the foregoing by any Plan, Welfare Plan, or Employee Benefit Plan.
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(b) Each Welfare Plan which is a group health plan (within the
meaning of section 5000(b)(1) of the Code) complies with and has been maintained
and operated in all material respects in accordance with the requirements of
section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA. There
are no pending or, to the Company's knowledge, threatened claims against any of
the Plans, Welfare Plans, or Employee Benefit Plans by any employee or
beneficiary covered under any Plans, Welfare Plans or Employee Benefit Plans or
otherwise involving any Plan, Welfare Plan or Employee Benefit Plan (other than
routine claims for benefits).
Section 3.24 Employees and Other Matters. Schedule 3.24 hereto is a
correct and complete list of (i) the directors and officers of the Company and
all of the present employees, sales personnel and independent contractors
regularly employed by or in connection with the business of the Company, either
as employees or independent contractors, together with a statement of the full
amount payable by way of salary, bonuses, perquisites, fringe benefits and other
direct or indirect compensation to each such person and (ii) the names of all
persons, if any, holding powers of attorney from the Company and a summary
statement of the terms thereof.
Section 3.25 Transfer of Assets. (a) Pursuant to the agreements,
certificates, filings and other documents between the Seller and the Principals
and the Company (collectively, the "Transfer Documents"), copies of which have
been provided to the Purchaser, the Seller and the Principals have, on or prior
to the date hereof, permanently, absolutely and irrevocably transferred,
assigned, conveyed and delivered to the Company all of the Seller's and the
Principals' right, title and interest in and to (the "Transfer") the following
assets (collectively, the "Assets"):
(i) all trade and other accounts receivable related to
the Company which are listed on Schedule 3.25(a)(i);
(ii) all inventory, including goods in transit,
containers, packaging and supplies, catalogues,
brochures, advertising, sales and promotional materials,
labels and stationery related to or used in connection
with the Company's business which are listed on Schedule
3.25(a)(ii);
(iii) all fixed assets, including spare parts,
maintenance parts and supplies used in connection with
the Company's business which are listed on Schedule
3.25(a)(iii);
(iv) all rights of the Seller and the Principals with
respect to the Company's business under all contracts,
leases, licenses, permits, arrangements, agreements and
commitments to which they and/or the Company is a party,
including prepaid expenses and security deposits
thereunder, listed on Schedule 3.25(a)(iv);
(v) all rights of the Seller and the Principals to the
Proprietary Rights and the Software relating to the
Company's business which are listed on Schedules
3.25(a)(v) and 3.25(a)(vi), respectively;
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(vi) all customer lists, supplier lists and other data
relating to the Company's business which are, including,
without limitation, those listed on Schedule
3.25(a)(vii) hereto; and
(vii) all business and goodwill, including the right of
Purchaser to use the names "SunglassSource,"
"EyeGlassPlace" and all variations and derivations
thereof and the phone number of the Company.
(b) The sale, transfer and delivery by the Seller and the
Principals of the Assets to the Company pursuant to the Transfer Documents
shall, except as hereinafter provided, be made free and clear of all Liens. The
Transfer Documents constitute all of the actions necessary, and no other
consents, filings, notices or instruments need to be executed or delivered, in
connection with the Transfer and to vest in the Company all right, title and
interest in and to the Assets.
(c) The Company shall not assume any liabilities, debts or
obligations of the Principals.
(d) The Seller and the Principals each have the power and
authority to execute and deliver the Transfer Documents and all other documents
to be executed by the Seller or the Principals to consummate the transactions
thereby contemplated and to take all other actions required to be taken by each
of them pursuant to the provisions thereof. The execution, delivery and
performance of the Transfer Documents and all other documents thereby
contemplated to be executed by each of the Seller and the Principals has been,
and the consummation by the Seller and the Principals of the transactions
thereby contemplated has been, duly authorized by all necessary action,
corporate or otherwise, of the Seller and each of the Principals, as applicable.
The Transfer Documents and all other documents thereby contemplated to be
executed by the Seller and the Principals constitute the legal, valid and
binding obligations of the Seller and the Principals, enforceable against the
Seller and the Principals in accordance with their respective terms.
(e) Neither the execution and delivery by the Seller or any of
the Principals of the Transfer Documents or any other documents thereby
contemplated nor the consummation of the transactions thereby contemplated by
the Seller or any of the Principals shall (i) constitute any violation or breach
of the Certificate of Incorporation or the By-laws of Harrington's of Florence,
Inc. or the Company, (ii) constitute a default under or a violation or breach
of, or result in the acceleration of any obligation under, any provision of any
contract, agreement, arrangement, mortgage or other instrument to which the
Seller or any of the Principals is a party or by which any of the Assets may be
affected or secured, (iii) violate any Governmental Rule affecting the Seller or
any of the Principals or any of the Assets, (iv) result in the creation of any
Lien on any of the Assets, or (v) result in the termination of any license,
franchise, lease or permit comprising any of the Assets or to which the Seller
or any of the Principals is a party or by which it is bound.
(f) The Company is a sole purpose entity formed solely for
participation in the Transfer Documents, ownership of the Assets transferred
thereby and the conduct of its business in the ordinary course in accordance
with past practice. Except as contemplated by this Agreement or the Transfer
Documents, the Company has not engaged in any activity or become party to or
bound by any contract, agreement, arrangement, mortgage or other instrument.
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Section 3.26 Environmental Matters. (a) The Company has obtained and
continues to maintain all permits, licenses, consents and approvals (the
"Environmental Approvals"), if any, necessary for conducting the business of the
Company which are required under Environmental Laws, and the Company has not
operated in violation of any Environmental Law or the terms of any Environmental
Approval.
(b) (i) The Company has not used, stored, generated,
discharged, emitted, transported, disposed of or treated Hazardous Substances
except in a manner which complies with Environmental Laws, (ii) to the best
knowledge of the Seller or the Principals, no prior owner, occupant, tenant or
user of any Facility has ever used, stored, generated, discharged, emitted,
transported, disposed of or treated Hazardous Substances, at, on or from any
Facility except in compliance with all Environmental Laws, and (iii) to the best
knowledge of the Seller or the Principals, there is not, and there has not been,
any Environmental Condition or release or threat of release (as those terms are
defined in Section 101 of CERCLA) of Hazardous Substances at, on or from any
Facility.
(c) Neither the Company nor the Seller has received written
notice of any pending or threatened investigation, claims, enforcement
proceedings, cleanup orders, citizen suits or other actions instituted by any
private party, employee or Governmental Body arising out of the conduct or the
operations of the Company, in connection with any Environmental Laws, or as a
result of any Environmental Condition at any Facility.
Section 3.27 Sales Target. The net sales generated by the Business ("Net
Sales") for the eleven months ended December 31, 1998, were at least $130,000
(exclusive of shipping charges), and including sales through February 28, 1999
will be at least $160,000 (exclusive of shipping charges).
Section 3.28 Ordinary Course; No Material Adverse Change. Since February
28, 1999, the Seller and the Principals have conducted the Business and the
Company's business in the ordinary and regular course thereof and there has not
been (i) any material adverse change in the assets, business, prospects,
financial condition or results of operations of the Business or the Company,
(ii) any damage, destruction or loss, whether or not covered by insurance, which
has materially adversely affected the Business or the assets or the business of
the Company or (iii) any event or condition of any character whatsoever the
occurrence of which affects or threatens to materially adversely affect the
assets, business, prospects, financial condition or results of operations of the
Business or the Company.
Section 3.29 Finder's Fees. Neither the Seller nor the Company has
incurred any liability for finder's or brokerage fees or agent's commissions in
connection with this Agreement or the transactions hereby contemplated.
Section 3.30 Full Disclosure. No representation or warranty of the Company
or the Seller in this Agreement or in any other certificate, schedule or other
document delivered to the Purchaser pursuant to this Agreement contains an
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements herein and therein not misleading in light of
the circumstances in which they were made.
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Article 4.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller that:
Section 4.01 Organization and Good Standing. The Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the corporate power and authority to own or
lease all of its properties and assets and carry on its business as it is now
being conducted.
Section 4.02 Authority Relative to Agreement. The Purchaser has the
corporate power and authority to execute and deliver this Agreement, the Escrow
Agreement and all other documents hereby contemplated, to consummate the
transactions hereby and thereby contemplated and to take all other actions
required to be taken by it pursuant to the provisions hereof and thereof. The
execution, delivery and performance of this Agreement and all other documents
hereby contemplated to be executed by the Purchaser has been, and the
consummation by the Purchaser of the transactions hereby and thereby
contemplated has been, duly authorized by any and all necessary corporate action
of the Purchaser. This Agreement and all other documents hereby contemplated to
be executed by the Purchaser constitute the legal, valid and binding obligations
of the Purchaser, enforceable against the Purchaser in accordance with their
respective terms.
Section 4.03 No Violation of Other Instruments or Obligations. Neither the
execution and delivery of this Agreement or any other documents hereby
contemplated nor the consummation of the transactions hereby and thereby
contemplated shall (i) constitute any violation or breach of the Certificate of
Incorporation or By-laws of the Purchaser, (ii) constitute a default under or a
violation or breach of, or result in acceleration of any obligation under, any
provision of any contract, lease, mortgage or other instrument to which it is a
party, or (iii) violate any judgment, order, writ, injunction, decree, statute,
rule or regulation affecting the Purchaser or any of its assets.
Section 4.04 Consents and Approvals. No authorization, approval, order,
license, permit, franchise or consent, and no registration, declaration, notice
or filing by or with any domestic or foreign Governmental Body by the Purchaser
is required in connection with the execution and delivery of this Agreement and
the consummation of the transactions hereby contemplated.
Section 4.05 Common Stock. The Ergovision Stock to be issued pursuant to
the provisions of this Agreement will, upon such issuance, be duly authorized,
legally and validly issued, and fully paid and nonassessable.
Section 4.06 Finder's Fees. The Purchaser has not incurred any liability
for finder's or brokerage fees or agent's commissions in connection with this
Agreement or the transactions hereby contemplated.
Section 4.07 Full Disclosure. No representation or warranty of the
Purchaser in this Agreement or in any other certificate, schedule or other
document delivered to the Seller pursuant to this Agreement contains any untrue
statement of a material fact or omits to state a
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material fact necessary in order to make the statements herein and therein not
misleading in light of the circumstances in which they were made.
Article 5.
CONDITIONS TO THE PURCHASER'S OBLIGATIONS
All obligations of the Purchaser under this Agreement are subject to
the fulfillment of each of the following conditions:
Section 5.01 Consulting Agreement. The Seller shall have entered into a
consulting agreement substantially in the form of Exhibit A hereto.
Section 5.02 Powers of Attorney. There shall have been terminated or
revoked all powers of attorney of the Company.
Section 5.03 Escrow Agreement. The Seller, Purchaser and the Escrow Agent
shall enter into an Escrow Agreement substantially in the form of Exhibit B
hereto.
Section 5.04 Releases. The Seller shall have executed and delivered the
Releases.
Section 5.05 Non-Competition Agreement. The Seller shall have entered into
a non-competition agreement substantially in the form of Exhibit D hereto.
Section 5.06 Resignations. The Seller shall have caused to be delivered to
the Purchaser written resignations, effective as of the Closing, of each of the
directors and officers of the Company from all offices and directorships of the
Company held.
Section 5.07 Governmental Permits and Approvals; Consents. The Company
shall have obtained (with the reasonable assistance of Buyer to the extent
required to obtain such approvals) (i) all permits and approvals from any
Governmental Body required to be obtained by the Company for the lawful
consummation of the Closing and (ii) the consents set forth or required to be
set forth on Schedule 3.08. Notwithstanding the foregoing, the Company shall not
be required to pay any consideration to any third party in order to obtain any
such permit, approval, consent or estoppel representation letter.
Section 5.08 Assignment of Contracts. The Company shall obtain (with the
reasonable assistance of the Buyer to the extent necessary to obtain such
consents) the consent of all other parties to an assignment of any Contract in
all cases in which such consent is required thereunder. Notwithstanding the
foregoing, the Company shall not be required to pay any consideration to any
third party in order to obtain any such consent.
Section 5.09 Officer's Certificate. The Seller shall have caused to be
delivered to Purchaser a certificate signed by the Chief Executive Officer
and/or the Secretary of the Company stating that (a) the representations and
warranties of the Company as set forth in Article 3 hereof are true and accurate
on and as of the Closing Date and (b) all conditions of the Purchaser's
obligations as set forth in Article 5 hereof have been entirely fulfilled by the
Seller.
Section 5.10 Additional Documents. The Seller has executed and delivered
such additional closing documents, certificates and agreements as Purchaser may
reasonably request.
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Article 6.
CONDITIONS TO THE SELLER'S OBLIGATIONS
All obligations of the Seller under this Agreement are subject to
the fulfillment of each of the following conditions:
Section 6.01 Consulting Agreement. The Purchaser shall have entered into a
consulting agreement with the Seller substantially in the form of Exhibit A
hereto.
Section 6.02 Escrow Agreement. The Seller, Purchaser and the Escrow Agent
shall enter into an Escrow Agreement substantially in the form of Exhibit B
hereto.
Section 6.03 Officer's Certificate. The Purchaser shall have caused to be
delivered to the Seller a certificate signed by the Chief of Executive Officer
and/or the Secretary of the Purchaser stating that (a) the representations and
warranties of the Purchaser as set forth in Article 4 hereof are true and
accurate on and as of the Closing Date and (b) all conditions of the Seller's
obligations as set forth in Article 6 hereof have been entirely fulfilled by the
Purchaser.
Section 6.04 Additional Documents. The Purchaser has executed and
delivered such additional closing documents, certificates and agreements as the
Seller may reasonably request.
Article 7.
COVENANTS
Section 7.01 Further Assurances. From and after the date hereof, the
Seller shall, at any time and from time to time, at his sole cost and expense,
make, execute and deliver, or cause to be made, executed and delivered, such
assignments, deeds, drafts, checks, stock certificates, returns, filings and
other instruments, agreements, consents and assurances and take or cause to be
taken all such actions as counsel for the Purchaser may reasonably request for
the effectual consummation, confirmation and particularization of this Agreement
and the transactions hereby contemplated.
Section 7.02 Collection of Receivables. After the Closing Date, the Seller
will use reasonable efforts to assist the Purchaser in collection procedures in
order to collect all receivables of the Company outstanding as of the Closing
Date so as not to jeopardize Purchaser's future customer relations. In the event
that the Seller receives any amounts after the Closing Date in respect of the
Company's accounts receivable that existed prior to the Closing Date, the Seller
agrees to promptly forward all such amounts to the Purchaser.
Article 8.
INVESTMENT INTENT; RESTRICTIONS ON TRANSFER
Section 8.01 Investment Representation. The Seller (i) represents and
warrants to the Purchaser that he is acquiring all of the shares of Ergovision
Stock to be issued to him pursuant to the provisions of this Agreement for his
own account and for the purposes of investment and not with a view to, or for
sale in connection with, any distribution thereof, and (ii) agrees that he
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will not at anytime sell or otherwise transfer, or permit the sale or other
transfer of, such shares of Ergovision Stock other than in transactions that are
not in violation of the Securities Act of 1933 or the provisions of any other
applicable securities laws, rules or regulations.
Section 8.02 Stock Legend. All certificates representing shares of
Ergovision Stock to be delivered to the Seller under this Agreement shall bear
the following legend:
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or under the securities laws of any
state and may not be sold, assigned, transferred, pledged or otherwise
disposed of except in compliance with, or pursuant to an exemption from,
the requirements of such Act or such laws."
Article 9.
INDEMNIFICATION
Section 9.01 By the Seller. The Seller agrees to indemnify and hold
harmless the Purchaser and its directors, officers, employees and agents (the
"Purchaser Parties") against, and to reimburse the Purchaser Parties on demand
with respect to, any and all losses, liabilities, obligations, suits,
proceedings, demands, judgments, damages, claims, expenses and costs (including,
without limitation, reasonable fees, expenses and disbursements of counsel)
(collectively, "Losses") which each may suffer, incur or pay by reason of (i)
the breach by the Seller of any representation or warranty made by him in this
Agreement or in any agreement, certificate or other document executed by the
Seller and delivered to the Purchaser pursuant to the provisions of this
Agreement; (ii) the failure of the Seller to perform any agreement required by
this Agreement or any agreement executed pursuant to the provisions of this
Agreement; (iii) the allegation by any third party of the existence of any
liability, obligation, lease, agreement, contract, other commitment or state of
facts which, if such allegation were true, would constitute a breach by the
Seller of any representation or warranty made by him in this Agreement or in any
agreement, certificate or other document delivered by or on behalf of the Seller
to the Purchaser pursuant to the provisions of this Agreement or of any covenant
made by the Seller herein or therein.
Section 9.02 By the Purchaser. The Purchaser agrees to indemnify and hold
harmless the Seller against, and to reimburse the Seller on demand with respect
to, any and all Losses which the Seller may suffer, incur or pay by reason of
(i) the breach by the Purchaser of any representation or warranty made by it in
this Agreement or in any agreement, certificate or other document executed by
the Purchaser and delivered to the Seller pursuant to the provisions of this
Agreement; (ii) the failure of the Purchaser to perform any agreement required
by this Agreement or any agreement executed pursuant to the provisions of this
Agreement; and (iii) the allegation by any third party of the existence of any
liability, obligation, lease, agreement, contract, other commitment or state of
facts which, if such allegation were true, would constitute a breach by the
Purchaser of any representation or warranty made by it in this Agreement or in
any agreement, certificate or other document delivered by or on behalf of the
Purchaser to the Seller pursuant to the provisions of this Agreement or of any
covenant made by the Purchaser herein or therein.
Section 9.03 Indemnification Procedure. The Purchaser Parties, in the case
of Section 9.01 hereof, and the Seller, in the case of Section 9.02 hereof
(hereinafter, the applicable party or
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parties providing indemnity, the "Indemnifying Party" and the party or parties
being indemnified, the "Indemnified Party") agree to give the Indemnifying Party
prompt written notice of the allegation by any third party of the existence of
any liability, obligation, lease, agreement, contract, other commitment or state
of facts referred to in clause (iii) of Sections 9.01 and 9.02 hereof, as
applicable. The Indemnifying Party shall be entitled, at his or its sole cost
and expense, to participate in and to control the contest, defense, settlement
or compromise of any claim if the Indemnifying Party shall agree in writing
within 15 days after the receipt of notice of such claim that it is required,
pursuant to this Article 9, to indemnify the Indemnified Party for the full
amount of such claim (the "Claim Acknowledgement Procedure"). If the
Indemnifying Party shall assume the defense of a claim hereunder, the
Indemnified Party shall be kept informed with respect to, and shall have the
right to participate in, the contest, defense, settlement or compromise of any
such claim. If the Indemnifying Party does not assume the defense of a claim
within a reasonable time after notice thereof or, after assumption, does not
thereafter diligently pursue such defense or does not comply with the Claim
Acknowledgement Procedure, the Indemnified Party shall be entitled to defend,
settle or compromise such matter for the account and at the expense of the
Indemnifying Party. Notwithstanding the foregoing provisions of this Section
9.03, the Indemnified Party shall have the sole right to control the contest,
defense, settlement or compromise of any claim if such claim is not a claim
solely for monetary damages.
Article 10.
MISCELLANEOUS
Section 10.01 Survival of Representations and Warranties. All statements,
certifications, indemnification's, representations and warranties made hereby by
the parties to this Agreement and their respective covenants, agreements and
obligations to be performed pursuant to the terms hereof shall, unless waived in
writing and notwithstanding any examination by or on behalf of any party hereto
and notwithstanding the consummation of the transactions hereby contemplated,
survive the closing of the transactions hereby contemplated for a period of 24
months; provided, however, that the representations and warranties set forth in
Section 3.20 and Section 3.21 shall survive the closing of the transactions
hereby contemplated for a period of five years.
Section 10.02 Merger Provision. All prior or contemporaneous agreements,
contracts, promises, representations and statements, if any, among the parties
hereto as to the subject matter hereof, are merged into this Agreement. This
Agreement, together with all agreements, schedules, exhibits, documents and
other instruments to be attached hereto or delivered herewith sets forth the
entire understanding between the parties, and there are no terms, conditions,
representations, warranties or covenants other than those contained herein and
in such agreements, schedules, exhibits, documents and other instruments to be
attached hereto or delivered herewith.
Section 10.03 Amendment and Modification. No term or provision of the
Agreement may be amended, released, discharged or modified in any respect except
in writing signed by the party to be charged and only to the extent therein set
forth.
Section 10.04 Waiver. (a) No waiver shall be deemed to be made by any of
the parties to any of its rights hereunder unless that waiver shall be in a
writing signed by the waiving party and only to the extent therein set forth.
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(b) No failure of any of the parties to exercise any power
given such party hereunder or to insist upon strict compliance by any other
party with its obligations hereunder, and no custom or practice of the parties
at variance with the terms hereof shall constitute a waiver of the right of any
party to demand precise compliance with the terms of the Agreement.
Section 10.05 Notices. (a) All notices, consents, demands or other
communications required or permitted to be given pursuant to the Agreement shall
be in writing and shall be deemed sufficiently given on (i) the day on which
delivered personally or by telecopy (with prompt confirmation by mail) during a
business day to the appropriate location listed as the address below, (ii) three
business days after the posting thereof by United States registered or certified
first class mail, return receipt requested with postage and fees prepaid, or
(iii) one business day after deposit thereof for overnight delivery. Such
notices, consents, demands or other communications shall be addressed
respectively:
As to the Seller: Leonard B. Harrington III
623 Camellia Circle
Florence, SC 29501
Telephone No.: (843) 665-2002
As to the Purchaser: Ergovision, Inc.
One Fairchild Court
Plainview, New York 11803
Attn: Mark H. Levin
Telephone No.: (516) 349-1110
Telecopy No.: (516) 349-9191
with a copy to: Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
Attn: Eric M. Lerner, Esq.
Telephone No.: (212) 940-8800
Telecopy No.: (212) 940-8776
or to any other address or telecopy number which such party may have
subsequently communicated to the other parties in writing.
(b) Except as otherwise provided in this Agreement, any
notice, consent, demand or other communication given hereunder may be signed on
behalf of a party by any duly authorized representative of that party.
Section 10.06 Governing Law; Service of Process. This Agreement and any
other agreement entered into in connection herewith shall be governed by, and
construed under and in accordance with, the laws of the State of New York
applicable to contracts made and wholly to be performed therein by residents
thereof, without giving effect to the conflict of laws principles thereof. All
actions or proceedings seeking the interpretation and/or enforcement of this
agreement shall be brought only in the state or federal courts located in New
York County, all parties hereby submitting themselves to the jurisdiction of
such courts for such purpose. Any process in any action or proceeding commenced
in the courts of the State of New York arising out of any claim, dispute or
disagreement, may, among other methods, be served upon any party
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by delivering or mailing the same, via registered or certified mail, addressed
to such party pursuant to Section 10.05 hereof. Any such delivery or mail
service shall be deemed to have the same force and effect as personal service
within the State of New York, New York County.
Section 10.07 Captions. The captions and the table of contents appearing
in this Agreement, are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope or intent of this
Agreement or any of the provisions hereof.
Section 10.08 Severability. If any term or provision of this Agreement,
the application thereof to any person, or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of the Agreement or the application of
such term or provision to persons or circumstances other than those as to which
it is held void or unenforceable, shall not be affected thereby, and each term
and provision of the Agreement shall be valid and be enforced to the fullest
extent permitted by law.
Section 10.09 Publicity. Any communications and notices to third parties
and all other publicity concerning the transactions contemplated by the
Agreement (other than governmental or regulatory filings) shall be planned and
coordinated by and among the parties. Unless required by applicable law, none of
the parties shall disseminate or make public or cause to be disseminated or made
public any information regarding the transactions contemplated hereunder without
the prior written approval of the other parties, which approval shall not be
unreasonably withheld.
Section 10.10 Cumulative Rights and Remedies. The rights and remedies
provided for in this Agreement are cumulative and in addition to, and shall not
restrict or limit, any other rights and remedies available at law or in equity.
Section 10.11 Expenses. Each of the parties hereto shall bear its own
expenses associated with the negotiation and execution of the Agreement and the
consummation of the transactions contemplated hereby including, without
limitation, legal and accounting fees and expenses.
Section 10.12 Costs of Enforcement. The prevailing party in any proceeding
brought to enforce any provision of the Agreement shall be entitled to recover
the reasonable fees and costs of its counsel, plus all other costs of such
proceeding.
Section 10.13 Third Parties Other than the parties hereto, no person shall
have any rights under or to enforce any provision of this Agreement.
Section 10.14 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto, their respective heirs,
administrators, executors, successors and assigns; provided, however, that this
Agreement may not be assigned by any of the parties hereto other than by and
among the Purchaser and its subsidiaries.
Section 10.15 Counterparts. The Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute a single agreement.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
12th day of March, 1999.
ERGOVISION, INC.
By /s/ Mark H. Levin
-------------------------------------
Name: Mark H. Levin
Title: President
/s/ Leonard B. Harrington III
----------------------------------------
LEONARD B. HARRINGTON III
21
Ergovision, Inc.
One Fairchild Court
Plainview, NY 11803
Phone: 516-349-1110 Fax: 516-349-9191
As of December 31, 1999
Mr. Robert B. Greenberg
58 Startling Court
Roslyn, NY 11576
SEVERANCE AND CONSULTANCY AGREEMENT
Dear Robert:
This will constitute the terms of the severance and consultancy agreement
(the "Agreement") between Robert B. Greenberg (hereinafter "Greenberg") and
Ergovision, Inc. (hereinafter "Company") (each of the Company and Greenberg
being referred to at times as a "Party"; and, together the Company and Greenberg
being referred to as the "Parties").
1. Termination of Employment Agreement The Company and Greenberg hereby
confirm that the Employment Agreement, dated July 1, 1998 (the "Employment
Agreement") and Greenberg's employment by the Company was terminated as of
December 31, 1998, and except for the obligations of the Parties under this
Agreement and under Sections 8 and 10 of the Employment Agreement, neither party
has any rights or obligations as against the other under the Employment
Agreement. The parties have entered into the Mutual General Release in the form
attached as Exhibit A hereto. Greenberg hereby confirms his resignation as of
December 28, 1998, with the Company's consent, as Chairman of the Board, Chief
Executive Officer, Director, Officer and employee of the Company.
2. Payment under Employment Agreement. Greenberg shall receive as full
consideration of the Company's obligations under the Employment Agreement
severance compensation in the amount of $75,000 under the following terms and
conditions:
(a) The $75,000 shall be deferred until the Company raises an
aggregate of $1.50 million, in current financing (includeing the $362,500
already raised), or a future financing, at which time the balance due would be
paid as follows: $15,000 when funding raised (within 5 business days) and
balance due in six equal payments of $10,000, with the first payment due on the
15th day of the month following the raising of the money, or
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(b) If the $1.50 million is not raised by the Company by December
31, 1999 then the Company shall pay down the amount of $75,000 in 24 equal
installments of $3,125 per month beginning on January 15, 2000. If during the
payout period the $1.50 million funding is completed, then the formula in
Section 2(a) above shall be used for the balance in lieu of the payout program
covering the 24 months.
3. Consultation Arrangement. The parties confirm that Greenberg has been
retained by the Company for a fourteen (14) month period commencing as of
December 31, 1998 and terminating February 29, 2000. Greenberg agrees to and
shall provide consulting services for the Company of five (5) business days per
month, on days and times mutually agreed to monthly in advance between the
Parties. In connsideration of such services, the Company agrees to pay and
Greenberg accepts as full and complete compensation for these services the
amount of $5,000 per month for a twelve (12) month period of such consultancy,
payable on the 15th day of each month commencing March 15, 1999 and ending
February 15, 2000.
4. Share Restrictions. Robert Greenberg shall retain free and clear of any
claims of the Company, and the Company shall remove any restrictions for the
transfer and sale, of the 50,000 shares of Company's Common Stock owned by
Greenberg at such time as permitted by Rule 144 under the Securities Act of
1933.
5. Shares Covered By Options. Greenberg shall continue to retain 50,000
options ("Options") previously granted on July 1, 1998 under the Company's 1998
Non-Incentive Stock Option Plan, and said Options shall remain exercisable until
March 31, 2,000, and will automatically expire on that date to the extent not
previously exercised. All stock options granted to Greenberg by the Company
under the 1997 Stock Option Plan on February 1, 1998 are terminated effective
December 31, 1998, and the balance of the Stock Options granted under the 1998
Non-Incentive Stock Option Plan on July 1, 1998 are terminated, effective as of
December 31, 1998.
6. Expenses. Greenberg shall be entitled to reimbursement from the Company
for all "out-of-pocket" expenses incurred (a) in the course of his employment
with the Company prior to December 31, 1998 up to an aggregate amount of $1,200,
provided that reasonably sufficient documentation substantiating such expenses
is provided to the Company and (b) in connection with the consulting services
provided under this Agreement. Any out-
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of-pocket expenses pursuant to (b) above exceeding $100.00 will require prior
written approval from the Company.
7. Inventions. Greenberg agrees to disclose and assign to the Company all
"inventions" (meaning formulae, processes, know-how, data analyses or
inventions, whether patentable or not) made or conceived, first reduced to
practice or learned by or as a result of Greenberg's services to the Company,
which inventions shall be the sole and exclusive property of the Company for the
consideration as hereinabove defined.
8. Agreement. Greenberg has delivered to the Company the waiver in the
form previously obtained from other investors from Howard Nadler, Tobias Pieniek
and Pierre Michelle in the Company's August 10, 1998 Offering Memorandum.
9. Covenants. The Company's obligation to make the payments pursuant to
paragraphs 2 and 3 hereof shall be a covenant of the Company but not a condition
to the effectiveness of this Agreement. In the event that the Company fails to
make timely payment, the Mutual General Releases and other provisions of this
Agreement shall remain valid and effective, and there shall be no right of
recission of the Mutual General Release or this Agreement nor any claim for
failure of consideration. Greenberg's sole and exclusive remedy hereunder for
nonpaymet shall be to recover such payments, any interest allowed by law,
attorneys' fees and expenses.
10. Independent Contractor. Greenberg's relationship with Company shall be
that of an independent contractor and not that of an employee. Greenberg will
not be eligible for any employee benefits, nor will Company make deductions from
Greenberg's fees. Greenberg will be responsible for the payment of all income,
social security and other taxes due on all payments made to Greenberg under this
Agreement. Greenberg agrees to indemnify and hold the Company harmless from any
liability for, or assessment of, such taxes. Greenberg shall have no authority
to enter into contracts which bind Company or create obligations on the part of
Company without the prior written authorization of Company.
11. Confidentiality and Non-Disclosure. Greenberg agrees that any and all
confidential information, including know-how and trade secrets, that may be
imparted to him by the Company, or third parties to the Company, in the course
of his prior employment and/or this consultation, shall be maintained
confidential and secret, and Greenberg agrees not to use or disclose the same to
others except with the prior written consent and approval of the Company. Within
5 days after termination of this Agreement, Greenberg shall return all documents
to the Company, obtained during the term of this Agreement, by a carrier
selected by the Company.
12. Revocation Period. Greenberg has a period of twenty-one (21) days from
the date on which a copy of this Agreement has been delivered to Greenberg to
consider
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whether to sign it. In addition, in the event that Greenberg elects to sign and
return to the Company a copy of this Agreement, Greenberg has a period of seven
(7) days (the "Revocation Period") following the date of such return to the
Company of a signed copy, to revoke this Agreement, which revocation must be in
writing and delivered to the Company within the Revocation Period. This
Agreement will not be effective or enforceable until the expiration of the
Revocation Period.
13. Further Cooperation. Each of the Parties shall execute such further
documents and do such further acts as may reasonably be requested by the other
to confirm the agreements and transactions contemplated hereby.
14. Counterparts and Facsimile Signatures. This Agreement may be signed in
counterparts and shall become effective as if executed in a single, complete
documents as of the date hereof upon its execution by both Parties. Facsimile
signatures of the undersigned Parties will have the same force and effect as
original signatures.
15. Severability. If any provision of this Agreement or the application of
it shall be determined to be invalid or unenforceable to any extent, the
remainder of this Agreement and the application of such provisions shall be not
be affected and shall be enforced to the greatest extent permitted by law.
16. Construction. The Parties agree that the terms and conditions of this
Agreement are the result of negotiations between the Parties and/or their
counsel, and that this Agreement shall not be construed in favor of or against
either Party by reason of the extent to which either Party or its counsel
participated in the drafting of this Agreement.
17. Notices. Except as otherwise provided in the Options, any notices,
demands, or other communications required or permitted hereunder shall be in
writing and shall be (i) sent by telecopy (and confirmed by one of the following
three methods), (ii) hand delivered, (iii) sent by Federal Express, Express Mail
or similar overnight delivery service for priority next business day delivery,
or (iv) sent by certified or registered mail, return receipt requested, in any
case addressed as follows (or to such other address as a party shall have
designated by notice given to the other party pursuant hereto), and shall be
deemed given (i) when received at the recipient's telecopy number if received
before 5:00 p.m. or otherwise at 9:00 a.m. on the next business day, (ii) when
delivered if hand delivered, (iii) the next business day after being sent if
given by Federal Express, Express Mail or other overnight delivery service or
(iv) the date received if sent by certified or registered mail, return receipt
requested:
(a) if to the Company:
Ergovision, Inc.
One Fairchild Court
Plainview, NY 11803
Phone: 516-349-1110
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Fax: 516-349-9191
Attn: Mark H. Levin, President
(b) if to Greenberg:
Robert B. Greenberg
58 Starling Court
Roslyn, NY 11576
Phone: 516-626-3044
Fax: 212-223-3857 c/o Stephen R. Stern, Esq.
18. Governing Law. This Agreement shall be governed by the laws of the
State of New York, without giving effect to principles of conflicts or choice of
law.
19. Arbitration. Any controversy or claim arising out of or relating to
this Agreement shall be settled by binding arbitration in New York, New York
pursuant to the Commercial arbitration Rules then in effect of the American
Aritration Association ("AAA"). There shall be three (3) arbitrators, one of
whom shall be selected by the Party seeking to initiate the arbitration, one by
the other Party and the third by the two arbitrators so selected. The
arbitration award shall be given in writing and shall be final and binding on
the Parties with respect to the subject matter in controversy and judgment
thereof may be entered in any court having jurisdiction over the matter. The
Parties shall keep confidential the arbitration proceedings and terms of any
arbitration award, except as may otherwise be required by law. Each party shall
bear its own legal fees and other costs related to the arbitration, except that
the arbitrators shall determine who shall bear the costs of the AAA and
arbitrators. The arbitrators may determine arbitrability but may not award
punitive damages or limit, expand or otherwise modify the terms of this
Agreement. The Party ultimately prevailing in any such arbitration proceeding
shall be entitled to be awarded and receive its costs and reasonable attorney's
fees incurred in connection therewith and the enforcement thereof.
20. Integration Clause. This Agreement and the Mutual General Release
contains the entire understanding between the Parties with respect to, and
contains all terms and conditions pertaining to, the compromise and settlement
between the Parties. No express or implied warranties, covenants or
representation have been made concerning the subject matter of this Agreement
unless expressly stated herein. Any prior written or oral negotiations not
contained in this Agreement are of no force or effect whatsoever. In executing
this Agreement, the Parties have not and do not rely on any statements,
inducements, promises or representations made by the other Party or their
agents, representatives or attorneys with regard to the subject matter, basis or
effect of this Agreement, except those specifically set forth in this Agreement.
21. Assignment. This Agreement shall be binding upon the parties hereto
and upon their respective administrators, executors, legal representatives,
successors and
5
<PAGE>
permitted assigns, which will include (without limitation) any successor to all
or substantially all of the Company's assets or any acquirer of a majority of
the voting power of the Company's capital stock. Greenberg may not assign his
obligations, or compensation to be received, under this Agreement, either in
whole or in part, without the prior written consent of the Company.
22. Non-Solicitation of Employees. Greenberg agrees that during the term
of this Agreement and for a period of one (1) year thereafter, Greenberg will
not solicit or hire or attempt to solicit or hire any employees of Company or
affiliates of Company either for Greenberg or for any other person or entity,
nor use any partners, employees or agents of Greenberg for such purpose.
23. Modification and Discharge. This Agreement may not be changed,
altered, or modified except in writing signed by the Parties. This Agreement may
not be discharged, except by performance in accordance with its terms or by
writing signed by the Parties.
24. Representation by Counsel. Greenberg hereby warrants and represents
that he has retained and been represented by independent legal counsel in
connection with the negotiation and execution of this Agreement and the Mutual
General Release.
25. Captions and Interpretations. Section titles or captions contained
herein are inserted as a matter of convenience and for reference, and in no way
define, limit, extend or describe the scope of this Agreement or any provision
hereof.
Authority to enter into this Agreement has been approved by the Board of
Directors of the Company and is final and binding upon the Parties. Greenberg
shall have returned to him all of his personal property.
The Parties have executed this Agreement as of the date first above written.
ERGOVISION, INC.
/s/ Robert B. Greenberg /s/ Mark H. Levin
- --------------------------- ---------------------------
Robert B. Greenberg Mark H. Levin
President
6
<PAGE>
MUTUAL
GENERAL RELEASE
Ergovision, Inc. (the "Company"), and Robert B. Greenberg,
sometimes collectively referred to herein as the "parties," hereby enter into
this Mutual Release Agreement ("Release") as of December 31, 1998.
As a material inducement to the Company to enter into this Release
and in consideration for the benefits received hereunder, Robert B. Greenberg
for himself, his heirs, executors, administrators, successors and assigns,
hereby fully releases, discharges and acquits the Company, its affiliated and
related entities, parent corporations, subsidiary corporations, present and
former officers and directors, employees, agents, attorneys, representatives,
shareholders, successors and assigns (collectively "Company Releasees"), from
any and all claims, charges, demands, sums of money, actions, rights, causes of
action, obligations and liabilities of any kind or nature whatsoever, at law or
in equity, which he may have, had, claim to have had, now have, or claim to
have, which are or may be based upon facts, acts, conduct, representations,
omissions, contracts, claims, events, causes, matters or things of any
conceivable kind or character, whether known or unknown, existing or occurring
at any time on or before the date of this Release relating to the Company,
including but not limited to, (a) any claims arising under Title VII of the
Civil Rights Act of 1964, the Americans with Disabilities Act, the Equal Pay
Act, the New York State and City Human Rights Laws and the Rehabilitation Act of
1973, any federal, state or other governmental statutes, ordinances or
regulations, (b) any defamation, fraud, negligence or other tort or common law
claims which he may have, including, without limitation, any claims arising
under any implied or express contracts or agreements, (c) any claims for
adjusted compensation, bonus, severance or vacation pay or any other form of
compensation or benefit relating to Greenberg's employment and the termination
thereof, (d) any claims for intentional torts, emotional distress and pain and
suffering and (e) any claims for compensatory and punitive damages. Without
limiting the generality of the foregoing, specifically included in the foregoing
release are any and all claims of Williams under or pursuant to the Age
Discrimination in Employment Act of 1967, as amended.
As a material inducement to Greenberg to enter into this Release and
in consideration for the benefits received hereunder, the Company, as well as
its affiliated and related entities, parent corporations, subsidiary
corporations, present and former officers and directors, and successors and
assigns, hereby fully releases, discharges and acquits Greenberg from any and
all claims, charges, demands, sums of money, actions, rights, causes of action,
obligations and liabilities of any kind or nature whatsoever, at law or in
equity, which the Company may have, had, claim to have had, now have, or claim
to have, which are or may be based upon facts, acts, conduct, representations,
omissions, contracts, claims, events, causes, matters or things of any
conceivable kind or character, whether known or unknown, existing or occurring
at any time on or before the date of this Release relating to the Company,
including but not limited to any claims arising under any federal, state or
other governmental statutes, ordinances or regulations, any defamation, fraud,
negligence or other tort or common law claims which the Company may have,
including, without limitation, any claims arising under any implied or express
contracts or agreements, and any claims for compensatory and punitive damages.
1
<PAGE>
As a material inducement to the parties to enter into this Release
and in consideration for the benefits received hereunder the parties on behalf
of themselves and their respective heirs, assigns and legal representatives,
hereby covenant and represent that neither of them has instituted, and will not
institute, any complaints, claims, charges or lawsuits, with any governmental
agency or any court, against the other by reason of any claim, present or
future, known or unknown, arising from or related in any way to Greenberg's
employment with the Company or any of its affiliates or the termination of such
employment, or any relationship, association, or transaction to date between the
parties hereto or any of their predecessors or their respective agents,
employees or officers. This covenant, as well as the Release provided herein,
shall not apply to actions for breach of the Severance and Consultancy Agreement
dated December 31, 1998 contemplating this Release and to which a form of the
Release is attached as an exhibit.
As a material inducement to the Company to enter into this Release
and in consideration for the benefits received hereunder, Greenberg agrees not
to disparage, or make any disparaging remarks or send any disparaging
communications concerning, the Company, its reputation, its business, and its
officers, directors and employees to any person. The Company similarly agrees
not to disparage, or make any disparaging remark or send any disparaging
communication concerning Greenberg, or his reputation, his business expertise
and his job performance at the Company to any person.
ERGOVISION, INC.
By: /s/ Mark H. Levin
----------------------------------
Name: Mark H. Levin
Title: President
/s/ Robert B. Greenberg
-----------------------------------
Robert B. Greenberg
2
EyeCity.com, Inc.
One Fairchild Court, Plainview, New York 11803
Phone: 516-349-1110 Fax: 516-349-9191 July 1, 1999
Robert B. Greenberg
58 Starling Court
Roslyn, New York 11576
SEVERANCE AND CONSULTANCY AGREEMENT AMENDMENT
Dear Robert,
This will constitute and confirm our amendment ("Amendment") to the Severance
and Consultantcy Agreement ("Agreement") dated as of December 31, 1998 between
Robert B. Greenberg ("Greenberg") and Ergovision, Inc. ("Company") as follows:
1. Greenberg and Ergovision agree that the $75,000 in Section 2(a) shall be
paid as follows:
(a) $65,000 payable in thirteen (13) equal payments of $5,000 each
commencing, August 1, 1999; and
(b) $10,000 credited against the exercise of 10,000 shares of the
Options granted in the name of Greenberg and the issuance of 10,000
shares of Common Stock to Greenberg, thereby reducing the Options to
40,000 shares in Section 5. Greenberg may sign a Stock Option
Exercise Form And Instructions so that the shares issued to him upon
exercise may be transferred by Greenberg as a gift as custodian for
his three minor children 2,500 shares each, and 2,500 shares to his
adult daughter. Greenberg and each party receiving such shares shall
sign the form of Investment Letter attached as Exhibit A before
receiving such shares.
2. Section 3, "five (5) business days per month" is amended to read "two (2)
business days per month".
3. All other terms and conditions of the Agreement remain in full force and
effect.
If the foregoing is in accordance with your understanding of the Agreement as
amended between us, will you kindly signify same by signing this Amendment in
the space provided below.
Sincerely,
Agreed and Accepted EyeCity.com, Inc.
as of the above date
/s/ Robert B. Greenberg /s/ Mark H. Levin
- -------------------------- ----------------------------
Robert B. Greenberg Mark H. Levin
President
<PAGE>
STOCK OPTION EXERCISE FORM
AND INSTRUCTIONS
TO: Mark H. Levin, President
EyeCity.com, Inc.
FROM: Robert B. Greenberg
DATE: July 1, 1999
RE: Exercise of Stock Option
1998 Stock Option Plan
In accordance with the Stock Option granted to me on July 1, 1998, I
hereby exercise my option to purchase 10,000 shares at $1.00 per share of the
Common Stock, $.001 par value, of EyeCity.com, Inc. on the above date for a
total consideration of $10,000. These shares have not been registered under the
Securities Act of 1933, as amended.
Certificates for the shares issued to me upon this exercise are to be
issued in the following names and denominations, pursuant to gifts thereof I
have made to such persons without consideration therefore:
Robert B. Greenberg as custodian:
Justin K. Greenberg 2,500 shares - Soc. Sec. # ###-##-####
Joshua A. Greenberg 2,500 shares - Soc. Sec. # ###-##-####
Jessica K. Greenberg 2,500 shares - Soc. Sec. # ###-##-####
Alison Cooper 2,500 shares - Soc. Sec. # ###-##-####
Signature: /s/ Robert B. Greenberg
-------------------------
Print Name: Robert B. Greenberg
Soc. Sec.# ###-##-####
Address: 58 Starling Court
Roslyn, New York 11576
<PAGE>
July 1, 1999
Mr. Mark H. Levin, President
EyeCity.com, Inc.
One Fairchild Court
Plainview, NY 11803
INVESTMENT LETTER
Dear Mr. Levin:
This will confirm our agreement as follows:
1. The undersigned is receiving Two Thousand and Five Hundred (2,500)
shares (the "Shares") of Common Stock, $.001 par value per share, of
EyeCity.com, Inc. ("EyeCity") which stock has not been registered under the
Securities Act of 1933, as amended (the "Act"). The shares were gifted to the
undersigned by Robert Greenberg, without any consideration paid by the
undersigned therefor.
2. The undersigned covenants and agrees that the Shares of EyeCity's
Common Stock which the undersigned is acquiring hereby, is being acquired by the
undersigned, for its own account for investment only and not with a view to the
distribution of all or any part thereof, as the phrases "investment only" and
"distribution" have meaning under the Act or for the sale in connection with any
distribution, and that such Shares will not be transferred except in accordance
with the registration requirements of the Act or as applicable, exception from
such registration requirements under the Act. The undersigned acknowledges and
understands that under existing law (i) all of such Shares may be required to be
held indefinitely unless they are subsequently registered under the Act or an
exemption from such registration is available, (ii) any sales of such Shares in
reliance upon Rule 144 promulgated under the Act may be made only in amounts in
accordance with the terms and conditions of that Rule, and (iii) in the case of
securities to which that Rule is not applicable and which are not registered,
compliance with Regulations promulgated under the Act or some other disclosure
exemption will be required.
3. The undersigned covenants and agrees that the certificates
representing such Shares of Common Stock shall contain the following legend, or
one similar thereto:
The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act") and may not
be sold, transferred, pledged or hypothecated without an effective
registration statement under the Act being then in effect as to such
shares or an opinion of counsel satisfactory to the Company that such
registration statement is not required in order to comply with the
Act.
/s/ Robert B. Greenberg
- ---------------------------
Robert B. Greenberg
Address: 58 Starling Court
Roslyn, NY 11576
Soc. Sec. No.: ###-##-####
<PAGE>
EyeCity.com, Inc.
79 Express Street, Plainview, New York 11803
Phone: 516-822-5000 Fax: 516-822-5520
September 30, 1999
Robert B. Greenberg
58 Starling Court
Roslyn, New York 11576
SEVERANCE AND CONSULTANCY TERMINATION AGREEMENT
Dear Robert,
In consideration of the payments referred to below and in full satisfaction of
the Company's obligations to Robert B. Greenberg, this will constitute and
confirm our agreement to terminate the Severance and Consultancy Agreement
("Agreement") dated as of December 31, 1998, as amended on July 1, 1999 ("First
Amendment"), between Robert B. Greenberg ("Greenberg") and EyeCity.com, Inc.,
formerly known as Ergovision, Inc. ("Company") as follows:
1. Greenberg and Ergovision agree that of the $75,000 payable under Section
2(a) of the First Amendment there is a balance of $60,000 which shall be
paid as follows: (x) seven (7) equal payments of $5,000 each commencing,
October 1, 1999 for an aggregate of $35,000 in cash and (y) $25,000
credited against the exercise of 25,000 shares of the Options granted in
the name of Greenberg and the issuance of 25,000 shares of Common Stock to
Greenberg upon such exercise of such options on execution of this
Termination Agreement, receipt whereof is hereby acknowledged by
Greenberg. If any monthly payment is not timely made, the Company shall
have 5 business days after receipt of notice of such non-payment to cure
the default. Failure to cure such default shall result in the acceleration
of all payments due to this paragraph 2.
2. Greenberg and Ergovision agree that of the $60,000 in Section 3 there is a
balance of $30,000 which shall be paid as follows:
(a) $15,000 payable in one payment of $15,000, on execution of this
Termination Agreement and, receipt whereof is hereby acknowledged by
Greenberg, on execution of this Termination Agreement.
(b) $15,000 credited against the exercise of the balance of 15,000
shares of the Options granted in the name of Greenberg and the
issuance of 15,000 shares of Common Stock to Greenberg, upon such
exercise of such options, on execution of this Termination
Agreement, receipt whereof is hereby acknowledged by Greenberg, in
full satisfaction of all Options including those referred to in
Section 5. Greenberg shall sign the form of Option Exercise and
Investment Letter attached as Exhibit A and B concurrently herewith.
<PAGE>
3. Greenberg confirms that except as provided above, no further amounts,
including expenses pursuant to Section 5 of the Agreement, are owed to
him.
4. The provisions of Sections 1,4,7,9, 11,19 and 22 shall survive the
termination of the Agreement, as amended, hereby.
If the foregoing is in accordance with your understanding of the Agreement as
amended between us, will you kindly signify same by signing this Termination in
the space provided below.
Sincerely,
Agreed and Accepted EyeCity.com, Inc.
as of the above date
/s/ Robert B. Greenberg /s/ Mark H. Levin
- ------------------------------- -------------------------------------
Robert B. Greenberg Mark H. Levin, President
<PAGE>
September 30, 1999
Mr. Robert B. Greenberg
58 Startling Court
Roslyn, NY 11576
INVESTMENT LETTER
Dear Robert:
This will confirm our agreement as follows:
1. The undersigned is receiving Forty Thousand (40,000) shares (the
"Shares") of Common Stock, $.001 par value per share, of EyeCity.com, Inc.
("EyeCity") which stock has not been registered under the Securities Act of
1933, as amended (the "Act"). The shares were gifted to the undersigned by
Robert Greenberg, without any consideration paid by the undersigned therefor.
2. The undersigned covenants and agrees that the Shares of EyeCity's
Common Stock which the undersigned is acquiring hereby, is being acquired by the
undersigned, for its own account for investment only and not with a view to the
distribution of all or any part thereof, as the phrases "investment only" and
"distribution" have meaning under the Act or for the sale in connection with any
distribution, and that such Shares will not be transferred except in accordance
with the registration requirements of the Act or as applicable, exception from
such registration requirements under the Act. The undersigned acknowledges and
understands that under existing law (i) all of such Shares may be required to be
held indefinitely unless they are subsequently registered under the Act or an
exemption from such registration is available, (ii) any sales of such Shares in
reliance upon Rule 144 promulgated under the Act may be made only in amounts in
accordance with the terms and conditions of that Rule, and (iii) in the case of
securities to which that Rule is not applicable and which are not registered,
compliance with Regulations promulgated under the Act or some other disclosure
exemption will be required.
3. The undersigned covenants and agrees that the certificates
representing such Shares of Common Stock shall contain the following legend, or
one similar thereto:
The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act") and may not
be sold, transferred, pledged or hypothecated without an effective
registration statement under the Act being then in effect as to such
shares or an opinion of counsel satisfactory to the Company that such
registration statement is not required in order to comply with the
Act.
/s/ Robert B. Greenberg
- -----------------------------------
Robert B. Greenberg
Address: 58 Starling Court
Roslyn, NY 11576
Soc. Sec. No.: ###-##-####
<PAGE>
Exhibit A
STOCK OPTION EXERCISE FORM
AND INSTRUCTIONS
TO: Mark H. Levin, President
EyeCity.com, Inc.
FROM: Robert B. Greenberg
DATE: September 30, 1999
RE: Exercise of Stock Option
1998 Stock Option Plan
In accordance with the Stock Option granted to me on July 1, 1998, I
hereby exercise my option to purchase 40,000 shares at $1.00 per share of the
Common Stock, $.001 par value, of EyeCity.com, Inc. on the above date for a
total consideration of $40,000. These shares have not been registered under the
Securities Act of 1933, as amended.
Signature: /s/ Robert B. Greenberg
Print Name: Robert B. Greenberg
Soc. Sec. # ###-##-####
Address: 58 Starling Court
Roslyn, New York 11576
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of the
7th day of May, 1999, by and among Ergovision, Inc. ("Ergovision"), a Delaware
corporation, Peeper's, Inc. ("Subsidiary"), a Delaware corporation, Peeper's
Sunglasses and Accessories, Inc. ("Peeper's"), a Minnesota corporation, and
Daniel Thralow ("Thralow"), an individual residing at 1908 East 3rd Street, Apt.
#6, Duluth, MN 55802.
W I T N E S S E T H:
WHEREAS, the Board of Directors of each of Ergovision and Peeper's
have determined that it is in the best interests of their respective companies
and stockholders to consummate the business combination transaction provided for
herein and in the Certificate of Merger required to be filed under Delaware law,
pursuant to which Peeper's will, subject to the terms and conditions set forth
herein, merge with and into Subsidiary (the "Merger") so that, upon the Merger,
Subsidiary will be the surviving entity and a wholly owned subsidiary of
Ergovision. Upon the effectiveness of the Merger, all the outstanding capital
stock of Peeper's will be cancelled and retired in exchange for the
consideration provided for in Section 2.03 hereof;
WHEREAS, the Merger is intended to be treated as a tax-free
reorganization pursuant to the provisions of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "Code"), by virtue of the
provisions of Section 368(a)(2)(D) of the Code; and
WHEREAS, the parties hereto desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties hereto hereby agree as follows:
Article I.
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
respective meanings set forth below:
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, any successor statute thereto and all final or temporary regulations
promulgated thereunder and generally applicable published rulings entitled to
precedential effect.
"Environment" means soil, surface waters, ground waters, land,
stream, sediments, surface or subsurface strata and ambient air.
"Environmental Condition" means any condition with respect to the
Environment on any Facility, whether or not yet discovered, which could or does
result in any Losses (as defined in Section 9.01 hereof), including any
condition resulting from the operation
<PAGE>
of the business of Peeper's or the operation of the business of any subtenant or
occupant of any Facility.
"Environmental Laws" means all Governmental Rules relating to injury
to, or the protection of, real or personal property or human health or the
Environment as in effect prior to the Closing Date, including, without
limitation, all valid and lawful requirements of courts and other Governmental
Bodies pertaining to reporting, licensing, permitting, investigation,
remediation and removal of emissions, discharges, releases or threatened
releases of Hazardous Substances, chemical substances, pesticides, petroleum or
petroleum products, pollutants, contaminants or hazardous or toxic substances,
materials or wastes, whether solid, liquid or gaseous in nature, into the
Environment, or relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Substances,
pollutants, contaminants or hazardous or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature.
"Ergovision Stock" means the Common Stock, par value $0.001 per
share, of Ergovision.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, any successor statute thereto and all final or
temporary regulations promulgated thereunder and generally applicable published
rulings entitled to precedential effect.
"Facility" means any facility which is now or has heretofore been
owned or used by Peeper's.
"GAAP" means generally accepted accounting principles in the United
States of America in effect from time to time.
"Governmental Body" means any federal, state, local or foreign
governmental authority or regulatory body, any subdivision, agency, commission
or authority thereof (including, without limitation, environmental protection,
planning and zoning), or any quasi-governmental or private body exercising any
regulatory authority thereunder (including, without limitation, Network
Solutions, Inc.) and any person directly or indirectly owned by and subject to
the control of any of the foregoing, or any court, arbitrator or other judicial
or quasi-judicial tribunal.
"Governmental Rules" means any statute, law, treaty, rule, code,
ordinance, regulation, policy, permit, certificate or order of any Governmental
Body or any judgment, decree, injunction, writ, order or like action of any
Governmental Body.
"Hazardous Substances" means any substance:
(a) the presence of which requires notification,
investigation, or remediation under any Environmental Law as in effect prior to
the Closing Date;
(b) which prior to the Closing Date is or becomes defined as a
"hazardous waste", "hazardous material" or "hazardous substance" or "pollutant"
or "contaminant" under any present or future Environmental Law or amendments
thereto including,
2
<PAGE>
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") (42 U.S.C. Section 9601 et seq.), the Resource
Conservation and Recovery Act ("RCRA") (42 U.S.C. Section 6901 et seq.), the
Clean Air Act (42 U.S.C. Section 7401 et seq.) and any Environmental Law
applicable to any jurisdiction in which or from which Peeper's conducts or has
conducted its business;
(c) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and is
or becomes regulated by any Governmental Body under Environmental Laws prior to
the Closing Date;
(d) without limitation, which contains gasoline, diesel fuel
or other petroleum hydrocarbons or volatile organic compounds;
(e) without limitation, which contains polychlorinated
byphenyls (PCBs) or asbestos or urea formaldehyde foam insulation; or
(f) without limitation, which contains or emits radioactive
particles, waves or materials, including radon gas.
"Lien" means any mortgage, charge, pledge, lien, security interest,
claim, encumbrance or restriction, of any kind or nature.
"Release" means a general release in substantially the form of
Exhibit D hereto to be executed by Thralow and each of the directors and
officers of Peeper's in favor of Subsidiary.
Article II.
PURCHASE AND SALE
Section 2.01 The Merger. (a) Upon the terms and subject to the conditions
hereof and in accordance with Section 252 of the Delaware General Corporation
Law (the "DGCL") and Sections 302A.601 and 302A.651 of the Minnesota Business
Corporation Law (the "MBCL"), as promptly as practicable following the
satisfaction or waiver of the conditions set forth in Article V and Article VI
hereof, but in no event later than May 31, 1999 (unless extended pursuant to
Section 7.06 hereof), the closing (the "Closing") of the Merger shall take place
at the offices of Rosenman & Colin LLP, 575 Madison Avenue, New York, New York,
or such other place and at such time as the parties shall agree in writing (the
"Closing Date").
(b) Concurrently with the Closing, (i ) a certificate of merger (the
"Certificate of Merger"), in form and substance reasonably satisfactory to
Ergovision and Peeper's, providing for the merger of Peeper's with and into
Subsidiary, shall be duly prepared, executed and filed by Ergovision, as the
sole shareholder of surviving corporation (the "Surviving Corporation"), with
the Delaware Secretary of State in accordance with the relevant provisions of
the DGCL and (ii) the appropriate officers of Peeper's and Subsidiary shall
execute and acknowledge the certificate required by Section 302A.651 of MBCL
(the "Minnesota Certificate") and it shall be filed with the Minnesota Delaware
Secretary of State in accordance with the MBCL, and the Merger shall become
effective upon completion of the latest of such
3
<PAGE>
filings as are required under the DGCL and MBCL. The date and time the Merger
becomes effective is referred to herein as the "Effective Time".
Section 2.02 Effects of the Merger. (a) The Merger shall have the effects
set forth in the DGCL and the MBCL and as hereinafter set forth. Following the
Merger, the Surviving Corporation shall (i) continue its corporate existence
under the laws of the State of Delaware, (ii) be a wholly owned subsidiary of
Ergovision, (iii) use the name "Peeper's" and (iv) succeed to all rights assets,
liabilities and obligations of Peeper's and Subsidiary in accordance with DGCL
and the MBCL. At the Effective Time, pursuant to Section 259 of the DGCL, the
separate existence of Peeper's shall cease and the Surviving Corporation shall
succeed, without other transfer, to all the rights and property of each of
Peeper's and Subsidiary (sometimes hereinafter referred to collectively as the
"Constituent Corporations") and shall be subject to all the debts and
liabilities of each in the same manner as if the Surviving Corporation had
itself incurred them. All rights of creditors and all Liens upon the property of
each of the Constituent Corporations shall be preserved unimpaired, provided
that such Liens upon property of Peeper's shall be limited to the property
affected thereby immediately prior to the time the Merger is effective. Any
action or proceeding pending by or against Peeper's may be prosecuted to
judgment, which shall bind the Surviving Corporation, or the Surviving
Corporation may be proceeded against or substituted in its place.
(b) At the Effective Time each share of common stock of Peeper's
issued and outstanding immediately prior to the Effective Time shall, by reason
of the Merger and without any action by the holder thereof, be cancelled and
retired.
Section 2.03 Merger Consideration. At the Effective Time, all of the
collective shares of common stock, $0.01 par value, of Peeper's (the "Peeper's
Common Stock") issued and outstanding immediately prior to the Effective Time
shall, by reason of the Merger and without any action by the holder thereof, be
converted into the right to receive the following aggregate consideration (the
"Merger Consideration"):
(a) $875,000 in immediately available funds, less any amounts
previously received from Ergovision in connection with that certain Letter of
Intent, dated March 26, 1999 (the "Letter of Intent"), executed by Ergovision,
Peeper's and Thralow;
(b) a promissory note for the principal amount of $875,000 in the
form of Exhibit A hereto, which note shall be secured by a first priority
security interest in all of the intellectual and intangible property of the
Surviving Corporation formerly owned by Peeper's, including, without limitation,
all domain names, toll-free telephone numbers, web-site content and contract
rights acquired from Peeper's in the Merger, payable in full on the earlier of
(x) the first anniversary of the Closing or (y) consummation by Ergovision of a
public financing transaction or transactions for gross proceeds in excess of
$10,000,000; and
(c) 1,210,159 shares of Ergovision Stock.
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Section 2.04 Directors and Officers, Articles of Incorporation; By-laws.
At the Effective Time, the Board of Directors of the Surviving Corporation shall
consist of Mark Levin, Mark Suroff and Daniel Thralow, each to hold office in
accordance with the Articles of Incorporation and By-laws of the Surviving
Corporation. The Articles of Incorporation and By-laws of Subsidiary at the
Effective Time shall be the Articles of Incorporation and By-laws of the
Surviving Corporation after the Effective Time, and thereafter may be amended in
accordance with their respective terms and applicable law.
Section 2.05 Tax-Free Reorganization. The parties intend that the
Acquisition be treated as a plan of reorganization under Section 368(a)(1)(A)
and 368(a)(2)(D) of the Code. The Ergovision Stock issued in the Merger will be
issued solely in exchange for Peeper's Common Stock, and no other transaction
(other than the Merger and as provided in this Agreement) is intended to be an
adjustment to the consideration paid for Peeper's Common Stock. The parties
intend that, aside from that portion of the Merger Consolidation set forth in
Section 2.03(a) and (b), no consideration that could constitute "other property"
within the meaning of Section 356(a) of the Code is being transferred by
Ergovision for the Purchased Shares. The parties shall not take a position on
any tax return or before any taxing authority that is inconsistent with this
Section 2.05 unless otherwise required by a final and binding determination or
resolution of a Governmental Body with appropriate jurisdiction, and each party
agrees to promptly notify the other party of any assertion by a taxing authority
of a position that is inconsistent with this Section 2.05.
Article III.
REPRESENTATIONS AND WARRANTIES OF THRALOW AND PEEPER'S
Thralow and Peeper's, jointly and severally, represent and warrant
to Ergovision and Subsidiary, that:
Section 3.01 Organization and Good Standing. Peeper's is and at the
Closing will be a corporation duly organized, validly existing and in good
standing under the laws of the State of Minnesota and has and will have the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted.
Section 3.02 Foreign Qualification. Peeper's is not licensed or qualified
to do business as a foreign corporation in any jurisdiction, and the character
and location of the assets owned or leased by Peeper's and the nature or conduct
of Peeper's business as it is now being conducted do not make such license or
qualification necessary.
Section 3.03 Capitalization; Authority of Seller. (a) Thralow is the sole
shareholder of Peeper's and has good and valid title to all issued and
outstanding shares of Peeper's Common Stock free and clear of all Liens.
(b) Thralow and Peeper's each have the power and authority to
execute and deliver this Agreement, the Release executed by Thralow and all
other documents hereby
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contemplated to be executed by Thralow and/or Peeper's, to consummate the
transactions hereby and thereby contemplated and to take all other actions
required to be taken pursuant to the provisions hereof and thereof. The
execution, delivery and performance of this Agreement and all other documents
hereby contemplated to be executed by Thralow and/or Peeper's has been, and the
consummation by Thralow and Peeper's of the transactions hereby and thereby
contemplated has been, duly authorized by all necessary action, corporate or
otherwise, of Thralow and/or Peeper's, as applicable. The Board of Directors and
sole shareholder of Peeper's has authorized and approved the execution, delivery
and performance of this Agreement and the transactions contemplated hereby. This
Agreement and all other documents hereby contemplated to be executed by Thralow
and/or Peeper's constitute the legal, valid and binding obligations of Thralow
and/or Peeper's, as applicable, enforceable against Thralow and/or Peeper's, as
applicable, in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, moratorium, insolvency, fraudulent
conveyance, reorganization, or other similar laws affecting the enforcement of
creditor's rights.
Section 3.04 Corporate Instruments. Thralow has heretofore made available
to Ergovision true and complete copies of the existing Certificate of
Incorporation, the By-laws and the stock transfer books of Peeper's.
Section 3.05 Capitalization; Options; Common Stock. (a) Peeper's is
authorized to issue only 100 shares of Common Stock, par value $0.01 per share,
all of which shares of Common Stock are issued and outstanding and owned by
Thralow. There are no other series or classes of capital stock of Peeper's
authorized or issued.
(b) There are no outstanding warrants, options, contracts, rights
(pre-emptive or otherwise), calls, commitments or demands of any character
relating to any authorized and issued or unissued shares of the capital stock of
Peeper's or other instruments convertible into or exchangeable for such stock,
or which obligate Peeper's to seek authorization to issue additional shares of
any class of stock, nor will any be created by virtue of this Agreement or the
transactions hereby contemplated.
(c) The Common Stock owned by Thralow has been duly authorized and
legally and validly issued, is fully paid and nonassessable, and represents all
of the issued and outstanding shares of capital stock of Peeper's. None of the
Common Stock has been issued in violation of the securities or blue sky laws of
the United States of America or any state or territory thereof.
Section 3.06 No Violation of Other Instruments or Obligations. The
execution and delivery by Thralow and Peeper's of this Agreement or any other
documents hereby contemplated and the consummation of the transactions hereby
and thereby contemplated by Thralow and Peeper's shall not (i) constitute any
violation or breach of the Certificate of Incorporation or the By-laws of
Peeper's, (ii) constitute a default under or a violation or breach of, or result
in the acceleration of any obligation under, any provision of any contract,
mortgage or other instrument to which Thralow or Peeper's is a party or by which
any of its assets may be affected or secured, (iii) violate any Governmental
Rule affecting Peeper's or any of its assets, (iv) result in the creation of any
Lien on any of the assets or properties of Peeper's, or (v) result
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in the termination of any license, franchise, lease or permit to which Peeper's
is a party or by which it is bound.
Section 3.07 Compliance with Law; Consents and Approvals. Peeper's has
complied in all material respects with all Governmental Rules (including,
without limitation, any federal, state or local laws, rules or regulations
regulating the safety of the workplace and/or the discharge of materials into
the environment or otherwise relating to the protection of the environment)
applicable to the business of Peeper's as conducted on and prior to the date
hereof. Peeper's has maintained in full force and effect all licenses,
approvals, permits and consents for the lawful conduct of its business. Neither
Peeper's nor Thralow is in violation of any Governmental Rule applicable to
Thralow or Peeper's, and has not received any notice of any such violation.
Except as set forth on Schedule 3.07 hereof, no authorization, approval, order,
license, permit, franchise or consent, and no registration, declaration, notice
or filing by or with any domestic or foreign Governmental Body (including,
without limitation, any filing or registration pursuant to the securities or
blue sky laws of the United States of America or any state or territory thereof)
by Peeper's is required in connection with the execution and delivery by Thralow
and Peeper's of this Agreement and the consummation of the transactions hereby
contemplated.
Section 3.08 Financial Statements. Schedule 3.08 hereto contains (i) the
unaudited balance sheet of Peeper's as of December 31, 1998 (the "December
Balance Sheet"), and the related statements of operations and shareholders'
equity, including the notes thereto, for the year then ended and (ii) the
unaudited balance sheet of Peeper's as of March 31, 1999 (the "March Balance
Sheet") and the related statements of operations and shareholders' equity,
including the notes thereto, for the three-month period then ended, all of which
have been certified by Peeper's independent certified public accountant and
delivered to Ergovision. Such financial statements present fairly, in all
material respects, the financial position of Peeper's as of December 31, 1998
and March 31, 1999, respectively, and the results of Peeper's operations and
shareholders' equity for the year ended December 31, 1998 and the three-month
period ended March 31, 1999, all in conformity with GAAP applied on a consistent
basis.
Section 3.09 Accounts Receivable. Except to the extent of the amount of
the reserve for doubtful accounts reflected on the December Balance Sheet, the
March Balance Sheet or Schedule 3.09, respectively, all the Accounts Receivable
of Peeper's reflected in the December Balance Sheet, the March Balance Sheet or
Schedule 3.09, respectively, and all accounts receivable that have arisen since
the December Balance Sheet and March Balance Sheet (except Accounts Receivable
that have been collected since such date) are valid and enforceable claims, and
constitute bona fide accounts receivable resulting from the sale of goods and
services in the ordinary course of Peeper's business. The Accounts Receivable
are subject to no valid defense, offsets, returns, allowances or credits of any
kind, and are fully collectible within 90 days from their due date, except to
the extent of the amount of the reserve, if any, for doubtful accounts reflected
on the December Balance Sheet, the March Balance Sheet or Schedule 3.09,
respectively. Except for Accounts Receivable, Peeper's has not made any loan or
advance to any person.
Section 3.10 Liabilities, Borrowings and Guarantees. Peeper's has no
debts, liabilities or other obligations, accrued, absolute, contingent or
otherwise, due or to become due, other than
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liabilities disclosed or provided for on Schedule 3.10 and liabilities incurred
since March 31, 1999 in the ordinary and usual course of its business consistent
with past practice but in no event aggregating more than $5,000 collectively.
Section 3.11 Title to Assets; Inventories. (a) Except for Liens (i) for
any current taxes or assessments not yet delinquent or (ii) created by statute
of carriers, warehousemen, mechanics, laborers and materialmen incurred in the
ordinary course of business for sums not yet due, Peeper's has good and
marketable title, free and clear of all Liens, to all of its assets and personal
property.
(b) All inventories reflected on Schedule 3.11 are, and all
inventories owned by Peeper's as of the Closing Time shall be (i) valued at the
lower of cost or market value on a first-in, first-out basis in accordance with
GAAP and (ii) current and readily merchantable, containing no material amount of
obsolete or damaged goods which have not been written down or reserved in
conformity with GAAP. No inventory is held on consignment by Peeper's, as
consignee or consignor. To Thralow's knowledge, all inventory included in
Peeper's assets is free of any material defect or other deficiency.
Section 3.12 Real Property; Leases. Except as set forth on Schedule 3.12,
Peeper's does not own or lease any real property.
Section 3.13 Litigation. Except as set forth on Schedule 3.13, there are
no, and at the Closing there will not be any, claims, actions, suits,
litigations, proceedings, audits, controversies or investigations, pending or,
to the knowledge of Thralow, threatened against or affecting Peeper's or any of
its assets, and Peeper's has not been, and at the Closing will not have been,
charged with or, to the knowledge of the Thralow, threatened with a charge of
any violation of, and is not, and at the Closing will not have been, under
investigation with respect to a possible violation of, any provision of any
federal, state or local law or administrative ruling or regulation relating to
its business.
Section 3.14 Taxes. (a) Peeper's has timely and duly filed (giving effect
to extensions duly taken) all federal, state, local or foreign tax returns or
reports required to be filed by or with respect to Peeper's on or prior to the
Closing Date.
(b) The tax returns and reports described in subparagraph (a) above
reflect accurately all liability for taxes, charges, fees, levies or other
assessments of any nature whatsoever (including, without limitation, all
federal, state, local and foreign income taxes, estimated taxes, excise taxes,
sales taxes, use taxes, transfer taxes, gross receipts taxes, franchise taxes,
employment, withholding, social security and other payroll related taxes,
property taxes and import duties, whether or not measured in whole or in part by
net income), together with any related penalties, interest and additions to
taxes (any of the foregoing being referred to herein as a "Tax"), for the
periods covered thereby. Peeper's has paid all Taxes required to be paid by it
with respect to the periods covered by the returns and reports described in
subparagraph (a) above. Peeper's has fully collected, withheld and/or paid over
all Taxes required to be collected, withheld and/or paid over to a taxing
authority.
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(c) Peeper's is not currently being audited by any taxing authority
with respect to the returns and reports described in subparagraph (a) above and
there are no claims or assessments pending against Peeper's. Peeper's has not
agreed to waive or extend the statute of limitations with respect to any Taxes
or tax returns and has not filed any consent under section 341(f) of the Code
(or any corresponding provision of state, local or foreign tax law). No written
claim has ever been made by a taxing authority in a jurisdiction where Peeper's
does not presently file Tax returns that Peeper's is or may be subject to
taxation by that jurisdiction. Accurate, correct and complete copies of all tax
returns and reports filed by Peeper's during the five-year period preceding the
Closing Date have been made available to Ergovision. Accurate, correct and
complete copies of any closing agreements with respect to Peeper's which were
entered into with the Internal Revenue Service or any other taxing authority
have heretofore been furnished to Ergovision.
(d) Since January 1, 1997 and through the date hereof, Peeper's has
been a subchapter S corporation within the meaning of Section 1361 of the Code
and under all corresponding provisions of applicable state and local tax laws to
the extent they recognize S corporation status.
Section 3.15 Insurance. Peeper's has insurance for its assets and
operations in amounts and for coverages customary for businesses of its kind and
size. Schedule 3.15 hereto is a complete and correct list of all policies of
insurance carried by Peeper's or pursuant to which Peeper's is a named
beneficiary or pursuant to which the business or assets of Peeper's are insured
and true and complete copies of which have been provided to Ergovision. All of
such policies are in full force and effect, all premiums due and payable in
respect of such policies have been paid in full, and there exists no default or
other circumstance which would create the substantial likelihood of the
cancellation or non-renewal of any such policy. Peeper's has notified such
insurers of any claim known to Peeper's which it believes is covered by any such
insurance policy and has provided Ergovision with a copy of such claim.
Section 3.16 Labor Disputes. Peeper's is not party to a union agreement
and there are no labor unions or other organizations representing or attempting
to represent any employee of Peeper's. There are no work stoppages or other
labor disputes, disturbances, grievances or claims pending or, to the knowledge
of Thralow, threatened in connection with the employees of Peeper's. There is no
unfair labor practice charge or complaint pending or, to the knowledge of
Thralow, threatened against Peeper's before the National Labor Relations Board
or any State Labor Relations Board. There are no claims of discrimination of any
kind pending or, to the knowledge of Thralow, threatened against Peeper's before
any Governmental Body.
Section 3.17 Contracts. Schedule 3.17 contains a complete and correct list
of all contracts, arrangements and agreements in effect on the date hereof (the
"Contracts") to which Peeper's is a party, whether written or oral, including
but not limited to agency or advertising contracts, agreements with employees,
sales representatives, suppliers, wholesalers, manufacturers and distributors,
arrangements with web hosting service providers, website designers, software
vendors or licensors, computer or technical service providers, and agreements
with factors, banks or other lending institutions. A true and complete copy of
each written Contract, and a complete and correct summary of each oral Contract,
has heretofore been made available to Ergovision. Peeper's has performed all of
its obligations required to be
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performed by it, has paid all amounts required to be paid by it and is not in
default in any material respect under any Contract, and no event has occurred
which, with the lapse of time or the giving of notice or both, would constitute
such a default, and no other party to any Contract is in default in any material
respect thereunder. Each of the Contracts constitutes a legal, valid and binding
obligation of Peeper's and the other parties thereto enforceable in accordance
with its terms. Neither Thralow nor Peeper's has received notice that any other
party to any of the Contracts is in default thereunder. Except as set forth on
Schedule 3.17, none of the Contracts requires the consent of a third party in
connection with the transactions contemplated hereby.
Section 3.18 Intellectual Property. (a) Except as set forth on Schedule
3.18, Peeper's owns free and clear of all Liens, and possesses and has the
exclusive right to use, all patents, patent applications, patent rights,
trademarks, trademark applications, trade names, service marks, service mark
applications, domain names, domain name applications, copyrights, copyright
registrations, know-how, trade secrets, proprietary processes, computer programs
and other computer software, technology and formulae (the "Proprietary Rights")
necessary, required or desirable for the conduct of its business as presently
conducted or as proposed to be conducted. All Proprietary Rights are identified
on Schedule 3.18 hereto. Except as set forth on Schedule 3.18, Peeper's owns and
has the sole and exclusive right to use each of the Proprietary Rights for the
categories of goods and services with respect to which such Proprietary Rights
are registered to the extent that such goods and services are currently being
used. Peeper's (i) is not bound by or a party to any options, licenses, or
agreements of any kind with respect to the Proprietary Rights and (ii) has not
assigned, licensed or in any manner encumbered or impaired any rights in the
Proprietary Rights. No Proprietary Right infringes or violates any personal,
property, statutory or common law or any other rights of any third parties
(including, without limitation, copyright, trademark and the rights of privacy
and publicity), and no claim alleging any such infringement or violation by
Peeper's or its Proprietary Rights has been received by Thralow or Peeper's.
(b) Except as set forth on Schedule 3.18, no royalties, honoraria or
fees are payable to and no consents or approvals are needed from any third
persons or entities in connection with the ownership, use or exploitation of the
Proprietary Rights in Peeper's business.
Section 3.19 Software. (a) Schedule 3.19 sets forth a complete and
accurate list of all software programs, systems and applications (i) designed or
developed (or in the process of being designed or developed) by employees of
Peeper's or by consultants on Peeper's behalf (the "Peeper's Owned Software") or
(ii) licensed by Peeper's from any third party (other than "off-the-shelf"
software) (the "Licensed Software") pursuant to the License Agreements specified
on Schedule 3.18, in each case that is manufactured, developed or used by
Peeper's in the operation of Peeper's business or integrated into Peeper's Owned
Software or marketed, licensed or sold by Peeper's to third parties
(collectively, the "Software").
(b) All of Peeper's Owned Software are original works of authorship
and are protected by the copyright laws of the United States. Peeper's owns all
right, title and interest in and to Peeper's Owned Software, free and clear of
any Liens and, except as set forth on Schedule 3.19 hereof, has not sold,
assigned, licensed, distributed or in any other way disposed of Peeper's Owned
Software or subjected Peeper's Owned Software to any Lien, and none of the
employees
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or consultants referenced in Section 3.19(a) has any interest or claim
whatsoever to any of Peeper's Owned Software or any component or constituent
part thereof.
(c) The Licensed Software is validly held and used by Peeper's and
is fully and freely utilizable by Peeper's pursuant to the license agreement
with respect thereto without the consent of or notice to any third party.
Peeper's is in compliance with all material terms and conditions of each license
with respect to the Licensed Software, and neither Thralow nor Peeper's has
received any notice that Peeper's is in breach of any such license.
(d) To the best of Thralow's knowledge, the Software does not
contain any copy protection, computer virus, malicious code or destructive
feature.
Section 3.20 Year 2000. All Software is designed to be used prior to,
during, and after calendar year 2000 and the Software will operate during each
such time period without error relating to date data, specifically including any
error relating to, or the conduct of, date data which represents or references
different centuries or more than one century. Without limiting the generality of
the foregoing, (a) the Software will not abnormally end or provide invalid or
incorrect results as a result of date data and (b) the Software will be capable,
upon installation, of accurately processing, providing and/or receiving date
data from, into, and between the twentieth and twenty-first centuries, including
the years 1999 and 2000, and leap year calculations, and (ii) the Software will
lose no functionality with respect to the introduction of records containing
dates falling before, on or after January 1, 2000, and that the Software will be
interoperable with other software and systems that may deliver records to,
receive record from or otherwise interact with the Software, including but not
limited to, back-up and archived data, date data, century recognition
calculations that accommodate same century and multi-century formulas and date
values and date data interface values that reflect the century.
Section 3.21 Licenses and Permits. Peeper's has all licenses, permits,
consents and approvals necessary for Peeper's to conduct its business as
required by any Governmental Body, and all such licenses, permits, consents and
approvals are set forth in Schedule 3.21 hereto.
Section 3.22 ERISA. (a) Except as set forth on Schedule 3.22 hereto,
Peeper's does not maintain, administer or contribute to, nor has it maintained,
administered or contributed to, nor do the employees of Peeper's receive or
expect to receive as a condition of employment, benefits pursuant to any:
employee pension benefit plan (as defined in Section 3(2) of the Employment
Retirement Income Security Act of 1974, as amended ("ERISA")) (a "Plan"),
including, without limitation, any multiemployer plan as defined in Section
3(37) of ERISA (a "Multiemployer Plan"); employee welfare benefit plan (as
defined in Section 3(1) of ERISA) (a "Welfare Plan"); or bonus, deferred
compensation, stock purchase, stock option, severance plan, salary continuation,
vacation, sick leave, fringe benefit, incentive, insurance, welfare or similar
arrangement (an "Employee Benefit Plan"). Neither Peeper's nor any affiliate of
Peeper's as determined under Code section 414(b), (c), (m) or (o) (an "ERISA
Affiliate") maintains, administers or contributes to, nor have any of them
maintained, administered or contributed to, nor do the employees of Peeper's or
any ERISA Affiliate receive or expect to receive as a condition of employment,
benefits pursuant to any Plan which is subject to section 412 of the Code or
Title IV of ERISA. All Plans, Welfare Plans and Employee Benefit Plans and any
related trust agreements or annuity contracts comply in all material respects
with and are and
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have been operated in accordance with each applicable provision of ERISA and the
Code (including, without limitation, requirements of Code 401(a) to the extent
any Plan is intended to conform to that section), other Federal statutes, state
law (including, without limitation, state insurance law) and the regulations and
rules promulgated pursuant thereto or in connection therewith. Neither Peeper's
nor any ERISA Affiliate has any notice or knowledge of any violation of any of
the foregoing by any Plan, Welfare Plan, or Employee Benefit Plan.
(b) Each Welfare Plan which is a group health plan (within the
meaning of section 5000(b)(1) of the Code) complies with and has been maintained
and operated in all material respects in accordance with the requirements of
section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA. There
are no pending or, to Peeper's knowledge, threatened claims against any of the
Plans, Welfare Plans, or Employee Benefit Plans by any employee or beneficiary
covered under any Plans, Welfare Plans or Employee Benefit Plans or otherwise
involving any Plan, Welfare Plan or Employee Benefit Plan (other than routine
claims for benefits).
Section 3.23 Employees and Other Matters. Schedule 3.23 hereto is a
correct and complete list of (i) the directors and officers of Peeper's and all
of the present employees, sales personnel and independent contractors regularly
employed by or in connection with the business of Peeper's, either as employees
or independent contractors, together with a statement of the full amount payable
by way of salary, bonuses, perquisites, fringe benefits and other direct or
indirect compensation to each such person and (ii) the names of all persons, if
any, holding powers of attorney from Peeper's and a summary statement of the
terms thereof.
Section 3.24 Environmental Matters. (a) Peeper's has obtained and
continues to maintain all permits, licenses, consents and approvals (the
"Environmental Approvals"), if any, necessary for conducting the business of
Peeper's which are required under Environmental Laws, and Peeper's has not
operated in violation of any Environmental Law or the terms of any Environmental
Approval.
(b) (i) Peeper's has not used, stored, generated, discharged,
emitted, transported, disposed of or treated Hazardous Substances except in a
manner which complies with Environmental Laws, (ii) to the best knowledge of
Thralow, no prior owner, occupant, tenant or user of any Facility has ever used,
stored, generated, discharged, emitted, transported, disposed of or treated
Hazardous Substances, at, on or from any Facility except in compliance with all
Environmental Laws, and (iii) to the best knowledge of Thralow, there is not,
and there has not been, any Environmental Condition or release or threat of
release (as those terms are defined in Section 101 of CERCLA) of Hazardous
Substances at, on or from any Facility.
(c) Neither Peeper's nor Thralow has received written notice of any
pending or threatened investigation, claims, enforcement proceedings, cleanup
orders, citizen suits or other actions instituted by any private party, employee
or Governmental Body arising out of the conduct or the operations of Peeper's,
in connection with any Environmental Laws, or as a result of any Environmental
Condition at any Facility.
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Section 3.25 Sales Target. The net sales generated by the Business ("Net
Sales") for the twelve months ended December 31, 1998, were at least $1,478,752,
and for the three months ended March 31, 1999 were at least $485,376.
Section 3.26 Ordinary Course; No Material Adverse Change. Since March 31,
1999, Peeper's has conducted its business in the ordinary and regular course
thereof and there has not been (i) any material adverse change in the assets,
business, prospects, financial condition or results of operations of Peeper's,
(ii) any damage, destruction or loss, whether or not covered by insurance, which
has materially adversely affected assets or the business of Peeper's or (iii)
any event or condition of any character whatsoever the occurrence of which
affects or threatens to materially adversely affect the assets, business,
prospects, financial condition or results of operations of Peeper's.
Section 3.27 Finder's Fees. Neither Thralow nor Peeper's has incurred any
liability for finder's or brokerage fees or agent's commissions in connection
with this Agreement or the transactions hereby contemplated.
Section 3.28 Full Disclosure. No representation or warranty of Peeper's or
the Thralow in this Agreement or in any other certificate, schedule or other
document delivered to Ergovision pursuant to this Agreement contains an untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements herein and therein not misleading in light of the
circumstances in which they were made.
Article IV.
REPRESENTATIONS AND WARRANTIES OF ERGOVISION AND SUBSIDIARY
Ergovision and Subsidiary, jointly and severally, represent and
warrant to Peeper's and Thralow that:
Section 4.01 Organization and Good Standing. Ergovision is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the corporate power and authority to own or lease all
of its properties and assets and carry on its business as it is now being
conducted, except for such power and authority the lack of which would not have
a materially adverse effect on Ergovision. Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, is a wholly owned subsidiary of Ergovision and is organized solely for
the purpose of consummating the transactions contemplated hereby.
Section 4.02 Authority Relative to Agreement. Ergovision and Subsidiary
each have the corporate power and authority to execute and deliver this
Agreement, and all other documents hereby contemplated, to consummate the
transactions hereby and thereby contemplated and to take all other actions
required to be taken by each of them pursuant to the provisions hereof and
thereof. The execution, delivery and performance of this Agreement and all other
documents hereby contemplated to be executed by Ergovision and Subsidiary has
been, and the consummation by Ergovision and Subsidiary of the transactions
hereby and thereby contemplated has been, duly authorized by any and all
necessary corporate action of Ergovision
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and Subsidiary, respectively. The respective Boards of Directors of Ergovision
and Subsidiary have authorized and approved the execution, delivery and
performance of this Agreement and the transactions contemplated hereby. This
Agreement and all other documents hereby contemplated to be executed by
Ergovision and Subsidiary constitute the legal, valid and binding obligations of
Ergovision and Subsidiary, respectively, enforceable against Ergovision and
Subsidiary in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, moratorium, insolvency, fraudulent
conveyance, reorganization, or other similar laws affecting the enforcement of
creditor's rights.
Section 4.03 No Violation of Other Instruments or Obligations. Neither the
execution and delivery of this Agreement or any other documents hereby
contemplated nor the consummation of the transactions hereby and thereby
contemplated shall (i) constitute any violation or breach of the Certificate of
Incorporation or By-laws of Ergovision or Subsidiary, (ii) constitute a default
under or a violation or breach of, or result in acceleration of any obligation
under, any provision of any contract, lease, mortgage or other instrument to
which either of them is a party, or (iii) violate any judgment, order, writ,
injunction, decree, statute, rule or regulation affecting Ergovision, Subsidiary
or any of their respective assets, which violation, breach or default, in the
case of (ii) or (iii), would have a materially adverse effect on Ergovision or
Subsidiary.
Section 4.04 Consents and Approvals. No authorization, approval, order,
license, permit, franchise or consent, and no registration, declaration, notice
or filing by or with any domestic or foreign Governmental Body by Ergovision or
Subsidiary is required in connection with the execution and delivery of this
Agreement and the consummation of the transactions hereby contemplated.
Section 4.05 Capitalization; Common Stock. (a) The capitalization of
Ergovision, including all outstanding stock options, is accurately and fully set
forth on Schedule 4.05 hereto. Subsidiary is authorized to issue only 100 shares
of common stock, .01 par value per share, all of which shares of common stock
are issued and outstanding and owned by Ergovision. There are no other series or
classes of capital stock of Subsidiary authorized or issued.
(b) The Ergovision Stock to be issued to Thralow pursuant to the
provisions of this Agreement will, upon such issuance, be duly authorized,
legally and validly issued, and fully paid and nonassessable.
Section 4.06 Financial Statements. Schedule 4.06 hereto contains (i) the
unaudited balance sheet of Ergovision as of December 31, 1998 and the related
statements of operations, cash flows and shareholders' equity, including the
notes thereto, for the year then ended and (ii) the unaudited balance sheet of
Ergovision as of February 28, 1999 and the related statements of operations,
cash flows and shareholders' equity, including the notes thereto, for the
two-month period then ended, all of which have been compiled by Ergovision's
certified public accountant and delivered to Peeper's and Thralow. Such
financial statements present fairly, in all material respects, the financial
position of Ergovision as of December 31, 1998 and February 28, 1999,
respectively, and the results of Ergovision's operations, cash flows and
shareholders' equity for the year ended December 31, 1998 and the two-month
period ended February 28, 1999, all in conformity with GAAP applied on a
consistent basis.
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Section 4.07 Title to Assets. Except for Liens (i) for any current taxes
or assessments not yet delinquent or (ii) created by statute of carriers,
warehousemen, mechanics, laborers and materialmen incurred in the ordinary
course of business for sums not yet due, Ergovision has good and marketable
title, free and clear of all Liens, to all of its assets and personal property.
Section 4.08 Litigation. Except as set forth on Schedule 4.08 hereto,
there are no material claims, actions, suits, litigations, proceedings, audits,
controversies or investigations, pending or, to the knowledge of Ergovision,
threatened against or affecting Subsidiary, Ergovision or any of its assets, and
neither Ergovision nor Subsidiary has been charged with or, to the knowledge of
the Ergovision, threatened with a charge of any violation of, and is not under
investigation with respect to a possible violation of, any provision of any
federal, state or local law or administrative ruling or regulation relating to
its business, the adverse outcome of which, in any such case, would have a
materially adverse effect on Ergovision or Subsidiary.
Section 4.09 Licenses and Permits. Schedule 4.09 sets forth all licenses,
permits, consents and approvals necessary for Ergovision to conduct its business
as required by any Governmental Body, other than any such licenses, permits,
consents and approvals the absence of which would not have a materially adverse
effect on Ergovision.
Section 4.10 Ordinary Course; No Material Adverse Change. Since March 31,
1999, Ergovision has conducted its business in the ordinary and regular course
thereof and there has not been (i) any material adverse change in the assets,
business, prospects, financial condition or results of operations of Ergovision,
(ii) any damage, destruction or loss, whether or not covered by insurance, which
has materially adversely affected the assets or the business of Ergovision or
(iii) any event or condition of any character whatsoever the occurrence of which
materially adversely affects the assets, business, prospects, financial
condition or results of operations of Ergovision.
Section 4.11 Finder's Fees. Ergovision has not incurred any liability for
finder's or brokerage fees or agent's commissions in connection with this
Agreement or the transactions hereby contemplated.
Section 4.12 Full Disclosure. No representation or warranty of Ergovision
or Subsidiary in this Agreement or in any other certificate, schedule or other
document delivered to Peeper's or Thralow pursuant to this Agreement contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements herein and therein not misleading in
light of the circumstances in which they were made.
Article V.
CONDITIONS TO ERGOVISION'S AND SUBSIDIARY'S OBLIGATIONS
All obligations of Ergovision and Subsidiary under this Agreement
are subject to the fulfillment of each of the following conditions:
Section 5.01 Representations and Warranties. The representations and
warranties of Peeper's and Thralow contained in Article III hereof shall be true
and correct at and as of the Closing Date as though such representations and
warranties were made at and as of such date.
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Section 5.02 Employment Agreements. Thralow shall have entered into an
employment agreement substantially in the form of Exhibit B hereto. Jonathan
Thralow shall have entered into an employment agreement substantially in the
form of Exhibit C hereto.
Section 5.03 Powers of Attorney. There shall have been terminated or
revoked all powers of attorney of Peeper's.
Section 5.04 Opinion of Counsel. Peeper's shall cause to be delivered to
Ergovision an Opinion of Counsel for Peeper's, in form and substance
satisfactory to Ergovision and its counsel.
Section 5.05 Releases. Thralow shall have executed and delivered the
Release.
Section 5.06 Non-Competition Agreement. Thralow shall have entered into a
non-competition agreement substantially in the form of Exhibit E hereto.
Section 5.07 Resignations. Peeper's shall have caused to be delivered to
Ergovision written resignations, effective as of the Closing, of each of the
directors and officers of Peeper's from all offices and directorships of
Peeper's held.
Section 5.08 Governmental Permits and Approvals; Consents. Peeper's shall
have obtained (with the reasonable assistance of Ergovision to the extent
required to obtain such approvals) (i) all permits and approvals from any
Governmental Body required to be obtained by Peeper's for the lawful
consummation of the Closing and (ii) the consents set forth or required to be
set forth on Schedule 3.07. Notwithstanding the foregoing, Peeper's shall not be
required to pay any consideration to any third party in order to obtain any such
permit, approval, consent or estoppel representation letter.
Section 5.09 Merger. The Certificate of Merger and the Minnesota
Certificate shall each have been executed and delivered by Peeper's to
Ergovision.
Section 5.10 Assignment of Contracts. Peeper's shall obtain (with the
reasonable assistance of Ergovision to the extent necessary to obtain such
consents) the consent of all other parties to an assignment of any Contract in
all cases in which such consent is required thereunder. Notwithstanding the
foregoing, Peeper's shall not be required to pay any consideration to any third
party in order to obtain any such consent.
Section 5.11 Officer's Certificate. Peeper's shall have caused to be
delivered to Ergovision a certificate signed by the Chief Executive Officer
and/or the Secretary of Peeper's stating that (a) the representations and
warranties of Peeper's as set forth in Article 3 hereof are true and accurate on
and as of the Closing Date as if made on and as of such date and (b) all
conditions of Ergovision's obligations as set forth in Article 5 hereof have
been entirely fulfilled by Peeper's.
Section 5.12 Consent of Shareholders of Subsidiary. The sole shareholder
of Subsidiary shall have authorized and approved the execution, delivery and
performance of this Agreement and the transactions contemplated hereby.
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Section 5.13 Due Diligence. Ergovision shall have completed its business,
financial and legal due diligence review of Peeper's to Ergovision's
satisfaction.
Section 5.14 Financing. Ergovision's third party sources of capital who
are financing the portion of the Merger Consideration set forth in Section
2.03(a) hereof shall have approved the transactions contemplated hereby.
Section 5.15 Monthly Sales Reports. Peeper's shall have delivered to
Ergovision monthly sales updates within five (5) business days of the end of
each calendar month between the date hereof and the Closing Date.
Section 5.16 Additional Documents. Peeper's and/or Thralow has executed
and delivered such additional closing documents, certificates and agreements as
Ergovision may reasonably request.
Article VI.
CONDITIONS TO PEEPER'S AND THRALOW'S OBLIGATIONS
All obligations of Peeper's and Thralow under this Agreement are
subject to the fulfillment of each of the following conditions:
Section 6.01 Representations and Warranties. The representations and
warranties of Ergovision and Subsidiary contained in Article IV hereof shall be
true and correct in all material respects at and as of the Closing Date as
though such representations and warranties were made at and as of such date.
Section 6.02 Employment Agreement. Ergovision shall have entered into an
employment agreement with Thralow substantially in the form of Exhibit B hereto
and an employment agreement with Jonathan Thralow substantially in the form of
Exhibit C hereto.
Section 6.03 Opinion of Counsel. Ergovision shall cause to be delivered to
Peeper's and Thralow an opinion of counsel for Ergovision and Subsidiary, in
form and substance satisfactory to Peeper's, Thralow and their counsel, opining,
inter alia, that on the basis of certain facts, representations and assumptions
set forth in such opinions which are consistent with the state of facts existing
at the Closing Date, to the effect that the Merger qualifies in relevant part as
a tax-free reorganization for United States Federal income tax purposes within
the meaning of Section 368(a) of the Code. In rendering the opinions described
in the preceding sentence, such counsel may require and rely upon
representations contained in certificates of officers of Ergovision and
Subsidiary.
Section 6.04 Governmental Permits and Approvals; Consents. Ergovision
shall have obtained (with the reasonable assistance of Ergovision to the extent
required to obtain such approvals) (i) all permits and approvals from any
Governmental Body required to be obtained by Ergovision for the lawful
consummation of the Closing and (ii) approval of this Agreement and the
transactions contemplated hereby by Subsidiary's shareholders. Notwithstanding
the foregoing, Ergovision shall not be required to pay any consideration to any
third party in order to obtain any such permit, approval, consent or estoppel
representation letter.
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Section 6.05 Officer's Certificate. Ergovision shall have caused to be
delivered to Peeper's a certificate signed by the Chief Executive Officer and/or
the Secretary of Ergovision stating that (a) the representations and warranties
of Ergovision and Subsidiary as set forth in Article 4 hereof are true and
accurate on and as of the Closing Date as if made on and as of such date and (b)
all conditions of Peeper's and Thralow's obligations as set forth in Article 6
hereof have been entirely fulfilled by Ergovision and Subsidiary.
Section 6.06 Election to Boards of Directors. Ergovision shall have caused
Thralow to be elected to the respective Boards of Directors of Ergovision and
Subsidiary, with his term to commence as of the first business day after the
Closing Date.
Section 6.07 Due Diligence. Thralow and Peeper's shall have completed
their business, financial and legal due diligence review of Ergovision to the
satisfaction of Thralow and Peeper's.
Section 6.08 Additional Documents. Ergovision and/or Subsidiary has
executed and delivered such additional closing documents, certificates and
agreements as Peeper's or Thralow may reasonably request.
Article VII.
COVENANTS
Section 7.01 Further Assurances. From and after the date hereof, Thralow
and Peeper's shall, at any time and from time to time, at their sole cost and
expense, make, execute and deliver, or cause to be made, executed and delivered,
such assignments, deeds, drafts, checks, stock certificates, returns, filings
and other instruments, agreements, consents and assurances and take or cause to
be taken all such actions as counsel for Ergovision may reasonably request for
the effectual consummation, confirmation and particularization of this Agreement
and the transactions hereby contemplated.
Section 7.02 Collection of Receivables. In the event that Thralow receives
any amounts after the Closing Date in respect of Peeper's accounts receivable
that existed prior to the Closing Date, Thralow agrees to promptly forward all
such amounts to Ergovision.
Section 7.03 Taxes. (a) Thralow shall be responsible for the good faith
preparation of all federal S corporate income tax returns (i.e., Form 1120S) and
state S corporate income tax returns for Peeper's (the "S Corporation Returns"),
including extensions, for taxable periods ending prior to the Closing Date. At
least ninety (90) days prior to the due date (including extensions) of any S
Corporation Return, Thralow shall cause such S Corporation Returns to be
delivered to Ergovision for its approval, and, subject to approval by
Ergovision, will thereafter sign such Return as an officer of Peeper's. Once
approved, Ergovision shall timely file all S Corporation Returns timely
delivered to it by Thralow, without modifications, and shall furnish Thralow
with evidence regarding the filing of such S Corporation Returns.
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(b) Thralow shall not amend any S Corporation Returns without the
prior written consent of Ergovision. If Thralow desires to amend or have amended
an S Corporation Tax Return, Thralow agrees to hold Ergovision harmless from any
additional Taxes that Ergovision may have to bear on account of such amended S
Corporation Return, and Ergovision and Thralow shall, at Thralow's cost,
cooperate in such matter to the extent reasonable.
Section 7.04 Standstill. In consideration of Ergovision's and Subsidiary's
execution and delivery of this Agreement, Thralow and Peeper's agree to
immediately cease any existing discussions or negotiations with any third
parties conducted prior to the date hereof with respect to any merger, business
combination, sale of a material portion of Peeper`s assets outside of the
ordinary course of business, change of control or similar transaction involving
the Company or any of its subsidiaries or division (each, an "Acquisition
Transaction"). Thralow and Peeper's shall not, and will cause their respective
"affiliates" (as defined in the Securities Exchange Act of 1934 (the "Exchange
Act")) as well as Peeper's management, employees, agents, representatives,
officers and directors, not to:
(a) from the date hereof until the earlier of the Closing Date or
the termination of this agreement, directly or indirectly solicit,
initiate, encourage, accept, entertain, participate in or consult with
respect to (including by way of furnishing information) any inquiry,
offer, discussion, proposal, negotiation, arrangement or understanding in
connection with any proposed Acquisition Transaction with any person, firm
or corporation other than Ergovision or Subsidiary, or provide any
information (public or non-public) or otherwise cooperate in any way with
anyone for any purpose inconsistent with the terms of this letter
agreement (it being also agreed that Thralow and Peeper's shall promptly
notify Ergovision in writing of any such inquiries or proposals); and
(b) for a period commencing on the date hereof and ending twelve
months following the date of the termination of this agreement, if
applicable,
(i) become a "participant" in a "solicitation" of proxies, as
those terms are defined in Rule 14a-11 and Rule 14a-1, respectively,
of Regulation 14A under the Exchange Act, to vote, or seek to advise
or influence any person, in respect of any voting securities of
Ergovision that may be outstanding and entitled to vote at any time
during such period, except in respect of the transactions
contemplated hereby;
(ii) form, join or in any way participate in any "group" (as
such term is defined in Section 13(d)(3) of the Exchange Act) for
the purpose of voting, purchasing or disposing of any securities of
Ergovision;
(iii) deposit any securities of Ergovision in a voting trust
or subject them to a voting agreement or other arrangement or
similar effect;
(iv) in any manner acquire or agree, offer, seek or propose to
acquire or make any proposal to acquire ownership (including,
without limitation, "beneficial" ownership, as defined by Rule 13d-3
promulgated under the Exchange Act) of any of the assets or
businesses of, or any securities of, or any
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securities issued by, Ergovision or any rights or options to acquire
such ownership (including from a third party), except through the
transactions contemplated hereby;
(v) seek or propose to influence or control the management,
Board of Directors or policies of Ergovision, except for the
transactions contemplated hereby; or
(vi) enter into any discussion, proposal, negotiation,
arrangement or understanding with any third party in respect of any
of the foregoing.
Section 7.05 Continuation of Business. (a) From the date hereof until the
earlier of the Closing Date or the date of the termination of this Agreement,
except as Thralow, Peepers and Ergovision may otherwise agree, Peeper's will,
and Thralow will cause Peeper's to, preserve and continue to operate its
business diligently and in a proper and prudent manner and will not enter into
any transactions outside of the ordinary and usual course of its business or
enter into any transaction or make any commitment involving an expense or
capital expenditure by Peeper's in excess of $5,000. Except for those amounts
set forth on Schedule 7.05 hereto, during such period no bonuses or compensation
will be paid to the officers or employees of Peeper's other than salaries in
effect on the date hereof and payments made in the form of bonuses in the
ordinary course of business consistent with past practice, and Peeper's will not
declare any dividends, grant new stock options, accelerate any options or issue
new shares of stock or other securities (other than pursuant to exercise of
events of outstanding options, warrants or rights) or rights to acquire any such
options, shares or securities, or make any commitments with respect to any of
the foregoing, nor will distributions of any nature be made to the shareholders
of Peeper's. During such period, Peeper's will endeavor to maintain the goodwill
of business relationships with all of their existing customers and suppliers.
Specifically, without limitation of the foregoing, Peeper's shall not, and
Thralow shall cause Peeper's not to, (i) place or permit any third party to
place any Lien on any of Peeper's assets, (ii) commit any material breach of any
Contract which is not cured by the Closing Date, (iii) amend or waive any
defaults under any Contract or (iv) initiate or become a voluntary third party
participant in any litigation or arbitration proceeding.
(b) From the date hereof until the earlier of the Closing Date or
the date of the termination of this Agreement, except as Thralow, Peepers and
Ergovision may otherwise agree, Ergovision shall not grant new stock options,
accelerate any options or issue new shares of stock or other securities (other
than pursuant to exercise of events of outstanding options, warrants or rights)
or rights to acquire any such options, shares or securities, to any of
Ergovision's employees; provided, however, that such restrictions shall not
prevent or restrict Ergovision from engaging in such activities with respect to
Ergovision's consultants, contractors or other third parties.
Section 7.06 Standstill Payments. Ergovision may, in its sole discretion,
on or before the Closing Date (as extended pursuant to this Section 7.06), make
an additional payment of Ten Thousand Dollars ($10,000) to Peeper's to extend
the latest possible Closing Date through June 30, 1999 in consideration of such
additional payment. Any references to the "Closing Date" in this Agreement shall
be subject to and shall be deemed to include such extension. Any payments
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made pursuant to this Section 7.06 shall, in the event of the Closing, be
credited against the portion Merger Consideration provided in Section 2.03(a)
hereof. In the event that the transactions contemplated hereby do not close, all
such funds may be retained by Peeper's for its own purposes except, however,
that such funds shall be promptly refunded in full to Ergovision in the event
that the transaction does not close because the due diligence review of
Ergovision by Peeper's and Thralow as set forth in Section 6.07 hereof shall not
be satisfactory to Peeper's or Thralow.
Section 7.07 Break-Up Fee. Peeper's and Thralow agree that in the event
that (i) Peeper's or Thralow breaches that certain Confidentiality Agreement,
dated March 26, 1999 (the "Confidentiality Agreement") or any material provision
hereof, or (ii) the transaction contemplated hereby is not consummated on or
before the Closing Date due to any unreasonable delay caused by Peeper's or
Thralow or as a result of the failure of Ergovision's closing conditions, as set
forth in this Agreement, to be met due to any action, omission or
misrepresentation of Peeper's or Thralow, then Peeper's shall promptly pay a
break-up fee to Ergovision in an amount equal to $250,000 (the "Break-Up Fee").
In addition, notwithstanding the terms of Section 7.06 hereof, in the event that
the transaction contemplated hereby does not close as a result of the events set
forth in clauses (i) or (ii) of the first sentence of this Section 7.07, all
payments made to Peeper's by Ergovision pursuant to Section 7.06 or the Letter
of Intent as of the date of such event shall also be promptly refunded to
Ergovision on demand. Peeper's obligation to pay the Break-Up Fee shall not be
triggered in the event that Ergovision and Subsidiary refuse to close the Merger
because of exceptions to the representations and warranties of Peeper's and
Thralow contained herein, where Ergovision and Subsidiary had actual knowledge
of the conditions or circumstances constituting such exceptions on the date
hereof.
Article VIII.
INVESTMENT INTENT; RESTRICTIONS ON TRANSFER
Section 8.01 Investment Representation. Thralow (i) represents and
warrants to Ergovision that he is acquiring all of the shares of Ergovision
Stock to be issued to him pursuant to the provisions of this Agreement for his
own account and for the purposes of investment and not with a view to, or for
sale in connection with, any distribution thereof, and (ii) agrees that he will
not at anytime sell or otherwise transfer, or permit the sale or other transfer
of, such shares of Ergovision Stock other than in transactions that are not in
violation of the Securities Act of 1933 or the provisions of any other
applicable securities laws, rules or regulations.
Section 8.02 Stock Legend. All certificates representing shares of
Ergovision Stock to be delivered to Thralow under this Agreement shall bear the
following legend:
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or under the securities laws of any
state and may not be sold, assigned, transferred, pledged or otherwise
disposed of except in compliance with, or pursuant to an exemption from,
the requirements of such Act or such laws."
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Article IX.
INDEMNIFICATION
Section 9.01 By Thralow. Thralow agrees to indemnify and hold harmless
Ergovision, Subsidiary and their respective directors, officers, employees and
agents (the "Purchaser Parties") against, and to reimburse Purchaser Parties on
demand with respect to, any and all losses, liabilities, obligations, suits,
proceedings, demands, judgments, damages, claims, expenses and costs (including,
without limitation, reasonable fees, expenses and disbursements of counsel)
(collectively, "Losses") which each may suffer, incur or pay by reason of (i)
the breach by Thralow or Peeper's of any representation or warranty made by
either of them in this Agreement or in any agreement, certificate or other
document executed by Thralow or Peeper's and delivered to Ergovision or
Subsidiary pursuant to the provisions of this Agreement; (ii) the failure of
Thralow or Peeper's to perform any agreement required by this Agreement or any
agreement executed pursuant to the provisions of this Agreement; (iii) the
allegation by any third party of the existence of any liability, obligation,
lease, agreement, contract, other commitment or state of facts which, if such
allegation were true, would constitute a breach by Thralow or Peeper's of any
representation or warranty made by either of them in this Agreement or in any
agreement, certificate or other document delivered by or on behalf of Thralow
and Peeper's to Ergovision or Subsidiary pursuant to the provisions of this
Agreement or of any covenant made by Thralow or Peeper's herein or therein.
Section 9.02 By Ergovision. Ergovision agrees to indemnify and hold
harmless Thralow against, and to reimburse Thralow on demand with respect to,
any and all Losses which Thralow may suffer, incur or pay by reason of (i) the
breach by Ergovision or Subsidiary of any representation or warranty made by
either of them in this Agreement or in any agreement, certificate or other
document executed by Ergovision or Subsidiary and delivered to Thralow pursuant
to the provisions of this Agreement; (ii) the failure of Ergovision or
Subsidiary to perform any agreement required by this Agreement or any agreement
executed pursuant to the provisions of this Agreement; and (iii) the allegation
by any third party of the existence of any liability, obligation, lease,
agreement, contract, other commitment or state of facts which, if such
allegation were true, would constitute a breach by Ergovision or Subsidiary of
any representation or warranty made by either of them in this Agreement or in
any agreement, certificate or other document delivered by or on behalf of
Ergovision or Subsidiary to Thralow pursuant to the provisions of this Agreement
or of any covenant made by Ergovision or Subsidiary herein or therein.
Section 9.03 Indemnification Procedure. The Purchaser Parties, in the case
of Section 9.01 hereof, and Thralow, in the case of Section 9.02 hereof
(hereinafter, the applicable party or parties providing indemnity, the
"Indemnifying Party" and the party or parties being indemnified, the
"Indemnified Party") agree to give the Indemnifying Party prompt written notice
of the allegation by any third party of the existence of any liability,
obligation, lease, agreement, contract, other commitment or state of facts
referred to in clause (iii) of Sections 9.01 and 9.02 hereof, as applicable. The
Indemnifying Party shall be entitled, at his or its sole cost and expense, to
participate in and to control the contest, defense, settlement or compromise of
any claim if the Indemnifying Party shall agree in writing within 15 days after
the receipt of notice of such claim that it is required, pursuant to this
Article 9, to indemnify the Indemnified
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Party for the full amount of such claim (the "Claim Acknowledgement Procedure").
If the Indemnifying Party shall assume the defense of a claim hereunder, the
Indemnified Party shall be kept informed with respect to, and shall have the
right to participate in, the contest, defense, settlement or compromise of any
such claim. If the Indemnifying Party does not assume the defense of a claim
within a reasonable time after notice thereof or, after assumption, does not
thereafter diligently pursue such defense or does not comply with the Claim
Acknowledgement Procedure, the Indemnified Party shall be entitled to defend,
settle or compromise such matter for the account and at the expense of the
Indemnifying Party. Notwithstanding the foregoing provisions of this Section
9.03, the Indemnified Party shall have the sole right to control the contest,
defense, settlement or compromise of any claim if such claim is not a claim
solely for monetary damages. Notwithstanding anything to the contrary set forth
in this Article IX, no Indemnified Party shall be entitled to indemnification
until the aggregate amount of Losses payable to such Indemnified Party (without
giving effect to this limitation) exceeds $25,000; provided, that, if the
aggregate amount of such Losses exceeds $25,000, indemnification shall be made
to the full extent of any such Losses, including any such Losses that arose
prior to the time that the aggregate of such Losses exceeded $25,000.
Section 9.04 Knowledge of Parties. Notwithstanding the generality of
Sections 9.01 and 9.02 hereof, conditions or circumstances that would otherwise
constitute exceptions to any representations or warranties of Ergovision or
Subsidiary, on the one hand, or Thralow or Peeper's, on the other hand, but of
which the other party has actual knowledge on the date hereof shall not cause
any liability of such representing or warranting party under this Agreement.
Article X.
TERMINATION
This Agreement may be terminated at any time prior to the Closing Date (as
such date may be extended pursuant to Section 7.06 hereof):
(a) By mutual consent of the parties;
(b) By Ergovision and Subsidiary, if there has been a material
violation or breach by Thralow or Peeper's of any agreement, representation,
warranty, or condition contained in this Agreement not cured to the reasonable
satisfaction of Ergovision and Subsidiary prior to the Closing Date; or
(c) By Thralow and Peeper's, if there has been a material violation
or breach by Ergovision or Subsidiary of any agreement, representation,
warranty, or condition contained in this Agreement not cured to the reasonable
satisfaction of Thralow and Peeper's prior to the Closing Date.
Article XI.
MISCELLANEOUS
Section 11.01 Survival of Representations and Warranties. All statements,
certifications, indemnification's, representations and warranties made hereby by
the parties to this Agreement
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and their respective covenants, agreements and obligations to be performed
pursuant to the terms hereof shall, unless waived in writing and notwithstanding
any examination by or on behalf of any party hereto and notwithstanding the
consummation of the transactions hereby contemplated, survive the closing of the
transactions hereby contemplated for a period of 24 months; provided, however,
that the representations and warranties set forth in Section 3.19 and Section
3.20 shall survive the closing of the transactions hereby contemplated for a
period of five years.
Section 11.02 Merger Provision. All prior or contemporaneous agreements,
contracts, promises, representations and statements, if any, among the parties
hereto (including, without limitation, the Letter of Intent) as to the subject
matter hereof, other than the Confidentiality Agreement, are merged into this
Agreement. This Agreement, together with the Confidentiality Agreement, all
agreements, schedules, exhibits, documents and other instruments to be attached
hereto or delivered herewith sets forth the entire understanding between the
parties, and there are no terms, conditions, representations, warranties or
covenants other than those contained herein and in such agreements, schedules,
exhibits, documents and other instruments to be attached hereto or delivered
herewith.
Section 11.03 Amendment and Modification. No term or provision of the
Agreement may be amended, released, discharged or modified in any respect except
in writing signed by the party to be charged and only to the extent therein set
forth.
Section 11.04 Waiver. (a) No waiver shall be deemed to be made by any of
the parties to any of its rights hereunder unless that waiver shall be in a
writing signed by the waiving party and only to the extent therein set forth.
(b) No failure of any of the parties to exercise any power given
such party hereunder or to insist upon strict compliance by any other party with
its obligations hereunder, and no custom or practice of the parties at variance
with the terms hereof shall constitute a waiver of the right of any party to
demand precise compliance with the terms of the Agreement.
Section 11.05 Notices. (a) All notices, consents, demands or other
communications required or permitted to be given pursuant to the Agreement shall
be in writing and shall be deemed sufficiently given on (i) the day on which
delivered personally or by telecopy (with prompt confirmation by mail) during a
business day to the appropriate location listed as the address below, (ii) three
business days after the posting thereof by United States registered or certified
first class mail, return receipt requested with postage and fees prepaid, or
(iii) one business day after deposit thereof for overnight delivery. Such
notices, consents, demands or other communications shall be addressed
respectively:
As to Thralow: Daniel Thralow
1908 East 3rd Street, Apartment #6
Duluth, Minnesota 55802
Telephone No.: (218) 728-0335
24
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with a copy to: Hanft, Fride, O'Brien, Harries, Swelbar & Burns, P.A.
1000 U.S. Bank Place
130 West Superior Street
Duluth, Minnesota 55802-2094
Attn: Mark D. Pilon, Esq.
Telephone: (218) 722-4788
Telecopy: (218) 529-2401
As to Ergovision: Ergovision, Inc.
One Fairchild Court
Plainview, New York 11803
Attn: Mark H. Levin
Telephone No.: (516) 349-1110
Telecopy No.: (516) 349-9191
with a copy to: Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
Attn: Eric M. Lerner, Esq.
Telephone No.: (212) 940-8800
Telecopy No.: (212) 940-8776
or to any other address or telecopy number which such party may have
subsequently communicated to the other parties in writing.
(b) Except as otherwise provided in this Agreement, any notice,
consent, demand or other communication given hereunder may be signed on behalf
of a party by any duly authorized representative of that party.
Section 11.06 Governing Law; Service of Process. This Agreement and any
other agreement entered into in connection herewith shall be governed by, and
construed under and in accordance with, the laws of the State of New York
applicable to contracts made and wholly to be performed therein by residents
thereof, without giving effect to the conflict of laws principles thereof. All
actions or proceedings seeking the interpretation and/or enforcement of this
agreement shall be brought only in the state or federal courts located in New
York County, all parties hereby submitting themselves to the jurisdiction of
such courts for such purpose. Any process in any action or proceeding commenced
in the courts of the State of New York arising out of any claim, dispute or
disagreement, may, among other methods, be served upon any party by delivering
or mailing the same, via registered or certified mail, addressed to such party
pursuant to Section 11.05 hereof. Any such delivery or mail service shall be
deemed to have the same force and effect as personal service within the State of
New York, New York County.
Section 11.07 Captions. The captions and the table of contents appearing
in this Agreement, are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope or intent of this
Agreement or any of the provisions hereof.
25
<PAGE>
Section 11.08 Severability. If any term or provision of this Agreement,
the application thereof to any person, or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of the Agreement or the application of
such term or provision to persons or circumstances other than those as to which
it is held void or unenforceable, shall not be affected thereby, and each term
and provision of the Agreement shall be valid and be enforced to the fullest
extent permitted by law.
Section 11.09 Publicity. Any communications and notices to third parties
and all other publicity concerning the transactions contemplated by the
Agreement (other than governmental or regulatory filings) shall be planned and
coordinated by and among the parties. Unless required by applicable law, none of
the parties shall disseminate or make public or cause to be disseminated or made
public any information regarding the transactions contemplated hereunder without
the prior written approval of the other parties, which approval shall not be
unreasonably withheld.
Section 11.10 Advice of Counsel. Thralow has reviewed with his tax advisor
the U.S. federal, state, local and foreign tax consequences of an investment in
the Ergovision Stock and the transactions contemplated by this Agreement.
Thralow is relying solely on such advisors and not on any statements or
representations of Ergovision or any of its agents (except for the Opinion of
Counsel provided for in Section 6.03 hereof) and understands that he (and not
Ergovision) shall be responsible for his own tax liability that may arise as a
result of this investment in Ergovision or the transactions contemplated by this
Agreement.
Section 11.11 Cumulative Rights and Remedies. The rights and remedies
provided for in this Agreement are cumulative and in addition to, and shall not
restrict or limit, any other rights and remedies available at law or in equity.
Section 11.12 Expenses. Each of the parties hereto shall bear its own
expenses associated with the negotiation and execution of the Agreement and the
consummation of the transactions contemplated hereby including, without
limitation, legal and accounting fees and expenses.
Section 11.13 Costs of Enforcement. The prevailing party in any proceeding
brought to enforce any provision of the Agreement shall be entitled to recover
the reasonable fees and costs of its counsel, plus all other costs of such
proceeding.
Section 11.14 Third Parties. Other than the parties hereto, no person
shall have any rights under or to enforce any provision of this Agreement.
Section 11.15 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto, their respective heirs,
administrators, executors, successors and assigns; provided, however, that this
Agreement may not be assigned by any of the parties hereto other than by and
among Ergovision and its subsidiaries.
Section 11.16 Counterparts. The Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute a single agreement.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the 7th day of May, 1999.
ERGOVISION, INC.
By /s/ Mark H. Levin
----------------------------------------
Name: Mark H. Levin
Title: President
PEEPER'S, INC.
By /s/ Mark H. Levin
----------------------------------------
Name: Mark H. Levin
Title: Chief Executive Officer
PEEPER'S SUNGLASSES AND ACCESSORIES, INC.
By /s/ Daniel Thralow
----------------------------------------
Name: Daniel Thralow
Title: President
/s/ Daniel Thralow
-------------------------------------------
DANIEL THRALOW
27
PURCHASE AGREEMENT
PURCHASE AGREEMENT (this "Agreement"), dated as of the 5th day of
May, 1999, by and among Ergovision, Inc. (the "Purchaser"), a Delaware
corporation, Starsystems, (the "Seller"), a New Hampshire sole proprietorship,
and Thomas Gilligan ("Gilligan") an individual residing at 447 Old Henniker
Road, Hopkinton, NH 03229.
W I T N E S S E T H:
WHEREAS, the Seller is the sole and exclusive owner of the domain
name "icity.com" (the "Domain"); and
WHEREAS, Gilligan is the sole proprietor of the Seller; and
WHEREAS, the Purchaser desires to acquire from the Seller, and the
Seller desires to sell to the Purchaser, all of Seller's right, title in and to
the Domain.
NOW, THEREFORE, the parties hereto hereby agree as follows:
Article 1.
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
respective meanings set forth below:
"Ergovision Stock" means the Common Stock, par value $0.001 per
share, of the Purchaser.
"Ergovision Stock Price" means, with respect to any business day,
the closing asked price of a share of Ergovision Stock as quoted on the Over the
Counter Bulletin Board System, the NASDAQ National Market System, the NASDAQ
Small Cap Market, or on any national securities exchange on which the Ergovision
Stock is then traded and quoted, for any such day.
"Governmental Body" means any federal, state, local or foreign
governmental authority or regulatory body, any subdivision, agency, commission
or authority thereof (including, without limitation, environmental protection,
planning and zoning), or any quasi-governmental or private body exercising any
regulatory authority thereunder (including, without limitation, Network
Solutions, Inc.) and any person directly or indirectly owned by and subject to
the control of any of the foregoing, or any court, arbitrator or other judicial
or quasi-judicial tribunal.
"Governmental Rules" means any statute, law, treaty, rule, code,
ordinance, regulation, policy, permit, certificate or order of any Governmental
Body or any judgment, decree, injunction, writ, order or like action of any
Governmental Body.
<PAGE>
"Lien" means any mortgage, charge, pledge, lien, security interest,
claim, encumbrance or restriction, of any kind or nature.
Article 2.
PURCHASE AND SALE
Section 2.01 Purchase of the Domain and Payment of Purchase Price. (a)
Subject to the terms and conditions and in reliance upon the representations and
warranties herein set forth, the Seller does hereby irrevocably, absolutely and
permanently sell, transfer, assign and deliver to the Purchaser its successors
and assigns, all of Seller's right, title and interest in and to the Domain,
free and clear of all Liens, and the Purchaser does hereby purchase from the
Seller the Domain in consideration of the aggregate purchase price (the
"Purchase Price") of (i) $30,000 in cash and (ii) $15,000 in shares of
Ergovision Common Stock (the "Purchase Shares") as determined pursuant to
Section 2.01(b) hereof. The Purchaser shall deliver to the Seller the
certificates representing all of the Purchased Shares within five (5) business
days of the date hereof.
(b) The number of shares of Ergovision Common Stock to be issued in
satisfaction of the portion of Purchase Price comprised of the Purchase Shares
shall be equal to the quotient of $15,000 divided by the average of the
Ergovision Stock Price for the five (5) trading days ending on the close of
business on the day prior to the date hereof.
Section 2.02 Domain Name Transfer. Simultaneously with the execution of
this Agreement, Seller has executed that certain Registrant Name Change
Agreement, a copy of which is attached hereto as Exhibit A, with respect to the
Domain.
Section 2.03 Banner Advertisement. The Seller agrees that within three
days of receiving notice of the launch of the Purchaser's "eyecity.com" web
site, it shall place a banner advertisement and link (the "Banner") to the
"eyecity.com" web site (or such other web site operated and/or owned by the
Purchaser as the Purchaser may designate) in a prominent location on the primary
page of the Seller's "usastar.com" web site, or, in the event that such site is
cancelled, deleted or withdrawn by the Seller, on the primary page of the web
site operated by the Seller at such time which then receives the greatest
average number of unique visitors per day (provided, however, that the Seller
may, at his discretion, place Banners on additional pages of the "usastar.com"
web site and/or on other web sites operated by the Seller, provided, further,
that the Seller shall promptly remove the Banner from any such other page or
site at the Purchaser's request). The Banner shall be comparable in size to
those banner advertisements on the "usastar.com" web site which are placed by
the Seller's then-primary advertisers. The Banner shall appear on the
"usastar.com" web site for a period beginning on the launch date of the
"eyecity.com" web site (or such earlier date as the Purchaser may select in its
sole discretion) and ending one year thereafter. All images, software, links and
information comprising or used in connection with the Banner shall be provided
at the Purchaser's sole cost and expense, and the Purchaser shall indemnify and
hold harmless the Seller and Gilligan from any Losses (as defined in Section
7.01 hereof) resulting from or arising in connection with the Seller's hosting
of the Banner.
Section 2.04 Power of Attorney. The Seller hereby constitutes and appoints
the Purchaser the true and lawful attorney of the Seller with full power of
substitution, in the name of the Seller or in the name of the Purchaser, for the
benefit of the Purchaser and at no cost,
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expense or liability to Seller, subject to Section 7.01 hereof, (a) to collect,
assert or enforce any claim, right or title of any kind in or to the Domain, to
institute and prosecute all actions, suits and proceedings which the Purchaser
may reasonably deem proper in order to collect, assert or enforce any such
claim, right or title, and to do all such acts and things in relation thereto as
the Purchaser shall reasonably deem advisable and (b) to take all action which
the Purchaser may reasonably deem proper in order to provide for the Purchaser
the benefits of or under of the Domain where any required consent of a third
party to the assignment thereof to the Purchaser shall not have been obtained.
The Seller acknowledges that such powers are coupled with an interest and shall
not be revocable by it in any manner or for any reason, and that the Purchaser
shall be entitled to retain for its own account any amounts collected pursuant
to such powers, including any amounts payable as interest in respect thereof.
Article 3.
REPRESENTATIONS AND WARRANTIES OF THE SELLER AND GILLIGAN
The Seller and Gilligan, jointly and severally, represent and
warrant to the Purchaser, that:
Section 3.01 Organization and Good Standing. The Seller is a sole
proprietorship duly organized, validly existing and in good standing under the
laws of the State of New Hampshire on the date hereof and has the corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as it is now being conducted.
(b) The Seller and Gilligan each have the power and authority to
execute and deliver this Agreement and all other documents hereby contemplated
to be executed by the Seller and Gilligan, to consummate the transactions hereby
and thereby contemplated and to take all other actions required to be taken by
them pursuant to the provisions hereof and thereof. The execution, delivery and
performance of this Agreement and all other documents hereby contemplated to be
executed by the Seller and the Gilligan has been, and the consummation by the
Seller of the transactions hereby and thereby contemplated has been, duly
authorized by all necessary action, corporate, shareholder or otherwise, of the
Seller and Gilligan. This Agreement and all other documents hereby contemplated
to be executed by the Seller and/or Gilligan constitute the legal, valid and
binding obligations of the Seller and/or Gilligan, as applicable, enforceable
against the Seller and/or Gilligan in accordance with their respective terms.
Section 3.02 No Violation of Other Instruments or Obligations. The
execution and delivery by the Seller and Gilligan of this Agreement or any other
documents hereby contemplated the consummation of the transactions hereby and
thereby contemplated by the Seller and Gilligan shall not (i) constitute a
default under or a violation or breach of, or result in the acceleration of any
obligation under, any provision of any contract, mortgage or other instrument to
which the Seller is a party or by which any of its assets may be affected or
secured, (ii) violate any Governmental Rule affecting the Seller or any of its
assets, (iii) result in the creation of any Lien on the Domain or any of the
assets or properties of the Seller, or (iv) result in the termination of any
license, franchise, lease or permit to which the Seller is a party or by which
it is bound.
Section 3.03 Compliance with Law; Consents and Approvals. The Seller has
complied in all material respects with all Governmental Rules applicable to the
Domain. The Seller has
3
<PAGE>
maintained in full force and effect all licenses, approvals, permits and
consents for the lawful operation of the Domain. Neither the Seller nor Gilligan
is in violation of any Governmental Rule applicable to the Domain, and has not
received any notice of any such violation. Except for the Registrant Name Change
Agreement or as set forth on Schedule 3.03 hereof, no authorization, approval,
order, license, permit, franchise or consent, and no registration, declaration,
notice or filing by or with any domestic or foreign Governmental Body by the
Seller is required in connection with the execution and delivery by the Seller
of this Agreement and the consummation by the Seller and Gilligan of the
transactions hereby contemplated.
Section 3.04 Title to Assets. (a) Except for Liens (i) for any current
taxes or assessments not yet delinquent or (ii) created by statute of carriers,
warehousemen, mechanics, laborers and materialmen incurred in the ordinary
course of business for sums not yet due, the Seller has good and marketable
title, free and clear of all Liens, to the Domain. There are no options,
agreements, limitations, rights of first refusal or other arrangements with any
third party with respect to the Domain or the transfer thereof.
(b) The Domain does not constitute all, substantially all or a
significant part of the assets of the Seller.
Section 3.05 Litigation. There are no claims, actions, suits, litigations,
proceedings, audits, controversies or investigations, pending or, to the
knowledge of the Seller or Gilligan, threatened against or affecting the Domain,
and the Seller has not been charged with or, to the knowledge of the Seller or
Gilligan, threatened with a charge of any violation of, and is not under
investigation with respect to a possible violation of, any provision of any
federal, state or local law or administrative ruling or regulation relating to
the Domain.
Section 3.06 Intellectual Property. The Seller owns and has the sole and
exclusive right to use the term "icity" in connection with the Domain. The
Seller (i) is not bound by or a party to any options, licenses, or agreements of
any kind with respect to the Domain and (ii) has not assigned, licensed or in
any manner encumbered or impaired any rights in the Domain. To the best of the
Seller's and Gilligan's knowledge, the Domain name does not infringe or violate
any personal, property, statutory or common law or any other rights of any third
parties (including, without limitation, copyright, trademark and the rights of
privacy and publicity), and no claim alleging any such infringement or violation
by the Seller or Gilligan or the Domain has been received by the Seller or
Gilligan.
(b) No royalties, honoraria or fees are payable to and no consents
or approvals are needed from any third persons or entities in connection with
the ownership, use or exploitation of the Domain.
Article 4.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller and Gilligan
that:
4
<PAGE>
Section 4.01 Organization and Good Standing. The Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the corporate power and authority to own or
lease all of its properties and assets and carry on its business as it is now
being conducted.
Section 4.02 Authority Relative to Agreement. The Purchaser has the
corporate power and authority to execute and deliver this Agreement, and all
other documents hereby contemplated, to consummate the transactions hereby and
thereby contemplated and to take all other actions required to be taken by it
pursuant to the provisions hereof and thereof. The execution, delivery and
performance of this Agreement and all other documents hereby contemplated to be
executed by the Purchaser has been, and the consummation by the Purchaser of the
transactions hereby and thereby contemplated has been, duly authorized by any
and all necessary corporate action of the Purchaser. This Agreement and all
other documents hereby contemplated to be executed by the Purchaser constitute
the legal, valid and binding obligations of the Purchaser, enforceable against
the Purchaser in accordance with their respective terms.
Section 4.03 No Violation of Other Instruments or Obligations. Neither the
execution and delivery of this Agreement or any other documents hereby
contemplated nor the consummation of the transactions hereby and thereby
contemplated shall (i) constitute any violation or breach of the Certificate of
Incorporation or By-laws of the Purchaser, (ii) constitute a default under or a
violation or breach of, or result in acceleration of any obligation under, any
provision of any contract, lease, mortgage or other instrument to which it is a
party, or (iii) violate any judgment, order, writ, injunction, decree, statute,
rule or regulation affecting the Purchaser or any of its assets.
Section 4.04 Common Stock. The Ergovision Stock to be issued pursuant to
the provisions of this Agreement will, upon such issuance, be duly authorized,
legally and validly issued, and fully paid and nonassessable.
Article 5.
COVENANTS
Section 5.01 No Use of Similar Names. Each of the Seller and Gilligan
covenants that neither it nor any person, firm or corporation, anywhere in the
world, directly or indirectly owned or controlled by any of them will use a name
(whether as a company name, or as an internet domain name, or in connection with
the marketing of goods or services, or otherwise) that includes the word "icity"
or "eyecity" or any words that are substantially similar to those words or to
the name of the Purchaser.
Section 5.02 Further Assurances. From and after the date hereof, the
Seller and Gilligan shall, at any time and from time to time, at Purchaser's
sole cost and expense, make, execute and deliver, or cause to be made, executed
and delivered, such assignments, deeds, drafts, checks, stock certificates,
returns, filings and other instruments, agreements, consents and assurances and
take or cause to be taken all such actions as counsel for the Purchaser may
reasonably request for the effectual consummation, confirmation and
particularization of this Agreement and the transactions hereby contemplated.
5
<PAGE>
Article 6.
INVESTMENT INTENT; RESTRICTIONS ON TRANSFER
Section 6.01 Investment Representation. The Seller (i) represents and
warrants to the Purchaser that it is acquiring all of the shares of Ergovision
Stock to be issued to it pursuant to the provisions of this Agreement for its
own account and for the purposes of investment and not with a view to, or for
sale in connection with, any distribution thereof, and (ii) agrees that it will
not at anytime sell or otherwise transfer, or permit the sale or other transfer
of, such shares of Ergovision Stock other than in transactions that are not in
violation of the Securities Act of 1933 or the provisions of any other
applicable securities laws, rules or regulations.
Section 6.02 Stock Legend. All certificates representing shares of
Ergovision Stock to be delivered to the Seller under this Agreement shall bear
the following legend:
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or under the securities laws of any
state and may not be sold, assigned, transferred, pledged or otherwise
disposed of except in compliance with, or pursuant to an exemption from,
the requirements of such Act or such laws."
Article 7.
MISCELLANEOUS
Section 7.01 Indemnification. The Seller and Gilligan, jointly and
severally, on the one hand, and the Purchaser, on the other hand, each agrees to
indemnify and hold harmless the other party and its directors, officers,
employees and agents (the "Indemnified Parties") against, and to reimburse the
Indemnified Parties on demand with respect to, any and all losses, liabilities,
obligations, suits, proceedings, demands, judgments, damages, claims, expenses
and costs (including, without limitation, reasonable fees, expenses and
disbursements of counsel) (collectively, "Losses") which the Indemnified Party
may suffer, incur or pay by reason of (i) the breach by such party of any
representation or warranty made by such party in this Agreement or in any
agreement, certificate or other document executed by such party and delivered to
the Indemnified Party pursuant to the provisions of this Agreement; (ii) the
failure of such party to perform any agreement required by this Agreement or any
agreement executed pursuant to the provisions of this Agreement; (iii) the
allegation by any third party of the existence of any liability, obligation,
lease, agreement, contract, other commitment or state of facts which, if such
allegation were true, would constitute a breach by such party of any
representation or warranty made such party in this Agreement or in any
agreement, certificate or other document delivered by or on behalf of such party
to the Indemnified Party pursuant to the provisions of this Agreement or of any
covenant made by the such party herein or therein.
Section 7.02 Merger Provision. All prior or contemporaneous agreements,
contracts, promises, representations and statements, if any, among the parties
hereto as to the subject matter hereof, are merged into this Agreement. This
Agreement, together with all agreements, schedules, exhibits, documents and
other instruments to be attached hereto or delivered herewith sets forth the
entire understanding between the parties, and there are no terms, conditions,
representations, warranties or covenants other than those contained herein and
in such
6
<PAGE>
agreements, schedules, exhibits, documents and other instruments to be attached
hereto or delivered herewith.
Section 7.03 Amendment and Modification. No term or provision of the
Agreement may be amended, released, discharged or modified in any respect except
in writing signed by the party to be charged and only to the extent therein set
forth.
Section 7.04 Waiver. No waiver shall be deemed to be made by any of the
parties to any of its rights hereunder unless that waiver shall be in a writing
signed by the waiving party and only to the extent therein set forth. No failure
of any of the parties to exercise any power given such party hereunder or to
insist upon strict compliance by any other party with its obligations hereunder,
and no custom or practice of the parties at variance with the terms hereof shall
constitute a waiver of the right of any party to demand precise compliance with
the terms of the Agreement.
Section 7.05 Notices. (a) All notices, consents, demands or other
communications required or permitted to be given pursuant to the Agreement shall
be in writing and shall be delivered personally, by telecopy (with prompt
confirmation by mail) during a business day to the appropriate location listed
as the address below, by United States registered or certified first class mail,
return receipt requested with postage and fees prepaid, or by overnight courier.
Such notices, consents, demands or other communications shall be addressed
respectively to the Seller and Gilligan, to Tom Gilligan, 447 Old Henniker Road,
Hopkinton, NH 03229, with a copy to Ken Kozik, Esq., Sheehan, Phinney, Bass &
Green, 1000 Elm Street, Manchester, NH 03101, and to the Purchaser; to
Ergovision, Inc., One Fairchild Court, Plainview, New York 11803, Attn: Mark H.
Levin, with a copy to: Rosenman & Colin LLP, 575 Madison Avenue, New York, New
York 10022, Attn: Eric M. Lerner, Esq., or to any other address or telecopy
number which such party may have subsequently communicated to the other parties
in writing. Except as otherwise provided in this Agreement, any notice, consent,
demand or other communication given hereunder may be signed on behalf of a party
by any duly authorized representative of that party.
Section 7.06 Governing Law; Service of Process. This Agreement and any
other agreement entered into in connection herewith shall be governed by, and
construed under and in accordance with, the laws of the State of New Hampshire
applicable to contracts made and wholly to be performed therein by residents
thereof, without giving effect to the conflict of laws principles thereof. All
actions or proceedings seeking the interpretation and/or enforcement of this
agreement shall be brought only in the state or federal courts located in New
Hampshire, all parties hereby submitting themselves to the jurisdiction of such
courts for such purpose. Any process in any action or proceeding commenced in
the courts of the State of New Hampshire arising out of any claim, dispute or
disagreement, may, among other methods, be served upon any party by delivering
or mailing the same, via registered or certified mail, addressed to such party
pursuant to Section 7.05 hereof. Any such delivery or mail service shall be
deemed to have the same force and effect as personal service within the State of
New Hampshire.
Section 7.07 Severability. If any term or provision of this Agreement, the
application thereof to any person, or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of the Agreement or the application of
such term or provision to persons or circumstances other than those as to which
it is held void or unenforceable, shall not be affected thereby, and each term
and provision of the Agreement shall be valid and be enforced to the fullest
extent permitted by law.
7
<PAGE>
Section 7.08 Cumulative Rights and Remedies. The rights and remedies
provided for in this Agreement are cumulative and in addition to, and shall not
restrict or limit, any other rights and remedies available at law or in equity.
Section 7.09 Costs of Enforcement. The prevailing party in any proceeding
brought to enforce any provision of the Agreement shall be entitled to recover
the reasonable fees and costs of its counsel, plus all other costs of such
proceeding.
Section 7.10 Third Parties Other than the parties hereto, no person shall
have any rights under or to enforce any provision of this Agreement.
Section 7.11 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto, their respective heirs,
administrators, executors, successors and assigns; provided, however, that this
Agreement may not be assigned by any of the parties hereto other than by and
among the Purchaser and its subsidiaries.
Section 7.12 Counterparts. The Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute a single agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the 5th day of May, 1999.
ERGOVISION, INC.
By: /s/ Mark H. Levin
------------------------------------
Name: Mark H. Levin
Title: President
STARSYSTEMS
By: /s/ Thomas Gilligan
------------------------------------
Name: Thomas Gilligan
Title: Proprietor
/s/ Thomas Gilligan
----------------------------------------
THOMAS GILLIGAN
8
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of the
30th day of June, 1999, by and among EyeCity.com, Inc. ("EyeCity.com"), a
Delaware corporation, SunglassSite, Inc. ("Subsidiary"), a Delaware corporation,
SunSource Technology, Inc. ("SunSource"), a Florida corporation, and G. Robert
Wilson ("Wilson"), an individual residing at 1508 Seagull Drive, Palm Harbor,
Florida, 34685.
W I T N E S S E T H:
WHEREAS, the Board of Directors of each of EyeCity.com and SunSource
have determined that it is in the best interests of their respective companies
and stockholders to consummate the business combination transaction provided for
herein and in the Certificate of Merger required to be filed under Delaware and
Florida law, pursuant to which SunSource will, subject to the terms and
conditions set forth herein, merge with and into Subsidiary (the "Merger") so
that, upon the Merger, Subsidiary will be the surviving entity and a wholly
owned subsidiary of EyeCity.com. Upon the effectiveness of the Merger, all the
outstanding capital stock of SunSource will be cancelled and retired in exchange
for the consideration provided for in Section 2.03 hereof;
WHEREAS, the Merger is intended to be treated as a tax-free
reorganization pursuant to the provisions of Section 368(a)(1)(A) of the Code,
by virtue of the provisions of Section 368(a)(2)(D) of the Code; and
WHEREAS, the parties hereto desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties hereto hereby agree as follows:
Article I.
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
respective meanings set forth below:
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, any successor statute thereto and all final or temporary regulations
promulgated thereunder and generally applicable published rulings entitled to
precedential effect.
"Commission" means the Securities and Exchange Commission.
"Environment" means soil, surface waters, ground waters, land,
stream, sediments, surface or subsurface strata and ambient air.
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"Environmental Condition" means any condition with respect to the
Environment on any Facility, whether or not yet discovered, which could or does
result in any Losses (as defined in Section 9.01 hereof), including any
condition resulting from the operation of the business of SunSource or the
operation of the business of any subtenant or occupant of any Facility.
"Environmental Laws" means all Governmental Rules relating to injury
to, or the protection of, real or personal property or human health or the
Environment as such Governmental Rules are or were in effect prior to the
Closing Date, including, without limitation, all valid and lawful requirements
of courts and other Governmental Bodies pertaining to reporting, licensing,
permitting, investigation, remediation and removal of emissions, discharges,
releases or threatened releases of Hazardous Substances, chemical substances,
pesticides, petroleum or petroleum products, pollutants, contaminants or
hazardous or toxic substances, materials or wastes, whether solid, liquid or
gaseous in nature, into the Environment, or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Substances, pollutants, contaminants or hazardous or toxic
substances, materials or wastes, whether solid, liquid or gaseous in nature.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, any successor statute thereto and all final or
temporary regulations promulgated thereunder and generally applicable published
rulings entitled to precedential effect.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, any successor statute thereto and all final or temporary
regulations promulgated thereunder and generally applicable published rulings
entitled to precedential effect.
"EyeCity.com Stock" means the Common Stock, par value $0.001 per
share, of EyeCity.com.
"Facility" means any facility which is now or has heretofore been
owned, used or operated by SunSource.
"GAAP" means generally accepted accounting principles in the U.S. in
effect from time to time.
"Governmental Body" means any federal, state, local or foreign
governmental authority or regulatory body, any subdivision, agency, commission
or authority thereof (including, without limitation, environmental protection,
planning and zoning), or any quasi-governmental or private body exercising any
regulatory authority thereunder (including, without limitation, Network
Solutions, Inc.) and any person directly or indirectly owned by and subject to
the control of any of the foregoing, or any court, arbitrator or other judicial
or quasi-judicial tribunal.
"Governmental Rules" means any statute, law, treaty, rule, code,
ordinance, regulation, policy, permit, certificate or order of any Governmental
Body or any judgment, decree, injunction, writ, order or like action of any
Governmental Body, including without limitation any of the foregoing relating to
the sale, marketing and/or distribution of eyewear, corrective lenses and/or any
optical product or accessory over the internet or otherwise.
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"Hazardous Substances" means any substance:
(a) the presence of which requires notification, investigation
or remediation under any Environmental Law as in effect prior to the Closing
Date;
(b) which prior to the Closing Date is or becomes defined as a
"hazardous waste", "hazardous material" or "hazardous substance" or "pollutant"
or "contaminant" under any present or future Environmental Law or amendments
thereto including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") (42 U.S.C. Section 9601 et seq.), the
Resource Conservation and Recovery Act ("RCRA") (42 U.S.C. Section 6901 et
seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.) and any Environmental
Law applicable to any jurisdiction in which or from which SunSource conducts or
has conducted its business;
(c) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and is
or becomes regulated by any Governmental Body under Environmental Laws prior to
the Closing Date;
(d) which, without limitation, contains gasoline, diesel fuel
or other petroleum hydrocarbons or volatile organic compounds;
(e) which, without limitation, contains polychlorinated
byphenyls (PCBs) or asbestos or urea formaldehyde foam insulation; or
(f) which, without limitation, contains or emits radioactive
particles, waves or materials, including radon gas.
"Lien" means any mortgage, charge, pledge, lien, security interest,
claim, encumbrance or restriction of any kind or nature.
"Net Sales" means gross sales less chargebacks (which are estimated
at 2% of gross sales but are not calculated until two months subsequent to the
close of any calendar month) and returns.
"Promissory Note" shall have the meaning ascribed thereto in Section
2.03(b).
"Release" means a general release, in substantially the form of
Exhibit C hereto, to be executed by Wilson and each of the directors and
officers of SunSource in favor of Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, any successor statute thereto and all final or temporary
regulations promulgated thereunder and generally applicable published rulings
entitled to precedential effect.
"Tax" or "Taxes" shall mean all federal, state, local or foreign
income, capital gains, profits, gross receipts, payroll, capital stock,
franchise, employment, withholding, social security, unemployment, disability,
real property, personal property, stamp, excise, occupation, sales, use,
transfer, mining, value added, investment credit recapture, alternative or
add-on minimum, environmental, estimated or other taxes, fees, imposts, levies,
duties or assessments of any kind, including any interest, penalty and additions
imposed with respect to such amounts.
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"Tax Authority" shall mean any federal, national, foreign, state,
municipal or other local government, any subdivision, agency, commission or
authority thereof, or any quasi-governmental body or other authority exercising
any taxing or tax regulatory authority.
"Tax Returns" shall mean all returns, reports, declarations,
estimates, information returns and statements (including schedules attached
thereto) required to be filed with or supplied to a Tax Authority with respect
to Taxes.
Article II.
PURCHASE AND SALE
Section 2.01 The Merger. (a) Upon the terms and subject to the
conditions hereof and in accordance with Section 252 of the Delaware General
Corporation Law (the "DGCL") and Sections 607.1107 and 607.1108 of the Florida
Business Corporation Act (the "FBCA"), as promptly as practicable following the
satisfaction or waiver of the conditions set forth in Article V and Article VI
hereof, but in no event later than June 30, 1999, the closing (the "Closing") of
the Merger shall take place at the offices of Rosenman & Colin LLP, 575 Madison
Avenue, New York, New York, or such other place and at such time as the parties
shall agree in writing (the "Closing Date").
(b) Concurrently with the Closing, (i) a certificate of merger (the
"Certificate of Merger"), in form and substance reasonably satisfactory to
EyeCity.com and SunSource, providing for the merger of SunSource with and into
Subsidiary, shall be duly prepared, executed and filed by EyeCity.com, as the
sole shareholder of the surviving corporation (the "Surviving Corporation"),
with the Secretary of State of the State of Delaware in accordance with the
relevant provisions of the DGCL and (ii) the appropriate officers of SunSource
and Subsidiary shall execute and acknowledge the articles of merger required by
Section 607.1105 of the FBCA (the "Florida Certificate"), and it shall be filed
with the Secretary of State of the State of Florida in accordance with the FBCA,
and the Merger shall become effective upon completion of the latest of such
filings as are required under the DGCL and the FBCA. The date and time the
Merger becomes effective is referred to herein as the "Effective Time."
Section 2.02 Effects of the Merger. (a) The Merger shall have the
effects set forth in the DGCL and the FBCA and as hereinafter set forth.
Following the Merger, the Surviving Corporation shall (i) continue its corporate
existence under the laws of the State of Delaware, (ii) continue to be a wholly
owned subsidiary of EyeCity.com, (iii) use the name "SunglassSite, Inc." and
(iv) succeed to all rights, assets, liabilities and obligations of SunSource in
accordance with the DGCL and the FBCA. At the Effective Time, pursuant to
Section 259 of the DGCL and Section 607.1106 of the FBCA, the separate existence
of SunSource shall cease and the Surviving Corporation shall succeed, without
other transfer, to all the rights and property of SunSource and shall be subject
to all the debts and liabilities of SunSource in the same manner as if the
Surviving Corporation had itself incurred them. All rights of creditors and all
Liens upon the property of SunSource shall be preserved unimpaired, provided
that such Liens upon property of SunSource shall be limited to the property
affected thereby immediately prior to the time the Merger is effective. Any
action or proceeding pending by or against SunSource
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may be prosecuted to judgment, which shall bind the Surviving Corporation, or
the Surviving Corporation may be proceeded against or substituted in its place.
(b) At the Effective Time, each share of common stock of SunSource
issued and outstanding immediately prior to the Effective Time shall, by reason
of the Merger and without any action by the holder thereof, be cancelled and
retired.
Section 2.03 Merger Consideration. At the Effective Time, all of the
collective shares of common stock, $25.00 par value, of SunSource (the
"SunSource Common Stock") issued and outstanding immediately prior to the
Effective Time shall, by reason of the Merger and without any action by the
holder thereof, be converted into the right to receive the following aggregate
consideration (the "Merger Consideration"):
(a) $212,500 in immediately available funds;
(b) a promissory note for the principal amount of $212,500,
substantially in the form of Exhibit A hereto (the "Promissory Note"), which
note shall be unsecured, payable in full on the earlier of (i) the first
anniversary of the Closing or (ii) consummation by EyeCity.com of a public
offering transaction for gross proceeds of at least $10,000,000; and
(c) 283,334 shares of EyeCity.com Stock (the "Transferred Shares"),
66,667 of which will be held in escrow, pursuant to an escrow agreement (the
"Escrow Agreement"), substantially in the form of Exhibit D hereto, which the
parties shall enter into on the Closing Date, for a period of six months
following the Closing Date, as security for the representations, warranties and
covenants made by Wilson and SunSource in this Agreement.
Section 2.04 Directors and Officers, Articles of Incorporation;
By-laws. At the Effective Time, the Board of Directors of the Surviving
Corporation shall consist of Mark Levin and Mark Suroff, each to hold office in
accordance with the Articles of Incorporation and By-laws of the Surviving
Corporation. The Articles of Incorporation and By-laws of Subsidiary at the
Effective Time shall be the Articles of Incorporation and By-laws of the
Surviving Corporation after the Effective Time, and thereafter may be amended in
accordance with their respective terms and applicable law.
Section 2.05 Reorganization. The parties intend that the Merger be
treated as a plan of reorganization under Section 368(a)(1)(A) and 368(a)(2)(D)
of the Code. The EyeCity.com Stock issued in the Merger will be issued solely in
exchange for the SunSource Common Stock, and no other transaction (other than
the Merger and as provided in this Agreement) is intended to be an adjustment to
the consideration paid for the SunSource Common Stock. The parties intend that,
aside from that portion of the Merger Consideration set forth in Section 2.03(a)
and (b), no consideration that could constitute "other property" within the
meaning of Section 356(a) of the Code is being transferred by EyeCity.com for
the purchased shares of SunSource Common Stock. The parties shall not take a
position on any tax return or before any taxing authority that is inconsistent
with this Section 2.05 unless otherwise required by a final and binding
determination or resolution of a Governmental Body with appropriate
jurisdiction, and each party agrees to promptly notify the other party of any
assertion by any taxing authority of any position that is inconsistent with this
Section 2.05.
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Article III.
REPRESENTATIONS AND WARRANTIES OF WILSON AND SUNSOURCE
Wilson and SunSource, jointly and severally, represent and warrant
to EyeCity.com and Subsidiary, that:
Section 3.01 Organization and Good Standing. SunSource is and at the
Closing will be a corporation duly organized, validly existing and in good
standing under the laws of the State of Florida and has and will have the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted.
Section 3.02 Foreign Qualification. SunSource is not licensed or
qualified to do business as a foreign corporation in any jurisdiction, and the
character and location of the assets owned or leased by SunSource and, to the
best knowledge of SunSource and Wilson, the nature or conduct of SunSource's
business as it is now being conducted do not make any such license or
qualification necessary.
Section 3.03 Capitalization; Authority of Seller. (a) Wilson is the
sole shareholder of SunSource and has good and valid title to all issued and
outstanding shares of SunSource Common Stock free and clear of all Liens.
(b) Wilson and SunSource each have the power and authority to
execute and deliver this Agreement, the Release, substantially in the form of
Exhibit C hereto, to be executed by Wilson and each of the directors and
officers of SunSource in favor of Subsidiary, and all other documents hereby and
thereby contemplated to be executed by Wilson and/or SunSource to consummate the
transactions hereby and thereby contemplated and to take all other actions
required to be taken pursuant to the provisions hereof and thereof. The
execution, delivery and performance of this Agreement and all other documents
hereby contemplated to be executed by Wilson and/or SunSource has been, and the
consummation by Wilson and SunSource of the transactions hereby and thereby
contemplated has been, duly authorized by all necessary action, corporate or
otherwise, of Wilson and/or SunSource, as applicable. Wilson is the sole
shareholder of SunSource. The Board of Directors and Wilson, as sole shareholder
of SunSource, have authorized and approved the execution, delivery and
performance of this Agreement and the transactions contemplated hereby. This
Agreement and all other documents hereby contemplated to be executed by Wilson
and/or SunSource constitute the legal, valid and binding obligations of Wilson
and/or SunSource, as applicable, enforceable against Wilson and/or SunSource, as
applicable, in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, moratorium, insolvency, fraudulent
conveyance, reorganization or other similar laws affecting the enforcement of
creditor's rights.
Section 3.04 Corporate Instruments. Wilson has heretofore made
available to EyeCity.com true and complete copies of the existing Certificate of
Incorporation, the By-laws and the stock transfer books of SunSource.
Section 3.05 Capitalization; Options; Common Stock. (a) SunSource is
authorized to issue only 1,500 shares of SunSource Common Stock, par value
$25.00 per share,
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50 of which shares of SunSource Common Stock are, and at the Closing shall be,
issued and outstanding and owned by Wilson. There are no other, and at the
Closing there will not be any other, shares of SunSource Common Stock issued or
outstanding or owned by Wilson. There are no other series or classes of capital
stock of SunSource authorized or issued.
(b) There are no, and at the Closing Date there shall not be any,
outstanding warrants, options, contracts, rights (pre-emptive or otherwise),
calls, commitments or demands of any character relating to any authorized and
issued or unissued shares of the capital stock of SunSource or other instruments
convertible into or exchangeable for such stock, or which obligate SunSource to
seek authorization to issue additional shares of any class of stock, nor will
any be created by virtue of this Agreement or the transactions hereby
contemplated.
(c) The SunSource Common Stock owned by Wilson has been duly
authorized and legally and validly issued, is fully paid and nonassessable and
represents all of the issued and outstanding shares of capital stock of
SunSource. None of the SunSource Common Stock has been issued in violation of
the securities or blue sky laws of the U.S. or any state or territory thereof.
Section 3.06 No Violation of Other Instruments or Obligations. The
execution and delivery by Wilson and SunSource of this Agreement or any other
documents hereby contemplated and the consummation of the transactions hereby
and thereby contemplated by Wilson and SunSource shall not (a) constitute any
violation or breach of the Certificate of Incorporation or the By-laws of
SunSource, (b) constitute a default under or a violation or breach of, or result
in the acceleration of any obligation under, any provision of any contract,
mortgage or other instrument to which Wilson or SunSource is a party or by which
any of SunSource's assets may be affected or secured, (c) violate any
Governmental Rule affecting SunSource or any of its assets, (d) result in the
creation of any Lien on any of the assets or properties of SunSource or (e)
result in the termination of any license, contract, franchise, lease or permit
to which SunSource is a party or by which it is bound.
Section 3.07 Compliance with Law; Consents and Approvals. SunSource
has, and at the Closing Date will have, complied in all material respects with
all Governmental Rules (including, without limitation, any federal, state or
local laws, rules or regulations regulating the safety of the workplace and/or
the discharge of materials into the Environment or otherwise relating to the
protection of the Environment) applicable to the business of SunSource as
conducted on and prior to the date hereof. SunSource has, and at the Closing
Date will have, maintained in full force and effect all licenses, approvals,
permits and consents for the lawful conduct of its business. Neither Wilson nor
SunSource is in violation of any Governmental Rule applicable to Wilson or
SunSource, and neither of Wilson nor SunSource has received any notice of any
such violation. Except as set forth on Schedule 3.07 hereof, no authorization,
approval, order, license, permit, franchise or consent, and no registration,
declaration, notice or filing by or with any domestic or foreign Governmental
Body (including, without limitation, any filing or registration pursuant to the
securities or blue sky laws of the U.S. or any state or territory thereof) by
Wilson or SunSource is required in connection with the execution and delivery by
Wilson and SunSource of this Agreement and the consummation of the transactions
hereby contemplated.
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Section 3.08 Financial Statements. Schedule 3.08 hereto contains (a)
the unaudited balance sheet of SunSource as of December 31, 1998 (the "December
Balance Sheet"), and the related statements of operations and shareholders'
equity, including the notes thereto, for the year then ended and (b) the
unaudited balance sheet of SunSource as of March 31, 1999 (the "March Balance
Sheet") and the related statements of operations and shareholders' equity,
including the notes thereto, for the three-month period then ended, all of which
have been delivered to EyeCity.com. Such financial statements accurately reflect
the current status of the financial position of SunSource as of December 31,
1998 and March 31, 1999, respectively, and accurately reflect the results of
SunSource's operations and shareholders' equity for the year ended December 31,
1998 and the three month period ended March 31, 1999, respectively.
Section 3.09 Accounts Receivable. Except to the extent of the amount
of the reserve for doubtful accounts reflected on the December Balance Sheet,
the March Balance Sheet or Schedule 3.09, respectively, all the accounts
receivable of SunSource reflected in the December Balance Sheet, the March
Balance Sheet or Schedule 3.09, respectively, and all accounts receivable that
have arisen since the December Balance Sheet and March Balance Sheet (except
accounts receivable that have been collected since such date) are valid and
enforceable claims and constitute bona fide accounts receivable resulting from
the sale of goods and services in the ordinary course of SunSource's business.
The accounts receivable are subject to no valid defense, offsets, returns,
allowances or credits of any kind and are fully collectible within 90 days from
their due date, except to the extent of the amount of the reserve, if any, for
doubtful accounts reflected on the December Balance Sheet, the March Balance
Sheet or Schedule 3.09, respectively. Except for accounts receivable, SunSource
has not made any loan or advance to any person.
Section 3.10 Liabilities, Borrowings and Guarantees. SunSource has
no, and at the Closing Date will not have any, debts, liabilities or other
obligations, accrued, absolute, contingent or otherwise, due or to become due,
other than liabilities incurred since March 31, 1999 in the ordinary and usual
course of its business consistent with past practice but in no event aggregating
more than $5,000 collectively.
Section 3.11 Title to Assets; Inventories. (a) Except for Liens (i)
for any current taxes or assessments not yet delinquent or (ii) created by
statute of carriers, warehousemen, mechanics, laborers and materialmen incurred
in the ordinary course of business for sums not yet due, SunSource has, and at
the Closing Date will have, good and marketable title, free and clear of all
Liens, to all of its assets and personal property.
(b) All inventories reflected on Schedule 3.11 are, and all
inventories owned by SunSource as of the Closing Time shall be, (i) valued at
the lower of cost or market value on a first-in, first-out basis in accordance
with GAAP and (ii) current and readily merchantable, containing no material
amount of obsolete or damaged goods which have not been written down or reserved
in conformity with GAAP. No inventory is held on consignment by SunSource, as
consignee or consignor. To Wilson's knowledge, all inventory included in
SunSource's assets is free of any material defect or other deficiency.
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(c) Neither Wilson nor any affiliate of Wilson (other than
SunSource) owns, uses or has possession of any asset used or useable by
SunSource in the conduct of its business.
(d) Except as set forth on Schedule 3.11, by reason of the Merger
and without any further action by any party hereto or any non-party, the
Subsidiary will, upon the Closing, obtain all title to and right to use all
multimedia, interactive computer programs or groups of programs designed to run
on the world wide web protocol of the internet owned or operated by SunSource
and/or Wilson, including, without limitation, the web site currently accessible
at url:http://www.sunglasssite.com, the web site currently accessible at
url:http://www.abeam.com and the web site currently accessible at
url:http://www.opticalsite.com and all elements thereof (including, without
limitation, all Content, information, hypertext links, source code, html code,
object code contained thereon and all so-called "engines" and "templates" used
therein, any and all rights therein and under any copyright, patent, trademark,
trade secret or other laws affecting intellectual property, any associated
computer programs or computer hardware, including any servers and server
applications, and any proprietary information contained thereon) and any and all
other web sites owned or operated by SunSource and/or Wilson or any of its or
his affiliates and/or subsidiaries. For purposes of this Section 3.11, the term
"Content" shall include, but not necessarily be limited to, any graphical,
audio, visual, audiovisual, textual or multimedia materials displayed or
displayable on and over the internet and/or distributed by e-mails.
(e) Except as set forth on Schedule 3.11, neither of SunSource nor
Wilson own, lease, operate or in any manner assist in the operation of any web
site, and at the Closing, neither SunSource nor Wilson will own, lease, operate
or in any manner assist in the operation of, any web site.
Section 3.12 Real Property; Leases. Except as set forth on Schedule
3.12, SunSource does not own or lease any real property.
Section 3.13 Litigation. There are no, and at the Closing there will
not be any, claims, actions, suits, litigations, proceedings, audits,
controversies or investigations, pending or, to the knowledge of Wilson,
threatened against or affecting SunSource or any of its assets, and SunSource
has not been, and at the Closing will not have been, charged with or, to the
knowledge of Wilson, threatened with a charge of any violation of, and is not,
and at the Closing will not have been, under investigation with respect to a
possible violation of, any provision of any federal, state or local law or
administrative ruling or regulation relating to its business.
Section 3.14 Taxes. (a) SunSource has timely and duly filed (giving
effect to extensions duly taken) all federal, state, local or foreign tax
returns or reports required to be filed by or with respect to SunSource on or
prior to the Closing Date.
(b) The tax returns and reports described in paragraph (a) above
reflect accurately all liability for taxes, charges, fees, levies or other
assessments of any nature whatsoever (including, without limitation, all
federal, state, local and foreign income taxes, estimated taxes, excise taxes,
sales taxes, use taxes, transfer taxes, gross receipts taxes, franchise taxes,
employment, withholding, social security and other payroll related taxes,
property taxes and import duties, whether or not measured in whole or in part by
net income), together with any related penalties, interest and additions to
taxes (any of the foregoing being referred to herein as a "Tax" or collectively
"Taxes"), for the periods covered thereby. SunSource has paid all Taxes
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required to be paid by it with respect to the periods covered by the returns and
reports described in subparagraph (a) above. SunSource has fully collected,
withheld and/or paid over all Taxes required to be collected, withheld and/or
paid over to any taxing authority.
(c) SunSource is not currently being audited by any taxing authority
with respect to the returns and reports described in subparagraph (a) above, and
there are no claims or assessments pending against SunSource. SunSource has not
agreed to waive or extend the statute of limitations with respect to any Taxes
or tax returns and has not filed any consent under Section 341(f) of the Code
(or any corresponding provision of state, local or foreign tax law). No written
claim has ever been made by any taxing authority in a jurisdiction where
SunSource does not presently file Tax returns that SunSource is or may be
subject to taxation by that jurisdiction. Accurate, correct and complete copies
of all tax returns and reports filed by SunSource during the five-year period
preceding the Closing Date have been made available to EyeCity.com. Accurate,
correct and complete copies of any closing agreements with respect to SunSource
which were entered into with the Internal Revenue Service or any other taxing
authority have heretofore been furnished to EyeCity.com.
Section 3.15 Insurance. SunSource does not maintain insurance of any
kind relating to its assets and operations.
Section 3.16 Labor Disputes. SunSource is not party to a union
agreement and there are no labor unions or other organizations representing or
attempting to represent any employee of SunSource. There are no work stoppages
or other labor disputes, disturbances, grievances or claims pending or, to the
knowledge of Wilson, threatened in connection with the employees of SunSource.
There is no unfair labor practice charge or complaint pending or, to the
knowledge of Wilson, threatened against SunSource before the National Labor
Relations Board or any state labor relations board. There are no claims of
discrimination of any kind pending or, to the knowledge of Wilson, threatened
against SunSource before any Governmental Body.
Section 3.17 Contracts. Schedule 3.17 contains a complete and
correct list of all contracts, arrangements and agreements in effect on the date
hereof (the "Contracts") to which SunSource is a party, whether written or oral,
including, but not limited to, agency or advertising contracts, agreements with
employees, sales representatives, suppliers, wholesalers, manufacturers and
distributors, arrangements with web hosting service providers, website
designers, software vendors or licensors, computer or technical service
providers and agreements with factors, banks or other lending institutions. A
true and complete copy of each written Contract, and a complete and correct
summary of each oral Contract, has heretofore been made available to
EyeCity.com. SunSource has performed all of its obligations required to be
performed by it, has paid all amounts required to be paid by it and is not in
default in any material respect under any Contract, and no event has occurred
which, with the lapse of time or the giving of notice or both, would constitute
such a default, and, to Wilson's knowledge, no other party to any Contract is in
default in any material respect thereunder. Each of the Contracts constitutes a
legal, valid and binding obligation of SunSource and the other parties thereto,
enforceable in accordance with its terms. Neither Wilson nor SunSource has
received notice that any other party to any of the Contracts is in default
thereunder. Except as set forth on
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Schedule 3.17, none of the Contracts requires the consent of a third party in
connection with the transactions contemplated hereby.
Section 3.18 Intellectual Property. (a) Except as set forth on
Schedule 3.18, SunSource owns, and at the Closing Date will own, free and clear
of all Liens, and possesses and has the exclusive right to use, all patents,
patent applications, patent rights, trademarks, trademark applications, URL's,
trade names, service marks, service mark applications, domain names, domain name
applications, copyrights, copyright registrations, know-how, trade secrets,
proprietary processes, computer programs and other computer software, technology
and formulae, (the "Proprietary Rights") necessary, required or desirable for
the conduct of its business as presently conducted or as proposed to be
conducted. All Proprietary Rights are identified on Schedule 3.18 hereto. Except
as set forth on Schedule 3.18, SunSource owns and has the sole and exclusive
right to use each of the Proprietary Rights for the categories of goods and
services with respect to which such Proprietary Rights are registered to the
extent that such goods and services are currently being used. SunSource (i) is
not bound by or a party to any options, licenses or agreements of any kind with
respect to the Proprietary Rights and (ii) has not assigned, licensed or in any
manner encumbered or impaired any rights in the Proprietary Rights. To the best
of SunSource's and Wilson's knowledge, no Proprietary Right infringes or
violates, and no Proprietary Right is infringed upon or violated by, any
personal, property, statutory or common law or any other rights of any third
parties (including, without limitation, copyright, trademark and the rights of
privacy and publicity), and no claim alleging any such infringement or violation
by (x) SunSource or its Proprietary Rights has been received by Wilson or
SunSource and (y) no claim alleging any such violation or infringement of
SunSource Proprietary Rights has been sent to any third party by Wilson or
SunSource.
(b) Except as set forth on Schedule 3.18, no royalties, honoraria or
fees are payable to, and no consents or approvals are needed from, any third
persons or entities in connection with the ownership, use or exploitation of the
Proprietary Rights in SunSource business.
Section 3.19 Software. (a) Schedule 3.19 sets forth a complete and
accurate list of all software programs, systems and applications (i) designed or
developed (or in the process of being designed or developed) by employees of
SunSource or by consultants on SunSource's behalf (the "SunSource Owned
Software") or (ii) licensed by SunSource from any third party (other than
"off-the-shelf" software) (the "Licensed Software") pursuant to the License
Agreements specified on Schedule 3.18, in each case that is manufactured,
developed or used by SunSource in the operation of SunSource business or
integrated into SunSource Owned Software or marketed, licensed or sold by
SunSource to third parties (collectively, the "Software").
(b) All of the SunSource Owned Software are original works of
authorship and are protected by the copyright laws of the U.S. SunSource owns
all right, title and interest in and to all of the SunSource Owned Software free
and clear of any Liens, and SunSource has not sold, assigned, licensed,
distributed or in any other way disposed of any of the SunSource Owned Software
or subjected any of the SunSource Owned Software to any Lien, and none of the
employees or consultants referenced in Section 3.19(a) has any interest or claim
whatsoever to any of the SunSource Owned Software or any component or
constituent part thereof.
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(c) The Licensed Software is validly held and used by SunSource and
is fully and freely utilizable by SunSource pursuant to the license agreement
with respect thereto without the consent of or notice to any third party.
SunSource is in compliance with all material terms and conditions of each
license with respect to the Licensed Software, and neither Wilson nor SunSource
has received any notice that Wilson or SunSource is in breach of any such
license.
(d) To the best of Wilson's knowledge, the Software does not contain
any copy protection, computer virus, malicious code or destructive feature.
Section 3.20 Year 2000. All Software is designed to be used prior
to, during and after calendar year 2000, and the Software will operate during
each such time period without error relating to date data, specifically
including any error relating to, or the conduct of, date data which represents
or references different centuries or more than one century. Without limiting the
generality of the foregoing, (a) the Software will not abnormally end or provide
invalid or incorrect results as a result of date data, (b) the Software will be
capable of accurately processing, providing and/or receiving date data from,
into, and between the twentieth and twenty-first centuries, including the years
1999 and 2000, and leap year calculations, (c) the Software will lose no
functionality with respect to the introduction of records containing dates
falling before, on or after January 1, 2000 and (d) the Software will be
interoperable with other software and systems that may deliver records to,
receive records from or otherwise interact with the Software, including but not
limited to, back-up and archived data, date data, century recognition
calculations that accommodate same century and multi-century formulas and date
values and date data interface values that reflect the century.
Section 3.21 Licenses and Permits. SunSource has all licenses,
permits, consents and approvals necessary for SunSource to conduct its business
as required by any Governmental Body, and all such licenses, permits, consents
and approvals are set forth in Schedule 3.21 hereto.
Section 3.22 ERISA. (a) SunSource does not maintain, administer or
contribute to, nor has it maintained, administered or contributed to, nor do the
employees of SunSource receive or expect to receive as a condition of
employment, benefits pursuant to any: employee pension benefit plan (as defined
in Section 3(2) of ERISA (a "Plan"), including, without limitation, any
multiemployer plan as defined in Section 3(37) of ERISA (a "Multiemployer
Plan"); employee welfare benefit plan (as defined in Section 3(1) of ERISA) (a
"Welfare Plan"); or bonus, deferred compensation, stock purchase, stock option,
severance plan, salary continuation, vacation, sick leave, fringe benefit,
incentive, insurance, welfare or similar arrangement (an "Employee Benefit
Plan"). Neither SunSource nor any affiliate of SunSource as determined under
Code Section 414(b), (c), (m) or (o) (an "ERISA Affiliate") maintains,
administers or contributes to, nor have any of them maintained, administered or
contributed to, nor do the employees of SunSource or any ERISA Affiliate receive
or expect to receive as a condition of employment, benefits pursuant to any Plan
which is subject to Section 412 of the Code or Title IV of ERISA. All Plans,
Welfare Plans and Employee Benefit Plans and any related trust agreements or
annuity contracts comply in all material respects with and are and have at all
times been operated in accordance with each applicable provision of ERISA and
the Code (including, without limitation, requirements of Section 401(a) of the
Code to the extent any Plan is intended to conform to that section), other
federal statutes, state law (including, without
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limitation, state insurance law) and the regulations and rules promulgated
pursuant thereto or in connection therewith. Neither Wilson, SunSource nor any
ERISA Affiliate has any notice or knowledge of any violation of any of the
foregoing by any Plan, Welfare Plan or Employee Benefit Plan.
(b) Each Welfare Plan which is a group health plan (within the
meaning of Section 5000(b)(1) of the Code) complies with and has been maintained
and operated in all material respects in accordance with the requirements of
Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA. There
are no pending or, to Wilson's or SunSource's knowledge, threatened claims
against any of the Plans, Welfare Plans or Employee Benefit Plans by any
employee or beneficiary covered under any Plans, Welfare Plans or Employee
Benefit Plans or otherwise involving any Plan, Welfare Plan or Employee Benefit
Plan (other than routine claims for benefits).
Section 3.23 Employees and Other Matters. Schedule 3.23 hereto is a
correct and complete list of (i) the directors and officers of SunSource and all
of the present employees, sales personnel and independent contractors regularly
employed by or in connection with the business of SunSource, either as employees
or independent contractors, together with a statement of the full amount payable
by way of salary, bonuses, perquisites, fringe benefits and any other direct or
indirect compensation to each such person and (ii) the names of all persons, if
any, holding powers of attorney from SunSource and a summary statement of the
terms thereof.
Section 3.24 Environmental Matters. (a) SunSource has obtained and
continues to maintain all permits, licenses, consents and approvals (the
"Environmental Approvals"), if any, necessary for conducting the business of
SunSource which are required under Environmental Laws, and SunSource has not
operated in violation of any Environmental Law or the terms of any Environmental
Approval.
(b) (i) SunSource has not used, stored, generated, discharged,
emitted, transported, disposed of or treated Hazardous Substances except in a
manner which complies with Environmental Laws, (ii) to the best knowledge of
Wilson, no prior owner, occupant, tenant or user of any Facility has ever used,
stored, generated, discharged, emitted, transported, disposed of or treated
Hazardous Substances, at, on or from any Facility except in compliance with all
Environmental Laws, and (iii) to the best knowledge of Wilson, there is not, and
there has not been, any Environmental Condition or release or threat of release
(as those terms are defined in Section 101 of CERCLA) of Hazardous Substances
at, on or from any Facility.
(c) Neither Wilson nor SunSource has received written notice of any
pending or threatened investigation, claims, enforcement proceedings, cleanup
orders, citizen suits or other actions instituted by any private party, employee
or Governmental Body arising out of the conduct or the operations of SunSource,
in connection with any Environmental Laws, or as a result of any Environmental
Condition at any Facility.
Section 3.25 Sales Target. The Net Sales generated by the Business
were, for the twelve months ended December 31, 1998, at least $199,716, and for
the five months ended May 30, 1999, at least $215,642.55.
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Section 3.26 Ordinary Course; No Material Adverse Change. Since
March 31, 1999, SunSource has conducted its business in the ordinary and regular
course thereof and there has not been, and at the Closing there shall not have
been, (i) any material adverse change in the assets, business, prospects,
financial condition or results of operations of SunSource, (ii) any damage,
destruction or loss, whether or not covered by insurance, which has materially
adversely affected assets or the business of SunSource or (iii) any event or
condition of any character whatsoever the occurrence of which affects or
threatens to materially adversely affect the assets, business, prospects,
financial condition or results of operations of SunSource.
Section 3.27 Finder's Fees. Neither Wilson nor SunSource has
incurred any liability for finder's or brokerage fees or agent's commissions in
connection with this Agreement or the transactions hereby contemplated.
Section 3.28 Full Disclosure. No representation or warranty of
Wilson or SunSource in this Agreement or in any other certificate, schedule or
other document delivered to EyeCity.com pursuant to this Agreement contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements herein and therein not misleading in light of
the circumstances in which they are being or were made.
Article IV.
REPRESENTATIONS AND WARRANTIES OF EYECITY.COM AND SUBSIDIARY
EyeCity.com and Subsidiary, jointly and severally, represent and
warrant to Wilson and SunSource that:
Section 4.01 Organization and Good Standing. EyeCity.com is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the corporate power and authority to own or
lease all of its properties and assets and carry on its business as it is now
being conducted, except for such power and authority the lack of which would not
have a materially adverse effect on EyeCity.com. Subsidiary is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, is a wholly owned subsidiary of EyeCity.com and is organized
solely for the purpose of consummating the transactions contemplated hereby.
Section 4.02 Authority Relative to Agreement. EyeCity.com and
Subsidiary each have the corporate power and authority to execute and deliver
this Agreement and all other documents hereby contemplated, to consummate the
transactions hereby and thereby contemplated and to take all other actions
required to be taken by each of them pursuant to the provisions hereof and
thereof. The execution, delivery and performance of this Agreement and all other
documents hereby contemplated to be executed by EyeCity.com and Subsidiary has
been, and the consummation by EyeCity.com and Subsidiary of the transactions
hereby and thereby contemplated has been, duly authorized by any and all
necessary corporate action of EyeCity.com and Subsidiary, respectively. The
respective Boards of Directors of EyeCity.com and Subsidiary have authorized and
approved the execution, delivery and performance of this Agreement and the
transactions contemplated hereby. This Agreement and all other documents
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hereby contemplated to be executed by EyeCity.com and Subsidiary constitute the
legal, valid and binding obligations of EyeCity.com and Subsidiary,
respectively, enforceable against EyeCity.com and Subsidiary in accordance with
their respective terms, except as such enforceability may be limited by
bankruptcy, moratorium, insolvency, fraudulent conveyance, reorganization or
other similar laws affecting the enforcement of creditor's rights.
Section 4.03 No Violation of Other Instruments or Obligations.
Neither the execution and delivery of this Agreement or any other documents
hereby contemplated nor the consummation of the transactions hereby and thereby
contemplated shall (a) constitute any violation or breach of the Certificate of
Incorporation or By-laws of EyeCity.com or Subsidiary, (b) constitute a default
under or a violation or breach of, or result in acceleration of any obligation
under, any provision of any contract, lease, mortgage or other instrument to
which either of them is a party or (c) violate any judgment, order, writ,
injunction, decree, statute, rule or regulation affecting EyeCity.com,
Subsidiary or any of their respective assets, which violation, breach or
default, in the case of (b) or (c), would have a materially adverse effect on
EyeCity.com or Subsidiary.
Section 4.04 Consents and Approvals. No authorization, approval,
order, license, permit, franchise or consent, and no registration, declaration,
notice or filing by or with any domestic or foreign Governmental Body by
EyeCity.com or Subsidiary is required in connection with the execution and
delivery of this Agreement and the consummation of the transactions hereby
contemplated.
Section 4.05 Capitalization; Common Stock. (a) The capitalization of
EyeCity.com as of May 30, 1999, including all outstanding stock options, is
accurately and fully set forth on Schedule 4.05 hereto. Subsidiary is authorized
to issue only 100 shares of common stock, .01 par value per share, all of which
shares of common stock are issued and outstanding and owned by EyeCity.com.
There are no other series or classes of capital stock of Subsidiary authorized
or issued.
(b) The EyeCity.com Stock to be issued to Wilson pursuant to the
provisions of this Agreement will, upon such issuance, be duly authorized,
legally and validly issued and fully paid and nonassessable.
Section 4.06 Financial Statements. Schedule 4.06 hereto contains (a)
the unaudited balance sheet of EyeCity.com as of December 31, 1998 and the
related statements of operations, cash flows and shareholders' equity, including
the notes thereto, for the year then ended and (b) the unaudited balance sheet
of EyeCity.com as of February 28, 1999 and the related statements of operations,
cash flows and shareholders' equity, including the notes thereto, for the
two-month period then ended, all of which have been compiled by EyeCity.com's
certified public accountant and delivered to Wilson and SunSource. Such
financial statements present fairly, in all material respects, the financial
position of EyeCity.com as of December 31, 1998 and February 28, 1999,
respectively, and the results of EyeCity.com's operations, cash flows and
shareholders' equity for the year ended December 31, 1998 and the two-month
period ended February 28, 1999, all in conformity with GAAP applied on a
consistent basis, except as otherwise stated in such financial statements or the
accountants' report thereon.
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Section 4.07 Title to Assets. Except for Liens (a) for any current
taxes or assessments not yet delinquent or (b) created by statute of carriers,
warehousemen, mechanics, laborers and materialmen incurred in the ordinary
course of business for sums not yet due, EyeCity.com has good and marketable
title, free and clear of all Liens, to all of its assets and personal property.
Section 4.08 Litigation. To the best of EyeCity.com's knowledge,
there are no claims, actions, suits, litigations, proceedings, audits,
controversies or investigations, pending or, to the knowledge of EyeCity.com,
threatened against Subsidiary, EyeCity.com or any of its assets, and neither
EyeCity.com nor Subsidiary has been charged with or, to the knowledge of
EyeCity.com, threatened with a charge of any violation of, and is not under
investigation with respect to a possible violation of, any provision of any
federal, state or local law or administrative ruling or regulation relating to
its business, the adverse outcome of which, in any such case, would have a
materially adverse effect on EyeCity.com or Subsidiary.
Section 4.09 Licenses and Permits. Schedule 4.09 sets forth all
licenses, permits, consents and approvals necessary for EyeCity.com to conduct
its business as required by any Governmental Body, other than any such licenses,
permits, consents and approvals the absence of which would not have a materially
adverse effect on EyeCity.com.
Section 4.10 Ordinary Course; No Material Adverse Change. Since
March 31, 1999, EyeCity.com has conducted its business in the ordinary and
regular course thereof and there has not been (a) any material adverse change in
the assets, business, financial condition or results of operations of
EyeCity.com, (b) any damage, destruction or loss, whether or not covered by
insurance, which has materially adversely affected the assets or the business of
EyeCity.com or (c) any event or condition of any character whatsoever the
occurrence of which materially adversely affects the assets, business,
prospects, financial condition or results of operations of EyeCity.com.
Section 4.11 Finder's Fees. EyeCity.com has not incurred any
liability for finder's or brokerage fees or agent's commissions in connection
with this Agreement or the transactions hereby contemplated.
Section 4.12 Full Disclosure. No representation or warranty of
EyeCity.com or Subsidiary in this Agreement or in any other certificate,
schedule or other document delivered to Wilson or SunSource pursuant to this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements herein and therein not
misleading in light of the circumstances in which they were made.
Article V.
CONDITIONS TO EYECITY.COM'S AND SUBSIDIARY'S OBLIGATIONS
All obligations of EyeCity.com and Subsidiary under this Agreement
are subject to the fulfillment of each of the following conditions:
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Section 5.01 Representations and Warranties. The representations and
warranties of Wilson and SunSource contained in Article III hereof shall be true
and correct at and as of the Closing Date as though such representations and
warranties were made at and as of such date.
Section 5.02 Consulting Agreement. Wilson shall have entered into a
consulting agreement substantially in the form of Exhibit B hereto.
Section 5.03 Powers of Attorney. There shall have been terminated or
revoked all powers of attorney of SunSource.
Section 5.04 Opinion of Counsel. SunSource shall cause to be
delivered to EyeCity.com an opinion of counsel for SunSource, in form and
substance satisfactory to EyeCity.com and its counsel.
Section 5.05 Releases. Wilson and each other director and officer of
SunSource shall have executed and delivered the Release.
Section 5.06 Noncompetition and Nondisclosure Agreement. Wilson
shall have entered into a noncompetition and nondisclosure agreement
substantially in the form of Exhibit E hereto.
Section 5.07 Resignations. SunSource shall have caused to be
delivered to EyeCity.com written resignations, effective as of the Closing, of
each of the directors and officers of SunSource from all offices and
directorships of SunSource held.
Section 5.08 Governmental Permits and Approvals; Consents. SunSource
shall have obtained (a) all permits and approvals from any Governmental Body
required to be obtained by SunSource for the lawful consummation of the Closing
and (b) the consents set forth or required to be set forth on Schedule 3.07.
Section 5.09 Merger. The Certificate of Merger and the Florida
Certificate shall each have been executed and delivered by SunSource to
EyeCity.com.
Section 5.10 Assignment of Contracts. SunSource shall have obtained
the consent of all other parties to an assignment of any Contract in all cases
in which such consent is required thereunder.
Section 5.11 Officer's Certificate. SunSource shall have caused to
be delivered to EyeCity.com a certificate signed by the Chief Executive Officer
and/or the Secretary of SunSource stating that (a) the representations and
warranties of SunSource as set forth in Article III hereof are true and accurate
on and as of the Closing Date as if made on and as of such date and (b) all
conditions of EyeCity.com's obligations as set forth in Article V hereof have
been entirely fulfilled by SunSource.
Section 5.12 Due Diligence. EyeCity.com shall have completed its
business, financial and legal due diligence review of SunSource to EyeCity.com's
reasonable satisfaction.
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Section 5.13 Monthly Sales Reports. SunSource shall have delivered
to EyeCity.com monthly sales updates within five business days of the end of
each calendar month between the date hereof and the Closing Date.
Section 5.14 Additional Documents. Wilson and/or SunSource shall
have executed and delivered such additional closing documents, certificates and
agreements as EyeCity.com may reasonably request.
Article VI.
CONDITIONS TO SUNSOURCE'S AND WILSON'S OBLIGATIONS
All obligations of Wilson and SunSource under this Agreement are
subject to the fulfillment of each of the following conditions:
Section 6.01 Representations and Warranties. The representations and
warranties of EyeCity.com and Subsidiary contained in Article IV hereof shall be
true and correct in all material respects at and as of the Closing Date as
though such representations and warranties were made at and as of such date.
Section 6.02 Consulting Agreement. EyeCity.com shall have entered
into a consulting agreement with Wilson substantially in the form of Exhibit B
hereto.
Section 6.03 Opinion of Counsel. EyeCity.com shall cause to be
delivered to Wilson and SunSource an opinion of counsel for EyeCity.com and
Subsidiary, in form and substance satisfactory to Wilson, SunSource and their
counsel, opining, inter alia, that on the basis of certain facts,
representations and assumptions set forth in such opinions which are consistent
with the state of facts existing at the Closing Date, that the Merger qualifies
in relevant part as a tax-free reorganization for U.S. federal income tax
purposes within the meaning of Section 368(a) of the Code. In rendering the
opinions described in the preceding sentence, such counsel may require and rely
upon representations contained in certificates of officers of EyeCity.com and
Subsidiary.
Section 6.04 Governmental Permits and Approvals; Consents.
EyeCity.com shall have obtained (a) all permits and approvals from any
Governmental Body required to be obtained by EyeCity.com for the lawful
consummation of the Closing and (b) approval of this Agreement and the
transactions contemplated hereby by Subsidiary's shareholder. Notwithstanding
the foregoing, EyeCity.com shall not be required to pay any consideration to any
third party in order to obtain any such permit, approval, consent or estoppel
representation letter.
Section 6.05 Officer's Certificate. EyeCity.com shall have caused to
be delivered to SunSource a certificate signed by the Chief Executive Officer
and/or the Secretary of EyeCity.com stating that (a) the representations and
warranties of EyeCity.com and Subsidiary as set forth in Article IV hereof are
true and accurate on and as of the Closing Date as if made on and as of such
date and (b) all conditions of Wilson's and SunSource's
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obligations as set forth in Article VI hereof have been entirely fulfilled by
EyeCity.com and Subsidiary, respectively.
Section 6.06 Additional Documents. EyeCity.com and/or Subsidiary
shall have executed and delivered such additional closing documents,
certificates and agreements as SunSource or Wilson may reasonably request.
Section 6.07 Exchange Listing. The EyeCity.com Stock shall continue
to be listed on the NASDAQ over-the-counter bulletin board on the Closing Date.
Article VII.
COVENANTS
Section 7.01 Further Assurances. From and after the date hereof,
Wilson and SunSource shall, at any time and from time to time, at their sole
cost and expense, make, execute and deliver, or cause to be made, executed and
delivered, such assignments, deeds, drafts, checks, stock certificates, returns,
filings and other instruments, agreements, consents and assurances and take or
cause to be taken all such actions as EyeCity.com, Subsidiary or either of their
respective counsel may reasonably request for the effectual consummation,
confirmation and particularization of this Agreement and the transactions hereby
contemplated.
Section 7.02 Collection of Receivables. In the event that Wilson
receives any amounts after the Closing Date in respect of SunSource accounts
receivable that existed prior to the Closing Date, Wilson agrees to promptly
forward all such amounts to EyeCity.com.
Section 7.03 Income and Franchise Taxes.
(a) Returns and Payments.
(i) Wilson shall cause to be prepared, consistent with past
practice, and shall file or submit to EyeCity.com for filing, all
required income and franchise Tax Returns of SunSource for any
period which ends on or before the Closing Date, for which Tax
Returns are not required to be have been filed as of the Closing
Date. Wilson shall pay or shall pay to EyeCity.com and upon receipt
EyeCity.com shall cause to be timely paid in each instance to the
appropriate Taxing authorities all Taxes to which such Tax Returns
relate for all periods covered by such Tax Returns; provided,
however, that Wilson shall have no obligation pursuant to this
Section 7.03(a)(i) for Taxes for which provision has been made on
the Last Balance Sheet.
(ii) EyeCity.com shall cause to be prepared, consistent with
past practice, and timely file all required income and franchise Tax
Returns of either Subsidiary or SunSource for Taxable periods
beginning before and ending after the Closing Date (the "Straddle
Returns"). At least 15 days prior to the filing of any Straddle
Return required to be filed by EyeCity.com pursuant to the preceding
sentence, EyeCity.com shall submit copies of such Returns to Wilson
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for his approval, which shall not be unreasonably withheld.
EyeCity.com shall cause all such Straddle Returns to be timely filed
and cause all Taxes shown as due on such Straddle Returns to be
timely paid. Such Taxes, to the extent attributable to any period or
portion of a period on or before the Closing shall be referred to
herein as "Pre-Closing Taxes." Pre-Closing Taxes shall be calculated
on the basis of the income of SunSource as though the Taxable year
of SunSource terminated at the close of business on the day
immediately preceding the Closing Date; provided, however, that in
the case of Taxes not based on income, Pre-Closing Taxes shall be
equal to the Tax imposed with respect to the entire Taxable year
multiplied by a fraction, the numerator of which shall be the number
of days preceding the Closing Date, and the denominator of which is
the number of days in the Taxable year. Wilson shall reimburse
EyeCity.com for Pre-Closing Taxes at such time as the Straddle
Return is filed with the appropriate Taxing Authority; provided,
however, that Wilson shall have no obligation pursuant to this
Section 7.03(a)(ii) for Taxes for which provision has been made on
the Last Balance Sheet.
(b) Audits. EyeCity.com shall promptly notify Wilson in writing upon
receipt by EyeCity.com, or any affiliate of EyeCity.com (including Subsidiary),
of notice of any pending or threatened federal state, local or foreign Tax audit
or assessment for which EyeCity.com may seek indemnification pursuant to the
terms of this Agreement. Wilson shall have the sole right to represent
Subsidiary's interests (as successor to SunSource) in any federal state, local
or foreign Tax matter, including any audit or administrative or judicial
proceeding or the filing of any amended return (a "Tax Matter"), involving a Tax
liability or potential Tax liability for which EyeCity.com may seek
indemnification, and to employ counsel of Wilson's choice and reasonably
acceptable to EyeCity.com at Wilson's expense. EyeCity.com agrees that it will
cooperate fully with Wilson and his counsel (including, without limitation,
executing and delivering applicable powers of attorney) in connection with the
preparation or filing of any applicable Tax return or the defense or compromise
of any Tax Matter. Wilson will not concede the correctness of any part of any
proposed adjustment pertaining to Taxes and will not enter into any closing or
compromise agreement with respect to any of the issues which form the basis for
such proposed adjustment without the consent of EyeCity.com; provided, however,
that if EyeCity.com fails to so consent, EyeCity.com may not thereafter seek
indemnification for an amount in excess of the amount it would have been
entitled to had it consented to such closing or compromise agreement.
(c) Cooperation. After the Closing Date, EyeCity.com and its
affiliates (including SunSource) and Wilson shall make available to the other,
as reasonably requested, and to the extent appropriate Tax authorities, all
information, records and documents relating to the Tax liabilities or potential
Tax liabilities of SunSource or Subsidiary as successor to SunSource for all
periods prior to the Closing Date (Including Pre-Closing Taxes described in
Section 7.03(a)(ii)) and shall preserve all such information, records and
documents until 60 days after the expiration of any applicable statute of
limitations including any waiver or extension thereof.
Section 7.04 Standstill. In consideration of EyeCity.com's and
Subsidiary's execution and delivery of this Agreement, Wilson and SunSource
agree to immediately cease
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any existing discussions or negotiations with any third parties conducted prior
to the date hereof with respect to any merger, business combination, sale of a
material portion of SunSource assets outside of the ordinary course of business,
change of control or similar transaction involving the Company or any of its
subsidiaries or any division (each, an "Acquisition Transaction"). Wilson and
SunSource shall not, and will cause their respective "affiliates" (as defined in
the Exchange Act) as well as SunSource's management, employees, agents,
representatives, officers and directors, not to:
(a) from the date hereof until the earlier of the Closing Date or
the termination of this agreement, directly or indirectly solicit, initiate,
encourage, accept, entertain, participate in or consult with respect to
(including by way of furnishing information) any inquiry, offer, discussion,
proposal, negotiation, arrangement or understanding in connection with any
proposed Acquisition Transaction with any person, firm or corporation other than
EyeCity.com or Subsidiary, or provide any information (public or non-public) or
otherwise cooperate in any way with anyone for any purpose inconsistent with the
terms of this Agreement (it being also agreed that Wilson and SunSource shall
promptly notify EyeCity.com in writing of any such inquiries or proposals); and
(b) for a period commencing on the date hereof and ending on the
earlier of the Closing Date and 12 months following the date of the termination
of this Agreement, if applicable,
(i) become a "participant" in a "solicitation" of proxies, as
those terms are defined in Rule 14a-11 and Rule 14a-1, respectively,
of Regulation 14A under the Exchange Act, to vote, or seek to advise
or influence any person, in respect of any voting securities of
EyeCity.com that may be outstanding and entitled to vote at any time
during such period, except in respect of the transactions
contemplated hereby;
(ii) form, join or in any way participate in any "group" (as
such term is defined in Section 13(d)(3) of the Exchange Act) for
the purpose of voting, purchasing or disposing of any securities of
EyeCity.com;
(iii) deposit any securities of EyeCity.com in a voting trust
or subject them to a voting agreement or other arrangement or
similar effect;
(iv) in any manner acquire or agree, offer, seek or propose to
acquire or make any proposal to acquire ownership (including,
without limitation, "beneficial" ownership, as defined by Rule 13d-3
promulgated under the Exchange Act) of any of the assets or
businesses of, or any securities of, or any securities issued by,
EyeCity.com or any rights or options to acquire such ownership
(including from a third party), except through the transactions
contemplated hereby;
(v) seek or propose to influence or control the management,
Board of Directors or policies of EyeCity.com, except for the
transactions contemplated hereby; or
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(vi) enter into any discussion, proposal, negotiation,
arrangement or understanding with any third party in respect of any
of the foregoing.
Section 7.05 Continuation of Business. From the date hereof until
the earlier of the Closing Date or the date of the termination of this
Agreement, except as Wilson, SunSource and EyeCity.com may otherwise agree,
SunSource will, and Wilson will cause SunSource to, preserve and continue to
operate its business diligently and in a proper and prudent manner and will not
enter into any transactions outside of the ordinary and usual course of its
business or enter into any transaction or make any commitment involving an
expense or capital expenditure by SunSource in excess of $5,000. Notwithstanding
the generality of the previous sentence, SunSource may employ up to two customer
service employees for a wage not to exceed $12.50 per hour, and SunSource may
conduct an advertising campaign having an aggregate cost, from April 30, 1999
through the Closing Date, of not more than $15,000. Except for those amounts set
forth on Schedule 7.05 hereto, from the date hereof until the earlier of the
Closing Date or the date of the termination of this Agreement, no bonuses or
compensation will be paid to the officers or employees of SunSource other than
salaries in effect on the date hereof and payments made in the form of bonuses
in the ordinary course of business consistent with past practice, and SunSource
will not declare any dividends, grant new stock options, accelerate any options
or issue new shares of stock or other securities (other than pursuant to
exercise of events of outstanding options, warrants or rights) or rights to
acquire any such options, shares or securities, or make any commitments with
respect to any of the foregoing, nor will distributions of any nature be made to
the shareholders of SunSource. From the date hereof until the earlier of the
Closing Date or the date of the termination of this Agreement, Wilson and
SunSource will endeavor to maintain the goodwill of business relationships with
all of SunSource's existing customers and suppliers. Specifically, without
limitation of the foregoing, SunSource shall not, and Wilson shall cause
SunSource not to, (i) place or permit any third party to place any Lien on any
of SunSource assets, (ii) commit any material breach of any Contract which
breach is not fully cured by the Closing Date, (iii) amend or waive any defaults
under any Contract or (iv) initiate or become a voluntary third party
participant in any litigation or arbitration proceeding.
Article VIII.
INVESTMENT INTENT;
RESTRICTIONS ON TRANSFER; REGISRATION RIGHTS
Section 8.01 Advice of Counsel. Wilson represents and warrants that
he has reviewed with his tax advisor(s) the U.S. federal, state, local and
foreign tax consequences of an investment in the EyeCity.com Stock and the
consequences of the transactions contemplated by this Agreement. Wilson
represents and warrants that he is relying solely on such advisor(s) and not on
any statements or representations of EyeCity.com or any of its agents (except
for the Opinion of Counsel provided for in Section 6.03 hereof) and understands
that he (and not EyeCity.com) shall be responsible for his own tax liability
that may arise as a result of this investment in EyeCity.com or as a result of
the transactions contemplated by this Agreement.
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Section 8.02 Investment Representation. Wilson (a) represents and
warrants to EyeCity.com that he is acquiring all of the shares of EyeCity.com
Stock to be issued to him pursuant to the provisions of this Agreement for his
own account and for the purposes of investment and not with a view to, or for
sale in connection with, any distribution thereof and (b) agrees that he will
not at anytime sell or otherwise transfer, or permit the sale or other transfer
of, such shares of EyeCity.com Stock other than in transactions that are not in
violation of the Securities Act or the provisions of any other applicable
securities laws, rules or regulations.
Section 8.03 Stock Legend. All certificates representing shares of
EyeCity.com Stock to be delivered to Wilson under this Agreement shall bear the
following legend:
"The securities represented hereby have not been
registered under the Securities Act of 1933, as amended,
or under the securities laws of any state and may not be
sold, assigned, transferred, pledged or otherwise disposed
of except in compliance with, or pursuant to an exemption
from, the requirements of such Act or such laws."
Section 8.04 "Piggyback" Registration. (a) If at any time after the
one year anniversary from the date of Closing, EyeCity.com proposes to register
any shares of EyeCity.com Stock under the Securities Act (other than on a Form
S-4 or other applicable form in connection with a merger, or pursuant to a Form
S-8 or other comparable form), EyeCity.com shall request that the managing
underwriter (if any) of such underwritten offering include the Transferred
Shares in the offering covered by such registration statement. If such managing
underwriter agrees to include the Transferred Shares in the underwritten
offering, and in any event in a non-underwritten offering, EyeCity.com shall at
such time give prompt written notice to Wilson of its intention to effect such
registration and of Wilson's rights under such proposed registration, and upon
the request of Wilson delivered to EyeCity.com within 20 business days after
Wilson's receipt of such notice (which request shall specify the shares of
EyeCity.com intended to be disposed of by Wilson and the intended method of
disposition thereof), EyeCity.com shall include such shares held by Wilson and
requested to be included in such registration; provided, however, that:
(i) If, at any time after giving such written notice of
EyeCity.com's intention to register any of the Transferred Shares
and prior to the effective date of the registration statement filed
in connection with such registration, EyeCity.com shall determine
for any reason not to register or to delay the registration of the
offering which includes such shares, at its sole election,
EyeCity.com may give written notice of such determination to Wilson
and thereupon shall be relieved of its obligation to register any of
the Transferred Shares issued or issuable in connection with that
particular registration (but not from its obligation to pay
registration expenses in connection therewith or to register the
Transferred Shares in a subsequent registration); and in the case of
a determination to delay a registration shall thereupon be permitted
to delay registering any of the Transferred Shares for the same
period as the delay in respect of securities being registered for
EyeCity.com's own account.
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(ii) If the managing underwriter in such underwritten offering
shall advise EyeCity.com that it declines to include a portion or
all of the Transferred Shares requested by Wilson to be included in
the registration statement, then registration of all or a specified
portion of the Transferred Shares shall be excluded from such
registration statement (in case of an exclusion as to a portion of
the Transferred Shares, such portion to be excluded shall be
allocated among Wilson and any affiliates and other selling
shareholders of EyeCity.com, including securities to be registered
in such underwritten offering in proportion to the respective number
of shares of EyeCity.com Stock and other securities requested to be
registered by each such affiliate or shareholder). In such event,
EyeCity.com shall give Wilson prompt notice of the number of
Transferred Shares excluded from such registration at the request of
the managing underwriter. No such exclusion shall reduce the
securities being offered by EyeCity.com for its own account to be
included in such registration statement.
(iii) Wilson, subject to the provision of Section 8.04(b)
hereof, shall have the option to include the Transferred Shares in
EyeCity.com's underwritten offering. EyeCity.com shall not be
required to include any of the Transferred Shares in an underwritten
offering of EyeCity.com's securities unless Wilson (a) accepts the
terms of the underwriting as agreed upon between EyeCity.com and the
underwriters selected by it (provided such terms are usual and
customary for selling stockholders) and (b) agrees to execute such
documents in connection with such registration as EyeCity.com or the
managing underwriter may reasonably request.
(b) Cooperation with Company. Wilson shall cooperate with
EyeCity.com in all respects in connection with this Agreement and/or in
connection with any underwritten offering of EyeCity.com Stock which EyeCity.com
initiates or which is initiated on EyeCity.com's behalf, including, supplying,
in a timely manner, all information reasonably requested by EyeCity.com or the
managing underwriter and executing and returning all documents reasonably
requested in connection with the registration and sale of the Transferred Shares
or any portion of the Transferred Shares.
(c) Termination of Rights. EyeCity.com's obligations under Section
8.04(a) hereof shall terminate upon the date upon which the Transferred Shares
are eligible for resale without registration pursuant to section (k) of Rule 144
("Rule 144") of the Securities Act and are accompanied by a suitable opinion
letter of counsel for the issuer directing removal of the restrictive legend.
(d) Registration Procedures. If and whenever EyeCity.com is required
by any of the provisions of this Agreement to effect the registration of any of
the Transferred Shares under the Securities Act, EyeCity.com shall (except as
otherwise provided in this Agreement), as expeditiously as possible:
(i) prepare and file with the Commission a registration
statement and shall use its best efforts to cause such registration
statement to become effective and remain effective until that
portion of the Transferred Shares which Wilson has
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requested be registered are sold or become capable of being publicly
sold without registration under the Securities Act pursuant to Rule
144(k);
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions
of the Securities Act with respect to the sale or other disposition
of all securities covered by such registration statement whenever
Wilson shall desire to sell or otherwise dispose of the same until
the earlier of (A) one year from the effectiveness of the
registration statement or (B) the date when all Transferred Shares
owned by Wilson or his Permitted Transferees (as such term is
defined below) are eligible for sale under Rule 144(k);
(iii) furnish to Wilson such copies of a summary prospectus or
other prospectus, including a preliminary prospectus or any
amendment or supplement to any prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as
Wilson may reasonably request in order to facilitate the public sale
or other disposition of such securities;
(iv) register and qualify such securities under such other
securities or blue sky laws of such jurisdictions as Wilson shall
reasonably request and do any and all other acts and things which
may be necessary or advisable to enable Wilson to consummate the
public sale or other disposition in such jurisdictions of such
securities, except that EyeCity.com shall not for any such purpose
be required to qualify to do business as a foreign corporation in
any jurisdiction wherein it is not so qualified or to file therein
any general consent to service of process or to register the
Transferred Shares or any portion thereof under the blue sky laws of
any state where EyeCity.com does not have a "secondary trading"
exemption;
(v) use its best efforts to list such securities on any
securities exchange on which any securities of EyeCity.com is then
listed, if the listing of such securities is then permitted under
the rules of such exchange;
(vi) notify Wilson at any time when a prospectus relating to
the Transferred Shares is required to be delivered under the
Securities Act, of the happening of any event as a result of which
such prospectus contains an untrue statement of a material fact or
omits any fact necessary to make the statements therein not
misleading, whereupon Wilson shall not effect any further sales of
any of the Transferred Shares pursuant to such prospectus, and, at
the request of Wilson, EyeCity.com will promptly prepare a
supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of the Transferred Shares, such
prospectus will not contain an untrue statement of a material fact
or omit to state any fact necessary to make the statements therein
not misleading, whereupon Wilson may then effect sales of the
Transferred Shares, or any portion thereof, pursuant to such
supplemented or amended prospectus.
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(e) Black Out Periods.
(i) Wilson shall not, directly or indirectly, effect any
public sale or distribution (including sales pursuant to Rule 144)
or any short sales of equity securities of EyeCity.com, or any
securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the 90-day period
beginning on the effective date of any "Piggyback" registration
under Section 8.04 hereof for a public offering to be underwritten
on a firm commitment basis in which any of the Transferred Shares
are included (except as part of such underwritten registration),
unless the underwriters managing the registered public offering
otherwise agree.
(ii) EyeCity.com shall have the right to suspend use of any
registration statement and the related prospectus if its Board of
Directors determines in good faith that there is a valid purpose for
such suspension. For purposes of this Agreement, a valid purpose
shall include, but is not limited to, a good faith determination
that the registration statement may contain a material misstatement
or omission (including as a result of EyeCity.com having under
consideration a significant acquisition or disposition or other
material transaction that has not been publicly disclosed), in which
case EyeCity.com may cause the registration statement not to be used
by Wilson until such time as the Commission has declared effective a
post-effective amendment to the registration statement filed by
EyeCity.com or if the misstatement or omission can be corrected by
incorporation by reference in the registration statement of another
Commission filing of EyeCity.com, EyeCity.com has made another
filing on Form 8-K or other appropriate form to correct such
misstatement or omission.
(iii) In connection with any public offering of EyeCity.com's
securities, Wilson agrees, upon request of EyeCity.com or the
underwriters managing any underwritten offering of EyeCity.com's
securities, not to sell, make any short sale of, loan, grant any
option for the purchase of or otherwise dispose of any of the
Transferred Shares (other than those included in the registration)
without the prior written consent of EyeCity.com or such
underwriters, as the case may be, for such period of time (not to
exceed 180 days in the case of EyeCity.com's first underwritten
public offering the gross proceeds of which are at least
$10,000,000, and 90 days in the case of other public offerings of
EyeCity.com) from the effective date of such registration as may be
requested by the underwriters; provided, that the officers and
directors of EyeCity.com who own stock of EyeCity.com and the
holders, if any, of 5% or more of EyeCity.com's outstanding voting
securities also agree to such restrictions.
(iv) In order to enforce the foregoing clauses 8.04(e)(i),
(ii) and (iii), EyeCity.com may impose stop transfer instructions
with respect to the Transferred Shares or any portion thereof (and
the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
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(f) Expenses. All expenses incurred in any registration of the
Transferred Shares under this Agreement shall be paid by EyeCity.com, including,
without limitation, printing expenses, fees and disbursements of counsel for
EyeCity.com, expenses of any audits to which EyeCity.com shall agree or which
shall be necessary to comply with governmental requirements in connection with
any such registration, all registration and filing fees for the Transferred
Shares under federal and state securities laws and expenses of complying with
the securities or blue sky laws of any jurisdictions pursuant to Section
8.04(d)(iv); provided, however, that EyeCity.com shall not be liable for (i) any
discounts or commissions to any underwriter, (ii) any stock transfer taxes
incurred with respect to the Transferred Shares sold in the offering or (iii)
the fees and expenses of counsel for Wilson, provided that EyeCity.com will pay
the costs and expenses of EyeCity.com's counsel when EyeCity.com's counsel is
representing any or all selling security holders.
(g) Indemnification. In the event the Transferred Shares, or any
portion thereof, are included in a registration statement pursuant to this
Agreement:
(i) Indemnity by EyeCity.com. Without limitation of any other
indemnity provided to Wilson, either in connection with the offering
or otherwise, to the extent permitted by law, EyeCity.com shall
indemnify and hold harmless Wilson and his affiliates, any
underwriter (as defined in the Securities Act) for Wilson and each
person, if any, who controls such underwriter (within the meaning of
the Securities Act or the Exchange Act) against any losses, claims,
damages or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal
or state laws, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation") by EyeCity.com: (A) any untrue
statement or alleged untrue statement of a material fact contained
in such registration statements including any preliminary prospectus
or final prospectus contained therein or any amendments or
supplements, thereto, (B) the omission or alleged omission to state
therein a material fact required to be stated therein, or necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading or (C) any violation or alleged
violation by EyeCity.com of the Securities Act, the Exchange Act,
any state securities law or any rule or regulation promulgated under
the Securities Act, the Exchange Act or any State securities law,
and, in each case, EyeCity.com shall reimburse Wilson and his
affiliates or underwriter for any legal or other expenses incurred
by them connection with investigating or defending any such loss,
claim, damage, liability or action. Notwithstanding the foregoing,
EyeCity.com shall not be liable to Wilson or his affiliates or
underwriter in any case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon (1) a
Violation which occurs in reliance upon and in conformity with
written information furnished by Wilson, his affiliates or his
underwriter expressly for use in connection with such registration
or (2) by Wilson's failure to deliver to purchasers of the
Transferred Shares, or any portion thereof, a copy of the
registration statement or prospectus or any amendments or
supplements thereto pursuant to Section 8.04(d)(vii) after
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EyeCity.com has furnished Wilson with a sufficient number of copies
of the same.
(ii) Indemnity by Wilson. Wilson shall indemnify and hold
harmless EyeCity.com and/or its affiliates, counsel, officers,
directors, and representatives, any underwriter (as defined in the
Securities Act) and each person, if any, who controls EyeCity.com or
the underwriter (within the meaning of the Securities Act or the
Exchange Act), against any losses, claims, damages or liabilities
(joint or several) to which they may become subject under the
Securities Act, the Exchange Act or any state securities law, and
Wilson shall reimburse EyeCity.com and/or its affiliate, officer,
director or partner, underwriter or controlling person for any legal
or other expenses liability incurred by them in connection with
investigating or defending any such loss, claim, damage, liability
or action insofar as such losses, claims, damages or liabilities (or
actions and respect thereof) arise out of or are based upon a
Violation which occurs in reliance upon and in conformity with
written information furnished by Wilson, his affiliates or his
underwriter expressly for use in connection with such registration.
(iii) Notice: Right to Defend. Promptly after receipt by an
indemnified party under this Section 8.04(g) of notice of the
commencement of any action (including any government action) such
indemnified party shall, if a claim in respect thereof made against
an indemnifying party under this Section 8.04(g), deliver to the
indemnifying party a written notice of the commencement thereof, and
the indemnifying party shall have the right to participate in and if
the indemnifying party agrees in writing that it will be responsible
for any costs, expenses, judgments, damages and losses incurred by
the indemnified party with respect to such claim, jointly with any
other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain
its own counsel with the fees and expenses to be paid by the
indemnifying party, if the indemnified party reasonably believes
that representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to the
availability of separate defenses or actual or potential conflicts
of interests between such indemnified party and any other party or
parties represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within
reasonable time of the commencement of an such action shall relieve
such indemnifying party of any liability to the indemnified party
under this Agreement only if and to the extent that such failure is
prejudicial to its ability to defend such action; provided, that any
such omission to deliver written notice to the indemnifying party
will not relieve the indemnifying party of any liability that it may
have to any indemnified party otherwise than under this Agreement.
(iv) Contribution. If the indemnification provided for in this
Agreement is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss,
liability, claim, damage or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such
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indemnified party thereunder, shall contribute to the amount paid or
payable by such indemnified party as a result of such loss,
liability, claim, damage or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party
on the one hand and of the indemnified party on the other hand in
connection with the statements or omissions which resulted in such
loss, claim, damage or expense as well as any other relevant
equitable considerations. The relevant fault of the indemnifying
party and the indemnified party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact
information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, access to information and
opportunity to correct or prevent such statement or omission. No
Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to
contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
(v) Survival of Indemnity. The indemnification provided for by
this Agreement shall be a continuing right to indemnification and
shall survive (A) the registration and sale of any Transferred
Shares by any person entitled to indemnification hereunder and (B)
the expiration or termination of this Agreement.
Section 8.05 Transfer of Registration. Wilson's rights under Article
VIII of this Agreement, including, without limitation, the rights to cause
EyeCity.com to register Transferred Shares, or any portion thereof, under
Section 8.04(a) are personal to Wilson and shall not survive any transfer(s) of
the Transferred Shares, or any portion thereof, whatsoever, and may not be
assigned or transferred in any way, provided, however, that the restrictions
contained in this Section 8.05 shall not apply with respect to any Transfer of
the Transferred Shares, or any portion thereof, by Wilson, pursuant to
applicable laws of descent and distribution or otherwise to such person's
spouse, former spouse and descendants (whether natural or adopted), parents and
their descendants, descendants of such brothers and sisters and any spouse of
the foregoing individuals or any trust solely for the benefit of any of the
foregoing; provided, however, that if any of the foregoing is less than 21 years
of age at the time of such proposed Transfer, then such Transfer may only be
made to a trustee of a valid trust for the benefit of the foregoing, which trust
shall not terminate prior to the beneficiary (or beneficiaries) thereof
attaining the age of 21 (collectively, "Permitted Transferees"). Except as
permitted herein, any attempted Transfer or assignment of the rights set forth
in this Article VIII shall be void ab initio.
Article IX.
INDEMNIFICATION
Section 9.01 By Wilson. Wilson agrees to indemnify and hold harmless
EyeCity.com, Subsidiary and their respective directors, officers, employees and
agents (the "Purchaser Parties") against, and to reimburse Purchaser Parties on
demand with respect to, any and all losses, liabilities, obligations, suits,
proceedings, demands, judgments, damages,
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claims, expenses and costs (including, without limitation, reasonable fees,
expenses and disbursements of counsel) (collectively, "Losses") which each may
suffer, incur or pay by reason of (a) the breach by Wilson or SunSource of any
representation or warranty made by either of them in this Agreement or in any
agreement, certificate or other document executed by Wilson or SunSource and
delivered to EyeCity.com or Subsidiary pursuant to the provisions of this
Agreement; (b) the failure of Wilson or SunSource to perform any agreement
required by this Agreement or any agreement executed pursuant to the provisions
of this Agreement; and (c) the allegation by any third party of the existence of
any liability, obligation, lease, agreement, contract, other commitment or state
of facts which, if such allegation were true, would constitute a breach by
Wilson or SunSource of any representation or warranty made by either of them in
this Agreement or in any agreement, certificate or other document delivered by
or on behalf of Wilson and SunSource to EyeCity.com or Subsidiary pursuant to
the provisions of this Agreement or of any covenant made by Wilson or SunSource
herein or therein.
Section 9.02 By EyeCity.com. EyeCity.com agrees to indemnify and
hold harmless Wilson against, and to reimburse Wilson on demand with respect to,
any and all Losses which Wilson may suffer, incur or pay by reason of (a) the
breach by EyeCity.com or Subsidiary of any representation or warranty made by
either of them in this Agreement or in any agreement, certificate or other
document executed by EyeCity.com or Subsidiary and delivered to Wilson pursuant
to the provisions of this Agreement; (b) the failure of EyeCity.com or
Subsidiary to perform any agreement required by this Agreement or any agreement
executed pursuant to the provisions of this Agreement; and (c) the allegation by
any third party of the existence of any liability, obligation, lease, agreement,
contract, other commitment or state of facts which, if such allegation were
true, would constitute a breach by EyeCity.com or Subsidiary of any
representation or warranty made by either of them in this Agreement or in any
agreement, certificate or other document delivered by or on behalf of
EyeCity.com or Subsidiary to Wilson pursuant to the provisions of this Agreement
or of any covenant made by EyeCity.com or Subsidiary herein or therein.
Section 9.03 Indemnification Procedure. The Purchaser Parties, in
the case of Section 9.01 hereof, and Wilson, in the case of Section 9.02 hereof
(hereinafter, the applicable party or parties providing indemnity, the
"Indemnifying Party" and the party or parties being indemnified, the
"Indemnified Party") agree to give the Indemnifying Party prompt written notice
of the allegation by any third party of the existence of any liability,
obligation, lease, agreement, contract, other commitment or state of facts
referred to in clause (c) of Sections 9.01 and 9.02 hereof, as applicable. The
Indemnifying Party shall be entitled, at his or its sole cost and expense, to
participate in and to control the contest, defense, settlement or compromise of
any claim if the Indemnifying Party shall agree in writing within 15 days after
the receipt of notice of such claim that it is required, pursuant to this
Article IX, to indemnify the Indemnified Party for the full amount of such claim
(the "Claim Acknowledgement Procedure"). If the Indemnifying Party shall assume
the defense of a claim hereunder, the Indemnified Party shall be kept informed
with respect to, and shall have the right to participate in, the contest,
defense, settlement or compromise of any such claim. If the Indemnifying Party
does not assume the defense of a claim within a reasonable time after notice
thereof or, after assumption, does not thereafter diligently pursue such defense
or does not comply with the Claim Acknowledgement Procedure, the Indemnified
Party shall be entitled to defend, settle or compromise such matter for the
account and at the expense of the Indemnifying Party. Notwithstanding the
foregoing
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provisions of this Section 9.03, the Indemnified Party shall have the sole right
to control the contest, defense, settlement or compromise of any claim if such
claim is not a claim solely for monetary damages. Notwithstanding anything to
the contrary set forth in this Article IX, no Indemnified Party shall be
entitled to indemnification until the aggregate amount of Losses payable to such
Indemnified Party (without giving effect to this limitation) exceeds $10,000;
provided, that, if the aggregate amount of such Losses exceeds $10,000,
indemnification shall be made to the full extent of any such Losses, including
any such Losses that arose prior to the time that the aggregate of such Losses
exceeded $10,000.
Section 9.04 Knowledge of Parties. Notwithstanding the generality of
Sections 9.01 and 9.02 hereof, conditions or circumstances that would otherwise
constitute exceptions to any representations or warranties of EyeCity.com or
Subsidiary, on the one hand, or Wilson or SunSource, on the other hand, but of
which the other party has actual knowledge on the date hereof shall not cause
any liability of such representing or warranting party under this Agreement.
Section 9.05 Survival of Indemnifications. All indemnifications made
by the parties to this Agreement pursuant to the terms hereof shall survive the
Closing of the transactions hereby contemplated, and in the event the Closing
does not occur, all such indemnifications shall survive the termination of this
Agreement.
Article X.
TERMINATION
(a) This Agreement may be terminated at any time prior to the
Closing Date:
(i) by mutual consent of the parties;
(ii) by EyeCity.com and Subsidiary, if there has been a
material violation or breach by Wilson or SunSource of any
agreement, representation, warranty or condition contained in this
Agreement and not cured to the reasonable satisfaction of
EyeCity.com and Subsidiary prior to the Closing Date; or
(iii) by Wilson and SunSource, if there has been a material
violation or breach by EyeCity.com or Subsidiary of any agreement,
representation, warranty, or condition contained in this Agreement
not cured to the reasonable satisfaction of Wilson and SunSource
prior to the Closing Date.
(b) This Agreement shall automatically terminate, without any action
of any of the parties hereto, if the Closing has not been completed by June 30,
1999, unless this provision is expressly waived in writing by the parties
hereto.
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Article XI.
MISCELLANEOUS
Section 11.01 Survival of Representations and Warranties. All
statements, certifications, indemnification's, representations and warranties
made hereby by the parties to this Agreement and their respective covenants,
agreements and obligations to be performed pursuant to the terms hereof shall,
unless waived in writing and notwithstanding any examination by or on behalf of
any party hereto and notwithstanding the consummation of the transactions hereby
contemplated, survive the closing of the transactions hereby contemplated for a
period of 24 months; provided, however, that the representations and warranties
set forth in Section 3.19 and Section 3.20 shall survive the closing of the
transactions hereby contemplated for a period of five years.
Section 11.02 Merger Provision. All prior or contemporaneous
agreements, contracts, promises, representations and statements, if any, among
the parties hereto (including, without limitation, those included in any letter
of intent entered into between the parties hereto) as to the subject matter
hereof, other than the Confidentiality Agreement, are merged into this
Agreement. This Agreement, together with the Confidentiality Agreement, all
agreements, schedules, exhibits, documents and other instruments to be attached
hereto or delivered herewith, sets forth the entire understanding between the
parties, and there are no terms, conditions, representations, warranties or
covenants other than those contained herein and in the Confidentiality Agreement
and in such agreements, schedules, exhibits, documents and other instruments to
be attached hereto or delivered herewith.
Section 11.03 Amendment and Modification. No term or provision of
this Agreement may be amended, released, discharged or modified in any respect
except in a writing signed by the party to be charged and only to the extent
therein set forth.
Section 11.04 Waiver. (a) No waiver shall be deemed to be made by
any of the parties to any of its rights hereunder unless such waiver shall be in
a writing signed by the waiving party and only to the extent therein set forth.
(b) No failure of any of the parties to exercise any power given
such party hereunder or to insist upon strict compliance by any other party with
its obligations hereunder and no custom or practice of the parties at variance
with the terms hereof shall constitute a waiver of the right of any party to
demand precise compliance with the terms of this Agreement.
Section 11.05 Notices. (a) All notices, consents, demands or other
communications required or permitted to be given pursuant to this Agreement
shall be in writing and shall be deemed sufficiently given on (i) the day on
which delivered personally or by telecopy (with prompt confirmation by mail)
during a business day to the appropriate location listed at the appropriate
address below, (ii) three business days after the posting thereof by U.S.
registered or certified first class mail, return receipt requested with postage
and fees prepaid or (iii) one business day after deposit thereof for overnight
delivery. Such notices, consents, demands or other communications shall be
addressed respectively:
32
<PAGE>
As to Wilson: G. Robert Wilson
1508 Seagull Drive
Palm Harbor, Florida 34685
Telephone: (___ )____ - ____
with a copy to: Riden, Earle & Kiefner, P.A.
Fourth Floor, North Tower
100 Second Avenue South
St. Petersberg, Florida 33701-4336
Attn: Michael Alden, Esq.
Telephone: (727) 822-6000
Telecopy: (727) 821-3721
As to EyeCity.com
or the Subsidiary: EyeCity.com, Inc.
One Fairchild Court
Plainview, New York 11803
Attn: Mark H. Levin
Telephone: (516) 349-1110
Telecopy: (516) 349-9191
with a copy to: Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
Attn: Eric M. Lerner, Esq.
Telephone: (212) 940-8800
Telecopy: (212) 940-8776
or to any other address or telecopy number which such party may have
subsequently communicated to the other parties in writing.
(b) Except as otherwise provided in this Agreement, any notice,
consent, demand or other communication given hereunder may be signed on behalf
of a party by any duly authorized representative of that party.
Section 11.06 Governing Law; Service of Process. This Agreement and
any other agreement entered into in connection herewith except for the
Promissory Note shall be governed by, and construed under and in accordance
with, the laws of the State of New York applicable to contracts made and wholly
to be performed therein by residents thereof, without giving effect to the
conflict of laws principles thereof. All actions or proceedings seeking the
interpretation and/or enforcement of this agreement, except actions or
proceedings seeking the interpretation and/or enforcement of the Promissory
Note, shall be brought only in the state or federal courts located in New York
County, all parties hereby submitting themselves to the jurisdiction of such
courts for such purpose. Any process in any action or proceeding commenced in
the courts of the State of New York arising out of any claim, dispute or
disagreement, other than claims, disputes or disagreements arising under the
Promissory Note, may, among other methods, be served upon any party by
delivering or mailing the same, via
33
<PAGE>
registered or certified mail, addressed to such party pursuant to Section 11.05
hereof. Any such delivery or mail service shall be deemed to have the same force
and effect as personal service within the State of New York, New York County.
With respect to the Promissory Note, all actions or proceedings seeking the
interpretation and/or enforcement of said Promissory Note shall be brought only
in the federal courts located in the Middle District of Florida, Tampa Division,
if and to the extent such courts may exercise jurisdiction in respect of such
matter, pursuant to 28 USCA 1332, provided that, in the event such courts do not
have jurisdiction, such actions or proceedings shall be brought only in the
state courts located in Pinellas County, Florida. All parties are hereby
submitting themselves to the jurisdiction of such federal and/or state courts
for such purposes. Any process in any action or proceeding involving the
Promissory Note commenced in the federal courts located in the Middle District
of Florida or the state courts located in Pinellas County, Florida may, among
other methods, be served upon any party by delivering or mailing the same, via
registered or certified mail, addressed to such party pursuant to Section 11.05
hereof. Any such delivery or mail service shall be deemed to have the same force
and effect as personal service within the State of Florida.
Section 11.07 Headings; Captions. The headings and captions
appearing in this Agreement, are inserted only as a matter of convenience and
for reference and in no way define, limit or describe the scope or intent of
this Agreement or any of the provisions hereof.
Section 11.08 Severability. If any term or provision of this
Agreement or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Agreement or the
application of such term or provision to persons or circumstances other than
those as to which it is held void or unenforceable shall not be affected
thereby, and each term and provision of this Agreement shall be valid and
enforced to the fullest extent permitted by law.
Section 11.09 Publicity. Any communications and notices to third
parties and all other publicity concerning the transactions contemplated by the
Agreement (other than governmental or regulatory filings) shall be planned and
coordinated by and among the parties. Unless required by applicable law, none of
the parties shall disseminate or make public or cause to be disseminated or made
public any information regarding the transactions contemplated hereunder without
the prior written approval of the other parties, which approval shall not be
unreasonably withheld.
Section 11.10 Cumulative Rights and Remedies. The rights and
remedies provided for in this Agreement are cumulative and in addition to, and
shall not restrict or limit, any other rights and remedies available at law or
in equity.
Section 11.11 Expenses. Each of the parties hereto shall bear its
own expenses associated with the negotiation and execution of the Agreement and
the consummation of the transactions contemplated hereby including, without
limitation, legal and accounting fees and expenses.
Section 11.12 Costs of Enforcement. The prevailing party in any
proceeding brought to enforce any provision of the Agreement shall be entitled
to recover the reasonable fees and costs of its counsel, plus all other costs of
such proceeding.
34
<PAGE>
Section 11.13 Third Parties. Other than the parties hereto, no
person shall have any rights under or to enforce any provision of this
Agreement.
Section 11.14 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto, their respective
heirs, administrators, executors, successors and assigns; provided, however,
that this Agreement may not be assigned by any of the parties hereto other than
by and among EyeCity.com and its subsidiaries.
Section 11.15 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which
taken together shall constitute a single agreement.
35
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above written.
EYECITY.COM, INC.
By: /s/ Mark H. Levin
--------------------------------
Name: Mark H. Levin
Title: President
SUNGLASSSITE, INC.
By: /s/ Mark H. Levin
--------------------------------
Name: Mark H. Levin
Title: President
SUNSOURCE TECHNOLOGY, INC.
By: /s/ G. Robert Wilson
--------------------------------
Name: G. Robert Wilson
Title: President
/s/ G. Robert Wilson
------------------------------------
G. ROBERT WILSON
36
ASSET PURCHASE AND
ASSIGNMENT AGREEMENT
ASSET PURCHASE AND ASSIGNMENT AGREEMENT (this "Agreement"), dated as
of the 28th day of September, 1999, by and among EyeCity.com, Inc. ("EyeCity"),
a Delaware corporation, Impact Eyewear, LLC ("Impact"), a New Jersey limited
liability company, and Thomas Seltzer ("Seltzer"), an individual residing at 17
Galloway Court, West Orange, New Jersey 07052.
1. (a) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, Impact and Seltzer do hereby
irrevocably, absolutely and permanently assign, transfer, convey and deliver to
EyeCity, its successors and assigns, all of Impact's and Seltzer's right, title
and interest in and to that certain Merchandise License Agreement between Impact
and Yahoo, Inc. ("Yahoo"), dated January 15, 1999 (the "License"), a copy of
which is attached hereto as Schedule A, as well as any and all other assets of
Impact or Seltzer used, usable or useful in connection with or otherwise related
to the License and/or the conduct of Impact's business as presently conducted,
including without limitation the assets described in Exhibit 1 hereto
(collectively the "Assets") free and clear of all mortgages, charges, pledges,
liens, security interests, claims, encumbrances or restrictions, of any kind or
nature ("Liens"), in consideration of the aggregate purchase price (the
"Purchase Price") of (i) $120,000 in cash and (ii) 166,667 shares of EyeCity
Common Stock, par value $0.001 per share (the "EyeCity Common Stock"), (the
"Purchase Shares"). Concurrently with the execution hereof, EyeCity has
delivered $70,000 of the cash portion of the Purchase Price to Impact, and the
balance of the Purchase Price to the Escrow Agent pursuant to the Escrow
Agreement, attached hereto as Exhibit 2.
(b) Notwithstanding the generality of the foregoing, EyeCity shall
not assume, and shall have absolutely no liability or obligation for or with
respect to, any liabilities of Impact or Seltzer, whether known or unknown,
direct or indirect, liquidated or contingent, with respect to the License, the
Assets or otherwise (collectively, "Liabilities"), except for those obligations
arising after the date hereof in connection with EyeCity's exercise of rights
under the License.
2. Simultaneously with the execution of this Agreement, (i) Impact and
EyeCity have executed and delivered the Escrow Agreement, (which has also been
executed by Rosenman & Colin LLP, as escrow agent) and an Employment Agreement,
a copy of which is attached hereto as Exhibit 3, and (ii) Impact has delivered
those certain letters from and signed by Yahoo, Inc., dated May 21, 1999 and
September 27, 1999 confirming its agreement to the assignment of the License to
EyeCity pursuant hereto, copies of which is attached hereto as Exhibit 4.1 and
4.2, respectively.
3. Impact hereby constitutes and appoints EyeCity the true and lawful
attorney of Impact with full power of substitution, in the name of Impact or in
the name of EyeCity, for the benefit of EyeCity and at no cost, expense or
liability to Impact, subject to Section 8(a) hereof, (a) to collect, assert or
enforce any claim, right or title of any kind in or to the License and/or the
Assets, to institute and prosecute all actions, suits and proceedings which
EyeCity may reasonably deem proper in order to collect, assert or enforce any
such claim, right or title, and to
<PAGE>
do all such acts and things in relation thereto as EyeCity shall reasonably deem
advisable and (b) to take all action which EyeCity may reasonably deem proper in
order to provide for EyeCity the benefits of or under the License and/or in
respect of the Assets where any required consent of a third party to the
assignment thereof to EyeCity shall not have been obtained. Impact acknowledges
that such powers are coupled with an interest and shall not be revocable by it
in any manner or for any reason, and that EyeCity shall be entitled to retain
for its own account any amounts collected pursuant to such powers, including any
amounts payable as interest in respect thereof.
4. Impact and Seltzer, jointly and severally, represent and warrant to
EyeCity that:
(a) Impact is a limited liability company, duly organized, validly
existing and in good standing under the laws of the State of New Jersey on the
date hereof and has the power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted.
Impact and Seltzer each have the power and authority to execute and deliver this
Agreement and all other documents hereby contemplated to be executed by Impact
and Seltzer, to consummate the transactions hereby and thereby contemplated and
to take all other actions required to be taken by them pursuant to the
provisions hereof and thereof. The execution, delivery and performance of this
Agreement and all other documents hereby contemplated to be executed by Impact
and the Seltzer has been, and the consummation by Impact of the transactions
hereby and thereby contemplated has been, duly authorized by all necessary
action, member or otherwise, of Impact and Seltzer. Seltzer, Ruthanne Koffman,
Burton I. Koffman, Jeffrey Koffman, Steven Koffman, David Koffman and Elizabeth
Koffman comprise all of the members of Impact and are the owners of all the
issued and outstanding membership interests of Impact. There are no options,
warrants or other convertible securities of Impact exercisable for interests of
Impact, and, other than its Operating Agreement, no voting or other member
agreement with respect to Impact. This Agreement and all other documents hereby
contemplated to be executed by Impact and/or Seltzer constitute the legal, valid
and binding obligations of Impact and/or Seltzer, as applicable, enforceable
against Impact and/or Seltzer in accordance with their respective terms.
(b) The execution and delivery by Impact and Seltzer of this Agreement or
any other documents hereby contemplated and the consummation of the transactions
hereby and thereby contemplated by Impact and Seltzer shall not (i) constitute a
default under or a violation or breach of, or result in the acceleration of any
obligation under, any provision of any contract, mortgage or other instrument to
which Impact is a party or by which any of its assets may be affected or
secured, (ii) violate any statute, law, treaty, rule, code, ordinance,
regulation, policy, permit, certificate, order, judgment, decree, injunction,
writ, order or like action of any federal, state, local or foreign governmental
authority or regulatory body, any subdivision, agency, commission or authority
thereof (including, without limitation, environmental protection, planning and
zoning), or any quasi-governmental or private body exercising any regulatory
authority thereunder and any person directly or indirectly owned by and subject
to the control of any of the foregoing, or any court, arbitrator or other
judicial or quasi-judicial tribunal (each, a "Governmental Rule") affecting
Impact or any of its Assets, (iii) result in the creation of any Lien on the
License or any of the assets or properties of Impact, or (iv) result in the
termination of any license, franchise, lease or permit to which Impact is a
party or by which it is bound. Impact has complied in all material respects with
all Governmental Rules applicable to the License and the Assets. Impact has
maintained in full force and effect all licenses, approvals,
2
<PAGE>
permits and consents for the lawful operation of the License and the Assets. To
the best of their knowledge, neither Impact nor Seltzer is in violation of any
Governmental Rule applicable to the License and the Assets, and has not received
any notice of any such violation. No authorization, approval, order, license,
permit, franchise or consent, and no registration, declaration, notice or filing
by or with any domestic or foreign governmental agency, body or authority by
Impact is required in connection with the execution and delivery by Impact of
this Agreement and the consummation by Impact and Seltzer of the transactions
hereby contemplated.
(c) Except for Liens (i) for any current taxes or assessments not yet
delinquent or (ii) created by statute of carriers, warehousemen, mechanics,
laborers and materialmen incurred in the ordinary course of business for sums
not yet due, Impact has good and marketable title, free and clear of all Liens,
to the License and the Assets. There are no options, agreements, limitations,
rights of first refusal or other arrangements with any third party with respect
to the License, the Assets or the transfer thereof.
(d) The License does not constitute all, substantially all or a
significant part of the assets of Impact.
(e) There are no claims, actions, suits, litigations, proceedings, audits,
controversies or investigations, pending or, to the knowledge of Impact or
Seltzer, threatened against or affecting the License or the Assets, and Impact
has not been charged with or, to the knowledge of Impact or Seltzer, threatened
with a charge of any violation of, and is not under investigation with respect
to a possible violation of, any provision of any Governmental Rule relating to
the License or the Assets.
(f) Impact (i) is not bound by or a party to any options, licenses, or
agreements of any kind with respect to the License or the Assets and (ii) has
not assigned, licensed or in any manner encumbered or impaired any rights in the
License or the Assets. To the best of Impact's and Seltzer's knowledge, the
License does not infringe or violate any personal, property, statutory or common
law or any other rights of any third parties (including, without limitation,
copyright, trademark and the rights of privacy and publicity), and no claim
alleging any such infringement or violation by Impact or Seltzer or the License
has been received by Impact or Seltzer. To the best of Impact and Seltzer's
knowledge, Yahoo, Inc. has not granted or licensed any of the rights contained
in the License to any party other than Impact. No royalties, honoraria or fees
are payable to and no consents or approvals are needed from any third persons or
entities other than Yahoo, Inc. in connection with the ownership, use or
exploitation of the License.
5. EyeCity represents and warrants to Impact and Seltzer that:
(a) EyeCity is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the corporate power and
authority to own or lease all of its properties and assets and carry on its
business as it is now being conducted. EyeCity has the corporate power and
authority to execute and deliver this Agreement, and all other documents hereby
contemplated, to consummate the transactions hereby and thereby contemplated and
to take all other actions required to be taken by it pursuant to the provisions
hereof and thereof. The execution, delivery and performance of this Agreement
and all other documents hereby contemplated to be executed by EyeCity has been,
and the consummation by EyeCity of the transactions hereby and thereby
contemplated has been, duly authorized by any
3
<PAGE>
and all necessary corporate action of EyeCity. This Agreement and all other
documents hereby contemplated to be executed by EyeCity constitute the legal,
valid and binding obligations of EyeCity, enforceable against EyeCity in
accordance with their respective terms.
(b) Neither the execution and delivery of this Agreement or any other
documents hereby contemplated nor the consummation of the transactions hereby
and thereby contemplated shall (i) constitute any violation or breach of the
Certificate of Incorporation or By-laws of EyeCity, (ii) constitute a default
under or a violation or breach of, or result in acceleration of any obligation
under, any provision of any contract, lease, mortgage or other instrument to
which it is a party, or (iii) violate any judgment, order, writ, injunction,
decree, statute, rule or regulation affecting EyeCity or any of its assets.
(c) The EyeCity Common Stock to be issued pursuant to the provisions of
this Agreement will, upon such issuance, be duly authorized, legally and validly
issued, and fully paid and nonassessable.
6. (a) Each of Impact and Seltzer covenants that until one year after the
expiration of the License, neither it, he nor any person, firm, company, entity
or corporation, anywhere in the world, directly or indirectly owned or
affiliated with or controlled by any of them, will encourage or solicit, either
directly or indirectly, Yahoo or any of its affiliates to grant or license any
of the non-exclusive rights contained in the License to any of the foregoing
persons, firms, companies, entities, corporations, affiliates or control persons
or to any third party. In the event of a breach, or threatened breach of the
provisions of this Section 6(a), in addition to any other remedies EyeCity may
have at law or in equity, EyeCity shall be entitled to an injunction or similar
remedy so as to enable it specifically to enforce such provisions, and neither
Impact nor Seltzer shall plead in defense thereto that there would be an
adequate remedy at law, it being recognized and agreed that the injury and
damage resulting from such a breach would be impossible to measure monetarily.
(b) From and after the date hereof, Impact and Seltzer shall, at any time
and from time to time, at their sole cost and expense, make, execute and
deliver, or cause to be made, executed and delivered, such assignments, deeds,
drafts, checks, stock certificates, returns, filings and other instruments,
agreements, consents and assurances and take or cause to be taken all such
actions as counsel for EyeCity may reasonably request for the effectual
consummation, confirmation and particularization of this Agreement and the
transactions hereby contemplated.
7. (a) Impact (i) represents and warrants to EyeCity that it is acquiring
all of the shares of EyeCity Common Stock to be issued to it pursuant to the
provisions of this Agreement for its own account and for the purposes of
investment and not with a view to, or for sale in connection with, any
distribution thereof, and (ii) agrees that it will not at anytime sell or
otherwise transfer, or permit the sale or other transfer of, such shares of
EyeCity Common Stock other than in transactions that are not in violation of the
Securities Act of 1933 or the provisions of any other applicable securities
laws, rules or regulations. Unless and until such time as those shares of
EyeCity Common Stock received by Impact hereunder are registered pursuant to the
Securities Act of 1933 (it being specifically acknowledged that EyeCity has no
obligation to so register such shares), EyeCity shall cause its transfer agent
to transfer such shares of EyeCity Common Stock as to which transfer is
requested by Impact only after receipt by EyeCity of an opinion of counsel
reasonably acceptable to EyeCity which opines that all of the requirements of
Rule 144
4
<PAGE>
of the Securities Act of 1933 have been satisfied in respect of such transfer.
(b) All certificates representing shares of EyeCity Common Stock to be
delivered to Impact under this Agreement shall bear the following legend:
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or under the securities laws of any
state and may not be sold, assigned, transferred, pledged or otherwise
disposed of except in compliance with, or pursuant to an exemption from,
the requirements of such Act or such laws."
8. (a) Impact and Seltzer, jointly and severally, on the one hand, and
EyeCity, on the other hand, each agrees to indemnify and hold harmless the other
party and its directors, officers, employees and agents (the "Indemnified
Parties") against, and to reimburse the Indemnified Parties on demand with
respect to, any and all losses, liabilities, obligations, suits, proceedings,
demands, judgments, damages, claims, expenses and costs (including, without
limitation, reasonable fees, expenses and disbursements of counsel)
(collectively, "Losses") which the Indemnified Party may suffer, incur or pay by
reason of (i) the breach by such party of any representation or warranty made by
such party in this Agreement; (ii) the failure of such party to perform any
agreement required by this Agreement; (iii) the allegation by any third party of
the existence of any liability, obligation, lease, agreement, contract, other
commitment or state of facts which, if such allegation were true, would
constitute a breach by such party of any representation or warranty made such
party in this Agreement or of any covenant made by such party herein. In
addition, Impact and Seltzer shall indemnify and hold harmless EyeCity in
respect of any Losses relating to any Liabilities.
(b) All prior or contemporaneous agreements, contracts, promises,
representations and statements, if any, among the parties hereto as to the
subject matter hereof, are merged into this Agreement. This Agreement, together
with all agreements, schedules, exhibits, documents and other instruments to be
attached hereto or delivered herewith sets forth the entire understanding
between the parties, and there are no terms, conditions, representations,
warranties or covenants other than those contained herein and in such
agreements, schedules, exhibits, documents and other instruments to be attached
hereto or delivered herewith.
(c) No term or provision of the Agreement may be amended, released,
discharged or modified in any respect except in writing signed by the party to
be charged and only to the extent therein set forth. No waiver shall be deemed
to be made by any of the parties to any of its rights hereunder unless that
waiver shall be in a writing signed by the waiving party and only to the extent
therein set forth.
(d) All notices, consents, demands or other communications required or
permitted to be given pursuant to the Agreement shall be in writing and shall be
delivered personally, by telecopy (with prompt confirmation by mail) during a
business day to the appropriate location listed as the address below, by United
States registered or certified first class mail, return receipt requested with
postage and fees prepaid, or by overnight courier. Such notices, consents,
demands or other communications shall be addressed respectively to Impact and
Seltzer at 300 Plaza Drive, Vestal, New York 13850 and 17 Galloway Court, West
Orange, New Jersey 07052, in each case with a copy to Howard Rittberg, Esq.,
Levene, Gouldin & Thompson, 450 Plaza
5
<PAGE>
Drive, Vestal, New York 13850 and to EyeCity.com, Inc., One Fairchild Court,
Plainview, New York 11803, Attn: Mark H. Levin, with a copy to: Rosenman & Colin
LLP, 575 Madison Avenue, New York, New York 10022, Attn: Eric M. Lerner, Esq.,
or to any other address or telecopy number which such party may have
subsequently communicated to the other parties in writing. Except as otherwise
provided in this Agreement, any notice, consent, demand or other communication
given hereunder may be signed on behalf of a party by any duly authorized
representative of that party.
(e) This Agreement and any other agreement entered into in connection
herewith shall be governed by, and construed under and in accordance with, the
laws of the State of New York applicable to contracts made and wholly to be
performed therein by residents thereof, without giving effect to the conflict of
laws principles thereof. All actions or proceedings seeking the interpretation
and/or enforcement of this agreement shall be brought only in the state or
federal courts located in New York, all parties hereby submitting themselves to
the jurisdiction of such courts for such purpose. Any process in any action or
proceeding commenced in the courts of the State of New York arising out of any
claim, dispute or disagreement, may, among other methods, be served upon any
party by delivering or mailing the same, via registered or certified mail,
addressed to such party pursuant to Section 8(e) hereof. Any such delivery or
mail service shall be deemed to have the same force and effect as personal
service within the State of New York.
(f) If any term or provision of this Agreement, the application thereof to
any person, or circumstance shall, to any extent, be invalid or unenforceable,
the remainder of the Agreement or the application of such term or provision to
persons or circumstances other than those as to which it is held void or
unenforceable, shall not be affected thereby, and each term and provision of the
Agreement shall be valid and be enforced to the fullest extent permitted by law.
(g) The rights and remedies provided for in this Agreement are cumulative
and in addition to, and shall not restrict or limit, any other rights and
remedies available at law or in equity.
(h) Other than the parties hereto, no person shall have any rights under
or to enforce any provision of this Agreement.
(i) This Agreement shall be binding upon and inure to the benefit of the
parties hereto, their respective heirs, administrators, executors, successors
and assigns; provided, however, that this Agreement may not be assigned by any
of the parties hereto other than by and among EyeCity and its subsidiaries.
(j) The Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which taken together shall
constitute a single agreement.
6
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the ____ day of September, 1999.
EYECITY.COM, INC.
By: /s/ Mark H. Levin
------------------------------------
Name: Mark H. Levin
Title: President
IMPACT EYEWEAR, LLC
By: /s/ Thomas Seltzer
------------------------------------
Name: Thomas Seltzer
Title: Member
/s/ Thomas Seltzer
----------------------------------------
THOMAS SELTZER
LICENSE AGREEMENT
This License Agreement is entered into as of April 30, 1999 between IEM,
Inc., a Florida corporation having its principal place of business at 6401 East
Rodgers Circle, Suite 17, Boca Raton, FL 33487 (hereinafter "Licensor") and
Ergovision, Inc., a Delaware corporation having its principal place of business
at One Fairchild Court, Plainview, New York 11803 (together with any successors
and permitted assigns hereunder, hereinafter "Licensee").
RECITALS
Jerrold S. Pine ("Pine") is the owner of United States Patent No.
5,488,496 covering the Licensed Technology (as defined below). Pine has licensed
the patent to Licensor on an exclusive basis for use in the manufacture,
installation and sale on portable computers. Licensee desires to obtain from
Licensor, and Licensor is willing to grant to Licensee, on the terms and
conditions set forth in this Agreement, a license to use the technology covered
by the patent on portable computers for distribution in the United States.
TERMS OF AGREEMENT
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements of Licensor and Licensee as hereinafter set forth, it is hereby
agreed as follows:
ARTICLE 1
DEFINITIONS
For the purpose of this Agreement, the following defined terms shall have
the following meanings indicated below:
1.1 "Agreement" shall mean this License Agreement, as the same may be amended or
modified from time to time.
1.2 "Confidential Information" shall mean all information, whether of a
technical, commercial or other nature, relating in any way to the business and
products of a party, and shall include, without limitation, any concepts, ideas,
drawings, models, designs plans, proposals, devices, formulas, processes,
methods, techniques, know-how, and any marketing, sales, cost, pricing or
customer information.
1.3 "Effective Date" shall mean the date first written above, which shall be the
effective date of this Agreement.
page 1 of 10
<PAGE>
1.4 "Contract Period" shall mean the period beginning with the Effective Date
and ending on the date on which this Agreement terminates in accordance with the
provisions of Article 11.
1.5 "Improvements" shall mean any and all inventions, discoveries or
improvements, whether or not patented, coming within the scope of the Patent.
1.6 "License" shall mean the license granted by Licensor to Licensee pursuant to
this Agreement.
1.7 "Licensed Technology" shall mean the technology permitting the selective
display of images on a liquid crystal display through the use of a movable
polarizing screen affixed to such display, which technology is claimed in the
Patent, and any Improvements relating thereto.
1.8 "Patent" shall mean U.S. Patent No. 5,488,496 and all patents which may be
issued with respect to any Improvements, and any continuations,
continuations-in-part, divisions, reissues, reexaminations or extensions
thereof.
1.9 "Product" shall mean any portable computer which contains the Licensed
Technology.
1.10 "Territory" shall mean the Exclusive use for the United States and
uncontested use in the rest of the world.
1.11 "Trademark" shall mean the mark Invisiview and any other tradenames, or
trademarks used in connection with the Product.
ARTICLE 2
GRANT OF LICENSE
2.1 Grant of Exclusive License. Subject to the terms and conditions of this
Agreement and to the extent permitted by law, Licensor hereby grants to
Licensee, and Licensee hereby accepts from Licensor, an exclusive license ( the
"Exclusive License") to use the Patent and Improvements to manufacture, have
manufactured, install and offer for sale and sell Products within the Territory
during the Contract Period.
2.2 Reservation of Rights. Subject to the License granted by Licensor to
Licensee hereunder, Licensor reserves all rights in and to the Patent and the
Improvements and the technology covered thereby and nothing contained in this
Agreement shall be construed to convey to Licensee or any of its sublicensees
any rights in or to (i) the Patent or the Improvements or the technology covered
thereby for use other than in Products or (ii) in
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any other technology or patents thereon which pine or Licensor may develop or
acquire any interests in at any time unless the same constitutes an Improvement.
2.3 Right to Sublicense. Licensee shall have the right during the Contract
Period to grant a sublicense of all or any portion of its rights under this
Agreement to any third party without the prior written consent of Licensor,
provided, however that as a condition to granting such sublicense, that any
sublicensee undertake in the sublicense agreement obligations identical to the
obligations of Licensee under Article 4,6,8,9,11 and 13 of this Agreement and
expressly naming Licensor as a third-party beneficiary thereof.
2.4 Warranty Disclaimer. Licensor represents and warrants that it is not aware
of the Patent infringing upon the rights of any third party; however, nothing
contained in this Agreement shall be construed as a representation or warranty
by Licensor that the manufacture, use, sale or other disposition of Products
does not infringe the patent or other intellectual property rights of third
parties, and Licensor expressly disclaims any and all such warranty.
ARTICLE 3
PAYMENT
In consideration for the License granted by Licensor to Licensee
hereunder, Licensee agrees to pay Licensor Thirty Six Thousand Dollars ($36,000)
and Licensor grants Licensee a paid up royalty free Exclusive License for the
Contract Period in accordance with the terms and conditions of this Agreement.
Licensor acknowledges payment of Ten Thousand Dollars ($10,000) previously
received by Licensor from Licensee in accordance with the terms and conditions
of an Option Agreement dated as of April 24,1998 which payment is credited
against the above amount, leaving a balance due of Twenty Six Thousand Dollars
($26,000) payable as follows:
A. Ten Thousand Dollars ($10,000) simultaneously with the exercise of
the Option; and
B. Fifteen Thousand Dollars ($15,000) payable at the rate of One
Thousand Dollars ($1,000) per month, in fifteen monthly payments,
commencing June 15, 1999; and
C. One Thousand Dollars ($1,000) payable by the issuance of Ten
Thousand (10,000) restricted shares ("Shares") of Licensor's Common
Stock, $.001 par value issued to Jerrold S. Pine which Licensee
agrees to. The Licensor and Pine acknowledge that restrictions on
further transactions involving the Shares may be imposed by
applicable federal and state securities laws.
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ARTICLE 4
MATERIALS AND CONTRACT MANUFACTURERS
Licensor shall provide to Licensee within five days following written
request a list of possible vendors for material to modify portable computers to
incorporate the Licensed Technology; however it is the Licensee's complete
responsibility to secure vendors and bring the Licensed Technology to market.
ARTICLE 5
CONSULTING SERVICES
Upon making the full payment due in Article 3, Licensor will cause Pine to
assist Licensee for up to ten (10) working days in the first year thereafter
(such days shall be mutually and reasonably acceptable to Licensor and Licensee)
to select the contract manufacturers and provide technical information in order
for Licensee to commence production, licensing and/or sale of Products under
this Agreement. This assistance will be provided by Pine at the rate of $1,000
per day plus expenses (including, without limitation, all coach airfare,
reasonable hotel and rental car expenses and $75/day for food expenses).
ARTICLE 6
CONFIDENTIALITY
6.1 Nondisclosure of Confidential Information. Each party (the "Recipient
Party") acknowledges that it may , as a result of this Agreement or otherwise,
be given access to Confidential Information of the other party (the "Disclosing
Party"). The Recipient Party agrees that at all times during and after the term
of this Agreement, it shall (i) not directly or indirectly disclose to others
any Confidential Information of the Disclosing Party, (ii) not directly or
indirectly use any Confidential Information of the Disclosing Party other than
as contemplated by this Agreement and (iii) exercise diligent precautions to
safeguard and protect the confidentiality and integrity of the Confidential
Information of the Disclosing Party. Notwithstanding the foregoing, the
Recipient Party shall have the right to make disclosures of the Confidential
Information on a strict "need to know" basis to (i) its advisors and employees;
provided, however, that the Recipient Party will inform such advisor or employee
of the confidential nature of the disclosures and that such advisor or employee
must abide by the terms of this Agreement and not disclose the Confidential
Information to any other person, and (ii) with the Disclosing Party's prior
written approval (which shall not be unreasonably withheld or delayed), the
Recipient Party's suppliers and contractors to whom such disclosure is necessary
for there
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performance of this Agreement; provided, however, that the Recipient Party shall
first obtain from each supplier or contractor confidentiality agreements with
respect to the Confidential Information in the form and substance reasonably
satisfactory to the Disclosing Party, and the Recipient Party shall promptly
deliver copies of all such confidentiality agreements to the Disclosing Party.
6.2 Exceptions. The Recipient Party shall not be held to a duty of
confidentiality for any Confidential Information that: (a) was known to the
Recipient Party prior to such disclosure; or (b) becomes or has become generally
available or known in the industry other than as a result of disclosure by the
Recipient Party or any of its employees, agents or Affiliates; or (c) after its
disclosure to the Recipient Party, is received by the Recipient Party in an
integrated form from an independent third party whose disclosure of such
Confidential Information shall not constitute a direct or indirect breach by
that third party of any duty of confidentiality owed to the Disclosing Party.
6.3 Unique Character of Confidential Information. The Recipient Party
acknowledges that the Confidential Information to be disclosed by the Disclosing
Party is of a special and unique character which gives it a peculiar value and
that consequently any wrongful use or disclosure of the Confidential Information
will cause irreparable injury not readily compensable in monetary damages.
Accordingly, whether in a court action or arbitration, the Disclosing Party
shall be entitled to the remedies of injunction, specific performance and other
equitable relief to redress any such breach, and no proof of special damages
shall be necessary for the enforcement of or for any action upon such
obligations and no posting of any bond or other security shall be required of
the Disclosing Party in any such action. The provisions of this Article 6 shall
not, however, be construed as a waiver of any of the other rights which the
Disclosing Party may have against any party for damages or otherwise.
ARTICLE 7
LICENSOR REPRESENTS AND WARRANTS
Licensor represents and warrants that it is the exclusive licensee of all
right, title and interest, in and to the Patent for the manufacture and sale of
Products throughout the Territory, and holds such rights free and clear of all
liens or encumbrances of whatsoever kind. Licensor confirms that it has not
granted to any party any sublicense or other rights in or to the Licensed
Technology for the manufacture, installation and sale of Products and covenants
that it will not grant any such sublicense or other rights to any party for the
manufacture, installation or sale of Products in the Territory.
ARTICLE 8
CONDUCT OF LICENSEE'S BUSINESS
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8.1 Compliance with Laws. Licensee represents and warrants to Licensor
that in Licensee's performance of its obligations under this Agreement, Licensee
shall comply with any and all pertinent laws, rules and regulations applicable
to it.
8.2 Insurance. Licensee shall at all times during the term of this
Agreement, subsequent to the commencement of sales of Products, maintain general
liability insurance (including product liability insurance) (naming Licensor and
Pine as additional named insured) in an amount of not less than $500,000 per
occurrence, nor less than $1,000,000 in the aggregate. Licensee shall promptly
provide Licensor with copies of all such policies prior to the commencement of
sales of Products.
8.3 Indemnity. Notwithstanding anything to the contrary set forth herein,
Licensee shall indemnify and hold harmless Licensor and its officers, directors,
employees and agents from and against any and all losses, damages, liabilities,
claims, charges, actions, proceedings, demands, judgments settlement, costs and
expenses of any nature whatsoever (including, without limitation, reasonable
attorneys' fees and expenses) that Licensor or any other such indemnified party
may incur as a result of (i) the breach by Licensee of any representation,
warranty or covenant made or undertaken by it in this Agreement or by the breach
of any sublicensee of any representation, warranty in covenant made or
undertaken by any such sublicensee in any sublicensee agreement, (ii) the
violation by Licensee of any law, rule or regulation applicable to it, or (iii)
any product liability, advertising or any other claim with respect to any
Product installed, manufactured, offered for sale or sold by Licensee.
ARTICLE 9
PATENT
9.1 Payment of Maintenance Fees. If Licensor shall fail to prosecute or
pay the maintenance fees when due with respect to the Patent, Licensor shall
notify Licensee sixty (60) days prior to such date in writing and Licensee shall
have the right to continue to maintain such Patent at its own expense.
9.2 Notice of Infringement. Each party shall notify the other party in
writing within thirty (30) days of any suspected infringement(s) of the Patent
or of any claim by a third party that the Patent infringes the rights of others
and shall inform the other party of any evidence of such infringement(s).
Licensee shall examine any product the manufacture or sale of which is thought
by Licensor to constitute a possible infringement and inform Licensor whether
such product was manufactured or sold by Licensee and shall inform Licensor
whenever any person or entity identified by Licensor as manufacturing or selling
a product thought by Licensor to be a possible infringement is or was at any
time a customer or sublicensee of Licensee.
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<PAGE>
9.3 Prosecution of Infringement Actions. Licensee may, but shall have no
obligation to, sue third parties alleged to be infringers of the Patent. In any
action brought by Licensee (a) Licensee shall retain full control thereof,
including the settlement or other disposition of the action, (b) all costs and
expenses shall be for the account of Licensee, and (c) any recovery shall be for
the account of Licensee. Licensor shall, at Licensee's own expense, lend such
cooperation and assistance to Licensor in the prosecution of any such
infringement suit as Licensee shall reasonably request; provided, that, Licensee
shall reimburse Licensor for the reasonable out-of-pocket expenses incurred by
Licensor in providing such cooperation and assistance. If Licensee shall fail to
institute suit to enjoin such infringement within 90 days after written
notification thereof by Licensor, then Licensor shall have the right to bring
suit in its own name. If in the case of any such suit brought by Licensor, any
recovery shall be for the account of Licensor.
ARTICLE 10
TRADEMARK
10.1 Trademark Ownership. Licensor does hereby agree to and does grant
Licensee an exclusive license to use, or sublicense others to use,the Trademark
in the Territory for the Product simultaneously with this Agreement and will
sign any additional documents required. Licensee shall have the right to file a
trademark application covering the Trademark in the name of Licensor which is
licensed under this Agreement.
10.2 Discontinuance of Use of the Trademark. Upon termination of this
Agreement, Licensee will discontinue the use of the Trademark and reassign the
Trademark to Licensor.
ARTICLE 11
TERM AND TERMINATION
The following provisions relate the term and termination of this
Agreement:
11.1 Term. Unless sooner terminated in a manner herein provided, the term
of this Agreement shall be from the date of this Agreement until the expiration
of the Patent and any patents covering any Improvements (such period being
referred to herein as the "Term").
11.2 Termination. The license granted to Licensee under this Agreement may
be terminated:
(a) by mutual agreement of the Licensor and Licensee; or
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<PAGE>
(b) by either Licensor or Licensee if the other has breached or
failed to punctually perform any of its duties or obligations under this
Agreement and such breach remains uncured or such failure to perform continues
for at least thirty (30) days after the aggrieved party has given written notice
to the other party; or
(c) by either Licensor or Licensee if the other becomes insolvent or
becomes the subject of a voluntary or involuntary petition in bankruptcy for its
reorganization or liquidation, or makes any assignment for the benefit of its
creditors, or if a trustee or receiver of its property is appointed, or takes or
is subjected to any other similar action based upon its inability to meet its
financial obligations; unless all of the above does not prevent the ongoing
business of Licensor or Licensee or to continue; or
(d) by Licensor, if Licensee provides a sublicense to any party
other than in accordance with the terms of this Agreement.
ARTICLE 12
NON-COMPETITION
Licensor hereby covenants and agrees that during the Term of this
Agreement, it shall not, and it shall use reasonable efforts to cause its
affiliates not to, directly or indirectly manufacture, market or distribute
Products within the Territory.
ARTICLE 13
MISCELLANEOUS PROVISIONS
The following miscellaneous provisions shall apply to this Agreement:
13.1 Notices. Any notices, demands, or other communications required or
permitted hereunder shall be in writing and shall be (i) sent by telecopy (and
confirmed by one of the following three methods), (ii) hand delivered, (iii)
sent by Federal Express, Express Mail or similar overnight delivery service for
priority next business day delivery, or (iv) sent by certified or registered
mail, return receipt requested, in any case addressed as follows (or to such
other address a party shall have designated by notice given to the other party
pursuant hereto), and shall be deemed given (i) when received at the recipient's
telecopy number if received before 5:00 p.m. or otherwise at 9:00 a.m. on the
next business day, (ii) when delivered if hand delivered, (iii) the next
business day after being sent if given by Federal Express, Express Mail or other
overnight delivery service or (iv) the date received if sent by certified or
registered mail, return receipt requested:
If to the Licensee: If to the Licensor:
Ergovision, Inc. IEM, Inc.
One Fairchild Court 6401 East Rogers Circle
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Plainview, New York 11803 Suite 17, Boca Raton, FL 33487
Telecopy: (516) 349-9191 Telecopy: (561) 997-6567
Attention: Mark H. Levin, President Attention: Jerrold S. Pine, President
13.2 Amendment, Modification or Waiver. No amendment, modification or
waiver of any condition, provision or terms of this Agreement shall be valid or
of any effect unless made in writing and signed by both parties. Any waiver by
any party of any default of another party shall not affect or impair any rights
arising from any subsequent default. Nothing herein shall limit the remedies and
rights of the parties hereto under and pursuant to this Agreement.
13.3 Entire Agreement. This Agreement contains the entire understanding of
the parties hereto with respect to the transactions contemplated hereby and
supersedes all prior writings, discussions, agreements and understandings
between the parties with respect to such subject matter hereof.
13.4 Captions, Headings, or Titles. All captions, headings or titles in
the sections of the Agreement are inserted for convenience of reference only and
shall not determine the construction or interpretation of this Agreement or a
limitation of scope of the particular sections to which they apply.
13.5 Counterparts. This Agreement may be executed in one or in more
counterparts, each of which shall be considered one and the same Agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party. Facsimile signatures of the
undersigned parties will have the same force and effect as original signatures.
13.6 Governing Law. This Agreement and any modifications and additions
thereto shall be governed in accordance with the laws of the State of Florida,
without regard to the conflict of laws principles thereof or the actual
domiciles of the parties hereto.
13.7 No Waiver. A waiver of any breach or failure of any term or condition
of this Agreement shall not be construed as a waiver of a subsequent breach or
failure of the same term or condition or a waiver of any other term or
conditions of this Agreement. A delay or failure to exercise any right or remedy
hereunder shall not impair such right o remedy or be construed as a waiver
thereof or an acquiescence in a default.
13.8 No Third Party Beneficiaries. No entity other than the parities
hereto and Pine is intended to be, or shall be deemed to be, a beneficiary of
any provision of this Agreement.
13.9 Assignment. This Agreement may be assigned by Licensee without the
prior written consent of Licensor. This Agreement shall be binding upon and
shall inure to the benefit of the undersigned parties and their respective
successors and assigns.
13.10 Relationship of the Parties. This Agreement shall not be construed
as constituting any party as a partner of the other or to create any other form
of legal association that would impose liability upon one party for the act or
failure to act of
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another or as providing any party with the right, power or authority to create
any duty or obligation of another party.
13.11 Corporate Action. Licensor and Licensee each represent and warrant
to the other party that they have full power and authority to enter in this
Agreement and carry out the transaction contemplated hereby, and that all
necessary corporate action has been duly taken in this regard.
ARTICLE 14
INVESTMENT INTENT; RESTRICTIONS ON TRANSFER
14.1 Investment Representation. Pine (i) represents and warrants to the
Licensor that he is acquiring all of the Shares of Ergovision Stock to be issued
to him pursuant to the provisions of this Agreement for his own account and for
the purposes of investment and not with a view to, or for sale in connection
with, any distribution thereof, and (ii) agrees that he will not at anytime sell
or otherwise transfer, or permit the sale or other transfer of, such shares of
Ergovision Stock other than in transactions that are not in violation of the
Securities Act ("Act") of 1933 or the provisions of any other applicable
securities laws, rules or regulations. The Shares are subject to Rule 144 under
the Act which presently requires a holding period of twelve months before
resale.
14.2 Stock Legend. All certificates representing Shares of Ergovision
Stock to be delivered to Pine under this Agreement shall bear the following
legend:
"The securities represented hereby have not been registered
under the Securities Act of 1933, as amended, or under the securities
laws of any state and may not be sold, assigned, transferred, pledged
or otherwise disposed of except in compliance with, or pursuant to an
exemption from, the requirements of such Act or such laws."
Licensee: Licensor:
Ergovision, Inc. IEM, Inc.
By: /s/ Mark H. Levin By: /s/ Jerrold S. Pine
------------------------------- -------------------------------
Mark H. Levin, President Jerrold S. Pine, President
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AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
MARK H. LEVIN AND ERGOVISION, INC.
AGREEMENT, dated as of the 1ST day of July, 1998 by and between
ERGOVISION, INC., having a place of business at One Fairchild Court, Plainview,
New York 11803 (hereinafter designated and referred to as "Company"), and Mark
H. Levin residing at 142 Morton Boulevard, Plainview, New York 11803
(hereinafter designated and referred to as "Employee" , "his" or "him").
WHEREAS, The Company and the Employee entered into an Employement
Agreement, dated as of the 1ST day of January, 1997; and
WHEREAS, the Company desires to continue to employ the Employee as
President and Chief Operating Officer and serve as Director in accordance with
the provisions hereinafter set forth;
WHEREAS, the Employee is willing to continue such employment by the
Company, all in accordance with provisions hereinafter set forth; and
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Term: The term of this Agreement shall be for a period of three
(3) years commencing July 1, 1998 and automatically terminating on June 30,
2001, subject to earlier termination as provided herein or unless extended by
mutual consent of both parties in writing ninety (90) days prior to the end of
the term of this Agreement or any extension thereof, but nothing herein shall
require the Company or Employee to agree to any specific term or condition or to
any continuation of Employee's employment beyond the end of the term of this
Agreement.
2. Employment: Subject to the terms and conditions and for the
compensation hereinafter set forth, the Company employs the Employee for and
during the term of this Agreement as President and Chief Operating Officer. The
Employee further agrees to serve, as a director of the Company's Board of
Directors. The Employee does hereby accept such employment and agrees to use his
best efforts and to devote all normal business time, during the term of this
Agreement, to the performance of his duties faithfully, diligently and to the
best of his abilities upon the conditions hereinafter set forth. Employee shall
report to the Board of Directors of the Company.
3. Compensation: During the term of this Agreement, the Company
agrees to pay Employee, and Employee agrees to accept a salary at an annual rate
of Eighty Two Thousand Five Hundred Dollars ($82,500) from July 1, 1998 through
December 31, 1998; and an annual salary of One Hundred Thousand Dollars
($100,000) per year commencing January 1, 1999, payable at least every two
weeks, less all applicable taxes, for all services rendered by
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Employee hereunder. Employee's annual salary and other benefits provided for
hereunder are subject to periodic increases ( but not decreases) at the
discretion of the Board of Directors. As additional compensation, the Company
may pay the Employee periodic bonuses as determined by the Board of Directors.
4. Expenses: The Company shall reimburse Employee, not less often
than monthly, for all actual and reasonable business expenses incurred in
connection with his service to the Company, upon submission of appropriate
vouchers and expense account reports.
5. Automobile: The Company shall be responsible or reimburse
Employee for lease anf or loan payments, insurance and registration expenses,
all maintenance and gasoline of a car approved by the Company.
6. Benefits: The Company shall provide medical insurance and such
other benefits, in accordance with the applicable Company benefit plans, as such
plans may exist from time to time. The Employee shall be entitled to annual
vacation in accordance with the Company's policy.
7. Extent of Service: The Employee during the term of this Agreement
shall devote his full normal business time, attention and energy and render his
best efforts and skill to the business of the Company.
8. Restrictive Covenant:
[A] Employee acknowledges that: (i) the business in which the
Company is engaged is intensely competitive and that his employment by the
Company will require that he have access to and knowledge of confidential
information of the Company, including, but not limited to, certain of the
Company's confidential plans for the creation, acquisition or disposition of
products, expansion plans, product development plans, methods of pricing,
special customer requirements for service, information on methods of servicing
the customer, operational information such as formulas, financial status, and
plans and personnel information, which are of vital importance to the success of
the Company's business, and are "trade secrets" of the Company; (ii) the direct
or indirect disclosure of any such confidential information to existing or
potential competitors of the Company would place the Company at a competitive
disadvantage and would cause damage, financial and otherwise, to the Company's
business; and (iii) by his training, experience and expertise, some of his
services to the Company will be special and unique.
Employee understands and agrees that such trade secrets give or may
give the Company a significant competitive advantage. Employee further
recognizes that the success of the Company depends on keeping confidential both
the trade secrets already developed or to be acquired and any future
developments of trade secrets. Employee understands that in his capacity with
the Company he will be entrusted with knowledge of such trade secrets and, in
recognition of the importance thereof and in consideration of his employment by
the Company hereunder, agrees that he will not, without the consent of the Board
of Directors in writing, make any disclosure of trade secrets now or hereafter
possessed by the Company to any person,
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partnership, corporation or entity either during or after the term hereunder,
except to such employees of the Company or its subsidiaries or affiliates, if
any, as may be necessary in the regular course of business and except as may be
required pursuant to any court order, judgment or decision from any court of
competent jurisdiction. The provisions of this Section 8[A] shall continue in
full force and effect notwithstanding any termination of this Agreement.
[B] Employee agrees that, during the term of this Agreement
and for a period of one (1) year thereafter, the Employee shall not, directly or
indirectly, engage in, or serve as, a principal, partner, joint venturer,
member, manager, trustee, agent, stockholder, director, officer or employee of ,
or consultant or advisor to, or in any other capacity, or in any manner, own,
control, manage, operate, or otherwise participate, invest, or have any interest
in , any business or company that engages in directly or indirectly the business
then being planned or conducted by the Company or its divisions and
subsidiaries. The provisions of this Section 8[B] shall continue in full force
and effect notwithstanding any termination of this Agreement.
9. Discoveries, etc.:
[A] The Company shall be the owner, without further
compensation, of all rights of every kind in and with respect to any reports,
materials, inventions, processes, discoveries, improvements, modifications,
know-how or trade secrets hereafter made, prepared, invented, discovered,
acquired, suggested or reduced to practice (hereinafter designated and referred
to as "Property Rights") by Employee in connection with Employee's performance
of his duties pursuant to this Agreement, and the Company shall be entitled to
utilize and dispose of such in such manner as it may determine.
[B] The Employee agrees to and shall promptly disclose to the
Board of Directors or their designee all Property Rights (whether or not
patentable) made, discovered or conceived of by him, alone or with others, at
any time during his employment with the Company, whether on the Company's or his
own time and irrespective of whether on or off the Company's premises, provided
only that such Property Rights (1) relate to or are useful in any phase of the
business in which the Company may be engaged during the period of employment, or
(2) relate to any subject matter or problems within the scope of Employee's
employment, or (3) relate to or involve the use of any data or information of
which the Employee has been or may become informed by reason of employment with
the Company. The Employee hereby appoints the Company as Employee's
attorney-in-fact to execute in accordance with the laws of any country patent
applications, assignments or other documents considered necessary or desirable
by the Company. Any such Property Rights will be the sole and exclusive property
of the Company, and Employee will execute any assignments requested by the
Company of his right, title or interest in any such Property Rights without
further demand or consideration, and, in addition, the Employee will also
provide the Company with any other instruments or documents requested by the
Company, at the Company's expense, as may be necessary or desirable in applying
for and obtaining patents with respect thereto in the United States and all
foreign countries. The Employee also agrees to cooperate with the Company in the
prosecution or defense of any patent claims or litigation or proceedings
involving inventions, trade secrets, trademarks, services marks, secret
processes, discoveries or improvements, during his employment by the Company.
Employee's cooperation after his employment is subject to his availability and
the Company
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agrees to reimburse Employee for loss of income and expenses incurred in
connection therewith. Said cooperation shall not be withheld by Employee.
10. Confidential Information: Employee recognizes and acknowledges
that the Company, through the expenditure of considerable time and money, will
acquire, has developed and will continue to develop in the future, information,
skills, confidential information, know-how, formulae, technical expertise and
methods relating to or forming part of the Company's services and products and
conduct of its business, and that the same are confidential and proprietary, and
are "trade secrets" of the Company. Employee understands and agrees that such
trade secrets give or may give the Company a significant competitive advantage.
Employee further recognizes that the success of the Company depends on keeping
confidential both the trade secrets already developed or to be acquired and any
future developments of trade secrets. Employee understands that in his capacity
with the Company he will be entrusted with knowledge of such trade secrets and,
in recognition of the importance thereof and in consideration of his employment
by the Company hereunder, agrees that he will not, without the consent of the
Board of Directors in writing, make any disclosure of trade secrets now or
hereafter possessed by the Company to any person, partnership, corporation or
entity either during or after the term hereunder, except to such employees of
the Company or its subsidiaries or affiliates, if any, as may be necessary in
the regular course of business and except as may be required pursuant to any
court order, judgment or decision from any court of competent jurisdiction. The
provisions of this Section shall continue in full force and effect
notwithstanding any termination of the Agreement.
11. Irreparable Harm: Employee agrees that any breach or threatened
breach by Employee of provisions set forth in Sections Eight (8), Nine (9), and
Ten (10) of this Agreement, would cause the Company irreparable harm and the
Company may obtain injunctive relief against such actual or threatened conduct
and without the necessity of a bond.
12. Return of Company Property: Employee agrees that following the
termination of his employment for any reason, he shall return all property of
the Company which is then in or thereafter comes into his possession, including,
but not limited to, documents, contracts, agreements, plans, photographs,
customer lists, books, notes, electronically stored data and all copies of the
foregoing as well as any other materials or equipment supplied by the Company to
the Employee.
13. Termination:
[A] Death: In the event of the Employee's death during the
term of his employment, this Agreement shall automatically terminate on the date
of death, and Employee's estate shall be entitled to payment of Employee's
salary until date of death and three (3) months thereafter. All other benefits
and compensation described herein shall terminate on the date of death unless
otherwise stipulated in the applicable Company plan.
[B] Disability: In the event the Employee, by reason of
physical or mental incapacity, shall be disabled for a period of at least four
(4) consecutive months or six (6) months in the aggregate in any twelve (12)
month period of this Agreement or any extension
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hereof, the Company shall have the option at any time thereafter to terminate
Employee's employment and to terminate this Agreement. Such termination to be
effective ten (10) days after the Company gives written notice of such
termination to the Employee, and all obligations of the Company hereunder shall
cease upon the date of such termination unless Employee shall have returned to
the performance of his duties prior to the effective date of the notice.
"Incapacity" as used herein shall mean the inability of the Employee to
substantially perform his normal duties. Employee's salary as provided for
hereunder shall continue to be paid during any period of incapacity prior to and
including the date on which Employee's employment is terminated for
disabilityand for three (3) months following the termination date.
[C] Company's Rights To Terminate This Agreement:
[a] The Company shall have the right, before the
expiration of the term of this Agreement, to terminate this Agreement and to
discharge Employee for cause (hereinafter "Cause"), and all compensation to
Employee shall cease to accrue upon discharge of the Employee for Cause. For the
purposes of this Agreement, the term "Cause" shall mean the Employee's (i)
violation of the Company's written policy or specific written directions of the
Board of Directors, which directions are consistent with normally acceptable
business practices or the failure to observe, or the failure or refusal to
perform any obligations required to be performed in accordance with this
Agreement, (ii) if the Board of Directors determines that Employee has committed
a demonstrable act (or omission) of malfeasance seriously detrimental to the
Company (which shall not include any exercise of business judgment in good
faith).
[b] If the Company elects to terminate Employee's
employment for Cause, the Company shall first give Employee written notice and a
period of twenty (20) days to cure such Cause, and if such Cause is not cured in
said twenty (20) days, such termination shall be effective ten (10) days after
the Company gives written notice of such failure to cure to the Employee. In the
event of a termination of the Employee's employment for Cause in accordance with
the provisions of Section 11[C][b], the Company shall have no further obligation
to the Employee, except for the payment of salary and for any other compensation
and/or expenses through the date of such termination from employment.
14. Waiver: Any waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed as a waiver of any other
breach or default hereof.
15. Governing Law: The validity of this Agreement or of any of the
provisions hereof shall be determined under and according to the laws of the
State of New York, and this Agreement and its provisions shall be construed
according to the laws of the State of New York, without reference to its choice
of law rules.
16. Notices. Any notice required to be given pursuant to the
provisions of this Agreement shall be in writing and shall be delivered in
person or by registered or certified mail to the respective parties at their
addresses set forth on the first page of this Agreement (or such other address
as the party to receive notices has given by notice hereunder to the other
party). Any such notice by personal delivery shall become effective upon receipt
and any notice by registered or certified mail shall become effective five
business days after mailed.
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17. Assignment: The Employee's assignment of this Agreement or any
interest herein, or any monies due or to become due by reason of the terms
hereof, without the prior written consent of the Company shall be void. This
Agreement shall be assignable and binding to a corporation or other business
entity that succeeds to all or substantially all of the business of the Company
through merger, consolidation, corporate reorganization or by acquisition of all
or substantially all of the assets of the Company and which assumes Company's
obligations under this Agreement.
18. Miscellaneous: This Agreement contains the entire understanding
between the parties hereto and supersedes all other oral and written agreements
or understandings between them. No modification or addition hereto or waiver or
cancellation of any provision shall be valid except by a writing signed by the
party to be charged therewith.
19. Obligations of a Continuing Nature: It is expressly understood
and agreed that the covenants, agreements and restrictions undertaken by or
imposed on either party hereunder, which are stated to exist or continue after
termination of Employee's employment with the Company, shall exist and continue
on both parties irrespective of the method or circumstances of such termination
from employment or termination of this Agreement.
20. Severability: Employee agrees that if any of the covenants,
agreements or restrictions on the part of Employee are held to be invalid by any
court of competent jurisdiction, such holding will not invalidate any of the
other covenants, agreements and/or restrictions herein contained and such
invalid provisions shall be severable so that the invalidity of any such
provision shall not invalidate any others. Moreover, if any one or more of the
provisions contained in this Agreement shall be held to be excessively broad as
to duration, activity or subject, such provisions shall be construed by limiting
and reducing them so as to be enforceable to the maximum extent allowed by
applicable law.
21. Representation: Employee represents and warrants that he has the
legal right to enter into this Agreement and to perform all of the duties and
obligations on his part to be performed hereunder in accordance with its terms
and that he is not a party to any agreement or understanding, written or oral,
which prevents Employee from entering into this Agreement or performing all of
his duties and obligations hereunder. In the event of a breach of such
representation or warranty on his part or if there is any other legal impediment
which prevents him from entering into this Agreement or performing all of his
duties and obligations hereunder, the Company shall have the right to terminate
this Agreement in accordance with Section 13[C][a]; in which event the "Cause"
shall not be deemed curable under Section 13[C] [b]. Without limiting the
foregoing, Employee represents and warrants that he is not a party to any
agreement which prohibits or limits his ability to fulfill his duties and
responsibilities contemplated herein.
22. Descriptive Headings. The paragraph headings contained herein
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day and year first above written.
ERGOVISION, INC.
By: /s/ Robert B. Greenberg
--------------------------------
Robert B. Greenberg
Chief Executive Officer
/s/ Mark H. Levin
--------------------------------
Mark H. Levin
Employee
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FIRST EXTENSION TO AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
FIRST EXTENSION dated as of December 31, 1998 to "AMENDED AND RESTATED
EMPLOYMENT AGREEMENT" dated as of July 1, 1998 (the "Employment Agreement")
between Mark H. Levin (hereinafter referred to as the "Employee") and
Ergovision, Inc. (hereinafter referred to as the "Company").
WITTNESSETH
WHEREAS, on July 1, 1998, the parties entered into the Employment
Agreement;
WHEREAS, the parties desire to extend the term of the Employment
Agreement;
NOW, THEREFORE, in consideration of the premises, the Company and the
Employee hereby agree as follows:
1. Section 1 "Term" shall be amended to extend the Employment Agreement for
an additional three years, from June 30, 2001 to June 30, 2004.
2. Except as specifically set forth herein, all the terms and conditions of
the Employment Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, this instrument has been executed and delivered as of
the date first written above.
Ergovision, Inc.
By: /s/ Mark R. Suroff
-------------------------------------
Mark R. Suroff
Executive Vice President
/s/ Mark H. Levin
----------------------------------------
Mark H. Levin
Employee
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
MARK R. SUROFF AND ERGOVISION, INC.
AGREEMENT, dated as of the 1ST day of July, 1998 by and between
ERGOVISION, INC., having a place of business at One Fairchild Court, Plainview,
New York 11803 (hereinafter designated and referred to as "Company"), and Mark
R. Suroff residing at 12 Tompkins Avenue, Jericho, New York 11753 (hereinafter
designated and referred to as "Employee", "his" or "him").
WHEREAS, The Company and the Employee entered into an Employement
Agreement, dated as of the 1ST day of January, 1997; and
WHEREAS, the Company desires to continue to employ the Employee as
Executive Vice President, Treasurer, and Secretary and serve as Director in
accordance with the provisions hereinafter set forth;
WHEREAS, the Employee is willing to continue such employment by the
Company, all in accordance with provisions hereinafter set forth; and
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Term: The term of this Agreement shall be for a period of three
(3) years commencing July 1, 1998 and automatically terminating on June 30,
2001, subject to earlier termination as provided herein or unless extended by
mutual consent of both parties in writing ninety (90) days prior to the end of
the term of this Agreement or any extension thereof, but nothing herein shall
require the Company or Employee to agree to any specific term or condition or to
any continuation of Employee's employment beyond the end of the term of this
Agreement.
2. Employment: Subject to the terms and conditions and for the
compensation hereinafter set forth, the Company employs the Employee for and
during the term of this Agreement as Executive Vice President, Treasurer and
Secretary. The Employee further agrees to serve, as a director of the Company's
Board of Directors. The Employee does hereby accept such employment and agrees
to use his best efforts and to devote all normal business time, during the term
of this Agreement, to the performance of his duties faithfully, diligently and
to the best of his abilities upon the conditions hereinafter set forth. Employee
shall report to the Board of Directors of the Company.
3. Compensation: During the term of this Agreement, the Company
agrees to pay Employee, and Employee agrees to accept a salary at an annual rate
of Eighty Two Thousand Five Hundred Dollars ($82,500) from July 1, 1998 through
December 31, 1998; and an annual salary of One Hundred Thousand Dollars
($100,000) per year commencing January 1, 1999, payable at least every two
weeks, less all applicable taxes, for all services rendered by
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Employee hereunder. Employee's annual salary and other benefits provided for
hereunder are subject to periodic increases ( but not decreases) at the
discretion of the Board of Directors. As additional compensation, the Company
may pay the Employee periodic bonuses as determined by the Board of Directors.
4. Expenses: The Company shall reimburse Employee, not less often
than monthly, for all actual and reasonable business expenses incurred in
connection with his service to the Company, upon submission of appropriate
vouchers and expense account reports.
5. Automobile: The Company shall be responsible or reimburse
Employee for lease and or loan payments, insurance and registration expenses,
all maintenance and gasoline of a car approved by the Company.
6. Benefits: The Company shall provide medical insurance and such
other benefits, in accordance with the applicable Company benefit plans, as such
plans may exist from time to time. The Employee shall be entitled to annual
vacation in accordance with the Company's policy.
7. Extent of Service: The Employee during the term of this Agreement
shall devote his full normal business time, attention and energy and render his
best efforts and skill to the business of the Company.
8. Restrictive Covenant:
[A] Employee acknowledges that: (i) the business in which the
Company is engaged is intensely competitive and that his employment by the
Company will require that he have access to and knowledge of confidential
information of the Company, including, but not limited to, certain of the
Company's confidential plans for the creation, acquisition or disposition of
products, expansion plans, product development plans, methods of pricing,
special customer requirements for service, information on methods of servicing
the customer, operational information such as formulas, financial status, and
plans and personnel information, which are of vital importance to the success of
the Company's business, and are "trade secrets" of the Company; (ii) the direct
or indirect disclosure of any such confidential information to existing or
potential competitors of the Company would place the Company at a competitive
disadvantage and would cause damage, financial and otherwise, to the Company's
business; and (iii) by his training, experience and expertise, some of his
services to the Company will be special and unique.
Employee understands and agrees that such trade secrets give or may
give the Company a significant competitive advantage. Employee further
recognizes that the success of the Company depends on keeping confidential both
the trade secrets already developed or to be acquired and any future
developments of trade secrets. Employee understands that in his capacity with
the Company he will be entrusted with knowledge of such trade secrets and, in
recognition of the importance thereof and in consideration of his employment by
the Company hereunder, agrees that he will not, without the consent of the Board
of Directors in writing, make any disclosure of trade secrets now or hereafter
possessed by the Company to any person,
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<PAGE>
partnership, corporation or entity either during or after the term hereunder,
except to such employees of the Company or its subsidiaries or affiliates, if
any, as may be necessary in the regular course of business and except as may be
required pursuant to any court order, judgment or decision from any court of
competent jurisdiction. The provisions of this Section 8[A] shall continue in
full force and effect notwithstanding any termination of this Agreement.
[B] Employee agrees that, during the term of this Agreement
and for a period of one (1) year thereafter, the Employee shall not, directly or
indirectly, engage in, or serve as, a principal, partner, joint venturer,
member, manager, trustee, agent, stockholder, director, officer or employee of ,
or consultant or advisor to, or in any other capacity, or in any manner, own,
control, manage, operate, or otherwise participate, invest, or have any interest
in , any business or company that engages in directly or indirectly the business
then being planned or conducted by the Company or its divisions and
subsidiaries. The provisions of this Section 8[B] shall continue in full force
and effect notwithstanding any termination of this Agreement.
9. Discoveries, etc.:
[A] The Company shall be the owner, without further
compensation, of all rights of every kind in and with respect to any reports,
materials, inventions, processes, discoveries, improvements, modifications,
know-how or trade secrets hereafter made, prepared, invented, discovered,
acquired, suggested or reduced to practice (hereinafter designated and referred
to as "Property Rights") by Employee in connection with Employee's performance
of his duties pursuant to this Agreement, and the Company shall be entitled to
utilize and dispose of such in such manner as it may determine.
[B] The Employee agrees to and shall promptly disclose to the
Board of Directors or their designee all Property Rights (whether or not
patentable) made, discovered or conceived of by him, alone or with others, at
any time during his employment with the Company, whether on the Company's or his
own time and irrespective of whether on or off the Company's premises, provided
only that such Property Rights (1) relate to or are useful in any phase of the
business in which the Company may be engaged during the period of employment, or
(2) relate to any subject matter or problems within the scope of Employee's
employment, or (3) relate to or involve the use of any data or information of
which the Employee has been or may become informed by reason of employment with
the Company. The Employee hereby appoints the Company as Employee's
attorney-in-fact to execute in accordance with the laws of any country patent
applications, assignments or other documents considered necessary or desirable
by the Company. Any such Property Rights will be the sole and exclusive property
of the Company, and Employee will execute any assignments requested by the
Company of his right, title or interest in any such Property Rights without
further demand or consideration, and, in addition, the Employee will also
provide the Company with any other instruments or documents requested by the
Company, at the Company's expense, as may be necessary or desirable in applying
for and obtaining patents with respect thereto in the United States and all
foreign countries. The Employee also agrees to cooperate with the Company in the
prosecution or defense of any patent claims or litigation or proceedings
involving inventions, trade secrets, trademarks, services marks, secret
processes, discoveries or improvements, during his employment by the Company.
Employee's cooperation after his employment is subject to his availability and
the Company
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<PAGE>
agrees to reimburse Employee for loss of income and expenses incurred in
connection therewith. Said cooperation shall not be withheld by Employee.
10. Confidential Information: Employee recognizes and acknowledges
that the Company, through the expenditure of considerable time and money, will
acquire, has developed and will continue to develop in the future, information,
skills, confidential information, know-how, formulae, technical expertise and
methods relating to or forming part of the Company's services and products and
conduct of its business, and that the same are confidential and proprietary, and
are "trade secrets" of the Company. Employee understands and agrees that such
trade secrets give or may give the Company a significant competitive advantage.
Employee further recognizes that the success of the Company depends on keeping
confidential both the trade secrets already developed or to be acquired and any
future developments of trade secrets. Employee understands that in his capacity
with the Company he will be entrusted with knowledge of such trade secrets and,
in recognition of the importance thereof and in consideration of his employment
by the Company hereunder, agrees that he will not, without the consent of the
Board of Directors in writing, make any disclosure of trade secrets now or
hereafter possessed by the Company to any person, partnership, corporation or
entity either during or after the term hereunder, except to such employees of
the Company or its subsidiaries or affiliates, if any, as may be necessary in
the regular course of business and except as may be required pursuant to any
court order, judgment or decision from any court of competent jurisdiction. The
provisions of this Section shall continue in full force and effect
notwithstanding any termination of the Agreement.
11. Irreparable Harm: Employee agrees that any breach or threatened
breach by Employee of provisions set forth in Sections Eight (8), Nine (9), and
Ten (10) of this Agreement, would cause the Company irreparable harm and the
Company may obtain injunctive relief against such actual or threatened conduct
and without the necessity of a bond.
12. Return of Company Property: Employee agrees that following the
termination of his employment for any reason, he shall return all property of
the Company which is then in or thereafter comes into his possession, including,
but not limited to, documents, contracts, agreements, plans, photographs,
customer lists, books, notes, electronically stored data and all copies of the
foregoing as well as any other materials or equipment supplied by the Company to
the Employee.
13. Termination:
[A] Death: In the event of the Employee's death during the
term of his employment, this Agreement shall automatically terminate on the date
of death, and Employee's estate shall be entitled to payment of Employee's
salary until date of death and three (3) months thereafter. All other benefits
and compensation described herein shall terminate on the date of death unless
otherwise stipulated in the applicable Company plan.
[B] Disability: In the event the Employee, by reason of
physical or mental incapacity, shall be disabled for a period of at least four
(4) consecutive months or six (6) months in the aggregate in any twelve (12)
month period of this Agreement or any extension
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<PAGE>
hereof, the Company shall have the option at any time thereafter to terminate
Employee's employment and to terminate this Agreement. Such termination to be
effective ten (10) days after the Company gives written notice of such
termination to the Employee, and all obligations of the Company hereunder shall
cease upon the date of such termination unless Employee shall have returned to
the performance of his duties prior to the effective date of the notice.
"Incapacity" as used herein shall mean the inability of the Employee to
substantially perform his normal duties. Employee's salary as provided for
hereunder shall continue to be paid during any period of incapacity prior to and
including the date on which Employee's employment is terminated for disability
and for three (3) months following the termination date.
[C] Company's Rights To Terminate This Agreement:
[a] The Company shall have the right, before the
expiration of the term of this Agreement, to terminate this Agreement and to
discharge Employee for cause (hereinafter "Cause"), and all compensation to
Employee shall cease to accrue upon discharge of the Employee for Cause. For the
purposes of this Agreement, the term "Cause" shall mean the Employee's (i)
violation of the Company's written policy or specific written directions of the
Board of Directors, which directions are consistent with normally acceptable
business practices or the failure to observe, or the failure or refusal to
perform any obligations required to be performed in accordance with this
Agreement, (ii) if the Board of Directors determines that Employee has committed
a demonstrable act (or omission) of malfeasance seriously detrimental to the
Company (which shall not include any exercise of business judgment in good
faith).
[b] If the Company elects to terminate Employee's
employment for Cause, the Company shall first give Employee written notice and a
period of twenty (20) days to cure such Cause, and if such Cause is not cured in
said twenty (20) days, such termination shall be effective ten (10) days after
the Company gives written notice of such failure to cure to the Employee. In the
event of a termination of the Employee's employment for Cause in accordance with
the provisions of Section 11[C][b], the Company shall have no further obligation
to the Employee, except for the payment of salary and for other compensation
and/or expenses through the date of such termination from employment.
14. Waiver: Any waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed as a waiver of any other
breach or default hereof.
15. Governing Law: The validity of this Agreement or of any of the
provisions hereof shall be determined under and according to the laws of the
State of New York, and this Agreement and its provisions shall be construed
according to the laws of the State of New York, without reference to its choice
of law rules.
16. Notices. Any notice required to be given pursuant to the
provisions of this Agreement shall be in writing and shall be delivered in
person or by registered or certified mail to the respective parties at their
addresses set forth on the first page of this Agreement (or such other address
as the party to receive notices has given by notice hereunder to the other
party). Any such notice by personal delivery shall become effective upon receipt
and any notice by registered or certified mail shall become effective five
business days after mailed.
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<PAGE>
17. Assignment: The Employee's assignment of this Agreement or any
interest herein, or any monies due or to become due by reason of the terms
hereof, without the prior written consent of the Company shall be void. This
Agreement shall be assignable and binding to a corporation or other business
entity that succeeds to all or substantially all of the business of the Company
through merger, consolidation, corporate reorganization or by acquisition of all
or substantially all of the assets of the Company and which assumes Company's
obligations under this Agreement.
18. Miscellaneous: This Agreement contains the entire understanding
between the parties hereto and supersedes all other oral and written agreements
or understandings between them. No modification or addition hereto or waiver or
cancellation of any provision shall be valid except by a writing signed by the
party to be charged therewith.
19. Obligations of a Continuing Nature: It is expressly understood
and agreed that the covenants, agreements and restrictions undertaken by or
imposed on either party hereunder, which are stated to exist or continue after
termination of Employee's employment with the Company, shall exist and continue
on both parties irrespective of the method or circumstances of such termination
from employment or termination of this Agreement.
20. Severability: Employee agrees that if any of the covenants,
agreements or restrictions on the part of Employee are held to be invalid by any
court of competent jurisdiction, such holding will not invalidate any of the
other covenants, agreements and/or restrictions herein contained and such
invalid provisions shall be severable so that the invalidity of any such
provision shall not invalidate any others. Moreover, if any one or more of the
provisions contained in this Agreement shall be held to be excessively broad as
to duration, activity or subject, such provisions shall be construed by limiting
and reducing them so as to be enforceable to the maximum extent allowed by
applicable law.
21. Representation: Employee represents and warrants that he has the
legal right to enter into this Agreement and to perform all of the duties and
obligations on his part to be performed hereunder in accordance with its terms
and that he is not a party to any agreement or understanding, written or oral,
which prevents Employee from entering into this Agreement or performing all of
his duties and obligations hereunder. In the event of a breach of such
representation or warranty on his part or if there is any other legal impediment
which prevents him from entering into this Agreement or performing all of his
duties and obligations hereunder, the Company shall have the right to terminate
this Agreement in accordance with Section 13[C][a]; in which event the "Cause"
shall not be deemed curable under Section 13[C] [b]. Without limiting the
foregoing, Employee represents and warrants that he is not a party to any
agreement which prohibits or limits his ability to fulfill his duties and
responsibilities contemplated herein.
22. Descriptive Headings. The paragraph headings contained herein
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day and year first above written.
ERGOVISION, INC.
By: /s/ Robert B. Greenberg
----------------------------------
Robert B. Greenberg
Chief Executive Officer
/s/ Mark R. Suroff
----------------------------------
Mark R. Suroff
Employee
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FIRST EXTENSION TO AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
FIRST EXTENSION dated as of December 31, 1998 to "AMENDED AND RESTATED
EMPLOYMENT AGREEMENT" dated as of July 1, 1998 (the "Employment Agreement")
between Mark R. Suroff (hereinafter referred to as the "Employee") and
Ergovision, Inc. (hereinafter referred to as the "Company").
WITTNESSETH
WHEREAS, on July 1, 1998, the parties entered into the Employment
Agreement;
WHEREAS, the parties desire to extend the term of the Employment
Agreement;
NOW, THEREFORE, in consideration of the premises, the Company and the
Employee hereby agree as follows:
3. Section 1 "Term" shall be amended to extend the Employment Agreement for
an additional three years, from June 30, 2001 to June 30, 2004.
4. Except as specifically set forth herein, all the terms and conditions of
the Employment Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, this instrument has been executed and delivered as of
the date first written above.
Ergovision, Inc.
By: /s/ Mark H. Levin
---------------------------------
Mark H. Levin
President
/s/ Mark R. Suroff
------------------------------------
Mark R. Suroff
Employee
EMPLOYMENT AGREEMENT
DANIEL THRALOW AND ERGOVISION, INC.
AGREEMENT, dated as of the 7th day of May, 1999 by and between
ERGOVISION, INC., having a place of business at One Fairchild Court, Plainview,
New York 11803 (hereinafter designated and referred to as "Company"), and Daniel
Thralow residing at 1908 East 3rd Street, Apartment #6, Duluth, MN 55802
(hereinafter designated and referred to as "Employee", "his" or "him").
WHEREAS, the Company desires to employ the Employee as Vice
President of Operations and serve as a director in accordance with the
provisions hereinafter set forth;
WHEREAS, the Employee is willing to be employed by the Company, all
in accordance with provisions hereinafter set forth; and
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Term: The term of this Agreement shall be for a period of three
(3) years commencing May __, 1999 and automatically terminating on May __, 2002,
subject to earlier termination as provided herein or unless extended by mutual
consent of both parties in writing ninety (90) days prior to the end of the term
of this Agreement or any extension thereof, but nothing herein shall require the
Company or Employee to agree to any specific term or condition or to any
continuation of Employee's employment beyond the end of the term of this
Agreement.
2. Employment: Subject to the terms and conditions and for the
compensation hereinafter set forth, the Company employs the Employee for and
during the term of this Agreement as Vice President of Operations. The Employee
further agrees to serve as a director of the Company's Board of Directors. The
Employee does hereby accept such employment and agrees to use his best efforts
and to devote all business time, during the term of this Agreement, to the
performance of his duties faithfully, diligently and to the best of his
abilities upon the conditions hereinafter set forth. Employee shall report to
the Chief Executive Officer and Board of Directors of the Company. The Company
agrees an acknowledges that the Employee's agreement to be employed by the
Company is expressly conditioned upon the Company's agreement and covenant that
it shall not, during the term hereof, require that the Employee relocate his
primary residence or the primary location where he is employed by the Company to
a location outside of the Duluth, Minnesota region.
3. Compensation: During the term of this Agreement, the Company
agrees to pay Employee, and Employee agrees to accept a salary at an annual rate
of One Hundred Thousand ($100,000) Dollars, payable at least every two weeks,
less all applicable taxes, for all services rendered by Employee hereunder.
Employee's annual salary and other benefits provided for hereunder are subject
to periodic increases (but not decreases) at the discretion of the Board of
Directors. As additional compensation, the Company may pay the Employee periodic
bonuses as determined by the Board of Directors.
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4. Expenses: The Company shall reimburse Employee, not less often
than monthly, for all actual and reasonable business expenses incurred in
connection with his service to the Company, upon submission of appropriate
vouchers and expense account reports.
5. Benefits: The Company shall provide medical insurance and such
other benefits, including, without limitation, bonuses to be awarded upon the
achievement of such milestones and events and the Company and Employee may
agree, and participation in the Company's stock option plan(s) in accordance
with the applicable Company benefit plans, as such plans may exist from time to
time and are made available to other shareholder employees of the Company with
similar ownership interests and job responsibilities. The Employee shall be
entitled to annual vacation in accordance with the Company's policy.
6. Automobile: The Company shall be responsible or reimburse
Employee for lease and/or loan payments, insurance and registration expenses,
all maintenance and gasoline costs of a car approved by the Company.
7. Restrictive Covenant: The Employee acknowledges that he has
entered into that certain Noncompetition and Nondisclosure Agreement, dated of
even date herewith, between the Employee and the Company (the "Noncompetition
Agreement") a copy of which is attached hereto as Exhibit A. Notwithstanding the
terms and conditions thereof, the Employee agrees that the "Restricted Period"
as defined therein shall be extended, if applicable, through the first
anniversary of the end of the Employee's employment, whether full-time or
part-time, exclusive or nonexclusive, and in any capacity, by the Company.
8. Proprietary Rights and Information: Concurrently with the
execution of this Agreement, the Employee and the Company have entered into that
certain Proprietary Rights and Information Agreement (the "Proprietary Rights
and Information Agreement"), attached as Exhibit B hereto.
9. Irreparable Harm: Employee agrees that any breach or threatened
breach by Employee of provisions set forth in Sections 7 and 8 of this
Agreement, would cause the Company irreparable harm and the Company may obtain
injunctive relief against such actual or threatened conduct and without the
necessity of a bond.
10. Return of Company Property: Employee agrees that following the
termination of his employment for any reason, he shall return all property of
the Company which is then in or thereafter comes into his possession, including,
but not limited to, documents, contracts, agreements, plans, photographs,
customer lists, books, notes, electronically stored data and all copies of the
foregoing as well as any other materials or equipment supplied by the Company to
the Employee.
11. Termination:
(A) Death: In the event of the Employee's death during the
term of his employment, this Agreement shall automatically terminate on the date
of death, and Employee's estate shall be entitled to payment of Employee's
salary until date of death and three (3) months
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thereafter. All other benefits and compensation described herein shall terminate
on the date of death unless otherwise stipulated in the applicable Company plan.
(B) Disability: In the event the Employee, by reason of
physical or mental incapacity, shall be disabled for a period of at least four
(4) consecutive months or six (6) months in the aggregate in any twelve (12)
month period of this Agreement or any extension hereof, the Company shall have
the option to terminate Employee's employment and to terminate this Agreement.
Such termination to be effective ten (10) days after the Company gives written
notice of such termination to the Employee, and all obligations of the Company
hereunder shall cease upon the date of such termination unless Employee shall
have returned to the performance of his duties prior to the effective date of
the notice. "Incapacity" as used herein shall mean the inability of the Employee
to substantially perform his normal duties. Employee's salary as provided for
hereunder shall continue to be paid during any period of incapacity prior to and
including the date on which Employee's employment is terminated for disability
and for three (3) months following the termination date.
(C) Company's Rights To Terminate This Agreement:
(a) The Company shall have the right, before the
expiration of the term of this Agreement, to terminate this Agreement and to
discharge Employee for cause (hereinafter "Cause"), and all compensation to
Employee shall cease to accrue upon discharge of the Employee for Cause. For the
purposes of this Agreement, the term "Cause" shall mean (i) the Employee's
violation of the Company's written policy or specific written directions of the
Board of Directors, which directions are consistent with normally acceptable
business practices, or the failure to observe, or the failure or refusal to
perform, any obligations required to be performed in accordance with this
Agreement, (ii) if the Board of Directors determines that Employee has committed
a demonstrable act (or omission) of malfeasance seriously detrimental to the
Company (which shall not include any exercise of business judgment in good
faith) or (iii) breach by the Employee in any material respect of (x) any
covenant or agreement contained herein, in the Proprietary Rights and
Information Agreement or in the Noncompetition Agreement or (y) any
representation, warranty, covenant or agreement contained in that certain
Agreement and Plan of Merger, dated as of May __, 1999, by and among the
Company, Peeper's Sunglasses and Accessories, Inc., Peeper's, Inc. and the
Employee.
(b) If the Company elects to terminate Employee's
employment for Cause, if such Cause shall be capable of cure (it being
understood and agreed that a breach of fiduciary duty, including dishonesty, is
not subject to cure) the Company shall first give Employee written notice and a
period of twenty (20) days to cure such Cause, and if such Cause is not cured in
said twenty (20) days or if such Cause is not capable of cure, such termination
shall be effective ten (10) days after the Company gives written notice of such
failure to cure to the Employee. In the event of a termination of the Employee's
employment for Cause in accordance with the provisions of Section 11 (C) (b),
the Company shall have no further obligation to the Employee, except for the
payment of salary and for any other compensation and/or expenses through the
date of such termination from employment.
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12. Waiver: Any waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed as a waiver of any other
breach or default hereof.
13. Governing Law: The validity of this Agreement or of any of the
provisions hereof shall be determined under and according to the laws of the
State of New York, and this Agreement and its provisions shall be construed
according to the laws of the State of New York, without reference to its choice
of law rules.
14. Notices: Any notice required to be given pursuant to the
provisions of this Agreement shall be in writing and shall be delivered in
person or by registered or certified mail to the respective parties at their
addresses set forth on the first page of this Agreement (or such other address
as the party to receive notices has given by notice hereunder to the other
party). Any such notice by personal delivery shall become effective upon receipt
and any notice by registered or certified mail shall become effective five
business days after mailed.
15. Assignment: The Employee's assignment of this Agreement or any
interest herein, or any monies due or to become due by reason of the terms
hereof, without the prior written consent of the Company shall be void. This
Agreement shall be assignable and binding to a corporation or other business
entity that succeeds to all or substantially all of the business of the Company
through merger, consolidation, corporate reorganization or by acquisition of all
or substantially all of the assets of the Company and which assumes Company's
obligations under this Agreement.
16. Miscellaneous: This Agreement contains the entire understanding
between the parties hereto and supersedes all other oral and written agreements
or understandings between them. No modification or addition hereto or waiver or
cancellation of any provision shall be valid except by a writing signed by the
party to be charged therewith.
17. Obligations of a Continuing Nature: It is expressly understood
and agreed that the covenants, agreements and restrictions undertaken by or
imposed on either party hereunder, which are stated to exist or continue after
termination of Employee's employment with the Company, shall exist and continue
on both parties irrespective of the method or circumstances of such termination
from employment or termination of this Agreement.
18. Severability: Employee agrees that if any of the covenants,
agreements or restrictions on the part of Employee are held to be invalid by any
court of competent jurisdiction, such holding will not invalidate any of the
other covenants, agreements and/or restrictions herein contained and such
invalid provisions shall be severable so that the invalidity of any such
provision shall not invalidate any others. Moreover, if any one or more of the
provisions contained in this Agreement shall be held to be excessively broad as
to duration, activity or subject, such provisions shall be construed by limiting
and reducing them so as to be enforceable to the maximum extent allowed by
applicable law.
19. Representation: Employee represents and warrants that he has the
legal right to enter into this Agreement and to perform all of the duties and
obligations on his part to be performed hereunder in accordance with its terms
and that he is not a party to any
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agreement or understanding, written or oral, which prevents Employee from
entering into this Agreement or performing all of his duties and obligations
hereunder. In the event of a breach of such representation or warranty on his
part or if there is any other legal impediment which prevents him from entering
into this Agreement or performing all of his duties and obligations hereunder,
the Company shall have the right to terminate this Agreement in accordance with
Section 11(C) (a); in which event the "Cause" shall not be deemed curable under
Section 11(C) (b). Without limiting the foregoing, Employee represents and
warrants that he is not a party to any agreement which prohibits or limits his
ability to fulfill his duties and responsibilities contemplated herein.
20. Descriptive Headings: The paragraph headings contained herein
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day and year first above written.
ERGOVISION, INC.
By: /s/ Mark H. Levin
-------------------------------------
Mark H. Levin
President
/s/ Daniel Thralow
-----------------------------------------
Daniel Thralow
Employee
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Ergovision, Inc., One Fairchild Court, Plainview, NY 11803
Phone: 516-349-1110 Fax: 516-349-9191
James J. Armenakis March 16, 1999
65 Bleecker Street
New York, NY 10012
Dear Jim:
The following will constitute our Finders Agreement (the "Finders Agreement")
between Ergovision, Inc. (the "Company") and James J. Armenakis (the
"Armenakis").
1. Subject to the terms and conditions set forth herein, the Company hereby
engages Armenakis on a non-exclusive basis to introduce the Company to
persons and entities which may be interested in participating in a
Financing as principal.
2. The Company shall pay Armenakis as compensation for his services rendered
hereunder options to purchase 50,000 shares for a three year term in the
Company for each $250,000 invested on an equity basis from persons or
entities introduced by Armenakis to the Company on terms and conditions
acceptable to the Company.
3. The exercise price of each 50,000 share stock option, or pro rata portion
thereof, shall be the price received by the Company for its Common Stock
on each equity investment as made in the Company. The Company and
Armenakis have agreed that the first $1,500,000 of equity shall be at an
excercise price of $1.00 per share, resulting in Armenakis receiving a
stock option for 300,000 shares in the Company.
4. This Finders Agreement contains the entire understanding of the parties
and supercedes all prior agreements and understanding between the parties
hereto as to the subject matter hereof and may not be terminated unless in
writing on 30 days written notice. No change, of any of the provisions
hereof shall be binding unless in writing and signed by both parties.
Armenakis is an independent contractor and shall bear all expenses in
conducting the business under this Finders Agreement. Facsimile signatures
of the undersigned parties will have the same force and effect as original
signatures.
5. This Finders Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
If the foregoing is in accordance with your understanding of the Finders
Agreement between us, will you kindly signify same by signing in the space
provided below.
Sincerely,
Agreed and Accepted ERGOVISION, INC.
as of the above date
/s/ James J. Armenakis /s/ Mark H. Levin
- ----------------------- ------------------------
James J. Armenakis Mark H. Levin, President
Ergovision, Inc., One Fairchild Court, Plainview, NY 11803
Phone: 516-349-1110 Fax: 516-349-9191
March 16, 1999
James J. Armenakis
65 Bleecker Street
New York, NY 10012
Dear Jim:
The following will constitute our consulting agreement (the "Consulting
Agreement") between Ergovision, Inc. (the "Company") and James J. Armenakis (the
"Consultant").
1. Retention. The Company retains the Consultant as an adviser of the Company to
provide services of two days per month (the "Consulting Services") for the
period (the "Consulting Period") commencing on the date hereof and terminating
on March 31, 2000. The Consultant accepts such engagement and agrees to provide
the Consulting Services, in connection with the operation of the Company's
business.
2. Compensation. As full and complete compensation for Consultant's services for
the Consulting Period the Company shall simultaneously grant a stock option to
Consultant for 150,000 shares of the Company's Common Stock at an exercise price
of $1.00 per share that is immediately exercisable and shall be for a term of 3
years from the date hereof. The Consultant shall also receive additional stock
options, each for a term of 3 years, during the Consulting Period for a total of
60,000 shares of the Company's Common Stock, at the rate of 5,000 shares each
month at an exercise price equal to closing ask price on the first trading day
of each month commencing April 1, 1999.
3. Consulting Time. During the Consulting Period of this Agreement Consultant
covenants and agrees that Consultant will provide the necessary consulting time
to carry out his Consulting Services for the Company or persons or organizations
whom or which the Company may designate.
4. Confidential Information. The Consultant agrees that any and all confidential
information, including know-how and trade secrets, that may be imparted to
Consultant by the Company shall be maintained confidential and secret, and the
Consultant agrees not to use or disclose the same to others except to officers
and duly authorized employees and representatives of the Company except with the
prior written consent and approval of the Company.
5. Termination. The Company may terminate this Consulting Agreement for Cause.
As used herein, "Cause" shall mean the breach by the Consultant in any material
respect of any covenant or agreement contained herein. If the Company terminates
this Consulting Agreement for Cause, or this Consulting Agreement is terminated
as the result of the death, disability, or resignation of the Consultant,
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the Company's only obligation shall be to pay the compensation referenced in
Section 2 hereof until such date.
6. Status. The Consultant shall for all purposes hereunder be deemed an
independent contractor and not an employee or agent of the Company. The
Consultant hereby covenants and agrees that he will not do any act or incur any
obligation on behalf of the Company of any kind whatsoever, except as authorized
by the Company.
7. Notices. All notices required and allowed hereunder shall be in writing, and
shall be deemed given if delivered personally or sent by certified mail, return
receipt requested, first class postage and registration fees prepaid, and
correctly addressed to the party for whom intended at its address set forth on
the first page or to such other address as has been most recently specified for
a party by notice to all other parties.
8. Return of Company Property. Consultant agrees that following the termination
of this Consultant Agreement for any reason, Consultant shall return all
property of the Company which is then in or thereafter comes into Consultant's
possession, including, but not limited to, documents, contracts, agreements,
plans, photographs, books, notes, electronically stored data and all copies of
the foregoing as well as any other materials or equipment supplied by the
Company to the Consultant.
9. Assignment. The Consultant's obligations under this Consultant Agreement may
not be assigned or transferred to any other person, firm, or corporation without
the prior written consent of the Company.
10. Amendment, Modification or Waiver. No amendment, modification or waiver of
any condition, provision or terms of this Consultant Agreement shall be valid or
of any effect unless made in writing and signed by both parties. Any waiver by
any party of any default of another party shall not affect or impair any rights
arising from any subsequent default. Nothing herein shall limit the remedies and
rights of the parties hereto under and pursuant to this Consultant Agreement.
11. Entire Agreement. This Consultant Agreement contains the entire
understanding of the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
12. Captions, Headings, or Titles. All captions, headings or titles in the
sections of the Consultant Agreement are inserted for convenience of reference
only and shall not constitute a part of this Agreement or a limitation of scope
of the particular sections to which they apply.
13. Counterparts. This Consultant Agreement may be signed in counterparts and
shall become effective as if executed in a single, complete document as of the
date hereof upon its execution by both parties. Facsimile
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signatures of the undersigned parties will have the same force and effect as
original signatures.
14. Governing Law. This Consulting Agreement and the rights and obligations of
the parties hereunder and any other instruments or documents issued hereunder
shall be construed, interpreted and enforced in accordance with the laws of the
State of New York, exclusive of its choice-of-law principles.
If the foregoing is in accordance with your understanding of the agreement
between us, will you kindly signify same by signing this Consultant Agreement in
the space provided below.
Sincerely,
Agreed and Accepted ERGOVISION, INC.
as of the above date
/s/ James J. Armenakis /s/ Mark H. Levin
- ----------------------- ------------------------
James J. Armenakis Mark H. Levin, President
3
Ergovision, Inc., One Fairchild Court, Plainview, NY 11803
Phone: 516-349-1110 Fax: 516-349-9191
March 18, 1999
James J. Armenakis
65 Bleecker Street
New York, NY 10012
CONSULTANT AGREEMENT AMENDMENT
Dear Jim:
This will constitute and confirm our amendment to the Consultant Agreement dated
March 16, 1999 for James J. Armenakis to act as a consultant ("Consultant") for
Ergovision, Inc. ("Company") to provide Consulting Services, in accordance with
the terms, provisions and conditions of the Consultant Agreement.
1. Section 2 shall be amended to read as follows:
Compensation. As full and complete compensation for Consultant's services
for the Consulting Period the Company shall simultaneously grant a stock
option to Consultant for 150,000 shares of the Company's Common Stock at
an exercise price of $1.00 per share that is immediately exercisable and
shall be for a term of 3 years from the date hereof. The Consultant shall
also receive a stock option, for a term of 3 years, during the Consulting
Period for a total of 60,000 shares of the Company's Common Stock at an
exercise price of $1.75 per share, equal to the closing ask price on March
18, 1999.
2. All other terms and conditions of the Consultant Agreement remain in full
force and effect.
If the foregoing is in accordance with your understanding, will you kindly
signify same by signing this Consultant Agreement Amendment in the space
provided below.
Sincerely,
Agreed and Accepted ERGOVISION, INC.
as of the above date
/s/ James J. Armenakis /s/ Mark H. Levin
- ----------------------- ------------------------
James J. Armenakis Mark H. Levin
President
AGREEMENT
JON AGNES AND EYECITY.COM, INC.
AGREEMENT, dated as of the 12th day of July, 1999, by and between
EyeCity.com, Inc., having a place of business at One Fairchild Court, Plainview,
New York 11803 (hereinafter designated and referred to as "Company"), and Jon
Agnes, residing at 162 Connetquot Drive, Oakdale, New York 11769 (hereinafter
designated and referred to as "Executive", "his" or "him").
WHEREAS, the Company desires to employ Executive as Chief Technology
Officer in accordance with the provisions hereinafter set forth; and
WHEREAS, Executive is willing to be employed by the Company, all in
accordance with provisions hereinafter set forth.
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Term. The term of this Agreement (the "Term") shall be for a
period of three (3) years commencing July 12, 1999 and automatically terminating
on July 12, 2002, subject to earlier termination as provided herein or unless
extended by mutual consent of both parties in writing sixty (60) days prior to
the end of the term of this Agreement or any extension thereof, but nothing
herein shall require the Company or Executive to agree to any specific term or
condition or to any continuation of Executive's employment beyond the end of the
term of this Agreement.
2. Employment. Subject to the terms and conditions and for the
compensation hereinafter set forth, the Company employs Executive for and during
the Term as Chief Technology Officer and Executive shall have such duties and
responsibilities as are typically assigned to chief technology officers of
internet-related companies including, without limitation, the responsibilities
listed on Schedule 1 hereto, and such other matters as shall be requested by the
Chief Operating Officer. Executive does hereby accept such employment and agrees
to use his best efforts and to devote all of his business time during the Term
to the performance of his responsibilities faithfully, diligently and to the
best of his abilities upon the conditions herein set forth; provided, however,
that nothing herein shall be deemed to prohibit Executive from continuing to
maintain the websites "us-express.com", "kryptonite.com" and "ips-ship.com" so
long as Executive's efforts and commitment of time in connection therewith do
not interfere with the performance of his duties hereunder. Executive shall
report directly to the Chief Operating Officer of the Company or his designee.
3. Compensation. During the Term, the Company agrees to pay
Executive, and Executive agrees to accept a salary, at an annual rate as follows
(in each case payable at least every two weeks, less all applicable taxes, for
all services rendered by Executive hereunder): during the first six months of
the Term, $125,000 per annum; during the seventh through and including the
twelfth month of the Term, $150,000 per annum; during the second year of the
Term, $155,000 per annum; and during the third year of the Term, $160,000 per
annum. In addition, Executive may be entitled to receive additional bonuses from
time to time at the sole
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discretion of the Board of Directors of the Company. On July 12, 1999, Executive
will be granted pursuant to the Company's stock option plan and the Option
Contract attached as Exhibit A hereto stock options to purchase 240,000 shares
of the Company's common stock at a price equal to the closing asked price per
share on July 12, 1999, which options shall vest as follows: 40,000 on July 12,
1999 and an additional 20,000 quarterly upon the 12th day of each third month
following July 12, 1999 (the date of the first such additional vesting of 20,000
shares will be October 12, 1999) until all of such 240,000 shares have vested
during the Term hereof. Notwithstanding the foregoing, if there occurs during
the Term (a) a merger or consolidation to which the Company is a party in which
the Company is not the surviving corporation or (b) any other capital
reorganization in which more than fifty percent (50%) of the shares of the
Company entitled to vote are exchanged, then any stock options granted to
Executive pursuant to this Section which are unexpired at the time of such
occurrence shall become fully vested and immediately exercisable.
4. Expenses. The Company shall reimburse Executive, not less often
than monthly, for all actual and reasonable business expenses incurred in
connection with his service to the Company, upon submission of appropriate
vouchers and expense account reports. In this regard, the Company shall be
responsible and shall reimburse Executive for gasoline costs incurred in respect
of the service of the Company, Executive's business-related cell phone expenses,
business-related pager expenses and expenses incurred in connection with the
installment and maintenance of a fractional T1 connection service to Executive's
primary residence referenced in the preamble hereto (estimated at $700 per
month). All such expenses shall be reimbursable upon submission of reasonably
appropriate documentation therefor in accordance with Company policy.
5. Benefits. The Company shall provide medical insurance and such
other benefits, including, without limitation, participation in the Company's
stock option plan(s) in accordance with the applicable Company benefit plans, as
such plans may exist from time to time and are made available to other employees
of the Company with similar job responsibilities. Notwithstanding the foregoing,
Executive shall be entitled to term life insurance coverage during the Term in
the amount of $150,000, which insurance policy shall be acquired by the Company
within 40 days of the date hereof. Executive shall be entitled to annual
vacation in accordance with the Company's policy.
6. Restrictive Covenant. Executive acknowledges that he has entered
into that certain Noncompetition and Nondisclosure Agreement, dated of even date
herewith, between Executive and the Company (the "Noncompetition Agreement") a
copy of which is attached hereto as Exhibit B. Notwithstanding the terms and
conditions thereof, Executive agrees that the "Restricted Period" as defined
therein shall be extended, if applicable, through the first anniversary of the
end of Executive's employment, whether full-time or part-time, exclusive or
nonexclusive, and in any capacity, by the Company.
7. Proprietary Rights and Information. Concurrently with the
execution of this Agreement, Executive and the Company have entered into that
certain Proprietary Rights and Information Agreement (the "Proprietary Rights
and Information Agreement"), attached as Exhibit C hereto.
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<PAGE>
8. Irreparable Harm. Executive agrees that any breach or threatened
breach by Executive of provisions set forth in Sections 6 and 7 of this
Agreement, would cause the Company irreparable harm and the Company may obtain
injunctive relief against such actual or threatened conduct and without the
necessity of a bond.
9. Return of Company Property. Executive agrees that following the
termination of his employment for any reason, he shall return all property of
the Company which is then in or thereafter comes into his possession, including,
but not limited to, documents, contracts, agreements, plans, photographs,
customer lists, books, notes, electronically stored data and all copies of the
foregoing as well as any other materials or equipment supplied by the Company to
Executive.
10. Termination.
(A) Death. In the event of Executive's death during the Term,
this Agreement shall automatically terminate on the date of death, and
Executive's estate shall be entitled to payment of Executive's salary accrued
hereunder through the date of death. All other benefits and compensation
described herein shall terminate on the date of death unless otherwise
stipulated in the applicable Company plan.
(B) Disability. In the event Executive, by reason of physical
or mental incapacity, shall be disabled for a period of at least two (2)
consecutive months or three (3) months in the aggregate in any twelve (12) month
period of this Agreement or any extension hereof, the Company shall have the
option to terminate Executive's employment and to terminate this Agreement. Upon
ten (10) days written notice of such termination to Executive, and all
obligations of the Company hereunder shall cease upon the date of such
termination unless Executive shall have returned to the performance of his
normal duties prior to the effective date of the notice. "Incapacity" as used
herein shall mean the inability of Executive to perform his normal duties.
Executive's salary as provided for hereunder shall continue to be paid during
any period of incapacity prior to and including the date on which Executive's
employment is terminated for disability.
(C) Company's Rights To Terminate This Agreement.
(a) The Company shall have the right, before the expiration of
the term of this Agreement, to terminate this Agreement and to discharge
Executive for cause (hereinafter "Cause"), and all compensation to Executive
shall cease to accrue upon discharge of Executive for Cause. For the purposes of
this Agreement, the term "Cause" shall mean (i) Executive's violation of the
Company's written policy or specific written directions of the Chief Operating
Officer or of the Board of Directors, which directions are consistent with
normally acceptable business practices, or the failure to observe, or the
failure or refusal to perform, any obligations required to be performed in
accordance with this Agreement, including, without limitation, the
responsibilities set forth on Schedule 1, (ii) if the Board of Directors
determines that Executive has committed a demonstrable act (or omission) of
malfeasance seriously detrimental to the Company or (iii) breach by Executive in
any material respect of any covenant or agreement contained herein, in the
Proprietary Rights and Information Agreement or in the Noncompetition Agreement.
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(b) If the Company elects to terminate Executive's employment
for Cause, if such Cause shall be capable of cure (it being understood and
agreed that a breach of fiduciary duty, including dishonesty, is not subject to
cure) the Company shall first give Executive written notice and a period of ten
(10) days to cure such Cause, and if such Cause is not cured in said ten (10)
days or if such Cause is not capable of cure, such termination shall be
effective ten (10) days after the Company gives written notice of such failure
to cure to Executive. In the event of a termination of Executive's employment
for Cause in accordance with the provisions of Section 11 (C) (b), the Company
shall have no further obligation to Executive, except for the payment of salary
and for any other compensation accrued and/or expenses incurred through the date
of such termination from employment.
11. Waiver. Any waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed as a waiver of any other
breach or default hereof.
12. Governing Law. The validity of this Agreement or of any of the
provisions hereof shall be determined under and according to the laws of the
State of New York, and this Agreement and its provisions shall be construed
according to the laws of the State of New York, without reference to its choice
of law rules.
13. Notices. (a) Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally by
hand or by recognized overnight courier or mailed (by registered or certified
mail, postage prepaid) or telecopied, as follows:
(i) If to the Company, one copy to:
EyeCity.com, Inc.
One Fairchild Court
Plainview, NY 11803
Attention: Mark H. Levin, President
Telecopier: (516) 349-9191
with simultaneous copy to:
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
Attention: Eric M. Lerner, Esq.
Telecopier: (212) 940-8776
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(ii) If to Executive, one copy to him at the address set
forth in the preamble hereto.
With a simultaneous copy to:
Korman & Stein, P.C.
1975 Linden Boulevard
Elmont, New York 11003-4004
Attention: Jonathan A. Stein, Esq.
Telecopier: (516) 285-0086
(b) Each such notice or other communication shall be effective (i)
if given by telecopier, when such telecopy is transmitted to the telecopier
number specified in Section 13(a) (with confirmation of transmission), or (ii)
if given by other means, when delivered at the address specified in Section
13(a). Any party by notice given in accordance with this Section 13 to the other
party may designate another address or person for receipt of notices hereunder.
Notices by a party may be given by counsel to such party.
14. Assignment. The Executive's assignment of this Agreement or any
interest herein, or any monies due or to become due by reason of the terms
hereof, without the prior written consent of the Company shall be void. This
Agreement shall be assignable and binding to a corporation or other business
entity that succeeds to all or substantially all of the business of the Company
through merger, consolidation, corporate reorganization or by acquisition of all
or substantially all of the assets of the Company and which assumes Company's
obligations under this Agreement.
15. Miscellaneous. This Agreement contains the entire understanding
between the parties hereto and supersedes all other oral and written agreements
or understandings between them. No modification or addition hereto or waiver or
cancellation of any provision shall be valid except by a writing signed by the
party to be charged therewith.
16. Obligations of a Continuing Nature. It is expressly understood
and agreed that the covenants, agreements and restrictions undertaken by or
imposed on either party hereunder, which are stated to exist or continue after
termination of Executive's employment with the Company, shall exist and continue
on both parties irrespective of the method or circumstances of such termination
from employment or termination of this Agreement.
17. Severability. Executive agrees that if any of the covenants,
agreements or restrictions on the part of Executive are held to be invalid by
any court of competent jurisdiction, such holding will not invalidate any of the
other covenants, agreements and/or restrictions herein contained and such
invalid provisions shall be severable so that the invalidity of any such
provision shall not invalidate any others. Moreover, if any one or more of the
provisions contained in this Agreement shall be held to be excessively broad as
to duration, activity or subject, such provisions shall be construed by limiting
and reducing them so as to be enforceable to the maximum extent allowed by
applicable law.
18. Representation. Executive represents and warrants that he has
the legal right to enter into this Agreement and to perform all of the duties
and obligations on his part to be performed hereunder in accordance with its
terms and that he is not a party to any
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agreement or understanding, written or oral, which prevents Executive from
entering into this Agreement or performing all of his duties and obligations
hereunder. In the event of a breach of such representation or warranty on his
part or if there is any other legal impediment which prevents him from entering
into this Agreement or performing all of his duties and obligations hereunder,
the Company shall have the right to terminate this Agreement in accordance with
Section 11(C) (a); in which event the "Cause" shall not be deemed curable under
Section 11(C) (b). Without limiting the foregoing, Executive represents and
warrants that he is not a party to any agreement which prohibits or limits his
ability to fulfill his duties and responsibilities contemplated herein.
19. Descriptive Headings. The paragraph headings contained herein
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day and year first above written.
EYECITY.COM, INC.
By: /s/ Mark H. Levin
------------------------------------
Mark H. Levin
President
/s/ JON AGNES
----------------------------------------
JON AGNES
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SCHEDULE 1
1. (a) Executive will be responsible for managing, directing and
coordinating all information systems and technology activities of the Company.
(b) Executive will have the overall responsibility for providing the
managerial leadership and direction required in defining the technical strategy
of the Company and directing and implementing projects requested from time to
time by the Chief Operating Officer.
2. (a) Executive will be responsible for planning and coordinating the
software functions of the Company in accordance with its strategy to establish a
significant online retail business in the optical products and other markets,
through acquisitions and otherwise.
(b) Executive will work closely with senior management to identify and
capitalize on next generation web technology.
(c) Executive will undertake to define and quantify project deliverables
and ensure that deliverables are met.
(d) Executive will coordinate projects with the Company's sales and
marketing teams including in connection with the launch of current and future
products.
(e) Executive will oversee the execution of on-line promotional campaigns
and follow-up customer support efforts at the request of the Chief Operating
Officer.
(f) Executive will lead a technology staff (currently consisting of five
people) at levels determined by the Board of Directors. Executive will at the
request of the Chief Operating Officer increase the size and capability of the
technical team, meeting the demands of current and new product offerings.
3. (a) Executive will be responsible to ensure that the Company continues
to embrace the latest proven technologies through strong research, analysis and
recommendation of cutting edge technology.
(b) Other required activities will include:
(i) achieving a technology lead in the strategic application of the
Company's technology in its coding standards and rapid application
development methodology.
(ii) providing mentorship and managing the career progression and
professional development of our senior developers and junior technical
staff.
(iii) providing final technical approval of all developer staff.
(iv) providing technical/technology lead (as required) for
customer/partner meetings.
(v) acting as the Company's advocate and contributing to the
continuous refinement and achievement of the Company's vision.
EMPLOYMENT AGREEMENT
THOMAS SELTZER AND EYECITY.COM, INC.
AGREEMENT, dated as of the 28th day of September, 1999 by and
between EYECITY.COM, INC., having a place of business at One Fairchild Court,
Plainview, New York 11803 (hereinafter designated and referred to as "Company"),
and Thomas Seltzer, residing at 17 Galloway Court, West Orange, New Jersey 07052
(hereinafter designated and referred to as "Employee", "his" or "him").
WHEREAS, the Company desires to employ the Employee as Vice
President of Merchandising and Purchasing in accordance with the provisions
hereinafter set forth;
WHEREAS, the Employee is willing to be employed by the Company, all
in accordance with provisions hereinafter set forth; and
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Term: The term of this Agreement shall be for a period of three
(3) years commencing September 28, 1999 and automatically terminating on
September 27, 2002 (the "Termination Date") subject to earlier termination as
provided herein or unless extended by mutual consent of both parties in writing
prior to the end of the term of this Agreement or any extension thereof, but
nothing herein shall require the Company or Employee to agree to any specific
term or condition or to any continuation of Employee's employment beyond the end
of the term of this Agreement.
2. Employment: Subject to the terms and conditions and for the
compensation hereinafter set forth, the Company employs the Employee for and
during the term of this Agreement as Vice President of Merchandising and
Purchasing. The Employee does hereby accept such employment and agrees to use
his best efforts and to devote all business time, during the term of this
Agreement, exclusively to the performance of his duties faithfully, diligently
and to the best of his abilities upon the conditions hereinafter set forth.
Employee shall report to the Chief Executive Officer and Chief Operating Officer
of the Company.
3. Compensation: During the term of this Agreement, the Company
agrees to pay Employee, and Employee agrees to accept a salary at an annual rate
of (i) One Hundred Thirty Thousand ($130,000) Dollars from the date hereof until
September 27, 2000, (ii) One Hundred and Sixty Thousand ($160,000) Dollars from
September 28, 2000 through September 27, 2001 and (iii) One Hundred and Eighty
Thousand ($180,000) Dollars from September 28, 2001 through September 27, 2002,
in each case payable at least every two weeks in accordance with the Company's
normal payroll policies, less all applicable taxes, for all services rendered by
Employee hereunder. Employee's annual salary and other benefits provided for
hereunder are subject to periodic increases (but not decreases) at the
discretion of the Board of Directors. As additional compensation, the Company
may pay the Employee periodic bonuses as determined by, and in the sole
discretion of, the Board of Directors.
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4. Expenses: The Company shall reimburse Employee, not less often
than monthly, for all actual and reasonable business expenses incurred in
connection with his service to the Company, upon submission of appropriate
vouchers and expense account reports in accordance with normal Company policy.
5. Benefits: The Company shall provide medical insurance and such
other benefits, including, without limitation, participation in Company stock
option, bonus and benefit plans, (which may be conditioned upon the achievement
of such milestones or events as the Employee and the Company may agree), as such
plans may exist from time to time and which are made generally available to the
Company's employees. The Company agrees that it shall grant to the Employee
options to purchase 22,500 shares of the Company's common stock (subject to the
terms of the Company's applicable stock option plan) at the beginning of each
three-month period during the term hereof commencing on the date hereof through
September 27, 2002 (unless this Agreement is sooner terminated pursuant to
Section 10(A), (B) or (C) hereof), provided, that the exercise price for all
such options shall be permanently fixed on the date hereof. The Employee shall
be entitled to annual vacation in accordance with the Company's policy. The
Company shall also reimburse the Employee for the cost of an insurance policy,
reasonably acceptable to the Company and which shall be arranged for by the
Employee, with respect to the Employee's death or disability.
6. Restrictive Covenant: The Employee acknowledges that he has
entered into that certain Noncompetition and Nondisclosure Agreement, dated of
even date herewith, between the Employee and the Company (the "Noncompetition
Agreement") a copy of which is attached hereto as Exhibit A. Notwithstanding the
terms and conditions thereof, the Employee agrees that the "Restricted Period"
as defined therein shall be extended, if applicable, through the first
anniversary of the termination date of the Employee's employment, whether
full-time or part-time, exclusive or nonexclusive, and in any capacity, by the
Company.
7. Proprietary Rights and Information: Concurrently with the
execution of this Agreement, the Employee and the Company have entered into that
certain Proprietary Rights and Information Agreement (the "Proprietary Rights
and Information Agreement"), attached as Exhibit B hereto.
8. Irreparable Harm: Employee agrees that any breach or threatened
breach by Employee of the provisions of the Noncompetition Agreement, the
Proprietary Rights and Information Agreement or this Agreement would cause the
Company irreparable harm and the Company may obtain injunctive relief against
such actual or threatened conduct and without the necessity of a bond.
9. Return of Company Property: Employee agrees that following the
termination of his employment for any reason, he shall return all property of
the Company which is then in or thereafter comes into his possession, including,
but not limited to, documents, contracts, agreements, plans, photographs,
customer lists, books, notes, electronically stored data and all copies of the
foregoing as well as any other materials or equipment supplied by the Company to
the Employee.
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<PAGE>
10. Termination:
(A) Death: In the event of the Employee's death during the term of
his employment, this Agreement shall automatically terminate on the date of
death, and Employee's estate shall be entitled to payment of Employee's salary
until date of death and three (3) months thereafter. All other benefits and
compensation described herein shall terminate on the date of death unless
otherwise stipulated in the applicable Company plan.
(B) Disability: In the event the Employee, by reason of physical or
mental incapacity, shall be disabled for a period of at least four (4)
consecutive months or six (6) months in the aggregate in any twelve (12) month
period of this Agreement or any extension hereof, the Company shall have the
option to terminate Employee's employment and to terminate this Agreement. Such
termination to be effective ten (10) days after the Company gives written notice
of such termination to the Employee, and all obligations of the Company
hereunder shall cease upon the date of such termination unless Employee shall
have returned to the performance of his duties prior to the effective date of
the notice. "Incapacity" as used herein shall mean the inability of the Employee
to substantially perform his normal duties. Employee's salary as provided for
hereunder shall continue to be paid during any period of incapacity prior to and
including the date on which Employee's employment is terminated for disability
and for three (3) months following the termination date.
(C) Company's Rights To Terminate This Agreement:
(a) The Company shall have the right, before the expiration of the
term of this Agreement, to terminate this Agreement and to discharge Employee
for cause (hereinafter "Cause"), and all compensation to Employee shall cease to
accrue upon discharge of the Employee for Cause. For the purposes of this
Agreement, the term "Cause" shall mean (i) the Employee's violation of the
Company's written policy or specific written directions of the Chief Executive
Officer, Chief Operating Officer or the Board of Directors, which directions are
consistent with normally acceptable business practices, or the failure to
observe, or the failure or refusal to perform, any obligations required to be
performed in accordance with this Agreement, (ii) if the Board of Directors
determines that Employee has committed a demonstrable act (or omission) of
malfeasance seriously detrimental to the Company (which shall not include any
exercise of business judgment in good faith) or (iii) breach by the Employee in
any material respect of any covenant or agreement contained herein, in the
Proprietary Rights and Information Agreement or in the Noncompetition Agreement
or any representation, warranty, covenant or agreement contained in that Asset
Purchase and Assignment Agreement, dated of even date herewith, among the
Company, the Employee and Impact Eyewear, LLC.
(b) If the Company elects to terminate Employee's employment for
Cause, if such Cause shall be capable of cure (it being understood and agreed
that a breach of fiduciary duty, including dishonesty, or the circumstances
described in Section 10C(a)(ii) hereof, is not subject to cure) the Company
shall first give Employee written notice and a period of twenty (20) days to
cure such Cause, and if such Cause is not cured in said twenty (20) days or if
such Cause is not capable of cure, such termination shall be effective on the
date the Company gave written notice of such termination for cause to the
Employee. In the event of a termination of the Employee's employment for Cause
in accordance with the provisions of Section 10 (C)
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<PAGE>
(b), the Company shall have no further obligation to the Employee, except for
the payment of salary and for any other compensation and/or expenses through the
date of such termination from employment.
(D) Employee's Right to Terminate this Agreement: Employee shall
have the right, before the expiration of the term of this Agreement, to
terminate resign and this Agreement, in which case the Company shall be
completely discharged from any further obligations to the Employee (including,
without limitation, any obligation to pay to or on behalf of the Employee any
further compensation or benefits). Such termination shall in no way limit or
diminish Employee's obligations under the Noncompetition Agreement or the
Proprietary Rights Agreement.
11. Waiver: Any waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed as a waiver of any other
breach or default hereof.
12. Governing Law: The validity of this Agreement or of any of the
provisions hereof shall be determined under and according to the laws of the
State of New York, and this Agreement and its provisions shall be construed
according to the laws of the State of New York, without reference to its choice
of law rules.
13. Notices: Any notice required to be given pursuant to the
provisions of this Agreement shall be in writing and shall be delivered in
person or by registered or certified mail to the respective parties at their
addresses set forth on the first page of this Agreement (or such other address
as the party to receive notices has given by notice hereunder to the other
party). Any such notice by personal delivery shall become effective upon receipt
and any notice by registered or certified mail shall become effective five
business days after mailed.
14. Assignment: The Employee's assignment of this Agreement or any
interest herein, or any monies due or to become due by reason of the terms
hereof, without the prior written consent of the Company shall be void. This
Agreement shall be assignable and binding to a corporation or other business
entity that succeeds to all or substantially all of the business of the Company
through merger, consolidation, corporate reorganization or by acquisition of all
or substantially all of the assets of the Company and which assumes Company's
obligations under this Agreement.
15. Miscellaneous: This Agreement contains the entire understanding
between the parties hereto and supersedes all other oral and written agreements
or understandings between them. No modification or addition hereto or waiver or
cancellation of any provision shall be valid except by a writing signed by the
party to be charged therewith.
16. Obligations of a Continuing Nature: It is expressly understood
and agreed that the covenants, agreements and restrictions undertaken by or
imposed on either party hereunder, which are stated to exist or continue after
termination of Employee's employment with the Company, shall exist and continue
on both parties irrespective of the method or circumstances of such termination
from employment or termination of this Agreement.
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<PAGE>
17. Severability: Employee agrees that if any of the covenants,
agreements or restrictions on the part of Employee are held to be invalid by any
court of competent jurisdiction, such holding will not invalidate any of the
other covenants, agreements and/or restrictions herein contained and such
invalid provisions shall be severable so that the invalidity of any such
provision shall not invalidate any others. Moreover, if any one or more of the
provisions contained in this Agreement shall be held to be excessively broad as
to duration, activity or subject, such provisions shall be construed by limiting
and reducing them so as to be enforceable to the maximum extent allowed by
applicable law.
18. Representation: Employee represents and warrants that he has the
legal right to enter into this Agreement and to perform all of the duties and
obligations on his part to be performed hereunder in accordance with its terms
and that he is not a party to any agreement or understanding, written or oral,
which prevents Employee from entering into this Agreement or performing all of
his duties and obligations hereunder. In the event of a breach of such
representation or warranty on his part or if there is any other legal impediment
which prevents him from entering into this Agreement or performing all of his
duties and obligations hereunder, the Company shall have the right to terminate
this Agreement in accordance with Section 10(C) (a); in which event the "Cause"
shall not be deemed curable under Section 10(C) (b). Without limiting the
foregoing, Employee represents and warrants that he is not a party to any
agreement which prohibits or limits his ability to fulfill his duties and
responsibilities contemplated herein.
19. Descriptive Headings: The paragraph headings contained herein
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day and year first above written.
EYECITY.COM, INC.
By: /s/ Mark H. Levin
------------------------------------
Mark H. Levin
Chief Executive Officer
/s/ Thomas Seltzer
----------------------------------------
Thomas Seltzer
Employee
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EXHIBIT "D"
1997 STOCK OPTION PLAN
of
ERGOVISION, INC.
(As amended as of February 1, 1998)
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan") is
designed to provide an incentive to employees (including directors and officers
who are employees) and to consultants who are not employees of Ergovision, Inc.,
a Delaware corporation (the "Company"), and its present and future subsidiary
corporations, as defined in Paragraph 19 ("Subsidiaries"), and to offer an
additional inducement in obtaining the services of such employees and
consultants. The Plan provides for the grant of "incentive stock options"
("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and nonqualified stock options which do not qualify as
ISOs ("NQSOs"), but the Company makes no representation or warranty, express or
implied, as to the qualification of any option as an "incentive stock option"
under the Code.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph
12, the aggregate number of shares of common stock, $.001 par value per share,
of the Company ("Common Stock") for which options may be granted under the Plan
shall not exceed 1,000,000. Such shares of Common Stock may, in the discretion
of the Board of Directors of the Company (the "Board of Directors"), consist
either in whole or in part of authorized but unissued shares of Common Stock or
shares of Common Stock held in the treasury of the Company. Subject to the
provisions of Paragraph 13, any shares of Common Stock subject to an option
which for any reason expires, is canceled or is terminated unexercised or which
ceases for any reason to be exercisable shall again become available for the
granting of options under the Plan. The Company shall at all times during the
term of the Plan reserve and keep available such number of shares of Common
Stock as will be sufficient to satisfy the requirements of the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Board of Directors of the Company (the "Board of Directors") which, to the
extent it shall determine, may delegate its powers with respect to the
administration of the Plan to a committee of the Board of Directors (the
"Committee") which, if the Common Stock is registered under Section 12 of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), shall
consist of not less than two directors, each of whom shall be a "non-employee
director" within the meaning of Rule 16b-3 (or any successor rule or regulation)
promulgated under the Exchange Act, (as the same may be in effect
<PAGE>
and interpreted from time to time, "Rule 16b-3"). References in the Plan to
determinations or actions by the Committee shall be deemed to include
determinations and actions by the Board of Directors. A majority of the members
of the Committee shall constitute a quorum, and the acts of a majority of the
members present at any meeting at which a quorum is present, and any acts
approved in writing by all members without a meeting, shall be the acts of the
Committee.
Subject to the express provisions of the Plan, the Committee shall
have the authority, in its sole discretion, to determine the employees and the
consultants who shall be granted options; the times when options shall be
granted; whether an option granted to an employee shall be an ISO or a NQSO; the
number of shares of Common Stock to be subject to each option; the term of each
option; the date each option shall become exercisable; whether an option shall
be exercisable in whole, in part or in installments and, if in installments, the
number of shares of Common Stock to be subject to each installment, whether the
installments shall be cumulative, the date each installment shall become
exercisable and the term of each installment; whether to accelerate the date of
exercise of any option or installment; whether shares of Common Stock may be
issued upon the exercise of an option as partly paid and, if so, the dates when
future installments of the exercise price shall become due and the amounts of
such installments; the exercise price of each option; the form of payment of the
exercise price; the fair market value of a share of Common Stock; whether to
restrict the sale or other disposition of the shares of Common Stock acquired
upon the exercise of an option and, if so, whether to waive any such
restriction; whether to subject the exercise of all or any portion of an option
to the fulfillment of contingencies as specified in the contract referred to in
Paragraph 11 (the "Contract"), including without limitation, contingencies
relating to entering into a covenant not to compete with the Company, any of its
Subsidiaries or a Parent (as defined in Paragraph 19), to financial objectives
for the Company, any of its Subsidiaries or a Parent, a division of any of the
foregoing, a product line or other category, and/or the period of continued
employment of the optionee with the Company, any of its Subsidiaries or a
Parent, and to determine whether such contingencies have been met; the amount,
if any, necessary to satisfy the Company's obligation to withhold taxes or other
amounts; whether an optionee is Disabled (as defined in Paragraph 19); to
construe the respective Contracts and the Plan; with the consent of the
optionee, to cancel or modify an option, provided such modified provision would
be permitted to be included in an option on the date of modification, and
further, provided, that, in the case of a modification (within the meaning of
Section 424(h) of the Code) of an ISO, such option as modified would be
permitted to be granted on the date of such modification under the terms of the
Plan; to prescribe, amend and rescind rules and regulations relating to the
Plan; and to make all other determinations necessary or advisable for
administering the Plan. Any controversy or claim arising out of or relating to
the Plan, any option granted under the Plan or any Contract shall be determined
unilaterally by the Committee in its sole discretion. The determinations of the
Committee on the matters referred to in this Paragraph 3 shall be conclusive and
binding on the parties. No member or former member of the Committee shall be
liable for any action, failure to act or determination made in good faith with
respect to the Plan or any option hereunder.
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<PAGE>
4. ELIGIBILITY. The Committee may from time to time, in its sole
discretion, consistent with the purposes of the Plan, grant options to employees
(including officers and directors who are employees) of, and to consultants to,
the Company or any of its Subsidiaries. Such options granted shall cover such
number of shares of Common Stock as the Committee may determine in its sole
discretion; provided, however, that the maximum number of shares subject to
options that may be granted to any employee during any calendar year under the
Plan (the "162(m) Maximum") shall not exceed 100,000 shares; and further,
provided, that the aggregate market value (determined at the time the option is
granted in accordance with Paragraph 5) of the shares of Common Stock for which
any eligible employee may be granted ISOs under the Plan or any other plan of
the Company, or of a Parent or a Subsidiary of the Company, which are
exercisable for the first time by such optionee during any calendar year shall
not exceed $100,000. Such limitation shall be applied by taking ISOs into
account in the order in which they were granted. Any option (or the portion
thereof) granted in excess of such amount shall be treated as an NQSO.
5. EXERCISE PRICE. The exercise price of the shares of Common Stock
under each option shall be determined by the Committee in its sole discretion;
provided, however, the exercise price of an ISO shall not be less than the fair
market value of the Common Stock subject to such option on the date of grant;
and further, provided, that if, at the time an ISO is granted, the optionee owns
(or is deemed to own under Section 424(d) of the Code) stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company, of any of its Subsidiaries or of a Parent, the exercise price of such
ISO shall not be less than 110% of the fair market value of the Common Stock
subject to such ISO on the date of grant.
The fair market value of a share of Common Stock on any day shall be
(a) if the principal market for the Common Stock is a national securities
exchange, the average of the highest and lowest sales prices per share of Common
Stock on such day as reported by such exchange or on a composite tape reflecting
transactions on such exchange, (b) if the principal market for the Common Stock
is not a national securities exchange and the Common Stock is quoted on The
Nasdaq Stock Market ("Nasdaq"), and (i) if actual sales price information is
available with respect to the Common Stock, the average of the highest and
lowest sales prices per share of Common Stock on such day on Nasdaq, or (ii) if
such information is not available, the average of the highest bid and lowest
asked prices per share of Common Stock on such day on Nasdaq, or (c) if the
principal market for the Common Stock is not a national securities exchange and
the Common Stock is not quoted on Nasdaq, the average of the highest bid and
lowest asked prices per share of Common Stock on such day as reported on the OTC
Bulletin Board Service or by National Quotation Bureau, Incorporated or a
comparable service; provided, however, that if clauses (a), (b) and (c) of this
Paragraph are all inapplicable, or if no trades have been made or no quotes are
available for such day, the fair market value of the Common Stock shall be
determined by the Board by any method consistent with applicable regulations
adopted by the Treasury Department relating to stock options.
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<PAGE>
6. TERM. The term of each option granted pursuant to the Plan shall
be such term as is established by the Committee, in its sole discretion;
provided, however, that the term of each ISO granted pursuant to the Plan shall
be for a period not exceeding 10 years from the date of grant thereof; and
further, provided, that if, at the time an ISO is granted, the optionee owns (or
is deemed to own under Section 424(d) of the Code) stock possessing more than
10% of the total combined voting power of all classes of stock of the Company,
of any of its Subsidiaries or of a Parent, the term of the ISO shall be for a
period not exceeding five years from the date of grant. Options shall be subject
to earlier termination as hereinafter provided.
7. EXERCISE. An option (or any part or installment thereof), to the
extent then exercisable, shall be exercised by giving written notice to the
Company at its principal office stating which option is being exercised,
specifying the number of shares of Common Stock as to which such option is being
exercised and accompanied by payment in full of the aggregate exercise price
therefor (or the amount due on exercise if the Contract permits installment
payments) (a) in cash or by certified check or (b) if the applicable Contract
permits, with the consent of the Committee, with previously acquired shares of
Common Stock having an aggregate fair market value on the date of exercise
(determined in accordance with Paragraph 5) equal to the aggregate exercise
price of all options being exercised, or with any combination of cash, certified
check or shares of Common Stock
The Committee may, in its sole discretion, permit payment of the
exercise price of an option by delivery by the optionee of a properly executed
notice, together with a copy of the optionee's irrevocable instructions to a
broker acceptable to the Committee to deliver promptly to the Company the amount
of sale or loan proceeds sufficient to pay such exercise price. In connection
therewith, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms.
A person entitled to receive Common Stock upon the exercise of an
option shall not have the rights of a stockholder with respect to such shares of
Common Stock until the date of issuance of a stock certificate to him for such
shares; provided, however, that until such stock certificate is issued, any
optionee using previously acquired shares of Common Stock in payment of an
option exercise price shall continue to have the rights of a stockholder with
respect to such previously acquired shares.
In no case may a fraction of a share of Common Stock be purchased or
issued under the Plan.
8. TERMINATION OF RELATIONSHIP. Except as may otherwise be expressly
provided in the applicable Contract, any optionee whose relationship with the
Company, its Subsidiaries and Parent as an employee or consultant has terminated
for any reason (other than his death or Disability) may exercise such option, to
the extent exercisable on the date of such termination, at any time within three
months after the date of termination, but not thereafter and in no event after
the date the option would otherwise have expired; provided, however, that if
such
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<PAGE>
relationship is terminated either (a) for cause, or (b) without the consent of
the Company, such option shall terminate immediately.
For the purposes of the Plan, an employment relationship shall be
deemed to exist between an individual and a corporation if, at the time of the
determination, the individual was an employee of such corporation for purposes
of Section 422(a) of the Code. As a result, an individual on military, sick
leave or other bona fide leave of absence shall continue to be considered an
employee for purposes of the Plan during such leave if the period of the leave
does not exceed 90 days, or, if longer, so long as the individual's right to
reemployment with the Company (or a related corporation) is guaranteed either by
statute or by contract. If the period of leave exceeds 90 days and the
individual's right to reemployment is not guaranteed by statute or by contract,
the employment relationship shall be deemed to have terminated on the 91st day
of such leave.
Notwithstanding the foregoing, except as may otherwise be expressly
provided in the applicable Contract, options granted under the Plan shall not be
affected by any change in the status of the optionee so long as the optionee
continues to be an employee of, or a consultant to, the Company, any of its
Subsidiaries or a Parent (regardless of having changed from one to the other or
having been transferred from one corporation to another).
Nothing in the Plan or in any option granted under the Plan shall
confer on any optionee any right to continue in the employ of, or as a
consultant to, the Company, its Parent or any of its Subsidiaries, or interfere
in any way with any right of the Company, its Parent or any of its Subsidiaries
to terminate the optionee's relationship at any time for any reason whatsoever
without liability to the Company, its Parent or any of its Subsidiaries.
9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may otherwise be
expressly provided in the applicable Contract, if an individual optionee dies
(a) while he is an employee of, or a consultant to, the Company, any of its
Subsidiaries or a Parent, (b) within three months after the termination of such
relationship (unless such termination was for cause or without the consent of
the Company) or (c) within one year following the termination of such
relationship by reason of Disability, his option may be exercised, to the extent
exercisable on the date of his death, by his Legal Representative (as defined in
Paragraph 19) at any time within one year after death, but not thereafter and in
no event after the date the option would otherwise have expired.
Except as may otherwise be expressly provided in the applicable
Contract, any optionee whose relationship as an employee of, or a consultant to,
the Company, its Parent or any Subsidiary has terminated by reason of Disability
may exercise his option, to the extent exercisable upon the effective date of
such termination, at any time within one year after such date, but not
thereafter and in no event after the date the option would otherwise have
expired.
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<PAGE>
10. COMPLIANCE WITH SECURITIES LAWS. It is a condition to the
exercise of any option that either (a) a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of Common Stock to be issued upon such exercise shall be effective and
current at the time of exercise, or (b) there be an exemption from registration
under the Securities Act for the issuance of the shares of Common Stock upon
such exercise. Nothing herein shall be construed as requiring the Company to
register shares subject to any option under the Securities Act or to keep any
Registration Statement effective or current.
The Committee may require, in its sole discretion, as a condition to
the exercise of any option that the optionee execute and deliver to the Company
his representations and warranties, in form, substance and scope satisfactory to
the Committee, which the Committee determines are necessary or convenient to
facilitate the perfection of an exemption from the registration requirements of
the Securities Act or other legal requirement, including without limitation that
(a) the shares of Common Stock to be issued upon the exercise of the option are
being acquired by the optionee for his own account, for investment only and not
with a view to the resale or distribution thereof, and (b) any subsequent resale
or distribution of shares of Common Stock by such optionee will be made only
pursuant to (i) a Registration Statement under the Securities Act which is
effective and current with respect to the shares of Common Stock being sold, or
(ii) a specific exemption from the registration requirements of the Securities
Act, but in claiming such exemption, the optionee shall prior to any offer of
sale or sale of such shares of Common Stock provide the Company with a favorable
written opinion of counsel satisfactory to the Company, in form, substance and
scope satisfactory to the Company, as to the applicability of such exemption to
the proposed sale or distribution.
In addition, if at any time the Committee shall determine, in its
sole discretion, that the listing or qualification of the shares of Common Stock
subject to such option on any securities exchange, Nasdaq or under any
applicable law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition to, or in connection with, the granting
of an option or the issue of shares of Common Stock thereunder, such option may
not be exercised in whole or in part unless such listing, qualification, consent
or approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
11. STOCK OPTION CONTRACTS. Each option shall be evidenced by an
appropriate Contract which shall be duly executed by the Company and the
optionee, and shall contain such terms, provisions and conditions not
inconsistent herewith as may be determined by the Committee.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Notwithstanding any
other provision of the Plan, in the event of a stock dividend, split-up,
combination, reclassification, recapitalization, merger in which the Company is
the surviving corporation, or exchange of shares or the like which results in a
change in the number or kind of those shares of Common Stock which are
outstanding immediately prior to such event, the aggregate number and kind of
shares subject to the Plan, the aggregate number and kind
-6-
<PAGE>
of shares subject to each outstanding option and the exercise price thereof, and
the 162(m) Maximum shall be appropriately adjusted by the Board of Directors,
whose determination shall be conclusive and binding on all parties.
In the event of (a) the liquidation or dissolution of the Company,
or (b) a merger in which the Company is not the surviving corporation or a
consolidation, any outstanding options shall terminate upon the earliest of any
such event, unless other provision is made therefor in the transaction.
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by
the Board of Directors on April 25, 1997. No option may be granted under the
Plan after April 24, 2007. The Board of Directors, without further approval of
the Company's stockholders, may at any time suspend or terminate the Plan, in
whole or in part, or amend it from time to time in such respects as it may deem
advisable, including, without limitation, in order that ISOs granted hereunder
meet the requirements for "incentive stock options" under the Code, to comply
with, conform to or adopt the provisions of Rule 16b-3, Section 162(m) of the
Code or any change in applicable law, regulations, rulings or interpretations of
administrative agencies; provided, however, that no amendment shall be effective
without the requisite prior or subsequent stockholder approval which would (a)
except as contemplated in Paragraph 12, increase the maximum number of shares of
Common Stock for which options may be granted under the Plan or the 162(m)
Maximum, (b) materially increase the benefits accruing to participants under the
Plan or (c) change the eligibility requirements to receive options hereunder. No
termination, suspension or amendment of the Plan shall, without the consent of
the holder of an existing and outstanding option affected thereby, adversely
affect his rights under such option. The power of the Committee to construe and
administer any options granted under the Plan prior to the termination or
suspension of the Plan nevertheless shall continue after such termination or
during such suspension.
14. NON-TRANSFERABILITY OF OPTIONS. No option granted under the Plan
shall be transferable otherwise than by will or the laws of descent and
distribution, and options may be exercised, during the lifetime of the optionee,
only by the optionee or his Legal Representatives. Except to the extent provided
above, options may not be assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process, and any such attempted
assignment, transfer, pledge, hypothecation or disposition shall be null and
void ab initio and of no force or effect.
15. WITHHOLDING TAXES. As a condition of exercise of an Option, each
employee shall, no later than the date of exercise of such option, pay to the
Company in cash or make arrangements satisfactory to the Committee regarding
payment of any federal, state or local taxes of any kind required by law to be
withheld upon the exercise of such option. In its discretion, the Committee may
provide for the Company's acceptance or retention of Common Stock as payment of
an employee's liability for tax required to be withheld by the Company.
-7-
<PAGE>
16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such
legend or legends upon the certificates for shares of Common Stock issued upon
exercise of an option under the Plan and may issue such "stop transfer"
instructions to its transfer agent in respect of such shares as it determines,
in its discretion, to be necessary or appropriate to (a) prevent a violation of,
or to perfect an exemption from, the registration requirements of the Securities
Act and any applicable state securities laws, (b) implement the provisions of
the Plan or any agreement between the Company and the optionee with respect to
such shares of Common Stock, or (c) permit the Company to determine the
occurrence of a "disqualifying disposition," as described in Section 421(b) of
the Code, of the shares of Common Stock issued or transferred upon the exercise
of an ISO granted under the Plan.
The Company shall pay all issuance taxes with respect to the
issuance of shares of Common Stock upon the exercise of an option granted under
the Plan, as well as all fees and expenses incurred by the Company in connection
with such issuance.
17. USE OF PROCEEDS. The cash proceeds from the sale of shares of
Common Stock pursuant to the exercise of options under the Plan shall be added
to the general funds of the Company and used for such corporate purposes as the
Board of Directors may determine.
18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN CONSTITUENT
CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board
of Directors may, without further approval by the stockholders, substitute new
options for prior options of a Constituent Corporation (as defined in Paragraph
19) or assume the prior options of such Constituent Corporation.
19. DEFINITIONS. For purposes of the Plan, the following terms shall
be defined as set forth below:
(a) Constituent Corporation. The term "Constituent
Corporation" shall mean any corporation which engages with the Company, any of
its Subsidiaries or a Parent in a transaction to which Section 424(a) of the
Code applies (or would apply if the option assumed or substituted were an ISO),
or any Parent or any Subsidiary of such corporation.
(b) Disability. The term "Disability" shall mean a permanent
and total disability within the meaning of Section 22(e)(3) of the Code.
(c) Legal Representative. The term "Legal Representative"
shall mean the executor, administrator or other person who at the time is
entitled by law to exercise the rights of a deceased or incapacitated optionee
with respect to an option granted under the Plan.
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<PAGE>
(d) Parent. The term "Parent" shall have the same definition
as "parent corporation" in Section 424(e) of the Code.
(e) Subsidiary. The term "Subsidiary" shall have the same
definition as "subsidiary corporation" in Section 424(f) of the Code.
20. GOVERNING LAW; CONSTRUCTION. The Plan, such options as may be
granted hereunder and all related matters shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without regard to conflict
of law provisions. Neither the Plan nor any Contract shall be construed or
interpreted with any presumption against the Company by reason of the Company
causing the Plan or Contract to be drafted. Whenever from the context it appears
appropriate, any term stated in either the singular or plural shall include the
singular and plural, and any term stated in the masculine, feminine or neuter
gender shall include the masculine, feminine and neuter.
21. PARTIAL INVALIDITY. The invalidity, illegality or
unenforceability of any provision in the Plan or any Contract shall not affect
the validity, legality or enforceability of any other provision, all of which
shall be valid, legal and enforceable to the fullest extent permitted by
applicable law.
22. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by a
majority of the votes present in person or by proxy at the next duly held
meeting of the Company's stockholders at which a quorum is present. No options
granted hereunder may be exercised prior to such approval; provided, however,
that the date of grant of any option shall be determined as if the Plan had not
been subject to such approval. Notwithstanding the foregoing, if the Plan is not
approved by a vote of the stockholders of the Company on or before April 24,
1998, the Plan and any options granted hereunder shall terminate.
-9-
1998 NON-QUALIFIED STOCK OPTION PLAN
of
ERGOVISION, INC.
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan") is
designed to provide an incentive to employees (including directors and officers
who are employees) and to consultants who are not employees of Ergovision, Inc.,
a Delaware corporation (the "Company"), and its present and future subsidiary
corporations, as defined in Paragraph 19 ("Subsidiaries"), and to offer an
additional inducement in obtaining the services of such employees and
consultants. The Plan provides for the grant of stock options which do not
qualify as "incentive stock option" under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code").
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph
12, the aggregate number of shares of common stock, $.001 par value per share,
of the Company ("Common Stock") for which options may be granted under the Plan
shall not exceed 1,500,000. Such shares of Common Stock may, in the discretion
of the Board of Directors of the Company (the "Board of Directors"), consist
either in whole or in part of authorized but unissued shares of Common Stock or
shares of Common Stock held in the treasury of the Company. Subject to the
provisions of Paragraph 13, any shares of Common Stock subject to an option
which for any reason expires, is canceled or is terminated unexercised or which
ceases for any reason to be exercisable shall again become available for the
granting of options under the Plan. The Company shall at all times during the
term of the Plan reserve and keep available such number of shares of Common
Stock as will be sufficient to satisfy the requirements of the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Board of Directors of the Company (the "Board of Directors") which, to the
extent it shall determine, may delegate its powers with respect to the
administration of the Plan to a committee of the Board of Directors (the
"Committee") which, if the Common Stock is registered under Section 12 of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), shall
consist of not less than two directors, each of whom shall be a "non-employee
director" within the meaning of Rule 16b-3 (or any successor rule or regulation)
promulgated under the Exchange Act, (as the same may be in effect and
interpreted from time to time, "Rule 16b-3"). References in the Plan to
determinations or actions by the Committee shall be deemed to include
determinations and actions by the Board of Directors. A majority of the members
of the Committee shall constitute a quorum, and the acts of a majority of the
members present at any meeting at which a quorum is present, and any acts
approved in writing by all members without a meeting, shall be the acts of the
Committee.
Subject to the express provisions of the Plan, the Committee shall
have the authority, in its sole discretion, to determine the employees and the
consultants who shall be granted options;
<PAGE>
the times when options shall be granted; the number of shares of Common Stock to
be subject to each option; the term of each option; the date each option shall
become exercisable; whether an option shall be exercisable in whole, in part or
in installments and, if in installments, the number of shares of Common Stock to
be subject to each installment, whether the installments shall be cumulative,
the date each installment shall become exercisable and the term of each
installment; whether to accelerate the date of exercise of any option or
installment; whether shares of Common Stock may be issued upon the exercise of
an option as partly paid and, if so, the dates when future installments of the
exercise price shall become due and the amounts of such installments; the
exercise price of each option; the form of payment of the exercise price; the
fair market value of a share of Common Stock; whether to restrict the sale or
other disposition of the shares of Common Stock acquired upon the exercise of an
option and, if so, whether to waive any such restriction; whether to subject the
exercise of all or any portion of an option to the fulfillment of contingencies
as specified in the contract referred to in Paragraph 11 (the "Contract"),
including without limitation, contingencies relating to entering into a covenant
not to compete with the Company, any of its Subsidiaries or a Parent (as defined
in Paragraph 19), to financial objectives for the Company, any of its
Subsidiaries or a Parent, a division of any of the foregoing, a product line or
other category, and/or the period of continued employment of the optionee with
the Company, any of its Subsidiaries or a Parent, and to determine whether such
contingencies have been met; the amount, if any, necessary to satisfy the
Company's obligation to withhold taxes or other amounts; whether an optionee is
Disabled (as defined in Paragraph 19); to construe the respective Contracts and
the Plan; with the consent of the optionee, to cancel or modify an option,
provided such modified provision would be permitted to be included in an option
on the date of modification; to prescribe, amend and rescind rules and
regulations relating to the Plan; and to make all other determinations necessary
or advisable for administering the Plan. Any controversy or claim arising out of
or relating to the Plan, any option granted under the Plan or any Contract shall
be determined unilaterally by the Committee in its sole discretion. The
determinations of the Committee on the matters referred to in this Paragraph 3
shall be conclusive and binding on the parties. No member or former member of
the Committee shall be liable for any action, failure to act or determination
made in good faith with respect to the Plan or any option hereunder.
4. ELIGIBILITY. The Committee may from time to time, in its sole
discretion, consistent with the purposes of the Plan, grant options to employees
(including officers and directors who are employees) of, and to consultants to,
the Company or any of its Subsidiaries. Such options granted shall cover such
number of shares of Common Stock as the Committee may determine in its sole
discretion.
5. EXERCISE PRICE. The exercise price of the shares of Common Stock
under each option shall be determined by the Committee in its sole discretion.
6. TERM. The term of each option granted pursuant to the Plan shall
be such term as is established by the Committee, in its sole discretion. Options
shall be subject to earlier termination as hereinafter provided.
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<PAGE>
7. EXERCISE. An option (or any part or installment thereof), to the
extent then exercisable, shall be exercised by giving written notice to the
Company at its principal office stating which option is being exercised,
specifying the number of shares of Common Stock as to which such option is being
exercised and accompanied by payment in full of the aggregate exercise price
therefor (or the amount due on exercise if the Contract permits installment
payments) (a) in cash or by certified check or (b) if the applicable Contract
permits, with the consent of the Committee, with previously acquired shares of
Common Stock having an aggregate fair market value on the date of exercise
(determined as provided below) equal to the aggregate exercise price of all
options being exercised, or with any combination of cash, certified check or
shares of Common Stock.
The Committee may, in its sole discretion, permit payment of the
exercise price of an option by delivery by the optionee of a properly executed
notice, together with a copy of the optionee's irrevocable instructions to a
broker acceptable to the Committee to deliver promptly to the Company the amount
of sale or loan proceeds sufficient to pay such exercise price. In connection
therewith, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms.
A person entitled to receive Common Stock upon the exercise of an
option shall not have the rights of a stockholder with respect to such shares of
Common Stock until the date of issuance of a stock certificate to him for such
shares; provided, however, that until such stock certificate is issued, any
optionee using previously acquired shares of Common Stock in payment of an
option exercise price shall continue to have the rights of a stockholder with
respect to such previously acquired shares.
In no case may a fraction of a share of Common Stock be purchased or
issued under the Plan.
The fair market value of a share of Common Stock on any day shall be
(a) if the principal market for the Common Stock is a national securities
exchange, the average of the highest and lowest sales prices per share of Common
Stock on such day as reported by such exchange or on a composite tape reflecting
transactions on such exchange, (b) if the principal market for the Common Stock
is not a national securities exchange and the Common Stock is quoted on The
Nasdaq Stock Market ("Nasdaq"), and (i) if actual sales price information is
available with respect to the Common Stock, the average of the highest and
lowest sales prices per share of Common Stock on such day on Nasdaq, or (ii) if
such information is not available, the average of the highest bid and lowest
asked prices per share of Common Stock on such day on Nasdaq, or (c) if the
principal market for the Common Stock is not a national securities exchange and
the Common Stock is not quoted on Nasdaq, the average of the highest bid and
lowest asked prices per share of Common Stock on such day as reported on the OTC
Bulletin Board Service or by National Quotation Bureau, Incorporated or a
comparable service; provided, however, that if clauses (a), (b) and (c) of this
Paragraph are all inapplicable, or if no trades have been made or no quotes are
available for such day, the fair market value of the Common Stock shall be
determined by the Board by any method consistent with applicable regulations
adopted by the Treasury Department relating to stock options.
-3-
<PAGE>
8. TERMINATION OF RELATIONSHIP. Except as may otherwise be expressly
provided in the applicable Contract, any optionee whose relationship with the
Company, its Subsidiaries and Parent as an employee or consultant has terminated
for any reason (other than his death or Disability) may exercise such option, to
the extent exercisable on the date of such termination, at any time within three
months after the date of termination, but not thereafter and in no event after
the date the option would otherwise have expired; provided, however, that if
such relationship is terminated either (a) for cause or (b) without the consent
of the Company, such option shall terminate immediately.
For the purposes of the Plan, an employment relationship shall be
deemed to exist between an individual and a corporation if, at the time of the
determination, the individual was an employee of such corporation for purposes
of Section 422(a) of the Code. As a result, an individual on military, sick
leave or other bona fide leave of absence shall continue to be considered an
employee for purposes of the Plan during such leave if the period of the leave
does not exceed 90 days, or, if longer, so long as the individual's right to
reemployment with the Company (or a related corporation) is guaranteed either by
statute or by contract. If the period of leave exceeds 90 days and the
individual's right to reemployment is not guaranteed by statute or by contract,
the employment relationship shall be deemed to have terminated on the 91st day
of such leave.
Notwithstanding the foregoing, except as may otherwise be expressly
provided in the applicable Contract, options granted under the Plan shall not be
affected by any change in the status of the optionee so long as the optionee
continues to be an employee of, or a consultant to, the Company, any of its
Subsidiaries or a Parent (regardless of having changed from one to the other or
having been transferred from one corporation to another).
Nothing in the Plan or in any option granted under the Plan shall
confer on any optionee any right to continue in the employ of, or as a
consultant to, the Company, its Parent or any of its Subsidiaries, or interfere
in any way with any right of the Company, its Parent or any of its Subsidiaries
to terminate the optionee's relationship at any time for any reason whatsoever
without liability to the Company, its Parent or any of its Subsidiaries.
9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may otherwise be
expressly provided in the applicable Contract, if an individual optionee dies
(a) while he is an employee of, or a consultant to, the Company, any of its
Subsidiaries or a Parent, (b) within three months after the termination of such
relationship (unless such termination was for cause or without the consent of
the Company) or (c) within one year following the termination of such
relationship by reason of Disability, his option may be exercised, to the extent
exercisable on the date of his death, by his Legal Representative (as defined in
Paragraph 19) at any time within one year after death, but not thereafter and in
no event after the date the option would otherwise have expired.
Except as may otherwise be expressly provided in the applicable
Contract, any optionee whose relationship as an employee of, or a consultant to,
the Company, its Parent or any Subsidiary has terminated by reason of Disability
may exercise his option, to the extent exercisable
-4-
<PAGE>
upon the effective date of such termination, at any time within one year after
such date, but not thereafter and in no event after the date the option would
otherwise have expired.
10. COMPLIANCE WITH SECURITIES LAWS. It is a condition to the
exercise of any option that either (a) a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of Common Stock to be issued upon such exercise shall be effective and
current at the time of exercise, or (b) there be an exemption from registration
under the Securities Act for the issuance of the shares of Common Stock upon
such exercise. Nothing herein shall be construed as requiring the Company to
register shares subject to any option under the Securities Act or to keep any
Registration Statement effective or current.
The Committee may require, in its sole discretion, as a condition to
the exercise of any option that the optionee execute and deliver to the Company
his representations, warranties and covenants, in form, substance and scope
satisfactory to the Committee, which the Committee determines are necessary or
convenient to facilitate the perfection of an exemption from the registration
requirements of the Securities Act or other legal requirement, including without
limitation that (a) the shares of Common Stock to be issued upon the exercise of
the option are being acquired by the optionee for his own account, for
investment only and not with a view to the resale or distribution thereof, and
(b) any subsequent resale or distribution of shares of Common Stock by such
optionee will be made only pursuant to (i) a Registration Statement under the
Securities Act which is effective and current with respect to the shares of
Common Stock being sold, or (ii) a specific exemption from the registration
requirements of the Securities Act, but in claiming such exemption, the optionee
shall prior to any offer of sale or sale of such shares of Common Stock provide
the Company with a favorable written opinion of counsel satisfactory to the
Company, in form, substance and scope satisfactory to the Company, as to the
applicability of such exemption to the proposed sale or distribution.
In addition, if at any time the Committee shall determine, in its
sole discretion, that the listing or qualification of the shares of Common Stock
subject to such option on any securities exchange, Nasdaq or under any
applicable law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition to, or in connection with, the granting
of an option or the issue of shares of Common Stock thereunder, such option may
not be exercised in whole or in part unless such listing, qualification, consent
or approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
11. STOCK OPTION CONTRACTS. Each option shall be evidenced by an
appropriate Contract which shall be duly executed by the Company and the
optionee, and shall contain such terms, provisions and conditions not
inconsistent herewith as may be determined by the Committee.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Notwithstanding any
other provision of the Plan, in the event of a stock dividend, split-up,
combination,
-5-
<PAGE>
reclassification, recapitalization, merger in which the Company is the surviving
corporation, or exchange of shares or the like which results in a change in the
number or kind of those shares of Common Stock which are outstanding immediately
prior to such event, the aggregate number and kind of shares subject to the
Plan, the aggregate number and kind of shares subject to each outstanding option
and the exercise price thereof shall be appropriately adjusted by the Board of
Directors, whose determination shall be conclusive and binding on all parties.
In the event of (a) the liquidation or dissolution of the Company,
or (b) a merger in which the Company is not the surviving corporation or a
consolidation, any outstanding options shall terminate upon the earliest of any
such event, unless other provision is made therefor in the transaction.
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Board of Directors,
without further approval of the Company's stockholders, may at any time suspend
or terminate the Plan, in whole or in part, or amend it from time to time in
such respects as it may deem advisable. No termination, suspension or amendment
of the Plan shall, without the consent of the holder of an existing and
outstanding option affected thereby, adversely affect his rights under such
option. The power of the Committee to construe and administer any options
granted under the Plan prior to the termination or suspension of the Plan
nevertheless shall continue after such termination or during such suspension.
14. NON-TRANSFERABILITY OF OPTIONS. No option granted under the Plan
shall be transferable otherwise than by will or the laws of descent and
distribution, and options may be exercised, during the lifetime of the optionee,
only by the optionee or his Legal Representatives. Except to the extent provided
above, options may not be assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process, and any such attempted
assignment, transfer, pledge, hypothecation or disposition shall be null and
void ab initio and of no force or effect.
15. WITHHOLDING TAXES. As a condition of exercise of an option, each
employee shall, no later than the date of exercise of such option, pay to the
Company in cash or make arrangements satisfactory to the Committee regarding
payment of any federal, state or local taxes of any kind required by law to be
withheld upon the exercise of such option. In its discretion, the Committee may
provide for the Company's acceptance or retention of Common Stock as payment of
an employee's liability for tax required to be withheld by the Company.
16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such
legend or legends upon the certificates for shares of Common Stock issued upon
exercise of an option under the Plan and may issue such "stop transfer"
instructions to its transfer agent in respect of such shares as it determines,
in its discretion, to be necessary or appropriate to (a) prevent a violation of,
or to perfect an exemption from, the registration requirements of the Securities
Act and any applicable state securities laws or (b) implement the provisions of
the Plan or any agreement between the Company and the optionee with respect to
such shares of Common Stock.
-6-
<PAGE>
The Company shall pay all issuance taxes with respect to the
issuance of shares of Common Stock upon the exercise of an option granted under
the Plan, as well as all fees and expenses incurred by the Company in connection
with such issuance.
17. USE OF PROCEEDS. The cash proceeds from the sale of shares of
Common Stock pursuant to the exercise of options under the Plan shall be added
to the general funds of the Company and used for such corporate purposes as the
Board of Directors may determine.
18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN CONSTITUENT
CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board
of Directors may, without further approval by the stockholders, substitute new
options for prior options of a Constituent Corporation (as defined in Paragraph
19) or assume the prior options of such Constituent Corporation.
19. DEFINITIONS. For purposes of the Plan, the following terms shall
be defined as set forth below:
(a) Constituent Corporation. The term "Constituent
Corporation" shall mean any corporation which engages with the Company, any of
its Subsidiaries or a Parent in a transaction to which Section 424(a) of the
Code applies (or would apply if the option assumed or substituted were an
incentive stock option within the meaning of Section 422 of the Code), or any
Parent or any Subsidiary of such corporation.
(b) Disability. The term "Disability" shall mean a permanent
and total disability within the meaning of Section 22(e)(3) of the Code.
(c) Legal Representative. The term "Legal Representative"
shall mean the executor, administrator or other person who at the time is
entitled by law to exercise the rights of a deceased or incapacitated optionee
with respect to an option granted under the Plan.
(d) Parent. The term "Parent" shall have the same definition
as "parent corporation" in Section 424(e) of the Code.
(e) Subsidiary. The term "Subsidiary" shall have the same
definition as "subsidiary corporation" in Section 424(f) of the Code.
20. GOVERNING LAW; CONSTRUCTION. The Plan, such options as may be
granted hereunder and all related matters shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without regard to conflict
of law provisions.
-7-
<PAGE>
Neither the Plan nor any Contract shall be construed or interpreted
with any presumption against the Company by reason of the Company causing the
Plan or Contract to be drafted. Whenever from the context it appears
appropriate, any term stated in either the singular or plural shall include the
singular and plural, and any term stated in the masculine, feminine or neuter
gender shall include the masculine, feminine and neuter.
21. PARTIAL INVALIDITY. The invalidity, illegality or
unenforceability of any provision in the Plan or any Contract shall not affect
the validity, legality or enforceability of any other provision, all of which
shall be valid, legal and enforceable to the fullest extent permitted by
applicable law.
-8-
1999 NON-QUALIFIED STOCK OPTION PLAN
of
ERGOVISION, INC.
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan") is
designed to provide an incentive to employees (including directors and officers
who are employees) and to consultants who are not employees of Ergovision, Inc.,
a Delaware corporation (the "Company"), and its present and future subsidiary
corporations, as defined in Paragraph 19 ("Subsidiaries"), and to offer an
additional inducement in obtaining the services of such employees and
consultants. The Plan provides for the grant of stock options which do not
qualify as "incentive stock option" under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code").
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph
12, the aggregate number of shares of common stock, $.001 par value per share,
of the Company ("Common Stock") for which options may be granted under the Plan
shall not exceed 1,500,000. Such shares of Common Stock may, in the discretion
of the Board of Directors of the Company (the "Board of Directors"), consist
either in whole or in part of authorized but unissued shares of Common Stock or
shares of Common Stock held in the treasury of the Company. Subject to the
provisions of Paragraph 13, any shares of Common Stock subject to an option
which for any reason expires, is canceled or is terminated unexercised or which
ceases for any reason to be exercisable shall again become available for the
granting of options under the Plan. The Company shall at all times during the
term of the Plan reserve and keep available such number of shares of Common
Stock as will be sufficient to satisfy the requirements of the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Board of Directors of the Company (the "Board of Directors") which, to the
extent it shall determine, may delegate its powers with respect to the
administration of the Plan to a committee of the Board of Directors (the
"Committee") which, if the Common Stock is registered under Section 12 of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), shall
consist of not less than two directors, each of whom shall be a "non-employee
director" within the meaning of Rule 16b-3 (or any successor rule or regulation)
promulgated under the Exchange Act, (as the same may be in effect and
interpreted from time to time, "Rule 16b-3"). References in the Plan to
determinations or actions by the Committee shall be deemed to include
determinations and actions by the Board of Directors. A majority of the members
of the Committee shall constitute a quorum, and the acts of a majority of the
members present at any meeting at which a quorum is present, and any acts
approved in writing by all members without a meeting, shall be the acts of the
Committee.
Subject to the express provisions of the Plan, the Committee shall have
the authority, in its sole discretion, to determine the employees and the
consultants who shall be granted options;
<PAGE>
the times when options shall be granted; the number of shares of Common Stock to
be subject to each option; the term of each option; the date each option shall
become exercisable; whether an option shall be exercisable in whole, in part or
in installments and, if in installments, the number of shares of Common Stock to
be subject to each installment, whether the installments shall be cumulative,
the date each installment shall become exercisable and the term of each
installment; whether to accelerate the date of exercise of any option or
installment; whether shares of Common Stock may be issued upon the exercise of
an option as partly paid and, if so, the dates when future installments of the
exercise price shall become due and the amounts of such installments; the
exercise price of each option; the form of payment of the exercise price; the
fair market value of a share of Common Stock; whether to restrict the sale or
other disposition of the shares of Common Stock acquired upon the exercise of an
option and, if so, whether to waive any such restriction; whether to subject the
exercise of all or any portion of an option to the fulfillment of contingencies
as specified in the contract referred to in Paragraph 11 (the "Contract"),
including without limitation, contingencies relating to entering into a covenant
not to compete with the Company, any of its Subsidiaries or a Parent (as defined
in Paragraph 19), to financial objectives for the Company, any of its
Subsidiaries or a Parent, a division of any of the foregoing, a product line or
other category, and/or the period of continued employment of the optionee with
the Company, any of its Subsidiaries or a Parent, and to determine whether such
contingencies have been met; the amount, if any, necessary to satisfy the
Company's obligation to withhold taxes or other amounts; whether an optionee is
Disabled (as defined in Paragraph 19); to construe the respective Contracts and
the Plan; with the consent of the optionee, to cancel or modify an option,
provided such modified provision would be permitted to be included in an option
on the date of modification; to prescribe, amend and rescind rules and
regulations relating to the Plan; and to make all other determinations necessary
or advisable for administering the Plan. Any controversy or claim arising out of
or relating to the Plan, any option granted under the Plan or any Contract shall
be determined unilaterally by the Committee in its sole discretion. The
determinations of the Committee on the matters referred to in this Paragraph 3
shall be conclusive and binding on the parties. No member or former member of
the Committee shall be liable for any action, failure to act or determination
made in good faith with respect to the Plan or any option hereunder.
4. ELIGIBILITY. The Committee may from time to time, in its sole
discretion, consistent with the purposes of the Plan, grant options to employees
(including officers and directors who are employees) of, and to consultants to,
the Company or any of its Subsidiaries. Such options granted shall cover such
number of shares of Common Stock as the Committee may determine in its sole
discretion.
5. EXERCISE PRICE. The exercise price of the shares of Common Stock
under each option shall be determined by the Committee in its sole discretion.
6. TERM. The term of each option granted pursuant to the Plan shall
be such term as is established by the Committee, in its sole discretion. Options
shall be subject to earlier termination as hereinafter provided.
-2-
<PAGE>
7. EXERCISE. An option (or any part or installment thereof), to the
extent then exercisable, shall be exercised by giving written notice to the
Company at its principal office stating which option is being exercised,
specifying the number of shares of Common Stock as to which such option is being
exercised and accompanied by payment in full of the aggregate exercise price
therefor (or the amount due on exercise if the Contract permits installment
payments) (a) in cash or by certified check or (b) if the applicable Contract
permits, with the consent of the Committee, with previously acquired shares of
Common Stock having an aggregate fair market value on the date of exercise
(determined as provided below) equal to the aggregate exercise price of all
options being exercised, or with any combination of cash, certified check or
shares of Common Stock.
The Committee may, in its sole discretion, permit payment of the
exercise price of an option by delivery by the optionee of a properly executed
notice, together with a copy of the optionee's irrevocable instructions to a
broker acceptable to the Committee to deliver promptly to the Company the amount
of sale or loan proceeds sufficient to pay such exercise price. In connection
therewith, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms.
A person entitled to receive Common Stock upon the exercise of an
option shall not have the rights of a stockholder with respect to such shares of
Common Stock until the date of issuance of a stock certificate to him for such
shares; provided, however, that until such stock certificate is issued, any
optionee using previously acquired shares of Common Stock in payment of an
option exercise price shall continue to have the rights of a stockholder with
respect to such previously acquired shares.
In no case may a fraction of a share of Common Stock be purchased or
issued under the Plan.
The fair market value of a share of Common Stock on any day shall be
(a) if the principal market for the Common Stock is a national securities
exchange, the average of the highest and lowest sales prices per share of Common
Stock on such day as reported by such exchange or on a composite tape reflecting
transactions on such exchange, (b) if the principal market for the Common Stock
is not a national securities exchange and the Common Stock is quoted on The
Nasdaq Stock Market ("Nasdaq"), and (i) if actual sales price information is
available with respect to the Common Stock, the average of the highest and
lowest sales prices per share of Common Stock on such day on Nasdaq, or (ii) if
such information is not available, the average of the highest bid and lowest
asked prices per share of Common Stock on such day on Nasdaq, or (c) if the
principal market for the Common Stock is not a national securities exchange and
the Common Stock is not quoted on Nasdaq, the average of the highest bid and
lowest asked prices per share of Common Stock on such day as reported on the OTC
Bulletin Board Service or by National Quotation Bureau, Incorporated or a
comparable service; provided, however, that if clauses (a), (b) and (c) of this
Paragraph are all inapplicable, or if no trades have been made or no quotes are
available for such day, the fair market value of the Common Stock shall be
determined by the Board by any method consistent with applicable regulations
adopted by the Treasury Department relating to stock options.
-3-
<PAGE>
8. TERMINATION OF RELATIONSHIP. Except as may otherwise be expressly
provided in the applicable Contract, any optionee whose relationship with the
Company, its Subsidiaries and Parent as an employee or consultant has terminated
for any reason (other than his death or Disability) may exercise such option, to
the extent exercisable on the date of such termination, at any time within three
months after the date of termination, but not thereafter and in no event after
the date the option would otherwise have expired; provided, however, that if
such relationship is terminated either (a) for cause or (b) without the consent
of the Company, such option shall terminate immediately.
For the purposes of the Plan, an employment relationship shall be
deemed to exist between an individual and a corporation if, at the time of the
determination, the individual was an employee of such corporation for purposes
of Section 422(a) of the Code. As a result, an individual on military, sick
leave or other bona fide leave of absence shall continue to be considered an
employee for purposes of the Plan during such leave if the period of the leave
does not exceed 90 days, or, if longer, so long as the individual's right to
reemployment with the Company (or a related corporation) is guaranteed either by
statute or by contract. If the period of leave exceeds 90 days and the
individual's right to reemployment is not guaranteed by statute or by contract,
the employment relationship shall be deemed to have terminated on the 91st day
of such leave.
Notwithstanding the foregoing, except as may otherwise be expressly
provided in the applicable Contract, options granted under the Plan shall not be
affected by any change in the status of the optionee so long as the optionee
continues to be an employee of, or a consultant to, the Company, any of its
Subsidiaries or a Parent (regardless of having changed from one to the other or
having been transferred from one corporation to another).
Nothing in the Plan or in any option granted under the Plan shall
confer on any optionee any right to continue in the employ of, or as a
consultant to, the Company, its Parent or any of its Subsidiaries, or interfere
in any way with any right of the Company, its Parent or any of its Subsidiaries
to terminate the optionee's relationship at any time for any reason whatsoever
without liability to the Company, its Parent or any of its Subsidiaries.
9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may otherwise be
expressly provided in the applicable Contract, if an individual optionee dies
(a) while he is an employee of, or a consultant to, the Company, any of its
Subsidiaries or a Parent, (b) within three months after the termination of such
relationship (unless such termination was for cause or without the consent of
the Company) or (c) within one year following the termination of such
relationship by reason of Disability, his option may be exercised, to the extent
exercisable on the date of his death, by his Legal Representative (as defined in
Paragraph 19) at any time within one year after death, but not thereafter and in
no event after the date the option would otherwise have expired.
Except as may otherwise be expressly provided in the applicable
Contract, any optionee whose relationship as an employee of, or a consultant to,
the Company, its Parent or any Subsidiary has terminated by reason of Disability
may exercise his option, to the extent exercisable
-4-
<PAGE>
upon the effective date of such termination, at any time within one year after
such date, but not thereafter and in no event after the date the option would
otherwise have expired.
10. COMPLIANCE WITH SECURITIES LAWS. It is a condition to the
exercise of any option that either (a) a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of Common Stock to be issued upon such exercise shall be effective and
current at the time of exercise, or (b) there be an exemption from registration
under the Securities Act for the issuance of the shares of Common Stock upon
such exercise. Nothing herein shall be construed as requiring the Company to
register shares subject to any option under the Securities Act or to keep any
Registration Statement effective or current.
The Committee may require, in its sole discretion, as a condition to
the exercise of any option that the optionee execute and deliver to the Company
his representations, warranties and covenants, in form, substance and scope
satisfactory to the Committee, which the Committee determines are necessary or
convenient to facilitate the perfection of an exemption from the registration
requirements of the Securities Act or other legal requirement, including without
limitation that (a) the shares of Common Stock to be issued upon the exercise of
the option are being acquired by the optionee for his own account, for
investment only and not with a view to the resale or distribution thereof, and
(b) any subsequent resale or distribution of shares of Common Stock by such
optionee will be made only pursuant to (i) a Registration Statement under the
Securities Act which is effective and current with respect to the shares of
Common Stock being sold, or (ii) a specific exemption from the registration
requirements of the Securities Act, but in claiming such exemption, the optionee
shall prior to any offer of sale or sale of such shares of Common Stock provide
the Company with a favorable written opinion of counsel satisfactory to the
Company, in form, substance and scope satisfactory to the Company, as to the
applicability of such exemption to the proposed sale or distribution.
In addition, if at any time the Committee shall determine, in its
sole discretion, that the listing or qualification of the shares of Common Stock
subject to such option on any securities exchange, Nasdaq or under any
applicable law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition to, or in connection with, the granting
of an option or the issue of shares of Common Stock thereunder, such option may
not be exercised in whole or in part unless such listing, qualification, consent
or approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
11. STOCK OPTION CONTRACTS. Each option shall be evidenced by an
appropriate Contract which shall be duly executed by the Company and the
optionee, and shall contain such terms, provisions and conditions not
inconsistent herewith as may be determined by the Committee.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Notwithstanding any
other provision of the Plan, in the event of a stock dividend, split-up,
combination,
-5-
<PAGE>
reclassification, recapitalization, merger in which the Company is the surviving
corporation, or exchange of shares or the like which results in a change in the
number or kind of those shares of Common Stock which are outstanding immediately
prior to such event, the aggregate number and kind of shares subject to the
Plan, the aggregate number and kind of shares subject to each outstanding option
and the exercise price thereof shall be appropriately adjusted by the Board of
Directors, whose determination shall be conclusive and binding on all parties.
In the event of (a) the liquidation or dissolution of the Company,
or (b) a merger in which the Company is not the surviving corporation or a
consolidation, any outstanding options shall terminate upon the earliest of any
such event, unless other provision is made therefor in the transaction.
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Board of Directors,
without further approval of the Company's stockholders, may at any time suspend
or terminate the Plan, in whole or in part, or amend it from time to time in
such respects as it may deem advisable. No termination, suspension or amendment
of the Plan shall, without the consent of the holder of an existing and
outstanding option affected thereby, adversely affect his rights under such
option. The power of the Committee to construe and administer any options
granted under the Plan prior to the termination or suspension of the Plan
nevertheless shall continue after such termination or during such suspension.
14. NON-TRANSFERABILITY OF OPTIONS. No option granted under the Plan
shall be transferable otherwise than by will or the laws of descent and
distribution, and options may be exercised, during the lifetime of the optionee,
only by the optionee or his Legal Representatives. Except to the extent provided
above, options may not be assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process, and any such attempted
assignment, transfer, pledge, hypothecation or disposition shall be null and
void ab initio and of no force or effect.
15. WITHHOLDING TAXES. As a condition of exercise of an option, each
employee shall, no later than the date of exercise of such option, pay to the
Company in cash or make arrangements satisfactory to the Committee regarding
payment of any federal, state or local taxes of any kind required by law to be
withheld upon the exercise of such option. In its discretion, the Committee may
provide for the Company's acceptance or retention of Common Stock as payment of
an employee's liability for tax required to be withheld by the Company.
16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such
legend or legends upon the certificates for shares of Common Stock issued upon
exercise of an option under the Plan and may issue such "stop transfer"
instructions to its transfer agent in respect of such shares as it determines,
in its discretion, to be necessary or appropriate to (a) prevent a violation of,
or to perfect an exemption from, the registration requirements of the Securities
Act and any applicable state securities laws or (b) implement the provisions of
the Plan or any agreement between the Company and the optionee with respect to
such shares of Common Stock.
-6-
<PAGE>
The Company shall pay all issuance taxes with respect to the
issuance of shares of Common Stock upon the exercise of an option granted under
the Plan, as well as all fees and expenses incurred by the Company in connection
with such issuance.
17. USE OF PROCEEDS. The cash proceeds from the sale of shares of
Common Stock pursuant to the exercise of options under the Plan shall be added
to the general funds of the Company and used for such corporate purposes as the
Board of Directors may determine.
18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN CONSTITUENT
CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board
of Directors may, without further approval by the stockholders, substitute new
options for prior options of a Constituent Corporation (as defined in Paragraph
19) or assume the prior options of such Constituent Corporation.
19. DEFINITIONS. For purposes of the Plan, the following terms shall
be defined as set forth below:
(a) Constituent Corporation. The term "Constituent
Corporation" shall mean any corporation which engages with the Company, any of
its Subsidiaries or a Parent in a transaction to which Section 424(a) of the
Code applies (or would apply if the option assumed or substituted were an
incentive stock option within the meaning of Section 422 of the Code), or any
Parent or any Subsidiary of such corporation.
(b) Disability. The term "Disability" shall mean a permanent
and total disability within the meaning of Section 22(e)(3) of the Code.
(c) Legal Representative. The term "Legal Representative"
shall mean the executor, administrator or other person who at the time is
entitled by law to exercise the rights of a deceased or incapacitated optionee
with respect to an option granted under the Plan.
(d) Parent. The term "Parent" shall have the same definition
as "parent corporation" in Section 424(e) of the Code.
(e) Subsidiary. The term "Subsidiary" shall have the same
definition as "subsidiary corporation" in Section 424(f) of the Code.
20. GOVERNING LAW; CONSTRUCTION. The Plan, such options as may be
granted hereunder and all related matters shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without regard to conflict
of law provisions.
-7-
<PAGE>
Neither the Plan nor any Contract shall be construed or interpreted
with any presumption against the Company by reason of the Company causing the
Plan or Contract to be drafted. Whenever from the context it appears
appropriate, any term stated in either the singular or plural shall include the
singular and plural, and any term stated in the masculine, feminine or neuter
gender shall include the masculine, feminine and neuter.
21. PARTIAL INVALIDITY. The invalidity, illegality or
unenforceability of any provision in the Plan or any Contract shall not affect
the validity, legality or enforceability of any other provision, all of which
shall be valid, legal and enforceable to the fullest extent permitted by
applicable law.
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2/94
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STANDARD FORM OF LOFT LEASE
The Real Estate Board of New York, Inc.
================================================================================
Agreement of Lease, made as of this 8th day of July 1999, between FIRST
INDUSTRIAL, LP., having an office at 575 Underhill Boulevard, Suite 125,
Syosset, New York 11791 party of the first part, hereinafter referred to as
OWNER, and EYECITY.COM, INC., having an office at One Fairchild Court,
Plainview, New York party of the second part, hereinafter referred to as TENANT,
Witnesseth: Owner hereby leases to Tenant and Tenant hereby hires from Owner
approximately 4,405 square feet of space as shown on the attached sketch in the
building known as 79 Express Street, Plainview, New York for the term of five
(5) years and one (1) two year extension option (or until such term shall sooner
cease and expire as hereinafter provided) to commence on the The Commencement
Date, and to end on the The Expiration Date and both dates inclusive, at an
annual rental rate of See Schedule "A" in Rider annexed hereto
which Tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the time
of payment, in equal monthly installments in advance on the first day of each
month during said term, at the office of Owner or such other place as Owner may
designate, without any set off or deduction whatsoever, except that Tenant shall
pay the firstXXXXXmonthly installment(s) on the execution hereof (unless this
lease be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
Rent: 1.Tenant shall pay the rent as above and as hereinafter provided.
Occupancy: 2. Tenant shall use and occupy demised premises for offices and
sales of optical services and products
provided such use is in accordance with the certificate of occupancy for the
building, if any, and for no other purpose.
Alterations:
3. Tenant shall make no changes in or to the demised premises of any nature
without Owner's prior written consent. Subject to the prior written consent of
Owner, and to the provisions of this article, Tenant, at Tenant's expense, may
make alterations, installations, additions or improvements which are
nonstructural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises using
contractors or mechanics reasonably first approved in each instance by Owner.
Tenant shall, at its expense, before making any alterations, additions,
installations or improvements obtain all permits, approval and certificates
required by any governmental or quasi-governmental bodies and (upon completion)
certificates of final approval thereof and shall deliver promptly duplicates of
all such permits, approvals and certificates to Owner. Tenant agrees to carry
and will cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as Owner
may require. If any mechanic's lien is filed against the demised premises, or
the building of which the same forms a part, for work claimed to have been done
for, or materials furnished to, Tenant, whether or not done pursuant to this
article, the same shall be discharged by Tenant within thirty days thereafter,
at Tenant's expense, by payment or filing the bond required by law or otherwise.
All fixtures and all paneling, partitions, railings and like installations,
installed in the premises at any time, either by Tenant or by Owner on Tenant's
behalf, shall, upon installation, become the property of Owner and shall remain
upon and be surrendered with the demised premises unless Owner, by notice to
Tenant no later than twenty days prior to the date fixed as the termination of
this lease, elects to relinquish Owner's right thereto and to have them removed
by Tenant, in which event the same shall be removed from the demised premises by
Tenant prior to the expiration of the lease, at Tenant's expense. Nothing in
this Article shall be construed to give Owner title to or to prevent Tenant's
removal of trade fixtures, moveable office furniture and equipment, but upon
removal of any such from the premises or upon removal of other installations as
may be required by Owner, Tenant shall immediately and at its expense, repair
and restore the premises to the condition existing prior to installation and
repair any damage to the demised premises or the building due to such removal.
All property permitted or required to be removed by Tenant at the end of the
term remaining in the premises after Tenant's removal shall be deemed abandoned
and may, at the election of Owner, either be retained as Owner's property or
removed from the premises by Owner, at Tenant's expense.
Repairs:
4. Owner shall maintain and repair the exterior of and the public portions of
the building. Tenant shall, throughout the term of this lease, take good care of
the demised premises including the bathrooms and lavatory facilities (if the
demised premises encompass the entire floor of the building) and the windows and
window frames and, the fixtures and appurtenances therein and at Tenant's sole
cost and expense promptly make all repairs thereto and to the building, whether
structural or non-structural in nature, caused by or resulting from the
carelessness, omission, neglect or improper conduct of Tenant, Tenant's
servants, employees, invitees, or licensees, and whether or not arising from
such Tenant conduct or omission, when required by other provisions of this
lease, including Article 6. Tenant shall also repair all damage to the building
and the demised premises caused by the moving of Tenant's fixtures, furniture or
equipment. All the aforesaid repairs shall be of quality or class equal to the
original work or construction. If Tenant fails, after ten days notice, to
proceed with due diligence to make repairs required to be made by Tenant, the
same may be made by the Owner at the expense of Tenant, and the expenses thereof
incurred by Owner shall be collectible, as additional rent, after rendition of a
bill or statement therefor. If the demised premises be or become infested with
vermin, Tenant shall, at its expense, cause the same to be exterminated. Except
as specifically provided in Article 9 or elsewhere in this lease, there shall be
no allowance to the Tenant for a diminution of rental value and no liability on
the part of Owner by reason of inconvenience, annoyance or injury to business
arising from Owner, Tenant or others making or failing to make any repairs,
alterations, additions or improvements in or to any portion of the building or
the demised premises or in and to the fixtures, appurtenances or equipment
thereof. It is specifically agreed that Tenant shall not be entitled to any set
off or reduction of rent by reason of any failure of Owner to comply with the
covenants of this or any other article of this lease. Tenant agrees that
Tenant's sole remedy at law in such instance will be by way of any action for
damages for breach of contract. The provisions of this Article 4 with respect to
the making of repairs shall not apply in the case of fire or other casualty with
regard to which Article 9 hereof shall apply.
Window Cleaning:
5. Tenant will not clean nor require, permit, suffer or allow any window in the
demised premises to be cleaned from the outside in violation of Section 202 of
the New York State Labor Law or any other applicable law or of the Rules of the
Board of Standards and Appeals, or of any other Board or body having or
asserting jurisdiction.
Requirements of Law, Fire Insurance:
6. Prior to the commencement of the lease term, if Tenant is then in possession,
and at all times thereafter Tenant shall, at Tenant's sole cost and expense,
promptly comply with all present and future laws, orders and regulations of all
state, federal, municipal and local governments, departments, commissions and
boards and any direction of any public officer pursuant to law, and all orders,
rules and regulations of the New York Board of Fire Underwriters, or the
Insurance Services Office, or any similar body which shall impose any violation,
order or duty upon Owner or Tenant with respect to the demised premises, whether
or not arising out of Tenant's use or manner of use thereof, or, with respect to
the building, if arising out of Tenant's use or manner of use of the demised
premises of the building (including the use permitted under the lease). Except
as provided in Article 30 hereof, nothing herein shall require Tenant to make
structural repairs or alterations unless Tenant has, by its manner of use of the
demised premises or method of operation therein, violated any such laws,
ordinances, orders, rules, regulations or requirements with respect thereto.
Tenant shall not do or
<PAGE>
permit any act or thing to be done in or to the demised premises which is
contrary to law, or which will invalidate or be in conflict with public
liability, fire or other policies of insurance at any time carried by or for the
benefit of Owner. Tenant shall not keep anything in the demised premises except
as now or hereafter permitted by the Fire Department, Board of Fire
Underwriters, Fire Insurance Rating Organization and other authority having
jurisdiction, and then only in such manner and such quantity so as not to
increase the rate for fire insurance applicable to the building, nor use the
premises in a manner which will increase the insurance rate for the building or
any property located therein over that in effect prior to the commencement of
Tenant's occupancy. If by reason of failure to comply with the foregoing the
fire insurance rate shall, at the beginning of this lease or at any time
thereafter, be higher than it otherwise would be, then Tenant shall reimburse
Owner, as additional rent hereunder, for that portion of all fire insurance
premiums thereafter paid by Owner which shall have been charged because of such
failure by Tenant. In any action or proceeding wherein Owner and Tenant are
parties, a schedule or "make-up" or rate for the building or demised premises
issued by a body making fire insurance rates applicable to said premises shall
be conclusive evidence of the facts therein stated and of the several items and
charges in the fire insurance rates then applicable to said premises. Tenant
shall not place a load upon any floor of the demised premises exceeding the
floor load per square foot area which it was designed to carry and which is
allowed by law. Owner reserves the right to reasonable prescribe the weight and
position of all safes, business machines and mechanical equipment. Such
installations shall be placed and maintained by Tenant, at Tenant's expense, in
settings sufficient, in Owner's reasonable judgement, to absorb and prevent
vibration, noise and annoyance.
Subordination:
7. This lease is subject and subordinate to all ground or underlying leases and
to all mortgages which may now or hereafter affect such leases or the real
property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument or subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall from time to time execute promptly any certificate that Owner may
request.
Tenant's Liability Insurance Property Loss, Damage, Indemnity:
8. Owner or its agents shall not be liable for any damage to property of Tenant
or of others entrusted to employees of the building, nor for loss of or damage
to any property of Tenant by theft or otherwise, nor for any injury or damage to
persons or property resulting from any cause of whatsoever nature, unless caused
by or due to the negligence or misconduct of Owner, its agents, contractors,
servants or employees; Owner or its agents shall not be liable for any damage
caused by other tenants or persons in, upon or about said building or caused by
operations in connection of any private, public or quasi public work. If at any
time any windows of the demised premises are temporarily closed, darkened or
bricked up (or permanently closed, darkened or bricked up, if required by law)
for any reason whatsoever including, but not limited to Owner's own acts, Owner
shall not be liable for any damage Tenant may sustain thereby and Tenant shall
not be entitled to any compensation therefor nor abatement or diminution of rent
nor shall the same release Tenant from its obligations hereunder nor constitute
an eviction. Tenant shall indemnify and save harmless Owner against and from all
liabilities, obligations, damages, penalties, claims, costs and expenses for
which Owner shall not be reimbursed by insurance, including reasonable
attorney's fees, paid, suffered or incurred as a result of any breach by Tenant,
Tenant's agents, contractors, employees, invitees, or licensees, of any covenant
or condition of this lease, or the carelessness, negligence or improper conduct
of the Tenant, Tenant's agents, contractors, employees, invitees or licensees.
Tenant's liability under this lease extends to the acts and omissions of any
sub-tenant, and any agent, contractor, employee, invitee or licensee of any
sub-tenant. In case any action or proceeding is brought against Owner by reason
of any such claim, Tenant, upon written notice from Owner, will, at Tenant's
expense, resist or defend such action or proceeding by counsel approved by Owner
in writing, such approval not to be unreasonably withheld.
Destruction, Fire and Other Casualty:
9. (a) If the demised premises or any part thereof shall be damaged by fire or
other casualty, Tenant shall give immediate notice thereof to Owner and this
lease shall continue in full force and effect except as hereinafter set forth.
(b) If the demised premises are partially damaged or rendered partially unusable
by fire or other casualty, the damages thereto shall be repaired by and at the
expense of Owner and the rent and other items of additional rent, until such
repair shall be substantially completed, shall be apportioned from the day
following the casualty according to the part of the premises which is usable.
(c) If the demised premises are totally damaged or rendered wholly unusable by
fire or other casualty, then the rent and other items of additional rent as
hereinafter expressly provided shall be proportionately paid up to the time of
the casualty and thenceforth shall cease until the date when the premises shall
have been repaired and restored by Owner (or sooner reoccupied in part by Tenant
then rent shall be apportioned as provided in subsection (b) above), subject to
Owner's right to elect not to restore the same as hereinafter provided. (d) If
the demised premises are rendered wholly unusable or (whether or not the demised
premises are damaged in whole or in part) if the building shall be so damaged
that Owner shall decide to demolish it or to rebuild it, then, in any of such
events, Owner may elect to terminate this lease by written notice to Tenant,
given within 90 days after such fire or casualty, or 30 days after adjustment of
the insurance claim for such fire or casualty, whichever is sooner, specifying a
date for the expiration of the lease, which date shall not be more than 60 days
after the giving of such notice, and upon the date specified in such notice the
term of this lease shall expire as fully and completely as if such date were the
date set forth above for the termination of this lease and Tenant shall
forthwith quit, surrender and vacate the premises without prejudice however, to
Owner's rights and remedies against Tenant under the lease provisions in effect
prior to such termination, and any rent owing shall be paid up to such date and
any payments of rent made by Tenant which were on account of any period
subsequent to such date shall be returned to Tenant. Unless Owner shall serve a
termination notice as provided for herein, Owner shall make the repairs and
restorations under the conditions of (b) and (c) hereof, with all reasonable
expedition, subject to delays due to adjustments of insurance claims, labor
troubles and causes beyond Owner's control. After any such casualty, Tenant
shall cooperate with Owner's restoration by removing from the premises as
promptly as reasonably possible, all of Tenant's salvageable inventory and
movable equipment, furniture, and other property. Tenant's liability for rent
shall resume 15 days after written notice from Owner that the premises are
substantially ready for Tenant's occupancy. (c) Nothing contained hereinabove
shall relieve Tenant from liability that may exist as a result of damage from
fire or other casualty. Notwithstanding the foregoing, including Owner's
obligation to restore under subparagraph (b) above, each party shall look first
to any insurance in its favor before making any claim against the other party
for recovery for loss or damage resulting from fire or other casualty, and to
the extent that such insurance is in force and collectible and to the extent
permitted by law, Owner and Tenant each hereby releases and waives all right of
recovery with respect to subparagraphs (b), (d) and (e) above, against the other
or any one claiming through or under each of them by way of subrogation or
otherwise. The release and waiver herein referred to shall be deemed to include
any loss or damage to the demised premises and/or to any personal property,
equipment, trade fixtures, goods and merchandise located therein. The foregoing
release and waiver shall be in force only if both releasors' insurance policies
contain a clause providing that such a release or waiver shall not invalidate
the insurance. If, and to the extent, that such waiver can be obtained only by
the payment of additional premiums, then the party benefitting from the waiver
shall pay such premium within ten days after written demand or shall be deemed
to have agreed that the party obtaining insurance coverage shall be free of any
further obligation under the provisions hereof with respect to waiver of
subrogation. Tenant acknowledges that Owner will not carry insurance on Tenant's
furniture and or furnishings or any fixtures or equipment, improvements, or
appurtenances removable by Tenant and agrees that Owner will not be obligated to
repair any damage thereto or replace the same. (f) Tenant hereby waives the
provisions of Section 227 of the Real Property Law and agrees that the
provisions of this article shall govern and control in lieu thereof.
Eminent Domain:
10. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from date of
title vesting in such proceeding and Tenant shall have no claim for the value of
any unexpired term of said lease. Tenant shall have the right to make an
independent claim to the condemning authority for the value of Tenant's moving
expenses and personal property, trade fixtures and equipment, provided Tenant is
entitled pursuant to the terms of the lease to remove such property, trade
fixtures and equipment at the end of the term and provided further such claim
does not reduce Owner's award.
Assignment, Mortgage, Etc.:
11. Tenant, for itself, its heirs, distributees, executors, administrators,
legal representatives, successors and assigns, expressly covenants that it shall
not assign, mortgage or encumber this agreement, nor underlet, or suffer or
permit the demised premises or any part thereof to be used by others, without
prior written consent of Owner in each instance. Transfer of the majority of the
stock of a corporate Tenant or the majority partnership interest of a
partnership Tenant shall be deemed an assignment. If this lease be assigned, or
if the demised premises or any part thereof be underlet or occupied by anybody
other than Tenant, Owner may, after default by Tenant, collect rent from the
assignee, under-tenant or occupant, and apply the net amount collected to the
rent herein reserved, but no such assignment, underletting, occupancy or
collection shall be deemed a waiver of this covenant, or the acceptance of the
assignee, under-tenant or occupant as tenant, or a release of Tenant from the
further performance by Tenant of covenants on the part of Tenant herein
contained. The consent by Owner to an assignment or underletting shall not in
any wise be construed to relieve Tenant from obtaining the express consent in
writing of Owner to any further assignment or underletting. See paragraph "55th"
in Rider.
Electric Current:
[CLIP ART OMITTED]
12. Rates and conditions in respect to submetering or rent inclusion, as the
case may be, to be added in RIDER attached hereto. Tenant covenants and agrees
that at all times its use of electric current shall not exceed the capacity of
existing feeders to the building or the risers or wiring installation and Tenant
may not use any electrical equipment which, in Owner's opinion, reasonably
exercised, will overload such installations or interfere with the use thereof by
other tenants of the building. The change at any time of the character of
electric service shall in no wise make Owner liable or responsible to Tenant,
for any loss, damages or expenses which Tenant may sustain.
Access to Premises:
13. Owner or Owner's agents shall have the right (but shall not be obligated) to
enter the demised premises in any emergency at any time, and, at other
reasonable times on reasonable notice to Tenant to examine the same and to make
such repairs, replacements and improvements as Owner may deem necessary and
reasonably desirable to any portion of the building or which Owner may elect to
perform in the premises after Tenant's failure to make repairs or perform any
work which Tenant is obligated to perform under this lease, or for the purpose
of complying with laws, regulations and other directions of governmental
authorities. Tenant shall permit Owner to use and maintain and replace pipes and
conduits in and through the demised premises and to erect new pipes and conduits
therein provided, wherever possible, they are within walls or otherwise
concealed. Owner may, during the progress of any work in the demised premises,
take all necessary materials and equipment into said premises without the same
constituting an eviction nor shall the Tenant be entitled to any abatement of
rent while such work is in progress nor to any damages by reason of loss or
interruption of business or otherwise. Throughout the term hereof Owner shall
have the right to enter the demised premises at reasonable hours on reasonable
notice to Tenant for the purpose of showing the same to prospective purchasers
or mortgagees of the building, and during the last six months of the term for
the purpose of showing the same to prospective tenants and may, during said six
month period, place upon
- ----------
[CLIP ART OMITTED] Rider to be added if necessary.
<PAGE>
the demised premises the usual notices "To Let" and "For Sale" which notices
Tenant shall permit to remain thereon without molestation. If Tenant is not
present to open and permit an entry into the demised premises, Owner or Owner's
agents may enter the same whenever such entry may be necessary or permissible by
master key and provided reasonable care is exercised to safeguard Tenant's
property, such entry shall not render Owner or its agents liable therefor, nor
in any event shall the obligations of Tenant hereunder be affected. If during
the last month of the term Tenant shall have removed all or substantially all of
Tenant's property therefrom. Owner may immediately enter, alter, renovate or
redecorate the demised premises without limitation or abatement of rent, or
incurring liability to Tenant for any compensation and such act shall have no
effect on this lease or Tenant's obligation hereunder.
Vault, Vault Space, Area:
14. No Vaults, vault space or area, whether or not enclosed or covered, not
within the property line of the building is leased hereunder anything contained
in or indicated on any sketch, blue print or plan, or anything contained
elsewhere in this lease to the contrary notwithstanding. Owner makes no
representation as to the location of the property line of the building. All
vaults and vault space and all such areas not within the property line of the
building, which Tenant may be permitted to use and/or occupy, is to be used
and/or occupied under a revocable license, and if any such license be revoked,
or if the amount of such space or area be diminished or required by any federal,
state or municipal authority or public utility, Owner shall not be subject to
any liability nor shall Tenant be entitled to any compensation or diminution or
abatement of rent, nor shall such revocation, diminution or requisition be
deemed constructive or actual eviction. Any tax, fee or charge of municipal
authorities for such vault or area shall be paid by Tenant, if used by Tenant,
whether or not specifically leased hereunder.
Occupancy:
15. Tenant will not at any time use or occupy the demised premises in violation
of the certificate of occupancy issued for the building of which the demised
premises are a part. Tenant has inspected the premises and accepts them as is,
subject to the riders annexed hereto with respect to Owner's work, if any. In
any event, Owner makes no representation as to the condition of the premises and
Tenant agrees to accept the same subject to violations, whether or not of
record. If any governmental license or permit shall be required for the proper
and lawful conduct of Tenant's business, Tenant shall be responsible for and
shall procure and maintain such license or permit.
Bankruptcy:
16. (a) Anything elsewhere in this lease to the contrary notwithstanding, this
lease may be cancelled by Owner by sending of a written notice to Tenant within
a reasonable time after the happening of any one or more of the following
events: (1) the commencement of a case in bankruptcy or under the laws of any
state naming Tenant as the debtor; or (2) the making by Tenant of an assignment
or any other arrangement for the benefit of creditors under any state statute.
Neither Tenant nor any person claiming through or under Tenant, or by reason of
any statute or order of court, shall thereafter be entitled to possession of the
premises demised but shall forthwith quit and surrender the premises. If this
lease shall be assigned in accordance with its terms, the provisions of this
Article 16 shall be applicable only to the party then owning Tenant's interest
in this lease.
(b) It is stipulated and agreed that in the event of the termination
of this lease pursuant to (a) hereof, Owner shall forthwith, not withstanding
any other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rental reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be relet by the Owner for the unexpired term of said lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such reletting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
Default:
17. (1) If Tenant defaults in fulfilling any of the covenants of this lease
other than the covenants for the payment of rent or additional rent; or if the
demised premises becomes vacant or deserted "or if this lease be rejected under
ss.235 of Title 11 of the U.S. Code (bankruptcy code);" or if any execution or
attachment shall be issued against Tenant or any of Tenant's property whereupon
the demised premises shall be taken or occupied by someone other than Tenant; or
if Tenant shall make default with respect to any other lease between Owner and
Tenant; or if Tenant shall have failed, after five (5) days written notice, to
redeposit with Owner any portion of the security deposited hereunder which Owner
has applied to the payment of any rent and additional rent due and payable
hereunder or failed to move into or take possession of the premises within
thirty (30) days after the commencement of the term of this lease, of which fact
Owner shall be the sole judge; then in any one or more of such events, upon
Owner serving a written fifteen (15) days notice upon Tenant specifying the
nature of said default and upon the expiration of said fifteen (15) days, if
Tenant shall have failed to comply with or remedy such default, or if the said
default or omission complained of shall be of a nature that the same cannot be
completely cured or remedied within said fifteen (15) day period, and if Tenant
shall not have diligently commenced during such default within such fifteen (15)
day period, and shall not thereafter with reasonable diligence and in good
faith, proceed to remedy or cure such default, then Owner may serve a written
five (5) days' notice of cancellation of this lease upon Tenant, and upon the
expiration of said five (5) days this lease and the term thereunder shall end
and expire as fully and completely as if the expiration of such five (5) day
period were the day herein definitely fixed for the end and expiration of this
lease and the term thereof and Tenant shall then quit and surrender the demised
premises to Owner but Tenant shall remain liable as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given,
and the term shall expire as aforesaid; or if Tenant shall make default in the
payment of the rent reserved herein or any item of additional rent herein
mentioned or any part of either or in making any other payment herein required
beyond applicable notice and cure periods; then and in any of such events Owner
may without notice, re-enter the demised premises either by force or otherwise,
and dispossess Tenant by summary proceedings or otherwise, and the legal
representative of Tenant or other occupant of demised premises and remove their
effects and hold the premises as if this lease had not been made, and Tenant
hereby waives the service of notice of intention to re-enter or to institute
legal proceedings to that end. If Tenant shall make default hereunder prior to
the date fixed as the commencement of any renewal or extension of beyond
applicable notice and cure periods this lease, Owner may cancel and terminate
such renewal or extension agreement by written notice.
Remedies of Owner and Waiver of Redemption:
18. In case of any such default, re-entry, expiration and/or dispossess by
summary proceedings or otherwise, (a) the rent, and additional rent, shall
become due thereupon and be paid up to the time of such re-entry, dispossess
and/or expiration, (b) Owner may re-let the premises or any part or parts
thereof, either in the name of Owner or otherwise, for a term or terms, which
may at Owner's option be less than or exceed the period which would otherwise
have constituted the balance of the term of this lease and may grant concessions
or free rent or charge a higher rental than that in this lease, (c) Tenant or
the legal representatives of Tenant shall also pay Owner as liquidated damages
for the failure of Tenant to observe and perform said Tenant's covenants herein
contained, any deficiency between the rent hereby reserved and or covenanted to
be paid and the net amount, if any, of the rents collected on account of the
subsequent lease or leases of the demised premises for each month of the period
which would otherwise have constituted the balance of the term of this lease.
The failure of Owner to re-let the premises or any part or parts thereof shall
not release or affect Tenant's liability for damages. In computing such
liquidated damages there shall be added to the said deficiency such expenses as
Owner may reasonably incur in connection with re-letting, such as legal
expenses, reasonable attorneys' fees, brokerage, advertising and for keeping the
demised premises in good order or for preparing the same for re-letting. Any
such liquidated damages shall be paid in monthly installments by Tenant on the
rent day specified in this lease and any suit brought to collect the amount of
the deficiency for any month shall not prejudice in any way the rights of Owner
to collect the deficiency for any subsequent month by a similar proceeding.
Owner, in putting the demised premises in good order or preparing the same for
re-rental may, at Owner's option, make such alterations, repairs, replacements,
and/or decorations in the demised premises as Owner, in Owner's sole judgment,
considers advisable and necessary for the purpose of re-letting the demised
premises, and the making of such alterations, repairs, replacements, and/or
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Owner shall in no event be liable in any way whatsoever
for failure to re-let the demised premises, or in the event that the demised
premises are re-let, for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant be entitled to receive any excess, if
any, of such net rents collected over the sums payable by Tenant to Owner
hereunder. In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions hereof, Owner shall have the right of injunction and the
right to invoke any remedy allowed at law or in equity as if re-entry, summary
proceedings and other remedies were not herein provided for. Mention in this
lease of any particular remedy, shall not preclude Owner from any other remedy,
in law or in equity. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws.
Fees and Expenses:
19. If Tenant shall default beyond applicable notice and cure periods in the
observance or performance of any term or covenant on Tenant's part to be
observed or performed under or by virtue of any of the terms or provisions in
any article of this lease, after notice if required and upon expiration of any
applicable grace period if any, (except in an emergency), then, unless otherwise
provided elsewhere in this lease, Owner may immediately or at any time
thereafter and without notice perform the obligation of Tenant thereunder. If
Owner, in connection with the foregoing or in connection with any default beyond
applicable notice and cure periods by Tenant in the covenant to pay rent
hereunder, makes any expenditures or incurs any obligations for the payment of
money, including but not limited to reasonable attorney's fees, in instituting,
prosecuting or defending any action or proceedings, and prevails in any such
action or proceeding, then Tenant will reimburse Owner for such sums so paid or
obligations incurred with interest and costs. The foregoing expenses incurred by
reason of Tenant's default shall be deemed to be additional rent hereunder and
shall be paid by Tenant to Owner within ten (10) days of rendition of any bill
or statement to Tenant therefor. If Tenant's lease term shall have expired at
the time of making of such expenditures or incurring of such obligations, such
sums shall be recoverable by Owner as damages.
Building Alterations and Management:
20. Owner shall have the right at any time without the same constituting an
eviction and without incurring liability to Tenant therefor to change the
arrangement and or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets or other public parts of the building and
to change the name, number or designation by which the building may be known.
There shall be no allowance to Tenant for diminution of rental value and no
liability on the part of Owner by reason of inconvenience, annoyance or injury
to business arising from Owner or other Tenant making any repairs in the
building or any such alterations, additions and improvements. Furthermore,
Tenant shall not have any claim against Owner by reason of Owner's imposition of
any controls of the manner of access to the building by Tenant's social or
business visitors as the Owner may deem necessary for the security of the
building and its occupants.
<PAGE>
No Representations by Owner:
21. Neither Owner nor Owner's agents have made any representations or promises
with respect to the physical condition of the building, the land upon which it
is erected or the demised premises, the rents, leases, expenses of operation or
any other matter or thing affecting or related to the demised premises or the
building except as herein expressly set forth and no rights, easements or
licenses are acquired by Tenant by implication or otherwise except as expressly
set forth in the provisions of this lease. Tenant has inspected the building and
the demised premises and is thoroughly acquainted with their condition and
agrees to take the same "as is" on the date possession is tendered and
acknowledges that the taking of possession of the demised premises by Tenant
shall be conclusive evidence that the said premises and the building of which
the same form a part were in good and satisfactory condition at the time such
possession was so taken, except as to latent defects. All understandings and
agreements heretofore made between the parties hereto are merged in this
contract, which alone fully and completely expresses the agreement between Owner
and Tenant and any executory agreement hereafter made shall be ineffective to
change, modify, discharge or effect an abandonment of it in whole or in part,
unless such executory agreement is in writing and signed by the party against
whom enforcement of the change, modification, discharge or abandonment is
sought.
End of Term:
22. Upon the expiration or other termination of the term of this lease, Tenant
shall quit and surrender to Owner the demised premises, broom clean, in good
order and condition, ordinary wear and damages which Tenant is not required to
repair as provided elsewhere in this lease excepted, and Tenant shall remove all
its property from the demised premises. Tenant's obligation to observe or
perform this covenant shall survive the expiration or other termination of this
lease. If the last day of the term of this Lease or any renewal thereof, falls
on Sunday, this lease shall expire at noon on the preceding Saturday unless it
be a legal holiday in which case it shall expire at noon on the preceding
business day.
Quiet Enjoyment:
23. Owner covenants and agrees with Tenant that upon Tenant paying the rent and
additional rent and observing and performing all the terms, covenants and
conditions, on Tenant's part to be observed and performed, Tenant may peaceably
and quietly enjoy the premises hereby demised, subject, nevertheless, to the
terms and conditions of this lease including, but not limited to, Article 34
hereof and to the ground leases, underlying leases and mortgages hereinbefore
mentioned.
Failure to Give Possession:
24. If Owner is unable to give possession of the demised premises on the date of
the commencement of the term hereof, because of the holding-over or retention of
possession of any tenant, undertenant or occupants or if the demised premises
are located in a building being constructed, because such building has not been
sufficiently completed to make the premises ready for occupancy or because of
the fact that a certificate of occupancy has not been procured or if Owner has
not completed any work required to be performed by Owner, or for any other
reason, Owner shall not be subject to any liability for failure to give
possession on said date and the validity of the lease shall not be impaired
under such circumstances, nor shall the same be construed in any wise to extend
the term of this lease, but the rent payable hereunder shall be abated (provided
Tenant is not responsible for Owner's inability to obtain possession or complete
any work required) until after Owner shall have given Tenant notice that Owner
is able to deliver possession in the condition required by this lease. If
permission is given to Tenant to enter into the possession of the demised
premises or to occupy premises other than the demised premises prior to the date
specified as the commencement of the term of this lease, Tenant covenants and
agrees that such possession and/or occupancy shall be deemed to be under all the
terms, covenants, conditions and provisions of this lease, except the obligation
to pay the fixed annual rent set forth in page one of this lease. The provisions
of this article are intended to constitute "an express provision to the
contrary" within the meaning of Section 223-a of the New York Real Property law.
No Waiver:
25. The failure of Owner to seek redress for violation of, or to insist upon the
strict performance of any covenant or condition of this lease or of any of the
Rules or Regulations, set forth or hereafter adopted by Owner, shall not prevent
a subsequent act which would have originally constituted a violation from having
all the force and effect of an original violation. The receipt by Owner of rent
with knowledge of the breach of any covenant of this lease shall not be deemed a
waiver of such breach and no provision of this lease shall be deemed to have
been waived by Owner unless such waiver be in writing signed by Owner. No
payment by Tenant or receipt by Owner of a lesser amount than the monthly rent
herein stipulated shall be deemed to be other than on account of the earliest
stipulated rent, nor shall any endorsement or statement of any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Owner may accept such check or payment without prejudice to
Owner's right to recover the balance of such rent or pursue any other remedy in
this lease provided. All checks tendered to Owner as and for the rent of the
demised premises shall be deemed payments for the account of Tenant. Acceptance
by Owner of rent from anyone other than Tenant shall not be deemed to operate as
an attornment to Owner by the payor of such rent or as a consent by Owner to an
assignment or subletting by Tenant of the demised premises to such payor, or as
a modification of the provisions of this lease. No act or thing done by Owner or
Owner's agents during the term hereby demised shall be deemed an acceptance of a
surrender of said premises and no agreement to accept such surrender shall be
valid unless in writing signed by Owner. No employee of Owner or Owner's agent
shall have any power to accept the keys of said premises prior to the
termination of the lease and the delivery of keys to any such agent or employee
shall not operate as a termination of the lease or a surrender of the premises.
Waiver of Trial by Jury:
26. It is mutually agreed by and between Owner and Tenant that the respective
parties hereto shall and they hereby do waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other (except for personal injury or property damage) on any matters whatsoever
arising out of or in any way connected with this lease, the relationship of
Owner and Tenant, Tenant's use of or occupancy of said premises, and any
emergency statutory or any other statutory remedy. It is further mutually agreed
that in the event Owner commences any proceeding or action for possession
including a summary proceeding for possession of the premises, Tenant will not
interpose any counterclaim of whatever nature or description in any such
proceeding including a counterclaim under Article 4 except for statutory
mandatory counterclaims.
Inability to Perform:
27. This Lease and the obligation of Tenant to pay rent hereunder and to perform
all of the other covenants and agreements hereunder on part of Tenant to be
performed shall in no wise be affected, impaired or excused because Owner is
unable to fulfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or is
unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment,
fixtures or other materials if Owner is prevented or delayed from doing so by
reason of strike or labor troubles or any cause whatsoever beyond Owner's sole
control including, but not limited to, government preemption or restrictions or
by reason of any rule, order or regulation of any department or subdivision
thereof of any government agency or by reason of the conditions which have been
or are affected, either directly or indirectly, by war or other emergency.
Bills and Notices:
28. Except as otherwise in this lease provided, a bill statement, notice or
communication which Owner may desire or be required to give to Tenant, shall be
deemed sufficiently given or rendered if, in writing, delivered to Tenant
personally or sent by registered or certified mail addressed to Tenant at the
building of which the demised premises form a part or at the last known
residence address or business address of Tenant or left at any of the aforesaid
premises addressed to Tenant, and the time of the rendition of such bill or
statement and of the giving of such notice or communication shall be deemed to
be the time when the same is delivered to Tenant, mailed, or left at the
premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first hereinabove
given or at such other address as Owner shall designate by written notice.
Water Charges:
29. It Tenant requires, uses or consumes water for any purpose in addition to
ordinary lavatory purposes (of which fact Tenant constitutes Owner to be the
sole judge) Owner may install a water meter and thereby measure Tenant's water
consumption for all purposes. Tenant shall pay Owner for the cost of the meter
and the cost of the installation, thereof and throughout the duration of
Tenant's occupancy Tenant shall keep said meter and installation equipment in
good working order and repair at Tenant's own cost and expense in default of
which Owner may cause such meter and equipment to be replaced or repaired and
collect the cost thereof from Tenant, as additional rent. Tenant agrees to pay
for water consumed, as shown on said meter as and when bills are rendered, and
on default in making such payment Owner may pay such charges and collect the
same from Tenant, as additional rent. Tenant covenants and agrees to pay, as
additional rent, the sewer rent, charge or any other tax, rent, levy or charge
which now or hereafter is assessed, imposed or a lien upon the demised premises
or the realty of which they are part pursuant to law, order or regulation made
or issued in connection with the use, consumption, maintenance or supply of
water, water system or sewage or sewage connection or system. If the building or
the demised premises or any part thereof is supplied with water through a meter
through which water is also supplied to other premises Tenant shall pay to
Owner, as additional rent, on the first day of each month, [CLIP ART OMITTED]
($15.00) of the total meter charges as Tenant's portion. Independently of and in
addition to any of the remedies reserved to Owner hereinabove or elsewhere in
this lease, Owner may sue for and collect any monies to be paid by Tenant or
paid by Owner for any of the reasons or purposes hereinabove set forth.
Sprinklers:
30. Anything elsewhere in this lease to the contrary notwithstanding, if the New
York Board of Fire Underwriters or the New York Fire Insurance Exchange or any
bureau, department or official of the federal, state or city government
recommend or require the installation of a sprinkler system or that any changes,
modifications, alterations, or additional sprinkler heads or other equipment be
made or supplied in an existing sprinkler system by reason of Tenant's business,
or the location of partitions, trade fixtures, or other contents of the demised
premises, or for any other reason, or if any such sprinkler system
installations, modifications, alterations, additional sprinkler heads or other
such equipment, become necessary to prevent the imposition of a penalty or
charge against the full allowance for a sprinkler system in the fire insurance
rate set by any said Exchange or by any fire insurance company, Tenant shall, at
Tenant's expense, promptly make such sprinkler system installations, changes,
modifications, alterations, and supply additional sprinkler heads or other
equipment as required whether the work involved shall be structural or
non-structural in nature. Tenant shall pay [CLIP ART OMITTED] to Owner as
additional rent the sum of 6.3%, on the first day of each month during the term
of this lease, as Tenant's portion of the contract price for sprinkler
supervisory service.
Elevators, Heat, Cleaning:
31. As long as Tenant is not in default under any the covenants of this lease
beyond the applicable grace period provided in this lease for the curing of such
defaults, Owner shall: (c) furnish heat, water and other services supplied by
Owner to the demised premises, when and as required by law, on business days
from 8 a.m. t 6 p.m. and on Saturdays from 8
- ----------
[CLIP ART OMITTED] Space to be filled in or deleted.
<PAGE>
a.m. to 1 p.m.; Owner reserves the right to stop service of the heating,
plumbing and electric systems, when necessary, by reason of accident, or
emergency, or for repairs, alterations, replacements or improvements, in the
judgment of Owner desirable or necessary to be made, until said repairs,
alterations, replacements or improvements shall have been completed.
Security:
[CLIP ART OMITTED]
32. Tenant has deposited with Owner the sum of $8,259.38 as security for the
faithful performance and observance by Tenant of the terms, provisions and
conditions of this lease; it is agreed that in the event Tenant defaults in
respect of any of the terms, provisions and conditions of this lease, including,
but not limited to, the payment of rent and additional rent, Owner may use,
apply or retain the whole or any part of the security so deposited to the extent
required for the payment of any rent and additional rent or any other sum as to
which Tenant is in default or for any sum which Owner may expend or may be
required to expend by reason of Tenant's default in respect of any of the terms,
covenants and conditions of this lease, including but not limited to, any
damages or deficiency in the reletting of the premises, whether such damages or
deficiency accrued before or after summary proceedings or other re-entry by
Owner. In the event that Tenant shall fully and faithfully comply with all the
terms, provisions, covenants and conditions of this lease, the security shall be
returned to Tenant after the date fixed as the end of the Lease and after
delivery of entire possession of the demised premises to Owner. In the event of
a sale of the land and building or leasing of the building, of which the demised
premises form a part, Owner shall have the right to transfer the security to the
vendee or lessee and Owner shall thereupon be released by Tenant from all
liability for the return of such security; and Tenant agrees to look to the new
Owner solely for the return of said security, and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new Owner. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Owner nor its successors or assigns shall be bound by
any such assignment, encumbrance, attempted assignment or attempted encumbrance.
Captions:
33. The Captions are inserted only as a matter of convenience and for reference
and in no way define, limit or describe the scope of this lease nor the intent
of any provision thereof.
Definitions:
34. The term "Owner" as used in this lease means only the owner of the fee or of
the leasehold of the building, or the mortgagee in possession, for the time
being of the land and building (or the owner of a lease of the building or of
the land and building) of which the demised premises form a part, so that in the
event of any sale or sales of said land and building or of said lease, or in the
event of a lease of said building, or of the land and building, the said Owner
shall be and hereby is entirely freed and relieved of all covenants and
obligations of Owner hereunder, and it shall be deemed and construed without
further agreement between the parties or their successors in interest, or
between the parties and the purchaser, at any such sale, or the said lessee of
the building, or of the land and building, that the purchaser or the lessee of
the building has assumed and agreed to carry out any and all covenants and
obligations of Owner hereunder. The words "re-enter" and "re-entry" as used in
this lease are not restricted to their technical legal meaning. The term "rent"
includes the annual rental rate whether so expressed or expressed in monthly
installments, and "additional rent." "Additional rent" means all sums which
shall be due to Owner from Tenant under this lease, in addition to the annual
rental rate. The term "business days" as used in this lease, shall exclude
Saturdays, Sundays and all days observed by the State or Federal Government as
legal holidays and those designated as holidays by the applicable building
service union employees service contract or by the applicable Operating
Engineers contract with respect to HVAC service. Wherever it is expressly
provided in this lease that consent shall not be unreasonably withheld, such
consent shall not be unreasonably delayed.
Adjacent Excavation-Shoring:
35. If an excavation shall be made upon land adjacent to the demised premises,
or shall be authorized to be made, Tenant shall afford to the person causing or
authorized to cause such excavation, license to enter upon the demised premises
for the purpose of doing such work as said person shall deem necessary to
preserve the wall or the building of which demised premises form a part from
injury or damage and to support the same by proper foundations without any claim
for damages or indemnity against Owner, or diminution or abatement of rent.
Rules and Regulations:
36. Tenant and Tenant's servants, employees, agents, visitors, and licensees
shall observe faithfully, and comply strictly with, the Rules and Regulations
annexed hereto and such other and further reasonable Rules and Regulations as
Owner or Owner's agents may from time to time adopt. Notice of any additional
rules or regulations shall be given in such manner as Owner may elect. In case
Tenant disputes the reasonableness of any additional Rule or Regulation
hereafter made or adopted by Owner or Owner's agents, the parties hereto agree
to submit the question of the reasonableness of such Rule or Regulation for
decision to the New York office of the American Arbitration Association, whose
determination shall be final and conclusive upon the parties hereto. The right
to dispute the reasonableness of any additional Rule or Regulation upon Tenant's
part shall be deemed waived unless the same shall be asserted by service of a
notice, in writing upon Owner within fifteen (15) days after the giving of
notice thereof. Nothing in this lease contained shall be construed to impose
upon Owner any duty or obligation to enforce the Rules and Regulations or terms,
covenants or conditions in any other lease, as against any other tenant and
Owner shall not be liable to Tenant for violation of the same by any other
tenant, its servants, employees, agents, visitors or licensees.
Glass:
37: Owner shall replace, at the expense of the Tenant, any and all plate and
other glass damaged or broken from any cause whatsoever in and about the demised
premises. Owner may insure, and keep insured, at Tenant's expense, all plate and
other glass in the demised premises for and in the name of Owner. Bills for the
premiums therefor shall be rendered by Owner to Tenant at such times as Owner
may elect, and shall be due from, and payable by, Tenant when rendered, and the
amount thereof shall be deemed to be, and be paid, as additional rent.
Estoppel Certificate:
38. Tenant, at any time, and from time to time, upon at least 10 days' prior
notice by Owner, shall execute, acknowledge and deliver to Owner, and/or to any
other person, firm or corporation specified by Owner, a statement certifying
that this Lease is unmodified in full force and effect (or, if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications), stating the dates to which the rent and additional rent have
been paid, and stating whether or not there exists any default by Owner under
this Lease, and, if so, specifying each such default.
Directory Board Listing:
39. If, at the request of and as accommodation to Tenant, Owner shall place upon
the directory board in the lobby of the building, one or more names of persons
other than Tenant, such directory board listing shall not be construed as the
consent by Owner to an assignment or subletting by Tenant to such person or
persons.
Successors and Assigns:
40. The covenants, conditions and agreements contained in this lease shall bind
and inure to the benefit of Owner and Tenant and their respective heirs,
distributees, executors, administrators, successors, and except as otherwise
provided in this lease, their assigns. Tenant shall look only to Owner's estate
and interest in the land and building for the satisfaction of Tenant's remedies
for the collection of a judgement (or other judicial process) against Owner in
the event of any default by Owner hereunder, and no other property or assets of
such Owner (or any partner, member, officer or director thereof, disclosed or
undisclosed), shall be subject to levy, execution or other enforcement procedure
for the satisfaction of Tenant's remedies under or with respect to this lease,
the relationship of Owner and Tenant hereunder, or Tenant's use and occupancy of
the demised premises.
- ----------
[CLIP ART OMITTED] Space to be filled in or deleted.
SEE RIDER ATTACHED HERETO AND MADE A PART HEREOF
In Witness Whereof, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
FIRST INDUSTRIAL, L.P., a Delaware
Limited Partnership
Witness for Owner: BY: FIRST INDUSTRIAL REALTY TRUST, [CORP. SEAL]
-------------------------------------
INC., a Maryland Corporation, General
Partner
By: /s/ [ILLEGIBLE] REGIONAL DIRECTOR [L.S]
- ------------------------ -------------------------------------
Witness for Tenant EYECITY.COM, INC. [CORP. SEAL]
By: /s/ Mark R. Suroff [L.S]
- ------------------------ -------------------------------------
MARK R. SUROFF
EXECUTIVE VICE PRES.
<PAGE>
ACKNOWLEDGEMENTS
CORPORATE TENANT
STATE OF NEW YORK, ss.:
County of
On this day of , 19 , before me personally came
to me known, who being by me duly sworn, did depose and say that he resides in
that he is the of
the corporation described in and which executed the foregoing instrument, as
TENANT; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation, and that he signed his name thereto by
like order.
- ------------------------------------------------
INDIVIDUAL TENANT
STATE OF NEW YORK, ss.:
County of
On this day of , 19 , before me personally came
to be known and known to me to be the individual
described in and who, as TENANT, executed the foregoing instrument and
acknowledged to me that he executed the same.
- ------------------------------------------------
[CLIPART OMITTED] IMPORTANT - PLEASE READ [CLIPART OMITTED]
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS
LEASE IN ACCORDANCE WITH ARTICLE 36.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress or egress from the
demised premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery by
Owner. There shall not be used in any space, or in the public hall of the
building, either by any Tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and sideguards. If said premises are situated on the ground floor of the
building, Tenant thereof shall further, at Tenant's expense, keep the sidewalk
and curb in front of said premises clean and free from ice, snow, dirt and
rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for
any purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the building; and no Tenant shall sweep or throw or permit to be swept
or thrown from the demised premises any dirt or other substances into any of the
corridors or halls, elevators, or out of the doors or windows or stairways of
the building and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Owner or other occupants of the building by reason of noise,
odors, and or vibrations, or interfere in any way, with other Tenants or those
having business therein, nor shall any bicycles, vehicles, animals, fish, or
birds be kept in or about the building. Smoking or carrying lighted cigars or
cigarettes in the elevators of the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls
of the building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premises if the
same is visible from the outside of the premises without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance door
of the premises. In the event of the violation of the foregoing by any Tenant,
Owner may remove same without any liability and may charge the expense incurred
by such removal to Tenant or Tenants violating this rule. Interior signs on
doors and directory tablet shall the inscribed, painted or affixed for each
Tenant by Owner at the expense of such Tenant, and shall be of a size, color and
style acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any part
of the demised premises or the building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Owner, and as Owner may direct. No Tenant shall lay linoleum, or
other similar floor covering, so that the same shall come in direct contact with
the floor of the demised premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any Tenant, nor shall any changes be made in existing
locks or mechanism thereof. Each Tenant must, upon the termination of his
Tenancy, restore to Owner all keys of stores, offices and toilet rooms, either
furnished to, or otherwise procured by, such Tenant, and in the event of the
loss of any keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease of which these Rules and Regulations are a part.
9. No Tenant shall obtain for use upon the demised premises ice, drinking
water, towel and other similar services, or accept barbering or bootblacking
services in the demised premises, except from persons authorized by Owner, and
at hours and under regulations fixed by Owner. Canvassing, soliciting and
peddling in the building is prohibited and each Tenant shall cooperate to
prevent the same.
10. Owner reserves the right to exclude from the building all persons who
do not present a pass to the building signed by Owner. Owner will furnish passes
to persons for whom any Tenant requests same in writing. Each Tenant shall be
responsible for all persons for whom he requests such pass and shall be liable
to Owner for all acts of such persons. Notwithstanding the foregoing, Owner
shall not be required to allow Tenant or any person to enter or remain in the
building, except on business days from 8:00 a.m. to 6:00 p.m. and on Saturdays
from 8:00 a.m. to 1:00 p.m. Tenant shall not have a claim against Owner by
reason of Owner excluding from the building any person who does not present such
pass.
11. Owner shall have the right to prohibit any advertising by any Tenant
which in Owner's opinion, tends to impair the reputation of the building or its
desirability as a loft building, and upon written notice from Owner, Tenant
shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible, or explosive, or hazardous
fluid, material, chemical or substance, or cause or permit any odors of cooking
or other processes, or any unusual or other objectionable odors to permeate in
or emanate from the demised premises.
13. Tenant shall not use the demised premises in a manner which disturbs
or interferes with other Tenants in the beneficial use of their premises.
<PAGE>
Address
Premises
================================================================================
180 VARICK STREET CORPORATION
TO
IMCLONE SYSTEMS INCORPORATED
================================================================================
STANDARD FORM OF
[SEAL] LOFT [SEAL]
LEASE
The Real Estate Board of New York, Inc.
(c) Copyright 1994. All rights Reserved.
Reproduction in whole or in part prohibited.
================================================================================
Dated 19
Rent Per Year
Rent Per Month
Term
From
To
Drawn by
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Checked by
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Entered by
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Approved by
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================================================================================
<PAGE>
RIDER TO LOFT LEASE BETWEEN
FIRST INDUSTRIAL, L.P., AS LANDLORD
AND
EYECITY.COM, INC., AS TENANT
41st. RIDER CONTROLS:
In case of a conflict between the provisions of this rider, and the
printed provisions of this lease, the provisions of this rider shall prevail.
42nd. ADDITIONAL RENT/OPERATING EXPENSES:
(a) Any sums of money required to be paid under this lease by Tenant in
addition to the rent herein provided, shall be deemed "additional rent due and
payable." It shall be paid after demand therefore with the rent next due or as
may be otherwise provided herein. Such additional rent shall be deemed to be and
shall constitute rent hereunder and shall be collectible in the same manner and
with the same remedies as if they had been rents originally reserved herein.
Tenant's obligation to pay additional rent shall survive the earlier termination
and/or expiration of the term of this lease. If Landlord receives from Tenant
any payment less than the sum of the annual rental rate, additional rent, and
other charges then due and owing, Landlord, in its sole discretion, may allocate
such payment in whole or in part to any annual rental rate, any additional rent,
and/or other charge or to any combination thereof which may be due and owing.
Landlord's failure to deliver to Tenant a statement showing Tenant liability for
additional rent for any portion of the term of this lease during the term of
this lease shall neither prejudice or waive Landlord's right to deliver any such
statement for a subsequent period or to include in such subsequent period a
previous period unless it is delivered more than three (3) years after first
due.
(b)(i) The term "Operating Expenses" shall mean all costs and expenses
paid or incurred with respect to the repair, replacement, restoration,
maintenance and operation of the land and building of which the demised premises
forms a part (sometimes hereafter referred to as the "Property"), including,
without limitation, the following: (A) all costs, wages and benefits of
employees or other agents of Landlord engaged in the operation, maintenance or
rendition of other services to or for the Property; (B) to the extent not
separately metered, billed, or furnished, all charges for utilities and services
furnished to the Property (including, without limitation, all areas of the
Property that are available for the common use of tenants of the Property and
that are not leased to any tenant of the Property, including, but not limited
to, parking areas, driveways, sidewalks, loading areas, access roads, corridors,
landscaping and planted areas ["Common Areas"], together with any taxes on such
utilities; (C) All premiums for casualty, workers' compensation, liability,
boiler, flood and all other types of insurance provided by Landlord and related
to the Property; (D) the cost of all supplies, tools, materials and equipment
utilized in the ownership and/or operation of the Property, and sales and other
taxes thereon; (E) amounts charged by contractors for services, materials and
supplies furnished in connection with the operation, repair and/or maintenance
of any part of the Property, including, without limitation, the Common Areas;
(F) management fees to Agent or other persons or management entities actually
involved in the management and/or operation of the Property (which persons or
management entities may be affiliates of Landlord); (G) any capital improvements
made by, or on behalf of, Landlord to the
1
<PAGE>
Property; (H) legal, accounting and other professional fees incurred in
connection with the operation, management and/or maintenance of the Property;
(I) Sprinkler Supervisory Fees and Expenses and Municipal Water Charges or
assessment for such service; and (J) all of the charges properly allocable to
the operation, maintenance or repair, replacement or restoration of the
Property, all of the foregoing, in accordance with generally accepted accounting
principles. Any additional rent, if any, billed Tenant under paragraphs 29, 30
and 44th shall be excluded from "Operating Expenses".
(ii) - (iv) Not used.
(v) Tenant shall pay, as additional rent, as Tenant's contribution
to Operating Expenses, the amount set forth on Schedule A under the caption
"Operating Rent". Tenant's share shall be due in monthly installments, in
advance.
43rd. LATE CHARGE/RETURNED CHECK CHARGE:
(a) Tenant shall pay a late charge of 4% of any payment of rent or
additional rent or any other sum of money or payment not received by Landlord
within 10 days after the same shall become due. Such late charge shall be in
addition to all of Landlord's other rights and remedies hereunder in the event
of Tenant's default and shall be payable as additional rent.
(b) If any check tendered by Tenant to Landlord is returned by the bank
for non-payment for any reason whatsoever, there will be an administrative
charge of $50.00 per check, each time it is returned which amount shall be
deemed additional rent.
44th. TAXES:
(a) In the event that the Real Estate Taxes payable with respect to the
building and the land on which it is located for any tax year in which this
lease shall be in effect, shall be greater than the Real Estate Taxes for the
base year, the Tenant shall pay to Landlord on the first day of the month after
billing by Landlord to Tenant, as additional rent, an amount equal to six and
three tenths percent (6.3%) of the difference between the amount of such tax or
installment for the current year and the corresponding tax or installment paid
for the base year. Any increase in Real Estate Taxes due to an increase in the
assessed valuation of the land or building of which the demised premises forms a
part by reason of improvements made by a tenant or for the benefit of a tenant
shall be borne entirely by such tenant. Any increase in Real Estate Taxes due to
an increase in the assessed valuation of the land or building by reason of
improvements made by Tenant shall be borne by Tenant and paid by Tenant upon
demand by Landlord. The base year for this tax increase computation shall be the
Fiscal Year 1999/2000 for School Taxes and the Fiscal Year 1999 for General/
Town Taxes.
(b) Real Estate Taxes shall mean any and all taxes, assessments, sewer and
water rents, rates and charges, license fees, impositions, liens, fines,
penalties and all other municipal and governmental charges of any nature
whatsoever (except only inheritance and estate taxes and income taxes not herein
expressly agreed to be paid by Tenant), whether general or special, ordinary or
extraordinary foreseen or unforeseen which may presently or in the future become
due or payable or which may be levied, assessed or imposed by any taxing
authority on or with respect to all or any part of the land and building of
which the demised premises forms a part, or upon the estate or interest of
Landlord in the land or building of which the demised premises forms a part, or
any part thereof, including without limitation, all taxes and assessments for
improving any streets, alleys, sidewalks, sidewalk vaults and alley vaults, if
any.
2
<PAGE>
45th. INSURANCE:
(a) Tenant shall, at its sole cost and expense, at all times during the
term of this lease (and any extensions thereof) obtain and pay for and maintain
in full force and effect the insurance policy or policies described in Schedule
D attached hereto. Certified copies of all insurance policies required pursuant
to this lease (or certificates thereof, in form and substance reasonably
acceptable to Landlord), shall be delivered to Landlord prior to the
commencement of the term of this lease. If Tenant fails to submit such policies
or certificates to Landlord within the specified time, or otherwise fails to
obtain and maintain insurance coverages in accordance with this paragraph, then
Landlord, at Landlord's sole option, may, but shall not be obligated to, after
noticed to Tenant, procure such insurance on behalf of, and at the expense of,
Tenant. Tenant shall reimburse Landlord for such amounts upon demand, it being
understood that any such sums for which Tenant is required to reimburse Landlord
shall constitute additional rent.
(b) Tenant is hereby notified that until further notice from Landlord, the
name and address of the holder of the required insurance certificate and all
additional insureds/loss payees are set forth on Schedule "E".
46th. Not used.
47th. BROKER:
(a) Each party to this lease represents and warrants that no broker other
than SUTTON & EDWARDS, INC., was involved in this leasing. Each party to this
lease agrees to indemnify, defend, and hold harmless the other party for any and
all costs, expenses, and liability including legal fees incurred by the other
party as a result of a breach of the aforementioned warranty or any inaccuracy
or alleged inaccuracy of the above representation. Landlord agrees to pay the
broker the brokerage commission earned pursuant to a separate agreement with
said broker.
(b) If any lien shall be filed against the demised premises, or the
building of which same is a part, by any other broker based upon dealings with
Tenant, such lien shall be discharged by Tenant within thirty (30) days after
notice of filing thereof, at Tenant's expense, by payment or by filing the bond
required by law.
(c) If, by reason of Tenant's default hereunder, this lease shall
terminate prior to the expiration date, Tenant shall pay, as additional rent,
the unearned portion of broker's commission paid by Landlord calculated by
multiplying said broker's commission by a fraction of which the numerator shall
be the remaining balance of the lease term, or of any extension thereof for
which said broker's commission shall have been paid, and the denominator shall
be the lease term, or the term of such extension.
48th. TENANT'S REPAIRS/MAINTENANCE:
(a) TENANT REPAIRS:
(i) Tenant agrees that, from and after the commencement date of the
term of this lease and until the end of the term, it will, at its expense, keep
and maintain in good order, condition and repair (whether extraordinary,
foreseen or unforeseen), the interior of the demised premises and every part
thereof, including but not limited to, all heating, ventilation and air
conditioning equipment located in or servicing the demised premises (including
the air conditioner compressor, lines and
3
<PAGE>
ducts which may be located elsewhere in the building or on the land), interior
plumbing up to the exterior walls of the demised premises, including changes or
additions to the sprinkler system and interior electrical repairs, and plate
glass, excluding those repairs and replacements for which Landlord is
responsible, as herein expressly provided in paragraph 49th below. In addition,
Tenant shall make all repairs and replacements of any kind and nature
necessitated by any act or neglect of Tenant, its contractors, its servants,
agents or employees. Tenant shall maintain service contracts with contractors
approved by Landlord for the maintenance of the heating and air condition
systems throughout the term of this lease and shall provide Landlord with copies
of all such contracts.
(ii) If Tenant does not maintain or repair such elements as provided
in this Article, the Landlord may, but shall not be obligated to, after not less
than five (5) days additional notice (except in the case of emergency) make the
necessary repair or cure the defective condition at the expense of the Tenant
and the Tenant shall reimburse Landlord promptly upon request therefor. The
amount of such reimbursement shall be considered additional rent upon the
failure of the Tenant to reimburse Landlord within five (5) days of demand
thereof.
(b) VANDALISM:
Notwithstanding any contrary provision of this lease, Tenant, at its
expense, shall make any and all repairs including structural repairs to the
demised premises which may be necessitated by any break-in, forcible entry or
other trespass into or upon the demised premises if such entry and damage is
caused by the negligence or fault of Tenant or occurs during business hours.
(c) WINDOWS:
Tenant shall, at its own cost and expense, clean and maintain,
including repair or replacement when necessary, all windows in the demised
premises. Tenant shall keep and maintain insurance for all glass in the demised
premises naming Landlord as additional insured.
(d) RUBBISH REMOVAL AND REFUSE PICK-UP:
Tenant shall independently contract for and provide for the removal
at least biweekly of all garbage, refuse and rubbish, at its cost and expense.
Garbage and refuse shall be kept in containers or dumpsters to be placed in an
area reasonably designated by Landlord for such purpose. Garbage storage and
removal shall be subject to such rules and regulations as, in the reasonable
judgment of Landlord, are necessary for the proper operation of the Property.
(e) BUILDING CLEANING:
Tenant shall, at its cost and expense, take good care of and keep
clean and free from debris both the interior and exterior area immediately in
front of the demised premises including exterior sidewalks adjacent the demised
premises in a manner reasonably satisfactory to Landlord. No one other than
persons approved by Landlord shall be permitted to enter the demised premises or
the building of which it forms a part for the purpose of cleaning the demised
premises.
49th. LANDLORD'S REPAIRS, MAINTENANCE AND CLEANING:
(a) During the term of this lease, the Landlord shall make all structural
repairs to the demised premises except those which shall have been occasioned by
the acts of omission or commission of the Tenant, its agents, employees or
invitees. Tenant shall
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promptly give written notice to Landlord with respect to any damages to the
interior or exterior of the demised premises. Structural repairs are hereby
defined to be and limited to repairs to the roof deck, to the bearing walls and
foundation and the common building systems, if any.
(b) Cleaning of public hallways, public lobbies, public vestibules, and
public restrooms, including replacement of papers goods and parking lot snow
removal shall be the obligation of Landlord.
(c) STANDARD OF SERVICE:
The quality and level of service to be provided by Landlord shall be
in accordance with Landlord's standard for the Property.
50th. LANDLORD'S WORK:
Landlord shall, if required hereunder, alter the demised premises for the
Tenant in accordance with and subject to the terms of Landlord's Work Criteria
annexed hereto as Schedule B.
5lst. TENANT RESTRICTIONS:
(a) STORAGE/PARKING:
Tenant will not, at any time, use or occupy the area outside the
demised premises for storage of materials or for the overnight parking of
vehicles of any kind without the Landlord's prior written consent which may
arbitrarily withheld. Furthermore, Tenant will not at any time park vehicles in
any manner which will obstruct or interfere with the ingress or egress of other
vehicles or with the use by other tenants of their respective parking and
loading facilities or areas or cause any other parking problems.
(b) Tenant shall have the right to use in common with the other tenants in
the building parking spaces as provided by Landlord in the parking lot for the
parking of Tenant's automobiles and those of its employees and invitees subject
to the rules and regulations now or hereafter adopted by the Landlord.
(c) NOISE/ODORS:
Tenant covenants and agrees that throughout the demised term it
shall not suffer, allow or permit any offensive or obnoxious vibration, noises,
odor, or other undesirable effect to emanate from the demised premises, to
constitute a nuisance or otherwise unreasonably interfere with the safety,
comfort or convenience of Landlord or of any other occupants of the building of
which the demised premises forms a part, and upon Landlord's notice thereof to
Tenant, Tenant shall, within five (5) days thereof, eliminate or control same or
commence to cure within such five (5) day period and thereafter diligently
pursue same to completion if such cure cannot be completed within a five (5) day
period. If any such condition is not so remedied then Landlord may at its
discretion either: (a) remedy such condition and any cost and expense incurred
by Landlord therefore shall be deemed additional rent and paid by Tenant to
Landlord together with the next installment of rent due hereunder, or (b) treat
such failure on the part of the Tenant to remedy such condition as a material
default under the provisions of this lease on the part of the Tenant hereunder,
entitling Landlord to any of its remedies, pursuant to the terms of this lease.
In no event, however, shall the Tenant make any alteration, addition or
structural installation in or to the premises or any parts thereof to remedy or
cure such default without the prior written consent of the Landlord.
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(d) TOXIC/HAZARDOUS WASTES:
(i) Tenant shall not cause or permit any Hazardous Material (as
hereinafter defined) to be brought upon, kept or used in or about the demised
premises by Tenant, its agents, employees, contractors, subtenants or invitees,
except in diminimus amounts as used in the ordinary course of the business
conducted by Tenant at the demised premises and in compliance with all
Governmental Laws (as defined below). Tenant further covenants and agrees that
it shall not discharge any Hazardous Material in the ground or sewer disposal
system. If Tenant breaches the obligations stated in the preceding sentences, or
if the presence of Hazardous Material on the demised premises that is caused by
the acts, omissions or negligence of Tenant, its employees, agents, contractors,
subtenants or invitees, results in contamination of the demised premises or any
other part of the building or land of which it forms a part or if there is such
a discharge, then Tenant shall (A) immediately give Landlord written notice
thereof, and (B) indemnify, defend and hold harmless Landlord from any and all
claims, judgments, damages, penalties, fines, costs, liabilities or losses
(including, without limitation, diminution in value of the demised premises or
the building or land of which it forms a part, loss or restriction on use of
space in the building of land of which it forms a part, adverse impact on
marketing, sums paid in settlement of claims, attorneys', consultants' and other
expert fees) which arise during or after the term as a result of such breach,
contamination, or discharge. The foregoing indemnification includes, without
limitation, costs incurred in connection with any investigation of site
conditions or any clean-up, remedial, removal or restoration work required by
any federal, state or local governmental agency or political subdivision.
Without limiting the foregoing, if the presence of any Hazardous Material within
the demised premises caused or permitted by Tenant results in any contamination
of the demised premises or any other part of the building or land of which it
forms a part, Tenant shall promptly take all actions at its sole expense as are
necessary to return the demised premises or any other part of the building or
land of which it forms a part to the condition existing prior to the
introduction of any such Hazardous Material.
(ii) As used herein, the term "Hazardous Material" mean: (A)
asbestos, petroleum products, and polychlorinated biphenyls, and (B) hazardous
or toxic materials, wastes and substances which are defined, determined or
identified as such pursuant to all present and future federal, state or local
laws, rules or regulations and judicial or administrative interpretations
thereof (collectively "Governmental Laws").
(iii) Landlord and its agents shall have the right, but not the
duty, to inspect the demised premises at reasonable times upon reasonable notice
to determine whether Tenant is complying with the terms of this Article. If
Tenant is not in compliance with the provisions of this Article, Landlord shall
have the right to immediately enter upon the demised premises to remedy said
noncompliance at Tenant's expense and any expense incurred by Landlord shall be
paid by Tenant upon demand and shall be deemed additional rent. Landlord shall
use its best efforts to minimize interference with Tenant's business but shall
not be liable for any interference caused thereby.
52nd. LIMITATION OF LANDLORD'S LIABILITY:
(a) Tenant shall look solely to the then interest of Landlord in the
building and land of which it forms a part or to the then interest of the owner
therein (if Landlord is the agent of such owner) for the satisfaction of any
remedy of Tenant for Landlord's or such owner's failure to perform any of the
obligations of the Landlord hereunder. Neither Landlord nor any
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disclosed or undisclosed principal of Landlord (or officer, director,
stockholder, partner or agent of Landlord or of any such principal) shall have
any personal liability for any such failure under this lease or otherwise.
(b) There shall be no merger of Landlord's estate in the demised premises
with Tenant's estate therein by reason of the fact that the same individual,
partnership, firm or corporation or their entity may acquire or own such estates
directly or indirectly. No such merger shall occur until all individuals,
partnerships, firms, corporations and other entities having any interest in such
estates, including any mortgagee, join in a written instrument effecting such
merger and duly record it.
53rd. UTILITIES:
(a) Upon the execution hereof, Tenant must make immediate application to
the appropriate utility company for electric and/or gas service and Tenant shall
forthwith deliver to Landlord a true copy of such application with proof of
payment of any deposit required by such utility company for electric service and
gas service.
(b) Notwithstanding anything previously written anywhere in this lease,
Tenant shall bear the cost and expense of:
(i) all electricity in their demised premises.
(ii) fuel for heating purposes in their demised premises.
54th. TENANT'S FAILURE TO VACATE:
In the event the Tenant does not vacate the demised premises upon the
expiration date of this lease, or upon the expiration of any extension or
renewal thereof, then and in that event the Tenant shall remain as a month to
month Tenant at a monthly rental one and one-half times the monthly rent payable
in the last month of the term of this lease plus l/12 of the previous year's
charges for all additional rent due under this lease all payable as aforesaid.
The acceptance by the Landlord of such rental after the expiration date of this
lease shall not be construed as consent to such continued occupancy.
55th. ASSIGNMENT/SUBLET:
Tenant covenants that it shall not assign this lease nor sublet the
demised premises or any part thereof without the prior written consent of
Landlord in each instance, which consent shall not be unreasonably withheld to
an assignment or subletting provided:
(a) Such assignment or sublease shall be for a use which is in compliance
with the then existing zoning regulations and the Certificate of Occupancy for
the demised premises or the building, and consistent with the use hereinabove
set forth;
(b) At the time of the effectiveness of such assignment or subletting,
Tenant shall not be in default beyond any applicable notice and cure periods
under the terms, covenants, agreements and conditions of this lease;
(c) In the event of an assignment, the assignee must assume in writing the
performance of all of the terms, covenants, conditions, agreements and
obligations of the within lease;
(d) A duly executed duplicate original of said assignment or sublease must
be delivered by Certified Mail, Return Receipt Requested to the Landlord at the
address herein set forth not less
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<PAGE>
than ten (l0) days before the effective date of said assignment or sublease;
(e) Such assignment or subletting shall not, however, release the within
Tenant from its liability for the full and faithful performance of all of the
terms, covenants, agreements, and conditions of this lease, including the
payment of rent and additional rent;
(f) If this lease shall be assigned, or if the demised premises or any
part thereof be sublet, underlet or occupied by anyone other than Tenant,
Landlord may after default by Tenant, collect rent from the assignee, subtenant,
undertenant or occupant, and apply the net amount collected to the rent herein
reserved or additional rent due hereunder.
(g) Notwithstanding anything contained in this paragraph to the contrary,
no assignment, subletting, or underletting shall be made by the Tenant in any
event to an existing tenant of Landlord at the building.
(h) Such notice of proposed assignment or proposed sublet shall be deemed
Tenant's offer to terminate this lease as of the last day of the calendar month
during the term hereof immediately preceding the commencement of such sublease
or the effective date of such assignment and to vacate and surrender the demised
premises to Landlord on the date fixed in the notice. If Landlord within thirty
(30) days after the receipt thereof has not accepted in writing the offer by
Tenant to cancel and terminate said lease and to vacate and surrender the
demised premises, the lease shall remain in full force and effect and Landlord
shall not unreasonably withhold its consent to the proposed assignment or
sublet.
(i) As additional security for the prompt payment of the rent herein
reserved to Landlord, and for the faithful performance and punctual observance
of all the other terms, covenants, agreements, and conditions herein contained,
Tenant hereby assigns to Landlord all of Tenant's rights, title, and interest in
and to any sublease which may be made by Tenant affecting the demised premises,
or any part thereof, and in and to the rents due or to become due under the
terms of any such sublease. The aforesaid assignment shall take effect, however,
only in the event of any default hereunder made or suffered by Tenant and after
written notice given by Landlord to the subtenant or subtenants, as the case may
be, and shall take effect as to such of said subleases as Landlord shall elect
to continue in full force and effect.
(j) If Tenant assigns this lease or sublets the demised premises in
violation of the provisions of this Article 55, Landlord may, without waiving
any other rights or remedies, elect to double the annual rental rate payable
under the terms of this lease for the period of such unlawful occupancy
commencing with the date of such assignment or subletting.
56th. COMMENCEMENT DATE:
In the event that the term of this lease commences on a date other than
the first of the month, the rent for the second month shall be prorated, and the
rent for the third month shall commence on the first day of the month.
57th. TERMINATION:
At the expiration of the term of this lease or upon the early termination
of this lease, Tenant shall deliver to Landlord any and all equipment belonging
to Landlord in working condition, including equipment installed or replaced by
the Tenant. The
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Tenant further agrees to deliver to Landlord any and all guarantees on new and
replaced equipment.
58th. DEFAULT:
Notwithstanding any provisions in the lease permitting Tenant to cure any
default within a specified period of time, if Tenant shall default (i) in the
timely payment of rent or additional rent, and such default shall continue or be
repeated for two consecutive months or for a total of four months in any period
of twelve months or (ii) in the performance of any material term, condition or
covenant of this lease more than two times in any period of six months then,
notwithstanding that such defaults shall have each been cured within the period
after notice, if any, as provided in this lease, any further similar default
shall be deemed to be deliberate and Landlord thereafter may cancel or terminate
this lease as provided in Article 17 hereof without affording to Tenant an
opportunity to cure such further default.
59th. MISCELLANEOUS:
(a) This lease is transmitted for examination only and does not constitute
an offer to lease. This lease shall become effective only upon execution hereof
by the parties hereto.
(b) This instrument contains the entire and only agreement between the
parties. No oral statements or representations or prior written matter not
contained herein shall have any force or effect.
(c) This lease shall not be modified, changed, or amended in any way or
canceled, terminated or abridged except by a writing subscribed by both parties.
(d) Any reference in the printed portion of this lease to the City of New
York and the Administrative Code of the City of New York shall, where
applicable, be deemed to refer to the ordinances, rules and regulations of the
county, town, village and other governmental authorities with jurisdiction over
the demised premises.
(e) If any term or provision of this lease or the application thereof to
any person or circumstances shall, to any extent, be invalid or unenforceable,
the remainder of this lease, or the application of such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby and each term and provision of this
lease shall be valid and enforced to the fullest extent permitted by law.
(f) This agreement shall be governed by and construed in accordance with
the laws of the State of New York.
(g) Neither this lease nor any memorandum hereof shall be recorded without
Landlord's prior written consent.
(h) Each provision of this Lease which requires the consent or approval of
Landlord shall be deemed to require the same in each instance in which such
provision may be applicable. Any consent or approval by Landlord to or of any
act or omission by Tenant requiring Landlord's consent or approval shall not be
deemed to waive any future requirement for such consent or approval to or of any
subsequent similar act or omission.
(i) With respect to any provision of this lease which provides, in effect,
that Landlord shall not unreasonably withhold or unreasonably delay any consent
or any approval, Tenant, in no event, shall be entitled to make, nor shall
Tenant make, any claim for, and Tenant hereby waives any claim for money damages
nor shall Tenant claim any money damages by way of setoff,
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counterclaim or defense, based upon any claim or assertion by Tenant that
Landlord has unreasonably withheld or unreasonably delayed any consent or
approval; but Tenant's sole remedy shall be an action or proceeding to enforce
any such provision, or for specific performance, injunction or declaratory
judgment.
60th. Not used.
61st. Not used.
62nd. LIEN PROHIBITION:
Nothing contained in this lease shall be deemed to be, or construed in any
way as constituting, the consent of Landlord to any person for the performance
of any labor or the furnishing of any materials at or to the demised premises or
the building and land of which the demised premises are a part, nor as giving
Tenant any right, power or authority to contract or permit the performance of
any labor or the furnishing of any material which might give rise to the right
to record or file a lien against the demised premises or the real property of
which the demised premises are a part or against the interests therein of
Landlord or Tenant, it being intended that all persons who may perform any labor
or furnish any materials to Tenant at the demised premises shall look only to
the credit of Tenant and such security as Tenant may furnish to such persons for
the payment of all such labor and materials. Landlord does not consent to the
recording or filing of any mechanics' or other liens against the leased premises
or the real property of which the demised premises are a part or the interest of
Landlord or Tenant therein.
63rd. NOTICES:
Any notice required to be given by either party pursuant to this lease,
shall be in writing and shall be deemed to have been properly given, rendered or
made only if personally delivered, or if sent by Federal Express or other
comparable commercial overnight delivery service, addressed to the other party
at the addresses set forth below (or to such other address as Landlord or Tenant
may designate to each other from time to time by written notice), and shall be
deemed to have been given, rendered or made on the day so delivered or on the
first business day after having been deposited with the courier service:
If to Landlord: First Industrial, L.P.
311 South Wacker Drive
Suite 4000
Chicago Illinois 60606
Attn: Vice President - Portfolio Management
With a copy to: First Industrial Realty Trust, Inc.
575 Underhill Boulevard
Suite 125
Syosset, New York 11791
Attn: Regional Director
With a copy to: Barack, Ferrazzano, Kirschbaum & Perlman
333 West Wacker Drive
Suite 2700
Chicago, Illinois 60606
Att: Howard Nagelberg and Suzanne Bessette-Smith
If to Tenant: At the demised premises or as set forth below.
64th. RENT PAYMENTS:
All rent and additional rent and all other sums and charges due under this
lease, shall be paid to Landlord in accordance with
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the payment directions attached hereto as Schedule C or pursuant to such other
directions as Landlord shall designate in this lease or otherwise.
65th. SUBORDINATION AND ATTORNMENT:
(a) This lease, and all rights of Tenant hereunder, are subject and
subordinate to all ground leases of the land and building of which the demised
premises forms a part (the "Property") now or hereafter existing and to all
mortgages or trust deeds or deeds of trust and all renewals, modifications,
replacements and extensions thereof; and to all "Spreaders" and consolidations
thereof (all of which are hereafter referred to collectively as "Mortgages"),
that may now or hereafter affect or encumber all or any portion of Landlord's
interest in the Property. This subordination shall apply to each and every
advance made, or to be made, under such Mortgages. This paragraph shall be
self-operative and no further instrument of subordination shall be required,
however, in confirmation of such subordination, Tenant shall, from time to time,
execute acknowledge and deliver any instrument that Landlord may, from time to
time, reasonably require in order to evidence or confirm such subordination. If
Tenant fails to execute, acknowledge or deliver any such instrument within
twenty (20) days after request therefor, Tenant hereby irrevocably constitutes
and appoints Landlord as Tenant's attorney-in-fact, which appointment is coupled
with an interest, to execute and deliver any such instruments for and on behalf
of Tenant. Tenant acknowledges that this lease and the rents due under this
lease have been (and, in the future, may be) assigned by Landlord to a Superior
Mortgagee (defined below) as additional collateral security for the loans
secured by the Superior Mortgage (defined below) held by such Superior
Mortgagee. Any ground lease to which this Lease is subject and subordinate is
hereafter referred to as a "Superior Lease", the Lessor under a Superior Lease
is hereinafter referred to as a "Superior Lessor," and the lessee thereunder, a
"Superior Lessee" and any Mortgage to which this Lease is subject and
subordinate is hereinafter referred to as a "Superior Mortgage" and the holder
of a Superior Mortgage is hereinafter referred to as a Superior Mortgagee.
(b) In the event that Landlord breaches or otherwise fails to timely
perform any of its obligations under this lease, Tenant shall give, by
registered or certified mail, return receipt requested, written notice of such
alleged breach or default to Landlord and to each Superior Mortgagee and
Superior Lessor whose name and address shall previously have been furnished, in
writing, to Tenant. Any or all of Landlord, a Superior Mortgagee or Superior
Lessor may remedy or cure such breach or default within thirty (30) days
following the giving of such notice; provided, however, that said thirty (30)
day cure period shall be automatically extended in the event that the breach or
default cannot, by its nature, be cured within thirty (30) days and one or more
of Landlord, the Superior Mortgagee or the Superior Lessor is diligently
proceeding to cure said default.
(c) If any Superior Lessor or Superior Mortgagee (whether by receiver or
otherwise) shall succeed to the rights of Landlord hereunder or comes into
possession of the Property or any part thereof, then, at the request of such
party (hereinafter referred to as a "Successor Landlord"), Tenant shall attorn
to and recognize each Successor Landlord as Tenant's landlord under this lease
and shall promptly execute and deliver any instrument such Successor Landlord
may reasonably request to further evidence such attornment. Tenant hereby
acknowledges that in the event of such succession, then from and after the date
on which the Successor Landlord acquires Landlord's rights and interest under
this lease (the "Succession Date"), the rights and remedies available to Tenant
under this Lease with respect to any obligations of any Successor Landlord shall
be limited to the equity interest of the
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Successor Landlord in the Property; and the Successor Landlord shall not (i) be
liable for any act, omission or default of Landlord or other prior lessor under
this lease if and to the extent that such act, omission or default occurs prior
to the Succession Date and is not continuing; (ii) except as required under
Paragraphs 49 and Paragraph 9 of this lease, be required to make or complete any
tenant improvements or capital improvements or to repair, restore, rebuild or
replace the demised premises or any part thereof in the event of damage casualty
or condemnation; or (c) be required to pay any amounts to Tenant that are due
and payable, under the express terms of this lease, prior to the Succession
Date. Additionally, from and after the Succession Date, Tenant's obligation to
pay the annual rental rate or additional rent or any other sum due the Landlord
under this lease, shall not be subject to any abatement, deduction, set-off or
counterclaim against the Successor Landlord that arises as a result of, or due
to, a default of Landlord or any other lessor that occurs prior to the
Succession Date. Moreover, no Successor Landlord shall be bound by any advance
payments of the annual rental rate or additional rent or any other sum due the
Landlord under this lease made prior to the calendar month in which the
Succession Date occurs, unless provided for herein, nor by any Security that is
not actually delivered to, and received by, the Successor Landlord. The
provisions of this Paragraph 65th(c) shall be self operative upon demand of such
Superior Lessor or Superior Mortgage and no further instrument shall be required
to give effect to such provisions.
66th. FURTHER RE: PARAGRAPHS l3, 19 AND 20:
In the exercise of any of its rights under paragraphs 13, l9 and 20,
Landlord shall use commercially reasonable efforts to avoid interference with
Tenant's use of the demised premises but shall not have any obligation to
perform work other than during business hours and except in an emergency provide
reasonable advance telephonic notice before exercising such rights.
67th. ASSIGNMENT/SUBLETTING TO RELATED ENTITY:
Tenant shall have the right subject to the terms and conditions
hereinafter set forth without the consent of Landlord, to assign its interest in
this lease to (i) a corporation or other entity which shall (A) control Tenant
or (B) be under the control of or be under common control with, Tenant or (C)
any corporation or entity with which Tenant consolidates or merges or (D)once
during the term of this lease, an entity ("Acquiror") which acquires all or
substantially all of the business and assets of, or of the corporate stock of
Tenant provided the net worth of such Acquiror shall be equal to or greater than
the net worth of the Tenant on the date hereof ,(any such entities or any
corporation with which Tenant consolidates or merges being a "Related Entity").
Tenant may also sublease all or any portion of the demised premises to a Related
Entity without the consent of Landlord. Any assignment or subletting described
above may only be made upon the condition that (i) any such assignee or
subtenant shall continue to use the demised premises for uses permitted by
Article 2 (ii) the principal purpose of such assignment or sublease is not the
acquisition of Tenant's interest in this lease (except if such assignment or
sublease is made to a Related Entity and is made for a valid intracorporate
business purpose and is not made to circumvent the provisions of this lease
governing assignment or subletting). Tenant shall within ten (l0) days after
execution thereof deliver to Landlord (i) a duplicate original instrument of
assignment in form and substance reasonably satisfactory to Landlord, duly
executed by Tenant, (ii) a duplicate original instrument in form and substance
reasonably satisfactory to Landlord, duly executed by the assignee, in which
such assignee shall assume observance and performance of, and agree to be
personally bound by, all of the terms, covenants and conditions of
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the lease, on Tenant's part to be observed and performed from and after the date
of such assignment, or (iii) a duplicate original sublease in substance
reasonably satisfactory to Landlord, duly executed by Tenant and the subtenant.
68th. SIGNS:
Anything to the contrary herein notwithstanding, the Tenant is given
permission to erect a sign on the exterior door of the demised premises
provided:
(a) Said sign shall comply with all rules and regulations of any governing
authorities having jurisdiction thereof.
(b) Said sign shall not interfere with the signs of any other tenants.
(c) Said sign shall be installed without damage to the building.
(d) Said sign shall be subject to the prior written approval of the
Landlord, it being the intention of the Landlord which shall not be unreasonably
withheld that the sign to be erected by the Tenants of the building shall
conform to a uniform format and plan.
69th. FURTHER RE: ARTICLES 4 AND 49TH (MAINTENANCE AND REPAIRS):
(a) The failure of Tenant to give any notice required under Article 4
shall not relieve Landlord of its obligations hereunder provided that Landlord
shall have actual knowledge of such defective condition(s). All repairs which
would otherwise be the responsibility of Tenant shall be made promptly by, and
at the sole expense of Landlord, if and to the extent such repairs become
necessary by reason of the negligence or misconduct of Landlord or of Landlord's
agents, employees or contractors.
(b) In making repairs, alterations, additions or improvements under
Article 4th and 49th, Landlord shall use commercially reasonable efforts to
minimize disruption of Tenant's business operations but shall not have any
obligation to perform work other than during business hours, and except in an
emergency provide reasonable advance telephonic notice before exercising such
rights.
70th. TENANT ALTERATIONS:
Tenant, at its sole cost and expense, may install a generator and diesel
fuel source therefor in a location reasonably designated by Landlord outside the
demised premises. Landlord shall be reasonable in its approval of plans
therefor. Any such alterations made by Tenant shall be made in and the manner
permitted by this lease, using new materials, and shall be performed in a good
and workmanlike manner. All plans prepared by Tenant in connection with such
alterations shall be delivered to Landlord prior to commencement of any work by
Tenant. Tenant shall also obtain, when appropriate, as built plans for all such
work and provide copies thereof to Landlord. All installations and equipment
installed by Tenant shall be maintained, repaired and replaced by Tenant, at
Tenant's expense. Tenant shall remove such installations and equipment at the
termination of the term of this
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lease and shall restore the affected area to its original condition.
FIRST INDUSTRIAL, L.P., a Delaware
Limited Partnership
BY: FIRST INDUSTRIAL REALTY TRUST, INC.,
a Maryland Corporation, General Partner
BY: /s/ [ILLEGIBLE] REGIONAL DIRECTOR
-------------------------------------
EYECITY.COM, INC.
BY: /s/ MARK R. SUROFF
-------------------------------------
MARK R. SUROFF
EXECUTIVE VICE PRESIDENT
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SCHEDULE "A"
RENTAL SCHEDULE
COMMENCEMENT DATE: The day after substantial completion of Landlord's Work
set forth in Landlord's Work Criteria and notice thereof
to Tenant.
EXPIRATION DATE: The last day of the Fifth Lease Year.
LEASE YEAR: The term "Lease Year" shall mean a period of time
conforming to the following: The first "Lease Year" of
the term of this lease shall mean the period beginning
on the Commencement Date and ending on the date 12
months after the first day of the first month following
the Commencement Date, unless the Commencement Date is
the first day of a month, in which case the first Lease
Year shall terminate on the date 12 months after the
Commencement Date; the second Lease Year of the term of
this lease shall commence on the day following the last
day of the first Lease Year and end l2 months
thereafter; and succeeding Lease Years during the term
of this lease shall commence and end on dates
corresponding to those on which the second Lease Year
begins and ends.
TERM MONTHLY ANNUALLY
---- ------- --------
FIRST LEASE YEAR $4,129.69 $49,556.25
SECOND LEASE YEAR $4,294.87 $51,538.50
THIRD LEASE YEAR $4,467.40 $53,608.85
FOURTH LEASE YEAR $4,647.28 $55,767.30
FIFTH LEASE YEAR $4,834.48 $58.013.85
OPERATING RENT
MONTHLY ANNUALLY
------- --------
$128.48 $1,541.75
EXTENSION OPTION:
Upon condition that the Tenant is not then in default of any of the terms,
covenants and conditions of this lease to be performed by Tenant, beyond any
applicable notice and cure periods, Tenant may at Tenant's election extend the
term of this lease upon the following terms and conditions:
(a) Notice of election to extend must be given by Tenant to Landlord by
certified mail, return receipt requested, no later than the last day of the
sixth month of the FIFTH LEASE YEAR, the time and manner of the notice shall be
of the essence. If the procedures herein are not properly followed, this option
shall become null and void.
(b) In the event the option is exercised, the term of this lease shall be
extended for a period of two (2) years commencing on the first day after the
last day of the FIFTH LEASE YEAR and ending two (2) years thereafter (the
"Extended Term") upon all of the terms, covenants, provisions, and conditions of
this lease, except that the Rental Schedule shall be as provided in
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subparagraph (c), The Operating Rent shall be adjusted to the amount set forth
below and Tenant shall have no further right to extend this lease.
(c) During the Extended Term the annual rental rate and monthly
installments thereof shall be:
TERM MONTHLY ANNUALLY
---- ------- --------
SIXTH LEASE YEAR $5,027.86 $60,334.40
SEVENTH LEASE YEAR $5,228.98 $62,747.77
(d) This option to extend is personal to the Tenant named herein and shall
not be exercisable by an assignee or a sub- lessee.
OPERATING RENT
MONTHLY ANNUALLY
------- --------
$183.54 $2,202.50
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SCHEDULE "B"
LANDLORD'S WORK CRITERIA
EYECITY.COM, INC.
EXPRESS ST.
6-23-99
Tenant acknowledges and agrees to accept the Demised Premises in its "as is"
condition in all respects as of the date hereof, except for "Landlords Work."
Landlords work shall mean and be strictly limited to the construction as
indicated on the plans attached to this lease (if applicable) and made part of
thereof and as described below. In the event of a discrepancy between the plan
and this work letter, the work letter shall take precedence.
1. Utility service to demised Premises:
a. Electric Existing separately metered service.
b. Gas Existing separately metered service.
c. Sanitary Existing (modified as noted on plan and below).
d. Utility
Service Tenant to apply to utility company for electric and gas
service immediately upon receipt of Delivery of
possession from Landlord. Landlord will discontinue such
service (in Landlords name) 72 hours following Delivery
of Possession.
2. Demise the premises for electric and gas from all existing sections of the
building.
3. Remove all existing flooring and cove base not scheduled to remain and
that do not conform to the plan. Remove all debris from premises.
4. New building standard 3'-0" x 7'-0" hollow metal exit door with panic
hardware where indicated on plan. Add new set of stairs as required.
5. New building standard ceiling high and half wall height interior drywall
partitions where indicated on plan. Partitions to be 3 5/8" metal studs
spaced @ 16" O.C. with 5/8" drywall each side.
6. New building standard 3'-0" x 7'-0" interior solid core oak or birch wood
doors with metal frames and brushed aluminum lever latchset hardware as
required in order to conform to new layout.
7. Existing building standard ceiling grid and acoustical ceiling tile is to
remain as is throughout. Replace damaged, stained or broken tiles as
required.
8. Existing lighting is to remain, rewired and relocated as required in order
to conform to new layout. Replace damaged, stained or broken lens covers
as may be required.
9. Exit signs and emergency lighting to be returned to working order and
added as required.
10. Existing duplex wall outlets to be delivered in working order. New
building standard duplex wall outlets where indicated on plan. Install one
(1) dedicated duplex wall outlet in location as directed by Tenant.
11. Existing HVAC is to be delivered in good working order. Ductwork,
registers and controls are to be modified and added, as required, in order
to conform to new layout.
12. Building standard paint finish throughout. Color selection by Tenant from
samples provided by Landlord. Limit one color per room or contiguous open
area.
13. Building standard flooring to remain "as is" and be professionally
cleaned.
14. Building standard VCT throughout the bathrooms and entry. Color selection
by Tenant from samples provided by Landlord. Limit one (1) color per room
or contiguous open area. Vinyl cove base throughout.
15. Landlord is not responsible for telephone, computer, data or communication
wiring and all associated conduit and equipment required for such.
Landlord is not responsible for the wiring or connecting of Tenants
equipment unless noted above.
Landlord's work shall be deemed substantially completed notwithstanding the fact
that (I) minor or insubstantial details of construction, mechanical adjustment
or decoration remain to be performed or (II) portions of Landlord's work have
not been completed because under good construction scheduling, such work should
not be done after still incomplete finishing or other work to be done by Tenant
is completed.
Any additional work that Tenant authorizes the Landlord to perform will be at
the sole cost and expense of the Tenant and will include a fee of 15% of the
actual cost to the Landlord for the Landlord's supervision and overhead. Tenant
will execute a Work Authorization Form prepared by the Landlord and issue a
check for the full amount of the cost of such work (including 15%) PRIOR to the
Landlord performing any such work.
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SCHEDULE "C"
RENT PAYMENT DIRECTIONS
MAILING DIRECTIONS:
Rent sent through the U.S. Postal Service (other than by overnight delivery)
shall be addressed as follows:
FIRST INDUSTRIAL, L.P.
P.O. BOX 13581
NEWARK, NEW JERSEY 07188-3581
COMMERCIAL OVERNIGHT
DELIVERY DIRECTIONS:
Rent sent by a commercial overnight delivery service such as Federal Express,
UPS, First Priority Overnight Mail or other comparable overnight delivery
service shall be addressed as follows:
FIRST CHICAGO NATIONAL PROCESSING CORP.
300 HARMON MEADOW BLVD., 3RD FLOOR
SECAUCUS, NJ 07094
ATTN: FIRST INDUSTRIAL L.P. BOX 13581
NOTE: ALL CHECKS SHOULD BE MADE PAYABLE TO FIRST INDUSTRIAL, L.P.
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LEASE SCHEDULE "D"
REQUIRED INSURANCE
(a) "All-Risk" Property and Loss of Income Coverage for Tenant's Property.
"All Risk" (i) property insurance on a replacement cost basis, covering all
merchandise, movable non-structural partitions, business and trade fixtures,
machinery and equipment, communications equipment and office equipment, whether
or not attached to, or built into, the demised premises, which are installed in
the demised premises by, or for the account of, Tenant without expense to
Landlord and that can be removed without structural damage to the Property, and
all furniture, furnishings and other articles of movable personal property owned
by Tenant and located in the demised premises (collectively, the "Tenant's
Property"), all in an amount not less than the full replacement cost of all such
property and (ii) rental loss insurance in an amount sufficient to assure that
Landlord shall recover the loss of any rental income due and owing to Landlord
from Tenant under the terms of this lease, which coverage shall provide such
protection to Landlord for a period of not less than twelve (12) consecutive
months. The total amount of the deductible required under each policy providing
such coverage shall be no more than $1,000.00 per loss. Landlord shall be
provided with reasonable proof of such coverage.
(b) Liability Coverage. Commercial general public liability and
comprehensive automobile liability (and, if necessary to comply with any
conditions of this Lease, umbrella liability insurance) covering Tenant against
any claims arising out of liability for bodily injury and death and personal
injury and advertising injury and property damage occurring in and about the
demised premises, and/or the Property and otherwise resulting from any acts and
operations of Tenant, its agents and employees, with limits of not less than
total limits of $2,000,000.00 per occurrence and $3,000,000.00 annual general
aggregate, per location. The total amount of a deductible or otherwise
self-insured retention with respect to such coverage shall be not more than
$10,000.00 per occurrence. Such insurance shall include, inter alia: (i)
"occurrence" rather than "claims made" policy forms unless such "occurrence"
policy forms are not available; (ii) any and all liability assumed by Tenant
under the terms of this lease, to the extent such insurance is available; (iii)
premises medical-operations expenses in an amount not less than $5,000.00 per
person, per accident; (iv) Landlord, Agent and any other parties designated by
Landlord or Agent (including, but not limited to, its beneficiary, its general
and limited partners, and Superior Mortgagees and/or Superior Lessors) shall be
designated as Additional Insured(s) with respect to (x) the demised premises,
and (y) all operations of Tenant, and (z) any property and areas and facilities
of Landlord used by Tenant, its employees, invitees, customers or guests; and
(v) severability of insured parties and cross-liability so that the protection
of such insurance shall be afforded to Landlord and its designees in the same
manner as if separate policies had been issued to each of the insured parties.
(c) Workers' Compensation Coverage. Workers' compensation and employer's
liability insurance in the state in which the demised premises and any other
operations of Tenant are located and any other state in which Tenant or its
contractors or subcontractors may be subject to any statutory or other liability
arising in any manner whatsoever out of the actual or alleged employment of
others. The total limits of the employer's liability coverage shall be not less
than the amounts specified in Subparagraph (b) above.
(d) Other Coverage. Such other policy or policies as are either: (i)
reasonably required of Landlord by any Superior
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Mortgagee, Superior Lessor, or any other party having any interest in the
Property; or (ii) deemed reasonably necessary by Landlord; or (iii) required by
insurers by reasons of a change in Tenant's use of, or activities at, the
demised premises.
All insurance policies required under this lease Schedule shall: (i) be issued
by companies licensed to do business in the State in which the Property is
located and reasonably acceptable to Landlord and any Superior Mortgagees,
Superior Lessors and any other party having any interest in the Property; (ii)
not be subject to cancellation or material change or non-renewal without at
least thirty (30) days' prior written notice to Landlord and any other parties
designated by Landlord (A) to be loss payee(s) or additional insured(s) under
the insurance policies required from Tenant, or (B) to receive such notices;
(iii) be deemed to be primary insurance in relation to any other insurance
maintained by Landlord or Agent; and (iv) at the sole option and discretion of
Landlord, include other appropriate endorsements or extensions of coverage as
would be required of Landlord by any Superior Mortgagees, Superior Lessors or
any other party having any interest in the Property.
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SCHEDULE "E"
INSURANCE CERTIFICATE HOLDER/ADDITIONAL INSUREDS/LOSS PAYEES
CERTIFICATE HOLDER:
FIRST INDUSTRIAL, L.P.
575 Underhill Boulevard
Suite 125
Syosset, New York 11791
Attention: Operations
LOSS PAYEE (BUSINESS INTERRUPTION COVERAGE):
FIRST INDUSTRIAL, L.P.
311 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Portfolio Management
ADDITIONAL INSUREDS:
FIRST INDUSTRIAL, L.P. and
FIRST INDUSTRIAL REALTY TRUST, INC.
311 South Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Portfolio Management
21
LEASE
This lease dated this 28th day of June, 1999, between PLAZA ASSOCIATES, whose
address is c/o Labovitz Enterprises, a Minnesota partnership, having an address
at 880 Missabe Building, Duluth, Minnesota 55802 ("Lessor"), and PEEPERS, INC.,
a Delaware corporation, having an address at 1 Fairchild Court, Plainview, New
York 11803 ("Lessee").
1.1 PREMISES. Lessor hereby demises and Lessee hereby leases the premises
constituting part of Plaza Shopping Center, Duluth, Minnesota, situated at the
location designated on the attached Exhibit A, comprising of approximately
10,770 square feet in area.
1.2 TERM. To have and to hold the demised premises from the "Lease
Commencement Date" (as defined in Section 5.4 hereof), though the 30th day of
June, 2004. Provided no Event of Default has occurred under this Lease which is
continuing at the time of the exercise of the option, Lessee shall be granted
five (5) additional three year options to extend this lease. A 120 day prior
notice period is required to exercise each option.
2.1 FIXED RENT. Lessee agrees to pay Lessor during the lease term, without
any prior demand and without any set offs or deductions whatsoever, the sum of
$4,263.13 per month beginning on the "Lease Commencement Date" through June 30,
2000, (designated fixed rent) payable in advance on the first day of each and
every calendar month. Said rent shall increase annually according to the
following schedule: beginning July 1, 2000 through June 30, 2001, rent shall be
$5,160.63 per month; and beginning July 1, 2001 through June 31, 2004, rent
shall be $6,058.13 per month. Fixed rent during the five (5) three year option
periods to extend this lease shall escalate four percent (4%) annually each July
1st.
2.2 LATE PAYMENTS. If Lessee shall fail to pay any rents, additional rents
or other charges within 10 days after the same become due and payable, such
unpaid amount shall bear interest from the due date thereof until the date of
payment at the rate of ten percent (10%) per annum.
3.1 SECURITY DEPOSIT. Lessee has deposited with the Lessor the sum of
$4,263.13 as a security deposit to be held by Lessor, without liability for
interest thereon, as security for performance by the Lessee of each and every
term, covenant and condition of this Lease incumbent upon Lessee. Upon
expiration of the term of this Lease, provided no Event of Default has occurred
under this Lease which is continuing, Lessee has removed all of Lessee's
equipment and trade fixtures that Lessor requests be removed, and Lessee has
caused any damage to the premises then existing to be repaired, this deposit
shall be remitted to Lessee; but if Lessee fails in such compliance, Lessor may
expend from such deposit the cost of putting Lessee in compliance. Any cost in
excess of the security deposit shall constitute additional rent surviving
termination of the Lease, and any balance remaining shall be remitted to Lessee.
4.1 USE. Lessee shall use the demised premises for general office space,
including, but not limited to, for the sale (on and from the premises via
telephone, catalogs, mail and Internet), warehouse, shipping and fulfillment of
orders for eye wear, binoculars and other related items, and Internet related
services, and for any and all other lawful purposes. Lessee shall, during the
term of this lease, occupy and use the demised premises for the purpose stated
herein except only when such premises are rendered untenantable as by reason of
fire or other casualty. Lessee shall operate its business in
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the demised premises under the name Peeper's, EyeCity.com, or such trade name as
Lessee shall reasonably select.
5.1 CONDITION OF PREMISES. Lessee has inspected the demised premises and
accepts the same AS IS without any further obligation of Lessor to make any
betterment's or improvements whatsoever. Lessee assumes responsibility for all
repairs and remodeling of the demised premises, including the installation of
new signage pursuant to the Exhibit B.
5.2 RENOVATION WORK. Prior to Lessee's taking possession of the demised
premises, certain remodeling and renovation of the demised premises (the
"Renovation Work") shall occur. A description of the Renovation Work is set
forth on Exhibit C attached hereto. Lessor is hereby granted the prior right to
reasonably approve and review all remodeling and renovation plans for the
Renovation Work to insure that said plans reasonably comply with all codes and
the appearance of the shopping center. It is anticipated that the time for the
completion of the Renovation Work shall be approximately two (2) months.
5.3 LESSOR'S CONTRIBUTION. In connection with the Renovation Work, Lessor
shall contribute the sum of $325,000 in cash or readily available funds to
assist in the payment for the Renovation Work. Lessor's payment of said $325,000
shall be made as set forth in this section. Upon submission of bills or invoices
to Lessor requesting payment for the labor, materials or services utilized in
connection with the Renovation Work, Lessor shall be responsible for the payment
thereof. Lessor may pay each bill or invoice as it is submitted, or Lessor may
hold all the bills and invoices and make lump payments of up to $162,500.00
(half of said $325,000.00) at the end of each 30 day period during the 2 months
that the Renovation Work is being performed. A committee (the "Committee") shall
be appointed by Lessor consisting of Joel Labovitz, Dan Thralow and the
architect overseeing the remodeling and renovation (which as of the date hereof
is Greg Zaun) which shall approve all such requests for payment. In the event
such requests are approved, Lessor shall promptly pay such bills and invoices.
In the event that the Committee disapproves a request for payment, the Committee
shall give Lessee prompt notice thereof, which notice shall set forth the
specific reasons for disapproval. All decisions of the Committee shall be final.
Lessor may withhold a portion of the final payment until such time that Lessor
receives lien waivers from the suppliers of the labor, materials or services for
the Renovation Work or until all "punch list" items have been completed.
5.4 LESSEE'S INSPECTION; LEASE COMMENCEMENT DATE. Upon completion of the
Renovation Work and upon approval by the Committee of the payment of the
outstanding bills and invoices, Lessor shall notify Lessee thereof, and Lessee
shall have the right to inspect the Renovation Work. This Lease shall commence
on the date which is the earlier to occur of (i) Lessee taking occupancy of the
demised premises or (ii) thirty (30) days after the date that the Committee
approves the final request for payment and has fully disbursed the $325,000.00
Lessor's Contribution (said date being referred to herein as the "Lease
Commencement Date").
6.1 OPERATION. Lessee agrees to continuously and uninterruptedly occupy
and operate its store during the lease term in the demised premises for the
permitted use, to conduct Lessee's business therein in Lessee's customary
manner, and to remain open for business during such hours and days that such
businesses are customarily open for business. Lessor agrees that Lessee shall
have access to demised premises and may run its operations thereon, 24 hour a
day, 365 days a year.
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6.2 COMPLIANCE. Lessee agrees, at its expense, to comply with all laws,
ordinances, orders and regulations affecting Lessee's use of the demised
premises, and further agrees not to suffer, permit or commit any waste, nor to
allow, suffer or permit any odors, vapors, steam, water, vibrations, noise or
other undesirable effects to emanate from the demised premises into other
portions of the building of which the demised premises form a part, nor allow or
permit any use of the demised premises to constitute a nuisance.
6.3 SIGN. Lessee shall, at its own cost and expense, provide a suitable
identification sign of such size, design and character as Lessor shall first
approve in writing, and shall install the same at a place or places reasonably
designated by Lessor, and shall be in accordance with the requirements of
Exhibit "B" attached hereto. Lessee shall maintain any such sign or other
installation in good condition and repair. No rights are granted to Lessee to
use the outer walls or roof of the demised premises without Lessor's written
consent, which shall not be unreasonably withheld.
7.1 ASSIGNMENT. Lessee shall not transfer or assign this Lease or sublet
the demised premises whether by act or omission of Lessee or by operation of law
without Lessor's consent, which consent shall not be unreasonably withheld. Any
such attempt at transfer, assignment or subletting without Lessor's consent
shall be void and confer no rights on any third party. If Lessee is a
corporation, any change in the legal or equitable ownership of a majority of
such corporation's voting shares shall constitute a transfer of Lessee's
interest within the meaning of this Lease; provided if Lessee is a publicly
traded company, any change in the legal or equitable ownership of a majority of
such corporation's voting shares in the ordinary course of trading shall not be
deemed a transfer of Lessee's interest within the meaning of this Lease.
8.1 LESSOR'S RIGHT TO REPAIR. If Lessee shall fail, refuse or neglect to
make any repairs in accordance with the terms of this Lease, Lessor shall have
the right, but not the obligation, after five days' written notice to Lessee, to
make such repairs for the account of Lessee and to enter upon the demised
premises for such purposes, and Lessee agrees to pay the cost and expenses
thereof, plus a reasonable fee for Lessors' overhead, after receipt of a bill
therefor from Lessor, with the next installment of fixed rent coming due.
9.1 LIENS. Lessee agrees to take all steps necessary to prevent the filing
of any mechanics' liens or other liens against the demised premises. If any such
liens shall at any time be filed, Lessee shall cause the same to be canceled of
record or bonded within thirty days after the date of the filing thereof. Lessee
shall indemnify and hold Lessor harmless from all liens for labor and materials
furnished to the demised premises.
10.1 UTILITIES. Lessee shall pay all charges for utilities supplied to the
demised premises. Lessee shall use all reasonable efforts to not at any time
overburden or exceed the capacity of the mains, feeders, ducts, conduits and
other facilities by which such utilities are supplied to, distributed in or
serve the demised premises.
11.1 COMMON AREA. Lessor shall at its own cost and expense maintain the
common areas and other common facilities in good repair and condition, including
without limitation, insuring that such areas are clean, cleaned of snow and ice,
and in good repair. All common areas and other common facilities shall be made
available by Lessor to Lessee and shall be subject to the exclusive control,
care and management of Lessor, reserving to Lessor, without limitation, the
right to erect and install within the parking area, kiosks, freestanding
buildings or otherwise. Any changes made to the common areas, whether they be
enlarged, diminished or otherwise shall not subject
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Lessor to any liability nor shall Lessee be entitled to any compensation or
diminution or abatement of rent, nor shall such change be deemed a constructive
eviction, provided that changes shall not interfere with Lessee's and its
customers' and invitees' access to the demised premises. However, Lessor waives
any right to erect any buildings on its parking lot at the northwest corner of
12th Avenue East and London Road. Lessor agrees to maintain a comprehensive
policy of liability insurance with respect to the common areas and other common
facilities.
11.2 REAL ESTATE TAX, INSURANCE AND COMMON AREA. Lessor shall be
responsible for the payment of all real estate taxes and assessments relating to
the building and land of which the demised premises forms a part. Additionally,
Lessor shall operate, insure, maintain and repair the building and land of which
the demised premises forms a part, and the common areas and other common
facilities, in such manner as to maintain the building, land and other areas as
a first-class shopping center.
12.1 MERCHANT'S ASSOCIATION. Lessee agrees to join and actively
participate in the Merchants' Association and to regularly make contributions
required of Lessee under the Bylaws of said association, provided, however, such
contributions shall not exceed $250.00 per annum.
13.1 INDEMNITY. Lessee agrees to defend, pay, indemnify and save Lessor
free and harmless from and against all claims which either (i) arise from or are
in connection with the possession, use, occupation, management, repair,
maintenance or control of the demised premises or any portion thereof; (ii)
arise from or are in connection with any willful act or omission of Lessee or
Lessee's agents; (iii) result from any default, breach, violation or
nonperformance of this Lease or any provision of this Lease by Lessee; or (iv)
result in injury to person or property or loss of life sustained in or about the
demised premises. Lessor agrees to defend, pay, indemnify and save Lessee free
and harmless from and against all claims which either (i) arise from or are in
connection with the management, repair, maintenance or control of the common
areas or other common facilities or any portion thereof; (ii) arise from or are
in connection with any willful act or omission of Lessor or Lessor's agents;
(iii) result from any default, breach, violation or nonperformance of this Lease
or any provision of this Lease by Lessor; or (iv) result in injury to person or
property or loss of life sustained in or about the common areas or other common
facilities or any portion thereof. As used herein the term "claims" means any
claims, suits, proceedings, actions, causes of action, responsibility,
liability, demands, judgments and executions.
14.1 INSURANCE. Lessee shall provide and maintain a comprehensive policy
of public liability insurance with respect to the demised premises naming Lessor
and any designee of Lessor as additional insured. The limits of the policy shall
be at least $500,000.00 with respect to any one occurrence and at least
$1,000,000 aggregate, with statutory workers compensation coverage, and shall be
written by an insurance company approved by Lessor which shall have a general
policyholder's rating of not less than A and a financial rating of AA as rated
in the most current available "Best's" Insurance Reports and licensed to do
business in the State of Minnesota. If, during the term of this Lease, said
limits of liability are deemed by Lessor in its reasonable discretion to be
inadequate, Lessee shall within 30 days of written notification from Lessor
provide Lessor with a certificate of insurance complying with Lessor's modified
requirements.
14.2 DESTRUCTION. Lessee shall maintain a policy of fire and extended
coverage insurance covering the replacement value of all of Lessee's
improvements, equipment and fixtures. If any portion or all of the demised
premises is damaged by fire or casualty not caused by the fault or neglect of
Lessee, Lessee's agents, customers or invitees, and this
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Lease is not terminated pursuant to any provisions of this Lease, rent shall
abate from the date of the occurrence in a proportion that the area of the
portion of the demised premises rendered untenantable for the permitted use
bears to the entire area of the demised premises. This abatement shall continue
until the demised premises shall be rebuilt or repaired. If fire or other
casualty is caused by the fault or neglect of Lessee or Lessee's agents rent
shall not abate. In the event of damage or destruction to 25%, or more, of the
demised premises, or 34%, or more, of the entire Shopping Center by fire or
other casualty, Lessor or Lessee shall have the option to cancel this Lease,
exercisable upon giving notice of cancellation to the other party within ninety
days following such occurrence, and in the event this Lease is so terminated,
the rent shall be apportioned from the date of the occurrence of the damage or
destruction. In the event all or any portion of the demised premises is damaged
by fire or other casualty and this Lease is not terminated as above provided,
Lessor shall repair and rebuild the demised premises or such portion to its or
their condition immediately prior to the commencement of this lease term. Such
repair will be commenced within a reasonable time after the occurrence. Lessor
shall not be obligated to expend any sums for repair or rebuilding which are
greater than the net proceeds of any insurance policy carried by Lessor. In the
event Lessor elects to repair or rebuild, Lessee shall repair or rebuild its
improvements, fixtures and equipment to the conditions existing immediately
prior to such occurrence.
14.3 REPAIRS. It shall be the duty of Lessee to keep the demised premises
in good condition and repair, save only ordinary wear and tear. It shall be the
duty of Lessor to make any and all necessary structural repairs to the roof,
foundation, exterior walls and any load-bearing interior walls of the demised
premises not covered by the net proceeds of insurance and to any and all of the
building systems serving the demised premises. Lessor shall not be required to
make any repairs to windows, plate glass, doors and any fixtures and
appurtenances composed of glass, or Lessee's store front, and Lessor shall not
be required to repair any damage caused by uninsured act, omission or negligence
of Lessee, Lessee's agents or Lessee's invitees.
14.4 WAIVER OF SUBROGATION. Lessor and Lessee hereby release each other
and each other's officers, directors, employees and agents from liability or
responsibility for any loss or damage to property covered by valid and
collectible fire insurance with standard extended coverage endorsement. This
release shall apply not only to liability and responsibility of the parties to
each other, but shall also extend to liability and responsibility for anyone
claiming through or under the parties by way of subrogation or otherwise. This
release shall apply only with respect to loss or damage actually recovered from
an insurance company. Lessor and Lessee shall include this clause or endorsement
in their respective fire and extended coverage insurance policies as long as the
same shall be obtainable without extra cost; or if extra cost shall be charged
therefor, so long as the other party pays the extra cost.
15.1 EMINENT DOMAIN. If the demised premises, or any part thereof, shall
be taken in whole or in part under any form of eminent domain proceedings, then
this Lease shall thereupon terminate as to the portion so taken and the annual
rental shall be abated proportionately. If more than 25% of the demised
premises, or 34%, or more, of the entire Shopping Center shall be so taken, this
Lease, at Lessor's or Lessee's option, shall be terminated upon ninety days'
notice to the other party following such taking, and in the event this Lease is
so terminated, the rent shall be apportioned from the date of taking. In the
event of any condemnation or other eminent domain proceeding, Lessee agrees that
any award made thereby shall be the sole and exclusive property of Lessor,
except that Lessee may make a separate claim for the value of any of Lessee's
improvements, fixtures and equipment and for any moving expenses incurred by
Lessee.
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16.1 BANKRUPTCY. In the event Lessee becomes subject to voluntary or
involuntary proceedings under the Bankruptcy Reform Act of 1978, as amended, the
specific provision of said Act relating to the commercial tenancy shall be
applicable to such proceedings. In the event any trustee, receiver, or other
custodian of Lessee or of its assets shall assign this Lease, any and all
amounts paid or to be paid by or for the account of the assignee in
consideration of such assignment shall be and remain the property of Lessor, and
any and all amounts received by Lessee or such trustee, receiver or custodian
shall be held in trust for the Lessor and remitted to the Lessor promptly after
receipt thereof.
17.1 DEFAULT. If Lessee defaults in compliance with any term or covenant
on Lessee's part herein contained to be performed; or if Lessee shall assign
this Lease, either voluntarily or by operation of law except as herein expressly
provided; or if Lessee shall fail to pay when due any rental charge or any other
sum payable hereunder; then in any one or more of such events (hereinafter
referred to as "Event of Default"), Lessor shall have the following rights:
A. Immediately enter the demised premises by summary proceedings or
otherwise and dispossess Lessee and all other occupants therefrom, removing all
of Lessee's property, storing the same at Lessee's expense, all without notice
to Lessee (which notice Lessee hereby expressly waives) and without Lessor being
guilty of trespass or liable for any loss or damage occasioned thereby.
B. Terminate this Lease by giving Lessee three day's written notice and
upon the expiration of said three day period this Lease and the term hereof
shall end and expire.
C. Immediately reenter the premises and re-let the same for Lessee's
account, and Lessee agrees to pay all of Lessor's costs associated with such
re-letting, including the costs of redecoration and remodeling and Lessee shall
be liable for any difference in the rentals received by Lessor from any such new
Lessee and the rentals reserved hereunder, and Lessee specifically agrees that
Lessor shall be under no duty to mitigate its damages nor actively seek or find
any replacement or substitute Lessee.
In the event of any alleged default, Lessee shall be afforded notice and an
opportunity to cure, which cure period shall be not less than ten days in the
event of a monetary default or thirty days in the event of a non-monetary
default, unless such non-monetary default cannot be cured within a period of
thirty days, in which case Lessee shall be afforded such longer period as may be
necessary to cure said default provided Lessee shall commence such cure within
said thirty day period and shall thereafter diligently continue until such cure
is completed.
17.2 ATTORNEY'S FEES. In the event either party must pursue legal
proceedings to enforce any provision of this lease, it is agreed that the
prevailing party in such litigation shall be entitled to recover reasonable
expenses of counsel.
17.3 WAIVER. Lessee hereby waives the right to trial by jury, the right to
assert any counterclaim, other than a compulsory counterclaim, or the right of
any redemption or set off in connection with any litigation, arbitration or
judicial proceeding relating to any event of default hereunder.
18.1 RIGHT OF ENTRY. Lessor shall at all times have the right to enter, at
reasonable times and upon reasonable notice, upon the demised premises to
inspect their condition, make repairs in accordance with the terms of this
Lease, and during the last
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thirty days of the terms of this Lease to place and maintain on the demised
premises the usual notice of "to let" or "to rent" and to show the premises to
prospective Lessees.
19.1 ATTORNMENT. Lessee agrees, in the event of a sale, transfer or
assignment of the Lessor's interest in the demised premises or any part thereof,
to attorn to and recognize such transferee, purchaser, ground or underlying
lessor or mortgages as Lessor under this Lease, provided that upon such
attornment the transferee, purchaser, ground or underlying lessor or mortgages
shall warrant and defend the Lessee in the enjoyment and peaceful possession of
the premises during the terms hereof..
20.1 POWER OF ATTORNEY. In the event Lessee shall fail or refuse to
execute and deliver to Lessor any documents that may be required pursuant to the
Lease within ten days after Lessor's written request therefor, Lessee hereby
irrevocably appoints Lessor as attorney-in-fact for Lessee with full power and
authority to execute and deliver such instruments for an in the name of Lessee.
Such power of attorney shall survive the disability of Lessee.
21.1 QUIET ENJOYMENT. Lessor covenants that Lessor shall warrant and
defend the Lessee in the enjoyment and peaceful possession of the premises
during the terms hereof.
22.1 ESTOPPEL CERTIFICATE. Within ten days after each request by either
Lessor or Lessee, the other party shall deliver an estoppel certificate to such
requesting party, in writing, acknowledged and in proper form for recording.
Each estoppel certificate shall contain the following information certified by
the person executing it on behalf of either Lessor or Lessee: (1) Whether or not
this Lease is unmodified and in full force and effect; (2) Whether or not the
certifying party contends that the other party is in default under this Lease in
any respect; (3) Whether or not there are then existing set offs or defenses
against the enforcement of any right or remedy of Lessor of any duty of
obligation of Lessee and, if so, specifying the same in detail; and (4) The
dates, if any, to which rent or other charges have been paid in advance. In
addition, Lessee shall also certify whether or not Lessee is in possession of
the demised premises
23.1 NOTICES. No notice, request, consent, approval or other communication
under this Lease shall be effective unless the same is in writing and is mailed
by certified mail, US postage prepaid, addressed as follows:
To Lessor: Plaza Associates
C/O Labovitz Enterprises
880 Missabe Building
227 West First Street
Duluth, MN 55802
To Lessee: Peepers, Inc.
1 Fairchild Court
Plainview, New York 11803
Attention: Mark Suroff, Executive Vice President
24.1 SEVERABILITY. If any provision of this Lease shall be held void or
invalid, then the remainder of this Lease shall not be affected thereby and each
provision of this Lease shall be valid and enforceable to the fullest extent
permitted by law. Each of the covenants, provisions, terms and agreements of
this Lease shall inure to the benefit of and shall be obligatory upon the
respective successors and assigns of Lessee.
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25.1 ENTIRE AGREEMENT. This lease, including the exhibits or riders
attached hereto, sets forth the entire agreement between the parties. There are
no understandings or other agreements outside of this Lease.
26.1 LESSOR'S LIABILITY. Lessee agrees that Lessee shall look solely to
the estate and property of the Lessor and the land and building of which the
demised premises forms a part, for the collection of any judgment or any other
judicial process requiring the payment of money by Lessor in the event of a
default or breach by Lessor with respect to any of the terms and conditions of
this Lease, subject, however, to the prior rights of any ground or underlying
lessor or the holder of any mortgage covering the demised premises, and no other
assets of Lessor shall be subject to levy, execution or other judicial process
for the satisfaction of Lessee's claims.
27.1 RECORDING. Lessee shall not record this Lease without the prior
written consent of Lessor .
28.1 RULES AND REGULATIONS. Lessee agrees to comply with such reasonable
rules and regulations as Lessor may promulgate to all tenants of the Shopping
Center regarding the use and occupancy of the demised premises, provided Lessor
shall not discriminate against Lessee in the enforcement of such rules and
regulations..
29.1 CAPTIONS. The captions are inserted only as a matter of convenience
and in no way define, limit or describe the scope or intent of this Lease.
To signify agreement to this Lease, Lessor and Lessee have executed this
Lease on the day and year first above written.
LESSOR: LESSEE:
PLAZA ASSOCIATES PEEPERS, INC.
By: /s/ Joel Labovitz By: /s/ Daniel Thralow
------------------------- -------------------------------
Name: Joel Labovitz Name: Daniel Thralow
Title: Partner Title: President
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