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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 2
TO
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
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PCSupport.com, Inc.
(Name of Small Business Issuer in its Charter)
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Nevada 98-0211769
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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Suite 280, 4400 Dominion Street, Burnaby, British Columbia, Canada V5G 4G3
(Address of Principal Executive Offices) (Zip Code)
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Issuer's Telephone Number: (604) 419-4490
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Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $0.001
(Title of Class)
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TABLE OF CONTENTS
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PART I............................................................................................. 1
ITEM 1. DESCRIPTION OF BUSINESS................................................................. 1
a. Business Development................................................................ 1
b. Business of the Company............................................................. 2
Principal Products and Services and their Markets............................... 2
Market Overview............................................................. 2
Market Segmentation......................................................... 4
Products and Services........................................................... 4
PC Support Center........................................................... 5
Global Replace.............................................................. 8
PowerBAK Replace............................................................ 9
Phoenix Program............................................................. 9
Distribution Methods of Services................................................ 10
Hardware Vendors............................................................ 10
Resellers................................................................... 10
Internet Portals............................................................ 11
StorageTek.................................................................. 11
Direct Sales................................................................ 11
Web Promotion............................................................... 11
Competitive Business Conditions and the Company's
Competitive Position............................................................ 11
PC Support Center........................................................... 11
Online Backup Providers..................................................... 12
Hardware Replacement........................................................ 13
Phoenix..................................................................... 13
Sources of Materials............................................................ 14
Patents, Trademarks, Licenses, Franchises,
Concessions, Royalty Agreements, or Labor
Contracts....................................................................... 14
Regulation...................................................................... 14
Research and Development........................................................ 15
Employees and Contractors....................................................... 15
c. Risk Factors........................................................................ 15
Limited Operating History................................................... 15
New and Unproven Business Model............................................. 15
History of Operating Losses and Anticipated
Losses and Negative Cash Flow for the
Foreseeable Future.......................................................... 16
Immediate Need for Additional Capital....................................... 16
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The Company's Debt Financing May Not Be
Fully Available to the Company and Is Secured
by the Company's Assets............................................................ 17
The Company's Web Site Will Need to Be
Continually Enhanced............................................................... 17
Reliance on Agreement with StorageTek.............................................. 17
Dependence on Other Outside Agents and
Distributors....................................................................... 18
Control of Rapid Growth............................................................ 18
Dependence on Key Personnel and Need for
Additional Personnel............................................................... 18
The Market is Highly Competitive and the
Company May Not Be Able to Compete
Successfully Against Its Current and Future
Competitors........................................................................ 19
Brand Recognition.................................................................. 19
Technological Change............................................................... 19
Intellectual Property Protection................................................... 20
System Disruptions................................................................. 21
Failure of Online Security Measures................................................ 21
Development and Maintenance of the Internet
and the Availability of Increased Bandwidth to
Users.............................................................................. 22
The Company May Need to Change the Manner
in Which it Conducts its Business if
Government Regulation Increases or Changes......................................... 22
Operating Results May Prove Unpredictable,
and May Fluctuate Significantly.................................................... 23
Common Stock Price May Be Volatile................................................. 23
Limited Market for the Common Stock................................................ 24
Substantial Sales of Common Stock Could
Cause Stock Price to Fall.......................................................... 24
No Dividends....................................................................... 24
The Common Stock May Be Deemed "Penny
Stock" and Therefore Subject to Special
Requirements....................................................................... 25
Executive Officers, Directors and Major
Stockholders Exercise Significant Control.......................................... 25
Exchange Rate Risk................................................................. 25
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ITEM 2. PLAN OF OPERATION....................................................................... 26
a. Current Services.................................................................... 26
b. Cash Flow Requirements.............................................................. 26
c. Sales and Marketing................................................................. 27
d. Research and Development............................................................ 28
e. Operations.......................................................................... 28
f. Employees........................................................................... 28
g. Year 2000 Compliance................................................................ 29
ITEM 3. DESCRIPTION OF PROPERTY................................................................. 29
a. Principal Business Facilities....................................................... 29
b. Investment Policies................................................................. 29
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................... 29
a. Security Ownership of Certain Beneficial Owners..................................... 29
b. Changes in Control.................................................................. 31
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS............................ 31
a. Directors and Executive Officers.................................................... 31
b. Significant Employees............................................................... 32
c. Family Relationships................................................................ 32
ITEM 6. EXECUTIVE COMPENSATION.................................................................. 32
a. Persons Covered..................................................................... 32
b. Compensation of Directors........................................................... 33
c. Stock Option Plan................................................................... 33
d. Options Granted After Most Recently Completed Fiscal Year........................... 34
e. Employment Contracts................................................................ 34
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................... 35
a. Relationship Between the Company and Certain Directors and Officers................. 35
Management Contracts............................................................ 35
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Private Placement of Common Shares............................................... 35
Stock Pooling and Escrow Agreement............................................... 36
b. Transactions Involving Promoters of the Company...................................... 37
ITEM 8. DESCRIPTION OF SECURITIES................................................................ 37
PART II............................................................................................. 38
ITEM 1. MARKET PRICE FOR COMMON EQUITY AND OTHER SHAREHOLDER MATTERS............................. 38
a. Market Information................................................................... 38
b. Holders.............................................................................. 39
c. Dividends............................................................................ 39
ITEM 2. LEGAL PROCEEDINGS........................................................................ 39
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..... 39
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.................................................. 39
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS................................................ 41
PART F/S FINANCIAL.................................................................................. 43
PART III............................................................................................ 67
ITEM 1. INDEX TO EXHIBITS........................................................................ 67
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PART I
All statements, other than statements of historical fact, included in this
Form 10-SB, including without limitation the statements under "Description of
Business" and "Plan of Operation," involve assumptions, known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of PCSupport.com, Inc. (the "Company"), to be materially
different from any future results, performance or achievements expressed or
implied by such statements contained in this Form 10-SB. Such potential risks
and uncertainties include, without limitation, competition, economic conditions,
availability of capital, and other risk factors detailed under "Risk Factors"
and elsewhere herein. All statements are made as of the date of this Form 10-SB
and the Company assumes no obligation to update these statements, except as
required by law. Therefore, readers are cautioned not to place undue reliance
on these statements.
Unless otherwise indicated, all dollar amounts are expressed in U.S.
currency values.
ITEM 1. DESCRIPTION OF BUSINESS
a. Business Development
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PCSupport.com, Inc. (the "Company") is a development stage corporation
formed under the laws of the State of Nevada on June 23, 1999 pursuant to the
merger (the "Merger") of PCSupport.com ("PCS") and Reconnaissance Technologies
Inc. ("RTI"). PCS was the resulting entity from a prior merger of PCSupport.com
and Mex Trans Seafood Consulting Inc. ("Mex Trans"). Mex Trans was incorporated
in the State of Texas on February 13, 1989 under the name "Mutual Produce, Inc."
and later changed its name to "Mex Trans Seafood Consulting, Inc."
RTI was incorporated in British Columbia, Canada, on December 10, 1997
for the purpose of engaging in the development and provision of notebook
computer support services to end users through the Internet. Prior to the
Merger, PCS (and its predecessor, Mex Trans) did not have any active business
and had only nominal assets and liabilities and was seeking to acquire a new
business. In early 1999 RTI was seeking further capital to develop its business
and to merge with a public entity to provide liquidity for its shareholders.
Management of RTI and PCS began discussions for a merger of the two companies in
March 1999. In anticipation of the Merger, Mex Trans merged on April 7, 1999
with PCS, a Nevada corporation incorporated on that date solely for the purpose
of transferring the corporate jurisdiction of Mex Trans to Nevada. In April
1999, in anticipation of the Merger, PCS completed a private placement of its
common shares that generated gross proceeds of approximately $950,000. The
shares to be issued in and proceeds from this private placement were placed in
escrow and released upon completion of the Merger. See "Recent Sales of
Unregistered Securities" below.
RTI and PCS entered into a formal merger agreement on May 5, 1999, and
the following transactions were carried out to complete the Merger:
1. Each of RTI and PCS obtained shareholder approval for the Merger;
2. PCS underwent a reverse split of its common stock on a 15 old shares
for one new share basis;
3. RTI transferred its governing corporate jurisdiction from British
Columbia to Wyoming; and
4. RTI merged with PCS.
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In the Merger, each shareholder of RTI received one share of the
Company's common stock (the "Common Stock") for each five shares of RTI held.
Each shareholder of PCS received one share of Common Stock for each share of PCS
held. Each holder of outstanding warrants of RTI received one warrant of the
Company for each five warrants of RTI held. (See "Market Price for Common Equity
and Other Shareholder Matters" below for a description of outstanding
warrants.)
The Company has a wholly-owned subsidiary, Reconnaissance International
Ltd., a British Virgin Islands company, the only asset of which is a licensing
agreement with StorageTek, as described below under "Products and Services -
Global Replace." The subsidiary has no other assets or liabilities.
b. Business of the Company
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Principal Products and Services and their Markets
Market Overview
Personal computers ("PCs"), both desktop and laptop or notebook types,
suffer from a wide variety of technical problems that occasionally impair their
performance, causing lost productivity and frustration for end-users. For
example:
. PC hardware, software, drivers, and operating systems (and their
interaction) have become more complex, and this is causing an
increasing number of problems./1/ As a result, computer crashes
can occur, resulting in lost data and unscheduled downtime.
. Software publishers continually issue bug fixes. For example,
Microsoft Corp. has released two large Service Packs to correct
errors in the Windows 98 operating system. End-users, however, are
typically not aware of, nor do they know how to find, bug fixes on
the Internet and install them on their PCs.
. Over time, PC hard drives become cluttered with temporary files,
missing drivers for applications and hardware peripherals. The
registry, which acts as the "table of contents" for the PC can
also become cluttered and disorganized. The hard drive becomes
fragmented from normal use. Consequently, over time, the PC
performs more slowly, and is subject to crashes. Often, the end-
user is not aware that he or she has a problem. In response, the
Windows 95/98/NT operating systems provide a utility for users to
de-fragment their hard drives.
. PCs are often subject to configuration problems, in which the
various software, hardware and operating systems cannot
communicate with each other./2/
. PCs are continuously vulnerable to the advent of new viruses which
are designed to impair their operation or destroy the user's
data./3/
- ------------------------------
/1/ E Support Portals: An Overview, 1999, Motive Communications, Page 2,
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Overview of the Problem and Solutions.
/2/ E Support Portals: An Overview, 1999, Motive Communications, Page 4.
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/3/ The History of Computer Viruses, 1998, Ken Dunhan,
-------------------------------
http://antivirus.about.com/compute/antivirus/library/weekly/aa073198.htm, Full
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Article; and Preparing for the New Millennium, 1999, Ken Dunham,
--------------------------------
http://antivirus.about.com/compute/antivirus/library/weekly/mcurrent.htm, Full
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Article.
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. Frequently, the dialer program that end-users invoke to access
the Internet using a dial-up connection becomes corrupted,
preventing them from logging on./4/
When PCs crash or are lost through theft or physical damage, frequently
some or all of the end-user's data can be lost, which is a catastrophic event
for those end-users who depend upon their PCs for their employment or home use.
Important files on PCs in a large office are often backed up to a central
server. PCs in small to medium enterprises ("SME") or small office / home
office ("SOHO") must rely on the end-users to use zip drives, tape drives or
online backup procedures to protect their data. Generally, only the important
files that the end-user selects are saved; not the entire contents of the end-
user's system. All of these systems rely on the end-user to remember to select
the correct files and to backup his or her data, which is bothersome and,
therefore, frequently not done./5/ Until recently, there was no good system to
allow an end-user to automatically backup their entire system. Consequently,
there is a risk among individual and corporate PC end-users of the irretrievable
loss of valuable data in the event of a crash or total loss of the PC.
With respect to the technical problems described above, until recently, the
end-user had only a few inefficient and costly options to obtain technical
support. End-users in a large corporation typically have skilled technicians
employed in a management information systems ("MIS") group to assist them, but
SME, SOHO and home end-users have to rely on themselves. Hardware manufacturers
and software publishers (collectively, "vendors") provide access to libraries of
support information over the Internet, but these data bases are typically
voluminous and hard for the end-user to navigate. Alternatively, the end-user
can phone one of the many help desks operated by these vendors, but the process
is often time-consuming and frustrating for the end-user and very expensive for
the vendor./6/
End-users can also purchase utilities from a local software retailer, such
as a disk maintenance package. Finally, the end-user can either bring his PC
into a depot repair facility or call a local PC service company to send a
technician to the end-user's place to repair the problem. Both of these latter
options are expensive,/7/ and can result in several days of lost productivity
for the end-user.
In sum, the traditional options for the solution of technical problems for
PCs are inefficient and expensive, both for the PC end-user and the vendor
supplying the technology. The result is a high level of dissatisfaction among
end-users with the reliability and ease of use of personal computers, and
increasing costs of support among vendors.
The growing popularity of the Internet provides new options to
significantly improve the levels of satisfaction among end-users and to lower
the costs of support among vendors. During 1998 and 1999, many companies began
to offer solutions to PC support problems over the Internet. As described below
under "Competitive Business Conditions and the Company's Competitive Position,"
several companies offered point solutions to a narrow range of problems,
including but not limited to the following:
. Online backup for files which the user selects.
. Online virus scans and download and update of virus solution
libraries.
- ----------------------
/4/ E Support Portals: An Overview, 1999. Motive Communications, Page 4.
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/5/ PowerBAK: Server for Data Protection, 1999, StorageTek, Page 1.
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/6/ Emerging Technology (Two Part Series: Reaching Out for Help and Computer,
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Heal Thyself), Alan S. Kay, CIO Magazine October 1 and 15, 1999; and Good Help,
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Jeff Rumburg, Meta View 1998, Figure 1, Help Desk Barometer.
/7/ Home PC Support: Why Users Do Not See the Value, Theresa Whitney, The
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Gartner Group 1999, Page 10, Table 1.
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. Knowledgebases of solutions to technical problems, many with
natural-language search engines to allow easier access to end-
users.
. Email and online chat access to technicians.
. Online updates for drivers and software bug fixes.
A support portal is a destination on the World Wide Web dedicated to
providing technical support services for PC end-users. In 1999, the first of
the support portals were introduced, with the Company and several other
companies, including McAfee.com and a partnership between support.com and
Excite@Home, among those launching support portals. The largest PC
manufacturers, including IBM, Dell, HP, Toshiba, Gateway and Micron, indicated
their intention to develop and introduce support portals within the coming year.
In general, these support portals aggregate a number of point solutions to solve
a broad range of PC technical problems.
The Company has developed and implemented, and continues to improve upon, a
suite of services to address the technical needs of PC users described above.
Market Segmentation
PC users can be segmented into three categories. Users in large
corporations typically have MIS departments from which to access technical help.
The MIS group sometimes provides a backup system. For their mobile workers
using notebooks, the corporation often maintains an inventory of loaner units,
configured with a standard image, to replace broken units in an emergency.
Restoring the user's data and settings, however, can take many hours over
several days. Even with this level of support, there is significant loss of
productivity from broken, stolen, or poorly performing notebooks.
SME PC users have all of the same technical problems, yet generally do not
have an MIS department for support.
The third segment, SOHO or individual users, are often completely on their
own.
The Company is marketing to these three segments.
Products and Services
The Company's first service offerings were Global Replace and Phoenix.
Global Replace is an Internet-based online backup program combined with a
hardware replacement option. The backup portion is applicable to both desktop
and notebook users. The hardware replacement portion is only available for
notebook users. Phoenix provides a user purchasing a new notebook with the full
image, including all data, applications, preferences, and settings, pre-loaded
onto the new machine.
More recently, the Company's primary service offering has been a Web-based
support portal called the PC Support Center. The PC Support Center aggregates a
number of preventive maintenance and online support services designed to
prevent, ameliorate or solve PC technical problems.
As described below, the Company offers Global Replace and the PC Support
Center directly to PC end-users through it own Web site at www.pcsupport.com.
The Company also customizes private-labeled versions of Global Replace and the
PC Support Center for other companies who wish to provide Global Replace's or
the PC Support Center's services to their customers under their own brand names.
Phoenix cannot currently be ordered over the Company's Web site.
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Retail prices for all services described herein may be adjusted frequently
in consideration of competitive forces. There can be no assurance that pricing
at any commercially viable level will be sufficient to allow the Company to earn
a profit.
PC Support Center
The Company has developed the PC Support Center for all PC users to provide
a service which will react to technical problems and pro-actively maintain the
user's computer to prevent problems from occurring. The PC Support Center
aggregates various technical solutions, such as updating operating systems
software, applications software and drivers, and disk maintenance. Upon a user
visiting the site and becoming a subscriber, the PC Support Center will, at the
subscriber's option, automatically scan the user's computer at each visit to the
site to maintain an up-to-date personal profile of the user's hardware,
peripherals, software applications and settings. The PC Support Center software
will, also at the user's option, automatically diagnose and maintain the hard
drive and advise the user of software updates that are pertinent to the user's
configuration. Such updates will be performed automatically at the user's
request. The PC Support Center also includes a technical support forum where
subscribers can ask and have answered technical support questions. As a premium
chargeable service, the PC Support Center provides subscribers with the
opportunity to purchase from third parties related support products and major
software upgrades online. The PC Support Center also offers the Backup Center,
from which users can download and install the Company's Global Replace backup
software described below.
The first version of the PC Support Center was launched on the Company's
Web site, www.pcsupport.com, in October 1999. The Company has since added
additional functionality to the PC Support Center, including Live Assist, by
which a subscriber can engage a skilled technician in an online chat session to
diagnose and solve technical problems. The subscriber can also allow the
technician to take control of the subscriber's PC in order to solve problems
directly online.
The Company intends to add new functions to the PC Support Center during
calendar year 2000, including virus scan, telephone support and technician
dispatch. The Company also plans for future versions of the PC Support Center
to regularly advise subscribers via email to return to the Company's Web site to
maintain their PCs. See below under "Plan of Operation - Research and
Development." These maintenance and upgrade services will simplify support for
the user because of regular reminders and automatic maintenance.
A person becomes a subscriber to the PC Support Center simply by
registering on the Company's Web site. Currently, there is no charge to become
a subscriber and the Company offers most of the PC Support Center's services for
free to subscribers. The Company plans to offer additional services for a
charge, such as telephone support and technician dispatch. The Company may, in
the future, charge for subscriptions and alter the mix of free and chargeable
services.
In June 1999, the Company contracted with Communicate.com, Inc., a
strategic Internet solutions development company based in Vancouver, British
Columbia, to prepare the Company's Web site for the launch on the site of the
first version of the PC Support Center. The Company incurred costs of
approximately $250,000 under this agreement. All of the work prepared for the
Company's Web site by Communicate.com, Inc. is the property of the Company.
The Company expects to incur additional costs of between $400,000 and
$600,000 over the next six months in order to develop and implement additional
functions for the PC Support Center, which are expected to include the
enhancements described below under "Plan of Operation - Research and
Development." Of this amount, approximately 75% represents costs expected to be
incurred internally by the Company, with the balance representing amounts
expected to be paid to third-party contractors.
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It is the Company's intent to market the PC Support Center to all three
market segments through strategic partnerships with hardware manufacturers and
distributors. The intent is that computers will be shipped from the
manufacturers with a "PC Support Center" icon on the desktop. Once the
customer is connected to the Internet, the customer is prompted to click on the
icon, which then takes him to the PC Support Center. At the site the benefits
are explained and users are encouraged to become subscribers. They are then
taken through a personal profile set up procedure that activates the features of
the PC Support Center. The key fundamental technology features, the dynamics of
the site, as well as the email notifications that are sent to update the
customer on product information, drivers, viruses and industry news are intended
to keep the user returning regularly to the site.
In October 1999, the Company entered into a letter of intent with Go Figure
Technology, Inc. ("Go Figure") in which the Company agreed to provide a
customized version of the PC Support Center for customers in the Go Figure
network (which include Internet service providers and PC retailers) in exchange
for an upfront payment with each computer shipped incorporating an icon linking
the PC to the customized PC Support Center. In January 2000, the Company and Go
Figure entered into a definitive one-year Services Agreement in which Go Figure
has agreed to use commercially reasonable efforts to secure contracts with third
parties that will in the aggregate forecast delivery during calendar year 2000
of at least one million PCs that will provide access to customized versions of
the PC Support Center. The agreement between the Company and Go Figure provides
that, upon the negotiation by Go Figure of a proposed third party contract, the
Company and Go Figure will negotiate in good faith to complete a supplemental
agreement with respect to such third party contract which provides for service
fees payable by Go Figure to the Company for each PC incorporating an icon
linking the PC to a customized version of the PC Support Center delivered to or
at the direction of the third party. Go Figure has also agreed that it will not
during the one-year term of the agreement directly or indirectly offer services
similar to or competitive with the PC Support Center's services. Go Figure has
informed the Company that it is actively discussing potential contracts with
several third parties, although there can be no assurance that Go Figure will be
able to consummate any contracts with third parties or that any third party will
elect to incorporate the PC Support Center icon into PCs that it delivers to
such third party's customers.
In addition to agreements with resellers such as Go Figure, the Company
intends to offer partnerships in the PC Support Center to other companies that
provide technical support to PC users. The Company believes that the partners
will benefit from better support to their customers as follows:
(i) Improved Customer Relationship
By providing a customized, comprehensive, and easy-to-use site at which
users' computers can be easily maintained, and where many problems in using
applications can be more easily solved, fewer problems are likely to occur, and
will be more easily solved. Customers will become more productive in the use of
their computers. Customers will become more likely to recommend the Company to
others and to purchase additional products and services from the vendor.
(ii) Reduced Costs
Since many support problems will now be solved through the PC Support
Center, providers will significantly reduce their internal support costs.
(iii) Tech Support Center Becomes More Productive
The PC Support Center will reduce the involvement of trained technicians in
solving many problems, and reduce the time required to solve problems when their
help is required. The technicians will become more productive.
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(iv) Comprehensive Database of Customer Profiles for Marketing
Purposes
The PC Support Center will continuously update a database on the
subscribers. This provides an opportunity to research market trends and future
product features.
The Company currently offers as many services as possible to the
subscribers for free, as this reflects the current competitive environment in
Internet commerce and services. The Company intends to earn revenues in any or
all of the following ways:
(i) Commissioning Fees
The Company may private-label the PC Support Center for its partners so
that the partners can offer the services under the partners' own brand names.
The Company will charge a commissioning fee for such customization.
(ii) Bundling Fees
The Company will negotiate with its hardware vendor partners to include an
icon for the PC Support Center on the desktops of all computers shipped. The
Company intends to earn a bundling fee from each unit shipped.
(iii) Subscription Fees
In lieu of a bundling fee, the Company may negotiate with its hardware
vendor partners and other original equipment manufacturer ("OEM") partners who
integrate PCs, Internet access and other related services with the PC Support
Center, a monthly fee for providing the PC Support Center to each end-user to
whom a PC is shipped.
(iv) Premium Services
Many premium services, such as purchase of related support products and
major software upgrades from third party vendors, and telephone support for
problems in using applications software, will be available for a fee, which the
Company may share with its partners.
(v) Advertising
The PC Support Center may host advertisements from which the Company will
earn fees.
(vi) Sale of Summary Demographics
The PC Support Center will continuously update a data base on its
subscribers documenting many aspects of their computer usage characteristics and
personal demographics. The Company intends to earn revenue from the sale of
summary demographic data that it generates.
As the Company has only negotiated one reseller agreement with respect to
the PC Support Center (the agreement with Go Figure described above) and has not
generated any revenue from the PC Support Center, there can be no assurance that
the Company will be able to negotiate any agreements that will generate profits
for the Company. Failure to successfully negotiate such agreements will have a
material adverse impact on the Company's business.
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Global Replace
To provide online backup, in June 1998 the Company's wholly-owned
subsidiary entered into a service supply agreement with StorageTek Canada Inc.,
a wholly owned subsidiary of Storage Technology Corp. (collectively
"StorageTek") of Louisville, Colorado. In March 1999, StorageTek launched
PowerBAK, a secure online data service, to its U.S. and Canadian customer base.
StorageTek intends to penetrate the growing market for support of mobile workers
within its existing corporate client base. Under the terms of the service
supply agreement, StorageTek has licensed the Company to sell run-time licenses
of the PowerBAK software under its own brand, Global Replace. Subscribers
automatically and transparently connect to StorageTek's data center online to
backup their hard drive. In addition, StorageTek has given the Company an
exclusive opportunity to develop a hardware replacement business tied to
StorageTek's online backup service. StorageTek has agreed not to enter the
replacement business itself, nor to enter into a similar agreement with any
other company for the two-year term of the contract with the Company. The
Company has been negotiating with StorageTek to extend its contract for an
additional two-year term. StorageTek has verbally assured the Company that
StorageTek intends to agree to the extension, although there can be no assurance
that the Company will be able to secure an extension on terms acceptable to the
Company.
Combining the PowerBAK backup service with a hardware replacement option,
the Company has introduced its own service, Global Replace.
(i) Global Replace Suite
Global Replace is a full-service data protection program. Using
StorageTek's online backup technology, Global Replace allows users to backup
their full image - operating systems, applications, data, preferences and
settings to a secure data center. The Global Replace software is a branded
version of StorageTek's PowerBAK software. After connecting the PC user to a
StorageTek data center, the software examines every file on the user's system
and compares them to the data base of files in StorageTek's data center. Every
user file that is either not already stored in a StorageTek data center, or has
changed since the last backup, is queued for backup. In performing backup, new
files, and the segments of files that have changed, are sent online over the
Internet, in compressed and encrypted form, to the StorageTek data center, where
the files or file segments are stored.
Global Replace allows PC users to restore data either online or through a
CD, and also provides, for notebook users, hardware restoration in the event
that the entire notebook is unusable. To restore a small number of files or
directories online, the Global Replace software connects users to the StorageTek
data center online, where users enter a password. The software then restores
the file or files online to the user's hard drive.
If a PC user suffers a significant or total loss of data, the user may need
to restore his or her full image onto his or her hard drive. In such event, the
user contacts the Company's help desk and requests a CD restoration. The
Company then loads the user's full image onto a set of CDs which the Company
then sends by overnight courier to the user. The user then follows a simple set
of instructions to load the full image from the CDs onto his or her hard drive.
If a notebook customer suffers a total failure or loss of use (including
theft), he calls the Company's help desk. The user's full image is restored to
a temporary replacement notebook at the Company's operations center. After the
Company receives a security deposit, the fully functional replacement notebook
is shipped to the user using an overnight courier company. This notebook is
loaned to the user for up to 10 business days while the original notebook is
being repaired or replaced by the user.
8
<PAGE>
The Company launched the Global Replace service in the second calendar
quarter of 1999 but has not yet generated significant orders for this service.
Global Replace comes in two different packages to suit individual needs.
(ii) Global Replace - Basic
This basic package includes only the backup software. It is applicable to
both desktop and notebook users. Users pay for the amount of data stored, as
follows:
<TABLE>
<CAPTION>
Backup Volume: Monthly Retail Prices:
Less than 25 MB total storage free
<S> <C>
Less than 100 MB $ 7.95
Less than 200 MB $12.95
Less than 300 MB $17.95
Unlimited / Full Image $19.95
</TABLE>
A discount of approximately 15% is available to users who pay for 12
month's service in advance.
The package includes free online data restoration for both desktop and
notebook PCs. Full image restoration is available from CD-ROM for desktop or
notebook users and from a replacement notebook for notebook users only, in
either case on a per-incident fee, as described above under "Global Replace
Suite."
(iii) Global Replace - Premium
The Premium service, available only to notebook users, is available at an
introductory monthly rate of $44.95 and includes, in addition to the services
provided in the basic package, free hardware restoration with a loaned notebook,
regardless of the number of times a replacement notebook is loaned to the user,
within reason.
PowerBAK Replace
Under the terms of a verbal licensing agreement between the Company and
StorageTek, StorageTek's PowerBak Replace incorporates the Global Replace -
Premium package. All of the fees received by StorageTek for the PowerBak
Replace service will be paid to the Company, less a 25% commission. The Company
will provide all of the hardware replacement services to the customers who
purchase the PowerBAK services.
It is the Company's understanding that StorageTek has begun to market the
Global Replace replacement option as part of its PowerBAK service, but, to the
Company's knowledge, has not generated any sales to date. StorageTek currently
has no obligation to market Global Replace. The Company and StorageTek are
negotiating a reseller agreement under which StorageTek would agree to market
Global Replace, but there can be no assurance that such an agreement will be
reached.
Phoenix Program
The need for increased hard drive space and faster microprocessors means
notebook users need to replace their machines frequently as the technology
improves. Upgrading to a new machine can be problematic. Users are required to
identify all of their data and programs. Common operating systems, such as
Windows 95, 98 and NT usually come installed in the new machine, but software
applications must be re-installed from disks or CDs. In addition, it is
becoming more common for software to be downloaded from the Internet. These
files are numerous and often unrecognizable to
9
<PAGE>
the average user. Finding and transferring them from one machine to another is
often troublesome and time-consuming.
Given the complexities involved in upgrading, the Company believes many
users delay the upgrade to a new machine as long as possible. The Phoenix
Program is intended to alleviate the problems involved with upgrading to a new
notebook. With the Phoenix Program, the user purchases the new notebook and
ships it to the Company. Once the new notebook is delivered to the Company, and
the user has completed a full image backup using the Global Replace software,
the Company loads the user's full image onto the new notebook, and delivers it
to the user.
The Company launched the Phoenix service in the third calendar quarter of
1999 but has not yet generated any orders for this service. The Phoenix service
is initially being provided at $299, FOB plant.
Distribution Methods of Services
The Company intends to employ a distribution strategy that targets the
corporate user, the SME users, and the SOHO users, with the goal of positioning
itself as the leading provider of online computer technical support services.
The Company intends to employ the following methods to distribute its suite
of services:
Hardware Vendors
The Company is negotiating with several large personal computer
manufacturers to bundle the Company's services with the sale of hardware. The
Company intends to expand its sales activities to offer Global Replace, Phoenix,
and the PC Support Center to additional hardware vendors. There can be no
assurance that any agreements will be reached with any hardware manufacturer.
Resellers
There are several large international resellers and systems integrators of
computer services whose market focus is large corporations. Each has long-
standing relationships with its current client base and is constantly looking
for new products and services. The primary Company products of interest to
resellers are the PC Support Center and Global Replace.
In April 1999, the Company entered into a two-year agreement with one such
systems integrator, Unisys of Canada Inc. ("Unisys"), an international computer
service company. Pursuant to the terms of this agreement, Unisys is marketing
the Global Replace Suite under its own brand name to Unisys's corporate
customers. Unisys has agreed to pay the Company a fee equal to 75% of the
Company's suggested list price for the Global Replace services, and has also
agreed to use the Company exclusively for the provision of such services. To
date, Unisys has secured one customer for the Company, representing
approximately $500 per month in revenue for an unspecified term. Under this
agreement, Unisys is not obligated to secure any particular number of customers
or generate any revenues for the Company, on a best efforts basis or otherwise,
and it is therefore uncertain whether Unisys will secure additional customers or
revenues for the Company.
In January 2000, the Company and Go Figure entered into a one-year Services
Agreement, as described under "Products and Services - PC Support Center."
The Company intends to expand its marketing activities to include other
large international resellers. There can be no assurance that any further
agreements will be reached with any resellers.
10
<PAGE>
Internet Portals
Internet portals provide information online to a targeted demographic
audience, such as the mobile notebook user. The Company is currently
negotiating an agreement with one such portal to provide its PC Support Center
services to the portal's subscribers. There can be no assurance that any
agreements will be reached with any Internet portal.
StorageTek
The Company has reached an agreement with StorageTek whereby StorageTek
will integrate the Company's hardware replacement service into the PowerBAK
online backup service. StorageTek has branded the replacement service, PowerBAK
Replace, and will provide it as a standard option through its existing sales
channels.
Direct Sales
The Company has begun to develop a small direct sales force to market its
services directly to a small number of companies in the United States and
Canada. As of December 31, 1999, two sales people had been hired and now have
begun selling directly to companies, supplemented by the efforts of the
Company's senior management.
Web Promotion
Global Replace is available for purchase on the PC Support Center Web page.
Within the next 12 months the Company also expects to make Phoenix available on
the PC Support Center Web page. The Company will also promote its services over
the Web on other companies' Web sites.
Competitive Business Conditions and the Company's Competitive Position
The Company is a development stage company with no history of earnings.
While the Company believes that some of its services are unique, there are no
substantial barriers to entering into the field of PC services, and the Company
expects competition to intensify. Competitors may be able to provide services
similar to the Company's services more efficiently, and many of the Company's
potential competitors have substantially greater financial, marketing, service,
customer support and research and development resources than the Company. There
can be no assurance that the Company will be able to develop a market for any of
its services against these competitors.
PC Support Center
There are many sellers of separate computer support and service components.
The Company is the first to integrate several support technologies and implement
a pro-active service such as the PC Support Center which is independent of any
vendor of PCs or software. Macafee.com and Symantec (Norton Web Services)
previously had introduced support portals, but such competitive portals are
closely tied to the software products marketed by those companies. However,
Service911 has recently launched a support portal offering a range of online
support services that will directly compete with the Company, and all.com has
announced its intention to launch a similar portal. The Company believes that
Support.com, in partnership with either or both of Excite@Home and Sykes
Enterprises, a major telephone call center operator, also intends to launch a
support portal in the near future. Sykes recently purchased AnswerExpress, an
online support knowledgebase, from Intel, possibly signaling Sykes' intention to
provide online support services which may compete with the Company's.
11
<PAGE>
Competition also exists from firms that are selling the individual features
that will be aggregated to form the PC Support Center. These companies include
support software manufacturers, utility providers, and hardware vendors.
Support software and services, which will likely be the most significant
component of the PC Support Center, are sold in competition with a number of
companies producing support software that feature extensive knowledge bases and
remote diagnoses and fixes. The prominent competitors in this group include
Motive Communications, Computer Support Technologies, and Support.com. Other
firms include Aveo Inc., Full Circle Software, and INFACT Technologies.
Companies that develop and maintain support knowledge bases include
ServiceWare and KnowledgeBroker.
Significant competition is expected from utilities manufacturers and
distributors. The PC Support Center will include diagnostic, automatic upgrades
and driver updates, disk maintenance, and virus protection software, segments
which are already well-served in the computer services marketplace. Competitors
are found in established brands such as Macafee.com, which has purchased Oil
Change from Cybermedia, Symantec's Norton Web, ZDNet, and Catch*Up[TM] from
Manageable Software.
Further competition will come from Internet sites offering free software
downloads. Websites such as SoftSeek, ZDNet, and Ziff-Davis continually obtain
and review the latest shareware, publish rankings, and provide free copies for
anyone to use.
The technical support forum part of the PC Support Center will encounter
competition from companies providing online support tips such as Roadnews,
Ojatex, TipWorld, Hardware Central, Experts Exchange, and Newbie-U.
Hardware and software vendors are also potential competitors. Notebook
computer manufacturers such as Compaq and IBM already bundle support services
with their product, as do other large firms in the industry such as Intel and
Microsoft. Computer manufacturers, including Compaq, Dell, Micron, Hewlett
Packard, Toshiba and Gateway, also have announced their intention to launch
support portals which could compete with the Company in the future.
In the future, the Company intends to add technical helpdesk support to the
PC Support Center. There are many companies offering online helpdesks including
MyHelpDesk, Microsoft, PC Guide, PC Mechanic, and NoWonder. The Company also
intends to offer traditional telephone support. Competitors in this area would
include Sykes Enterprises, and several other companies offering traditional
telephone support services.
Online Backup Providers
There are approximately ten established online backup software
manufacturers who market their technology using a variety of channels, including
direct sales, licensing to resellers, and bundling by OEMs and hardware
manufacturers. The most widely used software is from @Backup, Connected Corp
(Connected Online Backup), and Veritas. In 1999, Veritas completed the
acquisition of Telebackup. Telebackup had previously licensed its backup
software to StorageTek, which markets it under its brand-name PowerBAK.
StorageTek, in turn, licensed PowerBAK to the Company, which markets it under
its brand name Global Replace. Other on line backup competitors include Atrieva
(FileZonePlus), NovaStor (NovaNet-Web), Safeguard (Interactive Backup), Stac
(Replica), Vytalnet (VytalVault), Sterling Software, and Divya (BackOnline).
Although each software manufacturer offers a slightly different product,
most include variations of the following features: brief incremental backups
after a longer initial session, DES or
12
<PAGE>
password encryption, data compression technologies, Explorer-type interface for
file selection, automatically scheduled backup sessions, libraries of common
applications on the storage server, retrieval of any version of any file, and a
focus on the backup of data files only. Current trends in the industry indicate
that new features will likely become standard within a short time. These include
a full-image backup of the subscriber's applications and person configurations,
as well as a feature that initiates and runs a backup session automatically when
the user connects to the Internet.
Currently, only Telebackup, its acquiror, Veritas, its licensee, StorageTek
(and its sublicensee, PCSupport.com), and Safeguard can provide a full image
backup, but other competitors are expected to introduce this important feature
in the future.
Current industry standards on the service side are a monthly fee ranging
from $7 to $20 for online backup and restoration, and the opportunity to order a
CD for a per-incident fee of about $25 to $40 when there is need to restore
larger volumes of data.. Generally speaking, online backup is offered as a
stand alone service, with no other value-added features. Certain hardware
vendors (e.g. Compaq) and OEMs (e.g. Intel's AnswerExpress) also offer online
backup as part of a suite of services for computer users.
The Company believes that there are currently no other service providers
who offer tiered service packages or temporary laptop replacement programs such
as Global Replace.
Most of the service providers have targeted individuals and SOHO end users.
Only a few possess the scalability and storage space required for accommodating
large corporate customers or offering enterprise-wide solutions. Some of the
software manufacturers (e.g. Connected and Stac) produce intranet based versions
that include dedicated servers and client licenses.
Hardware Replacement
Currently, the Company believes that there are no competitors who offer a
service to replace broken notebooks with another notebook loaded with the user's
full image. Computer repair companies, such as Inacom, can provide a
replacement notebook while the user's notebook is being repaired, but such
replacement notebook will not be loaded with the customer's image. Similarly,
the hardware manufacturers themselves offer warranty programs in which a broken
notebook can be replaced, but such replacement will not be loaded with the
customer's image.
Phoenix
The Company believes that the Phoenix service is unique. The extended
warranties offered by hardware vendors can be considered as partial competitors,
but even though they may reload common applications before shipping the unit
back to the customer, they are not able to reconstruct personal settings and
configurations or data files. Regular backup is still the responsibility of the
user.
Repair services such as Inacom can repair and quickly return the notebook
to its owner, but cannot install the user's data and personal settings.
Notebook replacement has to be done in conjunction with online backup in order
for the recovery of a full image. Accordingly, the Phoenix program carries a
distinct advantage over depot and manufacturer repair services.
The chief source of competition for the Phoenix program comes from large
corporations that set up in-house solutions through network-based backups and by
carrying an inventory of spare laptops. Such corporations can replace a
notebook quickly with a standard set of applications, but generally are unable
to reconstruct personal settings and configurations or data files.
- -------------------
/8/ See, e.g., http://www.connnected.com/solutions/cob.pricing.htm and
http://www.backup.com/VID101.4.1049216.0/products.pricing.htm.
13
<PAGE>
Sources of Materials
The only significant materials which the Company requires to carry on its
operations are compact disks (also known as CD's) and notebook computers. CD's
are readily available from a variety of competing distributors. Notebook
computers will initially be leased by the Company, and are also available from a
variety of sources.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements,
or Labor Contracts
The Company does not hold any patents or trademarks. The Company intends
to apply for certain trademarks, including "pcsupport.com," during calendar year
2000, but there can be no assurance that any such applications will be granted.
The Company currently holds the following domain names: PCSUPPORT.com,
GLOBALREPLACE.com, PCREPLACE.com, PDASUPPORT.com, PCSUPPORTCENTER.com,
PCSUPPORTCENTER.net, PCRESTORE.com and RECON-TECH.com. The Company is also
applying for certain similar domain names in jurisdictions outside North
America. Domain names are obtained by applying to Network Solutions, Inc., or
one of a small number of other companies competing to register domain names, and
paying a fee to register each unique domain name. While the Company has
registered the foregoing domain names, there can be no assurance that the
Company will be able to maintain these names in the future, or register further
domain names, should the Company so require. The loss of the domain names could
result in confusion for the Company's customers, and a resultant loss of good
will. In particular, the loss of the domain name PCSUPPORT.COM would have a
material adverse impact on the Company's business.
There can be no assurance that third parties will not bring claims of
copyright, patent or trademark infringement against the Company or claim that
certain of the Company's products, technology, processes or features violate the
patent rights or other intellectual property rights of others. There can be no
assurance that third parties will not claim that the Company has misappropriated
their creative ideas or formats or otherwise infringed upon their proprietary
rights. Any claims of infringement, with or without merit, could be time
consuming to defend, result in costly litigation, divert management attention,
or require the Company to enter into costly royalty or licensing arrangements to
enable the Company to use important technologies or methods, any of which could
have a material adverse effect on the Company's business, financial condition or
operating results.
Regulation
The Company is not currently subject to direct regulation by any domestic
or foreign governmental agency, other than regulation applicable to businesses
generally. However, due to the increasing popularity and use of the Internet,
it is possible that a number of laws and regulations may be adopted with respect
to the Internet or covering issues such as user privacy, pricing, content,
copyrights, distribution and characteristics and quality of products and
services. Such new regulations would require the Company to expend significant
resources to understand and comply with such regulations, which may have a
material adverse impact on the Company's business.
The Company does not believe that current regulations governing the
Internet and computer service industry will have a material effect on its
current operations. However, various federal and state agencies may propose new
legislation that may adversely affect the Company's business, financial
condition and results of operations.
14
<PAGE>
Research and Development
From inception until June 30, 1998, for the year ended June 30, 1999, and
for the fiscal quarter ended September 30, 1999, the Company and its
predecessor, RTI, expended approximately $2,814, $17,646, and $225,221,
respectively, on the development of its services. The Company expects to
significantly increase research and development expenditures during the current
fiscal year ending June 30, 2000.
Employees and Contractors
The Company currently has 18 full-time employees, 2 full-time contractors
and 2 part-time contractors employed as follows:
<TABLE>
<CAPTION>
Full-Time Part-Time
Employees Contractors Contractors
--------- ----------- -----------
<S> <C> <C> <C>
Administration 4 1 1
Research and Development 4 - 1
Marketing and Sales 6 1 -
Technical Support 4 - -
</TABLE>
c. Risk Factors
------------
The Company's operations and its securities are subject to a number of
risks, including those described below. If any of the following risks actually
occur, the business, financial condition or operating results of the Company and
the trading price or value of its securities could be materially adversely
affected.
Limited Operating History
The Company's limited operating history makes it difficult to evaluate its
current business and prospects or to accurately predict its future revenue or
results of operations. The Company's revenue and income potential are unproven,
and its business model is constantly evolving. Because the Internet is
constantly changing, the Company may need to modify its business model to adapt
to these changes. Companies in early stages of development, particularly
companies in new and rapidly evolving Internet industry segments, are generally
more vulnerable to risks, uncertainties, expenses and difficulties than more
established companies.
New and Unproven Business Model
The Company's model for conducting business and generating revenue is new
and unproven. The Company's success will depend primarily on its ability to
generate revenue from multiple sources, including:
. Subscriptions for Services
. Sale of its Own Related Products Through its Web site
. Commissions On the Sale of Third Parties' Related Products Through
its Web site
. Advertising
. Customization Fees
. Sale of Summary Demographic Information
As the market for the Company's services is new and evolving, it is
difficult to predict the size of the market, its future rate of growth, if any,
or the level of prices the market will pay for the
15
<PAGE>
Company's services. To date, only a very limited number of persons have
subscribed to the PC Support Center. The Company is not certain that its
business model will be successful or that it can generate revenue growth or be
profitable. There can be no assurance that any increase in marketing and sales
efforts will result in a larger market or increase in market acceptance for the
Company's services. If markets for the Company's services develop more slowly
than expected or become saturated with competitors, or the Company's services do
not achieve or sustain market acceptance, the Company will be unlikely to be
able to successfully operate its business.
History of Operating Losses and Anticipated Losses and Negative Cash
Flow for the Foreseeable Future
To date, the Company has incurred operating losses and negative cash flow.
The Company expects its operating losses and negative cash flow to continue for
the foreseeable future and to increase significantly from current levels as the
Company significantly increases its expenditures for sales and marketing,
content development, and technology and infrastructure development to enhance
its business. With increased on-going operating expenses, the Company will need
to generate significant revenue to achieve profitability. Consequently, it is
possible that the Company may never achieve profitability, and even if it does
achieve profitability, the Company may not sustain or increase profitability on
a quarterly or annual basis in the future. If the Company does not achieve or
sustain profitability in the future, the Company may be unable to continue its
operations.
Immediate Need for Additional Capital
In November 1999, the Company secured $500,000 in debt financing from a
private investor. In January 2000, the Company entered into further
negotiations with this investor in which the investor agreed to convert all of
the investor's outstanding debt into 350,000 shares of the Company's Common
Stock plus two-year warrants to purchase an additional 240,000 shares at an
exercise price of $1.40. This conversion was effected in January 2000.
In December 1999, the Company signed an engagement letter with an
investment banking firm pursuant to which this firm agreed to secure for the
Company, on a best efforts basis, a revolving debt financing in an amount of
between $1,000,000 and $1,200,000. In January 2000, this financing was secured
for the Company in an amount of $1,000,000. Draw downs under this financing are
only available to the Company upon satisfaction of certain conditions, as
described below in the risk factor entitled "The Company's Debt Financing May
Not Be Fully Available to the Company and Is Secured by the Company's Assets."
Although the Company has sufficient working capital to sustain its current level
of operations only until March 2000 without making any draw downs, it expects to
satisfy all draw down conditions before such date.
Assuming that the Company can utilize the debt financing described above,
the Company believes that it will have adequate working capital to maintain its
current level of operations until at least September 30, 2000. However, the
Company is planning by March 2000 to hire several new employees and to begin the
development and implementation of additional features of the PC Support Center.
Furthermore, the Company expects to hire a significant number of additional
employees and to continue the development of additional features of the PC
Support Center prior to July 2000, each of which will require working capital in
addition to any funding provided by the debt financing described above. The
Company anticipates funding these additional working capital requirements either
through the proceeds from a private placement of its Common Stock or through
revenues generated from customers. The investment banking firm engaged by the
Company has agreed to use its best efforts to secure for the Company an equity
financing of at least $3,000,000 by June 30, 2000, which would be more than
sufficient to provide the Company with the working capital necessary for the
Company to proceed with its business plan through September 30, 2000. However,
there can be
16
<PAGE>
no assurance that this financing will, in fact, occur or that revenues from
customers, if any, will provide the working capital necessary for the Company to
proceed with its business plan.
The Company does not currently have any commitment from any third party to
provide additional financing, and the Company may be unable to obtain financing
on reasonable terms or at all. Furthermore, if the Company raises additional
working capital through equity, its shareholders will experience dilution. If
the Company is unable to secure additional financing when needed and its
revenues are inadequate to provide the necessary working capital, the Company
may be required to slow down or suspend its growth or reduce the scope of its
then current level of business operations, any of which would have a material
adverse effect on the Company's competitive position.
The Company's Debt Financing May Not Be Fully Available to the Company
and Is Secured by the Company's Assets
Draw downs on the Company's $1,000,000 revolving debt financing are subject
to the Company's satisfying certain conditions, including the condition that, in
order for the Company to draw down any amount, the Company must have secured at
least one commercial transaction through certain third parties, on terms
sufficient, in the sole opinion of the lender, to allow the Company to repay the
amount to be drawn down. All amounts drawn down by the Company under this
financing will be secured by a first lien on substantially all of the Company's
assets. This lien may adversely affect the Company's ability to obtain
additional financing.
If for any reason, including a shortfall in anticipated operating results,
the Company is unable to meet its debt service obligations or comply with the
covenants of this financing, the lender could elect to declare all of the
Company's indebtedness under the financing immediately due and payable,
including accrued and unpaid interest, and could terminate its commitments with
respect to any future funding obligations. In addition, the lender could
proceed against the collateral securing the Company's indebtedness, which
includes, under certain circumstances, substantially all of the Company's
assets.
The Company's Web Site Will Need to Be Continually Enhanced
Due to the constantly evolving nature of the Internet and related
technologies, the Company must continuously monitor changes in PC support
technologies and Internet-based support offerings with the goal of adding
additional functionality in new releases of the PC Support Center. The
Company's Web site will have to be updated and enhanced on a timely basis in
order for the Company to compete effectively. There can be no assurance that
the Company will have access to the working capital or technology necessary in
order to deliver these updates and enhancements to the market on a timely basis.
Reliance on Agreement with StorageTek
At present, the backup portion of the Company's operations are dependent
upon StorageTek, an unrelated third party. Pursuant to a service supply
agreement, StorageTek provides the Company with the online backup portion of the
Company's operations through access to StorageTek's existing operations and
facilities. StorageTek has also agreed not to compete with the Company or to
supply any direct competitor during the term of the service supply agreement.
StorageTek licenses the core backup technology from another unrelated third
party, Telebackup Systems Inc. ("Telebackup"). At the present time, the Company
does not intend to develop or operate its own online backup service independent
of StorageTek, nor does it have an agreement with another party to provide a
similar service. Accordingly, the successful and continued operation of the
service supply arrangement with StorageTek (which, in turn, is dependent upon
the licensing agreement between StorageTek and Telebackup), including the
covenant by StorageTek not to compete with the Company or supply any direct
competitor, is essential to the backup portion of the Company's operations. The
term of the
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<PAGE>
Company's service supply agreement with StorageTek ends in June 2000. The
Company has been negotiating with StorageTek to extend its contract for an
additional two-year term. StorageTek has verbally assured the Company that
StorageTek intends to agree to the extension, although there can be no assurance
that the Company will be able to secure an extension on terms acceptable to the
Company. Any difficulties with, failure to extend, or termination of, the
existing arrangements with StorageTek would materially adversely affect the
Company's business, financial condition and operating results. In addition, it
is uncertain what effects, if any, StorageTek's financial difficulties and
restructuring plans (both of which are discussed in StorageTek's filings with
the Securities and Exchange Commission) will have on the Company's business,
financial condition and operating results.
Dependence on Other Outside Agents and Distributors
The Company's success will also depend, to a significant extent, upon the
ability to develop strategic alliances and a timely and multi-channel
distribution system based on independent third parties and distributors.
Furthermore, the initial market penetration for the Company's products and
services will depend heavily on the sales agents of third parties and the
quality of their relationships with their current and future customers. There
can be no assurance that such alliances will develop or that they will prove
successful over the course of the Company's future operations.
Control of Rapid Growth
The Company expects to significantly expand operations to address potential
growth in its customer bases, the breadth of its service offerings, and other
opportunities. The Company expects that this expansion will strain its
management, operations, systems and financial resources. To manage its recent
growth and any future growth of its operations and personnel, the Company must
improve and effectively utilize its existing operational, management, marketing
and financial systems and successfully recruit, hire, train and manage personnel
and maintain close coordination among its technical, finance, marketing, sales
and production staffs. The Company will need to hire additional personnel in
all areas during 2000. In addition, the Company may also need to increase the
capacity of its software, hardware and telecommunications systems on short
notice, and will need to manage an increasing number of complex relationships
with users, strategic partners, advertisers and other third parties. The
failure to manage this growth could disrupt the Company's operations and
ultimately prevent the Company from generating the revenue it expects.
The Company has not yet deployed its services on a mass basis, and has not
yet tested its ability to provide its services on a mass basis. There can be no
assurance that the software platforms upon which the Company's services operate
will be able to handle the volume of information necessary to meet the Company's
operating requirements. The failure of those software platforms to handle the
necessary volume of information would seriously affect the Company's business
and results of operations.
Dependence On Key Personnel and Need For Additional Personnel
The future success of the Company depends to a significant extent on the
continued services of senior management, including Michael McLean, Steven
Macbeth, David Rowat, Clifford Rowlands and Bruce McDonald. In addition, the
Company believes that it is necessary to hire additional senior management
employees with sales and marketing experience in order to proceed with its
business plan.
The Company has a consulting contract with a company owned by Messrs.
McLean and Macbeth pursuant to which this company has agreed to make Mr. McLean
available to the Company on a full-time basis. However, this consulting
agreement may be terminated upon 60 days notice.
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<PAGE>
The Company has employment contracts with Messrs. Macbeth, Rowat, Rowlands and
McDonald, but these contracts do not require any of them to remain with the
Company for any particular period of time. The loss of any of these senior
managers would likely have an adverse effect on the Company's business.
Competition for personnel throughout the industry is intense and the Company may
be unable to retain its current key employees or attract, integrate or retain
other highly qualified employees in the future. If the Company does not succeed
in attracting new personnel or retaining and motivating its current personnel,
its business could be materially adversely affected.
The Market is Highly Competitive and the Company May Not Be Able to
Compete Successfully Against Its Current and Future Competitors
The market for PC support services through the Internet is a new and highly
competitive market which is subject to rapid change. The Company expects
competition in the market to increase because there are few barriers to entry.
The Company faces competitive pressures from numerous actual and potential
competitors.
Competition is likely to increase significantly as new companies enter the
market and current competitors expand their services. Many of the Company's
current and potential competitors have substantial competitive advantages,
including:
. longer operating histories
. significantly greater financial, technical and marketing resources
. greater brand name recognition
. larger existing customer bases
These competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements and devote greater resources
to develop, promote and sell their products or services. Services offered by
existing and potential competitors may be perceived by users or advertisers as
being superior to the Company's. In addition, increased competition could result
in reduced subscriber fees, advertising rates and margins and loss of market
share, any of which could harm the Company's business.
Brand Recognition
To attract users the Company must develop a brand identity and increase
public awareness of its Web site and the services it offers. To increase brand
awareness, traffic and revenue, the Company intends, to the extent it has
adequate financial and other resources to do so, to substantially increase its
offline and online advertising and promotional efforts. The Company's marketing
activities may, however, not result in increased revenue and, even if they do,
any increased revenue may not offset the expenses incurred in building brand
recognition. Moreover, despite these efforts the Company may be unable to
increase public awareness of its brands, which would have an adverse effect on
the results of operations of the Company.
Technological Change
The technical features of StorageTek's PowerBak online backup software, the
development of which the Company does not control, will in large part determine
the speed and accuracy, and hence marketability, of the Company's online backup
service. There can be no assurance that current competitors or new market
entrants will not succeed in developing and introducing new or enhanced backup
systems having technologies and features superior to, or more effective than,
any technologies which have been or are being developed by the Company,
StorageTek or Telebackup, rendering the Company's backup service obsolete or
less marketable.
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The market for Internet products and services is characterized by rapid
change, evolving industry standards and frequent introductions of new
technological developments. These new standards and developments could make the
Company's existing or future products or services obsolete. Keeping pace with
introduction of new standards and technological developments could result in
significant additional costs or prove difficult or impossible. The failure to
keep pace with these changes and to continue to enhance and improve the
responsiveness, functionality and features of the Company's services could harm
the Company's ability to attract and retain users. Among other things, the
Company may need to enhance its existing services or license or develop new
services or technologies.
In addition, personal computers, operating systems software, and
applications software are constantly improving. Computer manufacturers and
software developers may develop more robust technologies for their products
which could render the Company's services obsolete or reduce the demand for the
Company's services below the level required to profitably support the Company's
service.
Accordingly, the ability of the Company to compete will be dependent on the
timely enhancement of its existing products as well as the development of future
products. There can be no assurance that StorageTek or Telebackup, and hence
the Company, will be able to keep pace with technological developments, or that
its products will not become obsolete. Technological obsolescence of the
existing PowerBak technology remains a possibility, which would have a material
adverse affect on the Company's operations.
Intellectual Property Protection
The Company may be unable to acquire or maintain Web domain names in the
United States and other countries in which the Company may conduct business.
The Company currently holds various relevant domain names, including
PCSUPPORT.com, GLOBALREPLACE.com, PCREPLACE.com, PDASUPPORT.com,
PCSUPPORTCENTER.com, PCSUPPORTCENTER.net, PCRESTORE.com, and RECON-TECH.com. The
acquisition and maintenance of domain names generally is regulated by
governmental agencies and their designees and is subject to change. The
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear. Therefore, the Company
could be unable to prevent third parties from acquiring or using domain names
that infringe or otherwise decrease the value of its brand name and other
proprietary rights.
Also, third parties may assert trademark, copyright, patent and other types
of infringement or unfair competition claims against the Company. If forced to
defend against any such claims, whether they are with or without merit or are
determined in the Company's favor, then the Company may face costly litigation,
diversion of technical and management personnel, or product shipment delays. As
a result of such a dispute, the Company may have to develop non-infringing
technology or enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may be unavailable on terms acceptable to the
Company, or at all. If there is a successful claim of product infringement
against the Company and the Company is unable to develop non-infringing
technology or license the infringed or similar technology on a timely basis, it
could harm business.
The Company's success will depend in part on StorageTek's and Telebackup's
ability to obtain and enforce intellectual property protection for their back-up
technology in the United States, Canada and other countries. In addition, the
Company relies on other third parties to provide services enabling its
operations. The Company could become subject to infringement actions by third
parties based upon the use of intellectual property provided by third-party
providers. It is also possible that the Company could become subject to
infringement actions based upon the content licensed from
20
<PAGE>
third parties. Any such claims or disputes could subject the Company to costly
litigation and the diversion of its financial resources and technical and
management personnel.
Further, if efforts to enforce the Company's intellectual property rights
are unsuccessful or if claims by third parties against the Company are
successful, the Company may be required to pay financial damages or alter its
business practices.
The Company relies on confidentiality, non-disclosure and non-competition
arrangements with its employees, representatives and other entities engaged in
joint product or business development with the Company, and expects to continue
to enter into such agreements with such persons. There can be no assurance that
these agreements will provide meaningful protection to the Company. There can
be no assurance that other companies will not acquire and use information which
the Company considers to be proprietary.
System Disruptions
The Company's ability to attract and retain subscribers depends on the
performance, reliability and availability of its services and network
infrastructure. The Company may experience periodic service interruptions
caused by temporary problems in the Company's own systems or software or in the
systems or software of third parties upon whom the Company relies on to provide
service or support. The maintenance and operation of the Company's back-up
service is dependent upon StorageTek. Fire, floods, earthquakes, power loss,
telecommunications failures, break-ins and similar events could damage these
systems and interrupt the Company's services. Computer viruses, electronic
break-ins or other similar disruptive events also could disrupt the Company's
services. System disruptions could result in the unavailability or slower
response times of the Company's Web site, which would lower the quality of
customers' experience. Service disruptions could adversely affect the Company's
revenue and, if they were prolonged, would seriously harm the Company's business
and reputation. The Company does not carry business interruption insurance to
compensate for losses that may occur as a result of these interruptions. In
addition, under the Company's service supply agreement with StorageTek,
StorageTek is not liable for any consequential damage or loss it may cause to
the Company's business due to the failure of any of StorageTek's systems, and,
accordingly, the Company will be unable to seek reimbursement from StorageTek
for any such damage or loss. In addition, the Company's customers will be
dependent on Internet service providers and other Web site operators for access
to the Company's Web site. These providers and operators have experienced
significant outages in the past, and could experience outages, delays and other
difficulties due to system failures unrelated to the Company's systems.
Moreover, the Internet network infrastructure may not be able to support
continued growth. Any of these problems could adversely affect the Company's
business.
Failure of Online Security Measures
The Company's relationship with its customers would be adversely affected
if the security measures that the Company uses to protect their personal
information are ineffective. The Company cannot predict whether events or
developments will result in a compromise or breach of the technology the Company
uses to protect a customer's personal information.
The infrastructure relating to the Company's services is vulnerable to
unauthorized access, physical or electronic computer break-ins, computer viruses
and other disruptive problems. Internet service providers have experienced, and
may continue to experience, interruptions in service as a result of the
accidental or intentional actions of Internet users, current and former
employees and others. Anyone who is able to circumvent the Company's security
measures could misappropriate proprietary information or cause interruptions in
the Company's operations. Security breaches relating to the Company's
activities or the activities of third-party contractors that involve the storage
21
<PAGE>
and transmission of proprietary information could damage the reputation of the
Company and the Company's relationship with its subscribers and strategic
partners. The Company could be liable to its subscribers for the damages caused
by such breaches or it could incur substantial costs as a result of defending
claims for those damages. The Company may need to expend significant capital
and other resources to protect against such security breaches or to address
problems caused by such breaches. Security measures taken by the Company may not
prevent disruptions or security breaches.
Development and Maintenance of the Internet and the Availability of
Increased Bandwidth to Users
The success of the Company's business will rely on the continued
improvement of the Internet as a convenient means of consumer interaction and
commerce. The Company's business will depend on the ability of its customers to
use its Web site without significant delays or aggravation that may be
associated with decreased availability of Internet bandwidth and access to the
Company's Web site. This will depend upon the maintenance of a reliable network
with the necessary speed, data capacity and security, as well as timely
development of complementary products, such as high speed modems, for providing
reliable Internet access and services. The failure of the Internet to achieve
these goals may reduce the Company's ability to generate significant revenue.
The Company's penetration of a broader consumer market will depend, in
part, on continued proliferation of high speed Internet access. The Internet
has experienced, and is likely to continue to experience, significant growth in
the numbers of users and amount of traffic. As the Internet continues to
experience increased numbers of users, increased frequency of use and increased
bandwidth requirements, the Internet infrastructure may be unable to support the
demands placed on it. In addition, increased users or bandwidth requirements
may harm the performance of the Internet. The Internet has experienced a
variety of outages and other delays and it could face outages and delays in the
future. These outages and delays could reduce the level of Internet usage as
well as the level of traffic, and could result in the Internet becoming an
inconvenient or uneconomical source of products and services which would cause
its revenue to decrease. The infrastructure and complementary products or
services necessary to make the Internet a viable commercial marketplace for the
long term may not be developed successfully or in a timely manner. Even if
these products or services are developed, the Internet may not become a viable
commercial marketplace for the products or services that the Company offers.
The Company May Need to Change the Manner in Which it Conducts its
Business if Government Regulation Increases or Changes
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. Laws and regulations may be adopted
in the future, however, that address issues such as user privacy, pricing,
taxation, content, copyrights, distribution, security, and the quality of
products and services. For example, the Telecommunications Act of 1996 sought
to prohibit transmitting certain types of information and content over the Web.
Several telecommunications companies have petitioned the Federal Communications
Commission to regulate Internet service providers and online services providers
in a manner similar to long distance telephone carriers and to impose access
fees on these companies. Any imposition of access fees could increase the cost
of transmitting data over the Internet. In addition, the growth and development
of the market for online commerce may lead to more stringent consumer protection
laws, both in the United States and abroad, that may impose additional burdens
on the Company. The United States Congress recently enacted Internet laws
regarding children's privacy, copyrights, taxation and the transmission of
sexually explicit material. The law of the Internet, however, remains largely
unsettled, even in areas where there has been some legislative action.
Moreover, it may take years to determine the extent to which existing laws
relating to issues such as property ownership, libel and personal privacy
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<PAGE>
are applicable to the Web. Any new, or modifications to existing, laws or
regulations relating to the Web could adversely affect the Company's business.
If one or more states or any foreign country successfully asserts that the
Company should collect sales or other taxes on the provision of its services,
the Company's net sales and results of operations could be harmed. The Company
does not currently collect sales or other similar taxes the provision of its
services in any state. However, one or more states may seek to impose sales tax
collection obligations on companies which engage in or facilitate the provision
of services on the Internet. A number of proposals have been made at the state
and local level that would impose additional taxes on the sale of products and
services through the Internet. Such proposals, if adopted, could substantially
impair the growth of electronic commerce and could adversely affect the
Company's opportunity to derive financial benefit from the provision of its
services. Moreover, if any state or foreign country were to successfully assert
that the Company should collect sales or other taxes on the provision of its
services, the Company's results of operations could be adversely affected.
Legislation limiting the ability of the states to impose taxes on Internet-
based transactions has been enacted by Congress. However, this legislation,
known as the Internet Tax Freedom Act of 1998, imposes only a three-year
moratorium ending on October 21, 2001 on state and local taxes on electronic
commerce where such taxes are discriminatory and on Internet access unless such
taxes were generally imposed and actually enforced before October 1, 1998.
Failure to renew this legislation would allow various states to impose taxes on
Internet-based commerce.
Operating Results May Prove Unpredictable, and May Fluctuate
Significantly
The Company's operating results are likely to fluctuate significantly in
the future due to a variety of factors, many of which are outside of the
Company's control. Because the Company's operating results may be volatile and
difficult to predict, in the future the operating results may fall below the
expectations of securities analysts and investors. In this event, the trading
price of the Common Stock may fall significantly. Factors that may cause
operating results to fluctuate significantly include the following:
. fluctuations in the levels of user visits to the Company's Web site
and the amount of time that users spend on the Web site
. new Web sites, services or products introduced by the Company or by
its competitors
. the timing and uncertainty of advertising sales cycles and seasonal
declines in advertising sales
. general economic conditions, as well as economic conditions specific
to users of the Company's services
Common Stock Price May Be Volatile
The market prices of securities of Internet and technology companies are
extremely volatile and sometimes reach unsustainable levels that bear no
relationship to the past or present operating performance of such companies.
Factors that may contribute to the volatility of the trading price of the
Common Stock include, among others:
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. the Company's quarterly results of operations
. the variance between the Company's actual quarterly results of
operations and predictions by stock analysts
. financial predictions and recommendations by stock analysts concerning
Internet companies and companies competing in the Company's market in
general, and concerning the Company in particular
. public announcements of technical innovations relating to the Company's
business, new products or services by the Company or its competitors, or
acquisitions or strategic alliances by the Company or its competitors
. public reports concerning the Company's services or those of its
competitors
. the operating and stock price performance of other companies that
investors or stock analysts may deem comparable to the Company
In addition to the foregoing factors, the trading prices for equity
securities in the stock market in general, and of Internet-related companies in
particular, have been subject to wide fluctuations that may be unrelated to the
operating performance of the particular company affected by such fluctuations.
Consequently, broad market fluctuations may have an adverse effect on the
trading price of the Common Stock, regardless of the Company's results of
operations.
Limited Market for the Common Stock
Although the Common Stock is quoted on the OTC Electronic Bulletin Board,
there is only a limited market for the Common Stock, and there can be no
assurance that this market will be maintained or broadened. The market price
for shares of Common Stock is likely to be very volatile, and numerous factors
beyond the Company's control may have a significant effect. On January 4, 1999,
the Securities and Exchange Commission approved NASD rule amendments requiring
companies to report their current financial information to the Securities and
Exchange Commission as a condition to continuing to have their securities quoted
on the OTC Electronic Bulletin Board. By registering under the Securities
Exchange Act of 1934 and responding to all comments of the staff of the
Securities and Exchange Commission by no later than February 9, 2000, the
Company will be eligible to retain its quotation on the OTC Electronic Bulletin
Board. However, in the event that the Company does not meet the February 9,
2000 registration deadline, or thereafter loses the status of a "reporting
issuer," any future quotation of the Common Stock on the OTC Electronic Bulletin
Board will be jeopardized.
Substantial Sales of Common Stock Could Cause Stock Price to Fall
As of January 11, 1999, the Company had outstanding 6,425,569 shares of
Common Stock of which approximately 2,813,955 shares were "restricted
securities" (as that term is defined under Rule 144 promulgated under the
Securities Act of 1933). These restricted shares are eligible for sale under
Rule 144 at various times. Upon the first draw down under the Company's
$1,000,000 revolving debt facility, the Company has agreed to issue to the
lender warrants to purchase approximately 1,500,000 shares of Common Stock. The
holders of these warrants would be granted the right by the Company to have the
shares of Common Stock underlying these warrants registered under the Securities
Act of 1933. No prediction can be made as to the effect, if any, that sales of
shares of Common Stock or the availability of such shares for sale will have on
the market prices prevailing from time to time. Nevertheless, the possibility
that substantial amounts of Common Stock may be
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sold in the public market may adversely affect prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital through the
sale of its equity securities.
No Dividends
The payment of dividends on the shares of the Company is within the
discretion of the Board of Directors and will depend upon the Company's future
earnings, its capital requirements, its financial condition, and other relevant
factors. The Company does not currently intend to declare any dividends on its
Shares for the foreseeable future.
The Common Stock May Be Deemed "Penny Stock" and Therefore Subject to
Special Requirements
The Company's Common Stock may be deemed to be a "penny stock" as that term
is defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934.
Penny stocks are stocks (i) with a price of less than five dollars per share;
(ii) that are not traded on a "recognized" national exchange; (iii) whose prices
are not quoted on the NASDAQ automated quotation system (NASDAQ-listed stocks
must still meet requirement (i) above); or (iv) in issuers with net tangible
assets of less than $2,000,000 (if the issuer has been in continuous operation
for at least three years) or $5,000,000 (if in continuous operation for less
than three years), or with average revenues of less than $6,000,000 for the last
three years.
Section 15(g) of the Securities Exchange Act of 1934, and Rule 15g-2
promulgated under the Securities Exchange Act of 1934, require broker-dealers
dealing in penny stocks to provide potential investors with a document
disclosing the risks of penny stocks and to obtain a manually signed and dated
written receipt of the document before effecting any transaction in a penny
stock for the investor's account. Moreover, Rule 15g-9 promulgated under the
Securities Exchange Act of 1934 requires broker-dealers in penny stocks to
approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the broker-
dealer to (i) obtain from the investor information concerning his or her
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Compliance with
these requirements may make it more difficult for investors in the Common Stock
to resell their shares to third parties or to otherwise dispose of them.
Executive Officers, Directors and Major Stockholders Exercise
Significant Control
As of December 31, 1999, the executive officers, Directors and holders of
5% or more of the outstanding Common Stock together beneficially owned
approximately 35.95% of the outstanding Common Stock. These stockholders are
able to significantly influence all matters requiring approval by stockholders,
including the election of Directors and the approval of significant corporate
transactions. This concentration of ownership may also have the effect of
delaying, deterring or preventing a change in control and may make some
transactions more difficult or impossible to complete without the support of
these stockholders.
Exchange Rate Risk
The Company expects a substantial portion of its revenues to be based on
sales and services rendered to customers in the United States, while a
significant amount of its operating expenses will
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be incurred in Canada. As a result, the financial performance of the Company
will be affected by fluctuations in the value of the U.S. dollar to the Canadian
dollar. At the present time, the Company has no plan or policy to utilize
forward contracts or currency options to minimize this exposure, and even if
these measures are implemented there can be no assurance that such arrangements
will be available, be cost effective or be able to fully offset such future
currency risks.
ITEM 2. PLAN OF OPERATION
The following describes in general terms the Company's plan of operation
and development strategy for the next twelve-month period (the "Next Year").
During the Next Year, the primary focus of the Company will be to expand
marketing efforts for its services, continue to enhance the PC Support Center,
and to develop and/or contract to provide the infrastructure necessary to
deliver its services to its subscribers and customers.
a. Current Services
----------------
The Company currently offers three services. The Company's current primary
service, PC Support Center, is a Web-based support portal for PCs which
aggregates a number of support technologies, including software and driver
updates, hard disk maintenance, a technical support forum, and others. Global
Replace combines an on-line backup service for notebook and desktop computers
with three methods of restoring data in the event of a PC failure. Phoenix
allows a notebook user to transfer a full-image of all data, applications,
preferences and settings to a new notebook.
b. Cash Flow Requirements
----------------------
In November 1999, the Company secured $500,000 in debt financing from a
private investor. In January 2000, the Company entered into further
negotiations with this investor in which the investor agreed to convert all of
the investor's outstanding debt into 350,000 shares of the Company's Common
Stock plus two-year warrants to purchase an additional 240,000 shares at an
exercise price of $1.40. This conversion was effected in January 2000.
In December 1999, the Company signed an engagement letter with an
investment banking firm pursuant to which this firm agreed to secure for the
Company, on a best efforts basis, a revolving debt financing in an amount of
between $1,000,000 and $1,200,000. In January 2000, this financing was secured
for the Company in an amount of $1,000,000. The Company agreed that, upon the
first draw down under this financing, it would issue to the lender an 18-month
warrant to purchase 1,000,000 shares of Common Stock at an exercise price of
$1.05 and a 30-month warrant to purchase 500,000 shares of Common Stock at an
exercise price of $2.00.
Draw downs on this financing are subject to the Company's satisfying
certain conditions, including the condition that, in order for the Company to
draw down any amount, the Company must have secured at least one commercial
transaction through certain third parties, on terms sufficient, in the sole
opinion of the lender, to allow the Company to repay the amount to be drawn
down. Although the Company has sufficient working capital to sustain its
current level of operations only until March 2000 without making any draw downs,
it expects to satisfy all draw down conditions before such date. All amounts
drawn down by the Company under this financing will be secured by a first lien
on substantially all of the Company's assets. This lien may adversely affect
the Company's ability to obtain additional financing.
Assuming that the Company can utilize the debt financing described above,
the Company believes that it will have adequate working capital to maintain its
current level of operations until at least September 30, 2000. However, the
Company is planning by March 2000 to hire several new
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employees and to begin the development and implementation of additional features
of the PC Support Center. Furthermore, the Company expects to hire a significant
number of additional employees and to continue the development of additional
features of the PC Support Center prior to July 2000, each of which will require
working capital in addition to any funding provided by the debt financing
described above. The Company anticipates funding these additional working
capital requirements either through the proceeds from a private placement of its
Common Stock or through revenues generated from customers. The investment
banking firm engaged by the Company has agreed to use its best efforts to secure
for the Company an equity financing of at least $3,000,000 by June 30, 2000,
which would be more than sufficient to provide the Company with the working
capital necessary for the Company to proceed with its business plan through
September 30, 2000. However, there can be no assurance that this financing will,
in fact, occur or that revenues from customers, if any, will provide the working
capital necessary for the Company to proceed with its business plan.
The Company does not currently have any commitment from any third party to
provide additional financing, and the Company may be unable to obtain financing
on reasonable terms or at all. Furthermore, if the Company raises additional
working capital through equity, its shareholders will experience dilution. If
the Company is unable to secure additional financing when needed and its
revenues are inadequate to provide the necessary working capital, the Company
may be required to slow down or suspend its growth or reduce the scope of its
then current level of business operations, any of which would have a material
adverse effect on the Company's competitive position.
c. Sales and Marketing
-------------------
The Company plans to increase marketing efforts for its services through
direct and indirect channels, including the following:
PC Manufacturers. The Company is negotiating with several of the world's
largest PC manufacturers to market the Company's services to the
manufacturers' customers, and the Company plans to expand its marketing
efforts to other top PC manufacturers during the Next Year. No agreements
have yet been reached with any PC manufacturer, and there can be no
assurance that any such agreements can be reached on terms favorable to the
Company or at all.
OEMS. The Company is negotiating with companies which integrate PCs with
internet access and other related services and sell them to PC end-users
via a monthly payment schedule over a number of years, typically three, to
include the Company's services. In January 2000, the Company and Go Figure
entered into a one-year Services Agreement in which Go Figure has agreed to
use commercially reasonable efforts to secure agreements with third parties
that will in the aggregate forecast delivery during calendar year 2000 of
at least one million PCs that will provide access to customized versions of
the PC Support Center. Go Figure has also agreed that it will not during
the one-year term of the agreement directly or indirectly offer services
similar to or competitive with the PC Support Center's services. For more
on this agreement, see above under "Description of Business - Business of
the Company - Products and Services - PC Support Center."
Computer Service Companies. There are several international companies
which provide a comprehensive range of computer services that permit large
corporations to out-source some or all of their PC support requirements.
The Company's services complement and extend the range of such support
services. In April 1999 the Company entered into an agreement with Unisys,
an international computer service company, to private label Global Replace
under the Unisys brand name for resale to Unisys' corporate customers. For
more on this agreement, see above under "Description of Business - Business
of the Company - Distribution Methods of Services - Resellers." The
Company intends to market its services to other international
27
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service companies during the Next Year, although there can be no assurance
that the Company will be able to negotiate any agreements with computer
service companies.
StorageTek. In 1998, the Company's wholly-owned subsidiary entered into a
contract with StorageTek in which the Company licensed StorageTek's backup
storage software, which the Company markets under the name Global Replace.
See "Description of Business - Business of the Company - Distribution
Methods of Services" and "Products and Services-Global Replace."
StorageTek also agreed to market the Company's hardware replacement
services in conjunction with its own backup software. In the fiscal year
ending June 30, 1999, StorageTek did not secure any orders for the
Company's services, and no orders have been secured to date during the
current fiscal year. During the Next Year, the Company intends to expand
its training and co-selling activities with StorageTek.
Web Portals. The Company is negotiating with one company which is
developing a Web site or portal specifically targeting the mobile PC user.
The Company is negotiating to provide the support services which will be a
prominent feature of the portal. However, there can be no assurance that
an agreement will be reached with this company or any other Web portal
company.
Direct Sales. The Company is marketing to a small number of large and small
corporations on a direct basis. Although no contracts have been secured to
date, the Company intends to expand its direct marketing efforts to a
select number of large corporations in the United States and Canada.
There can be no assurance that any contracts will be reached with any
company on a direct basis.
d. Research and Development
------------------------
The Company's primary research and development effort over the Next Year
will be to continue to add features to the PC Support Center (which the Company
launched in October 1999) and to release subsequent versions during the Next
Year. Due to the constantly evolving nature of the Internet and related
technologies, the Company will continuously monitor changes in PC support
technologies and Internet-based support offerings with the goal of adding
additional functionality in new releases of the PC Support Center. See
"Description of Business - Business of the Company - Products and Services - PC
Support Center."
Among the functions and services the Company expects to add to the PC
Support Center over the next six months are: email notification of driver and
other recommended updates, virus scan, telephone support, PC performance
enhancement, education center, enhanced platform maintenance, asset-tracking,
extended warranty, anti-theft deterrent, theft and damage insurance, technician
dispatch, and repair co-ordination. There can be no assurance, however, that
all or any of these features will be added. The Company expects to incur costs
of between $400,000 and $600,000 over the next six months in order to develop
and implement these additional functions of the PC Support Center. Of this
amount, approximately 75% represents costs expected to be incurred internally by
the Company, with the balance representing amounts expected to be paid to third-
party contractors.
e. Operations
----------
To support the Global Replace program, the Company will expand its
capability to restore full image backups onto replacement notebooks. During the
Next Year, the Company plans to develop infrastructure internally to provide the
capacity to restore three to five notebooks per working day. To increase
capacity beyond this level to meet future demand, the Company will make a
decision to build additional infrastructure internally, or to contract the
restoration process to an
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external computer services firm. The Company anticipates that it will make this
decision during the Next Year.
f. Employees
---------
During the Next Year, the Company plans to hire additional senior
management employees in the areas of sales and marketing, as well as additional
technical, operations, sales and marketing, and administrative staff as required
to expand its service offerings, sales and marketing efforts, and to maintain
service levels to its then existing and new subscribers. The number and skill
sets of individual employees will be primarily dependent on the relative rates
of growth of the Company's different services, and the extent to which sales and
marketing, operations, and development are executed internally or contracted to
outside parties. Subject to the availability of sufficient working capital and
assuming significant customer acceptance of the Company's products, the Company
currently plans to increase staffing to approximately 100 people during the Next
Year, although there can be no assurance that such hiring will take place or
will be adequate to execute the growth plans as described herein.
g. Year 2000 Compliance
--------------------
The Year 2000 problem has not to date had a material impact on the
Company's operations, and the Company believes that the Year 2000 problem will
not have a significant impact on the Company's future operations. Costs
incurred to insure that the Company's systems are Year 2000 compliant have to
date not been, and are not expected to be, material to the Company's results of
operations, financial position or cash flows, since virtually all of the
Company's internal software was recently purchased, and no Year 2000 problems
have been encountered by the Company's systems to date in January 2000.
ITEM 3. DESCRIPTION OF PROPERTY
a. Principal Business Facilities
-----------------------------
The Company maintains its principal place of business at Suite 280, 4400
Dominion Street, Burnaby, British Columbia, Canada V5G 4G3, which consists of
approximately 7,347 square feet which the Company currently sub-leases for
(Cdn)$5.00 per square foot per year, plus operating costs of approximately
(Cdn)$10.00 per square foot per year. 2,800 square feet of this space is rented
free of charge in the first year, which ends on June 1, 2000. The sub-lease
expires on November 29, 2002 and the price per square foot per year increases in
the second year to (Cdn)$6.00, and to (Cdn)$6.50 in the third year. The Company
also has access to office space at 1875 Charleston Road, Mountain View,
California 94043 at $210 per month under a month-to-month service agreement.
Some sales and marketing activities take place from this Mountain View office,
but the majority of the Company's operations, sales, services and administration
are conducted from the Company's offices in Burnaby. The Company expects that
the space provided by these offices will be sufficient to meet the Company's
requirements for the next twelve months.
b. Investment Policies
-------------------
The Company does not currently have any policies regarding the acquisition
or sale of assets primarily for possible capital gain or for income. The
Company does not presently hold any investments or interests in real estate
mortgages or securities of or interests in persons primarily engaged in real
estate activities.
29
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
a. Security Ownership of Certain Beneficial Owners
-----------------------------------------------
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1999, by (i) each
person who is known by the Company to own beneficially more than 5% of the
Company's outstanding voting securities; (ii) each of the Company's Directors;
(iii) the Company's Chief Executive Officer; and (iv) all executive officers and
Directors of the Company as a group:
<TABLE>
<CAPTION>
Amount of Common Stock & Approximate Percent
Nature of Beneficial of Ownership of
Name & Address(1) Ownership(2) Common Stock
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Advanced Financial Services Inc.(3) 596,029(4) 9.67%
- -----------------------------------------------------------------------------------------------------
The Dromond Technologies Group, Inc.(5) 553,440 8.98%
- -----------------------------------------------------------------------------------------------------
Michael G. McLean 923,440(6) 14.98%
- -----------------------------------------------------------------------------------------------------
Steven W. Macbeth 928,440(6) 15.06%
- -----------------------------------------------------------------------------------------------------
David W. Rowat 258,333(7) 4.19%
- -----------------------------------------------------------------------------------------------------
W. Benjamin Catalano 63,264(8) 1.03%
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
All executive officers and Directors as a group (4 persons) 1,620,037(9) 26.28%
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Unless otherwise indicated, the address of each person is c/o the Company
at Suite 280, 4400 Dominion Street, Burnaby, British Columbia, Canada V5G
4G3.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options, warrants or convertible securities that are currently
exercisable, or exercisable within 60 days of December 31, 1999, are deemed
outstanding for computing the percentage of the person holding such
options, warrants or convertible securities but are not deemed outstanding
for computing the percentage of any other person. Except as indicated by
footnote and subject to community property laws where applicable, the
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by
them.
(3) Advanced Financial Services Inc. is located at P.O. Box 3340 Road Town,
Tortola, British Virgin Islands.
(4) Includes 20,000 shares of Common Stock issuable pursuant to warrants that
are currently exercisable, or exercisable within 60 days of December 31,
1999.
(5) The Dromond Technologies Group, Inc. ("Dromond") is located at Suite 305,
2692 Clearbrook Road, Abbotsford, British Columbia, Canada V2T 2Y8.
Dromond is owned 50% by Michael McLean and 50% by Steven Macbeth.
(6) Includes the 553,440 shares of Common Stock owned by Dromond, as to which
Messrs. McLean and Macbeth have shared voting and investment power. Also
includes 12,500 shares of Common Stock issuable pursuant to options that
are currently exercisable, or exercisable within 60 days of December 31,
1999.
(7) Includes 58,333 shares of Common Stock issuable pursuant to options that
are currently exercisable, or exercisable within 60 days of December 31,
1999.
30
<PAGE>
(8) Includes 7,500 shares of Common Stock issuable pursuant to options that are
currently exercisable, or exercisable within 60 days of December 31,
1999.
(9) Includes 90,833 shares of Common Stock issuable pursuant to options that
are currently exercisable, or exercisable within 60 days of December 31,
1999. Also includes the 553,440 shares of Common Stock owned by Dromond,
as to which Messrs. McLean and Macbeth have shared voting and investment
power.
b. Changes in Control
------------------
There are no arrangements of which the Company is aware that could result
in a change of control of the Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
a. Directors and Executive Officers
--------------------------------
Each Director of the Company will hold office until the later of (a) the
next annual meeting of shareholders (at which time such Director will be
eligible for re-election by the shareholders), or (b) until his successor shall
have been duly elected and qualified.
Michael G. McLean, age 38, has been the President and CEO and a Director of
the Company since the Merger, and was President and a director of RTI from
December 1997 until the Merger. Mr. McLean has over 12 years experience with
technology organizations and has a broad base of technical and marketing
experience. Most recently, from March 1997 to June 1997, he was Product
Development Manager at Riptide Technologies, a software development company that
focuses on providing products and services to the lottery industry, where he was
charged with creating the infrastructure for a successful product development
group. Prior to that, from May 1996 to December 1996, he was General Manager of
a business unit at Simba Technologies, a software development and marketing
company, managing a staff of 17 responsible for product development, product
marketing, customer support and professional services.
At HealthVISION Corporation, a software company serving the health care
industry, from 1993 - 1996, Mr. McLean developed and managed a strategic
partnership to allow HealthVISION to private label the partner's software. He
also managed several other reseller partnerships. Subsequently, also at
HealthVISION, he was a senior Software Development Manager managing 35 technical
and user support staff across 3 product lines. Before starting his career in
technology, Mr. McLean founded a construction company and grew it to 35
employees.
Steven W. Macbeth, age 30, has been the Chief Technology Officer,
Secretary/Treasurer and a Director of the Company since the Merger. Mr. Macbeth
was Chief Executive Officer and a director of RTI from December 1997 until the
Merger. Mr. Macbeth has over 13 years executive and project management
experience in technology companies. Most recently, he co-founded and served as
Director, Product Development from June 1996 to June 1997 at Riptide
Technologies, a software development company that focuses on providing products
and services to the lottery industry. In that position, he managed three
development projects and project teams of up to 25 employees.
Prior to Riptide, Mr. Macbeth served as Technical Project Manager at MPR
Teltech from August 1995 to May 1996, and as Software Development Manager at
HealthVISION Corporation from May 1994 to July 1995.
W. Benjamin Catalano, age 35, has been a Director of the Company since the
Merger. Mr. Catalano has, since 1986, been self employed in personal business
ownership as well as
31
<PAGE>
participating as a licensed professional in the investment brokerage and real
estate industries. Mr. Catalano is currently Vice President of Corporate Affairs
and a Director of Themescapes, Inc., a technology company developing three-
dimensional acoustic products.
David W. Rowat, age 44, has been the Vice President, Finance and Business
Development for the Company since the Merger. Mr. Rowat held the same position
with RTI from April 1, 1999 until the Merger. He is a Professional Engineer,
earned his MBA from Harvard University in 1986 and has a broad operational
background with a speciality in public and private finance, strategic
partnering, and mergers and acquisitions for early stage technology companies.
He served as Vice-President of Sales, Development and Finance at various times
for Nexus Engineering from August 1986 to January 1992, a technology company
developing cable television headend products, Vice President and Chief Financial
Officer for Xillix Technologies from June 1993 to January 1995, a technology
company developing medical imaging products, and Chief Executive Officer of
Merit Technologies from January 1995 to April 1995, a manufacturer of point-of-
sale terminals. From October 1995 to present, Mr. Rowat has been the president
of Strategic Catalysts Inc., a consulting company he founded to serve the
technology industry.
b. Significant Employees
---------------------
There are no significant employees who are not described as executive
officers above, except as follows:
Clifford Rowlands, age 45, was appointed Vice President, Sales and
Marketing of the Company on June 14, 1999, and has more than 18 years experience
in the North American information technology industry. From February 1997 to
June 1999, Mr. Rowlands owned and operated a consulting company serving
primarily British Columbia's high tech industry.
Mr. Rowlands previously held the position of National Director of Sales and
Marketing for NEC Technologies Canada, a wholly owned subsidiary of NEC
Corporation of Japan. During his career with NEC (from March 1988 to February
1997), Mr. Rowlands developed sales and marketing strategies for new ventures
within NEC, and was responsible for business units in Canada and the U.S. Mr.
Rowlands' business unit grew from $35 million to $600 million in revenue during
his tenure at NEC.
Bruce McDonald, age 32, was appointed Vice President, Operations of the
Company on December 10, 1999 and commenced employment with the Company on
January 10, 2000. From August 1996 to January 2000, Mr. McDonald was the
Director of Customer and Technical Services for Seanix Technology Inc., a
Vancouver-based manufacturer of personal computer and server hardware systems
sold under its own name and under private labels. Mr. McDonald was responsible
for the delivery of customer satisfaction throughout North America for both the
post-sales support and technical services divisions. From November 1995 to
August 1996, Mr. McDonald was National Sales Manager with Seanix, responsible
for Seanix's national sales organization in all Canadian provinces excluding
Quebec. From June 1994 to November 1995, Mr. McDonald was Regional Sales
Manager with Seanix, responsible for the development of sales first in British
Columbia and then elsewhere in Western Canada.
c. Family Relationships
--------------------
There are no family relationships among Directors, executive officers or
any nominees to these positions.
32
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
a. Persons Covered
---------------
The following table sets forth the compensation for the fiscal years ended
June 30, 1998 and 1999 paid by the Company to its Chief Executive Officer. No
other officer received a combined salary and bonus in excess of $100,000 during
the last fiscal year. As the Company completed the Merger on June 23, 1999, the
information provided in the table includes information for the Company's
predecessor, RTI, for the period December 10, 1997 to June 23, 1999.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Annual Annual All Other
Name & Principal Position Year(1) Salary Bonus Compensation
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael G. McLean 1999 $45,565 (2) $-0- $151,274 (3)
CEO & President 1998 $26,176 (2) $-0- $ 29,388 (4)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the twelve months ended June 30, 1999 ("fiscal 1999") and the period
from December 10, 1997 to June 30, 1998 ("fiscal 1998").
(2) Includes fees paid to ST Technologies Inc., a company of which Mr. McLean
is the sole owner, amounting to $2,926 for fiscal 1999 and $10,788 for
fiscal 1998. Also includes Mr. McLean's share of consulting fees paid by
the Company to Dromond, of which Mr. McLean owns 50%, amounting to $42,639
for fiscal 1999 and $15,388 for fiscal 1998. See "Certain Relationships
and Related Transactions."
(3) Includes the difference between the price paid by Mr. McLean in April, 1999
for shares of common stock of PCS and the then market price of these
shares. See "Certain Relationships and Related Transactions." Also
includes $26,962 in Common Stock, representing Mr. McLean's 50% share of
63,440 shares of common stock in RTI issued on January 6, 1999 for services
rendered to RTI (as adjusted to reflect the one-for-five exchange ratio in
the Merger).
(4) Represents Mr. McLean's share of the difference between the price paid by
Dromond in January 1998 for 489,800 shares of common stock of RTI and the
then market price.
b. Compensation of Directors
-------------------------
There are no standard arrangements by which Directors of the Company are
compensated for their services as Directors, except for the grant of stock
options, and none of the Directors received compensation for their services as
Directors during the most recently completed financial year. Certain of the
Directors of the Company are compensated for their services as consultants to
the Company. See "Certain Relationships and Related Transactions - Management
Contracts."
c. Stock Option Plan
-----------------
The Company adopted a stock option plan on July 2, 1999 (the "Plan"). The
Plan authorizes the grant of stock options to Directors, officers, consultants
and employees of the Company. Under the terms of the Plan, at no time may the
number of shares subject to options result in:
1. the number of shares reserved for issuance pursuant to stock options
granted to insiders exceeding 15% of the issued and outstanding shares
of the Company;
2. this issuance to insiders, within a one year period, of a number of
shares exceeding 15% of the issued and outstanding shares of Common
Stock; or
33
<PAGE>
3. the issuance to any one individual, within a one year period, of a
number of shares exceeding 15% of the issued and outstanding shares of
the Company.
The Plan provides that the exercise price of options granted under the Plan
shall be (a) if the Common Stock is listed on a public stock exchange, the
average market price for the twenty trading days immediately prior to the date
of grant; or (b) if the Common Stock is not listed on a public stock exchange,
the fair value of the Common Stock of the Company, as determined by the Board of
Directors. The term of any option may not exceed five years from the date of
grant. In certain cases, a change of control of the Company would accelerate
the exercisability of options granted under the Plan.
The Plan provides that the options vest monthly over a certain number of
years, typically three. If the person to whom options were granted leaves the
employment or directorship of the Company before the options have vested, then
the unvested portion will be forfeited. Such person also must exercise the
vested options within 30 days of leaving the Company, or else such vested
options will be forfeited.
The Plan was amended on November 30, 1999 to provide that in the event of a
change of control of ownership of the Company, all unvested options will
immediately vest.
d. Options Granted After Most Recently Completed Fiscal Year
---------------------------------------------------------
In July 1999 the Company approved the granting of the following options to
purchase shares of Common Stock at a price of $1.00 per share to Directors,
officers, and significant employees, with the options vesting monthly over a
three-year period following the date of grant:
<TABLE>
<CAPTION>
Number of Shares
Name Under Options
- ------------------------------------------------------------------------------
<S> <C>
Michael G. McLean 50,000
- ------------------------------------------------------------------------------
Steven W. Macbeth 50,000
- ------------------------------------------------------------------------------
David W. Rowat 150,000
- ------------------------------------------------------------------------------
Clifford Rowlands 150,000
- ------------------------------------------------------------------------------
Ben Catalano 30,000
- ------------------------------------------------------------------------------
</TABLE>
In December 1999, the Company approved the granting of 75,000 options to
purchase shares of Common Stock at a price of $1.00 per share to Bruce
McDonald.
e. Employment Contracts
--------------------
The Company has entered into employment agreements with Steven Macbeth and
David Rowat, effective January 1, 2000, pursuant to which Messrs. Macbeth and
Rowat have become full-time employees of the Company, and will continue to serve
as the Company's Chief Technical Officer and Vice President, Finance and
Business Development, respectively. The agreements provide that Messrs. Macbeth
and Rowat will each be paid (Cdn)$8,300 per month, and an annual cash bonus of
0-60% of their annual salary, subject to their performance against mutually
agreed objectives. The agreements also provide that all unvested shares or
options held by Messrs. Macbeth and Rowat shall vest upon any change in control
of the Company. Further, under the terms of the agreements, the Company's Board
of Directors will establish a Compensation Committee to review the compensation
packages for all employees and contractors filling senior executive
positions.
34
<PAGE>
Pursuant to an agreement dated June 9, 1999 between the Company and
Clifford Rowlands, Mr. Rowlands has been employed by the Company as Vice
President, Sales and Marketing. Mr. Rowlands is paid (Cdn)$8,300 per month, and
an annual cash bonus of 0-60% of his annual salary, subject to his performance
against mutually agreed objectives.
Pursuant to an employment agreement between the Company and Bruce McDonald,
effective January 10, 2000, Mr. McDonald has been employed by the Company as
Vice President, Operations. Mr. McDonald is paid an annual salary of
(Cdn)$100,000, and an annual cash bonus of 0-60% of his annual salary, subject
to his performance against mutually agreed objectives.
All of the employment agreements described above may be terminated by the
Company or by the respective employee at any time, with or without cause.
The Company has also entered into a consulting agreement with a company
controlled in part by Michael McLean for the provision of his services as Chief
Executive Officer of the Company. See "Certain Relationships and Related
Transactions."
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
a. Relationship Between the Company and Certain Directors and Officers
-------------------------------------------------------------------
Management Contracts
Pursuant to an agreement dated as of June 23, 1999 between the Company and
Dromond, a company controlled by Michael McLean and Steven Macbeth, Dromond
agreed to provide management services to the Company. The agreement's initial
term ended on December 31, 1999, and the agreement was renewed for an additional
twelve-month period. The agreement is automatically renewed for successive
twelve-month periods, unless otherwise terminated in accordance with its terms.
The agreement may be terminated by Dromond at any time upon 60 days written
notice. Under the agreement, the Company pays Dromond a fee of (Cdn)$16,600 per
month. The fee payable is subject to periodic review by the Board of Directors
and may be increased or decreased by agreement between the parties. Performance
based shares and/or incentive stock options may be granted at the discretion of
the Board of Directors, to the principals of Dromond, Messrs. McLean and
Macbeth, based upon the achievement of performance milestones. The Company has
agreed to pay Mr. McLean an annual cash bonus of 0-75% of the annual payments to
Dromond relating to his services, subject to his performance against mutually
agreed objectives. On January 1, 2000, Mr. Macbeth became a full-time employee
of the Company at a monthly salary of (Cdn)$8,300 and the monthly fee payable by
the Company to Dromond was reduced to (Cdn)$8,300. Mr. Macbeth's employment
contract is described above under "Executive Compensation - Employment
Contracts."
Pursuant to an agreement dated as of April 1, 1999 between RTI and
Strategic Catalysts Inc. ("SCI"), a company controlled by David Rowat, RTI
retained SCI to assist in the advancement of RTI's business plan. Pursuant to
this agreement, SCI was paid (Cdn)$5,000 per month until June 1, 1999, and
(Cdn)$8,300 per month until December 31, 1999. The rights and obligations under
this agreement were assumed by the Company, as the successor of RTI. On January
1, 2000, Mr. Rowat became a full-time employee of the Company at a monthly
salary of (Cdn)$8,300 and the contract with SCI was terminated. Mr. Rowat's
employment contract is described above under "Executive Compensation -
Employment Contracts."
The Company believes that the agreements with Dromond and SCI described
above were on terms as favorable to the Company as those which could have been
obtained from independent third parties and arms-length negotiation.
35
<PAGE>
In addition to its employment contracts with Messrs. Macbeth and Rowat, the
Company has also entered into employment contracts with Messrs. Rowlands and
McDonald, as described above under "Executive Compensation - Employment
Contracts."
Private Placement of Common Shares
The following current and former Directors and officers of the Company
participated in a private placement of common stock of PCS completed in April
1999 at a price of $0.01 per share as set forth below. This private placement
was conducted before the completion of the Merger of PCS and RTI (with issuance
of the securities in this offering being subject to completion of the Merger),
at a time when the Directors and officers above were not directors and officers
of PCS, but were directors and officers of RTI. A total of 3,222,255 shares
were sold in the private placement. 1,500,000 of these shares were sold to
directors and officers of RTI at a price of $0.01 per share, as detailed in the
chart below. An additional 593,000 shares were sold at a price of $0.01 per
share, 399,000 shares were sold at a price of $0.50 per share, and the remaining
730,255 shares were sold at a price of $1.00 per share to persons who were not
affiliated with PCS or RTI.
<TABLE>
<CAPTION>
Name of Director or Officer Number of PCS Shares Acquired
- -----------------------------------------------------------------------------------
<S> <C>
Michael G. McLean 362,500
- -----------------------------------------------------------------------------------
Steven W. Macbeth 362,500
- -----------------------------------------------------------------------------------
Alan Ackerman(1) 275,000
- -----------------------------------------------------------------------------------
David W. Rowat 200,000
- -----------------------------------------------------------------------------------
Gary Yurkovich(2) 300,000
- -----------------------------------------------------------------------------------
Total: 1,500,000
- -----------------------------------------------------------------------------------
</TABLE>
(1) Alan Ackerman resigned as a director on June 23, 1999.
(2) Mr. Yurkovich's employment with the Company ended on June 28, 1999, and the
Company repurchased 285,000 of these shares for $0.01 per share.
Stock Pooling and Escrow Agreement
Pursuant to a Stock Pooling and Escrow Agreement dated July 31, 1999
("Pooling Agreement"), Michael G. McLean, Steven W. Macbeth, David W. Rowat,
Clifford Rowlands, Alan Ackerman, Dromond and Advanced have agreed with the
Company to pool an aggregate of 2,179,429 shares of Common Stock and options and
warrants to purchase 286,666 shares of Common Stock. These securities may not
be sold or transferred until they are released from pool. If Michael G. McLean,
Steven W. Macbeth, or David W. Rowat cease to participate on a full-time basis
in the business of the Company, the Company has the option to repurchase certain
of their shares at a price of $0.01 per share. Such right of repurchase lapses
as to a certain number of shares each month depending upon the individual, and
lapses completely on January 1, 2002.
36
<PAGE>
The shares, options and warrants will be released from pool in accordance
with the following schedule:
<TABLE>
<CAPTION>
May 25, 2000 November 25, 2000 May 25, 2001
<S> <C> <C> <C>
Shares 600,000 850,000 729,429
Options 133,333 66,667 66,666
Warrants 20,000 -- --
</TABLE>
b. Transactions Involving Promoters of the Company
-----------------------------------------------
As the founding shareholders of RTI, Dromond and Advanced were the original
promoters of the Company. Advanced initially acquired 510,000 common shares of
RTI at a price of $0.13 per share. Dromond was initially issued 489,800 common
shares of RTI, at a price of $0.01 per share, in consideration for services
rendered by Dromond in connection with the establishment of the business of RTI.
Advanced also provided RTI with a non-interest bearing loan facility. An
aggregate of $110,043 was drawn against such loan and such loan was converted to
66,029 common shares of RTI at the rate of one common share for each $1.67
principal amount of such loan. In addition, Advanced provided a bridge loan
facility to RTI in the amount of $34,200. The bridge loan was repaid in full
from the proceeds of a private placement completed by RTI on January 26, 1999.
See Part II, Item 4, "Recent Sales of Unregistered Securities." In
consideration for making such bridge loan, Advanced received warrants to
purchase 20,000 common shares of RTI for a period of one year expiring January
26, 2000, at a price of $0.85 per share. Additionally, Dromond was issued
63,440 common shares of RTI in consideration for services rendered by Dromond in
connection with the establishment of the business of the Company.
All of the shares issued by RTI to Dromond and Advanced were exchanged for
shares of Common Stock of the Company in connection with the Merger on the basis
of five RTI shares for each share of the Company. The share numbers and prices
set forth in the previous paragraph reflect this exchange ratio. The warrants
held by Advanced were exchanged for warrants to purchase 20,000 shares of Common
Stock of the Company at a price of $0.85 per share, exercisable until January
26, 2000. Any shares issued upon exercise will be subject to the pooling
arrangements set forth in "Certain Relationships and Related Transactions -
Stock Pooling and Escrow Agreement."
ITEM 8. DESCRIPTION OF SECURITIES
The total authorized share capital stock of the Company consists of
100,000,000 shares of Common Stock with a par value of $0.001 per share. As of
January 11, 2000, there were 6,425,569 shares of Common Stock issued and
outstanding. Each holder of Common Stock is entitled to one vote for each share
held. The Common Stock ranks equally in all respects. The holders of Common
Stock are entitled to attend and vote at all meetings of shareholders of the
Company on the basis of one vote for each share of Common Stock held by them.
The holders of Common Stock are also entitled to receive dividends if, as and
when declared by the Board of Directors of the Company on the Common Stock and
to receive the remaining property of the Company upon liquidation, dissolution
or winding-up.
37
<PAGE>
PART II
ITEM 1. MARKET PRICE FOR COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
a. Market Information
------------------
Shares of the Company's Common Stock are traded on the OTC Electronic
Bulletin Board under the symbol "PCSP." From August 18, 1998 until the Merger,
the common stock of PCS traded on the OTC Electronic Bulletin Board under the
symbol "MXTS," reflecting the previous name of PCS as Mex Trans Seafood
Consulting Inc. The Common Stock of the Company began trading on the OTC
Electronic Bulletin Board on June 24, 1999 under the symbol "PCSP." The
following table sets forth the high and low bid prices for the Company's Common
Stock for the quarters indicated. The information has been adjusted for all
periods presented to reflect the reverse stock split of the Common Stock which
occurred in connection with the Merger.
<TABLE>
<CAPTION>
Quarter Ended High Low
<S> <C> <C>
December 31, 1998 1.88 1.70
March 31, 1999 2.50 1.56
June 30, 1999 2.00 0.78
September 30, 1999 2.00 0.5625
December 31, 1999 1.9375 0.875
</TABLE>
Quotations posted on the OTC Electronic Bulletin Board reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not necessarily
reflect actual transactions.
As of January 11, 2000, the Company had warrants outstanding to purchase an
aggregate of 223,438 shares of common stock at a price per share of $1.34. The
warrants are each exercisable to acquire one share of Common Stock for a period
expiring three months after the completion of an initial public offering of the
Company's Common Stock, at a price of $1.34 per share. If, at any time prior to
the expiration of these warrants, the Company completes a financing for gross
proceeds of more than (Cdn)$400,000 and issues shares of Common Stock at a price
which is higher than the exercise price of these warrants, the warrant holders
have ten days to exercise the warrants, after which the exercise price is
increased to the price at which the securities were sold. See "Recent Sales of
Unregistered Securities" below.
As of January 11, 2000, the Company also had warrants outstanding to
purchase 20,000 shares of Common Stock at $0.85 per share, exercisable on or
before January 26, 2000, and warrants outstanding to purchase 240,000 shares of
Common Stock at $1.40 per share, exercisable on or before January 11, 2002.
As of January 11, 2000, an aggregate of 653,000 shares of Common Stock were
issuable upon exercise of outstanding stock options.
38
<PAGE>
b. Holders
-------
As of January 11, 2000, the Company had 146 shareholders of record of
Common Stock.
c. Dividends
---------
The Company has not, to date, paid any dividends on its Common Stock. The
payment of dividends on the Common Stock is within the discretion of the Board
of Directors and will depend upon the Company's future earnings, its capital
requirements, its financial condition, and other relevant factors. The Company
does not currently intend to declare any dividends on its Common Stock for the
foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
None.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On July 15, 1999, the Company engaged KPMG LLP, Richmond, British Columbia,
Canada, as its principal accountant to audit the Company's financial statements.
Neither the Company nor its predecessor for accounting purposes, RTI, had
engaged any accountants prior to the engagement of KPMG LLP.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
a. On February 17, 1997, PCS (then Mex Trans) issued 606,940 shares of common
stock for aggregate gross proceeds of $89,381 to 17 investors. This
offering was made without registration under the Securities Act of 1933, as
amended (the "Act") in reliance upon the exemptions from registration
afforded by Sections 4(2) and 3(b) of the Act and Rule 504 of Regulation D
promulgated thereunder.
b. On January 31, 1999, PCS (then Mex Trans) issued 38,666 shares of common
stock at a deemed aggregate price of $49,000, for services rendered by a
former director of PCS. This offering was made without registration under
the Act in reliance upon the exemptions from registration afforded by
Sections 4(2) and 3(b) of the Act and Rule 504 of Regulation D promulgated
thereunder.
c. On April 7, 1999, PCS issued an aggregate of 214,817 shares of common stock
for aggregate proceeds of $951,000 to 140 investors. This placement was
completed in connection with the Merger, and the purchasers included
certain directors and officers of RTI. This offering was made without
registration under the Act in reliance upon the exemptions from
registration afforded by Sections 4(2) and 3(b) of the Act and Rule 504 of
Regulation D promulgated thereunder.
All share and per share information set forth above in (a), (b), and (c)
has been adjusted to reflect PCS's one-for-fifteen reverse split in connection
with the Merger.
d. On June 23, 1999, the Company issued 1,474,155 shares of Common Stock to
the former shareholders of RTI (50 Canadian residents and one U.S.
resident) and 311,838 warrants to purchase an aggregate of 311,838 shares
of Common Stock to the former warrant holders of RTI (44 Canadian residents
and one U.S. resident), in connection with the Merger. Of the warrants,
20,000 are exercisable to acquire one share of common stock each until
January 26,
39
<PAGE>
2000, at a price of $0.85 per share. The remaining 291,838 warrants are
each exercisable to acquire one share of Common Stock for a period expiring
three months after the completion of an initial public offering of the
Company's Common Stock, at a price of $1.34 per share. If, at any time
prior to the expiration of these warrants, the Company completes a
financing for gross proceeds of more than (Cdn)$400,000 and issues shares
of Common Stock, at a price which is higher than the exercise price of
these warrants, the warrant holders have ten days to exercise the warrants,
after which the exercise price is increased to the price at which the
securities were sold. The shares and warrants issued to the former RTI
shareholders were issued without registration under the Act, in reliance on
the exemptions from registration contained in Regulation S and Section 4(2)
of the Act due to the foreign nationality of the investors (except for one
accredited U.S. investor), in exchange for an aggregate of 7,370,775 shares
of the common stock of RTI, and 1,559,190 warrants of RTI.
The shares and warrants of RTI were originally issued as follows (as
adjusted to reflect the one-for-five exchange ratio in the subsequent
Merger):
(1) On December 10, 1997, RTI issued 200 shares of common stock to Dromond, in
connection with the incorporation of RTI. These shares were issued
pursuant to the exemption from registration contained in Regulation S under
the Act due to the foreign nationality of the investor and RTI.
(2) On January 6, 1998, RTI issued an aggregate of 999,800 common shares to
Dromond and Advanced for aggregate gross cash proceeds of $74,965 and
services rendered having an aggregate value of $58,834. These shares were
issued pursuant to Regulation S under the Act due to the foreign
nationality of the investors and RTI.
(3) On January 16, 1999, 63,440 common shares of RTI were issued to Dromond for
services rendered having an aggregate value of $53,924. These shares were
issued pursuant to Regulation S under the Act due to the foreign
nationality of the investor and RTI.
(4) On January 6, 1999, RTI issued an aggregate of 66,029 common shares to
Advanced for aggregate gross proceeds of $110,063. These shares were
issued pursuant to Regulation S under the Act due to the foreign
nationality of the investor and RTI.
(5) Between January 26, 1999 and February 18, 1999, RTI issued an aggregate of
291,838 units, each unit consisting of one (1) common share and one (1)
common share purchase warrant, to 45 investors, for aggregate gross
proceeds of $248,062. Each warrant entitled the holder to acquire a
further common share of RTI for a period expiring three (3) months after
the completion of an initial public offering of RTI's common shares, at a
price of (Cdn)$1.25, if exercise on or before July 18, 1999, and thereafter
at a price of (Cdn)$2.00 per share. If RTI completed a second financing
for proceeds of (Cdn)$400,000 before the expiration of the warrants in
which the common shares of RTI were sold at a price greater than the
exercise price of the warrants, the warrant holders had ten (10) days to
exercise the warrants, after which the exercise price increased to the
price at which the shares were sold in the financing. RTI paid finders'
fees of: (i) 4,496 common shares and (Cdn)$5,620 to Odlum Brown Ltd., of
1800, 609 Granville Street, Vancouver, British Columbia; and (ii) 4,352
common shares and (Cdn)$5,440 to Wolverton Securities Inc., of 17th Floor,
777 Dunsmuir Street, Vancouver, British Columbia for services provided, in
connection with locating investors for RTI. Odlum Brown Ltd. and Wolverton
Securities Inc. are securities dealers based in Vancouver, B.C. These
shares were issued pursuant to Regulation S and Section 4(2) of the Act due
to the foreign nationality of the investors (except for one accredited U.S.
investor).
40
<PAGE>
(6) On January 26, 1999, RTI issued 30,000 common shares to a consulting firm
in connection with the provision of corporate finance advice which
culminated in the completion of the financing described in paragraph (5)
above. On May 19,1999, RTI issued 6,000 common shares to the same firm in
connection with the provision of further financial advice. These shares
were issued pursuant to Regulation S under the Act due to the foreign
nationality of the investor and RTI.
(7) On January 26, 1999, RTI issued 20,000 warrants to Advanced in
consideration for the non-interest bearing credit facility in the amount of
(Cdn)$50,000 provided by Advanced to RTI until completion of the financing
set out in paragraph (5) above. Each warrant entitled Advanced to acquire
one common share of RTI for a period of one year expiring January 26, 2000,
at a price of (Cdn)$1.25 per share. These securities were issued pursuant
to Regulation S under the Act due to the foreign nationality of the
investor and RTI.
(8) On January 26, 1999, RTI issued an aggregate of 8,000 common shares to the
law firm of Anfield, Sujir, Kennedy, and Durno in consideration of legal
advice which culminated in the completion of the financing described in
paragraph (5) above. These shares were issued pursuant to Regulation S
under the Act due to the foreign nationality of the investor and RTI.
e. On July 17, 1999, the Company issued 68,400 shares of Common Stock to 14
investors upon the exercise of 68,400 warrants, for aggregate gross
proceeds of $58,266. These shares were issued pursuant to Regulation S
under the Act due to the foreign nationality of the investors.
f. On December 27, 1999, the Company agreed to issue 4,160 shares of Common
Stock to an online publisher of PC maintenance and support information in
consideration of such publisher's agreement to make such information
available to the Company for publication on the Company's Web site. This
offering was made without registration under the Act in reliance upon the
exemption from registration afforded by Section 4(2) of the Act and Rule
506 of Regulation D promulgated thereunder.
g. On January 11, 2000, the Company issued 350,000 shares of Common Stock and
240,000 warrants to a private investor who agreed to accept these
securities in discharge of $500,000 in indebtedness owing to such investor
by the Company. This offering was made without registration under the Act
in reliance upon the exemption from registration afforded by Section 4(2)
of the Act and Rule 506 of Regulation D promulgated thereunder.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's By-Laws provide that no officer or Director shall be
personally liable for any obligations of the Company or for any duties or
obligations arising out of any acts or conduct of said officer or Director
performed for or on behalf of the Company. The Company indemnifies and hold
harmless each person who serves at any time as a Director or officer of the
Company, and his heirs and administrators, from and against any and all claims,
judgments and liabilities to which such person shall become subject by reason of
his having been a Director or officer of the Company, or by reason of any action
alleged to have been taken or omitted to have been taken by him as such Director
or officer, and shall reimburse such person for all legal and other expenses
reasonably incurred by him in connection with any such claim or liability. The
company also has the power to defend such person from all suits or claims in
accord with the Nevada General Corporation Law. However, no such person shall
be indemnified against, or be reimbursed for, any expense incurred in connection
with any claim or liability arising out of his own negligence or willful
misconduct. The rights accruing to any person under the Company's By-laws do not
exclude any other right to which he may lawfully be entitled, and the Company
may indemnify or reimburse such person in any proper case, even though not
specifically provided for by the by-laws. The Company, its Directors, officers,
41
<PAGE>
employees and agents shall be fully protected in taking any action or making any
payment, or in refusing so to do, in reliance upon the advice of counsel.
Insurance. The Company may purchase and maintain insurance on behalf of any
person who is or was a Director, officer or employee of the Company, or is or
was serving at the request of the Company as a Director, officer, employee or
agent of another Company, partnership, joint venture, trust or other enterprise
against liability asserted against him and incurred by him in any such capacity,
or arising out of his status as such, whether or not the Company would have the
power to indemnify him against liability under the provisions of this section.
The Company currently does not maintain any such insurance.
Settlement by the Company. The right of any person to be indemnified is
subject always to the right of the Company by its Board of Directors, in lieu of
such indemnity, to settle any such claim, action, suit or proceeding at the
expense of the Company by the payment of the amount of such settlement and the
costs and expenses incurred in connection therewith.
42
<PAGE>
PART F/S FINANCIAL
Consolidated Financial Statements of
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
(Expressed in U.S. Dollars)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
PCsupport.com, Inc.
We have audited the consolidated balance sheets of PCsupport.com, Inc. and
subsidiary (a Development Stage Enterprise) as of June 30, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the year ended June 30, 1999, the period from December 10,
1997 (inception) to June 30, 1998 and for the period from December 10,1997
(inception) to June 30, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of PCsupport.com, Inc. and subsidiary
(a Development Stage Enterprise) as of June 30, 1999 and 1998, and the results
of their operations and their cash flows for the year ended June 30, 1999, the
period from December 10, 1997 (inception) to June 30, 1998 and for the period
from December 10, 1997 (inception) to June 30, 1999, in conformity with United
States generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 1 to
the consolidated financial statements, the Company has suffered recurring losses
from operations and negative cash flows from operations that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Signed "KPMG LLP"
Chartered Accountants
Vancouver, Canada
August 20, 1999
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Consolidated Balance Sheets
(Expressed in U.S. Dollars)
June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 795,809 $ -
Accounts receivable 14,728 -
Prepaid expenses 33,950 -
Other current assets 49,256 242
---------- ---------
Total current assets 893,743 242
Property and equipment (note 4) 11,210 2,702
Intangible asset (note 5) 2,697 -
---------- ---------
$ 907,650 $ 2,944
========== =========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued liabilities $ 68,266 $ 3,710
Convertible debt (note 6(a)) - 47,729
---------- ---------
Total current liabilities 68,266 51,439
Stockholders' equity (deficit) (note 6):
Common stock, $0.001 par value, authorized 100,000,000 shares;
issued 6,007,169 shares in 1999 and 1,000,000
shares in 1998 6,007 1,000
Additional paid-in capital 1,981,782 132,799
Deferred stock compensation (198,909) -
Deficit accumulated during the development stage (949,496) (182,294)
Treasury stock, 285,000 shares in 1999 - -
---------- ---------
Total stockholders' equity (deficit) 839,384 (48,495)
---------- ---------
Commitments and contingencies (note 7)
Subsequent events (note 12)
$ 907,650 $ 2,944
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Consolidated Statements of Operations
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Period from Period from
December 10, December 10,
1997 1997
Year ended (inception) to (inception) to
June 30, 1999 June 30, 1998 June 30, 1999
-------------- --------------- ---------------
<S> <C> <C> <C>
Revenue $ 99 $ - $ 99
Cost of services 86 - 86
---------- --------- ---------
Gross profit 13 - 13
---------- --------- ---------
Operating expenses:
Research and development 17,646 2,814 20,460
Marketing and promotion 477,103 120,918 598,021
General and administrative 265,953 58,562 324,515
---------- --------- ---------
760,702 182,294 942,996
---------- --------- ---------
Loss from operations (760,689) (182,294) (942,983)
Interest expense, net 6,513 - 6,513
---------- --------- ---------
Loss for the period $ (767,202) $(182,294) $(949,496)
========== ========= =========
Net loss per common share, basic and diluted $(.46) $(.22)
========== =========
Weighted average common shares outstanding,
basic and diluted 1,659,455 857,171
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity (Deficit)
(Expressed in U.S. Dollars)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Shares Additional Deferred During
------------------ Paid-in Stock Development
Shares Amount Capital Compensation Stage
--------- ------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 10, 1997 (inception) 200 $ - $ - $ - $ -
Issuance of common stock for services
in January, valued at $.13 per share 489,800 490 65,157 - -
Sale of common stock in January, $.13 per share 510,000 510 67,642 - -
Net loss - - - - (182,294)
--------- ------ ---------- ------------ -----------
Balance, June 30, 1998 1,000,000 1,000 132,799 - (182,294)
Fair value of common stock purchase warrants
granted to creditor - - 8,407 - -
Sale of common stock in January, approximately
$.85 per share, net of issuance costs of $131,708 291,838 292 116,062 - -
Issuance of common stock for services in January
and May, valued at approximately $.85 per share 52,848 53 45,101 - -
Conversion of note payable to common stock
(note 6(a)) 66,029 66 109,977 - -
Issuance of common stock for services in January 63,440 63 53,861 - -
Issuance of common stock for services in April 1,500,000 1,500 777,620 (392,356) -
Amortization of deferred stock compensation - - - 45,247 -
Issuance of common stock for acquisition in June,
net of acquisition costs of $46,753 (note 3) 3,033,014 3,033 886,155 - -
Treasury stock repurchased by Company in June - - (148,200) 148,200 -
Net loss - - - - (767,202)
--------- ------ ---------- ------------ -----------
Balance, June 30, 1999 6,007,169 $6,007 $1,981,782 $(198,909) $(949,496)
========= ====== ========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock Total
------------------ Stockholders'
Shares Amount Equity (Deficit)
--------- ------ ---------------
<S> <C> <C> <C>
Balance, December 10, 1997 (inception) - $ - $ -
Issuance of common stock for services
in January, valued at $.13 per share - - 65,647
Sale of common stock in January, $.13 per share - - 68,152
Net loss - - (182,294)
-------- ------ ---------
Balance, June 30, 1998 - - (48,495)
Fair value of common stock purchase warrants
granted to creditor - - 8,407
Sale of common stock in January, approximately
$.85 per share, net of issuance costs of $131,708 - - 116,354
Issuance of common stock for services in January
and May, valued at approximately $.85 per share - - 45,154
Conversion of note payable to common stock
(note 6(a)) - - 110,043
Issuance of common stock for services in January - - 53,924
Issuance of common stock for services in April - - 386,764
Amortization of deferred stock compensation - - 45,247
Issuance of common stock for acquisition in June,
net of acquisition costs of $46,753 (note 3) - - 889,188
Treasury stock repurchased by Company in June (285,000) - -
Net loss - - (767,202)
-------- ------ ---------
Balance, June 30, 1999 (285,000) $ - $(839,384)
======== ====== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Period from Period from
December 10, December 10,
1997 1997
Year ended (inception) to (inception) to
June 30, 1999 June 30, 1998 June 30, 1999
-------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss for the period $ (767,202) $(182,294) $ (949,496)
Items not affecting cash:
Depreciation and amortization 5,336 620 5,956
Common stock issued in exchange
for services 486,191 65,647 551,838
Discount on notes payable 8,407 - 8,407
Changes in operating assets and liabilities:
Accounts receivable (14,728) - (14,728)
Prepaid expenses (33,950) - (33,950)
Other current assets (49,014) (242) (49,256)
Accounts payable and accrued liabilities 64,556 3,710 68,266
---------- --------- ----------
Net cash used in operating activities (300,404) (112,559) (412,963)
---------- --------- ----------
Cash flows from investing activities:
Purchase of property and equipment (13,055) (3,322) (16,377)
Purchase of intangible asset (3,486) - (3,486)
---------- --------- ----------
Net cash used in investing activities (16,541) (3,322) (19,863)
---------- --------- ----------
Cash flows from financing activities:
Proceeds from issuance of notes payable 62,314 47,729 110,043
Proceeds from issuance of bridge loan 17,088 - 17,088
Repayment of bridge loan (17,088) - (17,088)
Cash acquired in acquisition 888,932 - 888,932
Net proceeds from sale of common stock 161,508 68,152 229,660
---------- --------- ----------
Net cash provided by financing activities 1,112,754 115,881 1,228,635
---------- --------- ----------
Net increase in cash and cash equivalents 795,809 - 795,809
Cash and cash equivalents at beginning of period - - -
---------- --------- ----------
Cash and cash equivalents at end of period $ 795,809 $ - $ 795,809
========== ========= ==========
Supplemental disclosure of non-cash financing activities:
Notes payable converted into common stock $ 110,043 $ - $ 110,043
Deferred stock compensation 198,909 - 198,909
Income taxes paid - - -
Interest paid - - -
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
- -------------------------------------------------------------------------------
1. Nature of development stage activities:
Mex-Trans Seafood Consulting, Inc. was incorporated in Texas on February 13,
1989 and was a holding company prior to its merger with Reconnaissance
Technologies Inc. ("Reconnaissance"). In anticipation of this merger, a
shell company was incorporated in Nevada in April, 1999 and Mex-Trans
Seafood Consulting, Inc. was merged into it, with PCsupport.com, Inc.
("PCS"), as the surviving company. PCS has no substantive operations. In
June 1999, PCS merged with Reconnaissance, with PCsupport.com, Inc. (the
"Company") being the surviving corporation (note 2(a)). The Company is
currently in the business of developing and commercializing support services
for the personal computer market. The Company believes that its first
commercial applications will be providing daily secured backup of personal
computer hard-drives over the Internet, overnight laptop replacements and an
aggregation of web-based computer support services.
These consolidated financial statements have been prepared on a going
concern basis in accordance with United States generally accepted accounting
principles. The going concern basis of presentation assumes the Company will
continue in operation for the foreseeable future and will be able to realize
its assets and discharge its liabilities and commitments in the normal
course of business. Certain conditions, discussed below, currently exist
which raise substantial doubt upon the validity of this assumption. The
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
The Company's future operations are dependent upon the market's acceptance
of its services and the Company's ability to secure cost effective third
party license service supply agreements. There can be no assurance that the
Company's services will be able to secure market acceptance or that cost
effective license and service supply agreements will exist or continue to
exist. As of June 30, 1999, the Company is considered to be in the
development stage as the Company has not generated significant revenues, is
continuing to develop its business, and has experienced negative cash flow
from operations. Operations have primarily been financed through the
issuance of common stock. The Company does not have sufficient working
capital to sustain operations until the end of the year ended June 30, 2000.
It is management's plan to raise additional debt or equity financing, but
such financing may not be available or may not be available on reasonable
terms.
2. Significant accounting policies:
(a) Reverse take-over and basis of presentation:
On June 23, 1999, PCS merged with Reconnaissance, with Reconnaissance's
stockholders receiving the largest number of shares and control of the
Company, PCSupport.Com, Inc. Accordingly, Reconnaissance is deemed the
accounting acquiror for financial statement purposes.
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 2
(Expressed in U.S. Dollars)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
- -------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(a) Reverse take-over and basis of presentation (continued):
The acquisition is accounted for as a reverse take-over using the
purchase method. The Company's historical financial statements reflect
the financial position, results of operations and cash flows of
Reconnaissance from the date of its incorporation on December 10, 1997
under the Company Act (British Columbia). On June 20, 1999,
Reconnaissance continued its incorporation into Wyoming. The historical
stockholders' equity gives effect to the shares issued to the
stockholders of Reconnaissance. The results of operations of PCS are
included from the date of acquisition, June 23, 1999.
(b) Basis of consolidation:
These consolidated financial statements have been prepared using
generally accepted accounting principles in the United States. The
financial statements include the accounts of the Company's wholly-owned
subsidiary, Reconnaissance International Ltd. All significant
intercompany balances and transactions have been eliminated in the
consolidated financial statements.
(c) Use of estimates:
The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and reported revenues
and expenses for the reporting periods. Actual results may
significantly differ from these estimates.
(d) Contract revenue recognition:
Earned revenue from support service contracts is recognized on the
percentage-of-completion method of accounting. Contract revenues earned
are recorded using the percentage of contract costs incurred to date to
total estimated contract costs.
Anticipated losses on contracts are charged to earnings as soon as such
losses can be estimated. Changes in estimated profits on contracts are
recognized during the period in which the change in estimate is known.
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 3
(Expressed in U.S. Dollars)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
- -------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(e) Foreign currency:
The functional currency of the Company and its subsidiary is the United
States dollar. Transactions in foreign currencies are translated to
United States dollars at the rates in effect on the transaction date.
Exchange gains or losses arising on translation or settlement of
foreign currency denominated monetary items are included in the
consolidated statement of operations.
(f) Cash and cash equivalents:
The Company considers all short-term investments with a maturity date
at purchase of three months or less to be cash equivalents.
(g) Property and equipment:
Property and equipment are stated at cost and are depreciated using the
straight-line method over their estimated useful lives ranging from two
to seven years.
(h) Major customers:
All of the Company's revenues were from one Canadian customer for the
year ended June 30, 1999.
(i) Income taxes:
The Company follows the asset and liability method of accounting for
income taxes. Under this method, current taxes are recognized for the
estimated income taxes payable for the current period.
Deferred income taxes are provided based on the estimated future tax
effects of temporary differences between financial statement carrying
amounts of assets and liabilities and their respective tax bases as
well as the benefit of losses available to be carried forward to future
years for tax purposes.
Deferred tax assets and liabilities are measured using enacted tax
rates that are expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in operations in the period that includes
the substantive enactment date. A valuation allowance is recorded for
deferred tax assets when it is more likely than not that such deferred
tax assets will not be realized.
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 4
(Expressed in U.S. Dollars)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(j) Research and development:
Research and development costs are expensed when incurred.
(k) Net loss per share:
Basic earnings per share is computed using the weighted average number
of common stock outstanding during the periods. Diluted loss per share
is computed using the weighted average number of common and potentially
dilutive common stock outstanding during the period. As the Company has
a net loss in each of the periods presented, basic and diluted net loss
per share is the same.
Excluded from the computation of diluted loss per share for the year
ended June 30, 1999 are warrants to purchase 311,838 shares of common
stock because their effects would be anti-dilutive. Also excluded from
the computation of diluted earnings per share for the period from
December 10, 1997 (inception) to June 30, 1998 are 40,528 shares of
potential common stock resulting from the assumed conversion of the
convertible notes payable because their effects would be anti-dilutive.
(l) Stock-based compensation:
The Company accounts for its stock-based compensation arrangement in
accordance with provisions of Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense under fixed plans would
be recorded on the date of grant only if the fair value of the
underlying stock at the date of grant exceeded the exercise price. The
Company recognizes compensation expense for stock options, common stock
and other equity instruments issued to non-employees for services
received based upon the fair value of the services or equity
instruments issued, whichever is more reliably determined. This
information is presented in note 6(b)(ii).
SFAS No. 123, Accounting for Stock Based Compensation, required
entities that continue to apply the provision of APB Opinion No. 25 for
transactions with employees to provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants
made in 1995 and future years as if the fair-value-based method defined
in SFAS No. 123 had been applied to these transactions.
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 5
(Expressed in U.S. Dollars)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
- -------------------------------------------------------------------------------
3. Acquisitions:
In June, 1999, PCS merged with Reconnaissance. The acquisition was a reverse
take-over with Reconnaissance being the deemed accounting acquiror for
financial statements purposes.
The acquisition was recorded using the purchase method. Net assets acquired
through the issuance of common stock consisted of cash and cash equivalents
with a fair value of $935,685. Cash and cash equivalents held by PCS were
obtained through a private placement which was contingent on this
acquisition being completed. Acquisition related costs of $46,753 were
incurred and were recorded as a decrease in the acquisition amount carried
in stockholders' equity.
The following table reflects unaudited proforma information which combines
the operations PCS and Reconnaissance for the year ended June 30, 1999 and
the period from December 10, 1997 (inception) to June 30, 1998 as if the
acquisition of PCS had taken place at the beginning of the period. There
were no proforma adjustments required in combining this information of these
two entities. This proforma information does not reflect any non-recurring
charges or credits directly attributable to the transaction. This proforma
information does not purport to be indicative of the revenues and net loss
that could have resulted had the acquisition been in effect for the period
presented and is not intended to be a projection of future results or
trends.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Period from
December 10,
1997
Year ended (inception) to
June 30, June 30,
1999 1998
- --------------------------------------------------------------------------
<S> <C> <C>
Revenue $ 99 $ -
Cost of service 86 -
- --------------------------------------------------------------------------
Gross profit 13 -
Expenses
Research and development 17,646 2,814
Marketing and promotion 477,103 120,918
General and administrative 317,685 63,562
Interest, net 6,513 -
- --------------------------------------------------------------------------
Net loss for the period $(818,947) $(187,294)
- --------------------------------------------------------------------------
Net loss per share $(0.14) $ (0.04)
- --------------------------------------------------------------------------
</TABLE>
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 6
(Expressed in U.S. Dollars)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
- -------------------------------------------------------------------------------
4. Property and equipment:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 30,
----------------
1999 1998
------- -------
<S> <C> <C>
Computer equipment $14,173 $2,295
Furniture and office equipment 1,584 1,027
------- ------
15,757 3,322
Less accumulated depreciation 4,547 620
------- ------
$11,210 $2,702
======= ======
</TABLE>
5. Intangible asset:
Intangible assets includes the cost of acquiring the Company's World Wide
Web domain name and is amortized straight line over a three year period.
6. Stockholders' equity:
(a) Convertible notes payable:
The Company had outstanding a $47,729 convertible note payable to a
shareholder at June 30, 1998 and was advanced an additional $62,314
between July, 1998 and January, 1999. The notes were non-interest
bearing and were converted into 66,029 shares of common stock in
January, 1999.
(b) Stock options, stock-based compensation and share-purchase warrants:
i) Stock options
In 1999, the Company adopted a fixed stock option plan that
provides for the issuance of incentive and non-qualified stock
options to officers, directors, employees, and consultants to
acquire shares of the Company's common stock.
The Board of Directors determines the terms of the options granted,
including the number of options granted, the exercise price and the
vesting schedule. The exercise price for qualified incentive stock
options shall not be less than the fair market value of the
underlying stock at the date of grant, and have terms no longer
than five years from the date of grant. As of June 30, 1999, no
options have been granted under the plan.
54
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 7
(Expressed in U.S. Dollars)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
- --------------------------------------------------------------------------------
6. Stockholders' equity (continued):
(b) Stock options, stock-based compensation and share-purchase warrants
(continued):
ii) Stock-based compensation
In January, 1998, the Company recorded non-cash compensation
expense of $65,647 related to the sale of 489,800 common shares at
$.01 per share to certain stockholders and officers of the
Company. The fair value of the common shares was estimated at $.13
per share at the time of the transaction.
In January, 1999, the Company recorded non-cash interest expense
of $8,407 related to the issuance of warrants to purchase 20,000
shares of common stock. The warrants are exerciseable immediately
at an exercise price of $.85 per share and expire in January,
2000. The fair value of the warrants granted is estimated using
the Black-Scholes option pricing model with the following
assumptions: Expected volatility of 70%, risk-free interest rate
of 4.8%, expected life of 3 years, and a 0% dividend yield.
In January, 1999, the Company issued 52,848 shares of common stock
in exchange for services relating to share issuance. The fair
value of these services was estimated based upon the estimated
fair value of the shares at $.85 per share or $45,154. The costs
were deducted from the additional paid-in capital from the sale of
common stock in January, 1999.
In January, 1999, the Company recorded non-cash compensation
expense of $53,924 related to the issuance of 63,440 shares of
common stock to certain stockholders and officers of the Company.
The fair value of the shares was estimated at $.85 per share at
the time of the transaction.
In April, 1999, the Company recorded non-cash compensation expense
and deferred compensation expense of $631,800 related to the
issuance of 1,500,000 shares of common stock at no cost certain
officers and stockholders. The value of the shares was estimated
at $.52 per share. A certain portion of these shares are subject
to vesting over a period of time. Compensation expense relating to
these shares were recorded as deferred stock compensation to be
amortized over their respective vesting periods. In June, 1999,
the Company repurchased 285,000 common shares at $0.001 per share
and recorded the transaction as shares held in treasury as of June
30, 1999.
Pursuant to an agreement dated July 31, 1999, the Company has the
option to re-purchase certain shares held by executive officers if
their employment ceases with the Company prior to January 1, 2002
at a price of $0.01 per share.
55
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 8
(Expressed in U.S. Dollars)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
- --------------------------------------------------------------------------------
6. Stockholders' equity (continued):
iii) Share purchase warrants:
<TABLE>
<CAPTION>
Outstanding warrants
-----------------------------
Expiry dates Exercise price per share June 30, 1999 June 30, 1998
------------ ------------------------ ------------- -------------
<S> <C> <C> <C>
January, 2000 (6ii) $0.85 20,000 -
various (a) $0.85 291,838 -
------- -------------
311,838 -
======= =============
</TABLE>
(a) Between January 26, 1999 and February 18, 1999, the Company
issued warrants which are exercisable at $0.85 per share for
a period expiring three months after the completion of an
initial public offering by the Company of its common shares
at a price per share of $0.85 prior to July 18, 1999 and
$1.34 per share thereafter. If the Company completes a
financing of common shares for gross proceeds in excess of
$400,000 Cdn. prior to the expiry of the warrants and the
common shares are sold in excess of the exercise price, the
warrant exercise price will increase to the offering price
per share if the warrants are exercised within 10 days.
(c) Reverse stock split:
In June 1999, the Company authorized a 1-for-5 reverse stock split of
the Company's common stock. All share and per share information has
been adjusted for all periods presented to reflect the reverse stock
split.
7. Operating leases:
The Company leases office facilities in British Columbia under an operating
lease agreement that expires November, 2002. Rent under the agreement
increases 20% and 8.3% after the first and second years, respectively.
Minimum lease payments under operating leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $178,278
2001 351,732
2002 381,039
2003 158,766
</TABLE>
Rent expense totalled $9,587 and $7,273 for the year ended June 30, 1999 and
the period from December 10, 1997 (inception) to June 30, 1998,
respectively.
56
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 9
(Expressed in U.S. Dollars)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
- -------------------------------------------------------------------------------
8. Deferred tax assets and liabilities:
<TABLE>
<CAPTION>
June 30,
---------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Operating loss carry forward $ 228,000 $ 56,000
Share issue costs and other 46,500 300
--------- --------
Total deferred tax assets before valuation allowance 274,500 56,300
Valuation allowance (274,500) (56,300)
--------- --------
Net deferred tax assets $ - $ -
========= ========
</TABLE>
Management believes that it is not more likely than not that it will create
sufficient taxable income sufficient to realize its deferred tax assets. It
is reasonably possible these estimates could change due to future income and
the timing and manner of the reversal of deferred tax liabilities. Due to
its losses, the Company has no income tax expense.
The Company has operating loss carryforwards for income tax purposes at June
30, 1999 of approximately $530,000 (1998 - $123,000). Operating losses begin
to expire in fiscal year 2002.
9. Financial instruments:
(a) Fair values:
The Company regularly invests funds in excess of its immediate needs in
money market accounts. The fair value of cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities
approximates their financial statement carrying amounts due to the
short-term maturities of these instruments. The carrying amount of
notes payable approximates fair value since they have a short-term to
maturity.
(b) Foreign currency risk:
The Company operates internationally which gives rise to the risk that
cash flows may be adversely impacted by exchange rate fluctuations.
57
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 10
(Expressed in U.S. Dollars)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
- --------------------------------------------------------------------------------
10. Related party transactions:
In December, 1997, the Company entered into a contract with stockholders to
provide the duties of President and of Chief Technical Officer. This
contract was subsequently amended and restated on June 23, 1999. The
contract expires in December 1999, with a twelve month renewal option. The
Company incurred cash compensation expense of $88,204 and $41,564 and non-
cash compensation expense of $302,548 and $58,776 during the year ended
June 30, 1999, and the period from December 10, 1997 (inception), to June
30, 1998, respectively.
In 1999, the Company has entered into a contract with a consulting company
owned by a stockholder to provide the duties of Chief Financial Officer.
The Company incurred cash compensation expense of $19,686 and non-cash
compensation expense of $32,987 during the year ended June 30, 1999.
11. Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. The Company is currently
working on their Year 2000 preparations. However, it is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
12. Subsequent events
Subsequent to year-end, the Company granted 430,750 stock options to
officers, directors and employees with an exercise price of $1.00 per
share.
58
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Interim Consolidated Balance Sheets
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
-------------- -----------
(unaudited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 255,770 $ 795,809
Accounts receivable 50,239 14,728
Prepaid expenses 2,853 33,950
Other current assets 24,357 49,256
----------- ----------
Total current assets 333,219 893,743
Property and equipment 102,756 11,210
Intangible asset 2,419 2,697
----------- ----------
$ 438,394 $ 907,650
=========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 89,486 $ 68,266
Stockholders' equity (note 3):
Common stock, $0.001 par value, authorized 100,000,000 shares;
issued 6,075,569 shares at September 30 and 6,007,169
shares at June 30, 1999 6,076 6,007
Additional paid-in capital 2,114,205 1,981,782
Deferred stock compensation (159,417) (198,909)
Deficit accumulated during the development stage (1,611,956) (949,496)
Treasury stock, 285,000 shares in 1999 - -
----------- ----------
Total stockholders' equity 348,908 839,384
----------- ----------
$ 438,394 $ 907,650
=========== ==========
</TABLE>
See accompanying notes to interim consolidated financial statements.
59
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Interim Consolidated Statements of Operations
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Period from
December 10,
1997
Three months ended (inception) to
Septembr 30, September 30,
1999 1998 1999
------------------------ -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Revenue $ 706 $ - $ 805
Cost of services 710 - 796
---------- ---------- -----------
Gross profit (4) - 9
---------- ---------- -----------
Operating expenses:
Research and development 225,221 1,650 245,681
Marketing and promotion 226,813 1,650 825,897
General and administrative 218,275 35,678 541,727
---------- ---------- -----------
670,309 38,978 1,613,305
---------- ---------- -----------
Loss from operations (670,313) (38,978) (1,613,296)
Interest income, net 7,853 - 1,340
---------- ---------- -----------
Loss for the period $ (662,460) $ (38,978) $(1,611,956)
========== ========== ===========
Net loss per common share, basic and diluted $(0.11) $(0.04) $(0.79)
========== ========== ===========
Weighted average common shares outstanding,
basic and diluted 6,029,969 1,000,000 2,041,444
========== ========== ===========
</TABLE>
See accompanying notes to interim consolidated financial statements.
60
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Interim Consolidated Statements of Stockholders' Equity (Unaudited)
(Expressed in U.S. Dollars)
Three months ended September 30, 1999
Period from December 10, 1997 (inception) to September 30, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Shares Additional Deferred During
------------------ Paid-in Stock Development
Shares Amount Capital Compensation Stage
--------- ------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 10, 1997 (inception) 200 $ - $ - $ - $ -
Issuance of common stock for services
in January, valued at $.13 per share 489,800 490 65,157 - -
Sale of common stock in January, $.13 per share 510,000 510 67,642 - -
Net loss - - - - (182,294)
--------- ------ ---------- ------------ -----------
Balance, June 30, 1998 1,000,000 1,000 132,799 - (182,294)
Fair value of common stock purchase warrants
granted to creditor - - 8,407 - -
Sale of common stock in January, approximately
$.85 per share, net of issuance costs of $131,708 291,838 292 116,062 - -
Issuance of common stock for services in January
and May, valued at approximately $.85 per share 52,848 53 45,101 - -
Conversion of note payable to common stock 66,029 66 109,977 - -
Issuance of common stock for services in January 63,440 63 53,861 - -
Issuance of common stock for services in April 1,500,000 1,500 777,620 (392,356) -
Amortization of deferred stock compensation - - - 45,247 -
Issuance of common stock for acquisition in June,
net of acquisition costs of $46,753 3,033,014 3,033 886,155 - -
Treasury stock repurchased by Company in June - - (148,200) 148,200 -
Net loss - - - - (767,202)
--------- ------ ---------- ------------ -----------
Balance, June 30, 1999 6,007,169 6,007 1,981,782 (198,909) (949,496)
Exercise of warrants in July 68,400 69 58,197 - -
Fair value of options issued to employees and consultants - - 74,226 - -
Amortization of deferred stock compensation - - - 39,492 -
Net loss - - - - (662,460)
--------- ------ ---------- ------------ -----------
Balance, September 30, 1999 6,075,569 $6,076 $2,114,205 $(159,417) $(1,611,956)
========= ====== ========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock Total
------------------- Stockholders'
Shares Amount Equity
--------- ------ ------
<S> <C> <C> <C>
Balance, December 10, 1997 (inception) - $ - $ -
Issuance of common stock for services
in January, valued at $.13 per share - - 65,647
Sale of common stock in January, $.13 per share - - 68,152
Net loss - - (182,294)
-------- ------ ---------
Balance, June 30, 1998 - - (48,495)
Fair value of common stock purchase warrants
granted to creditor - - 8,407
Sale of common stock in January, approximately
$.85 per share, net of issuance costs of $131,708 - - 116,354
Issuance of common stock for services in January
and May, valued at approximately $.85 per share - - 45,154
Conversion of note payable to common stock - - 110,043
Issuance of common stock for services in January - - 53,924
Issuance of common stock for services in April - - 386,764
Amortization of deferred stock compensation - - 45,247
Issuance of common stock for acquisition in June,
net of acquisition costs of $46,753 - - 889,188
Treasury stock repurchased by Company in June (285,000) - -
Net loss - - (767,202)
-------- ------ ---------
Balance, June 30, 1999 (285,000) - 839,384
Exercise of warrants in July - - 58,266
Fair value of options issued to employees and consultants - - 74,226
Amortization of deferred stock compensation - - 39,492
Net loss - - (662,460)
-------- ------ ---------
Balance, September 30, 1999 (285,000) $ - $ 348,908
======== ====== =========
</TABLE>
See accompanying notes to interim consolidated financial statements.
61
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Interim Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Period from
December 10, 1997
Three months ended (inception) to
September 30, September 30,
1999 1998 1999
------------------------------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Loss for the period $(662,460) $(38,978) $(1,611,956)
Items not affecting cash:
Depreciation and amortization 9,649 366 15,605
Stock options issued to employees
and consultants 74,226 - 74,226
Common stock issued in exchange
for services - - 506,591
Amortization of deferred stock
compensation 39,492 84,739
Discount on notes payable - - 8,407
Changes in operating assets and liabilities:
Accounts receivable (35,511) (1,608) (50,239)
Prepaid expenses 31,097 - (2,853)
Other current assets 24,899 242 (24,357)
Accounts payable and accrued liabilities 21,220 21,133 89,486
--------- -------- -----------
Net cash used in operating activities (497,388) (18,845) (910,351)
--------- -------- -----------
Cash flows from investing activities:
Purchase of property and equipment (100,917) (290) (117,294)
Purchase of intangible asset - - (3,486)
--------- -------- -----------
Net cash used in investing activities (100,917) (1,260) (120,780)
--------- -------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable - 19,135 110,043
Proceeds from issuance of bridge loan - - 17,088
Repayment of bridge loan - - (17,088)
Cash acquired in acquisition - - 888,932
Proceeds from exercise of share
purchase warrants 58,266 - 58,266
Net proceeds from sale of common stock - - 229,660
--------- -------- -----------
Net cash provided by financing activities 58,266 19,135 1,286,901
--------- -------- -----------
Net increase (decrease) in cash and cash
equivalents (540,039) - 255,770
Cash and cash equivalents at beginning of period 795,809 - -
--------- -------- -----------
Cash and cash equivalents at end of period $ 255,770 $ - $ 255,770
========= ======== ===========
Supplemental disclosure of non-cash financing activities:
Notes payable converted into common stock $ - $ - $ 110,043
Deferred stock compensation - - 159,417
</TABLE>
See accompanying notes to interim consolidated financial statements.
62
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Interim Consolidated Financial Statements
(Unaudited)
(Expressed in U.S. Dollars)
Three months ended September 30, 1999
Period from December 10, 1997 (inception) to September 30, 1999
- --------------------------------------------------------------------------------
1. Nature of development stage activities:
Mex-Trans Seafood Consulting, Inc. was incorporated in Texas on February 13,
1989 and was a holding company prior to its merger with Reconnaissance
Technologies Inc. ("Reconnaissance"). In anticipation of the merger, a shell
company was incorporated in Nevada in April, 1999 and Mex-Trans Seafood
Consulting, Inc. was merged into it, with PCsupport.com, Inc. ("PCS"), as
the surviving company. PCS had no substantive operations. In June 1999, PCS
merged with Reconnaissance, with PCsupport.com, Inc. (the "Company") being
the surviving corporation (note 2(a)). The Company is currently in the
business of developing and commercializing support services for the personal
computer market. The Company believes that its first commercial applications
will be providing daily secured backup of personal computer hard-drives over
the Internet, overnight laptop replacements and an aggregation of web-based
computer support services.
These interim consolidated financial statements have been prepared on a
going concern basis in accordance with United States generally accepted
accounting principles. The going concern basis of presentation assumes the
Company will continue in operation for the foreseeable future and will be
able to realize its assets and discharge its liabilities and commitments in
the normal course of business. Certain conditions, discussed below,
currently exist which raise substantial doubt upon the validity of this
assumption. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
The Company's future operations are dependent upon the market's acceptance
of its services and the Company's ability to secure cost effective third
party license service supply agreements. There can be no assurance that the
Company's services will be able to secure market acceptance or that cost
effective license and service supply agreements will exist or continue to
exist. As of September 30, 1999, the Company is considered to be in the
development stage as the Company has not generated significant revenues, is
continuing to develop its business, and has experienced negative cash flow
from operations. Operations have primarily been financed through the
issuance of common stock. The Company does not have sufficient working
capital to sustain operations until September 30, 2000. It is management's
plan to raise additional debt or equity financing, but such financing may
not be available or may not be available on reasonable terms.
2. Basis of presentation:
(a) Reverse take-over and basis of presentation:
On June 23, 1999, PCS merged with Reconnaissance, with Reconnaissance's
stockholders receiving the largest number of shares and control of the
Company, PCSupport.Com, Inc. Accordingly, Reconnaissance is deemed the
accounting acquiror for financial statement purposes.
63
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Interim Consolidated Financial Statements, page 2
(Unaudited)
(Expressed in U.S. Dollars)
Three months ended September 30, 1999
Period from December 10, 1997 (inception) to September 30, 1999
- --------------------------------------------------------------------------------
2. Basis of presentation (continued):
(a) Reverse take-over and basis of presentation (continued):
The acquisition is accounted for as a reverse take-over using the
purchase method. The Company's historical financial statements reflect
the financial position, results of operations and cash flows of
Reconnaissance from the date of its incorporation on December 10, 1997
under the Company Act (British Columbia). On June 20, 1999,
Reconnaissance continued its incorporation into Wyoming. The historical
stockholders' equity gives effect to the shares issued to the
stockholders of Reconnaissance. The results of operations of PCS are
included from the date of acquisition, June 23, 1999.
(b) Basis of consolidation:
These interim consolidated financial statements have been prepared
using generally accepted accounting principles in the United States.
The interim financial statements include the accounts of the Company's
wholly-owned subsidiary, Reconnaissance International Ltd. and all
adjustments, consisting solely of normal recurring adjustments, which
in management's opinion are necessary for a fair presentation of the
financial results for the interim periods. The financial statements
have been prepared consistent with the accounting policies described in
the Company's Annual Report in Form 10-KSB filed with the Securities
and Exchange Commission for the year ended June 30, 1999 and should be
read in conjunction therewith. Certain comparative figures have been
reclassified to conform to the presentation adopted in the current
period.
(c) Use of estimates:
The preparation of interim consolidated financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and
reported revenues and expenses for the reporting periods. Actual
results may significantly differ from these estimates.
(d) Net loss per share:
Basic loss per share is computed using the weighted average number of
common stock outstanding during the periods. Diluted loss per share is
computed using the weighted average number of common and potentially
dilutive common stock outstanding during the period. As the Company has
a net loss in each of the periods presented, basic and diluted net loss
per share is the same.
Excluded from the computation of diluted loss per share for the three
months ended September 30, 1999 are warrants to purchase 243,438
(September 30, 1998 - nil) shares of common stock and options to
purchase 527,950 (September 30, 1998 - nil) shares of common stock
because their effects would be anti-dilutive.
64
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Interim Consolidated Financial Statements, page 2
(Unaudited)
(Expressed in U.S. Dollars)
Three months ended September 30, 1999
Period from December 10, 1997 (inception) to September 30, 1999
- -------------------------------------------------------------------------------
2. Basis of presentation (continued):
(d) Net loss per share (continued):
Excluded from the computation of diluted loss per share for the three
months ended September 30, 1998 are 39,787 shares of potential common
stock resulting from the assumed conversion of convertible notes
payable because their effects would be anti-dilutive.
3. Stockholders' equity:
(a) Stock options and stock-based compensation:
On July 2, 1999, the Company adopted a fixed stock option plan that
provides for the issuance of incentive and non-qualified stock options
to officers, directors, employees, and consultants to acquire shares of
the Company's common stock.
The Board of Directors determines the terms of the options granted,
including the number of options granted, the exercise price and the
vesting schedule. The exercise price for qualified incentive stock
options shall not be less than the fair market value of the underlying
stock at the date of grant, and have terms no longer than five years
from the date of grant.
Between July 2 and September 30, 1999, the Company recorded non-cash
compensation expense of $74,226 related to the issuance of options to
purchase 527,950 shares of common stock to employees and consultants.
The options have exercise prices ranging from $1.00 to $2.00 and have a
vesting period ranging from immediate up to 36 months.
<TABLE>
<CAPTION>
(b) Warrants
Outstanding warrants
-----------------------------------
Expiry dates Exercise price per share September 30, 1999 June 30, 1999
----------- ------------------------ ------------------ --------------
<S> <C> <C> <C>
January, 2000 $0.85 20,000 20,000
various (i) $1.34 223,438 291,838
------- -------
243,438 311,838
======= =======
</TABLE>
(i) Between January 26, 1999 and February 18, 1999, the Company issued
warrants to purchase 291,838 shares of common stock which are
exercisable at $0.85 per share for a period expiring three months
after the completion of an initial public offering by the Company
of its common shares at a price per share of $0.85 prior to July
18, 1999 and $1.34 per share thereafter. If the Company completes
a financing of common shares for gross proceeds in excess of
$400,000 Cdn. prior to the expiry of the warrants and the common
shares are sold in excess of the exercise price, the warrant
exercise price will increase to the offering price per share if
the warrants are not exercised within 10 days.
In July, 1999, warrants to purchase 68,400 common shares at $0.85
were exercised.
65
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Interim Consolidated Financial Statements, page 6
(Unaudited)
(Expressed in U.S. Dollars)
Three months ended September 30, 1999
Period from December 10, 1997 (inception) to September 30, 1999
- -------------------------------------------------------------------------------
4. Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. The Company is currently
working on their Year 2000 preparations. However, it is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
66
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
2.1 Articles of Incorporation of the Company dated as of April 5, 1999.*
2.2 Articles/Certificate of Merger of the Company dated as of April 5, 1999.*
2.3 Certificate of Correction of the Company dated as of June 2, 1999.*
2.4 Articles of Merger of the Company dated as of June 21, 1999.*
2.5 Bylaws of the Company.*
3.1 Form of Warrant issued to former RTI warrantholders in connection with the
Merger.*
3.2 Form of Warrant issued to Advanced in connection with the Merger.*
5.1 Plan of Reorganization and Merger dated as of May 5, 1999 between the
Company and RTI.*
5.2 Contract for Services dated as of June 23, 1999 between the Company and The
Dromond Technologies Group.*
5.3 Consulting Contract dated as of April 1, 1999 between RTI and Strategic
Catalysts Inc.*
5.4 Employment and Consulting Contract dated as of July 9, 1999 between the
Company and Clifford Rowlands.*
5.5 Service Supply Agreement dated as of June 8, 1998 between RTI and
StorageTek Canada Inc.*
5.6 Service Contract dated as of April 1, 1999 between the Company and Unisys
of Canada Inc.*
5.7 Letter of Intent dated as of October 6, 1999 between the Company and Go
Figure Technology Inc.*
5.8 Agreement dated as of June 21, 1999 between the Company and Communicate.com
Inc.*
5.9 Directors, Officers and Employee Stock Option Plan approved on
July 2, 1999.*
5.10 Stock Option Agreement dated as of June 28, 1999 between the Company and Michael McLean.*
5.11 Stock Option Agreement dated as of June 28, 1999 between the Company and Steve Macbeth.*
5.12 Stock Option Agreement dated as of June 28, 1999 between the Company and David Rowat.*
5.13 Stock Option Agreement dated as of June 15, 1999 between the Company and Clifford Rowlands.*
5.14 Stock Option Agreement dated as of June 28, 1999 between the Company and Benjamin Catalano.*
5.15 Stock Pooling and Escrow Agreement dated as of July 31, 1999 among the
Company, Advanced Financial Services Inc., Alan Ackerman, David
Rowat, Clifford Rowlands, Michael McLean, Steve Macbeth, The
Dromond Group Ltd., and Owen, Bird.*
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.16 Offer to Sub-Lease dated as of April 22, 1999 among Electronic Arts
(Canada), Inc., RTI, and Beutel Goodman Real Estate Group.*
5.17 Lease dated as of March, 26, 1992 between The Canada Life Assurance Company
and Osiware Inc.*
5.18 Assignment Agreement dated as of July 29, 1997 among Infonet Software
Solutions Inc., Electronic Arts (Canada), Inc., and 547495
Ontario Limited.*
5.19 Consulting Agreement dated as of September 1, 1999 between the Company and
Irwin Olian.*
5.20 Consulting Contract dated as of August 6, 1999 between the Company and M.A.
Levy & Assoc.*
5.21 Consulting Agreement dated as of June 1, 1998 between RTI and Rick Mark &
Associates.*
5.22 First Amendment to Consulting Agreement dated as of January 25, 1999
between RTI and Rick Mark & Associates.*
5.23 Mutual Release dated as of May 19, 1999 between RTI and Rick Mark &
Associates.*
5.24 Letter dated as of May 20, 1999 from RTI to Rick Mark & Associates giving
notice of termination.*
5.25 Employment Agreement effective January 1, 2000 between the Company and
Steve Macbeth.
5.26 Employment Agreement effective January 1, 2000 between the Company and
David Rowat.
5.27 Termination Letter dated as of December 31, 1999 from the Company to SCI.
5.28 Employment Agreement dated as of November 17, 1999 between the Company and
Bruce McDonald.
5.29 Directors, Officers and Employee Stock Option Plan as amended on November
30, 1999.
5.30 Engagement Letter dated as of October 6, 1999 between the Company and
Sitrick and Company.
5.31 Engagement Letter dated as of December 21, 1999 between the Company and ICE
Holdings North America, L.L.C.
5.32 Service Agreement dated as of January 7, 2000 between the Company and Go
Figure Technology, Inc.
5.33 Agreement to Convert Notes Into Stock and Warrants dated as of January 11,
2000 between the Company and CGTF, LLC.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.34 Warrant issued on January 11, 2000 to CGTF, LLC.
5.35 Revolving Credit Agreement dated as of January 11, 2000 between the Company
and ICE Holdings North America, L.L.C.
5.36 Form of Security Agreement between the Company and ICE Holdings North
America, L.L.C. to be entered into upon first draw down under
Revolving Credit Agreement.
5.37 Form of "A" Warrant to be issued to ICE Holdings North America, L.L.C. upon
draw down under Revolving Credit Agreement.
5.38 Form of "B" Warrant to be issued to ICE Holdings North America, L.L.C. upon
draw down under Revolving Credit Agreement.
27 Financial Data Schedule**
</TABLE>
*Previously filed in the Company's Form 10-SB filed on October 18, 1999.
**Previously filed in the Company's Amendment No. 1 to Form 10-SB filed on
November 23, 1999.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this Amendment No. 2 to its registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
PCSupport.com, Inc.
- --------------------------------------------------------------------------------
(Registrant)
Date: January 12, 2000
By: /s/ Michael G. McLean
- ----------------------------------------------------------
Michael G. McLean
President and Chief Executive Officer
<PAGE>
EXHIBIT 5.25
EMPLOYMENT CONTRACT
BETWEEN
PCSUPPORT.COM, INC. ("PCsupport.com")
AND
STEVEN MACBETH ("Macbeth")
1. Position: Chief Technical Officer.
2. Reporting: to the President and CEO of PCsupport.com.
3. Start Date: January 1, 2000.
4. Salary: $8300 per month.
5. Compensation Committee Review. The Board of Directors of PCsupport.com
will establish a Compensation Committee. Such Committee will review the
compensation packages for all employees and contractors filling senior
executive positions and will cause such packages, including salary, cash
incentives and performance options, and severance obligations, to be
adjusted to industry standards for the technology industry in the Vancouver
area.
6. Cash Incentives. Subject to the Compensation Committee Review,
PCsupport.com will provide to Macbeth an annual Base Cash Incentive equal
to 40% of annual salary, which will vary between 0 and 1.5 times the Base
Cash Incentive, subject to Macbeth's performance against mutually agreed
objectives.
7. Annual Review. PCsupport.com will review Macbeth's performance and
compensation package no less than annually.
8. Accelerated Vesting. If PCsupport.com accepts an offer which would
effect a change of control as defined by the Income Tax Act, then all
shares and all options of PCsupport.com of any kind owned or reserved for
Macbeth which have not vested shall then immediately vest.
9. Benefits:
9.1 Vacation. Four weeks paid vacation in each calendar year, to be
increased from time to time in accordance with PCsupport.com's standard
policy. Unused vacation period can accumulate only until August 31 of the
following year.
9.2 Health and other Benefits. According to such plans in place for all
PCsupport.com employees.
<PAGE>
10. Severance. If PCsupport.com terminates Macbeth's contract other than for
cause, ("Termination"), PCsupport.com will provide nine months severance
plus one month for each year or partial year of employment or full-time
contract work. All termination payments will be made in a manner most tax-
efficient for Macbeth. Pursuant to clause 5, the Compensation Committee
will recommend compensation packages for the senior executives.
Notwithstanding the provisions in this clause, if the Compensation
Committee recommends severance provisions that are more beneficial to
Macbeth in Macbeth's sole opinion, then such provisions will apply and this
clause will be deleted and the provisions recommended by the Compensation
Committee will take precedence.
11. Non-compete and non-disclosure. Macbeth agrees to be bound by non-compete
and non-disclosure agreements standard in the industry.
12. Non-assignment. This Contract may not be assigned without the prior
written consent of Macbeth.
AGREED:
For PCsupport.com: /s/ Mike McLean
---------------------------
Mike McLean
/s/ Steven Macbeth
---------------------------
Steven Macbeth
Date: January 1, 2000
---------------------------
<PAGE>
EXHIBIT 5.26
EMPLOYMENT CONTRACT
BETWEEN
PCSUPPORT.COM, INC. ("PCsupport.com")
AND
DAVID W. ROWAT ("DWR")
1. Position: Vice President Finance and Business Development.
2. Reporting: to the President and CEO of PCsupport.com.
3. Start Date: January 1, 2000.
4. Salary: $8300 per month.
5. Compensation Committee Review. The Board of Directors of PCsupport.com
will establish a Compensation Committee. Such Committee will review the
compensation packages for all employees and contractors filling senior
executive positions and will cause such packages, including salary, cash
incentives and performance options, and severance obligations, to be
adjusted to industry standards for the technology industry in the Vancouver
area.
6. Cash Incentives. Subject to the Compensation Committee Review,
PCsupport.com will provide to DWR an annual Base Cash Incentive equal to
40% of annual salary, which will vary between 0 and 1.5 times the Base Cash
Incentive, subject to DWR's performance against mutually agreed objectives.
7. Annual Review. PCsupport.com will review DWR's performance and
compensation package no less than annually.
8. Accelerated Vesting. If PCsupport.com accepts an offer which would
effect a change of control as defined by the Income Tax Act, then all
shares and all options of PCsupport.com of any kind owned or reserved for
DWR which have not vested shall then immediately vest.
9. Benefits:
9.1 Vacation. Four weeks paid vacation in each calendar year, to be
increased from time to time in accordance with PCsupport.com's standard
policy. Unused vacation period can accumulate only until August 31 of the
following year.
9.2 Health and other Benefits. According to such plans in place for all
PCsupport.com employees.
<PAGE>
10. Severance. If PCsupport.com terminates DWR's contract other than for
cause, ("Termination"), the following provisions will apply:
10.1 Termination during the period from Jan 1, 2000 to December 31, 2000:
three months severance including salary and performance compensation,
and the continuation of all benefits then in effect, other than long-
term disability, for three months.
10.2 Termination after January 1, 2001: Similarly, three months severance
plus one month for each additional year or partial year of
employment.
10.3 All termination payments will be made in a manner most tax-
efficient for DWR.
10.4 Pursuant to clause 5, the Compensation Committee will recommend
compensation packages for the senior executives. Notwithstanding the
provisions in clauses 10.1 - 10.2, if the Compensation Committee
recommends severance provisions that are more beneficial to DWR in
DWR's sole opinion, then such provisions will apply and clauses
10.1 -10.2 will be deleted and the provisions recommended by the
Compensation Committee will take precedence.
11. Non-compete and non-disclosure. DWR agrees to be bound by non-compete and
non-disclosure agreements standard in the industry.
12. Non-assignment. This Contract may not be assigned without the prior
written consent of DWR.
AGREED:
For PCsupport.com: /s/ Mike McLean
-------------------------
Mike McLean
/s/ David W. Rowat
-------------------------
David W. Rowat
Date: January 1, 2000
--------------------------------
<PAGE>
EXHIBIT 5.27
NOTICE OF TERMINATION
31 December 1999
The Consulting Contract entered into between Strategic Catalysts Inc. and
Reconnaissance Technologies Inc. (predecessor to PCsupport.com, Inc.) is hereby
terminated as of this date.
AGREED:
Per: PCsupport.com
/s/ Mike McLean
-------------------------------
Mike McLean
Per: Strategic Catalysts Inc.
/s/ David W. Rowat
-------------------------------
David W. Rowat
<PAGE>
EXHIBIT 5.28
November 17, 1999
[LOGO OF PCSUPPORT.COM]
Bruce McDonald
4838 6/th/ Avenue
Tsawwassen, BC
Subject: Offer of employment
Dear Bruce:
This letter is to confirm our offer of employment to you as Vice President,
Operations reporting to Mike McLean, President and CEO. We are very excited
about the opportunity to have you join our organization and look forward to you
starting at the earliest convenient time. This offer is open until December 3,
1999.
The base salary for this position will be Cdn $100,000 per annum. In
consideration of your situation at Seanix, if you are able to join the company
before December 17, 1999 you will receive a $10,000 bonus. In your role as Vice
President, Operations, you will be eligible for the standard executive Incentive
Bonus plan. This plan currently provides for an annual bonus of up to 50%
additional compensation based on the achievement of mutually agreed upon goals.
Finally, as an employee of PCsupport.com and under the terms of our employee
Stock Option Plan, you will be granted options to purchase 75,000 shares of the
company. These options will vest monthly for 36 months. The vesting period will
commence upon the successful completion of your probation period.
The first 3 months of your employment will be a probation period. In the event
your position is not confirmed at the conclusion of this period, PCsupport.com
will not be liable to you for any severance payment, nor for any options. Your
compensation plan will be reviewed after the completion of 6 months and future
compensation reviews will occur annually.
We expect to have our benefits package in place by January 1, 2000. You will be
entitled to 20 vacation days per annum that will be accrued monthly.
As VP, Operations you will work with our CTO and VP Marketing to jointly develop
a strategy and vision for our support product offerings. You will then be
responsible for delivering these services, likely worldwide, to a high degree of
accuracy and reliability. Specifically over the next several months, you will
need to develop operational capabilities for our online backup product set
including Global Replace and Phoenix. You will also need to implement and manage
of number of new service offerings within the PC Support Center both directly to
our customers as well as through OEM versions of the product.
If you have any questions about this offer, please do not hesitate to contact me
at 258-8460.
Sincerely,
/s/ Mike McLean
Mike McLean
President & CEO
I accept this offer of employment: /s/ Bruce McDonald
------------------ --------------
Bruce McDonald Date
<PAGE>
EXHIBIT 5.29
PCSUPPORT.COM INC.
DIRECTORS, OFFICERS AND SENIOR MANAGEMENT
STOCK OPTION PLAN
1. ESTABLISHMENT AND PURPOSE
There is hereby established the PCsupport.com Inc. Directors, Officers and
Senior Management Stock Option Plan (the "Directors and Senior Management Plan"
or the "Plan"). The purpose of the Directors and Senior Management Plan is to
provide a means whereby PCsupport.com Inc., incorporated under the laws of the
state of Nevada (the "Company"), may, through the grant of options to purchase
common shares of the Company ("Shares") to directors, officers, consultants and
senior full-time and part-time employees of the Company and to companies
providing management services to the Company, attract and retain persons of
ability as directors, officers, consultants, senior full-time and part-time
employees and management services companies, and motivate such persons to exert
their best efforts on behalf of the Company and any subsidiary of the Company.
Persons shall be deemed to be "consultants" if they are under contract to
perform services for the Company, but are not employees of the Company. Persons
shall be deemed to be "part-time" employees of the Company if they are hired to
work on a regular basis, averaging less than 40 hours per week for operational
staff or less than 37.5 hours per week for clerical staff; or are hired for a
temporary assignment or for a specific project.
2. NUMBER OF SHARES AVAILABLE UNDER THE PLAN
The Company is hereby authorized to grant share purchase options
("Options") from time to time to directors, officers, consultants and full-time
and part-time employees of the Company or of any Subsidiary thereof to purchase
Shares and such shares are hereby conditionally allotted and shall be reserved
for issue upon exercise of Options, subject to adjustment as provided for in
paragraphs 4(h) and 4(i) and subject further to the limitations as to number and
other provisions herein set forth. If any Option shall terminate, expire or,
with the consent of the optionee, be cancelled as to any shares, a new Option
may thereafter be granted covering such Shares. The number of Shares available
for grant of Options under the Plan, subject to Options and reserved for
issuance pursuant to the Plan or subject to options or reserved for issuance
pursuant to any other employee share purchase or option plan of the Company, or
any proposed share compensation arrangements shall not at any time result in:
a) the number of Shares reserved for issuance pursuant to stock options
granted to insiders exceeding 15% of the outstanding issue;
b) the issuance to insiders, within a one-year period, of a number of
shares exceeding 15% of the outstanding issue; or
<PAGE>
-2-
c) the issuance to any individual, within a one-year period, of a number
of shares exceeding 5% of the outstanding issue.
For the purposes of paragraphs 2(b) and 2(c), "outstanding issue" is determined
on the basis of the total number of Shares in the Company that are outstanding
immediately prior to the share issuance in question, excluding shares issued
pursuant to share compensation arrangements over the preceding one-year period.
For the purposes of paragraphs 2(a), 2(b) and 2(c), an entitlement granted prior
to the grantee becoming an insider will be excluded in determining the number of
shares issuable to insiders.
3. ADMINISTRATION
The Directors and Senior Management Plan shall be administered under the
supervision of the Board of Directors of the Company or by a duly appointed
executive committee of the Board of Directors (both of which are referred to
herein as the "Board").
Subject to the provisions of the Directors and Senior Management Plan, the
Board shall have the power to (a) determine and designate from time to time
those directors, officers, consultants and senior full-time and part-time
employees of the Company or of any Subsidiary to whom Options are to be granted
and the number of Shares to be optioned to each of such director, officer,
consultant and senior full-time and part-time employee; and (b) determine the
time or times when, and the manner in which, each Option shall be exercisable
and the duration of the exercise period.
An individual who has been granted an Option may, if he is otherwise
eligible, be granted an additional option or options under the Directors and
Senior Management Plan or any other option or purchase plans of the Company if
the Board shall so determine.
The Board may interpret the Directors and Senior Management Plan,
prescribe, amend and rescind any rules and regulations necessary or appropriate
for the administration of the Directors and Senior Management Plan, and make
such other determinations and take such other action as it deems necessary or
advisable. Without limiting the generality of the foregoing sentence, the Board
may, in its discretion, treat all or any portion of any period during which an
optionee is on an approved leave of absence from the Company or a Subsidiary as
a period of employment or directorship of such optionee by the Company or such
Subsidiary, as the case may be, for the purpose of accrual of his rights under
his Option. Any interpretation, determination or other action made or taken by
the Board shall be final, binding and conclusive.
4. TERMS AND CONDITIONS
Each Option shall be evidenced by an agreement (a "Stock Option
Agreement"), in form approved by the Board, which shall be subject to the
following express terms and conditions and to such other terms and conditions as
the Board may deem appropriate.
<PAGE>
-3-
a) Option Period. Each Option Agreement shall specify the period for
which the Option granted thereunder is exercisable (which in no event
shall exceed five years from the date of grant) and shall provide that
the Option shall expire at the end of such period.
b) Option Price. The option price per Share shall be determined by the
Board at the time any Option is granted, provided:
i) if the Shares are listed for trading on a public stock exchange,
the minimum exercise price per Share shall be the average market
price for the twenty trading days immediately preceding the day
on which the Option is granted; and
ii) if the Shares are not listed for trading on a public stock
exchange, the minimum exercise price per Share shall be the fair
value of the Shares as at the day the Option is granted, as
determined by the Board.
c) Payment of Purchase Price Upon Exercise. The purchase price of the
Shares issued on exercise of an Option shall be paid in cash or
certified cheque to the Company at the time of exercise.
d) Death or Termination of Employment. If:
i) an optionee shall die while (A) an employee of the Company or of
a Subsidiary or a director of the Company, or (B) within 30 days
after termination of his employment with the Company or a
Subsidiary or his directorship in the Company in accordance with
clause (ii), his Option may be exercised, to the extent that the
optionee shall have been entitled to do so at the date of death,
by the person or persons to whom the optionee's rights under the
Option pass by will or applicable law, or if no such person has
such right, by his executors or administrators, at any time, or
from time to time, within one year of the date of death, but in
any event not later than the expiration date specified in
accordance with subparagraph 4(a); and
ii) an optionee's employment by the Company or a Subsidiary or his
directorship in the Company shall terminate for any reason
whosoever, he may exercise his Option, to the extent that he may
be entitled to do so at the date of the termination of his
employment, or directorship, at any time, or from time to time,
within 30 days of the date of termination of his employment, or
directorship, but in any event not later than the expiration date
specified in accordance with subparagraph 4(a).
e) Non-transferability. No Option shall be transferable other than by
will or by the laws of descent and distribution. During the lifetime
of an optionee, an Option shall be exercisable only by him.
<PAGE>
-4-
f) Qualification. Each Option shall be subject to the requirement that if
at any time the Board shall determine, in its discretion, that the
registration, qualification or other approval of or in connection with
the Directors and Senior Management Plan or the Shares covered thereby
is necessary or desirable under any provincial, state or federal law,
then such Option may not be exercisable, in whole or in part, unless
and until such registration, qualification or approval shall have been
obtained free of any condition not acceptable to the Board. The
optionee shall, to the extent applicable, cooperate with the Company
in relation thereto and shall have no claim or cause of action against
the Company or any of its officers or directors as a result of any
failure by the Company to take any steps to obtain any such
registration, qualification or approval. The grant of Options and the
issuance of Shares under the Directors and Senior Management Plan
shall be carried out in compliance with all applicable statutes,
regulations of governmental authorities and applicable stock
exchanges.
g) Adjustments in Event of Change in Shares. In the event of a change in
the Shares by reason of any stock dividend, recapitalization,
reorganization, merger, consolidation, subdivision, combination,
exchange of shares or any similar change affecting the Shares, the
number and kind of Shares which thereafter may be optioned and sold
under the Directors and Senior Management Plan and the number and kind
of Shares subject to option in outstanding option agreements and the
purchase price per Share thereof shall be appropriately adjusted
consistent with such change in such manner as the Board may deem
equitable and prevent substantial dilution or enlargement of the
rights granted to, or available for, participants in the Directors and
Senior Management Plan.
h) Amalgamation or Merger. If the Company amalgamates or merges with any
other company or companies by way of arrangement, sale of its assets
and undertakings or otherwise, the Company shall ensure that all
Options then outstanding will be allowed to be carried forward
following such event of amalgamation or merger and that each optionee
shall have an election:
(A) to carry his Option forward and the number of shares in the
corporation resulting from such amalgamation or merger which
are under Option shall be the number of shares in such
corporation which the optionee would have received if he had
exercised his Option in full prior to the date of such
amalgamation or merger and the purchase price of such
corporation shall be appropriately set; or
(B) to exercise his Option in full prior to the date of such
amalgamation or merger notwithstanding any provision of the
particular Option agreement entered into by such optionee
relating to the timing of exercise of the shares held under
such Option.
i) Control Change. If there is a Control Change then the Company will
forthwith notify all optionees in writing of such fact and any Options
then outstanding but
<PAGE>
-5-
not vested in accordance with the terms of the applicable Stock Option
Agreement may be exercised in full by the optionee within the ten day
period following the Control Change notwithstanding any provision of
the applicable Stock Option agreement entered into by such optionee
relating to the timing of exercise of the Options.
For purposes of this section:
"Control Change" means the occurrence of both:
(A) the acquisition or continuing ownership of securities
("Convertible Securities") convertible into, exchangeable for or
representing the right to acquire shares of the Company and/or
shares of the Company as a result of which a person, group of
persons or person acting jointly or in concert, or persons
associated or affiliated within the meaning of the statute under
which the Company is incorporated with any such person, group of
persons or any of such persons acting jointly or in concert
(collectively, "Acquirors"), beneficially own shares of the
Company and/or Convertible Securities such that, assuming only
the conversion, exchange or exercise of Convertible Securities
beneficially owned by the Acquirors, the Acquirors would
beneficially own shares that would entitle the holders thereof to
cast more than 20% of the votes attaching to all shares in the
capital of the Company that may be cast to elect Directors of the
Company; and
(B) the exercise of the voting power of all or any such shares so as
to cause or result in the election of two or more directors of
the Company who were not Incumbent Directors.
"Incumbent Director" means any member of the Board of Directors of the
Company who was a member of the Board of Directors of the Company
immediately prior to a Control Change and any successor to an
Incumbent Director who was recommended or elected or appointed to
succeed any Incumbent Director by the affirmative vote of the
Directors when that affirmative vote includes the affirmative vote of
a majority of the Incumbent Directors then on the Board of Directors
of the Company.
j) Liquidation. In the event the Board shall adopt a plan of complete
liquidation, all Options shall become immediately exercisable in full,
notwithstanding that they were initially granted on an installment
basis.
k) No Rights as Shareholder. No optionee shall have any rights as a
shareholder with respect to any shares subject to his Option prior to
the date of issuance to him of a certificate or certificates for such
Shares.
<PAGE>
-6-
l) No Rights to Continued Employment. The Directors and Senior Management
Plan and any Option granted under the Directors and Senior Management
Plan shall not confer upon any optionee any right with respect to
continuance of employment by the Company or any Subsidiary, nor shall
they interfere in any way with the right of the Company or any
Subsidiary by which an optionee is employed to terminate his
employment at any time in accordance with applicable law.
5. AMENDMENT AND DISCONTINUANCE
The Board may from time to time amend (subject to regulatory approval)
suspend, terminate or discontinue the Directors and Senior Management Plan.
Without the written consent of an optionee, no amendment or suspension of the
Directors and Senior Management Plan shall alter or impair any Option granted to
him under the Directors and Senior Management Plan.
6. PROCEEDS FROM SALE OF SHARES
Any cash proceeds from the sale of Shares issued upon exercise of the
Options shall be added to the general funds of the Company and shall thereafter
be used from time to time for such corporate purposes as the Board may
determine.
7. GENDER
Wherever the masculine is used herein it will be deemed to include the
feminine.
<PAGE>
EXHIBIT 5.30
Mr. Mike McLean
President and CEO
PCSupport.com, Inc.
4400 Dominion Street, Suite 280
Burnaby BC V5G 4G3
Dear Mike:
This letter, when accepted on behalf of PCSupport.com (the "Company") as
provided below, will constitute the agreement with respect to the engagement of
Sitrick And Company, Inc., a California corporation ("Sitrick") as corporate
communications advisor, specialist and consultant on the following terms and
conditions:
1. The Company, effective as of October 6, 1999, has retained Sitrick to
provide advice and public relations services.
2. Company shall pay Sitrick a non-refundable retainer of $15,000 in cash In
addition, in the event that the Company continues to retain Sitrick after
90 days of the date of this Agreement, then the Company will issue 5000
common shares to Sitrick in each of the months of January, 2000, and
February, 2000, for a total of 10,000 common shares. Such shares will have
piggy-back registration rights prorata with other rights holders, without
cost or expense.
Sitrick's time charges will be billed against the retainer at the hourly
rate range of $150 to $460, depending on the person performing the
services. When the retainer has been applied against time charges,
additional time charges in any year will be billed as incurred and are
payable within twenty days after receipt. Charges are computed on a
portal-to-portal basis for any travel time for meetings held outside of
Sitrick's offices. Time is billed by Sitrick in increments of one-quarter
of an hour.
Please review our bills each month upon receipt. If you have any
questions, please feel free to call. However, unless you make some
objection to me in writing within twenty days of receipt of the bill, it
will be presumed you have no objections to it and agree to its
reasonableness and conformity to our agreement.
3. The Company shall reimburse Sitrick within twenty days of receipt of
invoice for reasonable out of pocket costs and expenses incurred by Sitrick
in connection with its engagement hereunder, including , travel costs,
production costs, long distance and photocopy charges, advertisements and
other out-of-pocket costs and expenses. Expenses greater than $250 must
have prior approval. Reimbursable costs are not applied against the
retainer and will be billed monthly by Sitrick.
4. Sitrick's engagement hereunder may be terminated by either party on 30 days
prior written notice. All provisions of this letter relating to the
payment of fees and expenses and indemnification, including issuance of
stock and piggy-back rights, will survive any termination of the engagement
by either party.
5. In the event any employee of Sitrick is required or requested to
participate or provide testimony or other evidence in any action,
arbitration or other proceeding relating, directly or indirectly, to our
engagement, whether or not our engagement has been terminated, the Company
shall pay Sitrick for the time spent in preparing for and providing such
participation or testimony, at Sitrick's then standard billing rates, and
for any costs and expenses incurred in connection therewith.
6. Company agrees to indemnify and hold harmless Sitrick, its shareholders,
officers, directors, employees and agents (each such entity or person being
referred to as an "Indemnified Person") from and against
<PAGE>
October 6, 1999
Page 2
any and all losses, claims, damages, liabilities, costs and expenses
(including, but not limited to, reasonable attorney's fees) which any
Indemnified Person may be subject to or incur in connection with the
services to be rendered by Sitrick to Company. This paragraph shall not
apply to any such losses, claims, damages, liabilities, costs or expenses
of any Indemnified Person that are judicially determined to have resulted
from Sitrick's or such other Indemnified Person's gross negligence or
willful misconduct.
7. Each of the parties hereto agrees to keep this letter agreement, and the
terms and conditions hereof, strictly confidential, except only as may be
necessary to enforce this letter, and as may be required by law or
regulation including compliance with all regulations of the Securities and
Exchange Commission. Each of the parties agrees not to solicit for
employment, nor employ, any employee of the other during the pending of
Sitrick's engagement and for a period of two years thereafter. Any sums
not paid to Sitrick within ten days when due shall bear interest at the
rate of ten percent per annum. If action be commenced to enforce any
provision of this letter agreement, the prevailing party shall be entitled
to reasonable attorney fees. Any controversy, claim or dispute relating to
this letter agreement shall be resolved by binding arbitration in
accordance with the rules of the American Arbitration Association pursuant
to an arbitration conducted in Los Angeles County, California. Judgment
upon such arbitration may be entered in the Superior Court for Los Angeles,
County, California, which the parties agree has, and hereby consent to,
jurisdiction over all such matters. This letter agreement shall be
interpreted and enforced in accordance with the substantive laws of the
State of California applicable to contracts made and to be performed
therein.
Very truly yours,
Sitrick And Company
By /s/ Michael Sitrick
--------------------------------------
Michael Sitrick, Chairman
and Chief Executive Officer
Agreed to and accepted this
________ day of ________________
"Company"
________________________________
By /s/ Mike McLean
------------------------------
Mr. Mike McLean
<PAGE>
October 6, 1999
Page 3
President and CEO
PCSupport.com
4400 Dominion Street, Suite 280
Burnaby BC V5G 4G3
Re: PCSupport.com
INVOICE
Retainer for the period beginning:
October 6, 1999.................................$15,000.00
TOTAL DUE.......................................$15,000.00
Please wire transfer funds to:
SITRICK AND COMPANY, INC.
CITY NATIONAL BANK HEADQUARTERS
Beverly Hills, California
ABA # 122016066
Credit A/C 019-416127
CENTURY CITY OFFICE
Attn. Ricki Vogel
Phone (310) 888-6886
or
Please make check payable to:
SITRICK AND COMPANY
2029 Century Park East, Suite 1750
Los Angeles, CA 90067
(310) 788-2850
Fed. ID No. 95-4198788
<PAGE>
EXHIBIT 5.31
December 21, 1999
PCSupport.com, Inc.
Suite 280,
4400 Dominion Street
Burnaby, British Columbia
Canada V5G 4G3
Attention: David W. Rowat
Dear David:
In accordance with our telephone discussions during the past several weeks, we
are pleased to submit to you this letter which, along with the attached standard
Terms and Conditions ("Agreement"), is our proposal to you setting forth the
financial and investment banking services we will provide to PCSupport.com, Inc.
("PCS").
ICE Holdings North America, LLC ("ICE") ("Investment Banker") will assist you
and PCS as its exclusive representative, subject to the terms herein, in
connection with identifying and seeking out a person, group of persons,
partnership, joint venture, corporation or other entity (each together with its
affiliates, a "Partner") which would be interested in entering into one or more
Transactions with PCS. The Investment Banker will, among other things, do the
following as part of this engagement:
. Advise, negotiate and otherwise assist PCS regarding strategies for
obtaining capital, as well as about the Transaction's possible structure
and terms.
. Advise, negotiate and otherwise assist PCS regarding various possible
structuring vehicles by way of convertible secured notes, secured notes
with warrants attached, debt combined with options and/or warrants, new
private equity or debt investment, public offering, or other forms of
transactions ("Transactions").
. Secure for PCS, on a best efforts basis, revolving debt financing in an
amount of between US$1,000,000.00 and US$1,200,000.00 ("Debt
Financing"), which shall be secured by collateral, including,
collectively, any and all of the presently existing and hereinafter
arising accounts and rights to payments arising out of the sale or lease
of goods or the rendition of services by PCS, irrespective of whether
earned by performance ("Accounts") where Collateral or Security each
mean,
<PAGE>
collectively, any and all of the Accounts, deposit accounts, negotiable
collateral, in each case whether now existing or hereafter acquired or
created, and any proceeds or products of any of the foregoing, or any
portion thereof and any money or other tangible or intangible property
resulting from the sale or other disposition of the Accounts, deposit
accounts or negotiable collateral, or any portion thereof or interest
therein, and the substitutions, replacements, additions, accession,
products and proceeds thereof. The Debt Financing shall be in the form
of convertible secured notes, secured notes with warrants attached,
other secured debt combined with options and/or warrants, or such
similar secured debt financing on substantially the following terms and
conditions:
1. In the event of Secured notes with warrants attached, warrants
for 1,000,000 shares, on a fully diluted basis, which shall
have an exercise price of between US$1.05 to US$1.25 ("A
Warrants"); warrants for 500,000 shares, on a fully diluted
basis, which shall have an exercise price of between US$1.75
and US$2.25 ("B Warrants"). The A Warrants shall have an
exercise term of 18 month from the Date of Closing. The B
Warrants shall have an exercise term of 30 months from the Date
of Closing. The A Warrants and B Warrants shall be issued and
delivered immediately upon PCS' first drawdown of funds under
the Debt Financing.
2. The Debt Financing shall be fully available from the date of
closing (on or about January 15, 2000) ("Date of Closing") for
a period of one year (on or about January 15, 2001).
3. The Debt Financing shall be available in tranches in draw down
amounts of US$100,000.00 subject to sub-paragraph 4 hereafter.
4. The funds provided by the Debt Financing, or any part thereof,
shall only be available upon confirmation that at least one
commercial transaction will take place between PCS and any of
the following: Go-Figure, or Unisys, or other third party, on
such terms and conditions as are, in the sole judgment of the
Investment Banker, sufficient to provide net cash flow to
service and repay the Debt Financing or any part thereof which
PCS is requesting be drawn down. The foregoing confirmation
will be made by the Investment Banker before the first drawdown
but no further confirmations will be required before PCS can
make any subsequent drawdown.
5. The Debt Financing shall bear interest at 11% per annum,
payable monthly, not in advance, on such portion thereof as has
been drawn down, interest to commence on the date of the draw
down.
<PAGE>
6. The Debt Financing may be repaid, in whole or in part, at any
time without penalty, at the sole option of PCS.
7. All underlying shares which may be obtained by exercise of the
A Warrants or the B Warrants shall be registered. There shall
be piggy-back registration rights on any subsequent financing
greater than US$3,000,000.00, whether in the form of equity,
debt or a combination thereof, subject to customary underwriter
cut-backs and restrictions.
8. In the event of convertible Secured notes without warrants, the
conversion shall be at such pricing as to permit the total
equity, on a fully diluted basis, obtained upon conversion to
be substantially identical to what would have been obtained in
the event of Secured notes with warrants.
9. In the event of other Secured debt/equity structure, the
conversion shall be at such pricing as to permit the total
equity, on a fully diluted basis, obtained upon conversion to
be substantially identical to what would have been obtained in
the event of Secured notes with warrants.
10. Any Debt Financing shall be on a fully Secured basis and shall
have priority over all other currently existing or after
acquired debt and the Company shall not assume any additional
debt without the express written authorization of the
Investment Banker, which consent shall not be unreasonably
withheld.
11. Prior to the Date of Closing, PCS shall have implemented a
plan, including stock options and other reasonable business
incentives and salary, reasonably satisfactory to the
Investments Banker to permit the immediate commencement of a
search for additional senior management.
Upon funding of the Debt Financing:
. Advise, negotiate and otherwise assist PCS in preparing presentation
materials and financial analysis concerning PCS, as well as advising and
making presentations to potential sources of capital and/or financing.
To the extent that we and you consider it advisable and necessary, we
will work with such experts and consultants as we jointly agree would
assist in the preparation of such material. These individuals or
entities will be engaged and compensated by the Company. The Investment
Banker will engage an individual or individuals acceptable to PCS, to
design and execute a branding campaign. The individual so engaged shall
be compensated directly by the Company.
. Advise, negotiate and otherwise assist PCS, on a best efforts basis, to
structure and close an equity public offering.
3
<PAGE>
. In the event that PCS accepts an equity public offering without selling
restrictions, the Investment Banker will cause certain of the A Warrants
and B Warrants to be exercised as follows:
1. 50% of the A Warrants and 0% of the B Warrants, if PCS accepts
an equity public offering of at least US$3,000,000.00 at a share
price of no less than US$3.00 per share.
2. 75% of the A Warrants and 25% of the B Warrants, if PCS accepts
an equity public offering of at least US$4,000,000.00 at a share
price of no less than US$4.00 per share.
3. 100% of the A Warrants and 50% of the B Warrants, if PCS accepts
an equity public offering of at least US$5,000,000.00 at a share
price of no less than US$5.00 per share.
4. 100% of the A Warrants and 100% of the B Warrants, if PCS
accepts an equity public offering of at least US$6,000,000.00 at
a share price of no less than US$6.00 per share.
. The Investment Banker shall have the right to designate an individual to
serve as a member of the Board of Directors of PCS, upon a draw down of
all or any part of the Debt Financing, and shall receive a copy of all
management accounts and related financial information at the time of
release to management.
. The Investment Banker shall have a right of first refusal on any
subsequent financing (debt, equity or combination thereof) for a period
of twelve (12) months from the Date of Closing.
. The Investment Banker agree to accept a co-lead on any subsequent
financing in an amount greater than US$5,000,000.00 and to surrender
their right of first refusal on any subsequent financing in an amount
greater than US$15,000,000.00.
. The Investment Banker will use best efforts to arrange an equity
financing of a least US$3,000,000.00 to close on or before June 30, 2000
(time not of the essence), subject to the achievement by PCS of its
designated business objectives, it being understood that this
undertaking shall be event driven and shall be subject to the sole
judgment of the Investment Banker.
. The Investment Banker will use best efforts to arrange for PCS to
transfer its listing from the OTC Bulletin Board to an exchange of
superior value at the earliest reasonable opportunity, subject to the
achievement by PCS of its designated business objectives, it being
understood that this undertaking is event driven and shall be subject to
the sole judgment of the Investment Banker.
. Advise, negotiate and otherwise assist PCS in structuring, negotiating
and closing a Transaction on terms which management deems favorable to
it and in the best interest of the Company.
. Advise, negotiate and otherwise assist PCS in developing a negotiating
strategy for a Transaction, and participating (directly or otherwise) in
any such negotiations.
4
<PAGE>
. Advise, negotiate and otherwise assist PCS in implementing and closing a
Transaction or Transactions.
. Andrew Smith will be responsible for and will undertake to fulfill the
above engagement on behalf of the Investment Banker.
As consideration for the services provide by Investment Banker, PCS agrees to
pay Investment Banker the following compensation and to incur the following
obligations:
. In the event that PCS enters into a Debt Financing in substantially the
form and amounts set forth above, PCS will pay the Investment Banker a
fee of 7 1/2% of the amount raised of the Debt Financing ("Debt
Financing Fee"). It is understood and agreed that in the event that the
Investment Banker secure a Debt Financing in substantially the form and
amounts set forth above and the conditions of paragraph 4 are met, and
PCS elects not to enter into the Debt Financing, then PCS shall pay to
the Investment Banker the sum of US$150,000.00 as a break-up fee
("Break-up Fee") within fifteen (15) days of the date originally set for
closing on the Debt Financing. In and to the extent that the Break-up
Fee or any portion of it is unpaid, it shall be deemed a Secured debt of
the Company.
. PCS will incur the obligation of the Break-up Fee upon advise in writing
from the Investment Banker that they have secured the Debt Financing and
are prepared to close and the conditions of paragraph 4 are met. The
obligation of the Break-up Fee will be discharged upon acceptance of the
Debt Financing.
. The Debt Financing Fee shall only be payable on the amount raised of the
Debt Financing and there shall be no additional financing fee on any
equity conversion resulting from or due to the Debt Financing.
. In the event that PCS enters into one or more Transactions with any
Partner introduced to PCS by the Investment Banker during the period
when Investment Banker is retained by PCS or within 12 months after
termination of this Agreement, PCS will pay Investment Banker a
Transaction Fee of 7 1/2% of the Aggregate Transaction Value. This shall
be in addition to the Retainer set forth below. It is understood that in
the event that the Company enters into a Transaction after the
termination of this Agreement with an entity which was not introduced to
it by Investment Banker or which is not a Partner, then no Transaction
Fee shall be due to Investment Banker hereunder.
. In addition to any fees that may be payable to Investment Banker, and
without regard to whether a Transaction is completed, PCS will reimburse
Investment Banker promptly upon request, from time to time, for its
reasonable out-of-pocket expenses incurred in connection with this
engagement. It is understood that these out-of-pocket expenses shall not
include payments to experts or outside consultants. PCS must give prior
approval for any single expense in excess of US$1,000.00, it being
understood and agreed that reasonable and customary travel, meal and
5
<PAGE>
hotel expenses incurred in negotiating and closing the Debt Financing
are hereby approved by PCS. Any such engagement and payment shall be
undertaken only with the express agreement of PCS, in accordance with
above scope of engagement. It is understood that legal fees for
documentation of a Transaction, as well as expert fees, accounting fees
etc. ("Additional Fees"), shall not be part of the Retainer, Debt
Financing Fee or Transaction Fee. We have provided you with an estimate
of what we believe certain of those Additional Fees may be. PCS shall
pay all legal fees associated with the Debt Financing and any
Transaction, including those of the Investment Banker and the lenders.
There shall be a cap on the legal fees for the Investment Banker and
lenders in the amount of US$75,000.00, which shall be deemed an approved
and agreed upon expense. At the sole option of the attorneys providing
the legal services, they may convert the legal fees to debt or equity on
the same terms and conditions as the Debt Financing.
. PCS will pay the Investment Banker a retainer ("Retainer") in the amount
of $50,000.00, payable on January 31, 2000 or upon the closing of any
Debt Financing, whichever is the later. In the event that PCS enters
into a Debt Financing, the Retainer shall be credited against the Debt
Financing Fee. The Investment Banker shall have the option to convert
the Retainer to debt or equity on the same terms and conditions as the
Debt Financing.
The Investment Banker shall be engaged as the exclusive investment banker to PCS
for a period of four (4) months with respect to the Transaction or until the
successful completion or closing of the Transaction(s) contemplated by this
Agreement, whichever occurs earlier, subject to PCS's right to terminate this
Agreement as provided below.
In the event that there is a Transaction as might be considered a conflict with
this engagement, PCS waives any such conflict and will permit Investment Banker
to continue to implement the Transaction and provide the investment banking
services detailed above. In the event that management requests that Investment
Banker represent it in such a Transaction, PCS will not object to Investment
Banker representation of the management, under such circumstances.
In order to coordinate efforts to effect a Transaction, during the period of
this engagement, PCS and its officers, directors, employees and representatives
will advise Investment Banker of any contacts which are made or have been made
by or on behalf of any prospective Partner and Investment Banker will assist PCS
in any subsequent discussion.
Either party hereto may terminate this Agreement with cause at any time after
four (4) months from the date of signing by giving thirty (30) days written
notice of such party's desire to terminate to the other party. Neither
termination of this Agreement nor completion of the assignment or Transaction
contemplated shall effect PCS's obligation to pay any compensation earned by
Investment Banker up to the date of termination or completion, as the case may
be or the Transaction Fee or reimbursement of expenses
6
<PAGE>
incurred up to the date of termination or completion or the standard terms and
conditions, all of which shall remain operative and in full force and effect.
If the foregoing is satisfactory and is consistent with the engagement which you
want to retain us to perform and the assistance which you seek from us, I would
appreciate it if you would sign the enclosed copy of this letter and return it
to the undersigned.
Sincerely yours,
ICE Holdings North America, LLC
By: /s/ Andrew Smith
----------------------
Andrew Smith
Managing Director
Accepted and Agreed to:
PCSupport.com, Inc.
By: /s/ David W. Rowat
------------------------
David W. Rowat
7
<PAGE>
STANDARD TERMS AND CONDITIONS
-----------------------------
1. As used herein, the term Aggregate Transaction Value, unless otherwise
mutually agreed upon by PCS and INVESTMENT BANKER in writing, is defined as
follows:
a. In the case of a cash Transaction, the total cash consideration
paid.
b. In the case of assumption of bank debt, the principal amount
assumed by the Buyer on the day of the Closing.
c. In the case of publicly traded common stock, the total public
market value of such common stock based on the closing price on
the day of the Transaction.
d. In the case of debt securities, the total public market value of
such debt securities based on the closing price on the day of the
Transaction; if not publicly traded, then at the face value.
e. In the case of preferred stock, the total liquidation value or
public market value of such preferred stock based on the closing
price on the day to the Transaction, whichever is higher.
f. Should the medium of exchange be any other compensation, security
or any combination of the above, the value will be mutually
agreed upon. Any such dispute will be settled by an independent
investment banker acceptable to PCS and INVESTMENT BANKER.
g. Both PCS and INVESTMENT BANKER acknowledge that PCS may elect to
enter into a transaction which is not the Transaction. It is
understood that if the Company effects a transaction in lieu of
the Transaction, the Company and INVESTMENT BANKER will in good
faith mutually agree upon acceptable cash compensation for
INVESTMENT BANKER taking into account the results obtained, and
the custom and practice among professionals acting in similar
transactions. Other transactions include, for example, license
agreements, joint ventures, non-cash contributions to the
Company, etc.. A transaction entered into in the ordinary course
of PCS's business shall not be deemed to be a Transaction under
this Agreement.
h. If the purchase price is to be paid in one or more installments,
or in a contingent pay-out, the INVESTMENT BANKER cash fee shall
be paid at the date of such installment or contingent pay-out in
the same proportion which the installment or contingent
1
<PAGE>
pay-out bears to the total purchase price.
i. If the Transaction includes debt, leveraged buyout financing,
deferred payment or any other funding, reallocation of equity or
revaluation of current equity, the total amount of the funds,
reallocation or revaluation, however denominated.
2. The Company recognizes and confirms that, in performing its engagement,
INVESTMENT BANKER will be using and relying on data, material and other
information furnished to it by the Company, or its auditing firm, attorneys,
or others (collectively "Advisors") as well as information otherwise
available, both oral and written (such data, material and other information
is herein referred to as the "Information"). The Company recognizes and
confirms that INVESTMENT BANKER does not assume responsibility for the
accuracy or completeness of the Information. The Company represents and
warrants that any of the Information furnished by it or its Advisors to
INVESTMENT BANKER will be complete in all material respects and not contain
any untrue statements of a material fact or omit to state any material fact
necessary to make the statement therein not false or misleading.
3. INVESTMENT BANKER recognizes and confirms that some of the Information is
either non-public, confidential or proprietary in nature. INVESTMENT BANKER
hereby agrees that the Information will be kept confidential and will not,
without the prior consent of the Company, be disclosed by them, their agents
or employees, other than in connection with the services to the Company as
described above as a part of its engagement or as otherwise required by law.
4. The Company agrees to indemnify and hold harmless INVESTMENT BANKER, its
employees and representatives and each person, if any, who controls
INVESTMENT BANKER within the meaning of the Securities Exchange Act of 1934
(the "Act") from and against any and all losses, claims, damages or
liabilities, joint or several, arising out of or in connection with our
engagement, including all reasonable out-of-pocket expenses, fees and
disbursements of counsel incurred by INVESTMENT BANKER, its employees,
representative or such controlling person in defending any claim, action, or
proceeding whether or not resulting in liability to INVESTMENT BANKER, its
employees, representatives or such controlling person, to which they may
become subject, caused by, or arising out of any untrue statement of a
material fact contained in Information furnished to INVESTMENT BANKER by the
Company or its Advisors in connection with our engagement, or any omission
to state therein any material fact required or necessary to make the
information not misleading in light of circumstances under which given, or
any other violation of the federal securities law or the securities laws of
any state, or otherwise arising out of our engagement hereunder except in
respect of any matter as to which INVESTMENT BANKER shall have been
2
<PAGE>
adjudicated to have acted without reasonable and ordinary care. Any party
seeking indemnification shall give PCS prompt written notice of any claim
made against such party. The INVESTMENT BANKER shall permit PCS (at PCS'
sole expense) to assume the defense of any claim or any litigation resulting
therefrom, provided that counsel for PCS shall be satisfactory to the
INVESTMENT BANKER.
5. INVESTMENT BANKER and the Company agree to waive the right to trial by jury
in the context of any claim relating to the services provided by INVESTMENT
BANKER pursuant to its engagement hereunder, including any claim concerning
INVESTMENT BANKER' advice. The parties agree that all disputes, except for
any under paragraph 1 (f), shall be resolved by binding arbitration in
accordance with the rules of procedure of he American Arbitration
Association.
6. This Agreement, the Retainer Agreement executed simultaneously herewith and
any other matters hereunder shall be governed by and construed in accordance
with the internal laws of the State of New York, including, without
limitation, Sections 5-1401 and 5-1402 of the New York General Obligations
Law and Rule 327(b) of the New York Civil Practice Law and Rules. INVESTMENT
BANKER and PCS hereby irrevocably submit the to non-exclusive jurisdiction
of the federal and New York State courts located in the City, the Borough of
Manhattan in connection with any suit, action or proceeding related to this
Agreement or any of the matters contemplated hereby, irrevocably waive any
defense of lack of personal jurisdiction and irrevocably agree that all
claims in respect of any suit, action or proceeding any be heard and
determined in any such court. INVESTMENT BANKER and PCS irrevocably waive,
to the fullest extent they may effectively do so under applicable law, any
objections which they may now or hereafter have to the laying of venue of
any such suit, action or proceeding brought in any such court and any claim
that any such suit, action or proceeding brought in any such court has been
brought in any inconvenient forum.
7. To the extent of the Fees provided for hereunder paid to INVESTMENT BANKER,
INVESTMENT BANKER will indemnify and hold PCS harmless from any claims by
corporations, firms or persons claiming by virtue of a relationship with
INVESTMENT BANKER to be entitled to a share of the fees provided hereunder.
Each party shall indemnify and hold the other party harmless from and
against any claim, liability, loss or damages (including reasonable
attorneys fees) resulting from the breach by the such indemnifying party of
any term, condition or provision of this agreement.
8. The INVESTMENT BANKER agrees to indemnify the Company and its officers and
directors and each person, if any, who controls any thereof within the
meaning of Section 15 of the Securities Act and their respective successors
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement of a material fact
contained in any prospectus, offering circular or other document incident to
any registration, qualification or compliance relating to securities
purchased pursuant to the Warrants (or in any related registration
3
<PAGE>
statement, notification or the like) or any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading and will reimburse the Company
and each other person indemnified pursuant to this subsection (ii) for any
legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action; provided, however, that this subsection (ii) shall apply only if
(and only to the extent that) such statement or omission was made in
reliance upon information (including, without limitation, written negative
responses to inquiries) furnished to the Company by an instrument duly
executed by the INVESTMENT BANKER and stated to be specifically for use in
such prospectus, or other document (or related registration statement,
notification or the like) or any amendment or supplement thereto; provided
further, that in no case shall any INVESTMENT BANKER be responsible for any
amount in excess of the amount of net proceeds received by such INVESTMENT
BANKER from the offering of the securities.
9. The Company represents and warrants that it is authorized to enter into and
consummate this Agreement and agrees that it will make available to
INVESTMENT BANKER all information relating to the Transaction which
INVESTMENT BANKER reasonably requires relating to the Transaction. The
Company acknowledges that INVESTMENT BANKER is entitled to rely on the
material and information supplied to it by the Company or its advisors and
shall not in any respect be responsible for the accuracy or completeness of
such information.
10. INVESTMENT BANKER does not guarantee that any Transaction will be
consummated and the Company agrees and acknowledges that it will have no
claim whatsoever against INVESTMENT BANKER if any Transaction is not
consummated.
11. The Company acknowledges that INVESTMENT BANKER does not perform legal or
accounting or tax services nor does it render legal or accounting or tax
advise on any aspect of any Transaction contemplated by this Agreement.
INVESTMENT BANKER is purely an independent contracting advisor to the
Company and is neither retained nor authorized to act as an agent in
arranging any placement of any securities of the Company.
12. No interest of any party under this Agreement may be assigned or otherwise
transferred except with the written consent of the other party. This
Agreement shall bind and inure to the benefit of the successors, assigns,
personal representatives, heirs and legatees of the parties hereto, as their
interests shall appear.
13. Failure by any party to insist upon strict compliance by another party with
any of the terms of this Agreement will not be deemed a waiver by such party
of strict compliance with any other term or provision. The unenforceability
or invalidity of any article, provision or portion of this Agreement shall
not effect the enforceability, or validity of the remaining portions,
articles or provisions thereof.
4
<PAGE>
14. This Agreement constitutes and contains the entire agreement between
Investment Bankers and the Company with respect to the subject matter
hereof, including a certain letter of engagement which is an integral part
of the Agreement and is included herein by reference as though it were set
forth. No modifications, amendments or waiver of the provisions of this
Agreement shall be effective unless made in writing specifically referring
to the Agreement and signed by each of the parties hereto. Both parties
disclaim specific authorship of this Agreement.
/s/ DWR (PCSupport.com, Inc. initial)
-----------------
/s/ AS (ICE Holdings North America, LLC initial)
------------------
5
<PAGE>
EXHIBIT 5.32
PCSUPPORT.COM - GO FIGURE SERVICES AGREEMENT
This PCsupport.com - Go Figure Sales Agreement (the "Agreement") is made
between PCsupport.com, Inc., a Nevada corporation ("PCsupport.com") and Go
Figure Technology, Inc., a Delaware corporation ("Go Figure").
Whereas, PCsupport.com provides online preventative maintenance and
technical support for personal computers; and
Whereas, Go Figure anticipates entering into contracts with various
entities to advise such entities regarding, and to assist such entities with,
the purchase and/or distribution of computer hardware and software products
(such contracts being hereinafter referred to as "Third Party Contracts" and the
entities with which Go Figure executes Third Party Contracts being hereinafter
referred to as "Third Parties"); and
Whereas, Go Figure anticipates that one or more Third Parties may wish to
purchase or make available for purchase the services provided by PCsupport.com;
and
Whereas, PCsupport.com and Go Figure wish to set forth the terms governing
their rights and obligations when a Third Party wishes to purchase or make
available for purchase the services provided by PCsupport.com.
Now, therefore, in consideration of the foregoing premises and the mutual
covenants and obligations set forth herein, PCsupport.com and Go Figure agree as
follows:
1. Effective Date.
--------------
1.1 The Effective Date of this Agreement is January 7, 2000.
2. Sales of PCsupport.com services.
-------------------------------
2.1 As used in this Agreement, the term "Services" shall mean those
services set forth on Exhibit A to this Agreement that are provided by
PCsupport.com to users of personal computers, access to which services
is gained by communicating with a Web site created by PCsupport.com.
and hosted on Web servers owned or controlled by PCsupport.com.
2.2 PCsupport.com and Go Figure agree that Go Figure may execute Third
Party Contracts providing for the provision of Services to Third
Parties or to customers of Third Parties. Go Figure agrees to
initially offer the Services for purchase to each prospective Third
Party as part of a single package of services that includes the
warranty service, if any, offered for purchase by Go Figure to such
Third Party. Go Figure shall have no liability to PCsupport.com
arising from or relating to (a) the failure of Go Figure to offer a
warranty service for purchase to any prospective Third
<PAGE>
Party; or (b) the failure of any Third Party to purchase the Services,
regardless of whether such Third Party purchases any other service
from Go Figure.
2.3 Subject to and in compliance with the terms and conditions of this
Agreement, PCsupport.com agrees to provide Services to Third Parties
or the customers of Third Parties, as set forth in the related Third
Party Contracts.
2.4 Go Figure agrees that it will not during the term of this Agreement
directly or indirectly offer services similar to or competitive with
the Services, regardless of whether such services are provided by Go
Figure or a third party.
2.5 With respect to each Third Party Contract, PCsupport.com agrees that:
(a) the Web site through which Services are delivered shall be
branded as the online preventative maintenance and technical
support site for the related Third Party or the related Third
Party's customers;
(b) PCsupport.com will promptly agree with the related Third Party
upon a development and test schedule for the Web site through
which Services will be delivered; and
(c) within six weeks of PCsupport.com's receipt of the related
Customization Fee (as defined in Section 3.1 hereof),
PCsupport.com will develop and make accessible from the World
Wide Web the Web site through which Services will be delivered;
provided that PCsupport.com shall have no obligation to proceed
with the development of such Web site prior to the receipt of
such Customization Fee.
2.6 Each of the parties hereto shall promptly disclose to the other party
upon request that information in its possession that is necessary to
the other party's performance of its obligations under this Agreement.
2.7 Go Figure agrees to use commercially reasonable efforts to execute
Third Party Contracts with Third Parties that in the aggregate
forecast delivery during the first twelve months of the term of this
Agreement of 1,000,000 or more personal computers with which the
Services have been bundled. Go Figure shall have no liability to
PCsupport.com arising from or relating to the delivery during the
first twelve months of the term of this Agreement of fewer than
1,000,000 personal computers with which the Services have been
bundled.
PCSUPPORT.COM - GO FIGURE SERVICES AGREEMENT
PAGE 2
<PAGE>
2.8 Go Figure agrees to provide PCsupport.com on a monthly basis with
forecasts of the number of personal computers with which the Services
have been bundled to be delivered to or through actual and prospective
Third Parties, such forecasts to be derived from information provided
to Go Figure by actual and prospective Third Parties. Go Figure shall
have no liability to PCsupport.com arising from or relating to the
accuracy of such forecasts.
2.9 Nothing contained in this Agreement shall restrict PCsupport.com from
providing Services to persons or entities other than Third Parties and
customers of Third Parties.
3. Payments.
--------
3.1 The term "Customization Fee" as used in this Agreement shall mean the
amount with respect to each Third Party Contract designated as the
Customization Fee in the Supplemental Agreement (as defined in Section
4.1 hereof) relating to such Third Party Contract. Go Figure agrees to
pay to PCsupport.com each Customization Fee within 3 business days of
Go Figure's receipt of such Customization Fee from a Third Party. Go
Figure shall have no obligation to pay a Customization Fee prior to
its receipt of such Customization Fee from a Third Party.
3.2 Go Figure agrees to pay to PCsupport.com on or before the 10th
business day of each calendar month an amount equal to the sum of the
"Service Fees" calculated with respect to the preceding month in
accordance with each Supplemental Agreement in effect during the
preceding month to the extent payment for such Service Fees has been
received by Go Figure. Go Figure shall have no obligation to pay the
Service Fees relating to a personal computer with which the Services
have been bundled prior to its receipt of payment relating to such
Service Fees.
3.3 PCsupport.com agrees to pay to Go Figure on or before the 10th
business day of each calendar month an amount equal to the sum of the
"Shared Revenue" calculated with respect to the preceding month in
accordance with each Supplemental Agreement in effect during the
preceding month to the extent the payments of which such Shared
Revenue is a part have been received by PCsupport.com. PCsupport.com
shall have no obligation to pay Shared Revenue prior to its receipt of
the payment to which such Shared Revenue relates.
3.4 No later than the 20th calendar day after the end of each calendar
quarter, each party hereto shall provide to the other party a report
setting forth in reasonable detail the facts used to determine the
amounts of the payments made during the immediately preceding quarter
by such party pursuant to Sections 3.1 - 3.3 of this Agreement.
PCSUPPORT.COM - GO FIGURE SERVICES AGREEMENT
PAGE 3
<PAGE>
4. Supplemental Agreements.
-----------------------
4.1 PCsupport.com and Go Figure agree to negotiate in good faith to
complete an agreement substantially in the form of Exhibit B attached
hereto (a "Supplemental Agreement") with respect to each proposed
Third Party Contract.
4.2 Each Supplemental Agreement shall be interpreted, implemented and
enforced with reference to and in conjunction with the terms and
provisions of this Agreement. This Agreement shall be interpreted,
implemented and enforced with respect to any Third Party Contract with
reference to and in conjunction with the terms and provisions of the
Supplemental Agreement relating to such Third Party Contract.
5. Term, Termination and Effect of Termination.
-------------------------------------------
5.1 This Agreement shall terminate upon the first annual anniversary of
the Effective Date provided, however, that the term of this Agreement
will automatically extend for successive twelve-month periods after
the first annual anniversary of the Effective Date unless either of
the parties notifies the other party in writing at least thirty days
prior to such date or the end of any twelve-month extension period, as
the case may be, that this Agreement will not be so extended.
5.2 Either party may terminate this Agreement for any material breach of
this Agreement by the other party which is not cured within thirty
calendar days following the other party's receipt of written notice
from the non-breaching party specifying such breach, with termination
to be effective immediately as of the end of such thirty calendar
days.
5.3 Upon the termination of this Agreement:
(a) Go Figure shall pay to PCsupport.com all unpaid Customization
Fees and Service Fees accrued during the term of this Agreement
pursuant to Sections 3.1 and 3.2 hereof to the extent payment for
such Customization Fees and Service Fees has been received by Go
Figure; and
(b) PCsupport.com shall pay to Go Figure all unpaid Shared Revenue
accrued during the term of this Agreement pursuant to Section 3.3
hereof to the extent the payments of which such Shared Revenue is
a part have been received by PCsupport.com.
5.4 Notwithstanding anything to the contrary contained in this Agreement,
the termination of this Agreement pursuant to the terms of Section 5.1
or
PCSUPPORT.COM - GO FIGURE SERVICES AGREEMENT
PAGE 4
<PAGE>
Section 5.2 shall operate prospectively only and shall not terminate
the obligations of PCsupport.com and Go Figure hereunder or under any
Supplemental Agreement with respect to any Third Party Contract in
effect at the date of such termination for the remaining term of any
such Third Party Contract.
5.5 Sections 5.4, 6.1, 6.2, 6.3, 7.1, 7.2, 8.1, 8.2, 8.3 and any rights of
either party that may have accrued as of the termination of this
Agreement shall survive such termination.
6. Confidentiality, Non-circumvention; Intellectual Property Rights; News
----------------------------------------------------------------------
Release.
-------
6.1 All information furnished by one party to the other in connection with
this Agreement and the transactions contemplated by this Agreement
shall be kept confidential by the receiving party and shall be used by
the receiving party only in connection with this Agreement and such
transactions. The receiving party shall not disclose such information
to any person or entity other than its directors, officers, employees
and agents who agree to comply with this Section 6.1, except to the
extent that such information (a) is already lawfully known by the
receiving party when received as a matter of record; (b) is now or
hereafter becomes generally available to the public through no fault
of the receiving party; (c) is obtained by the receiving party from a
third party, who, to the knowledge of the receiving party, has no
confidentiality obligation to the disclosing party, (d) is required to
be disclosed by law, regulation or judicial process, including
disclosure required by the Securities and Exchange Commission; or (e)
is disclosed after the receiving party obtains prior written approval
from the disclosing party for such disclosure. A receiving party shall
promptly return to a disclosing party all original and duplicate
copies of information furnished to the receiving party by the
disclosing party in connection with this Agreement upon the written
request of the disclosing party, provided that this Agreement has
terminated.
6.2 PCsupport.com agrees that Go Figure has developed certain confidential
software, business concepts, business plans and business processes
that are proprietary to Go Figure and that have substantial value for
commercial exploitation (collectively, the "Go Figure Commercial
Assets"). PCsupport.com agrees that it will not at any time attempt in
any manner to commercially exploit any of the Go Figure Commercial
Assets, nor will PCsupport.com use any of the Go Figure Commercial
Assets for any purpose other than to fulfill PCsupport.com's
obligations arising under this Agreement without Go Figure's prior
written consent, which may be withheld in Go Figure's sole discretion.
6.3 Go Figure agrees that PCsupport.com has developed certain confidential
software, business concepts, business plans and business processes
that are
PCSUPPORT.COM - GO FIGURE SERVICES AGREEMENT
PAGE 5
<PAGE>
proprietary to PCsupport.com and that have substantial value for
commercial exploitation (collectively, the "PCsupport.com Commercial
Assets"). Go Figure agrees that it will not at any time attempt in any
manner to commercially exploit any of the PCsupport.com Commercial
Assets, nor will Go Figure use any of the PCsupport.com Commercial
Assets for any purpose other than to fulfill Go Figure's obligations
arising under this Agreement without PCsupport.com's prior written
consent, which may be withheld in PCsupport.com's sole discretion.
6.4 Neither party hereto shall obtain any rights in relation to the
trademarks or trade names of the other party, other than as
specifically provided for in this Agreement. PCsupport.com and Go
Figure shall each be entitled during the term of this Agreement to use
without charge the name and trademarks of the other party in its
advertising, promotions, marketing documents, sales information and
similar materials (in physical or electronic media) for the limited
purpose of promoting the Services, provided that each party shall
consult with the other party in advance before using any such name or
trademarks and give the other party a reasonable opportunity to review
the manner in which they will be used, it being agreed that each party
shall control the manner in which its name and trademarks are used.
Upon the expiration or termination of this Agreement, both parties
shall immediately cease to use the name, logos and trademarks of the
other party and shall ensure such cessation of use by all persons
claiming to have received the right to such use.
6.5 The content and distribution of a news release announcing the signing
of this Agreement shall be subject to the mutual approval of the
parties hereto. Go Figure acknowledges that any and all news releases
must comply with all requirements imposed upon PCsupport.com as a
result of its securities being publicly traded.
7. Indemnification.
---------------
7.1 Each party hereto shall indemnify and hold harmless the other party
hereto, its directors, officers, employees, agents, successors and
assigns, from and against any and all liability and every loss, cost,
damage, claim, cause of action and expense paid or incurred by any one
or more of them directly or indirectly arising from, attributable to
or in connection with the indemnifying party's negligence, willful
misconduct or breach of this Agreement; any claim of misrepresentation
by or fraud on the part of the indemnifying party; and any violation
by the indemnifying party of any federal or state statute, regulation
or judicial or administrative ruling relating to the provision of
Services. Each party agrees to give notice to the other party within
ten calendar days of learning of a matter with respect to which such
party believes it is indemnified pursuant to this Section 7.1.
PCSUPPORT.COM - GO FIGURE SERVICES AGREEMENT
PAGE 6
<PAGE>
7.2 PCsupport.com shall indemnify and hold harmless Go Figure, its
directors, officers, employees, agents, successors and assigns, from
and against any and all liability and every loss, cost, damage, claim,
cause of action and expense (including reasonable attorneys' fees)
paid or incurred by any one or more of them directly or indirectly
arising from, attributable to or in connection with any of the
following claims made against Go Figure as a result of its performance
under this Agreement: (a) infringement, contributory infringement or
inducement of infringement directly related to provision of the
Services; (b) unauthorized or unlawful use of any patent, copyright,
trademark, trade secret, mask work, proprietary data or other
information directly related to provision of the Services; or (c) any
claim of right, title or interest by another party in any software
directly related to the provision of the Services.
7.3 With respect to the indemnification obligations set forth in this
Section 7:
(a) the indemnified party shall notify the indemnifying party in
writing promptly upon learning of any claim or suit for which
indemnification may be sought, provided that failure to do so
shall not affect such indemnification obligations except to the
extent the indemnifying party is prejudiced thereby;
(b) the indemnifying party shall have control of the defense or
settlement of any claim or suit for which indemnification may be
sought, provided that the indemnified party shall have the right
to participate in such defense or settlement with counsel of its
own selection and at its sole expense; and
(c) the indemnified party shall reasonably cooperate with the defense
of any claim or suit for which indemnification may be sought, at
the indemnifying party's expense.
7.4 PCsupport.com and Go Figure agree that, except as set forth in Section
7.1 hereof, PCsupport.com and its suppliers shall have no liability to
Go Figure arising from or relating to (a) the performance, failure or
incompatibility with any software or hardware of any software used or
supplied by PCsupport.com in connection with the Services; (b) the
performance, failure or incompatibility with any software or hardware
of any hardware or systems used by PC support.com in connection with
the Services; or (c) any damage to or any alteration, loss or
destruction of information or data belonging to Go Figure or any third
party.
PCSUPPORT.COM - GO FIGURE SERVICES AGREEMENT
PAGE 7
<PAGE>
8. Limitation of Liability.
-----------------------
8.1 In no event shall the liability of either party hereto for damages
relating to any cause of action relating to this Agreement exceed the
aggregate amount of Service Fees received by PCsupport.com during the
term of this Agreement.
8.2 In no event shall either party hereto be liable for any indirect or
consequential damages, including loss of profits, incurred by any
other party, whether in an action in contract or tort or based on a
warranty, in connection with or under this Agreement, even if it has
been advised of the possibility of such damages.
8.3 The limitations of liability set forth in Sections 8.1 and 8.2 of this
Agreement shall not apply to the indemnification obligations set forth
in Sections 7.1 and 7.2 of this Agreement.
9. Miscellaneous Provisions.
------------------------
9.1 This Agreement embodies the entire agreement of the parties relating
to the subject matter hereof and supersedes all prior understandings
or agreements between the parties relating to the same.
9.2 Neither party may assign any of its rights under this Agreement
without the prior consent of the other party except that (a) either
party may assign its rights under this Agreement to any subsidiary
that is wholly-owned, directly or indirectly, by such party; and (b)
either party may assign its rights under this Agreement to any third
party via merger of such party into such third party.
9.3 This Agreement shall be binding upon and inure to the sole and
exclusive benefit of Go Figure and PCsupport.com and their successors
and permitted assigns. Nothing in this Agreement shall be construed to
give any person or entity other than Go Figure or PCsupport.com any
legal or equitable right, remedy or claim in connection with or
arising from this Agreement.
9.4 The parties are independent contractors and are not employees,
partners, joint venturers, franchise-related entities or legal
representatives of the other. Neither party is authorized to bind the
other party or otherwise act in the name of or on behalf of the other
party, without prior written consent. Neither party hereto will,
unless agreed to by the other party, describe itself as associated
with the other party in correspondence, commercial documents or on any
name place or sign on its premise which describes or relates to the
Services, except as required to comply with the terms and conditions
of this Agreement.
PCSUPPORT.COM - GO FIGURE SERVICES AGREEMENT
PAGE 8
<PAGE>
9.5 This Agreement may not be amended or modified other than by a written
agreement executed by all of the parties hereto or their successors
and permitted assigns.
9.6 Any notices or other communications given in connection with this
Agreement must be given in writing and will be considered given (a)
when delivered by hand, with written confirmation of receipt; (b) 10
days after being mailed by certified airmail, postage prepaid, return
receipt requested; or (c) when received by the addressee, if sent by a
nationally recognized overnight delivery service, in each instance to
the following addresses or such other address as either party may
designate by notice to the other party:
If to Go Figure: Prior to January 15, 2000:
Go Figure Technology, Inc.
13111 North Central Expressway
Suite 510
Dallas, Texas 75243
Attention: Chief Executive Officer
After January 15, 2000:
13155 Noel Road
Suite 1600
Dallas, Texas 75221
Attention: Chief Executive Officer
If to PCsupport.com: PCsupport.com, Inc.
Suite 280
4400 Dominion Street
Burnaby, British Columbia
V5G 4G3
Attention: Mike McLean
9.7 Neither party shall be liable to the other for its failure to perform
any of its obligations under this Agreement, except for payment
obligations, if such failure is due to circumstances beyond its
reasonable control, including without limitation earthquakes,
governmental regulation, fire, flood, labor difficulties, civil
disorder, and acts of God.
9.8 If any provision of this Agreement is determined to be invalid by a
court of competent jurisdiction, all other provisions of this
Agreement shall remain in effect.
PCSUPPORT.COM - GO FIGURE SERVICES AGREEMENT
PAGE 9
<PAGE>
9.9 This Agreement may be executed in counterparts, each of which when so
executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement enforceable
against each party in accordance with its terms.
PCSUPPORT.COM - GO FIGURE SERVICES AGREEMENT
PAGE 10
<PAGE>
In witness whereof, Go Figure and PCsupport.com have executed this Agreement to
be effective as of the Effective Date.
Go Figure Technology, Inc.
By: /s/ Marc A. Landry
-------------------------------------
Marc A. Landry
Chief Executive Officer and President
PCsupport.com, Inc.
By: /s/ Mike McLean
-------------------------------------
Mike McLean
Chief Executive Officer
PCSUPPORT.COM - GO FIGURE SERVICES AGREEMENT
PAGE 11
<PAGE>
EXHIBIT A TO
PCSUPPORT.COM - GO FIGURE SERVICES AGREEMENT
PC Support Center
Feature Description
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Feature Description Included Generates Premium
Revenue Service
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Software Updates Scans hard disk for new versions of software and * *
drivers. User can download free versions and has the
opportunity to purchase latest versions of
commercial software
- --------------------------------------------------------------------------------------------------------------------------
Preventative Maintenance Disk is scanned and cleaned to increase performance *
- --------------------------------------------------------------------------------------------------------------------------
Advocate Will interface with PC vendors to assist subscribers *
with support and product related problems
- --------------------------------------------------------------------------------------------------------------------------
PC Platform Maintenance Subscribers receive emails of fixes or driver *
updates that automatically update their system
- --------------------------------------------------------------------------------------------------------------------------
Technical Support Forums Subscriber can ask questions of experts or answer * * *
questions for rewards
- --------------------------------------------------------------------------------------------------------------------------
Telephone support Optional access to live support via telephone * * *
- --------------------------------------------------------------------------------------------------------------------------
Product Sales Subscribers will be able to purchase support related * *
products, training material and hard to find
accessories
- --------------------------------------------------------------------------------------------------------------------------
The Backup Center Free backup services will be offered as well as * * *
upgrades to premium pay per use data backup services
- --------------------------------------------------------------------------------------------------------------------------
Personal Subscriber profile Allows subscriber to register to receive *
personalized information and virus updates and keep
a personal hardware profile etc.
- --------------------------------------------------------------------------------------------------------------------------
FAQ's Vendor specific frequently asked questions *
- --------------------------------------------------------------------------------------------------------------------------
Newsletter Weekly newsletter with support content and site news. *
- --------------------------------------------------------------------------------------------------------------------------
Email updates User will receive virus alerts, bug fixes etc. *
- --------------------------------------------------------------------------------------------------------------------------
Connection Maintenance Wizard Keeps all important internet dialer working even *
when disconnected
- --------------------------------------------------------------------------------------------------------------------------
Support content (News, Surveys, Dynamic interesting support content *
User choice awards, contests)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
PCSUPPORT.COM - GO FIGURE SERVICES AGREEMENT
PAGE 12
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Feature Description Included Generates Premium
Revenue Service
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Release 1.5
- -------------------------------------------------------------------------------------------------------------------------
Virus Scan Online Virus scan, repair and email updates * *
- -------------------------------------------------------------------------------------------------------------------------
Remote Diagnostic and Repair Self help repair *
Disk Maintenance
- -------------------------------------------------------------------------------------------------------------------------
Custom support actions Scripted routines to help with common problems *
- -------------------------------------------------------------------------------------------------------------------------
Self Help Self serve tech support *
- -------------------------------------------------------------------------------------------------------------------------
Knowledgebase Supports PC over the internet *
- -------------------------------------------------------------------------------------------------------------------------
Email Assist, Live Assist, Fast, efficient and effective live support using * * *
advanced technology
- -------------------------------------------------------------------------------------------------------------------------
On-site Assist (Break Fix) Live, On-site Break Fix. * * *
- -------------------------------------------------------------------------------------------------------------------------
Hardware Upgrades Wizard Subscriber profile will allow user to tune system to * *
specific usage types and recommend upgrades to
improve performance
- -------------------------------------------------------------------------------------------------------------------------
Expert Advice Weekly comments, suggestions and recommendations by *
experts
- -------------------------------------------------------------------------------------------------------------------------
Learning Center Courses, videos, books and tapes to help subscribers * *
increase their knowledge about PCs and related
topics will be offered.
- -------------------------------------------------------------------------------------------------------------------------
Vendor communication page Personal information *
- -------------------------------------------------------------------------------------------------------------------------
Future Enhancements
- -------------------------------------------------------------------------------------------------------------------------
PC Platform Maintenance V 2.0 More in-depth services *
- -------------------------------------------------------------------------------------------------------------------------
Multiple PC's per user Allows user to have more than one PC in their profile * *
- -------------------------------------------------------------------------------------------------------------------------
Neighborhood Support Garage SME account set up for group of PC's *
- -------------------------------------------------------------------------------------------------------------------------
Asset Tracking Increase information on PC's registered * *
- -------------------------------------------------------------------------------------------------------------------------
Anti - Theft deterrent Options to protect investment * *
- -------------------------------------------------------------------------------------------------------------------------
Computer Theft and Damage Insurance * * *
Insurance
- -------------------------------------------------------------------------------------------------------------------------
Extended Warranty Options for increasing warranty * * *
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ 6 months of operation will be required to define an accurate revenue model
++ does not include some premium service and pay per use revenue
+++ some revenue streams could be lost due to customization requirements
PCSUPPORT.COM - GO FIGURE SERVICES AGREEMENT
PAGE 13
<PAGE>
EXHIBIT B TO
PCSUPPORT.COM - GO FIGURE SERVICES AGREEMENT
PCSUPPORT.COM - GO FIGURE SUPPLEMENTAL AGREEMENT
------------------------------------------------
This PCsupport.com - Go Figure Supplemental Agreement (the "Supplemental
Agreement") is made between PCsupport.com, Inc., a Nevada corporation,
("PCsupport.com") and Go Figure Technology, Inc., a Delaware corporation ("Go
Figure").
Whereas, PCsupport.com and Go Figure are parties to the PCsupport.com - Go
Figure Services Agreement with an effective date of January 7, 2000 (the
"Agreement"); and
Whereas, Go Figure has negotiated a proposed Third Party Contract (as
defined in the Agreement) with ________ ("Purchaser") to be dated effective
___________; and
Whereas, the Agreement provides that PCsupport.com and Go Figure negotiate
in good faith to complete this Supplemental Agreement with respect to the
proposed Third Party Contract with Purchaser.
Now, therefore, in consideration of the foregoing premises and the mutual
covenants and obligations set forth herein, PCsupport.com and Go Figure agree as
follows:
1. Effective Date.
--------------
Effective Date of this Supplemental Agreement: ________________, 2000.
2. Capitalized Terms.
-----------------
(a) Capitalized terms used but not defined in this Supplemental Agreement
shall have the meanings set forth in the Agreement.
(b) "Icon" shall mean an on-screen icon connecting the user of a personal
computer to a Web site providing Services.
3. Services.
--------
The Services to be provided by PCsupport.com pursuant to Go Figure's Third
Party Contract with Purchaser shall be those Services set forth under the
heading of "Release ___" on Exhibit A to the Agreement, as Exhibit A is
amended from time to time.
PCSUPPORT.COM - GO FIGURE SERVICES AGREEMENT
PAGE 14
<PAGE>
3. Customization Fee.
-----------------
The Customization Fee payable to PCsupport.com with respect to Go Figure's
Third Party Contract with Purchaser is $________.
4. Service Fees.
------------
Service Fees with respect to a calendar month that are calculated in
accordance with this Supplemental Agreement shall equal $18.00 multiplied
by the number of personal computer systems delivered to or at the direction
of Purchaser during such calendar month onto which systems an Icon has been
loaded pursuant to Go Figure's Third Party Contract with Purchaser.
5. Shared Revenue.
--------------
Shared Revenue with respect to a calendar month that is calculated in
accordance with this Supplemental Agreement shall equal the sum of:
(a) Fifty percent of the gross commission revenue received by
PCsupport.com during such calendar month from the sale to users of the
Services of goods and services supplied or provided by a third party;
plus
(b) Fifty percent of the difference between (i) gross revenue received by
PCsupport.com during such calendar month from the sale to users of the
Services of goods and services (other than the Services) supplied or
provided by PCsupport.com, less (ii) the direct cost to PCsupport.com
of supplying or providing such goods and services during such month.
4. Term.
----
This Supplemental Agreement shall terminate on the earlier to occur of the
termination of Go Figure's Third Party Contract with Purchaser or three
years from the Effective Date of this Supplemental Agreement.
9. Miscellaneous.
-------------
(a) This Supplemental Agreement shall be interpreted, implemented and
enforced with reference to and in conjunction with the terms and
provisions of the Agreement.
(b) The provisions of Sections 5.4, 7.1, 8.1, 8.2, 8.3 and 9.1 - 9.9 of
the Agreement are hereby incorporated by reference into this
Supplemental Agreement.
PCSUPPORT.COM - GO FIGURE SERVICES AGREEMENT
PAGE 15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Agreement
to be executed by their respective duly authorized representatives as of the
Effective Date.
PCSUPPORT.COM, INC. GO FIGURE TECHNOLOGY, INC.:
By: ___________________________ By: ________________________________
Marc Landry
Name: _________________________ Chief Executive Officer and President
Title: ________________________
PCSUPPORT.COM - GO FIGURE SERVICES AGREEMENT
PAGE 16
<PAGE>
EXHIBIT 5.33
AGREEMENT TO CONVERT NOTES INTO STOCK AND WARRANTS
Name: CGTF, LLC
Address: 200 North Westlake Boulevard, Suite 205
Westlake Village, California 91362
The undersigned hereby elects to convert its notes payable by
PCSupport.com, Inc. ("PCSP") in the aggregate principal amount of $500,000 (the
"Notes"), and any accrued and unpaid interest on the Notes, into (a) 350,000
shares of PCSP's common stock (the "Non-Warrant Shares"), and (b) a two-year
warrant (the "Warrant") to purchase 240,000 shares of PCSP's common stock (the
"Warrant Shares") at an exercise price of $1.40, in the form of Exhibit A
attached hereto. The Non-Warrant Shares and the Warrant Shares are collectively
referred to as the "Shares." As soon as practicable after the execution of this
agreement, (i) the undersigned will surrender the Notes to PCSP and PCSP will
mark such Notes cancelled and (ii) PCSP will deliver to the undersigned one or
more stock certificates representing the Non-Warrant Shares and an executed copy
of the Warrant. Further,
1. The undersigned understands and acknowledges that (a) the Shares have
not been registered under the Securities Act of 1933, as amended (the
"Securities Act") and are therefore restricted securities; (b) the
Shares may not be sold or transferred unless they are registered under
the Securities Act or an exemption from such registration is available;
and (c) a legend to that effect will be placed on the certificates
representing the Shares.
2. The undersigned is an "accredited investor" as defined in Regulation D
under the Securities Act.
3. The undersigned (a) is acquiring the Shares for its own account for
investment and not with a view to the distribution thereof except in
compliance with the Securities Act or an exemption available thereunder
and (b) has been granted the opportunity to investigate the business
and affairs of PCSP and to ask questions of its officers and employees,
and has availed itself of such opportunity through its authorized
representatives.
4. The undersigned has reviewed the draft dated 1/7/2000 of Amendment No.
2 to PCSP's Registration Statement on Form 10-SB.
5. The undersigned acknowledges that the Notes are the only obligations
owed by PCSP to the undersigned on the date hereof.
6. The undersigned acknowledges that its election will only be effective
upon PCSP's acceptance of this election, which will be evidenced by
PCSP's countersignature of this agreement.
[Signature page follows.]
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<PAGE>
CGTF, LLC
By: Hundred Acre Dreams, Inc.,
its Managing Member
By: /s/ Antoinette Graves
--------------------------
Name: Antoinette Graves
Title: President
Date: January 11, 2000
ACCEPTED BY PCSP:
By: /s/ Michael G. McLean
--------------------------
Name: Michael G. McLean
Title: President and CEO
Date: January 11, 2000
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<PAGE>
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS AND MUST BE HELD INDEFINITELY UNLESS
SUBSEQUENTLY REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS OR DISPOSED OF PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
WARRANT
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Company: PCSupport.com, Inc., a Nevada corporation
Number of Shares: 240,000
Class of Stock: Common Stock
Issue Date: January 11, 2000
Expiration Date: January 11, 2002
FOR VALUE RECEIVED, the adequacy and receipt of which is hereby
acknowledged, PCSupport.com, Inc., a Nevada corporation (the "Company"), hereby
certifies that CGTF, LLC, and its successors and assigns, are entitled to
purchase from the Company TWO HUNDRED AND FORTY THOUSAND (240,000) fully paid
and non-assessable shares of Common Stock of the Company at any time and from
time to time on and after the date hereof until 12:00 midnight New York local
time on January 11, 2002 at an exercise price of ONE DOLLAR AND FORTY CENTS
($1.40) per share of Common Stock, on the terms and conditions hereinafter set
forth.
1. Certain Definitions. As used in this Warrant, the following terms
-------------------
have the following definitions:
"Additional Shares of Common Stock" means all shares of Common Stock
---------------------------------
issued or issuable by the Company after the date of this Warrant, except for
shares of Common Stock issued or issuable upon (i) the exercise of currently
outstanding options or warrants or (ii) the conversion of currently outstanding
Convertible Securities.
"Common Stock" means the Company's common stock, $.001 par value per
------------
share, and includes shares of any new class of the Company's securities which
are not limited to a fixed sum or percentage of par value in respect of the
rights of the holders thereof to participate in dividends and in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company.
"Company" is defined in the introduction above.
-------
"Conversion Date" means the date that the Company receives this Warrant
---------------
pursuant to the Warrantholders' conversion right pursuant to Section 4 hereof,
or on such later date as specified by the Warrantholders.
"Convertible Securities" means evidence of indebtedness, shares of
----------------------
stock or other securities which are at any time directly or indirectly
convertible into or exchangeable for shares of Common Stock.
"Current Market Price" of a share of Common Stock or of any other
--------------------
security as of a relevant date means: (i) the Fair Value thereof as determined
in accordance with clause (ii) of the definition of Fair Value with respect to
Common Stock or any other security that is not listed on a national
<PAGE>
securities exchange or traded on the over-the-counter market or quoted on NASDAQ
(including the OTC Electronic Bulletin Board), and (ii) the average of the daily
closing prices for the twenty (20) trading days before such date (excluding any
trades which are not bona fide arm's length transactions) with respect to Common
Stock or any other security that is listed on a national securities exchange or
traded on the over-the-counter market or quoted on NASDAQ (including the OTC
Electronic Bulletin Board). The closing price for each day shall be (i) the last
sale price of shares of Common Stock or such other security, regular way, on
such date or, if no such sale takes place on such date, the average of the
closing bid and asked prices thereof on such date, in each case as officially
reported on the principal national securities exchange on which the same are
then listed or admitted to trading, or (ii) if no shares of Common Stock or if
no securities of the same class as such other security are then listed or
admitted to trading on any national securities exchange, the average of the
reported closing bid and asked prices thereof on such date in the over-the-
counter market as shown by the National Association of Securities Dealers
automated quotation system or, if no shares of Common Stock or if no securities
of the same class as such other security are then quoted in such system, as
published by the National Quotation Bureau, Incorporated or any similar
successor organization, and in either case as reported by any member firm of the
New York Stock Exchange selected by the Warrantholders.
"Exchange Act" means the Securities Exchange Act of 1934.
------------
"Exercise Period" means the period commencing on the Issue Date and
---------------
ending at 12:00 midnight New York local time on the Expiration Date.
"Exercise Price" means One Dollar and Forty Cents ($1.40), as may be
--------------
adjusted from time to time pursuant to Section 6.
"Expiration Date" is defined in the introduction above.
---------------
"Fair Value" means: (i) with respect to a share of Common Stock or any
----------
other security, the Current Market Price thereof, and (ii) with respect to any
other property, assets, business or entity, an amount determined in accordance
with the following procedure: The Company and the holders of the Warrants and
Warrant Shares, as applicable, shall use their best efforts to mutually agree to
a determination of Fair Value within ten (10) days of the date of the event
requiring that such a determination be made. If the Company and such holders
are unable to reach agreement within said ten (10) day period, the Company and
such holders shall within ten (10) days of the expiration of the ten (10) day
period referred to above each retain a separate independent investment banking
firm (which firm shall not be the investment banking firm regularly retained by
the Company). If either the Company or such holders fails to retain such an
investment banking firm during such period, then the independent investment
banking firm retained by such holders or the Company, as the case may be, acting
alone, shall take the actions outlined below. Such firms shall determine
(within thirty (30) days of their being retained) the Fair Value of the
security, property, assets, business or entity, as the case may be, in question
and deliver their opinion in writing to the Company and to such holders. If
such firms cannot jointly make the determination, then, unless otherwise
directed by agreement of the Company and such holders, such firms, in their sole
discretion, shall choose another investment banking firm independent of the
Company and such holders, which firm shall make the determination and render an
opinion as promptly as practicable. In either case, the determination so made
shall be conclusive and binding on the Company and such holders. The fees and
expenses of any such determination made by any and all such independent
investment banking firms shall be paid 50% by the Company and 50% by the
Warrantholders. If there is more than one holder of Warrants, and/or Warrant
Shares entitled to a determination of Fair Value in any particular instance,
each action to be taken by the holders of such Warrants and/or Warrant Shares
under this Section shall be taken by a majority in interest of such holders and
the action taken by such majority (including as to any mutual agreement with the
Company with respect to Fair Value and as to any selection of investment banking
firms) shall be binding upon all such holders. In the case of a determination
of the Fair Value per share of Common Stock, the Company and such holders shall
not take into consideration, and shall instruct all such investment banking
firms not to take into consideration, any premium for shares representing
control of the Company, any discount for any minority interest therein or any
restrictions on transfer under applicable federal and state securities laws or
otherwise.
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<PAGE>
"Issue Date" is defined in the introduction above.
----------
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Warrant(s)" means this Warrant and any warrants issued in exchange or
----------
replacement of this Warrant or upon transfer hereof.
"Warrantholder(s)" means CGTF, LLC and its successors and assigns.
----------------
"Warrant Shares" means shares of Common Stock issuable to
--------------
Warrantholders pursuant to this Warrant.
2. Exercise of Warrant. This Warrant may be exercised, in whole or in
-------------------
part, at any time and from time to time during the Exercise Period by written
notice to the Company and upon payment to the Company of the Exercise Price for
the shares of Common Stock in respect of which the warrant is exercised.
3. Form of Payment of Exercise Price. Anything contained herein to the
---------------------------------
contrary notwithstanding, at the option of the Warrantholders, the Exercise
Price may be paid in any one or a combination of the following forms: (a) by
wire transfer to the Company, (b) by the Warrantholders' cashier's or bank check
to the Company, and/or (c) by the surrender to the Company of Warrants, Warrant
Shares, Common Stock and/or other securities of the Company and/or any
subsidiaries of the Company having a Fair Value equal to the Exercise Price.
4. Cashless Exercise/Conversion. In lieu of exercising this Warrant as
----------------------------
specified in Sections 2 and 3 above, the Warrantholders may from time to time at
the Warrantholders' option convert this Warrant, in whole or in part, into a
number of shares of Common Stock of the Company determined by dividing (A) the
aggregate Fair Value of such shares or other securities otherwise issuable upon
the exercise of this Warrant minus the aggregate Exercise Price of such shares
by (B) the Fair Value of one such share.
5. Certificates for Warrant Shares: New Warrant. part, at The Company
--------------------------------------------
agrees that the Warrant Shares shall be deemed to have been issued to the
Warrantholders as the record owner of such Warrant Shares as of the close of
business on the date on which payment for such Warrant Shares has been made (or
deemed to be made by conversion) in accordance with the terms of this Warrant.
Certificates for the Warrant Shares shall be delivered to the Warrantholders
within a reasonable time, not exceeding five (5) business days, after this
Warrant has been exercised or converted. A new Warrant representing the number
of shares, if any, with respect to which this Warrant remains exercisable also
shall be issued to the Warrantholders within such time so long as this Warrant
has been surrendered to the Company at the time of exercise.
6. Adjustment of Exercise Price, Number of Shares and Nature of Securities
-----------------------------------------------------------------------
Issuable Upon Exercise of Warrants.
- ----------------------------------
(a) Exercise Price: Adjustment of Number of Shares. The Exercise
----------------------------------------------
Price shall be subject to adjustment from time to time as hereinafter provided.
Upon each adjustment of the Exercise Price (except for any adjustment under
Section 6(b), in which case the number of shares that can be purchased will not
be adjusted), the Warrantholders shall thereafter be entitled to purchase, at
the Exercise Price resulting from such adjustment, a number of shares determined
by multiplying the Exercise Price in effect immediately prior to such adjustment
by the number of shares purchasable pursuant hereto immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(b) Adjustment of Exercise Price Upon Issuance of Common Stock. If
----------------------------------------------------------
and whenever after the date hereof the Company shall (i) reprice any outstanding
options, warrants, or Convertible Securities or (ii) issue or sell Additional
Shares of Common Stock or options, warrants or Convertible Securities to any
person solely by virtue of such person's holding outstanding options, warrants
or
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<PAGE>
Convertible Securities, then, if the lowest price relating to any such
repricing, issuance or sale, is lower than the Exercise Price in effect
immediately prior to such repricing, issuance or sale, then the Exercise Price
shall be reduced to equal such lowest price.
No adjustment of the Exercise Price, however, shall be made in an
amount less than $.01 per share, but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment which, together with any adjustments so carried forward, shall amount
to $.10 per share or more.
The provisions of this Section 6(b) shall not apply to any
Additional Shares of Common Stock which are distributed to holders of Common
Stock pursuant to a stock split or dividend for which an adjustment is provided
for under Section 6(e).
(c) Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
If any capital reorganization of the Company or reclassification of the capital
stock of the Company, or any consolidation or merger of the Company with another
corporation, or a sale of all or substantially all of the Company's assets to
another corporation shall be effected in such a way that holders of Common Stock
shall be entitled to receive cash, stock, securities or assets with respect to
or in exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provisions
shall be made whereby the Warrantholders shall thereafter have the right to
purchase and receive upon the basis and upon the terms and conditions specified
in this Warrant upon exercise of this Warrant and in lieu of the shares of the
Common Stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, such cash, shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of Common Stock equal to the number of shares
of such Common Stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, and in any such case appropriate
provision shall be made with respect to the rights and interest of the
Warrantholders to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Exercise Price and of the number
of shares purchasable and receivable upon the exercise of this Warrant) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise hereof. The
Company shall not effect any consolidation, merger or sale of all or
substantially all of the assets of the Company unless prior to or simultaneous
with the consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation, merger or purchase of such assets
shall assume, by written instrument executed and mailed or delivered to the
Warrantholders, the obligation to deliver to such Warrantholders such cash (or
cash equivalent), shares of stock, securities or assets as, in accordance with
the foregoing provisions, the Warrantholders may be entitled to receive and
containing the express assumption of such successor corporation of the due and
punctual performance and observance of each provision of this Warrant to be
performed and observed by the Company and of all liabilities and obligations of
the Company hereunder; provided, however, in the case during the 18-month period
following the Issue Date of any consolidation or merger of the Company with
another corporation or the sale of all or substantially all of its assets to
another corporation effected in such a manner that the holders of Common Stock
shall be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, at the election of each Warrantholder, in lieu
of receiving such stock, securities or assets, such Warrantholder shall receive
cash equal to the Fair Value of the Common Stock issuable upon exercise of the
Warrant, less the Exercise Price payable upon exercise thereof.
(d) Company to Prevent Dilution. In case at any time or from time
---------------------------
to time conditions arise by reason of action taken by the Company, which are not
adequately covered by the provisions of this Section 6, and which might
materially and adversely affect the exercise rights of the Warrantholders under
any provision of this Warrant, unless the adjustment necessary shall be agreed
upon by the Company and the Warrantholders, the Board of Directors of the
Company shall appoint a firm of independent certified public accountants of
recognized national standing (who have not been employed by the Company within
the last five years), acceptable to the Warrantholders, who at the Company's
expense shall give their opinion upon the adjustment, if any, on a basis
consistent with the standards established in the other provisions of this
Section 6, necessary with respect to the Exercise Price and the number of shares
purchasable upon exercise of the Warrants, so as to preserve, without dilution,
the
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<PAGE>
exercise rights of the Warrantholders. Upon receipt of such opinion, such Board
of Directors shall forthwith make the adjustments described therein; provided
that no such adjustments shall have the effect of increasing the Exercise Price
or decreasing the number of Warrant Shares as otherwise determined pursuant to
this Section 6.
(e) Stock Splits, Stock Dividends and Reverse Splits. In case at
------------------------------------------------
any time the Company shall subdivide its outstanding shares of Common Stock into
a greater number of shares or shall effect a stock dividend, the Exercise Price
in effect immediately prior to such subdivision or stock dividend shall be
proportionately reduced and the number of shares of Common Stock purchasable
pursuant to this Warrant immediately prior to such subdivision or stock dividend
shall be proportionately increased, and conversely, in case at any time the
Company shall combine its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Common Stock purchasable upon the exercise of this Warrant immediately prior to
such combination shall be proportionately reduced.
(f) Dissolution, Liquidation and Wind-Up. In case the Company shall,
------------------------------------
at any time prior to the expiration of this Warrant, dissolve, liquidate or wind
up its affairs, the Warrantholders shall be entitled, upon the exercise of this
Warrant, to receive in lieu of the shares of Common Stock of the Company which
such Warrantholders would have been entitled to receive, the same kind and
amount of assets as would have been issued, distributed or paid to such
Warrantholders upon any such dissolution, liquidation or winding up with respect
to such shares of Common Stock of the Company, had such Warrantholders been the
holders of record of the Warrant Shares receivable upon the exercise of this
Warrant on the record date for the determination of those persons entitled to
receive any such liquidating distribution.
7. Special Agreements of the Company.
---------------------------------
(a) Reservation of Shares. The Company covenants and agrees that
---------------------
all Warrant Shares will, upon issuance, be validly issued, fully paid and
nonassessable and free from all preemptive rights of any Shareholder, and from
all taxes, liens and charges with respect to the issue thereof. The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved, a sufficient number of shares of Common Stock to
provide for the exercise of the rights represented by this Warrant. The Company
hereby covenants and agrees to take all such action as may be necessary to
assure that the par value per share of the Common Stock is at all times equal to
or less than the Exercise Price.
(b) Avoidance of Certain Actions. The Company will not, by
----------------------------
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, issue or sale of securities or
otherwise, avoid or take any action which would have the effect of avoiding the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in carrying
out all of the provisions of this Warrant and in taking all of such action as
may be necessary or appropriate in order to protect the rights of the
Warrantholders against dilution or other impairment of their rights hereunder.
(c) Securing Governmental Approvals. If any shares of Common Stock
-------------------------------
required to be reserved for the purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any federal
law (other than the Securities Act) or under any state law before such shares
may be issued upon exercise of this Warrant, the Company will, at its expense,
as expeditiously as possible, cause such shares to be duly registered or
approved, as the case may be.
(d) Listing on Securities Exchanges; Registration. If, and so long
---------------------------------------------
as, any class of the Company's Common Stock shall be listed on any national
securities exchange (as defined in the Exchange Act) or quoted on NASDAQ, the
Company will, at its expense, obtain and maintain the approval for listing or
quotation, as the case may be, upon official notice of issuance of all Warrant
Shares, and maintain the listing or quotation, as the case may be, of Warrant
Shares after their issuance; and the Company will so list on such national
securities exchange or have quoted on NASDAQ, will register under the Exchange
Act (or any similar statute then in effect), and will maintain such listing or
5
<PAGE>
quotation of, any other securities that at any time are issuable upon exercise
of this Warrant if and at the time any securities of the same class shall be
listed on such national securities exchange by the Company or quoted on NASDAQ.
(e) Information Rights. So long as the Warrantholders hold this
------------------
Warrant and/or any of the Warrant Shares, the Company shall deliver to the
Warrantholders (i) promptly after mailing, copies of all communications to the
shareholders of the Company, (ii) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by the independent public accountants of recognized standing,
and (iii) within forty-five (45) days after the end of each of the first three
quarters of each fiscal year, the Company's quarterly, unaudited financial
statements.
(f) Preemptive Rights. In the event the Company offers to the
-----------------
Company's shareholders the right to purchase any securities of the Company, then
all shares of Common Stock issuable pursuant to the Warrants shall be deemed to
be issued and outstanding and held by the Warrantholders and the Warrantholders
shall be entitled to participate in such rights offering.
(g) Compliance with Law. The Company shall comply with all
-------------------
applicable laws, rules and regulations of the United States and of all states,
municipalities and agencies and of any other jurisdiction applicable to the
Company and shall do all things necessary to preserve, renew and keep in full
force and effect and in good standing its corporate existence and authority
necessary to continue its business.
8. Fractional Shares. No fractional shares or scrip representing
-----------------
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon exercise hereof, the Company
shall pay to the Warrantholder an amount in cash equal to such fraction
multiplied by the Current Market Value of one share of Common Stock.
9. Notices of Stock Dividends, Subscriptions, Reclassifications,
-------------------------------------------------------------
Consolidations, Mergers, etc. If at any time: (i) the Company shall declare a
- ----------------------------
cash dividend (or an increase in the then existing dividend rate), or declare a
dividend on Common Stock payable otherwise than in cash out of its net earnings
after taxes for the prior fiscal year; or (ii) the Company shall authorize the
granting to the holders of Common Stock of rights to subscribe for or purchase
any shares of capital stock of any class or of any other rights; or (iii) there
shall be any capital reorganization, or reclassification, or redemption of the
capital stock of the Company, or consolidation or merger of the Company with, or
sale of all or substantially all of its assets to, another corporation or firm;
or (iv) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company, then the Company shall give to the Warrantholders at
the addresses of such Warrantholders as shown on the books of the Company, at
least twenty (20) days prior to the applicable record date hereinafter
specified, a written notice summarizing such action or event and stating the
record date for any such dividend or rights (or, if a record date is not to be
selected, the date as of which the holders of Common Stock of record entitled to
such dividend or rights are to be determined), the date on which any such
reorganization, reclassification, consolidation, merger, sale of assets,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected the holders of Common Stock of record shall be
entitled to effect any exchange of their shares of Common Stock for cash (or
cash equivalent), securities or other property deliverable upon any such
reorganization, reclassification, consolidation, merger, sale of assets,
dissolution, liquidation or winding up.
10. Registered Holder; Transfer of Warrants or Warrant Shares.
---------------------------------------------------------
(a) Maintenance of Registration Books; Ownership of this Warrant.
------------------------------------------------------------
The Company shall keep at its principal office a register in which the Company
shall provide for the registration, transfer and exchange of this Warrant. The
Company shall not at any time, except upon the dissolution, liquidation or
winding-up of the Company, close such register so as to result in preventing or
delaying the exercise or transfer of this Warrant.
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<PAGE>
(b) Exchange and Replacement. This Warrant is exchangeable upon
------------------------
surrender hereof by the registered holder to the Company at its principal office
for new Warrants of like tenor and date representing in the aggregate the right
to purchase the number of shares purchasable hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by said registered holder at the time of surrender. Subject to
compliance with all restrictions and provisions of this Warrant, this Warrant
and all rights hereunder are transferable in whole or in part upon the books of
the Company by the registered holder hereof in person or by duly authorized
attorney, and new Warrants shall be made and delivered by the Company, of the
same tenor and date as this Warrant but registered in the name of the
transferee(s), upon surrender of this Warrant, duly endorsed, to said office of
the Company accompanied by a Form of Assignment in the form attached hereto as
Exhibit "B". Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor, in lieu of this Warrant, without
requiring the posting of any bond or the giving of any other security, and the
Warrantholders will indemnify and hold the Company harmless against all claims,
losses, liabilities, damages, deficiencies, costs and expenses, including
reasonable attorneys' fees and expenses of investigation and defense incurred,
suffered or accrued by any of them, directly or indirectly, as a result of or
based upon the making or deliverance of such new Warrant. This Warrant shall be
promptly cancelled by the Company upon the surrender hereof in connection with
any exchange, transfer or replacement. The Company shall pay all expenses, taxes
and other charges payable in connection with the preparation, execution and
delivery of Warrants pursuant to this Section 10.
(c) Warrants and Warrant Shares Not Registered. The Warrantholders,
------------------------------------------
by accepting this Warrant, acknowledge that this Warrant and the Warrant Shares
are not being registered under the Securities Act on the grounds that the
issuance of this Warrant and the offering and sale of such Warrant Shares are
exempt from registration under Section 4(2) of the Securities Act as not
involving any public offering, and the Warrantholders represent that they are
acquiring this Warrant for investment and not with a view to distribution.
11. Registration.
------------
(a) Registration Under the Securities Act. The Warrant and the
-------------------------------------
Warrant Shares and any of the other securities issuable upon exercise of the
Warrant have not been registered under the Securities Act for public resale.
Upon exercise, in part or in whole, of the Warrant, certificates representing
the shares of Common Stock and any other securities issuable upon exercise, of
the Warrant (collectively, the "Warrant Securities") shall bear the following
legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act") for public resale, and may not be offered or sold
except pursuant to (i) an effective registration statement under the
Securities Act, or (ii) an opinion of counsel, if such opinion shall
be reasonably satisfactory to counsel to the issuer, that an exemption
from registration under the Securities Act is available.
(b) Piggyback Registration. If the Company proposes for any reason
----------------------
to register Primary Shares (as hereinafter defined) under the Securities Act
(other than on Form S-4 or Form S-8 promulgated under the Securities Act or any
successor forms thereto) by filing a registration statement with the Securities
and Exchange Commission (the "Commission") and such registration, together with
any prior registration(s) of Primary Shares (as hereinafter defined) (other than
on Form S-4 or Form S-8 promulgated under the Securities Act or any successor
forms thereto), would cause the Company to have registered in excess of
$3,000,000 of Primary Shares (other than on Form S-4 or Form S-8 promulgated
under the Securities Act or any successor forms thereto), then the
Warrantholders shall be entitled to piggyback registration rights, as set forth
herein, with respect to such registration and all subsequent registrations of
Primary Shares or Other Shares (other than on Form S-4 or Form S-8 promulgated
under the Securities Act or any successor forms thereto). If the Company
proposes for any reason to register Primary Shares or Other Shares, and such
registration is a registration as to which the Warrantholders have piggyback
registration rights pursuant to the previous sentence, the Company shall
promptly give
7
<PAGE>
written notice to the Warrantholders of its intention to so register such
Primary Shares or Other Shares and, upon the written request, delivered to the
Company within 15 days after delivery of any such notice by the Company, of the
Warrantholders to include in such registration Warrant Securities (which request
shall specify the number of Warrant Securities proposed to be included in such
registration), the Company shall use its commercially reasonable best efforts to
cause all such Warrant Securities of the Warrantholders delivering such notice
to be included in such registration on the same terms and conditions as the
securities otherwise being sold in such registration; provided, however, that if
the managing underwriter, if any, for the offering advises the Company that the
inclusion of all Warrant Securities requested to be included in such
registration would interfere with the successful marketing (including pricing)
of the Primary Shares or Other Shares proposed to be registered by the Company,
then the number of Primary Shares, Warrant Securities and Other Shares proposed
to be included in such registration shall be included in the following order:
(i) if the Company proposes to register Primary Shares:
(A) first, the Primary Shares; and
(B) second, the Warrant Securities and Other Shares
requested to be included in such registration (or, if necessary, such Warrant
Securities and Other Shares pro rata among the holders thereof based upon the
number of Warrant Securities and Other Shares requested by each such holder); or
(ii) if the Company proposes to register Other Shares pursuant
to a request for registration by the holders of such Other Shares:
(A) first, the Other Shares held by the parties demanding
such registration;
(B) second, the Warrant Securities and Other Shares (other
than shares registered pursuant to Section 11(b)(ii)(A) hereof) requested to be
registered by the holders thereof (or, if necessary, pro rata among the holders
thereof based on the number of Warrant Securities and Other Shares requested to
be registered by such holders); and
(C) Third, the Primary Shares.
For purposes hereof the term "Other Shares" means at any time those shares
of Common Stock held by any person (or issuable upon exercise or conversion of
any security held by such person) that do not constitute Primary Shares or
Warrant Securities. The term "Primary Shares" means at any time the authorized
but unissued shares of Common Stock and shares of Common Stock held by the
Company in its treasury.
(c) Covenants of the Company With Respect to Registration. In
-----------------------------------------------------
connection with any registration under Section 11(b) hereof, the Company
covenants and agrees as follows:
(i) The Company shall use commercially reasonable best efforts
to have any registration statements declared effective at the earliest possible
time, and shall furnish the holders desiring to sell Warrant Securities such
number of prospectuses as shall reasonably be requested.
(ii) The Company shall pay all costs (excluding any underwriting
or selling commissions or other charges of any broker-dealer or any attorney or
other person acting on behalf of holders of Warrant Securities), fees and
expenses in connection with all registration statements filed pursuant to
Sections 11(b) hereof including, without limitation, the Company's legal and
accounting fees, printing expenses, blue sky fees and expenses.
(iii) The Company will take all necessary action which may be
reasonably required in qualifying or registering the Warrant Securities included
in a registration statement for offering
8
<PAGE>
and sale under the securities or blue sky laws of the states requested by the
holders of Warrant Securities.
(iv) The Company shall indemnify each of the holders of the
Warrant Securities to be sold pursuant to any registration statement and each
person, if any, who controls such holder within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage, expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Securities Act, the Exchange Act or
otherwise, arising from such registration statement; provided, however, that the
-------- -------
Company will 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 such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of the holder specifically for inclusion therein.
(v) Nothing contained in this Agreement shall be construed as
requiring the Warrantholders to exercise the Warrant prior to the initial filing
of any registration statement or the effectiveness thereof.
(vi) If the offering is underwritten, the Company shall furnish
to each holder of Warrant Securities participating in the offering and to each
underwriter a signed counterpart, addressed to such holder or underwriter, of
(i) an opinion of counsel to the Company, dated the effective date of such
registration statement (and, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offering of securities that utilize the
particular form of registration statement which is then being utilized by the
Company.
(vii) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Securities Act) an earnings statement (which need
not be audited) complying with Section 11(a) of the Securities Act and covering
a period of at least 12 consecutive months beginning after the effective date of
the registration statement.
(viii) The Company shall deliver promptly to each holder of
Warrant Securities participating in the offering requesting the correspondence
and memoranda described below and the managing underwriter copies of all
correspondence between the Commission and the Company, its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff with
respect to the registration statement and permit the holder and underwriter to
do such investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the registration statement as it deems
reasonably necessary to comply with applicable securities laws or rules of the
National Association of Securities Dealers, Inc. ("NASD"). Such investigation
shall include access to books, records and properties and opportunities to
discuss the business of the Company with its officers and independent auditors,
all to such reasonable extent and at such reasonable times and as often as any
such holder shall reasonably request as it deems necessary to comply with
applicable securities laws or NASD rules.
(ix) Until the earlier of (A) one year following the
effectiveness of a registration statement filed pursuant to Section 11(b) hereof
or (B) until all of the Warrant Securities are sold, the Company shall notify
the holder of such Warrant Securities on a timely basis at any time when a
prospectus relating to such Warrant Securities is required to be delivered under
the Securities Act, of the
9
<PAGE>
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing and, at the request of the holder, prepare and
furnish to the holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the offerees of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make statements therein not misleading in
light of the circumstances then existing.
12. Representation and Warranties. The Company hereby represents and
-----------------------------
warrants to and covenants with Warrantholder that:
(a) Organization and Capitalization of the Company. The Company is a
----------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada. As of the date hereof, the authorized capital of the
Company consists of 100,000,000 shares of Common Stock of which 6,425,569 shares
of Common Stock are issued and outstanding. The Company has, and at all times
during the Exercise Period will have, reserved for issuance pursuant to the
Warrants that number of shares of Common Stock that are issuable pursuant to the
Warrants. No unissued shares of Common Stock are reserved for any purpose other
than for issuance upon the exercise of the Warrants, except that there are
896,438 shares of Common Stock reserved for issuance upon the exercise of
outstanding warrants and options. All of the outstanding shares of Common Stock
have been validly issued without violation of any preemptive or similar rights,
are fully paid and nonassessable and have been issued in compliance with all
federal and applicable state securities laws.
(b) Authority. The Company has full corporate power and authority
---------
to execute and deliver this Warrant, to issue the shares of Common Stock
issuable upon exercise of this Warrant, and to perform all of its obligations
hereunder, and the execution, delivery and performance hereof has been duly
authorized by all necessary corporate action on its part. This Warrant has been
duly executed on behalf of the Company and constitutes the legal, valid and
binding obligation of the Company enforceable in accordance with its terms.
(c) No Legal Bar. Neither the execution, delivery or performance of
------------
this Warrant nor the issuance of the shares of Common Stock issuable upon
exercise of this Warrant will (a) conflict with or result in a violation of the
Articles of Incorporation or By-Laws of the Company, (b) conflict with or result
in a violation of any law, statute, regulation, order or decree applicable to
the Company or any affiliate, (c) require any consent or authorization or filing
with, or other act by or in respect of any governmental authority, or (d) result
in a breach of, constitute a default under or constitute an event creating
rights of acceleration, termination or cancellation under any mortgage, lease,
contract, franchise, instrument or other agreement to which the Company is a
party or by which it is bound.
(d) Validity of Shares. When issued upon the exercise of this
------------------
Warrant as contemplated herein, the shares of Common Stock so issued will have
been validly issued and will be fully paid and nonassessable. On the date
hereof, the par value of the Common Stock is less than the Exercise Price per
share of Common Stock.
(e) Rule 144. The Company covenants that it will file, on a timely
--------
basis, all reports required to be filed by it under the Securities Act and the
Exchange Act, and it will take such further action as any Warrantholders may
request, all to the extent required from time to time to enable such
Warrantholders to sell Warrant Shares without registration under the Securities
Act within the limitation of the conditions provided by (i) Rule 144 under the
Securities Act, as such rule may be amended from time to time, or (ii) any
similar rule or regulation hereafter adopted by the Securities and Exchange
Commission. Upon the request of any holder of Warrant Shares, the Company will
deliver to such holder a written statement verifying that it has complied with
such information requirements.
10
<PAGE>
13. Miscellaneous Provisions.
------------------------
(a) CHOICE OF LAW AND VENUE.
-----------------------
(i) THE VALIDITY OF THIS WARRANT, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT AND THE RIGHTS OF THE PARTIES HERETO SHALL BE
DETERMINED UNDER, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEVADA.
(ii) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING
IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE
FEDERAL OR STATE COURTS LOCATED IN CITY, COUNTY AND STATE OF NEW YORK, OR, AT
THE SOLE OPTION OF THE WARRANTHOLDER, IN ANY OTHER COURT IN WHICH THE
WARRANTHOLDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS
SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. THE PARTIES
EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
PROCEEDING COMMENCED IN ANY SUCH COURT, AND THE PARTIES HEREBY WAIVE ANY
OBJECTION WHICH EITHER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION AND
HEREBY CONSENT TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY ANY SUCH COURT. FURTHERMORE, THE COMPANY AND WARRANTHOLDER EACH
WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO
ASSERT THE DOCTRINE OF "FORUM NON CONVENIENS" OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 12(a)(ii).
(iii) WAIVER OF JURY TRIAL. THE COMPANY AND WARRANTHOLDER
--------------------
HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS WARRANT. IN THE EVENT OF LITIGATION, A
COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
(b) Notices. All notices or demands by any party relating to this
-------
Warrant shall be in writing and shall be personally delivered or sent by
registered or certified mail, postage prepaid, return receipt requested, or by
receipted overnight delivery service to the Company and Warrantholder, as the
case may be, at their addresses set forth below:
If to Company: Suite 280, 4400 Dominion Street
Burnaby, British Columbia, Canada V5G 4G3
Attention: David W. Rowat, Vice President, Finance and
Business Development
If to Warrantholder: 200 North Westlake Boulevard, Suite 205
Westlake Village, California 91362
Attention: Charles Gunn
The parties hereto may change the address at which they are to
receive notices hereunder by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this Section 13(b)
shall be deemed received on the earlier of the date of actual receipt or three
(3) calendar days after the deposit thereof in the mail or one (1) calendar day
after deposit thereof with an overnight delivery service.
(c) Successors and Assigns. This Warrant shall bind and inure to
----------------------
the benefit of the respective successors and assigns of each of the parties
hereto. Warrantholder and its successors and assigns may assign this Warrant and
its rights and duties hereunder. The Warrantholder reserves the right to sell,
assign and/or transfer all or any part of, or any interest in Warrantholder's
rights and benefits hereunder.
(d) Attorneys' Fees. Should the Company or any Warrantholder
---------------
retain counsel for the purpose of enforcing, or preventing the breach of, any
provision hereof including the institution of any
11
<PAGE>
action or proceeding, whether by arbitration, judicial or quasi-judicial action
or otherwise, to enforce any provision hereof or for damages for any alleged
breach of any provision hereof, or for a declaration of such party's rights or
obligations hereunder, then, whether such matter is settled by negotiation, or
by arbitration or judicial determination, the prevailing party shall be entitled
to be reimbursed by the losing party for all costs and expenses incurred
thereby, including reasonable attorneys' fees for the services rendered to such
prevailing party.
(e) Entire Agreement; Amendments and Waivers. This Warrant sets
----------------------------------------
forth the entire understanding of the parties with respect to the transactions
contemplated hereby. The failure of any party to seek redress for the violation
or to insist upon the strict performance of any term of this Warrant shall not
constitute a waiver of such term and such party shall be entitled to enforce
such term without regard to such forbearance. This Warrant may be amended, the
Company may take any action herein prohibited or omit to take action herein
required to be performed by it, and any breach of or compliance with any
covenant, agreement, warranty or representation may be waived, only if the
Company has obtained the written consent or written waiver of the majority in
interest of the Warrantholders, and then such consent or waiver shall be
effective only in the specific instance and for the specific purpose for which
given.
(f) Severability. If any term of this Warrant as applied to any
------------
person or to any circumstance is prohibited, void, invalid or unenforceable in
any jurisdiction, such term shall, as to such jurisdiction, be ineffective to
the extent of such prohibition or invalidity without in any way affecting any
other term of this Warrant or affecting the validity or enforceability of this
Warrant or of such provision in any other jurisdiction.
(g) Headings. The headings in this Warrant are inserted only for
--------
convenience of reference and shall not be used in the construction of any of its
terms.
(h) Survival of Representations, Warranties and Covenants. All
-----------------------------------------------------
representations, warranties and covenants contained herein shall survive the
exercise or conversion of this Warrant (or any part hereof) or the termination
or expiration of the rights hereunder. The Warrantholder and each holder of
Warrant Shares shall continue to be entitled to the rights contained herein
indefinitely until, by their respective terms, they are no longer operative.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officers effective as of the date first set forth above.
PCSupport.com, Inc.
a Nevada corporation,
By: /s/ Michael G. McLean
--------------------------------
Name: Michael G. McLean
Title: President and CEO
12
<PAGE>
EXHIBIT "A"
FORM OF EXERCISE
(To be signed only upon exercise of Warrant)
To: _______________________________________
_______________________________________
_______________________________________
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, _____________* shares of Common Stock of _______________
and herewith makes payment therefor by the following method or methods described
in the Warrant ___________________________________, and requests that the
certificates for such shares be issued in the name of, and delivered to,
______________________, whose address is
_________________________________________.
Dated: ____________________
_____________________________________________________________________
(Signature must conform in all respects to name of holder as specified
on the face of the Warrant)
_________________________________________________________________
(Address)
________________
* Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment
for additional Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of the
Warrant, may be deliverable upon exercise.
13
<PAGE>
EXHIBIT "B"
FORM OF ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto _____________________________ the right represented by the within Warrant
to purchase ________ shares of Common Stock of ____________________ to which the
within Warrant relates, and appoints ___________________________ as Attorney-in-
Fact to transfer such right on the books of ________________________ with full
power of substitution in the premises. The Warrant being transferred hereby is
the Common Stock Purchase Warrant issued by PCSupport.com, Inc. as of January
11, 2000.
Dated: ____________________
_____________________________________________________________________
(Signature must conform in all respects to name of holder as specified
on the face of the Warrant)
_________________________________________________________________
(Address)
14
<PAGE>
EXHIBIT 5.35
================================================================================
REVOLVING CREDIT AGREEMENT
dated as of
January 11, 2000
PCSupport.com, Inc.
("Borrower")
and
ICE HOLDINGS NORTH AMERICA, LLC
("Lender")
$1,000,000
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S><C> <C> <C>
ARTICLE I.......................................................................................................... 1
- ---------
1.1 Definitions............................................................................................... 1
-----------
"ADA"..................................................................................................... 1
---
"Affiliate"............................................................................................... 1
---------
"Agreement"............................................................................................... 1
---------
"Asset Sale".............................................................................................. 1
----------
"Bankruptcy Code"......................................................................................... 1
---------------
"Borrower"................................................................................................ 1
--------
"Borrowing"............................................................................................... 1
---------
"Business Day"............................................................................................ 2
------------
"Capital Expenditures".................................................................................... 2
--------------------
"Capital Lease"........................................................................................... 2
-------------
"Capital Lease Obligations"............................................................................... 2
-------------------------
"Change of Control"....................................................................................... 2
-----------------
"Closing Date"............................................................................................ 2
------------
"Compliance Certificate".................................................................................. 2
----------------------
"Debt".................................................................................................... 3
----
"Debt Financing Fee"...................................................................................... 3
------------------
"Distributions"........................................................................................... 3
-------------
"Dollars"................................................................................................. 3
-------
"ERISA"................................................................................................... 3
-----
"ERISA Event"............................................................................................. 3
-----------
"ERISA Group"............................................................................................. 3
-----------
"Event of Default"........................................................................................ 3
----------------
"Fees".................................................................................................... 3
----
"Financial Statement(s)".................................................................................. 3
----------------------
"GAAP".................................................................................................... 4
----
"Governing Documents"..................................................................................... 4
-------------------
"Governmental Authority".................................................................................. 4
----------------------
"Hazardous Materials"..................................................................................... 4
-------------------
"Insolvency Proceeding"................................................................................... 4
---------------------
"Indemnified Person(s)"................................................................................... 4
---------------------
"Internal Revenue Code"................................................................................... 5
---------------------
"Late Payment Fee"........................................................................................ 5
----------------
"Lender".................................................................................................. 5
------
"Lender Expenses"......................................................................................... 5
---------------
"Lending Rate"............................................................................................ 5
------------
"Lien".................................................................................................... 5
----
"Loans"................................................................................................... 5
-----
"Loan Document(s)"........................................................................................ 5
----------------
"Lockbox Agreement"....................................................................................... 6
-----------------
</TABLE>
ii
<PAGE>
<TABLE>
<S><C> <C> <C>
"Material Adverse Effect"................................................................................. 6
-----------------------
"Multiemployer Plan"...................................................................................... 6
------------------
"Notes"................................................................................................... 6
-----
"Notice of Borrowing"..................................................................................... 6
-------------------
"Obligations"............................................................................................. 6
-----------
"Operating Lease"......................................................................................... 6
---------------
"Participant"............................................................................................. 7
-----------
"PBGC".................................................................................................... 7
----
"Permitted Debt".......................................................................................... 7
--------------
"Permitted Investments"................................................................................... 7
---------------------
"Permitted Liens"......................................................................................... 7
---------------
"Person".................................................................................................. 7
------
"Plan".................................................................................................... 8
----
"Purchase Money Lien"..................................................................................... 8
-------------------
"Real Estate Leases"...................................................................................... 8
------------------
"Reportable Event"........................................................................................ 8
----------------
"Responsible Officer"..................................................................................... 8
-------------------
"Retiree Health Plan"..................................................................................... 8
-------------------
"Revolving Credit Commitment"............................................................................. 8
---------------------------
"Revolving Loans"......................................................................................... 8
---------------
"Revolving Loans Daily Balances".......................................................................... 8
------------------------------
"Revolving Loans Maturity Date"........................................................................... 8
-----------------------------
"Revolving Note".......................................................................................... 9
--------------
"Security Agreement"...................................................................................... 9
------------------
"Solvent"................................................................................................. 9
-------
"Subsidiary".............................................................................................. 9
----------
"Swaps"................................................................................................... 9
-----
"Taxes"................................................................................................... 9
-----
"Transferee".............................................................................................. 9
----------
"Unfunded Liabilities"................................................................................... 10
--------------------
"Unmatured Event of Default"............................................................................. 10
--------------------------
"Warrants"............................................................................................... 10
--------
1.2 Accounting Terms and Determinations...................................................................... 10
-----------------------------------
1.3 Computation of Time Periods.............................................................................. 10
---------------------------
1.4 Construction............................................................................................. 10
------------
1.5 Exhibits and Schedules................................................................................... 10
----------------------
1.6 No Presumption Against Any Party......................................................................... 10
--------------------------------
1.7 Independence of Provisions............................................................................... 11
--------------------------
ARTICLE II........................................................................................................ 11
- ----------
2.1 Revolving Loans ......................................................................................... 11
---------------
2.2 Notice of Borrowing Requirements......................................................................... 11
--------------------------------
2.3 Interest Rates; Payments of Interest..................................................................... 12
------------------------------------
2.4 Notes; Statements of Obligations......................................................................... 12
--------------------------------
2.5 Holidays................................................................................................. 13
--------
2.6 Time and Place of Payments............................................................................... 13
--------------------------
</TABLE>
iii
<PAGE>
<TABLE>
<S><C> <C> <C>
2.7 Debt Financing Fee................................................................................................ 13
------------------
ARTICLE III................................................................................................................ 13
- -----------
3.1 Conditions to Initial Loan or Letter of Credit.................................................................... 13
----------------------------------------------
3.2 Conditions to all Loans .......................................................................................... 15
-----------------------
ARTICLE IV................................................................................................................. 15
- ----------
4.1 Legal Status...................................................................................................... 15
------------
4.2 No Violation; Compliance.......................................................................................... 16
------------------------
4.3 Authorization; Enforceability..................................................................................... 16
-----------------------------
4.4 Approvals; Consents............................................................................................... 16
-------------------
4.5 Liens............................................................................................................. 16
-----
4.6 Debt.............................................................................................................. 16
----
4.7 Litigation........................................................................................................ 16
----------
4.8 No Default........................................................................................................ 16
----------
4.9 Subsidiaries...................................................................................................... 16
------------
4.10 Taxes............................................................................................................. 17
-----
4.11 Correctness of Financial Statements............................................................................... 17
-----------------------------------
4.12 ERISA............................................................................................................. 17
-----
4.13 Other Obligations................................................................................................. 17
-----------------
4.14 Public Utility Holding Company Act................................................................................ 17
----------------------------------
4.15 Investment Company Act............................................................................................ 17
----------------------
4.16 Patents, Trademarks, Copyrights, and Intellectual Property, etc................................................... 18
----------------------------------------------------------------
4.17 Environmental Condition........................................................................................... 18
-----------------------
4.18 Solvency.......................................................................................................... 18
--------
4.19 Real Estate Leases................................................................................................ 18
------------------
4.20 Compliance With ADA............................................................................................... 18
-------------------
ARTICLE V.................................................................................................................. 19
- ---------
5.1 Punctual Payments................................................................................................. 19
-----------------
5.2 Books and Records................................................................................................. 19
-----------------
5.3 Financial Statements.............................................................................................. 19
--------------------
5.4 Existence; Preservation of Licenses; Compliance with Law.......................................................... 20
--------------------------------------------------------
5.5 Insurance......................................................................................................... 21
---------
5.6 Assets............................................................................................................ 21
------
5.7 Taxes and Other Liabilities....................................................................................... 21
---------------------------
5.8 Notice to Lender.................................................................................................. 22
----------------
5.9 Employee Benefits................................................................................................. 22
-----------------
5.10 Further Assurances................................................................................................ 23
------------------
5.11 Bank Accounts..................................................................................................... 23
-------------
5.12 Environment....................................................................................................... 23
-----------
5.13 Real Estate Leases................................................................................................ 23
------------------
5.14 ADA............................................................................................................... 23
---
ARTICLE VI................................................................................................................. 24
- ----------
6.1 Use of Funds; Margin Regulation................................................................................... 24
-------------------------------
</TABLE>
iv
<PAGE>
<TABLE>
<S><C> <C> <C>
6.2 Debt............................................................................................................. 24
----
6.3 Liens............................................................................................................ 24
-----
6.4 Merger, Consolidation, Transfer of Assets........................................................................ 24
-----------------------------------------
6.5 Leases........................................................................................................... 24
------
6.6 Sales and Leasebacks............................................................................................. 25
--------------------
6.7 Asset Sales...................................................................................................... 25
-----------
6.8 Investments...................................................................................................... 25
-----------
6.9 Character of Business............................................................................................ 25
---------------------
6.10 Distributions.................................................................................................... 25
-------------
6.11 Guaranty......................................................................................................... 25
--------
6.12 Transactions with Affiliates..................................................................................... 25
----------------------------
6.13 Stock Issuance................................................................................................... 26
--------------
6.14 Transactions Under ERISA......................................................................................... 26
------------------------
ARTICLE VII............................................................................................................... 27
- -----------
7.1 Events of Default................................................................................................ 27
-----------------
7.2 Remedies......................................................................................................... 28
--------
7.3 Remedies Cumulative.............................................................................................. 28
-------------------
ARTICLE VIII.............................................................................................................. 29
- ------------
8.1 Taxes on Payments................................................................................................ 29
-----------------
8.2 Indemnification For Taxes........................................................................................ 29
-------------------------
8.3 Evidence of Payment.............................................................................................. 29
-------------------
ARTICLE IX................................................................................................................ 29
- ----------
9.1 Notices.......................................................................................................... 29
-------
9.2 No Waivers....................................................................................................... 30
----------
9.3 Lender Expenses; Documentary Taxes; Indemnification.............................................................. 30
---------------------------------------------------
9.4 Amendments and Waivers........................................................................................... 31
----------------------
9.5 Successors and Assigns; Participations; Disclosure............................................................... 31
--------------------------------------------------
9.6 Counterparts; Effectiveness; Integration......................................................................... 32
----------------------------------------
9.7 Severability..................................................................................................... 32
------------
9.8 Governing Law.................................................................................................... 32
-------------
9.9 Judicial Reference............................................................................................... 32
------------------
</TABLE>
v
<PAGE>
EXHIBITS AND SCHEDULES
----------------------
Exhibit 2.4(b) - Form of Notice of Borrowing
Exhibit 3.1(b) - Form of Opinions of Borrower's Counsel
Exhibit 5.3(c) - Form of Compliance Certificate
Exhibit 9.6 - Engagement Letter
Schedule 4.7 - Litigation
Schedule 4.9 - Subsidiaries
Schedule 4.12 - Employee Benefit Plans
Schedule 4.18 - Real Estate Leases
vi
<PAGE>
REVOLVING CREDIT AGREEMENT
--------------------------
This REVOLVING CREDIT AGREEMENT, dated as of January 11, 2000, is
entered into among Borrower and Lender.
The parties hereto agree as follows:
DEFINITIONS AND INTERPRETATIONS
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1.1 Definitions.
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The following terms, as used herein, shall have the following meanings:
"ADA" means the Americans with Disabilities Act, 42 U.S.C. (S) 12101,
---
et. seq., and all applicable rules and regulations promulgated thereunder.
"Affiliate" means any Person (i) that, directly or indirectly,
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controls, is controlled by or is under common control with Borrower or any
Subsidiary; (ii) which directly or indirectly beneficially owns or controls five
percent (5%) or more of any class of voting stock of Borrower or any Subsidiary;
or (iii) five percent (5%) or more of the voting stock of which is directly or
indirectly beneficially owned or held by Borrower or any Subsidiary. For
purposes of the foregoing, "control" (including "controlled by" and "under
common control with") shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Agreement" means this Revolving Credit Agreement, together with any
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concurrent or subsequent rider, amendment, schedule or exhibit to this Term Loan
and Revolving Credit Agreement.
"Asset" means any interest of a Person in any kind of property or
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asset, whether real, personal, or mixed real and personal, and whether tangible
or intangible.
"Asset Sale" means any sale, transfer or other disposition of
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Borrower's or any Subsidiary's businesses or Asset(s) now owned or hereafter
acquired, including shares of stock and indebtedness of any Subsidiary,
receivables and leasehold interests.
"Bankruptcy Code" means The Bankruptcy Reform Act of 1978 (Pub. L.
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No. 95-598; 11 U.S.C.), as amended or supplemented from time to time, or any
successor statute, and any and all rules and regulations issued or promulgated
in connection therewith.
"Borrower" means PCSupport.Com, Inc. and its subsidiaries and
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affiliates.
"Borrowing" means a borrowing of a Revolving Loan pursuant to the
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terms and conditions hereof.
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"Business Day" means any day other than a Saturday, a Sunday, or a
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day on which commercial banks in the City of New York are authorized or required
by law or executive order or decree to close.
"Capital Expenditures" means expenditures made in cash, or financed
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with long term debt, by any Person for the acquisition of any fixed Assets or
improvements, replacements, substitutions, or additions thereto that have a
useful life of more than one (1) year, including the direct or indirect
acquisition of such Assets by way of increased product or service charges,
offset items, or otherwise, and the principal portion of payments with respect
to Capital Lease Obligations, calculated in accordance with GAAP.
"Capital Lease" means any lease of an Asset by a Person as lessee
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which would, in conformity with GAAP, be required to be accounted for as an
Asset and corresponding liability on the balance sheet of that Person.
"Capital Lease Obligations" of a Person means the amount of the
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obligations of such Person under all Capital Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with GAAP.
"Change of Control" means the time at which (i) any Person (including
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a Person's Affiliates and associates) or "group" (within the meaning of Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934) (other than the
shareholders of Borrower on the Closing Date) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934) of a percentage
(based on voting power, in the event different classes of stock shall have
different voting powers) of the voting stock of Borrower equal to at least
thirty percent (30%), or such Person or group shall otherwise obtain the power
to control the election of the Board of Directors of Borrower, (ii) there shall
be consummated any consolidation or merger of Borrower pursuant to which
Borrower's common stock (or other capital stock) would be converted into cash,
securities or other property, other than a merger or consolidation of Borrower
in which the holders of such common stock (or other capital stock) immediately
prior to the merger have the same proportionate ownership, directly or
indirectly, of common stock of the surviving corporation immediately after the
merger as they had of Borrower's common stock immediately prior to such merger,
(iii) all or substantially all of Borrower's Assets shall be sold, leased,
conveyed or otherwise disposed of as an entirety or substantially as an entirety
to any Person (including an Affiliate or associate of Borrower) in one or a
series of transactions, or (iv) Michael G. McLean and Steven W. Macbeth both
--- ----
fail for any reason to serve actively as the President/CEO and Chief Technology
Officer/Secretary, Treasurer respectively of Borrower, whether by reason of
death, disability, resignation, action by the Board of Directors or shareholders
of Borrower, or otherwise.
"Closing Date" means the date when all of the conditions set forth
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in Section 3.1 have been fulfilled to the satisfaction of Lender and its
counsel.
"Compliance Certificate" means a certificate of compliance to be
----------------------
delivered quarterly in accordance with Section 5.3(c), substantially in the form
of Exhibit 5.3(c).
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<PAGE>
"Debt" means, as of the date of determination, the sum, but without
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duplication, of any and all of a Person's: (i) indebtedness heretofore or
hereafter created, issued, incurred or assumed by such Person (directly or
indirectly) for or in respect of money borrowed; (ii) Capital Lease Obligations;
(iii) obligations evidenced by bonds, debentures, notes, or other similar
instruments; (iv) obligations for the deferred purchase price of property or
services (including trade obligations; (v) current liabilities in respect of
unfunded vested benefits under any Plan; (vi) obligations under letters of
credit; (vii) obligations under acceptance facilities; (viii) obligations under
all guaranties, endorsements (other than for collection or deposit in the
ordinary course of business), and other contingent obligations to purchase, to
provide funds for payment, or supply funds to invest in any other Person, or
otherwise to assure a creditor against loss; (ix) obligations secured by any
Lien, whether or not such obligations have been assumed; and (x) Swaps.
"Debt Financing Fee" has the meaning set forth in Section 2.7(a).
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"Distributions" means dividends or distributions of earnings made by
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Borrower to its shareholders.
"Dollars" or "$" means lawful currency of the United States of
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America.
"ERISA" means the Employee Retirement Income Security Act of 1974,
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as amended from time to time, or any successor statute, and any and all
regulations thereunder.
"ERISA Event" means (a) a Reportable Event with respect to a Plan or
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Multiemployer Plan, (b) the withdrawal of a member of the ERISA Group from a
Plan during a plan year in which it was a "substantial employer" (as defined in
Section 4001(a)(2) of ERISA), (c) the providing of notice of intent to terminate
a Plan in a distress termination (as described in Section 4041(c) of ERISA), (d)
the institution by the PBGC of proceedings to terminate a Plan or Multiemployer
Plan, (e) any event or condition (i) that provides a basis under Section
4042(a)(1), (2), or (3) of ERISA for the termination of or the appointment of a
trustee to administer, any Plan or Multiemployer Plan, of (ii) that may result
in termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f)
the partial or complete withdrawal within the meaning of Sections 4203 and 4205
of ERISA of a member of the ERISA Group from a Multiemployer Plan, or (g)
providing any security to any Plan under Section 401(a)(29) of the Internal
Revenue Code by a member of the ERISA Group.
"ERISA Group" means Borrower and all members of a controlled group of
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corporations and all trades or business (whether or not incorporated) under
common control which, together with Borrower are treated as a single employer
under Section 414 of the Internal Revenue Code.
"Event of Default" has the meaning set forth in Section 7.1.
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"Fees" means the Debt Financing Fee, and the Late Payment Fee.
----
"Financial Statement(s)" means, with respect to any accounting period
----------------------
of any Person, statements of income and statements of cash flows of such Person
for such period, and
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balance sheets of such Person as of the end of such period, setting forth in
each case in comparative form figures for the corresponding period in the
preceding fiscal year or, if such period is a full fiscal year, corresponding
figures from the preceding annual audit, all prepared in reasonable detail and
in accordance with GAAP, subject to year-end adjustments in the case of monthly
Financial Statements. Financial Statement(s) shall include the schedules thereto
and annual Financial Statements shall also include the footnotes thereto.
"GAAP" means generally accepted accounting principles in the United
States of America, consistently applied, which are in effect as of the date of
this Agreement. If any changes in accounting principles from those in effect on
the date hereof are hereafter occasioned by promulgation of rules, regulations,
pronouncements or opinions by or are otherwise required by the Financial
Accounting Standards Board or the American Institute of Certified Public
Accountants (or successors thereto or agencies with similar functions), and any
of such changes results in a change in the method of calculation of, or affects
the results of such calculation of, any of the financial covenants, standards or
terms found herein, then the parties hereto agree to enter into and diligently
pursue negotiations in order to amend such financial covenants, standards or
terms so as to equitably reflect such changes, with the desired result that the
criteria for evaluating financial condition and results of operations of
Borrower and the Subsidiaries shall be the same after such changes as if such
changes had not been made.
"Governing Documents" means the certificate or articles of
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incorporation, by-laws, or other organizational or governing documents of any
Person.
"Governmental Authority" means any federal, state, local or other
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governmental department, commission, board, bureau, agency, central bank, court,
tribunal or other instrumentality or authority or subdivision thereof, domestic
or foreign, exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Hazardous Materials" means all or any of the following: (a)
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substances that are defined or listed in, or otherwise classified pursuant to,
any applicable laws or regulations as "hazardous substances," "hazardous
materials," "hazardous wastes," "toxic substances," or any other formulation
intended to define, list, or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity, or "EP toxicity" or are otherwise regulated for the
protection of persons, property or the environment; (b) oil, petroleum, or
petroleum derived substances, natural gas, natural gas liquids, synthetic gas,
drilling fluids, produced waters, and other wastes associated with the
exploration, development, or production of crude oil, natural gas, or geothermal
resources; (c) any flammable substances or explosives or any radioactive
materials; and (d) asbestos in any form or electrical equipment which contains
any oil or dielectric fluid containing levels of polychlorinated biphenyls in
excess of fifty (50) parts per million.
"Insolvency Proceeding" means any proceeding commenced by or against
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any Person, under any provision of the Bankruptcy Code, or under any other
bankruptcy or insolvency law, including, but not limited to, assignments for the
benefit of creditors, formal or informal moratoriums, compositions, or
extensions with some or all creditors.
"Indemnified Person(s)" has the meaning given to such term in Section
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9.3(c).
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<PAGE>
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
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amended from time to time, or any successor statute, and any and all regulations
thereunder.
"Late Payment Fee" has the meaning given to such term in Section
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2.9(d).
"Lender" means ICE Holdings North America, LLC, a Delaware Limited
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Liability Company.
"Lender Expenses" means (i) all expenses of Lender paid or incurred in
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connection with Lender's due diligence and investigation of Borrower, including
appraisal, filing, recording, documentation, publication and search fees and
other such expenses, and all attorneys' fees and expenses incurred in connection
with the structuring, negotiation, drafting, preparation, execution and delivery
of this Agreement, the Loan Documents, and any and all other documents,
instruments and agreements entered into in connection herewith up to a maximum
of US$75,000.00; (ii) all expenses of Lender paid or incurred in connection with
or pursuant to any proceedings arising under the Bankruptcy Code; ( iii) all
expenses of Lender, including attorneys' fees and expenses (including attorneys'
fees incurred pursuant to proceedings arising under the Lender Bankruptcy Code)
paid or incurred in connection with the negotiation, preparation, execution and
delivery of any waiver, forbearance, consent, amendment or addition to this
Agreement or any Loan Document, or the termination hereof and thereof; ( iv) all
costs or expenses paid or advanced by Lender which are required to be paid by
Borrower under this Agreement or the Loan Documents, including taxes and
insurance premiums of every nature and kind of Borrower; and ( v) if an Event of
Default occurs, all expenses paid or incurred by Lender, including attorneys'
fees and expenses (including attorneys' fees incurred pursuant to proceedings
arising under the Lender Bankruptcy Code), costs of collection, suit,
arbitration, judicial reference and other enforcement proceedings, and any other
out-of-pocket expenses incurred in connection therewith or resulting therefrom,
whether or not suit is brought, or in connection with any refinancing or
restructuring of the Obligations and the liabilities of Borrower under this
Agreement, any of the Loan Documents, or any other document, instrument or
agreement entered into in connection herewith in the nature of a "workout."
"Lending Rate" means the per annum rate equal to eleven (11%) per cent
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per anum.
"Lien" means any mortgage, deed of trust, pledge, security interest,
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hypothecation, assignment, deposit arrangement or other preferential
arrangement, charge or encumbrance (including, any conditional sale or other
title retention agreement, or finance lease) of any kind.
"Loans" means the Revolving Loans.
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"Loan Document(s)" means each of the following documents, instruments,
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and agreements individually or collectively, as the context requires:
(i) the Revolving Note;
(ii) the Security Agreement;
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(iii) the Lockbox Agreement;
(iv) the Warrant; and
(v) such other documents, instruments, and agreements
(including control agreements, financing statements and fixture filings) as
Lender may reasonably request in connection with the transactions
contemplated hereunder or to perfect or protect the liens and security
interests granted to Lender in connection herewith.
"Lockbox Agreement" means that certain agreement among Lender,
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Borrower and Republic National Bank, N.A. or such other bank that is acceptable
to Lender.
"Material Adverse Effect" means a material adverse effect on (i) the
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business, Assets, condition (financial or otherwise), results of operations, or
prospects of Borrower, or any Subsidiary, (ii) the ability of Borrower to
perform its obligations under this Agreement (including, without limitation,
repayment of the Obligations as they come due), or (iii) the validity or
enforceability of this Agreement, the Loan Documents, or the rights or remedies
of Lender hereunder and thereunder.
"Multiemployer Plan" means a "multiemployer plan" as defined in (S)
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4001(a)(3) of ERISA or (S) 3(37) of ERISA to which any member of the ERISA Group
has contributed, or was obligated to contribute, within the preceding six plan
years (while a member of such ERISA Group) including for these purposes any
Person which ceased to be a member of the ERISA Group during such six year
period.
"Notes" means the Revolving Note.
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"Notice of Borrowing" means an irrevocable notice from Borrower to
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Lender of Borrower's request for a Borrowing pursuant to the terms of Section
2.4(b), substantially in the form of Exhibit 2.4(b).
"Obligations" means any and all indebtedness, liabilities, and
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obligations of Borrower owing to Lender and to its successors and assigns,
previously, now, or hereafter incurred, and howsoever evidenced, whether direct
or indirect, absolute or contingent, joint or several, liquidated or
unliquidated, voluntary or involuntary, due or not due, legal or equitable,
whether incurred before, during, or after any Insolvency Proceeding, and whether
recovery thereof is or becomes barred by a statute of limitations or is or
becomes otherwise unenforceable or unallowable as claims in any Insolvency
Proceeding, together with all interest thereupon (including interest under
Section 2.5(b) and all interest accruing during the pendency of an Insolvency
Proceeding). The Obligations shall include, without limiting the generality of
the foregoing, all principal and interest owing under the Loans, all Lender
Expenses, the Fees, any other fees and expenses due hereunder, and all other
indebtedness evidenced by this Agreement and/or the Notes.
"Operating Lease" means any lease of an Asset by a Person which, in
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conformity with GAAP, is not a Capital Lease.
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"Participant" has the meaning set forth in Section 9.5(d).
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"PBGC" means the Pension Benefit Guaranty Corporation or any entity
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succeeding to any or all of its functions under ERISA.
"Permitted Debt" means (i) Debt owing to Lender in accordance with the
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terms of this Agreement and the Loan Documents; (ii) Trade debt that is not more
than 30 days past due; (iii) Debt which has been approved in writing by Lender
and is listed on Schedule 1.1P, but no voluntary prepayments, renewals,
extensions, or refinancing thereof; and (iv) Debt secured by a Purchase Money
Lien and Capital Lease Obligations up to a maximum aggregate principal amount
outstanding for all such Debt of Borrower and the Subsidiaries under this clause
(iv) of Ten Thousand Dollars ($10,000).
"Permitted Investments" means any of the following investments
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denominated and payable in Dollars, maturing within one year from the date of
acquisition, selected by Borrower: (i) marketable direct obligations issued or
unconditionally guaranteed by the United States government or issued by any
agency thereof and backed by the full faith and credit of the United States;
(ii) marketable direct obligations issued by any state of the United States or
any political subdivision of any such state or any public instrumentality
thereof and, at the time of acquisition, having the highest credit rating
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper or corporate
promissory notes bearing at the time of acquisition the highest credit rating
either of S&P or Moody's issued by United States, Canadian, European or Japanese
Lender holding companies or industrial or financial companies; (iv) certificates
of deposit issued by and Lender acceptances of and interest bearing deposits
with Lender; and (v) money market funds organized under the laws of the United
States or any state thereof, Canada or any of its provinces that invest
predominantly in any of the foregoing investments permitted under clauses (i),
(ii), (iii) and (iv).
"Permitted Liens" means (i) Liens for current taxes, assessments or
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other governmental charges which are not delinquent or remain payable without
any penalty, (ii) Liens in favor of Lender in accordance with the Loan
Documents, (iii) statutory Liens, such as inchoate mechanics', inchoate
materialmen's, landlord's, warehousemen's, and carriers' liens, and other
similar liens, other than those described in clause (i) above, arising in the
ordinary course of business with respect to obligations which are not delinquent
or are being contested in good faith by appropriate proceedings, provided that,
if delinquent, adequate reserves have been set aside with respect thereto as
required by GAAP and, by reason of nonpayment, no property is subject to a
material risk of loss or forfeiture; (iv) Liens relating to Capital Lease
Obligations, (v) judgment Liens that do not constitute an Event of Default under
Section 7.1(i), (vi) Liens, if they constitute such, of any Operating Lease UCC
filings permitted hereunder, and (vii) Liens securing any Debt listed on
Schedule 1.1P.
"Person" means and includes natural persons, corporations, limited
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partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock companies, joint ventures, associations,
companies, trusts, Lender, trust companies, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
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<PAGE>
"Plan" means an "employee benefit plan" as defined in (S) 3(3) of
----
ERISA in which any personnel of any member of the ERISA Group participate or
from which any such personnel may derive a benefit or with respect to which any
member of the ERISA Group may incur liability, excluding any Multiemployer Plan,
but including any plan either established or maintained by any member of the
ERISA Group or to which such Person contributes under the laws of any foreign
country.
"Purchase Money Lien" means a Lien on any Asset acquired by Borrower
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or any of its Subsidiaries; provided that (i) such Lien attaches only to the
Asset being acquired; (ii) a description of the Asset being acquired is
furnished to Lender; and (iii) the Debt incurred in connection with such
acquisition does not exceed one hundred percent (100%) of the purchase price of
such Asset.
"Real Estate Leases" means all leases, licenses, and any and all other
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agreements regarding a right of entry to and/or a possessory interest in real
property now or hereinafter entered into by either Borrower as a tenant or
licensee, or which have been, or are in the future, being purchased, assigned or
sublet to either Borrower as a tenant or licensee.
"Reportable Event" means any of the events described in Section
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4043(c) of ERISA other than a Reportable Event as to which the provision of 30
days notice to the PBGC is waived under applicable regulations.
"Responsible Officer" means either the Chief Executive Officer, Chief
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Financial Officer or Controller of a Person, or such other officer, employee, or
agent of such Person designated by a Responsible Officer in a writing delivered
to Lender.
"Retiree Health Plan" means an "employee welfare benefit plan" within
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the meaning of Section 3(1) of ERISA that provides benefits to individuals after
termination of their employment, other than as required by Section 601 of ERISA.
"Revolving Credit Commitment" means One Million Dollars
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($1,000,000.00), reduced by the amount, if any, of exercise proceeds paid to
Borrower (in any manner permitted by the warrant) as the result of the exercise
of any of the warrants issued to Lender on the Closing Date.
"Revolving Loans" has the meaning given to such term in Section 2.2.
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"Revolving Loans Daily Balances" means the amount determined by taking
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the amount of the obligations owed under the Revolving Loans at the beginning of
a given day, adding any new Revolving Loans advanced or incurred on such date,
and subtracting any payments or collections on the Revolving Loans which are
deemed to be paid on that date under the provisions of this Agreement.
"Revolving Loans Maturity Date" means one year from the Closing Date.
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"Revolving Note" means that certain Secured Revolving Note in the
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principal amount of One Million Dollars ($1,000,000.00), dated as of even date
herewith, executed by Borrower to the order of Lender.
"Security Agreement" means that certain Security Agreement, dated as
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of even date herewith, between Borrower and Lender.
"Solvent" means, with respect to any Person on the date any
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determination thereof is to be made, that on such date: (a) the present fair
valuation of the Assets of such Person is greater than such Person's probable
liability in respect of existing debts; (b) such Person does not intend to, and
does not believe that it will, incur debts beyond such Person's ability to pay
as such debts mature; and (c) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, which
would leave such Person with Assets remaining which would constitute
unreasonably small capital after giving effect to the nature of the particular
business or transaction. For purposes of this definition (i) the "fair
valuation" of any property or assets means the amount realizable within a
reasonable time, either through collection or sale of such Assets at their
regular market value, which is the amount obtainable by a capable and diligent
Person from an interested buyer willing to purchase such property or assets
within a reasonable time under ordinary circumstances; and (ii) the term "debts"
includes any payment obligation, whether or not reduced to judgment, equitable
or legal, matured or unmatured, liquidated or unliquidated, disputed or
undisputed, secured or unsecured, absolute, fixed or contingent.
"Subsidiary" means any corporation, limited liability company,
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partnership, trust or other entity (whether now existing or hereafter organized
or acquired) of which Borrower or one or more Subsidiaries of Borrower at the
time owns or controls directly or indirectly more than 50% of the shares of
stock or partnership or other ownership interest having general voting power
under ordinary circumstances to elect a majority of the board of directors,
managers or trustees or otherwise exercising control of such corporation,
limited liability company, partnership, trust or other entity (irrespective of
whether at the time stock or any other form of ownership of any other class or
classes shall have or might have voting power by reason of the happening of any
contingency).
"Swaps" means payment obligations with respect to interest rate swaps,
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currency swaps and similar obligations obligating a Person to make payments,
whether periodically or upon the happening of a contingency. For the purposes of
this Agreement, the amount of the obligation under any Swap shall be the amount
determined, in respect thereof as of the end of the then most recently ended
fiscal quarter of Borrower, based on the assumption that such Swap had
terminated at the end of such fiscal quarter, and in making such determination,
if any agreement relating to such Swap provides for the netting of amounts
payable by and to each party thereto or if any such agreement provides for the
simultaneous payment of amounts by and to each party, then in each such case,
the amount of such obligation shall be the net amount so determined.
"Taxes" has the meaning set forth in Section 8.1.
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"Transferee" has the meaning set forth in Section 9.5(e).
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"Unfunded Liabilities" means, with respect to any Plan at any time,
--------------------
the amount (if any) by which (i) the present value of all benefits under such
Plan exceeds (ii) the fair market value of all Plan assets allocable to such
benefits (excluding any accrued but unpaid contributions), all determined as of
the then most recent valuation date for such Plan, but only to the extent that
such excess represents a potential liability of a member of the ERISA Group to
the PBGC or an appointed trustee under Title IV of ERISA.
"Unmatured Event of Default" means any condition or event which with
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the giving of notice or lapse of time or both would, unless cured or waived,
become an Event of Default.
"Warrants" means those certain Warrants, dated as of even date
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herewith, executed by Borrower in favor of Lender.
1.2 Accounting Terms and Determinations. Unless otherwise specified
-----------------------------------
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared in accordance with GAAP.
1.3 Computation of Time Periods. In this Agreement, with respect to
---------------------------
the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each mean "to but excluding." Periods of days referred to in this Agreement
shall be counted in calendar days unless otherwise stated.
1.4 Construction. Unless the context of this Agreement clearly
------------
requires otherwise, references to the plural include the singular and to the
singular include the plural, references to any gender include any other gender,
the part includes the whole, the term "including" is not limiting, and the term
"or" has, except where otherwise indicated, the inclusive meaning represented by
the phrase "and/or." References in this Agreement to "determination" by Lender
include good faith estimates by Lender (in the case of quantitative
determinations), and good faith beliefs by Lender (in the case of qualitative
determinations). The words "hereof," "herein," "hereby," "hereunder," and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. Article, section, subsection,
clause, exhibit and schedule references are to this Agreement, unless otherwise
specified. Any reference in this Agreement or any of the Loan Documents to this
Agreement or any of the Loan Documents includes any and all permitted
alterations, amendments, changes, extensions, modifications, renewals, or
supplements thereto or thereof, as applicable.
1.5 Exhibits and Schedules. All of the exhibits and schedules
----------------------
attached hereto shall be deemed incorporated herein by reference.
1.6 No Presumption Against Any Party. Neither this Agreement, any of
--------------------------------
the Loan Documents, any other document, agreement, or instrument entered into in
connection herewith, nor any uncertainty or ambiguity herein or therein shall be
construed or resolved using any presumption against any party hereto, whether
under any rule of construction or otherwise. On the contrary, this Agreement,
the Loan Documents, and the other documents, instruments,
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<PAGE>
and agreements entered into in connection herewith have been reviewed by each of
the parties and their counsel and shall be construed and interpreted according
to the ordinary meanings of the words used so as to accomplish fairly the
purposes and intentions of all parties hereto.
1.7 Independence of Provisions. All agreements and covenants
--------------------------
hereunder, under the Loan Documents, and the other documents, instruments, and
agreements entered into in connection herewith shall be given independent effect
such that if a particular action or condition is prohibited by the terms of any
such agreement or covenant, the fact that such action or condition would be
permitted within the limitations of another agreement or covenant shall not be
construed as allowing such action to be taken or condition to exist.
ARTICLE II
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TERMS OF THE CREDIT
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2.1 Revolving Loans. Provided that no Event of Default or Unmatured
---------------
Event of Default has occurred, and subject to the other terms and conditions
hereof, Lender agrees to make revolving loans ("Revolving Loans") to Borrower,
upon notice in accordance with Section 2.4(b), from the Closing Date up to but
not including the Maturity Date, the proceeds of which shall be used only for
the purposes allowed in Section 6.1(b), subject to the following conditions and
limitations:
(a) the aggregate principal amount of Revolving Loans outstanding
after giving effect to any proposed Borrowing on such date shall not exceed the
amount of the Revolving Credit Commitment then in effect;
(b) All repayments of Revolving Loans shall be without penalty
or premium. On the Maturity Date, Borrower shall pay to Lender the entire unpaid
principal balance of the Revolving Loans together with all accrued but unpaid
interest thereon.
2.2 Notice of Borrowing Requirements.
--------------------------------
(a) Each Borrowing shall be made on a Business Day.
(b) Each Borrowing shall be made upon telephonic notice given by
a Responsible Officer of Borrower, followed by a Notice of Borrowing, given by
facsimile or personal service, delivered to Lender at the address set forth in
the Notice of Borrowing. Lender shall be given such notice no later than 11:00
a.m., New York, New York time, on the day on which such Borrowing is to be made,
and such notice shall state the amount thereof (subject to the limitations set
forth in Section 2.2). Any Notice of Borrowing (or telephonic notice in respect
thereof) shall be irrevocable and Borrower shall be bound to borrow in
accordance therewith.
(c) Lender shall not incur any liability to Borrower in acting
upon any telephonic notice which Lender believes in good faith to have been
given by a Responsible Officer of Borrower, or for otherwise acting in good
faith under this Section 2.3, and in making any Revolving Loans pursuant to
telephonic notice.
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<PAGE>
(d) So long as all of the conditions for a Borrowing set forth
herein have been satisfied, Lender shall make the proceeds of such Borrowing
available to Borrower on the applicable Borrowing date by transferring same day
funds, equal to the amount of such Borrowing, in accordance with written
disbursement instructions given by Borrower to Lender, in form and substance
satisfactory to Lender and otherwise consistent with Section 6.1.
2.3 Interest Rates; Payments of Interest.
------------------------------------
(a) Interest Rate. The unpaid principal balance of all Loans
-------------
shall bear interest at the Lending Rate.
(b) Default Rate. If any payment of principal or interest on
------------
the Loans shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), in addition to and not in substitution of any of
Lender's other rights and remedies with respect to such nonpayment, the entire
unpaid principal balance of the Loans shall bear interest at the Lending Rate
plus five hundred (500) basis points until such overdue payment is paid in full.
In addition, interest, Lender Expenses, the Fees, and other amounts due
hereunder not paid when due shall bear interest at the Lending Rate plus five
hundred (500) basis points until such overdue payment is paid in full.
(c) Computation of Interest. All computations of interest shall
-----------------------
be calculated on the basis of a year of three hundred sixty (360) days for the
actual days elapsed. Interest shall accrue from the Closing Date to the date of
repayment of the Loans in accordance with the provisions of this Agreement.
(d) Maximum Interest Rate. In no event shall the interest rate
---------------------
and other charges hereunder exceed the highest rate permissible under any law
which a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that such a court determines that Lender has
received interest and other charges hereunder in excess of the highest rate
applicable hereto, such excess shall be deemed received on account of, and shall
automatically be applied to reduce, the Obligations, other than interest, in the
inverse order of maturity, and the provisions hereof shall be deemed amended to
provide for the highest permissible rate. If there are no Obligations
outstanding, Lender shall refund to Borrower such excess.
(e) Payments of Interest. All accrued but unpaid interest on
--------------------
the Loans, calculated in accordance with this Section 2.5, shall be due and
payable, in arrears, on the first Business Day of each and every month.
2.4 Notes; Statements of Obligations. The Revolving Loans and
--------------------------------
Borrower's obligation to repay the same shall be evidenced by the Revolving
Note, this Agreement and the books and records of Lender. Lender shall render
monthly statements of the Loans to Borrower, including statements of all
principal and interest owing on the Loans, and all Fees and Lender Expenses
owing, and such statements shall be presumed to be correct and accurate and
constitute an account stated between Borrower and Lender unless, within thirty
(30) days after receipt thereof by Borrower, Borrower delivers to Lender, at the
address specified in Section 9.1, written objection thereof specifying the error
or errors, if any, contained in any such statement.
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<PAGE>
2.5 Holidays. Any principal or interest in respect of the Loans
--------
which would otherwise become due on a day other than a Business Day, shall
instead become due on the next succeeding Business Day and such adjustment shall
be reflected in the computation of interest; provided, however, that in the
event that such due date shall, subsequent to the specification thereof by
Lender, for any reason no longer constitute a Business Day, Lender may change
such specified due date in accordance with this Section 2.7.
2.6 Time and Place of Payments.
--------------------------
(a) All payments due hereunder shall be made available to Lender
in immediately available Dollars, not later than 12:00 p.m., Los Angeles time,
on the day of payment, to the following address or such other address as Lender
may from time to time specify by notice to Borrower:
ICE Holdings North America, LLC
645 Madison Avenue - 13th Floor
New York, New York 10022
Attention: Andrew Smith
(b) Borrower hereby authorizes Lender to charge any account
which Borrower maintains with Lender or with such bank as Lender designate for
purposes of collection of accounts receivable ("Lock-box Bank") for the amount
of any payment due or past due hereunder.
2.7 Debt Financing Fee.
------------------
(a) On the Closing Date, Borrower shall pay to Lender a fully
earned, non-refundable Debt Financing Fee (the "Debt Financing Fee") in the
amount of Seventy Five Thousand Dollars ($75,000.00) in consideration of
Lender's agreement to enter into this Agreement upon the terms and conditions
set forth herein.
(b) Late Payment Fee. If any payment due hereunder, whether for
----------------
principal, interest, or otherwise, is not paid on or before the tenth day after
the date such payment is due, in addition to and not in substitution of any of
Lender's other rights and remedies with respect to such nonpayment, Borrower
shall pay to Lender, a late payment fee ("Late Payment Fee") equal to five
percent (5%) of the amount of such overdue payment. The Late Payment Fee shall
be due and payable on the eleventh day after the due date of the overdue payment
with respect thereto.
ARTICLE III
-----------
CONDITIONS PRECEDENT
--------------------
3.1 Conditions to Initial Loan or Letter of Credit. Lender's
----------------------------------------------
obligation to make the initial Loan is subject to and contingent upon the
fulfillment of each of the following conditions to the satisfaction of Lender
and its counsel:
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<PAGE>
(a) receipt by Lender of this Agreement and each of the Loan
Documents, all duly executed by Borrower and/or the other Persons party thereto,
acknowledged where required, and in form and substance satisfactory to Lender in
its sole and absolute discretion;
(b) receipt by Lender of a duly executed opinion of Borrower's
counsel, dated as of the Closing Date, covering the matters set forth in Exhibit
3.1(b) and otherwise in form and substance satisfactory to Lender in its sole
and absolute discretion;
(c) receipt by Lender of a Certificate of the Secretary of
Borrower, dated as of the Closing Date, certifying (i) the incumbency and
signatures of the Responsible Officers of Borrower who are executing this
Agreement and the Loan Documents on behalf of Borrower; (ii) the bylaws of
Borrower and all amendments thereto as being true and correct and in full force
and effect; and (iii) the resolutions of the Board of Directors of Borrower as
being true and correct and in full force and effect, authorizing the execution
and delivery of this Agreement and the Loan Documents, and authorizing the
transactions contemplated hereunder and thereunder, and authorizing the
Responsible Officers of Borrower to execute the same on behalf of Borrower;
(d) receipt by Lender of a certificate of status and good
standing for Borrower, dated as of a recent date prior to the Closing Date,
showing that Borrower is in good standing under the laws of the State of Nevada;
(e) receipt by Lender of Borrower's Articles of Incorporation
and all amendments thereto, certified by the Nevada Secretary of State and dated
as of a recent date prior to the Closing Date;
(f) receipt by Lender of certificates of foreign qualification
and good standing with respect to Borrower, dated as of a recent date prior to
the Closing Date, showing that Borrower is qualified to do business and in good
standing under the laws of the province of British Columbia, Canada;
(g) receipt by Lender of a certificate signed by the President
and Chief Financial Officer of Borrower, dated as of the Closing Date,
certifying to Lender that (i) both immediately before and immediately after
giving effect to the transactions contemplated by this Agreement and the Loan
Documents, Borrower is and will be Solvent; (ii) the representations and
warranties of Borrower contained in this Agreement and the Loan Documents are
true and correct and (iii) both immediately before and immediately after giving
effect to the transactions contemplated by this Agreement and the Loan
Documents, no Event of Default or Unmatured Event of Default is continuing or
shall occur;
(h) receipt by Lender of Uniform Commercial Code, British
Columbia Personal Property Security Act and other public record searches with
respect to Borrower, in each case satisfactory to Lender in its sole and
absolute discretion;
(i) receipt by Lender of (i) the Debt Financing Fee and (ii) all
Lender Expenses owing on the Closing Date;
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<PAGE>
(j) receipt by Lender of (i) Borrower's internally prepared
Financial Statements for Borrower the period ended November 30, 1999, and (ii)
Borrower's operating budgets and projections for the fiscal year ending June 30,
2000, all of which are satisfactory to Lender in its sole and absolute
discretion;
(k) no Material Adverse Effect shall have occurred;
(l) receipt by Lender of copies of insurance binders or
insurance certificates evidencing Borrower's having caused to be obtained
insurance in accordance with Section 5.5, including the Lender's loss payee
endorsements required by such Section;
(m) receipt by Lender of such other documents, instruments, and
agreements as Lender may reasonably request in connection with the transactions
contemplated hereunder or to perfect or protect the liens and security interests
granted to Lender in connection herewith; and
(n) the Closing Date shall have occurred on or before March 31,
2000.
3.2 Conditions to all Loans. Lender's obligation hereunder to make
-----------------------
any Loans to Borrower, is further subject to and contingent upon the fulfillment
of each of the following conditions to the satisfaction of Lender:
(a) in the case of a Borrowing, receipt by Lender of a Notice of
Borrowing as required by Section 2.4(b) and written disbursement instructions to
Lender consistent with Section 6.1;
(b) in the case of a Borrowing, the fact that, immediately
before and after such Borrowing, as the case may be, no Event of Default or
Unmatured Event of Default shall have occurred; and
(c) in the case of a Borrowing, the fact that the
representations and warranties of Borrower contained in this Agreement shall be
true on and as of the date of such Borrowing, or issuance of Letter of Credit,
as the case may be.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES
In order to induce Lender to enter into this Agreement and to make
Loans, Borrower represents and warrants to Lender that on the Closing Date and
on the date of each Borrowing:
4.1 Legal Status. Borrower is a corporation duly organized and
------------
existing under the laws of the State of Nevada. Borrower and each Subsidiary has
the power and authority to own its own Assets and to transact the business in
which it is engaged, and is properly licensed, qualified to do business and in
good standing in every jurisdiction in which it is doing business where failure
to so qualify could have a Material Adverse Effect.
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<PAGE>
4.2 No Violation; Compliance. The execution, delivery and
------------------------
performance of this Agreement and the Loan Documents to which Borrower is a
party are within Borrower's powers, are not in conflict with the terms of the
Governing Documents of Borrower, and do not result in a breach of or constitute
a default under any contract, obligation, indenture or other instrument to which
Borrower is a party or by which Borrower is bound or affected. There is no law,
rule or regulation (including Regulations T, U and X of the Federal Reserve
Board), nor is there any judgment, decree or order of any court or Governmental
Authority binding on Borrower which would be contravened by the execution,
delivery, performance or enforcement of this Agreement and the Loan Documents to
which Borrower is a party.
4.3 Authorization; Enforceability. Borrower has taken all corporate,
-----------------------------
partnership or limited liability company, as applicable, action necessary to
authorize the execution and delivery of this Agreement and the Loan Documents to
which Borrower is a party, and the consummation of the transactions contemplated
hereby and thereby. Upon their execution and delivery in accordance with the
terms hereof, this Agreement and the Loan Documents to which Borrower is a party
will constitute legal, valid and binding agreements and obligations of Borrower
enforceable against Borrower in accordance with their respective terms, except
as enforceability may be limited by bankruptcy, insolvency, and similar laws and
equitable principles affecting the enforcement of creditors' rights generally.
4.4 Approvals; Consents. No approval, consent, exemption or other
-------------------
action by, or notice to or filing with, any Governmental Authority is necessary
in connection with the execution, delivery, performance or enforcement of this
Agreement or the Loan Documents.
4.5 Liens. Borrower and each of its Subsidiaries has good and
-----
marketable title to, or valid leasehold interests in, all of its Assets, free
and clear of all Liens or rights of others, except for Permitted Liens.
4.6 Debt. Borrower and each of its Subsidiaries has no Debt other
----
than Permitted Debt.
4.7 Litigation. Except as set forth in Schedule 4.7, there are no
----------
suits, proceedings, claims or disputes pending or affecting Borrower or any of
Borrower's Assets, or any Subsidiary of Borrower or any of such Subsidiary's
Assets, which are not fully covered by applicable insurance and as to which no
reservation of rights has been taken by the insurer thereunder and, with respect
to draw downs after the Closing Date, there are no such suits, proceedings,
claims or disputes that could have a Material Adverse Effect.
4.8 No Default. No Event of Default or Unmatured Event of Default is
----------
continuing or would result from the incurring of obligations by Borrower or any
Subsidiary under this Agreement or the Loan Documents.
4.9 Subsidiaries. Set forth in Schedule 4.9 is a complete and
------------
accurate list of the Subsidiaries, showing the jurisdiction of incorporation of
each and showing the percentage of Borrower's ownership of the outstanding stock
of each Subsidiary. All of the outstanding capital stock of each Subsidiary has
been validly issued, is fully paid and nonassessable, and is owned by Borrower
free and clear of all Liens except Permitted Liens.
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<PAGE>
4.10 Taxes. All tax returns required to be filed by Borrower and
-----
each of its Subsidiaries in any jurisdiction have in fact been filed, and all
taxes, assessments, fees and other governmental charges upon Borrower and each
of its Subsidiaries or upon any of their Assets, income or franchises, which are
due and payable have been paid. The provisions for taxes on the books of
Borrower and each of its Subsidiaries are adequate for all open years, and for
Borrower's and each of its Subsidiaries current fiscal period.
4.11 Correctness of Financial Statements. Borrower's consolidated
-----------------------------------
and consolidating audited Financial Statement as of the fiscal year ended June
30, 1999, and all information and data furnished by Borrower to Lender in
connection therewith, are complete and correct and accurately and fairly present
the financial condition and results of operations of Borrower and the
Subsidiaries as of their respective dates. Any forecasts of future financial
performance delivered by Borrower to Lender have been made in good faith and are
based on reasonable assumptions and investigations by Borrower. Said audited
Financial Statement has been prepared in accordance with GAAP. Since the date of
such audited Financial Statement, there has been no change in Borrower's or the
Subsidiaries' financial condition or results of operations sufficient to have a
Material Adverse Effect. Borrower and the Subsidiaries have no contingent
obligations, liabilities for taxes or other outstanding financial obligations
which are material in the aggregate, except as disclosed in such statements,
information and data.
4.12 ERISA. Neither Borrower nor any member of the ERISA Group
-----
maintains or contributes to any Plan or Multiemployer Plan, other than those
listed on Schedule 4.12. Borrower and each member of the ERISA Group have
satisfied the minimum funding standards of ERISA and the Internal Revenue Code
with respect to each Plan and Multiemployer Plan to which it is obligated to
contribute. No ERISA Event has occurred not has any other event occurred that
may result in an ERISA Event that reasonably could be expected to result in a
Material Adverse Effect. None of Borrower, any member of the ERISA Group, or any
fiduciary of any Plan is subject to any direct or indirect liability with
respect to any Plan (other than to make regularly scheduled required
contributions and to pay Plan benefits in the normal course) under any
applicable law, treaty, rule, regulation, or agreement. Neither Borrower nor any
member of the ERISA Group is required to provide security to any Plan under
Section 401(a)(29) of the Internal Revenue Code. Each Plan will be able to
fulfill its benefit obligations as they come due in accordance with the Plan
documents and under GAAP.
4.13 Other Obligations. Borrower and each of its Subsidiaries is not
-----------------
in default on any Debt, and Borrower and each of its Subsidiaries is not in
default on any other lease, commitment, contract, instrument or obligation which
is material to the operation of its business.
4.14 Public Utility Holding Company Act. Borrower is not a "holding
----------------------------------
company," or an "affiliate" of a "holding company" or a "subsidiary company" of
a "holding company," within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
4.15 Investment Company Act. Borrower is not an "investment
----------------------
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
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<PAGE>
4.16 Patents, Trademarks, Copyrights, and Intellectual Property, etc.
---------------------------------------------------------------
Borrower and each Subsidiary has all necessary, patents, patent rights,
licenses, trademarks, trademark rights, trade names, trade name rights,
copyrights, permits, and franchises in order for it to conduct its business and
to operate its Assets, without known conflict with the rights of third Persons,
and all of same are valid and subsisting. The consummation of the transactions
contemplated by this Agreement will not alter or impair any of such rights of
Borrower or any Subsidiary. Borrower and each Subsidiary has not been charged
or, to the best of Borrower's knowledge after due inquiry, threatened to be
charged with any infringement or, after due inquiry, infringed on any, unexpired
trademark, trademark registration, trade name, patent, copyright, copyright
registration, or other proprietary right of any Person.
4.17 Environmental Condition. (i) None of Borrower's or any
-----------------------
Subsidiary's Assets has ever been used by such Borrower or Subsidiary or by
previous owners or operators in the disposal of, or to produce, store, handle,
treat, release, or transport, any Hazardous Materials; (ii) none of Borrower's
or any Subsidiary's Assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a Hazardous Materials
disposal site, or a candidate for closure pursuant to any environmental
protection statute; (iii) no Lien arising under any environmental protection
statute has attached to any revenues or to any real or personal property owned
or operated by Borrower or any Subsidiary; and (iv) neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal or state governmental
agency concerning any action or omission by Borrower or any Subsidiary resulting
in the releasing or disposing of Hazardous Materials into the environment.
4.18 Solvency. Borrower and each Subsidiary is Solvent. No transfer
--------
of property is being made by Borrower or any Subsidiary and no obligation is
being incurred by Borrower or any Subsidiary in connection with the transactions
contemplated by this Agreement or the Loan Documents with the intent to hinder,
delay, or defraud either present or future creditors of Borrower or any
Subsidiary.
4.19 Real Estate Leases. All of the Real Estate Leases are listed on
------------------
Schedule 4.18. All of the Real Estate Leases are currently in full force and
effect, and true and correct copies of all Real Estate Leases, together with all
amendments, exhibits and schedules thereto, have been delivered to Lender.
Neither the landlord nor the tenant therein, as the case may be, is in default
on any of its obligations thereunder, and no event has occurred which, with the
passage of time or the giving of notice, or both, would constitute such a
default.
4.20 Compliance With ADA.
-------------------
(a) Borrower's and the Subsidiaries' premises are presently
used as an administrative, office, manufacturing or distribution facility and
for other commercial purposes, and no portions of Borrower's, Guarantor's or any
Subsidiaries' premises are used as or for a "public accommodation," as described
and defined in the ADA.
(b) Borrower and each Subsidiary has made all modifications
and/or provided all accommodations which may be required to be made or provided
by Borrower and
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<PAGE>
such Subsidiary to their premises pursuant to the ADA in order to accommodate
the needs and requirements of any disabled employees of Borrower and such
Subsidiary.
(c) Borrower and the Subsidiaries have received no notice or
complaint regarding any noncompliance with the ADA of their premises or of
Borrower's, Guarantor's or any Subsidiary's employment practices and, to the
best of Borrower's and Guarantor's knowledge, there has been no threatened
litigation alleging any such noncompliance by Borrower, Guarantor or the
Subsidiaries or their premises.
ARTICLE V
---------
AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that from the Closing Date and
thereafter until the indefeasible payment, performance and satisfaction in full
of the Obligations and all of Lender's obligations hereunder have been
terminated, Borrower shall:
5.1 Punctual Payments. Punctually pay the interest and principal on
-----------------
the Loans, the Fees and all Lender Expenses and any other fees and liabilities
due under this Agreement and the Loan Documents at the times and place and in
the manner specified in this Agreement or the Loan Documents.
5.2 Books and Records. Maintain, and cause each of its Subsidiaries
-----------------
to maintain, adequate books and records in accordance with GAAP, and permit any
officer, employee or agent of Lender, at any time and from time to time, to
inspect, audit and examine such books and records, and to make copies of the
same.
5.3 Financial Statements. Deliver to Lender the following, all in
--------------------
form and detail satisfactory to Lender and in such number of copies as Lender
may request:
(a) as soon as available but not later than thirty (30) days
after and as of the close of each monthly accounting period, a consolidated
internally prepared Financial Statement for Borrower and the Subsidiaries which
shall include Borrower's and its Subsidiaries' consolidated balance sheet as of
the close of such period, and Borrower's and its Subsidiaries' consolidated
statement of income and retained earnings and statement of cash flow for such
period and year to date, certified by the Chief Financial Officer of Borrower to
the best of his or her knowledge after due and diligent inquiry, as being
complete and correct and fairly presenting in all material respects Borrower's
and its Subsidiaries' financial condition and results of operations for such
period;
(b) as soon as available but not later than fifty (50) days
after and as of the close of the first three quarterly accounting periods, a
consolidated and consolidating internally prepared Financial Statement for
Borrower and its Subsidiaries which shall include Borrower's and its
Subsidiaries' consolidated and consolidating balance sheet as of the close of
such period, and Borrower's and its Subsidiaries' consolidated statement of
income and retained earnings and statement of cash flow for such period and year
to date, certified by the Chief Financial Officer of Borrower to the best of his
or her knowledge after due and diligent inquiry,
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<PAGE>
as being complete and correct and fairly presenting Borrower's and its
Subsidiaries' financial condition and results of operations;
(c) as soon as available but not later than fifty (50) days
after and as of the end of each quarterly accounting period, a Compliance
Certificate from the Chief Financial Officer of Borrower stating, among other
things, that he or she has reviewed the provisions of this Agreement and the
Loan Documents and that, to the best of his or her knowledge after due and
diligent inquiry there exists no Event of Default or Unmatured Event of Default,
and containing the calculations and other details necessary to demonstrate
compliance with Sections 6.12 and 6.15;
(d) as soon as available but not later than ninety (90) days or
one hundred and five (105) days if an extension is granted by the Security and
Exchange Commission after and as of the end of each fiscal year, a complete copy
of Borrower's and the Subsidiaries' consolidated and consolidating audited
Financial Statement, which shall include at least Borrower's and the
Subsidiaries' balance sheet as of the close of such fiscal year, and Borrower's
and the Subsidiaries' statement of income and retained earnings and statement of
cash flow for such fiscal year, certified by a certified public accountant
selected by Borrower and satisfactory to Lender, which certificate shall not be
qualified in any manner whatsoever, and shall include or be accompanied by a
statement from such accountant that during the examination, solely with respect
to accounting and auditing matters herein, there was observed no Event of
Default or Unmatured Event of Default, or a statement of such Event of Default
or Unmatured Event of Default if any is found and the actions taken or to be
taken with respect thereto;
(e) promptly upon receipt by Borrower copies of any and all
reports and management letters submitted to Borrower or any Subsidiary by any
certified public accountant in connection with any examination of Borrower's or
any Subsidiary's financial records made by such accountant; and
(f) from time to time annual budgets, operating statistics,
operating plans and any other information as Lender may reasonably request,
promptly upon such request.
5.4 Existence; Preservation of Licenses; Compliance with Law.
--------------------------------------------------------
Preserve and maintain, and cause each Subsidiary to preserve and maintain, its
corporate existence and good standing in the state of its organization, qualify
and remain qualified, and cause each Subsidiary to qualify and remain qualified,
as a foreign corporation in every jurisdiction where the failure to be so
qualified could have a Material Adverse Effect; and preserve, and cause each of
the Subsidiaries to preserve, all of its licenses, permits, governmental
approvals, rights, privileges and franchises required for its operations; and
comply, and cause each of the Subsidiaries to comply, with the provisions of its
Governing Documents; and comply, and cause each of the Subsidiaries to comply,
with the requirements of all applicable laws, rules, regulations, orders of any
Governmental Authority having authority or jurisdiction over it, except for such
laws, rules and regulations where the failure to so comply could not have a
Material Adverse Effect, and comply, and cause each of the Subsidiaries to
comply, with all requirements for the maintenance of its business, insurance,
licenses, permits, governmental approvals, rights, privileges and franchises.
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<PAGE>
5.5 Insurance. (a) Maintain and keep in force, and cause each
---------
Subsidiary to maintain and keep in force, insurance of the types and in amounts
customarily carried by companies engaged in the same or similar business, or
similarly situated, including fire, extended coverage, public liability,
business interruption, earthquake, property damage and workers' compensation
insurance, and deliver to Lender from time to time at Lender's request schedules
setting forth all insurance then in effect. All insurance required herein shall
be written by companies which are authorized to do insurance business in the
Province of British Columbia or such Canadian province or state in the United
States where Borrower is conducting its business. All hazard insurance and such
other insurance as Lender shall specify, shall contain a New York Form 438BFU
(NS) endorsement, or an equivalent endorsement satisfactory to Lender, showing
Lender as sole loss payee thereof, and shall contain a waiver of warranties.
Every policy of insurance referred to in this Section 5.5 shall contain an
agreement by the insurer that it will not cancel such policy except after 30
days prior written notice to Lender and that any loss payable thereunder shall
be payable notwithstanding any act or negligence of Borrower or Lender which
might, absent such agreement, result in a forfeiture of all or a part of such
insurance payment.
(b) Original policies or certificates thereof satisfactory to
Lender evidencing such insurance shall be delivered to Lender at least 30 days
prior to the expiration of the existing or preceding policies. Borrower shall
give Lender prompt notice of any loss covered by such insurance, and Lender
shall have the right to adjust any loss. Lender shall have the exclusive right
to adjust all losses payable under any such insurance policies without any
liability to Borrower whatsoever in respect of such adjustments. Any monies
received as payment for any loss under any insurance policy including the
insurance policies mentioned above, shall be paid over to Lender to be applied
at the option of Lender either to the prepayment of the Obligations without
premium, in such order or manner as Lender may elect, or shall be disbursed to
Borrower under stage payment terms satisfactory to Lender for application to the
cost of repairs, replacements, or restorations. All repairs, replacements, or
restorations shall be effected with reasonable promptness and shall be of a
value at least equal to the value of the items or property destroyed prior to
such damage or destruction. Upon the occurrence of an Event of Default, Lender
shall have the right to apply all prepaid premiums to the payment of the
Obligations in such order or form as Lender shall determine. Borrower shall,
concurrently with the financial information required to be delivered by Borrower
pursuant to Section 5.3(g), deliver to Lender, as Lender may request, copies of
certificates describing all insurance of Borrower then in effect.
5.6 Assets. Maintain, keep and preserve, and cause each Subsidiary
------
to maintain, keep and preserve, all of its Assets (tangible or intangible) which
are necessary to its business in good repair and condition, and from time to
time make necessary repairs, renewals and replacements thereto so that such
Assets shall be fully and efficiently preserved and maintained.
5.7 Taxes and Other Liabilities. Pay and discharge when due, and
---------------------------
cause each Subsidiary to pay and discharge when due, any and all assessments and
taxes, both real or personal and including federal and state income taxes, and
any and all other Permitted Debt.
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<PAGE>
5.8 Notice to Lender. Promptly, upon Borrower acquiring knowledge
----------------
thereof, give written notice to Lender of:
(a) all litigation affecting Borrower where the amount in
controversy is in excess of Twenty Thousand Dollars ($20,000.00);
(b) any dispute which may exist between Borrower, Guarantor or
any Subsidiary, on the one hand, and any Governmental Authority, on the other;
(c) any labor controversy resulting in or threatening to result
in a strike against Borrower or any Subsidiary;
(d) any proposal by any public authority to acquire the Assets
or business of Borrower or any Subsidiary, or to compete with Borrower or any
Subsidiary;
(e) all notices or claims which may be received by Borrower or
any Subsidiary and involving claims made by any Person as to any alleged
noncompliance of Borrower's or such Subsidiary's premises with the requirements
of the ADA;
(f) any Event of Default or Unmatured Event of Default; and
(g) any other matter which has resulted or could result in a
Material Adverse Effect.
5.9 Employee Benefits. (a)(i) Promptly, and in any event within 10
-----------------
Business Days after Borrower or any of the Subsidiaries knows or has reason to
know that an ERISA Event has occurred that reasonably could be expected to
result in a Material Adverse Effect, deliver or cause to be delivered a written
statement of the Chief Financial Officer of Borrower describing such ERISA Event
and any action that is being taken with respect thereto by Borrower, any such
Subsidiary, or member of the ERISA Group, and any action taken or threatened by
the Internal Revenue Service, Department of Labor, or PBGC. Borrower or such
Subsidiary, as applicable, shall be deemed to know all facts known by the
administrator of any Plan of which it is the plan sponsor; (ii) promptly and in
any event within 3 Business Days after the filing thereof with the Internal
Revenue Service, deliver or cause to be delivered a copy of each funding waiver
request filed with respect to any Plan and all communications received by
Borrower any of the Subsidiaries, or, to the knowledge of Borrower any member of
the ERISA Group with respect to such request; and (iii) promptly and in any
event within 3 Business Days after receipt by Borrower any of the Subsidiaries
or, to the knowledge of Borrower, any member of the ERISA Group, of the PBGC's
intention to terminate a Plan or to have a trustee appointed to administer a
Plan, copies of each such notice.
(b) Cause to be delivered to Lender, upon Lender's request, each
of the following: (i) a copy of each Plan (or, where any such plan is not in
writing, complete description thereof) (and if applicable, related trust
agreements of other funding instruments) and all amendments thereto, all written
interpretations thereof and written descriptions thereof that have been
distributed to employees or former employees of Borrower or its Subsidiaries;
(ii) the most recent determination letter issued by the IRS with respect to each
Plan; (iii) for the three
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<PAGE>
most recent Plan years, annual reports on Form 5500 Series required to be filed
with any governmental agency for each Plan; (iv) all actuarial reports prepared
for the last three Plan years for each Plan; (v) a listing of all Multiemployer
Plans, with the aggregate amount of the most recent annual contributions
required to be made by Borrower or any member of the ERISA Group to each such
plan and copies of the collective bargaining agreements requiring such
contributions; (vi) any information that has been provided to Borrower or any
member of the ERISA Group regarding withdrawal liability under any Multiemployer
Plan; and (vii) the aggregate amount of the most recent annual payments made to
former employees of Borrower or its Subsidiaries under any Retiree Health Plan.
5.10 Further Assurances. Execute and deliver, or cause to be
------------------
executed and delivered, upon the request of Lender and at Borrower's expense,
such additional documents, instruments and agreements as Lender may reasonably
determine to be necessary or advisable to carry out the provisions of this
Agreement and the Loan Documents, and the transactions and actions contemplated
hereunder and thereunder.
5.11 Bank Accounts. Except for payroll accounts, petty cash accounts
-------------
or other accounts specifically approved by Lender, maintain its cash on hand and
cash equivalent investments in deposit accounts at Republic National Bank, N.A.
415 Madison Avenue, Domestic Private Banking Division, New York, New York, or
other bank agreed to by Lender which deposit accounts shall be subject to the
security interests granted to Lender under the Security Agreement.
5.12 Environment. Be and remain, and cause each Subsidiary and each
-----------
operator of any of Borrower's or any Subsidiary's Assets to be and remain, in
compliance with the provisions of all federal, state and local environmental,
health and safety laws, codes and ordinances, and all rules and regulations
issued thereunder; notify Lender immediately of any notice of a hazardous
discharge or environmental complaint received from any Governmental Authority or
any other Person; notify Lender immediately of any hazardous discharge from or
affecting its premises; immediately contain and remove the same, in compliance
with all applicable laws; promptly pay any fine or penalty assessed in
connection therewith; permit Lender to inspect the premises, to conduct tests
thereon, and to inspect all books, correspondence, and records pertaining
thereto; and at Lender's request, and at Borrower's expense, provide a report of
a qualified environmental engineer, satisfactory in scope, form and content to
Lender, and such other and further assurances reasonably satisfactory to Lender
that the condition has been corrected.
5.13 Real Estate Leases. Perform all of its obligations under all of
------------------
the Real Estate Leases and promptly deliver to Lender a copy of all notices of
default or breach under any Real Estate Lease.
5.14 ADA. Observe and comply, and cause each Subsidiary to observe
---
and comply, in all material respects with all obligations and requirements of
the ADA as it applies to their premises, which shall include, without
limitation, installing or constructing all improvements or alterations which may
be necessary to cause such premises to be accessible to all persons if the use
of such premises or any part thereof becomes a "public accommodation," as
defined in the ADA, or in the event additional building improvements are added
or incorporated
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<PAGE>
into the existing improvements, and making any reasonable accommodations which
may be necessary to accommodate the needs or requirements of any existing or
future employee of Borrower and the Subsidiaries, as applicable.
ARTICLE VI
----------
NEGATIVE COVENANTS
------------------
Borrower further covenants and agrees that from the Closing Date and
thereafter until the indefeasible payment, performance and satisfaction in full
of the Obligations and all of Lender's obligations hereunder have been
terminated, Borrower shall not:
6.1 Use of Funds; Margin Regulation.
-------------------------------
(a) Use any proceeds of the Revolving Loans for any purpose
other than (i) for working capital; (ii) for Capital Expenditures to the extent
permitted by Section 6.12; and (iii) other lawful corporate purposes; or
(b) Use any portion of the proceeds of the Loans in any manner
which might cause the Loans, the application of the proceeds thereof, or the
transactions contemplated by this Agreement to violate Regulation T, U, or X of
the Board of Governors of the Federal Reserve System, or any other regulation of
such board, or to violate the Securities and Exchange Act of 1934, as amended or
supplemented.
6.2 Debt. Create, incur, assume or suffer to exist, or permit any
----
Subsidiary to create, incur, assume or suffer to exist, any Debt except for (i)
Permitted Debt, and (ii) unsecured financing from a financial institution in an
amount not to exceed $100,000.
6.3 Liens. Create, incur, assume or suffer to exist, or permit any
-----
Subsidiary to create, incur, assume or suffer to exist, any Lien (including the
lien of an attachment, judgment or execution) on any of its Assets, whether now
owned or hereafter acquired, except Permitted Liens; or sign or file, or permit
any Subsidiary to sign or file, under the Uniform Commercial Code as adopted in
any jurisdiction, a financing statement which names Borrower or any Subsidiary
as a debtor, except with respect to Permitted Liens, or sign, or permit any
Subsidiary to sign, any security agreement authorizing any secured party
thereunder to file such a financing statement, except with respect to Permitted
Liens.
6.4 Merger, Consolidation, Transfer of Assets. Wind up, liquidate or
-----------------------------------------
dissolve, reorganize, merge or consolidate with or into any other Person, or
acquire all or substantially all of the Assets or the business of any other
Person, or permit any Subsidiary to do so.
6.5 Leases. Create, incur, assume or suffer to exist, or permit any
------
Subsidiary to create, incur, assume or suffer to exist, any obligation as a
lessee for the rental or hire of any real or personal property.
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<PAGE>
6.6 Sales and Leasebacks. Sell, transfer, or otherwise dispose of,
--------------------
or permit any Subsidiary to sell, transfer, or otherwise dispose of, any real or
personal property to any Person, and thereafter directly or indirectly leaseback
the same or similar property.
6.7 Asset Sales. Conduct any Asset Sale, or permit any Subsidiary to
-----------
do so
6.8 Investments. Make, or permit any Subsidiary to make, any loans
-----------
other than loans to employees of less than five hundred dollars ($500) or
advances to, or any investment in, any Person; or acquire, or permit any
Subsidiary to acquire, any capital stock, Assets, obligations, or other
securities of, make any contribution to, or otherwise acquire any interest in,
any Person; or acquire or form or permit any Subsidiary to acquire or form, any
new Subsidiary unless Borrower or such Subsidiary concurrently therewith
complies with Section 5.9, and Borrower, or such Subsidiary, as the case may be,
pledges 100% of the ownership interests in such new Subsidiary to Lender
pursuant to such security or pledge agreements and other instruments and
documents as Lender shall require, all in form and substance satisfactory to
Lender in its sole and absolute discretion; or participate, or permit any
Subsidiary to participate, as a partner or joint venturer with any other Person.
6.9 Character of Business. Engage in any business activities or
---------------------
operations substantially different from or unrelated to its present business
activities and operations, or permit any Subsidiary to do so.
6.10 Distributions. Declare or pay any Distributions; or purchase,
-------------
redeem, retire, or otherwise acquire for value any of its capital stock now or
hereafter outstanding; or make any distribution of Assets to its shareholders,
whether in cash, Assets, or in obligations of Borrower; or allocate or otherwise
set apart any sum for the payment of any Distribution on, or for the purchase,
redemption or retirement of, any of its capital stock; or make any other
distribution by reduction of capital or otherwise in respect of any of its
capital stock; or permit any Subsidiary to purchase or otherwise acquire for
value any capital stock of Borrower or any other Subsidiary.
6.11 Guaranty. Assume, guaranty, endorse (other than checks and drafts
--------
received by Borrower in the ordinary course of business so long as an Event of
Default has not occurred), or otherwise be or become directly or contingently
responsible or liable, or permit any Subsidiary to assume, guaranty, endorse, or
otherwise be or become directly or contingently responsible or liable
(including, any agreement to purchase any obligation, stock, Assets, goods, or
services or to supply or advance any funds, Assets, goods, or services, or any
agreement to maintain or cause such Person to maintain, a minimum working
capital or net worth, or otherwise to assure the creditors of any Person against
loss) for the obligations of any other Person; or pledge or hypothecate, or
permit any Subsidiary to pledge or hypothecate, any of its Assets as security
for any liabilities or obligations of any other Person.
6.12 Transactions with Affiliates. Enter into any transaction, except
----------------------------
for employment contracts in the ordinary course of business, including the
purchase, sale, or exchange of property or the rendering of any service, with
any Affiliate, or permit any Subsidiary to enter into any transaction, including
the purchase, sale, or exchange of property or the rendering of any service,
with any Affiliate.
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<PAGE>
6.13 Stock Issuance. Issue any additional ownership interests, or
--------------
permit any Subsidiary to do so, except for such interests having an aggregate
purchase price not to exceed $2,000,000 and provided that if such aggregate
purchase price exceeds $2,000,000, 30% of such excess purchase price (the
"Excess Proceeds") shall be applied to repay any outstanding Obligations, and
the Revolving Credit Commitment shall be reduced by the amount of the Excess
Proceeds.
(a)
6.14 Transactions Under ERISA. Directly or indirectly:
------------------------
(a) engage, or permit any Subsidiary of Borrower to engage, in
any prohibited transaction which is reasonably likely to result in a civil
penalty or excise tax described in Sections 406 of ERISA or 4975 of the Internal
Revenue Code for which a statutory or class exemption is not available or a
private exemption has not been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Plan any accumulated
funding deficiency (as defined in Sections 302 of ERISA and 412 of the Internal
Revenue Code), whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to fail, to pay
timely required contributions or installments due with respect to any waived
funding deficiency to any Plan;
(d) terminate, or permit any Subsidiary of Borrower to terminate,
any Plan where such event would result in any liability of Borrower, any of its
Subsidiaries or any member of ERISA Group under Title IV of ERISA;
(e) fail, or permit any Subsidiary of Borrower to fail, to make
any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to fail, to pay to
a Plan or Multiemployer Plan any required installment or any other payment
required under Section 412 of the Internal Revenue Code on or before the due
date for such installment or other payment;
(g) amend, or permit any Subsidiary of Borrower to amend, a Plan
resulting in an increase in current liability for the plan year such that either
of Borrower, any Subsidiary of Borrower or any the member of the ERISA Group is
required to provide security to such Plan under Section 401(a)(29) of the
Internal Revenue Code; or
(h) withdraw, or permit any Subsidiary of Borrower to withdraw,
from any Multiemployer Plan where such withdrawal is reasonably likely to result
in any liability of any such entity under Title IV of ERISA;
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<PAGE>
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any member of the ERISA Group in excess of $10,000.
ARTICLE VII
-----------
EVENTS OF DEFAULT AND REMEDIES
------------------------------
7.1 Events of Default. The occurrence of any one or more of the
-----------------
following events, acts or occurrences shall constitute an event of default (an
"Event of Default") hereunder:
(a) Borrower fails to pay any payment of principal or interest
due on the Loans, the Fees, any Lender Expenses, or any other amount payable
hereunder or under any Loan Document;
(b) Borrower fails to observe or perform any of the covenants and
agreements set forth in Article VI;
(c) Borrower fails to observe or perform any covenant or
agreement set forth in this Agreement and the Loan Documents (other than those
covenants and agreements described in Sections 7.1(a) and 7.1(b)), and such
failure continues for fifteen (15) days after the earlier to occur of (i)
Borrower obtaining knowledge of such failure or (ii) Lender's dispatch of notice
to Borrower of such failure;
(d) Any representation, warranty or certification made by
Borrower or any Guarantor or any officer or employee of Borrower in this
Agreement or any Loan Document, in any certificate, financial statement or other
document delivered pursuant to this Agreement or any Loan Document proves to
have been untrue in any material respect when made;
(e) Borrower fails to pay when due (including any applicable
grace period) any payment in respect of Debt or other extensions of credit or
financial arrangements (other than under this Agreement);
(f) Any event or condition occurs that: (i) results in the
acceleration of the maturity of Debt, or other financial arrangements of
Borrower; or (ii) permits (or, with the giving of notice or lapse of time or
both, would permit) the holder or holders of such Debt or extensions of credit
or financial accommodations or any Person acting on behalf of such holder or
holders to accelerate the maturity thereof;
(g) Borrower commences a voluntary Insolvency Proceeding seeking
liquidation, reorganization or other relief with respect to itself or its Debt
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official over it or any substantial part of its property, or
consents to any such relief or to the appointment of or taking possession by any
such official in an involuntary Insolvency Proceeding or fails generally to pay
its Debt as it becomes due, or takes any action to authorize any of the
foregoing;
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<PAGE>
(h) An involuntary Insolvency Proceeding is commenced against
Borrower seeking liquidation, reorganization or other relief with respect to it
or its Debt or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of its
property and any of the following events occur: (i) the petition commencing the
Insolvency Proceeding is not timely controverted; (ii) the petition commencing
the Insolvency Proceeding is not dismissed within forty-five (45) calendar days
of the date of the filing thereof; (iii) an interim trustee is appointed to take
possession of all or a substantial portion of the Assets of, or to operate all
or any substantial portion of the business of, Borrower; or (iv) an order for
relief shall have been issued or entered therein;
(i) Borrower suffers (i) any money judgment in excess of
applicable insurance coverage or (ii) any writ, warrant of attachment, or
similar process ("Process") except that money judgments of $5000 or less or
Process that are paid, cured or vacated within five (5) business days shall not
be a default;
(j) A judgment creditor obtains possession of any of the Assets
of Borrower or any Guarantor by any means, including levy, distraint, replevin,
or self-help, or any order, judgment or decree is entered decreeing the
dissolution of Borrower or any Guarantor;
(k) Any Change of Control occurs;
(l) Any of the Loan Documents fails to be in full force and
effect for any reason, or Lender fails to have a perfected, first priority Lien
in and upon all of the collateral assigned or pledged to Lender thereunder, or a
breach, default or an event of default occurs under any Loan Document; or
(m) Any other Material Adverse Effect occurs.
7.2 Remedies.
--------
(a) Acceleration. Upon the occurrence of any Event of Default
------------
described in Section 7.1(g) or 7.1(h), the Obligations shall become immediately
due and payable without any election or action on the part of Lender without
presentment, demand, protest or notice of any kind, all of which Borrower hereby
expressly waives. Upon the occurrence and continuance of any other Event of
Default, Lender may, at its election, without notice of its election and without
demand, immediately declare the Obligations to be due and payable, whereupon the
Obligations shall become immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which Borrower hereby expressly
waives.
(b) Termination of Revolving Credit Commitment. Upon the
------------------------------------------
occurrence of any Unmatured Event of Default or Event of Default, Lender may, at
its option, terminate the Revolving Credit Commitment and cease making Revolving
Loans to Borrower.
7.3 Remedies Cumulative. The rights and remedies of Lender herein and
-------------------
in the Loan Documents are cumulative, and are not exclusive of any other rights,
powers, privileges, or remedies, now or hereafter existing, at law, in equity or
otherwise.
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<PAGE>
ARTICLE VIII
------------
TAXES
-----
8.1 Taxes on Payments. All payments in respect of the Obligations
-----------------
shall be made free and clear of and without any deduction or withholding for or
on account of any present and future taxes, levies, imposts, deductions,
charges, withholdings, assessments or governmental charges, and all liabilities
with respect thereto, imposed by the United States of America, any foreign
government, or any political subdivision or taxing authority thereof or therein,
excluding any taxes imposed on Lender under the Internal Revenue Code or similar
state and local laws and determined by Lender's net income, and any franchise
taxes imposed on Lender by the State of New York (or any political subdivision
thereof) (all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings, assessments, charges and liabilities being hereinafter referred to
as "Taxes"). If any Taxes are imposed and required by law to be deducted or
withheld from any amount payable to Lender, then Borrower shall (i) increase the
amount of such payment so that Lender will receive a net amount (after deduction
of all Taxes) equal to the amount due hereunder, and (ii) pay such Taxes to the
appropriate taxing authority for the account of Lender prior to the date on
which penalties attach thereto or interest accrues thereon; provided, however,
-------- -------
if any such penalties or interest shall become due, Borrower shall make prompt
payment thereof to the appropriate taxing authority.
8.2 Indemnification For Taxes. Borrower shall indemnify Lender for
-------------------------
the full amount of Taxes (including penalties, interest, expenses and Taxes
arising from or with respect to any indemnification payment) arising therefrom
or with respect thereto, whether or not the Taxes were correctly or legally
asserted. This indemnification shall be made on demand.
8.3 Evidence of Payment. Within thirty (30) days after the date of
-------------------
payment of any Taxes, Borrower shall furnish to Lender the original or a
certified copy of a receipt evidencing payment thereof. If no Taxes are payable
in respect of any payment due hereunder or under the Notes, Borrower shall
furnish to Lender a certificate from each appropriate taxing authority, or an
opinion of counsel acceptable to Lender, in either case stating that such
payment is exempt from or not subject to Taxes.
ARTICLE IX
----------
MISCELLANEOUS
-------------
9.1 Notices. All notices, requests and other communications to any
-------
party hereunder shall be in writing (including facsimile transmission or similar
writing) and shall be given to such party at its address or facsimile number set
forth on the signature pages hereof or such other address or facsimile number as
such party may hereafter specify by notice to the other party in accordance with
this Section 9.1. Each such notice, request or other communication shall be
deemed given on the second business day after mailing; provided that actual
--------
notice, however and from whomever given or received, shall always be effective
on receipt; provided further that notices to Lender pursuant to Article II shall
--------
not be effective until received by a Responsible Officer of Lender; provided
--------
further that notices sent by Lender in connection with Sections 9504 or 9505 of
- -------
the New York Uniform Commercial Code shall be deemed given when
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<PAGE>
deposited in the mail or personally delivered, or, where permitted by law,
transmitted by facsimile.
9.2 No Waivers. No failure or delay by Lender in exercising any
----------
right, power or privilege hereunder or under any Loan Document shall operate as
a waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege.
9.3 Lender Expenses; Documentary Taxes; Indemnification.
---------------------------------------------------
(a) Borrower shall pay all Lender Expenses on demand.
(b) Borrower shall pay all and indemnify Lender against any and
all transfer taxes, documentary taxes, assessments, or charges made by any
Governmental Authority and imposed by reason of the execution and delivery of
this Agreement, any of the Loan Documents, or any other document, instrument or
agreement entered into in connection herewith.
(c) Borrower shall and hereby agrees to indemnify, protect,
defend and hold harmless Lender and its directors, officers, agents, employees
and attorneys (collectively, the "Indemnified Persons" and individually, an
-------------------
"Indemnified Person") from and against (i) any and all losses, claims, damages,
------------------
liabilities, deficiencies, judgments, costs and expenses (including attorneys'
fees and attorneys' fees incurred pursuant to proceedings arising under the
Bankruptcy Code) incurred by any Indemnified Person (except to the extent that
it is finally judicially determined to have resulted from the gross negligence
or willful misconduct of any Indemnified Person) arising out of or by reason of
any litigations, investigations, claims or proceedings (whether administrative,
judicial or otherwise), including discovery, whether or not Lender is designated
a party thereto, which arise out of or are in any way related to (1) this
Agreement, the Loan Documents or the transactions contemplated hereby or
thereby, (2) any actual or proposed use by Borrower of the proceeds of the
Loans, or (3) Lender's entering into this Agreement, the Loan Documents or any
other agreements and documents relating hereto; (ii) any such losses, claims,
damages, liabilities, deficiencies, judgments, costs and expenses arising out of
or by reason of the use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal or presence on, under or about
Borrower's operations or property or property leased by Borrower of any
material, substance or waste which is or becomes designated as Hazardous
Materials; (iii) any such losses, claims, damages, liabilities, deficiencies,
judgments, costs and expenses, penalties, fines and other sanctions arising from
any claim that Borrower's or any Subsidiaries' premises is not in compliance
with the requirements of the ADA; and (iv) any such losses, claims, damages,
liabilities, deficiencies, judgments, costs and expenses incurred in connection
with any remedial or other action taken by Borrower or Lender in connection with
compliance by Borrower with any federal, state or local environmental laws,
acts, rules, regulations, orders, directions, ordinances, criteria or guidelines
(except to the extent that it is finally judicially determined to have resulted
from the gross negligence or willful misconduct of any Indemnified Person). If
and to the extent that the obligations of Borrower hereunder are unenforceable
for any reason, Borrower hereby agrees to make the maximum contribution to the
payment and satisfaction of such obligations of Lender which is permissible
under applicable law.
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<PAGE>
(d) Borrower's obligations under this Section 9.3 and under
Section 8.2 shall survive any termination of this Agreement and the Loan
Documents and the payment in full of the Obligations, and are in addition to,
and not in substitution of, any other of its obligations set forth in this
Agreement.
9.4 Amendments and Waivers. Any provision of this Agreement or any of
----------------------
the Loan Documents to which Borrower is a party may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed by the party
asserted to be bound thereby, and then such amendment or waiver shall be
effective only in the specific instance and specific purpose for which given.
9.5 Successors and Assigns; Participations; Disclosure.
--------------------------------------------------
(a) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
except that Borrower may not assign or transfer any of its rights or obligations
under this Agreement without the prior written consent of Lender and any such
prohibited assignment or transfer by Borrower shall be void.
(b) Lender may make, carry or transfer the Loans at, to or for
the account of, any of its branch offices or the office of an Affiliate of
Lender or to any Federal Reserve Lender, all without Borrower's consent.
(c) Lender may, at its own expense, assign to one or more Lender
or other financial institutions all or a portion of its rights (including voting
rights) and obligations under this Agreement and the Loan Documents. In the
event of any such assignment by Lender pursuant to this Section 9.5(c), Lender's
obligations under this Agreement arising after the effective date of such
assignment shall be released and concurrently therewith, transferred to and
assumed by Lender's assignee to the extent provided for in the document
evidencing such assignment, and Lender shall give prompt notice of such
assignment to Borrower.
(d) Lender may at any time sell to one or more Lender or other
financial institutions (each a "Participant") participating interests in the
-----------
Loans, and in any other interest of Lender hereunder. In the event of any such
sale by Lender of a participating interest to a Participant, Lender's
obligations under this Agreement shall remain unchanged, Lender shall remain
solely responsible for the performance thereof, and Borrower shall continue to
deal solely and directly with Lender in connection with Lender's rights and
obligations under this Agreement. Borrower agrees that each Participant shall,
to the extent provided in its participation agreement, be entitled to the
benefits of Article VIII with respect to its participating interest.
(e) Borrower authorizes Lender to disclose to any assignee under
Section 9.5(c) or any Participant (either, a "Transferee") and any prospective
----------
Transferee any and all financial information in Lender's possession concerning
Borrower which has been delivered to Lender by Borrower pursuant to this
Agreement or which has been delivered to Lender by Borrower in connection with
Lender's credit evaluation prior to entering into this Agreement.
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<PAGE>
(f) Borrower agrees that Lender may use Borrower's name in
advertising and promotional materials, and in conjunction therewith, Lender may
disclose the amount of the Loans and the purpose thereof. Lender agree that they
shall seek prior approval of such materials from Borrower which approval shall
not be unreasonably withheld or delayed.
9.6 Counterparts; Effectiveness; Integration. This Agreement may be
----------------------------------------
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall be effective when executed by each of the
parties hereto. This Agreement constitutes the entire agreement and
understanding among the parties hereto and supersedes any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof, EXCEPT that a certain retainer letter dated December 21, 1999 and the
Standard Terms and Conditions attached thereto, executed by Lender and Borrower,
attached hereto as Exhibit 9.6(a) shall and hereby do survive the execution of
this Agreement, remain in full force and effect and all of the provisions
therein are incorporated into this Agreement by reference as though set forth
herein in full.
9.7 Severability. The provisions of this Agreement are severable. The
------------
invalidity, in whole or in part, of any provision of this Agreement shall not
affect the validity or enforceability of any other of its provisions. If one or
more provisions hereof shall be declared invalid or unenforceable, the remaining
provisions shall remain in full force and effect and shall be construed in the
broadest possible manner to effectuate the purposes hereof.
9.8 Governing Law. This Agreement shall be deemed to have been made
-------------
in the State of New York and the validity, construction, interpretation, and
enforcement hereof, and the rights of the parties hereto, shall be determined
under, governed by, and construed in accordance with the internal laws of the
State of New York, without regard to principles of conflicts of law. This
Agreement, the Retainer Agreement executed simultaneously herewith and any other
matters hereunder shall be governed by and construed in accordance with the
internal laws of the State of New York, including, without limitation, Sections
5-1401 and 5-1402 of the New York General Obligations Law and Rule 327(b) of the
New York Civil Practice Law and Rules.
9.9 Judicial Reference.
------------------
(a) (a) Other than (i) nonjudicial foreclosure and all matters
in connection therewith regarding security interests in real or personal
property; or (ii) the appointment of a receiver, or the exercise of other
provisional remedies (any and all of which may be initiated pursuant to
applicable law), each controversy, dispute or claim between the parties arising
out of or relating to this Agreement, which controversy, dispute or claim is not
settled in writing within thirty (30) days after the "Claim Date" (defined as
----------
the date on which a party subject to this Agreement gives written notice to all
other parties that a controversy, dispute or claim exists), shall be governed by
and construed in accordance with the internal laws of the State of New York,
including, without limitation, Sections 5-1401 and 5-1402 of the New York
General Obligations Law and Rule 327(b) of the New York Civil Practice Law and
Rules. Lender and Borrower hereby irrevocably submit the to non-exclusive
jurisdiction of the federal and New York State courts located in the City, the
Borough of Manhattan in connection with any
-32-
<PAGE>
suit, action or proceeding related to this Agreement or any of the matters
contemplated hereby, irrevocably waive any defense of lack of personal
jurisdiction and irrevocably agree that all claims in respect of any suit,
action or proceeding any be heard and determined in any such court. Lender and
Borrower irrevocably waive, to the fullest extent they may effectively do so
under applicable law, any objections which they may now or hereafter have to the
laying of venue of any such suit, action or proceeding brought in any such court
and any claim that any such suit, action or proceeding brought in any such court
has been brought in any inconvenient forum.
[Remainder of this page intentionally left blank]
-33-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
BORROWER: PC Support.com, Inc.
By /s/ Michael G. McLean
--------------------------
Title: President and CEO
----------------------
Address for Notices:
Suite 230, 4400 Dominion Street
Burnaby, B.C., Canada V5G 4G
Attn: Mr. Michael G. McLean
President and CEO
Telephone: (604) 419-4490
Facsimile: (604) 419-4494
With a copy to:
Sanford J. Hillsberg, Esq.
Troy & Gould
1801 Century Park East
Suite 1600
Los Angeles, CA 90067
LENDER: ICE Holdings North America, LLC
By /s/ Andrew Smith
--------------------------
Title: Managing Director
----------------------
Address for Notices:
645 Madison Avenue
13/th/ Floor
New York, New York 10022
With a copy to:
James D. Fornari, Esq.
645 Madison Avenue
13/th/ Floor
New York, New York 10022
-34-
<PAGE>
FORM OF SECURED REVOLVING NOTE
------------------------------
$1,000,000 New York, New York
________ __, 2000
1. FOR VALUE RECEIVED, PC Support.com, Inc., a Nevada corporation,
("Maker"), promises to pay to the order of ICE HOLDINGS NORTH AMERICA, LLC.,
-----
("Payee"), on or before the Maturity Date, the principal sum of One Million
-----
Dollars ($1,000,000), or such lesser sum as shall equal the aggregate
outstanding principal amount of the Revolving Loans made by Payee to Maker
pursuant to the Agreement (as defined below).
2. This Secured Revolving Note (this "Note") shall bear interest at a per
----
annum rate equal to eleven (11%) per cent per annum (the "Lending Rate"). All
------------
computations of interest shall be calculated on the basis of a year of three
hundred sixty (360) days for the actual days elapsed. Interest shall accrue from
the date of this Note to the date of repayment of this Note in accordance with
the provisions hereof. Maker shall pay all accrued but unpaid interest on the
Revolving Loans, in arrears, on the first Business Day of each and every month.
As used herein, "Business Day" means any day other than a Saturday, a Sunday, or
------------
a day on which commercial banks in the City of New York, New York are authorized
or required by law or executive order or decree to close.
3. Maker hereby authorizes Payee to record in its books and records the
date and amount of each Revolving Loan, and of each payment of principal made by
Maker, and Maker agrees that all such notations shall, in the absence of
manifest error, be conclusive as to the matters so noted; provided, however, any
-------- -------
failure by Payee to make such notation with respect to any Revolving Loan or
payment thereof shall not limit or otherwise affect Maker's obligations under
the Agreement or this Note.
4. If any payment due hereunder or under the Agreement shall not be paid
when due (whether at the stated maturity, by acceleration or otherwise), in
addition to and not in substitution of any other rights and remedies which Payee
may have with respect to such nonpayment, the entire principal balance owing
hereunder shall bear interest at the Lending Rate plus five hundred (500) basis
----
points until such overdue payment is paid in full. In addition, interest, Bank
Expenses and Fees due hereunder or under the Agreement not paid when due shall
bear interest at the Lending Rate plus five hundred (500) basis points until
----
such overdue payment is paid in full.
5. If any payment due hereunder, whether for principal, interest, or
otherwise, is not paid on or before the tenth day after the date such payment is
due, in addition to and not in substitution of any of Payee's other rights and
remedies with respect to such nonpayment, Maker shall pay to Payee, a late
payment fee ("Late Payment Fee") equal to five percent (5%) of the amount of
----------------
such overdue payment. The Late Payment Fee shall be due and payable on the
eleventh day after the due date of the overdue payment with respect thereto.
6. Maker shall make all payments hereunder in lawful money of the United
States of America and in immediately available funds to Payee at Payee's office
located at 645 Madison
<PAGE>
Avenue, 13/th/ Floor, New York, New York 10022 or to such other address as Payee
may from time to time specify by notice to Maker in accordance with the terms of
the Agreement.
7. In no event shall the interest rate and other charges hereunder exceed
the highest rate permissible under any law which a court of competent
jurisdiction shall, in a final determination, deem applicable hereto. In the
event that such a court determines that Payee has received interest and other
charges hereunder in excess of the highest rate applicable hereto, such excess
shall be deemed received on account of, and shall automatically be applied to
reduce, the principal balance hereof, and the provisions hereof shall be deemed
amended to provide for the highest permissible rate. If there is no principal
balance outstanding, Payee shall refund to Maker such excess.
8. This Note is the Revolving Note referred to in that certain Revolving
Credit Agreement, of even date herewith (as may be at any time hereafter
amended, supplemented, or otherwise modified or restated, the "Agreement"), by
---------
and between Maker, as Borrower, and Payee, as Lender, and is governed by the
terms thereof. Initially capitalized terms used but not defined herein shall
have the meanings assigned to such terms in the Agreement. The Agreement, among
other things, contains provisions for acceleration of the maturity of this Note
upon the happening of certain stated events and also for prepayments on account
of principal of this Note prior to the maturity hereof upon the terms and
conditions specified in the Agreement.
9. This Note is secured by the Liens granted to Payee under the Loan
Documents.
10. Maker hereby waives presentment for payment, notice of dishonor,
protest and notice of protest.
11. Governing Law. This Agreement shall be deemed to have been made in
-------------
the State of New York and the validity, construction, interpretation, and
enforcement hereof, and the rights of the parties hereto, shall be determined
under, governed by, and construed in accordance with the internal laws of the
State of New York, without regard to principles of conflicts of law. This
Agreement, the Retainer Agreement executed simultaneously herewith and any other
matters hereunder shall be governed by and construed in accordance with the
internal laws of the State of New York, including, without limitation, Sections
5-1401 and 5-1402 of the New York General Obligations Law and Rule 327(b) of the
New York Civil Practice Law and Rules.
12. Judicial Reference
------------------
Other than (i) nonjudicial foreclosure and all matters
in connection therewith regarding security interests in real or personal
property; or (ii) the appointment of a receiver, or the exercise of other
provisional remedies (any and all of which may be initiated pursuant to
applicable law), each controversy, dispute or claim between the parties arising
out of or relating to this Agreement, which controversy, dispute or claim is not
settled in writing within thirty (30) days after the "Claim Date" (defined as
----------
the date on which a party subject to this Agreement gives written notice to all
other parties that a controversy, dispute or claim exists), shall be governed by
and construed in accordance with the internal laws of the State of New York,
including, without limitation, Sections 5-1401 and 5-1402 of the New York
General Obligations Law and Rule 327(b) of the New York Civil Practice Law and
Rules. Lenders and
<PAGE>
Borrower hereby irrevocably submit the to non-exclusive jurisdiction of the
federal and New York State courts located in the City, the Borough of Manhattan
in connection with any suit, action or proceeding related to this Agreement or
any of the matters contemplated hereby, irrevocably waive any defense of lack of
personal jurisdiction and irrevocably agree that all claims in respect of any
suit, action or proceeding any be heard and determined in any such court.
Lenders and Borrower irrevocably waive, to the fullest extent they may
effectively do so under applicable law, any objections which they may now or
hereafter have to the laying of venue of any such suit, action or proceeding
brought in any such court and any claim that any such suit, action or proceeding
brought in any such court has been brought in any inconvenient forum.
IN WITNESS WHEREOF, Maker has duly executed this Note as of the date
first above written.
Maker: PC Support.com, Inc.
By
------------------------------
Title
---------------------------
<PAGE>
EXHIBIT 5.36
This SECURITY AGREEMENT, dated as of January ___, 2000, is entered
into between Borrower and Lender, with reference to the following facts:
R E C I T A L S
A. Borrower and Lender are contemporaneously herewith entering into
the Revolving Credit Agreement; and
B. In order to induce Lender to enter into the Revolving Credit
Agreement, Borrower has agreed to enter into this Security Agreement in order to
grant to Lender a first priority security interest in the Collateral to secure
prompt payment and performance of the Secured Obligations.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual promises, covenants,
conditions, representations, and warranties hereinafter set forth, and for other
good and valuable consideration, the parties hereto agree as follows:
1. Definitions. All initially capitalized terms used but not defined
herein shall have the meanings ascribed thereto in the Revolving Credit
Agreement. In addition, as used herein, the following terms shall have the
following meanings:
"Account Debtor" means any Person who is or who may become
--------------
obligated with respect to, or on account of, an Account.
"Accounts" means any and all of Borrower's presently existing and
--------
hereafter arising accounts and rights to payment, except those evidenced by
Negotiable Collateral, arising out of the sale or lease of goods or the
rendition of services by Borrower, irrespective of whether earned by
performance.
"Borrower" means PC Support.com, Inc., a Nevada corporation.
--------
"Borrower's Books" means any and all presently existing and
----------------
hereafter acquired or created books and records of Borrower, including all
records (including maintenance and warranty records), ledgers, computer
programs, disc or tape files, printouts, runs, and other computer prepared
information indicating, summarizing, or evidencing the Accounts, Deposit
Accounts, Equipment, Inventory, Investment Property, General Intangibles and
Negotiable Collateral.
"Chattel Paper" means all writings of whatever sort which evidence
-------------
a monetary obligation and a security interest in or lease of specific goods,
whether now existing or hereafter arising.
1
<PAGE>
"Code" means the New York Uniform Commercial Code except, to the
----
extent applicable, the Uniform Commercial Code as adopted by the jurisdiction in
which any of the Collateral is located. Any and all terms used in this Security
Agreement which are defined in the Code shall be construed and defined in
accordance with the meaning and definition ascribed to such terms under the
Code, unless otherwise defined herein.
"Collateral" means all present and after acquired personal
----------
property and Intellectual Property Collateral, including the following,
collectively: any and all of the Accounts, Deposit Accounts, Equipment,
Inventory, Investment Property, General Intangibles, Negotiable Collateral, and
Borrower's Books, in each case whether now existing or hereafter acquired or
created, and any Proceeds or products of any of the foregoing, or any portion
thereof, and any and all Accounts, Deposit Accounts, Equipment, Inventory,
Investment Property, General Intangibles, Negotiable Collateral, money, or other
tangible or intangible property, resulting from the sale or other disposition of
the Accounts, Deposit Accounts, Equipment, Inventory, Investment Property,
General Intangibles, or Negotiable Collateral, or any portion thereof or
interest therein, and the substitutions, replacements, additions, accessions,
products and Proceeds thereof.
"Deposit Account" means any demand, time, savings, passbook or
---------------
like account now or hereafter maintained by or for the benefit of Borrower with
a Lender, savings and loan association, credit union or like organization, and
all funds and amounts therein, whether or not restricted or designated for a
particular purpose.
"Documents" means any and all documents of title, bills of lading,
---------
dock warrants, dock receipts, warehouse receipts and other documents of
Borrower, whether or not negotiable, and includes all other documents which
purport to be issued by a bailee or agent and purport to cover goods in any
bailee's or agent's possession which are either identified or are fungible
portions of an identified mass, including such documents of title made available
to Borrower for the purpose of ultimate sale or exchange of goods or for the
purpose of loading, unloading, storing, shipping, transshipping, manufacturing,
processing or otherwise dealing with goods in a manner preliminary to their sale
or exchange, in each case whether now existing or hereafter acquired.
"Equipment" means any and all of Borrower's presently existing and
---------
hereafter acquired machinery, equipment, furniture, furnishings, fixtures,
computer and other electronic data processing equipment and other office
equipment and supplies, computer programs and related data processing software,
spare parts, tools, motors, automobiles, trucks, tractors and other motor
vehicles, rolling stock, jigs, and other goods (other than Inventory, farm
products, and consumer goods), of every kind and description, wherever located,
together with any and all parts, improvements, additions, attachments,
replacements, accessories, and substitutions thereto or therefor, and all other
rights of Borrower relating thereto, whether in the possession and control of
Borrower, or in the possession and control of a third party for the account of
Borrower.
"FEIN" means Federal Employer Identification Number.
----
2
<PAGE>
"General Intangibles" means any and all of Borrower's presently
-------------------
existing and hereafter acquired or arising general intangibles and other
intangible personal property of every kind and description, including:
(a) contracts and contract rights, noncompetition
covenants, licensing and distribution agreements, indemnity agreements,
guaranties, insurance policies, franchise agreements and lease agreements;
(b) deposit accounts, uncertificated certificates of
deposit, uncertificated securities, and interests in any joint ventures,
partnerships or limited liability companies;
(c) choses in action and causes of action (whether legal or
equitable, whether in contract or tort or otherwise, and however arising);
(d) licenses, approvals, permits or any other
authorizations issued by any Government Authority;
(e) Intellectual Property Collateral;
(f) computer software, magnetic media, electronic data
processing files, systems and programs;
(g) rights of stoppage in transit, replevin and
reclamation, rebates or credits of every kind and nature to which Borrower may
be entitled;
(h) purchase orders, customer lists, subscriber lists and
goodwill;
(i) monies due or recoverable from pension funds, refunds
and claims for tax or other refunds against any Governmental Authority; and
(j) other contractual, equitable and legal rights of
whatever kind and nature.
"Instruments" means any and all negotiable instruments,
-----------
certificated securities and every other writing which evidences a right to the
payment of money, in each case whether now existing or hereafter acquired.
"Intellectual Property Collateral" means the following Assets
--------------------------------
owned or held by Borrower or in which Borrower otherwise has any interest, now
existing or hereafter acquired or arising:
(a) all patents and patent applications, domestic or
foreign, all licenses relating to any of the foregoing and all income and
royalties with respect to any licenses, all rights to sue for past, present or
future infringement thereof, all rights arising therefrom and pertaining thereto
and all reissues, divisions, continuations, renewals, extensions and
continuations in-part thereof;
3
<PAGE>
(b) all copyrights and applications for copyright, domestic
or foreign, together with the underlying works of authorship (including titles),
whether or not the underlying works of authorship have been published and
whether said copyrights are statutory or arise under the common law, and all
other rights and works of authorship, all rights, claims and demands in any way
relating to any such copyrights or works, including royalties and rights to sue
for past, present or future infringement, and all rights of renewal and
extension of copyright;
(c) all state (including common law), federal and foreign
trademarks, service marks and trade names, and applications for registration of
such trademarks, service marks and trade names, all licenses relating to any of
the foregoing and all income and royalties with respect to any licenses, whether
registered or unregistered and wherever registered, all rights to sue for past,
present or future infringement or unconsented use thereof, all rights arising
therefrom and pertaining thereto and all reissues, extensions and renewals
thereof;
(d) all trade secrets, confidential information, customer
lists, license rights, advertising materials, operating manuals, methods,
processes, know-how, sales literature, sales and operating plans, drawings,
specifications, blue prints, descriptions, inventions, name plates and catalogs;
and
(e) the entire goodwill of or associated with the businesses
now or hereafter conducted by Borrower connected with and symbolized by any of
the aforementioned properties and assets.
"Inventory" means any and all of Borrower's presently existing and
---------
hereafter acquired goods of every kind and description (including goods in
transit) which are held for sale or lease, or to be furnished under a contract
of service or which have been so leased or furnished, or other disposition,
wherever located, including those held for display or demonstration or out on
lease or consignment or are raw materials, work in process, finished materials,
or materials used or consumed, or to be used or consumed, in Borrower's
business, and the resulting product or mass, and all repossessed, returned,
rejected, reclaimed and replevied goods, together with all materials, parts,
supplies, packing and shipping materials used or usable in connection with the
manufacture, packing, shipping, advertising, selling or furnishing of such
goods; and all other items hereafter acquired by Borrower by way of
substitution, replacement, return, repossession or otherwise, and all additions
and accessions thereto, and any Document representing or relating to any of the
foregoing at any time.
"Investment Property" has the meaning given to such term in the
-------------------
Code.
"Lender" means ICE Holdings North America, LLC, a Delaware
------
Limited Liability Company.
"Lender Expenses" shall have the meaning assigned to such term in
---------------
the Revolving Credit Agreement and shall also mean: any and all costs or
expenses required to be paid by Borrower under this Security Agreement which are
paid or advanced by Lender; all costs and expenses of Lender, including its
attorneys' fees and expenses (including attorneys' fees incurred pursuant to
proceedings arising under the Bankruptcy Code), incurred or expended to correct
any default or enforce any provision of this Security Agreement, or in gaining
possession
4
<PAGE>
of, maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Collateral, irrespective of whether a sale is
consummated; and all costs and expenses of suit incurred or expended by Lender,
including its attorneys' fees and expenses (including attorneys' fees incurred
pursuant to proceedings arising under the Bankruptcy Code) in enforcing or
defending this Security Agreement, irrespective of whether suit is brought.
"Revolving Credit Agreement" means that certain Agreement, dated
--------------------------
as of even date herewith, between Borrower and Lender, as may be at any time
hereafter supplemented, modified, amended or restated.
"Negotiable Collateral" means any and all of Borrower's presently
---------------------
existing and hereafter acquired or arising letters of credit, advises of credit,
certificates of deposit, notes, drafts, Instruments, Documents and Chattel
Paper.
"Proceeds" means whatever is receivable or received from or upon
--------
the sale, lease, license, collection, use, exchange or other disposition,
whether voluntary or involuntary, of any Collateral, including "proceeds" as
defined in Section 9-306 of the Code, any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to or for the account of Borrower from
time to time with respect to any of the Collateral, any and all payments (in any
form whatsoever) made or due and payable to Borrower from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any Governmental Authority
(or any Person acting under color of Governmental Authority), any and all other
amounts from time to time paid or payable under or in connection with any of the
Collateral or for or on account of any damage or injury to or conversion of any
Collateral by any Person, any and all other tangible or intangible property
received upon the sale or disposition of Collateral, and all proceeds of
proceeds.
"Rights to Payment" means all Accounts and any and all rights and
-----------------
claims to the payment or receipt of money or other forms of consideration of any
kind in, to and under all General Intangibles, Negotiable Collateral and
Proceeds thereof.
"Secured Obligations" shall have the meaning of "Obligations"
-------------------
under the Revolving Credit Agreement and shall also mean any and all debts,
liabilities, obligations, or undertakings owing by Borrower to Lender arising
under, advanced pursuant to, or evidenced by this Security Agreement, whether
direct or indirect, absolute or contingent, matured or unmatured, due or to
become due, voluntary or involuntary, whether now existing or hereafter arising,
and including all interest not paid when due and all Lender Expenses which
Borrower is required to pay or reimburse pursuant to this Security Agreement,
the Revolving Credit Agreement, the other Loan Documents or by law.
"Security Agreement" shall mean this Security Agreement, any
------------------
concurrent or subsequent riders, exhibits or schedules to this Security
Agreement, and any extensions, supplements, amendments, or modifications to or
in connection with this Security Agreement, or to any such riders, exhibits or
schedules.
2. Construction. Unless the context of this Security Agreement
------------
clearly requires otherwise, references to the plural include the singular,
references to the singular include
5
<PAGE>
the plural, the part includes the whole, "including" is not limiting, and "or"
has the inclusive meaning represented by the phrase "and/or." References in this
Security Agreement to "determination" by Lender include reasonable estimates
(absent manifest error) by Lender, as applicable (in the case of quantitative
determinations) and reasonable beliefs (absent manifest error) by Lender, as
applicable (in the case of qualitative determinations). The words "hereof,"
"herein," "hereby," "hereunder," and similar terms in this Security Agreement
refer to this Security Agreement as a whole and not to any particular provision
of this Security Agreement. Article, section, subsection, exhibit, and schedule
references are to this Security Agreement unless otherwise specified.
3. Creation of Security Interest. Borrower hereby grants to Lender a
-----------------------------
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure the prompt payment and performance of all
of the Secured Obligations. Borrower acknowledges and affirms that such security
interest in the Collateral has attached to all Collateral without further act on
the part of Lender or Borrower.
4. Further Assurances.
------------------
4.1 Borrower shall execute and deliver to Lender concurrently
with Borrower's execution of this Security Agreement, and from time to time at
the request of Lender, all financing statements, continuation financing
statements, fixture filings, security agreements, chattel mortgages,
assignments, and all other documents that Lender may request, in form
satisfactory to Lender, to perfect and maintain perfected Lender's security
interests in the Collateral and in order to consummate fully all of the
transactions contemplated by this Security Agreement and the Revolving Credit
Agreement. Borrower hereby irrevocably makes, constitutes, and appoints Lender
(and Lender's officers, employees, or agents) as Borrower's true and lawful
attorney with power to sign the name of Borrower on any of the above-described
documents or on any other similar documents which need to be executed, recorded,
or filed, and to do any and all things necessary in the name and on behalf of
Borrower in order to perfect, or continue the perfection of, Lender's security
interests in the Collateral. Borrower agrees that neither Lender, nor any of its
designees or attorneys-in-fact, will be liable for any act of commission or
omission, or for any error of judgment or mistake of fact or law with respect to
the exercise of the power of attorney granted under this Section 4.1, other than
as a result of its or their gross negligence or willful misconduct. THE POWER OF
ATTORNEY GRANTED UNDER THIS SECTION 4.1 IS COUPLED WITH AN INTEREST AND SHALL BE
IRREVOCABLE UNTIL ALL OF THE SECURED OBLIGATIONS HAVE BEEN INDEFEASIBLY PAID IN
FULL, THE REVOLVING CREDIT AGREEMENT TERMINATED, AND ALL BORROWER'S DUTIES
HEREUNDER AND THEREUNDER HAVE BEEN DISCHARGED IN FULL.
4.2 Without limiting the generality of the foregoing Section 4.1
or any of the provisions of the Revolving Credit Agreement, Borrower will: (i)
at the request of Lender, mark conspicuously all of its records pertaining to
the Collateral with a legend, in form and substance satisfactory to Lender,
indicating that the Collateral is subject to the security interest granted
hereby; (ii) at the request of Lender, appear in and defend any action or
proceeding which may affect Borrower's title to, or the security interest of
Lender in, any of the Collateral;
6
<PAGE>
and (iii) upon demand of Lender, allow inspection of Collateral by Lender or
Persons designated by Lender at any time during normal business hours.
4.3 With respect to the Negotiable Collateral (other than drafts
received in the ordinary course of business so long as no Event of Default is
continuing), Borrower shall, immediately upon request by Lender, endorse (where
appropriate) and assign the Negotiable Collateral over to Lender, and deliver to
Lender actual physical possession of the Negotiable Collateral to Lender
together with any instruments of transfer or assignment, all in form and
substance satisfactory to Lender, in order to fully perfect the security
interest therein of Lender.
4.4 Borrower shall cooperate with Lender in obtaining a control
agreement in form and substance satisfactory to Lender with respect to all
Deposit Accounts and Investment Property.
5. Representations and Warranties. In order to induce Lender to
------------------------------
enter into the Revolving Credit Agreement and to make Loans to Borrower, in
addition to the representations and warranties of Borrower set forth in the
Revolving Credit Agreement which are incorporated herein by this reference,
Borrower represents and warrants to Lender that on the Closing Date and
thereafter on the date of each and every Borrowing:
5.1 Location of Chief Executive Office and Collateral; FEIN.
-------------------------------------------------------
Borrower's chief executive office is located at the address set forth in
Schedule 1, and all other locations where Borrower conducts business or
Collateral is kept are set forth in Schedule 1. Borrower's FEIN is 98-0211769.
5.2 Locations of Borrower's Books. All locations where
-----------------------------
Borrower's Books are kept, including all equipment necessary for accessing
Borrower's Books and the names and addresses of all service bureaus, computer or
data processing companies and other Persons keeping Borrower's Books or
collecting Rights to Payment for Borrower, are set forth in Schedule 1.
5.3 Trade Names and Trade Styles. All trade names and trade
----------------------------
styles under which Borrower presently conducts its business operations are set
forth in Schedule 1, and, except as set forth in Schedule 1, Borrower has not,
at any time during the preceding five years: (i) been known as or used any other
corporate, trade or fictitious name; (ii) changed its name; (iii) been the
surviving or resulting corporation in a merger or consolidation; or (iv)
acquired through asset purchase or otherwise any business of any Person.
5.4 Ownership of Collateral. Borrower is and shall continue to
-----------------------
be the sole and complete owner of the Collateral, free from any Lien other than
Permitted Liens.
5.5 Enforceability; Priority of Security Interest. (i) This
---------------------------------------------
Security Agreement creates a security interest which is enforceable against the
Collateral in which Borrower now has rights and will create a security interest
which is enforceable against the Collateral in which Borrower hereafter acquires
rights at the time Borrower acquires any such rights, and (ii) Lender has a
perfected security interest (to the fullest extent perfection can be obtained by
filing, notification to third parties, possession or control) and a first
priority security interest in the Collateral in which Borrower now has rights
(subject only to Permitted Liens), and will have a perfected and first priority
security
7
<PAGE>
interest in the Collateral in which Borrower hereafter acquires rights at the
time Borrower acquires any such rights (subject only to Permitted Liens), in
each case securing the payment and performance of the Secured Obligations.
5.6 Other Financing Statements. Other than financing statements
--------------------------
in favor of Lender and financing statements filed in connection with Permitted
Liens, no effective financing statement naming Borrower as debtor, assignor,
grantor, mortgagor, pledgor or the like and covering all or any part of the
Collateral is on file in any filing or recording office in any jurisdiction.
5.7 Rights to Payment.
-----------------
(a) the Rights to Payment represent valid, binding and
enforceable obligations of the Account Debtors or other Persons obligated
thereon, representing undisputed, bona fide transactions completed in accordance
with the terms and provisions contained in any documents related thereto, and
are and will be genuine, free from Liens, adverse claims, counterclaims,
setoffs, defaults, disputes, defenses, retainages, holdbacks and conditions
precedent of any kind of character, except to the extent reflected by Borrower's
reserves for uncollectible Rights to Payment;
(b) all Account Debtors and other obligors on the Rights to
Payment are Solvent and generally paying their debts as they come due;
(c) all Rights to Payment comply with all applicable laws
concerning form, content and manner of preparation and execution, including
where applicable any federal and state consumer credit laws;
(d) Borrower has not assigned any of its rights under the
Rights to Payment other than to Lender pursuant to this Security Agreement;
(e) all statements made, all unpaid balances and all other
information in Borrower's Books and other documentation relating to the Rights
to Payment are true and correct and in all respects what they purport to be; and
(f) Borrower has no knowledge of any fact or circumstance
which would impair the validity or collectibility of any of the Rights to
Payment.
5.8 Inventory. No Inventory is stored with any bailee,
---------
warehouseman or similar Person or on any premises leased to Borrower, nor has
any Inventory been consigned to Borrower or consigned by Borrower to any Person
or is held by Borrower for any Person under any "bill and hold" or other
arrangement.
5.9 Intellectual Property.
---------------------
(a) except as set forth in Schedule 1, Borrower (directly or
----------
through any Subsidiary) does not own, possess or use under any licensing
arrangement any patents, copyrights, trademarks, service marks or trade names,
nor is there currently pending
8
<PAGE>
before any Governmental Authority any application for registration of any
patent, copyright, trademark, service mark or trade name;
(b) all patents, copyrights, trademarks, service marks and
trade names are subsisting and have not been adjudged invalid or unenforceable
in whole or in part;
(c) all maintenance fees required to be paid on account of
any patents have been timely paid for maintaining such patents in force, and, to
the best of Borrower's knowledge, each of the patents is valid and enforceable
and Borrower has notified Lender in writing of all prior art (including public
uses and sales) of which it is aware;
(d) to the best of Borrower's knowledge after due inquiry,
no infringement or unauthorized use presently is being made of any Intellectual
Property Collateral by any Person ;
(e) Borrower is the sole and exclusive owner of the
Intellectual Property Collateral and the past, present and contemplated future
use of such Intellectual Property Collateral by Borrower has not, does not and
will not infringe or violate any right, privilege or license agreement of or
with any other Person; and
(f) Borrower owns, has material rights under, is a party to,
or an assignee of a party to all material licenses, patents, patent
applications, copyrights, service marks, trademarks, trademark applications,
trade names and all other intellectual property Collateral necessary to continue
to conduct its business as heretofore conducted.
5.10 Equipment.
---------
(a) none of the Equipment or other Collateral is affixed to
real property, except Collateral with respect to which Borrower has supplied
Lender with all information and documentation necessary to make all fixture
filings required to perfect and protect the priority of Lender's security
interest in all such Collateral which may be fixtures as against all Persons
having an interest in the premises to which such property may be affixed; and
(b) none of the Equipment is leased from or to any Person,
except as set forth in Schedule 1.
----------
5.11 Deposit Accounts. The names and addresses of all financial
----------------
institutions at which Borrower maintains its Deposit Accounts, and the account
numbers and account names of such Deposit Accounts, are set forth in Schedule 1.
----------
5.12 Investment Property. All Investment Property is set forth
-------------------
and described in Schedule 1, and all financial institutions or financial
----------
intermediaries holding or in possession of such Investment Property are set
forth in Schedule 1.
----------
6. Covenants. In addition to the covenants of Borrower set forth in
---------
the Revolving Credit Agreement which are incorporated herein by this reference,
Borrower agrees that from the Closing Date and thereafter until the indefeasible
payment, performance and
9
<PAGE>
satisfaction in full of the Secured Obligations, and all of Lender's obligations
under the Revolving Credit Agreement to Borrower have been terminated:
6.1 Defense of Collateral. Borrower shall appear in and defend
---------------------
any action, suit or proceeding which may affect its title to or right or
interest in, or Lender's right or interest in, the Collateral.
6.2 Preservation of Collateral. Borrower shall do and perform
--------------------------
all acts that may be necessary and appropriate to maintain, preserve and protect
the Collateral.
6.3 Compliance with Laws, Etc. Borrower shall comply with all
-------------------------
laws, regulations and ordinances, and all policies of insurance, relating to the
possession, operation, maintenance and control of the Collateral.
6.4 Location of Borrower's Books and Chief Executive Office.
-------------------------------------------------------
Borrower shall: (i) keep all Borrower's Books at the locations set forth in
Schedule 1; and (ii) maintain the location of Borrower's chief executive office
- ----------
or principal place of business at the location set forth in Schedule 1;
----------
provided, however, that Borrower may amend Schedule 1 so long as (i) such
- -------- -------
amendment occurs by written notice to Lender not less than 30 days prior to the
date on which the location of Borrower's Books or Borrower's chief executive
office or principal place of business is changed, and (ii) at the time of such
written notification, Borrower executes and delivers any financing statement
amendments or fixture filing amendments necessary to perfect or continue
perfected Lender's security interests in the Collateral and also obtains for
Lender such duly executed Collateral Access Agreement as Lender shall require
with respect to such new location.
6.5 Location of Collateral. Borrower shall keep the Inventory
----------------------
and Equipment only at the locations identified on Schedule 1; provided, however,
---------- -------- -------
that Borrower may amend Schedule 1 so long as (i) such amendment occurs by
----------
written notice to Lender not less than 30 days prior to the date on which the
Inventory or Equipment is moved to such new location, (ii) such new location is
within the continental United States, and (iii) at the time of such written
notification, Borrower executes and delivers any financing statements or fixture
filings necessary to perfect and continue perfected Lender's security interests
in such Assets and also obtains for Lender such duly executed Collateral Access
Agreement as Lender shall require with respect to such new location.
6.6 Change in Name, Trade Name, Trade Style or FEIN. Borrower
-----------------------------------------------
shall not change its name, trade names, trade styles or FEIN, or add any new
trade names or trade styles from those listed on Schedule 1; provided, however,
---------- -------- -------
that Borrower may amend Schedule 1 so long as (i) such amendment occurs by
----------
written notice to Lender not less than 30 days prior to the date on which such
new name, trade name, trade style or FEIN becomes effective, and (ii) at the
time of such written notification, Borrower executes and delivers any financing
statement amendments or fixture filing amendments necessary to continue
perfected Lender's security interests in the Collateral.
6.7 Maintenance of Records. Borrower shall keep separate,
accurate and complete Borrower's Books, disclosing Lender's security interest
hereunder.
10
<PAGE>
6.8 Disposition of Collateral. Borrower shall not surrender or
-------------------------
lose possession of (other than to Lender), sell, lease, rent, or otherwise
dispose of or transfer any of the Collateral or any right or interest therein,
except to the extent permitted by the Revolving Credit Agreement.
6.9 Liens. Borrower shall keep the Collateral free of all Liens
-----
except Permitted Liens.
6.10 Leased Premises. At Lender's request, Borrower shall obtain
---------------
from each Person from whom Borrower leases any premises at which any Collateral
is at any time present, such Collateral Access Agreements as Lender may require.
6.11 Rights to Payment. Borrower shall:
-----------------
(a) perform and observe all terms and provisions of the
Rights to Payment and all obligations to be performed or observed by it in
connection therewith and maintain the Rights to Payment in full force and
effect;
(b) enforce all Rights to Payment strictly in accordance
with their terms, and take all such action to such end as may be from time to
time reasonably requested by Lender;
(c) if, to the knowledge of Borrower, any dispute, setoff,
claim, counterclaim or defense shall exist or shall be asserted or threatened
with respect to a Right to Payment (whether with or against Borrower or
otherwise), disclose such fact fully to Lender in Borrower's Books relating to
such Account or other Right to Payment and in connection with any report
furnished by Borrower to Lender relating to such Right to Payment;
(d) furnish to Lender such information and reports
regarding the Rights to Payment as Lender may request, and upon request of
Lender make such demands and requests for information and reports as Borrower is
entitled to make in respect of the Rights to Payment; and
(e) upon the occurrence of any Event of Default, establish
such lockbox or similar arrangements for the payment of the Rights to Payment as
Lender shall require.
6.12 Inventory. Borrower shall:
---------
(a) at such times as Lender shall request, prepare and
deliver to Lender periodic reports pertaining to the Inventory, in form and
substance satisfactory to Lender;
(b) upon the request of Lender, take a physical listing of
the Inventory and promptly deliver a copy of such physical listing to Lender;
(c) not store any Inventory with a bailee, warehouseman or
similar Person or on premises leased to Borrower without obtaining for Lender
such Collateral Access Agreements as Lender shall require; and
11
<PAGE>
(d) not dispose of any Inventory on a bill-and-hold,
guaranteed sale, sale and return, sale on approval, consignment or similar
basis, nor acquire any Inventory from any Person on any such basis, without in
each case giving Lender prior written notice thereof.
6.13 Equipment. Borrower shall, upon Lender's request, deliver
---------
to Lender a report of each item of Equipment, in form and substance satisfactory
to Lender.
6.14 Intellectual Property Collateral. Borrower shall:
--------------------------------
(a) not enter into any agreement (including any license or
royalty agreement) pertaining to any Intellectual Property Collateral without in
each case giving Lender prior notice thereof;
(b) not allow or suffer any Intellectual Property
Collateral to become abandoned, nor any registration thereof to be terminated,
forfeited, expired or dedicated to the public;
(c) promptly give Lender notice of any rights Borrower may
obtain to any new patentable inventions, trademarks, servicemarks, copyrightable
works or other new Intellectual Property Collateral, prior to the filing of any
application for registration thereof; and
(d) diligently prosecute all applications for patents,
copyrights and trademarks, and file and prosecute any and all continuations,
continuations-in-part, applications for reissue, applications for certificate of
correction and like matters as shall be reasonable and appropriate in accordance
with prudent business practice, and promptly and timely pay any and all
maintenance, license, registration and other fees, taxes and expenses incurred
in connection with any Intellectual Property Collateral.
12
<PAGE>
7. Collection of Rights to Payment. Borrower or its agents shall
-------------------------------
endeavor in the first instance to collect all amounts due or to become due on or
with respect to the Rights to Payment. At the request of Lender after the
occurrence of an Event of Default, all remittances received by Borrower shall be
held in trust for Lender, and, in accordance with Lender's instructions,
remitted to Lender or deposited to an account with Lender in the form received
(with any necessary endorsements or instruments of assignment or transfer).
8. Events of Default. The occurrence of any Event of Default under
-----------------
the Revolving Credit Agreement shall constitute an event of default ("Event of
--------
Default") under this Security Agreement.
- -------
9. Rights and Remedies.
-------------------
9.1 During the continuance of an Event of Default, Lender,
without notice or demand, may do any one or more of the following, all of which
are authorized by Borrower:
(a) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Lender considers advisable, and
in such cases, Lender will credit the Secured Obligations with only the net
amounts received by Lender in payment of such disputed Accounts after deducting
all Lender Expenses incurred or expended in connection therewith;
(b) Cause Borrower to hold all returned Inventory in trust
for Lender, segregate all returned Inventory from all other property of Borrower
or in Borrower's possession and conspicuously label said returned Inventory as
the property of Lender;
(c) Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Lender considers necessary or
reasonable to protect its security interests in the Collateral. Borrower agrees
to assemble the Collateral if Lender so requires, and to make the Collateral
available to Lender as Lender may designate. Borrower authorizes Lender to enter
the premises where the Collateral is located, to take and maintain possession of
the Collateral, or any part of it, and to pay, purchase, contest, or compromise
any encumbrance, charge, or Lien that in Lender's determination appears to
conflict with its security interests and to pay all expenses incurred in
connection therewith. With respect to any of Borrower's owned or leased
premises, Borrower hereby grants Lender a license to enter into possession of
such premises and to occupy the same, without charge, for up to 120 days in
order to exercise any of Lender's rights or remedies provided herein, at law, in
equity, or otherwise;
(d) Without notice to Borrower (such notice being expressly
waived), and without constituting a retention of any collateral in satisfaction
of an obligation (within the meaning of Section 9505 of the Code), set off and
apply to the Secured Obligations any and all (i) balances and Deposit Accounts
of Borrower held by Lender, or (ii) indebtedness at any time owing to or for the
credit or the account of Borrower held by Lender;
13
<PAGE>
(e) Hold, as cash collateral, any and all balances and
Deposit Accounts of Borrower held by Lender, to secure the full and final
repayment of all of the Secured Obligations;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Lender is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in completing production of, advertising for sale, and selling any Collateral
and Borrower's rights under all licenses and all franchise agreements shall
inure to Lender's benefit;
(g) Sell the Collateral at either a public or private sale,
or both, by way of one or more contracts or transactions, for cash or on terms,
in such manner and at such places (including Borrower's premises) as Lender
determines is commercially reasonable. It is not necessary that the Collateral
be present at any such sale;
(h) Lender shall give notice of the disposition of the
Collateral as follows:
(i) Lender shall give Borrower and each holder of a
security interest in the Collateral who has filed with Lender a written request
for notice, a notice in writing of the time and place of public sale, or, if the
sale is a private sale or some other disposition other than a public sale is to
be made of the Collateral, then the time on or after which the private sale or
other disposition is to be made;
(ii) The notice shall be personally delivered or
mailed, postage prepaid, to Borrower as provided in Section 9.1 of the Revolving
-----------
Credit Agreement, at least 5 days before the date fixed for the sale, or at
least 5 days before the date on or after which the private sale or other
disposition is to be made; no notice needs to be given prior to the disposition
of any portion of the Collateral that is perishable or threatens to decline
speedily in value or that is of a type customarily sold on a recognized market.
Notice to Persons other than Borrower claiming an interest in the Collateral
shall be sent to such addresses as they have furnished to Lender;
(iii) If the sale is to be a public sale, Lender also
shall give notice of the time and place by publishing a notice one time at least
5 days before the date of the sale in a newspaper of general circulation in the
county in which the sale is to be held;
(i) Lender may credit bid and purchase at any public sale;
and
(j) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any excess
will be returned, without interest and subject to the rights of third Persons,
by Lender to Borrower.
9.2 Upon the exercise by Lender of any power, right, privilege,
or remedy pursuant to this Security Agreement which requires any consent,
approval, registration, qualification, or authorization of any Governmental
Authority, Borrower agrees to execute and
14
<PAGE>
deliver, or will cause the execution and delivery of, all applications,
certificates, instruments, assignments, and other documents and papers that
Lender or any purchaser of the Collateral may be required to obtain for such
governmental consent, approval, registration, qualification, or authorization.
9.3 Borrower hereby irrevocably stipulates and agrees that Lender
has the right under this Security Agreement, upon the occurrence of an Event of
Default, to seek the appointment of a receiver, trustee, or similar official
over Borrower to effect the transactions contemplated by this Security
Agreement, including without limitation, to seek from the appropriate licensing
authority an involuntary transfer of the Licenses in connection with Lender's
foreclosure or enforcement proceedings, and that Lender is entitled to seek such
relief. Borrower hereby irrevocably agrees not to object to such appointment on
any grounds.
9.4 The rights and remedies of Lender under this Security
Agreement, the Revolving Credit Agreement, the other Loan Documents, and all
other agreements contemplated hereby and thereby shall be cumulative. Lender
shall have all other rights and remedies not inconsistent herewith as provided
under the Code, by law, or in equity. No exercise by Lender of any one right or
remedy shall be deemed an election of remedies, and no waiver by Lender of any
default on Borrower's part shall be deemed a continuing waiver of any further
defaults. No delay by Lender shall constitute a waiver, election or acquiescence
with respect to any right or remedy.
9.5 Notwithstanding any other provision of this Agreement to the
contrary, Lender will not be entitled in the Event of Default to take possession
of, foreclose upon, transfer, dispose of or otherwise assert any rights with
respect to any of the following types of the Collateral unless Borrower is also
at that time insolvent, as that term is defined under the U.S. Bankruptcy Code:
(a) Equipment
(b) Inventory
(c) Investment Property
(d) Intellectual Property - Collateral
(e) General Intangibles (excluding contracts and contract
rights, deposit accounts, uncertificated certificates of deposit, purchase
orders, and other contractual rights relating to these excluded items)
15
<PAGE>
10. Lender Not Liable. So long as Lender complies with the
-----------------
obligations, if any, imposed by Section 9207 of the Code, Lender shall not
otherwise be liable or responsible in any way or manner for: (a) the safekeeping
of the Collateral; (b) any loss or damage thereto occurring or arising in any
manner or fashion or from any cause; (c) any diminution in the value thereof; or
(d) any act or default of any carrier, warehouseman, bailee, forwarding agency,
or other person whomsoever.
11. Indefeasible Payment. The Secured Obligations shall not be
--------------------
considered indefeasibly paid for purposes of this Security Agreement unless and
until all payments to Lender are no longer subject to any right on the part of
any Person, including Borrower, Borrower as a debtor in possession, or any
trustee (whether appointed under the Bankruptcy Code or otherwise) of Borrower
or Borrower's Assets to invalidate or set aside such payments or to seek to
recoup the amount of such payments or any portion thereof, or to declare same to
be fraudulent or preferential. In the event that, for any reason, any portion of
such payments to Lender is set aside or restored, whether voluntarily or
involuntarily, after the making thereof, then the obligation intended to be
satisfied thereby shall be revived and continued in full force and effect as if
said payment or payments had not been made.
12. Notices. All notices or demands by any party hereto to the
-------
other party and relating to this Security Agreement shall be made in the manner
and to the addresses set forth in Section 9.1 of the Revolving Credit Agreement.
13. General Provisions.
------------------
13.1 Successors and Assigns. This Security Agreement shall
----------------------
bind and inure to the benefit of the respective successors and assigns of
Borrower and Lender; provided, however, that Borrower may not assign this
-------- -------
Security Agreement nor delegate any of its duties hereunder without Lender's
prior written consent and any prohibited assignment or delegation shall be
absolutely void. No consent by Lender to an assignment by Borrower shall release
Borrower from the Secured Obligations. Lender reserves its right to sell,
assign, transfer, negotiate, or grant participations in all or any part of, or
any interest in, the rights and benefits hereunder pursuant to and in accordance
with the provisions of the Revolving Credit Agreement. In connection therewith,
Lender may disclose all documents and information which Lender now or hereafter
may have relating to Borrower, Borrower's business, or the Collateral to any
such prospective or actual Transferee.
13.2 Exhibits and Schedules. All of the exhibits and
----------------------
schedules attached hereto shall be deemed incorporated by reference.
13.3 No Presumption Against Any Party. Neither this
--------------------------------
Security Agreement nor any uncertainty or ambiguity herein shall be construed or
resolved against Lender or Borrower, whether under any rule of construction or
otherwise. On the contrary, this Security Agreement has been reviewed by each of
the parties and their counsel and shall be construed and interpreted according
to the ordinary meaning of the words used so as to accomplish fairly the
purposes and intentions of all parties hereto.
16
<PAGE>
13.4 Amendments and Waivers. Any provision of this Security
----------------------
Agreement or any of the Loan Documents to which Borrower is a party may be
amended or waived if, but only if, such amendment or waiver is in writing and is
signed by the party asserted to be bound thereby, and then such amendment or
waiver shall be effective only in the specific instance and specific purpose for
which given.
13.5 Counterparts; Integration; Effectiveness. This
----------------------------------------
Security Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument. This Security Agreement constitutes the
entire agreement and understanding among the parties hereto and supersedes any
and all prior agreements and understandings, oral or written, relating to the
subject matter hereof. This Security Agreement shall become effective when
executed by each of the parties hereto and delivered to Lender.
13.6 Severability. The provisions of this Security
------------
Agreement are severable. The invalidity, in whole or in part, of any provision
of this Security Agreement shall not affect the validity or enforceability of
any other of its provisions. If one or more provisions hereof shall be declared
invalid or unenforceable, the remaining provisions shall remain in full force
and effect and shall be construed in the broadest possible manner to effectuate
the purposes hereof.
14. Governing Law. This Security Agreement shall be deemed to
-------------
have been made in the State of New York and the validity, construction,
interpretation, and enforcement hereof, and the rights of the parties hereto,
shall be determined under, governed by, and construed in accordance with the
internal laws of the State of New York, without regard to principles of
conflicts of law.
15. Judicial Reference.
------------------
(a) Other than (i) nonjudicial foreclosure and all matters in
connection therewith regarding security interests in real or personal property;
or (ii) the appointment of a receiver, or the exercise of other provisional
remedies (any and all of which may be initiated pursuant to applicable law),
each controversy, dispute or claim between the parties arising out of or
relating to this Agreement, which controversy, dispute or claim is not settled
in writing within thirty (30) days after the "Claim Date" (defined as the date
----------
on which a party subject to this Agreement gives written notice to all other
parties that a controversy, dispute or claim exists), shall be governed by and
construed in accordance with the internal laws of the State of New York,
including, without limitation, Sections 5-1401 and 5-1402 of the New York
General Obligations Law and Rule 327(b) of the New York Civil Practice Law and
Rules. Lender and Borrower hereby irrevocably submit the to non-exclusive
jurisdiction of the federal and New York State courts located in the City, the
Borough of Manhattan in connection with any suit, action or proceeding related
to this Agreement or any of the matters contemplated hereby, irrevocably waive
any defense of lack of personal jurisdiction and irrevocably agree that all
claims in respect of any suit, action or proceeding any be heard and determined
in any such court. Lender and Borrower irrevocably waive, to the fullest extent
they may effectively do so under applicable law, any objections which they may
now or hereafter have to the laying of venue of any such suit, action
17
<PAGE>
or proceeding brought in any such court and any claim that any such suit,
action or proceeding brought in any such court has been brought in any
inconvenient forum.
[Remainder of this page intentionally left blank.]
18
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Security
Agreement as of the date first set forth above.
PC Support.com
By
---------------------
Title:
-----------------
ICE Holdings North America, LLC.
By:
---------------------
Title:
-----------------
19
<PAGE>
SCHEDULE 1
- ----------
Section 5.1 Location of Chief Executive Office and Collateral
Section 5.2 Locations of Borrower's Books
Section 5.3 Trade Names or Trade Styles
Section 5.9 Intellectual Property - Licenses to use software
Section 5.10 Equipment Leases
Section 5.11 Deposit Accounts
Section 5.12 Investment Property
20
<PAGE>
EXHIBIT 5.37
No.
--
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS AND MUST BE HELD INDEFINITELY UNLESS
SUBSEQUENTLY REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS OR DISPOSED OF PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
"A" WARRANT
-----------
Company: PCSupport.com, Inc., a Nevada corporation
Number of Shares: 1,000,000
Class of Stock: Common Stock
Issue Date: January __, 2000
Expiration Date: July __, 2001
FOR VALUE RECEIVED, the adequacy and receipt of which is hereby
acknowledged, PCSupport.com, Inc., a Nevada corporation (the "Company"), hereby
certifies that ICE Holdings North America, L.L.C., and its successors and
assigns, are entitled to purchase from the Company ONE MILLION (1,000,000) fully
paid and non-assessable shares of Common Stock of the Company at any time and
from time to time on and after the date hereof until 12:00 midnight New York
local time on July __, 2001 at an exercise price of ONE DOLLAR AND FIVE CENTS
($1.05) per share of Common Stock, on the terms and conditions hereinafter set
forth.
1. Certain Definitions. Capitalized terms used herein and not otherwise
-------------------
defined shall have the meanings set forth in the Revolving Credit Agreement,
dated as of January __, 2000, by and between the Company and ICE Holdings North
America, L.L.C. (the "Revolving Credit Agreement"). As used in this Warrant,
the following terms have the following definitions:
"Additional Shares of Common Stock" means all shares of Common Stock
---------------------------------
issued or issuable by the Company after the date of this Warrant, except for
shares of Common Stock issued or issuable upon (i) the exercise of currently
outstanding options or warrants or (ii) the conversion of currently outstanding
Convertible Securities.
"Common Stock" means the Company's Common Stock, $.001 par value per
------------
share, and includes any common stock of the Company of any class or classes
resulting from any reclassification or reclassifications thereof which is not
limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends and in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution or winding up
of the Company.
"Company" means PCSupport.com,Inc., a Nevada corporation.
-------
"Conversion Date" means the date that the Company receives this
---------------
Warrant pursuant to the Warrantholders' Conversion Right pursuant to Section 3
hereof, or on such later date as specified by the Warrantholders.
"Conversion Right" has the meaning set forth in Section 3(a).
----------------
"Convertible Securities" means evidence of indebtedness, shares of
----------------------
stock or other securities which are at any time directly or indirectly
convertible into or exchangeable for shares of Common Stock.
<PAGE>
"Current Market Price" of a share of Common Stock or of any other
--------------------
security as of a relevant date means: (i) the Fair Value thereof as determined
in accordance with clause (ii) of the definition of Fair Value with respect to
Common Stock or any other security that is not listed on a national securities
exchange or traded on the over-the-counter market or quoted on NASDAQ (including
the OTC Electronic Bulletin Board), and (ii) the average of the daily closing
prices for the twenty (20) trading days before such date (excluding any trades
which are not bona fide arm's length transactions) with respect to Common Stock
or any other security that is listed on a national securities exchange or traded
on the over-the-counter market or quoted on NASDAQ (including the OTC Electronic
Bulletin Board). The closing price for each day shall be (i) the last sale price
of shares of Common Stock or such other security, regular way, on such date or,
if no such sale takes place on such date, the average of the closing bid and
asked prices thereof on such date, in each case as officially reported on the
principal national securities exchange on which the same are then listed or
admitted to trading, or (ii) if no shares of Common Stock or if no securities of
the same class as such other security are then listed or admitted to trading on
any national securities exchange, the average of the reported closing bid and
asked prices thereof on such date in the over-the-counter market as shown by the
National Association of Securities Dealers automated quotation system or, if no
shares of Common Stock or if no securities of the same class as such other
security are then quoted in such system, as published by the National Quotation
Bureau, Incorporated or any similar successor organization, and in either case
as reported by any member firm of the New York Stock Exchange selected by the
Warrantholders.
"Exchange Act" means the Securities Exchange Act of 1934.
------------
"Exercise Period" means the period commencing on the Issue Date and
---------------
ending at 12:00 midnight New York local time on the Expiration Date.
"Exercise Price" means the original exercise price set forth in the
--------------
first paragraph of this Warrant, as may be adjusted from time to time pursuant
to Section 6.
"Expiration Date" means July __, 2001.
---------------
"Fair Value" means: (i) with respect to a share of Common Stock or any
----------
other security, the Current Market Price thereof, and (ii) with respect to any
other property, assets, business or entity, an amount determined in accordance
with the following procedure: The Company and the holders of the Warrants and
Warrant Shares, as applicable, shall use their best efforts to mutually agree to
a determination of Fair Value within ten (10) days of the date of the event
requiring that such a determination be made. If the Company and such holders are
unable to reach agreement within said ten (10) day period, the Company and such
holders shall within ten (10) days of the expiration of the ten (10) day period
referred to above each retain a separate independent investment banking firm
(which firm shall not be the investment banking firm regularly retained by the
Company). If either the Company or such holders fails to retain such an
investment banking firm during such period, then the independent investment
banking firm retained by such holders or the Company, as the case may be, acting
alone, shall take the actions outlined below. Such firms shall determine (within
thirty (30) days of their being retained) the Fair Value of the security,
property, assets, business or entity, as the case may be, in question and
deliver their opinion in writing to the Company and to such holders. If such
firms cannot jointly make the determination, then, unless otherwise directed by
agreement of the Company and such holders, such firms, in their sole discretion,
shall choose another investment banking firm independent of the Company and such
holders, which firm shall make the determination and render an opinion as
promptly as practicable. In either case, the determination so made shall be
conclusive and binding on the Company and such holders. The fees and expenses of
any such determination made by any and all such independent investment banking
firms shall be paid 50% by the Company and 50% by the Warrantholders. If there
is more than one holder of Warrants, and/or Warrant Shares entitled to a
determination of Fair Value in any particular instance, each action to be taken
by the holders of such Warrants and/or Warrant Shares under this Section shall
be taken by a majority in interest of such holders and the action taken by such
majority (including as to any mutual agreement with the Company with respect to
Fair Value and as to any selection of investment banking firms) shall be binding
upon all such holders. In the case of a determination of the Fair Value per
share of Common Stock, the Company and such holders shall not take into
consideration, and shall instruct all such investment banking firms not
2
<PAGE>
to take into consideration, any premium for shares representing control of the
Company, any discount for any minority interest therein or any restrictions on
transfer under applicable federal and state securities laws or otherwise.
"Indemnified Party" and "Indemnifying Party" have the meanings set
----------------- ------------------
forth in Section 11(e)(iii).
"Issue Date" means January __, 2000.
----------
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Warrant(s)" means this Warrant and any warrants issued in exchange or
----------
replacement of this Warrant or upon transfer hereof.
"Warrantholder(s)" means Phoenix Capital Corporation, a New York
----------------
corporation and its successors and assigns.
"Warrant Shares" means shares of Common Stock issuable to
--------------
Warrantholders pursuant to the Warrants.
2. Exercise of Warrant. This Warrant may be exercised, in whole or in
-------------------
part, at any time and from time to time during the Exercise Period by written
notice to the Company and upon payment to the Company of the Exercise Price for
the shares of Common Stock in respect of which the warrant is exercised.
3. Form of Payment of Exercise Price. Anything contained herein to the
---------------------------------
contrary notwithstanding, at the option of the Warrantholders, the Exercise
Price may be paid in any one or a combination of the following forms: (a) by
wire transfer to the Company, (b) by the Warrantholders' cashier's or bank check
to the Company, (c) by the cancellation of any indebtedness owed by the Company
and/or any subsidiaries of the Company to the Warrantholders, but only to the
extent such indebtedness represents (i) amounts drawn down by the Company under
the Revolving Credit Agreement (including accrued interest), (ii) all or a
portion of the Debt Financing Fee or the Retainer payable by the Company to the
Warrantholders; or (iii) all or a portion of the Warrantholders' legal fees for
documentation of the Revolving Credit Agreement payable by the Company to the
Warrantholders, and/or (d) by the surrender to the Company of Warrants, Warrant
Shares, Common Stock and/or other securities of the Company and/or any
subsidiaries of the Company having a Fair Value equal to the Exercise Price.
4. Cashless Exercise/Conversion. In lieu of exercising this Warrant as
----------------------------
specified in Sections 2 and 3 above, the Warrantholders may from time to time at
the Warrantholders' option convert this Warrant, in whole or in part, into a
number of shares of Common Stock of the Company determined by dividing (A) the
aggregate Fair Value of such shares or other securities otherwise issuable upon
the exercise of this Warrant minus the aggregate Exercise Price of such shares
by (B) the Fair Value of one such share.
5. Certificates for Warrant Shares: New Warrant. The Company agrees that
--------------------------------------------
the Warrant Shares shall be deemed to have been issued to the Warrantholders as
the record owner of such Warrant Shares as of the close of business on the date
on which payment for such Warrant Shares has been made (or deemed to be made by
conversion) in accordance with the terms of this Warrant. Certificates for the
Warrant Shares shall be delivered to the Warrantholders within a reasonable
time, not exceeding five (5) business days, after this Warrant has been
exercised or converted. A new Warrant representing the number of shares, if any,
with respect to which this Warrant remains exercisable also shall be issued to
the Warrantholders within such time so long as this Warrant has been surrendered
to the Company at the time of exercise.
3
<PAGE>
6. Adjustment of Exercise Price, Number of Shares and Nature of
------------------------------------------------------------
Securities Issuable Upon Exercise of Warrants.
- ---------------------------------------------
(a) Exercise Price: Adjustment of Number of Shares. The Exercise
----------------------------------------------
Price shall be subject to adjustment from time to time as hereinafter provided.
Upon each adjustment of the Exercise Price (except for any adjustment under
Section 6(b), in which case the number of shares that can be purchased will not
be adjusted), the Warrantholders shall thereafter be entitled to purchase, at
the Exercise Price resulting from such adjustment, a number of shares determined
by multiplying the Exercise Price in effect immediately prior to such adjustment
by the number of shares purchasable pursuant hereto immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(b) Adjustment of Exercise Price Upon Issuance of Common Stock. If
----------------------------------------------------------
and whenever after the date hereof the Company shall (i) reprice any outstanding
options, warrants, or Convertible Securities or (ii) issue or sell Additional
Shares of Common Stock or options, warrants or Convertible Securities to any
person by virtue of such person's holding outstanding options, warrants or
Convertible Securities (except pursuant to an offer or issuance to all of the
Company's stockholders), then, if the lowest price relating to any such
repricing, issuance or sale, is lower than the Exercise Price in effect
immediately prior to such repricing, issuance or sale, then the Exercise Price
shall be reduced to equal such lowest price.
No adjustment of the Exercise Price, however, shall be made in an
amount less than $.01 per share, but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment which, together with any adjustments so carried forward, shall amount
to $.10 per share or more.
The provisions of this Section 6(b) shall not apply to any
Additional Shares of Common Stock which are distributed to holders of Common
Stock pursuant to a stock split or dividend for which an adjustment is provided
for under Section 6(e).
(c) Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
If any capital reorganization or reclassification of the capital stock of the
Company, or any consolidation or merger of the Company with another corporation,
or the sale of all or substantially all of its assets to another corporation
shall be effected in such a way that holders of Common Stock shall be entitled
to receive cash, stock, securities or assets with respect to or in exchange for
Common Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provisions shall be made
whereby the Warrantholders shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant upon exercise of this Warrant and in lieu of the shares of the Common
Stock of the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, such cash, shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of Common Stock equal to the number of shares
of such Common Stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, and in any such case appropriate
provision shall be made with respect to the rights and interest of the
Warrantholders to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Exercise Price and of the number
of shares purchasable and receivable upon the exercise of this Warrant) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise hereof. The
Company shall not effect any consolidation, merger or sale of all or
substantially all of the assets of the Company unless prior to or simultaneous
with the consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation, merger or purchase of such assets
shall assume, by written instrument executed and mailed or delivered to the
Warrantholders, the obligation to deliver to such Warrantholders such cash (or
cash equivalent), shares of stock, securities or assets as, in accordance with
the foregoing provisions, the Warrantholders may be entitled to receive and
containing the express assumption of such successor corporation of the due and
punctual performance and observance of each provision of this Warrant to be
performed and observed by the Company and of all liabilities and obligations of
the Company hereunder; provided, however, in the case during the 18-month period
following the Issue Date of any consolidation
4
<PAGE>
or merger of the Company with another corporation or the sale of all or
substantially all of its assets to another corporation effected in such a manner
that the holders of Common Stock shall be entitled to receive stock, securities
or assets with respect to or in exchange for Common Stock, then, at the election
of each Warrantholder, in lieu of receiving such stock, securities or assets,
such Warrantholder shall receive cash equal to the Fair Value of the Common
Stock issuable upon exercise of the Warrant, less the Exercise Price payable
upon exercise thereof.
In case any Additional Shares of Common Stock or Convertible
Securities or any rights or options to purchase any Additional Shares of Common
Stock or Convertible Securities shall be issued in connection with any merger of
another corporation into the Company, the amount of consideration therefor shall
be deemed to be the Fair Value of such portion of the assets of such merged
corporation as the Board of Directors of the Company shall in good faith
determine to be attributable to such Additional Shares of Common Stock,
Convertible Securities or rights or options, as the case may be, and the
Exercise Price shall be adjusted in accordance with this Section 6(c).
(d) Company to Prevent Dilution. In case at any time or from time to
---------------------------
time conditions arise by reason of action taken by the Company which are not
adequately covered by the provisions of this Section 6, and which might
materially and adversely affect the exercise rights of the Warrantholders under
any provision of this Warrant, unless the adjustment necessary shall be agreed
upon by the Company and the Warrantholders, the Board of Directors of the
Company shall appoint a firm of independent certified public accountants of
recognized national standing (who have not been employed by the Company within
the last five years), acceptable to the Warrantholders, who at the Company's
expense shall give their opinion upon the adjustment, if any, on a basis
consistent with the standards established in the other provisions of this
Section 6, necessary with respect to the Exercise Price and the number of shares
purchasable upon exercise of the Warrants, so as to preserve, without dilution,
the exercise rights of the Warrantholders. Upon receipt of such opinion, such
Board of Directors shall forthwith make the adjustments described therein.
(e) Stock Splits, Stock Dividends and Reverse Splits. In case at any
------------------------------------------------
time the Company shall subdivide its outstanding shares of Common Stock into a
greater number of shares or shall effect a stock dividend, the Exercise price in
effect immediately prior to such subdivision or stock dividend shall be
proportionately reduced and the number of shares of Common Stock purchasable
pursuant to this Warrant immediately prior to such subdivision or stock dividend
shall be proportionately increased, and conversely, in case at any time the
Company shall combine it outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Common Stock purchasable upon the exercise of this Warrant immediately prior to
such combination shall be proportionately reduced.
(f) Dissolution, Liquidation and Wind-Up. In case the Company shall,
------------------------------------
at any time prior to the expiration of this Warrant, dissolve, liquidate or wind
up its affairs, the Warrantholders shall be entitled, upon the exercise of this
Warrant, to receive in lieu of the shares of Common Stock of the Company which
such Warrantholders would have been entitled to receive, the same kind and
amount of assets as would have been issued, distributed or paid to such
Warrantholders upon any such dissolution, liquidation or winding up with respect
to such shares of Common Stock of the Company, had such Warrantholders been the
holders of record of the Warrant Shares receivable upon the exercise of this
Warrant on the record date for the determination of those persons entitled to
receive any such liquidating distribution.
(g) Redemption. The Company may call the Warrant for redemption at a
----------
price of $0.01 for the Warrant, by written notice specifying the redemption
date, such notice to be mailed at least 30 days before such redemption date, to
the Holder; provided, however, that such notice may only be mailed following the
Company's accepting an equity public offering and only if at the time of mailing
the Warrant Shares have been registered under the Securities Act and such shares
are not subject to selling restrictions under the terms of the public offering,
as follows:
(i) 50% of the original amount of shares covered by the Warrant if
the offering is for at least $3,000,000 at a share price of at least $3.
5
<PAGE>
(ii) 75% of the original amount of shares covered by the Warrant if
the offering is for at least $4,000,000 at a share price of at least $4.
(iii) 100% of the original amount of shares covered by the Warrant if
the offering is for at least $5,000,000 at a share price of at least $5.
The Warrant may be exercised at any time prior to the close of business on the
date prior to the redemption date, and if not then exercised will terminate and
be cancelled as to that portion of the Warrant called for redemption. If the
Warrant is exercised and the public offering is not closed within 30 days
following such exercise, the Warrantholder shall have the right, exercisable by
delivering written notice to the Company within ten days following the
expiration of the foregoing 30-day period to rescind the exercise of the
Warrant. Upon exercise of the Warrant, the Warrantholder may request that the
proceeds of its exercise be escrowed pending expiration of the applicable
rescission period, in which case the Warrant Shares issuable upon such exercise
will also be escrowed during such period.
7. Special Agreements of the Company.
---------------------------------
(a) Reservation of Shares. The Company covenants and agrees that
---------------------
all Warrant Shares will, upon issuance, be validly issued, fully paid and
nonassessable and free from all preemptive rights of any Shareholder, and from
all taxes, liens and charges with respect to the issue thereof. The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved, a sufficient number of shares of Common Stock to
provide for the exercise of the rights represented by this Warrant. The Company
hereby covenants and agrees to take all such action as may be necessary to
assure that the par value per share of the Common Stock is at all times equal to
or less than the Exercise Price.
(b) Avoidance of Certain Actions. The Company will not, by
----------------------------
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, issue or sale of securities or
otherwise, avoid or take any action which would have the effect of avoiding the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in carrying
out all of the provisions of this Warrant and in taking all of such action as
may be necessary or appropriate in order to protect the rights of the
Warrantholders against dilution or other impairment of their rights hereunder.
(c) Securing Governmental Approvals. If any shares of Common Stock
-------------------------------
required to be reserved for the purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any federal
law (other than the Securities Act) or under any state law before such shares
may be issued upon exercise of this Warrant, the Company will, at its expense,
as expeditiously as possible, cause such shares to be duly registered or
approved, as the case may be.
(d) Listing on Securities Exchanges; Registration. If, and so long
---------------------------------------------
as, any class of the Company's Common Stock shall be listed on any national
securities exchange (as defined in the Exchange Act), the Company will, at its
expense, obtain and maintain the approval for listing upon official notice of
issuance of all Warrant Shares and maintain the listing of Warrant Shares after
their issuance; and the Company will so list on such national securities
exchange, will register under the Exchange Act (or any similar statute then in
effect), and will maintain such listing of, any other securities that at any
time are issuable upon exercise of this Warrant if and at the time any
securities of the same class shall be listed on such national securities
exchange by the Company.
(e) Information Rights. So long as the Warrantholders hold this
------------------
Warrant and/or any of the Warrant Shares, the Company shall deliver to the
Warrantholders (i) promptly after mailing, copies of all communications to the
shareholders of the Company, (ii) within one hundred five (105) days after the
end of each fiscal year of the Company, the annual audited financial statements
of the Company
6
<PAGE>
certified by the independent public accountants of recognized standing, and
(iii) within fifty (50) days after the end of each of the first three quarters
of each fiscal year, the Company's quarterly, unaudited financial statements.
(f) Preemptive Rights. In the event the Company offers to the
-----------------
Company's shareholders the right to purchase any securities of the Company, then
all shares of Common Stock issuable pursuant to the Warrants shall be deemed to
be issued and outstanding and held by the Warrantholders and the Warrantholders
shall be entitled to participate in such rights offering.
(g) Compliance with Law. The Company shall comply with all
-------------------
applicable laws, rules and regulations of the United States and of all states,
municipalities and agencies and of any other jurisdiction applicable to the
Company and shall do all things necessary to preserve, renew and keep in full
force and effect and in good standing its corporate existence and authority
necessary to continue its business.
8. Fractional Shares. No fractional shares or scrip representing
-----------------
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon exercise hereof, the Company
shall pay to the Warrantholder an amount in cash equal to such fraction
multiplied by the Current Market Value of one share of Common Stock.
9. Notices of Stock Dividends, Subscriptions, Reclassifications,
-------------------------------------------------------------
Consolidations, Mergers, etc. If at any time: (i) the Company shall declare a
- ----------------------------
cash dividend (or an increase in the then existing dividend rate), or declare a
dividend on Common Stock payable otherwise than in cash out of its net earnings
after taxes for the prior fiscal year; or (ii) the Company shall authorize the
granting to the holders of Common Stock of rights to subscribe for or purchase
any shares of capital stock of any class or of any other rights; or (iii) there
shall be any capital reorganization, or reclassification, or redemption of the
capital stock of the Company, or consolidation or merger of the Company with, or
sale of all or substantially all of its assets to, another corporation or firm;
or (iv) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company, then the Company shall give to the Warrantholders at
the addresses of such Warrantholders as shown on the books of the Company, at
least twenty (20) days prior to the applicable record date hereinafter
specified, a written notice summarizing such action or event and stating the
record date for any such dividend or rights (or, if a record date is not to be
selected, the date as of which the holders of Common Stock of record entitled to
such dividend or rights are to be determined), the date on which any such
reorganization, reclassification, consolidation, merger, sale of assets,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected the holders of Common Stock of record shall be
entitled to effect any exchange of their shares of Common Stock for cash (or
cash equivalent), securities or other property deliverable upon any such
reorganization, reclassification, consolidation, merger, sale of assets,
dissolution, liquidation or winding up.
10. Registered Holder; Transfer of Warrants or Warrant Shares.
---------------------------------------------------------
(a) Maintenance of Registration Books; Ownership of this Warrant.
------------------------------------------------------------
The Company shall keep at its principal office a register in which the Company
shall provide for the registration, transfer and exchange of this Warrant. The
Company shall not at any time, except upon the dissolution, liquidation or
winding-up of the Company, close such register so as to result in preventing or
delaying the exercise or transfer of this Warrant.
(b) Exchange and Replacement. This Warrant is exchangeable upon
------------------------
surrender hereof by the registered holder to the Company at its principal office
for new Warrants of like tenor and date representing in the aggregate the right
to purchase the number of shares purchasable hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by said registered holder at the time of surrender. Subject to
compliance with all restrictions and provisions of this Warrant, this Warrant
and all rights hereunder are transferable in whole or in part upon the books of
the Company by the registered holder hereof in person or by duly authorized
attorney, and new Warrants shall be made and delivered by the Company, of the
same tenor and date as this Warrant but registered in the name of the
transferee(s), upon surrender of this Warrant, duly endorsed, to
7
<PAGE>
said office of the Company accompanied by a Form of Assignment in the form
attached hereto as Exhibit "B". Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and upon surrender and cancellation of this Warrant, if mutilated,
the Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant, without requiring the posting of any bond or the giving of any other
security, and the holder of such Warrant will indemnify and hold the Company and
its officers, directors, affiliates, agents, employees, successors and assigns,
harmless against all claims, losses, liabilities, damages, deficiencies, costs
and expenses, including reasonable attorneys' fees and expenses of investigation
and defense incurred, suffered or accrued by any of them, directly or
indirectly, as a result of or based upon the making or deliverance of such new
Warrant. This Warrant shall be promptly cancelled by the Company upon the
surrender hereof in connection with any exchange, transfer or replacement. The
Company shall pay all expenses, taxes and other charges payable in connection
with the preparation, execution and delivery of Warrants pursuant to this
Section 10.
(c) Warrants and Warrant Shares Not Registered. The holder of this
------------------------------------------
Warrant, by accepting this Warrant, represents and acknowledges that this
Warrant and the Warrant Shares are not being registered under the Securities Act
on the grounds that the issuance of this Warrant and the offering and sale of
such Warrant Shares are exempt from registration under Section 4(2) of the
Securities Act as not involving any public offering and that the Warrantholders
are acquiring this Warrant for investment and not with a view to distribution.
11. Registration.
------------
(a) Registration Under the Securities Act. The Warrant and the
-------------------------------------
shares of Common Stock issuable upon exercise of the Warrant and any of the
other securities issuable upon exercise of the Warrant have not been registered
under the Securities Act for public resale. Upon exercise, in part or in whole,
of the Warrant, certificates representing the shares of Common Stock and any
other securities issuable upon exercise, of the Warrant (collectively, the
"Warrant Securities") shall bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act") for public resale, and may not be offered or sold
except pursuant to (i) an effective registration statement under the
Securities Act, or (ii) an opinion of counsel, if such opinion shall
be reasonably satisfactory to counsel to the issuer, that an exemption
from registration under the Securities Act is available.
(b) Piggyback Registration. If the Company proposes for any reason
----------------------
to register Primary Shares under the Securities Act (other than on Form S-4 or
Form S-8 promulgated under the Securities Act or any successor forms thereto) by
filing a registration statement with the Securities and Exchange Commission (the
"Commission") and such registration, together with any prior registration(s) of
Primary Shares (as hereinafter defined) (other than on Form S-4 or Form S-8
promulgated under the Securities Act or any successor forms thereto), would
cause the Company to have registered in excess of $3,000,000 of Primary Shares
(other than on Form S-4 or Form S-8 promulgated under the Securities Act or any
successor forms thereto), then the Warrantholders shall be entitled to piggyback
registration rights, as set forth herein, with respect to such registration and
all subsequent registrations of Primary Shares or Other Shares (other than on
Form S-4 or Form S-8 promulgated under the Securities Act or any successor forms
thereto). If the Company proposes for any reason to register Primary Shares or
Other Shares, and such registration is a registration as to which the
Warrantholders have piggyback registration rights pursuant to the previous
sentence, the Company shall promptly give written notice to the Warrantholders
of its intention to so register such Primary Shares or Other Shares and, upon
the written request, delivered to the Company within 15 days after delivery of
any such notice by the Company, of the Warrantholders to include in such
registration Warrant Securities (which request shall specify the number of
Warrant Securities proposed to be included in such registration), the Company
shall use its commercially reasonable best efforts to cause all such Warrant
Securities of the Warrantholders delivering such notice to be included in such
registration on the same terms and conditions as the securities otherwise being
sold in such registration; provided, however, that if the managing underwriter,
if
8
<PAGE>
any, for the offering in good faith advises the Company that the inclusion of
all Warrant Securities requested to be included in such registration would
interfere with the successful marketing (including pricing) of the Primary
Shares or Other Shares proposed to be registered by the Company, then the number
of Primary Shares, Warrant Securities and Other Shares proposed to be included
in such registration shall be included in the following order:
(i) if the Company proposes to register Primary Shares:
(A) first, the Primary Shares; and
(B) second, the Warrant Securities and Other Shares requested
to be included in such registration (or, if necessary, such Warrant Securities
and Other Shares pro rata among the holders thereof based upon the number of
Warrant Securities and Other Shares requested by each such holder); or
(ii) if the Company proposes to register Other Shares pursuant to a
request for registration by the holders of such Other Shares:
(A) first, the Other Shares held by the parties demanding such
registration;
(B) second, the Warrant Securities and Other Shares (other than
shares registered pursuant to Section 11(b)(ii)(A) hereof) requested to be
registered by the holders thereof (or, if necessary, pro rata among the holders
thereof based on the number of Warrant Securities and Other Shares requested to
be registered by such holders); and
(C) Third, the Primary Shares.
For purposes hereof the term "Other Shares" means at any time those shares
of Common Stock held by any person (or issuable upon exercise or conversion of
any security held by such person) that do not constitute Primary Shares or
Warrant Securities. The term "Primary Shares" means at any time the authorized
but unissued shares of Common Stock and shares of Common Stock held by the
Company in its treasury.
(c) Demand Registration.
-------------------
(i) At any time following 180 days from the date hereof, the
Warrantholders shall have the right (which right is in addition to the
registration rights under Section 11(b) hereof), exercisable by written notice
to the Company after that date, to have the Company prepare and file with the
Commission, on one occasion, a registration statement and such other documents,
including a prospectus, as may be necessary in the opinion of both counsel for
the Company and counsel for the Warrantholders, in order to comply with the
provisions of the Securities Act, so as to permit a public offering and sale of
the Warrant Securities for the earlier of (i) one year following the
effectiveness of the registration statement or (ii) until all of the Warrant
Securities are sold.
(ii) Notwithstanding the foregoing, the Company may delay the
filing or effectiveness of any registration statement for a period of up to 180
days after the receipt of a demand for registration pursuant to subsection (a)
above if at the time of receipt of such demand the Company is engaged, or has
fixed plans to engage within 90 days of the time of such request, in a firm
commitment underwritten public offering of Primary Shares in which the Company
may include Warrant Securities pursuant to and subject to the limitations of
Section 11(b);
(iii) The Warrantholders, upon receipt of any notice from the
Company of any event of the kind described in Section 11(d)(ix) hereof, shall
forthwith discontinue disposition of the Warrant Securities pursuant to the
registration statement covering such Warrant Securities until such holder's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section
9
<PAGE>
11(d)(ix) hereof, and, if so directed by the Company, such holder shall deliver
to the Company all copies, other than permanent file copies then in such
holder's possession, of the prospectus covering such Warrant Securities at the
time of receipt of such notice.
(d) Covenants of the Company With Respect to Registration. In
-----------------------------------------------------
connection with any registration under Section 11(b) or 11(c) hereof, the
Company covenants and agrees as follows:
(i) The Company shall use commercially reasonable best efforts
to file a registration statement within 45 days of receipt of any demand
therefor, shall use commercially reasonable best efforts to have any
registration statements declared effective at the earliest possible time, and
shall furnish the holders desiring to sell Warrant Securities such number of
prospectuses as shall reasonably be requested.
(ii) The Company shall pay all costs (excluding any
underwriting or selling commissions or other charges of any broker-dealer or any
attorney or other person acting on behalf of holders of Warrant Securities),
fees and expenses in connection with all registration statements filed pursuant
to Sections 11(b) and 11(c)(i) hereof including, without limitation, the
Company's legal and accounting fees, printing expenses, blue sky fees and
expenses.
(iii) The Company will take all necessary action which may be
reasonably required in qualifying or registering the Warrant Securities included
in a registration statement for offering and sale under the securities or blue
sky laws of the states requested by the holders of Warrant Securities.
(iv) The Company shall indemnify each of the holders of the
Warrant Securities to be sold pursuant to any registration statement and each
person, if any, who controls such holder within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage, expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Securities Act, the Exchange Act or
otherwise, arising from such registration statement; provided, however, that (i)
-------- -------
the Company will 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 such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of the holder specifically for inclusion therein.
(v) Nothing contained in this Agreement shall be construed as
requiring the Warrantholders to exercise the Warrant prior to the initial filing
of any registration statement or the effectiveness thereof.
(vi) If the offering is underwritten, the Company shall furnish
to each holder of Warrant Securities participating in the offering and to each
underwriter a signed counterpart, addressed to such holder or underwriter, of
(i) an opinion of counsel to the Company, dated the effective date of such
registration statement (and, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offering of securities that utilize the
particular form of registration statement which is then being utilized by the
Company.
(vii) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its
10
<PAGE>
security holders" (within the meaning of Rule 158 under the Securities Act) an
earnings statement (which need not be audited) complying with Section 11(a) of
the Securities Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(viii) The Company shall deliver promptly to each holder of
Warrant Securities participating in the offering requesting the correspondence
and memoranda described below and the managing underwriter copies of all
correspondence between the Commission and the Company, its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff with
respect to the registration statement and permit the holder and underwriter to
do such investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the registration statement as it deems
reasonably necessary to comply with applicable securities laws or rules of the
National Association of Securities Dealers, Inc. ("NASD"). Such investigation
shall include access to books, records and properties and opportunities to
discuss the business of the Company with its officers and independent auditors,
all to such reasonable extent and at such reasonable times and as often as any
such holder shall reasonably request as it deems necessary to comply with
applicable securities laws or NASD rules.
(ix) The Company shall notify the holder of such Warrant
Securities on a timely basis at any time when a prospectus relating to such
Warrant Securities is required to be delivered under the Securities Act within
the appropriate period set forth in Section 11(c)(i), of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing and, at the request of the holder, prepare and furnish to the holder a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the offerees
of such shares, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make statements therein not misleading in light of the
circumstances then existing.
12. Representation and Warranties. The Company hereby represents and
-----------------------------
warrants to and covenants with Warrantholder that:
(a) Organization and Capitalization of the Company. The Company is
----------------------------------------------
a corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada. As of the date hereof, the authorized capital of
the Company consists of 100,000,000 shares of Common Stock of which 6,425,569
shares of Common Stock are issued and outstanding. The Company has, and at all
times during the Exercise Period will have, reserved for issuance pursuant to
the Warrants that number of shares of Common Stock that are issuable pursuant to
the Warrants. No unissued shares of Common Stock are reserved for any purpose
other than for issuance upon the exercise of the Warrants, except that there are
1,136,438 shares of Common Stock reserved for issuance upon the exercise of
outstanding warrants and options. Except under this Warrant, there are no
preemptive rights in effect with respect to the issuance of any shares of Common
Stock. All of the outstanding shares of Common Stock and Preferred Stock have
been validly issued without violation of any preemptive or similar rights, are
fully paid and nonassessable and have been issued in compliance with all federal
and applicable state securities laws.
(b) Authority. The Company has full corporate power and authority
---------
to execute and deliver this Warrant, to issue the shares of Common Stock
issuable upon exercise of this Warrant, and to perform all of its obligations
hereunder, and the execution, delivery and performance hereof has been duly
authorized by all necessary corporate action on its part. This Warrant has been
duly executed on behalf of the Company and constitutes the legal, valid and
binding obligation of the Company enforceable in accordance with its terms.
(c) No Legal Bar. Neither the execution, delivery or performance
------------
of this Warrant nor the issuance of the shares of Common Stock issuable upon
exercise of this Warrant will (a) conflict with or result in a violation of the
Articles of Incorporation or By-Laws of the Company, (b) conflict with or result
11
<PAGE>
in a violation of any law, statute, regulation, order or decree applicable to
the Company or any affiliate, (c) require any consent or authorization or filing
with, or other act by or in respect of any governmental authority, or (d) result
in a breach of, constitute a default under or constitute an event creating
rights of acceleration, termination or cancellation under any mortgage, lease,
contract, franchise, instrument or other agreement to which the Company is a
party or by which it is bound.
(d) Validity of Shares. When issued upon the exercise of this
------------------
Warrant as contemplated herein, the shares of Common Stock so issued will have
been validly issued and will be fully paid and nonassessable. On the date
hereof, the par value of the Common Stock is less than the Exercise Price per
share of Common Stock.
(e) From and after the hereof, the Company shall (whether or not it
shall then be required to do so) timely file such information, documents and
reports as the Commission may require or prescribe under Section 13 or 15(d)
(whichever is applicable) of the Exchange Act. The Company shall forthwith upon
request furnish any holder of Registrable Stock (i) a written statement by the
Company that it has complied with such reporting requirements, (ii) a copy of
the most recent annual or quarterly report of the Company, and (iii) such other
reports and documents filed by the Company with the Commission as such holder
may reasonably request in availing itself of an exemption for the sale of
Registrable Stock without registration under the Securities Act. The Company
acknowledges and agrees that the purpose of the requirements contained in this
Section 12(e) is to enable any such holder to comply with the current public
information requirement contained in Rule 144 under the Securities Act should
such holder ever wish to dispose of any of the securities of the Company
acquired by it without registration under the Securities Act in reliance upon
Rule 144 (or any other similar exemptive provision). In addition, the Company
shall take such other measures and file such other information, documents and
reports as shall hereafter be required by the Commission as a condition to the
availability of Rule 144 and Rule 144A under the Securities Act (or any similar
exemptive provision hereafter in effect).
13. Miscellaneous Provisions.
------------------------
(a) CHOICE OF LAW AND VENUE.
-----------------------
(i) THE VALIDITY OF THIS WARRANT, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT AND THE RIGHTS OF THE PARTIES HERETO SHALL BE
DETERMINED UNDER, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEVADA.
(ii) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING
IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE
FEDERAL OR STATE COURTS LOCATED IN CITY, COUNTY AND STATE OF NEW YORK, OR, AT
THE SOLE OPTION OF THE WARRANTHOLDER, IN ANY OTHER COURT IN WHICH THE
WARRANTHOLDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS
SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. THE PARTIES
EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
PROCEEDING COMMENCED IN ANY SUCH COURT, AND THE PARTIES HEREBY WAIVE ANY
OBJECTION WHICH EITHER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION AND
HEREBY CONSENT TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY ANY SUCH COURT. FURTHERMORE, THE COMPANY AND WARRANTHOLDER EACH
WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO
ASSERT THE DOCTRINE OF "FORUM NON CONVENIENS" OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 12(a)(ii).
(iii) WAIVER OF JURY TRIAL. THE COMPANY AND WARRANTHOLDER HEREBY
--------------------
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS WARRANT. IN THE EVENT OF LITIGATION, A COPY OF
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
12
<PAGE>
(b) Notices. All notices or demands by any party relating to
-------
this Warrant shall be in writing and shall be personally delivered or sent by
registered or certified mail, postage prepaid, return receipt requested, or by
receipted overnight delivery service to the Company and Warrantholder, as the
case may be, at their addresses set forth below:
If to Company: PCSupport.com, Inc.
Suite 280, 4400 Dominion Street
Burnaby, British Columbia, Canada V5G 4G3
Attention: David W. Rowat, Vice President, Finance and
Business Development
with a copy to:
Sanford J. Hillsberg, Esq.
Troy & Gould Professional Corporation
1801 Century Park East
Los Angeles, California 90067
If to Warrantholder: ICE Holdings North America, L.L.C.
645 Madison Avenue, 13th Floor
New York, New York 10022
Attention: Andrew Smith
with a copy to:
James D. Fornari, Esq.
645 Madison Avenue, 13th Floor
New York, New York 10022
The parties hereto may change the address at which they
are to receive notices hereunder by notice in writing in the foregoing manner
given to the other. All notices or demands sent in accordance with this Section
13(b) shall be deemed received on the earlier of the date of actual receipt or
three (3) calendar days after the deposit thereof in the mail or one (1)
calendar day after deposit thereof with an overnight delivery service.
(c) Successors and Assigns. This Warrant shall bind and inure
----------------------
to the benefit of the respective successors and assigns of each of the parties
hereto. Warrantholder and its successors and assigns may assign this Warrant and
its rights and duties hereunder. Warrantholder reserves the right to sell,
assign and/or transfer all or any part of, or any interest in Warrantholder's
rights and benefits hereunder.
(d) Attorneys' Fees. Should the Company or any Warrantholder
---------------
retain counsel for the purpose of enforcing, or preventing the breach of, any
provision hereof including the institution of any action or proceeding, whether
by arbitration, judicial or quasi-judicial action or otherwise, to enforce any
provision hereof or for damages for any alleged breach of any provision hereof,
or for a declaration of such party's rights or obligations hereunder, then,
whether such matter is settled by negotiation, or by arbitration or judicial
determination, the prevailing party shall be entitled to be reimbursed by the
losing party for all costs and expenses incurred thereby, including reasonable
attorneys' fees for the services rendered to such prevailing party.
Notwithstanding the foregoing, Warrantholder shall be entitled to attorneys'
fees in connection with the protection and exercise of its rights hereunder
incurred pursuant to proceedings arising under the Bankruptcy Code.
(e) Entire Agreement; Amendments and Waivers. This Warrant
----------------------------------------
sets forth the entire understanding of the parties with respect to the
transactions contemplated hereby. The failure of any party to seek redress for
the violation or to insist upon the strict performance of any term of this
Warrant shall not constitute a waiver of such term and such party shall be
entitled to enforce such term without regard to such forbearance. This Warrant
may be amended, the Company may take any action herein prohibited or omit to
take action herein required to be performed by it, and any breach of or
compliance
13
<PAGE>
with any covenant, agreement, warranty or representation may be waived, only if
the Company has obtained the written consent or written waiver of the majority
in interest of the Warrantholders, and then such consent or waiver shall be
effective only in the specific instance and for the specific purpose for which
given.
(f) Severability. If any term of this Warrant as applied to any
------------
person or to any circumstance is prohibited, void, invalid or unenforceable in
any jurisdiction, such term shall, as to such jurisdiction, be ineffective to
the extent of such prohibition or invalidity without in any way affecting any
other term of this Warrant or affecting the validity or enforceability of this
Warrant or of such provision in any other jurisdiction.
(g) Headings. The headings in this Warrant are inserted only for
--------
convenience of reference and shall not be used in the construction of any of its
terms.
(h) Survival of Representations, Warranties and Covenants. All
-----------------------------------------------------
representations, warranties and covenants contained herein shall survive the
exercise or conversion of this Warrant (or any part hereof) or the termination
or expiration of the rights hereunder. Warrantholder and each holder of Warrant
Shares shall continue to be entitled to the rights contained herein indefinitely
until, by their respective terms, they are no longer operative.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officers effective as of the date first set forth above.
PCSupport.com, Inc.
a Nevada corporation,
By:
--------------------------------------
Name:
Title:
14
<PAGE>
EXHIBIT "A"
FORM OF EXERCISE
(To be signed only upon exercise of Warrant)
To:
--------------------------------
--------------------------------
--------------------------------
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, * shares of Common Stock of
------------- -----------------
and herewith makes payment therefor by the following method or methods described
in the Warrant , and requests that the
-----------------------------------
certificates for such shares be issued in the name of, and delivered to,
, whose address is .
- ---------------------- -------------------------------------
Dated:
--------------------
----------------------------------------------------------------------
(Signature must conform in all respects to name of holder as specified
on the face of the Warrant)
----------------------------------------------------------------------
(Address)
- ---------------------
* Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment
for additional Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of the
Warrant, may be deliverable upon exercise.
15
<PAGE>
EXHIBIT "B"
FORM OF ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto the right represented by the within Warrant
-----------------------------
to purchase shares of Common Stock of to which the
-------- --------------------
within Warrant relates, and appoints as Attorney-in-
---------------------------
Fact to transfer such right on the books of with full
------------------------
power of substitution in the premises. The Warrant being transferred hereby is
the Common Stock Purchase Warrant issued by as of January ,
------------------ --
2000.
Dated:
--------------------
----------------------------------------------------------------------
(Signature must conform in all respects to name of holder as specified
on the face of the Warrant)
----------------------------------------------------------------------
(Address)
16
<PAGE>
EXHIBIT 5.38
No. __
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS AND MUST BE HELD INDEFINITELY UNLESS
SUBSEQUENTLY REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS OR DISPOSED OF PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
"B" WARRANT
-----------
Company: PCSupport.com, Inc., a Nevada corporation
Number of Shares: 500,000
Class of Stock: Common Stock
Issue Date: January __, 2000
Expiration Date: July __, 2002
FOR VALUE RECEIVED, the adequacy and receipt of which is hereby
acknowledged, PCSupport.com, Inc., a Nevada corporation (the "Company"), hereby
certifies that ICE Holdings North America, L.L.C., and its successors and
assigns, are entitled to purchase from the Company FIVE HUNDRED THOUSAND
(500,000) fully paid and non-assessable shares of Common Stock of the Company at
any time and from time to time on and after the date hereof until 12:00 midnight
New York local time on July __, 2002 at an exercise price of TWO DOLLARS ($2.00)
per share of Common Stock, on the terms and conditions hereinafter set forth.
1. Certain Definitions. Capitalized terms used herein and not otherwise
-------------------
defined shall have the meanings set forth in the Revolving Credit Agreement,
dated as of January __, 2000, by and between the Company and ICE Holdings North
America, L.L.C. (the "Revolving Credit Agreement"). As used in this Warrant,
the following terms have the following definitions:
"Additional Shares of Common Stock" means all shares of Common Stock
---------------------------------
issued or issuable by the Company after the date of this Warrant, except for
shares of Common Stock issued or issuable upon (i) the exercise of currently
outstanding options or warrants or (ii) the conversion of currently outstanding
Convertible Securities.
"Common Stock" means the Company's Common Stock, $.001 par value per
------------
share, and includes any common stock of the Company of any class or classes
resulting from any reclassification or reclassifications thereof which is not
limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends and in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution or winding up
of the Company.
"Company" means PCSupport.com,Inc., a Nevada corporation.
-------
"Conversion Date" means the date that the Company receives this
---------------
Warrant pursuant to the Warrantholders' Conversion Right pursuant to Section 3
hereof, or on such later date as specified by the Warrantholders.
"Conversion Right" has the meaning set forth in Section 3(a).
----------------
"Convertible Securities" means evidence of indebtedness, shares of
----------------------
stock or other securities which are at any time directly or indirectly
convertible into or exchangeable for shares of Common Stock.
<PAGE>
"Current Market Price" of a share of Common Stock or of any other
--------------------
security as of a relevant date means: (i) the Fair Value thereof as determined
in accordance with clause (ii) of the definition of Fair Value with respect to
Common Stock or any other security that is not listed on a national securities
exchange or traded on the over-the-counter market or quoted on NASDAQ (including
the OTC Electronic Bulletin Board), and (ii) the average of the daily closing
prices for the twenty (20) trading days before such date (excluding any trades
which are not bona fide arm's length transactions) with respect to Common Stock
or any other security that is listed on a national securities exchange or traded
on the over-the-counter market or quoted on NASDAQ (including the OTC Electronic
Bulletin Board). The closing price for each day shall be (i) the last sale price
of shares of Common Stock or such other security, regular way, on such date or,
if no such sale takes place on such date, the average of the closing bid and
asked prices thereof on such date, in each case as officially reported on the
principal national securities exchange on which the same are then listed or
admitted to trading, or (ii) if no shares of Common Stock or if no securities of
the same class as such other security are then listed or admitted to trading on
any national securities exchange, the average of the reported closing bid and
asked prices thereof on such date in the over-the-counter market as shown by the
National Association of Securities Dealers automated quotation system or, if no
shares of Common Stock or if no securities of the same class as such other
security are then quoted in such system, as published by the National Quotation
Bureau, Incorporated or any similar successor organization, and in either case
as reported by any member firm of the New York Stock Exchange selected by the
Warrantholders.
"Exchange Act" means the Securities Exchange Act of 1934.
------------
"Exercise Period" means the period commencing on the Issue Date and
---------------
ending at 12:00 midnight New York local time on the Expiration Date.
"Exercise Price" means the original exercise price set forth in the
--------------
first paragraph of this Warrant, as may be adjusted from time to time pursuant
to Section 6.
"Expiration Date" means July __, 2002.
---------------
"Fair Value" means: (i) with respect to a share of Common Stock or any
----------
other security, the Current Market Price thereof, and (ii) with respect to any
other property, assets, business or entity, an amount determined in accordance
with the following procedure: The Company and the holders of the Warrants and
Warrant Shares, as applicable, shall use their best efforts to mutually agree to
a determination of Fair Value within ten (10) days of the date of the event
requiring that such a determination be made. If the Company and such holders
are unable to reach agreement within said ten (10) day period, the Company and
such holders shall within ten (10) days of the expiration of the ten (10) day
period referred to above each retain a separate independent investment banking
firm (which firm shall not be the investment banking firm regularly retained by
the Company). If either the Company or such holders fails to retain such an
investment banking firm during such period, then the independent investment
banking firm retained by such holders or the Company, as the case may be, acting
alone, shall take the actions outlined below. Such firms shall determine
(within thirty (30) days of their being retained) the Fair Value of the
security, property, assets, business or entity, as the case may be, in question
and deliver their opinion in writing to the Company and to such holders. If
such firms cannot jointly make the determination, then, unless otherwise
directed by agreement of the Company and such holders, such firms, in their sole
discretion, shall choose another investment banking firm independent of the
Company and such holders, which firm shall make the determination and render an
opinion as promptly as practicable. In either case, the determination so made
shall be conclusive and binding on the Company and such holders. The fees and
expenses of any such determination made by any and all such independent
investment banking firms shall be paid 50% by the Company and 50% by the
Warrantholders. If there is more than one holder of Warrants, and/or Warrant
Shares entitled to a determination of Fair Value in any particular instance,
each action to be taken by the holders of such Warrants and/or Warrant Shares
under this Section shall be taken by a majority in interest of such holders and
the action taken by such majority (including as to any mutual agreement with the
Company with respect to Fair Value and as to any selection of investment banking
firms) shall be binding upon all such holders. In the case of a determination
of the Fair Value per share of Common Stock, the Company and such holders shall
not take into consideration, and shall instruct all such investment banking
firms not
2
<PAGE>
to take into consideration, any premium for shares representing control of the
Company, any discount for any minority interest therein or any restrictions on
transfer under applicable federal and state securities laws or otherwise.
"Indemnified Party" and "Indemnifying Party" have the meanings set
----------------- ------------------
forth in Section 11(e)(iii).
"Issue Date" means January __, 2000.
----------
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Warrant(s)" means this Warrant and any warrants issued in exchange or
----------
replacement of this Warrant or upon transfer hereof.
"Warrantholder(s)" means Phoenix Capital Corporation, a New York
----------------
corporation and its successors and assigns.
"Warrant Shares" means shares of Common Stock issuable to
--------------
Warrantholders pursuant to the Warrants.
2. Exercise of Warrant. This Warrant may be exercised, in whole or in
-------------------
part, at any time and from time to time during the Exercise Period by written
notice to the Company and upon payment to the Company of the Exercise Price for
the shares of Common Stock in respect of which the warrant is exercised.
3. Form of Payment of Exercise Price. Anything contained herein to the
---------------------------------
contrary notwithstanding, at the option of the Warrantholders, the Exercise
Price may be paid in any one or a combination of the following forms: (a) by
wire transfer to the Company, (b) by the Warrantholders' cashier's or bank check
to the Company, (c) by the cancellation of any indebtedness owed by the Company
and/or any subsidiaries of the Company to the Warrantholders, but only to the
extent such indebtedness represents (i) amounts drawn down by the Company under
the Revolving Credit Agreement (including accrued interest), (ii) all or a
portion of the Debt Financing Fee or the Retainer payable by the Company to the
Warrantholders; or (iii) all or a portion of the Warrantholders' legal fees for
documentation of the Revolving Credit Agreement payable by the Company to the
Warrantholders, and/or (d) by the surrender to the Company of Warrants, Warrant
Shares, Common Stock and/or other securities of the Company and/or any
subsidiaries of the Company having a Fair Value equal to the Exercise Price.
4. Cashless Exercise/Conversion. In lieu of exercising this Warrant as
----------------------------
specified in Sections 2 and 3 above, the Warrantholders may from time to time at
the Warrantholders' option convert this Warrant, in whole or in part, into a
number of shares of Common Stock of the Company determined by dividing (A) the
aggregate Fair Value of such shares or other securities otherwise issuable upon
the exercise of this Warrant minus the aggregate Exercise Price of such shares
by (B) the Fair Value of one such share.
5. Certificates for Warrant Shares: New Warrant. The Company agrees
--------------------------------------------
that the Warrant Shares shall be deemed to have been issued to the
Warrantholders as the record owner of such Warrant Shares as of the close of
business on the date on which payment for such Warrant Shares has been made (or
deemed to be made by conversion) in accordance with the terms of this Warrant.
Certificates for the Warrant Shares shall be delivered to the Warrantholders
within a reasonable time, not exceeding five (5) business days, after this
Warrant has been exercised or converted. A new Warrant representing the number
of shares, if any, with respect to which this Warrant remains exercisable also
shall be issued to the Warrantholders within such time so long as this Warrant
has been surrendered to the Company at the time of exercise.
3
<PAGE>
6. Adjustment of Exercise Price, Number of Shares and Nature of
------------------------------------------------------------
Securities Issuable Upon Exercise of Warrants.
- ---------------------------------------------
(a) Exercise Price: Adjustment of Number of Shares. The Exercise
----------------------------------------------
Price shall be subject to adjustment from time to time as hereinafter provided.
Upon each adjustment of the Exercise Price (except for any adjustment under
Section 6(b), in which case the number of shares that can be purchased will not
be adjusted), the Warrantholders shall thereafter be entitled to purchase, at
the Exercise Price resulting from such adjustment, a number of shares determined
by multiplying the Exercise Price in effect immediately prior to such adjustment
by the number of shares purchasable pursuant hereto immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(b) Adjustment of Exercise Price Upon Issuance of Common Stock. If
----------------------------------------------------------
and whenever after the date hereof the Company shall (i) reprice any outstanding
options, warrants, or Convertible Securities or (ii) issue or sell Additional
Shares of Common Stock or options, warrants or Convertible Securities to any
person by virtue of such person's holding outstanding options, warrants or
Convertible Securities (except pursuant to an offer or issuance to all of the
Company's stockholders), then, if the lowest price relating to any such
repricing, issuance or sale, is lower than the Exercise Price in effect
immediately prior to such repricing, issuance or sale, then the Exercise Price
shall be reduced to equal such lowest price.
No adjustment of the Exercise Price, however, shall be made in an
amount less than $.01 per share, but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment which, together with any adjustments so carried forward, shall amount
to $.10 per share or more.
The provisions of this Section 6(b) shall not apply to any
Additional Shares of Common Stock which are distributed to holders of Common
Stock pursuant to a stock split or dividend for which an adjustment is provided
for under Section 6(e).
(c) Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
If any capital reorganization or reclassification of the capital stock of the
Company, or any consolidation or merger of the Company with another corporation,
or the sale of all or substantially all of its assets to another corporation
shall be effected in such a way that holders of Common Stock shall be entitled
to receive cash, stock, securities or assets with respect to or in exchange for
Common Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provisions shall be made
whereby the Warrantholders shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant upon exercise of this Warrant and in lieu of the shares of the Common
Stock of the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, such cash, shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of Common Stock equal to the number of shares
of such Common Stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, and in any such case appropriate
provision shall be made with respect to the rights and interest of the
Warrantholders to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Exercise Price and of the number
of shares purchasable and receivable upon the exercise of this Warrant) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise hereof. The
Company shall not effect any consolidation, merger or sale of all or
substantially all of the assets of the Company unless prior to or simultaneous
with the consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation, merger or purchase of such assets
shall assume, by written instrument executed and mailed or delivered to the
Warrantholders, the obligation to deliver to such Warrantholders such cash (or
cash equivalent), shares of stock, securities or assets as, in accordance with
the foregoing provisions, the Warrantholders may be entitled to receive and
containing the express assumption of such successor corporation of the due and
punctual performance and observance of each provision of this Warrant to be
performed and observed by the Company and of all liabilities and obligations of
the Company hereunder; provided, however, in the case during the 18-month period
following the Issue Date of any consolidation
4
<PAGE>
or merger of the Company with another corporation or the sale of all or
substantially all of its assets to another corporation effected in such a manner
that the holders of Common Stock shall be entitled to receive stock, securities
or assets with respect to or in exchange for Common Stock, then, at the election
of each Warrantholder, in lieu of receiving such stock, securities or assets,
such Warrantholder shall receive cash equal to the Fair Value of the Common
Stock issuable upon exercise of the Warrant, less the Exercise Price payable
upon exercise thereof.
In case any Additional Shares of Common Stock or Convertible
Securities or any rights or options to purchase any Additional Shares of Common
Stock or Convertible Securities shall be issued in connection with any merger of
another corporation into the Company, the amount of consideration therefor shall
be deemed to be the Fair Value of such portion of the assets of such merged
corporation as the Board of Directors of the Company shall in good faith
determine to be attributable to such Additional Shares of Common Stock,
Convertible Securities or rights or options, as the case may be, and the
Exercise Price shall be adjusted in accordance with this Section 6(c).
(d) Company to Prevent Dilution. In case at any time or from time
---------------------------
to time conditions arise by reason of action taken by the Company which are not
adequately covered by the provisions of this Section 6, and which might
materially and adversely affect the exercise rights of the Warrantholders under
any provision of this Warrant, unless the adjustment necessary shall be agreed
upon by the Company and the Warrantholders, the Board of Directors of the
Company shall appoint a firm of independent certified public accountants of
recognized national standing (who have not been employed by the Company within
the last five years), acceptable to the Warrantholders, who at the Company's
expense shall give their opinion upon the adjustment, if any, on a basis
consistent with the standards established in the other provisions of this
Section 6, necessary with respect to the Exercise Price and the number of shares
purchasable upon exercise of the Warrants, so as to preserve, without dilution,
the exercise rights of the Warrantholders. Upon receipt of such opinion, such
Board of Directors shall forthwith make the adjustments described therein.
(e) Stock Splits, Stock Dividends and Reverse Splits. In case at
------------------------------------------------
any time the Company shall subdivide its outstanding shares of Common Stock into
a greater number of shares or shall effect a stock dividend, the Exercise price
in effect immediately prior to such subdivision or stock dividend shall be
proportionately reduced and the number of shares of Common Stock purchasable
pursuant to this Warrant immediately prior to such subdivision or stock dividend
shall be proportionately increased, and conversely, in case at any time the
Company shall combine it outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Common Stock purchasable upon the exercise of this Warrant immediately prior to
such combination shall be proportionately reduced.
(f) Dissolution, Liquidation and Wind-Up. In case the Company
------------------------------------
shall, at any time prior to the expiration of this Warrant, dissolve, liquidate
or wind up its affairs, the Warrantholders shall be entitled, upon the exercise
of this Warrant, to receive in lieu of the shares of Common Stock of the Company
which such Warrantholders would have been entitled to receive, the same kind and
amount of assets as would have been issued, distributed or paid to such
Warrantholders upon any such dissolution, liquidation or winding up with respect
to such shares of Common Stock of the Company, had such Warrantholders been the
holders of record of the Warrant Shares receivable upon the exercise of this
Warrant on the record date for the determination of those persons entitled to
receive any such liquidating distribution.
(g) Redemption. The Company may call the Warrant for redemption at a
----------
price of $0.01 for the Warrant, by written notice specifying the redemption
date, such notice to be mailed at least 30 days before such redemption date, to
the Holder; provided, however, that such notice may only be mailed following the
Company's accepting an equity public offering and only if at the time of mailing
the Warrant Shares have been registered under the Securities Act and such shares
are not subject to selling restrictions under the terms of the public offering,
as follows:
(i) 25% of the original amount of shares covered by the Warrant if
the offering is for at least $4,000,000 at a share price of at least $4.
5
<PAGE>
(ii) 50% of the original amount of shares covered by the Warrant if
the offering is for at least $5,000,000 at a share price of at least $5.
(iii) 100% of the original amount of shares covered by the Warrant if
the offering is for at least $6,000,000 at a share price of at least $6.
The Warrant may be exercised at any time prior to the close of business on the
date prior to the redemption date, and if not then exercised will terminate and
be cancelled as to that portion of the Warrant called for redemption. If the
Warrant is exercised and the public offering is not closed within 30 days
following such exercise, the Warrantholder shall have the right, exercisable by
delivering written notice to the Company within ten days following the
expiration of the foregoing 30-day period to rescind the exercise of the
Warrant. Upon exercise of the Warrant, the Warrantholder may request that the
proceeds of its exercise be escrowed pending expiration of the applicable
rescission period, in which case the Warrant Shares issuable upon such exercise
will also be escrowed during such period.
7. Special Agreements of the Company.
---------------------------------
(a) Reservation of Shares. The Company covenants and agrees that
---------------------
all Warrant Shares will, upon issuance, be validly issued, fully paid and
nonassessable and free from all preemptive rights of any Shareholder, and from
all taxes, liens and charges with respect to the issue thereof. The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved, a sufficient number of shares of Common Stock to
provide for the exercise of the rights represented by this Warrant. The Company
hereby covenants and agrees to take all such action as may be necessary to
assure that the par value per share of the Common Stock is at all times equal to
or less than the Exercise Price.
(b) Avoidance of Certain Actions. The Company will not, by
----------------------------
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, issue or sale of securities or
otherwise, avoid or take any action which would have the effect of avoiding the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in carrying
out all of the provisions of this Warrant and in taking all of such action as
may be necessary or appropriate in order to protect the rights of the
Warrantholders against dilution or other impairment of their rights hereunder.
(c) Securing Governmental Approvals. If any shares of Common
-------------------------------
Stock required to be reserved for the purposes of exercise of this Warrant
require registration with or approval of any governmental authority under any
federal law (other than the Securities Act) or under any state law before such
shares may be issued upon exercise of this Warrant, the Company will, at its
expense, as expeditiously as possible, cause such shares to be duly registered
or approved, as the case may be.
(d) Listing on Securities Exchanges; Registration. If, and so
---------------------------------------------
long as, any class of the Company's Common Stock shall be listed on any national
securities exchange (as defined in the Exchange Act), the Company will, at its
expense, obtain and maintain the approval for listing upon official notice of
issuance of all Warrant Shares and maintain the listing of Warrant Shares after
their issuance; and the Company will so list on such national securities
exchange, will register under the Exchange Act (or any similar statute then in
effect), and will maintain such listing of, any other securities that at any
time are issuable upon exercise of this Warrant if and at the time any
securities of the same class shall be listed on such national securities
exchange by the Company.
(e) Information Rights. So long as the Warrantholders hold this
------------------
Warrant and/or any of the Warrant Shares, the Company shall deliver to the
Warrantholders (i) promptly after mailing, copies of all communications to the
shareholders of the Company, (ii) within one hundred five (105) days after the
end of each fiscal year of the Company, the annual audited financial statements
of the Company
6
<PAGE>
certified by the independent public accountants of recognized standing, and
(iii) within fifty (50) days after the end of each of the first three quarters
of each fiscal year, the Company's quarterly, unaudited financial statements.
(f) Preemptive Rights. In the event the Company offers to the
-----------------
Company's shareholders the right to purchase any securities of the Company, then
all shares of Common Stock issuable pursuant to the Warrants shall be deemed to
be issued and outstanding and held by the Warrantholders and the Warrantholders
shall be entitled to participate in such rights offering.
(g) Compliance with Law. The Company shall comply with all
-------------------
applicable laws, rules and regulations of the United States and of all states,
municipalities and agencies and of any other jurisdiction applicable to the
Company and shall do all things necessary to preserve, renew and keep in full
force and effect and in good standing its corporate existence and authority
necessary to continue its business.
8. Fractional Shares. No fractional shares or scrip representing
-----------------
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon exercise hereof, the Company
shall pay to the Warrantholder an amount in cash equal to such fraction
multiplied by the Current Market Value of one share of Common Stock.
9. Notices of Stock Dividends, Subscriptions, Reclassifications,
-------------------------------------------------------------
Consolidations, Mergers, etc. If at any time: (i) the Company shall declare a
- ----------------------------
cash dividend (or an increase in the then existing dividend rate), or declare a
dividend on Common Stock payable otherwise than in cash out of its net earnings
after taxes for the prior fiscal year; or (ii) the Company shall authorize the
granting to the holders of Common Stock of rights to subscribe for or purchase
any shares of capital stock of any class or of any other rights; or (iii) there
shall be any capital reorganization, or reclassification, or redemption of the
capital stock of the Company, or consolidation or merger of the Company with, or
sale of all or substantially all of its assets to, another corporation or firm;
or (iv) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company, then the Company shall give to the Warrantholders at
the addresses of such Warrantholders as shown on the books of the Company, at
least twenty (20) days prior to the applicable record date hereinafter
specified, a written notice summarizing such action or event and stating the
record date for any such dividend or rights (or, if a record date is not to be
selected, the date as of which the holders of Common Stock of record entitled to
such dividend or rights are to be determined), the date on which any such
reorganization, reclassification, consolidation, merger, sale of assets,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected the holders of Common Stock of record shall be
entitled to effect any exchange of their shares of Common Stock for cash (or
cash equivalent), securities or other property deliverable upon any such
reorganization, reclassification, consolidation, merger, sale of assets,
dissolution, liquidation or winding up.
10. Registered Holder; Transfer of Warrants or Warrant Shares.
---------------------------------------------------------
(a) Maintenance of Registration Books; Ownership of this Warrant.
------------------------------------------------------------
The Company shall keep at its principal office a register in which the Company
shall provide for the registration, transfer and exchange of this Warrant. The
Company shall not at any time, except upon the dissolution, liquidation or
winding-up of the Company, close such register so as to result in preventing or
delaying the exercise or transfer of this Warrant.
(b) Exchange and Replacement. This Warrant is exchangeable upon
------------------------
surrender hereof by the registered holder to the Company at its principal office
for new Warrants of like tenor and date representing in the aggregate the right
to purchase the number of shares purchasable hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by said registered holder at the time of surrender. Subject to
compliance with all restrictions and provisions of this Warrant, this Warrant
and all rights hereunder are transferable in whole or in part upon the books of
the Company by the registered holder hereof in person or by duly authorized
attorney, and new Warrants shall be made and delivered by the Company, of the
same tenor and date as this Warrant but registered in the name of the
transferee(s), upon surrender of this Warrant, duly endorsed, to
7
<PAGE>
said office of the Company accompanied by a Form of Assignment in the form
attached hereto as Exhibit "B". Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and upon surrender and cancellation of this Warrant, if mutilated,
the Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant, without requiring the posting of any bond or the giving of any other
security, and the holder of such Warrant will indemnify and hold the Company and
its officers, directors, affiliates, agents, employees, successors and assigns,
harmless against all claims, losses, liabilities, damages, deficiencies, costs
and expenses, including reasonable attorneys' fees and expenses of investigation
and defense incurred, suffered or accrued by any of them, directly or
indirectly, as a result of or based upon the making or deliverance of such new
Warrant. This Warrant shall be promptly cancelled by the Company upon the
surrender hereof in connection with any exchange, transfer or replacement. The
Company shall pay all expenses, taxes and other charges payable in connection
with the preparation, execution and delivery of Warrants pursuant to this
Section 10.
(c) Warrants and Warrant Shares Not Registered. The holder of this
------------------------------------------
Warrant, by accepting this Warrant, represents and acknowledges that this
Warrant and the Warrant Shares are not being registered under the Securities Act
on the grounds that the issuance of this Warrant and the offering and sale of
such Warrant Shares are exempt from registration under Section 4(2) of the
Securities Act as not involving any public offering and that the Warrantholders
are acquiring this Warrant for investment and not with a view to distribution.
11. Registration.
------------
(a) Registration Under the Securities Act. The Warrant and the
-------------------------------------
shares of Common Stock issuable upon exercise of the Warrant and any of the
other securities issuable upon exercise of the Warrant have not been registered
under the Securities Act for public resale. Upon exercise, in part or in whole,
of the Warrant, certificates representing the shares of Common Stock and any
other securities issuable upon exercise, of the Warrant (collectively, the
"Warrant Securities") shall bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act") for public resale, and may not be offered or sold
except pursuant to (i) an effective registration statement under the
Securities Act, or (ii) an opinion of counsel, if such opinion shall
be reasonably satisfactory to counsel to the issuer, that an exemption
from registration under the Securities Act is available.
(b) Piggyback Registration. If the Company proposes for any reason
----------------------
to register Primary Shares under the Securities Act (other than on Form S-4 or
Form S-8 promulgated under the Securities Act or any successor forms thereto) by
filing a registration statement with the Securities and Exchange Commission (the
"Commission") and such registration, together with any prior registration(s) of
Primary Shares (as hereinafter defined) (other than on Form S-4 or Form S-8
promulgated under the Securities Act or any successor forms thereto), would
cause the Company to have registered in excess of $3,000,000 of Primary Shares
(other than on Form S-4 or Form S-8 promulgated under the Securities Act or any
successor forms thereto), then the Warrantholders shall be entitled to piggyback
registration rights, as set forth herein, with respect to such registration and
all subsequent registrations of Primary Shares or Other Shares (other than on
Form S-4 or Form S-8 promulgated under the Securities Act or any successor forms
thereto). If the Company proposes for any reason to register Primary Shares or
Other Shares, and such registration is a registration as to which the
Warrantholders have piggyback registration rights pursuant to the previous
sentence, the Company shall promptly give written notice to the Warrantholders
of its intention to so register such Primary Shares or Other Shares and, upon
the written request, delivered to the Company within 15 days after delivery of
any such notice by the Company, of the Warrantholders to include in such
registration Warrant Securities (which request shall specify the number of
Warrant Securities proposed to be included in such registration), the Company
shall use its commercially reasonable best efforts to cause all such Warrant
Securities of the Warrantholders delivering such notice to be included in such
registration on the same terms and conditions as the securities otherwise being
sold in such registration; provided, however, that if the managing underwriter,
if
8
<PAGE>
any, for the offering in good faith advises the Company that the inclusion of
all Warrant Securities requested to be included in such registration would
interfere with the successful marketing (including pricing) of the Primary
Shares or Other Shares proposed to be registered by the Company, then the number
of Primary Shares, Warrant Securities and Other Shares proposed to be included
in such registration shall be included in the following order:
(i) if the Company proposes to register Primary Shares:
(A) first, the Primary Shares; and
(B) second, the Warrant Securities and Other Shares requested
to be included in such registration (or, if necessary, such Warrant Securities
and Other Shares pro rata among the holders thereof based upon the number of
Warrant Securities and Other Shares requested by each such holder); or
(ii) if the Company proposes to register Other Shares pursuant to a
request for registration by the holders of such Other Shares:
(A) first, the Other Shares held by the parties demanding such
registration;
(B) second, the Warrant Securities and Other Shares (other
than shares registered pursuant to Section 11(b)(ii)(A) hereof) requested to be
registered by the holders thereof (or, if necessary, pro rata among the holders
thereof based on the number of Warrant Securities and Other Shares requested to
be registered by such holders); and
(C) Third, the Primary Shares.
For purposes hereof the term "Other Shares" means at any time those shares
of Common Stock held by any person (or issuable upon exercise or conversion of
any security held by such person) that do not constitute Primary Shares or
Warrant Securities. The term "Primary Shares" means at any time the authorized
but unissued shares of Common Stock and shares of Common Stock held by the
Company in its treasury.
(c) Demand Registration.
-------------------
(i) At any time following 180 days from the date hereof, the
Warrantholders shall have the right (which right is in addition to the
registration rights under Section 11(b) hereof), exercisable by written notice
to the Company after that date, to have the Company prepare and file with the
Commission, on one occasion, a registration statement and such other documents,
including a prospectus, as may be necessary in the opinion of both counsel for
the Company and counsel for the Warrantholders, in order to comply with the
provisions of the Securities Act, so as to permit a public offering and sale of
the Warrant Securities for the earlier of (i) one year following the
effectiveness of the registration statement or (ii) until all of the Warrant
Securities are sold.
(ii) Notwithstanding the foregoing, the Company may delay the
filing or effectiveness of any registration statement for a period of up to 180
days after the receipt of a demand for registration pursuant to subsection (a)
above if at the time of receipt of such demand the Company is engaged, or has
fixed plans to engage within 90 days of the time of such request, in a firm
commitment underwritten public offering of Primary Shares in which the Company
may include Warrant Securities pursuant to and subject to the limitations of
Section 11(b);
(iii) The Warrantholders, upon receipt of any notice from the
Company of any event of the kind described in Section 11(d)(ix) hereof, shall
forthwith discontinue disposition of the Warrant Securities pursuant to the
registration statement covering such Warrant Securities until such holder's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section
9
<PAGE>
11(d)(ix) hereof, and, if so directed by the Company, such holder shall deliver
to the Company all copies, other than permanent file copies then in such
holder's possession, of the prospectus covering such Warrant Securities at the
time of receipt of such notice.
(d) Covenants of the Company With Respect to Registration. In
-----------------------------------------------------
connection with any registration under Section 11(b) or 11(c) hereof, the
Company covenants and agrees as follows:
(i) The Company shall use commercially reasonable best efforts
to file a registration statement within 45 days of receipt of any demand
therefor, shall use commercially reasonable best efforts to have any
registration statements declared effective at the earliest possible time, and
shall furnish the holders desiring to sell Warrant Securities such number of
prospectuses as shall reasonably be requested.
(ii) The Company shall pay all costs (excluding any
underwriting or selling commissions or other charges of any broker-dealer or any
attorney or other person acting on behalf of holders of Warrant Securities),
fees and expenses in connection with all registration statements filed pursuant
to Sections 11(b) and 11(c)(i) hereof including, without limitation, the
Company's legal and accounting fees, printing expenses, blue sky fees and
expenses.
(iii) The Company will take all necessary action which may be
reasonably required in qualifying or registering the Warrant Securities included
in a registration statement for offering and sale under the securities or blue
sky laws of the states requested by the holders of Warrant Securities.
(iv) The Company shall indemnify each of the holders of the
Warrant Securities to be sold pursuant to any registration statement and each
person, if any, who controls such holder within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage, expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Securities Act, the Exchange Act or
otherwise, arising from such registration statement; provided, however, that (i)
-------- -------
the Company will 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 such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of the holder specifically for inclusion therein.
(v) Nothing contained in this Agreement shall be construed as
requiring the Warrantholders to exercise the Warrant prior to the initial filing
of any registration statement or the effectiveness thereof.
(vi) If the offering is underwritten, the Company shall furnish
to each holder of Warrant Securities participating in the offering and to each
underwriter a signed counterpart, addressed to such holder or underwriter, of
(i) an opinion of counsel to the Company, dated the effective date of such
registration statement (and, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offering of securities that utilize the
particular form of registration statement which is then being utilized by the
Company.
(vii) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its
10
<PAGE>
security holders" (within the meaning of Rule 158 under the Securities Act) an
earnings statement (which need not be audited) complying with Section 11(a) of
the Securities Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(viii) The Company shall deliver promptly to each holder of
Warrant Securities participating in the offering requesting the correspondence
and memoranda described below and the managing underwriter copies of all
correspondence between the Commission and the Company, its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff with
respect to the registration statement and permit the holder and underwriter to
do such investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the registration statement as it deems
reasonably necessary to comply with applicable securities laws or rules of the
National Association of Securities Dealers, Inc. ("NASD"). Such investigation
shall include access to books, records and properties and opportunities to
discuss the business of the Company with its officers and independent auditors,
all to such reasonable extent and at such reasonable times and as often as any
such holder shall reasonably request as it deems necessary to comply with
applicable securities laws or NASD rules.
(ix) The Company shall notify the holder of such Warrant
Securities on a timely basis at any time when a prospectus relating to such
Warrant Securities is required to be delivered under the Securities Act within
the appropriate period set forth in Section 11(c)(i), of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing and, at the request of the holder, prepare and furnish to the holder a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the offerees
of such shares, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make statements therein not misleading in light of the
circumstances then existing.
12. Representation and Warranties. The Company hereby represents and
-----------------------------
warrants to and covenants with Warrantholder that:
(a) Organization and Capitalization of the Company. The Company is a
----------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada. As of the date hereof, the authorized capital of the
Company consists of 100,000,000 shares of Common Stock of which 6,425,569 shares
of Common Stock are issued and outstanding. The Company has, and at all times
during the Exercise Period will have, reserved for issuance pursuant to the
Warrants that number of shares of Common Stock that are issuable pursuant to the
Warrants. No unissued shares of Common Stock are reserved for any purpose other
than for issuance upon the exercise of the Warrants, except that there are
1,136,438 shares of Common Stock reserved for issuance upon the exercise of
outstanding warrants and options. Except under this Warrant, there are no
preemptive rights in effect with respect to the issuance of any shares of Common
Stock. All of the outstanding shares of Common Stock and Preferred Stock have
been validly issued without violation of any preemptive or similar rights, are
fully paid and nonassessable and have been issued in compliance with all federal
and applicable state securities laws.
(b) Authority. The Company has full corporate power and authority
---------
to execute and deliver this Warrant, to issue the shares of Common Stock
issuable upon exercise of this Warrant, and to perform all of its obligations
hereunder, and the execution, delivery and performance hereof has been duly
authorized by all necessary corporate action on its part. This Warrant has been
duly executed on behalf of the Company and constitutes the legal, valid and
binding obligation of the Company enforceable in accordance with its terms.
(c) No Legal Bar. Neither the execution, delivery or performance
------------
of this Warrant nor the issuance of the shares of Common Stock issuable upon
exercise of this Warrant will (a) conflict with or result in a violation of the
Articles of Incorporation or By-Laws of the Company, (b) conflict with or result
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<PAGE>
in a violation of any law, statute, regulation, order or decree applicable to
the Company or any affiliate, (c) require any consent or authorization or filing
with, or other act by or in respect of any governmental authority, or (d) result
in a breach of, constitute a default under or constitute an event creating
rights of acceleration, termination or cancellation under any mortgage, lease,
contract, franchise, instrument or other agreement to which the Company is a
party or by which it is bound.
(d) Validity of Shares. When issued upon the exercise of this
---------------------
Warrant as contemplated herein, the shares of Common Stock so issued will have
been validly issued and will be fully paid and nonassessable. On the date
hereof, the par value of the Common Stock is less than the Exercise Price per
share of Common Stock.
(e) From and after the hereof, the Company shall (whether or not it
shall then be required to do so) timely file such information, documents and
reports as the Commission may require or prescribe under Section 13 or 15(d)
(whichever is applicable) of the Exchange Act. The Company shall forthwith upon
request furnish any holder of Registrable Stock (i) a written statement by the
Company that it has complied with such reporting requirements, (ii) a copy of
the most recent annual or quarterly report of the Company, and (iii) such other
reports and documents filed by the Company with the Commission as such holder
may reasonably request in availing itself of an exemption for the sale of
Registrable Stock without registration under the Securities Act. The Company
acknowledges and agrees that the purpose of the requirements contained in this
Section 12(e) is to enable any such holder to comply with the current public
information requirement contained in Rule 144 under the Securities Act should
such holder ever wish to dispose of any of the securities of the Company
acquired by it without registration under the Securities Act in reliance upon
Rule 144 (or any other similar exemptive provision). In addition, the Company
shall take such other measures and file such other information, documents and
reports as shall hereafter be required by the Commission as a condition to the
availability of Rule 144 and Rule 144A under the Securities Act (or any similar
exemptive provision hereafter in effect).
13. Miscellaneous Provisions.
------------------------
(a) CHOICE OF LAW AND VENUE.
-----------------------
(i) THE VALIDITY OF THIS WARRANT, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT AND THE RIGHTS OF THE PARTIES HERETO SHALL
BE DETERMINED UNDER, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEVADA.
(ii) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING
IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE
FEDERAL OR STATE COURTS LOCATED IN CITY, COUNTY AND STATE OF NEW YORK, OR, AT
THE SOLE OPTION OF THE WARRANTHOLDER, IN ANY OTHER COURT IN WHICH THE
WARRANTHOLDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS
SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. THE PARTIES
EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
PROCEEDING COMMENCED IN ANY SUCH COURT, AND THE PARTIES HEREBY WAIVE ANY
OBJECTION WHICH EITHER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION AND
HEREBY CONSENT TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY ANY SUCH COURT. FURTHERMORE, THE COMPANY AND WARRANTHOLDER EACH
WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO
ASSERT THE DOCTRINE OF "FORUM NON CONVENIENS" OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 12(a)(ii).
(iii) WAIVER OF JURY TRIAL. THE COMPANY AND WARRANTHOLDER
--------------------
HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS WARRANT. IN THE EVENT OF LITIGATION, A
COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
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<PAGE>
(b) Notices. All notices or demands by any party relating to
-------
this Warrant shall be in writing and shall be personally delivered or sent by
registered or certified mail, postage prepaid, return receipt requested, or by
receipted overnight delivery service to the Company and Warrantholder, as the
case may be, at their addresses set forth below:
If to Company: PCSupport.com, Inc.
Suite 280, 4400 Dominion Street
Burnaby, British Columbia, Canada V5G 4G3
Attention: David W. Rowat, Vice President, Finance and
Business Development
with a copy to:
Sanford J. Hillsberg, Esq.
Troy & Gould Professional Corporation
1801 Century Park East
Los Angeles, California 90067
If to Warrantholder: ICE Holdings North America, L.L.C.
645 Madison Avenue, 13th Floor
New York, New York 10022
Attention: Andrew Smith
with a copy to:
James D. Fornari, Esq.
645 Madison Avenue, 13th Floor
New York, New York 10022
The parties hereto may change the address at which they
are to receive notices hereunder by notice in writing in the foregoing manner
given to the other. All notices or demands sent in accordance with this Section
13(b) shall be deemed received on the earlier of the date of actual receipt or
three (3) calendar days after the deposit thereof in the mail or one (1)
calendar day after deposit thereof with an overnight delivery service.
(c) Successors and Assigns. This Warrant shall bind and
----------------------
inure to the benefit of the respective successors and assigns of each of the
parties hereto. Warrantholder and its successors and assigns may assign this
Warrant and its rights and duties hereunder. Warrantholder reserves the right to
sell, assign and/or transfer all or any part of, or any interest in
Warrantholder's rights and benefits hereunder.
(d) Attorneys' Fees. Should the Company or any Warrantholder
---------------
retain counsel for the purpose of enforcing, or preventing the breach of, any
provision hereof including the institution of any action or proceeding, whether
by arbitration, judicial or quasi-judicial action or otherwise, to enforce any
provision hereof or for damages for any alleged breach of any provision hereof,
or for a declaration of such party's rights or obligations hereunder, then,
whether such matter is settled by negotiation, or by arbitration or judicial
determination, the prevailing party shall be entitled to be reimbursed by the
losing party for all costs and expenses incurred thereby, including reasonable
attorneys' fees for the services rendered to such prevailing party.
Notwithstanding the foregoing, Warrantholder shall be entitled to attorneys'
fees in connection with the protection and exercise of its rights hereunder
incurred pursuant to proceedings arising under the Bankruptcy Code.
(e) Entire Agreement; Amendments and Waivers. This Warrant
----------------------------------------
sets forth the entire understanding of the parties with respect to the
transactions contemplated hereby. The failure of any party to seek redress for
the violation or to insist upon the strict performance of any term of this
Warrant shall not constitute a waiver of such term and such party shall be
entitled to enforce such term without regard to such forbearance. This Warrant
may be amended, the Company may take any action herein prohibited or omit to
take action herein required to be performed by it, and any breach of or
compliance
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<PAGE>
with any covenant, agreement, warranty or representation may be waived, only if
the Company has obtained the written consent or written waiver of the majority
in interest of the Warrantholders, and then such consent or waiver shall be
effective only in the specific instance and for the specific purpose for which
given.
(f) Severability. If any term of this Warrant as applied to any
------------
person or to any circumstance is prohibited, void, invalid or unenforceable in
any jurisdiction, such term shall, as to such jurisdiction, be ineffective to
the extent of such prohibition or invalidity without in any way affecting any
other term of this Warrant or affecting the validity or enforceability of this
Warrant or of such provision in any other jurisdiction.
(g) Headings. The headings in this Warrant are inserted only for
--------
convenience of reference and shall not be used in the construction of any of its
terms.
(h) Survival of Representations, Warranties and Covenants. All
-----------------------------------------------------
representations, warranties and covenants contained herein shall survive the
exercise or conversion of this Warrant (or any part hereof) or the termination
or expiration of the rights hereunder. Warrantholder and each holder of Warrant
Shares shall continue to be entitled to the rights contained herein indefinitely
until, by their respective terms, they are no longer operative.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officers effective as of the date first set forth above.
PCSupport.com, Inc.
a Nevada corporation,
By:_______________________________________
Name:
Title:
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<PAGE>
EXHIBIT "A"
FORM OF EXERCISE
(To be signed only upon exercise of Warrant)
To: ________________________________
________________________________
________________________________
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, _____________* shares of Common Stock of
___________________ and herewith makes payment therefor by the following method
or methods described in the Warrant ___________________________________, and
requests that the certificates for such shares be issued in the name of, and
delivered to, ______________________, whose address is
_________________________________________.
Dated: ____________________
_____________________________________________________________________________
(Signature must conform in all respects to name of holder as specified
on the face of the Warrant)
_____________________________________________________________________________
(Address)
_____________________
* Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment
for additional Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of the
Warrant, may be deliverable upon exercise.
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<PAGE>
EXHIBIT "B"
FORM OF ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto _____________________________ the right represented by the within Warrant
to purchase ________ shares of Common Stock of ____________________ to which
the within Warrant relates, and appoints ___________________________ as
Attorney-in-Fact to transfer such right on the books of ________________________
with full power of substitution in the premises. The Warrant being transferred
hereby is the Common Stock Purchase Warrant issued by __________________ as of
January __, 2000.
Dated: ____________________
__________________________________________________________________________
(Signature must conform in all respects to name of holder as specified
on the face of the Warrant)
__________________________________________________________________________
(Address)
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