<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 2000.
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERNATIONAL MONETARY SYSTEMS, LTD.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
WISCONSIN 7389 39-1924096
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or
organization)
</TABLE>
<TABLE>
<S> <C>
16901 WEST GLENDALE DRIVE 16901 WEST GLENDALE DRIVE
NEW BERLIN, WISCONSIN 53151 NEW BERLIN, WISCONSIN 53151
(262) 780-3640 -- FAX (262) 780-3655 (Address of principal place of business)
(Address and telephone number of principal
executive offices)
</TABLE>
DONALD F. MARDAK
INTERNATIONAL MONETARY SYSTEMS, LTD.
16901 WEST GLENDALE DRIVE
NEW BERLIN, WISCONSIN 53151
(262) 780-3640 -- FAX (262) 780-3655
(Name, address and telephone number of agent for service)
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
ROBERT J. PHILIPP, ESQ. GERALD R. TURNER, ESQ.
KRANITZ & PHILIPP GERALD R. TURNER & ASSOCIATES, S.C.
2230 East Bradford Avenue 411 East Wisconsin Avenue
Milwaukee, Wisconsin 53211 Milwaukee, Wisconsin 53202
(414) 332-2118 -- FAX (414) 332-4480 (414) 278-7865 -- FAX (414) 278-0064
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock............ 1,000,000 shares $6.50(1) $6,500,000(1) $416.00
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</TABLE>
(1) Price of Common Stock estimated solely for the purpose of calculating the
registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
No person is authorized in connection with any offering made hereby to
give any information or to make any representations other than as
contained in this Prospectus, and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company or by any Underwriter. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy by any person in any
jurisdiction in which it is unlawful for such person to make such an
offering or solicitation. Neither the delivery of this Prospectus nor any
sale made hereunder shall under any circumstances imply that the
information contained herein is correct as of any date subsequent to the
date hereof.
SUBJECT TO COMPLETION, DATED JANUARY 13, 2000
1,000,000 SHARES
INTERNATIONAL MONETARY SYSTEMS, LTD.
COMMON STOCK
-------------------------
All of the 1,000,000 shares of common stock, par value $0.0001 per share
("Common Stock"), offered hereby are being sold by International Monetary
Systems, Ltd. ("Company"). Prior to this offering, there has been no public
market for Common Stock or other securities of the Company. It is anticipated
that the initial public offering price of the Common Stock will be in a range
from $5.00 to $6.50 per share. See "Underwriting" for information relating to
the factors considered in determining the offering price. The Company
anticipates that, upon completion of the offering, its Common Stock will be
quoted in the National Daily Quotation Service Pink Sheets and on the National
Association of Securities Dealers OTC Bulletin Board under the trading symbol
" ."
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES SUBSTANTIAL RISKS.
SEE "RISK FACTORS."
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share................................ $ $ $
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Total(3)................................. $ $ $
========================================================================================================
</TABLE>
(1) Does not include a nonaccountable expense allowance payable to J.E. Liss &
Company, Inc. d/b/a Liss Financial Services ("Managing Placement Agent"), in
an amount equal to 2% of the gross proceeds of the offering, or any value
attributable to (i) the warrants ("Underwriter's Warrants") entitling the
Selected Placement Agents (as herein defined) to purchase shares of Common
Stock in an amount equal to 10% of the shares sold in the offering at a
price per share equal to 120% of the initial public offering price or (ii)
the Managing Placement Agent's right of first refusal to act as underwriter,
placement agent or investment banker with respect to offerings of
securities, mergers and acquisitions by or involving the Company for a
period of three years from the date hereof. The Managing Placement Agent may
re-allow all or a portion of its compensation in its discretion to
broker-dealers selected by it ("Selected Placement Agents") who are members
of the National Association of Securities Dealers, Inc. ("NASD"). The
Company has agreed to indemnify the Selected Placement Agents (including the
Managing Placement Agent) against certain liabilities, including liabilities
under the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company, estimated
at $250,000, including the Managing Placement Agent's expense allowance
referred to in Note (1), above.
(3) The Selected Placement Agents are offering the Common Stock on a
"best-efforts" basis. There is no minimum aggregate amount required to be
sold in the offering; all funds will become immediately available for use
for the purposes of the offering. See "Use of Proceeds." Pending
disbursement to the Company, funds received from subscribers will be held in
escrow by Grafton State Bank, Grafton, Wisconsin. The Selected Placement
Agents may offer the Common Stock for sale until (i) the entire offering is
sold or (ii) September 30, 2000, whichever first occurs; the offering may be
terminated at any time prior thereto at the discretion of the Company. See
"Underwriting."
-------------------------
LISS FINANCIAL SERVICES
, 2000
<PAGE> 3
UNTIL , 2000 (90 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 5
The Company................................................. 8
Use of Proceeds............................................. 8
Dividend Policy............................................. 8
Dilution.................................................... 9
Capitalization.............................................. 10
Selected Financial Data..................................... 11
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12
Business.................................................... 17
Management.................................................. 24
Certain Relationships and Related Transactions.............. 26
Principal Stockholders...................................... 27
Indemnification for Securities Act Liabilities.............. 27
Description of Securities................................... 28
Common Stock Eligible for Future Sale....................... 31
Underwriting................................................ 32
Legal Matters............................................... 34
Experts..................................................... 34
Additional Information...................................... 34
Index to Financial Statements............................... 36
Exhibit A (Subscription Agreement).......................... A-1
</TABLE>
-------------------------
THE SECURITIES DESCRIBED HEREIN ARE OFFERED BY THE PLACEMENT AGENTS, ON
BEHALF OF THE COMPANY, SUBJECT TO PRIOR SALE, WITHDRAWAL, CANCELLATION OR
MODIFICATION OF THE OFFERING BY THE COMPANY WITHOUT NOTICE. THE OFFERING CAN
ONLY BE MODIFIED BY MEANS OF AN AMENDMENT OR SUPPLEMENT TO THE PROSPECTUS.
OFFERS TO PURCHASE AND CONFIRMATIONS OF SALES ISSUED BY THE PLACEMENT AGENTS ARE
SUBJECT TO (1) ACCEPTANCE BY THE COMPANY, (2) RELEASE AND DELIVERY OF THE
PROCEEDS OF THE OFFERING TO THE COMPANY, (3) DELIVERY OF THE SECURITIES AND (4)
THE RIGHT OF THE COMPANY TO REJECT ANY AND ALL OFFERS TO PURCHASE AND TO CANCEL
ANY AND ALL CONFIRMATIONS OF SALE OF THE SECURITIES OFFERED HEREBY, AT ANY TIME
PRIOR TO RECEIPT OF FUNDS FROM THE PURCHASER. NO SUBSCRIPTION IS SUBJECT TO
WITHDRAWAL, REVOCATION OR TERMINATION BY THE PURCHASER.
The Company intends to furnish to its stockholders annual reports
containing financial statements examined by an independent public accounting
firm and quarterly reports for the first three quarters of each year containing
interim unaudited financial information.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information and the financial statements and related notes appearing
elsewhere in this Prospectus.
THE COMPANY
International Monetary Systems, Ltd. ("Company", also referred to as "we"
or "us" in this Prospectus), is a Wisconsin corporation, which acquires, owns,
and manages subsidiaries that operate trade exchanges and related businesses.
Trade exchanges or barter networks are financial service firms which permit
companies and individuals to exchange goods and services utilizing an electronic
currency known as "trade dollars."
Currently, our subsidiaries service over 2,400 barter customers who
generate over $1,300,000 of revenue annually on a consolidated basis on more
than $11,000,000 of trade volume. We have been growing at a rate of over 20% per
year for ten years through expanding the number of our customers and acquiring
other firms.
Our mailing address is 16901 W. Glendale Drive, P.O. Box 510305, New
Berlin, Wisconsin 53151, and our telephone numbers are (800) 236-8104 and (262)
780-3640; the telephone number for our facsimile line is (262) 780-3655. See
"The Company" and "Business."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered........................................ 1,000,000 shares
Common Stock outstanding before the offering................ 2,081,704 shares
Common Stock to be outstanding after the offering........... 3,081,704 shares
Proposed Pink Sheets/OTC Bulletin Board trading symbol......
</TABLE>
Our shares are being offered by broker-dealers, who are members of the
NASD, on a "best efforts" basis. See "Description of Capital Stock" and
"Underwriting."
USE OF PROCEEDS
We will use the net proceeds of the offering to develop our Web site and
increase marketing, which will involve the hiring of additional personnel. We
also propose to acquire other firms (typically other trade exchanges) in order
to expand the geographic scope of our business and make more intensive use of
our facilities and personnel. We may on a selective basis acquire partial or
complete ownership of firms in unrelated fields which utilize barter services or
offer other operating synergies with our barter business.
RISK FACTORS
There are risks to making an investment in the Common Stock, including,
among other things, that we must compete with other firms for customers and
qualified personnel, our industry is changing, we may require additional capital
to continue expanding, we may make acquisitions of firms in unrelated fields,
our Common Stock has not previously had a trading market, and other factors
discussed in "Risk Factors," which you should carefully read.
3
<PAGE> 5
SUMMARY FINANCIAL DATA
The selected summary financial data included in the following table has
been derived from and should be read in conjunction with, and are qualified in
their entirety by, the Company's financial statements (and the notes thereto)
appearing elsewhere in this Prospectus. The unaudited financial statements of
the Company as of September 30, 1999, and for the nine months ended September
30, 1999 and 1998, reflect, in the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial condition and results for such periods.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
---------------------------- ------------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1999 1998
------------ ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues............................ $1,181,540 $ 969,052 $ 959,246 $ 784,930
Total expenses............................ 1,162,988 988,344 925,461 776,784
---------- --------- --------- ---------
Income (loss) before income taxes......... 18,652 (19,292) 33,785 8,146
Income tax expense (benefit).............. 9,278 (3,012) 8,913 4,052
---------- --------- --------- ---------
Net income (loss)......................... $ 9,374 $ (16,280) $ 24,872 $ 4,094
Retained earnings (deficit) beginning
of period.............................. $ (41,756) $ (25,476) $ (32,382) $ (41,756)
---------- --------- --------- ---------
Retained earnings (deficit) end of
period................................. $ (32,382) $ (41,756) $ (7,510) $ (37,662)
========== ========= ========= =========
Net income (loss) per common share(1)....... $ 0.0051 $ (0.0092) $ 0.0127 $ 0.0023
========== ========= ========= =========
Weighted average common shares
outstanding(1)............................ 1,834,118 1,775,400 1,959,618 1,808,748
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------------
AS
ACTUAL ADJUSTED(2)
------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................. $ 122,179 $
Total assets.............................................................. $ 655,544 $
Long-term debt, less current portion(3)................................... $ 96,937 $ 96,937
Stockholders' equity...................................................... $ 489,982 $
</TABLE>
- -------------------------
(1) Adjusted to reflect a 2 for 1 split of such outstanding Common Stock,
effective as of December 28, 1999 (following an earlier such 2 for 1 split
of the outstanding Common Stock, effected as of July 28, 1999).
(2) Adjusted to reflect the sale of 1,000,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $ per share (after
deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company) and the application of the estimated net
proceeds (approximately $ ) therefrom. See "Use of Proceeds."
(3) Assumes no offering proceeds are expended to repay outstanding long-term
debt. See "Use of Proceeds."
-------------------------
WHERE INDICATED IN THIS PROSPECTUS, THE NUMBER OF OUTSTANDING SHARES OF
COMMON STOCK SHOWN HAS BEEN ADJUSTED TO REFLECT A 2 FOR 1 SPLIT OF SUCH
OUTSTANDING COMMON STOCK, EFFECTIVE AS OF DECEMBER 28, 1999 (FOLLOWING AN
EARLIER SUCH 2 FOR 1 SPLIT OF THE OUTSTANDING COMMON STOCK, EFFECTED AS OF JULY
28, 1999).
4
<PAGE> 6
RISK FACTORS
Before making a decision whether to purchase our Common Stock, you should
carefully consider the risks described in this section as well as general
factors that may affect an investment in any business, such as how economic and
market conditions, or changes in laws, may affect our operation and
profitability. No one can predict the future exactly, and so no one can be sure
that our Company will enjoy the profits and growth we hope to achieve.
1. WE FACE SIGNIFICANT COMPETITION OUTSIDE OF OUR CURRENT MARKET
AREA. Carrying out our business plan is dependent upon entering markets we do
not currently serve. While we intend to enter those markets by acquiring firms
who already serve at least 50% of the customers in their markets, we may not
always be able to acquire such firms and in some cases we may compete in markets
where there are larger, better capitalized and better established firms. We
expect to compete within our industry in hiring qualified personnel, and
acquiring customers, while existing and new competing businesses may have
substantially greater financial resources, broader public recognition and more
extensive promotional and marketing capacities than we have. We also compete
with various traditional cash businesses.
2. OUR MANAGEMENT HAS CONTROL OVER DECISIONS. Our President, Donald F.
Mardak and his immediate family own sufficient shares to control the election of
directors and generally direct the operation of our business. If shares offered
to the public are sold, they will still own a majority of the Common Stock
outstanding. While Mr. Mardak is the founder of our Company and has directed our
business since its inception, any new shareholder should be willing to accept
his control for the foreseeable future.
3. WE DEPEND ON OUR KEY PERSONNEL, ESPECIALLY OUR PRESIDENT, DONALD
MARDAK. Our Company has made, and intends to continue to develop qualified and
experienced managers who will be capable of managing the business when our
current president retires or dies. However, presently you should assume that the
loss of Mr. Mardak could have a material adverse effect on our business.
4. WE EXPECT TO EXPERIENCE SOME CONFLICTS OF INTEREST. Certain potential
conflicts of interest are inherent in the relationships of any Company with its
officers, directors and affiliates, as when officer and director compensation is
determined. Our President's family owns the building in which we have our
principal office and rents it to our Company for a rental we consider
reasonable. When a conflict exists, we expect to resolve it through adoption and
application of reasonable policies; by requiring that conflicts be disclosed;
and by requiring that compensation, rent and other payments be reasonable in
their market area. However, conflicts may not be resolved through arms-length
negotiations.
5. YOU MAY BE LIMITED IN YOUR ABILITY TO ENFORCE CIVIL LIABILITIES AGAINST
OUR OFFICERS OR DIRECTORS. We have adopted provisions for the indemnification of
officers and directors in the manner provided by law, which generally means that
they can only be held liable for damages caused by their dishonesty, not for
ordinary errors in business judgment. We believe that these provisions enable us
to attract better quality managers and directors, but these provisions will
limit your ability to sue for money damages if you are not satisfied with our
operating results. See "Indemnification for Securities Act Liabilities" and
"Description of Capital Stock -- Limitation of Director Liability and --
Indemnification" for further details.
6. WE DO NOT INTEND TO DECLARE OR PAY DIVIDENDS IN THE FORESEEABLE
FUTURE. We currently intend to invest our net profits in expanding our business.
Consequently, a prospective investor who needs to receive periodic dividend
income should probably not invest in this offering.
7. YOUR INVESTMENT IN OUR COMMON STOCK IS SUBJECT TO IMMEDIATE AND
SUBSTANTIAL DILUTION. The public offering price of the common stock when
purchased by you is substantially higher than the net book value per outstanding
share of our common stock before the offering. As a result, the net book value
of your shares when the offering ends will be less than the purchase price you
pay.
8. WE HAVE AUTHORIZED THE ISSUANCE OF PREFERRED STOCK. We have authorized
the issuance of up to 5,000,000 shares of preferred stock, par value $0.0001 per
share. No preferred stock has been issued as of the date of this Prospectus, and
we do not expect to issue any in the foreseeable future. We have authorized its
issuance because this type of stock may be useful to attract additional capital
when we need it in the future.
5
<PAGE> 7
However, terms of Preferred Stock could operate to the significant disadvantage
of any outstanding Common Stock, since it may include preferences as to
dividends and distributions on liquidation. Consequently, you should be aware
that it could be issued at some future date.
9. IF WE CANNOT RAISE ALL THE CAPITAL WE SEEK, OUR ABILITY TO ACHIEVE OUR
BUSINESS PLAN MAY BE ADVERSELY AFFECTED. There is no guarantee that we will be
able to sell all of the shares of Common Stock that we are offering, and if we
do not, we will not have the equity capital we were seeking to carry out our
business plan and to potentially grow our business as much, or as rapidly, as we
had hoped. Also, in the future, we hope to raise additional capital so that we
can continue our growth, but there can be no assurance that we will be able to
attract capital then, or that if we can, that we will do so on terms favorable
to investors in this offering.
10. OUR MANAGING PLACEMENT AGENT WILL HAVE A SIGNIFICANT INFLUENCE IN THE
MARKETING OF OUR COMMON STOCK AND MAINTENANCE OF A TRADING MARKET. We anticipate
that our Managing Placement Agent will sell a significant amount of our Common
Stock to its customers or the general public. Although our Placement Agent has
advised us that it intends to make a market in our Common Stock, it will have no
legal obligation to do so. The prices and the liquidity of our Common Stock may
be significantly affected by the degree, if any, of its participation in the
market. If it participates in the market, our Managing Placement Agent may
influence the market, if one develops, for our securities. Also, its
market-making activity may be discontinued at any time. If our Managing
Placement Agent sells our securities issuable upon the exercise of the broker
warrants that it receives in connection with this offering (see "Underwriting"
for details), it may be required under the Securities Exchange Act of 1934, as
amended, to temporarily suspend its market-making activities. The prices and
liquidity of our Common Stock may be significantly affected by the degree, if
any, of its participation in the market.
11. UNDERWRITER'S WARRANTS MAY ADVERSELY AFFECT OUR ABILITY TO OBTAIN
ADDITIONAL CAPITAL OR INVOLVE SUBSTANTIAL EXPENSES. As long as the Underwriter's
Warrants remain unexercised, our ability to obtain additional capital may be
adversely affected. Moreover, the Selected Placement Agents may exercise their
Underwriter's Warrants at a time when we seek to obtain additional needed
capital through a new offering of securities on terms more favorable than those
provided in the warrants. This in turn may discourage subsequent investors from
being willing to pay a higher price, or may cause us to expend cash in
connection with registration of shares to be issued upon exercise of the
Underwriter's Warrants, which may happen at a time when we need to conserve or
employ all of our cash for other purposes.
12. THERE IS NO ASSURANCE THAT OUR SHARES OF COMMON STOCK WILL TRADE AT OR
ABOVE THE OFFERING PRICE, SINCE WE HAVE ARBITRARILY DETERMINED THE OFFERING
PRICE BASED UPON OUR NEEDS RATHER THAN OTHER CONSIDERATIONS OF VALUE. The
offering price of our Common Stock has been arbitrarily determined by
negotiations between our management and the Managing Placement Agent, and may
bear no particular relationship to our current earnings, book value, net worth
or other established valuation criteria. The factors we have considered in
determining the offering price have included an evaluation by our management and
the Managing Placement Agent of the history of and prospects for the industry in
which we compete, an assessment of our management, our business prospects, our
capital structure, and factors the parties have deemed relevant.
13. THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE. The stock market from
time to time experiences significant price and volume fluctuations that may be
unrelated to the operating performance of specific companies. The trading prices
of our Common Stock and other securities could be subject to wide fluctuations
in response to variations in our operating results, public announcements by
ourselves or others, economic developments affecting ourselves or our
competitors, suppliers or clients and other events or factors which may or may
not be in our control. Therefore, you can not be sure that our shares of Common
Stock may be resold without loss.
14. POSSIBLE FUTURE EXERCISE OF PLACEMENT AGENTS' WARRANTS COULD RESULT IN
SOME DILUTION TO YOUR INVESTMENT. In connection with this offering, we will sell
to the Managing Placement Agent, for nominal consideration, warrants at an
exercise price of 120% of the price at which our Common Stock is sold to the
public in this offering. Although this means they will pay a higher price than
you pay for their shares upon exercise of those warrants, which will give our
Company more funds to build the business, this also means that the Placement
Agents will have the opportunity to profit from a rise in the market price of
our Common Stock
6
<PAGE> 8
above a price of 120% of the purchase price herein without assuming the risk of
ownership until they exercise those warrants.
15. SALES OF SUBSTANTIAL AMOUNTS OF CURRENTLY OUTSTANDING COMMON STOCK, OR
THE PERCEPTION THAT SUCH SALES COULD OCCUR, COULD ADVERSELY AFFECT THE TRADING
PRICE OF THE COMMON STOCK TO BE SOLD IN THIS OFFERING. If all of the shares of
Common Stock offered hereby are sold, the Company will have outstanding
3,081,704 shares of Common Stock. The 1,000,000 shares of Common Stock to be
sold in this offering will be freely tradeable without restriction or further
limitation under the Securities Act of 1933, except for any shares purchased by
an "affiliate" of the Company, which will be subject to the limitations imposed
on "affiliates" of the Company under Rule 144 promulgated under such Act ("Rule
144"). The remaining 2,081,704 outstanding shares of Common Stock, are
"restricted securities" within the meaning of Rule 144 and may not be resold
except pursuant to a registration statement effective under the Securities Act
or pursuant to an exemption therefrom, including the exemption provided by Rule
144. Upon completion of the offering, approximately 1,913,400 outstanding shares
of Common Stock will be eligible for sale under Rule 144. Prior to this
offering, there has been no public market for the Common Stock of the Company,
and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
trading price of the Common Stock. Nevertheless, sales of substantial amounts of
such shares in the public market, or the perception that such sales could occur,
could adversely affect the trading price of the Common Stock and could impair
the Company's future ability to raise capital through an offering of its equity
securities. There can be no assurance that all or any portion of the Common
Stock offered hereby will be sold. See "Common Stock Eligible for Future Sale"
and "Description of Securities."
16. WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS THAT COULD PREVENT OUR
ACQUISITION AT A PREMIUM PRICE. Certain provisions of our articles of
incorporation and bylaws, including the authority of our board of directors to
issue preferred stock without shareholder approval, may be deemed to have
anti-takeover effects and may delay, defer or prevent a takeover attempt. Also,
certain provisions of the Wisconsin Business Corporation Law may have
anti-takeover effects, including the provision that shares acquired in excess of
certain specified thresholds will not possess any voting rights unless the
voting rights are approved by a majority of a corporation's disinterested
shareholders. See "Description of Capital Stock -- Wisconsin Anti-takeover
Statutes" for further explanation of some of these provisions.
17. THERE CAN BE NO ASSURANCE THAT WE WILL ACCOMPLISH THE GOALS OF OUR
BUSINESS PLANS. This Prospectus contains certain forward-looking statements
including: (i) anticipated trends in Company's financial condition and results
of operations, including expected changes in the Company's profit, sales and
marketing expense, general and administrative expense and professional expenses;
(ii) the Company's business strategy for future growth in the market, including
the Company's plans regarding anticipated hiring; and (iii) the Company's
ability to distinguish itself from its current and future competitors. When used
in this Prospectus, the words "believes," "intends," "anticipates," "expects,"
and similar expressions are intended to identify forward-looking statements.
These forward-looking statements are based largely on the Company's current
expectations and are subject to a number of risks and uncertainties. In addition
to the other risks described elsewhere in this "Risk Factors" section, important
factors to consider in evaluating such forward-looking statements include: (i)
changes in external competitive market factors which might impact trends in the
Company's results of operations; (ii) unanticipated working capital and other
cash requirements; (iii) general changes in the industry in which the Company
competes; and (iv) various other competitive factors that may prevent the
Company from competing successfully in the marketplace. In light of these risks
and uncertainties, many of which are described in greater detail elsewhere in
this "Risk Factors" section, actual results could differ materially from the
forward-looking statements contained in this Prospectus.
7
<PAGE> 9
THE COMPANY
The Company was incorporated in December, 1988 under the laws of the State
of Wisconsin. The Company's principal executive offices are located at 16901
West Glendale Drive, New Berlin, Wisconsin 53151, and its telephone number is
(262) 780-3640.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock offered hereby, after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company, are
estimated to be approximately $ . The net proceeds of the offering will be
allocated to working capital and expended by the Company principally to (i)
develop its Internet World Wide Web site, (ii) expand its marketing efforts and
(iii) improve its facilities. See "Business."
A portion of the net proceeds received by the Company may be used for the
acquisition of complementary businesses and/or products. Although the Company
has from time to time engaged in discussions with respect to possible
acquisitions, it has no present understandings, commitments or agreements, nor
is it currently engaged in any negotiations, with respect to any acquisition.
See "Business."
None of the net proceeds of the offering are specifically designated for
payments to officers or directors. The net proceeds, if any, received in
connection with the exercise of the Underwriter's Warrants will be allocated to
working capital.
Pending use of the net proceeds from this offering, the Company intends to
invest the net proceeds received by it in bank certificates of deposit,
interest-bearing savings accounts, prime commercial paper, United States
Government obligations, money market funds or similar short-term investments.
Any income derived from these short-term investments is expected to be used for
working capital.
The allocations set forth above are estimates developed by management for
the allocation of the net proceeds to be received by the Company from this
offering based upon the current state of the Company's existing and proposed
business and prevailing economic conditions. These estimates are subject to
reallocation by the Board of Directors among the applications listed above or to
new applications and are further subject to future events, including changes in
general economic conditions, the Company's business plan, and the financial
markets in general. Since a significant portion of the net proceeds will be
applied to general corporate purposes, as working capital, the Company will have
broad discretion as to the application of such net proceeds.
DIVIDEND POLICY
The Company has not declared or paid any dividends on its Common Stock
since its inception. Any future determination as to the declaration and payment
of dividends on the Common Stock will be made at the discretion of the Board of
Directors out of funds legally available for such purpose. The Board of
Directors currently intends to retain all earnings for use in the Company's
business for the foreseeable future.
8
<PAGE> 10
DILUTION
The net tangible book value of the Company as of September 30, 1999,
adjusted to reflect a 2 for 1 split of the Company's outstanding Common Stock,
effective as of December 28, 1999 (following an earlier such 2 for 1 Common
Stock split, effective as of July 28, 1999), was approximately $438,425, or
$0.21 per share of Common Stock. Net tangible book value per share represents
the amount of total tangible assets less total liabilities, divided by the
number of shares of Common Stock then outstanding. The following table
illustrates the dilution to purchasers of Common Stock in this offering if
certain arbitrarily determined numbers of shares (ie., 250,000, 500,000, 750,000
and 1,000,000) are sold, after deduction of estimated underwriting commissions
and other offering expenses payable by the Company. At the sales levels
indicated, the Company's pro forma net tangible book value at September 30, 1999
would have been $ , $ , $ or $ , respectively, or $ ,
$ , $ or $ , respectively, per share of Common Stock, representing
an immediate increase in net tangible book value of $ , $ , $ or
$ , respectively, per share to existing stockholders and immediate dilution
of $ , $ , $ or $ , respectively, per share to new investors.
<TABLE>
<CAPTION>
ASSUMED NUMBER OF SHARES OF COMMON STOCK SOLD IN
THE OFFERING(1)
-------------------------------------------------
250,000 500,000 750,000 1,000,000
SHARES SHARES SHARES SHARES
------- ------- ------- ---------
<S> <C> <C> <C> <C>
Initial public offering price per share............. $ $ $ $
Net tangible book value before the offering....... $ $ $ $
Increase in net tangible book value attributable
to new investors...............................
-------- -------- -------- --------
Pro forma net tangible book value per share after
the offering......................................
-------- -------- -------- --------
Dilution per share to new public investors.......... $ $ $ $
======== ======== ======== ========
</TABLE>
- -------------------------
(1) The numbers of shares of Common Stock shown as sold in the above table have
been arbitrarily selected by the Company for purposes of illustration only.
There can be no assurance that all or any part of the Common Stock offered
hereby will be sold. See "Risk Factors" and "Underwriting."
The following table summarizes, on a pro forma basis (after giving effect
to 2 for 1 splits of the Company's outstanding Common Stock, effective as of
July 28 and December 28, 1999, and the sale of all of the Common Stock offered
hereby) as of September 30, 1999, the difference between the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by the existing stockholders and by new public
investors purchasing shares in this offering (at the initial public offering
price of $ per share and before deduction of estimated underwriting
discounts and commissions and offering expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION AVERAGE
-------------------- --------------------- CONSIDERATION
AMOUNT PERCENT AMOUNT PERCENT PAID PER SHARE
------ ------- ------ ------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 2,081,704 % $ % $0.65
New public investors(1)................. 1,000,000 % % $
--------- ------ ---------- ------ -----
Total.............................. 3,081,704 100.0% $ 100.0%
========= ====== ========== ====== =====
</TABLE>
- -------------------------
(1) The number of shares of Common Stock shown in the above table as sold to new
public investors (1,000,000) has been arbitrarily selected by the Company
for purposes of illustration only. If sales levels of 250,000 shares,
500,000 shares and 750,000 shares are assumed, the percent of total shares
sold which are purchased by new investors would be %, % and
%, respectively; and the aggregate consideration paid by new investors
would be $ , $ or $ , respectively, or %, % or %,
respectively, of all consideration paid for shares of Common Stock sold in
the offering. The average consideration paid per share, by both existing
stockholders and new investors, remains the same at all levels of sales.
There can be no assurance that all or any part of the Common Stock offered
hereby will be sold. See "Risk Factors" and "Underwriting."
9
<PAGE> 11
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1999, and as adjusted to reflect (i) a 2 for 1 Common Stock split,
effective December 28, 1999 (following an earlier such 2 for 1 Common Stock
split, effective July 28, 1999) and (ii) the sale of 1,000,000 shares of Common
Stock offered hereby (after deduction of underwriting commissions and expense
allowances, professional fees and expenses, filing and listing fees, printing
costs and other expenses of the offering payable by the Company, and should be
read in conjunction with the financial statements of the Company and related
notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------
ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
Liabilities:
Notes payable to banks.................................... $ 37,326 $37,326
Notes payable to stockholder.............................. 4,611 4,611
Debentures payable........................................ 55,000 55,000
-------- -------
Total long-term liabilities............................ 96,937 96,937
-------- -------
Stockholders' equity:
Common Stock, $0.0001 par value, 20,000,000 shares
authorized, 1,040,852 shares and, as adjusted,
3,081,704 shares issued and outstanding(1)............. 104
Additional paid-in capital................................ 497,388
Retained earnings (deficit)............................... (7,510)
-------- -------
Total stockholders' equity............................. 489,982
-------- -------
Total capitalization................................... $586,919 $
======== =======
</TABLE>
- -------------------------
(1) See "Certain Relationships and Related Transactions."
10
<PAGE> 12
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements of the Company, including the notes
thereto, appearing elsewhere in this Prospectus. The selected financial data
presented below as of December 31, 1998 and 1997, and for the years then ended
have been derived from the financial statements of the Company, which have been
audited by Smith & Gesteland, LLP., independent certified public accountants,
and which appear elsewhere herein. The selected financial data as of September
30, 1999, and for the nine months ended September 30, 1999 and 1998, have been
derived from unaudited financial statements which, in the opinion of management,
reflect all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the data.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
---------------------------- ------------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1999 1998
------------ ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Gross revenues......................... $1,181,540 $ 969,052 $ 959,246 $ 784,930
---------- --------- --------- ---------
Total revenues.................... 1,181,540 969,052 959,246 784,930
Expenses:
Payroll, related taxes and employee
benefits............................. 649,446 508,063 574,953 483,444
General and administrative............. 266,229 226,005 173,583 123,845
Occupancy.............................. 115,769 117,419 80,338 61,737
Selling................................ 99,514 116,130 89,247 51,518
Other.................................. 31,930 20,727 7,340 56,240
---------- --------- --------- ---------
Total expenses.................... 1,162,888 988,344 925,461 776,784
Income (loss) before income taxes......... 18,652 (19,292) 33,785 8,146
Income tax expense (benefit).............. 9,278 (3,012) 8,913 4,052
---------- --------- --------- ---------
Net income (loss)......................... 9,374 (16,280) 24,872 4,094
Retained earnings (deficit) beginning of
period................................. (41,756) (25,476) (32,382) (41,756)
---------- --------- --------- ---------
Retained earnings (deficit) end of
period................................. $ (32,382) $ (41,756) $ (7,510) $ (37,662)
========== ========= ========= =========
Net income (loss) per common share(1)..... $ 0.0051 $ (0.0092) $ 0.0127 $ 0.0023
========== ========= ========= =========
Weighted average common shares
outstanding(1)......................... 1,834,118 1,775,400 1,959,618 1,808,748
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------------
ACTUAL AS ADJUSTED(2)
------ --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $122,179 $
Total assets.............................................. $655,544 $
Long-term debt, less current portion(3)................... $ 96,937 $96,937
Stockholders' equity...................................... $489,982 $
</TABLE>
- -------------------------
(1) Adjusted to reflect a 2 for 1 split of such outstanding Common Stock,
effective as of December 28, 1999 (following an earlier such 2 for 1 split
of the outstanding Common Stock, effected as of July 28, 1999).
(2) Adjusted to reflect the sale of 1,000,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $ per share (after
deducting underwriting discounts and commissions and estimated expenses of
the offering payable by the Company) and the application of the estimated
net proceeds (approximately $ ) therefrom. See "Use of
Proceeds."
(3) Assumes no offering proceeds are expended to repay outstanding indebtedness.
See "Use of Proceeds."
11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following commentary should be read in conjunction with the financial
statements and related notes contained elsewhere in this prospectus. The
discussion contains forward-looking statements that involve risks and
uncertainties. Actual future results may differ materially from those projected.
OVERVIEW: THE CONTINENTAL TRADE EXCHANGE BARTER NETWORK
The Company is a holding company that has two operating subsidiaries which
constitute the Continental Trade Exchange barter system ("CTE"). Its
subsidiaries are Continental Trade Exchange, Ltd., a Wisconsin corporation,
which does business in Wisconsin and Continental Trade Exchange of Illinois,
Inc., which does business in northern Illinois. Our Company has enjoyed growth
both internally and externally through acquisitions. It intends to continue to
seek internal growth while accelerating growth externally by making additional
acquisitions of trade exchanges, and by organization or acquisition of unrelated
firms that employ barter.
RESULTS OF OPERATIONS
Gross Revenue. Since our Company began operation, we have primarily
generated sales revenues from new-client membership fees (generally, $395),
monthly service fees (typically ranging from $20 to $30 per client per month)
and transaction fees (typically, 10% to 12% of the face amount of each
transaction, payable in cash within 30 days). We bill our clients monthly for
transaction fees and we have an excellent record of collections on our
receivables, with most collected within 30 days after the transaction. In 1997,
we established a bad debt reserve of $40,000 which we consider adequate. We
generate additional revenue when we purchase merchandise at wholesale or from
manufacturers and distributors who are liquidating, and then we re-sell these
products to our exchange members at a markup. We sometimes purchase merchandise
for cash and other times purchase by issuing barter credit. Examples of how we
generate trade revenue include when we purchase and then re-sell pre-paid blocks
of media time from radio and television stations, newspapers or magazines; and
when we purchase the right to use rooms, tours and travel from hotels, ocean
cruise lines, airlines and travel tour operators and then re-sell them through
our barter network. We also generate trading revenue when we issue dining and
gift scrip (certificates that are sold to clients to represent trade credit),
when the scrip is never subsequently redeemed by the holder.
In fiscal 1997, we processed $8,470,000.00 in total barter transactions,
which generated gross revenues from all sources totalling $989,052. In fiscal
1998, we processed $9,689,000.00 in barter transactions which generated gross
revenues of $1,181,540, which represented an increase of 21.9% over the prior
year. For the nine-month period ended September 30, 1999, our gross revenues
were $959,246, an increase of $174,317 over the comparable period in 1998,
representing an increase of approximately 22.2% for the nine-month period.
These increases in gross revenue continue the general pattern of gains that
the Company has experienced throughout most of its existence. Over the five-year
period from January 1994 through December 1998, total revenue from all sources
increased from $373,076.00 in 1994 to $1,182,149.99 in 1998, an average gain of
26% per year, compounded annually. Over the ten-year period from January 1989
through December 1998, total revenue from all sources increased from $90,903.00
to $1,182,149.99, an average gain of 26% per year, compounded annually.
Operating Expenses. The Company has learned that the incremental cost of
transaction processing and travel booking does not generally increase
proportionate to the growth of revenue. The Company attributes this result
largely to the effect of computerization, which allows a small number of clerks
to record a large number of transactions quickly and efficiently. As a result,
when the Company adds revenue through acquisition of trade exchanges, it
generally does not add overhead at the same rate, thereby increasing the
efficiency of the acquired firms and potentially increasing overall
profitability of our Company.
Consequently, while our gross revenue increased from 1997 to 1998 by over
21.9%, our total operating expenses for the years only increased from $988,344
in 1997 to $1,162,888 in 1998, an increase of $174,544 or
12
<PAGE> 14
17.7%. During the nine months ended September 30, 1999, total expenses increased
by $148,677 over the comparable period ended September 30, 1998 from $776,782 to
$925,459, an increase of only 19.14% for the period.
The biggest changes in our expenses during these periods were in payroll
and in general and administrative expenses. Payroll and related tax expenses
increased from $508,063 in 1997 to $649,446 in 1998, an increase of $141,383 or
27.83%. During the nine months ended September 30, 1999, payroll and related
taxes increased by $91,509 over the comparable period ended September 30, 1998
from $483,444 to $574,953, an increase of 18.9%. During those same periods,
general and administrative expenses increased by $40,224 or 17.8% from 1997 to
1998, and by $49,739 or 40.2% from the nine months ending September 30, 1998
compared to the comparable period in 1999.
During December 1999, our Company moved into a building owned by a limited
liability company whose owners are members of the Mardak family, principally
Donald F. Mardak, our President. The new facilities offer room for expansion and
a more convenient layout to facilitate future growth. The occupancy charge is
competitive for its market and is not expected to materially impact earnings.
See "Certain Relationships and Related Transactions".
Net Income. As a result of the slower rise in expenses, relative to the
increase in sales, net income increased from a loss of $16,280 in 1997 to a
profit of $9,374 in 1998, an increase of $25,654 or 157.58%. During the nine
months ended September 30, 1999, net income increased by $25,640 over the
comparable period ended September 30, 1998 from $11,159 to $36,799, an increase
of 229.8% over the prior period.
Effects of Acquisitions. During 1998, the Company experienced extraordinary
charges associated with the acquisition of Commercial Barter of Illinois and
Wisconsin Barter Exchange, and the integration of the operations of those firms
into the Company. These extraordinary charges were not separately itemized. In
the future, as the Company acquires other trade exchanges, the Company expects
to incur extraordinary charges in connection with integrating operations or
cleaning up internal problems of prior management.
While the Company has not acquired businesses other than barter exchanges
in the past, in the future, it may seek to acquire businesses other than barter
exchanges when the businesses to be acquired utilize barter in their operations
and the Company believes it either has or can acquire the necessary expertise to
run them. When acquiring unrelated businesses, the Company may incur costs
associated with hiring and training personnel, as well as "learning costs"
associated with entering new lines of business. While these types of charges may
depress earnings in the period following the acquisition, the Company intends to
make acquisitions and incur charges only when these have the projected effect of
enhancing its ability to earn and retain profits in the long run.
FINANCIAL CONDITION
Liquidity; Commitments for Capital Resources; and Sources of Funds
The principal source of liquidity for the Company from operations has been
cash earnings from membership charges, monthly service fees, transaction
processing charges, and profits from its own trading activity. In addition, the
Company has improved liquidity by utilizing the proceeds of a private placement
of investment units consisting of Common Stock and Warrants. The Company
anticipates that its principal source of liquidity during the next year will
consist of cash from operations and cash received in connection with this
current Offering.
The Company does not currently have any major capital commitments. For
example, it is not currently obligated to purchase any trade exchanges; however,
it intends to seek opportunities to acquire exchanges upon completion of the
current Offering. The Company intends to seek acquisitions which can be
purchased upon payment of a combination of cash, trade dollars and stock.
Generally, the Company will seek acquisitions of exchanges which the Company
believes have, or within two years can achieve, at least 50% or greater share
volume relative to competing trade exchanges within their market areas, and
whose transaction processing and travel bookings can be conducted by the
Company, thereby reducing the overhead of the acquired firm following the
acquisition. Assuming that the Company is successful in locating, negotiating
and acquiring
13
<PAGE> 15
other trade exchanges, the Company intends to utilize at least half of the
offering proceeds for acquisitions. During 1998, we obtained funds to support
expansion from operating profits, the proceeds of a certain private placement of
our securities, and from using our common stock as payment to the seller for a
part of the purchase price of an acquisition. During 1999, the Company obtained
funds to support expansion from operating profits, the proceeds of the private
placement of its securities and from the conversion of certain notes and
warrants issued in prior years. In fiscal 2000, the Company expects to obtain
funds to support expansion from operating profits, the proceeds of this
offering, and the issuance of common stock in connection with acquiring barter
exchanges and other businesses.
During 1998, the Company purchased two barter exchange companies:
Commercial Barter of Illinois in Joliet, Illinois, and Wisconsin Barter Exchange
in Madison, Wisconsin. During the nine months ended September 30, 1999, the
Company conducted discussions with seven trade exchanges, one printing company,
one travel agency and two print-media publications, but has not reached
agreement with any as of the date of this Prospectus since the acquisition of
the subject firms would require more cash than was on hand during the period. A
principal purpose of this Offering is to permit the Company to proceed to
negotiate and reach agreement for the acquisition of additional trade exchanges
and other related businesses. We anticipate continuing negotiations and actively
seeking additional prospects for acquisition following the conclusion of this
Offering.
From June 10, 1998 to September 30, 1999, we conducted a private placement
of investment units, each consisting of two shares of Common Stock at a price of
$3.00 per Share plus a warrant to purchase one Share of Common Stock at a price
of $4.00 per Share. Subsequently, we split our shares two for one. We raised a
total of $336,456 in the placement. In addition, the investors received warrants
which entitled them to purchase up to 56,076 shares of common stock at a price
of $4.00 per share (adjusted for the two for one stock split to the right to
purchase 112,152 shares at $2.00 per share); if exercised, these warrants will
add $224,304.00 of equity for our Company.
During the fall of 1999, several holders of notes and warrants previously
issued by the Company or by its affiliates converted their notes into Common
Stock at a price of $2.00 per share. These actions reduced outstanding debt by
$55,000.00 and increased paid in capital by the same amount.
Changes in Assets and Liabilities
From calendar year 1997 to 1998, we substantially increased our assets,
reduced our debts and improved our overall liquidity. During the first nine
months of 1999, we substantially increased our cash on hand, from $10,321 in
1998 to $122,179, a substantial 1,083.8% increase over the balance on hand at
the end of the comparable period in 1998.
Accounts receivable, earned trade credits and inventory also increased,
although at a lesser rate than cash during these periods. As a result of these
changes, total current assets increased by $90,514 or 33.9% from 1997 to 1998,
and by $212,412 or 67.8% during the nine months ended September 30, 1999. During
these same periods, fixed assets increased primarily as a result of purchases of
furniture and equipment necessary to support increased personnel, however the
rates of increase were not as great as was experienced in short term assets.
While current liabilities increased somewhat from 1997 to 1998 and again
during the nine month period ended September 30, 1999 over the same period a
year earlier, the rate of increase was substantially less than the increases
that we enjoyed in current assets, and we substantially paid down the balance
due on long term debt, retiring debt owed to banks. As a result, overall
liquidity improved substantially in these periods.
The acquisitions of trade exchanges, however, did cause us to increase
somewhat our account for goodwill, an intangible asset, from $-0- in 1997 to
$54,363 in 1998.
Our long term investor notes were unchanged at $55,000 from 1997 to 1998.
However, during late 1999, all of the holders of the investor notes agreed to
exchange their notes for common stock. See "Certain Relationships and Related
Transactions."
14
<PAGE> 16
Common stock increased from $122,274 in 1997 to $292,216 in 1998, an
increase of $169,942 or 138.98% as a result of the private placement to
qualified investors of units of common stock and warrants, and the purchase of a
trade exchanges partly paid in common stock. During the nine months ended
September 30, 1999, common stock was further increased by $284,793 over the
comparable period ended September 30, 1998 from $156,699 to $441,492, an
increase of 181.7%. Later in 1999, holders of investor notes converted to common
stock a total of $55,000.
Our retained earning deficit decreased from $41,756 in calendar year 1997
to $32,382 in 1998, as a result of net profit earned during 1998. During the
nine months ended September 30, 1999, we earned an additional $33,784 net
profit, an increase of $25,638 over the net profit of $8,146 earned during the
comparable period ended September 30, 1998.
As a result, our total liabilities and shareholders equity increased from
$356,475 in 1997 to $507,132 in 1998, an increase of $150,657 or 42.26%. During
the nine months ended September 30, 1999, our total liabilities and shareholders
equity increased from $469,056 to $660,492, a total of $191,436 or 40.81% for
the period ended September 30, 1998 over the same period in the prior year.
INFLATION AND OTHER FACTORS THAT MAY AFFECT FUTURE RESULTS.
We have not been affected by inflation in the past, and do not expect
inflation to have a significant effect on operations in the foreseeable future.
FORWARD LOOKING INFORMATION
From time to time, the Company or its representatives may have made or may
make forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made with the approval of an authorized executive officer or in
various filings made by the Company with the Securities and Exchange Commission.
Words or phrases such as "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project" or "projected" or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). The Company wishes to ensure that such statements are accompanied by
meaningful cautionary statements, so as to maximize to the fullest extent
possible the protection of the safe harbor established in the Reform Act.
Accordingly, such statements are qualified in their entirety by reference to and
are accompanied by the following discussion of certain important factors that
could cause actual results to differ materially from such forward-looking
statements.
Management is unaware of any trends or conditions that could have a
material adverse effect on the Company's consolidated financial position, future
results of operations or liquidity. However, we do believe that there is
considerable interest within the barter industry in considering consolidations
of firms, based upon conversations management has had informally with heads of
other barter exchange firms. We believe that this will lead to the
identification of acquisition opportunities in the future, but may also
encourage competitors to also seek acquisitions.
Investors should also be aware of factors that could have a negative impact
on the Company's prospects and the consistency of progress in the areas of
revenue generation, liquidity and generation of capital resources. These
include: (i) variations in the mix of corporate trading and trade exchange
revenue, (ii) possible inability of the Company to attract investors for its
equity securities or otherwise raise adequate funds from any source, (iii)
increased governmental regulation of the barter business, (iv) a decrease in the
cash fees and commissions realized by the Company based upon a substantial
decrease in corporate or retail trade exchange transactions, and (v) unfavorable
outcomes to litigation presently involving the Company or to which the Company
may become a party in the future.
The risks identified here are not all-inclusive. Furthermore, reference is
also made to other sections of this Prospectus that include additional factors
that could adversely impact the Company's business and financial performance.
Moreover, the Company operates in a very competitive and rapidly changing
environment. New risk factors emerge from time to time and it is not possible
for management to predict all such risk factors, nor
15
<PAGE> 17
can it assess the impact of all such risk factors on the Company's business or
the extent to which any factor or combination of factors may cause actual
results to differ materially from those contained in any forward-looking
statements. Accordingly, forward-looking statements should not be relied upon as
a prediction of actual results.
16
<PAGE> 18
BUSINESS
INTRODUCTION
Barter has been used by individuals since earliest times, pre-dating the
creation of money. In its simplest form, two persons meet in person and trade
whatever items each has in surplus. In barter's modern form, trade exchanges
operating like banks using electronic credits (or trade dollars) maintained in
computers, record multiple trades made among thousands of participating
businesses. The following background information is taken principally from Roger
Langrick, Barter Systems: A Business Guide for Trade Exchanges (Longmeadow Press
1994).
THE MODERN BARTER INDUSTRY
The modern barter industry took shape in its current, systematic form in
1969 with the creation of the first barter exchange. From its start, barter
exchange firms have expanded their memberships and additional firms have
organized. By 1993, an estimated 270 barter system firms (including several with
multiple licensees) have become established and provide services that involve an
estimated 2 million persons, including some 200,000 member companies. Commercial
trade exchanges are the most numerous, outnumbering corporate trade exchanges
almost eight to one and catering to the largest number of members; the
differences between these and other types of barter firms are described below.
Trade exchanges range in size from the smallest operated by a single person
from a small office to multi-person firms operating through multiple offices
scattered over a wide area. The 35 largest commercial exchange firms handle
approximately 50% of the estimated $700 million in transactions that flow
through the system annually. Most trade exchanges are private companies, who
make extensive use of computers to track their members, match transactions, and
provide necessary accounting.
The National Association of Trade Exchanges and the International
Reciprocal Trade Association are two professional associations active in the
industry. Trade exchanges have also joined in regional associations through
which they recognize one another's trade dollars to allow members to exchange
goods and services with members located in each other's service areas.
TYPES OF BARTER SYSTEMS
The most common modern type of barter system is the regional or national
commercial trade exchange, which accounts for 80% of the firms in the industry.
These exchanges typically serve clients ranging in size from one man service
firms to large manufacturing businesses. The commercial trade exchange keeps
track of transactions of its clients expressed as trade dollars and debits,
handles complaints, publishes a member directory and provides statements for the
Internal Revenue Service ("IRS") at year end. It makes most of its profits from
a service charge on each transaction and on membership fees.
The corporate trade exchange or trading company has a different format and
set of goals. It specializes in helping companies maximize their return on
distressed inventory or otherwise unwanted assets. It arranges trades for other
products and services that the company does want. It typically specializes in
large transactions, using trade dollars as a bookkeeping device. Unlike the
trade dollars of a trade exchange, which are backed by the goods and services of
the network, the trade dollars of the corporate trade exchange are essentially a
promise to perform. Corporate trade exchanges don't typically offer memberships
or ongoing services, but act as brokers, taking their profits as a percentage of
the transaction. Typically, the transactions they arrange are large, with $1
million as a typical minimum.
The full service exchanges are a hybrid business which, although operating
in the general field of inventory clearance, offer brokerage services in
transactions involving smaller firms with excess inventory. These are often
organized as divisions of companies whose principal business is something other
than barter, with the television show Wheel of Fortune being a famous example;
it barters television advertising for gifts awarded to its contestants.
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<PAGE> 19
Countertrade is the generic name for international barter. A number of
firms have been established to specialize in this field. Frequently,
countertrade is required by a developing country which by law requires firms
that wish to import goods for sale to its citizens to take products produced in
the country rather than cash in return. In effect, this arrangement forces the
trading company to assist the developing country to develop its export
businesses. Oftentimes, the buyer of the export goods taken in exchange is
located before the firm imports the goods.
Finally, informal one-on-one barter has existed since the earliest history
of mankind. In certain industries, it is used as a common marketing technique.
Common applications today are the bartering of advertising time by radio
stations for goods and services of the advertisers, game show swaps for prizes,
exchanges of real estate for other real estate or for goods, services or even
gemstones, and special event bartering, such as the holding of annual barter
conferences by participating barter firms or by non-barter firms, such as
resorts, hotels and lodges.
HOW BARTER WORKS
In the typical barter transaction, a trade exchange grants a line of credit
to a member expressed as an agreed amount of trade dollars typically referenced
as "T$"; for example, T$100 refers to $100 worth of trade dollars. The member
agrees to provide goods or services in the amount of the trade dollars granted
to those members who wish to purchase them. Then, the member may trade the
credits for goods or services that the member needs from other members.
Periodically, each member has to account for any deficit in its trade account
just as it would with any other loan.
To compensate for providing its services, the trade exchange typically
charges a one-time membership fee, monthly maintenance fees and a percentage of
the price of each transaction; in addition, it typically charges an annual
percentage of any trade credit that it extends to a member, just as any bank
would charge for a loan. The annual fees and transaction fees are typically paid
by the member to the trade exchange in cash, and loan fees are typically payable
in trade dollars.
Barter transactions which represent sales revenue are taxable as ordinary
income to the recipient of the trade dollars, and conversely are deductible as
ordinary expense by the grantor of the trade dollars. Barter income is
reportable by the trade exchange to the Internal Revenue Service on Form 1099B.
ADVANTAGES AND DISADVANTAGES
Barter offers a number of advantages to those who utilize it. A principle
advantage to trade exchange members is referred to as "barter leverage". This
refers to the fact that the typical member is purchasing a good or service in
exchange for its own good or service, so consequently, each purchase carries
with it, the implication that it results also in a probable sale. Since the
actual cash cost of producing the good or service is typically less than the
retail sale price, a person utilizing barter in effect is purchasing a good or
service for a real cash cost that is only a fraction of the price of the good or
service purchased; in effect, the barter member buys at wholesale, but sells its
own good or service at retail. Frequently, the member will charge a higher price
for barter than for cash to cover the charges due to the barter exchange; yet
the benefit to the person bartering for the good or service is still great from
purchasing through barter. For example, a member may have a cash cost to produce
a product of $1,000; if it barters this product for a good or service priced at
$1,500 (representing the retail price at which it is normally sold), the member
has effectively bought the good or service for a cost of only $1,000 cash.
This barter leverage works especially effectively when utilizing products
that have become hard to sell. Rather than write down their value, the company
may be able to secure full value through barter. Barter leverage works most
effectively when trading for something that is perishable, such as the time of a
professional, unused hotel space, or seats on an airline, and so on. Once the
professional time is expended, the hotel room lies vacant, or the airline seat
is unfilled for a flight, its value is lost forever. In those cases, exchange of
the time, room or seat in barter offers an effective way to gain value from
something that would otherwise have been rendered worthless. Because of barter
leverage the value of barter to exchange members
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<PAGE> 20
will often offset the fees charged by the barter exchange, and may even offset
the effect of any increased price charged for barter deals by members.
Barter also provides an effective means by which a member may enter new
markets, gain trial usage by potential customers, or increase market share. The
member may well find that he can reach a customer who would not otherwise have
tried his product or service if the full price had to be paid in cash, but who
will try his goods or services, sometimes in large amounts or on extended terms,
when the price is being paid through goods or services of the purchaser given in
barter through trade dollars. Because of the need to clear trade dollars over
time, barter exchanges become affinity marketing networks in which members
regularly seek out opportunities to do business with one another.
INFLATION OF CURRENCY
The trade exchange, however, must be careful not to extend too many trade
dollars so that it does not "depreciate" their value through a form of trade
credit inflation. In fact, members who receive an extension of trade credit when
they open their account must over time supply goods and services equal to the
credits they receive, and in turn they must spend the credits that they have
received through the purchase of the goods and services of other members.
CONSUMER TRADE ON THE INTERNET
A number of firms now offer the ability to barter and exchange goods and
services through electronic exchanges or bulletin boards. We believe that trade
through the Internet will continue to increase and so we are planning to
institute our own electronic barter exchange on the World Wide Web in the
future.
THE COMPANY
The Company is a holding company that presently has two operating
subsidiaries which comprise the Continental Trade Exchange Barter Network
("CTE"). The primary subsidiary, Continental Trade Exchange, Ltd., began
functioning in July of 1985 and serves the greater Milwaukee, Madison, Green Bay
and Fox River Valley areas of Wisconsin. CTE now has a base of more than 800
active member clients in the Milwaukee area, and has witnessed a steady growth
in its client enrollment and trading revenue.
In August of 1989, the Company acquired the client base and other assets of
the Mid-American Exchange Corp. ("MIDEX"), an active barter exchange located in
Green Bay, Wisconsin. MIDEX had been functioning since March of 1984 and had a
client enrollment of more than 300 business and professional people throughout
the Fox River Valley and north into Door County, Wisconsin. In June of 1996, the
Company acquired the client base and other assets of Midwest Trade Exchange
("MTE"), a North Chicago, Illinois based barter system that was founded in 1983.
MTE, one of America's most respected barter systems, had a client enrollment of
approximately 700 members. During 1998, we purchased two barter exchange
companies: Commercial Barter of Illinois in Joliet, Illinois, and Wisconsin
Barter Exchange in Madison, Wisconsin. As a result of these acquisitions, the
combined operations of CTE now cover the eastern portions of Wisconsin and
northern Illinois, having more than 2,400 clients, ranging from Peoria, Illinois
to Door County, Wisconsin. Trade volume for the year ending December 31, 1998
totalled $9,689,000, producing consolidated gross revenues for our Company of
approximately $1,200,000.
NATURE OF BUSINESS
CTE has created a network of more than 2,400 businesses who regularly trade
their goods and services with each other. Through the participation of these
firms in our CTE barter program, these companies are provided with an effective
revenue management tool which enables them to identify and capture incremental
income, move surplus inventories and profitably capitalize on their excess
capacity. CTE functions as a third-party record-keeper, a status granted to it
by the IRS, and also manages its overall barter system. In addition, it acts as
a principal in certain transactions in which it acquires various products,
including fine art, real estate and other commodities which it either holds as
investments or sells at a profit. This allows us to fulfill one of our principal
objectives which is to build value for our shareholders.
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To provide clients with a flexible and effective means of trading, CTE has
created an alternative monetary system which utilizes its own unique currency.
Upon enrolling in the program, each member is assigned a barter account (much
like a traditional bank account) through which it receives CTE "trade dollars",
the medium of exchange for our barter system. Under the Tax Equity and Financial
Responsibility Act of 1982 (TEFRA), we are required to report all barter sales
to the IRS on magnetic media. For accounting and tax purposes, the IRS has ruled
that trade dollars are treated the same as cash. Accordingly, the Company may in
any period report significant revenue, profits and increases in net assets from
transactions denominated in CTE trade dollars or other non-cash consideration.
Barter exchanges, like the Company subsidiaries, have a unique
characteristic: they not only operate with traditional cash currency, but they
also can issue trade dollars, which constitute their own unique currency.
Through trade dollars, barter exchanges are able to acquire products, services,
and even other businesses. They accomplish this in the following manner: In the
every-day operation of their businesses, trade exchanges permit member clients
to barter their goods and services with other clients. The clients do this in
several ways. Some sell their products to the barter network directly; others
issue trade certificates that are redeemable for their goods or services; and
the balance transact their barter business by issuing trade vouchers, which are
similar in appearance and function to MasterCard or VISA forms. In return, the
selling clients receive trade dollars (also referred to as "trade credits") from
the exchange, and they may then use these dollars to purchase services or
products that are available in the program.
The trade dollars issued by the trade exchange are identical in function to
traditional government based currency. As the Company's barter exchanges have
grown a wider client base, they have achieved acceptance of their trade dollars
throughout much of Wisconsin and now in northern Illinois among their members.
Even many unsolicited people have approached the Company and offered their
products and other assets (including real estate) in return for trade dollars
issued by the Company's subsidiaries.
As the Company's barter network is further expanded into other cities and
states, the trade currency issued by its trade exchange subsidiaries will
continue to gain recognition throughout an increasingly wider area. Management
intends to seek nationwide and possibly international acceptance over time.
CASH AND TRADE DOLLAR INCOME
Just as the Company's members conduct transactions in both traditional
currency and in trade dollars, the Company and its subsidiaries also earn
revenue in both traditional dollars and in trade dollars.
Our cash income is generally created in four ways: (1) through membership
set-up fees assessed when a member joins, presently $395.00 due upon joining;
(2) through transaction fees generated when clients spend their trade dollars to
purchase merchandise from other members or even occasionally from the CTE
product inventory (typically a charge equal to 10% or 12% of the purchase
price); (3) through monthly maintenance fees, currently, an amount of $10.00
cash and $10.00 trade dollars assessed per month under plan number one; or both
$15.00 cash and $15.00 trade credit assessed per month under plan number two;
and (4) through "cash conversions", the selling for cash of products originally
purchased by the Company with its own trade dollars.
We generate trade profits in various ways. Typically, we barter at retail
prices. However, in some situations, usually when dealing with manufacturers, we
are able to purchase products for trade dollars at wholesale price levels. These
products can then be liquidated at retail prices through the barter program.
Some specific clients, such as radio and TV stations, hotels, and restaurants,
are not accustomed to paying cash fees because they already are involved in many
direct barter transactions for their services. In dealing with these people, the
exchange will occasionally accept a favorable trade ratio (usually $3.00 of air
time, room or food certificates, etc. for $2.00 of trade credit) in lieu of a
cash service fee, and such situations can produce a substantial trade dollar
surplus. In addition, the exchange also has an opportunity to create
considerable trade profits by purchasing wholesale, closeout and liquidation
merchandise for cash, and then liquidating such products through the trade
program. See "Liquidation & Closeout Sales" below.
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<PAGE> 22
USES OF TRADE DOLLARS
We can use earned trade dollars to purchase goods and services vital to our
operations, such as office supplies, office furniture and equipment,
advertising, printing and janitorial services, to name some common uses. We can
also convert trade profits to cash whenever we use our trade dollars to buy
products which we then liquidate for cash.
LIQUIDATION AND CLOSEOUT SALES
Basic to its functioning as a barter network, the Company and its
subsidiaries may help businesses to liquidate their under-utilized assets and to
realize value from their excess capacity. There is currently a large amount of
liquidation merchandise available in America. This merchandise can take the form
of manufacturers' overruns, returned merchandise, factory seconds, last year's
obsolete models, government surplus, bankrupt stock, etc. Because of all these
opportunities, the Company intends to develop a liquidation and closeout
division through which the Company will first attempt to purchase the products
with its own trade dollars. If quality merchandise can be obtained in that
fashion, some of it can be sold at considerable markups through the barter
network, and the balance can then be converted to cash.
However, many companies are willing to liquidate such merchandise at
bargain prices only because of an urgent need for hard cash. To take advantage
of those situations, the Company plans to set aside a portion of its working
capital (which may include a portion of funds raised herein) for the purchase of
desirable merchandise that the Company is unable to acquire with its trade
dollars. The Company expects to be able to purchase such merchandise in many
cases for as little as ten to twenty cents on the dollar (based upon retail
prices), and then to liquidate the items through its barter system (to its own
members as individual sales, or in quantity to other barter networks) at, or
near, the original list price; when these transactions are successful, this may
generate very substantial trade profits and service fees for the Company. Since
the Company will have a low cost basis in the remaining merchandise, goods which
do not move through the barter system can then be liquidated in bulk for cash at
no loss to the Company.
EXPANDING BARTER NETWORK
Much of the previous growth of the Company is a direct result of its
earlier acquisitions. Management intends to utilize a substantial portion of the
proceeds of this Offering to acquire other barter systems that may complement
its existing network. Management believes that the barter industry is entering a
period of consolidation similar to that being experienced in the banking
industry.
As the Company has demonstrated in its prior acquisitions, a special
synergy may occur in these types of mergers resulting in part from important
reductions in overhead expenses. For example, in the case of our North Chicago
office, the previous operation (Midwest Trade Exchange) had twelve employees.
The new Continental Trade Exchange of Illinois is generating the same revenue as
MTE, but is doing so with five employees. This is possible because overlapping
jobs have been eliminated.
In addition to expanding its barter network through acquisitions, the
Company will also seek to grow by expanding its existing markets. To accomplish
this, the Company intends to hire additional salespeople and trade brokers. The
Company is presently enrolling approximately 40 to 50 new clients per month.
Management believes that an expanded sales force could substantially increase
recruitment and correspondingly increase the Company's gross revenues and
bottom-line profits.
COMPETITION
There are more than 270 barter exchanges in America, and the Company,
through its Continental Trade Exchange subsidiary has established a reciprocal
relationship with many of those firms. As a result, the Company has been able to
expand its travel and lodging opportunities for its clients. In Wisconsin, CTE
is the only statewide barter network. In recent years, two barter groups from
Chicago have done some business in the Milwaukee area, but the Company purchased
the client base of one of the firms, and is informed that the other firm has a
total of less than 300 clients in this market, many of whom are also CTE
members.
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OUR GROWTH STRATEGY
The CTE barter system began operations in July of 1985 and has had a record
of consistent and steady growth. This growth has been generated both internally
and through the acquisition of other barter networks. During the past several
years, we have acquired five independent trade exchange operations. We believe
that the barter industry, much like the banking industry, is ready for a period
of massive consolidation and, therefore, we intend to utilize proceeds of this
offering to substantially increase this growth process through a series of
additional mergers and acquisitions.
In 1997, the Company acquired the assets and client base of Midwest Trade
Exchange in North Chicago, Illinois. The purchase of this operation allowed us
to establish a strong presence in the Greater Chicago marketplace and to
increase revenues by more than 40%. During 1998, the Company acquired the assets
of Joliet-based Commercial Barter of Illinois, thereby increasing our
penetration into the Chicago area. We also purchased the assets and client base
of Wisconsin Barter Exchange, providing us with an office in Madison, Wisconsin.
These two acquisitions added more than 400 clients to our roster and increased
revenues by more than 20%. A major factor in growth through acquisitions is our
ability to achieve unique synergies with the acquired client base and
profit-enhancing economies of scale. Generally, the Company can improve the
operating performance of acquired firms since the cost of processing a larger
volume of trade transactions can be handled with existing personnel.
We intend to continue our growth-through-acquisition strategy by
concentrating on identifying and purchasing trade exchanges in areas where we
can develop or maintain a dominant market position. We believe that a dominant
position within a market gives us better visibility within that market, allows
us to offer a wider range of customer products and services for the benefit of
our clients, and ensures that we will achieve greater economies of scale.
We also expect future internal growth from our present base of operations
as we regularly add new members to the system. To accomplish this, we intend to
allocate a portion of the funds from this offering to the hiring of new sales
and marketing people in each of our geographic areas. We also hope to acquire
trade exchanges in strategic target markets or, where this is not possible, to
open new company-owned branch offices in those areas. Some of these will be
established through our new CTE broker-licensing program which is currently
under development.
ACQUISITION OF OTHER BUSINESSES
Company management believes that barter activity and cash revenues can be
further enhanced through the acquisition of other businesses that utilize barter
heavily. For example, Continental Trade Exchange has a very active travel
department that, each month, books hundreds of lodging packages for its clients.
After we reserve the lodging, these clients have, in the past, been required to
contact an outside travel agency or an airline directly for their flight
tickets. To take advantage of this situation, we have recently created CTE
Travel, our own full-service travel agency. Because we already have a captive
market of travellers, we will be able to generate new revenues in the form of
airline commissions for the Company. We will also create income in commissions
for cruises, rental car reservations and special tour group packages. To further
enhance our travel division, we have acquired the customer base of a recently
closed travel agency, giving us additional future revenue in this area. But most
important, our expansion into the travel business did not require us to take the
risks that face most other entrepreneurs because we already have an office, a
staff of workers and a computer system in place.
Other businesses that have synergies with barter are advertising media
firms like magazines, coupon mailers, direct mail marketers and similar
publications; radio and television stations and other broadcast media; printing
companies and related businesses; plus hotels, resorts, cruise lines and other
ventures in the travel industry.
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BARTERING ON THE INTERNET
Though the core business of our CTE barter network will continue to produce
a steady stream of revenue, we realize that our greatest potential for explosive
growth can come from the Internet. We are currently in the process of developing
a dynamic e-commerce Web site that we hope will expand our previous business-to-
business network into a comprehensive, worldwide barter system that will also
allow consumers (i.e. the general public) to trade their personal possessions
and other products on-line. A special feature of the Internet operation will be
the on-line barter auction where members will have the opportunity to bid (in
trade dollars) on items being offered by others, or submit their own merchandise
for sale. To keep a steady flow of products available for the auction, we will
also offer hard goods from our own inventory as well as appropriate items from
the existing CTE barter system. In preparing for this program, we have
registered the Internet domain name: www.barterinternet.com. A percentage of the
proceeds from this stock offering will be used to build the Web site and to
advertise and promote the on-line consumer barter network.
In addition to our Barter Web site, we intend to capitalize upon the
growing commercial influence of the Internet by building one of the most active
networks of business owners and buyers in cyberspace. Because we have already
created an alternative monetary system with our trade dollars, we hope to expand
this concept by developing a new Internet currency. To do this, we will be
developing a new Company bonus card, similar to a traditional VISA or
MasterCard, but this card will be usable for both cash and barter purchases. And
the member-users of the card will receive bonuses in the form of rebates and
other discounts from the growing list of business establishments who will be
accepting the card.
EMPLOYEES AND FACILITIES
The Company currently has twenty-two full-time employees: fourteen at its
principal place of business in New Berlin, Wisconsin; one in Green Bay,
Wisconsin; two in Madison, Wisconsin; and five in North Chicago, Illinois. None
of the Company's employees are represented by a union or covered by a collective
bargaining agreement. The Company believes its relationships with its employees
to be excellent.
The Company's executive offices and principal operating facilities occupy
6,500 square feet of leased space located at 16901 W. Glendale Drive, New
Berlin, Wisconsin, under a lease from Glendale Investments, LLC., a Wisconsin
limited liability company owned by Donald F. Mardak, Dale L. Mardak and John E.
Strabley, Jr., officers and directors of the Company. Rent and other terms of
the Company's lease, which expires September 30, 2002, are believed to be
comparable to those available for similar space from unaffiliated, third-party
lessors in the area. See "Certain Relationships and Related Transactions." The
Company also leases (i) 500 square feet of office space at 1012 South Broadway,
Green Bay, Wisconsin; (ii) 400 square feet of office space at 2814 Seyne Road,
Madison, Wisconsin; and 1,600 square feet of office space at 2300 Green Bay
Road, North Chicago, Illinois. The Green Bay and Madison, Wisconsin offices and
the North Chicago, Illinois office are leased from unaffiliated parties. The
lease agreement covering the Madison, Wisconsin office expires June 30, 2000;
the leases covering the Green Bay, Wisconsin and the North Chicago, Illinois
office are both on a month-to-month basis. Upon the expiration of its current
leases, the Company expects that, in each case, it will be able to obtain either
a renewal lease, if desired, or a new lease at an equivalent or better location.
In the future, the Company intends to hire additional persons and lease or
purchase office space to service other markets as it expands; some of these may
represent personnel and office space that may be acquired in the purchase of
other barter exchange firms. When possible it will seek to achieve operating
efficiencies by reducing acquired personnel and space while conducting the
resulting increased business through its principal place of business in
Milwaukee. However, there can be no assurance that it will be able to achieve
operating efficiencies in this manner or obtain required personnel.
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MANAGEMENT
DIRECTORS AND OFFICERS
The current directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Donald F. Mardak.......................... 63 Chief Executive Officer, President and
Director
John E. Strabley, Jr. .................... 36 Executive Vice President and Director
Dale L. Mardak............................ 39 Vice President, Treasurer and Director
Judy E. Mardak............................ 59 Secretary
</TABLE>
DONALD F. MARDAK has been the Chief Executive Officer, President and a
director of the Company since its inception in 1988. From 1970 to 1974, Mr.
Mardak was a partner in Learning Unlimited, a division of Hal Leonard Publishing
Corp. In 1974, he founded Don Mardak Piano & Organ Centers, Ltd., a chain of
retail piano and organ stores in the Greater Milwaukee area. In 1985, Mr. Mardak
founded the CTE Barter Network under the name "Continental Trading Company," a
sole proprietorship. Continental Trading Company was incorporated in 1988 as
Continental Trade Exchange, Ltd. and is now the primary operating subsidiary of
International Monetary Systems, Ltd. Currently, Mr. Mardak is the President of
the National Association of Trade Exchanges, the principal barter industry
association. In the spring of 2000, he will become Chairman of the Board of this
association.
JOHN E. STRABLEY, JR. has been the Executive Vice President and a director
of the Company since 1997. Mr. Strabley joined Continental Trade Exchange, Ltd.
as a trade broker in 1991. In 1992, he was promoted to General Manager, and, in
August of that year, was appointed as Vice President of Continental Trade
Exchange, Ltd. and the Company. In 1995, Mr. Strabley passed the barter industry
certification examination and was awarded with the industry's highest
designation of CTB -- Certified Trade Broker. In 1997, Mr. Strabley was named
Executive Vice President of the Company and became a director of both
Continental Trade Exchange, Ltd. and the Company.
DALE L. MARDAK has been Vice President and a director of the Company since
1997. He joined Continental Trade Exchange, Ltd. in 1993 as a trade broker and
was appointed trade director in 1995. In 1997, he was appointed Vice President,
Treasurer and a director of both Continental Trade Exchange, Ltd. and the
Company.
JUDY E. MARDAK has been Secretary of the Company since its inception in
1988. In 1988, she joined Continental Trade Exchange, Ltd. as Office Manager and
head bookkeeper. In 1990, she became the first Continental Trade Exchange, Ltd.
trade broker, and in 1991 was appointed as Trade Director, a position she held
until 1995. Mrs. Mardak continues to serve as the Company's Office Manager.
Donald F. and Judy E. Mardak are husband and wife. John E. Strabley, Jr. is
their son-in-law, and Dale L. Mardak is their son. Kimberly A. Strabley, the
daughter of Donald F. and Judy E. Mardak and the wife of John E. Strabley, Jr.,
is also employed by the company as travel director and reciprocal accounts
manager.
All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Officers are elected
annually by the Board of Directors of the Company and serve at the discretion of
the Board.
See "Principal Stockholders."
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EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the compensation
paid by the Company to its Chief Executive Officer ("Named Executive Officer")
for services rendered to the Company in all capacities during the fiscal years
ended December 31, 1997, 1998 and 1999. No executive officer or other employee
of the Company at December 31, 1999 received cash compensation in excess of
$100,000 for fiscal 1999.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)
--------------------------- ---- --------- -------- ---------------
<S> <C> <C> <C> <C>
Donald F. Mardak..................................... 1999 90,000 -- --
Chief Executive Officer and President 1998 88,000 -- --
1997 52,000 -- --
</TABLE>
Option Grants in the Last Fiscal Year. No options were granted to the Named
Executive Officer, or to any other party, for the fiscal year ended December 31,
1999.
Option Exercises in Last Fiscal Year (1999) and Aggregate Option Values at
December 31, 1999. No options were exercised by the Named Executive Officer
during fiscal 1999, and, as of December 31, 1999, no unexercised options were
held by such Named Executive Officer.
DIRECTORS' COMPENSATION
Directors of the Company are not compensated for acting as directors, nor
are they reimbursed for expenses related to serving in such capacity.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Bylaws provide for the elimination, to the fullest extent
permissible under Wisconsin law, of the liability of its directors to the
Company for monetary damages. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief. The Company's
Bylaws provide that the Company shall indemnify its directors and officers
against certain liabilities that may arise by reason of their status or service
as directors or officers (other than liabilities arising from certain specified
misconduct), and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, including in
circumstances in which indemnification is otherwise discretionary under
Wisconsin law. At the present time, there is no pending litigation or proceeding
involving a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification. See "Indemnification for Securities Act Liabilities."
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
The Company currently leases its executive offices and principal operating
facilities, consisting of 6,500 square feet of space located at 16901 West
Glendale Drive, New Berlin, Wisconsin, from Glendale Investments, LLC., a
Wisconsin limited liability company owned by Donald F. Mardak, Dale L. Mardak
and John E. Strabley, Jr., officers and directors of the Company, under a triple
net lease which commenced in October, 1999 and expires September 30, 2002. For
fiscal 1999, the Company made rental payments aggregating $15,000 to Glendale
Investments, LLC. Rent and other terms of the Company's lease are believed to be
comparable to those available for similar space from unaffiliated, third-party
lessors in the area.
On July 20, 1999, the Company sold an aggregate of 10,000 shares of Common
Stock to one of its employees, Dale L. Mardak, a director and officer, pursuant
to the exercise of options granted in 1996, at the price of $1.00 per share, or
an aggregate purchase price of $10,000.
During the fiscal year ended December 31, 1999, the Company effected 2 for
1 splits of its outstanding Common Stock, effective as of July 28 and December
28, 1999, respectively. Also effective as of July 28, 1999, the par value of the
Company's Common Stock was changed from $0.01 per share to $0.0001 per share.
The Company has no loans outstanding to any of its directors or officers.
CONFLICTS OF INTEREST
Certain potential conflicts of interest are inherent in the relationships
of the Company and its affiliates.
From time to time, affiliates of the Company may form or hold an ownership
interest in and/or manage other businesses both related and unrelated to the
type of business owned and operated by the Company and/or its affiliates (but
not directly competitive with its business), and expect to continue to form,
hold an ownership interest in and/or manage additional other businesses which
may compete with the Company and its affiliates with respect to operations
(including financing and marketing), management time and services and potential
customers. Such activities may give rise to conflicts between or among the
interests of the Company and other businesses with which its affiliates are
associated. Affiliates of the Company are in no way prohibited from undertaking
such activities, and the Company and its shareholders will have no right to
require participation in such other activities.
Further, because the Company intends to transact business with certain of
its officers, directors and affiliates, as well as with firms in which certain
of its officers, directors or affiliates have a material interest (including
without limitation the lease agreement described above under "Certain
Relationships and Related Transactions -- Certain Transactions"), potential
conflicts may arise between the respective interests of the Company and such
related persons or entities. Management believes that such transactions will be
effected on terms at least as favorable to the Company as those available from
unrelated third parties.
With respect to transactions involving real or apparent conflicts of
interest, the Company has adopted policies and procedures which require that (i)
the fact of the relationship or interest giving rise to the potential conflict
be disclosed or known to the directors who authorize or approve the transaction
prior to such authorization or approval, (ii) the transaction be approved by a
majority of the Company's disinterested outside directors and (iii) the
transaction be fair and reasonable to the Company at the time it is authorized
or approved by the directors.
Kranitz & Philipp, securities counsel to the Company, are also counsel to
the Managing Placement Agent. The Company may be represented by other
independent counsel in all instances (including securities law matters) where
its interests are deemed to conflict with those of the Managing Placement Agent.
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<PAGE> 28
PRINCIPAL STOCKHOLDERS
The following table sets forth as of December 31, 1999, and as adjusted to
reflect the sale of the 1,000,000 shares of Common Stock offered hereby, certain
information with respect to the beneficial ownership of Common Stock by (i) each
person known by the Company to beneficially own more than 5% of the Common
Stock, (ii) each director of the Company, (iii) the Company's sole Named
Executive Officer and (iv) all directors and executive officers of the Company
as a group. The Company believes that the beneficial owners of the Common Stock
listed below have sole voting and dispositive power with respect to such shares,
except as otherwise indicated.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING(1) OWNED AFTER OFFERING(1)
--------------------------- -----------------------
STOCKHOLDER NUMBER PERCENT NUMBER PERCENT
----------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Donald F. Mardak(2).......................... 1,440,000 69.2% 1,440,000 46.8%
13470 W. Fountain Dr.
New Berlin, WI 53151
Dale L. Mardak............................... 128,000 6.1% 128,000 4.2%
5815 S. Vista Dr.
New Berlin, WI 53151
John E. Strabley, Jr.(3)..................... 64,000 3.1% 64,000 2.1%
28440 Joanie Lane
Waterford, WI 53185
All directors and executive officers
as a group (3 persons)..................... 1,632,000 78.4% 1,632,000 53.0%
</TABLE>
- -------------------------
(1) The indicated number of shares has been adjusted to reflect 2 for 1 splits
of the outstanding Common Stock of the Company, effective as of July 28 and
December 28, 1999, respectively. See "Certain Relationships and Related
Transactions."
(2) Does not include 40,000 shares held by his wife, Judy E. Mardak, as to which
Mr. Mardak disclaims beneficial ownership.
(3) Does not include 100,000 shares held by his wife, Kimberly A. Strabley, as
to which Mr. Strabley disclaims beneficial ownership.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Bylaws of the Company and certain provisions of the Wisconsin Business
Corporation Law provide that the Company shall indemnify its directors and
officers against certain liabilities that may arise by reason of their status or
service as directors or officers (other than liabilities arising from certain
specified misconduct), and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, including in
circumstances in which indemnification is otherwise discretionary under
Wisconsin law. Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended ("Securities Act"), may be permitted pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
in the successful defense of any action, suit or proceeding) is asserted by such
director or officer in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue. See "Description of Securities."
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<PAGE> 29
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, par value $0.0001 per share, and 5,000,000 of preferred stock, par
value $0.0001 per share. As of the date of this Prospectus, there were 2,082,704
shares of Common Stock (beneficially owned by approximately 42 persons) and no
shares of preferred stock were outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share of Common Stock
beneficially owned on each matter submitted to a vote at a meeting of
shareholders, subject to Section 180.1150 of the Wisconsin Business Corporation
Law ("Wisconsin Corporations Act"). The Common Stock does not have cumulative
voting rights, which means that the holders of a majority of voting shares
voting for the election of Directors can elect all of the members of the Board
of Directors.
The Common Stock has no preemptive rights and no redemption or conversion
privileges.
The holders of Common Stock are entitled to receive dividends out of assets
legally available at such times and in such amounts as the Board of Directors
may, from time to time, determine, and upon liquidation and dissolution are
entitled to receive all assets available for distribution to the shareholders.
Under the Wisconsin Corporations Act, a majority vote of shares represented at a
meeting at which a quorum is present is sufficient for all actions that require
the vote of shareholders; however, certain actions require enhanced approval by
either a supermajority of two-thirds of all outstanding shares entitled to vote
and certain actions require a majority of all outstanding shares entitled to
vote. See "Description of Securities -- Certain Statutory and Other Provisions."
All of the outstanding shares of the Common Stock are, and the shares to be sold
by the Company as part of the offering when legally issued and paid for will be,
fully paid and nonassessable, except for certain statutory liabilities which may
be imposed by Section 180.0622(2)(b) of the Wisconsin Corporations Act for
unpaid employee wages.
LIMITATION OF DIRECTOR LIABILITY
Section 180.0828 of the Wisconsin Corporations Act provides that officers
and directors of domestic corporations may be personally liable only for
intentional breaches of fiduciary duties, criminal acts, transactions from which
the director derived an improper personal profit and wilful misconduct. These
provisions may have the effect of reducing the likelihood of derivative
litigation against directors and may discourage or deter shareholders or
Management from bringing a lawsuit against directors for breach of their duty of
care, even though such an action, if successful, might otherwise have benefitted
the Company and its shareholders.
INDEMNIFICATION
Under the Wisconsin Corporations Act, directors and officers of the Company
are entitled to mandatory indemnification from the Company against certain
liabilities and expenses (a) to the extent such officers or directors are
successful in the defense of a proceeding and (b) in proceedings in which the
director or officer is not successful in the defense thereof, unless (in the
latter case only) it is determined that the director or officer breached or
failed to perform his or her duties to the Company and such breach or failure
constituted: (i) a wilful failure to deal fairly with the Company or its
shareholders in connection with a matter in which the director or officer had a
material conflict of interest; (ii) a violation of the criminal law unless the
director or officer had reasonable cause to believe his or her conduct was
lawful or had no reasonable cause to believe his or her conduct was unlawful;
(iii) a transaction from which the director or officer derived an improper
personal profit; or (iv) wilful misconduct. The Wisconsin Corporations Act
allows a corporation to limit its obligation to indemnify officers and directors
by providing so in its articles of incorporation.
The Company's By-Laws provide for indemnification of directors and officers
to the fullest extent permitted by Wisconsin law.
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<PAGE> 30
CERTAIN STATUTORY AND OTHER PROVISIONS
The provisions of the Company's By-Laws and the Wisconsin Corporations Act
described in this section may delay or make more difficult acquisitions or
changes of control of the Company not approved by the Company's Board of
Directors. Such provisions have been implemented to enable the Company,
particularly (but not exclusively) in the initial years of its existence as a
publicly-traded company, to develop its business in a manner which will foster
its long-term growth without disruption caused by the threat of a takeover not
deemed by its Board of Directors to be in the best interests of the Company and
its shareholders. Such provisions could have the effect of discouraging third
parties from making proposals involving an acquisition or change of control of
the Company, although such proposals, if made, might be considered desirable by
a majority of the Company's shareholders. Such provisions may also have the
effect of making it more difficult for third parties to cause the replacement of
the current Management of the Company without the concurrence of the Board of
Directors.
Number of Directors; Removal; Vacancies. The By-Laws currently provide that
the number of Directors shall be seven. The authorized number of Directors may
be changed by amendment of the By-Laws. The ByLaws also provide that the
Company's Board of Directors shall have the exclusive right to fill vacancies on
the Board of Directors, including vacancies created by expansion of the Board or
removal of a Director, and that any Director elected to fill a vacancy shall
serve until the next annual meeting of shareholders. The By-Laws further provide
that Directors may be removed by the shareholders only by the affirmative vote
of the holders of at least a majority of the votes then entitled to be cast in
an election of Directors. This provision, in conjunction with the provisions of
the By-Laws authorizing the Board to fill vacant Directorships, could prevent
shareholders from removing incumbent Directors and filling the resulting
vacancies with their own nominees.
Amendments to the Articles of Incorporation. The Wisconsin Corporations Act
provides authority to the Company to amend its Articles of Incorporation at any
time to add or change a provision that is required or permitted to be included
in the Articles or to delete a provision that is not required to be included in
such Articles. The Company's Board of Directors may propose one or more
amendments to the Company's Articles of Incorporation for submission to
shareholders and may condition its submission of the proposed amendment on any
basis if the Board of Directors notifies each shareholder, whether or not
entitled to vote, of the shareholders' meeting at which the proposed amendment
will be voted upon.
Constituency or Stakeholder Provision. Under Section 180.0827 of the
Wisconsin Corporations Act ("Stakeholder Law"), in discharging his or her duties
to the Company and in determining what he or she believes to be in the best
interests of the Company, a director or officer may, in addition to considering
the effects of any action on shareholders, consider the effects of the action on
employees, suppliers, customers, the communities in which the Company operates
and any other factors that the director or officer considers pertinent.
Wisconsin Antitakeover Statutes. Sections 180.1140 to 180.1144 of the
Wisconsin Corporations Act ("Business Combination Law") regulate the broad range
of "business combinations" between a "resident domestic corporation" (such as
the Company) and an "interested stockholder." The Business Combination Law
defines a "business combination" to include a merger or share exchange, or a
sale, lease, exchange, mortgage, pledge, transfer or other disposition of assets
equal to at least 5% of the market value of the stock or assets of the
corporation or 10% of its earning power, or the issuance of stock or rights to
purchase stock with a market value equal to at least 5% of the outstanding
stock, the adoption of a plan of liquidation or dissolution and certain other
transactions involving an "interested stockholder," defined as a person who
beneficially owns 10% of the voting power of the outstanding voting stock of the
corporation or who is an affiliate or associate of the corporation and
beneficially owned 10% of the voting power of the then outstanding voting stock
within the last three years. Section 180.1141 of the Business Combination Law
prohibits a corporation from engaging in a business combination (other than a
business combination of a type specifically excluded from the coverage of the
statute) with an interested stockholder for a period of three years following
the date such person becomes an interested stockholder, unless the board of
directors approved the business combination or the acquisition of the stock that
resulted in a person becoming an interested stockholder before such acquisition.
Accordingly,
29
<PAGE> 31
the Business Combination Law's prohibition on business combinations cannot be
avoided during the three-year period by subsequent action of the board of
directors or shareholders. Business combinations after the three-year period
following the stock acquisition date are permitted only if (i) the board of
directors approved the acquisition of the stock by the interested stockholder
prior to the acquisition date, (ii) the business combination is approved by a
majority of the outstanding voting stock not beneficially owned by the
interested stockholder, or (iii) the consideration to be received by
shareholders meets certain requirements of the statute with respect to form and
amount.
In addition, the Wisconsin Corporations Act provides in Sections 180.1130
to 180.1133, that business combinations involving a "significant shareholder"
(as defined below) and a "resident domestic corporation" (such as the Company)
are subject to a two-thirds supermajority vote of shareholders ("Fair Price
Provision"), in addition to any approval otherwise required. A "significant
shareholder," with respect to a resident domestic corporation, is defined as a
person who beneficially owns, directly or indirectly, 10% or more of the voting
stock of the corporation, or an affiliate of the corporation which beneficially
owned, directly or indirectly, 10% or more of the voting stock of the
corporation within the last two years. It is anticipated that after completion
of the offering, the Company will be an "issuing public corporation."
Under the Wisconsin Corporations Act, the business combinations described
above must be approved by 80% of the voting power of the corporation's stock and
at least two-thirds of the voting power of the corporation's stock not
beneficially held by the significant shareholder who is party to the relevant
transaction or any of its affiliates or associates, in each case voting together
as a single group, unless the following fair price standards have been met: (i)
the aggregate value of the per share consideration is equal to the higher of (a)
the highest price paid for any common stock of the corporation by the
significant shareholder in the transaction in which it became a significant
shareholder of within two years before the date of the business combination, (b)
the market value of the corporation's shares on the date of commencement of any
tender offer by the significant shareholder, the date on which the person became
a significant shareholder or the date of the first public announcement of the
proposed business combination, whichever is highest, or (c) the highest
liquidation or dissolution distribution to which holders of the shares would be
entitled, and (ii) either cash, or the form of consideration used by the
significant shareholder to acquire the largest number of shares, is offered.
Section 180.1134 of the Wisconsin Corporations Act ("Defensive Action
Restrictions") provides that, in addition to the vote otherwise required by law
or the articles of incorporation of an issuing public corporation, the approval
of the holders of a majority of the shares entitled to vote is required before
such corporation can take certain action while a takeover offer is being made or
after a takeover offer has been publicly announced and before it is concluded.
Under the Defensive Action Restrictions, shareholder approval is required for
the corporation to (i) acquire more than 5% of the outstanding voting shares at
a price above the market price from any individual who or organization which
owns more than 3% of the outstanding voting shares and has held such shares for
less than two years, unless a similar offer is made to acquire all voting
shares, or (ii) sell or option assets of the corporation which amount to at
least 10% of the market value of the corporation, unless the corporation has at
least three independent directors (directors who are not officers or employees)
and a majority of the independent directors vote not to have this provision
apply to the corporation.
The restrictions described in clause (i) of the preceding paragraph may
have the effect of deterring a shareholder from acquiring shares of the Common
Stock with the goal of seeking to have the Company repurchase such shares at a
premium over the market price.
Section 180.1150 of the Wisconsin Corporations Act provides that the voting
power of shares of public Wisconsin corporations such as the Company held by any
person or persons acting as a group in excess of 20% of the voting power in the
election of directors is limited to 10% of the full voting power of those
shares. This statutory voting restriction does not apply to shares acquired
directly from the Company or in certain specified transactions or shares for
which full voting power has been restored pursuant to a vote of shareholders.
Antitakeover Consequences. Certain provision of the Company's Articles of
Incorporation and By-Laws may have significant antitakeover affects, including
the inability of the shareholders to remove directors without cause, and the
ability of the remaining directors to fill vacancies.
30
<PAGE> 32
The explicit grant in the Stakeholder Law of discretion to directors to
consider non-shareholder constituencies could, in the context of an "auction" of
the Company, have antitakeover effects in situations where the interests of
stakeholders of the Company, including employees, suppliers, customers and
communities in which the Company does business, conflict with the short-term
maximization of shareholder value.
The Fair Price Provision may discourage any attempt by a shareholder to
squeeze out other shareholders without offering an appropriate premium purchase
price. In addition, the Defensive Action Restrictions may have the effect of
deterring a shareholder from acquiring the Common Stock with the goal of seeking
to have the Company repurchase the Common Stock at a premium. The Wisconsin
Corporations Act statutory provisions and the Company's By-Law provisions
referenced above are intended to encourage persons seeking to acquire control of
the Company to initiate such an acquisition through arms-length negotiations
with the Company's Board of Directors, and to ensure that sufficient time for
consideration of such a proposal, and any alternatives, is available. Such
measures are also designed to discourage investors from attempting to accumulate
a significant minority position in the Company and then use the threat of a
proxy contest as a means to pressure the Company to repurchase shares of Common
Stock at a premium over the market value. To the extent that such measures make
it more difficult for, or discourage, a proxy contest or the assumption of
control by a holder of a substantial block of the Common Stock, they could
increase the likelihood that incumbent Directors will retain their positions,
and may also have the effect of discouraging a tender offer or other attempt to
obtain control of the Company, even though such attempt might be beneficial to
the Company and its shareholders.
TRANSFER AGENT AND REGISTRAR
The Company is the Transfer Agent and Registrar for the Common Stock.
COMMON STOCK ELIGIBLE FOR FUTURE SALE
Prior to the offering there has been no market for the Common Stock of the
Company. The Company can make no predictions as to the effect, if any, that
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of significant amounts
of the Common Stock in the public market, or the perception that such sales may
occur, could adversely affect prevailing market prices. See "Risk Factors."
Upon completion of the offering, the Company expects to have 3,081,704
shares of Common Stock outstanding. Of the shares outstanding after the
offering, the 1,000,000 shares of Common Stock sold in the offering will be
freely tradeable without restriction under the Securities Act, except for any
such shares which may be acquired by an "affiliate" of the Company, as that term
is defined in Rule 144 promulgated under the Securities Act of 1933 ("Rule
144"), which shares will be subject to the volume limitations and other
restrictions set forth in Rule 144, described below. An aggregate of 2,081,704
shares of Common Stock held by the existing stockholders of the Company upon
completion of the offering will be "restricted securities" (as that phrase is
defined in Rule 144) and may not be resold in the absence of registration under
the Securities Act or pursuant to an exemption from such registration, including
among others, the exemption provided by Rule 144 under the Securities Act.
In general, under Rule 144 as currently in effect, beginning ninety days
after the date of this Prospectus, if a period of at least one year has elapsed
since the later of the date the "restricted securities" were acquired from the
Company or the date they were acquired from an affiliate, then the holder of
such restricted securities (including an affiliate) is entitled to sell in the
public market a number of shares within any three-month period that does not
exceed the greater of 1% of the then outstanding shares of the Common Stock
(approximately 30,800 shares immediately after the offering) or the average
weekly reported volume of trading of the Common Stock during the four calendar
weeks preceding such sale. Under Rule 144, the holder may only sell such shares
through "brokers' transactions" or in transactions directly with a "market
maker" (as such terms are defined in Rule 144). Sales under Rule 144 are also
subject to certain requirements regarding providing notice of such sales and the
availability of current public information concerning the Company. Affiliates
may sell shares not constituting restricted shares in accordance with the
foregoing volume
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<PAGE> 33
limitations and other requirements but without regard to the one-year holding
period. Under Rule 144(k), if a period of at least two years has elapsed between
the later of the date restricted securities were acquired from the Company or
the date they were acquired from an affiliate, as applicable, a holder of such
restricted securities who is not an affiliate at the time of the sale and has
not been an affiliate for at least three months prior to the sale would be
entitled to sell the shares in the public market without regard to the volume
limitations and other restrictions described above. Beginning 90 days after the
commencement of the offering, approximately 1,913,400 shares of Common Stock
will be eligible for sale in the public market pursuant to Rule 144, subject to
the volume limitations and other restrictions described above.
Notwithstanding the foregoing, the Company's officers and directors, who
own an aggregate of approximately 1,746,000 shares of Common Stock have agreed
that, without the prior consent of the Managing Placement Agent, they will not
(i) directly or indirectly, sell, offer to sell, grant a option for the sale of
or otherwise dispose of any shares of Common Stock or securities or rights
convertible into or exercisable or exchangeable for Common Stock (except through
gifts to persons who agree in writing to bound by such restrictions) or (ii)
make any demand for or exercise any right with respect to the registration any
Common Stock or other such securities, for a period of 120 days after the date
of this Prospectus.
UNDERWRITING
The Company has entered into an agreement with J.E. Liss & Company, Inc.
d/b/a Liss Financial Services ("Managing Placement Agent"), providing for the
offering of the Common Stock ("Managing Placement Agent Agreement"). The
principal offices of the Managing Placement Agent are located at 424 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202, and its telephone number is (414)
225-3555.
The Managing Placement Agent is not obligated to purchase any of the
securities offered hereby, but has agreed to use its best efforts, as agent for
the Company, to sell up to 1,000,000 shares of Common Stock. There is no minimum
aggregate amount required to be sold in the offering; all funds will become
immediately available to the Company for the purposes described herein under
"Use of Proceeds." The Company reserves the right to refuse to sell Common Stock
to any person and, in its discretion, may terminate the offering at any time.
All funds tendered for the Common Stock will be held in escrow by Grafton
State Bank, Grafton, Wisconsin ("Escrow Agent"), pursuant to an agreement among
the Company, the Managing Placement Agent and Escrow Agent ("Escrow Agreement").
Pending disbursement under the terms of the Escrow Agreement, subscription
proceeds will be deposited in a segregated account and invested in short-term
United States government securities, securities guaranteed by the United States
government, certificates of deposit or time or demand deposits in commercial
banks located in the United States.
The Company will determine, in its sole discretion, to accept or reject
purchase offers within five days following receipt thereof. Funds of an investor
whose subscription is rejected will be promptly returned directly to such person
by the Escrow Agent, without interest or deduction, pursuant to the terms of the
Escrow Agreement. The preferred minimum purchase per investor is 1,000 shares of
Common Stock; however, the Company may, in its sole discretion, sell fewer
shares to any investor. No purchase offer is subject to withdrawal, revocation
or termination by the purchaser.
The Company proposes to offer the Common Stock to the public at the public
offering price set forth on cover page of this Prospectus, and will pay to the
Managing Placement Agent commissions in an amount equal to 8% of the aggregate
purchase price of the Common Stock sold. The Managing Placement Agent may
reallow all or any part of such commissions to any broker-dealer member of the
NASD who is designated by it to participate in the distribution of the offering
("Selected Placement Agent"), up to an amount equal to 8% of the aggregate
purchase price of the Common Stock sold in the offering by such Selected
Placement Agent.
The Company has agreed to pay to the Managing Placement Agent a
non-accountable expense allowance equal to 2% of the aggregate purchase price of
the Common Stock sold in the offering. The Managing Placement Agent may reallow
all or any part of such expense allowance to any Selected Placement Agent, up
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<PAGE> 34
to an amount equal to 2% of the aggregate purchase price of the Common Stock
sold in the offering by such Selected Placement Agent.
To purchase Common Stock, a prospective investor must complete and sign a
Subscription Agreement (in the form attached to this Prospectus as Exhibit A)
and such other documents as may be required by the Company, and deliver such
documents, together with payment in an amount equal to the full purchase price
the shares of Common Stock being purchased ("Subscription Payment"). Checks must
be made payable to "Grafton State Bank, Escrow Agent." Each Subscription Payment
will be transmitted to the Escrow Agent, by 12:00 noon, on the business day next
following receipt thereof by a Selected Placement Agent.
The Managing Placement Agent has informed the Company that the Selected
Placement Agents (including the Managing Placement Agent) will not confirm sales
of Common Stock offered by this Prospectus to accounts over which they exercise
discretionary authority. The Company and its directors, officers, 10%
stockholders have agreed not to offer, sell or otherwise dispose of any shares
of Common Stock for a period of 120 days after the date of this Prospectus
without the prior written consent of the Managing Placement Agent.
In connection with this offering, the Company has agreed to sell to the
Managing Placement Agent or its designees (such designees to consist solely of
any Selected Placement Agent and the bona fide officers or partners thereof), at
a purchase price of $.01 each, warrants ("Underwriter's Warrants") to purchase
from the Company shares of Common Stock in amount equal to 10% of the number of
shares of Common Stock sold in the offering. The Underwriter's Warrants are
exercisable for a period of four years commencing one year after the date of
this Prospectus at an exercise price ("Exercise Price") of 120% of the price per
share set forth on the cover page of this Prospectus. The Underwriter's Warrants
will be restricted from sale, transfer, assignment or hypothecation for a period
of one year from the initial effective date of the registration statement of
which this Prospectus is a part, except to officers or partners of the Selected
Placement Agents (including the Managing Placement Agent). The Underwriter's
Warrants contain anti-dilution provisions for adjustment of the Exercise Price
upon the occurrence of certain events, including stock dividends, stock splits,
recapitalizations and the issuance of Common Stock for consideration less than
the Exercise Price. The holders of Underwriter's Warrants have no voting,
dividend or other rights as stockholders of the Company with respect to shares
underlying the Underwriter's Warrants, unless and until the Underwriter's
Warrants have been exercised.
A new registration statement or post-effective amendment to the
registration statement of which this Prospectus is a part will be required to be
filed and declared effective before distribution to the public of shares of
Common Stock issuable upon exercise of the Underwriter's Warrants ("Warrant
Shares"). The Company has agreed, on one occasion when requested, to make
necessary filings, at its expense, to permit a public offering of the Warrant
Shares during the period beginning one year after the date hereof and ending
four years thereafter, and to use its best efforts to cause such filing to
become effective and remain effective for a period of at least one year. In
addition, the Company has agreed, during the period commencing at the beginning
of the second year and concluding at the end of the fifth year after the initial
effective date of the registration statement of which this Prospectus is a part,
to give advance notice to holders of the Underwriter's Warrants and Warrant
Shares, of its intention to file a registration statement, and in such case,
holders of the Underwriter's Warrants and any Warrant Shares shall have the
right to require the Company to include the Warrant Shares in such registration
statement at the Company's expense and to have maintained the effectiveness of
such registration statement for a period of at least one year.
During the period during which the Underwriter's Warrants are exercisable,
the Managing Placement Agent and any transferee will have the opportunity to
profit from a rise in the market price of the Common Stock with a resulting
dilution in the interest of other stockholders. In addition, the terms on which
the Company will be able to obtain additional capital during the exercise period
may be adversely affected in that the Representative is likely to exercise the
Underwriter's Warrants at a time when the Company would, in all likelihood, be
able to obtain capital by a new offering of securities on terms more favorable
than those provided by the terms of the Underwriter's Warrants.
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<PAGE> 35
For the three-year period commencing on the date hereof, the Company has
granted the Managing Placement Agent the right of first refusal to act as lead
manager, placement agent or investment banker with respect to any proposed
underwritten public distribution or private placement of the Company's
securities or any merger, acquisition or disposition of assets of the Company,
if the Company uses a lead manager, placement agent or investment banker or
person performing such function for a fee.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments the Underwriters may be required to make in respect
thereof. See "Indemnification for Securities Act Liabilities."
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price has been determined by negotiations
between the Company and the Managing Placement Agent and is not necessarily
related to the Company's asset value, net worth, results of operations or other
established criteria of value. Among the factors considered in determining the
initial offering price include the history of and the prospects for the Company
and the industry in which it operates, the past and present operating results of
the Company and the trends of such results, the financial condition of the
Company, the previous experience of Management, the market price of publicly
traded stock of comparable companies in recent periods and the general condition
of the securities markets at the time of the offering.
LEGAL MATTERS
The Company is not a party to any pending material legal proceedings, nor
is any such action currently contemplated by the Company, except as incidental
to the ordinary conduct of its business. The Company possesses no information
indicating that any material claims are contemplated against it.
Certain legal matters, including the validity of the Common Stock offered
hereby, will be passed upon for the Company by Gerald R. Turner, Esq.,
Milwaukee, Wisconsin. Certain legal matters will be passed upon for the Company
and the Managing Placement Agent by Kranitz & Philipp, Milwaukee, Wisconsin.
EXPERTS
The balance sheets of the Company at December 31, 1998 and 1997, and the
related statements of operations and statements of cash flows for the years then
ended, respectively, have been audited by Smith & Gesteland, LLP., independent
certified public accountants, as set forth in their report appearing elsewhere
herein, and are included in this Prospectus in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement, including amendments thereto, relating to the
Common Stock offered hereby has been filed by the Company with the Securities
and Exchange Commission under the Securities Act of 1933, as amended. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
such Registration Statement and exhibits and schedules filed as a part thereof.
A copy of the Registration Statement may be inspected without charge at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission at 7 World Trade Center, Suite 1300, New York, New
York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may be obtained from the Public
Reference Section of the Commission, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of prescribed fees, or accessed
electronically by means of the Commission's home page on the Internet World Wide
Web at http://www.sec.gov.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document
34
<PAGE> 36
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference.
Upon consummation of the offering, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended, and
in accordance therewith will file periodic reports, proxy statements and other
information with the Commission.
35
<PAGE> 37
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......... F-1
Financial Statements:
Consolidated Balance Sheets at December 31, 1998 and 1997,
and at September 30, 1999 (unaudited)..................... F-2
Consolidated Statements of Income for the years ended
December 31, 1998 and 1997, and for the nine months ended
September 30, 1999 and 1998 (unaudited)................... F-3
Consolidated Statements of Changes in Stockholder Equity for
the years ended December 31, 1998 and 1997, and for the
nine months ended September 30, 1999 and 1998
(unaudited)............................................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997, and for the nine months ended
September 30, 1999 and 1998 (unaudited)................... F-5
Notes to Financial Statements............................... F-6
</TABLE>
36
<PAGE> 38
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
International Monetary Systems, Ltd.
New Berlin, Wisconsin
We have audited the accompanying consolidated balance sheets of
International Monetary Systems, Ltd., and subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of income, changes in
stockholder equity, and cash flows for each of the two years in the period ended
December 31, 1998. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly
the consolidated financial position of International Monetary Systems, Ltd., and
subsidiaries at December 31, 1998 and 1997, and the results of its operations
and cash flows for each of the two years in the period ended December 31, 1998,
in conformity with generally accepted accounting principles.
SMITH & GESTELAND,LLP
SMITH & GESTELAND, LLP
Madison, Wisconsin
September 1, 1999
The accompanying notes are an integral part of the financial statements.
F-1
<PAGE> 39
INTERNATIONAL MONETARY SYSTEMS, LTD.
New Berlin, Wisconsin
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1998 1997 1999
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash.................................................. $ 8,789 $ 10,383 $ 122,179
Accounts receivable, net of allowance for doubtful
accounts of $5,000 in 1998 and 1999................ 147,359 111,702 161,854
Earned trade account.................................. 134,965 135,267 152,225
Inventory............................................. 60,680 82,680
Deferred income taxes................................. 4,951 9,278
Prepaid expenses...................................... 400 400
--------- -------- ---------
Total current assets.......................... 357,144 266,630 519,338
--------- -------- ---------
Furniture and equipment
Furniture and equipment............................... 174,806 138,453 181,499
Less accumulated depreciation...................... (110,940) (85,181) (128,607)
--------- -------- ---------
Net furniture and equipment................... 63,866 53,272 52,892
--------- -------- ---------
Other assets
Goodwill.............................................. 54,365 51,557
Investment in real estate............................. 26,000 26,000 26,000
Deferred income taxes................................. 4,951
Other................................................. 5,757 5,622 5,757
--------- -------- ---------
Total other assets............................ 86,122 36,573 83,314
--------- -------- ---------
Total assets.................................. $ 507,132 $356,475 $ 655,544
========= ======== =========
LIABILITIES
Current liabilities
Accounts payable...................................... $ 21,944 $ 21,611 $ 22,522
Payroll and payroll taxes............................. 46,608 59,180 25,432
Sales taxes........................................... 4,284 552
Accrued income taxes.................................. 593 593 4,555
Notes payable -- other................................ 6,444 10,566 6,848
Current portion of long-term debt..................... 7,906 8,716
--------- -------- ---------
Total current liabilities..................... 87,779 91,950 68,625
--------- -------- ---------
Long-term liabilities
Notes payable to banks................................ 31,653 37,326
Notes payable to stockholder.......................... 16,866 73,007 4,611
Debentures notes payable.............................. 55,000 55,000 55,000
--------- -------- ---------
Total long-term liabilities................... 103,519 128,007 96,937
--------- -------- ---------
Total liabilities............................. 191,298 219,957 165,562
--------- -------- ---------
STOCKHOLDER EQUITY
Common stock, $.01 par value for 1997 and 1998, $.0001
par value for 1999.................................... 5,108 4,438 104
Paid in capital......................................... 343,108 173,836 497,388
Retained earnings (deficit)............................. (32,382) (41,756) (7,510)
--------- -------- ---------
Total stockholder equity...................... 315,834 136,518 489,982
--------- -------- ---------
Total liabilities and stockholder equity...... $ 507,132 $356,475 $ 655,544
========= ======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE> 40
INTERNATIONAL MONETARY SYSTEMS, LTD.
New Berlin, Wisconsin
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
---------------------------- ------------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1999 1998
------------ ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Income
Gross revenue............................. $1,181,540 $969,052 $959,246 $784,930
Expenses
Payroll, related taxes and employee
benefits............................... 649,446 508,063 574,953 483,444
General and administrative................ 266,229 226,005 173,583 123,845
Occupancy................................. 115,769 117,419 80,338 61,737
Selling................................... 99,514 116,130 89,247 51,518
Other..................................... 31,930 20,727 7,340 56,240
---------- -------- -------- --------
Total expenses.................... 1,162,888 988,344 925,461 776,784
Income (loss) before income taxes........... 18,652 (19,292) 33,785 8,146
Income tax expense (benefit)................ 9,278 (3,012) 8,913 4,052
---------- -------- -------- --------
Net income (loss).................... $ 9,374 $(16,280) $ 24,872 $ 4,094
========== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 41
INTERNATIONAL MONETARY SYSTEMS, LTD.
New Berlin, Wisconsin
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED TOTAL
-------------------- PAID IN EARNINGS STOCKHOLDER
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------ ------ ------- --------- -----------
<S> <C> <C> <C> <C> <C>
1997
- ----
Balance January 1, 1997................... 443,850 $ 4,438 $173,836 $(25,476) $152,798
Net income (loss) for 1997................ (16,280) (16,280)
--------- ------- -------- -------- --------
Balance December 31, 1997................. 443,850 4,438 173,836 (41,756) 136,518
1998
- ------------------------------------------
Net income for 1998....................... 9,374 9,374
Stock issued:
Private placement proceeds.............. 52,000 520 124,422 124,942
Purchase of assets of Wisconsin Barter
Exchange............................. 15,000 150 44,850 45,000
--------- ------- -------- -------- --------
Balance December 31, 1998................. 510,850 5,108 343,108 (32,382) 315,834
1999 (UNAUDITED)
- ---------------
Net income for nine months ended September
30, 1999................................ 24,872 24,872
Par value changed to $.0001 in July
1999.................................... (5,057) 5,057
Two for one stock split................... 456,850 46 (46)
Stock issued
Private placement proceeds.............. 60,152 6 136,270 136,276
Stock options........................... 13,000 1 12,999 13,000
--------- ------- -------- -------- --------
Balance September 30, 1999................ 1,040,852 $ 104 $497,388 $ (7,510) $489,982
========= ======= ======== ======== ========
Common stock authorized was 560,000 shares
at December 31, 1997 and 1998,
20,000,000 shares at September 30, 1999
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 42
INTERNATIONAL MONETARY SYSTEMS, LTD.
New Berlin, Wisconsin
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
---------------------------- ------------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1999 1998
------------ ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $ 9,374 $(16,280) $ 24,872 $ 4,094
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization.......... 27,634 13,918 20,475 19,314
Deferred income taxes.................. 9,278 (3,605) 4,951 4,052
(Gain) loss on investment in
partnership.......................... (135) 196
Loss on disposition of real estate..... 22,700
Changes in assets and liabilities:
Accounts receivable.................. (35,657) (3,580) (14,494) (42,225)
Earned trade account................. 302 (35,719) (17,260) 35,319
Inventory............................ (60,680) (22,000) (47,680)
Prepaid expenses..................... (400)
Accounts payable..................... 333 (1,597) 578 (12,262)
Payroll and payroll taxes............ (12,572) 24,752 (21,178) (26,884)
Sales taxes.......................... 4,284 (3,732)
Accrued income taxes................. 593 3,962
-------- -------- -------- --------
Net cash provided by (used in)
operating activities............ (58,239) 1,378 (23,826) (66,272)
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................... (36,353) (6,693) (44,028)
Goodwill.................................. (11,240) (11,240)
-------- -------- -------- --------
Net cash used in investing
activities...................... (47,593) (6,693) (55,268)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayment) of debt........ 35,437 10,566 6,888 40,921
Net borrowings (repayment) of shareholder
note................................... (56,141) (3,446) (12,255) 46,132
Proceeds from issuance of stock........... 124,942 149,276 34,425
-------- -------- -------- --------
Net cash provided by financing
activities...................... 104,238 7,120 143,909 121,478
-------- -------- -------- --------
Net increase (decrease) in cash... (1,594) 8,498 113,390 (62)
Cash at beginning of period................. 10,383 1,885 8,789 10,383
-------- -------- -------- --------
Cash at end of period....................... $ 8,789 $ 10,383 $122,179 $ 10,321
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest.................... $ 15,889 $ 14,093 $ 9,448 $ 8,348
Cash received for interest................ 536
SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition of business for stock......... $ 45,000 $ $ $ 45,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 43
INTERNATIONAL MONETARY SYSTEMS, LTD.
New Berlin, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- INFORMATION ABOUT THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
A. ORGANIZATION
International Monetary Systems, Ltd., (IMS -- the company) is a holding
company located in New Berlin, Wisconsin with two wholly-owned operating
subsidiaries which comprise the Continental Trade Exchange Barter Network:
Continental Trade Exchange, Ltd., (CTEL), and Continental Trade Exchange of
Illinois, Inc. (CTEILL). CTEL, a barter industry trade exchange business was
acquired in January 1989. CTEILL, also a barter trade exchange business, was
acquired in December 1996.
B. ACQUISITIONS
On July 15, 1998, CTEILL acquired the assets and barter trade accounts of
Commercial Barter of Illinois, Inc., located in Joliet, Illinois for $20,000. On
July 29, 1998, CTEL acquired the assets and barter trade accounts of Wisconsin
Barter Exchange (WBE) located in Madison, Wisconsin for $60,000 cash and $45,000
in stock of IMS. Goodwill in the amount of $56,240 was recognized as a result of
the WBE purchase.
As a result of these acquisitions, the combined operations of Continental
Trade Exchange now cover the eastern portion of Wisconsin and northern Illinois.
Total clients numbered over 2,300 as of December 1998. Trade volume totaled
$8,470,000 and $9,689,000 for 1997 and 1998, respectively, producing
consolidated revenues for the company of $969,000 and $1,182,000 for 1997 and
1998, respectively.
C. OPERATIONS OF BARTER EXCHANGES
Barter exchanges not only operate with traditional cash currency, but they
can also issue trade credits, which constitute their own unique currency. Trade
exchanges permit members/clients to barter their goods and services with other
clients in several ways. Many sell their products to the barter network
directly, others issue trade certificates that are redeemable for their goods or
services, and the balance transact their barter business by issuing trade
vouchers. In return, the selling clients receive trade credits from the
exchange, which may be used to purchase services or products from other members
in the exchange.
D. REVENUE SOURCES
The company and its subsidiaries earn revenues in both traditional dollars
(cash income) and in trade dollars. Cash income is earned through membership
set-up fees assessed when a member joins, through service fees generated when
clients spend their trade dollars to purchase goods and services through the
exchange from other members, through monthly maintenance fees, and through sales
for cash of products originally purchased by IMS with its own trade dollars.
Trade profits are generated in various ways. Monthly maintenance fees are
assessed in trade dollars as well as in cash. Transaction fees are assessed in
trade dollars rather than cash for clients in certain industries such as radio
and TV stations, hotels, and restaurants and others not accustomed to paying
cash fees because they already are involved in many direct barter transactions
for their services. Occasionally the company will accept a favorable trade ratio
in lieu of a cash service fee. The company also has an opportunity to create
considerable trade profits by purchasing wholesale, closeout, and liquidation
merchandise for cash, and the liquidating of such products through the trade
program.
Earned trade dollars are used by the company to purchase various goods and
services required in its operations. All barter transactions are reported at the
estimated fair value of the products or services received.
F-6
<PAGE> 44
INTERNATIONAL MONETARY SYSTEMS, LTD.
New Berlin, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- INFORMATION ABOUT THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
E. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the company
and its subsidiaries. Significant intercompany accounts and transactions have
been eliminated in consolidation.
F. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
G. INVENTORY
Inventory consists primarily of fine art and other merchandise which the
company intends to sell. Inventory is carried at the lower of actual cost of
acquisition in 1998 and 1999 or fair value.
H. EARNED TRADE ACCOUNT
As part of the operations of the subsidiaries, trade dollars are earned
which can be and are used to purchase goods and services. This account is
increased principally for service, membership and transaction fees, and is
decreased by the company's purchase of goods and services for trade dollars.
I. FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using accelerated methods over the estimated useful
lives of five to seven years.
J. GOODWILL
Goodwill represents the excess of the cost over fair value of the assets
acquired in the purchase of Wisconsin Barter Exchange, Madison, Wisconsin. The
transaction was accounted for as a purchase and the goodwill is being amortized
on a straight-line basis over a fifteen year period.
K. INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related to differences between the financial and income tax basis of assets and
liabilities, and to the tax benefit of net operating loss carryovers.
The deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled.
L. CONCENTRATIONS OF CREDIT RISK
The company grants credit to its customers, substantially all of whom are
members of the Continental Trade Exchange barter network located in eastern
Wisconsin and northern Illinois. The company routinely assesses the financial
strength of its customers and, as a consequence, believes that its trade
accounts receivable credit risk exposure is limited.
F-7
<PAGE> 45
INTERNATIONAL MONETARY SYSTEMS, LTD.
New Berlin, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- INFORMATION ABOUT THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
M. ADVERTISING
Advertising costs, which are principally included in selling expenses, are
expensed as incurred. Advertising expense was $8,593 and $29,896 for the years
ended December 31, 1998 and 1997, respectively.
NOTE 2 -- FURNITURE AND EQUIPMENT
<TABLE>
<CAPTION>
ACCUMULATED
COST DEPRECIATION
---- ------------
<S> <C> <C>
Balance January 1, 1997................................. $138,453 $ 71,263
Depreciation expense for 1997........................... 13,918
-------- --------
Balance December 31, 1997............................... 138,453 85,181
Additions during 1998................................... 36,353
Depreciation expense for 1998........................... 25,759
-------- --------
Balance December 31, 1998............................... $174,806 $110,940
======== ========
</TABLE>
NOTE 3 -- NOTES PAYABLE TO BANKS
A subsidiary of the company (CTEL) has a revolving line of credit with Bank
One in the amount of $50,000, with a final maturity of May 5, 2005. Amounts
drawn and outstanding were $29,244 and $-0- as of December 31, 1998 and 1997,
respectively. Monthly payments are due based on the greatest of accrued
interest, $250 or 3% of the total amount outstanding. Interest is computed at
prime plus 3% (11% as of December 31, 1998).
CTEL obtained an additional business line of credit with Wells Fargo Bank
in the amount of $50,000, during November 1998. The line has no maturity date.
The balance outstanding as of December 31, 1998 was $10,315. Monthly payments
are based on 2% of the outstanding balance. Interest is computed at prime plus
1.75% (9.75% as of December 31, 1998).
<TABLE>
<CAPTION>
BALANCE
AS OF
DECEMBER 31, CURRENT LONG-TERM
1998 PORTION PORTION
------------ ------- ---------
<S> <C> <C> <C>
Bank One....................................... $29,244 $6,529 $22,715
Wells Fargo.................................... 10,315 1,377 8,938
------- ------ -------
Total $39,559 $7,906 $31,653
======= ====== =======
</TABLE>
The aggregate amount of maturities of long-term debt for each of the next
five years is as follows:
<TABLE>
<S> <C>
1999........................................ $ 7,906
2000........................................ 6,265
2001........................................ 4,973
2002........................................ 3,956
2003........................................ 3,153
Thereafter.................................. 13,306
-------
$39,559
=======
</TABLE>
F-8
<PAGE> 46
INTERNATIONAL MONETARY SYSTEMS, LTD.
New Berlin, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- NOTES PAYABLE TO STOCKHOLDER
From time to time, the president and major shareholder of the company has
loaned funds to the subsidiaries. There is no definite repayment schedule.
Interest is payable quarterly based on a 12% annual rate.
NOTE 5 -- DEBENTURE NOTES PAYABLE
Debenture notes have been issued under the following terms:
<TABLE>
<CAPTION>
ORIGINAL
NUMBER RATE DATE AMOUNT MATURITY
- ------ ---- ---- ------ --------
<S> <C> <C> <C> <C>
104 10% 06/08/94 $10,000 06/01/97
105 10% 06/01/94 10,000 06/30/96
106 10% 07/01/94 10,000 12/31/96
107 13% 04/01/95 10,000 03/31/98
108 13% 04/01/95 10,000 03/31/96
10% 12/22/93 5,000 12/31/99
</TABLE>
Those notes with original maturity dates prior to 1999 have been renewed
for indefinite periods at the same interest rates, with the exception of #106
which increased to 12%.
The $10,000 notes have attached warrants to purchase 5,000 shares of IMS
stock at $2.00 per share. The $5,000 note allows the holder to purchase 2,500
shares at $2.00 per share. The president and major shareholder of the company
has personally guaranteed the notes. Interest is paid quarterly.
NOTE 6 -- INCOME TAXES
Income tax expense consists of the following components:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1999 1998
---- ---- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Currently payable -- federal....................... $ $ $2,879 $
Currently payable -- state......................... 593 1,083
Deferred
Federal.......................................... 6,010 3,075 2,625
State............................................ 3,268 1,876 1,427
Tax benefit of net operating loss.................. (3,605)
------ ------- ------ -------
Total expense (benefit).................. $9,278 $(3,012) $8,913 $ 4,052
====== ======= ====== =======
Deferred income tax assets are attributable to the
tax benefits of net operating loss carryforwards
as follows:
Classified as a current asset.................... $4,951 $ 9,278 $ $ 5,226
Classified as a long-term asset.................. 4,951 4,951
------ ------- ------ -------
$4,951 $14,229 $ $10,177
====== ======= ====== =======
</TABLE>
NOTE 7 -- LEASES
The companies have various leases for equipment and buildings which are
classified as operating leases. Total rent expense for all operating leases for
1998 and 1997 were $89,793 and $94,275, respectively.
F-9
<PAGE> 47
INTERNATIONAL MONETARY SYSTEMS, LTD.
New Berlin, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- LEASES (CONTINUED)
Future minimum lease payments under the noncancelable operating leases do
not extend beyond October 1999. The 1999 noncancelable lease payments
approximate $26,000.
NOTE 8 -- STOCK OPTIONS
Two employees of the company were granted stock options in 1996 to acquire
10,000 and 3,000 shares respectively of the $.01 par value common stock of the
corporation for $1.00 per share. Both options were exercised in 1999.
NOTE 9 -- SUBSEQUENT EVENTS
During July 1999, the company amended its articles of incorporation to
increase its authorized shares of stock to 25,000,000 shares, divided into
5,000,000 shares of preferred stock and 20,000,00 shares of common stock, each
with a par value of $.0001 per share.
Subsequently, the company completed the two for one stock split on 456,850
shares which had been authorized in 1998, consisting of 443,850 shares then
outstanding as well as 13,000 shares available as stock options.
F-10
<PAGE> 48
EXHIBIT A
1,000,000 SHARES
INTERNATIONAL MONETARY SYSTEMS LTD.
COMMON STOCK
SUBSCRIPTION AGREEMENT
International Monetary Systems, Ltd.
16901 West Glendale Drive
New Berlin, Wisconsin 53151
Gentlemen:
The undersigned irrevocably subscribe(s) for and agree(s) to purchase
shares of common stock, par value $0.0001 per share ("Common
Stock"), of International Monetary Systems, Ltd. ("Company"), to be registered
in the name(s) of the undersigned at the address appearing below. Delivered
concurrently herewith is payment in full for the Common Stock subscribed for, at
the price of $ per share (checks made payable to "Grafton State Bank, Escrow
Agent"). The undersigned agree(s) that the Company has the right to reject this
subscription for any reason and that, in the event of rejection, all funds
delivered herewith will be promptly returned, without interest or deduction.
WITHHOLDING CERTIFICATION
Each of the undersigned certifies under penalty of perjury that:
(1) The Social Security Number or other Federal Tax I.D. Number entered
below is correct.
(2) The undersigned is not subject to backup withholding because:
(a) The IRS has not informed the undersigned that he/she/it is subject
to backup withholding.
(b) The IRS has notified the undersigned that he/she/it is no longer
subject to backup withholding.
NOTE: If this statement is not true and you are subject to backup
withholding, strike out section (2).
REGISTRATION OF SECURITIES
Debentures are to be registered as indicated below. (Please type or print.)
<TABLE>
<S> <C>
- ---------------------------------------------
-------------------------------------------------------
- --------------------------------------------- Social Security or Federal Tax I.D. Number
Name(s)
- ---------------------------------------------
Street Address Telephone Number ( )
-------------------------------
- ---------------------------------------------
City, State, Zip Code
</TABLE>
OWNERSHIP: [ ] Individual [ ] Marital Property [ ] Joint Tenants with Right of
Survivorship [ ] Tenants in Common
[ ] Corporation [ ] Partnership [ ] Trust [ ] IRA/Qualified Plan [ ] Other
- -----------------------------------------
If Common Stock is to be registered jointly, all owners must sign. For
IRAs/Qualified Plans, the trustee must sign. Any registration in the names of
two or more co-owners will, unless otherwise specified, be as joint tenants with
rights of survivorship and not as tenants in common. Each subscriber certifies
that he/she/it has full capacity to enter into this Agreement. This subscription
is subject to acceptance by the Company and will not be accepted unless
accompanied by payment in full.
A-1
<PAGE> 49
SUBSCRIBER SIGNATURES
Individuals (All proposed record holders must sign.)
Dated: ----------------------------
- ------------------------------------------------------
(Signature)
- ------------------------------------------------------
(Print or Type Name)
- ------------------------------------------------------
(Signature)
- ------------------------------------------------------
(Print or Type Name)
CORPORATIONS, PARTNERSHIPS, TRUSTS AND IRAS/QUALIFIED PLANS (CERTIFICATE OF
SIGNATORY MUST BE COMPLETED.)
<TABLE>
<S> <C>
Dated: ------------------------------------------
----------------------------------------------
(Print or Type Name of Entity
</TABLE>
By:------------------------------------------
Signature of Authorized Representative)
CERTIFICATE OF SIGNATORY
I, __________________________________________, am the
___________________________________
(Print or Type Name of Authorized
Representative) (Print or Type Title or Position)
of ________________________________("Entity").
(Print or Type Name of Subscribing Entity)
I certify that I am fully authorized and empowered by the Entity to execute
this Subscription Agreement and to purchase Common Stock, and that this
Subscription Agreement has been duly executed by me on behalf of the Entity and
constitutes a valid and binding obligation of the Entity in accordance with its
terms.
- --------------------------------------------------------------------------------
(Signature of Authorized
Representative)
SALES AGENT
Name of Selected Placement Agent: -----------------------------------------
Name of Registered Representative: ----------------------------------------
ACCEPTANCE
Subscription [ ] accepted [ ] rejected as of ________________, 2000.
INTERNATIONAL MONETARY SYSTEMS, LTD.
By:
------------------------------------------
(Signature of Authorized Officer)
A-2
<PAGE> 50
This page intentionally left blank.
<PAGE> 51
INTERNATIONAL MONETARY SYSTEMS, LTD.
<PAGE> 52
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 11.01 through 11.03 of the Bylaws of the Registrant authorize such
corporation to indemnify its directors, officers, employees or agents to the
fullest extent permitted by Wisconsin law, as follows:
ARTICLE XI
INDEMNIFICATION
SECTION 11.01. INDEMNIFICATION. The corporation shall, to the fullest
extent authorized by ch. 180, indemnify a director or officer against
liability and reasonable expenses incurred by the director or officer in a
proceeding in which the director or officer was a party because he or she
is or was a director or officer of the corporation. These indemnification
rights shall not be deemed to exclude any other rights to which the
director or officer may otherwise be entitled. The corporation may, to the
fullest extent authorized by ch. 180, indemnify, reimburse or advance
expenses of directors or officers.
A director or officer who seeks indemnification under this Section shall
make a written request to the corporation. Indemnification under this
Section is not required to the extent limited by the articles of
incorporation under Section 11.02. Indemnification under this Section is
not required if the director or officer has previously received
indemnification or allowance of expenses from any person, including the
corporation, in connection with the same proceeding.
SECTION 11.02. LIMITED INDEMNIFICATION. The corporation's articles of
incorporation may limit its obligation to indemnify under Section 11.01. A
limitation under this Section applies if the first alleged act or omission
of a director or officer for which indemnification is sought occurred while
the limitation was in effect.
SECTION 11.03. INDEMNIFICATION AND ALLOWANCE OF EXPENSES OF EMPLOYEES
AND AGENT. The corporation shall, to the fullest extent authorized by ch.
180, indemnify an employee who is not a director or officer of the
corporation, to the extent that he or she has been successful on the merits
or otherwise in defense of a proceeding, for all reasonable expenses
incurred in the proceeding if the employee was a party because he or she
was an employee of the corporation. In addition to the indemnification
required by the preceding sentence, the corporation may indemnify and allow
reasonable expenses of an employee or agent who is not a director or
officer of the corporation to the extent provided by the articles of
incorporation or by-laws, by general or specific action of the board of
directors or by contract.
Sections 180.0850 through 180.0859 of the Wisconsin Business Corporation
Law provide for the indemnification of directors, officers and other employees
of the Registrant, as follows:
180.0850 DEFINITIONS APPLICABLE TO INDEMNIFICATION AND INSURANCE
PROVISIONS. In ss. 180.0850 to 180.0859:
(1) "Corporation" means a domestic corporation and any domestic or
foreign predecessor of a domestic corporation where the predecessor
corporation's existence ceased upon the consummation of a merger or other
transaction.
(2) "Director or officer" of a corporation means any of the following:
(a) An individual who is or was a director or officer of the
corporation.
(b) An individual who, while a director or officer of the
corporation, is or was serving at the corporation's request as a
director, officer, partner, trustee, member of any governing or
decision-making committee, employee or agent of another corporation or
foreign corporation, partnership, joint venture, trust or other
enterprise.
II - 1
<PAGE> 53
(c) An individual who, while a director or officer of the
corporation, is or was serving an employee benefit plan because his or
her duties to the corporation also impose duties on, or otherwise
involve services by, the person to the plan or to participants in or
beneficiaries of the plan.
(d) Unless the context requires otherwise, the estate or personal
representative of a director or officer.
(3) "Expenses" include fees, costs, charges, disbursements, attorney
fees and any other expenses incurred in connection with a proceeding.
(4) "Liability" includes the obligation to pay a judgment, settlement,
penalty, assessment, forfeiture or fine, including an excise tax assessed
with respect to an employee benefit plan, and reasonable expenses.
(5) "Party" includes an individual who was or is, or who is threatened
to be made, a named defendant or respondent in a proceeding.
(6) "Proceeding" means any threatened, pending or completed civil,
criminal, administrative or investigative action, suit, arbitration or
other proceeding, whether formal or informal, which involves foreign,
federal, state or local law and which is brought by or in the right of the
corporation or by any other person.
180.0851 MANDATORY INDEMNIFICATION. (1) A corporation shall indemnify a
director or officer, to the extent that he or she has been successful on
the merits or otherwise in the defense of a proceeding, for all reasonable
expenses incurred in the proceeding if the director or officer was a party
because he or she is a director or officer of the corporation.
(2) (a) In cases not included under sub. (1), a corporation shall
indemnify a director or officer against liability incurred by the director
or officer in a proceeding to which the director or officer was a party
because he or she is a director or officer of the corporation, unless
liability was incurred because the director or officer breached or failed
to perform a duty that he or she owes to the corporation and the breach or
failure to perform constitutes any of the following:
1. A wilful failure to deal fairly with the corporation or its
shareholders in connection with a matter in which the director or
officer has a material conflict of interest.
2. A violation of the criminal law, unless the director or
officer had reasonable cause to believe that his or her conduct
was lawful or no reasonable cause to believe that his or her
conduct was unlawful.
3. A transaction from which the director or officer derived an
improper personal profit.
4. Wilful misconduct.
(b) Determination of whether indemnification is required under
this subsection shall be made under s. 180.0855.
(c) The termination of a proceeding by judgment, order,
settlement or conviction, or upon a plea of no contest or an equivalent
plea, does not, by itself, create a presumption that indemnification of the
director or officer is not required under this subsection.
(3) A director or officer who seeks indemnification under this section
shall make a written request to the corporation.
(4) (a) Indemnification under this section is not required to the
extent limited by the articles of incorporation under s. 180.0852.
(b) Indemnification under this section is not required if the
director or officer has previously received indemnification or allowance of
expenses from any person, including the corporation, in connection with the
same proceeding.
180.0952 CORPORATION MAY LIMIT INDEMNIFICATION. A corporation's articles of
incorporation may limit its obligation to indemnify under s. 180.0851. Any
provision of the articles of incorporation relating to a corporation's
power or obligation to indemnify that was in existence on June 13, 1987,
does not constitute a limitation on the corporation's obligation to
indemnify under s. 180.0851. A limitation under this section applies if the
first alleged act or omission of a director or officer for which
indemnification is sought occurred while the limitation was in effect.
180.0853 ALLOWANCE OF EXPENSES AS INCURRED. Upon written request by a
director or officer who is a party to a proceeding, a corporation may pay
or reimburse his or her reasonable expenses as incurred if the director or
officer provides the corporation with all of the following:
II - 2
<PAGE> 54
(1) A written affirmation of his or her good faith belief that he or
she has not breached or failed to perform his or her duties to the
corporation.
(2) A written undertaking, executed personally or on his or her
behalf, to repay the allowance and, if required by the corporation, to pay
reasonable interest on the allowance to the extent that it is ultimately
determined under s. 180.0855 that indemnification under s. 180.0851(2) is
not required and that indemnification is not ordered by a court under s.
180.0854(2)(b). The undertaking under this subsection shall be an unlimited
general obligation of the director or officer and may be accepted without
reference to his or her ability to repay the allowance. The undertaking may
be secured or unsecured.
180.0854 COURT-ORDERED INDEMNIFICATION. (1) Except as provided otherwise by
written agreement between the director or officer and the corporation, a
director or officer who is a party to a proceeding may apply for
indemnification to the court conducting the proceeding or to another court
of competent jurisdiction. Application shall be made for an initial
determination by the court under s. 180.0855(5) or for review by the court
of an adverse determination under s. 180.0855(1), (2), (3), (4) or (6).
After receipt of an application, the court shall give any notice that it
considers necessary.
(2) The court shall order indemnification if it determines any of the
following:
(a) That the director or officer is entitled to indemnification under
s. 180-0851 (1) or (2). If the court also determines that the corporation
unreasonably refused the director's or officer's request for
indemnification, the court shall order the corporation to pay the
director's or officer's reasonable expenses incurred to obtain the
court-ordered indemnification.
(b) That the director or officer is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, regardless of
whether indemnification is required under s.180.0851(2).
180.0955 DETERMINATION OF RIGHT TO INDEMNIFICATION. Unless otherwise
provided by the articles of incorporation or bylaws or by written agreement
between the director or officer and the corporation, the director or
officer seeking indemnification under s. 180.0851(2) shall select one of
the following means for determining his or her right to indemnification:
(1) By a majority vote of a quorum of the board of directors
consisting of directors who are not at the time parties to the same or
related proceedings. If a quorum of disinterested directors cannot be
obtained, by majority vote of a committee duly appointed by the board of
directors and consisting solely of 2 or more directors who are not at the
time parties to the same or related proceedings. Directors who are parties
to the same or related proceedings may participate in the designation of
members of the committee.
(2) By independent legal counsel selected by a quorum of the board of
directors or its committee in the manner prescribed in sub. (1) or, if
unable to obtain such a quorum or committee, by a majority vote of the full
board of directors, including directors who are parties to the same or
related proceedings.
(3) By a panel of 3 arbitrators consisting of one arbitrator selected
by those directors entitled under sub. (2) to select independent legal
counsel, one arbitrator selected by the director or officer seeking
indemnification and one arbitrator selected by the 2 arbitrators previously
selected.
(4) By an affirmative vote of shares as provided in s.180.0725. Shares
owned by, or voted under the control of, persons who are at the time
parties to the same or related proceedings, whether as plaintiffs or
defendants or in any other capacity, may not be voted in making the
determination.
(5) By a court under s.180.0854.
(6) By any other method provided for in any additional right to
indemnification permitted under s.180.0858.
180.0856 INDEMNIFICATION AND ALLOWANCE OF EXPENSES OF EMPLOYEES AND AGENTS.
(1) A corporation shall indemnify an employee who is not a director or
officer of the corporation, to the extent that he or she has been
successful on the merits or otherwise in defense of a proceeding, for all
expenses incurred in the proceeding if the employee was a party because he
or she was an employee of the corporation.
(2) In addition to the indemnification required by sub. (1), a
corporation may indemnify and allow reasonable expenses of an employee or
agent who is not a director or officer of the corporation to the extent
provided by the articles of incorporation or bylaws, by general or specific
action of the board of directors or by contract.
II - 3
<PAGE> 55
180.0857 INSURANCE. A corporation may purchase and maintain insurance on
behalf of an individual who is an employee, agent, director or officer of
the corporation against liability asserted against or incurred by the
individual in his or her capacity as an employee, agent, director or
officer or arising from his or her status as an employee, agent, director
or officer, regardless of whether the corporation is required or authorized
to indemnify or allow expenses to the individual against the same liability
under ss. 180.0851, 180.0853, 180.0856 and 180.0858.
180.0858 ADDITIONAL RIGHTS TO INDEMNIFICATION AND ALLOWANCE OF EXPENSES.
(1) Except as provided in sub. (2), ss. 180.0851 and 180.0853 do not
preclude any additional right to indemnification or allowance of expenses
that a director or officer may have under any of the following:
(a) The articles of incorporation or bylaws.
(b) A written agreement between the director or officer and the
corporation.
(c) A resolution of the board of directors.
(d) A resolution, after notice, by a majority vote of all of the
corporation's voting shares then issued and outstanding.
(2) Regardless of the existence of an additional right under sub. (1),
the corporation may not indemnify a director or officer, or permit a
director or officer to retain any allowance of expenses unless it is
determined by or on behalf of the corporation that the director or officer
did not breach or fail to perform a duty that he or she owes to the
corporation which constitutes conduct under s. 180.0851(2)(a)1, 2, 3 or 4.
A director or officer who is a party to the same or related proceeding for
which indemnification or an allowance of expenses is sought may not
participate in a determination under this subsection.
(3) Sections 180.0850 to 180.0859 do not affect a corporation's power
to pay or reimburse expenses incurred by a director or officer in any of
the following circumstances:
(a) As a witness in a proceeding to which he or she is not a party.
(b) As a plaintiff or petitioner in a proceeding because he or she is
or was an employee, agent, director or officer of the corporation.
180.0859 INDEMNIFICATION AND INSURANCE AGAINST SECURITIES LAW CLAIMS. (1)
It is the public policy of this state to require or permit indemnification,
allowance of expenses and insurance for any liability incurred in
connection with a proceeding involving securities regulation described
under sub. (2) to the extent required or permitted under ss. 180.0850 to
180.0858.
(2) Sections 180.0850 to 180.0858 apply, to the extent applicable
to any other proceeding, to any proceeding involving a federal or state
statute, rule or regulation regulating the offer, sale or purchase of
securities, securities brokers or dealers, or investment companies or
investment advisors.
The Registrant has not purchased insurance against costs which may be
incurred by it pursuant to the foregoing provisions of its Articles of
Incorporation of Incorporation and Bylaws, nor does it insure its officers and
directors against liabilities incurred by them in the discharge of their
functions as such officers and directors.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC registration fee................................................................ $ 416.00
NASD filing fee..................................................................... 1,050.00
Brokers' expense allowance..........................................................
Legal fees and expenses.............................................................
Accounting fees and expenses........................................................
Blue Sky fees and expenses..........................................................
Listing fees and expenses...........................................................
Printing and engraving..............................................................
Miscellaneous.......................................................................
-----------
Total...................................................................... $
</TABLE>
- --------------------------
II - 4
<PAGE> 56
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On July 20, 1999, the Registrant sold an aggregate of 13,000 shares of
Common Stock to two of its employees (10,000 shares and 3,000 shares,
respectively), pursuant to the exercise of options granted in 1996, at the price
of $1.00 per share. No selling commissions or other compensation were paid in
connection with either transaction. Such sales were made in reliance upon the
exemption from registration under the Securities Act of 1933, as amended,
provided by Section 4(2) of such Act.
On July 29, 1998, in connection with its acquisition of the assets and
trade accounts of Wisconsin Barter Exchange, the Registrant issued 15,000 shares
of its Common Stock to Scott Sanftleben, the seller of such assets and trade
accounts, valued at $3.00 per share ($45,000) for purposes of the sale. No
selling commissions or other compensation were paid in connection with either
transaction. Such payment was made in reliance upon the exemption from
registration under the Securities Act of 1933, as amended, provided by Section
4(2) of such Act.
From June, 1998 through September, 1999, the Registrant offered for sale
200,000 shares of its Common Stock. 112,152 shares of Common Stock were sold
in such private offering to 29 individual investors, at the price of $3.00 per
share, for an aggregate purchase price of $336,456. The foregoing private
offering was underwritten, on a "best-efforts" basis, by Pavek Investments,
Inc., Milwaukee, Wisconsin; the Registrant paid an aggregate of 33,646 in
commissions and expense allowances to Pavek Investments, Inc. in connection with
the distribution of such offering. All sales in such private offering were made
in reliance upon the exemption from registration under the Securities Act of
1933, as amended, provided by Section 4(2) of such Act and Rule 506 of
Regulation D thereunder.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
1.1 Underwriting Agreement
3.1 Articles of Incorporation of the Registrant
3.2 Articles of Amendment of the Registrant
3.3 Bylaws of the Registrant
4.1 Form of Underwriter's Warrant
5.1 Opinion of Gerald R. Turner & Associates, S.C., as to the legality of the Common Stock *
10.1 Lease Agreement, between Glendale Investments, LLC. and the Registrant *
23.1 Consent of Gerald R. Turner & Associates, S.C. (included in Exhibit 5.1) *
23.2 Consent of Kranitz & Philipp *
23.3 Consent of Smith & Gesteland, LLP. *
24.1 Power of Attorney (included at Page II - 7)
27.1 Financial Data Schedule (included in electronic filing only)
</TABLE>
- ---------------------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS.
The undersigned small business issuer will provide to the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling
II - 5
<PAGE> 57
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the small business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
small business issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The undersigned small business issuer will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and the offering of the securities at that time as the initial BONA FIDE
offering of those securities.
(3) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(4) For determining liability under the Act, treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial BONA FIDE offering.
(5) File a post-effective amendment to remove from registration any of the
securities which remain unsold at the end of the offering.
II - 6
<PAGE> 58
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of New
Berlin, State of Wisconsin, on December 22, 1999.
INTERNATIONAL MONETARY SYSTEMS, LTD.
By: /s/ DONALD F. MARDAK
-----------------------------------------
Donald F. Mardak, Chief Executive Officer
and President
POWER OF ATTORNEY
Each person whose signature appears below on this Registration Statement
hereby constitutes and appoints Donald F. Mardak and Dale L. Mardak, and each of
them, with full power to act without the other, his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him or her and in his or her name, place and stead, in any and all
capacities (until revoked in writing) to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary fully to all intents and purposes as
he or she might or could do in person thereby ratifying and confirming all that
said attorneys-in-fact and agents, or any of them, or their, his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DONALD F. MARDAK Chief Executive Officer, December 22, 1999
- ----------------------------------- President (Principal
Donald F. Mardak Executive Officer)
and Director
/s/ DALE L. MARDAK Vice President, Treasurer December 22, 1999
- ----------------------------------- (Principal Financial
Dale L. Mardak and Accounting Officer)
and Director
/s/ JOHN E. STRABLEY, JR. Executive Vice President December 22, 1999
- ----------------------------------- and Director
John E. Strabley, Jr.
</TABLE>
II - 7
<PAGE> 59
1,000,000 SHARES
INTERNATIONAL MONETARY SYSTEMS, LTD.
COMMON STOCK
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
1.1 Underwriting Agreement
3.1 Articles of Incorporation of the Registrant
3.2 Articles of Amendment of the Registrant
3.3 Bylaws of the Registrant
4.1 Form of Underwriter's Warrant
5.1 Opinion of Gerald R. Turner & Associates, S.C., as to the legality of the Common Stock *
10.1 Lease Agreement, between Glendale Investments, LLC. and the Registrant *
23.1 Consent of Gerald R. Turner & Associates, S.C. (included in Exhibit 5.1) *
23.2 Consent of Kranitz & Philipp *
23.3 Consent of Smith & Gesteland, LLP. *
24.1 Power of Attorney (included at Page II - 7)
27.1 Financial Data Schedule (included in electronic filing only)
</TABLE>
- --------------------
* To be filed by amendment.
Exhibit Index
<PAGE> 1
EXHIBIT 1.1
UNDERWRITING AGREEMENT
<PAGE> 2
1,000,000 SHARES
INTERNATIONAL MONETARY SYSTEMS, LTD.
COMMON STOCK
MANAGING PLACEMENT AGENT AGREEMENT
January __, 2000
J.E. Liss & Company, Inc.
424 East Wisconsin Avenue
New Berlin, Wisconsin 53202
Gentlemen:
International Monetary Systems, Ltd., a Wisconsin corporation ("Company"),
hereby confirms its agreement with you, as Managing Placement Agent, as follows:
SECTION 1. Description of the Offering. The Company proposes to offer
for sale and sell to the public 1,000,000 shares of its common stock, par value
$.0001 per share ("Common Stock"), at a price of from $5.00 to $6.50 per share
("Offering"). The minimum purchase per investor is 1,000 shares of Common Stock,
unless otherwise agreed to in writing by the Company prior to such purchase. The
Company may refuse to sell Common Stock to any person at any time. The Common
Stock may be offered for sale until (i) the entire Offering is sold or (ii)
September 30, 2000, whichever first occurs; provided, however, that the Offering
may be terminated at any time at the discretion of the Company.
All funds received from subscribers for Common Stock will be held in escrow
by Grafton State Bank, Grafton, Wisconsin ("Escrow Agent"), pursuant to an
agreement among you, the Company and the Escrow Agent ("Escrow Agreement").
There is no minimum aggregate amount required to be sold in the Offering; all
funds received from accepted subscribers will become immediately available to
the Company for the purposes described in the Prospectus (as hereinafter
defined) relating to the Offering under the caption "Use of Proceeds." Pending
disbursement under the terms of the Escrow Agreement, subscription proceeds will
be deposited in a segregated account and invested in short-term United States
government securities, securities guaranteed by the United States government,
certificates of deposit or time or demand deposits in commercial banks located
in the United States.
The Company will determine, in its sole discretion, to accept or reject
subscriptions for Common Stock within five days following receipt thereof. Funds
of an investor whose subscription is rejected will be promptly returned directly
to such person by the Escrow Agent, without interest or deduction, pursuant to
the terms of the Escrow Agreement.
The Company, the Common Stock and the Offering are more fully described in
the Registration Statement and Prospectus (as hereinafter defined). All terms
used in this Agreement, unless specifically defined herein, shall have the
meanings set forth in such Registration Statement and Prospectus.
<PAGE> 3
J.E. Liss & Company, Inc.
January __, 2000
Page 2
SECTION 2. Representations and Warranties of the Company. The
Company represents and warrants to, and agrees with you, that:
(a) The Company is duly organized and validly existing as a corporation
in good standing under the laws of the State of Wisconsin. The Company has the
full power and authority and all necessary authorizations, approvals, orders,
licenses, certificates and permits of and from all governmental and regulatory
officials and bodies required to own its properties and conduct its business as
described in the Prospectus (as herein defined); the Company is duly qualified
to do business under the laws of (and is in good standing as such in) each
jurisdiction in which it owns or leases property, has an office, or in which
business is conducted and such qualification is required, except where the
failure to so qualify would not have a material adverse effect on the business,
assets or financial condition of the Company, and no proceeding has been
instituted in any such jurisdiction revoking, limiting or curtailing, or seeking
to revoke, limit or curtail, such power and authority or qualification.
(b) The Company does not own or control, directly or indirectly, any
corporation, association, partnership or other entity other than as identified
in the Registration Statement (as herein defined).
(c) The execution, delivery and performance by the Company of this
Agreement has been duly authorized by all necessary action and will not (i)
violate any provision of the articles of incorporation or bylaws of the Company
(in each case as amended at the time of this Agreement), (ii) result in the
breach, or be in contravention, of any provision of any agreement, franchise,
license, indenture, mortgage, deed of trust or other instrument to which the
Company is a party or by which the Company or its property may be bound or
affected, or any order, law, statute, rule or regulation applicable to the
Company of any court or regulatory body, administrative agency or other
governmental body having jurisdiction over the Company or any of its property,
or any order of any court or governmental agency or authority entered in any
proceeding to which the Company was or is now a party or by which it is bound or
(iii) result in the creation of any lien, charge or encumbrance upon any
property of the Company. No consent, approval, authorization or other order of
any court, regulatory body, administrative agency or other governmental body is
required for the execution and delivery of this Agreement by the Company, or the
consummation by the Company of the transactions contemplated hereby, other than
under the Securities Act,, the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the Securities and Exchange Commission
("Commission") thereunder (collectively, the "Exchange Act"), state securities
laws and regulations (collectively, the "Blue Sky Laws") applicable to the
public offering of the Common Stock as described in the Registration Statement
and the Prospectus (as hereinafter defined), and/or the rules of the National
Association of Securities Dealers, Inc. ("NASD"). This Agreement has been duly
executed and delivered by the Company and is a valid and binding agreement of
the Company, enforceable in accordance with its terms, except insofar as rights
to indemnity or contribution may be limited by applicable law and subject to
bankruptcy, insolvency or similar laws generally affecting the rights of
creditors and equitable principles affecting the right to obtain specific
enforcement or similar equitable relief.
(d) A registration statement on Form SB-2 (Registration File No.
333-48527) with respect to the Common Stock has been carefully prepared by the
Company in conformity with the requirements of the Securities Act and the rules
and regulations ("Rules and Regulations") of the Commission thereunder, and has
been filed with the Commission; the Company has so prepared and has filed or
proposes to file prior to the effective date of such registration statement or
subsequent to such effective date pursuant to Rule 430A under the Rules and
Regulations, an amendment or amendments to such registration statement. There
have been delivered to you and your counsel two signed copies of such
registration statement, as initially filed with the Commission and each
amendment thereto, together with two copies of each exhibit filed therewith, and
eight conformed copies of such registration statement, as initially filed with
the Commission and each amendment thereto (but without exhibits) and of each
related preliminary prospectus ("Preliminary Prospectus") and of the proposed
final form of prospectus. As used in this Agreement, the term "Registration
Statement" means such registration statement, including exhibits, financial
statements and schedules and documents incorporated therein by reference, as
finally amended and revised at the time such registration statement becomes
effective, including the information, if any, deemed to be a part thereof
pursuant to Rule 430A of the Rules and Regulations, and the term "Prospectus"
means the related prospectus in
<PAGE> 4
J.E. Liss & Company, Inc.
January __, 2000
Page 3
the form first filed on behalf of the Company with the Commission pursuant to
Rule 424(b) under the Securities Act. Any reference herein to any Registration
Statement, Preliminary Prospectus or the Prospectus shall be deemed to refer to
and include the documents and information, if any, incorporated by reference
therein. Any reference to any amendment or supplement to any Registration
Statement, Preliminary Prospectus or Prospectus shall be deemed to refer to and
include any documents filed after such date under the Exchange Act and
incorporated therein by reference.
(e) Neither the Commission nor any state securities or "blue sky"
authorities has issued any order preventing or suspending the use of any
Preliminary Prospectus, and each Preliminary Prospectus has conformed fully in
all material respects with the requirements of the Securities Act, the Rules and
Regulations and the Blue Sky Laws and, as of its date, has not included any
untrue statement of a material fact or omitted to state a fact required to be
stated therein or necessary to make the statements therein not misleading; when
the Registration Statement becomes effective, and at all times subsequent
thereto up to each Closing Date (as defined herein), the Registration Statement
and the Prospectus, and any amendments or supplements thereto, will contain all
statements that are required to be stated therein in accordance with the
Securities Act, the Rules and Regulations and the Blue Sky Laws and will in all
material respects conform to the requirements of the Securities Act, the Rules
and Regulations and the Blue Sky Laws, and neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, will include any
untrue statement of a material fact or omit to state a fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company makes no representation or warranty as to
information contained in or omitted from any Preliminary Prospectus, the
Registration Statement, the Prospectus, or any such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by you specifically for inclusion therein.
(f) There are no contracts or other documents, transactions or
relationships of or by and between the Company or any of the respective officers
or directors of the Company required to be described in the Registration
Statement or filed as exhibits to the Registration Statement by the Securities
Act or the Rules and Regulations which have not been described or filed as
required or incorporated by reference as permitted by the Securities Act and the
Rules and Regulations.
(g) The Company has authorized capital stock as set forth in the
Prospectus. All outstanding shares of capital stock of the Company have been
duly authorized, validly and legally issued and are fully paid and
nonassessable, except to the extent of liability, if any, imposed under Section
180.0622(2) of the Wisconsin Business Corporation Law for employee wages for a
period not exceeding six months in the case of any employee; such shares have
not been issued in violation of or subject to any preemptive rights provided for
by law or by the Company's articles of incorporation or bylaws. The Common Stock
conforms in all material respects to all statements with respect thereto
contained in the Prospectus, and such statements conform to the provisions set
forth in the articles of incorporation and bylaws of the Company.
(h) The shares of Common Stock sold in the Offering, upon receipt of
full payment therefor and delivery by the Company, will be duly authorized,
validly and legally issued, fully paid and nonassessable, except to the extent
of liability, if any, imposed under Section 180.0622(2) of the Wisconsin
Business Corporation Law for employee wages for a period not exceeding six
months in the case of any employee, and will not have been issued in violation
of or subject to any preemptive rights provided for by law or by the Company's
articles of incorporation or bylaws or be subject to any lien, claim,
encumbrance, security interest, preemptive rights or any other claim of any
third party.
(i) Except as described in the Prospectus, there is not pending, or, to
the knowledge of the Company, threatened, any action, suit, proceeding, inquiry
or investigation to which the Company is a party, or to which the property of
the Company is subject, before or brought by any court, governmental agency or
body or arbitration tribunal, which, if determined adversely to the Company,
would result in any material adverse change in the business, financial position,
net worth, results of operations or prospects of the Company, or materially and
adversely affect its property or assets.
<PAGE> 5
J.E. Liss & Company, Inc.
January __, 2000
Page 4
(j) The financial statements and the related notes included in the
Registration Statement, in any Preliminary Prospectus or in the Prospectus
present fairly the financial position, results of operations and cash flows of
the Company at the dates and for the periods indicated and have been prepared in
accordance with generally accepted accounting principles, except as otherwise
stated therein. Smith & Gesteland, s.c. who have audited certain financial
statements as set forth in their report included in the Registration Statement
and Prospectus and each Preliminary Prospectus, are independent accountants as
required by the Securities Act and the Rules and Regulations.
(k) The Company is not in violation of its articles of incorporation
and bylaws, or in default or breach under any court or administrative order or
decree, or in default with respect to any provision of any lease, loan
agreement, franchise, license, permit, agreement or other contractual obligation
to which the Company is a party or by which the Company or any of its property
is bound, and there does not exist any state of facts which constitutes an event
of default or breach under such documents or which, upon notice or lapse of time
or both, would constitute such an event of default or breach except those, if
any, described in the Prospectus or such defaults or breaches which,
individually or in the aggregate, are not, and with notice or lapse of time, or
both, would not become, material to the Company. The Company is not in violation
or breach of any law, order, rule, regulation, writ, injunction or decree of any
governmental authority or instrumentality or any court, domestic or foreign,
which violation would have a materially-adverse effect on its business as
described in the Prospectus.
(l) Neither the Company nor any of its affiliates, nor any director or
officer of the foregoing, have taken and will not take, directly or indirectly,
any action designed to or which has constituted or which might reasonably be
expected to cause or result, under the Exchange Act or otherwise, in (i) a
violation of Rule 10b-6 under the Exchange Act or (ii) the manipulation of the
price of the Common Stock facilitate the sale or resale of such securities.
(m) The Company has good and marketable title to all the property and
assets reflected as owned by it in the Prospectus, subject to no lien, mortgage,
pledge, charge or encumbrance of any kind or nature whatsoever, except those, if
any, reflected in the Prospectus, or which are not material to the Company and
do not materially affect the value of such property and do not materially
interfere with the use made or proposed to be made of such property; all
properties held or used by the Company under leases, licenses, franchises or
other agreements are held by it under valid, subsisting and enforceable leases,
licenses, franchises or other agreements (subject to bankruptcy, reorganization,
moratorium or similar laws affecting creditors' rights generally).
(n) Since its inception, the Company has not sustained any material
loss or interference with its business or property from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree; and subsequent
to the respective dates as of which information is given in the Registration
Statement and Prospectus, the Company has not incurred any material liabilities
or obligations, direct or contingent, or entered into any material transactions,
not in the ordinary course of business, and there has not been any material
change in the capital stock or long-term debt of the Company, or any material
adverse change, or any development involving a prospective material adverse
change, in the business, financial position, net worth, results of operations or
prospects of the Company, except in each case as described in or contemplated by
the Prospectus.
(o) The Company has filed all necessary federal, state and foreign
income and franchise tax returns and has paid all taxes shown as due thereon,
and has no knowledge of any tax deficiency which has been asserted or threatened
against the Company which would materially adversely affect its business,
operations or property.
(p) The Company keeps accurate books and records and maintains internal
accounting controls which provide reasonable assurance that (i) transactions are
executed in accordance with management's authorization, (ii) transactions are
recorded as necessary to permit preparation of its financial statements and to
maintain accountability for its assets, (iii) access to its assets is permitted
only in accordance with management's authorization and (iv) the reported
accountability for its assets is compared with existing assets at reasonable
intervals.
<PAGE> 6
J.E. Liss & Company, Inc.
January __, 2000
Page 5
(q) There are no holders of securities of the Company having rights to
registration thereof under the Securities Act or preferential rights to purchase
Common Stock or any other securities of the Company, except as disclosed in the
Registration Statement and the Prospectus.
(r) All documents delivered or to be delivered by the Company or its
representatives in connection with the issuance and sale of the Common Stock
were on the dates on which they were delivered or will be on the dates on which
they are to be delivered, in all material respects, true, complete and correct.
(s) The Company owns, or possesses the requisite licenses or other
rights to use, all trademarks, service marks, service names and trade names
necessary to conduct its business as described in or contemplated by the
Prospectus; there is no claim or action by any person pertaining to (or
proceeding pending or threatened which challenges) the rights of the Company
with respect to any trademarks, service marks, service names or trade names used
in the conduct of its business as described in or contemplated by the
Prospectus; the products, services and processes of the Company have not
infringed and do not infringe upon proprietary rights held or asserted by third
parties which infringement, if resolved adversely to the Company, could
materially affect its earnings, assets, affairs, business prospects or condition
(financial and other).
(t) The Company has not distributed and will not distribute prior to
the final Closing Date (as hereinafter defined), any offering material in
connection with the offer and sale of the Common Stock other than as permitted
by the Securities Act.
(u) The Company has not (i) had any material dealings within the twelve
months prior to the date of this Agreement with any member of the NASD, or any
person related to or associated with such member, other than discussions and
meetings relating to the Offering, except as disclosed in writing to you prior
to the date hereof; (ii) entered into a financial or management consulting
agreement except as contemplated hereunder; or (iii) engaged any intermediary
between you and the Company, and/or any of the affiliates of the Company, in
connection with the Offering, and no person has been or will be compensated in
any manner for such service.
(v) The Company and each of its directors, executive officers and 10%
shareholders shall have agreed in writing that, from the date hereof through the
final Closing Date (as hereinafter defined), and for a period of 120 days
thereafter, they will not, without your prior written consent, sell, offer or
contract to sell, or grant any option to purchase, or otherwise dispose of,
directly or indirectly, any shares of Common Stock (or any securities
convertible into or exchangeable for any shares of Common Stock) except pursuant
to this Agreement.
Any certificate signed by any officer of the Company and delivered to
you or to your counsel shall be deemed a representation and warranty of the
Company to you as to the matters covered thereby and any certificate delivered
by the Company to its counsel for purposes of enabling such counsel to render
any opinion referred to in this Agreement will also be furnished to you and to
your counsel and shall be deemed to be additional representations and warranties
to you by the Company.
SECTION 3. Representations and Warranties of the Managing Placement
Agent. You hereby represent and warrant to, and agree with, the Company as
follows:
(a) You are a corporation duly organized, validly existing under the
laws of the State of Wisconsin, with all requisite power and authority to enter
into this Agreement and to carry out your obligations hereunder.
(b) This Agreement (i) has been duly authorized, executed and delivered
by you, (ii) constitutes your legal, valid and binding obligation, and (iii)
subject to applicable bankruptcy, insolvency and other laws affecting the
enforceability of creditors' rights generally, is enforceable as to you in
accordance with its terms, specific performance hereof being limited by general
principles of equity and the enforceability of the indemnification provisions
hereof.
<PAGE> 7
J.E. Liss & Company, Inc.
January __, 2000
Page 6
(c) The execution, delivery and performance of this Agreement by you
and the consummation by you of the transactions contemplated hereby and by the
Prospectus will not conflict with or result in a breach or violation by you of
any of the terms or provisions of, or constitute a default in any material
respect under, (i) any indenture, mortgage, deed of trust, loan agreement, lease
or other agreement or instrument to which you are a party or to which you or
your property are subject, (ii) your articles of incorporation or bylaws or
(iii) any statute, judgment, decree, order, rule or regulation applicable to you
of any court or governmental agency or body having jurisdiction over you, your
affiliates or your property.
(d) You are, and at all times through the final Closing Date (as herein
defined) shall remain, duly registered pursuant to the provisions of the
Exchange Act as a broker-dealer; you are, and at all times through the final
Closing Date shall remain, a member in good standing of the NASD; you will not
reallow discounts or pay commissions or other compensation for participation in
the distribution of the Offering to any broker-dealer which is not a member of
the NASD, including foreign broker-dealers registered under the Exchange Act;
you shall act as an independent contractor, and nothing herein shall constitute
you an employee of the Company; you shall not make sales of Common Stock
discretionary accounts.
(e) In connection with the offer, offer for sale and sale of Common
Stock, you (and your representatives and agents) shall conform to and comply
with (i) the provisions of the Conduct Rules of the NASD, (ii) applicable
provisions of federal law, including without limitation the Securities Act, the
Rules and Regulations and the Exchange Act, and (iii) the Blue Sky Laws
applicable to the Offering, relating to, among other things, the period during
which and conditions under which the Common Stock may be offered, offered for
sale and sold; you shall not distribute the Prospectus or otherwise commence the
Offering without prior written confirmation from the Company or its counsel that
the Offering may be commenced under applicable securities laws, rules and
regulations.
(f) Pursuant to your appointment made in Section 4 hereof, you will use
your best efforts to procure subscribers for Common Stock will conduct the
Offering in compliance with the provisions of the Securities Act, the Rules and
Regulations, the Exchange Act, applicable Blue Sky Laws and the rules and
regulations of the NASD; accordingly, as of each Closing Date (as herein
defined), you will have:
(1) not made any untrue statement of a material fact and not
omitted to state a material fact required to be stated or necessary to
make any statement made not misleading, to the extent, if any, that
representations are made by you concerning the Offering or matters set
forth in the Prospectus other than those set forth in the Prospectus;
(2) prior to any sale of any Common Stock, reasonably believed
that an investment in the Common Stock was suitable for each
subscriber;
(3) promptly distributed any amendment or supplement to the
Prospectus provided to you pursuant to Section 5(b) of this Agreement
to persons who had previously received a Prospectus from you and who
you believed continued to be interested in Common Stock and have
included such amendment or supplement in all deliveries of the
Prospectus made after receipt of any such amendment or supplement;
(4) only used sales materials other than the Prospectus which
have been approved for use in the Offering by the Company, and
refrained from providing any such materials to any offeree unless
accompanied or preceded by the Prospectus;
(5) prior to the sale of any Common Stock, reasonably believed
that each subscriber met the investor standards and other requirements
set forth in the Prospectus and the Blue Sky Letters (as hereinafter
defined) and that an investment in the Common Stock was suitable for
such subscriber; you will have prepared and maintained, for your
benefit and the benefit of the Company, file memoranda and other
appropriate records substantiating the foregoing and shall
<PAGE> 8
J.E. Liss & Company, Inc.
January __, 2000
Page 7
retain such records for the period required under Exchange Act Rule
17a-4 or the laws of any state in which you offer the Common Stock for
sale, whichever is longer; and
(6) not made any representations on behalf of the Company other
than those contained in the Prospectus, nor shall you have acted as an
agent of the Company, or for the Company in any other capacity, except
as expressly set forth herein.
SECTION 4. Purchase Sale and Delivery of Common Stock. On the
basis of the covenants, representations, and warranties herein contained and
subject to the terms and conditions herein set forth:
(a) The Company hereby engages you as its exclusive agent to solicit
subscriptions for the Common Stock in accordance with the terms of the
Registration Statement, the Prospectus and this Agreement, and you agree to use
your best efforts to procure such subscriptions. You may, however, discharge
your responsibilities under this Agreement by acting as a Managing Placement
Agent and forming a group of securities dealers ("Selected Placement Agents" ),
including you, to procure subscribers for the Common Stock. Any agreement
between you and a securities dealer pursuant to which such securities dealer
becomes a Selected Placement Agent shall require such dealer to represent and
warrant that it will conduct the Offering in the manner set forth herein. The
allocation of Common Stock among you and the Selected Placement Agents shall be
made by you.
(b) Subject to the terms and conditions set forth herein, in
consideration of your execution of this Agreement and performance of your
obligations hereunder, the Company agrees that, at each Closing (as defined
herein), you shall receive (i) selling commissions in an amount equal to 8% of
the aggregate purchase price of the Common Stock sold by you (or any Selected
Placement Agent) and (ii) a nonaccountable expense allowance equal to 2% of the
aggregate purchase price of the Common Stock sold by you (or any Selected
Placement Agent). The aggregate commissions and expense allowance payable in
connection with the sale of Common Stock will be disbursed to you, as provided
herein and in Escrow Agreement; thereupon, you shall pay to each of the other
Selected Placement Agents, if any, in such amount (which shall not exceed
commissions and expense allowance in the amounts of 8% and 2%, respectively, of
the aggregate purchase price of the Common Stock sold by such Agent), at such
times and upon such terms and conditions as shall have been agreed upon between
you and such Selected Placement Agent, that portion of the aggregate commissions
to which such Selected Placement Agent is entitled.
(c) As additional consideration for your services rendered pursuant to
this Agreement, on the final Closing Date (as hereinafter defined), the Company
will sell to you or your designees, at a price of $0.01 per warrant ("Warrant
Price"), warrants ("Underwriter's Warrants") to purchase shares of Common Stock,
under the following terms and conditions:
(1) The aggregate number of shares of Common Stock subject to
Underwriter's Warrants will be equal to 10% of the shares of
Common Stock sold by you (or any Selected Placement Agent)
pursuant to this Agreement.
(2) The Underwriter's Warrants may not be sold, hypothecated,
exercised, assigned or transferred for a period of one year after
the initial effective date of the Registration Statement, except
to partners or officers of the Selected Placement Agents
(including the Managing Placement Agent).
(3) Underwriter's Warrants shall be exercisable during the
4-year period commencing on the first anniversary of the final
Closing Date ("Warrant Exercise Term"), at any time and from time
to time, in whole or in part, during the said Warrant Exercise
Term, and shall grant to the holder the right to purchase one
share of Common Stock for each Underwriter's Warrant at a price
per share equal to 120% of the initial public offering price of
the Common Stock.
<PAGE> 9
J.E. Liss & Company, Inc.
January __, 2000
Page 8
(4) The Underwriter's Warrants shall contain such other terms
and conditions as are satisfactory, in form and substance to you
and your counsel, including without limitation, adjustment and
exercise provisions.
(5) The Company agrees and undertakes, upon the expiration of
a 12-month period after the final Closing Date, and at any time
during the 4-year period thereafter, one time only, to register
under the Securities Act all or any part of the Underwriter's
Warrants and/or the shares issuable upon the exercise thereof
("Underlying Shares"), upon the written request of holders of a
majority of such Warrants and Underlying Shares, at the Company's
sole cost and expense, including "blue sky" fees for counsel and
"blue sky" filing fees to qualify the Underwriter's Warrants and
Underlying Shares for sale in those jurisdictions requested by you,
at the time determined by you.
(6) The Company agrees and undertakes, during the four-year
period described in subsection 4(c)(3), above, that if the Company
shall seek to register any of its securities under the Securities
Act, each holder of the Underwriter's Warrants shall be notified
and shall be entitled to elect to have included in such proposed
registration, without cost or expense, any or all of his
Underwriter's Warrants or Underlying Shares ("Piggy-Back Rights").
In the event of such a proposed registration, the Company shall
furnish the holders of Underwriter's Warrants with no less than 30
days written notice prior to the proposed filing of a registration
statement. Such notice shall continue to be given by the Company to
such Warrantholders for each proposed registration by the Company
until such time as all Underwriter's Warrants or Underlying Shares
have been registered. Warrantholders shall exercise Piggy-Back
Rights by giving written notice within 20 days of the receipt of
the Company's notice of intention to file a registration statement.
(d) The Company hereby grants to you a right of first refusal for a
period of three years after the initial effective date of the Registration
Statement to act as (i) managing underwriter or offering agent for any public or
private offerings of securities by the Company or any of its subsidiaries and
(ii) the Company's agent for any merger involving the Company or any of its
subsidiaries, the acquisition by the Company or any of its subsidiaries of any
entity or the assets thereof and the acquisition of the Company or any of its
subsidiaries by another entity, provided that a third-party underwriter or agent
is engaged in connection with any transaction described in clause (i) or (ii) of
this Section 6(p) and you agree to provide such services on substantially the
same terms as are available from another qualified firm, as evidenced by bona
fide firm offer provided to you by the Company. The foregoing right shall
continue in effect during the entire 3-year period, despite the exercise of, or
the refusal to exercise, the right during the period.
(e) Each subscriber for Common Stock must (i) complete and execute a
Subscription Agreement (in the form included as Exhibit A to the Prospectus) and
any other documents which may be required by you or the Company in connection
with such subscription (collectively, "Subscription Documents") and (ii) tender
payment in full for the Common Stock subscribed for ("Subscription Payment");
checks representing Subscription Payments should be made payable to "Grafton
State Bank, Escrow Agent"; you shall deliver Subscription Payments received by
you to the Escrow Agent, at 101 Falls Road, Grafton, Wisconsin 53024, by 12:00,
noon, on the business day following such receipt by you, together with a
schedule setting forth the amount of each such Subscription Payment and the
name, mailing address and state of residence of the subscriber. Concurrently
with your delivery of each Subscription Payment to the Escrow Agent, you shall
forward to the Company executed originals of all related Subscription Documents,
retaining copies of all such Subscription Documents for your records.
(f) Within five days following receipt by it of executed Subscription
Documents, the Company shall determine to accept or reject each subscription and
shall notify you and the Escrow Agent orally (to be confirmed in writing). If
the Company elects to reject a subscription, the related Subscription Payment
shall, upon receipt by the Escrow Agent of oral notice (to be confirmed in
writing) from the Company of such rejection, promptly be returned directly to
the rejected subscriber by the Escrow Agent, without interest thereon or
deduction therefrom.
<PAGE> 10
J.E. Liss & Company, Inc.
January __, 2000
Page 9
(g) Subject to the terms hereof and of the Escrow Agreement, the first
disbursement of subscription proceeds (including disbursement of amounts due to
you hereunder) shall take place not less than 5 days nor more than 15 days
following the date upon which cleared funds representing payment in full for at
least 1,000 shares of Common Stock (or such lesser amount as may be agreed to in
writing by the parties hereto, in their discretion) have been received by the
Escrow Agent under the terms of the Escrow Agreement; such initial disbursement
is referred to herein as the "Initial Closing," and the date thereof is referred
to as the "Initial Closing Date." Following the Initial Closing, subscription
proceeds shall be disbursed from time to time as agreed among you, the Company
and the Escrow Agent; each such further disbursement of subscription proceeds is
referred to herein as an "Additional Closing," and the date thereof as an
"Additional Closing Date." The Initial Closing and Additional Closings are
sometimes referred to herein as a "Closing" or "Closings"; and the Initial
Closing Date and Additional Closing Dates are sometimes referred to herein as a
"Closing Date" or "Closing Dates."
(h) Each Closing shall take place at the offices of the Escrow Agent,
in Grafton, Wisconsin, or, at your option, at such other place as you may agree
upon in writing with the Company.
(g) After the final Closing Date, you will not be considered to have
any continuing or future duty or obligation of any kind to the Company.
SECTION 5. Covenants of the Company. The Company covenants and
agrees that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective at the earliest possible time and will advise you
promptly upon notification from the Commission of effectiveness. The Company
will advise you promptly of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the institution
of any proceedings for that purpose, or of any notification of the suspension of
qualification of the Common Stock for sale in any jurisdiction or the initiation
or threatening of any proceedings for that purpose, and will also advise you
promptly of any request of the Commission for amendment or supplement to the
Registration Statement (either before or after it becomes effective), to any
Preliminary Prospectus or to the Prospectus, or for additional information, and
will not file or make any amendment or supplement to the Registration Statement
(either before or after it becomes effective), to any Preliminary Prospectus or
the Prospectus of which you have not been furnished with a copy prior to such
filing or to which you reasonably object; and the Company will file promptly and
will furnish to you at or prior to the filing thereof copies of all reports and
any definitive proxy or information statements required to be filed by the
Company with the Commission pursuant to the Exchange Act subsequent to the date
of the Prospectus, and for so long as the delivery of a prospectus is required
in connection with the offer or sale of the Common Stock. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible time. The Company will
file the Prospectus pursuant to Rule 424(b) under the Securities Act, if
required, not later than the Commission's close of business on the second
business day following the execution and delivery of this Agreement or, if
applicable, such earlier time as may be required by Rule 430A of the Commission.
(b) If at any time when a prospectus relating to the Common Stock is
required to be delivered under the Securities Act, any event occurs as a result
of which the Prospectus, including any amendments or supplements, would include
an untrue statement of a material fact, or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend the Prospectus, including any amendments or
supplements, to comply with the Securities Act or the Rules and Regulations, the
Company will notify you and request you to suspend (and to advise the other
Selected Placement Agents, if any, to suspend) solicitation of offers to
purchase Common Stock; and the Company will promptly prepare and file with the
Commission an amendment or supplement which will correct such statement or
omission or an amendment which will effect such compliance; and, in case any
Selected Placement Agent (including you) is required to deliver a Prospectus
nine months or more after the effective date of the Registration Statement, the
Company upon request will prepare promptly and deliver to you such prospectus or
prospectuses as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Securities Act and applicable provisions of the Blue Sky
Laws.
<PAGE> 11
J.E. Liss & Company, Inc.
January __, 2000
Page 10
(c) The Company will not, prior to the final Closing Date, incur any
material liability or obligation, direct or contingent, or enter into any
material transaction other than in the ordinary course of business, except as
disclosed prior thereto in the Prospectus.
(d) The Company shall promptly prepare and file with the Commission
such reports as may be required to be filed under the Securities Act, the Rules
and Regulations, the Exchange Act or the Blue Sky Laws.
(e) Not later than 3 months after the end of the period referred to
below, the Company will make generally available to you and to the Company's
security holders an earnings statement (which need not be audited) covering a
period of at least 12 months beginning with its first fiscal quarter occurring
after the effective date of the Registration Statement, which will satisfy the
provisions of the last paragraph of Section 11(a) of the Securities Act and Rule
158 promulgated thereunder.
(f) The Company shall comply in all respects with the undertakings
given by it in connection with the qualification or registration of the Common
Stock under the Securities Act or the Blue Sky Laws.
(g) During such period as a prospectus is required by law to be
delivered in connection with sales by any Selected Placement Agent, the Company
will furnish to you at its expense, copies of the Registration Statement, the
Prospectus, any Preliminary Prospectus and all amendments and supplements to any
such documents in such quantities as you may reasonably request, for the
purposes contemplated by the Securities Act and the Rules and Regulations.
(h) The Company shall promptly apply for and take such steps as may
reasonably be necessary, to obtain and maintain the quotation of its Common
Stock by the National Daily Quotation Bureau ("PINK SHEETS")and on the NASD OTC
BULLETIN BOARD.
(i) During the period of 3 years following the date of this Agreement,
as soon as practicable after the end of each fiscal year, the Company will
furnish to you two copies, and to each of the other Selected Placement Agents
one copy, of the Annual Report of the Company containing a balance sheet as of
the close of such fiscal year and corresponding statements of income, members'
equity and cash flows for the fiscal year then ended, such financial statements
to be under the report of independent public accountants. During such period,
the Company will also furnish to you, if applicable, one copy of (i) each report
filed by the Company with the Commission, or with any exchange or quotation
source pursuant to the requirements of, or any agreement with, such exchange or
quotation source, as soon as practicable after the filing thereof and (ii) each
report of the Company mailed to its shareholders, as soon as available.
(j) The Company will apply the net proceeds from the sale of the Common
Stock to be sold by it hereunder for the purposes set forth in the Prospectus.
(k) The Company will not make any offer, sale, transfer, issuance or
other disposition of any of its securities within 120 days following the final
Closing Date, and will obtain the undertaking of each executive officer (as
defined under the Securities Act), director and holder of 10% or more of the
aggregate equity ownership of the Company immediately prior to such date not to
make any such offer, sale or other disposition within such period, otherwise
than hereunder or with your written consent or pursuant to bona fide gifts,
provided, in the last case, that each donee agrees in writing with you to be
bound by the same restrictions on the offer, sale and disposition of securities
as are expressed in this Section 5(k).
(l) The Company shall at all times reserve and keep available such
number of authorized shares of Common Stock as are sufficient to permit the
exercise of all Underwriter's Warrants; all shares of Common Stock issued upon
the exercise of Underwriter's Warrants, upon receipt of full payment therefor
and delivery to the purchaser, will be duly authorized, validly and legally
issued, fully paid and nonassessable, except to the extent of liability, if any,
imposed under Section 180.0622(2) of the Wisconsin Business Corporation Law for
employee wages
<PAGE> 12
J.E. Liss & Company, Inc.
January __, 2000
Page 11
for a period not exceeding six months in the case of any employee, and such
Common Stock will not have been issued in violation of or subject to any
preemptive rights provided for by law or by the Company's corporate charter or
bylaws or be subject to any lien, claim, encumbrance, security interest,
preemptive rights or any other claim of any third party.
(m) Prior to the final Closing Date, the Company will not issue,
directly or indirectly, without your prior written consent, a press release or
other communication or hold any press conference with respect to the Company,
its activities or the Offering.
(n) The Company will, promptly upon your request, prepare and file with
the Commission any amendments or supplements to the Registration Statement or
Prospectus, and take any other action, which, in your opinion or the opinion of
your counsel, may be reasonably necessary or advisable in connection with the
distribution of the Common Stock, and will use its best efforts to cause the
same to become effective as promptly as practicable.
SECTION 6. Covenants of the Managing Placement Agent. You will use
your best efforts to procure subscribers for Common Stock and will conduct the
Offering in compliance with the provisions of the Securities Act, the Rules and
Regulations, the Exchange Act, applicable Blue Sky Laws and the rules and
regulations of the NASD; accordingly, as of each Closing Date (as herein
defined), you will have (i) not made any untrue statement of a material fact and
not omitted to state a material fact required to be stated or necessary to make
any statement made not misleading, to the extent any representations are made by
you concerning the Offering or matters set forth in the Prospectus other than
those which are set forth in the Prospectus, and (ii) prior to any sale of
Common Stock, reasonably believed that an investment in the Common Stock was
suitable for the subscriber.
SECTION 7. State Qualifications. The Company further represents
and warrants to, and agrees with, you as follows:
(a) The Company will take all necessary action to either qualify or
register the Common Stock for sale or exempt such securities from such
qualification or registration in such states as you and the Company shall agree
upon in writing.
(b) The Company or its counsel will provide you or your counsel with
copies, at the time they are filed, of all correspondence, applications, forms,
and other documents filed with each jurisdiction where the Common Stock is to be
registered or qualified or offered in an exempt transaction.
(c) Upon receipt of notification by the Company of the qualification,
registration, or exemption of the Common Stock by an applicable jurisdiction,
the Company or its counsel will promptly notify you or your counsel in writing
of such action, which writing shall summarize the conditions and other
requirements imposed by such jurisdiction in granting such qualification,
registration or exemption, including offeree qualification or suitability and
broker-dealer and agent registration requirements applicable to the conduct of
the Offering (collectively, the "Blue Sky Letters"); you shall not offer or sell
the Common Stock in any jurisdiction until receipt of such Blue Sky Letters from
the Company or its counsel.
(d) In each jurisdiction where the Common Stock has been registered or
qualified or is offered or sold in an exempt transaction as provided above, the
Company will make and file such statements, documents, materials, and reports as
are or may be required to be made or filed.
(e) The Company will promptly provide to you for delivery to all
offerees and purchasers of Common Stock any additional information, documents or
instruments which you, the Company and/or your respective counsel deem necessary
to comply with the rules, regulations, and judicial and administrative
interpretations respecting compliance with such exemptions or qualifications and
registrations in those jurisdictions where the Common Stock is to be offered or
sold.
<PAGE> 13
J.E. Liss & Company, Inc.
January __, 2000
Page 12
SECTION 8. Payment of Expenses.
(a) Whether or not the transactions contemplated hereunder are
consummated or this Agreement becomes effective or is terminated for any reason,
except as set forth below (and in addition to the nonaccountable expense
allowance provided for in Section 4(b) of this Agreement), the Company will pay
or cause to be paid all costs and expenses incurred in connection with the
Offering, including without limitation (i) the Commission's registration fee,
(ii) the expenses of printing and distributing this Agreement, the Selected
Dealer Agreements, the Registration Statement, each Preliminary Prospectus, the
Prospectus (and any amendments or supplements thereto) and the Blue Sky
Memorandum (and any supplements thereto), (iii) fees and expenses of accountants
and counsel for the Company, (iv) expenses of qualification of the Common Stock
under state "blue sky" and securities laws, including the fees and disbursements
of counsel to the Managing Placement Agent in connection therewith, (v) filing
fees paid or incurred by the Managing Placement Agent in connection with filings
with the NASD and (vi) the costs and charges of its transfer agent and
registrar.
(b) The Company and each Selected Placement Agent (including the
Managing Placement Agent) will bear its own travel, lodging and living expenses
incurred in connection with marketing, dealer and other meetings and the cost of
all advertising, publicity and selling or promotional materials used in
connection therewith.
(c) Notwithstanding any other provision hereof to the contrary, whether
or not this Agreement is terminated pursuant to Section 12 hereof or otherwise,
the Company will pay or reimburse the Managing Placement Agent for the actual
itemized out-of-pocket expenses incurred by it in connection with investigating,
preparing to market and marketing of the Common Stock, including fees and
expenses of its counsel (in accordance with the provisions of NASD Conduct Rule
2710); provided, however, that, without the consent of the Company, such
reimbursement for legal fees shall not exceed in the aggregate $25,000, and
reimbursement for other out-of-pocket expenses shall not exceed in the aggregate
$7,500.
SECTION 9. Conditions of the Obligations of the Managing Placement
Agent. Your obligations hereunder shall be subject to the condition that all of
the representations and warranties of the Company herein as of the date hereof
and as of each Closing Date are true and correct in all material respects and to
the accuracy of the statements of the officers of the Company made pursuant
hereto, to the performance by the Company of its obligations hereunder, and to
the following conditions:
(a) The Registration Statement shall have become effective not later
than 1 P.M., New Berlin, Wisconsin time, on the business day following the date
hereof, unless otherwise effective prior hereto pursuant to Rule 430A of the
Rules and Regulations or otherwise. The Prospectus shall have been filed with
the Commission pursuant to Rule 424(b) of the Rules and Regulations, if
required, within the applicable time period prescribed for such filing by the
Rules and Regulations and in accordance with Section 5(a) of this Agreement.
Prior to each Closing Date, no stop order suspending the effectiveness of the
Registration Statement shall have been instituted or shall be pending or, to the
knowledge of the Company or you, shall be contemplated by the Commission or any
"blue sky" authority, and any request of the Commission or any Blue Sky
authority of any jurisdiction for additional information (to be included in the
Registration Statement or Prospectus or otherwise) shall have been complied with
to your reasonable satisfaction.
(b) The Common Stock shall have been qualified or registered for sale
under the Blue Sky Laws of such states as shall have been agreed upon between
you and the Company, pursuant to and as provided in Section 7 of this Agreement.
(c) The legality and sufficiency of the authorization, issuance and
sale of the Common Stock pursuant to the Registration Statement, the validity
and form of the certificates representing the Common Stock, the execution and
delivery of this Agreement, and all proceedings and other legal matters incident
thereto, and the form of the Registration Statement (except financial
statements, if any, and other financial data included in such Registration
Statement) shall have been approved by your counsel.
<PAGE> 14
J.E. Liss & Company, Inc.
January __, 2000
Page 13
(d) You shall not have advised the Company that the Registration
Statement or Prospectus, or any amendment or supplement thereto, contains an
untrue statement of fact, or omits to state a fact which is material and is
required to be stated therein or necessary to make the statements therein not
misleading, unless, in the opinion of your counsel, any such untrue statement or
omission is not material.
(e) Since the dates as of which information is given in the
Registration Statement:
(1) the Company shall not have sustained any material loss or
interference with its business from any labor dispute, fire,
explosion, flood or other calamity (whether or not insured), or
from any court or governmental action, order or decree; and
(2) there shall not have been any change in the equity ownership,
short-term debt or long-term debt of the Company or a change, or a
development involving a prospective change, in or affecting the
ability of the Company to conduct its business (whether by reason
of any court, legislative, other governmental action, order,
decree, or otherwise), or in the general affairs, management,
financial position, members' equity or results of operations of the
Company, whether or not arising from transactions in the ordinary
course of business, in each case other than as set forth in or
contemplated by the Registration Statement and Prospectus, the
effect of which on the Company, in any such case described in
clause (1) or (2) of this Section 9(e), is, in your judgment
(exercising your sole discretion), so material and adverse as to
make it impracticable or inadvisable to proceed with the
distribution of the Offering or the delivery of the Common Stock as
contemplated by the Registration Statement and the Prospectus.
(f) There shall have been furnished to you on the Initial Closing Date
and the final Closing Date the written opinion of [NAME], counsel to the
Company, addressed to you and dated as of such Closing Date, to the effect that,
as of each Closing which has then occurred:
(1) the Company is duly organized and validly existing as a
corporation in good standing under the laws of the State of
Wisconsin and possesses full power and authority to own its
property and conduct its business as described in the Prospectus;
(2) the Company is duly qualified to do business under the laws of
(and is in good standing as such in) each jurisdiction in which it
owns or leases property, has an office, or in which business is
conducted and such qualification is required, except where the
failure to so qualify would not have a material adverse effect on
the conduct of its business, its assets or its financial condition;
(3) the Registration Statement has become effective under the
Securities Act and, to the best of the knowledge of such counsel,
no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose has
been instituted or is pending before, or threatened by, the
Commission or any "blue sky" or securities authority; such counsel
has no reason to believe that either the Registration Statement or
the Prospectus, or any document incorporated by reference therein,
contains any 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 (except for the financial
statements and other financial data included therein, as to which
such counsel need express no opinion); to the best knowledge of
such counsel, all descriptions in the Registration Statement and
the Prospectus of statutes, regulations and governmental
proceedings are accurate and fairly present the information
disclosed in all material respects, and such counsel does not know
of any legal, governmental or regulatory proceedings, pending or
threatened, required to be described in the Prospectus, nor of
<PAGE> 15
J.E. Liss & Company, Inc.
January __, 2000
Page 14
any contracts or documents of a character required to be described
in or filed as exhibits to the Registration Statement, which are
not so described or filed;
(4) the Company has full power and authority to enter into and
perform this Agreement; this Agreement, and the performance of the
obligations of the Company hereunder, have been duly authorized by
all necessary action and this Agreement has been duly executed and
delivered by and on behalf of the Company, and is a legal, valid
and binding agreement of the Company, enforceable in accordance
with its terms, except that rights to indemnity or contribution may
be limited by applicable law and enforceability of the agreement
may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally;
and no approval, authorization or consent of any court, board,
agency or instrumentality of the United States or of any state or
other jurisdiction is necessary in connection with the execution
and delivery of this Agreement, or in connection with the issue or
sale of the Common Stock by the Company pursuant to this Agreement
(other than under the Securities Act, applicable Blue Sky Laws and
the rules of the NASD) or the consummation by the Company of any
transaction contemplated by this Agreement;
(5) the shares of Common Stock to be sold in the Offering have been
duly authorized and, when issued and delivered by the Company,
against full payment therefor, will be legally and validly issued,
fully paid and nonassessable, except to the extent of liability, if
any, imposed under Section 180.0622(2) of the Wisconsin Business
Corporation Law for employee wages for a period not exceeding six
months in the case of any employee; to the best knowledge of such
counsel, such securities will not have been issued subject to any
lien, claim, encumbrance, security interest or any other claim of
any third party, except as described in the Prospectus; and the
Common Stock conforms as to legal matters in all material respects
to the description thereof set forth contained in the Prospectus;
(6) to the best knowledge of such counsel, the execution and
performance of this Agreement will not contravene any of the
provisions of, or result in a default under, any agreement,
franchise, license, indenture, mortgage, deed of trust or other
instrument to which the Company is a party, or by which the Company
or its property is bound; or violate any of the provisions of the
articles of incorporation or bylaws of the Company (in each case,
as amended at the date of such opinion), or to the best knowledge
of such counsel, violate any statute, order, rule or regulation of
any regulatory or governmental body having jurisdiction over the
Company;
(7) to the best knowledge of such counsel, except as described in
the Prospectus, there is not pending or threatened any action,
suit, proceeding, inquiry or investigation to which the Company is
a party, or to which the property of the Company is subject, before
or brought by any court, governmental agency or body or arbitration
tribunal, which, if determined adversely to the Company, would
result in any material adverse change in the business, financial
position, net worth, results of operations or prospects of the
Company, or materially and adversely affect its properties or
assets;
(8) to the best knowledge of such counsel, the Company owns or
possesses the requisite licenses or other rights to use, all
trademarks, service marks, service names and trade names necessary
to conduct its business as described in or contemplated by the
Prospectus; to the best knowledge of such counsel, there is no
claim or action by any person pertaining to (or proceeding pending
or threatened which challenges) the rights of the Company with
respect to any trademarks, service marks, service names or trade
<PAGE> 16
J.E. Liss & Company, Inc.
January __, 2000
Page 15
names used in the conduct of its business as described in or
contemplated by the Prospectus; to the best knowledge of such
counsel, the products, services and processes of the Company have
not infringed and do not infringe upon proprietary rights held or
asserted by third parties which infringement, if resolved adversely
to the Company, could materially affect its earnings, assets,
affairs, business prospects or condition (financial and other);
(9) to the best knowledge of such counsel, the Company has good and
marketable title to all the property and assets reflected as owned
by it in the Prospectus, subject to no lien, mortgage, pledge,
charge or encumbrance of any kind or nature whatsoever except
those, if any, reflected in the Prospectus or which are not
material to the Company and do not materially affect the value of
such property and do not materially interfere with the use made or
proposed to be made of such property; to the best knowledge of such
counsel, all property held or used by the Company under leases,
licenses, franchises or other agreements are held by it under
valid, subsisting and enforceable leases, licenses, franchises or
other agreements, subject to bankruptcy, insolvency or similar laws
generally affecting the rights of creditors and equitable
principles affecting the right to obtain specific enforcement or
similar equitable relief;
(10) to the best knowledge of such counsel, there are no holders of
securities of the Company having rights to the registration of such
securities, and there are no options, warrants or other rights to
acquire any equity interest in the Company, or any security
convertible into such equity interest, except as disclosed in the
Prospectus;
(11) the statements in the Registration Statement and Prospectus,
insofar as they are descriptions of specific contracts, agreements
or other documents, and the statements appearing in the Prospectus
under the caption "Description of Securities," insofar as they
refer to statements of law or legal conclusions, are accurate and
present fairly the information required to be shown;
(12) to the best knowledge of such counsel, the Company is not in
violation of its articles of incorporation or bylaws, or other
organizational or charter documents or in default (nor has an event
occurred which, with notice, lapse of time or both, would
constitute such a default) in the performance of any obligation,
agreement or condition contained in any bond, indenture, mortgage,
deed of trust, note, bank loan or credit agreement or any other
agreement or instrument to which the Company is a party or by which
the Company or any of its property may be bound or affected, and to
the best knowledge of such counsel, the Company is not in violation
of any franchise, license, permit, judgment, decree, order,
statute, rule or regulation, where such violation or default could
have a material adverse effect on the respective business, property
or operations of the Company;
(13) to the best knowledge of such counsel, there are no legal,
governmental or regulatory proceedings, pending or threatened,
required to be described in the Prospectus, which are not so
described;
(g) There shall have been furnished to you on the Initial Closing Date
and the final Closing Date the written opinion of the law firm of Kranitz &
Philipp, special securities counsel to the Company, addressed to you and dated
as of such Closing Date, to the effect that, as of each Closing which has then
occurred:
(1) the Registration Statement and Prospectus, and each amendment
or supplement thereto (except for the financial statements and
other financial data therein, as to which
<PAGE> 17
J.E. Liss & Company, Inc.
January __, 2000
Page 16
such counsel need express no opinion), as of their respective
effective or issue dates, comply as to form in all material
respects with the requirements of the Securities Act and the Rules
and Regulations and any required filing of the Prospectus and any
supplements thereto pursuant to Rule 424(b) of the Rules and
Regulations have been made in the manner and within the time period
required by such Rules and Regulations; and
(2) to the best knowledge of such counsel, there are no contracts
or other documents required to be summarized or described in the
Registration Statement or to be filed as exhibits thereto which are
not so summarized, described or filed, nor does such counsel know
of any regulations required to be described or referred to in the
Registration Statement or Prospectus which are not described or
referred to in the Registration Statement or Prospectus.
(h) If you shall so request in writing, you shall have received, on the
Initial Closing Date, a survey prepared by Kranitz & Philipp, addressed to you
and dated as of such Closing Date, relating to "blue sky" laws of such
jurisdictions upon which you and the Company agree in writing ("Blue Sky
Survey"); the Blue Sky Survey will advise that the appropriate "blue sky"
action, if any, was taken in each of such jurisdictions so as to permit such
offers and sales as indicated in such Survey; the Blue Sky Survey may be based
upon an examination of the statutes and regulations, if any, of such
jurisdictions as reported in standard compilations and upon interpretive advice
obtained from representatives of certain securities commissions.
(i) If you so request in writing, there shall have been furnished to
you, on each Closing Date an opinion of Kranitz & Philipp, addressed to you and
dated as of each such Closing Date, with respect to the Common Stock, the
Registration Statement and the Prospectus, and other related matters as you may
reasonably require, and the Company shall have furnished to such counsel such
documents and shall have exhibited to them such papers and records as they
request for the purpose of enabling them to pass upon such matters.
(j) There shall have been furnished to you, on the Initial Closing Date
and the final Closing Date, a certificate of the principal executive officer and
the principal financial officer of the Company, dated as of such Closing Date,
to the effect that:
(1) the representations and warranties of the Company which are set
forth in Section 2 hereof are true and correct as of the date of
this Agreement and as of each Closing Date, as if again made on and
as of such Closing Date, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such date;
(2) to the best of their knowledge, the Commission has not issued
an order preventing or suspending the use of the Prospectus or any
Preliminary Prospectus filed as part of the Registration Statement
or any amendment thereto, no stop order suspending the
effectiveness of the Registration Statement or enjoining the use of
the Prospectus has been issued, and no proceedings for that purpose
have been instituted or are pending or contemplated under the
Securities Act;
(3) each of the respective signers of the certificate has carefully
examined the Registration Statement and the Prospectus and, in his
opinion and to the best of his knowledge, information and belief,
the Registration Statement and the Prospectus and any amendments or
supplements thereto contain all statements required to be stated
therein, and neither the Registration Statement nor the Prospectus
nor any amendment or supplement thereto includes any untrue
statement of material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and, since the effective date of the
Registration Statement, there has occurred
<PAGE> 18
J.E. Liss & Company, Inc.
January __, 2000
Page 17
no event required to be set forth in an amended or supplemented
prospectus which has not been so set forth: and
(4) since the effective date of the Registration Statement, there
has not been any material adverse change or, to their knowledge, a
development involving a prospective material adverse change in the
business, properties, financial condition or earnings of the
Company, whether or not arising from transactions in the ordinary
course of business, except as disclosed in said Registration
Statement theretofore amended including the proposed amendment
thereto delivered to you prior to or contemporaneously with the
execution of this Agreement or (but only if you expressly consent
thereto in writing) delivered to you thereafter; since such date
and except as so disclosed, or in the ordinary course of business,
the Company has not incurred any liability or obligation, direct or
indirect, or entered into any material transaction; since such date
and except as so disclosed there has not been any material change
in the equity ownership of the Company or its short-term debt or
long-term debt; since such date and except as so disclosed, the
Company has not incurred any material contingent obligations, and
no material litigation is pending or, to their knowledge,
threatened against the Company; and, since such date and except as
so disclosed, the Company has not sustained a material loss or
interference with its business from any labor dispute, fire,
explosion, flood or other calamity (whether or not insured) or from
any court or governmental action, order or decree.
The delivery of the certificate provided for in this Section 9(k) shall
be and constitute a representation and warranty of the Company as to the facts
required in the immediately foregoing clauses (1), (2), (3) and (4) of this
Section 9(j) to be set forth in said certificate.
(k) There shall have been furnished to you, on or before the initial
Closing Date, written agreements signed by the Company, its directors, its
executive officers and each holder of 10% or more of its equity securities to
the effect that such persons will not make any offer, sale or other disposition
of any equity interest in the Company for a period of 120 days after the final
Closing Date, except with the prior written consent of the Managing Placement
Agent or pursuant to BONA FIDE gifts, provided, in the last case, that each
donee agrees in writing with you to be bound by the same restrictions on the
offer, sale or disposition of equity interests in the Company as are set forth
in the agreements described in this Section 9(k).
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
to you and your counsel. The Company shall promptly furnish you with such
manually signed or conformed copies of such opinions, certificates, letters and
other documents as you may reasonably request from time to time. With respect to
any Closing, by written instrument delivered to the Company, you may from time
to time, in your sole discretion, waive any of the requirements imposed upon the
Company pursuant to this Section, including without limitation the requirement
that any opinion, certificate, survey or other document be delivered to you at
any Closing or as of any Closing Date; any such waiver by you with respect to a
Closing shall not in any way be construed as such waiver with respect to any
other Closing. If any condition to your obligations hereunder to be satisfied
prior to or a Closing Date is not so satisfied, this Agreement at your election
will terminate upon notification to the Company without liability on the part of
any Selected Placement Agent (including you) or the Company, except for the
expenses or fees to be paid or reimbursed by the Company pursuant to Sections 4
and 8 hereof and except to the extent provided in Section 10 hereof.
SECTION 10. Indemnification.
(a) The Company agrees to indemnify and hold harmless you, each of your
officers, directors, employees and agents, and each person, if any, who controls
you within the meaning of the Securities Act or the Exchange Act against any
losses, claims, damages or liabilities, joint or several, to which you or each
such officer, director, employee, agent or controlling person may become subject
under the Securities Act, the Exchange Act, Blue Sky
<PAGE> 19
J.E. Liss & Company, Inc.
January __, 2000
Page 18
Laws or other federal or state laws or regulations, at common law or otherwise
(including in settlement of any litigation, if such settlement is effected with
the written consent of the Company), insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
or incorporated in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or in any application filed
under any Blue Sky Law or other document executed by the Company specifically
for that purpose or based upon written information furnished by the Company and
filed in any state or other jurisdiction in order to qualify any or all of the
Common Stock under the securities laws thereof (any such document, application
or information being hereinafter referred to as a "Blue Sky Application") or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading; the Company agrees to reimburse you and each
such other indemnified person for any legal or other expenses incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that:
(1) any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement,
any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto or in any Blue Sky Application in reliance upon
and in conformity with written information furnished to the Company
by you specifically for use therein (but in no event shall the
assistance in the drafting of all or any portion of the
Registration Statement, any Preliminary Prospectus, the Prospectus,
such amendment or supplement or such other document of the type
referred to in the preceding paragraph by you or your counsel
constitute such information); or
(2) if such statement or omission was contained or made in a
Preliminary Prospectus and corrected in the Prospectus and (i) any
such loss, claim, damage or liability suffered or incurred by you
(or any person who controls you) resulted from an action, claim or
suit by any person who purchased Common Stock from you in the
Offering, and (ii) you failed to deliver or provide a copy of the
Prospectus to such person at or prior to the confirmation of the
sale of such Common Stock in any case where such delivery is
required by the Securities Act unless such failure was due to
failure by the Company to provide copies of the Prospectus to you
as required by this Agreement.
The indemnification obligations of the Company as provided above (i)
extend upon the same terms and conditions to, and shall inure to the benefit of,
each Selected Placement Agent and each of its respective officers, directors and
each person, if any, who controls such Selected Placement Agent within the
meaning of the Securities Act or the Exchange Act and (ii) are in addition to
any liabilities the Company may otherwise have under other agreements, under
common law or otherwise.
(b) You will indemnify and hold harmless the Company, each of the
directors, officers, employees and agents of the Company, and each person, if
any, who controls the Company within the meaning of the Securities Act or the
Exchange Act, against any losses, claims, damages or liabilities to which the
Company or any such director, officer, employee, agent or controlling person may
become subject under the Securities Act, the Exchange Act, Blue Sky Laws or
other federal or state laws or regulations, at common law or otherwise
(including in settlement of any litigation, if such settlement is effected with
your written consent, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue or alleged
untrue statement of any material fact contained in the Registration Statement,
any Preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto, or in any Blue Sky Application, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or in any Blue Sky Application, in reliance
<PAGE> 20
J.E. Liss & Company, Inc.
January __, 2000
Page 19
upon and in conformity with any written information furnished to the Company by
you specifically for use therein (but in no event shall the assistance in the
drafting of all or any portion of the Registration Statement, any Preliminary
Prospectus, the Prospectus, such amendment or supplement or such other document
of the type referred above by you or your counsel constitute such information).
You agree to reimburse the Company and each such other indemnified person for
any legal or other expenses incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action.
Your indemnification obligations as provided above (i) extend upon the
same terms and conditions to, and shall inure to the benefit of, the Company and
each of its respective officers, directors and each person, if any, who controls
the Company within the meaning of the Securities Act or the Exchange Act and
(ii) are in addition to any liabilities which you may otherwise have under other
agreements, under common law or otherwise.
(c) Promptly after receipt by an indemnified party under this Section
10 of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against an indemnifying party under
this Section 10, notify the indemnifying party in writing of the commencement
thereof, but the omission to so notify the indemnifying party will not relieve
an indemnifying party from any liability which it or he may have to any
indemnified party otherwise than under this Section 10. In case any such action
is brought against any indemnified party, and such indemnified party notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and to the extent that it may wish, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it or he
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel to assume such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying party
to such indemnified party of its election to assume the defense of such action
and upon approval by the indemnified party of counsel to the indemnifying party,
the indemnifying party will not be liable to such indemnified party under this
Section 10 for any legal expenses subsequently incurred by such indemnified
party as a result of or in connection with the defense of such action, unless:
(1) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with
the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel, in the event that you
and one or more of your directors, officers or controlling persons
are the indemnified parties);
(2) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of
commencement of the action; or
(3) the indemnifying party has authorized the employment of counsel
at the expense of the indemnifying party.
(d) In order to provide for just and equitable contribution under the
Securities Act or the Exchange Act in any case in which (1) any person who would
be entitled to indemnification pursuant to this Section 10 if enforceable
according to its terms makes a claim for indemnification pursuant to this
Section 10, but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
this Section 10 provide for indemnification in such case, or (2) contribution
under the Securities Act or the Exchange Act may otherwise be required, you
shall contribute to the aggregate losses, claims, damages or liabilities
incurred (which shall, for all purposes of this Agreement, include, but not be
limited to, all costs of defense and investigation and all attorneys' fees) in
either such case (after
<PAGE> 21
J.E. Liss & Company, Inc.
January __, 2000
Page 20
contribution from others) an amount equal to the product determined by
multiplying the total amount of such losses, claims, damages or liabilities by a
fraction, the numerator of which equals the fees paid to you under Section 4
plus the amount paid to you under Section 8, and the denominator of which is
equal to the aggregate proceeds of the sale of Common Stock in the Offering
(before deduction of commissions or expenses), and the Company shall be
responsible for the balance of such losses, claims, damages or liabilities;
provided, that with respect to the rescission of the sale of any Common Stock,
your liability shall not exceed the compensation earned by you under this
Agreement with respect to the rescinded sale. If the foregoing allocation is not
permitted by law, there shall be considered, in determining the amount of
contribution to which the respective parties are entitled, the relative benefits
received by each party from the sale of Common Stock (taking into account the
portion of the proceeds of the Offering realized by each), the parties' relative
knowledge and access to information concerning the matter with respect to which
the claim was asserted, the opportunity to correct and prevent any statement or
omission, and any other equitable considerations appropriate in the
circumstances. The Company and you agree that it would not be equitable if the
amount of such contribution were determined by PRO RATA or PRO CAPITA
allocation. Neither you nor any person controlling you shall be obligated to
make contribution hereunder which in the aggregate exceeds the total purchase
price of Common Stock sold to subscribers procured by you, less the aggregate
amount of any damages which you and your controlling persons have otherwise been
required to pay in respect of the same or any substantially similar claim. No
person guilty of a fraudulent misrepresentation (within the meaning of Section
11 of the Securities Act) shall be entitled to contribution from any person who
is not guilty of such fraudulent misrepresentation. The foregoing contribution
agreement shall in no way affect the contribution liabilities of any persons
having liability under Section 11 of the Securities Act other than those
identified in this Section 10 as being entitled to indemnification. Any of the
officers, directors or controlling persons of a Selected Placement Agent
(including you) and any officers, directors or controlling persons of the
Company shall be entitled to contribution to the same extent as you or the
Company.
SECTION 11. Effective Date. This Agreement shall become effective
immediately upon execution as to Sections 4, 8 and 10 and, as to all other
provisions, at 9 A.M., New Berlin, Wisconsin time, on the day following the date
upon which the Registration Statement becomes effective, unless such a day is a
Saturday, Sunday or holiday (in which event this Agreement shall become
effective at such hour on the business day next succeeding such Saturday, Sunday
or holiday); notwithstanding the foregoing, this Agreement shall nevertheless
become effective at such earlier time after the Registration Statement becomes
effective as you may determine on and by notice to the Company (which notice may
be oral, to be confirmed promptly in writing).
SECTION 12. Termination. Without limiting the right to terminate
this Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you or
by you by notice to the Company at any time prior to the time this Agreement
shall become effective as to all its provisions, and any such termination shall
be without liability on the part of the Company or you (except for the fees or
expenses to be paid or reimbursed by the Company pursuant to Sections 4 and 8
hereof or paid by the Company pursuant to Section 10 hereof).
(b) This Agreement may also be terminated by you prior to the final
Closing Date if, in your judgment and discretion, the offer, offer for sale,
sale and delivery of the Common Stock is rendered impracticable or inadvisable
because:
(1) additional material governmental restrictions or limitations,
not in force on the date hereof, shall have been imposed upon
trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange, the
American Stock Exchange or over-the-counter, or trading in
securities generally shall have been suspended or limited on either
such exchange or over-the-counter or a general banking moratorium
shall have been established by federal or New York authorities;
<PAGE> 22
J.E. Liss & Company, Inc.
January __, 2000
Page 21
(2) an outbreak or escalation of hostilities or other national or
international calamity or any substantial change in political,
financial or economic conditions shall have occurred or shall have
accelerated to such extent as, in your judgment, to have a material
adverse effect on the general securities market or make it
impractical or inadvisable to proceed with the Offering;
(3) any event shall have occurred or shall exist which makes untrue
or incorrect in any material respect any statement or information
contained in the Registration Statement or which is not reflected
in the Registration Statement but should be reflected therein in
order to make the statements or information contained therein not
misleading in any material respect;
(4) the Company shall have sustained a material loss, whether or
not insured, by reason of fire, earthquake, flood, accident or
other calamity or from any labor dispute or court or governmental
action or decree;
(5) the passage by the Congress of the United States or any state
legislative body of any act or measure, or the adoption or any
proposed adoption of any orders, rules, legislation or regulations
by any governmental body, any authoritative accounting institute or
board or any governmental executive which is reasonably believed
likely by the representative to have a material impact on the
business, financial condition or financial statements of the
Company, taken as a whole, or the market for the Common Stock; or
(6) any material adverse change having occurred since the
respective dates as of which information is given in the
Registration Statement and the Prospectus in the condition
(financial or otherwise) of the Company, taken as a whole, or in
the earnings, affairs or business prospects of the Company, taken
as a whole, whether or not arising in the ordinary course of
business.
Any termination pursuant to this Section 12(b) shall be without
liability on the part of any Selected Placement Agent (including you) to the
Company, or on the part of the Company to any Selected Placement Agent
(including you), except for expenses or fees to be paid or reimbursed by the
Company pursuant to Section 4 and 8 hereof and except as to indemnification as
provided in Section 10 hereof.
SECTION 13. Parties.
(a) This Agreement shall inure to the benefit of and be binding upon
you, the Company, and the respective successors and assigns of each.
(b) No purchaser of Common Stock from you shall be construed as a
successor or assign by reason merely of such purchase.
(c) Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person or corporation, other than the parties
hereto and their respective successors and assigns and the controlling persons,
officers and directors and counsel referred to in this Agreement, any legal or
equitable right, remedy or claim under or in respect to this Agreement or any
provision herein contained.
SECTION 14. Representations and Indemnities to Survive Delivery.
(a) All representations, warranties, covenants and agreements of the
Company and the Managing Placement Agent contained herein or in certificates of
officers delivered pursuant hereto, and the indemnity agreement contained in
Section 10 hereof, shall survive the delivery and execution of this Agreement
and the final Closing Date
<PAGE> 23
J.E. Liss & Company, Inc.
January __, 2000
Page 22
and shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of you or any person controlling you, any
Selected Placement Agent or any controlling person thereof, the Company or any
of its officers, directors, or controlling persons.
(b) The indemnification provisions of Section 10 hereof are in addition
to any and all remedies or rights which either of the parties hereto may have,
including the right to sue and recover damages for any breach of any
representation, warranty or covenant made or given by either of the parties
hereto to any other party.
SECTION 15. Notices. All communications hereunder will be in
writing and will be mailed, delivered, telegraphed or telecopied and confirmed
as follows:
If to the Managing Placement Agent: J.E. Liss & Company, Inc.
424 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
If to the Company: International Monetary Systems, Ltd.
16901 W. Glendale Drive
New Berlin, Wisconsin 53151
SECTION 16. Integration. This Agreement constitutes the entire
agreement among the parties hereto with respect to the subject matters hereof
and supersedes all prior agreements and understandings among the parties both
written and oral.
SECTION 17. Partial Unenforceability. If any Section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, such determination shall not affect the validity or
enforceability of any other Section, paragraph or provision hereof.
SECTION 18. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Wisconsin.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return the enclosed duplicate hereof, whereupon it
will become a binding agreement between us in accordance with its terms.
Very truly yours,
International Monetary Systems, Ltd.
By:
-------------------------------------------
Donald F. Mardak, President
Accepted and agreed to as of the day and year first above written .
J.E. Liss & Company, Inc.
By:
--------------------------------------------
Jerome E. Liss, President
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
THE REGISTRANT
<PAGE> 2
-1-
Form 2 - Sec. State 1987
ARTICLES OF INCORPORATION
Executed by the undersigned for the purpose of forming a Wisconsin
corporation under the "Wisconsin Business Corporation Law", Chapter 180 of the
Wisconsin Statutes:
Article 1.
The name of the corporation is International Monetary Systems, Ltd.
Article 2.
The period of existence shall be perpetual
Article 3.
The purposes shall be to engage in any lawful activities authorized by
Chapter 180 of the Wisconsin Statutes.
Article 4.
The number of shares which it shall have authority to issue, itemized by
classes, par value of shares, shares without par value, and series, if any,
within a class is:
<TABLE>
<CAPTION>
Series Par value per share or statement that
Class (if any) Number of shares shares are without par value
- ----- -------- ---------------- ----------------------------
<S> <C> <C> <C>
560,000 $.01
</TABLE>
Article 5.
The preferences, limitation, designation, and relative rights of each class
or series of stock, are
None
Article 6.
The initial registered office is located in Waukesha County, Wisconsin.
The address of such registered office is 2323 South 133rd Street
New Berlin, WI 53151
The complete address, including street and
number, if assigned, and the ZIP code, must
be stated.
Article 7.
The name of initial registered agent at such registered office is
Donald F. Mardak
-SEE INSTRUCTIONS AND SUGGESTIONS
ON PAGES 3 AND 4 OF FORM-
<PAGE> 3
-2-
Select ONE of the following. Cross out the ONE not selected.
Article 8.
The number of directors constituting the board of directors shall be fixed by
by-law.
Article 9. (Use of Article 9 is optional--see instructions)
The names of the initial directors are: Donald F. Mardak
Article 10. (Other provisions, if any)
Article 11.
These articles may be amended in the manner authorized by law at the time
of amendment.
Article 12.
The name and address of incorporator (or incorporators) are:
NAME ADDRESS
(street & number, city, state & ZIP code)
1) Donald F. Mardak 2323 South 133rd St., New Berlin, WI 53151
--------------------- ------------------------------------------
2)
--------------------- ------------------------------------------
3)
--------------------- ------------------------------------------
4)
--------------------- ------------------------------------------
Executed in duplicate on the 13th day of December, 1988
Donald F. Mardak
---------------------
Donald F. Mardak
All incorporators { ---------------------
{
SIGN HERE { ---------------------
{
{ ---------------------
<PAGE> 4
-3-
NOTARY: In completing this section, please specifically name the individual(s)
whose signature(s) you are witnessing. The name(s) you cite should agree in
every particular with the printed or typewritten name(s) as it appears in
Article 12. Affix your seal, sign and state commission expiration date.
STATE OF WISCONSIN
County of SS.
Personally came before me this 13th day of December A.D., 1988 the
aforenamed incorporator(s) (1) Donald F. Mardak (2)__________(3)_______________
4)_____________ to me known to be the person(s) who executed the foregoing
instrument, and acknowledged the same.
My commission Timothy Bascom
is permanent Notary Public Signature [ ]
Timothy A. Bascom [ Notarial ]
250 E. Wisconsin Ave., 1040 [ Seal ]
Milwaukee, WI 53202 [ ]
(414) 291-0808
================================================================================
This document was drafted by Timothy A. Bascom (414) 291-0808 (See instructions)
(Name of individual required by law) (Phone) [ STATE OF WISCONSIN]
Please print or type [ FILED ]
================================================================================
INSTRUCTIONS AND SUGGESTIONS [ JAN 04 1989 ]
[ CONTENT OF THE FORM] [DOUGLAS LA FOLLETTE]
[ ]
A. Article 1. The name must contain "Corporation", "Incorporated", or
"Limited" or the abbreviation of one of those words. Please list, in order
of preference, a second and third choice name. (2)_________________________
(3) ___________________________________________.
B. Article 2. Insert "perpetual", You may insert any limitation desired, but
not indefinite or a word to imply an indefinite status. Corporate
existence begins as of the date that the articles of incorporation are
approved for filing by the Secretary of States's office.
C. Article 3. You may strike out the imprinted purposes clause and
substitute a clause to cite particular purposes, should you so desire.
(The statute expressly states that it is not necessary to enumerate the
powers.)
D. Article 4. For the minimum filing fee, you may authorize 2,800 shares of
no par value stock, or $56,000 of par value stock. Some quantity of capital
stock is to be authorized. See instructions on "Filing fees" page 4, Item
N.
E. Article 5. This means, in substance, that this article must show all the
rights, privileges, and restrictions as between classes of stock and as
between series of stock in any class. If desired, a provision may be
inserted authorizing the directors to fix the variations in rights as to
series of any class. If none, so specify.
F. Article 6 & 7. The corporation must have a registered office in Wisconsin
and a registered agent at such registered office. The address of the
registered office must be physical location. State street number and name,
city and ZIP code in Wisconsin. P.O. Box addresses may be included as part
of the address, but are insufficient alone.
G. Article 9. Sec. 180.53(1) provides that the initial board of directors may
be named in the articles of incorporation.
H. Article 10. This space provided as a place in which to insert any desired
material such as restricting preemptive rights, stock transfer
restrictions, quorum provisions, etc.
(Continued on Page 4)
<PAGE> 5
-4-
ARTICLES OF INCORPORATION
MAIL RETURNED COPY TO:
(FILL IN THE NAME AND ADDRESS HERE)
-----------------------------------
Timothy A. Bascom
Law Offices of Timothy A. Bascom
250 East Wisconsin Avenue,
Suite 1040
Milwaukee, WI 53202
-----------------------------------
If a problem exists with the filing of this form, may we call you to attempt to
resolve it? If so, please provide us with a phone number at which you can be
reached during the day. ___-____.
INSTRUCTIONS AND SUGGESTIONS (Continued)
J. Article 12. Have the INCORPORATOR SIGN before a Notary Public. The number of
incorporators may be one or more, but all the incorporators listed in the
articles must sign. Make sure that both of the copies have ORIGINAL
SIGNATURES. Carbon copy, xerox, or rubber stamp signatures are not
acceptable. Notary must acknowledge incorporators names exactly as they are
listed in Article 12. EXECUTION DATE AND NOTARY DATE MUST MATCH EXACTLY.
K. Notary public must SIGN AND AFFIX SEAL on both copies of the articles, and
complete their statement in the area provided. Make sure that original
signatures and seal impressions appear on both copies.
L. If the document is executed or acknowledged in Wisconsin, sec. 14.38(14) of
the Wisconsin Statutes provides that it shall not be filed unless the name of
the person (individual) who, or the governmental agency which, drafted it is
printed, typewritten, stamped or written thereon in a legible manner.
PREPARATION, FEES AND TRANSMITTAL
M. Prepare document in DUPLICATE ORIGINAL. Furnish Secretary of State two
identical copies of the articles of incorporation. (Mailing address:
Corporation Division, Secretary of State, P.O. Box 7846, Madison, WI 53707).
One copy will be retained (filed) by Secretary of State and the other copy
transmitted directly to the Register of Deeds of the county within which the
corporation's initial registered office is located, together with your check
for the recording fee. When the recording has been accomplished, the document
will be returned to the address you furnish on the back of the form.
N. Two SEPARATE REMITTANCES are required.
1) Send a FILING FEE of $70 (or more) payable to SECRETARY OF STATE with the
articles of incorporation. $70 is the minimum fee and is sufficient for
2,800 shares of no par value stock, or $56,000 of par value stock. Add $1.25
more filing fee for each $1,000 (or fraction thereof) for par value stock in
excess of $56,000, and/or 2 1/2 cents more filing fee for each share of no
par value stock in excess of 2,800. Your cancelled check is your receipt for
fee payment.
2) Send a RECORDING FEE of $10 (or more) payable to REGISTER OF DEEDS with
the articles of incorporation. Name the COUNTY within which the corporation's
initial registered office is located. Recording fee for this standard form is
$10. If you append additional pages, add $2 more recording fee for each
additional page. Please furnish the fee for the Register of Deeds in check
form to this office and we will transmit it to the Register of Deeds with the
document for recording.
<PAGE> 1
EXHIBIT 3.2
ARTICLES OF AMENDMENT
OF
THE REGISTRANT
<PAGE> 2
DFI/CCS/Corp
Form 4
WISCONSIN
7/96
ARTICLES OF AMENDMENT
Stock (for profit)
A. Name of Corporation: International Monetary Systems, Ltd.
------------------------------------------------------
(prior to any change effected by this amendment)
Text of Amendment (Refer to the existing articles of incorporation and
instruction A. Determine those items to be changed and set forth below the
number identifying the paragraph being changed and how the amended
paragraph is to read.)
RESOLVED, THAT, the articles of incorporation be amended as follows:
See Attached Amendment
B. Amendment(s) adopted on July 15, 1999
---------------------------------------------------
(date)
Indicate the method of adoption by checking the appropriate choice below:
( ) In accordance with sec. 180.1002, Wis. Stats. (By the Board of
Directors)
OR
( X ) In accordance with sec. 180.1003, Wis. Stats. (By the Board of
Directors and Shareholders)
OR
( ) In accordance with sec. 180.1005, Wis. Stats. (By Incorporators
or Board of Directors, before issuance of shares)
C. Executed on behalf of the corporation on July 15, 1999
----------------------------------
(date)
/s/ Donald F. Mardak
----------------------------------
(signature)
Donald F. Mardak
----------------------------------
(printed name)
President
----------------------------------
(officer's title)
D. This document was drafted by Donald F. Mardak
-----------------------------------------------
(name of individual required by law)
FILING FEE - $40.00 OR MORE
SEE REVERSE for Instructions, Filing Fees and Procedures
Printed on Recycled Paper
<PAGE> 3
INTERNATIONAL MONETARY SYSTEMS, LTD., at a shareholders' meeting held on
Thursday, July 15, 1999 adopted the following amendment.
RESOLVED THAT, Article 4 of the Articles of Incorporation is hereby amended
to read as follows:
The aggregate number of shares of all classes of capital stock that the
Corporation shall have authority to issue is 25,000,000 shares, divided into
5,000,000 shares of series preferred stock with a par value of $.0001 per share,
herein called "Series Preferred Stock", and 20,000,000 shares of common stock
with a par value of $.0001 per share, herein called "Common Stock".
A. Series Preferred Stock
The Board of Directors of the Corporation is expressly vested with the
authority to divide the Series Preferred Stock into one or more series and to
fix, determine and state the voting power, dividend, redemption, conversion and
liquidation rights, designations, preferences and relative, participating,
optional or other special rights of the shares of each series and the
qualifications, limitations and restrictions thereof in the resolution or
resolutions providing for the issuance of such stock adopted by the Board of
Directors hereto.
B. Common Stock
Subject to the prior and superior rights of the Series Preferred Stock and
on the conditions set forth in any resolution or resolutions of the Board of
Directors providing for the issuance of any particular series of the Series
Preferred Stock, the Board of Directors may declare and pay dividends on the
Common Stock from time to time as funds may be legally available therefor, which
may be payable in cash, stock or other property.
Subject to the voting rights, if any, as may be set forth in any resolution
or resolutions of the Board of Directors providing for the issuance of any
particular series of any Series Preferred Stock, the holders of the Common Stock
shall be entitled to one vote for each share held at all meetings of the
stockholders of the Corporation. In the event of the liquidation, dissolution or
winding up of the affairs of the Corporation, and after all payments and
distributions shall have been made in full to the holders of the Series
preferred Stock as may have been required under the terms of the resolution or
resolutions of the Board of Directors providing for the issuance of any
particular series of the Series Preferred Stock, the remaining assets and funds
of the Corporation shall be distributed among the holders of the Common Stock
according to their respective shares.
<PAGE> 1
EXHIBIT 3.3
BYLAWS
OF
THE REGISTRANT
<PAGE> 2
BYLAWS
OF
INTERNATIONAL MONETARY SYSTEMS, LTD.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
ARTICLE 1 IDENTIFICATION........................................................................... 1
Section 1.01 Name..................................................................................... 1
Section 1.02 Principal and Business Offices........................................................... 1
Section 1.03 Registered Agent and Office.............................................................. 1
Section 1.04 Place of Keeping Corporate Records....................................................... 1
ARTICLE 2 SHAREHOLDERS............................................................................. 1
Section 2.01 Annual Meeting........................................................................... 1
Section 2.02 Special Meetings......................................................................... 1
Section 2.03 Place of Meeting......................................................................... 1
Section 2.04 Notice of Meetings....................................................................... 1
Section 2.05 Waiver of Notice......................................................................... 2
Section 2.06 Fixing of Record Date.................................................................... 2
Section 2.07 Voting List.............................................................................. 2
Section 2.08 Quorum and Voting Requirements........................................................... 2
Section 2.09 Order of Business at Meetings............................................................ 3
Section 2.10 Proxies.................................................................................. 3
Section 2.11 Voting of Shares......................................................................... 4
Section 2.12 Voting of Shares by Certain Holders...................................................... 4
(a) Other Corporations.................................................................. 4
(b) Legal Representatives and Fiduciaries............................................... 4
(c) Pledgees............................................................................ 4
(d) Minors.............................................................................. 4
(e) Incompetents and Spendthrifts....................................................... 4
(f) Joint Tenants....................................................................... 4
Section 2.13 Action Without a Meeting................................................................. 4
ARTICLE 3 BOARD OF DIRECTORS....................................................................... 5
Section 3.01 General Powers........................................................................... 5
Section 3.02 Election................................................................................. 5
Section 3.03 Number, Tenure, and Qualifications....................................................... 5
Section 3.04 Regular Meetings......................................................................... 5
Section 3.05 Special Meetings......................................................................... 5
Section 3.06 Meetings by Electronic Means
of Communication...................................................................... 5
(a) Conduct of Meetings................................................................. 5
(b) Verification of Directors'
Identity......................................................................... 6
Section 3.07 Notice of Meetings; Waiver of Notice..................................................... 6
Section 3.08 Quorum Requirement....................................................................... 6
Section 3.09 Voting Requirement....................................................................... 6
Section 3.10 Conduct.................................................................................. 6
Section 3.11 Vacancies................................................................................ 7
Section 3.12 Compensation and Expenses................................................................ 7
Section 3.13 Directors' Assent........................................................................ 7
Section 3.14 Committees............................................................................... 7
Section 3.15 Action Without a Meeting................................................................. 7
</TABLE>
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<TABLE>
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PAGE
<S> <C> <C>
ARTICLE 4 OFFICERS................................................................................. 8
Section 4.01 Number and Titles........................................................................ 8
Section 4.02 Appointment, Tenure, and
Compensation.......................................................................... 8
Section 4.03 Additional Officers, Agents, etc. ....................................................... 8
Section 4.04 Removal.................................................................................. 8
Section 4.05 Resignations............................................................................. 8
Section 4.06 Vacancies................................................................................ 8
Section 4.07 Powers, Authority, and Duties............................................................ 8
Section 4.08 The Chairperson of the Board............................................................. 8
Section 4.09 The President............................................................................ 8
Section 4.10 The Vice-Presidents...................................................................... 9
Section 4.11 The Secretary............................................................................ 9
Section 4.12 The Assistant Secretaries................................................................ 10
Section 4.13 The Treasurer............................................................................ 10
Section 4.14 The Assistant Treasurers................................................................. 10
ARTICLE 5 CONTRACTS, LOANS, CHECKS,
AND DEPOSITS.......................................................................... 10
Section 5.01 Contracts................................................................................ 10
Section 5.02 Loans.................................................................................... 11
Section 5.03 Checks, Drafts, etc. .................................................................... 11
Section 5.04 Deposits................................................................................. 11
ARTICLE 6 VOTING OF SECURITIES OWNED
BY THE CORPORATION.................................................................... 11
Section 6.01 Authority to Vote........................................................................ 11
Section 6.02 Proxy Authorization...................................................................... 11
ARTICLE 7 CONTRACTS BETWEEN THE CORPORATION
AND RELATED PERSONS................................................................... 11
ARTICLE 8 CERTIFICATES FOR SHARES AND
THEIR TRANSFER........................................................................ 12
Section 8.01 Certificates for Shares.................................................................. 12
Section 8.02 Shares Without Certificates.............................................................. 12
Section 8.03 Facsimile Signatures..................................................................... 12
Section 8.04 Signature by Former Officer.............................................................. 12
Section 8.05 Consideration for Shares................................................................. 12
Section 8.06 Transfer of Shares....................................................................... 12
Section 8.07 Restrictions on Transfer................................................................. 13
Section 8.08 Lost, Destroyed, or Stolen
Certificates.......................................................................... 13
ARTICLE 9 INSPECTION OF RECORDS BY
SHAREHOLDERS.......................................................................... 13
Section 9.01 Inspection of Bylaws..................................................................... 13
Section 9.02 Inspection of Other Records.............................................................. 13
ARTICLE 10 DISTRIBUTIONS AND SHARE ACQUISITIONS..................................................... 13
ARTICLE 11 INDEMNIFICATION.......................................................................... 13
ARTICLE 12 AMENDMENTS............................................................................... 14
Section 12.01 By Shareholders.......................................................................... 14
Section 12.02 By Directors............................................................................. 14
ARTICLE 13 SEAL..................................................................................... 14
</TABLE>
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ARTICLE 1
IDENTIFICATION
SECTION 1.01. NAME. The corporation's name is International Monetary
Systems, Ltd. (the "corporation").
SECTION 1.02. PRINCIPAL AND BUSINESS OFFICES. The corporation may have
such principal and other business offices, either within or outside the state of
Wisconsin, as the board of directors may designate or as the corporation's
business may require from time to time.
SECTION 1.03. REGISTERED AGENT AND OFFICE. The corporation's registered
agent may be changed from time to time by or under the authority of the board of
directors. The address of the corporation's registered office may be changed
from time to time by or under the authority of the board of directors, or by the
registered agent. The business office of the corporation's registered agent
shall be identical to the registered office. The corporation's registered office
may be, but need not be, identical with the corporation's principal office in
the state of Wisconsin.
SECTION 1.04. PLACE OF KEEPING CORPORATE RECORDS. The records and
documents required by law to be kept by the corporation permanently shall be
kept at the corporation's principal office.
ARTICLE 2
SHAREHOLDERS
SECTION 2.01. ANNUAL MEETING. The annual shareholders' meeting shall be
held on the first Tuesday in June each year at 10:00 o'clock a.m., beginning
with the year 1989, or at such other date and time within 30 days before or
after this date as may be fixed by or under the authority of the board of
directors, for the purpose of electing directors and transacting such other
business as may come before the meeting. If the day fixed for the annual meeting
is a legal holiday in Wisconsin, the meeting shall be held on the next
succeeding business day.
SECTION 2.02. SPECIAL MEETINGS. Special shareholders' meetings may be
called (1) by the president, (2) by the board of directors or such other
officer(s) as the board of directors may authorize from time to time, or (3) by
the president or secretary upon the written request of the holders of record of
at least 10% of all the votes entitled to be cast upon the matter(s) set forth
as the purpose of the meeting in the written request. Upon delivery to the
president or secretary of a written request pursuant to (3), above, stating the
purpose(s) of the requested meeting, dated and signed by the person(s) entitled
to request such a meeting, it shall be the duty of the officer to whom the
request is delivered to give, within 30 days of such delivery, notice of the
meeting to shareholders. Notice of any special meetings shall be given in the
manner provided in Section 2.04 hereof. Only business within the purpose
described in the special meeting notice shall be conducted at a special
shareholders' meeting.
SECTION 2.03. PLACE OF MEETING. The board of directors may designate
any place, either within or outside the state of Wisconsin, as the place of
meeting for any annual or special shareholders' meeting or any adjourned
meeting. If no designation is made by the board of directors, the place of
meeting shall be the corporation's principal office.
SECTION 2.04. NOTICE OF MEETINGS. The corporation shall notify each
shareholder who is entitled to vote at the meeting, and any other shareholder
entitled to notice under chapter 180 of the Wisconsin Statutes ("ch. 180"), of
the date, time, and place of each annual or special shareholders' meeting. In
the case of special meetings, the notice shall also state the meeting's purpose.
Unless otherwise required by ch. 180, the meeting notice shall be given not less
than 10 days nor more than 60 days before the meeting date. Notice may be given
orally or communicated in person, by telephone, telegraph, teletype, facsimile,
other form of wire or wireless communication, private carrier, or in any other
manner provided by ch. 180. Written notice, if mailed, is effective when mailed;
and such notice may be addressed to the shareholder's address shown in the
corporation's current record of shareholders. Written notice provided in any
other manner is effective when received. Oral notice is effective when
communicated.
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SECTION 2.05. WAIVER OF NOTICE. A shareholder may waive notice of any
shareholders' meeting, before or after the date and time stated in the notice.
The waiver must be in writing, contain the same information that would have been
required in the notice (except that the time and place of the meeting need not
be stated), be signed by the shareholder, and be delivered to the corporation
for inclusion in the corporate records. A shareholder's attendance at a meeting,
in person or by proxy, waives objection to lack of notice or defective notice,
unless the shareholder at the beginning of the meeting or promptly upon arrival
objects to holding the meeting or transacting business at the meeting.
SECTION 2.06. FIXING OF RECORD DATE. For the purpose of determining
shareholders of any voting group entitled to notice of or to vote at any
shareholders' meeting, shareholders entitled to demand a special meeting under
Section 2.02 of these bylaws, or shareholders entitled to receive payment of any
distribution or dividend, or in order to make a determination of shareholders
for any other proper purpose, the board of directors may fix a future date as
the record date. The record date shall not be more than 70 days before the date
on which the particular action requiring this determination of shareholders is
to be taken. If no record date is so fixed by the board, the record date shall
be as follows:
1. With respect to an annual shareholders' meeting or any special
shareholders' meeting called by the board or any person
specifically authorized by the board or these bylaws to call a
meeting, at the close of business on the day before the first
notice is delivered to shareholders
2. With respect to a special shareholders' meeting demanded by
the shareholders, on the date the first shareholder signs the
demand
3. With respect to actions taken in writing without a meeting
(pursuant to Section 2.13 of these bylaws), on the date the
first shareholder signs a consent
4. With respect to determining shareholders entitled to a share
dividend, on the date the board authorizes the share dividend
5. With respect to determining shareholders entitled to a
distribution (other than a distribution involving a repurchase
or reacquisition of shares), on the date the board authorizes
the distribution
6. With respect to any other matter for which such a
determination is required, as provided by law
When a determination of the shareholders entitled to vote at any shareholders'
meeting has been made as provided in this section, the determination shall apply
to any adjournment of the meeting unless the board of directors fixes a new
record date, which it must do if the meeting is adjourned to a date more than
120 days after the date fixed for the original meeting.
SECTION 2.07. VOTING LIST. After fixing a record date for a meeting,
the corporation shall prepare a list of the names of all of its shareholders who
are entitled to notice of a shareholders' meeting. The list shall be arranged by
class or series of shares, if any, and show the address of and number of shares
held by each shareholder. The corporation shall make the shareholders' list
available for inspection by any shareholder, beginning two business days after
notice is given of the meeting for which the list was prepared and continuing to
the meeting date, at the corporation's principal office or at the place
identified in the meeting notice in the city where the meeting will be held. A
shareholder or his or her agent or attorney may, on written demand, inspect, and
subject to any restrictions set forth in ch. 180, copy the list, during regular
business hours and at his or her expense, during the period that it is available
for inspection. The corporation shall make the shareholders' list available at
the meeting, and any shareholder or his or her agent or attorney may inspect the
list at any time during the meeting or any adjournment.
SECTION 2.08. QUORUM AND VOTING REQUIREMENTS. Shares entitled to vote
as a separate voting group may take action on a matter at a meeting only if a
quorum of those shares exists with respect to that matter. Except as
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otherwise provided by the articles of incorporation, these bylaws, or any
provision of ch. 180, a majority of the votes entitled to be cast on the matter
by the voting group shall constitute a quorum of that voting group for action on
that matter. If a quorum exists, action on a matter (other than the election of
directors under Section 3.02 of the bylaws) by a voting group is approved if the
votes cast within the voting group favoring the action exceed the votes cast
within the voting group opposing the action, unless the articles of
incorporation, these bylaws, or any provision of ch. 180 requires a greater
number of affirmative votes. Once a share is represented for any purpose at a
meeting, other than for the purpose of objecting to holding the meeting or
transacting business at the meeting, it is considered present for purposes of
determining whether a quorum exists, for the remainder of the meeting and for
any adjournment of that meeting, unless a new record date is or must be set for
that adjourned meeting. At the adjourned meeting at which a quorum is
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
SECTION 2.09. ORDER OF BUSINESS AT MEETINGS. The order of business at
any shareholders' meeting shall be as follows:
1. Roll call
2. Appointment of inspectors of election, if requested
3. Proof of proper notice of meeting or receipt of waiver of
notice
If a quorum is present, the meeting shall continue with the
following items of business:
4. Approval of minutes of preceding meeting, unless dispensed
with by unanimous consent
5. Board of directors' report, if any
6. Officers' reports, if any
7. Committee reports, if any
8. Election of directors, if necessary
9. Unfinished business, if any
10. New business, if any
The order of business at any meeting may, however, be changed
by the vote of those persons in attendance, in accordance with Section 2.08 of
these bylaws. The chairperson of the meeting may designate a corporate officer
or any other person in attendance to keep and prepare minutes of the meeting.
SECTION 2.10. PROXIES. At all shareholders' meetings, a shareholder
entitled to vote may vote in person or by proxy appointed in writing by the
shareholder or by his or her duly authorized attorney-in-fact. A proxy
appointment shall become effective when received by the secretary or other
officer or agent of the corporation authorized to tabulate votes.
Unless otherwise provided in the appointment form, a proxy appointment
may be revoked at any time before it is voted, either by written notice filed
with the secretary or other officer or agent of the corporation authorized to
tabulate votes, or by oral notice given by the shareholder during the meeting.
The presence of a shareholder who has filed his or her proxy appointment shall
not of itself constitute a revocation. A proxy appointment shall be valid for 11
months from the date of its execution, unless otherwise provided in the
appointment form. The board of directors shall have the power and authority to
make rules establishing presumptions as to the validity and sufficiency of proxy
appointments.
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SECTION 2.11. VOTING OF SHARES. Each outstanding share shall be
entitled to one vote upon each matter submitted to a vote at a shareholders'
meeting, except as otherwise required by the articles of incorporation or by ch.
180.
SECTION 2.12. VOTING OF SHARES BY CERTAIN HOLDERS.
(A) OTHER CORPORATIONS. Shares standing in another
corporation's name may be voted either in person or by proxy, by the other
corporation's president or any other officer appointed by the president. A proxy
appointment executed by any principal officer of the other corporation or such
an officer's assistant shall be conclusive evidence of the signer's authority to
act, in the absence of express notice to this corporation, given in writing to
this corporation's secretary, or other officer or agent of this corporation
authorized to tabulate votes, of the designation of some other person by the
other corporation's board of directors or bylaws.
(B) LEGAL REPRESENTATIVES AND FIDUCIARIES. Shares held by a
personal representative, administrator, executor, guardian, conservator, trustee
in bankruptcy, receiver, or assignee for creditors, in a fiduciary capacity, may
be voted by the fiduciary, either in person or by proxy, without transferring
the shares into his or her name, provided that there is filed with the
secretary, before or at the time of the meeting, proper evidence of the
fiduciary's incumbency and the number of shares held. Shares standing in a
fiduciary's name may be voted by him or her, either in person or by proxy. A
proxy appointment executed by a fiduciary shall be conclusive evidence of the
fiduciary's authority to give the proxy appointment, in the absence of express
notice to the corporation, given in writing to the secretary or other officer or
agent of the corporation authorized to tabulate votes, that this manner of
voting is expressly prohibited or otherwise directed by the document creating
the fiduciary relationship.
(C) PLEDGEES. A shareholder whose shares are pledged shall be
entitled to vote the shares until they have been transferred into the pledgee's
name, and thereafter the pledgee shall be entitled to vote the shares so
transferred.
(D) MINORS. Shares held by a minor may be voted by the minor
in person or by proxy appointment, and no such vote shall be subject to
disaffirmance or avoidance unless before the vote the secretary or other officer
or agent of the corporation authorized to tabulate votes has received written
notice or has actual knowledge that the shareholder is a minor.
(E) INCOMPETENTS AND SPENDTHRIFTS. Shares held by an
incompetent or spendthrift may be voted by the incompetent or spendthrift in
person or by proxy appointment, and no such vote shall be subject to
disaffirmance or avoidance unless before the vote the secretary or other officer
or agent of the corporation authorized to tabulate votes has actual knowledge
that the shareholder has been adjudicated an incompetent or spendthrift or
actual knowledge that judicial proceedings for appointment of a guardian have
been filed.
(F) JOINT TENANTS. Shares registered in the names of two or
more individuals who are named in the registration as joint tenants may be voted
in person or by proxy signed by one or more of the joint tenants if either (1)
no other joint tenant or his or her legal representative is present and claims
the right to participate in the voting of the shares or before the vote files
with the secretary or other officer or agent of the corporation authorized to
tabulate votes a contrary written voting authorization or direction or written
denial of authority of the joint tenant present or signing the proxy appointment
proposed to be voted, or (2) all other joint tenants are deceased and the
secretary or other officer or agent of the corporation authorized to tabulate
votes has no actual knowledge that the survivor has been adjudicated not to be
the successor to the interests of those deceased.
SECTION 2.13. ACTION WITHOUT A MEETING. Any action required or
permitted by the articles of incorporation, these bylaws, or any provision of
ch. 180 to be taken at a shareholders' meeting may be taken without a meeting by
the consent of those shareholders who would have the voting power to cast at a
meeting not less than the minimum number (or, in the case of voting by voting
groups, the minimum numbers) of votes that would be necessary to authorize or
take the action at a meeting at which all shares entitled to vote were present
and
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voted. Action may not, however, be taken under this section with respect to an
election of directors for which shareholders may vote cumulatively. The consent
of the shareholders shall be effective when one or more written consents
describing the action taken, signed by the number of shareholders sufficient to
take the action, are delivered to the corporation for inclusion in the corporate
records, unless some other effective date is specified in the consent. Within 10
days after action taken by the consent of shareholders pursuant to this bylaw
becomes effective, the corporation shall give notice of the action to
shareholders who would have been entitled to vote on the action if a meeting
were held but whose shares were not represented on the written consent or
consents. If the action to be taken requires that notice be given to nonvoting
shareholders, the corporation shall give the nonvoting shareholders written
notice of the proposed action at least 10 days before the action is taken, which
notice shall comply with the provisions of ch. 180 and shall contain or be
accompanied by the same material that would have been required to be sent to
nonvoting shareholders in a notice of meeting at which the proposed action would
have been submitted to the shareholders.
ARTICLE 3
BOARD OF DIRECTORS
SECTION 3.01. GENERAL POWERS. The corporation's powers shall be
exercised by or under the authority of, and its business and affairs shall be
managed under the direction of, its board of directors, subject to any
limitation set forth in the articles of incorporation.
SECTION 3.02. ELECTION. Directors shall be elected by the shareholders
at each annual shareholders' meeting. Each director is elected by a plurality of
the votes cast by the shares entitled to vote in the election at a meeting at
which a quorum is present.
SECTION 3.03. NUMBER, TENURE, AND QUALIFICATIONS. The authorized number
of directors of the corporation shall be seven. Each director shall hold office
until the next annual shareholders' meeting and until his or her successor shall
have been elected by the shareholders or until his or her prior death,
resignation, or removal. A director may be removed from office by a vote of the
shareholders taken at any shareholders' meeting called for that purpose,
provided that a quorum is present. A director may resign at any time by
delivering his or her written resignation that complies with the provisions of
ch. 180 to the board of directors, the chairperson of the board of directors, or
the corporation. Directors need not be residents of the state of Wisconsin or
shareholders of the corporation.
SECTION 3.04. REGULAR MEETINGS. A regular meeting of the board of
directors shall be held without other notice than this bylaw immediately after
the annual shareholders' meeting. The place of the regular board of directors'
meeting shall be the same as the place of the shareholders' meeting that
precedes it, or such other suitable place as may be announced at the
shareholders' meeting. The board of directors may provide, by resolution, the
time and place, either within or outside the state of Wisconsin, for the holding
of additional regular meetings.
SECTION 3.05. SPECIAL MEETINGS. Special meetings of the board of
directors may be called by or at the request of the chairperson of the board, if
any, or by the president, secretary, or any two directors. The person or persons
authorized to call special board of directors' meetings may fix any place,
either within or outside the state of Wisconsin, as the place for holding any
special board meeting called by them, and if no other place is fixed, the
meeting place shall be the corporation's principal office in the state of
Wisconsin, but any meeting may be adjourned to reconvene at any place designated
by vote of a majority of the directors in attendance at the meeting.
SECTION 3.06. MEETINGS BY ELECTRONIC MEANS OF COMMUNICATION.
(A) CONDUCT OF MEETINGS. To the extent provided in these
bylaws, the board of directors, or any committee of the board, may, in addition
to conducting meetings in which each director participates in person, and
notwithstanding any place set forth in the notice of the meeting or these
bylaws, conduct any regular or special meeting by the use of any electronic
means of communication, provided (1) all participating directors may
simultaneously hear each other during the meeting, or (2) all communication
during the meeting is immediately
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transmitted to each participating director, and each participating director is
able to immediately send messages to all other participating directors. Before
the commencement of any business at a meeting at which any directors do not
participate in person, all participating directors shall be informed that a
meeting is taking place at which official business may be transacted.
(B) VERIFICATION OF DIRECTORS' IDENTITY. The identity of each
director participating in a board of directors' meeting conducted pursuant to
Section 3.06(a) of these bylaws (other than a meeting in which each director
participates in person) must be verified by the secretary before directors vote
on (1) a plan of merger or share exchange; (2) a sale, lease, exchange, or other
disposition of substantial property or assets of the corporation; (3) a
dissolution or the revocation of voluntary dissolution proceedings; or (4) a
filing for bankruptcy. The secretary shall verify each participating director's
identity by requesting the director to give the password that shall have been
provided specifically to the director in the meeting notice. For purposes of
this section, a disposal of property or assets of the corporation is
"substantial" if it involves a disposition of 10% or more of the fair market
value of the corporation's assets.
SECTION 3.07. NOTICE OF MEETINGS; WAIVER OF NOTICE. Notice of each
board of directors' meeting, except meetings pursuant to Section 3.04 of these
bylaws, shall be delivered to each director at his or her business address or at
such other address as the director shall have designated in writing and filed
with the secretary. Notice may be given orally or communicated in person, by
telephone, telegraph, teletype, facsimile, other form of wire or wireless
communication, private carrier, or in any other manner provided by ch. 180.
Notice shall be given not less than 24 hours before the meeting being noticed,
or 72 hours before the meeting being noticed if the notice is given by mail or
private carrier. Written notice shall be deemed given at the earlier of the time
it is received or at the time it is deposited with postage prepaid in the United
States mail or delivered to the private carrier. Oral notice is effective when
communicated. A director may waive notice required under this section or by law
at any time, whether before or after the time of the meeting. The waiver must be
in writing, signed by the director, and retained in the corporate record book.
The director's attendance at or participation in a meeting shall constitute a
waiver of notice of the meeting, unless the director at the beginning of the
meeting or promptly upon his or her arrival objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting. Neither the business to be transacted at nor the
purpose of any regular or special board of directors' meeting need be specified
in the notice or waiver of notice of the meeting.
SECTION 3.08. QUORUM REQUIREMENT. Except as otherwise provided by ch.
180, the articles of incorporation, or these bylaws, a majority of the number of
directors as required in Section 3.03 of these bylaws shall constitute a quorum
for the transaction of business at any board of directors' meeting. A majority
of the number of directors appointed to serve on a committee as authorized in
Section 3.14 of these bylaws shall constitute a quorum for the transaction of
business at any committee meeting. These provisions shall not, however, apply to
the determination of a quorum for actions taken pursuant to Article 7 of these
bylaws or actions taken under emergency bylaws or any other provisions of these
bylaws that fix different quorum requirements.
SECTION 3.09. VOTING REQUIREMENT. The affirmative vote of the majority
of the directors present at a meeting at which a quorum is present shall be the
act of the board of directors or a committee of the board.
This provision shall not, however, apply to any action taken by the
board of directors acting pursuant to Section 3.14, Article 7, or Article 11 of
these bylaws, or in the event the affirmative vote of a greater number of
directors is required by ch. 180, the articles of incorporation, or any other
provision of these bylaws.
SECTION 3.10. CONDUCT OF MEETINGS. The chairperson of the board of
directors, and in his or her absence, the president, and in the absence of both
of them, a vice-president in the order provided under Section 4.10 of these
bylaws, and in their absence, any director chosen by the directors present,
shall call board of directors' meetings to order and shall act as chairperson of
the meeting. The corporation's secretary shall act as secretary of all board of
directors' meetings, but in the secretary's absence, the presiding officer may
appoint any assistant secretary, director, or other person present to act as
secretary of the meeting. The chairperson of the meeting shall determine if
minutes of the meeting are to be prepared, and if minutes are to be prepared,
shall assign a person to do so.
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SECTION 3.11. VACANCIES. Any vacancy occurring on the board of
directors, including a vacancy created by an increase in the number of
directors, may be filled by the shareholders. During such time as the
shareholders fail or are unable to fill such vacancies, then and until the
shareholders act the vacancy may be filled (1) by the board of directors, or (2)
if the directors remaining in office constitute fewer than a quorum of the
board, by the affirmative vote of a majority of all directors remaining in
office.
SECTION 3.12. COMPENSATION AND EXPENSES. The board of directors,
irrespective of any personal interest of any of its members, may (1) establish
reasonable compensation of all directors for services to the corporation as
directors or may delegate this authority to an appropriate committee, (2)
provide for, or delegate authority to an appropriate committee to provide for,
reasonable pensions, disability or death benefits, and other benefits or
payments to directors and to their estates, families, dependents, or
beneficiaries for prior services rendered to the corporation by the directors,
and (3) provide for reimbursement of reasonable expenses incurred in the
performance of the directors' duties, including the expense of traveling to and
from board meetings.
SECTION 3.13. DIRECTORS' ASSENT. A director of the corporation who is
present and is announced as present at a meeting of the board of directors or of
a committee of the board of which he or she is a member, at which meeting action
on any corporate matter is taken, shall be deemed to have assented to the action
taken unless (1) the director objects at the beginning of the meeting (or
promptly upon his or her arrival) to holding the meeting or transacting business
at the meeting; or (2) minutes of the meeting are prepared, and the director's
dissent to or abstention from the action taken is entered in those minutes; or
(3) the director delivers written notice that complies with the provisions of
ch. 180 of his or her dissent or abstention to the presiding officer of the
meeting before the meeting's adjournment or to the corporation immediately after
the adjournment. The right of dissent or abstention is not available to a
director who votes in favor of the action taken.
SECTION 3.14. COMMITTEES. The board of directors may create and appoint
members to one or more committees, by a resolution approved by the greater of
the following: (1) a majority of the directors in office when the action is
taken, or (2) the number of directors required to take action under Section 3.09
of these bylaws. Each committee shall consist of two or more directors and
shall, unless otherwise provided by the board of directors, serve at the
pleasure of the board of directors. To the extent provided in the resolution as
initially adopted and as thereafter supplemented or amended by further
resolution adopted by a like vote, each committee shall have and may exercise,
when the board of directors is not in session, the powers of the board of
directors in the management of the corporation's business and affairs, except
that a committee may not (1) authorize distributions; (2) approve or propose to
shareholders action requiring shareholder approval; (3) appoint the principal
officers; (4) amend articles of incorporation, or amend, adopt, or repeal
bylaws; (5) approve a plan of merger not requiring shareholder approval; (6)
authorize or approve reacquisition of shares except by a formula or method
approved or prescribed by the board of directors; (7) authorize or approve the
issuance or sale or contract for sale of shares or determine the designation and
relative rights, preferences, and limitations of a class or series of shares,
except that the board of directors may authorize a committee or a senior
executive officer of the corporation to do so within limits prescribed by the
board of directors; or (8) fill vacancies on the board of directors or on
committees created pursuant to this section, unless the board of directors, by
resolution, provides that committee vacancies may be filled by a majority of the
remaining committee members. The board of directors may elect one or more of its
members as alternate members of any such committee who may take the place of any
absent member or members at any meeting of the committee, upon the request of
the president or of the chairperson of the meeting. Each committee shall fix its
own rules governing the conduct of its activities and shall make such report of
its activities to the board of directors as the board may request.
SECTION 3.15. ACTION WITHOUT A MEETING. Any action required or
permitted by the articles of incorporation, these bylaws, or any provision of
ch. 180 to be taken by the board of directors at a board meeting may be taken
without a meeting if one or more written consents, setting forth the action so
taken, shall be signed by all of the directors entitled to vote on the subject
matter of the action and retained in the corporate records. Action taken
pursuant to written consent shall be effective when the last director signs the
consent or upon such other effective date as is specified in the consent.
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ARTICLE 4
OFFICERS
SECTION 4.01. NUMBER AND TITLES. The corporation's principal officers
shall be a president, one or more vice-presidents periodically determined by the
board of directors, a secretary, and a treasurer, each of whom shall be
appointed by the board. There may, in addition, be a chairperson or
co-chairperson of the board, whenever the board shall see fit to cause such
office or offices to be filled. If there is more than one vice-president, the
board may establish designations for the vice-presidencies to identify their
functions or their order. The same natural person may simultaneously hold more
than one office.
SECTION 4.02. APPOINTMENT, TENURE, AND COMPENSATION. The officers shall
be appointed by the board of directors, or to the extent authorized in these
bylaws, by another duly appointed officer. Each officer shall hold office until
his or her successor shall have been duly appointed or until the officer's prior
death, resignation, or removal. The board of directors or a duly authorized
committee thereof shall fix the compensation of each officer.
SECTION 4.03. ADDITIONAL OFFICERS, AGENTS, ETC. In addition to the
officers referred to in Section 4.01 of these bylaws, the corporation may have
such other officers, assistants to officers, acting officers, and agents as the
board of directors may deem necessary and may appoint. Each such person shall
act under his or her appointment for such period, have such authority, and
perform such duties as may be provided in these bylaws, or as the board may from
time to time determine. The board of directors may delegate to any officer the
power to appoint any subordinate officers, assistants to officers, acting
officers, or agents. In the absence of any officer, or for any other reason the
board of directors may deem sufficient, the board may delegate, for such time as
the board may determine, any or all of an officer's powers and duties to any
other officer or to any director.
SECTION 4.04. REMOVAL. The board of directors may remove any officer or
agent, but the removal shall be without prejudice to the contract rights, if
any, of the person so removed. Appointment shall not of itself create contract
rights. An officer may remove, with or without cause, any officer or assistant
officer who was appointed by that officer.
SECTION 4.05. RESIGNATIONS. Any officer may resign at any time by
giving written notice to the corporation, the board of directors, the president,
or the secretary. Any such resignation shall take effect when the notice of
resignation is delivered, unless the notice specifies a later effective date and
the corporation accepts the later effective date. Unless otherwise specified in
the notice of resignation, the acceptance of the resignation shall not be
necessary to make it effective.
SECTION 4.06. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or other reason shall be filled in the
manner prescribed for regular appointments to the office.
SECTION 4.07. POWERS, AUTHORITY, AND DUTIES. Officers of the
corporation shall have the powers and authority conferred and the duties
prescribed by the board of directors or the officer who appointed them in
addition to and to the extent not inconsistent with those specified in other
sections of this Article 4.
SECTION 4.08. THE CHAIRPERSON OF THE BOARD. The chairperson of the
board of directors, if and while there is an incumbent of the office, shall
preside at all shareholders' and directors' meetings at which he or she is
present. The chairperson of the board shall have and exercise general
supervision over the conduct of the corporation's affairs and over its other
officers, subject, however, to the board's control. The chairperson of the board
of directors shall from time to time report to the board all matters within his
or her knowledge that the corporation's interests may require to be brought to
the board's notice.
SECTION 4.09. THE PRESIDENT. If and while there is no incumbent in the
office of the chairperson of the board of directors, and during the chair's
absence or disability, the president shall have the duties and authority
specified in Section 4.08 of these bylaws. The president shall be the
corporation's chief executive officer and, subject to the board of directors'
control, shall:
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1. superintend and manage the corporation's business;
2. coordinate and supervise the work of its other officers
(except the chairperson of the board);
3. employ, direct, fix the compensation of, discipline, and
discharge its employees;
4. employ agents, professional advisors, and consultants;
5. perform all functions of a general manager of the
corporation's business;
6. have authority to sign, execute, and deliver in the
corporation's name all instruments either when specifically
authorized by the board of directors or when required or
deemed necessary or advisable by the president in the ordinary
conduct of the corporation's normal business, except in cases
where the signing and execution of the instruments shall be
expressly delegated by these bylaws or by the board to some
other officer(s) or agent(s) of the corporation or shall be
required by law or otherwise to be signed or executed by some
other officer or agent; and
7. in general, perform all duties incident to the office of the
president and such other duties as from time to time may be
assigned to him or her by the board of directors.
SECTION 4.10. THE VICE-PRESIDENTS. In the president's absence, or in
the event of his or her death or inability or refusal to act, or if for any
reason it shall be impractical for the president to act personally, the
vice-president (or if there is more than one vice-president, the vice-presidents
in the order designated by the board of directors, or in the absence of any
designation, in the order of their appointment) shall perform the duties of the
president, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the president. Each vice-president shall perform such
other duties and have such authority as from time to time may be delegated or
assigned to him or her by the president or by the board of directors. The
execution of any instrument of the corporation by any vice-president shall be
conclusive evidence, as to third parties, of his or her authority to act in the
president's place.
SECTION 4.11. THE SECRETARY. The secretary shall:
1. keep any minutes of the shareholders and of the board of
directors and its committees in one or more books provided for
that purpose;
2. see that all notices are duly given in accordance with these
bylaws or as required by law;
3. be custodian of the corporation's corporate records and see
that the books, reports, statements, certificates, and all
other documents and records required by law are properly kept
and filed;
4. have charge, directly or through such transfer agent or agents
and registrar or registrars as the board of directors may
appoint, of the issue, transfer, and registration of
certificates for shares in the corporation and of the records
thereof, such records to be kept in such manner as to show at
any time the number of shares in the corporation issued and
outstanding, the manner in which and time when such shares
were paid for, the names and addresses of the shareholders of
record, the numbers and classes of shares held by each, and
the time when each became a shareholder;
5. exhibit at reasonable times upon the request of any director
the records of the issue, transfer, and registration of the
corporation's share certificates, at the place where those
records are kept, and have these records available at each
shareholders' meeting; and
6. in general, perform all duties incident to the office of
secretary and such other duties as from time to time may be
assigned to him or her by the board of directors or the
president.
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SECTION 4.12. THE ASSISTANT SECRETARIES. The assistant secretaries
shall perform such duties as from time to time may be assigned to them
individually or collectively by the board of directors, the president, or the
secretary. In the event of the secretary's absence or disability, one or more of
the assistant secretaries may perform such duties of the secretary as the
secretary, the president, or the board of directors may designate.
SECTION 4.13. THE TREASURER. The treasurer shall:
1. have charge and custody of, and be responsible for, all of the
corporation's funds and securities; receive and give receipts
for monies due and payable to the corporation from any source
whatsoever; deposit all such monies in the corporation's name
in such banks, financial institutions, trust companies, or
other depositories as shall be selected in accordance with the
provisions of Section 5.04 of these bylaws; cause such funds
to be disbursed by checks or drafts on the corporation's
authorized depositories, signed as the board of directors may
require; and be responsible for the accuracy of the amounts
of, and cause to be preserved proper vouchers for, all monies
disbursed;
2. have the right to require from time to time reports or
statements giving such information as he or she may desire
with respect to any and all of the corporation's financial
transactions from the officers, employees, or agents
transacting the same;
3. keep or cause to be kept, at the corporation's principal
office or such other office or offices as the board of
directors shall from time to time designate, correct records
of the corporation's funds, business, and transactions, and
exhibit those records to any director of the corporation upon
request at that office;
4. deliver to the board of directors, the chairperson of the
board, or the president whenever requested an account of the
corporation's financial condition and of all his or her
transactions as treasurer, and as soon as possible after the
close of each fiscal year, make or cause to be made and submit
to the board a like report for that fiscal year;
5. at each annual shareholders' meeting or the meeting held in
lieu thereof, furnish copies of the corporation's most current
financial statement to the shareholders and answer questions
that may be raised regarding the statement; and
6. in general, perform all duties incident to the office of
treasurer and such other duties as from time to time may be
assigned to him or her by the board of directors or the
president.
If required by the board of directors, the treasurer shall
furnish a bond for the faithful discharge of his or her duties in such sum and
with such surety or sureties as the board shall determine.
SECTION 4.14. THE ASSISTANT TREASURERS. The assistant treasurers shall
perform such duties as from time to time may be assigned to them, individually
or collectively, by the board of directors, the president, or the treasurer. In
the event of the treasurer's absence or disability, one or more of the assistant
treasurers may perform such duties of the treasurer as the treasurer, the
president, or the board of directors may designate.
ARTICLE 5
CONTRACTS, LOANS, CHECKS, AND DEPOSITS
SECTION 5.01. CONTRACTS. The board of directors may authorize any
officer or officers, or agent or agents, to enter into any contract or execute
or deliver any instrument in the corporation's name and on its behalf. The
authorization may be general or confined to specific instruments. When an
instrument is so executed, no other party to the instrument or any third party
shall be required to make any inquiry into the authority of the signing officer
or officers, or agent or agents.
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SECTION 5.02. LOANS. No indebtedness for borrowed money shall be
contracted on the corporation's behalf and no evidences of such indebtedness
shall be issued in its name unless authorized by or under the authority of a
resolution of the board of directors. The authorization may be general or
confined to specific instances.
SECTION 5.03. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders
for the payment of money, or notes or other evidences of indebtedness issued in
the corporation's name, shall be signed by such officer or officers, or agent or
agents of the corporation and in such manner as shall from time to time be
determined by or under the authority of a resolution of the board of directors.
SECTION 5.04. DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the corporation's credit in
such banks, trust companies, or other depositories as may be selected by or
under the authority of a resolution of the board of directors.
ARTICLE 6
VOTING OF SECURITIES OWNED BY THE CORPORATION
SECTION 6.01. AUTHORITY TO VOTE. Any shares or other securities issued
by any other corporation and owned or controlled by the corporation may be voted
at any meeting of the issuing corporation's security holders by the president of
this corporation if he or she be present, or in his or her absence by any
vice-president of the corporation who may be present.
SECTION 6.02. PROXY AUTHORIZATION. Whenever, in the judgment of the
president, or in his or her absence, of any vice-president, it is desirable for
the corporation to execute a proxy appointment or written consent with respect
to any shares or other securities issued by any other corporation and owned by
the corporation, the proxy appointment or consent shall be executed in the
corporation's name by the president or one of the vice-presidents of the
corporation, without necessity of any authorization by the board of directors,
countersignature, or attestation by another officer. Any person or persons
designated in this manner as the corporation's proxy or proxies shall have full
right, power, and authority to vote the shares or other securities issued by the
other corporation and owned by the corporation in the same manner as the shares
or other securities might be voted by the corporation.
ARTICLE 7
CONTRACTS BETWEEN THE CORPORATION AND RELATED PERSONS
Any contract or other transaction between the corporation and one or
more of its directors, or between the corporation and any entity of which one or
more of its directors are members or employees or in which one or more of its
directors are interested, or between the corporation and any corporation or
association of which one or more of its directors are shareholders, members,
directors, officers, or employees or in which one or more of its directors are
interested, shall not be voidable by the corporation solely because of the
director's interest, whether direct or indirect, in the transaction if:
1. the material facts of the transaction and the director's
interest were disclosed or known to the board of directors or
a committee of the board of directors, and a majority of
disinterested members of the board of directors or committee
authorized, approved, or specifically ratified the
transaction; or
2. the material facts of the transaction and the director's
interest were disclosed or known to the shareholders entitled
to vote, and a majority of the shares held by disinterested
shareholders authorized, approved, or specifically ratified
the transaction; or
3. the transaction was fair to the corporation.
For purposes of this Article 7, a majority of directors having
no direct or indirect interest in the transaction shall constitute a quorum of
the board or a committee of the board acting on the matter, and a majority
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of the shares entitled to vote on the matter, whether or not present, and other
than those owned by or under the control of a director having a direct or
indirect interest in the transaction, shall constitute a quorum of the
shareholders for the purpose of acting on the matter.
ARTICLE 8
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 8.01. CERTIFICATES FOR SHARES. Certificates representing shares
in the corporation shall, at a minimum, state on their face all of the
following: (1) the name of the issuing corporation and that it is organized
under the laws of the state of Wisconsin; (2) the name of the person to whom
issued; and (3) the number and class of shares and the designation of the
series, if any, that the certificate represents. The share certificates shall be
signed by the president or any vice-president and by the secretary or any
assistant secretary or any other officer or officers designated by the board of
directors. If the corporation is authorized to issue different classes of shares
or different series within a class, the certificate may contain a summary of the
designations, relative rights, preferences, and limitations applicable to each
class, and the variations in rights, preferences, and limitations determined for
each series and the authority of the board of directors to determine variations
for future series. If the certificate does not include the above summary on the
front or back of the certificate, it must contain a conspicuous statement that
the corporation will furnish the shareholder with the above-described summary
information in writing, upon request and without charge. A record shall be kept
of the name of the owner or owners of the shares represented by each
certificate, the number of shares represented by each certificate, the date of
each certificate, and in case of cancellation, the date of cancellation. Every
certificate surrendered to the corporation for exchange or transfer shall be
cancelled, and no new certificate or certificates shall be issued in exchange
for any existing certificates until the existing certificates shall have been so
cancelled, except in cases provided for in Section 8.08 of these bylaws.
SECTION 8.02. SHARES WITHOUT CERTIFICATES. The board of directors may
authorize the issuance of any shares of any of its classes or series without
certificates. The authorization does not affect shares already represented by
certificates until the certificates are surrendered to the corporation. Within a
reasonable time after the issuance or transfer of shares without certificates,
the corporation shall send the shareholder a written statement that includes (1)
all of the information required on share certificates and (2) any transfer
restrictions applicable to the shares.
SECTION 8.03. FACSIMILE SIGNATURES. The share certificates may be
signed manually or by facsimile.
SECTION 8.04. SIGNATURE BY FORMER OFFICER. If an officer who has signed
or whose facsimile signature has been placed upon any share certificate shall
have ceased to be an officer before the certificate is issued, the corporation
may issue the certificate with the same effect as if he or she were an officer
at the date of its issue.
SECTION 8.05. CONSIDERATION FOR SHARES. The corporation's shares may be
issued for such consideration as shall be fixed from time to time by the board
of directors. The consideration to be paid for shares may be paid in cash,
promissory notes, tangible or intangible property, or services performed or
contracts for services to be performed for the corporation. When the corporation
receives payment of the consideration for which shares are to be issued, the
shares shall be deemed fully paid and nonassessable by the corporation. Before
the corporation issues shares, the board of directors shall determine that the
consideration received or to be received for the shares is adequate. The board
of directors' determination is conclusive as to the adequacy of consideration
for the issuance of shares relative to whether the shares are validly issued,
fully paid, and nonassessable.
SECTION 8.06. TRANSFER OF SHARES. Transfers of shares in the
corporation shall be made on the corporation's books only by the registered
shareholder, by his or her legal guardian, executor, or administrator, or by his
or her attorney authorized by a power of attorney duly executed and filed with
the corporation's secretary or with a transfer agent appointed by the board of
directors, and on surrender of the certificate or certificates for the shares.
Where a share certificate is presented to the corporation with a request to
register for transfer, the corporation shall not be liable to the owner or any
other person suffering a loss as a result of the registration of
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transfer if (1) there were on or with the certificate the necessary
endorsements, and (2) the corporation had no duty to inquire into adverse claims
or has discharged the duty. The corporation may require reasonable assurance
that the endorsements are genuine and effective in compliance with such other
regulations as may be prescribed by or under the board of directors' authority.
The person in whose name shares stand on the corporation's books shall, to the
full extent permitted by law, be deemed the owner of the shares for all
purposes.
SECTION 8.07. RESTRICTIONS ON TRANSFER. Restrictions on transfer of the
corporation's shares shall be noted conspicuously on the front or back of the
share certificate or contained in the information statement required by Section
8.02 of these bylaws for shares without certificates. A transfer restriction is
valid and enforceable against the holder or a transferee of the holder only if
the transfer restriction is authorized by law, and the existence of the
restriction is noted on the certificate or is contained in the information
statement, as set forth above. Unless so noted, a transfer restriction is not
enforceable against a person who does not know of the transfer restriction.
SECTION 8.08. LOST, DESTROYED, OR STOLEN CERTIFICATES. If an owner
claims that his or her share certificate has been lost, destroyed, or wrongfully
taken, a new certificate shall be issued in place of the original certificate if
the owner (1) so requests before the corporation has notice that the shares have
been acquired by a bona fide purchaser; (2) files with the corporation a
sufficient indemnity bond if required by the board of directors; and (3)
satisfies such other reasonable requirements as may be prescribed by or under
the authority of the board of directors.
ARTICLE 9
INSPECTION OF RECORDS BY SHAREHOLDERS
SECTION 9.01. INSPECTION OF BYLAWS. Any shareholder is entitled to
inspect and copy the corporation's bylaws during regular business hours at the
corporation's principal office. The shareholder must give written notice in
accordance with the provisions of ch. 180 at least five business days before the
date of inspection.
SECTION 9.02. INSPECTION OF OTHER RECORDS. Any shareholder who holds at
least five percent of the corporation's outstanding shares or who has been a
shareholder for at least six months shall have the right to inspect and copy
during regular business hours at a reasonable location specified by the
corporation any or all of the following records: (1) excerpts from any minutes
or records the corporation is required to keep as permanent records; (2) the
corporation's accounting records; or (3) the record of shareholders or, at the
corporation's discretion, a list of the corporation's shareholders compiled no
earlier than the date of the shareholder's demand. The shareholder's demand for
inspection must be made in good faith and for a proper purpose and by delivery
of written notice, given in accordance with the provisions of ch. 180 at least
five business days before the date of inspection, stating the purpose of the
inspection and the records directly related to that purpose desired to be
inspected.
ARTICLE 10
DISTRIBUTIONS AND SHARE ACQUISITIONS
The board of directors may make distributions to its shareholders or
purchase or acquire any of its shares provided (1) after the distribution,
purchase, or acquisition the corporation will be able to pay its obligations as
they become due in the usual course of its business, and (2) the distribution,
purchase, or acquisition will not cause the corporation's assets to be less than
its total liabilities plus the amount necessary to satisfy, upon distribution,
the preferential rights of shareholders whose rights are superior to those
receiving the distribution.
ARTICLE XI
INDEMNIFICATION
SECTION 11.01. INDEMNIFICATION. The corporation shall, to the fullest
extent authorized by ch. 180, indemnify a director or officer against liability
and reasonable expenses incurred by the director or officer in a proceeding in
which the director or officer was a party because he or she is or was a director
or officer of the
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corporation. These indemnification rights shall not be deemed to exclude any
other rights to which the director or officer may otherwise be entitled. The
corporation may, to the fullest extent authorized by ch. 180, indemnify,
reimburse or advance expenses of directors or officers.
A director or officer who seeks indemnification under this Section
shall make a written request to the corporation. Indemnification under this
Section is not required to the extent limited by the articles of incorporation
under Section 11.02. Indemnification under this Section is not required if the
director or officer has previously received indemnification or allowance of
expenses from any person, including the Corporation, in connection with the same
proceeding.
SECTION 11.02. LIMITED INDEMNIFICATION. The corporation's articles of
incorporation may limit its obligation to indemnify under Section 11.01. A
limitation under this Section applies if the first alleged act or omission of a
director or officer for which indemnification is sought occurred while the
limitation was in effect.
SECTION 11.03. INDEMNIFICATION AND ALLOWANCE OF EXPENSES OF EMPLOYEES
AND AGENT. The Corporation shall, to the fullest extent authorized by ch. 180,
indemnify an employee who is not a director or officer of the corporation, to
the extent that he or she has been successful on the merits or otherwise in
defense of a proceeding, for all reasonable expenses incurred in the proceeding
if the employee was a party because he or she was an employee of the
corporation. In addition to the indemnification required by the preceding
sentence, the corporation may indemnify and allow reasonable expenses of an
employee or agent who is not a director or officer of the corporation to the
extent provided by the articles of incorporation or by-Laws, by general or
specific action of the board of directors or by contract.
ARTICLE 12
AMENDMENTS
SECTION 12.01. BY SHAREHOLDERS. The shareholders may amend or repeal
these bylaws or adopt new bylaws at any annual or special shareholders' meeting.
SECTION 12.02. BY DIRECTORS. The board of directors may amend or repeal
these bylaws or adopt new bylaws; but no bylaw adopted or amended by the
shareholders shall be amended or repealed by the board if the bylaw so adopted
so provides.
ARTICLE 13
SEAL
The corporation shall not have a corporate seal, and all formal
corporate documents shall carry the designation NO SEAL along with the signature
of the corporation's officer or officers.
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EXHIBIT 4.1
FORM OF UNDERWRITER"S WARRANT
<PAGE> 2
THESE SECURITIES MAY NOT BE PUBLICLY OFFERED OR SOLD UNLESS AT THE TIME OF SUCH
OFFER OR SALE, THE PERSON MAKING SUCH OFFER OR SALE DELIVERS A PROSPECTUS
MEETING THE REQUIREMENTS OF SECTION 10 OF THE SECURITIES ACT OF 1933 FORMING A
PART OF A REGISTRATION STATEMENT, OR POST-EFFECTIVE AMENDMENT THERETO, WHICH IS
EFFECTIVE UNDER SAID ACT, OR UNLESS IN THE OPINION OF COUNSEL TO THE COMPANY,
SUCH OFFER AND SALE IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF SAID ACT.
WARRANT
For the Purchase of Common Stock, Par Value $0.0001 per Share
of
INTERNATIONAL MONETARY SYSTEMS, LTD.
(Incorporated Under the Laws of the State of Wisconsin)
Void after 5:00 P.M., Milwaukee time, on ___________, _________
No.________ Warrant to Purchase
__________ Shares
THIS IS TO CERTIFY, that, for value received, J.E. Liss & Company, Inc.
("Underwriter"), or registered assigns, is entitled, subject to the terms and
conditions hereinafter set forth, on or after ____________, ______ and at any
time prior to 5:00 P.M., Milwaukee Time, on ________, ________, but not
thereafter, to purchase the number of shares set forth above ("Shares") of
common stock ("Common Stock"), of International Monetary Systems, Ltd., a
Wisconsin corporation ("Company"), from the Company upon payment to the Company
of $__________ per share ("Purchase Price") if and to the extent this Warrant is
exercised, in whole or in part, during the period this Warrant remains in force,
subject in all cases to adjustment as provided in Article II hereof, and to
receive a certificate or certificates representing the Shares so purchased, upon
presentation and surrender to the Company of this Warrant, with the form of
subscription attached hereto duly executed, and accompanied by payment of the
Purchase Price of each Share purchased. This Warrant is one of a class of
warrants ("Warrants") initially exercisable for the purchase an aggregate of
100,000 shares of Common Stock of the Company.
ARTICLE I
TERMS OF THE WARRANT
Section 1.01. Subject to the provisions of Sections 1.05 and 3.01 hereof,
this Warrant may be exercised at any time and from time to time after 9:00 A.M.,
Milwaukee time, on _________, ________ ("Exercise Commencement Date"), but no
later than 5:00 P.M., Milwaukee time, on _________, ______ ("Expiration Time").
If this Warrant is not exercised on or before the Expiration Time it shall
become void, and all rights hereunder shall thereupon cease.
Section 1.02. (1) The holder of this Warrant ("Holder") may exercise this
Warrant, in whole or in part, upon surrender of this Warrant with the form of
subscription attached hereto duly executed, to the Company at its office in
Milwaukee, Wisconsin, together with the full Purchase Price for each Share to be
purchased pursuant hereto in lawful money of the United States, or by certified
check, bank draft or postal or express money order payable in United States
dollars to the order of the Company, and upon compliance with and subject to the
conditions set forth herein.
(2) Upon receipt of this Warrant with the form of subscription duly
executed and accompanied by payment of the aggregate Purchase Price for the
Shares for which this Warrant is then being exercised, the Company shall cause
to be issued certificates for the total number of whole Shares for which this
Warrant is being exercised in such denominations as are required for delivery to
the Holder, and the Company shall thereupon deliver such certificates to the
Holder or its permitted nominee.
(3) In case the Holder shall exercise this Warrant with respect to less
than all of the Shares that may be purchased under this Warrant, the Company
shall execute a new Warrant for the balance of the Shares that may be purchased
upon exercise of this Warrant and deliver such new Warrant to the Holder.
<PAGE> 3
(4) The Company covenants and agrees that it will pay when due and payable
any and all taxes which may be payable in respect of the issue of this Warrant,
or the issue of any Shares upon the exercise of this Warrant. The Company shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issuance or delivery of this Warrant or of the Shares
in a name other than that of the Holder at the time of surrender, and until the
payment of such tax the Company shall not be required to issue such Shares.
Section 1.03. This Warrant may be split-up, combined or exchanged for
another Warrant or Warrants of like tenor to purchase a like aggregate number of
Shares. If the Holder desires to split-up, combine or exchange this Warrant, the
Holder shall make such request in writing delivered to the Company at its
corporate office and shall surrender this Warrant and any other Warrants to be
so split-up, combined or exchanged at said office. Upon any such surrender for a
split-up, combination or exchange, the Company shall execute and deliver to the
person entitled thereto a Warrant or Warrants, as the case may be, as so
requested. The Company shall not be required to effect any split-up, combination
or exchange which will result in the issuance of a Warrant entitling the Holder
to purchase upon exercise a fraction of a Share. The Company may require the
Holder to pay a sum sufficient to cover any tax or governmental charge that may
be imposed in connection with any split-up, combination or exchange of Warrants.
Section 1.04. Prior to due presentment for registration of transfer of this
Warrant, the Company may deem and treat the Holder as the absolute owner of this
Warrant (notwithstanding any notation of ownership or other writing hereon) for
the purpose of any exercise hereof and for all other purposes, and the Company
shall not be affected by any notice to the contrary.
Section 1.05. For one (1) year following the date hereof, this Warrant may
not be sold, hypothecated, exercised, assigned or transferred, except to
individuals who are officers of the Underwriter or any successor to its business
or pursuant to the laws of descent and distribution, and thereafter and until
its expiration shall be assignable and transferable in accordance with the
Securities Act of 1933 and applicable state securities laws.
Section 1.06. Any assignment permitted hereunder shall be made by surrender
of this Warrant to the Company at its principal office with the form of
assignment attached hereto duly executed and funds sufficient to pay any
transfer tax. In such event, the Company shall, without charge, execute and
deliver a new Warrant in the name of the assignee named in such instrument of
assignment and this Warrant shall promptly be cancelled. This Warrant may be
divided or combined with other Warrants which carry the same rights upon
presentation thereof at the corporate office of the Company together with a
written notice signed by the Holder, specifying the names and denominations in
which such new Warrants are to be issued.
Section 1.07. Nothing contained in this Warrant shall be construed as
conferring upon the Holder the right to vote or to consent or to receive notice
as a stockholder in respect of any meetings of stockholders for the election of
directors or any other matter, or as having any rights whatsoever as a
stockholder of the Company. If, however, at any time prior to the expiration of
this Warrant and prior to its exercise, any of the following shall occur:
(a) the Company shall take a record of the holders of its shares of Common
Stock for the purpose of entitling them to receive a dividend or distribution
payable otherwise than in cash, or a cash dividend or distribution payable
otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible into
or exchangeable for shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or
(c) there shall be proposed any capital reorganization or reclassification
of the Common Stock, or a sale of all or substantially all of the assets of the
Company, or a consolidation or merger of the Company with another entity; or
(d) there shall be proposed a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
2
<PAGE> 4
then, in any one or more of said cases, the Company shall cause to be mailed to
the Holder, at the earliest practicable time (and, in any event, not less than
thirty (30) days before any record date or other date set for definitive
action), written notice of the date on which the books of the Company shall
close or a record shall be taken to determine the stockholders entitled to such
dividend, distribution, convertible or exchangeable securities or subscription
rights, or entitled to vote on such reorganization, reclassification, sale,
consolidation, merger, dissolution, liquidation or winding up, as the case may
be. Such notice shall also set forth such facts as shall indicate the effect of
such action (to the extent such effect may be known at the date of such notice)
on the Purchase Price and the kind and amount of the Common Stock and other
securities and property deliverable upon exercise of this Warrant. Such notice
shall also specify the date as of which the holders of the Common Stock of
record shall participate in said distribution or subscription rights or shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, sale, consolidation,
merger, dissolution, liquidation or winding up, as the case may be (on which
date, in the event of voluntary or involuntary dissolution, liquidation or
winding up of the Company, the right to exercise this Warrant shall terminate).
Without limiting the obligation of the Company to provide notice to the holder
of actions hereunder, it is agreed that failure of the Company to give notice
shall not invalidate such action of the Company.
Section 1.08. If this Warrant is lost, stolen, mutilated or destroyed, the
Company shall, on such reasonable terms as to indemnity or otherwise as it may
impose (which shall, in the case of a mutilated Warrant, include the surrender
thereof), issue a new Warrant of like denomination and tenor as, and in
substitution for, this Warrant, which shall thereupon become void. Any such new
Warrant shall constitute an additional contractual obligation of the Company.
Section 1.09. (1) The Company covenants and agrees that at all times it
shall reserve and keep available for the exercise hereof sufficient authorized
Shares to permit the exercise in full of this Warrant.
(2) Prior to the issuance of any Shares upon exercise of this Warrant, the
Company shall secure the listing of such Shares upon any securities exchange or
automated quotation system upon which the shares of the Company's Common Stock
are listed for trading.
(3) The Company covenants that all Shares when issued upon the exercise of
this Warrant will be validly issued, fully paid, non-assessable and free of
preemptive rights.
ARTICLE II
ADJUSTMENT OF PURCHASE PRICE AND
NUMBER OF SHARES PURCHASABLE UPON EXERCISE
Section 2.01. In case the Company shall, while this Warrant remains
unexercised, in whole or in part, and in force, effect a recapitalization of
such character that the Shares purchasable hereunder shall be changed into or
become exchangeable for a larger or smaller number of shares, then, after the
date of record for effecting such recapitalization, the number of Shares of
Common Stock which the Holder hereof shall be entitled to purchase hereunder
shall be increased or decreased, as the case may be, in direct proportion to the
increase or decrease in the number of shares of Common Stock by reason such
recapitalization, and of the Purchase Price, per share, whether or not in effect
immediately prior to the time of such recapitalization, of such recapitalized
Common Stock shall in the case of an increase in the number of such Shares be
proportionately reduced, and in the case of a decrease in the number of such
Shares shall be proportionately increased. For the purposes of this Section
2.01, a stock dividend, stock split-up or reverse split shall be considered as a
recapitalization and as an exchange for a larger or smaller number of shares, as
the case may be.
Section 2.02. In case of any consolidation of the Company with, or merger
of the Company into, any other corporation, or in case of any sale or conveyance
of all or substantially all of the assets of the Company other than in
connection with a plan of complete liquidation of the Company, then, as a
condition of such consolidation, merger or sale or conveyance, adequate
provision shall be made whereby the Holder shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in this Warrant and in lieu of Shares of Common Stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby,
such shares of stock or securities as may be issued in connection with such
consolidation, merger
3
<PAGE> 5
or sale or conveyance, with respect to or in exchange for the number of
outstanding shares of Common Stock equal to the number of shares of Common Stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby had such consolidation, merger or sale or conveyance,
not taken place, and in any such case appropriate provision shall be made with
respect to the rights and interests of the Holder of this Warrant to the end
that the provisions hereof shall be applicable as nearly as may be in relation
to any shares of stock or securities thereafter deliverable upon the exercise
hereof.
Section 2.03. Subject to the provisions of Section 2.04, below, in case the
Company shall, while this Warrant remains unexercised, in whole or in part, and
in force, declare to make any distribution of its assets to holders of Common
Stock as a partial liquidating dividend, by way of return of capital or
otherwise, then, after the date of record for determining stockholders entitled
to such distribution, but prior to the date of distribution, the Holder shall be
entitled upon exercise of this Warrant and purchase of any or all of the Shares
of Common Stock subject hereto, to receive the amount of such assets (or, at the
option of the Company, a sum equal to the value thereof at the time of such
distribution to holders of Common Stock as such value is determined by the Board
of Directors of the Company in good faith) which would have been payable to the
Holder had he been the holder of such Shares of Common Stock on the record date
for the determination of stockholders entitled to such distribution.
Section 2.04. Except as otherwise provided in Section 2.02, above, in the
case of any sale or conveyance of all or substantially all of the assets of the
Company in connection with a plan of complete liquidation of the Company, in the
case of the dissolution, liquidation or winding-up of the Company, all rights
under this Warrant shall terminate on a date fixed by the Company, such date so
fixed to be not earlier than the date of the commencement of the proceedings for
such dissolution, liquidation or winding-up and not later than thirty (30) days
after such commencement date. Notice of such termination of purchase rights
shall be given to the Holder at least thirty (30) days prior to such termination
date.
Section 2.05. Any adjustment pursuant to the provisions of this Article II
shall be made on the basis of the number of Shares of Common Stock which the
Holder would have been entitled to acquire by exercise of this Warrant
immediately prior to the event giving rise to such adjustment and, as to the
Purchase Price per share in effect immediately prior to such adjustment.
Whenever any such adjustment is required to be made, the Company shall forthwith
determine the new number of Shares of Common Stock which the Holder hereof shall
be entitled to purchase hereunder and/or such new Purchase Price per share and
shall prepare, retain on file and transmit to the Holder within ten (10) days
after such preparation a statement describing in reasonable detail the method
used in calculating such adjustment.
Section 2.06. Anything contained herein to the contrary notwithstanding,
the Company shall not be required to issue any fraction of a Share in connection
with the exercise of this Warrant, and in any case where the Holder would,
except for the provisions of this Section 2.06, be entitled under the terms of
this Warrant to receive a fraction of a Share upon such exercise, the Company
shall upon the exercise and receipt of the Purchase Price, issue the largest
number of whole Shares purchasable upon exercise of this Warrant. The Company
shall not be required to make any cash or other adjustment in respect of such
fraction of a Share to which the Holder would otherwise be entitled. The Holder,
by the acceptance of this Warrant, expressly waives the Holder's right to
receive a certificate for any fraction of a Share upon exercise hereof.
Section 2.07. The form of Warrant need not be changed or modified because
of any change pursuant to this Article II in the Purchase Price or in the number
of Shares purchasable upon the exercise of a Warrant, and Common Stock Purchase
Warrants issued after such change may state the same Purchase Price and the same
number of shares of Common Stock as are stated in the Warrants as initially
issued.
ARTICLE III
REGISTRATION UNDER THE SECURITIES ACT OF 1933
Section 3.01. This Warrant and the Shares of Common Stock issuable upon
exercise of this Warrant have been registered under the Securities Act of 1933,
as amended ("Act"), on Form SB-2, SEC File No. 333-48527 ("Registration
Statement"). Upon exercise, in part or in whole, of this Warrant, the Shares
shall bear the following legend:
4
<PAGE> 6
The shares represented by this certificate have been registered under
the Securities Act of 1933, as amended, solely for sale to the holder
of a warrant to purchase, which holder may be deemed to be an
underwriter of such shares within the provisions and for purposes only
of the Securities Act of 1933, as amended. The issuer of these shares
will agree to a transfer hereof only if (1) an amended or supplemented
prospectus setting forth the terms of the offer has been filed as part
of a post-effective amendment to the Registration Statement under
which these shares are registered or as part of a new registration
statement, if then required, and such post-effective amendment or new
registration statement has become effective under the Securities Act
of 1933, as amended, or (2) counsel to the issuer is satisfied that no
such post-effective amendment or new registration statement is
required.
The Company agrees that it shall be satisfied that no post-effective
amendment or new registration is required for the public sale of the Shares if
it shall be presented with a letter from the staff of the Securities and
Exchange Commission ("Commission") stating in effect that, based upon stated
facts which the Company shall have no reason to believe are not true in any
material respect, the staff will not recommend any action to the Commission if
such Shares are offered and sold without delivery of a prospectus, and that,
therefore, no post-effective amendment to the Registration Statement under which
such shares are registered or new registration statement is required to be
filed.
Section 3.02. If, at any time during the period commencing one (1) year
from the date hereof and expiring five (5) years after the date hereof, the
Company proposes to register any of its securities under the Act, it will give
written notice, at least thirty (30) days prior to the filing of each such
registration statement, to the Holder and to all other holders of the Warrants
and/or the Shares of its intention to do so. If the Holder or other holders of
the Warrants and/or Shares notify the Company within twenty (20) days after
receipt of any such notice of its or their desire to include their Warrants or
Shares in such proposed registration statement, the Company shall afford the
Holder and/or such holders of the Warrants and/or Shares the opportunity to have
their Warrants or Shares registered under such registration statement.
Notwithstanding the provisions of this Section 3.02, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 3.02 (irrespective of whether a written request for inclusion of
Warrants or Shares shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
Section 3.03. (a) At any time during the period commencing one (1) year
from the date of this Warrant, and expiring five (5) years from the date hereof,
a majority of the Warrants and/or the Shares shall have the right (which right
is in addition to the registration rights under Section 3.02 hereof), as long as
current audited financial statements of the Company are available, to request,
one (1) time only, that the Company, upon written notice to it, prepare and file
with the Commission a post-effective amendment to the Registration Statement or
a new registration statement, if then required, and such other documents,
including an amended or supplemented prospectus, as may be necessary in the
opinion of both counsel for the Company and counsel for the Holder, in order to
comply with the provisions of the Act, so as to permit a public offering and
sale for nine (9) consecutive months of the Warrants and/or the Shares by such
Holders and any other holders notifying the Company within five (5) days after
receiving notice from the Company of such request.
(b) In addition to the registration rights under Section 3.02 and
subsection (a) of this Section 3.03 and as long as current audited financial
statements of the Company are available, any holder(s) of the Warrants and/or
the Shares shall have the right, as long as current audited financial statements
are available, to request that the Company during the period commencing one (1)
year from the date hereof and ending five (5) years from the date hereof,
prepare and file with the Commission a post-effective amendment to the
Registration Statement or a new registration statement, if then required, so as
to permit a public offering and sale for nine (9) consecutive months of its or
his Shares; provided, however, that the provisions of Section 3.04(b) hereof
shall not apply to such registration request and registration and all costs
incident thereto shall be at the expense of the Holder and other holders making
such request.
5
<PAGE> 7
(c) The Company covenants and agrees to give written notice of any
registration request under this Section 3.03 by any holder or holders to all
other registered holders of the Warrants and Shares within ten (10) days from
the date of the receipt of any such registration request.
Section 3.04. In connection with any registration under Section 3.02 or
3.03 hereof, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to have any post-effective
amendment or new registration statement declared effective at the earliest
possible time, and shall furnish such number of prospectuses as shall reasonably
be requested.
(b) The Company shall pay all costs, fees and expenses in connection with
all post-effective amendments or new registration statements under Section 3.02
and Section 3.03(a) hereof including, without limitation, the Company's legal
and accounting fees, printing expenses, blue sky fees and expenses, except that
the Company shall not pay for any of the following costs, fees or expenses: (i)
underwriting discounts and commissions allocable to the Shares, (ii) state
transfer taxes, (iii) brokerage commissions and (iv) fees and expenses of
counsel and accountants for the holders of the Warrants and/or Shares. The
Company shall not be required to bear the incremental cost of any registration
arising from the exercise of the demand registration rights provided in Section
3.03(a) hereof which together with (i) the underwriting discounts, managing
underwriter's fee and expense reimbursement paid or incurred in connection with
the offering of securities pursuant to the Registration Statement and (ii) an
amount equal to 20% of the initial public offering price of the securities
offered pursuant to the Registration Statement multiplied by the Warrants
covered hereby, exceed 15% of the aggregate proceeds to be now and hereinafter
derived from the sale of the securities registered pursuant to the Registration
Statement.
(c) The Company will take all necessary action which may be required in
qualifying or registering the Warrants and/or the Shares included in a
post-effective amendment or new registration statement for offering and sale
under the securities or blue sky laws of such states as are requested by the
holders of such Warrants and/or Shares, provided that the Company shall not be
obligated to execute or file any general consent to service or process or to
qualify as a foreign corporation to do business under the laws of any such
jurisdiction.
(d) The Holder shall be entitled to pay the Purchase Price for the Shares
purchasable upon the exercise of this Warrant out of the proceeds of any
concurrent sale of the Shares purchasable upon its exercise.
Section 3.05. (a) The Company shall indemnify and hold harmless each person
registering securities pursuant to this Article III ("Seller") and each
underwriter, within the meaning of the Act, who may purchase from or sell for
any Seller any of the Warrants or Shares from and against any and all losses,
claims, damages and liabilities caused by any untrue statement or alleged untrue
statement of a material fact contained in any post-effective amendment or new
registration statement or any supplemented prospectus under the Act included
therein required to be filed or furnished by reason of Section 3.04, above, or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or alleged untrue statement or omission or
alleged omission based upon information furnished or required to be furnished in
writing to the Company by such Seller or underwriter expressly for use therein,
which indemnification shall include each person, if any, who controls any such
Seller or underwriter within the meaning of such Act; provided, however, that
the indemnity agreement by the Company set forth in this Section 3.05 with
respect to any prospectus which shall be subsequently amended prior to the
written confirmation of the sale of any Warrants or Shares shall not inure to
the benefit of any Seller or underwriter from whom the person asserting any such
losses, claims, damages or liabilities purchased such Warrants or Shares which
are the subject thereof (or to the benefit of any person controlling such Seller
or underwriter), if such Seller or underwriter failed to send or give a copy of
the prospectus as amended to such person at or prior to the written confirmation
of the sale of such Warrants or Shares to such person and if such amended
prospectus did not contain any untrue statement or alleged untrue statement or
omission or alleged omission giving rise to such cause, claim, damage or
liability.
(b) Each Seller which avails itself of the procedures under Article III
shall indemnify and secure the agreement of any underwriter which the Seller
employs to indemnify the Company, its directors, each officer signing the
related post-effective amendment or registration statement and each person, if
any, who controls the
6
<PAGE> 8
Company within the meaning of the Act from and against any and all losses,
claims, damages and liabilities caused by any untrue statement or alleged untrue
statement of a material fact contained in any post-effective amendment or
registration statement or any prospectus required to be filed or furnished by
reason of Section 3.04 or caused by 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, insofar as such losses, claims, damages or
liabilities are caused by any untrue statement or alleged untrue statement or
omission or alleged omission based upon information furnished in writing to the
Company by any such Seller or underwriter expressly for use therein.
Section 3.06. The agreements in this Article III shall continue in effect
regardless of the exercise and surrender of this Warrant.
ARTICLE IV
OTHER MATTERS
Section 4.01. The Company will from time to time promptly pay, subject
to the provisions of subparagraph (4) of Section 1.02 hereof, all taxes and
charges that may be imposed upon the Company in respect of the issuance or
delivery of this Warrant or the Shares purchasable upon the exercise of this
Warrant.
Section 4.02. All the covenants and provisions of this Warrant by or for
the benefit of the Company shall bind and inure to the benefit of its successors
and assigns hereunder. The covenants and provisions of this Warrant shall be
waived or amended only by the written agreement of the Company and the Holder.
Section 4.03. The validity, interpretation and performance of this
Warrant shall be governed by the laws of the State of Wisconsin.
Section 4.04. Notices or demands pursuant to this Warrant to be given or
made by the Holder to or on the Company shall be sufficiently given or made if
sent by certified or registered mail, return receipt requested, postage prepaid,
and addressed, until another address is designated in writing by the Company, as
follows:
International Monetary Systems, Ltd.
16901 West Glendale Drive
New Berlin, Wisconsin 53151
Notices to the Holder provided for in this Warrant shall be deemed given or
made by the Company if sent by certified or registered mail, return receipt
requested, postage prepaid, and addressed to the Holder at his last known
address as it shall appear on the books of the Company.
Section 4.05. Nothing in this Warrant expressed and nothing that may be
implied from any of the provisions hereof is intended, or shall be construed, to
confer upon, or give to, any person or corporation other than the Company and
the Holder any right, remedy or claim under promise or agreement hereof, and all
covenants, conditions, stipulations, promises and agreements contained in this
Warrant shall be for the sole and exclusive benefit of the Company and its
successors and of the Holder, its successors and, if permitted, its assignees.
Section 4.06. The Article headings herein are for convenience only and are
not part of this Warrant and shall not affect the interpretation thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company as
of the day of , 200 .
-------- ------ --------
INTERNATIONAL MONETARY SYSTEMS, LTD.
Attest:
By:
- ----------------------------- ------------------------------------------
Secretary President
7
<PAGE> 9
INTERNATIONAL MONETARY SYSTEMS, LTD.
ASSIGNMENT
(To be executed by the registered holder to effect
a transfer of the foregoing Warrant)
FOR VALUE RECEIVED, __________________________________________________
hereby sells, assigns and transfers unto_______________________________________
the within Warrant and all of the rights represented thereby, and does hereby
irrevocably constitute and appoint ___________________________________________,
Attorney, to transfer said Warrant on the books of the Company, with full power
of substitution.
Dated:
_______________________________________
(Signature of Holder)
Signature guaranteed:
_____________________________
8
<PAGE> 10
INTERNATIONAL MONETARY SYSTEMS, LTD.
SUBSCRIPTION FORM
(To be executed by the registered holder to exercise
the right to purchase Common Stock evidenced by the foregoing Warrant)
International Monetary Systems, Ltd.
16901 West Glendale Drive
New Berlin, Wisconsin 53151
The undersigned hereby irrevocably subscribes for the purchase of shares of
your Common Stock pursuant to and in accordance with the terms and conditions of
this Warrant, and herewith makes payment, covering such shares of Common Stock
which should be delivered to the undersigned at the address stated below, and,
if said number of shares shall not be all of the shares purchasable hereunder,
that a new Warrant of like tenor for the balance of the remaining shares
purchasable hereunder be delivered to the undersigned at the address stated
below.
The undersigned agrees that: (1) the undersigned will not offer, sell,
transfer or otherwise dispose of any such shares of Common Stock unless either
(a) a registration statement, or post-effective amendment thereto, covering such
shares of Common Stock has been filed by Heartland Wisconsin Corp. ("Company")
with the Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended ("Act"), and such sale, transfer or other disposition is
accompanied by a prospectus meeting the requirements of Section 10 of the Act
forming a part of such registration statement, or post-effective amendment
thereto, which is in effect under the Act covering the shares of Common Stock to
be so sold, transferred or otherwise disposed of, and such offer, sale transfer
or other disposition is registered or qualified under applicable state
securities laws, or (b) counsel to the Company satisfactory to the undersigned
has rendered an opinion in writing and addressed to the Company that such
proposed offer, sale, transfer or other disposition of the shares of Common
Stock is exempt from the provisions of Section 5 of the Act and applicable state
securities laws in view of the circumstances of such proposed offer, sale,
transfer or other disposition; (2) the Company may notify the transfer agent for
its Common Stock that the certificates for the Common Stock acquired by the
undersigned are not to be transferred unless the transfer agent receives advice
from the Company that one or both of the conditions referred to in (1)(a) and
(1)(b), above, have been satisfied; and (3) the Company may affix the legend set
forth in Section 3.01 of this Warrant to the certificates for shares of Common
Stock hereby subscribed for, if such legend is applicable.
Dated:
------------------------------------
(Signature of Holder)
------------------------------------
------------------------------------
(Address of Holder)
Signature guaranteed:
- --------------------------------------------
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME,
CHANGES IN STOCKHOLDER EQUITY AND CASH FLOWS OF INTERNATIONAL MONETARY SYSTEMS,
LTD. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
(AND ACCOMPANYING NOTES) INCLUDED IN THE REGISTRATION STATEMENT OF SUCH
REGISTRANT ON FORM SB-2.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 8,789 122,179
<SECURITIES> 0 0
<RECEIVABLES> 147,359 161,854
<ALLOWANCES> 5,000 5,000
<INVENTORY> 60,680 82,680
<CURRENT-ASSETS> 357,144 519,338
<PP&E> 174,806 181,499
<DEPRECIATION> 110,940 128,607
<TOTAL-ASSETS> 507,132 655,544
<CURRENT-LIABILITIES> 87,779 68,625
<BONDS> 0 0
0 0
0 0
<COMMON> 5,108 104
<OTHER-SE> 343,108 497,388
<TOTAL-LIABILITY-AND-EQUITY> 507,132 655,544
<SALES> 0 0
<TOTAL-REVENUES> 1,181,540 959,246
<CGS> 0 0
<TOTAL-COSTS> 1,162,888 925,461
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 18,652 33,785
<INCOME-TAX> 9,278 8,913
<INCOME-CONTINUING> 9,374 24,872
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 9,374 24,872
<EPS-BASIC> 0.005<F1> 0.013<F1>
<EPS-DILUTED> 0.005<F1> 0.013<F1>
<FN>
<F1>(1) ALL PER SHARE INFORMATION HAS BEEN ADJUSTED TO REFLECT 2 FOR 1 SPLITS OF
THE REGISTRANT'S COMMON STOCK, EFFECTIVE JULY 28 AND DECEMBER 28, 1999,
RESPECTIVELY.
</FN>
</TABLE>
