<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1999
REGISTRATION STATEMENT NO. 333-[ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
NETJEWELS.COM, INC.
(Name of issuer as specified in its charter)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3911 98-0211492
(State of Incorporation) (Primary Standard Industrial (IRS Employer I.D. No.)
Classification Code No.)
</TABLE>
--------------------------
1001 PETROLIA ROAD
NORTH YORK, ONTARIO, CANADA M3J 2X7
(416) 665-8844
(Address and Telephone Number of Principal Executive Offices)
------------------------------
GERSTEN SAVAGE & KAPLOWITZ, LLP
101 EAST 52ND STREET
NEW YORK, NEW YORK 10022
(212) 752-9700
(Name, address and telephone number of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
JAY M. KAPLOWITZ, ESQ. LAWRENCE B. FISHER, ESQ.
GERSTEN SAVAGE & KAPLOWITZ, LLP ORRICK, HERRINGTON & SUTCLIFFE LLP
101 EAST 52ND STREET 666 FIFTH AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10103
(212) 752-9700 (212) 506-5000
(212) 980-5192 FACSIMILE (212) 506-5151 FACSIMILE
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
NUMBER OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SHARES TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
REGISTERED PER SHARE PRICE(1) FEE
<S> <C> <C> <C> <C>
Common Stock............................... 2,200,000 $12.00 26,400,000 7,339.20
Representative's Warrants.................. 220,000 $.0001 22.00 0(2)
Common Stock Underlying Representative's
Warrants (3)............................. 220,000 $14.40 3,168,000 880.71
Common Stock Issuable on Representative's
Over-Allotment Option (4)................ 330,000 $12.00 3,960,000 1,100.88
Total Registration Fee..................... 9,320.79
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
(2) None pursuant to Rule 457(g).
(3) Represents shares issuable upon exercise of warrants to be issued to the
Representative. Includes any shares that may be issued pursuant to the
anti-dilution provisions of the representative's warrants.
(4) Represents shares issuable upon the exercise of the Representative's option
to cover over-allotments.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL 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>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION DATED NOVEMBER 3, 1999
PROSPECTUS
NETJEWELS.COM, INC.
2,200,000 SHARES OF COMMON STOCK
This is an initial public offering of 2,200,000 shares of common stock of
NetJewels.com, Inc. We anticipate that the initial public offering price will be
between $10.00 and $12.00 per share.
Prior to this offering, there has been no public market for our common
stock. We intend to file an application to have our common stock listed on the
Nasdaq National Market, under the symbol "NTJL."
PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT FACTORS YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriter's discount...................................... $ $
Proceeds before our expenses................................ $ $
</TABLE>
------------------------
We have granted the underwriters an option for 45 days to purchase up to an
additional 330,000 shares at the initial public offering price, less the
underwriting discount, solely to cover over-allotments. The underwriters are
offering the shares on a firm commitment basis.
It is expected that the shares will be ready for delivery on or about
, 1999.
------------------------
SECURITY CAPITAL TRADING, INC.
The date of this prospectus is , 1999
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND OUR CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES ACCOMPANYING THE CONSOLIDATED FINANCIAL STATEMENTS
APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
NetJewels.com, Inc. is a start-up Internet based retailer and wholesaler
focused exclusively on jewelry and related products. By combining the expertise
of our employees and strategic partner in the jewelry industry and our
commitment to customer service with the benefits of Internet retailing, we
intend to deliver our customers a first-rate shopping experience. Our online
store offers an extensive selection of competitively priced jewelry including
rings, earrings, pendants, bracelets, watches, chains, and accessories featuring
over 5,000 different products. Most of the products offered at our online store
range in price from $25 to $10,000, and we believe our products generally cater
to the value conscious consumer. Our Web site features detailed product
information and innovative merchandising through an intuitive and easy-to-use
interface.
Our total internet sales through August 31, 1999 have amounted to $265,245,
in approximately 2,850 separate transactions, the majority of which have
occurred on third-party Web sites.
All of our products are currently supplied through an intercompany services
agreement with DG Jewelry Inc., a manufacturer and distributor of stone-set
jewelry in the middle market. DG is one of the major shareholders of our parent
company, NetJewels.com Inc., an Ontario corporation, and DG's Chief Executive
Officer is the Chairman of our Board of Directors and the father of both our CEO
and our President and COO.
OUR STRATEGY
We seek to become the leading online retailer of jewelry and complementary
products. In order to achieve this goal, we will implement the following
strategies:
- continually enhance our customers' experience at our online store;
- offer a large product selection and continue to expand such selection;
- ensure fast delivery;
- continue to expand the product offering within our online store;
- offer an on-line store which is available 24 hours a day 7 days a week and
may be electronically visited from any PC with access to the Internet;
- build brand awareness through advertising and promotion;
- strengthen and expand our strategic alliances with third-party Web sites
and content providers;
- pursue acquisitions, joint ventures and other similar strategic
investments and relationships with complementary businesses and companies;
- continue to increase the number of Web sites in our affiliate network; and
- continue to invest in technology to further develop state-of-the-art
product, service and logistics platforms.
OUR HISTORY
We were incorporated in Delaware in June 1999 as Exite Jewelry.com, Inc. In
October 1999, we changed our name to NetJewels.com, Inc. Our principal executive
offices are located at 1001 Petrolia Road, North York, Ontario Canada M3J2X7 and
our phone number is (416) 665-8844. From January 1999 until June 1999, our
business was conducted through our parent company XiteJewelry.com Canada,
incorporated in January 1999 which changed its name to NetJewels.com Inc. in
August 1999. Prior to this offering, we were a wholy-owned subsidiary of
NetJewels Canada. In
2
<PAGE>
January 1999, we through NetJewels Canada, purchased all of the third party
internet contracts of DG and began to develop our on-line store. DG has not
obtained the consents of the third parties to this assignment. Our online store
is located at www.NetJewels.com. Information contained on our Web pages does not
constitute part of this prospectus.
INDUSTRY OVERVIEW
The retail jewelry industry, which according to the U.S. Department of
Commerce, generated $22.3 billion dollars in retail sales in 1998, grew at a
8.5% rate from the prior year. Internet and online commerce provides retailers
with the opportunity to serve a rapidly growing market as consumers increasingly
accept the Internet as an alternative shopping channel. Our management believes
that jewelry and accessories will be one of the fastest online retail
categories. Forrester Research predicts that online sales of jewelry and
accessories will reach $140 million by 2001.
We believe that traditional store-based retailers face a number of
challenges in providing a satisfying shopping experience for purchasers of
jewelry. These challenges include limited product selection, location and levels
of customer service. As a result, we believe that many consumers will find the
jewelry shopping experience more convenient over the Internet because of the
larger selection, ability to customize selections and lower prices that can be
offered online.
THE OFFERING
<TABLE>
<S> <C> <C>
- - Common stock offered by us:............ 2,200,000 shares
- - Common stock to be outstanding after
offering:............................ 5,500,000 shares
- - Use of proceeds:....................... - Repayment of indebtedness;
- Marketing and sales;
- Acquisitions;
- Technological and system upgrades;
- Expansion of facilities; and
- Working capital and general corporate purposes.
- - Proposed Nasdaq National Market
Symbol:.............................. NTJL
</TABLE>
Except as noted, all of the information in this prospectus assumes that none
of the following have been exercised:
- the over-allotment option granted to the representative by us to purchase
330,000 additional shares;
- warrants to purchase 220,000 shares of our common stock to be granted to
the representative upon completion of this offering;
- options available for grant to purchase 750,000 shares of our common stock
pursuant to our 1999 stock option plan; and
- currently outstanding warrants to purchase 100,000 shares of our common
stock, at an exercise price of $.10 per share, held by our chairman.
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The financial information included in this prospectus may not necessarily be
indicative of the financial position, result of operations and cash flow had we
been operating as a separate stand-alone company during the periods presented.
The following table summarizes the financial data for our business. The
financial information in this prospectus includes figures, between January 1999
and June 1999, for our parent XiteJewelry.com Canada, which changed its name to
NetJewels Canada.
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1999
-------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... 75,439
Cost and expenses........................................... 425,670
Operating income (loss)..................................... (350,231)
Net interest income (expense)............................... 0
Income (loss) from continuing operations.................... (350,231)
Net loss.................................................... (350,231)
Net loss applicable to common shares........................ (350,231)
Net loss per basic and diluted common share................. (0.11)
Shares used in computing basic and diluted net loss per
share..................................................... 3,300,000
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1999
------------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents................................... 68 19,045,921
Working capital (deficiency)................................ (2,204,885) 16,840,968
Total assets................................................ 1,862,984 20,908,837
Total liabilities........................................... 2,213,147 0
Total shareholders' equity (deficiency)..................... (350,163) 18,695,690
</TABLE>
4
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IN
ADDITION TO OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, YOU SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS AND OTHER INFORMATION IN THIS PROSPECTUS
BEFORE INVESTING IN OUR COMMON STOCK.
WE HAVE A SHORT OPERATING HISTORY WHICH MAKES IT DIFFICULT FOR YOU TO EVALUATE
OUR BUSINESS AND PROSPECTS.
DG commenced sales of jewelry on the internet in July 1998 as a separate
business line of DG. Our parent company, NetJewels Canada was formed in January
1999. We operated our business through such parent company until our formation
in June 1999 at which time we purchased all of the third party internet
contracts of DG. We began selling products on our own Web site in July 1999.
Accordingly, we have a limited operating history upon which you can evaluate our
business and prospects. Our historical data is of limited value in projecting
future operating results. An investor in our common stock must consider the
risks and difficulties frequently encountered by early stage companies in new
and rapidly evolving markets. These risks include our:
- evolving business model;
- competition;
- need for increased customer acceptance of the online purchase of jewelry;
- ability to maintain and expand our customer base;
- need to continue to develop and upgrade our Web site,
transaction-processing systems and network infrastructure;
- ability to scale our systems and fulfillment capabilities to accommodate
the growth of our business;
- ability to access additional capital when required;
- ability to develop and renew strategic relationships; and
- dependence on the reliability and growing use of the Internet for commerce
and communication and on general economic conditions.
We cannot be certain that our business strategy will be successful or that
we will successfully address these risks.
WE HAVE INCURRED A NET LOSS SINCE INCEPTION AND EXPECT TO INCUR SUBSTANTIAL NET
LOSSES FOR THE FORESEEABLE FUTURE.
Since inception, we have been operating at a loss. Our net loss of $350,231
for the year ended June 30, 1999, primarily relates to start-up costs. We expect
that operating losses and negative cash flow will continue for the foreseeable
future as we must invest in marketing and promotional activities, technology and
operating systems. We do not know when and if we will achieve sufficient
revenues in relation to expenses to become profitable.
Our future profitability depends on generating and sustaining high revenue
growth while maintaining reasonable expense levels. Slower revenue growth than
we anticipate or operating expenses that exceed our expectations would harm our
business. If we achieve profitability, we cannot be certain that we would be
able to sustain or increase profitability in the future.
5
<PAGE>
OUR CHAIRMAN, CEO AND PRESIDENT HAVE POTENTIAL CONFLICTS OF INTEREST.
All of our common stock is owned by NetJewels Canada, which is owned 50% by
DG and 25% by each of Daniel and Ben Berkovits. DG's continuing beneficial
ownership of NetJewels Canada's common stock, the beneficial ownership of
NetJewels Canada's common stock by Daniel and Ben Berkovits, and the role of
Jack Berkovits as our chairman and the chairman and CEO of DG, and the
beneficial ownership of DG common stock by Berkovits family members, could
create conflicts of interest. Jack Berkovits is also a paid consultant to us. We
have relied on DG to provide corporate, fulfillment, inventory supply,
space-sharing and other administrative services. We are not DG's sole client. We
will continue to receive those services pursuant to the intercompany services
agreement with DG for the foreseeable future. If DG fails to adequately provide
services to us or if we fail to develop management and financial systems, our
business could suffer until we develop our own sufficient operational,
administrative and other systems and infrastructure. In addition, in the event
that we seek to renegotiate or renew the intercompany services agreement we may
be prejudiced by the familial relationship between our executive officers and
DG. We have not instituted any formal plan or arrangement to address potential
conflicts of interest that may arise among us, DG, members of the Berkovits
family and their respective affiliates.
OUR OPERATIONS ARE HEAVILY DEPENDENT UPON OUR INTERCOMPANY SERVICES AGREEMENT
WITH DG.
We currently obtain all of our products and a significant portion of our
services from DG. If we are unable to obtain these products or services from DG
for any reason, including the termination of the intercompany service agreement
or DG's failure to perform its obligations under the intercompany service
agreement, our business may suffer material damage.
Pursuant the intercompany service agreement:
- DG supplies merchandise to us at a price which is no greater than the
price at which products are supplied to DG's best customers;
- DG provides us with distribution and fulfillment of our orders through
DG's distribution centers in Toronto, Canada and Cedar Knolls, New Jersey;
- DG is required to maintain inventory levels sufficient to meet orders for
products displayed on our Web site;
- DG provides us with administrative and customer support services; and
- DG takes responsibility for all product returns and warranties.
Pursuant to the intercompany services agreement, we also contract for
various additional services from DG and its subsidiaries including, among
others, services for payroll processing, benefits administration, insurance
including property and casualty, medical, dental and life, tax, merchandising,
and telecommunications. In accordance with the terms of the intercompany service
agreement, we have paid, and expect to continue to pay, fees to DG in an amount
equal to $5,000 per month.
Should our relationship with DG terminate or should DG encounter financial
or other business difficulties that affect DG's ability to perform its
obligations under the foregoing agreements, it would have a material adverse
effect on our business. In this scenario, we would be forced to make alternative
arrangements and rely on outside parties to fill these functions. We do not know
if we would be able to secure these services from third parties on acceptable
terms, if at all.
6
<PAGE>
DG IS OUR SOLE SUPPLIER OF JEWELRY AND THUS WE ARE DEPENDENT UPON DG PRODUCING
ATTRACTIVE MERCHANDISE IN SUFFICIENT QUANTITIES AND IN A TIMELY MANNER.
DG is our sole supplier of jewelry. We are therefore dependent on consumer
acceptance of the jewelry designs and products offered by DG. If DG fails to
design jewelry that is attractive to consumers, it could have a negative effect
on the demand for our products and services. We do not know if the intercompany
service agreement were to be terminated, that we would be able to find an
alternative, comparable supplier capable of providing product on terms
satisfactory to us. In addition, to the extent that DG does not have sufficient
capacity, is unable to satisfy our requirements on a timely basis, suffers a
financial setback or a change in its strategic objectives, such an event could
have a negative effect on the demand for our products and services and hurt our
brand. DG supplies its products to numerous customers. We have the right to
purchase products from sources other than DG, although we have no agreements or
intentions of doing so at the present time.
WE ARE CONTROLLED BY OUR PARENT COMPANY'S PRINCIPAL STOCKHOLDER, DG, WHICH HAS
FAMILIAL RELATIONSHIPS WITH OUR EXECUTIVE OFFICERS, AND AS SUCH YOU MAY HAVE NO
EFFECTIVE VOICE IN OUR MANAGEMENT.
Upon the completion of this offering, DG, through its ownership of fifty
percent (50%) of NetJewels Canada, will beneficially own thirty percent (30%) of
the issued and outstanding shares of our common stock. Daniel P. Berkovits, our
CEO, and Ben Berkovits, our President and COO, will each beneficially own
fifteen percent (15%) of us, through their ownership of NetJewels Canada. Daniel
and Ben Berkovits are the children of Jack Berkovits, our chairman and CEO and
chairman of DG. Accordingly, DG and the Berkovits family will collectively
control us and will be able to exercise control over all matters requiring
stockholder approval, including the election of all directors and approval of
significant corporate transactions. If you purchase shares of our common stock,
you may have no effective voice in our management.
IN ORDER TO EFFECTUATE OUR BUSINESS PLAN, WE WILL REQUIRE SUBSTANTIAL FUNDS AND
WE MAY NEED AND BE UNABLE TO OBTAIN ADDITIONAL CAPITAL IN THE FUTURE, AND IF WE
RAISE ADDITIONAL CAPITAL THROUGH THE SALE OF EQUITY SECURITIES YOU MAY
EXPERIENCE DILUTION.
We cannot assure you that we will be able to achieve our goals without
additional capital or that we will be able to raise additional capital. Even if
additional capital is obtained, we cannot assure you that we will be able to
achieve our goals with additional capital, or that any new capital, if
available, will be on favorable terms. We expect that the proceeds of this
offering will be sufficient to implement our business plan for at least the
12 months following completion of this offering. However, we may need to raise
additional capital in this period if our estimates of revenues, expenses and/or
capital expenditures change or prove inaccurate in order for us to respond to
unforeseen technological, operational or marketing hurdles or to take advantage
of unanticipated opportunities. In the event that we raise additional capital
through the sale of our equity securities you may experience dilution.
OUR FUTURE OPERATING RESULTS ARE UNPREDICTABLE AND MAY FLUCTUATE DUE TO A
VARIETY OF FACTORS, MANY OF WHICH ARE BEYOND OUR CONTROL.
As a result of our limited operating history, it is difficult to accurately
forecast our sales and we have limited meaningful historical financial data upon
which to base planned operating expenses. We base our current and future expense
levels on our operating plans and estimates of future net sales. Sales and
operating results are difficult to forecast because they generally depend on the
volume and timing of the orders we receive. As a result, we may be unable to
adjust our spending in a timely manner to compensate for any unexpected revenue
shortfall. We may also be unable to increase our spending and expand our
operations in a timely manner to adequately meet customer demand to the extent
it exceeds our expectations.
7
<PAGE>
Our annual and quarterly operating results may be affected and may fluctuate
significantly in the future due to a variety of factors, many of which are
outside of our control. Factors that may harm our business or cause our
operating results to fluctuate include the following:
- our inability to obtain new customers at a reasonable cost, retain
existing customers, or encourage repeat purchases;
- decreases in the number of visitors to our Web site or our inability to
convert visitors to our Web site into customers;
- our inability to manage fulfillment operations;
- our inability to adequately maintain, upgrade and develop our Web site,
transaction-processing systems or network infrastructure;
- the ability of our competitors to offer new or enhanced Web sites,
services or products;
- price competition;
- the termination of existing, or failure to develop new, strategic
marketing relationships pursuant to which we receive exposure to traffic
on third-party Web sites;
- increases in the cost of online or offline advertising;
- our inability to attract new personnel in a timely and effective manner or
retain existing personnel;
- the amount and timing of operating costs and capital expenditures relating
to expansion of our operations;
- technical difficulties, system downtime or Internet brownouts;
- a breach in our on-line security systems;
- government regulations related to use of the Internet for commerce or for
sales; and
- general economic conditions and economic conditions specific to the
Internet, online commerce and the jewelry industry.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE
COMPETITORS.
The online commerce market is new, rapidly evolving and intensely
competitive. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any of which could seriously
harm our net sales and results of operations. We expect competition to intensify
in the future because current and new competitors can enter our market with
little difficulty and can launch new Web sites at a relatively low cost. In
addition, the retail jewelry industry is intensely competitive.
We currently or potentially compete with a variety of other companies
including:
- traditional store-based jewelry retailers such as Zales, Gordons, Sterling
and Friedmans;
- department store retailers such as Sears, J.C Penney, Macy's and Ward's;
- major discount retailers such as Wal-Mart, Kmart, Target and Service
Merchandise;
- cable shopping networks such as QVC, to whom DG is a supplier, and HSN;
- online efforts of these traditional and cable network retailers, including
the online stores operated by QVC, ValueAmerica and Zales;
- catalog retailers of jewelry;
8
<PAGE>
- other online retailers that may include jewelry as part of their product
offerings, such as Amazon.com;
- online wedding portal sites that feature shopping services, such as
theKnot.com and Modern Bride;
- Internet portals, online auction services and online service providers
that feature shopping services, such as eBay, Yahoo! and Amazon.com; and
- various online retailers of jewelry, such as Alle Fine Jewelry, eJewelry
and Just Jewelry.
Many of our competitors and potential competitors have substantially greater
financial, technical and marketing resources, longer operating histories,
greater name recognition and more established relationships with advertisers and
Internet portal sites than us. Such competitors may be able to undertake more
extensive marketing campaigns and adopt more aggressive pricing polices then we
can.
WE WILL NEED TO SPEND SIGNIFICANT RESOURCES ON MARKETING IN ORDER TO DIRECT
TRAFFIC TO OUR WEB SITE AND WE CURRENTLY HAVE NO MARKETING STAFF.
We are reliant on the marketing efforts which we expect to fund, in part,
from the proceeds of this offering to drive traffic to our online store. To
date, our marketing efforts have been limited to advertising on portals, and
listing our products and site name on several auction sites and search engines.
We do not currently employ any marketing staff. In order to generate traffic to
our Web site we expect to spend heavily on advertising and marketing efforts
online and in traditional mediums.
WE ARE DEPENDENT UPON OUR STRATEGIC ALLIANCES WITH THIRD-PARTY WEB-SITES AND
CONTENT PROVIDERS INCLUDING UBID.COM, BID.COM AND AOL WHICH CONTRACTS ARE IN
DG'S NAME AND THE THIRD PARTIES HAVE NOT YET CONSENTED TO THEIR TRANSFER TO US.
We rely on certain strategic alliances with third-party web sites and
content providers to attract users to our online store and have entered into
various agreements with companies to attract users from other Web sites or
online services. The majority of our sales to date have been through these
third-party sites. We can not be sure that these agreements will be maintained
beyond their initial terms, or that they will not be terminated or that we will
be able to enter into additional third-party agreements on acceptable commercial
terms or even at all. If we are unable to enter into new strategic agreements or
to maintain any one or more of our existing, significant strategic alliances, it
would probably result in a material adverse effect on our business. All of these
agreements are with DG. The agreements require DG to obtain the consent of such
parties to an assignment, to date, DG has not received the consent of any of the
third parties.
WE MAY NOT HAVE THE TECHNOLOGY TO SUPPORT INCREASED VOLUME ON OUR WEB SITE.
A key element of our strategy is to generate a high volume of traffic on our
Web site. However, growth in the number of users of our online store may strain
or exceed the capacity of our computer systems and lead to declines in
performance or systems failure.
We must also introduce additional or enhanced features and services to
retain current users and attract new users to our online store. If a new service
is not favorably received, our current customers may visit our online store less
frequently. These new services or features may not function well and we may need
to significantly modify the design of these services to correct errors. If users
encounter difficulty with or do not accept our services or features, our
business would be damaged.
9
<PAGE>
THE DEMAND FOR OUR PRODUCTS AND SERVICES IS DEPENDENT UPON THE INTERNET BECOMING
A USABLE MEDIUM FOR COMMERCE.
Consumer use of the Internet as a medium for commerce is a recent phenomenon
and is subject to a high level of uncertainty. The Internet may not prove to be
a viable commercial marketplace because of inadequate development of the
necessary infrastructure, such as reliable network backbones, or complementary
services. The viability of the Internet or its viability for commerce may prove
uncertain due to delays in the development and adoption of new standards and
protocols to handle increased levels of Internet activity or due to increased
government regulation or taxation.
While the number of Internet users has been rising, the Internet
infrastructure may not expand fast enough to meet the increased levels of
demand. The increased use of the Internet as a medium for commerce raises
concerns regarding Internet security, reliability, pricing, accessibility and
quality of service. If use of the Internet does not continue to grow, or if the
necessary Internet infrastructure or complementary services are not developed to
effectively support growth that may occur, the demand for our services and
products could be negatively affected. In addition, the nature of the Internet
as an electronic marketplace which may, among other things, facilitate
competitive entry, comparison shopping and advertising revenue supported
business models, may render it inherently more competitive than conventional
retailing formats.
ANY IMPOSITION OF A SALES OR OTHER TAX ON E-COMMERCE COULD NEGATIVELY EFFECT THE
DEMAND FOR OUR PRODUCTS AND SERVICES.
We do not currently collect sales or other similar taxes for physical
shipments of goods into any states or provinces, other than Ontario, Canada
where we are based. There have recently been several proposals put forth in the
United States Congress which would impose sales tax on goods sold over the
Internet. In the event that such proposals are adopted there could be an adverse
affect on the demand for our products. In addition, one or more local, state or
foreign jurisdictions may seek to impose sales tax collection obligations on us.
In addition, any new operation in states or provinces outside of Ontario could
subject our shipments in such states or provinces to sales taxes under current
or future laws. If one or more states or any foreign country successfully
asserts that we should collect sales or other taxes on the sale of our products,
it could adversely affect the demand for our services and products.
THE DEMAND FOR OUR PRODUCTS AND SERVICES MAY FLUCTUATE WITH THE PRICE OF JEWELRY
AND THE HOLIDAY SEASON.
The availability and cost of precious metals and precious and semi-precious
stones will affect the demand for our products and services. The availability
and prices of gold, diamonds and other precious metals and precious and
semi-precious stones may be influenced by cartels, political instability in
exporting countries and inflation. Shortages of these materials or sharp changes
in their prices could have a material adverse effect on our results of
operations or financial condition.
We expect to experience increased demand for our products during the holiday
season, which is during the fourth quarter of our fiscal year. If for any reason
our sales during the fourth quarter were substantially below expectations, our
annual and quarterly operations could be materially and adversely affected.
THE SALE OF JEWELRY AND THE DEMAND FOR OUR PRODUCTS AND SERVICES IS DEPENDENT
UPON A STRONG ECONOMY.
Retail jewelry sales are sensitive to fluctuations in the economic cycle.
Unfavorable general economic conditions generally have an adverse effect on
consumer spending, and therefore on our business. It is probable that
unfavorable general economic conditions or a downturn in consumer
10
<PAGE>
confidence in the future would have an adverse effect on consumer spending
preferences and, therefore, on our business.
IF WE DO NOT CONTINUALLY UPDATE OUR TECHNOLOGY AND THE EASE AND FUNCTIONABILITY
OF OUR WEB SITE, WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.
To remain competitive, we must continually enhance and improve the
responsiveness, functionality and features of our online store. The Internet and
the e-commerce industry are characterized by rapid technological change, changes
in user and customer requirements and preferences, frequent new product and
service introductions embodying new technologies and the emergence of new
industry standards and practices. These changes could render our existing online
store and proprietary technology and systems obsolete. Our success will depend,
in part, on our ability to license appropriate technologies, enhance our
existing services, and develop new services and technology that address the
increasingly sophisticated and varied needs of our existing and prospective
customers. We must also be able to respond to technological advances and
emerging industry standards and practices on a cost-effective and timely basis.
INTERNET SECURITY CONCERNS COULD HINDER E-COMMERCE AND THE DEMAND FOR OUR
PRODUCTS AND SERVICES.
Public concern over Internet security has been, and may continue to be, a
hindrance to commercial use of the Internet. Despite our implementation of
third-party vendor network security measures, our infrastructure is vulnerable
to computer break-ins and disruptive problems. We may incur significant costs to
protect against the threat of security breaches or alleviate problems created by
breaches. Internet usage and the demand for our services and products could
decline if a well publicized compromise of security occurs. Computer viruses,
break-ins or other security problems could lead to misappropriation of
proprietary information and interruptions, delays or cessation in service to our
customers. Any computer break-in could affect consumer confidence in the
security of our services and could seriously damage our brand and business.
WE MAY NOT BE ABLE TO OBTAIN THE MOST DESIRABLE WEB SITE ADDRESSES FOR OUR
BUSINESS.
We have registered various Internet Web site addresses related to our
business. We may not be able to prevent third parties from acquiring Web site
addresses that are similar to our addresses, which could cause confusion and may
damage our brand. We are aware of several names which are similar to our name
and may cause confusion and hurt our brand. The regulation of Web site addresses
in the United States and foreign countries is subject to change. As a result, we
may not be able to acquire or maintain relevant Web site addresses in all
countries where our services and products are made available through the
Internet. Furthermore, the relationship between regulations governing such
addresses and laws protecting trademarks is unclear.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION AND OUR CURRENT SHAREHOLDERS
WILL BENEFIT DISPROPORTIONATELY FROM THIS OFFERING.
The initial public offering price per share will exceed the net tangible
book value per share. Investors purchasing shares in this offering will suffer
immediate and substantial dilution of their investment of $7.91 per share.
OUR MANAGEMENT HAS BROAD DISCRETION AS TO HOW TO USE THE PROCEEDS OF THIS
OFFERING AND YOU MAY HAVE NO OPPORTUNITY TO APPROVE THE USE OF PROCEEDS OF THIS
OFFERING.
Approximately $9,747,400 or 45.8% of the net proceeds of this offering will
be applied to working capital and general corporate purposes. Accordingly, our
management will have broad discretion over
11
<PAGE>
the use of the proceeds. Our stockholders may have no opportunity to approve the
use of the proceeds of this offering.
WE FACE YEAR 2000 RISKS.
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. We use software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the year 2000
phenomenon. In addition, we are dependent on the financial institutions involved
in processing our customers' credit card payments for Internet services and a
third party that hosts our servers, all of which may fail due to the year 2000
problem. We are also dependent on telecommunications vendors to maintain our
network and the United States and Canadian postal services and other third-party
carriers to deliver orders to customers. The failure of our software and
computer systems and of our third-party suppliers to be year 2000 complaint
would have a material adverse effect on us.
The year 2000 readiness of the general infrastructure necessary to support
our operations is difficult to assess. For instance, we depend on the integrity
and stability of the Internet to provide our services. We also depend on the
year 2000 compliance of the computer systems and financial services used by
consumers. A significant disruption in the ability of consumers to reliably
access the Internet or portions of it or to use their credit cards would have an
adverse effect on demand for our services and would have a material adverse
effect on us.
WE MAY NOT BE ABLE TO MANAGE OUR GROWTH EFFECTIVELY.
Our ability to implement our business strategy in a new and rapidly evolving
market requires effective planning and management oversight. Our anticipated
future operations will place a significant strain on our management, personnel,
information systems and resources. To manage the expected growth of our
operations and personnel, we will be required to improve existing and implement
new transaction-processing, operational and financial systems, procedures and
controls, and to expand, train and manage our limited employee base on a timely
basis. We will need to hire and retain highly skilled personnel to manage our
expected growth. Our inability to manage our growth effectively would have a
material adverse effect on our business, results of operations and financial
condition.
THE LOSS OF THE SERVICES OF OUR KEY PERSONNEL, OR OUR FAILURE TO ATTRACT,
ASSIMILATE AND RETAIN HIGHLY QUALIFIED PERSONNEL IN THE FUTURE, COULD SERIOUSLY
HARM OUR BUSINESS.
Our future success depends, in part, on the continued services of our senior
management and our ability to retain and motivate our other key employees. The
loss of the services of Daniel or Ben Berkovits or any other key employee would
have a material adverse effect on our business, results of operations and
financial condition. Our relationships with Daniel and Ben Berkovits can be
terminated at any time. We do not currently have key-man life insurance on
Daniel or Ben Berkovits.
Our future success also depends on our ability to identify, attract, hire,
train, retain and motivate highly skilled technical, managerial, merchandising,
marketing and customer service personnel. Competition for such personnel is
intense, and we cannot be certain that we will be able to successfully attract,
assimilate or retain sufficiently qualified personnel. Our inability to do so
could have a material adverse effect on our business, results of operations and
financial condition.
THE REPRESENTATIVE OF THE UNDERWRITERS MAY HAVE CONTINUED INFLUENCE ON US
FOLLOWING THE COMPLETION OF THIS OFFERING.
The representative of the underwriters may be able to exert continuing
influence on us in light of the fact that we have granted the representative:
(a) the right to appoint a board member for a three-year period following the
completion of this offering; and (b) warrants to purchase 220,000 shares of our
common stock. In light of the foregoing, the representative may have, for the
foreseeable future, a dominating influence over us.
12
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information in this prospectus may contain forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. This information may involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or achievements to
be materially different from future results, performance or achievements
expressed or implied by any forward-looking statements. Forward-looking
statements, which involve assumptions and describe our future plans strategies
and expectations, are generally identifiable by use of the words "may,"
"should," "expect," "anticipate," "estimates," "believe," "intend" or "project"
or the negative of these words variations on these words or comparable
terminology.
The following are some of the important factors that could our cause actual
results to differ materially from those discussed in forward-looking statements:
- timely and successful marketing of our Web site and products;
- ability to enter into strategic alliances with large portal Web sites and
auction sites;
- continuing relationships with existing strategic partners and development
of additional strategic relationships; and
- other matters discussed in the "Risk Factors" section of this prospectus.
13
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $21,259,000
from our sale of the 2.2 million shares of common stock being offered hereby,
assuming an initial public offering price of $11.00, representing the mid-point
of the filing range. If the representative exercises its over-allotment option
in full, we will receive net proceeds of approximately $24,507,850. Both of
these figures are after deduction of estimated underwriting discounts and
commissions and after fees and expenses of $1,005,000, $1,095,750 if the
over--allotment option is exercised in full payable by us. We expect to use the
net proceeds of this offering as follows:
<TABLE>
<CAPTION>
USE APPROXIMATE AMOUNT PERCENTAGE OF NET PROCEEDS
- --- ------------------ --------------------------
<S> <C> <C>
Repayment of indebtedness to DG...................... $ 2,711,600 12.7%
Advertising and marketing............................ 5,000,000 23.5
Equipment and software purchase and upgrades......... 500,000 2.4
Expansion of fulfillment operations and executive
offices............................................ 500,000 2.4
Hiring executive personnel........................... 300,000 1.4
Acquisitions......................................... 2,500,000 11.8
General corporate and working capital purposes....... 9,747,400 45.8
----------- -----
Total................................................ $21,259,000 100.0%
=========== =====
</TABLE>
We intend to repay approximately $2,711,600 to DG which consists of
$1,800,000 which we owe DG in consideration for the transfer of DG's internet
contracts to us, and $911,600 which represents advances made to us to finance
our start-up costs.
Upon completion of this offering, we intend to utilize approximately
$5,000,000 to market our Web site through traditional advertising methods
including print, radio, television and online advertising. We also intend to
hire a celebrity as a spokesperson to increase consumer awareness of our company
and products.
We expect that we will experience an on-going need to add additional
hardware and software upgrades to our existing systems in order to handle
expected increased traffic at our Web site, accordingly we have budgeted
$500,000 for such use.
We expect that our future growth will require us to secure new office space
to adequately house our operations and we have budgeted $500,000 for such use.
In addition to hiring other employees to meet our anticipate growth, we
intend to hire a full time director of marketing, as well as a chief financial
officer and chief information officer following the offering.
It is part of our strategy to acquire complementary technologies or
businesses; however, we currently have no commitments or agreements and are not
involved in any negotiations with respect to any such transactions.
We have budgeted $2,500,000 of the net proceeds for any potential
acquisitions.
We have dedicated approximately $9,747,000 to general corporate needs and
working capital purposes which we expect to require as a result of our
anticipated growth. These needs include added salaries, health care costs,
professional fees and other costs which will require us to use the proceeds of
this offering until the time that we become a profitable business, of which
there can be no assurance.
Pending application, the net proceeds will be invested principally in
short-term certificates of deposit, money market funds or short-term treasury
bonds.
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<PAGE>
We reserve the right to reallocate proceeds to different uses if, in
management's view, the needs of the business so require. In addition, a large
portion of the proceeds is allocated to discretionary purposes. Investors may
not agree with any such allocation or reallocation. In the event the
representative exercises the over-allotment option we intend to utilize such
additional proceeds for working capital.
Based on our operating plan, we believe that the net proceeds of this
offering, together with available funds on hand and cash flow from future
operations, will be sufficient to satisfy our working capital requirements for
at least twelve months following this offering. Such belief is based upon
certain assumptions, including assumptions as to our contemplated operations and
business plan and economic and industry conditions. We cannot be certain that
such resources will be sufficient for such purpose and if not we may need to
raise additional capital through the sale of equity securities. In addition,
contingencies may arise that may require us to obtain additional capital. We
cannot be certain that we will be able to obtain such capital on favorable terms
or at all.
15
<PAGE>
DIVIDEND POLICY
We have never paid or declared cash or stock dividends on our common stock.
The payment of cash dividends, if any, is at the discretion of our board of
directors and will depend upon our earnings, our capital requirements, financial
condition and other relevant factors. We intend, for the foreseeable future, to
retain any future earnings for use in our business.
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was approximately
$(2,200,000) or $(0.67) per share. Net tangible book value per share represents
the amount of our total tangible assets reduced by the amount of our total
liabilities and divided by the total number of shares of common stock
outstanding. Dilution in net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the net tangible book value per share of common stock
immediately after the completion of this offering. After giving effect to the
sale of the 2,200,000 shares of common stock offered by us at an assumed initial
public offering price of $11.00 per share, representing the mid-point of the
filing range, and after deducting the underwriting discount and estimated
offering expenses payable by us, our pro forma net tangible book value at
June 30, 1999 would have been approximately $17,000,000 or $3.09 per share of
common stock. This represents an immediate increase in net tangible book value
of $3.76 per share to existing stockholders and an immediate dilution of $7.91
per share to new investors of common stock. The following table illustrates this
dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $11.00
Net tangible book value at June 30, 1999................ $(0.67)
Increase in net tangible book value attributable to new
investors............................................. 3.76
Net tangible book value after this offering................. 3.09
------
Dilution of net tangible book value to new investors........ $ 7.91
======
</TABLE>
In the event that the over-allotment option is exercised in full, the
dilution to new investors would be $7.57 per share.
The following table sets forth, as of the date of this prospectus, the
number of shares of common stock purchased, the percentage of the total number
of common stock purchased, the total consideration paid, the percentage of total
consideration paid, and the average price per share paid by the investors in
this offering and our current shareholders:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ------------------------ PRICE PR
NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE
--------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 3,300,000 60% $ 3,300 0.1% $0.001
New investors........................... 2,200,000 40% $24,200,000 99.9% $11.00
--------- ----- ----------- -----
Total................................. 5,500,000 100.0% $24,203,300 100.0%
========= ===== =========== =====
</TABLE>
The preceding table excludes deduction of underwriting commissions,
discounts and other expenses of this offering.
16
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999:
- on an actual basis; and
- on a pro forma basis to reflect the receipt of the estimated net proceeds
from the sale by us of 2,200,000 shares of common stock at an assumed
initial public offering price of $11.00 per share, representing the
mid-point of the filing range.
This table should be read in conjunction with our consolidated financial
statements and the accompanying notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
ACTUAL PRO-FORMA
----------- -----------
<S> <C> <C>
Short term liabilities...................................... $ 2,213,147 2,213,147
Long term debt.............................................. $ 0 $ 0
Stockholders' equity:
Preferred stock, 1,000,000 authorized, none issued and
outstanding............................................. 0 0
Common stock, $.01 par value per share, 19,000,000
authorized, 3,300,000 issued and outstanding, actual; and
5,500,000 issued and outstanding, pro-forma............... 68 19,360,068
Accumulated deficit......................................... (350,231) (350,231)
----------- -----------
Total stockholders equity (deficit)......................... (350,163) 19,009,837
Total capitalization.................................. $(1,862,984) $21,222,984
=========== ===========
</TABLE>
- ------------------------
The preceding table excludes:
- - 750,000 shares reserved for grant under our stock option plan;
- - 220,000 shares issuable upon exercise of the representative's warrants;
- - 100,000 shares issuable upon exercise of outstanding warrants held by our
chairman; and
- - 330,000 shares issuable upon exercise of the over-allotment option.
17
<PAGE>
SELECTED FINANCIAL DATA
The following selected historical financial and other data are qualified by
reference to, and should be read in conjunction with, our consolidated financial
statements and their related notes appearing elsewhere in this prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected statement of operations data shown below for the year
ended June 30, 1999 and the balance sheet data as of June 30, 1999 are derived
from our audited consolidated financial statements included elsewhere in this
prospectus. They include the financial performance of NetJewels Canada for the
period between January 1999 and June 1999.
<TABLE>
<CAPTION>
YEAR ENDED
ENDED JUNE 30, 1999
-------------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... 75,439
Cost of revenues............................................ 425,670
---------
Operating income (loss)..................................... (350,231)
Net interest income (expense)............................... 0
Income (loss) from continuing operations.................... (350,231)
Net loss.................................................... (350,231)
=========
Net loss applicable to common shares........................ (350,231)
Net loss per basic and diluted common share................. (0.11)
=========
Shares used in computing basic and diluted not loss per
share..................................................... 3,300,000
=========
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... 68
Working capital (deficiency)................................ (2,204,885)
Total assets................................................ 1,862,984
Total liabilities........................................... 2,213,147
Total shareholders' (deficit) equity........................ (350,163)
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH OUR
FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS.
OVERVIEW
Our strategy is to become the leading Web-based retailer of jewelry. We
currently offer an extensive selection of competitively priced jewelry products
and intend to continue to expand our product offerings.
We were incorporated in June 1999 as Exite Jewelry.Com,Inc., which name was
changed to NetJewels.Com, Inc. in October 1999, but began offering products for
sale on third-party Web sites including Internet auction sites in April 1999
through our parent company, NetJewels Canada. We have realized revenues of
approximately $265,000 from these activities as of August 31, 1999. In January
1999, NetJewels Canada purchased all of DG's third-party site sale business and
all strategic agreements relating to Internet sales for $1.8 million. This
amount is to be repaid out of the net proceeds of this offering. In addition,
NetJewels Canada issued 1,650,000 shares of its common stock, 50% of its shares,
to DG in exchange for advancing us funds to use in our operations until such
time that we are able to fund ourselves. In addition, we have agreed to
reimburse DG for all monies advanced in connection with our start-up. As of
June 30, 1999 such amount is approximately $911,600. Since launching our online
store we have continued to sell goods on third party sites and have also focused
on building sales momentum on our Web site store, expanding our product
offerings, promoting our brand name and establishing fulfillment and customer
service operations. We expect our cost of sales and operating expenses will
increase significantly. This reflects the costs associated with our formation as
well as increased efforts to promote our brand, build market awareness, attract
new customers, recruit personnel, build operating infrastructure and develop our
Web site and associated transaction-processing systems.
We expect to significantly increase our on-line traffic once our intended
intensive advertising campaign begins upon completion of this offering. Since
launching our Web-site in July 1999, we have dedicated our efforts to making
shopping on our site user-friendly and secure.
Since inception, we have incurred losses and, as of June 30, 1999, had an
accumulated deficit of $350,231. We expect operating losses and negative cash
flow to continue for the foreseeable future. We anticipate our losses will
increase significantly from current levels because we expect to incur additional
costs and expenses related to: (a) brand development, (b) marketing and other
promotional activities, (c) the expansion of our management and order
fulfillment infrastructure, (d) the continued development of our Web site,
(e) transaction-processing systems and network infrastructure, (f) the expansion
of our product offerings and Web site content, and (g) strategic relationship
development.
We have a very limited operating history on which to base an evaluation of
our business and prospects. You must consider our prospects in light of the
risks, expenses and difficulties frequently encountered by companies in their
early stage of development, particularly companies in new and rapidly evolving
markets such as online commerce. These risks include, but are not limited to, an
evolving and unpredictable business model and management of growth.
RESULTS OF OPERATIONS
In view of the rapidly changing nature of our business and our limited
operating history, we believe that our gross profit margin and operating
expenses as a percentage of sales, are not necessarily meaningful and should not
be relied upon as an indication of future performance.
19
<PAGE>
The financial information included in this prospectus may not necessarily be
indicative of the financial position, results of operations and cash flows had
we been operating as a separate stand-alone company during the periods
presented.
The following table sets forth statement of operations data as a percentage
of net sales for the periods indicated:
<TABLE>
<CAPTION>
JUNE 30, 1999
---------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................... $ 75,439 100%
Cost of sales............................................... $ 64,009 85%
======== ====
Gross Profit................................................ 11,430 15%
Operating expenses:
Marketing and sales......................................... 220,613 (61)%
Product development......................................... 104,882 (29)%
General administrative...................................... 36,166 (10)%
Total operating expenses.................................... 361,661 (479)%
-------- ----
Operating loss.............................................. 350,231 (479)%
Interest income (expense), net.............................. 0 (0)%
Provision for income taxes.................................. 0 0%
-------- ----
Net loss.................................................... 350,231 (479)%
======== ====
</TABLE>
NET SALES. Net sales include the sale of our jewelry products, net of
returns, up front fees and commissions paid to third party sites. Net sales
totaled $75,439 for the year ended June 30, 1999. Sales include those made on
our website and those made on third party websites
COSTS OF SALES. Costs of sales include the costs actually paid for the
goods. Cost of sales totaled $64,009 for the year ended June 30, 1999.
GROSS PROFIT. For the year ended June 30, 1999, we had a gross profit of
$11,430 or 15.15%. We expect our gross profit to increase as the percentage of
our on-line store sales increase and the percentage of our sales on third-party
web sites decreases as a percentage of total sales.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist of payroll and related expenses for executive, accounting and
administrative personnel, recruiting, professional fees, and other corporate
expenses. General and administrative expenses totaled $36,167 for the year ended
June 30, 1999. General and administrative expenses will continue to increase as
our staff expands and incurs additional costs to support the growth of our
business. Currently, the majority of such services are provided by DG pursuant
to the intercompany services agreement. DG charges us $5,000 per month for such
services.
NET INCOME (LOSS). We incurred a net loss of $350,231 for the year ended
June 30, 1999, and expect to continue to incur net losses for the foreseeable
future.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements are to acquire merchandise, maintain and
improve our online store and engage in advertising and promotional activities.
Since inception, we have primarily financed this requirement through
approximately $900,000 of advances from DG and cash flows from operations. The
loan bears no interest and all amounts are due on demand. This loan will be
repaid with a portion of the net proceeds of this offering.
20
<PAGE>
At June 30, 1999, we had a working capital deficit of approximately
$2,204,885 and incurred losses since inception of approximately $350,231. We are
significantly dependent on DG for the conduct of our operations. Pursuant to the
intercompany service agreement, DG provides us various additional services
including, among others, services for payroll processing, benefits
administration, insurance including property and casualty, medical, dental and
life, merchandising and telecommunications. DG charges us $5,000 per month for
such services.
We incurred an obligation of $2,204,953 in our operating activities for the
year ended June 30, 1999, which is due to certain start-up costs aggregating
$404,953 and the purchase of certain internet contracts from DG for $1,8000,000.
We believe that funds generated from operations and the net proceeds of this
offering will be sufficient to finance our current and anticipated operations
for at least 12 months after this offering. Our long-term capital requirements
beyond this period will depend on numerous factors, including, but not limited
to, the following:
- the rate of market acceptance of our online store;
- the ability to expand our customer base;
- the cost of upgrades to our online store; and
- the level of expenditures for sales and marketing and other factors.
If the funds from this offering and our revenues are insufficient to fund
the activities in the short or long term, we would need to raise additional
funds by incurring debt or through public or private offerings of our stock. We
may not be able to do either on terms favorable to us, if at all.
THE YEAR 2000
Impact of the year 2000. The year 2000 issue is the potential for system and
processing failures of date-related data and the result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar normal business activities.
State of readiness. We may be affected by year 2000 issues related to
non-compliant information technology systems or non-information technology
systems operated by us or by third parties. We have substantially completed an
assessment of our internal and external third-party information technology
systems and non-information technology systems and a test of the information
technology systems that support our web site. At this point in our assessment
and testing, we are not aware of any year 2000 problems relating to systems we
or third parties operate that would have a material effect on our business or
financial condition, without taking into account our efforts to avoid these
problems. However, we cannot assure you that there will be no year 2000
problems.
Our information technology systems consist of software developed either
in-house or purchased from third parties, and hardware purchased from vendors.
We have contacted our principal vendors of hardware and software. All of those
contacted vendors have notified us that the hardware and software that they
supplied to us is year 2000 compliant.
We have also substantially completed an assessment of our non-information
technology systems which we have identified as possibly having year 2000 issues.
At this point in our assessment, we are not aware of any year 2000 problems
relating to these systems which would have a material effect on our business or
financial condition, without taking into account our efforts to avoid these
problems.
21
<PAGE>
Our information technology systems and other business resources rely on
information technology systems and non-information technology systems provided
by service providers and therefore may be vulnerable to those service providers'
failure to remediate their own year 2000 issues. These service providers include
those for our network and e-mail services and landlords for our leased office
spaces. We have contacted these principal service providers and we have been
notified that the information technology and non-information technology systems
which they provide to us are year 2000 compliant. DG has notified us that their
systems are year 2000 compliant.
Cost. Based on our assessment to date, we do not anticipate that costs
associated with remediating our non-compliant systems will be material.
Risks. To the extent that our assessment is finalized without identifying
any material non-compliant information technology or non-information technology
systems operated by us or by third parties, the most reasonably likely worst
case year 2000 scenario is the failure of one or more of our vendors of hardware
or software or one or more providers of non-information technology systems to
properly identify any year 2000 compliance issues and remediate any issues
before the end of the second quarter of 1999. A failure could prevent us from
operating our business, prevent users from accessing our web site or change the
behavior of advertising customers or persons accessing our web site. We believe
that the primary business risks, in the event of a failure, would include but
not be limited to:
- lost advertising revenues;
- increased operating costs;
- loss of customers or persons accessing our web site;
- other business interruptions of a material nature; and
- claims of mismanagement, misrepresentation, or breach of contract.
Contingency Plan. As discussed above, we are engaged in an ongoing year 2000
assessment and testing. Following the completion of the assessment, we plan to
conduct a full-scale year 2000 simulation of our information technology systems.
The results of this simulation and our assessment will be taken into account in
determining the nature and extent of any contingency plans.
RECENT ACCOUNTING PRONOUNCEMENTS
We do not believe any recently issued accounting standards have had or will
have a material affect on our business.
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BUSINESS
GENERAL
Our goal is to be the leading online retailer of jewelry and complementary
products. Since commencing our on-line sales through our Web-site, in
July 1999, and through third party web sites including Ubid.com, we have sold
products to over 3,000 customers. We believe we have created a model for jewelry
distribution based upon an attractive value proposition. Our online store is
integrated with DG's production and distribution infrastructure and offers
customers an extensive product offering at what we believe to be attractive
prices. Our online store, located at "www.NetJewels.com" at any given time
contains over 5,000 products including rings, bracelets, necklaces and other
jewelry items. Most items offered on our Web site range in price from $25 to
$10,000. In addition to our extensive product selection of jewelry, we believe
we offer our customers fast delivery, discounts, easy and secure ordering, rich
editorial content and community experience.
We believe our advertising and promotion agreements with Web portal sites
including AOL and theglobe.com, will extend our brand and consumer exposure to
our online store. Because these sites feature us as a jewelry supplier, our
brand recognition increases and lends us credibility.
Our online store includes what we believe to be a user friendly search
engine and product reviews. During the first half of the year 2000, we expect to
establish a custom jewelry design feature on the site that will allow customers
to design jewelry to their individual tastes, a gift center, an online shopping
assistant and gift certificates.
CORPORATE HISTORY
NetJewels.com, Inc. was incorporated on June 21, 1999 in the State of
Delaware as Exite Jewelry.com, Inc. Between January 1999 and July 1999, the
business was conducted by NetJewels Canada, which is 50% owned by DG, 25% by
Daniel Berkovits, our CEO, and 25% by Ben Berkovits, our President/COO. Prior to
January 1999, our business was conducted as a separate line of business by DG
Jewelry Inc.
In January 1999, Daniel Berkovits and Ben Berkovits formed NetJewels Canada,
formerly Xite Canada, an entity in which they collectively owned 100% of the
outstanding equity. In May 1999, NetJewels Canada issued 50% of its capital
stock to DG in exchange for DG agreeing to advance the necessary funds for
NetJewels Canada's operations until such time as NetJewels Canada is able to
fund its own operations. In addition, in January 1999 we, through our parent
company, purchased all of DG's third party contracts for an aggregate of
$1.8 million, which will be paid out of the proceeds of this offering.
DG has not obtained the contractually required consents of the third parties
to the assignment of these contracts. Jack Berkovits is the Chairman of
NetJewels Canada and DG Jewelry Inc.
We are offering 2,200,000 shares of common stock to the public in this
offering. Immediately after the offering, we will be beneficially owned 30% by
DG, 15% by Daniel Berkovits, 15% by Ben Berkovits and 40% by the public
stockholders purchasing shares of common stock in this offering.
DG JEWELRY
We believe that our relationships with DG, a jewelry manufacturer and
wholesaler, provides us with competitive advantages relative to other online
retailers in our category, including:
The use of DG's distribution center as our principal product supplier, which
enables us to:
- offer over 5,000 in-stock items, ensure fast delivery, offer a large
product selection without the need to make a significant investment in
inventory and the ongoing expense related to the management of such
inventory;
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- purchase goods at a lower price than would otherwise be available through
other wholesalers;
- turn over the responsibility for all product returns and warranties to DG;
and
- ongoing access to the jewelry manufacturing and distribution knowledge and
experience of the management of DG.
DG is primarily engaged in the design, manufacture and distribution of
stone-set jewelry for department stores, mass merchants, catalog showrooms,
television shopping networks and other high volume retailers and major
discounters.
INDUSTRY BACKGROUND
E-COMMERCE. We believe e-commerce provides retailers with the opportunity
to serve a rapidly growing market because consumers are increasingly accepting
the Internet as an alternative shopping channel. Forrester Research estimates
that 17 million U.S. households will be online purchasers and that the number
will grow to 49 million by 2004.
The Internet also provides e-commerce companies with an opportunity to serve
a global market. IDC estimates that the number of Web users worldwide will
exceed 95 million by the end of 1998 and will grow to over 315 million users by
the end of 2002.
THE JEWELRY INDUSTRY. The size of the U.S. jewelry market, according to the
U.S. Department of Commerce was $22.3 billion in 1998.
ONLINE SHOPPING FORECAST. Industry analysts, including Forrester Research
and Jupiter Communications, forecast continued and accelerating acceptance of
the Internet as a channel that consumers will turn to for a wide range of
products. Within the jewelry category industry, certain analysts, including
Davenport and Company, forecast a large and rapidly growing market for online
sales.
BUSINESS STRATEGY
Our goal is to become the leading Web-based retailer of jewelry and
complementary products. To achieve this objective, we have focused our efforts
on providing a high level of value and service, which we believe is reflected in
the variety of our product selection, the ease-of-use of our Web site, the
prices of our products and the speed of delivery we offer to our customers.
While our principal focus is online jewelry, we will continue to seek
opportunities that expand our product offering to complementary information and
products. It is our goal to be recognized as the most innovative and
customer-focused e-commerce jeweler, making online purchasing a simple, personal
and gratifying experience that results in customer loyalty and long-standing
relationships with our customers.
In order to achieve our objectives, we intend to implement the following
strategies:
CONTINUALLY ENHANCE THE CONSUMER EXPERIENCE. We are committed to making
every aspect of browsing and shopping in our online store an easy and
pleasurable experience. We shall make continual efforts to improve the
design, layout and navigation of all elements of our Web site.
OFFER A LARGE PRODUCT SELECTION AND FAST DELIVERY. We intend to offer our
customers one of the largest selections of jewelry available online. We
intend to capitalize on our relationship with DG by offering DG's extensive
inventory to our customers.
EXPANDING OUR PRODUCT OFFERING. We intend to continue to expand our jewelry
product offering and expand our business lines to information and products
that are complimentary to jewelry purchases and can be easily cross
marketed. We believe that offering complementary information and products is
a natural extension of our business.
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OFFER OUR PRODUCTS 24 HOURS A DAY 7 DAYS A WEEK. Our on-line store is open
24 hours a day 7 days a week and may be electronically visited from any PC
with access to the Internet.
BUILDING BRAND AWARENESS AND DRIVING CUSTOMER ACQUISITION THROUGH
ADVERTISING AND PROMOTION. We will continue to invest in building our brand
and in communicating the benefits and convenience of shopping at our online
store. We intend to advertise in a variety of media, including online,
radio, television and print, to further our goal of rapidly growing our
customer base. We also intend to hire a celebrity as a spokesperson to
increase consumer awareness of our company and products. In all of our
advertising and promotion initiatives, we will seek to drive new customers
to our site, as well as seek to have customers return to our site more
frequently and to increase the size of their average purchase per visit.
STRENGTHENING AND EXPANDING STRATEGIC ALLIANCES. We will continue to provide
our major strategic partners with merchandising support, strengthening their
ability to generate sales and to promote our brand.
PURSUE ACQUISITIONS, PARTNERSHIPS AND STRATEGIC VENTURES. We will pursue
acquisitions, joint ventures and other similar strategic investments and
relationships with complementary businesses and companies, where
appropriate, in order to augment or expand our current offerings. While we
continually examine those possibilities, we have not entered into any
agreements with respect to any such acquisitions, joint ventures or
strategic investments, nor do we have any plans or arrangements at the
present time.
ESTABLISHING AN AFFILIATE NETWORK. We intend to establish an affiliate
network whereby third party web-sites can earn commissions by linking users
from their sites to our online store. Commissions would be earned if such
users made purchases at our online store.
CONTINUE TO INVEST IN TECHNOLOGY TO FURTHER DEVELOP STATE-OF-THE-ART
PRODUCT, SERVICE AND LOGISTICS PLATFORMS. We plan to continue to invest in
technologies that improve our Web site and our ability to support its growth
while offering our customers the most convenient, user-friendly and secure
online shopping experience as possible.
In addition to the foregoing strategies, we believe that the following
factors will help provide us with a competitive advantage:
COMPETITIVE PRICING. Our affiliation with DG gives us the benefit of their
high capacity and quality, low-cost manufacturing process. We believe this
gives us a price advantage over other web-based jewelry retailers.
PERSONALIZED SERVICE. During the second quarter of the year 2000, we intend
to launch our "Jeweler Jack" personalized shopping system. The Jeweler Jack
personalized shopping system will lead customers through the shopping
process by asking questions and making recommendations. We intend that the
Jeweler Jack system will be interactive and will be integrated with our Web
site's other editorial content.
RICH EDITORIAL AND EDUCATIONAL CONTENT. We intend to provide users of our
site with accurate and authoritative information with regard to jewelry
purchases. We intend that this information will include educational and
editorial content such as articles on the proper method for selection of
diamond rings or the role of skin tone in jewelry selection. Our group of
editorial experts includes Jack Berkovits, our chairman and author of
several industry journal articles on jewelry. We strive to integrate our
editorial content with our "Jeweler Jack" electronic shopping assistant.
HIGH LEVEL OF CUSTOMER SERVICE. We believe that high levels of customer
service and support are critical to retain and expand our customer base. Our
system monitors orders from the time they are placed through delivery by
providing points of electronic, telephonic and personal
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communication with our customers. Our customer service staff are well
trained and are able to provide information on jewelry and walk customers
through purchase decisions.
SALES AND MARKETING
ONLINE STRATEGIC ALLIANCES. Since our inception, we have pursued strategic
alliances with premier online companies and high-traffic Web sites with the goal
of driving traffic to our online store. Our largest strategic alliance is with
AOL. On July 9, 1999, we entered into a one-year agreement with AOL to become a
gold tenant in the jewelry and watch category on AOL, Netscape and Compuserve.
On March 10, 1999, DG entered into an agreement with AOL Canada, which was
subsequently transferred to us in connection with the transfer of DG's online
business, to be featured as an anchor tenant in the jewelry shopping section of
AOL Canada's network. The jewelry shopping section of AOL Canada's network is
not expected to be functional until the first quarter of the year 2000. DG has
not obtained AOL Canada's consent to the transfer. DG has entered into
non-exclusive arrangements, each of which were subsequently transferred to us,
for distribution of jewelry products with DealDeal.com, Factory2home.com,
iconomy.com, 2themart.com and Espanol.com. These agreements are generally
cancellable at will and DG has not obtained the consent to transfer any of these
agreements. The agreements require us to pay the online companies a royalty on
all sales made on the respective sites and in some cases an up front fee. We
have also occasionally listed our products on several online auction sites such
as Amazon.com and Yahoo.com and we have an exclusive arrangement with uBid.com.
In September 1999, we entered into a two-year agreement with theglobe.com,
whereby we will be the exclusive jewelry tenant.
AFFILIATE NETWORK. In addition to securing alliances with high-traffic Web
sites, we intend to establish an affiliate network consisting of third parties,
whereby third-party web-sites can earn commissions from us by linking users from
their site to our online store.
ADVERTISING. Upon receipt of the proceeds from this offering we intend to
begin a comprehensive national print, radio, television and online banner
campaign in Canada and the U.S., as well as hire a celebrity spokesperson, to
increase awareness of our Web site.
SHOPPING AT OUR ONLINE STORE
We believe our online store provides our customers with superior features,
pricing and convenience.
Our online store offers visitors several special features arranged in what
we believe to be are simple, easy-to-use formats intended to enhance product
search, selection and discovery. By clicking on the permanently displayed
products and product categories, our users can move directly to the Web page
that contains details about the particular products. Users can browse
promotions, such as our offer of the month and other feature products. Customers
can also link to pages based on product category, such as women's jewelery or
men's jewelery, necklaces, bracelets, as well as other product categories.
The most prominent feature of our online store is the interactive,
searchable catalog of our line of products. Our search capabilities allow users
to search for a product by category, such as rings, earings, pendants,
necklaces, bracelets, diamonds and watches.
To purchase products, customers simply click on a button to add products to
their virtual shopping cart. Customers can add and subtract products from their
shopping cart as they browse around our store prior to making a final purchase
decision, just as in a physical store. To execute orders, customers click on the
checkout button and, depending upon whether the customer has previously shopped
with us, are prompted to supply shipping details online. We also offer customers
a variety of gift wrapping and shipping options during the checkout process.
Prior to finalizing an order by clicking the submit
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order button, customers are shown their total charges along with the various
options chosen, such as shipping method, at which point customers still have the
ability to change their order or cancel it entirely.
To pay for orders, a customer must use a credit card, which is authorized
during the checkout process, but which is charged when we ship the customer's
items. Our online store uses a security technology that works with the most
common Internet browsers and makes it highly unlikely that an unauthorized party
can read information sent by our customers. Once an order is placed, we notify
the customer of our receipt of the order and at the time the order is shipped we
notify the customer by e-mail that the order has been shipped. Additionally, our
customers can speak to a customer service representative by telephone from
Monday through Friday between the hours of 7:30 a.m. and 7:00 p.m. eastern
standard time.
Our average daily page views, which represent the number of times per day
our server delivers a page to a user, has grown consistently. In
September 1999, we had an average of 14,253 hits per day and 948 user sessions
per day. On average, users spend approximately eighteen minutes per visit at our
online store.
WARRANTIES
We offer a 30-day money back guarantee on all of our products and agree to
service such products for a period of one-year from the date of purchase. DG
provides us with a 30 day manufacturer's warranty, although the customer deals
directly with us.
ORDER FULFILLMENT
Internet customer orders are processed at DG's distribution center in
Toronto, for Canadian and international orders and DG's distribution center in
New Jersey, for United States orders. Orders are forwarded to the respective DG
distribution center where the order items are selected and shipped.
TECHNOLOGY
Our online store is maintained on servers located at 151 Front Street in
Toronto, Canada. The servers are connected to the Internet over 10 megabit link
to a high density point of presence provided by IT Canada. We have in place a
redundant mirror of the live site in the event of equipment failure.
INTELLECTUAL PROPERTY
DG has applied for a trademark for the name "NETJEWELS" with the United
States Patent and Trademark Office. We have reserved site names in the names
"NetJewels" and "NetJewls". DG is the owner of these domain names.
We rely on various intellectual property laws and contractual restrictions
to protect our proprietary rights in products and services. These include
confidentiality, invention assignment and nondisclosure agreements with our
employees, contractors, vendors and strategic partners. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use our intellectual property without our authorization. In addition, we
pursue the registration of our trademarks and service marks in the U.S. and
internationally. However, effective intellectual property protection may not be
available in every country in which our services are made available on line. We
are aware of several trademarks which are somewhat similar to ours and may
create a likelihood of confusion. Depending on the activities of other companies
using similar names our brand name could be damaged.
We rely on technologies that we license from third parties. These licenses
may not continue to be available to us on commercially reasonable terms in the
future. As a result, we may be required to
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obtain substitute technology of lower quality or at greater cost, which could
materially adversely affect our business, results of operations and financial
condition.
As of the date of this prospectus, we have not been notified that our
technologies infringe the proprietary rights of third parties. However, there
can be no assurance that third parties will not claim infringement by us with
respect to our current or future technologies. We expect that participants in
our markets will be increasingly subject to infringement claims as the number of
services and competitors in our industry segment grow. Any infringement claim,
with or without merit, could be time-consuming, result in costly litigation,
cause service upgrade delays or require us to enter into royalty or licensing
agreements. These royalty or licensing agreements might not be available on
terms acceptable to us or at all. As a result, any claim of infringement against
us could have a material adverse effect upon our business.
COMPETITION
The online commerce market is new, rapidly evolving and intensely
competitive. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any of which could seriously
harm our net sales and results of operations. We expect competition to intensify
in the future because current and new competitors can enter our market with
little difficulty and can launch new Web sites at a relatively low cost. In
addition, the retail jewelry industry is intensely competitive.
We currently or potentially compete with a variety of other companies
including:
- traditional store-based jewelry retailers such as Zales, Gordons, Sterling
and Friedmans.
- department store retailers such as Sears, J.C Penney, Macy's and Ward's.
- major discount retailers such as Wal-Mart, Kmart, Target and Service
Merchandise;
- cable shopping networks such as QVC (to whom DG is a major supplier) and
HSN;
- online efforts of these traditional and cable network retailers, including
the online stores operated by QVC, ValueAmerica and Zales;
- catalog retailers of jewelry;
- other online retailers that may include jewelry as part of their product
offerings, such as Amazon.com;
- online wedding portal sites that feature shopping services, such as
theKnot.com and Modern Bride;
- Internet portals, online auction services and online service providers
that feature shopping services, such as eBay, Yahoo! and Amazon.com; and
- various online retailers of jewelry, such as All Fine Jewelry, eJewelry
and Just Jewelry.
We believe that the following are the principal competitive factors in our
market:
- brand recognition;
- selection;
- order delivery performance;
- customer service;
- site features and content; and
- price.
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Many of our current and potential traditional store-based and online
competitors, particularly the traditional store-based retailers and the brand
owners of products we sell, have longer operating histories, larger customer or
user bases, greater brand recognition and significantly greater financial,
marketing and other resources than we do. Many of these current and potential
competitors can devote substantially more resources to web site and systems
development than we can. In addition, larger, well-established and well-financed
entities may acquire, invest in or form joint ventures with online competitors.
Our online competitors are particularly able to use the internet as a
marketing medium to reach significant numbers of potential customers. Finally,
new technologies and the expansion of existing technologies, such as price
comparison programs that select specific titles from a variety of web sites and
may direct customers to other online retailers, may increase competition.
GOVERNMENT REGULATION
We are not currently subject to direct federal, state or local regulation
other than regulations applicable to businesses generally and directly
applicable to online commerce. However, as internet use gains popularity, it is
possible that a number of laws and regulations may be adopted with respect to
the internet. These laws may cover issues such as user privacy, freedom of
expression, pricing, content and quality of products and services, taxation,
advertising, intellectual property rights and information security. Furthermore,
the growth of online commerce may prompt calls for more stringent consumer
protection laws. Several states have proposed legislation to limit the uses of
personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission has also initiated
action against at least one online service regarding the manner in which
personal information is collected from users and provided to third parties. We
do not currently provide personal information regarding our users to third
parties. However, the adoption of additional consumer protection laws could
create uncertainty in web usage and reduce the demand for our products and
services.
We are not certain how our business may be affected by the application of
existing laws governing issues such as property ownership, copyrights,
encryption and other intellectual property issues, taxation, libel and obscenity
matters. The vast majority of these laws were adopted prior to the advent of the
internet. As a result, they do not contemplate or address the unique issues of
the internet and related technologies. Changes in laws that are intended to
address these issues could create uncertainty in the internet market place. This
uncertainty could reduce demand for our services or our cost of doing business
may increase as a result of litigation costs or increased service delivery
costs.
In addition, because our services are available over the Internet in
multiple states and foreign countries, other jurisdictions may claim that we are
required to qualify to do business in that state or foreign country. We are
qualified to do business only in Delaware. Our failure to qualify in a
jurisdiction where we are required to do so could subject us to taxes and
penalties. It could also hamper our ability to enforce contracts in these
jurisdictions. The application of laws or regulations from jurisdictions whose
laws do not currently apply to our business could have a material adverse effect
on our business, results of operations and financial condition.
EMPLOYEES
As of October 31, 1999, we employed 15 full-time employees, five of which
are involved in management, two in purchasing, three in shipping and
fulfillment, two in graphic design and three in customer service. We also employ
independent contractors to perform duties in various departments, including
software development, editorial production and administration. Our employees are
not represented by labor unions, and we consider our relationship with our
employees to be good. We believe that our success is dependent on our ability to
attract and retain qualified personnel in
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numerous areas, including software development. We expect to hire a full time
director of marketing, as well as a chief financial officer and chief
information officer following the offering.
FACILITIES
Our principal administrative, marketing and technical facilities are located
in approximately 3,000 square feet of office space in Toronto subleased from DG.
This lease expires in December 2001. We have an option to renew our sublease for
an additional five (5) years. The lease provides for annual payments of $6,000;
which increase annually by the greater of 5% or the increase in the CIPI for
Toronto as published by statistics Canada. We expect that our future growth will
require us to secure new office space to adequately house our operations.
LEGAL PROCEEDINGS
We are not involved in any pending, or to our knowledge, any threatened
legal proceedings. We may from time to time become a party to various legal
proceedings in the ordinary course of business.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed, with the Securities and Exchange Commission, a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered hereby. This prospectus does not contain all of the information in the
registration statement, the exhibits and schedules. For more information, about
our common stock and us, please refer to the registration statement, exhibits
and schedules. Statements made in this prospectus as to the contents of any
contract, agreement or other documents referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the registration statement, reference is made to the exhibit for a
more complete description of the matter involved.
The registration statement, exhibits and schedules may be inspected without
charge and copied at the public reference facilities maintained by the SEC in
Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549, and at the SEC's
regional offices located at Citicorp Center, 500 West Madison, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material may be obtained at prescribed rates from such
offices upon the payment of the fees proscribed by the SEC. The SEC phone number
is 1-800-SEC-0330.
The SEC maintains a Web site that contains registration statements, reports,
proxy and other information regarding registrants that file electronically with
the Securities and Exchange Commission. The address for the Web site is
http://www.sec.gov.
The Nasdaq Amex Market Group, Inc. maintains a Web site that contains
information regarding registrants at http://www.Nasdaq.com. Once our common
stock is listed on Nasdaq, you will be able to find information on us on the Web
site.
As a result of this offering, we will be subject to the informational
requirements of the Exchange Act. So long as we are subject to the periodic
reporting requirements of the Exchange Act, we will furnish reports and other
information required thereby to the Commission. We intend to furnish our
shareholders with annual reports containing, among other information, audited
financial statements certified by an independent accounting firm and quarterly
reports containing unaudited financial statements. We also intend to file such
other reports as we may determine or as may be required by law.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL
The following table sets forth information about our directors and executive
officers and key personnel as of October 31, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Jack Berkovits.............................. 47 Chairman of the board
Daniel Berkovits............................ 24 Chief executive officer and director
Ben Berkovits............................... 25 President, chief operating officer and director
Albert Reichmann............................ 71 Director Nominee
Greg Lerman................................. 54 Director Nominee
</TABLE>
JACK BERKOVITS, CHAIRMAN. Since July 1999, Mr. Berkovits has served as our
chairman. From 1977 to the present, Mr. Berkovits has served as the chief
executive officer and chairman of D.G. Jewelry Inc., a company whose securities
are traded on The Nasdaq National Market. In 1979, Mr. Berkovits purchased a
controlling interest in DG. Mr. Berkovits has extensive experience in the
production, sales and marketing of jewelry through mass merchandise accounts and
direct television retailers including HSN, QVC and ValueVision. Mr. Berkovits
currently appears on his own show as "Trader Jack" on ValueVision which began
approximately twelve years ago. The "Trader Jack" show airs for approximately
fifteen hours per month. Mr. Berkovits earned a Bachelor of Commerce at Sir
George Williams University (Montreal) in 1973.
DANIEL P. BERKOVITS, CEO. Since January 1999, Mr. Berkovits has served as
our chief executive officer. From July 1998 to December 1998, Mr. Berkovits was
an analyst in investment banking at Scotia McLeod, a Canadian investment banking
firm. Mr. Berkovits was responsible for negotiating DG's strategic alliances
with Amazon.com, Ubid, Bid.com and Egghead. Mr. Berkovits earned his M.S. degree
in finance at Johns Hopkins University in June 1998. Mr. Berkovits earned a
Bachelor of Talmudic Law from Ner Israel College in December 1996.
BEN BERKOVITS, PRESIDENT AND COO. Since January 1999, Mr. Berkovits has
served as our president and chief operating officer. From July 1997 to
January 1999, Mr. Berkovits served as national accounts manager at D.G. Jewelry.
Mr. Berkovits earned a Bachelor of Science from Touro College in 1998.
ALBERT REICHMANN, DIRECTOR NOMINEE. Upon completion of this offering,
Mr. Reichmann has agreed to serve as a member of our board of directors. From
1960-1992, Mr. Reichmann served as president of O&Y Development, one of the
largest worldwide real estate development companies. Since 1992, Mr. Reichman
has been a private investor focusing on structuring real estate and
entertainment transactions.
GREG LERMAN, DIRECTOR NOMINEE. Upon completion of this offering,
Mr. Lerman has agreed to serve as a member of our board of directors. In
January 1999, Mr. Lerman was named president of the electronic commerce division
of Paxson Communications. From January 1998 to January 1999, Mr. Lerman was
Executive Vice President and General Manager of ValueVision Television, the
nations third largest television home-shopping network. From February 1997 to
September 1997, Mr. Lerman was president and chief executive officer of Kent and
Spiegel Direct. From November 1989 to February 1997, Mr. Lerman served as an
Executive Vice President of Fingerhut Companies. Mr. Lerman earned a B.A. in
History from the University of Minnesota in 1978.
We expect to increase the depth of our management team to help implement our
growth strategy. Following the completion of this offering, we intend to expand
our senior management team to include a new chief financial officer, director of
marketing and chief information officer.
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DIRECTORS AND EXECUTIVE OFFICERS
Directors hold office until the next annual meeting of stockholders or until
their successors have been duly elected and qualified. Our by-laws provide for a
minimum of three directors to serve on our board.
Our executive officers are appointed by our board of directors on an annual
basis and serve until the next annual meeting of the board of directors or until
their successors have been duly elected and qualified.
The representative of this offering has been granted the right to designate
a nominee to our board of directors for a period of five years from the
effective date of this offering. In the event that the representative does not
elect to exercise this right, then the representative may designate one person
to attend our board of directors' meeting.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Jack Berkovits, our chairman, is the father of Daniel Berkovits, our chief
executive officer and Ben Berkovits our president and chief operating officer,
and Daniel Berkovits and Ben Berkovits are brothers.
DIRECTOR COMPENSATION AND COMMITTEES
Upon completion of the offering, our board of directors intends to establish
two formal committees; an audit committee, and a compensation committee, each of
which will consist of Jack Berkovits, our chairman, and two independent outside
directors.
The functions of the audit committee include: (a) recommending for approval
by the board of directors a firm of certified public accountants whose duty it
will be to audit our financial statements for the fiscal year in which they are
appointed, and (b) to monitor the effectiveness of the audit effort, our
internal financial and accounting organization and controls and financial
reporting. The audit committee will also consider various capital and investment
matters.
We intend that our compensation committee will consist of Jack Berkovits,
Greg Lerman and Albert Reichmann. Greg Lerman and Albert Reichman have not been
officers or employees of ours since our inception. None of our executive
officers serve as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of our
board of directors or compensation committee.
The compensation committee is responsible for establishing compensation
arrangements for our officers and directors, reviewing benefit plans and
administering our stock option plan.
Upon completion of the offering, directors who are not our employees will
receive $5,000 per year for services rendered as a director and $1,000 for
attending each meeting of the board of directors or one of its committees. In
addition, directors will be reimbursed for expenses incurred in connection with
attendance at any meeting of the board of directors or committees. Other than
reimbursement for expenses, directors who are our employees receive no
additional compensation for service as a director. To date, we have not paid any
amounts to any of our directors for acting in such capacity.
EXECUTIVE COMPENSATION
Since January 1, 1999, we have paid compensation to Daniel Berkovits, Ben
Berkovits and Jack Berkovits in the amounts of $50,000, $50,000 and $30,000,
respectively. We issued Jack Berkovits 100,000 warrants to purchase 100,000
shares of our common stock at $.10 per share in connection with his consulting
agreement.
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<PAGE>
EMPLOYMENT AGREEMENTS
As of January 1, 1999, we entered into three-year employment agreements with
each of Daniel Berkovits, Ben Berkovits and Jack Berkovits providing for annual
salaries of $100,000 each, with minimum annual increases of $15,000 each. The
annual salary of each of Daniel Berkovits and Ben Berkovits will be increased to
$150,000, as provided in each of their respective agreements, upon completion of
this offering. In addition, each is entitled to a $1,000 per month car
allowance. The agreement with Daniel and Ben Berkovits contain standard
confidentiality provisions and prohibit the employees from engaging in any other
business or occupation without our prior written consent.
STOCK OPTION PLAN
We adopted the 1999 stock option plan in September 1999. The plan will be
administered by the compensation committee or our board of directors, who will
determine among other things, those individuals who shall receive options, the
time period during which the options may be partially or fully exercised, the
number of shares of common stock issuable upon the exercise of the options and
the option exercise price. The options may be granted as either or both of the
following: (a) incentive stock options, or (b) non-qualified stock options.
750,000 shares may be issued under this plan. To date, no options have been
granted under the plan.
In connection with the plan, the exercise price of each incentive stock
option may not be less than 100% of the fair market value of our common stock on
the date of grant or 110% of fair market value in the case of an employee
holding 10% or more of our outstanding common stock. The aggregate fair market
value of shares of common stock for which incentive stock options granted to any
employee are exercisable for the first time by such employee during any calendar
year, pursuant to all of our, or any related corporation's, stock option plan,
may not exceed $100,000. Non-qualified stock options may be granted at a price
determined by our compensation committee, but not at less than 85% of the fair
market value of our common stock. Stock options granted pursuant to our stock
option plan will expire not more than ten years from the date of grant.
The plan is effective for a period of ten years, expiring in 2009. Options
may be granted to officers, directors, consultants, key employees, advisors and
similar parties who provide their skills and expertise to us. The plan is
designed to enable our management to attract and retain qualified and competent
directors, employees, consultants and independent contractors. Options granted
under the plan may be exercised for up to ten years, require a minimum two year
vesting period, and shall be at an exercise price all as determined by our
board. Options are non-transferable except by the laws of descent and
distribution or a change in control of us, as defined in the plan, and are
exercisable only by the participant during his or her lifetime. Change in
control includes (a) the sale of substantially all of the assets of us and
merger or consolidation with another company, or (b) a majority of the board
changes other than by election by the stockholders pursuant to board
solicitation or by vacancies filled by the board caused by death or resignation
of such person.
If a participant ceases affiliation with us by reason of death, permanent
disability or retirement at or after age 70, the option remains exercisable for
one year from such occurrence but not beyond the option's expiration date. Other
types of termination allow the participant three months to exercise, except for
termination for cause which results in immediate termination of the option.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by us become available again for issuance under the plan.
The plan may be terminated or amended at any time by our board of directors,
except that the number of shares of common stock reserved for issuance upon the
exercise of options granted under the plan may not be increased without the
consent of our stockholders.
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<PAGE>
LIMITATION ON LIABILITY
Our certificate of incorporation and by-laws provide that we shall indemnify
to the fullest extent permitted by Delaware law any person whom we may indemnify
thereunder, including our directors, officers, employees and agents. This
indemnification, other than as ordered by a court, shall be made by us only upon
a determination that indemnification is proper in the circumstances because the
individual met the applicable standard of conduct. Advances for such
indemnification may be made pending this determination. This determination shall
be made by a majority vote of a quorum consisting of disinterested directors, or
by independent legal counsel or by the stockholders. In addition, our
certificate of incorporation provides for the elimination, to the extent
permitted by Delaware law, of personal liability of our directors for monetary
damages for breach of fiduciary duty as directors.
We intend to obtain a directors and officers insurance and company
reimbursement policy prior to or shortly after the completion of this offering.
We intend that the policy will insure directors and officers against
unindemnified losses arising from certain wrongful acts in their capacities and
would reimburse us for such loss for which we have lawfully indemnified the
directors and officers.
We have also agreed to indemnify each of our directors and executive
officers pursuant to an indemnification agreement with each director and
executive officer from and against any and all expenses, losses, claims, damages
and liability incurred by such director or executive officer for or as a result
of action taken while a director or an executive officer was acting in his
capacity as a director, officer, employee or agent of ours. We intend to enter
into formal indemnification agreements with such individuals prior to the
completion of this offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be provided to directors, officers and controlling persons of ours, we have
been advised that in the opinion of the Commission, this indemnification is
against public policy as expressed in the Securities Act and is therefore,
unenforceable.
The underwriting agreement provides for reciprocal indemnification between
us and the representative against certain liabilities in connection with this
offering, including liabilities under the Securities Act.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this prospectus,
information with respect to the beneficial ownership of our common stock by:
- each of our directors and director nominees;
- each executive officer named in the Executive compensation section under
"Management";
- all of our executive officers and directors as a group; and
- each person known by us who beneficially owns 5% or more of the
outstanding shares of our common stock.
Unless otherwise indicated, each of the stockholders listed below has sole
voting and investment power with respect to the shares beneficially owned.
A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this prospectus upon the
exercise of warrants or options. Each beneficial owner's percentage ownership is
determined by assuming that options or warrants that are held by such person,
but not those held by any other person, and which are exercisable within
60 days from the date of this prospectus have been exercised. Unless otherwise
indicated, we believe that all persons named in this table have sole voting and
investment power with respect to all shares of common stock beneficially owned
by them. Common stock beneficially owned is based on 3,400,000 shares
outstanding prior to the offering and 5,600,000 shares outstanding after the
offering.
Unless otherwise indicated, the address of each person listed below is 1001
Petrolia, North York, Ontario, Canada M3J 2X7.
<TABLE>
<CAPTION>
PERCENTAGE OF OWNERSHIP
NUMBER OF SHARES ------------------------------------------
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PRIOR TO THE OFFERING AFTER THE OFFERING
- ------------------------ ------------------ --------------------- ------------------
<S> <C> <C> <C>
D.G. Jewelry Inc (1)......................... 1,650,000 50.0% 30.0%
Daniel P. Berkovits(1)....................... 825,000 25.0% 15.0%
Ben Berkovits(1)............................. 825,000 25.0% 15.0%
Jack Berkovits(1)(2)(3)...................... 1,750,000 51.5% 31.2%
Albert Reichman.............................. 0 0.0% 0.0%
Greg Lerman.................................. 0 0.0% 0.0%
All directors and executive officers as a
group (five persons)(1)(3)................. 3,400,000 100.0% 60.7%
</TABLE>
- ------------------------
(1) Such beneficial ownership arises from their respective ownership interests
in NetJewels Canada.
(2) Includes 1,650,000 shares beneficially owned by D.G. Jewelry Inc. of which
Mr. Berkovits is the Chief Executive Officer, President and Chairman.
(3) Includes 100,000 shares of common stock issuable upon the exercise of
currently exercisable warrants. The warrants are exercisable for a period of
three years beginning on September 30, 1999, at $.10 per share.
CERTAIN TRANSACTIONS
Following completion of this offering, DG will beneficially own
approximately 30% of our outstanding common stock and either directly or through
subsidiaries will control us. Mr. Jack Berkovits, the chairman of the board of
both us and DG, is currently the beneficial owner of approximately 49.3% of the
common stock of DG. Daniel P. Berkovits and Ben Berkovits, our CEO and
President/COO respectively, are the sons of Jack Berkovits. Daniel P. Berkovits
and Ben Berkovits
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<PAGE>
each, through their respective ownership of NetJewels Canada, beneficially owns
approximately 15% of us following completion of this offering.
Since our inception, DG has advanced to us approximately $900,000 which has
been utilized primarily to finance our start-up costs. Such advance bears no
interest and is payable upon demand. DG intends to continue to fund our
operations until we are able to fund our own operations. We will use a portion
of this offering to repay this amount to DG. DG transferred us all of its online
business operations in exchange for $1,800,000 which will be repaid out of the
proceeds of this offering. DG has a security interest in all of our assets until
such amounts are paid.
Since our inception, we have purchased all of our merchandise from DG.
Pursuant to our intercompany service agreement with DG, DG supplies us with
products at a price guaranteed to be no less favorable than the lower of the
price it offers to its best customers and DG's cost plus 15%. In addition, on
all products sold by us through a third party auction site, DG will amend the
purchase price to an amount equal to 85% of the final amount actually received
by us, so that we are guaranteed a 15% profit on all items sold through an
auction site. Through its distribution facilities, DG accounted for 100% of our
purchases to date and is expected to account for substantially of our purchases
for the year ended June 30, 2000. From inception through September 30, 1999,
such purchases totalled $368,075. We expect to continue to source most of our
merchandise through DG in the future. We may, however, secure products from
other distributors and suppliers. This intercompany service agreement remains
effective for a term of five years and may be renewed thereafter for a term of
five years. Either party may terminate the agreement upon ninety (90) days
written notice to the other party. In addition, the intercompany services
agreement requires DG to provide us with certain general corporate services at a
price of $5,000 per month plus actual expenses. These services include
maintenance of insurance, property and casualty, medical, dental and life,
payroll processing, including the withholding of taxes, employment insurance and
Canada pension plan payments, preparation and filing of tax returns, benefits
administration and telecommunications.
We also lease 3,000 square feet of space from DG at an annual rent of
$6,000. The lease has a term of two years and expires on December 31, 2001, with
an option for an additional five years.
DG is the owner of our domain name and the trademark applications have been
filed in DG's name.
Between August 1998 and October 1998, Daniel Berkovits, our CEO loaned us an
aggregate of $12,000.00, at 8% interest payable on demand.
As chairman of our company, Mr. Jack Berkovits, during the term of his
employment agreement, will receive $100,000 per year, so long as he is chairman
of our company. Mr. Berkovits is also entitled to a $1,000 per month car
allowance. In connection with such service, we issued Mr. Berkovits 100,000
warrants which are exercisable to purchase 100,000 shares of common stock at
$.10 per share from September 30, 1999 to September 29, 2002.
In the future, we will present all proposed transactions between us and our
officers, directors or 5% shareholders, and affiliates to our board of directors
for its consideration and approval. Any such transaction will require approval
by a majority of the directors and such transactions will be on terms no less
favorable than those available to disinterested third parties.
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<PAGE>
DESCRIPTION OF SECURITIES
The following description of matters relating to our securities does not
purport to be complete and is qualified by Delaware law and to the provisions of
our certificate of incorporation, as amended, and bylaws, and the underwriting
agreement between us and the underwriter, copies of all which have been filed
with the Commission as exhibits to the registration statement of which this
prospectus is a part.
GENERAL
We are authorized by our certificate of incorporation to issue an aggregate
of 19,000,000 shares of common stock, $.01 par value per share and 1,000,000
shares of blank check preferred stock. Immediately prior to this offering, an
aggregate of 3,300,000 shares of our common stock were issued and outstanding.
All outstanding shares of common stock are of the same class and have equal
rights and attributes. No shares of preferred stock are outstanding.
COMMON STOCK
We are authorized to issue 19,000,000 shares of common stock, $.01 par value
per share. Each share of common stock entitles the holder thereof to one vote on
all matters submitted to a vote of the shareholders. Since the holders of common
stock do not have cumulative voting rights, holders of more than 50% of the
outstanding shares can elect all of our directors and approve significant
corporate transactions and holders of the remaining shares by themselves cannot
elect any directors. The holders of our common stock do not have preemptive,
conversion, redemption, subscription or cumulative voting rights. Holders of
common stock are entitled to receive ratably such dividends as may be declared
by our board of directors out of funds legally available therefor. In the event
of our liquidation, dissolution or winding up, holders of common stock will be
entitled to participate equally in net assets subject to the preferences that
may be applicable to any outstanding preferred stock. All outstanding shares of
common stock and common stock to be outstanding upon completion of this offering
are and will be validly authorized and duly issued, fully paid, and
non-assessable.
PREFERRED STOCK
Our certificate of incorporation authorizes the issuance of up to 1,000,000
shares of blank check preferred stock, the rights, privileges and preferences of
which may be designated by our board of directors from time to time.
Accordingly, our board of directors is empowered, without stockholder approval,
to issue preferred stock with dividend, liquidation, conversion, or other rights
that could adversely affect the rights of our stockholders. These shares may
have rights which are senior to our common stock. Preferred stock may be issued
in the future in connection with acquisitions, finances or such other matters as
our board of directors deems to be appropriate. In the event that any such
shares of preferred stock shall be issued, a certificate of designation, setting
forth the series of such preferred stock and the relative rights, privileges and
designations with respect thereto, shall be filed with the Secretary of State of
the State of Delaware. The effect of such preferred stock is that our board of
directors alone may authorize the issuance of preferred stock which could have
the effect of making more difficult or discouraging an attempt to obtain control
of us by means of a merger, tender offer, proxy contest or other means.
WARRANTS
We have 100,000 warrants outstanding which are exercisable to purchase
100,000 shares of common stock at $.10 per share from September 30, 1999 to
September 29, 2002. These warrants are owned by Jack Berkovits. These warrants
contain standard anti-dilution protection. Mr. Jack Berkovits has no
registration rights with respect to the shares issuable upon exercise.
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<PAGE>
REPRESENTATIVE'S WARRANTS
We have granted the representative, for a total of $22.00, warrants to
purchase up to 220,000 shares of our common stock. Each warrant is exercisable
into one share of our common stock for a period of four (4) years commencing one
(1) year after their issuance and sale, at 120% of the initial offering price of
our common stock. The representative is prohibited from transferring such
warrants for the first year except to partners of the underwriters or selling
group. For a period of (5) years from the date of the closing of our initial
public offering, we have granted the holders of the representative's warrants
certain demand and "piggyback" registration rights with respect to the common
stock issuable upon exercise of the representative's warrants. The
representative's warrants contain anti-dilution provisions providing for
automatic adjustment of the exercise price and number of shares upon the
occurrence of specific events including stock dividends, splits, mergers,
acquisitions and recapitalization.
TRANSFER AGENT
The Transfer Agent and Registrar for our common stock is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
38
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, we will have 5,500,000 shares of our
common stock issued and outstanding. The 2,200,000 shares of common stock
offered by this prospectus will be freely tradable without restriction or
further registration under the Securities Act, except for any shares purchased
or held by our affiliates, in general, a person who has a control relationship
with us, which will be subject to the limitations of Rule 144 adopted under the
Securities Act. The remaining 3,300,000 shares of common stock are "restricted
securities" as that term is defined under Rule 144, and may not be sold unless
registered under the Securities Act or sold pursuant to an exemption. These
restricted securities were issued and sold by us in private transactions in
reliance upon exemptions from registration under the Securities Act.
In general, under Rule 144, as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an "affiliate," as
defined under Rule 144, of ours, or persons whose shares are aggregated, who for
at least one year has beneficially owned restricted securities acquired directly
or indirectly from us or an affiliate of ours in a private transaction is
entitled to sell in brokerage transactions within any three-month period, a
number of shares that does not exceed the greater of (a) 1% of the total number
of outstanding shares of the same class, or (b) if the stock is quoted on a
national securities exchange, the average weekly trading volume in the stock
during the four calendar weeks preceding the day notice is given to the
Commission with respect to the sale. Sales under Rule 144 are also subject to
manner of sale and notice requirements and to the availability of current public
information about us. A person, or persons whose shares are aggregated, who is
not an affiliate and has not been an affiliate of ours for at least the three
months immediately preceding the sale and who has beneficially owned restricted
securities for at least two years is entitled to sell shares pursuant to
Rule 144(k) without regard to any of the limitations described above.
Rule 701 under the Securities Act provides that shares of common stock
acquired on the exercise of options granted under a written compensatory plan of
ours or contract with us prior to the date of this prospectus may be resold by
persons, other than our affiliates, beginning 90 days after the date of this
prospectus, subject only to the manner of sale provisions of Rule 144 and by
affiliates under Rule 144 without compliance with its one-year minimum holding
period, subject to limitations. There are 750,000 shares of our common stock
issuable upon the exercise of options which may be granted under our stock
option plan. Except as otherwise provided above, beginning 90 days after the
date of this prospectus, the option shares, if any, would be eligible for sale
in reliance on Rule 701, subject to vesting provisions. All of such shares are
subject to the 24 month lock-up.
Each of our officers and directors and all other holders of shares of our
common stock have agreed that, they will not, without the prior written consent
of the representative of the underwriters, directly or indirectly, sell or
otherwise dispose of any shares of our common stock or securities convertible
into or exercisable for our common stock during the twenty-four (24) month
period commencing on the effective date of the registration statement. Upon
expiration of the lock-up period, all of the shares of common stock subject to
such lock-up agreements will be eligible for sale under Rule 144. The 3,300,000
shares will become eligible for sale in accordance with the exemptive provisions
and the volume limitations of Rule 144 in January 2000, however, the owners of
such shares have agreed not to offer, sell or otherwise dispose of their for a
period of 24 months commencing on the effective date of our registration
statement without the prior approval of the representative.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the form
of which is filed as an exhibit to the registration statement filed with the
Commission of which this prospectus is a part, the underwriters named below
have, severally and not jointly, agreed through Security Capital Trading, Inc.,
as the representative of the underwriters, to purchase from us, and we have
agreed to sell to the underwriters, the aggregate number of shares of our common
stock set forth opposite their respective names:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS OF COMMON STOCK
- ------------ ----------------
<S> <C>
Security Capital Trading, Inc...............................
---------
Total....................................................... 2,200,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters under that agreement depend upon certain conditions, including the
absence of any material adverse change in our business and the receipt of
certificates, opinion and letters from our counsel and our independent public
accountants. The underwriters are committed to take and to pay for all of the
shares offered hereby, if any are purchased. In the event of a default by any of
the underwriters, purchase commitments of the non-defaulting underwriters may be
increased or the underwriting agreement may be terminated.
The underwriters have advised us that they propose to offer all or part of
the shares of common stock offered hereby directly to the public initially at
the price set forth on the cover page of this prospectus. They have also advised
us that they may offer shares of common stock to certain dealers at a price that
represents a concession of not more than $ per share, and that the
underwriter may allow, and these dealers may reallow, a concession of not more
than $ per share to certain other dealers. After the completion of this
offering, the price to the public and the concessions may be changed.
We have granted the underwriters an option, exercisable within 45 days after
the effective date of the registration statement of which this prospectus is a
part, to purchase up to an additional 330,000 shares of our common stock at the
same price per share as the initial 2,200,000 shares of common stock to be
purchased by the underwriters. The underwriters may exercise this option only to
cover over-allotments, if any. If the underwriters exercise this option, each of
the underwriters will have a firm commitment, subject to some conditions, to
purchase the same percentage of the additional shares of common stock as the
percentage of the initial 2,200,000 shares of common stock to be purchased by
that underwriter.
We have agreed to indemnify the underwriters and their controlling persons
against certain liabilities, including liabilities under the Securities Act, and
to contribute to payment the underwriters and their controlling persons may be
required to make.
We have agreed to pay the representative of the underwriters a
non-accountable expense allowance equal to 2.5% of the gross proceeds of this
offering, of which $25,000 has been paid as of the date of this prospectus. We
have also agreed to pay all expenses in connection with qualifying the
securities under the laws of those states the representative may designate,
including fees and expenses of counsel retained for such purposes by the
representative and the costs and disbursements in connection with qualifying the
offering with the National Association of Securities Dealers, Inc.
We have agreed to issue to the representative of the underwriters, for a
total of $22.00, warrants to purchase an aggregate of 220,000 shares of common
stock exercisable for a period of four years commencing one year after the
effective date of the registration statement of which this prospectus is a part,
at a price equal to 120% of the initial public offering price of the shares of
common stock. The representative's warrants contain anti-dilution provisions
providing for automatic adjustments of the
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<PAGE>
exercise price and number of shares issuable on exercise price and number of
shares issuable on exercise of the representative's warrants upon the occurrence
of some events, including stock dividends, stock splits, mergers, acquisitions
and recapitalizations.
The representative's warrants contain certain demand and piggyback
registration rights relating to the 220,000 shares of common stock issuable
thereunder. For the life of the representative's warrants, the representative
will have the opportunity to profit from a rise in the market price for voting,
dividend or other stockholder rights with respect to those warrants. The holders
of shares of common stock issued upon exercise of those warrants will have the
voting, dividend, and other stockholder rights of holder of shares of common
stock. The representative's warrants are restricted from sale, transfer,
assignment or hypothecation for the one year period from the date of this
prospectus, except to officers or partners of the underwriters and members of
the selling group and/or their officers or partners.
We have also granted to the representative of the underwriters the right,
for a period of 3 years from the closing of this offering, to nominate a
designee of the representative for election to our board of directors. The
representative has not yet exercised their right to designate this person. If
the representative elects not to exercise this right, then the representative
may designate one person to attend meetings of our board of directors.
We and our officers, directors and present shareholders have agreed that,
for a period of two years after the completion of this offering, without the
prior written consent of the representative of the underwriters, none of us will
sell or otherwise dispose of any of our respective equity securities or
securities convertible into our equity securities, except for the sale of shares
to the underwriters under the terms of the underwriting agreement.
The representative of the underwriters has informed us that the underwriters
do not expect any sales of the shares of common stock offered by this prospectus
to be made to discretionary accounts controlled by the underwriters.
Prior to this offering, there has been no established market in the United
States or elsewhere for our securities. The public offering price will be
determined by us in consultation with the representative of the underwriters. It
is expected that the price determination will take several factors into account,
including our results of operations, our future prospects and the prevailing
market and economic conditions at the time of this offering.
The representative, on behalf of the underwriters, may engage in
(a) over-allotment, (b) stabilizing transactions, (c) syndicate covering
transactions and (d) penalty bids. Over-allotment involves syndicate sales in
excess of this offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the shares of common stock
being offered so long as the stabilizing bids don not exceed a specified
maximum.
Syndicate covering transactions involve purchases of the shares of common
stock in the open market after the distribution has been completed in order to
cover syndicate short positions. Penalty bids permit the representative to
reclaim a selling concession from a syndicate member when the shares of common
stock originally sold by the syndicate member are purchased in a syndicate
covering transaction to cover syndicate short positions.
Stabilizing transactions, syndicate covering transaction sand penalty bids
may cause the price of the shares of common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on Nasdaq or otherwise and, if commenced, may be discontinued at any
time. In addition, the underwriters may engage in passive market making
transactions in our securities on the Nasdaq in accordance with Rule 103 of
Regulation M. Neither we nor the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the securities offered by this
prospectus.
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock
offered in this prospectus. These actions include purchasing common stock to
cover some or all of a short position of common stock maintained by the
representative and the imposition of penalty bids.
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<PAGE>
LEGAL MATTERS
The legality of the common stock offered by this prospectus and certain
legal matters in connection with the offering will be passed upon for us by
Gersten, Savage & Kaplowitz, LLP, New York, New York. Certain legal matters will
be passed upon for the underwriters by Orrick, Herrington & Sutcliffe LLP.
EXPERTS
Our consolidated financial statements for the year ended June 30, 1999,
appearing in this prospectus and registration statement have been audited by
Schwartz Levitsky Feldman Chartered Accountants, as set forth in their report
thereon appearing elsewhere herein, and in the registration statement, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
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<PAGE>
NETJEWELS.COM, INC.
FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
TOGETHER WITH AUDITORS' REPORT
<PAGE>
NETJEWELS.COM, INC.
FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
TOGETHER WITH AUDITORS' REPORT
TABLE OF CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-1
Balance Sheet............................................... F-2
Statement of Operations and Stockholders' Deficit........... F-3
Statement of Cash Flows..................................... F-4
Notes to Financial Statements............................... F-5-8
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
NetJewels.com, Inc.
We have audited the accompanying balance sheet of NetJewels.com, Inc. as of
June 30, 1999 and the related statement of operations and stockholders' deficit
and cash flows for the year ended June 30, 1999. These financial statements are
the responsibility of the management of NetJewels.com, Inc. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, these financial statements referred to above present fairly,
in all material respects, the financial position of NetJewels.com, Inc. as of
June 30, 1999 and the results of its operations and cash flows for the year
ended June 30, 1999, in conformity with generally accepted accounting principles
in the United States of America.
/s/ Schwartz Levitsky Feldman
Toronto, Ontario
August 13, 1999 Chartered Accountants
F-1
<PAGE>
NETJEWELS.COM, INC.
BALANCE SHEET
AS AT JUNE 30, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... $ 68
INTERNET CONTRACTS (note 2)................................. 1,800,000
WEB SITE ASSET.............................................. 62,916
----------
$1,862,984
==========
LIABILITIES
CURRENT LIABILITIES
Accounts payable.......................................... $2,204,953
ADVANCES FROM SHAREHOLDER (note 3).......................... 8,194
----------
2,213,147
STOCKHOLDERS' DEFICIENCY
CAPITAL STOCK (note 4)...................................... 68
DEFICIT..................................................... (350,231)
----------
(350,163)
----------
$1,862,984
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
NETJEWELS.COM, INC.
STATEMENT OF OPERATIONS AND STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED JUNE 30, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<S> <C>
SALES....................................................... $ 75,439
Cost of sales............................................. 64,009
---------
GROSS PROFIT................................................ 11,430
---------
EXPENSES
Start-up costs............................................ 361,661
---------
NET LOSS AND DEFICIT........................................ $(350,231)
=========
NET LOSS PER SHARE (note 5)................................. $ (0.11)
=========
Shares used in Computing Basic and Diluted Net Loss Per
Share..................................................... 3,300,000
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
NETJEWELS.COM, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $ (350,231)
Adjustments to reconcile net loss to net cash provided by
operating activities
Increase in accounts payable.............................. 2,204,953
-----------
1,854,722
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of internet contracts............................ (1,800,000)
Web site costs incurred................................... (62,916)
-----------
(1,862,916)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in advances from shareholder..................... 8,194
Issuance of common stock.................................. 68
-----------
8,262
-----------
CASH, END OF YEAR........................................... $ 68
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
NET JEWELS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
i) Principal Activities
The company was incorporated in the United States of America in June, 1999
but began operations in July, 1998. The company is a start-up internet based
retailer and wholesaler focused exclusively on jewellery and related products.
ii) Inventory
Inventory is valued at lower of cost or net realizable value. Cost is
determined on the first-in, first-out basis.
iii) Web Site Asset
Web site asset relates to the start-up costs incurred. It is to be amortized
over a period of 3 years.
iv) Other Financial Instruments
The carrying amount of the Company's acc0unts payable approximates fair
value because of the short maturity of this instrument.
v) Sales
Sales represent the invoiced value of goods supplied to customers. Sales are
recognized upon delivery of goods and passage of title to customers.
vi) Foreign Currency Translation
The company maintains its books and records in Canadian dollars. Foreign
currency transactions are translated using the temporal method. Under this
method, all monetary items are translated into Canadian funds at the rate of
exchange prevailing at balance sheet date. Non-monetary items are translated at
hist0rical rates. Income and expenses are translated at the rate in effect of
the transaction dates. Transaction gains and losses are included in the
determination of earnings for the year.
2. INTERNET CONTRACTS
Internet contracts represent the price paid to DG Jewellery for contracts
entered into with on-line internet auction web sites.
3. ADVANCES FROM SHAREHOLDER
The advances from shareholder is secured by a general assignment of the
company's assets, bearing interest at 8% per annum and without specific terms of
repayment.
4. CAPITAL STOCK
<TABLE>
<S> <C>
Authorized
19,000,000 shares of common stock.........................
1,000,000 shares of preferred stock.......................
Issued
3,300,000 Common stock.................................... $68
===
</TABLE>
F-5
<PAGE>
NET JEWELS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
5. NET LOSS PER COMMON SHARE
Fully diluted net loss per common share was the same as basic net loss per
common share for fiscal 1999.
6. RELATED PARTY TRANSACTION
Since inception, NetJewels.com, Inc. ("NJ") has purchased all of its
merchandise from DG Jewellery of Canada Ltd. ("DG"). Pursuant to the
intercompany services agreement, DG sells its products to NJ at a cost which is
guaranteed to deliver a gross profit of 15%, but in no event at a price which is
more than it charges any of its other wholesale clients. All amounts owed to DG
are secured by all of the assets of NJ.
Since inception, DG has provided NJ with corporate, fulfillment, space
sharing and other administrative services at a cost of $5,000 per month plus
actual expenses.
<TABLE>
<S> <C>
Amounts included in accounts payable........................ $2,204,953
==========
</TABLE>
7. COMMITMENTS
a) Minimum annual payments under the company's operating lease for premises
is $6,000. The lease expires May 2002.
b) The company has entered into advertising agreements with three on line
vendors to pay $1,250,000 in advertising for the next year with renewal
options.
c) Effective January 1, 1999, the Company entered into an employment
agreement with its Chairman for a three year term. The employment
agreement provides for a salary of $100,000 plus 100,000 warrants to
purchase 100,000 shares of common stock at $0.10 per share; plus a
$1,000/month automobile allowance. The amount payable is subject to
minimum annual increases of at least $15,000.
d) Effective January 1, 1999, the Company entered into employment
agreements with its CEO and COO for a three year term. The employment
agreements provides for an annual salary of $100,000/each plus
$1,000/month each of automobile allowance. If the Company's proposed IPO
is completed to the reasonable satisfaction, then the compensation
payable to the executives from the date of completion of the IPO to and
including the expiry of the term shall be based on an annual salary of
$150,000 each. The amount payable is subject to minimum annual increases
of at least $15,000.
8. ECONOMIC DEPENDENCE
Pursuant to an intercompany service agreement with DG Jewellery of
Canada Ltd. ("DG"), DG has accounted for 100% of the purchases to date and is
expected to account for substantially all of their purchases for the year ended
June 30, 2000.
F-6
<PAGE>
NET JEWELS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(AMOUNTS EXPRESSED IN US DOLLARS)
9. SUBSEQUENT EVENTS
a) The company has entered into a letter of engagement with an underwriting
firm and is proceeding to complete an initial public offering of
2,200,000 shares of common stock at a price of $11.00 per share.
9. SUBSEQUENT EVENTS (CONT'D)
b) In September 1999, the board of directors and stockholders adopted the
1999 NetJewels.com, Inc. Stock Option Plan (the "1999 Plan"), pursuant to
which 750,000 shares of Common Stock are provided for issuance. The 1999
Plan is administered by the board of directors or compensation committee.
The 1999 Plan is for a period of ten years, expiring September 2009. Options
may be granted to officers, directors, consultants, key employees, advisors and
similar parties who provide their skills and expertise to the Company. Options
granted under the 1999 Plan may be exercisable for up to ten years, require a
minimum two year vesting period, and shall be at an exercise price all as
determined by the board or compensation committee.
The exercise price of an option may not be less than the fair market value
per share of Common Stock on the date the option is granted in order to receive
certain tax benefits under the Income Tax Act of Canada (the "ITA"). The
exercise price of all future options will be at least 85% of the fair market
value of the Common Stock on the date of granting of the options.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the 1999 Plan.
The 1999 Plan may be terminated or amended at any time by the board of
directors, except that the number of shares of Common Stock reserved for
issuance upon the exercise of options granted under the 1999 Plan may not be
increased without the consent of the stockholders of the Company.
To date no options have been granted under the plan.
10. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect a company's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
F-7
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY US OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN OUR AFFAIRS
SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary................... 2
Risk Factors......................... 5
Special Note Regarding
Forward-Looking Statements......... 13
Use of Proceeds...................... 14
Dividend Policy...................... 16
Dilution............................. 16
Capitalization....................... 17
Selected Financial Data.............. 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 19
Business............................. 23
Management........................... 31
Principal Stockholders............... 35
Certain Transactions................. 35
Description of Securities............ 37
Shares Eligible for Future Sale...... 39
Underwriting......................... 40
Legal Matters........................ 42
Experts.............................. 42
Financial Statements................. F-1
</TABLE>
UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THE 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 UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
NETJEWELS.COM, INC.
2,200,000 SHARES OF COMMON STOCK
---------------------
PROSPECTUS
---------------------
SECURITY CAPITAL TRADING INC.
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of the estimated expenses to be paid by us in
connection with the issuance and distribution of the securities being
registered:
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 9,320.79
NASD Filing Fee............................................. 3,140.00
Nasdaq Listing Fees......................................... 63,725.00
Printing and Engraving Expenses *........................... 75,000.00
Legal Fees and Expenses *................................... 150,000.00
Accounting Fees and Expenses *.............................. 70,000.00
Blue Sky Fees and Expenses *................................ 15,000.00
Transfer Agent and Registrar Fees and Expenses.............. 2,500.00
Nonaccountable expense allowance............................ 605,000.00
Miscellaneous............................................... $ 11,314.21
-------------
Total....................................................... $1,005,000.00
=============
</TABLE>
- ------------------------
* estimate
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, among other things, and
subject to certain conditions, authorizes us to indemnify our officers and
directors against certain liabilities and expenses incurred by such persons in
connection with claims made by reason of their being such an officer or
director. Our restated certificate of incorporation and by-laws of the Company
provide for indemnification of our officers and directors to the full extent
authorized by law. Following the offering, we intend to procure officer's and
director's liability insurance.
Reference is made to the Underwriting Agreement, the proposed form of which
is filed as Exhibit 1.1, pursuant to which the underwriter agrees to indemnify
our directors and certain officers and certain other persons against certain
civil liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, we have sold unregistered securities as
described below. Unless otherwise indicated, there was no underwriters involved
in the transactions and there was no underwriting discounts or commissions paid
in connection therewith, except as disclosed below. Unless otherwise indicated,
the issuances of these securities were considered to be exempt from registration
under Section 4(2) of the Securities Act of 1933, as amended, and the
regulations promulgated thereunder. The purchasers of the securities in such
transaction represented their intention to acquire the securities for investment
only and not with a view to or for sale in connection with any distribution
thereof and appropriate legends were affixed to the certificates for the
securities issued in such transaction. The purchasers of the securities in the
transactions had adequate access to information about us.
In February 1999, we issued 3,300,000 shares of its common stock to
NetJewels Canada as the founder of the corporation pursuant to Section 4(2) of
the Securities Act of 1933, as amended.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the issuer pursuant
to any charter provision, by-law contract arrangements statute, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the 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 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 whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
THE UNDERSIGNED ISSUER HEREBY UNDERTAKES:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to suit information in the registration statement.
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the Offering of such securities
at that time shall be deemed to be the initial bona fide Offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
Offering.
(4) For determining any liability under the 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
issuer under Rule 424(b)(1), or (4) or 497(h), under the Act as part of this
registration statement as of the time the Commission declared it effective.
(5) For determining any liability under the Act, treat each post-effective
amendment that contains a form of prospectus as a new registration statement at
that time as the initial bona fide Offering of those securities.
ITEM 27. EXHIBITS
<TABLE>
<S> <C>
** 1.1 Form of Underwriting Agreement
** 1.2 Form of Representative's Warrant Agreement
** 1.3 Form of Representative's Warrants (included in the form of
Representative's Warrant Agreement
* 3.1 Bylaws of Registrant
* 3.2 Certificate of Incorporation dated June 21, 1999
* 3.3 Amended Certificate of Incorporation dated September 29,
1999
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
** 4.2 Form of Representative's Warrant (Included in Form of
Representative's Warrant Agreement)
** 4.3 Specimen Common Stock Certificate
** 5.1 Opinion of Gersten, Savage & Kaplowitz, LLP
*10.1 1999 Stock Option Plan
*10.2 Employment Agreement between the Company and Daniel
Berkovits.
*10.3 Employment Agreement between the Company and Ben Berkovits.
*10.4 Employment Agreement between the Company and Jack Berkovits
*10.5 Merchandising Agreement between DG Jewellery of Canada Ltd.
and theglobe.com, Inc.
**10.6 Shopping Channel Promotional Agreement between the Company
and America Online, Inc.
*10.7 Partnership Vendor Agreement between DG Jewellery of Canada
Ltd. and uBid.com, Inc.
**10.8 Merchant Partner Agreement between DG Jewellery and
2theMart.com, Inc.
**10.9 Sales and Distribution Agreement between DG Jewellery and
Iconomy.com, Inc.
**10.10 Agreement between DG Jewellery and Factorytohome.com
**10.11 Auction Agreement between iDeal International, Inc. and DG
Jewellery
*10.12 Intercompany Services Agreement between DG Jewelry and the
Company.
**10.13 Sales and Distribution Agreement between DG Jewelry and
Espanol.com.
**10.14 Sales and Distribution Agreement between DG Jewelry and
DealDeal.com
*23.1 Consent of Schwartz Levitsky Feldman, Chartered Accountants.
**23.2 Consent of Gersten, Savage & Kaplowitz, LLP (incorporated
into Exhibit 5.1)
**23.3 Consent of Albert Reichman
**23.4 Consent of Greg Lerman
*24.1 Power of Attorney (included on the signature page to this
Registration Statement)
*27 Financial Data Schedule
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Registrant certifies that it
has reasonable grounds to believe that it meets all of the requirement for
filing on Form S-1 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York on November 3, 1999.
<TABLE>
<S> <C> <C>
NETJEWELS.COM, INC.
By: /s/ DANIEL BERKOVITS
-----------------------------------------
Daniel Berkovits
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
We, the undersigned officers and directors of NetJewels.com, Inc. hereby
severally constitute and appoint Daniel Berkovits, our true and lawful
attorney-in-fact and agent with full power of substitution for us and in our
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and all documents
relating thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing necessary or advisable to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JACK BERKOVITS Chairman of the Board
------------------------------------------- November 3, 1999
Jack Berkovits
Chief Executive Officer,
/s/ DANIEL BERKOVITS Principal Accounting
------------------------------------------- Officer and Director November 3, 1999
Daniel Berkovits Chairman of the Board
/s/ BEN BERKOVITS President, Chief Operating
------------------------------------------- Officer and Director November 3, 1999
Ben Berkovits
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
** 1.1 Form of Underwriting Agreement
** 1.2 Form of Representative's Warrant Agreement
** 1.3 Form of Representative's Warrants (included in the form of
Representative's Warrant Agreement
* 3.1 Bylaws of Registrant
* 3.2 Certificate of Incorporation dated June 21, 1999
* 3.3 Amended Certificate of Incorporation dated September 29,
1999
** 4.2 Form of Representative's Warrant (Included in Form of
Representative's Warrant Agreement)
** 4.3 Specimen Common Stock Certificate
** 5.1 Opinion of Gersten, Savage & Kaplowitz, LLP
*10.1 1999 Stock Option Plan
*10.2 Employment Agreement between the Company and Daniel
Berkovits.
*10.3 Employment Agreement between the Company and Ben Berkovits.
*10.4 Employment Agreement between the Company and Jack Berkovits
*10.5 Merchandising Agreement between DG Jewellery of Canada Ltd.
and theglobe.com, Inc.
**10.6 Shopping Channel Promotional Agreement between the Company
and America Online, Inc.
*10.7 Partnership Vendor Agreement between DG Jewellery of Canada
Ltd. and uBid.com, Inc.
**10.8 Merchant Partner Agreement between DG Jewellery and
2theMart.com, Inc.
**10.9 Sales and Distribution Agreement between DG Jewellery and
Iconomy.com, Inc.
**10.10 Agreement between DG Jewellery and Factorytohome.com
**10.11 Auction Agreement between iDeal International, Inc. and DG
Jewellery
*10.12 Intercompany Services Agreement between DG Jewelry and the
Company.
**10.13 Sales and Distribution Agreement between DG Jewelry and
Espanol.com.
**10.14 Sales and Distribution Agreement between DG Jewelry and
DealDeal.com.
*23.1 Consent of Schwartz Levitsky Feldman, Chartered Accountants.
**23.2 Consent of Gersten, Savage & Kaplowitz, LLP (incorporated
into Exhibit 5.1)
**23.3 Consent of Albert Reichman
**23.4 Consent of Greg Lerman
*24.1 Power of Attorney (included on the signature page to this
Registration Statement)
*27 Financial Data Schedule
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
<PAGE>
Exhibit 3.1
BYLAWS
OF
NETJEWELS.COM, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
ARTICLE I
OFFICES AND RECORDS
Section 1.1. DELAWARE OFFICE. The principal office of the Corporation
in the State of Delaware shall be located in the City of Wilmington, County of
New Castle, and the name and address of its registered agent is The Corporation
Trust Company, 1209 Orange Street, Wilmington, Delaware.
Section 1.2. OTHER OFFICES. The Corporation may have such other
offices, either within or without the State of Delaware, as the Board of
Directors may designate or as the business of the Corporation may from time to
time require.
Section 1.3. BOOKS AND RECORDS. The books and records of the
Corporation may be kept at the Corporation's headquarters or at such other
locations outside the State of Delaware as may from time to time be designated
by the Board of Directors.
ARTICLE II
STOCKHOLDERS
Section 2.1. ANNUAL MEETINGS. An annual meeting of stockholders shall
be held for the election of directors at such date, time and place, either
within or without the State of Delaware, as may be designated by resolution of
the Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
Section 2.2. SPECIAL MEETINGS. Special meetings of stockholders for
any purpose or purposes may be called at any time by the Chairman of the Board
or a majority of the members of the Board of Directors.
Section 2.3. NOTICE OF MEETINGS. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given that shall state the place, date and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the Certificate of Incorporation or
these Bylaws, the written notice of any meeting shall be given not less than ten
or more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his or her address as it appears on the records of the
Corporation.
<PAGE>
Section 2.4. ADJOURNMENTS. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 2.5. QUORUM. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, at each meeting of stockholders
the presence in person or by proxy of the holders of shares of stock having a
majority of the votes which could be cast by the holders of all outstanding
shares of stock entitled to vote at the meeting shall be necessary and
sufficient to constitute a quorum. In the absence of a quorum, the stockholders
so present may, by majority vote, adjourn the meeting from time to time in the
manner provided in Section 2.4 of these Bylaws until a quorum shall attend.
Shares of its own stock belonging to the Corporation or to another corporation,
if a majority of the shares entitled to vote in the election of directors of
such other corporation is held, directly or indirectly, by the Corporation,
shall neither be entitled to vote nor be counted for quorum purposes; provided,
however, that the foregoing shall not limit the right of the Corporation to vote
stock, including but not limited to its own stock, held by it in a fiduciary
capacity.
Section 2.6. ORGANIZATION. Meetings of stockholders shall be presided
over by the Chairman of the Board, or in his or her absence by the Chief
Executive Officer, or in the absence of the foregoing persons by a chairman
designated by the Board of Directors, or in the absence of such designation by a
chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his or her absence the chairman of the meeting may appoint any
person to act as secretary of the meeting.
Section 2.7. VOTING.
(a) Except as otherwise provided by law, the Certificate of
Incorporation, or these Bylaws, any corporate action, other than the election of
Directors, the affirmative vote of the majority of shares entitled to vote on
that matter and represented either in person or by proxy at a meeting of
stockholders at which a quorum is present shall be the act of the stockholders
of the Corporation.
(b) Unless otherwise provided for in the Certificate of
Incorporation of the Corporation, Directors will be elected by a plurality of
the votes cast by the shares, present in person or by proxy, entitled to vote in
the election at a meeting at which a quorum is present and each stockholder
entitled to vote has the right to vote the number of shares owned by him for as
many persons as there are Directors to be elected.
(c) Except as otherwise provided by statute, the Certificate
of Incorporation, or
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these Bylaws, at each meeting of stockholders, each stockholder of the
Corporation entitled to vote thereat, shall be entitled to one vote for each
share registered in his name on the books of the Corporation.
Section 2.8 PROXIES. Each stockholder entitled to vote or to express
consent or dissent without a meeting, may do so either in person or by proxy, so
long as such proxy is executed in writing by the stockholder himself, or by his
attorney-in-fact thereunto duly authorized in writing. Every proxy shall be
revocable at will unless the proxy conspicuously states that it is irrevocable
and the proxy is coupled with an interest. A telegram, telex, cablegram, or
similar transmission by the stockholder, or as a photographic, photostatic,
facsimile, shall be treated as a valid proxy, and treated as a substitution of
the original proxy, so long as such transmission is a complete reproduction
executed by the stockholder. No proxy shall be valid after the expiration of
three years from the date of its execution, unless otherwise provided in the
proxy. Such instrument shall be exhibited to the Secretary at the meeting and
shall be filed with the records of the Corporation.
Section 2.9 ACTION WITHOUT A MEETING. Unless otherwise provided for in
the Certificate of Incorporation of the Corporation, any action to be taken at
any annual or special stockholders' meeting, may be taken without a meeting,
without prior notice and without a vote if a written consent or consents is/are
signed by the stockholders of the Corporation having not less than the minimum
number of votes necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereat were present and voted is delivered by hand
or by certified or registered mail, return receipt requested, to the Corporation
to its principal place of business or an officer or agent of the Corporation
having custody of the books in which proceedings of stockholders' meetings are
recorded.
Section 2.10. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF
RECORD. In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors and which record date: (i) in the case of
determination of stockholders entitled to vote at any meeting of stockholders or
adjournment thereof, shall, unless otherwise required by law, not be more than
sixty nor less than ten days before the date of such meeting and (ii) in the
case of any other action, shall not be more than sixty days prior to such other
action. If no record date is fixed: (i) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held and (ii) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record
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date for the adjourned meeting.
Section 2.11. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary
shall prepare and make, at least ten days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present. The stock ledger
shall be the only evidence as to which stockholders are entitled to examine the
stock ledger, the list of stockholders or the books of the Corporation, or to
vote in person or by proxy at any meeting of stockholders.
Section 2.12. CONDUCT OF MEETINGS. The Board of Directors of the
Corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of stockholders shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) rules and procedures for maintaining
order at the meeting and the safety of those present; (iii) limitations on
attendance at or participation in the meeting to stockholders of record of the
Corporation, their duly authorized and constituted proxies or such other persons
as the chairman of the meeting shall determine; (iv) restrictions on entry to
the meeting after the time fixed for the commencement thereof; and (v)
limitations on the time allotted to questions or comments by participants.
Unless and to the extent determined by the Board of Directors or the chairman of
the meeting, meetings of stockholders shall not be required to be held in
accordance with the rules of parliamentary procedure.
Section 2.13. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS.
The Board of Directors by resolution may appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives of the Corporation, to act at the meeting and make a written
report thereof. One or more persons may be designated as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate has been
appointed to act, or if all inspectors or alternates who have been appointed are
unable to act, at a meeting of stockholders, the chairman of the meeting shall
appoint one or more inspectors to act at the meeting. Each inspector, before
discharging his or her duties, shall take and sign an oath faithfully to execute
the duties of inspector with strict impartiality and according to the best of
his or her ability. The inspectors shall have the duties prescribed by the
General Corporation Law of the State of Delaware.
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The chairman of the meeting shall fix and announce at the meeting the date and
time of the opening and the closing of the polls for each matter upon which the
stockholders will vote at a meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors. In addition to the powers and authorities by these Bylaws expressly
conferred upon them, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law, by the
Certificate of Incorporation or by these Bylaws required to be exercised or done
by the stockholders.
Section 3.2. NUMBER; QUALIFICATIONS. The Board of Directors shall
consist of not less than three or more than ten members, the exact number to be
determined from time to time by resolution of the Board of Directors. Directors
need not be stockholders or residents of the State of Delaware.
Section 3.3. ELECTION, RESIGNATION. The first Board of Directors shall
hold office until the first annual meeting of stockholders and until their
successors have been duly elected and qualified or until there is a decrease in
the number of Directors. Thereinafter, each Director will be elected at the
annual meeting of stockholders and shall hold office until the annual meeting of
the stockholders next succeeding his election, or until his prior death,
resignation or removal. Any Director may resign at any time upon written notice
to the Board of Directors, the Chief Executive Officer or the Secretary of the
Corporation. Such resignation shall be effective upon receipt unless the notice
specifies a later time for that resignation to become effective.
Section 3.4. VACANCIES. Any newly created directorship resulting from
an increase in the authorized number of Directors or any vacancy occurring in
the Board of Directors by reason of death, resignation, retirement,
disqualification, removal from office or any other cause may be filled by the
affirmative vote of the remaining members of the Board of Directors, though less
than a quorum of the Board of Directors, and each Director so elected shall hold
office until the expiration of the term of office of the Director whom he or she
has replaced or until his or her successor is elected and qualified. If there
are no Directors in office, then an election of Directors may be held in the
manner provided by statute. No decrease in the number of Directors constituting
the whole Board shall shorten the term of any incumbent Director.
Section 3.5. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware and
at such times as the Board of Directors may from time to time determine, and if
so determined notices thereof need not be given.
Section 3.6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman of the Board, the Chief Executive
Officer, the Secretary, or by any two members of the Board of Directors.
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Notice of the date, time and place of a special meeting of the Board of
Directors shall be delivered by the person or persons calling the meeting
personally, by facsimile or by telephone to each Director or sent by first-class
mail or telegram, charges prepaid, addressed to each Director at that Directors'
address as it is shown on the records of the Corporation. If the notice is
mailed, it shall be deposited in the United States mail at least four days
before the time of the holding of the meeting. If the notice is delivered
personally or by telephone or telegraph, it shall be delivered at least
forty-eight hours before the time of the holding of the special meeting. If by
facsimile transmission, such notice shall be transmitted at least twenty-four
hours before the time of holding of the special meeting. Any oral notice given
personally or by telephone may be communicated either to the Director or to a
person at the office of the Director who the person giving the notice has reason
to believe will promptly communicate it to the Director. The notice need not
specify the purpose or purposes of the special meeting or the place of the
special meeting, if the meeting is to be held at the principal office of the
Corporation.
Section 3.7. TELEPHONIC MEETINGS PERMITTED. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Bylaw shall constitute presence in person at such meeting.
Section 3.8. QUORUM; VOTE REQUIRED FOR ACTION; ADJOURNMENT. At all
meetings of the Board of Directors a majority of the whole Board of Directors
shall constitute a quorum for the transaction of business. Except in cases in
which the Certificate of Incorporation or these Bylaws otherwise provide, the
vote of a majority of the Directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors. A majority of the Directors
present, whether or not a quorum, may adjourn any meeting to another time and
place. Notice of the time and place of holding an adjourned meeting need not be
given unless the meeting is adjourned for more than twenty-four hours. If the
meeting is adjourned for more than twenty-four hours, then notice of the time
and place of the adjourned meeting shall be given to the Directors who were not
present at the time of the adjournment in the manner specified in Section 3.6.
Section 3.9. ORGANIZATION. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, or in his or her absence by a
chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his or her absence the chairman of the meeting may appoint any
person to act as secretary of the meeting.
Section 3.10. INFORMAL ACTION BY DIRECTORS. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board of
Directors or such committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
of Directors or such committee.
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Section 3.11. FEES AND COMPENSATION OF DIRECTORS. Directors and members
of committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
Board of Directors. This Section 3.11 shall not be construed to preclude any
Director from serving the Corporation in any other capacity as an officer,
agent, employee or otherwise and receiving compensation for those services.
Section 3.12 REMOVAL. One or more or all the Directors of the
Corporation may be removed with or without cause at any time by the
stockholders, at a special meeting of the stockholders called for that purpose,
unless the Certificate of Incorporation provides that Directors may only be
removed for cause, provided however, such Director shall not be removed if the
Certificate of Incorporation or Bylaws provides that its Directors shall be
elected by cumulative voting and there are a sufficient number of shares cast
against his or her removal, which if cumulatively voted at an election of
Directors would be sufficient to elect him or her.
ARTICLE IV
COMMITTEES
Section 4.1. COMMITTEES. The Board of Directors may designate from
among its members one or more standing or special committees, each committee to
consist of one or more of the Directors of the Corporation. The Board of
Directors may designate one or more Directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of the committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or she or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in place
of any such absent or disqualified member. Any such committee, to the extent
permitted by law and to the extent provided in the resolution of the Board of
Directors, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it.
Section 4.2. COMMITTEE RULES. Unless the Board of Directors otherwise
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article III of these Bylaws.
Section 4.3. MINUTES OF MEETINGS. All committees appointed in
accordance with Section 4.1 shall keep regular minutes of their meetings and
shall cause them to be recorded in books kept for that purpose in the office of
the Corporation.
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ARTICLE V
OFFICERS
Section 5.1. DESIGNATIONS. The officers of the Corporation shall be a
Chairman of the Board, a Chief Executive Officer, a Secretary and, at the
discretion of the Board of Directors, one or more Vice-Presidents (one or more
of whom may be Executive Vice-Presidents), a Treasurer, Assistant Secretaries
and Assistant Treasurers. The Board of Directors shall appoint all officers. Any
two or more offices may be held by the same individual.
Section 5.2. APPOINTMENT AND TERM OF OFFICE. The officers of the
Corporation shall be appointed annually by the Board of Directors at the first
meeting of the Board of Directors held after each annual meeting of the
stockholders. Each officer shall hold office until a successor shall have been
appointed and qualified, or until such officer's earlier death, resignation or
removal.
Section 5.3. POWERS AND DUTIES. If the Board appoints persons to fill
the following positions, such officers shall have the power and duties set forth
below:
(a) THE CHAIRMAN: The Chairman shall have general control and
management of the Board of Directors and may also be the chief executive officer
of the Corporation. He or she shall preside at all meetings of the Board of
Directors at which he or she is present. He or she shall have such other powers
and perform such other duties as from time to time may be conferred or imposed
upon him or her by the Board of Directors.
(b) THE CHIEF EXECUTIVE OFFICER: The Chief Executive Officer
of the Corporation shall be generally responsible for the proper conduct of the
business of the Corporation. He or she shall possess power to sign all
certificates, contracts and other instruments of the Corporation. In the absence
of the Chairman, he or she shall preside at all meetings of the stockholders. He
or she shall perform all such other duties as are incident to his or her office
or are properly required of him or her by the Board of Directors.
(c) THE PRESIDENT: The President of the Corporation shall be
generally responsible for the day to day operations of the business of the
Corporation. He or she shall possess power to sign all certificates, contracts
and other instruments of the Corporation. In the absence of the Chairman and the
Chief Executive Officer, he or she shall preside at all meetings of the
stockholders. He or she shall perform all such other duties as are incident to
his or her office or are properly required of him or her by the Chief Executive
Officer or the Board of Directors.
(d) VICE PRESIDENT: Each Vice-President shall have such powers
and discharge such duties as may be assigned to him or her from time to time by
the President or the Board of Directors.
(e) SECRETARY AND ASSISTANT SECRETARIES: The secretary shall
issue notices for all meetings, shall keep minutes of all meetings, shall have
charge of the seal and the
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corporate books, and shall make such reports and perform such other duties as
are incident to his or her office, or are properly required of him or her by the
Board of Directors. The Assistant Secretary, or Assistant Secretaries in order
designated by the Board of Directors, shall perform all of the duties of the
Secretary during the absence or disability of the Secretary, and at other times
may perform such duties as are directed by the President or the Board of
Directors.
(f) CHIEF FINANCIAL OFFICER. The chief financial officer shall
keep or cause to be kept adequate and correct books and records of accounts of
the properties and business transactions of the Corporation, including accounts
of its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any Director. The chief financial officer shall
(1) deposit corporate funds and other valuables in the Corporation's name and to
its credit with depositories designated by the Board of Directors; (2) make
disbursements of corporate funds as authorized by the Board of Directors; (3)
render a statement of the corporation's financial condition and an account of
all transactions conducted as chief financial officer whenever requested by the
President or the Board of Directors; and (4) have other powers and perform other
duties as prescribed by the President or the Board of Directors or the Bylaws.
Unless the Board of Directors has elected a separate treasurer, the chief
financial officer shall be deemed to be the treasurer for purposes of giving any
reports or executing any certificates or other documents.
Section 5.4. DELEGATION. In the case of the absence or inability to act
of any officer of the Corporation and of any person herein authorized to act in
such officer's place, the Board of Directors may from time to time delegate the
powers or duties of such officer to any other officer or any Director or other
person whom it may in its sole discretion select.
Section 5.5. VACANCIES. Vacancies in any office arising from any cause
may be filled by the Board of Directors at any regular or special meeting of the
Board. The appointee shall hold office for the unexpired term and until his or
her successor is duly elected and qualified.
Section 5.6. OTHER OFFICERS. The Board of Directors, or a duly
appointed officer to whom such authority has been delegated by Board resolution,
may appoint such other officers and agents as it shall deem necessary or
expedient, who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors.
Section 5.7. RESIGNATION. An officer may resign at any time by
delivering notice to the Corporation. Such notice shall be effective when
delivered unless the notice specifies a later effective date. Any such
resignation shall not affect the Corporation's contract rights, if any, with the
officer.
Section 5.8. REMOVAL. Any officer elected or appointed by the Board
of Directors may be removed at any time, with or without cause, by the
affirmative vote of a majority of the whole Board of Directors, but such removal
shall be without prejudice to the contract rights, if any, of the
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person so removed.
Section 5.9. BONDS. The Board of Directors may, by resolution, require
any and all of the officers to give bonds to the Corporation, with sufficient
surety or sureties, conditioned for the faithful performance of the duties of
their respective offices, and to comply with such other conditions as may from
time to time be required by the Board of Directors.
ARTICLE VI
STOCK
Section 6.1. ISSUANCE OF SHARES. No shares of the Corporation shall be
issued unless authorized by the Board of Directors or a duly constituted
committee thereof. Such authorization shall include the number of shares to be
issued, the consideration to be received and a statement regarding the adequacy
of the consideration.
Section 6.2. CERTIFICATES. Every holder of stock shall be entitled to
have a certificate signed by or in the name of the Corporation by the Chairman
or Vice Chairman of the Board of Directors, if any, or the Chief Executive
Officer or a Vice President, and by the Chief Financial Officer, or the
Secretary or an Assistant Secretary, of the Corporation certifying the number of
shares owned by him or her in the Corporation. Any of or all the signatures on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
Section 6.3. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF
NEW CERTIFICATES. The Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or his or her legal representative, to give the
Corporation indemnification or a bond sufficient to indemnify it against any
claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
Section 6.4. TRANSFERS OF STOCK.
(a) Transfers of stock shall be made only upon the stock
transfer records of the Corporation, which records shall be kept at the
registered office of the Corporation or at its principal place of business, or
at the office of its transfer agent or registrar. The Board of Directors may, by
resolution, open a share register in any state of the United States, and may
employ an agent or agents to keep such register and to record transfers of
shares therein.
(b) Shares of certificated stock shall be transferred by
delivery of the certificates therefor, accompanied either by an assignment in
writing on the back of the certificates or an
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assignment separate from the certificate, or by a written power of attorney to
sell, assign and transfer the same, signed by the holder of said certificate. No
shares of certificated stock shall be transferred on the records of the
Corporation until the outstanding certificates therefor have been surrendered to
the Corporation or to its transfer agent or registrar.
Section 6.5. SHARES OF ANOTHER CORPORATION. Shares owned by the
Corporation in another corporation, domestic or foreign, may be voted by such
officer, agent or proxy as the Board of Directors may determine or, in the
absence of such determination, by the Chief Executive Officer of the
Corporation.
ARTICLE VII
INDEMNIFICATION
Section 7.1. RIGHT TO INDEMNIFICATION. The Corporation shall indemnify
and hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person who was or is made or
is threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he or she, or a person for whom he or
she is the legal representative, is or was a director, officer, employee or
agent of the Corporation or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust, enterprise or nonprofit entity, including
service with respect to employee benefit plans, against all liability and loss
suffered and expenses (including attorneys' fees) reasonably incurred by such
person. Notwithstanding the preceding sentence, the Corporation shall be
required to indemnify a person in connection with a proceeding (or part thereof)
initiated by such person only if the proceeding (or part thereof) was authorized
by the Board of Directors of the Corporation.
Section 7.2. PREPAYMENT OF EXPENSES. The Corporation shall pay the
expenses (including attorneys' fees) incurred in defending any proceeding in
advance of its final disposition; provided, however, that the payment of
expenses incurred by a Director or officer in advance of the final disposition
of the proceeding shall be made only upon receipt of an undertaking by the
Director or officer to repay all amounts advanced if it should be ultimately
determined that the Director or officer is not entitled to be indemnified under
this Article VII or otherwise.
Section 7.3. CLAIMS. If a claim for indemnification or payment of
expenses under this Article VII is not paid in full within sixty days after a
written claim therefor has been received by the Corporation, the claimant may
file suit to recover the unpaid amount of such claim and, if successful in whole
or in part, shall be entitled to be paid the expense of prosecuting such claim.
In any such action the Corporation shall have the burden of proving that the
claimant was not entitled to the requested indemnification or payment of
expenses under applicable law.
Section 7.4. NONEXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Article VII shall not be exclusive of any other rights which such
person may have or hereafter
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acquire under any statute, provision of the Certificate of Incorporation, these
Bylaws, agreement, vote of stockholders or Directors or otherwise.
Section 7.5. OTHER INDEMNIFICATION. The Corporation's obligation, if
any, to indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such person
may collect as indemnification from such other corporation, partnership, joint
venture, trust, enterprise or nonprofit enterprise.
Section 7.6. AMENDMENT OR REPEAL. Any repeal or modification of the
foregoing provisions of this Article VII shall not adversely affect any right or
protection hereunder of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. FISCAL YEAR. The fiscal year of the Corporation shall
be June 30.
Section 8.2. SEAL. The corporate seal shall have the name of the
Corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
Section 8.3. WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS
AND COMMITTEES. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting was not lawfully called or
convened. Neither the business to be transacted at nor the purpose of any
regular or special meeting of the stockholders, Directors or members of a
committee of Directors need be specified in any written waiver of notice.
Section 8.4. INTERESTED DIRECTORS; QUORUM. No contract or transaction
between the Corporation and one or more of its Directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its Directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the Director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or her or their
votes are counted for such purpose, if: (i) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or her relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved
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in good faith by vote of the stockholders; or (iii) the contract or transaction
is fair as to the Corporation as of the time it is authorized, approved or
ratified by the Board of Directors, a committee thereof, or the stockholders.
Common or interested Directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
Section 8.5. BOOKS AND RECORDS. The Corporation shall maintain
appropriate accounting records and shall keep as permanent records minutes of
all meetings of its stockholders and Board of Directors, a record of all actions
taken by the Board of Directors without a meeting and a record of all actions
taken by a committee of the Board of Directors. In addition, the Corporation
shall keep at its registered office or principal place of business, or at the
office of its transfer agent or registrar, a record of its stockholders, giving
the names and addresses of all stockholders in alphabetical order by class of
shares showing the number and class of the shares held by each. Any books,
records and minutes may be in written form or any other form capable of being
converted into written form within a reasonable time.
Section 8.6. AMENDMENT OF BYLAWS. In furtherance and not in limitation
of the powers conferred upon it by law, the Board of Directors is expressly
authorized to adopt, repeal or amend the Bylaws of the Corporation by the vote
of a majority of the entire Board of Directors. The Bylaws of the Corporation
shall be subject to alteration or repeal, and new by-laws may be made, by a
majority vote of the stockholders at the time entitled to vote in the election
of Directors even though these Bylaws may also be altered, amended or repealed
by the Board of Directors.
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Exhibit 3.2
CERTIFICATE OF INCORPORATION
OF
EXITE JEWELRY.COM, INC.
ARTICLE 1. NAME
The name of this corporation is Exite Jewelry.com, Inc.
ARTICLE 2. REGISTERED OFFICE AND AGENT
The address of the registered office of this corporation is Corporation
Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, in
the State of Delaware and the name of its initial registered agent at such
address is the Corporation trust Company.
ARTICLE 3. PURPOSES
The purpose of this corporation (the "Corporation") is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
ARTICLE 4. SHARES
The total authorized stock of this corporation shall consist of
19,000,000 shares of common stock having a par value of $.01 per share (the
"Common Stock") and 1,000,000 shares of preferred stock having a par value of
$.01 per share the (the "Preferred Stock"). Each share of Common Stock shall
entitle the holder to (i) one vote on all matters submitted to a vote of the
shareholders, (ii) to receive dividends when and if declared by the Board of
Directors from funds legally available therefore according to the number of
shares held, and (iii) upon liquidation, dissolution or winding up of the
Corporation, to share ratably in any assets available for distribution to
shareholders after payment of all obligations of the Corporation and after
provision has been made with respect to each class of stock, if any, having
preference over the Common Stock. The shares of Preferred Stock may be issued in
one or more series, and each series shall be so designated to distinguish the
shares thereof from the shares of all other series. Authority is hereby
expressly granted to the Board of Directors to fix by resolution or resolutions,
before the issuance of any shares of a particular series, the number and any of
the designations and the powers, preferences and rights, and the qualifications,
limitations or restrictions which are permitted by Delaware General Corporation
Law in respect of any series of Preferred Stock of the corporation.
<PAGE>
ARTICLE 5. DIRECTORS
The number of Directors of this corporation shall be determined in the
manner provided by the Bylaws and may be increased or decreased from time to
time in the manner provided therein. Written ballots are not required in the
election of Directors.
ARTICLE 6. BYLAWS
The Board of Directors shall have the power to adopt, amend or repeal
the Bylaws of this corporation; provided, however, the Board of Directors may
not repeal or amend any bylaw that the stockholders have expressly provided may
not be amended or repealed by the Board of Directors. The stockholders shall
also have the power to adopt, amend or repeal the Bylaws of this corporation.
ARTICLE 7. PREEMPTIVE RIGHTS
Preemptive rights shall not exist with respect to shares of stock or
securities convertible into shares of stock of this corporation.
ARTICLE 8. CUMULATIVE VOTING
The right to cumulate votes in the election of Directors shall not
exist with respect to shares of stock of this corporation.
ARTICLE 9. AMENDMENTS TO CERTIFICATE OF INCORPORATION
This corporation reserves the right to amend or repeal, by the
affirmative vote of the holders of a majority of the outstanding shares entitled
to vote, any of the provisions contained in this Certificate of Incorporation.
The rights of the stockholders of this corporation are granted subject to this
reservation.
ARTICLE 10. LIMITATION OF DIRECTOR LIABILITY
To the full extent that the Delaware General Corporation Law, as it
exists on the date hereof or may hereafter be amended, permits the limitation or
elimination of the liability of directors, a director of this corporation shall
not be liable to this corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director. Any amendment to or repeal of this
Article 10 shall not adversely affect any right or protection of a director of
this corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
ARTICLE 11. ACTION BY STOCKHOLDERS WITHOUT A MEETING
<PAGE>
Only action properly brought before the stockholders by or at the
direction of the Board of Directors may be taken without a meeting, without
prior notice and without a vote, if a written consent setting forth the action
so taken is signed by the holders of outstanding shares of capital stock
entitled to be voted with respect to the subject matter thereof having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
ARTICLE 12. SPECIAL MEETINGS OF STOCKHOLDERS
The Chairman of the Board of Directors, the Chief Executive Officer,
the President or the Board of Directors may call special meetings of the
stockholders for any purpose. A special meeting of the stockholders shall be
held if the holders of not less than thirty percent (30%) of all the votes
entitled to be cast on any issue proposed to be considered at such special
meeting have dated, signed and delivered to the Secretary one or more written
demands for such meeting, describing the purpose or purposes for which it is to
be held.
ARTICLE 13. BUSINESS COMBINATIONS WITH INTERESTED
STOCKHOLDERS
This corporation expressly elects not to be governed by section 203(a)
of Title 8 of the Delaware General Corporation Law.
I, THE UNDERSIGNED, being the sole incorporator hereinbefore
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, do make this certificate, hereby
declaring and certifying that this is my act and deed and the facts herein
stated are true, and accordingly have hereunto set my hands this 21st day of
June, 1999.
/s/ Ike O. Echeruo
---------------------------------
Ike O. Echeruo, Incorporator
Gersten, Savage & Kaplowitz, LLP
101 East 52nd Street
New York, New York 10022
<PAGE>
Exhibit 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
EXITE JEWELRY.COM, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is Exite Jewelry.com, Inc.
2. The certificate of incorporation of the Corporation is hereby
amended by deleting Article 1 thereof and substituting in lieu
of said Article the following:
"ARTICLE 1. NAME
The name of the Corporation is NetJewels.com, Inc."
3. The amendment of the certificate of incorporation herein
certified has been duly adopted and written consent has been
given in accordance with the provisions of Sections 228 and
242 of the General Corporation Law of the State of Delaware.
Dated: September 29, 1999
By: /s/ Daniel Berkovits
---------------------
Daniel Berkovits, Chief Executive Officer
<PAGE>
Exhibit 10.1
NETJEWELS.COM, INC.
1999 STOCK OPTION PLAN
As adopted ________, 1999
<PAGE>
1. PURPOSE OF PLAN; ADMINISTRATION
1.1 PURPOSE.
The NetJewels.com, Inc. 1999 Stock Option Plan (hereinafter, the
"Plan") is hereby established to grant to officers and other employees of
NetJewels.com, Inc. (the "Company") or of its parents or subsidiaries (as
defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code
of 1986, as amended (the "Code")), if any (individually and collectively, the
Company"), and to non-employee directors, consultants and advisors and other
persons who may perform significant services for or on behalf of the Company, a
favorable opportunity to acquire common stock, $.0001 par value ("Common
Stock"), of the Company and, thereby, to create an incentive for such persons to
remain in the employ of or provide services to the Company and to contribute to
its success.
The Company may grant under the Plan both incentive stock options
within the meaning of Section 422 of the Code ("Incentive Stock Options") and
stock options that do not qualify for treatment as Incentive Stock Options
("Nonstatutory Options"). Unless expressly provided to the contrary herein, all
references herein to "options," shall include both Incentive Stock Options and
Nonstatutory Options.
1.2 ADMINISTRATION.
The Plan shall be administered by the Board of Directors of the Company
(the "Board"), if each member is a "Non-Employee Director" within the meaning of
Rule 16b-3 under the Securities Exchange Act of 1934, as amended ("Rule 16b-3"),
or a committee (the "Committee") of two or more directors, each of whom is a
Non-Employee Director. Appointment of Committee members shall be effective upon
acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Committee may be filled
by the Board. Until such time that the Committee is properly appointed, the
Board shall administer the Plan in accordance with the terms of this Section
1.2.
A majority of the members of the Committee shall constitute a quorum
for the purposes of the Plan. Provided a quorum is present, the Committee may
take action by affirmative vote or consent of a majority of its members present
at a meeting. Meetings may be held telephonically as long as all members are
able to hear one another, and a member of the Committee shall be deemed to be
present for this purpose if he or she is in simultaneous communication by
telephone with the other members who are able to hear one another. In lieu of
action at a meeting, the Committee may act by written consent of a majority of
its members.
Subject to the express provisions of the Plan, the Committee shall have
the authority to construe and interpret the Plan and all Stock Option Agreements
(as defined in Section 3.4) entered into pursuant hereto and to define the terms
used therein, to prescribe, adopt, amend and rescind rules and regulations
relating to the administration of the Plan and to make all other
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determinations necessary or advisable for the administration of the Plan;
provided, however, that the Committee may delegate nondiscretionary
administrative duties to such employees of the Company as it deems proper; and,
provided, further, in its absolute discretion, the Board may at any time and
from time to time exercise any and all rights and duties of the Committee under
the Plan. Subject to the express limitations of the Plan, the Committee shall
designate the individuals from among the class of persons eligible to
participate as provided in Section 1.3 who shall receive options, whether an
optionee will receive Incentive Stock Options or Nonstatutory Options, or both,
and the amount, price, restrictions and all other terms and provisions of such
options (which need not be identical).
Members of the Committee shall receive such compensation for their
services as members as may be determined by the Board. All expenses and
liabilities which members of the Committee incur in connection with the
administration of this Plan shall be borne by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Company and the
Company's officers and directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. No members of the Committee or Board
shall be personally liable for any action, determination or interpretation made
in good faith with respect to the Plan, and all members of the Committee shall
be fully protected by the Company in respect of any such action, determination
or interpretation.
1.3 PARTICIPATION.
Officers and other employees of the Company, non-employee directors,
consultants and advisors and other persons who may perform significant services
on behalf of the Company shall be eligible for selection to participate in the
Plan upon approval by the Committee; provided, however, that only "employees"
(within the meaning of Section 3401(c) of the Code) of the Company shall be
eligible for the grant of Incentive Stock Options. An individual who has been
granted an option may, if otherwise eligible, be granted additional options if
the Committee shall so determine. No person is eligible to participate in the
Plan by matter of right; only those eligible persons who are selected by the
Committee in its discretion shall participate in the Plan.
1.4 STOCK SUBJECT TO THE PLAN.
Subject to adjustment as provided in Section 3.5, the stock to be
offered under the Plan shall be shares of authorized but unissued Common Stock,
including any shares repurchased under the terms of the Plan or any Stock Option
Agreement entered into pursuant hereto. The cumulative aggregate number of
shares of Common Stock to be issued under the Plan shall not exceed 750,000,
subject to adjustment as set forth in Section 3.5.
If any option granted hereunder shall expire or terminate for any
reason without having been fully exercised, the unpurchased shares subject
thereto shall again be available for the purposes of the Plan. For purposes of
this Section 1.4, where the exercise price of options is paid
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by means of the grantee's surrender of previously owned shares of Common Stock,
only the net number of additional shares issued and which remain outstanding in
connection with such exercise shall be deemed "issued" for purposes of the Plan.
2. STOCK OPTIONS
2.1 EXERCISE PRICE; PAYMENT.
(a) The exercise price of each Incentive Stock Option granted under the
Plan shall be determined by the Committee, but shall not be less than 100% of
the "Fair Market Value" (as defined below) of Common Stock on the date of grant.
If an Incentive Stock Option is granted to an employee who at the time such
option is granted owns (within the meaning of section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of capital stock of
the Company, the option exercise price shall be at least 110% of the Fair Market
Value of Common Stock on the date of grant. The exercise price of each
Nonstatutory Option also shall be determined by the Committee, but shall not be
less than 85% of the Fair Market Value of Common Stock on the date of grant. The
status of each option granted under the Plan as either an Incentive Stock Option
or a Nonstatutory Option shall be determined by the Committee at the time the
Committee acts to grant the option, and shall be clearly identified as such in
the Stock Option Agreement relating thereto.
"Fair Market Value" for purposes of the Plan shall mean: (i) the
closing price of a share of Common Stock on the principal exchange on which
shares of Common Stock are then trading, if any, on the day immediately
preceding the date of grant, or, if shares were not traded on the day preceding
such date of grant, then on the next preceding trading day during which a sale
occurred; or (ii) if Common Stock is not traded on an exchange but is quoted on
Nasdaq or a successor quotation system, (1) the last sales price (if Common
Stock is then listed on the Nasdaq Stock Market) or (2) the mean between the
closing representative bid and asked price (in all other cases) for Common Stock
on the day prior to the date of grant as reported by Nasdaq or such successor
quotation system; or (iii) if there is no listing or trading of Common Stock
either on a national exchange or over-the-counter, that price determined in good
faith by the Committee to be the fair value per share of Common Stock, based
upon such evidence as it deems necessary or advisable.
(b) In the discretion of the Committee at the time the option is
exercised, the exercise price of any option granted under the Plan shall be paid
in full in cash, by check or by the optionee's interest-bearing promissory note
(subject to any limitations of applicable state corporations law) delivered at
the time of exercise; provided, however, that subject to the timing requirements
of Section 2.7, in the discretion of the Committee and upon receipt of all
regulatory approvals, the person exercising the option may deliver as payment in
whole or in part of such exercise price certificates for Common Stock of the
Company (duly endorsed or with duly executed stock powers attached), which shall
be valued at its Fair Market Value on the day of exercise of the option, or
other property deemed appropriate by the Committee; and, provided further, that,
subject to Section 422 of the Code, so-called cashless exercises as permitted
under
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<PAGE>
applicable rules and regulations of the Securities and Exchange Commission and
the Federal Reserve Board shall be permitted in the discretion of the Committee.
Without limiting the Committee's discretion in this regard, consecutive book
entry stock-for-stock exercises of options (or "pyramiding") also are permitted
in the Committee's discretion.
Irrespective of the form of payment, the delivery of shares issuable
upon the exercise of an option shall be conditioned upon payment by the optionee
to the Company of amounts sufficient to enable the Company to pay all federal,
state, and local withholding taxes resulting, in the Company's judgment, from
the exercise. In the discretion of the Committee, such payment to the Company
may be effected through (i) the Company's withholding from the number of shares
of Common Stock that would otherwise be delivered to the optionee by the Company
on exercise of the option a number of shares of Common Stock equal in value (as
determined by the Fair Market Value of Common Stock on the date of exercise) to
the aggregate withholding taxes, (ii) payment by the optionee to the Company of
the aggregate withholding taxes in cash, (iii) withholding by the Company from
other amounts contemporaneously owed by the Company to the optionee, or (iv) any
combination of these three methods, as determined by the Committee in its
discretion.
2.2 OPTION PERIOD.
(a) The Committee shall provide, in the terms of each Stock Option
Agreement, when the option subject to such agreement expires and becomes
unexercisable, but in no event will an Incentive Stock Option granted under the
Plan be exercisable after the expiration of ten years from the date it is
granted. Without limiting the generality of the foregoing, the Committee may
provide in the Stock Option Agreement that the option subject thereto expires 30
days following a Termination of Employment (as defined in Section 3.2 hereof)
for any reason other than death or disability, or six months following a
Termination of Employment for disability or following an optionee's death.
(b) OUTSIDE DATE FOR EXERCISE. Notwithstanding any provision of this
Section 2.2, in no event shall any option granted under the Plan be exercised
after the expiration date of such option set forth in the applicable Stock
Option Agreement.
2.3 EXERCISE OF OPTIONS.
Each option granted under the Plan shall become exercisable and the
total number of shares subject thereto shall be purchasable, in a lump sum or in
such installments, which need not be equal, as the Committee shall determine;
provided, however, that each option shall become exercisable in full no later
than ten years after such option is granted, and each option shall become
exercisable as to at least 10% of the shares of Common Stock covered thereby on
each anniversary of the date such option is granted; and provided, further, that
if the holder of an option shall not in any given installment period purchase
all of the shares which such holder is entitled to purchase in such installment
period, such holder's right to purchase any shares not purchased in such
installment period shall continue until the expiration or sooner termination of
such holder's
5
<PAGE>
option. The Committee may, at any time after grant of the option and from time
to time, increase the number of shares purchasable in any installment, subject
to the total number of shares subject to the option and the limitations set
forth in Section 2.5. At any time and from time to time prior to the time when
any exercisable option or exercisable portion thereof becomes unexercisable
under the Plan or the applicable Stock Option Agreement, such option or portion
thereof may be exercised in whole or in part; provided, however, that the
Committee may, by the terms of the option, require any partial exercise to be
with respect to a specified minimum number of shares. No option or installment
thereof shall be exercisable except with respect to whole shares. Fractional
share interests shall be disregarded, except that they may be accumulated as
provided above and except that if such a fractional share interest constitutes
the total shares of Common Stock remaining available for purchase under an
option at the time of exercise, the optionee shall be entitled to receive on
exercise a certified or bank cashier's check in an amount equal to the Fair
Market Value of such fractional share of stock.
2.4 TRANSFERABILITY OF OPTIONS.
Except as the Committee may determine as aforesaid, an option granted
under the Plan shall, by its terms, be nontransferable by the optionee other
than by will or the laws of descent and distribution, or pursuant to a qualified
domestic relations order (as defined by the Code), and shall be exercisable
during the optionee's lifetime only by the optionee or by his or her guardian or
legal representative. More particularly, but without limiting the generality of
the immediately preceding sentence, an option may not be assigned, transferred
(except as provided in the preceding sentence), pledged or hypothecated (whether
by operation of law or otherwise), and shall not be subject to execution,
attachment or similar process. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of any option contrary to the provisions of
the Plan and the applicable Stock Option Agreement, and any levy of any
attachment or similar process upon an option, shall be null and void, and
otherwise without effect, and the Committee may, in its sole discretion, upon
the happening of any such event, terminate such option forthwith.
2.5 LIMITATION ON EXERCISE OF INCENTIVE STOCK OPTIONS.
To the extent that the aggregate Fair Market Value (determined on the
date of grant as provided in Section 2.1 above) of the Common Stock with respect
to which Incentive Stock Options granted hereunder (together with all other
Incentive Stock Option plans of the Company) are exercisable for the first time
by an optionee in any calendar year under the Plan exceeds $100,000, such
options granted hereunder shall be treated as Nonstatutory Options to the extent
required by Section 422 of the Code. The rule set forth in the preceding
sentence shall be applied by taking options into account in the order in which
they were granted.
2.6 DISQUALIFYING DISPOSITIONS OF INCENTIVE STOCK OPTIONS.
If Common Stock acquired upon exercise of any Incentive Stock Option is
disposed of in a disposition that, under Section 422 of the Code, disqualifies
the option holder from the
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application of Section 421(a) of the Code, the holder of the Common Stock
immediately before the disposition shall comply with any requirements imposed by
the Company in order to enable the Company to secure the related income tax
deduction to which it is entitled in such event.
2.7 CERTAIN TIMING REQUIREMENTS.
At the discretion of the Committee, shares of Common Stock issuable to
the optionee upon exercise of an option may be used to satisfy the option
exercise price or the tax withholding consequences of such exercise, in the case
of persons subject to Section 16 of the Securities Exchange Act of 1934, as
amended, only (i) during the period beginning on the third business day
following the date of release of the quarterly or annual summary statement of
sales and earnings of the Company and ending on the twelfth business day
following such date or (ii) pursuant to an irrevocable written election by the
optionee to use shares of Common Stock issuable to the optionee upon exercise of
the option to pay all or part of the option price or the withholding taxes made
at least six months prior to the payment of such option price or withholding
taxes.
2.8 NO EFFECT ON EMPLOYMENT.
Nothing in the Plan or in any Stock Option Agreement hereunder shall
confer upon any optionee any right to continue in the employ of the Company, any
Parent Corporation or any Subsidiary or shall interfere with or restrict in any
way the rights of the Company, its Parent Corporation and its Subsidiaries,
which are hereby expressly reserved, to discharge any optionee at any time for
any reason whatsoever, with or without cause.
For purposes of the Plan, "Parent Corporation" shall mean any
corporation in an unbroken chain of corporations ending with the Company if each
of the corporations other than the Company then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. For purposes of the Plan, "Subsidiary" shall
mean any corporation in an unbroken chain of corporations beginning with the
Company if each of the corporations other than the last corporation in the
unbroken chain then owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
3. OTHER PROVISIONS
3.1 SICK LEAVE AND LEAVES OF ABSENCE.
Unless otherwise provided in the Stock Option Agreement, and to the
extent permitted by Section 422 of the Code, an optionee's employment shall not
be deemed to terminate by reason of sick leave, military leave or other leave of
absence approved by the Company if the period of any such leave does not exceed
a period approved by the Company, or, if longer, if the optionee's right to
reemployment by the Company is guaranteed either contractually or by statute. A
Stock Option Agreement may contain such additional or different provisions with
respect to leave of
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absence as the Committee may approve, either at the time of grant of an option
or at a later time.
3.2 TERMINATION OF EMPLOYMENT.
For purposes of the Plan "Termination of Employment," shall mean the
time when the employee-employer relationship between the optionee and the
Company, any Subsidiary or any Parent Corporation is terminated for any reason,
including, but not by way of limitation, a termination by resignation,
discharge, death, disability or retirement; but excluding (i) terminations where
there is a simultaneous reemployment or continuing employment of an optionee by
the Company, any Subsidiary or any Parent Corporation, (ii) at the discretion of
the Committee, terminations which result in a temporary severance of the
employee-employer relationship, and (iii) at the discretion of the Committee,
terminations which are followed by the simultaneous establishment of a
consulting relationship by the Company, a Subsidiary or any Parent Corporation
with the former employee. Subject to Section 3.1, the Committee, in its absolute
discretion, shall determine the affect of all matters and questions relating to
Termination of Employment; provided, however, that, with respect to Incentive
Stock Options, a leave of absence or other change in the employee-employer
relationship shall constitute a Termination of Employment if, and to the extent
that such leave of absence or other change interrupts employment for the
purposes of Section 422(a)(2) of the Code and the then-applicable regulations
and revenue rulings under said Section.
3.3 ISSUANCE OF STOCK CERTIFICATES.
Upon exercise of an option, the Company shall deliver to the person
exercising such option a stock certificate evidencing the shares of Common Stock
acquired upon exercise. Notwithstanding the foregoing, the Committee in its
discretion may require the Company to retain possession of any certificate
evidencing stock acquired upon exercise of an option which remains subject to
repurchase under the provisions of the Stock Option Agreement or any other
agreement signed by the optionee in order to facilitate such repurchase
provisions.
3.4 TERMS AND CONDITIONS OF OPTIONS.
Each option granted under the Plan shall be evidenced by a written
Stock Option Agreement ("Stock Option Agreement") between the option holder and
the Company providing that the option is subject to the terms and conditions of
the Plan and to such other terms and conditions not inconsistent therewith as
the Committee may deem appropriate in each case.
3.5 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; MERGER AND
CONSOLIDATION.
If the outstanding shares of Common Stock are changed into, or
exchanged for cash or a different number or kind of shares or securities of the
Company or of another corporation through reorganization, merger,
recapitalization, reclassification, stock split-up, reverse stock split, stock
dividend, stock consolidation, stock combination, stock reclassification or
similar transaction, an
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appropriate adjustment shall be made by the Committee in the number and kind of
shares as to which options may be granted. In the event of such a change or
exchange, other than for shares or securities of another corporation or by
reason of reorganization, the Committee shall also make a corresponding
adjustment changing the number or kind of shares and the exercise price per
share allocated to unexercised options or portions thereof, which shall have
been granted prior to any such change, shall likewise be made. Any such
adjustment, however, shall be made without change in the total price applicable
to the unexercised portion of the option (except for any change in the aggregate
price resulting from rounding-off of share quantities or prices).
In the event of a "spin-off" or other substantial distribution of
assets of the Company which has a material diminutive effect upon the Fair
Market Value of the Common Stock, the Committee in its discretion shall make an
appropriate and equitable adjustment to the exercise prices of options then
outstanding under the Plan.
Where an adjustment under this Section 3.5 of the type described above
is made to an Incentive Stock Option, the adjustment will be made in a manner
which will not be considered a "modification" under the provisions of subsection
424(b)(3) of the Code.
In connection with the dissolution or liquidation of the Company or a
partial liquidation involving 50% or more of the assets of the Company, a
reorganization of the Company in which another entity is the survivor, a merger
or reorganization of the Company under which more than 50% of the Common Stock
outstanding prior to the merger or reorganization is converted into cash or into
a security of another entity, a sale of more than 50% of the Company's assets,
or a similar event that the Committee determines, in its discretion, would
materially alter the structure of the Company or its ownership, the Committee,
upon 30 days prior written notice to the option holders, may, in its discretion,
do one or more of the following: (i) shorten the period during which options are
exercisable (provided they remain exercisable for at least 30 days after the
date the notice is given); (ii) accelerate any vesting schedule to which an
option is subject; (iii) arrange to have the surviving or successor entity grant
replacement options with appropriate adjustments in the number and kind of
securities and option prices, or (iv) cancel options upon payment to the option
holders in cash, with respect to each option to the extent then exercisable
(including any options as to which the exercise has been accelerated as
contemplated in clause (ii) above), of any amount that is the equivalent of the
Fair Market Value of the Common Stock (at the effective time of the dissolution,
liquidation, merger, reorganization, sale or other event) or the fair market
value of the option. In the case of a change in corporate control, the Committee
may, in considering the advisability or the terms and conditions of any
acceleration of the exercisability of any option pursuant to this Section 3.5,
take into account the penalties that may result directly or indirectly from such
acceleration to either the Company or the option holder, or both, under Section
280G of the Code, and may decide to limit such acceleration to the extent
necessary to avoid or mitigate such penalties or their effects.
No fractional share of Common Stock shall be issued under the Plan on
account of any adjustment under this Section 3.5.
9
<PAGE>
3.6 RIGHTS OF PARTICIPANTS AND BENEFICIARIES.
The Company shall pay all amounts payable hereunder only to the option
holder or beneficiaries entitled thereto pursuant to the Plan. The Company shall
not be liable for the debts, contracts or engagements of any optionee or his or
her beneficiaries, and rights to cash payments under the Plan may not be taken
in execution by attachment or garnishment, or by any other legal or equitable
proceeding while in the hands of the Company.
3.7 GOVERNMENT REGULATIONS.
The Plan, and the grant and exercise of options and the issuance and
delivery of shares of Common Stock under options granted hereunder, shall be
subject to compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities law) and
federal margin requirements and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
the Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan and options granted hereunder shall be
deemed amended to the extent necessary to conform to such laws, rules and
regulations.
3.8 AMENDMENT AND TERMINATION.
The Board or the Committee may at any time suspend, amend or terminate
the Plan and may, with the consent of the option holder, make such modifications
of the terms and conditions of such option holder's option as it shall deem
advisable, provided, however, that, without approval of the Company's
stockholders given within twelve months before or after the action by the Board
or the Committee, no action of the Board or the Committee may, (A) materially
increase the benefits accruing to participants under the Plan; (B) materially
increase the number of securities which may be issued under the Plan; or (C)
materially modify the requirements as to eligibility for participation in the
Plan. No option may be granted during any suspension of the Plan or after such
termination. The amendment, suspension or termination of the Plan shall not,
without the consent of the option holder affected thereby, alter or impair any
rights or obligations under any option theretofore granted under the Plan. No
option way be granted during any period of suspension nor after termination of
the Plan, and in no event may any option be granted under the Plan after the
expiration of ten years from the date the Plan is adopted by the Board.
3.9 TIME OF GRANT AND EXERCISE OF OPTION.
An option shall be deemed to be exercised when the Secretary of the
Company receives written notice from an option holder of such exercise, payment
of the exercise price determined pursuant to Section 2.1 of the Plan and set
forth in the Stock Option Agreement, and all representations, indemnifications
and documents reasonably requested by the Committee.
10
<PAGE>
3.10 PRIVILEGES OF STOCK OWNERSHIP; NON-DISTRIBUTIVE INTENT;
REPORTS TO OPTION HOLDERS.
A participant in the Plan shall not be entitled to the privilege of
stock ownership as to any shares of Common Stock not actually issued to the
optionee. Upon exercise of an option at a time when there is not in effect under
the Securities Act of 1933, as amended, a Registration Statement relating to the
Common Stock issuable upon exercise or payment therefor and available for
delivery a Prospectus meeting the requirements of Section 10(a)(3) of said Act,
the optionee shall represent and warrant in writing to the Company that the
shares purchased are being acquired for investment and not with a view to the
distribution thereof.
The Company shall furnish to each optionee under the Plan the Company's
annual report and such other periodic reports, if any, as are disseminated by
the Company in the ordinary course to its stockholders.
3.11 LEGENDING SHARE CERTIFICATES.
In order to enforce any restrictions imposed upon Common Stock issued
upon exercise of an option granted under the Plan or to which such Common Stock
may be subject, the Committee may cause a legend or legends to be placed on any
share certificates representing such Common Stock, which legend or legends shall
make appropriate reference to such restrictions, including, but not limited to,
a restriction against sale of such Common Stock for any period of time as may be
required by applicable laws or regulations. If any restriction with respect to
which a legend was placed on any certificate ceases to apply to Common Stock
represented by such certificate, the owner of the Common Stock represented by
such certificate may require the Company to cause the issuance of a new
certificate not bearing the legend.
Additionally, and not by way of limitation, the Committee may impose
such restrictions on any Common Stock issued pursuant to the Plan as it may deem
advisable, including, without limitation, restrictions under the requirements of
any stock exchange upon which Common Stock is then traded.
3.12 USE OF PROCEEDS.
Proceeds realized pursuant to the exercise of options under the Plan
shall constitute general funds of the Company.
3.13 CHANGES IN CAPITAL STRUCTURE; NO IMPEDIMENT TO CORPORATE
TRANSACTIONS.
The existence of outstanding options under the Plan shall not affect
the Company's right to effect adjustments, recapitalizations, reorganizations or
other changes in its or any other corporation's capital structure or business,
any merger or consolidation, any issuance of bonds, debentures, preferred or
prior preference stock ahead of or affecting Common Stock, the dissolution or
liquidation of the Company's or any other corporation's assets or business, or
any
11
<PAGE>
other corporate act, whether similar to the events described above or otherwise.
3.14 EFFECTIVE DATE OF THE PLAN.
The Plan shall be effective as of the date of its approval by the
stockholders of the Company within twelve months after the date of the Board's
initial adoption of the Plan. Options may be granted but not exercised prior to
stockholder approval of the Plan. If any options are so granted and stockholder
approval shall not have been obtained within twelve months of the date of
adoption of this Plan by the Board of Directors, such options shall terminate
retroactively as of the date they were granted.
3.15 TERMINATION.
The Plan shall terminate automatically as of the close of business on
the day preceding the tenth anniversary date of its adoption by the Board or
earlier as provided in Section 3.8. Unless otherwise provided herein, the
termination of the Plan shall not affect the validity of any option agreement
outstanding at the date of such termination.
3.16 NO EFFECT ON OTHER PLANS.
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company, any Subsidiary or any Parent
Corporation. Nothing in the Plan shall be construed to limit the right of the
Company (i) to establish any other forms of incentives or compensation for
employees of the Company, any Subsidiary or any Parent Corporation or (ii) to
grant or assume options or other rights otherwise than under the Plan in
connection with any proper corporate purpose including but not by way of
limitation, the grant or assumption of options in connection with the
acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, partnership, firm or association.
* * *
12
<PAGE>
Exhibit 10.2
THIS AGREEMENT made as of the 1st day of January, 1999.
BETWEEN:
NETJEWELS.COM INC., a corporation incorporated
under the laws of the State of Delaware
(hereinafter called the "CORPORATION")
OF THE FIRST PART
- and -
DANIEL BERKOVITS, of the City of Toronto,
in the Province of Ontario
(hereinafter called the "EXECUTIVE")
OF THE SECOND PART
WITNESSETH that in consideration of the sum of Two Dollars ($2.00) now
paid by each of the parties hereto to the other (the receipt of which is hereby
acknowledged by each of them) and the mutual covenants and agreement herein set
forth, the parties hereto hereby agree as follows:
TERM
1. The Corporation hereby agrees to engage the services of the Executive
and the Executive hereby agrees to serve the Corporation in a
management capacity and to fulfill such functions as the Corporation
may from time to time direct, upon and subject to the terms and
conditions herein set forth for a period of employment which shall
commence on the date hereof (the "COMMENCEMENT DATE") and which shall
run for three (3) years from such date (the "TERM") or until terminated
as herein provided.
EXECUTIVE'S OBLIGATIONS
2. Subject to the Executive's obligations to D.G. Jewelry Inc., during the
term of his employment hereunder, the Executive shall devote his time
and personal attention to the business of the Corporation and shall not
engage in any other business or occupation without first having
obtained the written consent of the Corporation.
3. The Executive shall well, faithfully and diligently perform the duties
of his employment with the Corporation and any office or offices held
by him in the Corporation, and shall give his best efforts and skill to
the business and interests of the Corporation, will perform such
services, in and about such business of the Corporation as may from
time to time be assigned to him and shall do all in his power to
promote, develop and extend the business of the Corporation and to
enhance and develop the best interests and welfare of the Corporation
in all respects.
COMPENSATION
4. As compensation for his services hereunder:
<PAGE>
(a) from the Commencement Date to and including _June 30, 1999,
the Corporation shall pay to the Executive the amount of Fifty
Thousand ($50,000.00) Dollars U.S., which amount shall be
payable to the Executive in equal weekly instalments of
$_1923.08.
(b) From July 1, 1999 to and including the expiration of the first
year of the Term, the Corporation shall pay to the Executive
the amount of $50,000 U.S., which amount shall be payable to
the Executive in equal weekly instalments of $1923.08 U.S..
(c) Notwithstanding the foregoing paragraphs (a) and (b) of this
Section 4, if the Corporation's proposed initial public
offering of its common stock (the "IPO") is completed to the
reasonable satisfaction of the Corporation, then the
compensation payable to the Executive from the date of
completion of the IPO to and including the expiry of the Term
shall be based on an annual salary of One Hundred and Fifty
Thousand Dollars ($150,000.00) U.S.
(d) The parties further agree that the amount payable to the
Executive during each year of the Term pursuant to section 4,
shall be reviewed by the parties on the anniversary date of
the Commencement Date and shall be subject to minimum
increases of at least Fifteen Thousand Dollars ($15,000.00)
U.S. per annum.
It is understood and agreed that all payments made pursuant to this
paragraph (c) and (d) above are payable by the Corporation in equal
weekly instalments during each year of the Term on the last business
day of each and every week of the Term.
5. The Executive may receive an annual bonus if, as and when determined
by the Corporation.
6. The Corporation at its expense shall pay to the Executive an automobile
allowance of One Thousand ($1,000.00) Dollars U.S. monthly. The
Corporation shall further reimburse the Executive for all reasonable
promotion and entertainment expenses actually and properly incurred by
him after having received the approval of the Corporation. For all such
expenses, the Executive shall furnish to the Corporation, statements
and vouchers as and when reasonably required by it.
TERMINATION OF EMPLOYMENT
7. Notwithstanding anything herein contained to the contrary, the
Executive's employment hereunder shall, unless otherwise directed by
the board of directors of the Corporation, cease forthwith upon the
happening of the following events:
(a) if the Executive dies or shall be adjudicated bankrupt or
suspends payment or compounds with his creditors or makes
unauthorized assignment or is declared insolvent;
(b) if the Executive shall be guilty of any gross default or gross
misconduct or any breach or non-observance of any of the
provisions contained in this Agreement, if any of the
foregoing are not remedied within fifteen (15) days after
receipt of notice in writing from the Corporation of any such
conduct;
(c) if the Executive shall become an alcoholic or drug addict;
(d) if the Executive shall absent himself from the business and
affairs of the Corporation without leave;
<PAGE>
(e) if the Executive shall disobey or refuse to respond to any of
the reasonable orders or directions of the directors of the
Corporation, if the Executive shall not explain to the
reasonable satisfaction of the Corporation the reasons for any
disobedience or refusal to follow any of the orders or
directions, within five (5) days after receipt of notice in
writing from the Corporation of its intention to terminate
pursuant to this subparagraph;
(f) if the Executive shall do or cause to be done any action
detrimental to the welfare of the Corporation or injurious to
its reputation, which is not remedied within fifteen (15) days
after receipt of notice in writing from the Corporation of any
such conduct.
All of the foregoing are acknowledged to be without prejudice to any of
the Corporation's rights to terminate the employment of the Executive
for any cause that would in law permit an employer to terminate such
employment without notice of termination.
8. The Corporation shall have the right to terminate the Executive's
employment forthwith at any time following the expiry of ninety (90)
consecutive days of illness on the part of the Executive rendering the
Executive unable to perform his duties and obligations pursuant to this
Agreement. For the purposes of this Agreement, once any period of
consecutive days of illness on the part of the Executive has occurred,
no new consecutive period of illness on the Executive's part shall be
deemed to have commenced unless the Executive shall have returned to
the performance of his duties and obligations pursuant to this
Agreement for thirty (30) consecutive days following any previous
consecutive period of illness.
CONFIDENTIALITY
9. The Executive shall not, either during the period of employment
hereunder, or at any time thereafter, disclose to any person, firm or
corporation, any information concerning the business or affairs of the
Corporation or which the Executive may have acquired in the course of
or incidental to his employment by the Corporation or otherwise,
(whether prior to the date of commencement of this Agreement or
otherwise). whether for his own benefit or to the detriment or
intended- or probable detriment of the Corporation. Without limiting
the generality of the foregoing, the Executive hereby specifically
acknowledges and agrees that the following remains confidential
information of the Corporation:
(a) names and requirements of present and prospective customers of
the Corporation;
(b) names of persons who have traded and dealt with the
Corporation and data pertaining to such dealings; and
(c) processes and methods by which and the manner in which the
Corporation promotes its business and obtains customers
therefor.
Upon the termination of this Agreement, the Executive will surrender to
the Corporation any and all documents, list and records relating in any
way to the business of the Corporation, whether or not original or
copies, and notwithstanding that any of these may have been made at the
Executive's own expense.
GENERAL TERMS
10. The parties specifically acknowledge and agree that any change or
changes in any terms of this Agreement shall not operate as the
cancellation of this Agreement, but rather will operate as an amendment
hereto, and all other unamended terms, provisions and conditions of
this Agreement shall remain as herein provided.
<PAGE>
11. If during the term of this Agreement, the Executive shall violate any
of the provisions contained herein, the Corporation shall be entitled
to apply for a restraining order and for an injunction to be issued by
any competent court having jurisdiction, restraining the Executive and
each and every other person, firm, partnership, corporation or
association concerned therein from continuance of any such violation,
in addition to any other remedies available to the Corporation.
12. This Agreement is personal to the Executive and shall not be assignable
by him, but shall accrue to the Corporation's successors and assigns.
13. The failure of the Corporation to insist upon the punctual performance
of any of the covenants or obligations of the Executive hereunder, or
the failure of the Corporation to exercise any right or H remedy
available to the Corporation under this Agreement, or any forbearance
on the part of the Corporation, shall not constitute a waiver by the
Corporation of any subsequent default-or breach by the Executive
hereunder. All demands for performance and all notice of default
hereunder are hereby waived by the Executive.
14. Any notice, direction or other instrument required or permitted to be
given by one party to the other hereunder shall be in writing and may
be given by mailing to the same postage prepaid or delivering the same
addressed:
to the Corporation at: 1001 Petrolia Road
Toronto, Ontario
M3J 2X7
to the Executive at: 3000 Bathurst St. #612
Apt. 612
Toronto, Ontario
M6B 3B4
Any notice, direction or other instrument aforesaid if delivered shall
be deemed to have been given or made on the date on which it was
delivered or if mailed, except in the event of an intervening postal
disruption, shall be deemed to have been given or made on the 3rd
business day following the day on which it was mailed.
The Corporation or the Executive may change its or his address for
service from time to time by notice given in accordance with the
foregoing.
15. This Agreement and the terms hereof shall constitute the entire
Agreement between the parties hereto with respect to all the matters
herein, and its execution has not been induced by, nor do any of the
parties hereto rely upon or regard as material any representations or
writings whatsoever not incorporated herein and made a part hereof, and
this Agreement shall not be amended, altered or qualified except by a
memorandum in writing signed by all of the parties hereto, and any
amendment, alteration or in qualification hereof shall be null and void
and shall not be binding upon any party who has not given its or his
written confirmation thereof.
IN WITNESS WHEREOF the parties have hereto executed this Agreement.
NETJEWELS.COM INC.
Per: /s/ Ben Berkovits
----------------------
Name: Ben Berkovitgs
Title: President
I have the authority to bind the Corporation.
/s/ Daniel Berkovits
-------------------------
DANIEL BERKOVITS
<PAGE>
Exhibit 10.3
THIS AGREEMENT made as of the 1st day of January, 1999.
BETWEEN:
NETJEWELS.COM INC., a corporation incorporated
under the laws of the State of Delaware
(hereinafter called the "CORPORATION")
OF THE FIRST PART
- and -
BENTZION BERKOVITS, of the City of Toronto,
in the Province of Ontario
(hereinafter called the "EXECUTIVE")
OF THE SECOND PART
WITNESSETH that in consideration of the sum of Two Dollars ($2.00) now
paid by each of the parties hereto to the other (the receipt of which is hereby
acknowledged by each of them) and the mutual covenants and agreement herein set
forth, the parties hereto hereby agree as follows:
TERM
1. The Corporation hereby agrees to engage the services of the Executive
and the Executive hereby agrees to serve the Corporation in a
management capacity and to fulfill such functions as the Corporation
may from time to time direct, upon and subject to the terms and
conditions herein set forth for a period of employment which shall
commence on the date hereof (the "COMMENCEMENT DATE") and which shall
run for three (3) years from such date (the "TERM") or until terminated
as herein provided.
EXECUTIVE'S OBLIGATIONS
2. Subject to the Executive's obligations to D.G. Jewelry Inc., during the
term of his employment hereunder, the Executive shall devote his time
and personal attention to the business of the Corporation and shall not
engage in any other business or occupation without first having
obtained the written consent of the Corporation.
3. The Executive shall well, faithfully and diligently perform the duties
of his employment with the Corporation and any office or offices held
by him in the Corporation, and shall give his best efforts and skill to
the business and interests of the Corporation, will perform such
services, in and about such business of the Corporation as may from
time to time be assigned to him and shall do all in his power to
promote, develop and extend the business of the Corporation and to
enhance and develop the best interests and welfare of the Corporation
in all respects.
COMPENSATION
4. As compensation for his services hereunder:
<PAGE>
(a) from the Commencement Date to and including _June 30, 1999,
the Corporation shall pay to the Executive the amount of Fifty
Thousand ($50,000.00) Dollars U.S., which amount shall be
payable to the Executive in equal weekly instalments of
$_1923.08.
(b) From July 1, 1999 to and including the expiration of the first
year of the Term, the Corporation shall pay to the Executive
the amount of $50,000 U.S., which amount shall be payable to
the Executive in equal weekly instalments of $1923.08 U.S..
(c) Notwithstanding the foregoing paragraphs (a) and (b) of this
Section 4, if the Corporation's proposed initial public
offering of its common stock (the "IPO") is completed to the
reasonable satisfaction of the Corporation, then the
compensation payable to the Executive from the date of
completion of the IPO to and including the expiry of the Term
shall be based on an annual salary of One Hundred and Fifty
Thousand Dollars ($150,000.00) U.S.
(d) The parties further agree that the amount payable to the
Executive during each year of the Term pursuant to section 4,
shall be reviewed by the parties on the anniversary date of
the Commencement Date and shall be subject to minimum
increases of at least Fifteen Thousand Dollars ($15,000.00)
U.S. per annum.
It is understood and agreed that all payments made pursuant to this
paragraph (c) and (d) above are payable by the Corporation in equal
weekly instalments during each year of the Term on the last business
day of each and every week of the Term.
5. The Executive may receive an annual bonus if, as and when determined
by the Corporation.
6. The Corporation at its expense shall pay to the Executive an automobile
allowance of One Thousand ($1,000.00) Dollars U.S. monthly. The
Corporation shall further reimburse the Executive for all reasonable
promotion and entertainment expenses actually and properly incurred by
him after having received the approval of the Corporation. For all such
expenses, the Executive shall furnish to the Corporation, statements
and vouchers as and when reasonably required by it.
TERMINATION OF EMPLOYMENT
7. Notwithstanding anything herein contained to the contrary, the
Executive's employment hereunder shall, unless otherwise directed by
the board of directors of the Corporation, cease forthwith upon the
happening of the following events:
(a) if the Executive dies or shall be adjudicated bankrupt or
suspends payment or compounds with his creditors or makes
unauthorized assignment or is declared insolvent;
(b) if the Executive shall be guilty of any gross default or gross
misconduct or any breach or non-observance of any of the
provisions contained in this Agreement, if any of the
foregoing are not remedied within fifteen (15) days after
receipt of notice in writing from the Corporation of any such
conduct;
(c) if the Executive shall become an alcoholic or drug addict;
(d) if the Executive shall absent himself from the business and
affairs of the Corporation without leave;
<PAGE>
(e) if the Executive shall disobey or refuse to respond to any of
the reasonable orders or directions of the directors of the
Corporation, if the Executive shall not explain to the
reasonable satisfaction of the Corporation the reasons for any
disobedience or refusal to follow any of the orders or
directions, within five (5) days after receipt of notice in
writing from the Corporation of its intention to terminate
pursuant to this subparagraph;
(f) if the Executive shall do or cause to be done any action
detrimental to the welfare of the Corporation or injurious to
its reputation, which is not remedied within fifteen (15) days
after receipt of notice in writing from the Corporation of any
such conduct.
All of the foregoing are acknowledged to be without prejudice to any of
the Corporation's rights to terminate the employment of the Executive
for any cause that would in law permit an employer to terminate such
employment without notice of termination.
8. The Corporation shall have the right to terminate the Executive's
employment forthwith at any time following the expiry of ninety (90)
consecutive days of illness on the part of the Executive rendering the
Executive unable to perform his duties and obligations pursuant to this
Agreement. For the purposes of this Agreement, once any period of
consecutive days of illness on the part of the Executive has occurred,
no new consecutive period of illness on the Executive's part shall be
deemed to have commenced unless the Executive shall have returned to
the performance of his duties and obligations pursuant to this
Agreement for thirty (30) consecutive days following any previous
consecutive period of illness.
CONFIDENTIALITY
9. The Executive shall not, either during the period of employment
hereunder, or at any time thereafter, disclose to any person, firm or
corporation, any information concerning the business or affairs of the
Corporation or which the Executive may have acquired in the course of
or incidental to his employment by the Corporation or otherwise,
(whether prior to the date of commencement of this Agreement or
otherwise). whether for his own benefit or to the detriment or
intended- or probable detriment of the Corporation. Without limiting
the generality of the foregoing, the Executive hereby specifically
acknowledges and agrees that the following remains confidential
information of the Corporation:
(a) names and requirements of present and prospective customers of
the Corporation;
(b) names of persons who have traded and dealt with the
Corporation and data pertaining to such dealings; and
(c) processes and methods by which and the manner in which the
Corporation promotes its business and obtains customers
therefor.
Upon the termination of this Agreement, the Executive will surrender to
the Corporation any and all documents, list and records relating in any
way to the business of the Corporation, whether or not original or
copies, and notwithstanding that any of these may have been made at the
Executive's own expense.
GENERAL TERMS
10. The parties specifically acknowledge and agree that any change or
changes in any terms of this Agreement shall not operate as the
cancellation of this Agreement, but rather will operate as an amendment
hereto, and all other unamended terms, provisions and conditions of
this Agreement shall remain as herein provided.
<PAGE>
11. If during the term of this Agreement, the Executive shall violate any
of the provisions contained herein, the Corporation shall be entitled
to apply for a restraining order and for an injunction to be issued by
any competent court having jurisdiction, restraining the Executive and
each and every other person, firm, partnership, corporation or
association concerned therein from continuance of any such violation,
in addition to any other remedies available to the Corporation.
12. This Agreement is personal to the Executive and shall not be assignable
by him, but shall accrue to the Corporation's successors and assigns.
13. The failure of the Corporation to insist upon the punctual performance
of any of the covenants or obligations of the Executive hereunder, or
the failure of the Corporation to exercise any right or H remedy
available to the Corporation under this Agreement, or any forbearance
on the part of the Corporation, shall not constitute a waiver by the
Corporation of any subsequent default-or breach by the Executive
hereunder. All demands for performance and all notice of default
hereunder are hereby waived by the Executive.
14. Any notice, direction or other instrument required or permitted to be
given by one party to the other hereunder shall be in writing and may
be given by mailing to the same postage prepaid or delivering the same
addressed:
to the Corporation at: 1001 Petrolia Road
Toronto, Ontario
M3J 2X7
to the Executive at: 120 Shelborne Avenue
Apt. 811
Toronto, Ontario
M6B 2M7
Any notice, direction or other instrument aforesaid if delivered shall
be deemed to have been given or made on the date on which it was
delivered or if mailed, except in the event of an intervening postal
disruption, shall be deemed to have been given or made on the 3rd
business day following the day on which it was mailed.
The Corporation or the Executive may change its or his address for
service from time to time by notice given in accordance with the
foregoing.
15. This Agreement and the terms hereof shall constitute the entire
Agreement between the parties hereto with respect to all the matters
herein, and its execution has not been induced by, nor do any of the
parties hereto rely upon or regard as material any representations or
writings whatsoever not incorporated herein and made a part hereof, and
this Agreement shall not be amended, altered or qualified except by a
memorandum in writing signed by all of the parties hereto, and any
amendment, alteration or in qualification hereof shall be null and void
and shall not be binding upon any party who has not given its or his
written confirmation thereof.
IN WITNESS WHEREOF the parties have hereto executed this Agreement.
NETJEWELS.COM INC.
Per: /s/ Daniel Berkovits
----------------------
Name: Daniel Berkovits
Title: CEO
I have the authority to bind the Corporation.
/s/ Bentzion Berkovits
-------------------------
BENTZION BERKOVITS
<PAGE>
Exhibit 10.4
THIS AGREEMENT made as of the 1st day of January, 1999.
BETWEEN:
NETJEWELS.COM INC., a corporation incorporated
under the laws of the State of Delaware
(hereinafter called the "CORPORATION")
OF THE FIRST PART
- and -
JACK BERKOVITS, of the City of Toronto,
in the Province of Ontario
(hereinafter called the "EXECUTIVE")
OF THE SECOND PART
WITNESSETH that in consideration of the sum of Two Dollars ($2.00) now
paid by each of the parties hereto to the other (the receipt of which is hereby
acknowledged by each of them) and the mutual covenants and agreement herein set
forth, the parties hereto hereby agree as follows:
1. DUTIES
The Corporation appoints the Executive to undertake the duties and
exercise the powers as chairman of the Corporation as may be requested of the
Executive by the Board of Directors of the Corporation, and in the other offices
to which he may be appointed by the subsidiary companies of the Corporation, and
the Executive accepts the office, on the terms and conditions set forth in this
agreement.
2. TERM
The appointment shall commence with effect the 1st day of January,
1999, and shall continue until terminated in accordance with the provisions of
this agreement.
3. COMPENSATION
(1) The fixed remuneration of the Executive for his or her services shall
be at the rate of One Hundred Thousand Dollars ($100,000.00) for the
first year of employment pursuant to this contract commencing the 1st
day of January, 1999. The fixed remuneration shall be reviewed on each
anniversary of employment pursuant to this contract. The review will be
undertaken by assessing the Executive's achievement of the over-all
objectives established by the Corporation and by having regard to the
market rates of remuneration paid in Canada for similar duties and
responsibilities.
(2) In addition to the fixed remuneration, the Executive may, in the
absolute discretion of the Corporation, receive from the Corporation,
from time to time a bonus payment for his/her services for each year
during the period of his/her employment under this contract.
<PAGE>
4. BENEFITS
It is understood and agreed that the Executive will incur expenses in
connection with his or her duties under this agreement. The Corporation will
reimburse the Executive for any expenses provided that the Executive provides to
the Corporation an itemized written account and receipts acceptable to the
Corporation within [thirty] days after they have been incurred. The Executive
will not be reimbursed for any item in excess of $ unless approved in
advance by the Board of Directors.
5. AUTHORITY
(1) The Executive shall have, subject always to the general or specific
instructions and directions of the Board of Directors of the
Corporation, full power and authority to assist in the management and
business and affairs of the Corporation (except only the matters and
duties as by law must be transacted or performed by the Board of
Directors or by the shareholders of the Corporation in general
meeting), including power and authority to enter into contracts,
engagements or commitments of every nature or kind in the name of and
on behalf of the Corporation and to engage and employ and to dismiss
all managers and other employees and agents of the Corporation other
than officers of the Corporation.
(2) The Executive shall conform to all lawful instructions and directions
given to him or her by the Board of Directors of the Corporation, and
obey and carry out the by-laws of the Corporation.
6. SERVICE
The Executive shall well and faithfully serve the Corporation and its
subsidiaries and use his or her best efforts to promote the interests thereof
and shall not disclose the private affairs or trade secrets of the Corporation
and its subsidiaries to any person other than the Directors of the Corporation
or for any purposes other than those of the Corporation any information the
Executive may acquire in relation to the Corporation's business.
7. CONFIDENTIAL INFORMATION
(1) The Executive acknowledges that as the chairman and in any other
position as the Executive may hold, the Executive will acquire
information about certain matters and things which are confidential to
the Corporation, and which information is the exclusive property of the
Corporation, including:
(a) product design and manufacturing information;
(b) names and addresses, buying habits and preferences of present
customers of the Corporation, as well as prospective
customers;
(c) pricing and sales policies, techniques and concepts;
(d) trade secrets, and
(e) other confidential information concerning the business
operations or financing of the Corporation.
(2) The Executive acknowledges the information as referred to in paragraph
7(1) could be used to the detriment of the Corporation. Accordingly,
the Executive undertakes not to disclose same to any third party
either during the term of the Executive's employment except as may be
necessary in the proper discharge of his or her employment under this
agreement, or after the term of his or her employment, however caused,
except with the written permission of an officer of the Corporation.
<PAGE>
The Executive also agrees that the unauthorized disclosure of any such
information during the life of this agreement shall justify the
immediate termination of this agreement by the Corporation.
(3) The Executive acknowledges that in addition to any and all rights of
the Corporation, the Corporation shall be entitled to injunctive
relief in order to protect the Corporation's rights and property as
set out in paragraphs 1 and 2 of this section.
(4) The Executive understands and agrees that the Corporation has a
material interest in preserving the relationship it has developed with
its customers against impairment by competitive activities of a former
employee. Accordingly, the Executive agrees that the restrictions and
covenants contained in paragraph 7 of this agreement and the
Executive's agreement to them by his execution of this agreement, are
of the essence to this agreement and constitute a material inducement
to the Executive to enter into this agreement and to employ the
Executive, and that the Corporation would not enter into this
agreement absent such an inducement. Furthermore, the existence of any
claim or cause of action by the Executive against the Corporation
whether predicated on this agreement or otherwise, shall not
constitute a defence to the enforcement by the Corporation of the
covenants or restrictions provided in paragraph 7, provided, however,
that if any provision shall be held to be illegal, invalid or
unenforceable in any jurisdiction, the decision shall not affect any
other covenant or provision of this agreement or the application of
any other covenant or provision.
8. TERMINATION OF APPOINTMENT
(1) Notwithstanding anything herein contained to the contrary, the
Executive's employment hereunder shall, unless otherwise directed by
the board of directors of the Corporation, cease forthwith upon the
happening of the following events:
(a) if the Executive dies or shall be adjudicated bankrupt or
suspends payment or compounds with his creditors or makes
unauthorized assignment or is declared insolvent;
(b) if the Executive shall be guilty of any gross default or gross
misconduct or any breach or non-observance of any of the
provisions contained in this Agreement, if any of the
foregoing are not remedied within fifteen (15) days after
receipt of notice in writing from the Corporation of any such
conduct;
(c) if the Executive shall become an alcoholic or drug addict;
(d) if the Executive shall absent himself from the business and
affairs of the Corporation without leave;
(e) if the Executive shall disobey or refuse to respond to any of
the reasonable orders or directions of the directors of the
Corporation, if the Executive shall not explain to the
reasonable satisfaction of the Corporation the reasons for any
disobedience or refusal to follow any of the orders or
directions, within five (5) days after receipt of notice in
writing from the Corporation of its intention to terminate
pursuant to this subparagraph;
(f) by a written resolution of the board of directors of the
Corporation terminating the appointment of the executive or
the position of chairman;
(g) if the Executive shall do or cause to be done any action
detrimental to the welfare of the Corporation or injurious to
its reputation, which is not remedied within fifteen (15) days
after receipt of notice in writing from the Corporation of any
such conduct.
<PAGE>
All of the foregoing are acknowledged to be without prejudice to any of
the Corporation's rights to terminate the appointment of the Executive
for any cause that would in law permit an employer to terminate such
appointment/employment without notice of termination.
(2) The Corporation shall have the right to terminate the Executive's
appointment forthwith at any time following the expiry of ninety (90)
consecutive days of illness on the part of the Executive rendering the
Executive unable to perform his duties and obligations pursuant to this
Agreement. For the purposes of this Agreement, once any period of
consecutive days of illness on the part of the Executive has occurred,
no new consecutive period of illness on the Executive's part shall be
deemed to have commenced unless the Executive shall have returned to
the performance of his duties and obligations pursuant to this
Agreement for thirty (30) consecutive days following any previous
consecutive period of illness.
(3) On termination of appointment the Executive shall immediately resign
all offices held (including directorships) in the company and save as
provided in this agreement, the Executive shall not be entitled to
receive any severance payment or compensation for loss of office or
otherwise by reason of the resignation. If the Executive fails to
resign as mentioned the Corporation is irrevocably authorized to
appoint some person in his or her name and on the Executive's behalf to
sign any documents or do any things necessary or requisite to give
effect to it.
9. CORPORATION'S PROPERTY
The Executive acknowledges that all items of any and every nature or
kind created or used by the Executive pursuant to the Executive's appointment
under this agreement, or furnished by the Corporation to the Executive, and all
equipment, automobiles, credit cards, books, records, reports, files, diskettes,
manuals, literature, confidential information or other materials shall remain
and be considered the exclusive property of the Corporation at all times and
shall be surrendered to the Corporation, in good condition, promptly at the
request of the Corporation, or in the absence of a request, on the termination
of the Executive's employment with the Corporation.
10. GENERAL TERMS
(1) The parties specifically acknowledge and agree that any change or
changes in any terms of this Agreement shall not operate as the
cancellation of this Agreement, but rather will operate as an amendment
hereto, and all other unarnended terms, provisions and conditions of
this Agreement shall remain as herein provided.
(2) If during the term of this Agreement, the Executive shall violate any
of the provisions contained herein, the Corporation shall be entitled
to apply for a restraining order and for an injunction to be issued by
any competent court having jurisdiction, restraining the Executive and
each and every other person, firm, partnership, corporation or
association concerned therein from continuance of any such violation,
in addition to any other remedies available to the Corporation.
(3) This Agreement is personal to the Executive and shall not be assignable
by him, but shall accrue to the Corporation's successors and assigns.
(4) The failure of the Corporation to insist upon the punctual performance
of any of the covenants or obligations of the Executive hereunder, or
the failure of the Corporation to exercise any right or H remedy
available to the Corporation under this Agreement, or any forbearance
on the part of the Corporation, shall not constitute a waiver by the
Corporation of any subsequent default-or breach by the Executive
hereunder. All demands for performance and all notice of default
hereunder are hereby waived by the Executive.
<PAGE>
(5) Any notice, direction or other instrument required or permitted to be
given by one party to the other hereunder shall be in writing and may
be given by mailing to the same postage prepaid or delivering the same
addressed:
to the Corporation at: 1001 Petrolia Road
Toronto, Ontario
M3J 2X7
to the Executive at: 1001 Petrolia Road
Toronto, Ontario
M3J 2X7
Any notice, direction or other instrument aforesaid if delivered shall
be deemed to have been given or made on the date on which it was
delivered or if mailed, except in the event of an intervening postal
disruption, shall be deemed to have been given or made on the 3rd
business day following the day on which it was mailed.
The Corporation or the Executive may change its or his address for
service from time to time by notice given in accordance with the
foregoing.
(6) This Agreement and the terms hereof shall constitute the entire
Agreement between the parties hereto with respect to all the matters
herein, and its execution has not been induced by, nor do any of the
parties hereto rely upon or regard as material any representations or
writings whatsoever not incorporated herein and made a part hereof, and
this Agreement shall not be amended, altered or qualified except by a
memorandum in writing signed by all of the parties hereto, and any
amendment, alteration or in qualification hereof shall be null and void
and shall not be binding upon any party who has not given its or his
written confirmation thereof.
IN WITNESS WHEREOF the parties have hereto executed this Agreement.
NETJEWELS.COM INC.
Per: /s/ Daniel Berkovits
----------------------------
Name: Daniel Berkovits
Title: CEO
I have the authority to bind the Corporation
/s/ Jack Berkovits
-------------------------
JACK BERKOVITS
<PAGE>
EXHIBIT 10.5
THEGLOBE.COM
MERCHANDISING AGREEMENT
PREMIER PARTNER
THIS PREMIER PARTNER MERCHANDISING AGREEMENT (the "Agreement") is made
as of September 30, 1999 (the "Effective Date") by and between THEGLOBE.COM,
INC., with its principal place of business at 120 Broadway, New York, NY 10271
("theglobe"), and D.G. JEWELLERY OF CANADA, LTD., with its principal place of
business at 1001 Petrolia Road, Toronto, ON M3J 2X7 ("Merchant").
1. DEFINITIONS.
(A) "AFFILIATE PROGRAM" means theglobe's standard affiliate program for
merchants in shop.theglobe.com (when available and to the extent that Merchant
is technically and legally eligible to participate).
(B) "CLICKS" shall mean click through of any promotion described in Exhibit
A.
(C) "LAUNCH DATE" means the first day on which theglobe performs any of the
promotions described on Exhibit A.
(D) "MARKS" means the Merchant Marks or theglobe Marks, as applicable.
(E) "MERCHANT BANNERS" means any banner, button, text or similar ads
Merchant provides to theglobe or that theglobe develops for Merchant in
connection with this Agreement.
(F) "MERCHANT CONTENT" means any content or information (including without
limitation any text, music, sound, photographs, video, graphics, data or
software), in any medium, provided by Merchant to theglobe for use on theglobe
Site (other than Merchant Banners).
(G) "MERCHANT MARKS" means all Merchant domain names, trademarks and logos
reasonably necessary or desirable for theglobe to perform under this Agreement.
(H) "MERCHANT PAGES" means the subset of the Merchant Website co-branded in
accordance with this Agreement.
(I) "MERCHANT PRODUCTS" means the goods and services offered on Merchant
Pages and those goods or services being sold by or through Merchant from the
Storefront.
(J) "MERCHANT WEBSITE" means the pages under the NetJewels.com domain.
(K) "REFERRAL" means a person who accesses the Merchant Website.
(L) "STOREFRONT" means the Jewelry category pages of shop.theglobe.com.
<PAGE>
(M) "THEGLOBE MARKS" means all theglobe domain names, trademarks and logos
reasonably necessary or desirable for Merchant to perform under this Agreement.
(N) "THEGLOBE MATERIALS" means theglobe's navigation bars, logos and other
co-branding elements provided to Merchant for incorporation on the Merchant
Pages.
(O) "THEGLOBE SITE" means all pages under theglobe.com domain or otherwise
operated by theglobe or any company it controls, is controlled by or that is
under common control.
2. IMPLEMENTATION.
2.1 PRE-LAUNCH DELIVERABLES. Promptly following the Effective Date,
theglobe shall deliver to Merchant the following: theglobe Materials, a media
and promotional prototype, and a plan for doing the production/design services
related to integrating Merchant's promotions into theglobe Site.
2.2 CO-BRANDING. Merchant shall co-brand the Merchant Pages with theglobe
Materials. The parties shall mutually agree upon the look and feel of any
co-branded Merchant Pages, specifying the location of all theglobe Materials and
other branding. Merchant may not publicly display the Merchant Pages until such
agreement has been reached and theglobe has approved Merchant's implementation.
Thereafter, without theglobe's consent, Merchant shall not change any Merchant
Pages (a) in a way that would degrade, detract from or interfere with
theglobe's branding, or (b) to introduce any new third party branding on such
Merchant Pages. Merchant shall not provide any hypertext links from the Merchant
Pages to a page outside of the Merchant Pages (other than to theglobe Site). If
requested by theglobe, Merchant shall create additional branded versions of the
Merchant Pages branded with the branding of theglobe's distribution partners,
which branded versions shall be implemented within 30 days of theglobe's
request and subject to approval in accordance with this Section 2.
2.3 CONTENT DELIVERY. All deliveries of theglobe Materials or Merchant
Content, as applicable, shall comply with technical standards of the recipient,
as reasonably specified by the recipient.
2.4 REFERRAL RELATIONS. Merchant shall be responsible for providing all
customer support regarding the Merchant Pages and the Merchant Products, and
the globe may redirect to Merchant any associated customer support inquiries.
To the extent that Merchant is delivering back to theglobe any information
about Referrals, Merchant's privacy policy shall make any disclosures, or
obtain any Referral consent, necessary to make the disclosures about
Referrals back to theglobe required by this Agreement.
2.5 STOREFRONT. theglobe shall develop, serve and manage the Storefront.
theglobe shall use commercially reasonable efforts to make the Storefront
publicly available a minimum of 90% of the time during any 24 hour period, 95%
of the time during any 7 day period, and 98% of the time during any 30 day
period. theglobe shall develop, serve and manage the Storefront. theglobe shall
have complete editorial discretion over the contents, layout and look and feel
of the Storefront, provided that the "Jewelry" category will always contain at
least one full page on shop.theglobe.com. Merchant shall provide to theglobe
product shots and product-related
<PAGE>
content (on a regular rotating basis) for incorporation into the Storefront. In
addition, Merchant shall provide to theglobe the code necessary to allow
Storefront users to search the Merchant Pages.
3. MARKETING.
3.1 PROMOTIONS. On and following the Launch Date, theglobe shall provide
the promotions described in Exhibit A. In the event that theglobe redesigns the
globe Site in a way that impacts such promotions, theglobe shall provide
substantially similar promotions on the redesigned site.
3.2 FRAMING. theglobe may frame the Merchant Pages in a mutually acceptable
manner, and any consideration theglobe derives from such frames shall be solely
theglobe's.
3.3 MERCHANT BANNERS. Merchant shall deliver to theglobe Merchant Banners
that are to be run in accordance with this Agreement. Such banners shall comply
with theglobe's then-current technical standards. The terms of any insertion
order or similar document regarding the Merchant Banners are expressly rejected,
except to the extent that they specify the location, timing or duration of the
display of the Merchant Banners and such terms are accepted by theglobe.
theglobe may request that Merchant Banners be co-branded with theglobe Marks, in
which case the parties shall work together to develop a mutually acceptable
implementation. theglobe may approve or reject any Merchant Banner in its sole
discretion.
3.4 MERCHANT DELIVERABLES. Merchant will produce product shots which rotate
regularly, content and search functionality so that theglobe can fulfill its
promotional obligations described in Exhibit A.
4. PAYMENT. Merchant shall make the payments described in Exhibit A. Merchant
shall pay theglobe's costs of collection (including reasonable attorneys' fees)
for any overdue payments. All fees and payments stated herein exclude, and
Merchant shall pay, any sales, use or other tax related to the parties'
performance of their obligations or exercise of their rights under this
Agreement, exclusive of taxes based on theglobe's net income.
5. LICENSES AND STANDARDS.
5.1 CONTENT. Merchant hereby grants to theglobe a non-exclusive, worldwide
license to use, reproduce, create derivative works of (only as necessary to
build pages in a manner consistent with this Agreement), publicly display,
publicly perform and digitally perform Merchant Banners and Merchant Content on
theglobe Site or otherwise as reasonably appropriate to advertise and promote
the Merchant Products, the Storefront or the Merchant Pages. theglobe hereby
grants to Merchant a non-exclusive, worldwide license to use, reproduce, create
derivative works of (only as necessary to build Merchant Pages), publicly
display, publicly perform and digitally perform theglobe Materials on Merchant
Pages.
5.2 TRADEMARKS. Merchant hereby grants to theglobe a non-exclusive license
to use the Merchant Marks to advertise and promote the Storefront, the Merchant
Pages and the Merchant Products. theglobe hereby grants to Merchant a
non-exclusive license to use theglobe Marks on the Merchant Pages and, if
requested by theglobe, in the Merchant Banners.
<PAGE>
5.3 TRADEMARK RESTRICTIONS. The Mark owner may terminate the foregoing
trademark license if, in its reasonable discretion, the licensee's use of the
Marks tarnishes, blurs or dilutes the quality associated with the Marks or the
associated goodwill and such problem is not cured within 10 days of notice of
breach; alternatively, instead of terminating the license in total, the owner
may specify that certain licensee uses may not contain the Marks. Title to and
ownership of the owner's Marks shall remain with the owner. The licensee shall
use the Marks exactly in the form provided and in conformance with any trademark
usage policies. The licensee shall not take any action inconsistent with the
owner's ownership of the Marks, and any benefits accruing from use of such Marks
shall automatically vest in the owner. The licensee shall not form any
combination marks with the other party's Marks.
5.4 OWNERSHIP. As between theglobe and Merchant: (a) theglobe and its
suppliers retain all rights, title and interest in and to all intellectual
property rights embodied in or associated with theglobe Materials, and (b)
Merchant and its suppliers retain all rights, title and interest in and to all
intellectual property rights embodied in or associated with the Merchant
Content. Merchant Banners (other than any theglobe Marks incorporated therein),
and the Merchant Pages (other than any theglobe Materials incorporated therein).
There are no implied licenses under this Agreement, and any rights not expressly
granted to a licensee hereunder are reserved by the licensor or its suppliers.
Neither party shall exceed the scope of the licenses granted hereunder.
5.5 STANDARDS. Merchant shall not intentionally or in a negligent manner
provide Merchant Banners (excluding any theglobe Marks incorporated therein at
theglobe's request) or Merchant Content, and theglobe shall not provide to
Merchant any theglobe Materials, that: (a) infringe any third party's
intellectual property or publicity/privacy right; (b) violate any law or
regulation; (c) are defamatory, obscene, harmful to minors or child
pornographic; (d) contain any viruses, Trojan horses, worms, time bombs,
cancelbots or other computer programming routines that are intended to damage,
detrimentally interfere with, surreptitiously intercept or expropriate any
system, data or personal information; or (e) are materially false, inaccurate or
misleading.
5.6 QUALITY STANDARDS. Merchant shall provide the Merchant Products, and
any related customer and technical support, on a quality level substantially
equivalent to the quality offered by Merchant's online competitors. The category
of Merchant Products as of the Effective Date shall be the same or substantially
similar throughout the term of the Agreement. Merchant shall clearly state, and
shall follow the stated, warranty and refund policies. All Referrals shall be
treated at least as favorably in all respects (including without limitation with
respect to pricing, quality of service, and customer support responsiveness) as
Merchant treats users of the Merchant Website.
6. INFORMATION ABOUT REFERRALS. Merchant shall not disclose to any third
parties any information or data collected from or about Referrals (including
information provided by theglobe, voluntarily-disclosed information, and any
information Merchant gleans from Referrals' access or use of the Merchant
Pages), nor may Merchant use such information for any purpose other than as
necessary to deliver purchased Merchant Products to Referrals. Merchant shall
use at least industry-standard methods to protect the security of such
Referral-related information.
<PAGE>
7. NO WARRANTIES. EACH PARTY PROVIDES ALL MATERIALS AND SERVICES TO THE OTHER
PARTY "AS IS." EACH PARTY DISCLAIMS ALL WARRANTIES AND CONDITIONS, EXPRESS,
IMPLIED OR STATUTORY, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF
TITLE, NON-INFRINGEMENT, MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE.
Each party acknowledges that it has not entered into this Agreement in reliance
upon any warranty or representation except those specifically set forth herein.
Unless an approval process is specified herein, all deliverables provided by one
party to the other shall be deemed accepted (for purposes of the UCC) when
delivered.
8. TERM AND TERMINATION.
8.1 TERM. This Agreement will become effective on the Effective Date and
will continue in effect for two (2) years following the Launch Date. The parties
shall, during the 60 days immediately prior to expiration, negotiate in good
faith to extend the term of this Agreement. However, no extension shall apply
unless mutually agreed upon in writing by both parties.
8.2 TERMINATION FOR FAILURE TO PERFORM. By providing written notice, a party
may immediately terminate this Agreement if the other party materially breaches
this Agreement and fails to cure that breach within 15 days after receiving
written notice of the breach. theglobe will deliver: a) 36,000 Clicks within six
months following the Launch Date, b) 72,000 Clicks within twelve months
following the Launch Date, c) 115,200 Clicks within eighteen months following
the Launch Date, or d) 158,400 Clicks within twenty-four months following the
Launch Date. Merchant's sole and exclusive remedy and theglobe's sole and
exclusive liability for theglobe's failure to deliver such Clicks shall be, at
Merchant's option, either (i) to terminate this Agreement or (ii) to suspend
subsequent payments until theglobe has provided the applicable number of Clicks.
The number of Clicks for the purpose of this section shall include only Clicks
made via banners, buttons, text links, email, or html email promotions.
8.3 TERMINATION FOR CONVENIENCE. Either party may terminate this Agreement for
any or no reason (a) effective as of the six-month anniversary of the Effective
Date by providing written notice to the other party at least fifteen (15) days
prior to the six-month anniversary of the Effective Date; or (b) by providing
sixty (60) days written notice to the other party at any time between the
ten-month and twelve-month anniversary of the Effective Date. For one (1) month
after termination for convenience by theglobe, in the event that theglobe
receives an offer to establish an exclusive third-party retailer under the
"Jewelry" department of shop.theglobe.com, then theglobe shall notify Merchant
of the terms and conditions contained in the offer, and theglobe shall offer
Merchant the right to engage in the same transaction on the exact terms of such
offer. Merchant shall have five (5) days from notification to accept the exact
terms of theglobe's offer. If Merchant accepts such offer, then this Agreement
shall be re-instituted as amended by the terms in theglobe's notice. If the
parties do not re-institute such agreement within ten (10) days from Merchant's
acceptance, or if Merchant declines theglobe's offer, then theglobe shall have
no further obligation to Merchant.
8.4 TERMINATION BECAUSE OF ACQUISITION. By providing at least 15 days prior
written notice, theglobe may terminate this Agreement in its sole discretion if
theglobe acquires a
<PAGE>
controlling interest in a company or becomes controlled by a company that offers
or sells jewelry, with theglobe paying a refund on a pro-rata basis to Merchant
of (i) the then current month's Placement Fee and (ii) the Development Fee (as
calculated on a 24-month basis).
8.5 EFFECTS OF TERMINATION. Upon expiration or termination of the
Agreement, all licenses granted hereunder shall terminate unless such licenses
are expressly stated as surviving. Merchant shall promptly remove all theglobe
Marks and theglobe Materials from its servers, and theglobe shall promptly
remove all Merchant Marks, Merchant Banners and Merchant Content or other
materials provided by Merchant from its servers. Sections 5.4, 6, 7, 8.3, 8.5,
9, 10 and 11, and any obligation to pay any accrued but unpaid amounts and audit
rights, shall survive any expiration or termination.
9. LIABILITY LIMITS. NEITHER PARTY SHALL BE LIABLE FOR LOST PROFITS OR SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT (HOWEVER ARISING, INCLUDING NEGLIGENCE), EVEN IF THE PARTIES ARE AWARE
OF THE POSSIBILITY OF SUCH DAMAGES.
EXCEPT IN THE EVENT OF A CLAIM UNDER SECTION 10, IN NO EVENT SHALL EITHER PARTY
BE LIABLE TO THE OTHER PARTY IN AN AMOUNT GREATER THAN THE AMOUNT MERCHANT
ACTUALLY PAYS TO THEGLOBE HEREUNDER.
10. INDEMNITY. Each party (the "Indemnifying Party") shall indemnify the other
party (the "Indemnified Party") against any and all claims, losses, costs and
expenses, including reasonable attorneys' fees, which the Indemnified Party may
incur as a result of claims in any form by third parties arising from: (a) the
Indemnifying Party's acts, omissions or misrepresentations to the extent that
the Indemnifying Party is deemed an agent of the Indemnified Party, (b) the
Indemnifying Party's breach of its privacy policy, or (c) the Indemnifying
Party's noncompliance with all applicable laws and regulations regarding its
performance in connection with this Agreement. In addition, theglobe shall
indemnify Merchant against any and all claims, losses, costs and expenses,
including reasonable attorneys' fees, which Merchant may incur as a result of
claims in any form by third parties arising from theglobe Materials or theglobe
Marks. In addition, Merchant shall indemnify theglobe against any and all
claims, losses, costs and expenses, including reasonable attorneys' fees, which
theglobe may incur as a result of claims in any form by third parties arising
from Merchant Banners (excluding theglobe Marks if applicable), Merchant
Content, Merchant Marks, or Merchant Products. The foregoing obligations are
conditioned on the Indemnified Party: (i) giving the Indemnifying Party notice
of the relevant claim, (ii) cooperating with the Indemnifying Party, at the
Indemnifying Party's expense, in the defense of such claim, and (iii) giving the
Indemnifying Party the right to control the defense and settlement of any such
claim, except that the Indemnifying Party shall not enter into any settlement
that affects the Indemnified Party's rights or interest without the Indemnified
Party's prior written approval. The Indemnified Party shall have the right to
participate in the defense at its expense.
11. GENERAL.
<PAGE>
11.1 GOVERNING LAW. This Agreement will be governed and construed in
accordance with the laws of the State of New York without giving effect to
conflict of laws principles. Both parties submit to personal jurisdiction in New
York and further agree that any cause of action arising under this Agreement
shall be brought in a court in New York City, NY.
11.2 PUBLICITY. Neither party shall issue any press release or similar
publicity statement regarding this Agreement without the prior approval of
both parties (not to be unreasonably withheld) or as required by law.
11.3 INDEPENDENT CONTRACTORS. The parties are independent contractors, and
no agency, partnership, franchise, joint venture or employment relationship is
intended or created by this Agreement. Neither party shall make any warranties
or representations on behalf of the other party.
11.4 ASSIGNMENT. Neither party may assign its rights or delegate its duties
hereunder (except to an affiliated company, or to a successor in interest in the
event of a merger, amalgamation, reorganization sale of assets of the business
to which this Agreement is related, or consolidation) without the other party's
prior written consent, and any purported attempt to do so is null and void.
11.5 SEVERABILITY; HEADINGS. If any provision herein is held to be invalid
or unenforceable for any reason, the remaining provisions will continue in full
force without being impaired or invalidated in any way. The parties agree to
replace any invalid provision with a valid provision that most closely
approximates the intent and economic effect of the invalid provision. Headings
are for reference purposes only and in no way define, limit, construe or
describe the scope or extent of such section.
11.6 FORCE MAJEURE. Except as otherwise provided, if performance hereunder
(other than payment) is interfered with by any condition beyond a party's
reasonable control, the affected party shall be excused from such performance to
the extent of such condition. Each party acknowledges that website operations
may be affected by numerous factors outside of a party's control.
11.7 NOTICE. Any notice under this Agreement will be in writing and
delivered by personal delivery, overnight courier, confirmed facsimile,
confirmed email, or certified or registered mail, return receipt requested, and
will be deemed given upon personal delivery, 1 day after deposit with an
overnight courier, 5 days after deposit in the mail, or upon confirmation of
receipt of facsimile or email. Notices will be sent to a party at its address
set forth in the preamble above or such other address as that party may specify
in writing pursuant to this subsection.
11.8 ENTIRE AGREEMENT; WAIVER. This Agreement sets forth the entire
understanding and agreement of the parties, and supersedes any and all oral or
written agreements or understandings between the parties, as to the subject
matter of the Agreement. This Agreement may be changed only by a writing signed
by both parties. The waiver of a breach of any provision of this Agreement will
not operate or be interpreted as a waiver of any other or subsequent breach.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
THEGLOBE.COM, INC.: MERCHANT: DG Jewellery
By: /s/ Bryan Wiener By: /s/ Jack Berkovits
------------------------------ -----------------------------------
Name: Bryan Wiener Name: Jack Berkovits
---------------------------- -----------------------------------
Title: General Manager Title: CEO
---------------------------- -----------------------------------
</TABLE>
<PAGE>
EXHIBIT A
BUSINESS TERMS
THEGLOBE'S PROMOTIONS:
Merchant and theglobe shall mutually agree upon a list of ten (10) keywords that
will display advertisements for Merchant on theglobe Site. theglobe may remove
one or more of such keywords if it has a legitimate reason, in which case the
parties will mutually agree an equal number of replacement keywords. theglobe
shall produce creative (including banners, buttons, text links, emails and html
emails) for Merchant for use in promotions described herein. theglobe will
manage the performance of this promotional campaign to maximize conversion
rates.
YEAR ONE
theglobe will:
- - host a Jewelry Storefront within shop.theglobe.com
- - facilitate Affiliate Program integration, if applicable
- - serve 6,900,000 banners promoting the Storefront, Merchant Pages, or
item sold on the Merchant Pages
- - serve 1,200,000 buttons promoting the Storefront, Merchant Pages, or item
sold on the Merchant Pages
- - serve 1,200,000 text links promoting the Storefront, Merchant Pages, or
item sold on the Merchant Pages
- - serve 3,100,000 emails promoting the Storefront, Merchant Pages, or item
sold on the Merchant Pages
- - serve 2,000,000 html emails promoting the Storefront, Merchant Pages, or
item sold on the Merchant Pages
- - provide sponsorship within shop.theglobe.com promotions for Halloween,
Thanksgiving, Holiday 99, New Years 2000, Valentine's Day, Graduation,
Mothers' Day, Fathers' Day.
- - provide 4 Celebrity Event Sponsorships
YEAR TWO
theglobe will:
- - host a Jewelry Storefront within shop.theglobe.com
- - facilitate Affiliate Program integration, if applicable
- - serve 8,280,000 banners promoting the Storefront, Merchant Pages, or item
sold on the Merchant Pages
- - serve 1,440,000 buttons promoting the Storefront, Merchant Pages, or item
sold on the Merchant Pages
<PAGE>
- - serve 1,440,000 text links promoting the Storefront, Merchant Pages, or
item sold on the Merchant Pages
- - serve 3,720,000 emails promoting the Storefront, Merchant Pages, or item
sold on the Merchant Pages
- - serve 2,400,000 html emails promoting the Storefront, Merchant Pages, or
item sold on the Merchant Pages
- - provide sponsorship within shop.theglobe.com promotions for Halloween,
Thanksgiving, Holiday 99, New Years 2001, Valentine's Day, Graduation,
Mothers' Day, Fathers' Day.
- - provide 4 Celebrity Event Sponsorships
Except as specified in Section 8.2, if theglobe promises to deliver a minimum
number of impressions during a specified time period and fails to do so,
theglobe's sole and exclusive obligation in such circumstance shall be to
continue performing the promotion until it delivers the total number of required
impressions. If, at the end of the Agreement, theglobe fails to deliver all
impressions and Clicks promised hereunder, theglobe shall have an additional 90
days to deliver the total number of required impressions or Clicks, or continue
running until the required number of impressions and Clicks have been delivered.
If theglobe does not do so, theglobe shall thereafter promptly refund a prorated
amount of the placement fees set forth below (prorated based on the number of
impressions or Clicks actually delivered, as applicable).
theglobe may redesign or modify the organization, structure or "look and feel"
of theglobe Site at any time without notice, provided that the "Jewelry"
category will always contain at least one full page on shop.theglobe.com. In the
event such modifications affect the placement of such promotions, theglobe shall
notify Provider and shall work with Provider to display such promotions in
comparable places on theglobe Site.
EXCLUSIVITY.
1. Within the "Jewelry" department of shop.theglobe.com, Merchant will be the
only third party jewelry-retailer whose products are promoted on the Storefront.
2. The "Jewelry" department of shop.theglobe.com will remain titled "Jewelry",
or another mutually agreeable title.
3. In other departments of shop.theglobe.com, theglobe will not create a
sub-department labeled "Jewelry".
4. Merchant acknowledges that theglobe is not prevented from accepting
advertising or otherwise promoting jewelry on theglobe Site.
5. During the term of this Agreement, theglobe will not allow third party
retailers in shop.theglobe.com to promote fine jewelry on their storefronts,
provided that theglobe may permit retailers to promote watches under $500 retail
throughout shop.theglobe.com. In the event that theglobe breaches this Section
5, theglobe's sole and exclusive liability and Merchant's sole
<PAGE>
and exclusive remedy will be for theglobe to remove the fine jewelry or
watches over $500 retail from the storefront within 15 days notice from
Merchant.
6. Notwithstanding anything to the contrary herein, theglobe may promote in the
"partner links" area of the left hand navigation bar on the Storefront third
parties whose goods or services include the sales of jewelry, so long as any
such party's sale of jewelry is not expressly promoted in that "partner links"
area or anywhere else in the Storefront.
TOTAL PAYMENTS.
DEVELOPMENT FEE. Merchant shall pay to theglobe a nonrefundable one-time
development fee of $27,000 for theglobe's preparation and delivery of the
pre-launch deliverables.
EXCLUSIVITY FEE. For year 1 of the Agreement, Merchant shall pay to theglobe a
nonrefundable exclusivity fee of $147,000. For year 2 of the Agreement, Merchant
shall pay to theglobe a nonrefundable exclusivity fee of $180,000.
PLACEMENT FEE. For year 1 of the Agreement, Merchant shall pay to theglobe a
nonrefundable placement fee of $96,000. For year 2 of the Agreement, Merchant
shall pay to theglobe a nonrefundable placement fee of $144,000.
PAYMENT SCHEDULE.
YEAR 1
<TABLE>
<CAPTION>
<S> <C>
Effective Date: $27,000
Launch Date, and each of the following 11 monthly
anniversary dates of the Launch Date: $20,250
Total Year 1 (excluding Affiliate Program Royalties) $270,000
YEAR 2
Each monthly anniversary of the Launch Date: $27,000
Total Year 2 (excluding Affiliate Program Royalties) $324,000
</TABLE>
Merchant will pay theglobe a percentage of revenue for sales referred via
Affiliate Program on a monthly basis throughout the term. This percentage will
be calculated by adding the same commission percentage made available via the
Merchant's affiliate program to the general public on the Merchant Website and
adding three (3) percent.
<PAGE>
RECORD KEEPING.
Merchant shall keep for 3 years proper records and books of account relating to
the foregoing computation of royalties. Once every 12 months, theglobe or its
designee may inspect such records to verify Merchant's reports. Any such
inspection shall be conducted in a manner that does not unreasonably interfere
with Merchant's business activities. Merchant shall immediately make any overdue
payments disclosed by the audit plus applicable interest. If such audit
discloses an overpayment by Merchant, theglobe will promptly refund such
overpayment to Merchant. Such inspection shall be at theglobe's expense;
however, if the audit reveals overdue payments in excess of 5% of the payments
owed to date, Merchant shall immediately pay the cost of such audit, and
theglobe may conduct another audit during the same 12 month period.
<PAGE>
UBid Online Auction
2525 Busse Road
Elk Grove Village, IL 60007
847-860-5000
Exhibit 10.7
November 2, 1999
DG Jewellery
To: Daniel Berkovits
TERMS OF AGREEMENT
THE PARTNERSHIP
- UBid will market and sell DG Jewellery products, selected according to
the terms and conditions of this Agreement through its on-line auction
system (the "Accepted Products"). Subject to the terms and conditions
herein, UBid will use reasonable efforts to market the Accepted
Products appropriately and strategically, in its sole discretion, so as
to insure the highest possible return on all Accepted Products.
- - Subject to the terms and conditions herein, DG Jewellery agrees that, for the
duration of this Agreement, it will (a) provide jewellery products exclusively
to UBid, and to no other internet site or business that is engaged in online
auctioning, according to the terms of Exhibit A; and (b) offer UBid the RIGHT OF
FIRST REFUSAL to any new products that DG Jewellery designs or develops.
Notwithstanding the foregoing, (a) DG Jewellery shall be released from the
exclusivity obligation set forth herein in the event that UBid does not meet the
sales volumes set out in Exhibit A for a period of three (3) consecutive months;
and (b) UBid acknowledges that it has been made aware of DG Jewellery's
arrangement with Bid.com and with two undisclosed auction sites, one already
existing and one soon to commence; however, DG Jewellery has agreed to make uBid
its prime auction distributor and undertakes and agrees not to seek additional
arrangements or similar business (this includes Ebay, First Auction, Onsale, Web
Auction, and Egghead).
- - [DG Jewellery will be the exclusive supplier of FINE JEWELRY to UBid]
- - [DG Jewellery agrees to offer UBid the LOWEST PRICES for all DG
Jewellery products offered to UBid.]
- The parties agree to revenue sharing for all Accepted Products
sold through the UBid online auction system according to the
following formula: (a) for the first US$3 million in sales, the
division, in percentage terms, of sales revenue shall be 85% to
DG Jewellery and 15% to UBid; and (b) for all subsequent sales,
the division, in percentage terms, shall be 80% to DG Jewellery
and 20% to UBid.
- The initial term for this Agreement shall be five (5) years from
the Effective Date (the "Term").
<PAGE>
UBid Online Auction
2525 Busse Road
Elk Grove Village, IL 60007
847-860-5000
- Products to be Accepted and placed for online auction will be
decided upon jointly by DG Jewellery and UBid, in order to determine
the optimum assortment of products offered; provided however, that
UBid shall have the right to final determination as to the timing of
the offer, placing or positioning on the UBid site, marketing and
other related decisions with respect to the online auctioning of the
Accepted Products .
- - DG Jewellery will pay a non-refundable setup fee of US$150,000 (the "Setup
Fee") to UBid for the design, setup and creation of content relating to the
marketing and selling of Accepted Products on the UBid site (the
"Content"). Subject to the terms and conditions of the Vendor Agreement,
such Setup Fee shall be payable in five equal monthly installments of
US$30K/month, commencing May 1st, 1999. All right, title and interest to
the Content (including without limitation all intellectual property rights)
shall be owned by UBid.
- - DG Jewellery will provide UBid with any information, images and other
materials which UBid may reasonably require in order to design, setup and
create the Content and to market and sell the Accepted Products (the
"Promotional Materials").
- - Both companies shall mutually review and approve any press releases in
connection with this Agreement and the terms thereunder prior to such
release.
UBID EXPECTATIONS
- DG Jewellery agrees to ship all products within 7-10 days of receiving a
packing slip (faxed daily from UBid).
- DG Jewellery agrees to ship all products using a UBid designated carrier
(currently either Federal Express orUPS) using our supplied account
number as follows:
1. FedEx - 182129709
2. UPS - X4203W
- DG Jewellery agrees that all shipments without exceptions will originate
from the United States using the above Fed Ex or UPS#'s
- DG Jewellery agrees to be responsible for and handle all end user
warranties.
- DG Jewellery will email tracking numbers and shipping confirmations daily
to a designated UBID representative - currently Lakeisha at
[email protected] and CC also Crystall at [email protected].
(Eventually all correspondences will be handle electronically).
- DG Jewellery will be responsible for and handle all customary customer
service matters, including without limitation all returns of product. If
UBid accepts a return on any DG Jewellery product, DG Jewellery will be
notified promptly within 7 days to enable it to carry out its obligations
with respect to such returned product.
<PAGE>
UBid Online Auction
2525 Busse Road
Elk Grove Village, IL 60007
847-860-5000
- - DG Jewellery will not include any materials other than those previously
approved by uBid in writing (including without limitation any third party
marketing materials) with shipments to UBid customers.
- - UBid will provide custom box tape for all shipments.
<PAGE>
UBid Online Auction
2525 Busse Road
Elk Grove Village, IL 60007
847-860-5000
VENDOR AGREEMENT
This agreement (this "Agreement") dated March 11, 1999 (the "Effective Date") is
between UBID, Inc., a Delaware Corporation ("Reseller") and ___________________
("Vendor"). It sets forth the terms and conditions for a business relationship
between the two parties.
1. PAYMENT TERMS: Items that Vendor and UBid agree to revenue share, according
to this Agreement and any attachments and exhibits annexed hereto, will be
paid every Tuesday for sales concluded in the previous week.
2. RETURNS OPTIONS: Vendor understands and agrees that from time to time, UBid
may accept merchandise returns which do not meet customer satisfaction or
requirements. Such returns will be considered defective returns. In
addition to any other terms and conditions in this Agreement governing
product returns, Vendor agrees to accept all such returned merchandise for
full credit. Vendor will pay the cost of freight on all defective returns.
3. CUSTOMER SERVICE: Vendor will provide a phone number for all end user
warranty, technical support, and missing parts issues for UBid customers,
as follows.
UBid Customer Service Contact: Name:
------------------------
Phone Number
------------------------
End User Contact: Phone Number
------------------------
Warehouse Contact: Name:
------------------------
Phone Number:
------------------------
Fax Number:
------------------------
4. VENDOR'S WARRANTIES: Vendor represents and warrants that (a) it has the
right to supply, use and deal with the products as contemplated by this
Agreement, and that it has the right to grant the same to UBid; and (b) it
has obtained, or will obtain prior to the marketing of any product, all
relevant consents, permissions, licenses and rights (including without
limitation any copyright permissions) to market, use or otherwise deal with
the products and Promotional Materials as contemplated by this Agreement.
5. LICENSE OF MARKS: Except as set forth herein, each party is granted no
rights in or to the other party's Marks. "Marks" means the trademarks,
service marks, tradenames or other marks, registered or otherwise, used by
either party, as applicable. Vendor hereby grants UBid a
<PAGE>
UBid Online Auction
2525 Busse Road
Elk Grove Village, IL 60007
847-860-5000
limited, worldwide, royalty-free, non-exclusive, non-transferable right
to use its Marks solely for the purpose of this Agreement.
6. GENERAL: Vendor will not place bids or cause bids to be placed on Accepted
Products (as such term is used in the attached Terms of Agreement) for the
purpose of influencing customer behaviour, including without limitation
raising or otherwise manipulating the bidding, regarding any Accepted
Product. Vendor shall not issue any press release relating to this
Agreement without the prior written consent of UBid.
7. CONFIDENTIALITY: From time to time, each party may provide the other with
Confidential Information. Both parties hereby agree to protect such
Confidential Information of the other party with at least the same degree
of care (but no less than a reasonable degree of care) as it protects its
own Confidential Information, and shall not disclose any Confidential
Information to any third party without the prior written consent of the
other party, except to its employees who have a strict and justified
business "need to know" and who are subject to confidentiality obligations
with respect to such information that are no less strict than those imposed
by this Agreement. The confidentiality obligations set forth herein shall
not apply to Confidential Information that was or becomes generally known
to the public through no fault of the receiving party, or that is obtained
by the receiving party from a third party without restriction, or that is
independently developed by the receiving party, or that is required to be
disclosed by a court or other competent legal authority. "Confidential
Information" as used herein shall mean any and all information that is
disclosed by one party that is either identified or should be reasonably
understood to be confidential and proprietary, including without limitation
any trade secrets, computer programs, software, marketing plans, customer
lists, financial or other business information.
8. INDEMNITY: Vendor shall defend, indemnify, and hold harmless UBid from any
and all lawsuits, claims, actions, and liabilities, of any nature, arising
in any manner from, relative to or in conjunction with UBid's acts or
failure to act, any of the Accepted Products and/or Promotional Materials
(as such term is used in the Terms of Agreement), or Vendor's breach of any
of its representations, warranties and obligations (including without
limitation any claims that any materials or products provided by Vendor
infringes the intellectual property rights of any third party) under this
Agreement.
9. TERMINATION: UBid shall have the right to terminate this Agreement in the
event that Vendor materially breaches any term of this Agreement, and such
breach remains uncured for thirty
<PAGE>
UBid Online Auction
2525 Busse Road
Elk Grove Village, IL 60007
847-860-5000
(30) days following Vendor's receipt of notice of such breach from UBid.
UBid's exercise of such right to terminate shall not affect (a) the rights
and liabilities of either party with respect to Products sold prior to
termination; (b) any indebtedness then owing by either party to the other
(including, without limitation, any and all instalments of the Setup Fee
unpaid as of the date of termination, which shall, notwithstanding any
provision to the contrary in this Agreement , the Terms of Agreement or any
Exhibit thereto, immediately become due as of such date of termination);
(c) obligations imposed by the provisions of this Agreement which by their
nature survive termination; or (d) any liability for damages resulting from
an actionable breach.
10. MISCELLANEOUS: This Agreement, the Terms of Agreement and Exhibit A (both
of which are annexed hereto) constitutes the entire understanding and
agreement between the parties and supersedes any prior verbal or written
representations, communicatoins and understandings between the parties
concerning the subject matter herein. Any and all modifications, changes
and/or additions to the above shall be ineffective unless agreed to in
writing by both parties. This Agreement is entered into in the State of
Illinois and shall be governed by and construed in accordance with the laws
of the State of Illinois, exclusive of its choice of law rules or the
United Nations Convention on Contracts for the International Sale of Goods.
Each party to this Agreement hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts of the State of Illinois, and
waives any jurisdictional, venue or inconvenient forum objections to such
courts. The relationship between both parties created by this Agreement is
that of independent contractors, and nothing in this Agreement is intended
to construed the existence of a partnership, joint venture or agency
relationship between the parties. Vendor may not assign or transfer this
Agreement without UBid's prior written consent.
<TABLE>
<S> <C>
Daniel Berkovits CEO Tim Takesu V.P.
- ------------------------------------- -------------------------------------
Vendor Representative Name Title UBid Representative Name Title
/s/ Daniel Berkovits 3/11/99 /s/ Tim Takesu 3/11/99
- ------------------------------------------ --------------------------------------
Vendor Representative Signature Date UBid Representative Signature Date
</TABLE>
<PAGE>
uBid Online Auction
2525 Busse Road
Elk Grove Village, IL 60007
847-860-5000
<PAGE>
Exhibit 10.12
INTERCOMPANY SERVICES AGREEMENT
THIS INTERCOMPANY SERVICES AGREEMENT (this "Agreement") is effective as
of the 1st day of June, 1999 and is entered into by and between D.G. Jewelry
Inc., an Ontario corporation ("D.G. Jewelry") and NetJewels.com Inc. a Delaware
corporation ("NetJewels.com").
WHEREAS Xite Jewelry.com Inc. was incorporated by articles of
incorporation filed on or about the 1st day of January, 1999 which
articles were amendment by articles of amendment filed on or about
the 20th day of August, 1999 changing the name of the corporation
from Xite Jewelry.com Inc. to Netjewels.com Inc. ("NetJewels
Canada");
AND WHEREAS Fifty percent (50%) of the issued and outstanding
common stock of NetJewels Canada is owned by D.G. Jewelry;
AND WHEREAS NetJewels.com, a wholly owned subsidiary of NetJewels Canada,
is considering an initial public offering of its common stock "IPO";
AND WHEREAS after the IPO, NetJewels.com desires to continue to obtain
various corporate, administrative and other services ("Services") from D.G.
Jewelry and D.G. Jewelry desires to continue to provide such Services following
the closing date of the IPO.
NOW THEREFORE in consideration of the sum of Five Dollars ($5.00) the
receipt of which and sufficiency thereof is hereby acknowledged and in
consideration of the mutual terms and covenants contained herein, the parties
hereto hereby agree as follows:
SECTION 1. SERVICES
D.G. Jewelry shall render to NetJewels.com the following Services in
accordance with the terms of this Agreement:
(1) CORPORATE SERVICES. D.G. Jewelry shall provide, directly or through its
subsidiaries, the services described on Exhibit A hereto, at the cost
specified and on the other terms and conditions set forth on Exhibit A.
(2) MANUFACTURING AND FULFILLMENT SERVICES. D.G. Jewelry shall provide,
directly or through its subsidiaries, the services described on Exhibit B
hereto, at the cost specified and on the other terms and conditions set
forth on Exhibit B.
(3) SPACE SHARING. D.G. Jewelry will make certain warehouse and office space
available to NetJewels.com at the cost specified and the other terms and
conditions set forth on Exhibit C.
<PAGE>
(4) In the event that NetJewels.com requires services that exceed the scope
or extent of the Services provided for herein, D.G. Jewelry and
NetJewels.com shall negotiate in good faith the terms and conditions,
including price, under which D.G. Jewelry shall provide such Services;
provided, however, that the fee payable by NetJewels.com for such
Services shall be no less favorable to NetJewels.com than the charges for
comparable services from unaffiliated third parties.
SECTION 2. COMPENSATION.
NetJewels.com shall pay to D.G. Jewelry when due a fee for each of the
Services equal to the amount described in the appropriate Exhibit hereto
relating to such Service, provided that in the event NetJewels.com terminates
any Service in accordance with Section 3 hereof, the fee for such Service shall
no longer be payable following the effective date of such termination. Late
payments shall accrue interest at a rate equal to the prime rate plus 2 points
published in the Wall Street Journal from time to time.
SECTION 3. TERM.
(a) The term of this Agreement shall begin on the date first written above
(the "Effective Date") and shall continue in full force and effect until
it is terminated in accordance with this Section 3.
(b) D.G. Jewelry shall have the right (but not the obligation) to immediately
terminate this Agreement:
(i) if NetJewels.com is in material breach of any of its obligations
or representations hereunder, which breach is not cured within
twenty (20) days of receipt of written notice from D.G. Jewelry of
such breach;
(ii) if NetJewels.com files a voluntary petition in bankruptcy or is
the subject of any voluntary proceeding relating to insolvency,
receivership, liquidation, or composition for the benefit of
creditors, if such petition or proceeding is not dismissed within
sixty (60) days of filing, or becomes the subject of any
involuntary petition in bankruptcy or any involuntary proceeding
is not dismissed within sixty (60) days of filing;
(iii) if the business of NetJewels.com is liquidated or otherwise
terminated for insolvency or any other basis, or
(iv) if NetJewels.com becomes insolvent or unable to pay its debts as
they mature or makes an assignment for the benefit of its
creditors.
(c) NetJewels.com hall have the right (but not the obligation) to immediately
terminate this Agreement:
<PAGE>
(i) if D.G. Jewelry is in material breach of its obligations,
specifically, but not limited to, its obligation to manufacture
quality merchandise which conforms to the order and specifications
of NetJewels.com, or representations hereunder, which breach is
not cured within twenty (20) days of receipt of written notice
from NetJewels.com of such breach;
(ii) if D.G. Jewelry is the subject of a voluntary petition in
bankruptcy or any voluntary proceeding relating to insolvency,
receivership, liquidation, or composition for the benefit of
creditors, if such petition or proceeding is not dismissed within
sixty (60) days of filing;
(iii) if the business of D.G. Jewelry is liquidated or otherwise
terminated for insolvency or any other basis, or
(iv) if D.G. Jewelry becomes insolvent or unable to pay its debts as
they mature or makes an assignment for the benefit of its
creditors.
(d) D.G. Jewelry shall have the right (but not the obligation to terminate
this Agreement and the rights granted to NetJewels.com hereunder, upon
twenty (20) days prior written notice to NetJewels.com, following the
acquisition of the direct or beneficial ownership of 20% or more of the
voting power represented by the voting securities of NetJewels.com by
persons other than D.G. Jewelry, Daniel Berkovits, or Bentzion Berkovits,
or its affiliates, for purposes of this Agreement, (i) the term
"beneficial ownership" shall have the meaning set forth in Section 13 (d)
of the Securities Act of 1933, as amended and the rules and regulations
promulgated thereunder, and (ii) the term "voting securities" shall mean
the common stock of NetJewels.com and any other securities issued by
NetJewels.com having the power to vote in the election of directors of
NetJewels.com, including without limitation any securities having such
power only upon the occurrence of a default or any other extraordinary
contingency. This subsection shall not be applicable to an initial public
offering of NetJewels.com's common stock.
(e) A party may exercise its right to terminate pursuant to this Section 3 by
giving twenty (20) days prior written notice to the other party. No
exercise by a party of its rights under this Section 3 will limit is
remedies by reason of the other party's other rights.
SECTION 4. RECORDS AND ACCOUNTS.
D.G. Jewelry shall maintain accurate books, records and accounts of all
transactions relating to the Services performed by it pursuant to this
Agreement. NetJewels.com may, at its own expense, examine and copy those books
and records as provided in this Section 4. Such books, records and accounts
shall be maintained separately from D.G. Jewelry's own records and accounts.
NetJewels.com may make those examinations only during D.G. Jewelry's business
hours, and at the place where it keeps the books and records. NetJewels.com will
be required to notify D.G. Jewelry's at least ten (10) days before the date of
planned examination.
<PAGE>
SECTION 5. DIRECTORS AND OFFICERS OF D.G. JEWELRY
Nothing in this Agreement shall limit or restrict the right of any of
D.G. Jewelry's directors, officers or employees to engage in any other business
or devote their time and attention in part to the management or other aspects of
any other business or to render services of any kind to any corporation, firm,
individual, trust or association.
SECTION 6. INDEPENDENT CONTRACTOR.
D.G. Jewelry is an independent contractor and when its employees act
under the terms of this Agreement, they shall be deemed at all times to be under
the supervision and responsibility of D.G. Jewelry; and no person employed by
D.G. Jewelry and acting under the terms of this Agreement shall be deemed to be
acting as agent or employee of NetJewels.com or any customer of NetJewels.com or
any purposes whatsoever.
SECTION 7. OTHER AGREEMENTS.
From time to time, NetJewels.com may find it necessary or desirable
either to enter into agreements covering services of the type contemplated by
this Agreement to be provided by parties other than D.G. Jewelry or to enter
into other agreements covering functions to be performed by D.G. Jewelry
hereunder. Nothing in this Agreement shall be deemed to limit in any way the
right of NetJewels.com to acquire such services from others to enter into such
other agreements.
SECTION 8. CONFIDENTIALITY
D.G. Jewelry agrees to hold in strict confidence, and to use reasonable
efforts to cause its employees and representatives to hold in strict confidence
(a) all confidential information concerning NetJewels.com furnished to or
obtained by D.G. Jewelry in the course of providing the Services except to the
extent that such information has been in the public domain through no fault of
D.G. Jewelry (b) disclosure or release is compelled by judicial or
administrative process, or (c) in the opinion of counsel to D.G. Jewelry,
disclosure or release is necessary pursuant to requirements of the law or the
requirements of any governmental entity including, without limitation,
disclosure requirements under the Securities Exchange Act of 1934, as amended.
SECTION 9. MISCELLANEOUS.
(a) Neither party may assign this Agreement, or their respective rights and
obligations hereunder, in whole or in part, without the other party's
prior written consent. Any attempt to assign this Agreement without such
consent shall be void and no effect ab initio. Notwithstanding the
foregoing, either party may assign this Agreement or any of its rights
and obligations hereunder to any entity controlled by it or to any entity
that acquires it by purchase of stock or by merger or otherwise, or by
obtaining substantially all of its assets (a "Permitted Assignee"),
provided that any such Permitted Assignee, or
<PAGE>
any division thereof, thereafter, succeeds to all of the rights and is
subject to all of the obligations of their respective assignor under this
Agreement.
(b) This Agreement shall be governed by and construed in accordance with the
internal laws of the State of New York applicable to agreements made and
to be performed entirely within such State, without regard to the
conflicts of law principles of such State.
(c) All legal proceedings brought in connection with this Agreement shall be
brought only in the state or federal court located within the State of
New York.
(d) If any provision of this Agreement (or any portion thereof) or the
application of any such provision (or any portion thereof) to any person
or circumstances shall be held invalid, illegal, or unenforceable in any
respect by a court of competent jurisdiction, such invalidity, illegality
or unenforceability shall not affect any other provision hereof (or the
remaining portion thereof) or the application of such provision to any
other persons or circumstances.
(e) All notices or other communications required or permitted to be given
hereunder shall be in writing and shall be delivered by hand or sent,
postage prepaid, by registered, certified or express mail or reputable
overnight courier service and shall be deemed given when so delivered by
hand, or if mailed, three days after mailing (one business day in the
case of express mail or overnight courier service), as follows:
(i) if to Net Jewels.com
1001 Petrolia Road
North York, Ontario
Canada M3J 2X7
Attn: Daniel Berkovits
(ii) if to D.G. Jewelry
1001 Petrolia Road
North York, Ontario
Canada M3J 2X7
Attn: Jack Berkovits
(f) The provisions of Section 9 hereof shall survive any termination of this
Agreement.
(g) There is no relationship of partnership, joint venture, employment,
franchise, or agency between the parties. Neither party shall have the
power to bind the other or incur obligations on the other's behalf
without the other's prior written consent.
(h) No failure of either party to exercise or enforce any of its rights under
this Agreement shall act as a waiver of such right.
<PAGE>
(i) This Agreement, along with the Exhibits hereto, contains the entire
agreement and understanding between the parties hereto with respect to
the subject matter hereof and supersedes all prior agreements and
understandings relating to such subject matter. Neither party shall be
liable or bound to any other party in any manner by any representations,
warranties or covenants relating to such subject matter except as
specifically set forth herein.
(j) This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement, and shall become
effective when one or more such counterparts have been signed by each of
the parties and delivered to each of the other parties.
(k) This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
(l) This Agreements for the sole benefit of the parties hereto and nothing
herein expressed or implied shall give or be construed to give to any
person, other than the parties hereto any legal or equitable rights
hereunder.
(m) The headings contained in this Agreement or in any Exhibit hereto are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. All Exhibits annexed hereto or referred
to herein are hereby incorporated in and made apart of this Agreement as
if set forth in full herein. Any capitalized terms used in any Exhibit
but not otherwise defined therein, shall have the meaning as defined in
this Agreement. When a reference is made in this Agreement to a Section
or an Exhibit, such reference shall be to a Section of, or an Exhibit to,
this Agreement unless otherwise indicated.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
NETJEWELS.COM, INC.
By: /s/ Daniel Berkovits
------------------------------
Name: Daniel Berkovits
Title: Chief Executive Officer
D.G. JEWELRY INC.
By: /s/ Jack Berkovits
------------------------------
Name: Jack Berkovits
Title: Chief Executive Officer
<PAGE>
EXHIBIT A
CORPORATE SERVICES
D.G. Jewelry shall provide general corporate services to NetJewels.com,
including, but not limited to the following: accounting services, management
information services, telecommunications, human resources administration and
services, including but not limited to, benefits administration, maintenance of
insurance (property and casualty, medical, dental and life) and payroll
processing, including the withholding of taxes, employment insurance and Canada
pension plan payments, preparation and filing of tax returns and all necessary
and desirable services which may be necessary or desirable in the operation of a
business such as NetJewels.com. For such services D.G. Jewelry will be paid a
monthly fee of $5,000, plus actual costs incurred.
<PAGE>
EXHIBIT B
MANUFACTURING AND FULFILLMENT SERVICES
(1) D.G. Jewelry shall act as a manufacturer of jewelry products (the
"Jewelry Products") for NetJewels.com. In such capacity D.G. Jewelry and
NetJewels.com shall decide on products to be manufactured including but
not limited to, design, number of units to be manufactured and the price
per unit. D.G. Jewelry shall, at its sole cost and expense, provide all
information and assistance necessary to ensure that all Jewelry Products
purchased from D.G. Jewelry are merchandised in a first class and top
quality manner.
(2) D.G. Jewelry shall be responsible for maintaining an inventory of Jewelry
Products which is customary in the industry and which allows
NetJewels.com to conduct its business without undue delay or
restrictions.
(3) D.G. Jewelry shall be solely responsible for all matters relating to the
distribution and fulfillment of orders received by NetJewels.com,
including but not limited to, shipping, packaging and insuring of the
Jewelry Product and the payment of any and all freight costs, custom
fees, duties, taxes or tariffs. D.G. Jewelry shall distribute and fulfill
all orders through the D.G. Jewelry distribution centres located in
Toronto, Canada and in Cedar Knolls, New Jersey. D.G. Jewelry shall
provide NetJewels.com access to the distribution centres and shall assist
NetJewels.com in the tracking of all orders submitted to D.G. Jewelry.
(4) Subject to paragraph 5 of this Schedule "B", all Jewelry Products will be
sold to NetJewels.com by D.G. Jewelry at a price equal to the lower of:
(i) D.G. Jewelry's cost plus 15%; and (ii) the lowest price paid, or
which may be paid to D.G. Jewelry by any other party in respect of the
same or reasonable similar Jewelry Products within a period of six (6)
months of the date NetJewels.com purchases the Jewelry Products from D.G.
Jewelry (the "Purchase Price").
(5) In the event that NetJewels.com offers any of the Jewelry Products for
sale through a third party auction site, such as (and by way of example
only) ebay, ubid or bid.com (the "Auction Site"), D.G. Jewelry will amend
the Purchase Price by reducing the Purchase Price to an amount equal to
eighty-five percent (85%) of the final amount actually received by
NetJewels.com in connection with the purchase of a Jewelry Product
through the Auction Site, such that the profit of NetJewels.com for
Jewelry Products sold on an Auction Site shall be at least fifteen
percent (15%) of the amount actually received by NetJewels.com from the
consumer/purchaser for the Jewelry Product(s) net of all costs, charges,
commissions and expenses paid or payable by NetJewels.com to the Auction
Site in respect of such purchase and sale.
(6) D.G. Jewelry shall be solely responsible for all product returns,
complaints and breaches of any express or implied warranties with respect
to the Jewelry Products.
<PAGE>
EXHIBIT C
SPACE SHARING
(a) License to Use Space. During the term of this Agreement, D.G. Jewelry
shall permit NetJewels.com to use a portion of D.G. Jewelry's warehouse
office for the purposes permitted under the lease agreements pursuant to
which D.G. Jewelry leases such space (to the extent such offices are
leased), subject to the terms and conditions set forth in this Agreement.
The space to be used by NetJewels.com shall be as mutually agreed by the
parties from time to time. NetJewels.com's right to use a portion of D.
G. Jewelry's Premises shall terminate on the earlier of: (i) 90 days
after NetJewels.com notifies D.G. Jewelry's that NetJewels.com no longer
desires to use any portion of D.G. Jewelry's Premises, or (ii) 90 days
after D.G Jewelry notifies NetJewels.com that NetJewels.com may no longer
use any portion of D.G. Jewelry's Premises.
(b) Consideration. So long as NetJewels.com uses any portion of D.G.
Jewelry's Premises, NetJewels.com shall pay to D.G. Jewelry on the first
day of each calendar month an amount equal to all expenses related to
D.G. Jewelry Premises (e.g. Rent, CAM, Tax, Utilities). Payments for any
partial calendar month shall be prorated on a per diem basis.
(c) Compliance with Leases. NetJewels.com hereby agrees not to take any
action or fail to take any action in connection with its use of any
portion of D.G. Jewelry Premises, a result of which would be D.G.
Jewelry's violation of any of the terms and conditions of any lease or
other restriction on D.G. Jewelry's use of D.G Jewelry Premises.
NetJewels.com agrees to comply with the terms and provisions of any such
leases for D.G. Jewelry Premises in which it uses.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated August 13, 1999, in the Registration Statement on
Form S-1 and related prospectus of NetJewels.com, Inc. for the registration of
2,200,000 shares of its common stock.
/s/ SCHWARTZ LEVITSKY FELDMAN
Schwartz Levitsky Feldman, Chartered Accountants
Toronto, Canada
November 2, 1999
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<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
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