<PAGE>
As filed with the Securities and Exchange Commission on January 19, 2000
Registration No. 333-90201
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
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 (I.R.S. Employer I.D. No.)
Classification Code No.)
</TABLE>
---------------------
1001 Petrolia Road
North York, Ontario, Canada M3J 2X7
(877) 638-5393
(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:
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
---------------------
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: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement 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. / /
---------------------
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.
===============================================================================
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED JANUARY 19, 2000
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
American Stock Exchange, under the symbol "NTJ."
Please see "Risk Factors" beginning on page 6 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.
Per Share Total
----------- ------
Initial public offering price .......... $ $
Underwriter's discount ................. $ $
Proceeds before our expenses ........... $ $
---------------------
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 ,
2000.
---------------------
Security Capital Trading, Inc.
The date of this prospectus is , 2000
<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 financial statements
and the notes accompanying the 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 DG Jewelry Inc., our strategic partner and owner of 50% of
our parent company's stock, 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 a
selection of competitively priced jewelry including rings, earrings, pendants,
bracelets, watches, chains, and accessories which generally features 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 what we believe to be detailed
product information and innovative merchandising through an easy-to-use
interface. In addition, we offer our products on independent third-party Web
sites and have an exclusive arrangement to offer our products on UBid.com. We
and DG have also entered into advertising and promotion agreements with Web
portal and community sites including AOL, on a non-exclusive basis, and
theglobe.com, on an exclusive basis, in order to direct consumers to our online
store. DG entered into the agreement with theglobe.com for our benefit.
Our total sales from inception in January 1999 through November 30, 1999,
including our parent company's sales from February 1999 to June 1999, have
amounted to $774,490, 71% of which occurred through third-party Web sites, in
approximately 18,600 separate transactions, 96% of which have occurred on
independent third-party Web sites. All of our sales volume occurred since
February 1999. Since inception to November 30, 1999, we have incurred losses of
$1,847,238 which includes our parent's losses from January 1999 to June 1999.
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 a 50% shareholder of our parent
company, NetJewels.com, Inc. ("NetJewels Canada"), 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:
o continually enhance our customers' experience at our online store;
o offer a large product selection and continue to expand such selection;
o ensure fast delivery, generally within five business days;
o continue to expand the product offering within our online store;
o 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;
o build brand awareness through advertising and promotion;
o enter into, strengthen and expand strategic alliances with independent
third-party Web sites and content providers;
o pursue acquisitions, joint ventures and other similar strategic
investments and relationships with complementary businesses and
companies;
o establish an affiliate program of independent Web sites, which may or may
not be on an exclusive basis; and
o 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 (877) NetJewels. From January
3
<PAGE>
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. Our business activities prior to February
1999 consisted of market research, the negotiation of third party contracts and
the development of our on-line store. Prior to this offering, we were a
wholly-owned subsidiary of NetJewels Canada. In January 1999, NetJewels Canada,
purchased all of the intellectual property involved in DG's Internet business,
including the domain names (which are still currently registered in DG's name)
for nominal consideration, and began to develop our online store. In January
1999 our parent issued 50% of its common stock to DG in exchange for DG's
commitment to fund our parent's and our operations until the earlier of (a) our
ability to fund our own operations; or (b) upon completion of this offering. In
May 1999, NetJewels Canada purchased all of the third party internet contracts
of DG for $1.8 million. In June 1999, we purchased these contracts from
NetJewels Canada in exchange for our assumption of NetJewels Canada's $1.8
million obligation to DG. The contracts purchased were with U.Bid, Bid.com and
Ideal International Inc. which operates the web site DealDeal.com. 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. Forrester
Research in a report dated May 1999 entitled "Apparel's On-line Makeover,"
predicts that online sales of jewelry and accessories will reach $2.58 billion
by 2003.
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 potential for larger selection, ability to customize selections and
lower prices that can be offered online. However, online retailers face
challenges including the uncertainty of consumer acceptance of the Internet and
intense competition, as well as other risks outlined in the "Risk Factors"
section.
The offering
<TABLE>
<S> <C>
o Common stock offered by us: 2,200,000 shares
o Common stock to be outstanding after offering: 5,500,000 shares
o Use of proceeds: o Repayment of indebtedness;
o Marketing and sales;
o Acquisitions;
o Technological and system upgrades;
o Expansion of facilities; and
o Working capital and general corporate purposes.
o Proposed American Stock Exchange Symbol: NTJ
</TABLE>
Except as noted, all of the information in this prospectus assumes that
none of the following have been exercised:
o the over-allotment option granted to the representative by us to purchase
330,000 additional shares;
o warrants to purchase 220,000 shares of our common stock to be granted to
the representative upon completion of this offering;
o options available for grant to purchase 750,000 shares of our common
stock pursuant to our 1999 stock option plan; and
o currently outstanding warrants to purchase 100,000 shares of our common
stock, at an exercise price of $.10 per share, held by our chairman.
Following the offering our affiliates will beneficially own 60% of our
common stock, DG (30%), Dan Berkovits (15%) and Ben Berkovits (15%) through
their ownership of our parent. Jack Berkovits may be deemed to be the
beneficial owner of the DG shares as a result of being chairman and CEO
of DG.
4
<PAGE>
Summary Financial Data
The following summary financial and other data are qualified by reference
to, and should be read in conjunction with, our 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 five months ended
November 30, 1999 and the balance sheet data as of November 30, 1999 are
derived from our unaudited financial statements included elsewhere in this
prospectus and have been prepared on the same basis as the audited financial
statements, and in our opinion, reflect all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of such data.
The unaudited results of operations for the interim periods are not necessarily
indicative of the results for the full year or any future period. The selected
statement of operations data shown below for the fiscal year ended June 30,
1999 and the balance sheet data as of June 30, 1999 are derived from our
audited 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>
Five Months Ended Fiscal Year Ended
November 30, 1999 June 30, 1999
------------------- ------------------
(unaudited)
<S> <C> <C>
Statement of Operations Data:
Revenues .............................................................. $ 699,051 $ 75,439
Cost of revenues ...................................................... 548,075 64,009
------------ ----------
Gross profit .......................................................... 150,976 11,430
------------ ----------
Expenses: .............................................................
Sales and marketing ................................................. 992,993 325,495
Stock based compensation ............................................ 90,000 0
Financial ........................................................... 27,853 0
General and administrative .......................................... 294,221 36,166
Web site development ................................................ 0 62,916
Amortization ........................................................ 150,000 30,000
------------ ----------
Total Expenses ........................................................ 1,555,067 454,577
------------ ----------
Operating income (loss) ............................................... (1,404,091) (443,147)
Net interest income (expense) ......................................... 0 0
Income (loss) from continuing operations .............................. (1,404,091) (443,147)
Net loss .............................................................. (1,404,091) (443,147)
Net loss applicable to common shares .................................. (1,404,091) (443,147)
Net loss per basic and diluted common share ........................... (0.43) (1.61)
Shares used in computing basic and diluted net loss per share ......... 3,300,000 275,000
</TABLE>
<TABLE>
<CAPTION>
As of
November 30, 1999
---------------------------------
Actual As Adjusted(1) June 30, 1999
--------------- ---------------- --------------
<S> <C> <C> <C>
Balance Sheet Data (at period end):
Cash and cash equivalents ....................... 12,355 16,421,175 --
Working capital (deficiency) .................... (3,373,938) 15,986,062 (2,209,847)
Total assets .................................... 1,855,676 18,264,496 1,770,000
Total liabilities ............................... 3,609,614 658,434 2,209,847
Total shareholders' equity (deficiency) ......... (1,753,938) 17,606,062 (439,847)
</TABLE>
- -------------
(1) Reflects the receipt of the net proceeds from the sale of 2,200,000 shares
of our common stock at an assumed initial public offering price of $11.00
per share, representing the mid-point of the filing range, in this
offering and the application thereof.
5
<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.
We, through our parent company, began selling products through third party
Web sites in February 1999 and 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:
o evolving business model;
o competition;
o need for increased customer acceptance of the online purchase of
jewelry;
o ability to maintain and expand our customer base;
o need to continue to develop and upgrade our Web site,
transaction-processing systems and network infrastructure;
o ability to scale our systems and fulfillment capabilities to accommodate
the growth of our business;
o ability to access additional capital when required;
o ability to develop and renew strategic relationships; and
o dependence on the reliability and growing use of the Internet for
commerce and communication and on general economic conditions.
If we cannot successfully address these risks it is likely that our
business strategy will be unsuccessful and our revenues and operating
activities will be severely harmed.
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 losses of
$443,147 and $1,404,091 for the year ended June 30, 1999, which includes our
parent's losses from January 1999 to June 1999, and the five months ended
November 30, 1999, respectively, 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. As of November 30,
1999 we had a working capital deficit of $3,373,938.
We have a limited operating history as an independent company and may be unable
to perform or obtain essential services now being supplied by DG.
We have not operated as a fully independent company. Our results of
operations include our parent's operations from January 1999 to June 1999. We
have relied on DG to provide corporate, fulfillment, inventory supply,
space-sharing and other administrative services. We will continue to receive
those services pursuant to an intercompany services agreement with DG. The
intercompany services agreement is for a term of five
6
<PAGE>
years. 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. We may not be able to secure these services from third parties
on acceptable terms or at all. We have no plans, arrangements or agreements to
obtain these services from any party other than DG. See "Certain Transactions."
DG is our sole supplier of jewelry and if DG does not produce attractive
merchandise in sufficient quantities and in a timely manner, demand for our
products will decrease and our brand may suffer.
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, therefore you may have no
effective voice in our management.
Upon the completion of this offering, NetJewels Canada, our parent
company, will beneficially own sixty percent (60%) of our common stock. 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 50% ownership of NetJewels Canada. Daniel and Ben Berkovits are
brothers and are also the children of Jack Berkovits, our chairman and CEO and
chairman of DG. Our charter documents contain no requirement to obtain a super
majority (more than 50%) approval for corporate actions requiring shareholder
approval. Accordingly, DG and the Berkovits family will collectively
beneficially own sixty percent (60%) of our common stock after this offering
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 addition, Jack Berkovits'
relationship to us. DG and Daniel and Ben Berkovits could create or appear to
create potential conflicts of interest if faced with decisions that have
different implications for each company, including the negotiation, performance
and any renewal of the inter-company services agreement. Jack Berkovits
beneficially owns forty-eight percent (48%) of DG's capital stock and Daniel
and Ben Berkovits are nominal shareholders of DG.
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 satisfy our capital requirements 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 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
7
<PAGE>
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.
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:
o our inability to obtain new customers at a reasonable cost, retain
existing customers, or encourage repeat purchases;
o decreases in the number of visitors to our Web site or our inability to
convert visitors to our Web site into customers;
o our inability to manage fulfillment operations;
o our inability to adequately maintain, upgrade and develop our Web site,
transaction-processing systems or network infrastructure;
o the ability of our competitors to offer new or enhanced Web sites,
services or products;
o price competition;
o 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;
o increases in the cost of online or offline advertising;
o our inability to attract new personnel in a timely and effective manner
or retain existing personnel;
o the amount and timing of operating costs and capital expenditures
relating to expansion of our operations;
o technical difficulties, system downtime or Internet brownouts;
o a breach in our on-line security systems;
o government regulations related to use of the Internet for commerce or
for sales; and
o 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:
o traditional store-based jewelry retailers such as Gordons, Sterling and
Friedmans;
o department store retailers such as Sears, J.C Penney, Macy's and Ward's;
o major discount retailers such as Kmart, Target and Service Merchandise;
o cable shopping networks such as HSN;
o online efforts of traditional and cable network retailers, including the
online stores operated by HSN, ValueAmerica and Gordons;
o catalog retailers of jewelry;
8
<PAGE>
o other online retailers that may include jewelry as part of their product
offerings, such as Amazon.com;
o online wedding portal sites that feature shopping services, such as the
Knot.com and Modern Bride;
o Internet portals, online auction services and online service providers
that feature shopping services, such as eBay, Yahoo! and Amazon.com; and
o 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 we do. These competitors may be able
to undertake more extensive marketing campaigns and adopt more aggressive
pricing polices then we can. As a result, we may have difficulty increasing our
market share.
If our marketing efforts do not result in a significant increase in traffic
directed to our Web site our revenues will not grow as expected.
We are reliant on the marketing efforts, which we expect to fund from a
portion of the net proceeds of this offering, to drive traffic to our online
store. If traffic directed to our online store does not significantly increase,
our revenues will not grow as expected and we may never achieve profitability
and even if achieved, maintain profitability. 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. If we are unable to attract appropriate marketing personnel on a
timely basis, we may not be able to effectuate our marketing strategy.
We are dependent upon our strategic alliances with third-party web-sites
including Ubid.com and Bid.com and advertising agreements with content
providers including AOL and theglobe.com.
We rely on strategic alliances with content providers to attract users to
our online store and have entered into agreements with, theglobe.com and AOL to
attract users from their Web sites and online services. DG entered into the
agreement with theglobe.com for our benefit. We rely on strategic alliances
with third-party web-sites such as UBid.com and Bid.com for the sale of our
products which were assigned to us from DG. In addition, DG remains as a
guarantor of each of these agreements. Approximately 71% of our sales from
inception to date, including our parent's sales from February 1999 to June
1999, 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.
We may be unable to support increased volume on our Web site, thus preventing
potential customers from purchasing our products and adversely affecting our
revenues and harming our brand.
A key element of our strategy is to generate a high volume of traffic on
our Web site. However, significant 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, thus preventing potential customers
from purchasing our products and adversely affecting our revenues.
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.
If the Internet does not become a usable medium for commerce, we may not
achieve significant revenues.
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
9
<PAGE>
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 second quarter of our fiscal year. If for
any reason our sales during the second 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 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
10
<PAGE>
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.
Web site addreses and domain names similar to our's could cause confusion and
may damage our brand.
We own various registered Internet Web site addresses and domain names
related to our business. The domain names are currently registered in DG's
name. We may not be able to prevent third parties from acquiring Web site
addresses and domain names 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 and domain names 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 and domain names in all countries where
our services and products are made available through the Internet. Furthermore,
the relationship between regulations governing Web site addresses and domain
names and laws protecting trademarks is unclear.
Your proportionate ownership interest in NetJewels.com may be diluted because
current shareholders paid less than the public offering price for their shares.
Based upon the mid-point of the range of the initial public offering price
of $11.00 per share, purchasers of common stock in this offering will
experience an immediate and substantial dilution in net tangible book value
(assets minus liabilities and intangible assets) of $7.80 per share of common
stock purchased. To the extent outstanding warrants are exercised below the
offering price you will incur additional dilution. Dilution will reduce the per
share value of your shares of common stock and reduce your proportionate
ownership interest in the company.
Our sole shareholder and its owners will benefit disproportionately from this
offering.
NetJewels Canada our sole shareholder, which is owned 50% by DG, 25% by
David Berkovits and 25% by Ben Berkovits, will benefit if a market for their
securities develops upon completion of this offering. Our sole shareholder will
experience an immediate increase in net tangible book value per share of $3.73.
NetJewels Canada paid $.001 per share for its 3,300,000 shares, meaning that
they would have an unrealized gain of $3.729 per share and an aggregate
unrealized gain of $12,305,700 upon completion of this offering, assuming an
$11.00 initial public offering price.
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 $7,608,820 or 39.3% of the net proceeds of this offering
which has been allocated to working capital and general corporate purposes.
Accordingly, our management will have broad discretion over the use of the
proceeds. Our stockholders may have no opportunity to approve the use of the
proceeds of this offering.
If our systems or our third-party suppliers software and computer systems
malfunction because of the year 2000 problem, demand for our products will be
adversely affected.
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
11
<PAGE>
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 need to effectively manage the growth of our personnel and operations to
avoid unnecessary expenses.
Our success depends, in part, upon effective planning and growth
management. 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. If we do not successfully implement
and integrate these new systems or fail to scale these systems with our growth,
we may not have adequate, accurate and timely forecasting and financial
information and may incur unnecessary expenses.
The loss of the services of Daniel Berkovits, Ben Berkovits or Jack Berkovits
or any other 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, Ben or Jack Berkovits, who have
developed and implemented our business plan, or any other key employee would
have a material adverse effect on our business, results of operations and
financial condition. Although we have employment agreements with Daniel, Ben
and Jack Berkovits, they can be terminated at any time. We do not currently
have key-man life insurance on Daniel, Ben or Jack 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.
In the event that we are not able to hire a full time chief financial officer
and chief information officer, our current management's attention could be
diverted.
It is our intention to hire a full time chief financial officer and chief
information officer currently, these tasks are being handled by our chief
executive officer, Daniel Berkovits. In the event that we are not able to fill
these positions on a timely basis, our chief executive officer's efforts in
other areas may be limited.
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements that involve
risks and uncertainties. These statements refer to our future plans,
objectives, expectations and intentions. These statements may be
12
<PAGE>
identified by the use of words such as "believes", "will", "expects",
"anticipates", "intends", "plans" and similar expressions. Our actual results
could differ materially from those anticipated in such forward-looking
statements. Factors that could contribute to these differences include, but are
not limited to, those discussed in "Risk Factors" and elsewhere in this
prospectus. We caution you not to place undue reliance on these forward-
looking statements which reflect our management's view only as of the date of
this prospectus. We are not obligated to update these statements or publicly
release the results of any revisions to them to reflect events or circumstances
after the date of this prospectus or to reflect the occurrence of unanticipated
events.
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $19,360,000
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 $22,264,000. Both of
these figures are after deduction of estimated underwriting discounts and
commissions and fees and expenses of $4,840,000, $5,566,000 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>
Approximate Percentage of
Use Amount Net Proceeds
- --- ------------ -------------
<S> <C> <C>
Repayment of indebtedness to DG ................................... $ 2,951,180 15.2%
Advertising and marketing ......................................... 5,000,000 25.9
Equipment and software purchase and upgrades ...................... 500,000 2.6
Expansion of fulfillment operations and executive offices ......... 500,000 2.6
Hiring executive personnel ........................................ 300,000 1.5
Acquisitions ...................................................... 2,500,000 12.9
General corporate and working capital purposes .................... 7,608,820 39.3
----------- -----
Total ............................................................. $19,360,000 100.0%
=========== =====
</TABLE>
We intend to repay approximately $2,951,180 to DG which consists of
$1,800,000 which we owe DG in consideration for the transfer of DG's internet
contracts to NetJewels Canada, which obligations we assumed in June 1999, and
$1,151,180 which represents advances made to us and our parent company, to
finance our start-up costs. The $1,800,000 and $1,151,180 are each memorialized
in two separate promissory notes neither of which bear interest and each of
which are payable on demand.
Upon completion of this offering, we intend to utilize approximately
$5,000,000 to market our Web site through 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, although we have not selected any office space at this time.
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, however, we currently have no commitments or agreements and are
not involved in any negotiations with respect to any such transactions.
13
<PAGE>
We have dedicated approximately $7,608,820 to general corporate needs and
working capital purposes. These needs include added salaries, including
salaries of executives which have been accrued, 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.
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, including
working capital and general corporate 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.
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.
14
<PAGE>
DILUTION
Our pro forma net tangible book value as of November 30, 1999 was
approximately ($1,750,000) or (0.53) 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 November 30, 1999 would have been approximately $17,600,000 or $3.20
per share of common stock. This represents an immediate increase in net
tangible book value of $3.73 per share to existing stockholders and an
immediate dilution of $7.80 per share to new investors of common stock. The
following table illustrates this dilution on a per share basis (without giving
effect to the issuance of 100,000 warrants to our Chairman of the Board, see
Note 9 to the Financial Statements):
<TABLE>
<S> <C> <C>
Assumed initial public offering price ........................ $ 11.00
Net tangible book value at November 30, 1999 .............. (0.53)
Increase in net tangible book value attributable to new
investors ................................................ 3.73
Net tangible book value after this offering .................. 3.20
--------
Dilution of net tangible book value to new investors ......... $ 7.80
========
</TABLE>
In the event that the over-allotment option is exercised in full, the
dilution to new investors would be $7.48 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 per
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.
15
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of November 30, 1999:
o on an actual basis; and
o on a pro forma basis to reflect the receipt and application 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 financial statements and
the accompanying notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Actual Pro-Forma
--------------- ---------------
<S> <C> <C>
Notes payable -- DG Jewelry Inc. ........................................ $ 2,951,180 $ 0
Long term debt .......................................................... 0 0
Stockholders' equity:
Preferred stock, 1,000,000 authorized, none issued and outstanding . 0 0
Common stock, $.001 par value per share, 19,000,000 authorized,
3,300,000 issued and outstanding, actual; and 5,500,000 issued and
outstanding, pro-forma ................................................. 3,300 5,500
Additional paid in capital see Note 9 to Financial Statements ........... 90,000 19,447,800
Accumulated deficit ..................................................... (1,847,238) (1,847,238)
------------ ------------
Total stockholders equity (deficit) and capitalization .................. (1,197,242) 17,606,062
============ ============
</TABLE>
- ------------
The preceding table excludes:
o 750,000 shares reserved for grant under our stock option plan;
o 220,000 shares issuable upon exercise of the representative's warrants;
o 100,000 shares issuable upon exercise of outstanding warrants held by
our chairman; and
o 330,000 shares issuable upon exercise of the underwriter's
over-allotment option.
16
<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 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 five
months ended November 30, 1999 and the balance sheet data as of November 30,
1999 are derived from our unaudited financial statements included elsewhere in
this prospectus and have been prepared on the same basis as the audited
financial statements, and in our opinion, reflect all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of such
data. The unaudited results of operations for the interim periods are not
necessarily indicative of the results for the full year or any future period.
The selected statement of operations data shown below for the fiscal year ended
June 30, 1999 and the balance sheet data as of June 30, 1999 are derived from
our audited 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>
Five Months Ended Fiscal Year Ended
November 30, 1999 Ended June 30, 1999
------------------------- --------------------
(unaudited)
<S> <C> <C>
Statement of Operations Data:
Revenues ....................................... 699,051 75,439
Cost of revenues ............................... 548,075 64,009
------- ----------
Gross profit ................................... 150,976 11,430
------- ----------
Expenses:
Sales and marketing ........................... 992,993 325,495
Stock based compensation ...................... 90,000 0
Financial ..................................... 27,853 0
General and administrative .................... 294,221 36,166
Web site development .......................... 0 62,916
Amortization .................................. 150,000 30,000
------- ----------
Total Expenses ................................. 1,555,067 454,577
---------- ----------
Operating income (loss) ........................ (1,404,091) (443,147)
Net interest income (expense) .................. 0 0
Income (loss) from continuing operations ....... (1,404,091) (443,147)
Net loss ....................................... (1,404,091) (443,147)
========== ==========
Net loss applicable to common shares ........... (1,404,091) (443,147)
Net loss per basic and diluted common share .... (0.43) (1.61)
========== ==========
Shares used in computing basic and diluted
not loss per share ............................ 3,300,000 275,000
========== ==========
As of November 30, 1999 June 30, 1999
------------------------- --------------
(unaudited)
Balance Sheet Data:
Cash and cash equivalents ...................... $ 12,355 $ 0
Working capital (deficiency) ................... (3,373,938) (2,209,847)
Total assets ................................... 1,855,676 1,770,000
Total liabilities .............................. 3,609,614 2,209,847
Total shareholders' (deficit) equity ........... (1,753,938) (439,847)
</TABLE>
17
<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 goal is to become the leading Web-based retailer of jewelry. We
currently generally offer approximately 5,000 jewelry products which we believe
are competitively priced 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 February
1999 through our parent company, NetJewels Canada. We have realized revenues of
approximately $774,490 from these activities from inception to November 30,
1999, including our parent's revenues from February 1999 until June 1999. In
January 1999, NetJewels Canada purchased all of the intellectual property
involved in DG's Internet business, including the domain names for nominal
consideration, and began to develop our online store. The domain names are
currently registered in DG's name. In May 1999, NetJewels Canada purchased all
of the third-party Internet contracts from DG for $1.8 million. In June 1999,
we purchased the Internet contracts from NetJewels Canada in exchange for our
assumption of the $1.8 million obligation to DG. This amount is to be repaid
out of the net proceeds of this offering. The agreements purchased were with
U.Bid, Bid.com and Ideal International Inc. The $1,800,000 purchase price was
based on an independent valuation. We believe that the purchase price was fair
and reasonable and on terms at least as favorable as could be obtained from an
unaffiliated party. In addition, in January 1999 NetJewels Canada issued
1,650,000 shares of its common stock, which represented 50% of its shares, to
DG in exchange for agreeing to advance funds to use in our operations and our
parent company's 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. All of our obligations to DG, including
advances of approximately $1,151,180 and the $1,800,000 owed to DG for the
purchase of the Internet contracts, are memorialized by two separate promissory
notes neither of which bear interest and each of which are payable on demand.
Pursuant to the notes, DG has been granted a security interest in all of our
assets. As of November 30, 1999 our total indebtedness to DG is approximately
$2,951,180 and are to be paid out of the net proceeds of this offering. 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 and our parent, have incurred losses and, as of
November 30, 1999, had an accumulated deficit, since inception, of $1,847,238
which includes our parent's losses from January 1999 to June 1999. 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.
Although our executive offices are located in Canada, substantially all of
our expenses are in U.S. dollars. Approximately 90% of our revenues have been
derived from sales to customers in the United States. Accordingly, we do not
believe that we are subject to foreign exchange risks.
18
<PAGE>
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.
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. Our results of operations for the fiscal year ended June 30, 1999
include our parent's operations from January 1999 to June 1999.
The following table sets forth statement of operations data as a
percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Five Months
Fiscal Year Ended Ended
June 30, 1999 November 30, 1999
--------------------- -----------------------
(unaudited)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ............................... $ 75,439 100% $ 699,051 100%
Cost of revenues ....................... 64,009 85% 548,075 78%
======== === ========= ===
Gross Profit ........................... 11,430 15% 150,976 22%
Operating expenses:
Sales and marketing .................... 325,495 431% 992,993 142%
Stock based compensation ............... 0 0% 90,000 13%
Web site development ................... 62,916 83% 0 0%
Financial .............................. 0 0% 27,853 4%
General administrative ................. 36,166 48% 294,221 42%
--------
Amortization ........................... 30,000 40% 150,000 21%
-------- ---------
Total operating expenses ............... 454,577 602% 1,555,067 222%
-------- ---------
Operating loss ......................... 443,147 587% 1,404,091 200%
Interest income (expense), net ......... 0 0% 0 0%
Provision for income taxes ............. 0 0% 0 0%
-------- ---------
Net loss ............................... 443,147 587% 1,404,091 200%
======== =========
</TABLE>
Five Months Ended November 30, 1999
Net Sales. Net sales include the sale of our jewelry products, net of
returns, up front fees and commissions paid to third party web sites. Net sales
totaled $699,051 for the five month period ended November 30, 1999. Sales
include those made on our website and those made on third party websites. We
recognize the entire amount of revenues and remit the appropriate commission to
the third party websites.
Cost of Sales. Cost of sales includes the cost actually paid for goods
sold and commissions paid to third party websites. Cost of goods sold totaled
$548,075, or 78% of our net sales, for the five months ended November 30, 1999.
Gross Profit. For the five months ended November 30, 1999, we had a gross
profit of $150,976 or 22% of our net sales. 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 $294,221 or 42.1% of our
net sales, for the five months ended November 30, 1999. Management expects
general and administrative expenses will continue to increase as our staff
expands and incurs additional costs to support the growth of our business
including the potential acquisition of additional office space. 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 and $6,000
per year for the use of approximately 3,000 square feet of space from DG. In
addition, upon completion of this offering the salaries of our CEO and
president will increase by $50,000 per year, respectively.
19
<PAGE>
Net Loss. We incurred a net loss of $1,404,091, or $(0.43) per share, for
the five months ended November 30, 1999, and expect to continue to incur net
losses for the foreseeable future.
Fiscal Year Ended June 30, 1999
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 fiscal year ended June 30, 1999. Sales include those
made on our website and those made on third party websites.
Cost of Sales. Cost of sales includes the costs actually paid for the
goods and the commissions paid to third-party websites. Cost of sales totaled
$64,009, or 85% of our net sales, for the fiscal year ended June 30, 1999.
Gross Profit. For the year ended June 30, 1999, we had a gross profit of
$11,430 or 15% of our net sales. 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 including accrued salary for executives. General and administrative
expenses totaled $36,166, or 47.9% of our net sales, for the fiscal 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, plus actual cost incurred.
Net Loss. We incurred a net loss of $443,147, or $(1.61) per share, 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 through November 30, 1999, we have primarily
financed this requirement through approximately $1,151,180 of advances from DG
and cash flows from operations which is represented by a promissory note. Our
parent purchased certain Internet contracts, which were subsequently purchased
by us. We assumed the $1.8 million promissory note to DG. Neither of these
notes bear interest and each are due on demand. Each of these notes will be
repaid with a portion of the net proceeds of this offering. Once this offering
is consummated, DG will not be obligated to make any advances to us.
At November 30, 1999, we had a working capital deficit of approximately
$3,373,938 and incurred losses since inception, including our parent company's
losses from January 1999 to June 1999, of approximately $1,404,091. 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 rent 3,000 square feet of office space from DG at an annual
rate of $6,000. Pursuant to our advertising agreements entered into by us and by
DG for our benefit with theglobe.com and AOL we are committed to expend $960,000
in advertising through November 2000. We have also accrued an aggregate of
$195,000 of executives' salaries to November 30, 1999.
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:
o the rate of market acceptance of our online store;
o the ability to expand our customer base;
o the cost of upgrades to our online store; and
o the level of expenditures for sales and marketing and other factors.
20
<PAGE>
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.
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:
o lost advertising revenues;
o increased operating costs;
o loss of customers or persons accessing our web site;
o other business interruptions of a material nature; and
21
<PAGE>
o claims of mismanagement, misrepresentation, or breach of contract.
Contingency Plan. As discussed above, we have engaged in an ongoing year
2000 assessment and testing. We have conducted a full-scale year 2000
simulation of our information technology systems and have found them to be
compliant.
Recent accounting pronouncements
We do not believe any recently issued accounting standards have had or
will have a material affect on our business.
22
<PAGE>
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 and our parent
have sold products to over 12,000 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 generally contains over 5,000 products including rings, bracelets,
necklaces watches, diamonds and other jewelry items. Most items offered on our
Web site range in price from $25 to $10,000. In addition, we believe we offer
our customers fast delivery (generally within five business days), competitive
pricing, easy and secure ordering, rich editorial content and industry
experience.
We believe our advertising and promotion agreements with Web portal and
community 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, we believe our brand recognition increases and lends us
credibility. DG entered into theglobe.com agreement for our benefit.
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. In January 1999, NetJewels Canada, our
parent company, purchased all of the intellectual property involved in DG's
Internet business, including the domain names for nominal consideration, and
began to develop our online store. The domain names are currently registered in
DG's name. In May 1999, NetJewels Canada purchased all of the third party
internet contracts from DG for $1.8 million, which we subsequently purchased for
$1.8 million from NetJewels Canada in June 1999. Between January 1999 and June
1999, when we purchased our internet contracts from NetJewels Canada, 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. Until
April 1999, our business activities, which were conducted by our parent,
consisted of developing our web site and the negotiation of third party
contracts. Jack Berkovits is the Chairman of NetJewels Canada and DG Jewelry
Inc.
In January 1999, Daniel Berkovits and Ben Berkovits formed NetJewels
Canada, then known as 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 and our operations, until such time as both
us and our parent are able to fund our operations.
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 60% by
our parent company (30% by DG, 15% by Daniel Berkovits, 15% by Ben Berkovits,
through their ownership of our parent) and 40% by the public stockholders
purchasing shares of common stock in this offering.
DG Jewelry
We believe that our relationships with DG, through the intercompany
services agreement, 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:
23
<PAGE>
o offer over 5,000 in-stock items, ensure fast delivery (generally within 5
business days), 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;
o purchase goods at a lower price than would otherwise be generally
available through other wholesalers; and
o 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, in a
September 1999 report entitled "Post-Web Retail", estimates that 17 million
U.S. households will be online purchasers in 1999 and that the number will grow
to 49 million by 2004. There can be no assurance that our growth rate will bear
any relationship to the overall growth rate of e-commerce.
The Internet also provides e-commerce companies with an opportunity to
serve a global market. IDC in its June 1999 report entitled "The Global Market
Forecast for Internet Usage and Commerce: Based on Internet Market Model(TM),
Version 5" estimates that the number of Web users worldwide will exceed 142
million by the end of 1998 and will grow to over 502 million users by the end
of 2003.
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. Forrester Research, in a May 1999 report entitled "Apparel's On-line
Makeover", predicts that online sales of jewelry and accessories will reach
$2.58 billion by 2003.
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 generally offering over
5,000 items from DG's 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.
24
<PAGE>
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 intend 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 intend to
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.
Establish an affiliate program. We intend to establish an affiliate program
whereby third party web-sites can earn commissions by linking users from
their sites to our online store. We intend that commissions would be earned
if such users make 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 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. DG has
represented to us that this process allows unskilled labor to set as many
as 8,000 stones per day per stone setter. 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 is intended to 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 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
25
<PAGE>
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, to be featured as an anchor tenant in the jewelry shopping section
of AOL Canada's network. DG has entered into arrangements, each of which were
subsequently transferred to us, for distribution of jewelry products with
DealDeal.com, UBID.com and Bid.com. The agreement with UBid.com is an exclusive
agreement. Our agreement with UBID.com prohibits us from offering our products
on any other online auction site, except that we are permitted to offer
products on Bid.com and two other online auction sites of our choice. We have
entered into a non-exclusive agreement with Shopnow.com to offer our products
on its Web site. Our agreement with Shopnow.com is for an initial period of one
hundred-eighty (180) days and automatically renews for successive thirty (30)
day periods unless the other party elects to terminate the agreement on thirty
(30) days prior written notice. Shopnow.com will make reasonable efforts to
develop a presentation of certain of our products on one or more of its
websites during the term of this agreement. These agreements are generally
cancellable at will. 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 also list our products, on a non-contractual basis, on auction sites
operated by Amazon.com and Yahoo.com. In September 1999, DG for our benefit
entered into a two-year agreement with theglobe.com. The agreement with
theglobe.com requires them to host a jewelry storefront on its website for a
period of two years. Pursuant to the agreement we will be the exclusive
third-party jewelry retailer whose products are promoted on the globe.com's
jewelry storefront. In addition, we are required to pay an aggregate of
$594,000 for these services. DG has agreed to guaranty all of our obligations
under all assigned agreements.
Affiliate program. In addition to securing alliances with high-traffic Web
sites, we intend to establish an affiliate program consisting of third parties,
whereby third-party web-sites can earn commissions from us by linking users
from their site to our online store. We do not currently have any affiliate
program agreements.
Advertising. Upon receipt of the net 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 awarenes of our Web site.
Shopping at our online store
Our online store offers visitors several 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
jewelry or men's jewelry, 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, earrings, 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, shipping options during the checkout process. Prior to
finalizing an order by clicking the submit 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 customers
items. Our online store uses a security technology that works with the most
common Internet browsers and makes it 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 November 1999,
we had a total of 875,514 hits and 154,799 page views. On average, users spend
approximately twenty-one minutes per visit at our online store.
26
<PAGE>
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 PSINet. Our web
server is connected to PSINet's backbone via a 256k dedicated connection and
our mail server is connected to PSINet's backbone via a 128k dial-on-demand
ISDN connection. We have in place a redundant mirror of the live site in the
event of equipment failure. Our agreement with PSINet is for a period of one
(1) year, and will be automatically be renewed for one (1) year periods, unless
either party notifies the other thirty (30) days prior to the expiration of
each one (1) year period. We are obligated to pay PSINet a monthly service fee
of $667 pursuant to this agreement.
Intellectual Property
DG has applied for a trademark for the name "NETJEWELS" with the United
States Patent and Trademark Office. Upon issuance DG has agreed to transfer
such trademarks to us. We have reserved site names in the names "NetJewels" and
"NetJewls." These sites are currently registered in DG's name.
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 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
27
<PAGE>
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:
o traditional store-based jewelry retailers such as Gordons, Sterling and
Friedmans.
o department store retailers such as Sears, JC Penney, Macy's and Ward's.
o major discount retailers such as Kmart, Target and Service Merchandise;
o cable shopping networks such as HSN;
o online efforts of traditional and cable network retailers, including the
online stores operated by ValueAmerica and Gordons;
o catalog retailers of jewelry;
o other online retailers that may include jewelry as part of their product
offerings, such as Amazon.com;
o online wedding portal sites that feature shopping services, such as the
Knot.com and Modern Bride;
o Internet portals, online auction services and online service providers
that feature shopping services, such as eBay, Yahoo! and Amazon.com; and
o various online retailers of jewelry, such as Alle Fine Jewelry, eJewelry
and Just Jewelry.
We believe that the following are the principal competitive factors in our
market:
o brand recognition;
o selection;
o order delivery performance;
o customer service;
o site features and content; and
o price.
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
28
<PAGE>
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 January 1, 2000, we employed 20 full-time employees, five of which
are involved in management, two in purchasing, seven in shipping and
fulfillment, two in graphic design and four 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 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. We have no understandings or agreements to acquire any
new or additional space.
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. With respect to any contract, agreement or other document
referred to in the registration statement which is filed as an exhibit,
reference is made to the exhibit for a complete description.
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.
29
<PAGE>
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 the American Stock Exchange, 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.
30
<PAGE>
MANAGEMENT
Directors, executive officers and key personnel
The following table sets forth information about our directors and
executive officers and key personnel as of January1, 2000.
<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 two years ago. The "Trader Jack" show airs for
approximately fifteen hours per month. Mr. Berkovits has also appeared on the
show "Deals of the Century", which is broadcast on The Shopping Channel, for
the past 12 years and airs approximately four times per year. Mr. Berkovits
earned a Bachelor of Commerce at Sir George Williams University (Montreal) in
1973 and received his Chartered Accountant designation at McGill University in
1975.
Daniel P. Berkovits, CEO. Since our inception in June 1999, Mr. Berkovits has
served as our chief executive officer. Since January 1999, Mr. Berkovits has
served as Chief Executive Officer of NetJewels Canada, our parent company. 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 and
Bid.com. 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 our inception in June 1999, Mr.
Berkovits has served as our president and chief operating officer. Since
January 1999, Mr. Berkovits has served as president of NetJewels Canada, our
parent company. 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, a worldwide
real estate development company. Since 1992, Mr. Reichmann 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 November 1999, Mr.
Lerman was named President of the interactive division of Digital Convergence
Inc. From February 1999 through September 1999, Mr. Lerman served as 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. From February 1997 to September 1997, Mr. Lerman was
president and chief executive officer of Kent and Spiegel Direct. From November
1989 to February 1994, 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.
31
<PAGE>
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 Reichmann 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 10,000 options to purchase shares of our common stock at the initial
public offering price, $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
From January 1, 1999 to December 31, 1999, we paid compensation to Daniel
Berkovits, Ben Berkovits and Jack Berkovits in the amounts of $40,000, $40,000
and $0, respectively. In addition we have accrued $60,000, $60,000 and $100,000
of salary for Daniel Berkovits, Ben Berkovits and Jack Berkovits, respectively,
which represents the balance of the amount each was entitled to pursuant to
their respective employment agreements. In July 1999, we issued Jack Berkovits
100,000 warrants to purchase 100,000 shares of our common stock at $.10 per
share in connection with his employment agreement at which time the fair market
value of the warrants was estimated to be $90,000.
Employment agreements
As of January 1, 1999, NetJewels Canada entered into a three-year
employment agreement with Daniel Berkovits, which was subsequently transferred
to us in July 1999, at an annual salary of $100,000. Upon completion of this
offering Mr. Berkovits' salary will be increased to $150,000 per year. The
agreement
32
<PAGE>
provides for a minimum annual salary increase of $15,000. Mr. Berkovits is also
entitled to a $1,000 per month automobile allowance. The agreement also
contains confidentiality provisions and prohibits Mr. Berkovits from engaging
in any other business or occupation, during his employment with us, without our
prior written consent. Mr. Berkovits may receive an annual bonus in an amount
to be determined by our board of directors. In addition, the agreement grants
our board of directors the right to terminate Mr. Berkovits' employment at any
time.
As of January 1, 1999, NetJewels Canada entered into a three-year
employment agreement with Ben Berkovits, which was subsequently transferred to
us in July 1999, at an annual salary of $100,000. Upon completion of this
offering Mr. Berkovits' salary will be increased to $150,000 per year. The
agreement provides for a minimum annual salary increase of $15,000. Mr.
Berkovits is also entitled to a $1,000 per month automobile allowance. The
agreement also contains confidentiality provisions and prohibits Mr. Berkovits
from engaging in any other business or occupation, during his employment with
us, without our prior written consent. Mr. Berkovits may receive an annual
bonus in an amount to be determined by our board of directors. In addition, the
agreement grants our board of directors the right to terminate Mr. Berkovits'
employment at any time.
As of January 1, 1999, NetJewels Canada entered into an employment
agreement with Jack Berkovits, which was subsequently transferred to us in July
1999, at an annual salary of $100,000. Mr. Berkovits' annual salary will be
reviewed on each anniversary of this agreement. Mr. Berkovits may receive an
annual bonus at the discretion of our board of directors. The agreement does
not prohibit Mr. Berkovits from being involved in other businesses or
occupations. In addition, the agreement grants our board of directors the right
to terminate Mr. Berkovits' employment at any time.
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.
33
<PAGE>
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.
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 have entered
into indemnification agreements with our officers and directors.
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.
34
<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:
o each of our directors and director nominees;
o each executive officer named in the Executive compensation section under
"Management";
o all of our executive officers and directors as a group; and
o 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>
Prior to the offering After the offering
Number of shares ----------------------- -------------------
Name of Beneficial Owner beneficially owned Percentage of Ownership
- ----------------------------------------------- -------------------- ---------------------------------------------
<S> <C> <C> <C>
D.G. Jewelry Inc. (1) ......................... 1,650,000 50.0% 30.0%
Daniel P. Berkovits(l) ........................ 825,000 25.0% 15.0%
Ben Berkovits(l) .............................. 825,000 25.0% 15.0%
Jack Berkovits(l)(2)(3) ....................... 1,750,000 51.5% 31.2%
Albert Reichmann .............................. 0 0.0% 0.0%
Greg Lerman ................................... 0 0.0% 0.0%
All directors and executive officers as a group
(five persons)(1)(2)(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. Mr.
Berkovits beneficially owns approximately 48% of DG's common stock.
(3) Includes 100,000 shares of common stock issuable upon the exercise of
currently exercisable warrants. The warrants were issued in July 1999 and
are exercisable for a period of three years beginning on September 30,
1999, at $.10 per share.
35
<PAGE>
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 48%
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 each, through their respective ownership of NetJewels Canada,
beneficially own approximately 15% of us following completion of this offering.
Through November 30, 1999, DG has advanced to our parent and us,
approximately $1,151,180 which has been utilized primarily to finance our
start-up costs. Such advance is memorialized by a promissory note which 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 or until the completion
of this offering. We will use a portion of the net proceeds from this offering
to repay this amount to DG. DG sold NetJewels Canada its Internet contracts for
$1,800,000. NetJewels Canada transferred these contracts to us in June 1999, in
exchange for our assumption of its obligation to DG and is memorialized by a
promissory note which bears no interest and is payable upon demand. We will
repay these obligations out of the proceeds of this offering. DG has a security
interest in all of our assets until such amounts are paid. DG has agreed to act
as a guarantor with respect to each of the ubid.com, bid.com and Ideal
International Inc. agreements.
Since our inception, we and our parent 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 third party auction sites, 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
all of our purchases for the fiscal year ended June 30, 2000. From inception
through November 30, 1999, such purchases totalled $612,084, which also include
our parent company's purchases from January 1999 to June 1999. We expect to
continue to source most, if not all, 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.
In July 1999, we entered into an advertising agreement with AOL which,
together with an agreement DG entered into with theglobe.com in September 1999
for our benefit, requires us to expend an aggregate of $1,250,000 in
advertising during the contract periods. DG has agreed to act as a guarantor
with respect to each of these agreements.
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 three months and expires on
December 31, 2001, with an option for an additional five years.
Our trademark applications have been filed in DG's name, but will be
transferred to us upon issuance.
Our CEO loaned us an aggregate of $6,544, which does not bear interest and
is payable on demand.
Each of Daniel and Ben Berkovits own a nominal amount of DG's shares of
common stock.
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, on July 1, 1999 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.
We believe that the transactions described above were fair and reasonable
and on terms at least as favorable as we would expect to negotiate with an
unaffiliated third party. 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.
36
<PAGE>
DESCRIPTION OF SECURITIES
The following description of matters relating to our securities 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 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, $.001 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, $.001 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 were issued to Jack Berkovits in July 1999.
These warrants contain standard anti-dilution protection. Mr. Jack Berkovits
has no registration rights with respect to the shares issuable upon exercise.
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
37
<PAGE>
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 five (5) years from the date of the closing of our initial public
offering, we have granted the holders of the representative's warrants demand
registration rights and for a period of seven (7) years "piggyback"
registration rights with respect to the common stock issuable upon exercise of
the representative's warrants. The representatives warrants and the shares
underlying them are registered in the registration statement of which this
prospectus is a part. 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.
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 shares for a period of 24 months commencing on the effective date of our
registration statement without the prior approval of the representative.
38
<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:
Number of shares
Underwriters of common stock
- ------------ -----------------
Security Capital Trading, Inc. .........
---------
Total .............................. 2,200,000
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.
In addition to the underwriters commission referred to on the cover page
of this prospectus, 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 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.
39
<PAGE>
The representative's warrants contain 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. For a period of five (5) years from the date
of the closing of our initial public offering, we have granted the holders of
the representative's warrants demand and "piggyback" registration rights for a
period of seven (7) years with respect to the common stock issuable upon
exercise of the representative's warrants. The representatives warrants and the
shares underlying them are registered in the registration statement of which
this prospectus is a part.
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
underwiters 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 do 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 transactions and 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.
Underwriters and selling group members 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.
40
<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. The underwriters have
been represented by Orrick, Herrington & Sutcliffe LLP.
EXPERTS
Our financial statements for the year ended June 30, 1999, appearing in
this prospectus and registration statement have been audited by Schwartz
Levitsky Feldman LLP 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.
41
<PAGE>
NETJEWELS.COM, INC.
FINANCIAL STATEMENTS
AS OF NOVEMBER 30, 1999 (UNAUDITED)
AS OF JUNE 30, 1999
TOGETHER WITH AUDITORS' REPORT
TABLE OF CONTENTS
Report of Independent Auditors ............................ F-2
Balance Sheet ............................................. F-3
Statement of Operations and Stockholders' Deficit ......... F-4
Statement of Changes in Stockholders' Deficiency .......... F-5
Statement of Cash Flows ................................... F-6
Notes to Financial Statements ............................. F-7-11
F-1
<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. (a
Delaware Corporation) as of June 30, 1999 and the related statement of
operations and stockholders' deficit and cash flows for the period 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
statement 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
period ended June 30, 1999, in conformity with generally accepted accounting
principles in the United States of America.
Schwartz Levitsky Feldman, LLP
------------------------------
Chartered Accountants
Toronto, Ontario
August 13, 1999
F-2
<PAGE>
NETJEWELS.COM, INC.
BALANCE SHEET AS OF NOVEMBER 30 (unaudited) and JUNE 30 (audited)
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
November 30, June 30,
1999 1999
-------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
$ $
Cash ...................................................... 12,355 --
Accounts receivable (note 2) .............................. 223,321 --
------------ ---------
235,676 --
INTERNET CONTRACTS (note 3) ................................ 1,620,000 1,770,000
------------ ---------
Total Assets ............................................... 1,855,676 1,770,000
============ =========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities (note 4) ......... 651,890 62,000
Advances from an officer (note 5) ......................... 6,544 6,544
Notes payable Shareholder (Note 6) ........................ 2,951,180 2,141,303
------------ ---------
3,609,614 2,209,847
------------ ---------
STOCKHOLDERS' DEFICIENCY
CAPITAL STOCK
Authorized ................................................
19,000,000 shares of common stock,
$0.001 par value per share
1,000,000 shares of preferred stock
Issued
3,300,000 common stock .................................. 3,300 3,300
Additional paid in capital .............................. 90,000 --
DEFICIT .................................................... (1,847,238) (443,147)
------------ ---------
Total Liabilities .......................................... (1,753,938) (439,847)
------------ ---------
Total Liabilities and Stockholders' Equity ................. 1,855,676 1,770,000
============ =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
NETJEWELS.COM, INC.
STATEMENT OF OPERATIONS AND STOCKHOLDERS'
DEFICIT FOR THE PERIODS ENDED NOVEMBER 30 (unaudited) AND JUNE 30 (audited)
(AMOUNTS EXPRESSED IN US DOLLARS)
November 30, June 30,
1999 1999
-------------- -----------
(unaudited)
SALES .................................. $ 699,051 $ 75,439
Cost of sales ......................... 548,075 64,009
---------- --------
GROSS PROFIT ........................... 150,976 11,430
---------- --------
EXPENSES
Sales and marketing ................... 992,993 325,495
Stock based compensation .............. 90,000 --
Financial ............................. 27,853 --
General and administrative ............ 294,221 36,166
Web site development .................. -- 62,916
Amortization .......................... 150,000 30,000
---------- --------
1,555,067 454,577
---------- --------
NET LOSS ............................... 1,404,091 443,147
========== ========
NET LOSS PER SHARE BASIC AND DILUTED
(note 7) .............................. (0.43) (1.61)
========== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING BASIC AND DILUTED ......... 3,300,000 275,000
========== ========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
NETJEWELS.COM, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE PERIODS ENDED NOVEMBER 30 AND JUNE 30
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
Common
Stock
Number of Paid in Additional
Shares Capital Paid in Capital Deficit
----------- --------- ----------------- ------------
<S> <C> <C> <C> <C>
$ $ $
Opening Balance ......................... -- -- -- --
Common shares issued .................... 3,300,000 3,300 -- --
Net loss for the year ................... -- -- -- 443,147
--------- ------ ------- ---------
Balance as of June 30, 1999 ............. 3,300,000 3,300 443,147
Net loss for the period ................. -- -- -- 1,404,091
--------- ------ ------- ---------
Warrants issued (note 9) ................ -- -- 90,000 --
--------- ------ ------- ---------
Balance as of November 30, 1999 ......... 3,300,000 3,300 90,000 1,847,238
========= ====== ======= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
NETJEWELS.COM, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED NOVEMBER 30 (unaudited)
AND JUNE 30 (audited)
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
November 30, June 30,
1999 1999
---------------- --------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .......................................................... $ (1,404,091) $ (443,147)
Adjustments to reconcile net loss to net cash provided by operating
activities
Amortization ...................................................... 150,000 30,000
Stock based compensation .......................................... 90,000 --
Increase in accounts receivable ................................... (223,321) --
Increase in accounts payable and accrued liabilities .............. 589,890 62,000
------------ ------------
(797,522) (357,147)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of internet contracts .................................... -- (1,800,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash provided by advances from shareholder ........................ -- 6,544
Cash provided by issuance of common stock ......................... -- 3,300
Cash provided by notes payable .................................... 809,877 2,141,303
------------ ------------
809,877 2,151,147
NET INCREASE IN CASH ............................................... 12,355 --
Cash, beginning of period ......................................... -- --
------------ ------------
CASH, END OF PERIOD ................................................ 12,355 --
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
NETJEWELS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 (unaudited) AND JUNE 30, 1999 (audited)
(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
as Exite Jewelry.com, Inc. and in October 1999 the company changed its name to
NetJewels.com, Inc. The company is a start-up internet based retailer and
wholesaler focused exclusively on jewelry and related products.
In January 1999 XiteJewelry.com Canada, an Ontario corporation, which in
August 1999 changed its name to NetJewels.com, Inc. (Netjewels Canada), the
company's parent company, was incorporated and an agreement was signed with DG
Jewelry, Inc. (DG) for the right to acquire all of DG's third-party internet
site sale business and all strategic agreements relating to Internet sales. The
transfer of all internet contracts was subsequently effected for a cost of
$1,800,000. Netjewels Canada subsequently transferred all of their rights and
obligations under the contract to the company.
These financial statements include the company's parent company's costs and
sales from January 1999 to June 1999.
ii) Acquisition
The company acquired the rights to the internet line of business of DG
Jewelry for a total cost of $1,800,000. This acquisition has been accounted for
as a purchase business combination and the cost has been allocated to Internet
contracts. The acquisition is payable from the proceeds of the public offering.
The purchase has been reflected as follows:
Internet contracts ......... $ 1,800,000
Notes payable .............. (1,800,000)
Goodwill ................... --
============
iii) Sales
All sales are recognized upon shipment of goods by an insured carrier to
the customer. Sales through third party web sites may, depending upon the
contract terms, be subject to a profit sharing with the web site. Sales are
reflected at the gross amount and the profit sharing costs are reflected in
sales and marketing expenses.
iv) Inventory
Inventory is valued at the lower of cost or net realizable value. Cost is
determined on the first-in, first-out basis.
v) Other Financial Instruments
The carrying amount of the company's accounts payable approximates fair
value because of the short maturity of this instrument.
vi) Internet Contracts
Cost of internet contracts is being amortized using the straight-line
method over five years.
vii) Income taxes
The company accounts for income tax under the provisions of Statement of
Financial Accounting Standards No. 109, which requires recognition of deferred
tax assets and liabilities for the expected future tax
F-7
<PAGE>
NETJEWELS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOVEMBER 30, 1999 (unaudited) AND JUNE 30, 1999 (audited)
(AMOUNTS EXPRESSED IN US DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
consequences of events that have been included in the financial statements or
tax returns. Deferred income taxes are provided using the liability method.
Under the liability method, deferred income taxes are recognized for all
significant temporary differences between the tax and financial statement bases
of assets and liabilities.
viii) Net Loss Per Share
The company has adopted SFAS 128 for computing Earnings Per Share.
Basic loss per share is computed based on the average number of common
shares outstanding during the period.
Fully diluted loss per share reflects the potential dilution that could
occur if securities, or other contracts to issue common stock, were exercised
or converted into common stock or resulted in the issuance of common stock that
then shared in the income of the company. Such securities or contracts are not
considered in the calculation of diluted income per share if the effect of
their exercise or conversion would be antidilutive.
ix) Stock Based Compensation
In December 1995, SFAS No. 123, Accounting for Stock-Based Compensation,
was issued. It introduced the use of a fair value-based method of accounting
for stock-based compensation. It encourages, but does not require, companies to
recognize compensation expense for stock-based compensation to employees based
on the new fair value accounting rules. Companies that choose not to adopt the
new rules will continue to apply the existing accounting rules contained in
Accounting Principles Board Opinion No. 25, Accounting for Stock issued to
employees. However, SFAS No. 123 requires companies that choose not to adopt
the new fair value accounting rules to disclose pro-forma net income and
earnings per share under the new method. SFAS No. 123 is effective for
financial statements for fiscal years beginning after December 15, 1995. The
company has adopted the disclosure provisions of SFAS No. 123.
x) Unaudited Comparatives
The financial statements and related notes thereto as of November 30, 1999
and for the five-month period ended November 30, 1999 are unaudited. Though
they have been prepared on the same basis as the audited financial statements
included herein, they do not form part thereof as no audit opinion has been
expressed thereon. In the opinion of management, such unaudited financial
statements include all adjustments necessary to present fairly the information
set forth herein. The interim results are not necessary indicative of the
results for any future period.
xi) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
xii) Foreign Currency Translation
The company's functional currency is the U.S. dollar and substantially all
transactions are denominated in U.S. dollars. Sales denominated in Canadian
dollars are translated at the average rate of exchange for the period. Balance
sheet items are translated at the exchange rate prevailing at the balance sheet
date.
F-8
<PAGE>
NETJEWELS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOVEMBER 30, 1999 (unaudited) AND JUNE 30, 1999 (audited)
(AMOUNTS EXPRESSED IN US DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
xiii) Comprehensive Income
The company has adopted the provisions of SFAS No. 130 "Reporting
Comprehensive Income". This standard requires companies to disclose
comprehensive income in their financial statements. In additional to items
included in net income, comprehensive income includes items currently charged
or credited directly to stockholders' equity, such as the changes in unrealized
appreciation (depreciation) of securities and foreign currency translation
adjustments.
2. ACCOUNTS RECEIVABLE
November 30, June 30,
1999 1999
$ $
-------------- ---------
(Unaudited)
Accounts receivable ........................... 223,321 --
Less: Allowance for doubtful accounts ......... -- --
------- ---------
Accounts receivable, net ...................... 223,321 --
======= =========
3. INTERNET CONTRACTS
November 30, June 30,
1999 1999
$ $
-------------- ---------
(Unaudited)
Internet contracts ..................... 1,800,000 1,800,000
Less: Accumulated amortization ......... 180,000 30,000
--------- ---------
1,620,000 1,770,000
========= =========
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
November 30, June 30,
1999 1999
$ $
-------------- ---------
(Unaudited)
Accounts payable -- other ......... 188,000 --
Accrued liabilities ............... 463,890 62,000
------- ------
651,890 62,000
======= ======
<PAGE>
5. ADVANCES FROM AN OFFICER
The advances from an officer does not bear interest and is due on demand.
6. NOTES PAYABLE -- SHAREHOLDER
The notes payable to shareholder are non-interest bearing, have no
specific terms of repayment and are secured by all of the company's assets. One
note in the amount of $1.8 million arose in connection with the assumption of
the parent company's obligations to DG in connection with the acquisition of
the internet contracts. The second note in the amount of $1,151,180 represents
the net advances from DG for goods purchased from DG and expenses incurred on
the company's behalf.
7. NET LOSS PER COMMON SHARE
Fully diluted net loss per common share was the same as basic net loss per
common share as there are no unexercised stock options outstanding and the
exercise of the warrants is anti-dilutive.
F-9
<PAGE>
NETJEWELS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOVEMBER 30, 1999 (unaudited) AND JUNE 30, 1999 (audited)
(AMOUNTS EXPRESSED IN US DOLLARS)
8. INCOME TAXES
November 30, November 30, June 30,
1999 1998 1999
$ $ $
-------------- -------------- -------------
(Unaudited) (Unaudited)
Loss carryforwards .......... 785,000 3,200 177,000
Valuation allowance ......... (785,000) (3,200) (177,000)
-------- ------ --------
-- -- --
======== ====== ========
9. WARRANTS
100,000 warrants were issued in July 1999 to the Chairman of the company.
The warrants are exercisable at any time during the three-year period
commencing September 30, 1999 to acquire common shares of the company at $0.10
per share. The common shares were valued at $1.00 per share at the time of
issuance of the warrants and therefore $90,000 has been credited to additional
paid in capital.
10. RELATED PARTY TRANSACTION
The company's parent company is owned 50% by DG and 50% by the company's
CEO and President/COO. The principal shareholder of DG is the father of the
company's CEO and President/COO and is the company's Chairman.
The company and our parent company have purchased all of their merchandise
from DG. Pursuant to the intercompany services agreement, DG sells its products
to NJ at a price equal to the lower of: (i) DG's cost plus 15%; and (ii) the
lowest price paid, or which may be paid to DG by third parties with respect to
the same or similar jewelry within six (6) month of NJ's purchase, except that
DG will reduce the purchase price for products sold on third-party auction
sites to equal 85% of the amount actually received by NJ in connection with the
sale.
Since inception, DG has provided the company with corporate, fulfillment,
space sharing and other administrative services at a cost of $5,000 per month
plus actual expenses.
November 30, 1999 June 30, 1999
------------------- --------------
Purchase of internet contracts .......... -- $1,800,000
Purchases and expenses .................. 1,017,000 420,000
<PAGE>
11. COMMITMENTS
a) The company has signed a lease, which expires December 31, 2001, to
rent premises from DG. The minimum annual payments are as follows:
2000 $6,000
2001 $6,000
b) The company has entered into advertising agreements with AOL, which
together with an agreement DG entered into with theglobe.com for our benefit
requires us to expend $1,250,000 in advertising during the contract periods.
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 $1,000 per month of automobile
allowance. The amount payable is subject to minimum annual increases of at
least $15,000. The warrants were issued in July 1999 and have been reflected as
a stock based compensation expense in the period ended November 30, 1999.
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
F-10
<PAGE>
NETJEWELS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOVEMBER 30, 1999 (unaudited) AND JUNE 30, 1999 (audited)
(AMOUNTS EXPRESSED IN US DOLLARS)
11. COMMITMENTS -- (Continued)
$1,000 per month each of automobile allowance. If the company's proposed IPO is
completed, 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.
e) The company has entered into a letter of intent 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 $10.00 to $12.00 per share.
f) 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 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.
12. ECONOMIC DEPENDENCE
Pursuant to an intercompany service agreement with DG, DG has accounted
for 100% of the purchases to date and is expected to account for substantially
all of the purchases for the year ended June 30, 2000. DG beneficially owns 50%
of the shares of the company and the principal shareholders of DG and the
company are members of the same family.
F-11
<PAGE>
================================================================================
--------------
TABLE OF CONTENTS
Page
----
Prospectus Summary ....................... 3
Risk Factors ............................. 6
Forward-Looking Statements ............... 12
Use of Proceeds .......................... 13
Dividend Policy .......................... 14
Dilution ................................. 15
Capitalization ........................... 16
Selected Financial Data .................. 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................ 18
Business ................................. 23
Management ............................... 31
Principal Stockholders ................... 35
Certain Transactions ..................... 36
Description of Securities ................ 37
Shares Eligible for Future Sale .......... 38
Underwriting ............................. 39
Legal Matters ............................ 41
Experts .................................. 41
Financial Statements ..................... F-1
-----------------------------------
Until , 2000 (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.
, 2000
================================================================================
<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:
SEC Registration Fee ................................... $ 9,320.79
NASD Filing Fee ........................................ 3,140.00
Amex 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
==============
- ------------
* 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. We have entered into indemnification agreements
with our officers and directors.
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
Since our incorporation in June 1999, 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 June 1999, we issued 3,300,000 shares of our common stock to
NetJewels.com, Inc, an Ontario corporation, as the founder of the corporation
pursuant to Section 4(2) of the Securities Act of 1933, as amended. The shares
were issued at par value.
In July 1999, we issued 100,000 warrants to purchase shares of our common
stock to Jack Berkovits at an exercise price of $.10 per share for services
rendered to the company.
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 registrant 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 purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant under Rule 424(b)(1), or (4) of 497(h),
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(5) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus 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.
(6) to provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
II-2
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
<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
*** 3.4 Amended Certificate of Incorporation dated December 23, 1999
** 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 Jewelry Inc. and theglobe.com, Inc.
*10.6 Shopping Channel Promotional Agreement between the Company and America Online, Inc.
***10.7 Partnership Vendor Agreement between DG Jewelry Inc. and uBid.com, Inc.
*10.8 Sales and Distribution Agreement between the Company and Shopnow.com.
**10.9 Sales and Distribution Agreement between the Company and Bid.com.
*10.11 Auction Agreement between iDeal International, Inc. and DG Jewelry Inc.
***10.12 Intercompany Services Agreement between DG Jewelry and the Company.
*10.13 Common Stock Purchase Warrant certificate between the Company and Jack Berkovits dated
July 1, 1999.
*10.14 Agreement between NetJewels Canada and the Company dated June 25, 1999.
*10.15 Agreement between Xite Jewelry.com Canada and DG Jewelry Inc. dated May 3, 1999.
*10.16 Agreement between Xite Jewelry.com Canada and DG Jewelry Inc. dated January 29, 1999.
*10.17 Form of indemnification agreement between NetJewels.com, Inc. and officers and directors.
*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 Reichmann
**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.
*** Previously filed.
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 Amendment No. 1 to the Registration
Statement to be signed an its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York on January 19, 2000.
NetJewels.com, Inc.
By: Daniel Berkovits
Chief Executive Officer
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jack Berkovits Chairman of the Board January 19, 2000
-----------------
Jack Berkovits
/s/ Daniel Berkovits Chief Executive Officer, Principal Accounting January 19, 2000
----------------- Officer, Principal Financial Officer and
Daniel Berkovits Director
/s/ Ben Berkovits President, Chief Operating Officer and Director January 19, 2000
-----------------
Ben Berkovits
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<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
*** 3.4 Amended Certificate of Incorporation dated December 23, 1999
** 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 Jewelry Inc. and theglobe.com, Inc.
*10.6 Shopping Channel Promotional Agreement between the Company and America Online, Inc.
***10.7 Partnership Vendor Agreement between DG Jewelry Inc. and uBid.com, Inc.
*10.8 Sales and Distribution Agreement between the Company and Shopnow.com.
**10.9 Sales and Distribution Agreement between the Company and Bid.com.
*10.11 Auction Agreement between iDeal International, Inc. and DG Jewelry Inc.
***10.12 Intercompany Services Agreement between DG Jewelry and the Company.
*10.13 Common Stock Purchase Warrant certificate between the Company and Jack Berkovits dated
July 1, 1999.
*10.14 Agreement between NetJewels Canada and the Company dated June 25, 1999.
*10.15 Agreement between Xite Jewelry.com Canada and DG Jewelry Inc. dated May 3, 1999.
*10.16 Agreement between Xite Jewelry.com Canada and DG Jewelry Inc. dated January 29, 1999.
*10.17 Form of indemnification agreement between NetJewels.com, Inc. and officers and directors.
*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 Reichmann
**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.
*** Previously filed.
<PAGE>
[Form of Underwriting Agreement - Subject to Additional Review]
2,200,000 Shares of Common Stock
NETJEWELS.COM, INC.
UNDERWRITING AGREEMENT
New York, New York
, 2000
SECURITY CAPITAL TRADING, INC.
As Representative of the
several Underwriters named
in Schedule A to Exhibit A
annexed hereto
520 Madison Avenue
10th Floor
New York, New York 10022
Ladies and Gentlemen:
Netjewels.com, Inc., a Delaware corporation (the "Company"), confirms
its agreement with Security Capital Trading, Inc. ("Security Capital") and each
of the underwriters named in Schedule A hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 11), for whom Security Capital is acting as
Representative (in such capacity, Security Capital shall hereinafter be referred
to as "you" or the "Representative"), with respect to the sale by the Company
and the purchase by the Underwriters, acting severally and not jointly, of the
respective number of shares ("Shares") of the Company's common stock, $0.01 par
value per share ("Common Stock"). The aggregate 2,200,000 shares of Common Stock
are hereinafter referred to as the "Firm Securities."
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also issue and sell to the Underwriters, acting severally and not
jointly, up to an additional 330,000 shares of Common Stock for the purpose of
covering over-allotments, if any. Such 330,000 shares of Common Stock are
hereinafter collectively referred to as the "Option Securities." The Company
also proposes to issue and sell to you warrants (the "Representative's
Warrants") pursuant to the Representative's Warrant Agreement (the
"Representative's Warrant Agreement") for the purchase of an additional 220,000
shares of Common Stock. The shares of Common Stock issuable upon exercise of the
Representative's Warrants are hereinafter referred to as the "Representative's
Securities." The Firm Securities, the Option Securities, the Representative's
Warrants and the Representative's Securities (collectively, hereinafter referred
to as the "Securities") are more fully described in the Registration Statement
and the Prospectus referred to below.
2
<PAGE>
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters as of the
date hereof, and as of the Closing Date (as hereinafter defined) and each Option
Closing Date (as hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and an amendment or
amendments thereto, on Form S-1 (No. 333-_________), including any related
preliminary prospectus ("Preliminary Prospectus"), for the registration of the
Firm Securities, the Option Securities and the Representative's Securities under
the Securities Act of 1933, as amended (the "Act"), which registration statement
and amendment or amendments have been prepared by the Company in conformity with
the requirements of the Act, and the rules and regulations (the "Regulations")
of the Commission under the Act. The Company will promptly file a further
amendment to said registration statement in the form heretofore delivered to the
Underwriters and will not file any other amendment thereto to which the
Underwriters shall have objected in writing after having been furnished with a
copy thereof. Except as the context may otherwise require, such registration
statement, as amended, on file with the Commission at the time the registration
statement becomes effective (including the prospectus, financial statements,
schedules, exhibits and all other documents filed as a part thereof or
incorporated therein (including, but not limited to those documents or
information incorporated by reference therein) and all information deemed to be
a part thereof as of such time pursuant to paragraph (b) of Rule 430(A) of the
Regulations), is hereinafter called the "Registration Statement", and the form
of prospectus in the form first filed with the Commission pursuant to Rule
424(b) of the Regulations, is hereinafter called the "Prospectus." For purposes
hereof, "Rules and Regulations" mean the rules and regulations adopted by the
Commission under either the Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or threatened. Each of the Preliminary Prospectus, the Registration Statement
and Prospectus at the time of filing thereof conformed with the requirements of
the Act and the Rules and Regulations, and none of the Preliminary Prospectus,
the Registration Statement or Prospectus at the time of filing thereof contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that this representation and warranty does not apply to statements made in
reliance upon and in conformity with written information furnished to the
Company with respect to the Underwriters by or on behalf of the Underwriters
expressly for use in such Preliminary Prospectus, Registration Statement or
Prospectus or any amendment thereof or supplement thereto.
3
<PAGE>
(c) When the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Date (as defined herein) and each Option
Closing Date (as defined herein), if any, and during such longer period as the
Prospectus may be required to be delivered in connection with sales by the
Underwriters or a dealer, the Registration Statement and the Prospectus will
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and will conform to the requirements
of the Act and the Rules and Regulations; neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in strict conformity with information
furnished to the Company in writing by or on behalf of any Underwriter expressly
for use in the Preliminary Prospectus, Registration Statement or Prospectus or
any amendment thereof or supplement thereto.
(d) The Company, a Delaware corporation, has been duly organized and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its organization. Except as set forth in the Prospectus, the
Company does not own an interest in any corporation, partnership, trust, joint
venture or other business entity. The Company is duly qualified and licensed and
in good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of any properties or the character of its operations
requires such qualification or licensing. The Company has all requisite power
and authority (corporate and other), and has obtained any and all necessary
authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct its business as
described in the Prospectus; the Company is and has not been doing business in
compliance with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all applicable federal, state, local
and foreign laws, rules and regulations; and the Company has not received any
notice of proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, position, prospects, value, operation,
properties, business or results of operations of the Company. The reorganization
pursuant to which the Company became the subsidiary of NetJewelsCanada has been
consummated as described in the Prospectus. The disclosures in the Registration
Statement concerning the effects of domestic and foreign laws, rules and
regulations on the Company's business as currently conducted and as contemplated
are correct in all material respects and do not omit to state a material fact
required to be stated therein or necessary to make the statements contained
therein not misleading in light of the circumstances under which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and each Option Closing Date, if any, based upon the
assumptions set forth therein, and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement,
the Representative's Warrant Agreement and as described in the Prospectus. The
Securities and all other securities issued or issuable by the Company conform
or, when issued and paid for, will conform, in all respects to all statements
4
<PAGE>
with respect thereto contained in the Registration Statement and the Prospectus.
All issued and outstanding securities of the Company have been duly authorized
and validly issued and are fully paid and non-assessable and the holders thereof
have no rights of rescission with respect thereto, and are not subject to
personal liability by reason of being such holders; and none of such securities
were issued in violation of the preemptive rights of any holders of any security
of the Company or similar contractual rights granted by the Company. The
Securities are not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when issued, paid for
and delivered in accordance with the terms hereof, will be validly issued, fully
paid and non-assessable and will conform to the description thereof contained in
the Prospectus; the holders thereof will not be subject to any liability solely
as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities has been duly and validly taken;
and the certificates representing the Securities will be in due and proper form.
Upon the issuance and delivery pursuant to the terms hereof of the Securities to
be sold by the Company hereunder, the Underwriters or the Representative, as the
case may be, will acquire good and marketable title to such Securities free and
clear of any lien, charge, claim, encumbrance, pledge, security interest, defect
or other restriction or equity of any kind whatsoever.
(f) The consolidated financial statements of the Company, together with
the related notes and schedules thereto, included in the Registration Statement,
each Preliminary Prospectus and the Prospectus fairly present the financial
position, income, changes in cash flow, changes in stockholders' equity and the
results of operations of the Company at the respective dates and for the
respective periods to which they apply and such financial statements have been
prepared in conformity with generally accepted accounting principles and the
Rules and Regulations, consistently applied throughout the periods involved and
such financial statements as are audited have been examined by Schwartz Levitsky
Feldman, who are independent certified public accountants within the meaning of
the Act and the Rules and Regulations, as indicated in their respective reports
filed therewith. There has been no adverse change or development involving a
prospective adverse change in the condition, financial or otherwise, or in the
earnings, position, prospects, value, operation, properties, business, or
results of operations of the Company, whether or not arising in the ordinary
course of business, since the date of the financial statements included in the
Registration Statement and the Prospectus and the outstanding debt, the
property, both tangible and intangible, and the business of the Company, conform
in all material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. Financial information (including,
without limitation, any pro forma financial information) set forth in the
Prospectus under the headings "Summary Financial Data," "Selected Financial
Data," "Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," fairly present, on the basis stated in the
Prospectus, the information set forth therein, and have been derived from or
compiled on a basis consistent with that of the audited financial statements
included in the Prospectus; and, in the case of pro forma financial information,
if any, the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions and
circumstances referred to therein. The amounts shown as accrued for current and
deferred income and other taxes in such financial statements are sufficient for
the payment of all accrued and unpaid domestic and foreign income taxes,
interest, penalties, assessments or deficiencies applicable to the Company,
whether disputed or not, for the applicable period then ended and periods prior
thereto; adequate allowance for doubtful accounts has been provided for
unindemnified losses due to the operations of the Company; and the statements of
income do not contain any items of special or nonrecurring income not earned in
the ordinary course of business, except as specified in the notes thereto.
5
<PAGE>
(g) The Company (i) has paid all domestic and foreign taxes for which
it is liable, (ii) has established adequate reserves for such taxes which are
not due and payable, and (iii) does not have any tax deficiency or claims
outstanding, proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is payable by or
on behalf of the Underwriters in connection with (i) the issuance by the Company
of the Securities, (ii) the purchase by the Underwriters of the Firm Securities
and the Option Securities from the Company and the purchase by the
Representative of the Representative's Warrants from the Company, (iii) the
consummation by the Company of any of its obligations under this Agreement, or
(iv) resales of the Firm Securities and the Option Securities in connection with
the distribution contemplated hereby.
(i) The Company maintains insurance policies, including, but not
limited to, general liability, and property insurance, which insures each of the
Company, and its employees, against such losses and risks generally insured
against by comparable businesses. The Company (A) has not failed to give notice
or present any insurance claim with respect to any matter, including but not
limited to the Company's business, property or employees, under any insurance
policy or surety bond in a due and timely manner, (B) has no disputes or claims
against any underwriter of such insurance policies or surety bonds or has failed
to pay any premiums due and payable thereunder, or (C) has not failed to comply
with all conditions contained in such insurance policies and surety bonds. There
are no facts or circumstances under any such insurance policy or surety bond
which would relieve any insurer of its obligation to satisfy in full any valid
claim of the Company.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, the Company
which (i) questions the validity of the capital stock of the Company, this
Agreement or the Representative's Warrant Agreement, or of any action taken or
to be taken by the Company pursuant to or in connection with this Agreement or
the Representative's Warrant Agreement, (ii) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in all
material respects), or (iii) might materially and adversely affect the
condition, financial or otherwise, or the earnings, position, prospects,
stockholders' equity, value, operation, properties, business or results of
operations of the Company.
(k) The Company has full legal right, power and authority to authorize,
issue, deliver and sell the Securities, enter into this Agreement and the
Representative's Warrant Agreement and to consummate the transactions provided
for in this Agreement and the Representative's Warrant Agreement; and this
Agreement and the Representative's Warrant Agreement have each been duly and
properly authorized, executed and delivered by the Company. Each of this
Agreement and the Representative's Warrant Agreement constitutes a legal, valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms, and none of the Company's issue and sale of the
Securities, execution or delivery of this Agreement or the Representative's
Warrant Agreement, its performance hereunder and thereunder, its consummation of
the transactions contemplated herein and therein, or the conduct of its business
as described in the Registration Statement, the Prospectus, and any amendments
or supplements thereto, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon, any property
or assets (tangible or intangible) of the Company pursuant to the terms of (i)
the Certificate of Incorporation or By-Laws of the Company, (ii) any license,
contract, collective bargaining agreement, indenture, mortgage, deed of trust,
lease, voting trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument to which the Company is a party
or by which the Company is or may be bound or to which its or assets (tangible
or intangible) is or may be subject, or any indebtedness, or (iii) any statute,
judgment, decree, order, rule or regulation applicable to the Company of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its activities or properties.
6
<PAGE>
(l) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Securities pursuant to the
Prospectus and the Registration Statement, the performance of this Agreement and
the Representative's Warrant Agreement and the transactions contemplated hereby
and thereby, including without limitation, any waiver of any preemptive, first
refusal or other rights that any entity or person may have for the issue and/or
sale of any of the Securities, except such as have been or may be obtained under
the Act or may be required under state securities or Blue Sky laws in connection
with the Underwriters' purchase and distribution of the Firm Securities and the
Option Securities, and the Representative's Warrants to be sold by the Company
hereunder. All authorizations, approvals, consents, orders, registrations,
licenses or permits of any court or governmental agency or body necessary for
the consummation of the organization of the Company have been obtained or
effected and are in full force and effect.
(m) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or business may be subject have been
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company, enforceable
against it in accordance with its terms. The descriptions in the Registration
Statement of agreements, contracts and other documents are accurate and fairly
present the information required to be shown with respect thereto by Form S-1,
and there are no contracts or other documents which are required by the Act to
be described in the Registration Statement or filed as exhibits to the
Registration Statement which are not described or filed as required, and the
exhibits which have been filed are complete and correct copies of the documents
of which they purport to be copies.
(n) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, the Company has not (i) issued
any securities or incurred any liability or obligation, direct or contingent,
for borrowed money, (ii) entered into any transaction other than in the ordinary
course of business, or (iii) declared or paid any dividend or made any other
distribution on or in respect of its capital stock of any class, and there has
not been any change in the capital stock, or any change in the debt (long or
short term) or liabilities or material adverse change in or affecting the
general affairs, management, financial operations, stockholders' equity or
results of operations of the Company.
(o) No default exists in the due performance and observance of any
term, covenant or condition of any license, contract, collective bargaining
agreement, indenture, mortgage, installment sale agreement, lease, deed of
trust, voting trust agreement, stockholders agreement, partnership agreement,
note, loan or credit agreement, purchase order, or any other agreement or
instrument evidencing an obligation for borrowed money, or any other material
agreement or instrument to which the Company is a party or by which the Company
may be bound or to which the property or assets (tangible or intangible) of the
Company is subject or affected.
(p) The Company has generally enjoyed a satisfactory employer-employee
relationship with its employees and is in compliance with all domestic and
foreign laws and regulations respecting employment and employment practices,
terms and conditions of employment and wages and hours. There are no pending
investigations involving the Company by any governmental agency responsible for
the enforcement of such domestic or foreign laws and regulations. There is no
unfair labor practice charge or complaint against the Company or any lockout,
strike, picketing, boycott, dispute, slowdown or stoppage pending or threatened
against or involving the Company, or any predecessor entity, and none has ever
occurred. No representation question exists respecting the employees of the
Company, and no collective bargaining agreement or modification thereof is
currently being negotiated by the Company. No grievance or arbitration
proceeding is pending under any expired or existing collective bargaining
agreements of the Company. No labor dispute with the employees of the Company
exists, or, is imminent.
7
<PAGE>
(q) The Company does not maintain, sponsor or contribute to any program
or arrangement that is an "employee pension benefit plan," an "employee welfare
benefit plan," or a "multiemployer plan" as such terms are defined in Sections
3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") ("ERISA Plans"). The Company does not maintain
or contribute, now or at any time previously, to a defined benefit plan, as
defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code, which could subject the
Company to any tax penalty on prohibited transactions and which has not
adequately been corrected. The Company has never completely or partially
withdrawn from a "multiemployer plan."
(r) Neither the Company, nor any of its employees, directors,
stockholders, partners, or affiliates (within the meaning of the Rules and
Regulations) of any of the foregoing has taken or will take, directly or
indirectly, any action designed to or which has constituted or which might be
expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or otherwise.
(s) Except as otherwise disclosed in the Prospectus, none of the
patents, patent applications, trademarks, service marks, trade names and
copyrights, and licenses and rights to the foregoing presently owned or held by
the Company, are in dispute so far as known by the Company or are in any
conflict with the right of any other person or entity. The Company (i) owns or
has the right to use, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, all patents, trademarks, service marks, trade
names and copyrights, technology and licenses and rights with respect to the
foregoing, used in the conduct of its business as now conducted or proposed to
be conducted without infringing upon or otherwise acting adversely to the right
or claimed right of any person, corporation or other entity under or with
respect to any of the foregoing and (ii) is not obligated or under any liability
whatsoever to make any payment by way of royalties, fees or otherwise to any
owner or licensee of, or other claimant to, any patent, trademark, service mark,
trade name, copyright, know-how, technology or other intangible asset, with
respect to the use thereof or in connection with the conduct of its business or
otherwise.
(t) The Company owns and has the unrestricted right to use all trade
secrets, know-how (including all other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), inventions,
designs, processes, works of authorship, computer programs and technical data
and information (collectively herein "intellectual property") that are material
to the development, manufacture, operation and sale of all products and services
sold or proposed to be sold by the Company, free and clear of and without
violating any right, lien, or claim of others, including without limitation,
former employers of its employees; provided, however, that the possibility
exists that other persons or entities, completely independent of the Company, or
its employees or agents, could have developed trade secrets or items of
technical information similar or identical to those of the Company. The Company
is not aware of any such development of similar or identical trade secrets or
technical information by others.
(u) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus to be owned or leased by it, free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects, or other
restrictions or equities of any kind whatsoever, other than those referred to in
the Prospectus and liens for taxes not yet due and payable.
(v) Schwartz Levitsky Feldman, whose report is filed with the
Commission as a part of the Registration Statement, are independent certified
public accountants as required by the Act and the Rules and Regulations.
8
<PAGE>
(w) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which each of the Company's officers,
directors, stockholders and holders of securities exchangeable or exercisable
for or convertible into shares of Common Stock has agreed not to, directly or
indirectly, issue, offer, offer to sell, sell, grant any option for the sale or
purchase of, assign, transfer, pledge, hypothecate or otherwise encumber or
dispose of any shares of Common Stock or securities convertible into,
exercisable or exchangeable for or evidencing any right to purchase or subscribe
for any shares of Common Stock (either pursuant to Rule 144 of the Rules and
Regulations or otherwise) or dispose of any beneficial interest therein for a
period of not less than twenty-four (24) months following the effective date of
the Registration Statement (the "Lock-Up Period") without the prior written
consent of the Representative and the Company. During the 12 month period
commencing on the effective date of the Registration Statement, the Company
shall not, without the prior written consent of the Representative, sell,
contract or offer to sell, issue, transfer, assign, pledge, distribute, or
otherwise dispose of, directly or indirectly, any shares of Common Stock or any
options, rights or warrants with respect to any shares of Common Stock. The
Company will cause the Transfer Agent (as hereinafter defined) to mark an
appropriate legend on the face of stock certificates representing all of such
securities and to place "stop transfer" orders on the Company's stock ledgers.
(x) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuance with
respect to the Company, or any of its officers, directors, stockholders,
partners, employees or affiliates, that may affect the Underwriters'
compensation, as determined by the National Association of Securities Dealers,
Inc. ("NASD").
(y) The Common Stock has been approved for listing on the Nasdaq
National Market ("Nasdaq").
(z) Neither the Company, nor any of its officers, employees, agents or
any other person acting on behalf of the Company, directly or indirectly, given
or agreed to give any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business) to any customer,
supplier, employee or agent of a customer or supplier, or official or employee
of any governmental agency (domestic or foreign) or instrumentality of any
government (domestic or foreign) or any political party or candidate for office
(domestic or foreign) or other person who was, is, or may be in a position to
help or hinder the business of the Company (or assist the Company in connection
with any actual or proposed transaction) which (a) might subject the Company, or
any other such person to any damage or penalty in any civil, criminal or
governmental litigation or proceeding (domestic or foreign), (b) if not given in
the past, might have had a material adverse effect on the assets, business or
operations of the Company, or (c) if not continued in the future, might
adversely affect the assets, business, condition, financial or otherwise,
earnings, position, properties, value, operations or prospects of the Company.
The Company's internal accounting controls are sufficient to cause the Company
to comply with the Foreign Corrupt Practices Act of 1977, as amended.
(aa) Except as set forth in the Prospectus, no officer, director,
stockholder or partner of the Company, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and Regulations)
of any of the foregoing persons or entities has or has had, either directly or
indirectly, (i) an interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to be furnished
or sold by the Company, or (B) purchases from or sells or furnishes to the
Company any goods or services, or (ii) a beneficial interest in any contract or
agreement to which the Company is a party or by which it may be bound or
affected. Except as set forth in the Prospectus under "Certain Transactions,"
there are no existing agreements, arrangements, understandings or transactions,
or proposed agreements, arrangements, understandings or transactions, between or
among the Company, and any officer, director, or 5% or greater securityholder of
the Company, or any partner, affiliate or associate of any of the foregoing
persons or entities.
9
<PAGE>
(bb) Any certificate signed by any officer of the Company, and
delivered to the Underwriters or to Underwriters' Counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the Underwriters
as to the matters covered thereby.
(cc) The minute books of each of the Company have been made available
to the Underwriters and contain a complete summary of all meetings and actions
of the directors (including committees thereof) and stockholders of the Company,
since the time of incorporation, and reflect all transactions referred to in
such minutes accurately in all material respects.
(dd) Except and to the extent described in the Prospectus, no holders
of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement under the Act and no person or entity holds any
anti-dilution rights with respect to any securities of the Company.
(ee) The Company has as of the effective date of the Registration
Statement entered into an employment agreement with each of Jack Berkovits,
Daniel Berkovits and Ben Berkovits in the form filed as Exhibits 10.3, 10.1 and
10.2, respectively, to the Registration Statement.
(ff) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of Doing Business with Cuba, and the Company
further agrees that if it or any affiliate commences engaging in business with
the government of Cuba or with any person or affiliate located in Cuba after the
date the Registration Statement becomes or has become effective with the
Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's,
or any affiliate's, business with Cuba or with any person or affiliate located
in Cuba changes in any material way, the Company will provide the Department
notice of such business or change, as appropriate, in a form acceptable to the
Department.
(gg) The Company is not, and upon the issuance and sale of the
Securities as herein contemplated and the application of the net proceeds
therefrom as described in the Prospectus under the caption "Use of Proceeds"
will not be, an "investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of 1940, as
amended (the "1940 Act").
(hh) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparations of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorizations; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
10
<PAGE>
(ii) Each of the Company and the Subsidiaries has reviewed its
operations and that of any third parties with which the Company or the
Subsidiaries has a material relationship to evaluate the extent to which the
business or operations of the Company or the Subsidiaries will be affected by
the Year 2000 Problem. As a result of such review, the disclosure in the
Registration Statement under Year 2000 is accurate and complies in all material
respects with the rules and regulations of the Act. The "Year 2000 Problem" as
used herein means any significant risk that computer hardware or software used
in the receipt, transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of mechanical or
electrical systems of any kind will not, in the case of dates or time periods
occurring after December 31, 1999, function at least as effectively as in the
case of dates or time periods occurring prior to January 1, 2000.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$_______ [92% of the initial public offering price per share of Common Stock]
per share of Common Stock, that number of Firm Securities set forth in Schedule
A opposite the name of such Underwriter, subject to such adjustment as the
Representative in its sole discretion shall make to eliminate any sales or
purchases of fractional shares, plus any additional number of Firm Securities
which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 11 hereof.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of an
additional 330,000 shares of Common Stock at a price of $_________ per share of
Common Stock [92% of the initial public offering price per share of Common
Stock]. The option granted hereby will expire forty-five (45) days after (i) the
date the Registration Statement becomes effective, if the Company has elected
not to rely on Rule 430A under the Rules and Regulations, or (ii) the date of
this Agreement if the Company has elected to rely upon Rule 430A under the Rules
and Regulations, and may be exercised in whole or in part from time to time only
for the purpose of covering over-allotments which may be made in connection with
the offering and distribution of the Firm Securities upon notice by the
Representative to the Company setting forth the number of Option Securities as
to which the several Underwriters are then exercising the option and the time
and date of payment and delivery for any such Option Securities. Any such time
and date of delivery (an "Option Closing Date") shall be determined by the
Representative, but shall not be later than three (3) full business days after
the exercise of said option, nor in any event prior to the Closing Date, as
hereinafter defined, unless otherwise agreed upon by the Representative and the
Company. Nothing herein contained shall obligate the Underwriters to make any
over-allotments. No Option Securities shall be delivered unless the Firm
Securities shall be simultaneously delivered or shall theretofore have been
delivered as herein provided.
11
<PAGE>
(c) Payment of the purchase price for, and delivery of certificates
for, the Firm Securities shall be made at the offices of the Representative at
520 Madison Avenue, 10th Floor, New York, New York 10022, or at such other place
as shall be agreed upon by the Representative and the Company. Such delivery and
payment shall be made at 10:00 a.m. (New York City time) on ________, 2000 or at
such other time and date as shall be agreed upon by the Representative and the
Company, but not less than three (3) nor more than five (5) full business days
after the effective date of the Registration Statement (such time and date of
payment and delivery being herein called the "Closing Date"). In addition, in
the event that any or all of the Option Securities are purchased by the
Underwriters, payment of the purchase price for, and delivery of certificates
for, such Option Securities shall be made at the above-mentioned office of the
Representative or at such other place as shall be agreed upon by the
Representative and the Company on each Option Closing Date as specified in the
notice from the Representative to the Company. Delivery of the certificates for
the Firm Securities and the Option Securities, if any, shall be made to the
Underwriters against payment by the Underwriters, severally and not jointly, of
the purchase price for the Firm Securities and the Option Securities, if any, to
the order of the Company for the Firm Securities and the Option Securities, if
any, by New York Clearing House funds. In the event such option is exercised,
each of the Underwriters, acting severally and not jointly, shall purchase that
proportion of the total number of Option Securities then being purchased which
the number of Firm Securities set forth in Schedule A hereto opposite the name
of such Underwriter bears to the total number of Firm Securities, subject in
each case to such adjustments as the Representative in its discretion shall make
to eliminate any sales or purchases of fractional shares. Certificates for the
Firm Securities and the Option Securities, if any, shall be in definitive, fully
registered form, shall bear no restrictive legends and shall be in such
denominations and registered in such names as the Underwriters may request in
writing at least two (2) business days prior to the Closing Date or the relevant
Option Closing Date, as the case may be. The certificates for the Firm
Securities and the Option Securities, if any, shall be made available to the
Representative at such office or such other place as the Representative may
designate for inspection, checking and packaging no later than 9:30 a.m. on the
last business day prior to the Closing Date or the relevant Option Closing Date,
as the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Representative Representative's Warrants at a purchase price of $.0001 per
warrant, which Representative's Warrants shall entitle the holders thereof to
purchase an aggregate of 220,000 shares of Common Stock. The Representative's
Warrants shall be exercisable for a period of four (4) years commencing one (1)
year from the effective date of the Registration Statement at a price equaling
one hundred twenty percent (120%) of the respective initial public offering
price of the Shares. The Representative's Warrant Agreement and form of Warrant
Certificate shall be substantially in the form filed as Exhibit 1.2 to the
Registration Statement. Payment for the Representative's Warrants shall be made
on the Closing Date.
3. Public Offering of the Shares. As soon after the Registration
Statement becomes effective as the Representative deems advisable, the
Underwriters shall make a public offering of the Shares (other than to residents
of or in any jurisdiction in which qualification of the Securities is required
and has not become effective) at the price and upon the other terms set forth in
the Prospectus. The Representative may from time to time increase or decrease
the public offering price after distribution of the Shares has been completed to
such extent as the Representative, in its sole discretion deems advisable. The
Underwriters may enter into one of more agreements as the Underwriters, in each
of their sole discretion, deem advisable with one or more broker-dealers who
shall act as dealers in connection with such public offering.
12
<PAGE>
4. Covenants and Agreements of the Company. The Company covenants and
agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Act or Exchange
Act before termination of the offering of the Shares by the Underwriters of
which the Representative shall not previously have been advised and furnished
with a copy, or to which the Representative shall have objected or which is not
in compliance with the Act, the Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof, the
Company will advise the Representative and confirm the notice in writing (i)
when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective; (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose; (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Securities for offering or sale in
any jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose; (iv) of the receipt of any comments from the Commission; and (v)
of any request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for additional information.
If the Commission or any state securities commission shall enter a stop order or
suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representative) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Representative, pursuant
to Rule 424(b)(4)) not later than the Commission's close of business on the
earlier of (i) the second business day following the execution and delivery of
this Agreement and (ii) the fifth business day after the effective date of the
Registration Statement.
(d) The Company will give the Representative notice of its intention to
file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Securities which differs
from the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
and will furnish the Representative with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such prospectus to which the
Representative or Orrick, Herrington & Sutcliffe LLP ("Underwriters' Counsel")
shall object.
13
<PAGE>
(e) The Company shall endeavor in good faith, in cooperation with the
Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Representative may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose; provided,
however, the Company shall not be required to qualify as a foreign corporation
or file a general or limited consent to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Representative agrees that such action is not at
the time necessary or advisable, use all reasonable efforts to file and make
such statements or reports at such times as are or may reasonably be required by
the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered under
the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus relating
to the Securities is required to be delivered under the Act, any event shall
have occurred as a result of which, in the opinion of counsel for the Company or
Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend the Prospectus to comply with the Act, the
Company will notify the Representative promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be satisfactory to
Underwriters' Counsel, and the Company will furnish to the Underwriters copies
of such amendment or supplement as soon as available and in such quantities as
the Underwriters may request.
(g) As soon as practicable, but in any event not later than forty-five
(45) days after the end of the 12-month period beginning on the day after the
end of the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (ninety (90) days in the event that the end of
such fiscal quarter is the end of the Company's fiscal year), the Company shall
make generally available to its security holders, in the manner specified in
Rule 158(b) of the Rules and Regulations, and to the Representative, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules
and Regulations, which statement need not be audited unless required by the Act,
covering a period of at least twelve (12) consecutive months after the effective
date of the Registration Statement.
(h) During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to the Representative:
14
<PAGE>
(i) concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in
the form furnished to the Company's stockholders and certified by the
Company's principal financial or accounting officer;
(ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company for such fiscal
year, accompanied by a copy of the certificate thereon of independent
certified public accountants;
(iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the
NASD or any securities exchange;
(v) every press release and every material news item or
article of interest to the financial community in respect of the
Company, or its affairs, which was released or prepared by or on behalf
of the Company; and
(vi) any additional information of a public nature concerning
the Company (and any future subsidiary) or its businesses which the
Representative may request.
During such seven-year period, if the Company has an active subsidiary,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiary(ies) are consolidated, and
will be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(i) The Company will maintain a transfer agent ("Transfer Agent") and,
if necessary under the jurisdiction of incorporation of the Company, a Registrar
(which may be the same entity as the Transfer Agent) for its Common Stock.
(j) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Representative may request.
(k) On or before the effective date of the Registration Statement, the
Company shall provide the Representative with true original copies of duly
executed, legally binding and enforceable agreements pursuant to which, for a
period of twenty-four (24) months from the effective date of the Registration
Statement, each of the Company's stockholders and holders of securities
exchangeable or exercisable for or convertible into shares of Common Stock
agrees that it or he or she will not, directly or indirectly, issue, offer to
sell, sell, grant an option for the sale or purchase of, assign, transfer,
pledge, hypothecate or otherwise encumber or dispose of any shares of Common
Stock or securities convertible into, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common Stock
(either pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein without the prior consent of the
Representatives (collectively, the "Lock-up Agreements"). During the 12 month
period commencing on the effective date of the Registration Statement, the
Company shall not, without the prior written consent of the Representative,
sell, contract or offer to sell, issue, transfer, assign, pledge, distribute, or
otherwise dispose of, directly or indirectly, any shares of Common Stock or any
options, rights or warrants with respect to any shares of Common Stock. On or
before the Closing Date, the Company shall deliver instructions to the Transfer
Agent authorizing it to place appropriate legends on the certificates
representing the securities subject to the Lock-up Agreements and to place
appropriate stop transfer orders on the Company's ledgers.
15
<PAGE>
(l) The Company, nor any of its officers, directors, stockholders, nor
any of their respective affiliates (within the meaning of the Rules and
Regulations) will take, directly or indirectly, any action designed to, or which
might in the future reasonably be expected to cause or result in, stabilization
or manipulation of the price of any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(n) The Company shall timely file all such reports, forms or other
documents as may be required from time to time, under the Act, the Exchange Act,
and the Rules and Regulations, and all such reports, forms and documents filed
will comply as to form and substance with the applicable requirements under the
Act, the Exchange Act, and the Rules and Regulations.
(o) The Company shall furnish to the Representative as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in their letters to be
furnished pursuant to Sections 6(j) hereof.
(p) The Company shall cause the Common Stock to be quoted on Nasdaq
and, for a period of five (5) years from the date hereof, use its best efforts
to maintain the Nasdaq listing of the Common Stock to the extent outstanding.
(q) For a period of five (5) years from the Closing Date, the Company
shall furnish to the Representative at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Common Stock, (ii) the list of
holders of all of the Company's securities and (iii) a Blue Sky "Trading Survey"
for secondary sales of the Company's securities prepared by counsel to the
Company.
(r) As soon as practicable, (i) but in no event more than five (5)
business days before the effective date of the Registration Statement, file a
Form 8-A with the Commission providing for the registration under the Exchange
Act of the Securities and (ii) but in no event more than thirty (30) days after
the effective date of the Registration Statement, take all necessary and
appropriate actions to be included in Standard and Poor's Corporation
Descriptions and Moody's OTC Manual and to continue such inclusion for a period
of not less than five (5) years.
(s) The Company hereby agrees that it will not, for a period of twelve
(12) months from the effective date of the Registration Statement, adopt,
propose to adopt or otherwise permit to exist any employee, officer, director,
consultant or compensation plan or similar arrangement permitting (i) the grant,
issue, sale or entry into any agreement to grant, issue or sell any option,
warrant or other contract right (x) at an exercise price that is less than the
greater of the public offering price of the Shares set forth herein and the fair
market value on the date of grant or sale or (y) to any of its executive
officers or directors or to any holder of 5% or more of the Common Stock; (ii)
the payment for such securities with any form of consideration other than cash;
or (iii) the existence of stock appreciation rights, phantom options or similar
arrangements.
16
<PAGE>
(t) Until the completion of the distribution of the Securities, the
Company shall not, without the prior written consent of the Representative and
Underwriters' Counsel, issue, directly or indirectly, any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than trade releases issued
in the ordinary course of the Company's business consistent with past practices
with respect to the Company's operations.
(u) For a period equal to the lesser of (i) five (5) years from the
date hereof, and (ii) the sale to the public of the Representative's Securities,
the Company will not take any action or actions which may prevent or disqualify
the Company's use of Form S-1 (or other appropriate form) for the registration
under the Act of the Representative's Securities.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing Date and
the Option Closing Date (to the extent not paid at the Closing Date) all
expenses and fees (other than fees of Underwriters' Counsel, except as provided
in (iv) below) incident to the performance of the obligations of the Company
under this Agreement and the Representative's Warrant Agreement, including,
without limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing (including mailing and handling charges),
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments and
supplements thereto and the printing, mailing (including the payment of postage
with respect thereto) and delivery of this Agreement, the Representative's
Warrant Agreement, the Agreement Among Underwriters, the Selected Dealer
Agreements, and related documents, including the cost of all copies thereof and
of the Preliminary Prospectuses and of the Prospectus and any amendments thereof
or supplements thereto supplied to the Underwriters and such dealers as the
Underwriters may request, in quantities as hereinabove stated, (iii) the
printing, engraving, issuance and delivery of the Securities including, but not
limited to, (x) the purchase by the Underwriters of the Firm Securities and the
Option Securities and the purchase by the Representative of the Representative's
Warrants from the Company, (y) the consummation by the Company of any of its
obligations under this Agreement and the Representative's Warrant Agreement, and
(z) resale of the Firm Securities and the Option Securities by the Underwriters
in connection with the distribution contemplated hereby, (iv) the qualification
of the Securities under state or foreign securities or "Blue Sky" laws and
determination of the status of such securities under legal investment laws,
including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum", the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and disbursements and fees of counsel in connection therewith,
(v) costs and expenses incurred by the Company in connection with the "road
show", (vi) fees and expenses of the Transfer Agent and registrar and all issue
and transfer taxes, if any, (vii) applications for assignment of a rating of the
Securities by qualified rating agencies, (viii) the fees payable to the
Commission and the NASD, and (ix) the fees and expenses incurred in connection
with the quotation of the Securities on Amex and any other exchange.
17
<PAGE>
(b) If this Agreement is terminated by the Underwriters in accordance
with the provisions of Section 6 or Section 12, the Company shall reimburse and
indemnify the Underwriters for all of their actual out-of-pocket expenses,
including the fees and disbursements of Underwriters' Counsel, less any amounts
already paid pursuant to Section 5(c) hereof.
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 5, it will pay to the
Representative on the Closing Date by certified or bank cashier's check or, at
the election of the Representative, by deduction from the proceeds of the
offering of the Firm Securities, a non-accountable expense allowance equal to
2 1/2% of the gross proceeds received by the Company from the sale of the Firm
Securities.
18
<PAGE>
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date or each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date or Option Closing Date, if any,
of the statements of the officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date and
each Option Closing Date, if any, of its covenants and obligations hereunder and
to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 12:00 P.M., New York time, on the date of this Agreement or such later date
and time as shall be consented to in writing by the Representative, and, at the
Closing Date and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Underwriters' Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Shares and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period and, prior to the Closing Date, the Company
shall have provided evidence satisfactory to the Representative of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Representative shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to each of the Closing Date and each Option Closing
Date, if any, the Representative shall have received from Underwriters' Counsel,
such opinion or opinions with respect to the organization of the Company, the
validity of the Securities, the Registration Statement, the Prospectus and other
related matters as the Representative may request and Underwriters' Counsel
shall have received such papers and information as they request to enable them
to pass upon such matters.
(d) At the Closing Date, the Underwriters shall have received the
favorable opinion of Gersten, Savage & Kaplowitz, LLP, counsel to the Company,
dated the Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, to the effect that:
19
<PAGE>
(i) the Company (A) has been duly organized and is validly
existing as a corporation in good standing under the laws of its
jurisdiction, (B) is duly qualified and licensed and in good standing
as a foreign corporation in each jurisdiction in which its ownership or
leasing of any properties or the character of its operations requires
such qualification or licensing, and (C) has all requisite corporate
power and authority, and has obtained any and all necessary
authorizations, approvals, orders, licenses, certificates, franchises
and permits of and from all governmental or regulatory officials and
bodies (including, without limitation, those having jurisdiction over
environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; the Company is and
has been doing business in compliance with all such authorizations,
approvals, orders, licenses, certificates, franchises and permits and
all domestic and foreign laws, rules and regulations; and, the Company
has not received any notice of proceedings relating to the revocation
or modification of any such authorization, approval, order, license,
certificate, franchise, or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would
materially adversely affect the business, operations, condition,
financial or otherwise, or the earnings, business affairs, position,
prospects, value, operation, properties, business or results of
operations of the Company. The disclosures in the Registration
Statement concerning the effects of domestic and foreign laws, rules
and regulations on the Company's business as currently conducted and as
contemplated are correct in all material respects and do not omit to
state a fact required to be stated therein or necessary to make the
statements contained therein not misleading in light of the
circumstances in which they were made.
(ii) except as described in the Prospectus, the Company does
not own an interest in any corporation, partnership, joint venture,
trust or other business entity;
(iii) the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, and any
amendment or supplement thereto, under "CAPITALIZATION", and the
Company is not a party to or bound by any instrument, agreement or
other arrangement providing for it to issue, sell, transfer, purchase
or redeem any capital stock, rights, warrants, options or other
securities, except for this Agreement and the Representative's Warrant
Agreement and as described in the Prospectus. The Securities and all
other securities issued or issuable by the Company conform in all
material respects to all statements with respect thereto contained in
the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; the holders
thereof have no rights of rescission with respect thereto, and are not
subject to personal liability by reason of being such holders; and none
of such securities were issued in violation of the preemptive rights of
any holders of any security of the Company or any similar rights
granted by the Company. The Securities to be sold by the Company
hereunder and under the Representative's Warrant Agreement are not and
will not be subject to any preemptive or other similar rights of any
stockholder, have been duly authorized and, when issued, paid for and
delivered in accordance with the terms hereof, will be validly issued,
fully paid and non-assessable and conform to the description thereof
contained in the Prospectus; the holders thereof will not be subject to
any liability solely as such holders; all corporate action required to
be taken for the authorization, issue and sale of the Securities has
been duly and validly taken; and the certificates representing the
Securities are in due and proper form. The Representative's Warrants
constitute valid and binding obligations of the Company to issue and
sell, upon exercise thereof and payment therefor, the number and type
of securities of the Company called for thereby. Upon the issuance and
delivery pursuant to this Agreement of the Firm Securities and the
Option Securities and the Representative's Warrants to be sold by the
Company, the Underwriters and the Representative, respectively, will
acquire good and marketable title to the Firm Securities and the Option
Securities and the Representative's Warrants free and clear of any
pledge, lien, charge, claim, encumbrance, pledge, security interest, or
other restriction or equity of any kind whatsoever. No transfer tax is
payable by or on behalf of the Underwriters in connection with (A) the
issuance by the Company of the Securities, (B) the purchase by the
Underwriters of the Firm Securities and the Option Securities from the
Company, and the purchase by the Representative of the Representative's
Warrants from the Company (C) the consummation by the Company of any of
its obligations under this Agreement or the Representative's Warrant
Agreement, or (D) resales of the Firm Securities and the Option
Securities in connection with the distribution contemplated hereby.
20
<PAGE>
(iv) the Registration Statement is effective under the Act,
and, if applicable, filing of all pricing information has been timely
made in the appropriate form under Rule 430A, and no stop order
suspending the use of the Preliminary Prospectus, the Registration
Statement or Prospectus or any part of any thereof or suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or, to
the best of such counsel's knowledge, threatened or contemplated under
the Act;
(v) each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements thereto
(other than the financial statements and other financial and
statistical data included therein, as to which no opinion need be
rendered) comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations.
(vi) to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be
described in the Registration Statement and the Prospectus and filed as
exhibits to the Registration Statement other than those described in
the Registration Statement (or required to be filed under the Exchange
Act if upon such filing they would be incorporated, in whole or in
part, by reference therein) and the Prospectus and filed as exhibits
thereto, and the exhibits which have been filed are correct copies of
the documents of which they purport to be copies; (B) the descriptions
in the Registration Statement and the Prospectus and any supplement or
amendment thereto of contracts and other documents to which the Company
is a party or by which it is bound, including any document to which the
Company is a party or by which it is bound, incorporated by reference
into the Prospectus and any supplement or amendment thereto, are
accurate and fairly represent the information required to be shown by
Form S-1; (C) there is not pending or threatened against the Company
any action, arbitration, suit, proceeding, inquiry, investigation,
litigation, governmental or other proceeding (including, without
limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, pending or threatened against (or
circumstances that may give rise to the same), or involving the
properties or business of the Company which (x) is required to be
disclosed in the Registration Statement which is not so disclosed (and
such proceedings as are summarized in the Registration Statement are
accurately summarized in all respects), (y) questions the validity of
the capital stock of the Company or this Agreement or the
Representative's Warrant Agreement, or of any action taken or to be
taken by the Company pursuant to or in connection with any of the
foregoing; (D) no statute or regulation or legal or governmental
proceeding required to be described in the Prospectus is not described
as required; and (E) there is no action, suit or proceeding pending, or
threatened, against or affecting the Company before any court or
arbitrator or governmental body, agency or official (or any basis
thereof known to such counsel) in which there is a reasonable
possibility of a decision which may result in a material adverse change
in the condition, financial or otherwise, or the earnings, position,
prospects, stockholders' equity, value, operation, properties, business
or results of operations of the Company, which could adversely affect
the present or prospective ability of the Company to perform its
obligations under this Agreement or the Representative's Warrant
Agreement or which in any manner draws into question the validity or
enforceability of this Agreement or the Representative's Warrant
Agreement;
21
<PAGE>
(vii) the Company has full legal right, power and authority to
enter into each of this Agreement and the Representative's Warrant
Agreement, and to consummate the transactions provided for therein; and
each of this Agreement and the Representative's Warrant Agreement has
been duly authorized, executed and delivered by the Company. Each of
this Agreement and the Representative's Warrant Agreement, assuming due
authorization, execution and delivery by each other party thereto
constitutes a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action, legal or
equitable, and except as rights to indemnity or contribution may be
limited by applicable law), and none of the Company's execution or
delivery of this Agreement and the Representative's Warrant Agreement,
its performance hereunder or thereunder, its consummation of the
transactions contemplated herein or therein, or the conduct of its
business as described in the Registration Statement, the Prospectus,
and any amendments or supplements thereto, conflicts with or will
conflict with or results or will result in any breach or violation of
any of the terms or provisions of, or constitutes or will constitute a
default under, or result in the creation or imposition of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or
assets (tangible or intangible) of the Company pursuant to the terms
of, (A) the Certificate of Incorporation or By-Laws of the Company, (B)
any license, contract, collective bargaining agreement, indenture,
mortgage, deed of trust, lease, voting trust agreement, stockholders
agreement, note, loan or credit agreement or any other agreement or
instrument to which the Company is a party or by which it is or they
are or may be bound or to which any of its or their respective
properties or assets (tangible or intangible) is or may be subject, or
any indebtedness, or (C) any statute, judgment, decree, order, rule or
regulation applicable to the Company of any arbitrator, court,
regulatory body or administrative agency or other governmental agency
or body (including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of their respective activities or
properties.
(viii) no consent, approval, authorization or order, and no
filing with, any court, regulatory body, government agency or other
body (other than such as may be required under Blue Sky laws, as to
which no opinion need be rendered) is required in connection with the
issuance of the Firm Securities and the Option Securities pursuant to
the Prospectus and the Registration Statement, the issuance of the
Representative's Warrants, the performance of this Agreement and the
Representative's Warrant Agreement, and the transactions contemplated
hereby and thereby;
(ix) the properties and business of the Company conform in all
material respects to the description thereof contained in the
Registration Statement and the Prospectus; and the Company has good and
marketable title to, or valid and enforceable leasehold estates in, all
items of real and personal property stated in the Prospectus to be
owned or leased by it, in each case free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects or
other restrictions or equities of any kind whatsoever, other than those
referred to in the Prospectus and liens for taxes not yet due and
payable;
22
<PAGE>
(x) the Company is not in breach of, or in default under, any
term or provision of any license, contract, collective bargaining
agreement, indenture, mortgage, installment sale agreement, deed of
trust, lease, voting trust agreement, stockholders' agreement,
partnership agreement, note, loan or credit agreement or any other
agreement or instrument evidencing an obligation for borrowed money, or
any other agreement or instrument to which the Company is a party or by
which the Company may be bound or to which the properties or assets
(tangible or intangible) of the Company is subject or affected; and the
Company is not in violation of any term or provision of its Certificate
of Incorporation or By-Laws with respect to the Company or in violation
of any franchise, license, permit, judgment, decree, order, statute,
rule or regulation;
(xi) the statements in the Prospectus under "PROSPECTUS
SUMMARY," "BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN
TRANSACTIONS," "DESCRIPTION OF SECURITIES," and "SHARES ELIGIBLE FOR
FUTURE SALE" have been reviewed by such counsel, and insofar as they
refer to statements of law, descriptions of statutes, licenses, rules
or regulations or legal conclusions, are correct in all material
respects;
(xii) the Securities have been accepted for quotation on
Nasdaq;
(xiii) the persons listed under the caption "PRINCIPAL
STOCKHOLDERS" in the Prospectus are the respective "beneficial owners"
(as such phrase is defined in regulation 13d-3 under the Exchange Act)
of the securities set forth opposite their respective names thereunder
as and to the extent set forth therein;
(xiv) the Company, nor any of its respective officers,
stockholders, employees or agents, nor any other person acting on
behalf of the Company has not, directly or indirectly, given or agreed
to give any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer or supplier, or
official or employee of any governmental agency or instrumentality of
any government (domestic or foreign) or any political party or
candidate for office (domestic or foreign) or other person who is or
may be in a position to help or hinder the business of the Company (or
assist it in connection with any actual or proposed transaction) which
(A) might subject the Company to any damage or penalty in any civil,
criminal or governmental litigation or proceeding, (B) if not given in
the past, might have had an adverse effect on the assets, business or
operations of the Company, as reflected in any of the financial
statements contained in the Registration Statement, or (C) if not
continued in the future, might adversely affect the assets, business,
operations or prospects of the Company;
(xv) no person, corporation, trust, partnership, association
or other entity has the right to include and/or register any securities
of the Company in the Registration Statement, require the Company to
file any registration statement or, if filed, to include any security
in such registration statement;
(xvi) except as described in the Prospectus, there are no
claims, payments, issuances, arrangements or understandings for
services in the nature of a finder's or origination fee with respect to
the sale of the Securities hereunder or financial consulting
arrangements or any other arrangements, agreements, understandings,
payments or issuances that may affect the Underwriters' compensation,
as determined by the NASD;
23
<PAGE>
(xvii) assuming due execution by the parties thereto other
than the Company, the Lock-up Agreements are legal, valid and binding
obligations of the parties thereto, enforceable against the party and
any subsequent holder of the securities subject thereto in accordance
with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any
action, legal or equitable, and except as rights to indemnity or
contribution may be limited by applicable law);
(xviii) except as described in the Prospectus, the Company
does not (A) maintain, sponsor or contribute to any ERISA Plans, (B)
maintains or contributes, now or at any time previously, to a defined
benefit plan, as defined in Section 3(35) of ERISA, and (C) has ever
completely or partially withdrawn from a "multiemployer plan";
(xix) the Company is in compliance with all provisions of
Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to
Disclosure of Doing Business with Cuba;
(xx) the Company, or any of its affiliates shall be subject to
the requirements of or shall be deemed an "Investment Company,"
pursuant to and as defined under, respectively, the Investment Company
Act.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company, and
representatives of the independent public accountants for the Company, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus, and related matters and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which lead
them to believe that either the Registration Statement or any amendment thereto,
at the time such Registration Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or supplement thereto as of
the date of such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or the Prospectus). Such counsel shall
further state that its opinions may be relied upon by Underwriters' Counsel in
rendering its opinion to the Underwriters.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on certificates
and written statements of responsible officers of the Company and certificates
or other written statements of officers of departments of various jurisdictions
having custody of documents respecting the corporate existence or good standing
of the Company, provided that copies of any such statements or certificates
shall be delivered to Underwriters' Counsel if requested. The opinion of such
counsel for the Company shall state that the opinion of any such other counsel
is in form satisfactory to such counsel and that the Representative,
Underwriters' Counsel and they are each justified in relying thereon. Any
opinion of counsel for the Company shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise, written policy
or other document relating to legal opinions, including, without limitation, the
Legal Opinion Accord of the ABA Section of Business Law (1991) or any comparable
state accord.
24
<PAGE>
(e) At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinions of Gersten, Savage, & Kaplowitz LLP, counsel to
the Company, dated such Option Closing Date, addressed to the Underwriters and
in form and substance satisfactory to Underwriters' Counsel confirming as of
such Option Closing Date the statements made by Gersten, Savage, & Kaplowitz LLP
in their opinion delivered on the Closing Date.
(f) On or prior to each of the Closing Date and each Option Closing
Date, if any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company herein contained.
(g) Prior to each of the Closing Date and each Option Closing Date, if
any, (i) there shall have been no material adverse change nor development
involving a prospective change in the condition, financial or otherwise,
earnings, position, value, properties, results of operations, prospects,
stockholders' equity or the business activities of the Company, whether or not
in the ordinary course of business, from the latest dates as of which such
condition is set forth in the Registration Statement and Prospectus; (ii) there
shall have been no transaction, not in the ordinary course of business, entered
into by the Company, from the latest date as of which the financial condition of
the Company is set forth in the Registration Statement and Prospectus which is
adverse to the Company; (iii) the Company shall not be in default under any
provision of any instrument relating to any outstanding indebtedness; (iv) the
Company shall not have issued any securities (other than the Securities) or
declared or paid any dividend or made any distribution in respect of its capital
stock of any class and there has not been any change in the capital stock or any
material change in the debt (long or short term) or liabilities or obligations
of the Company (contingent or otherwise); (v) no material amount of the assets
of the Company shall have been pledged or mortgaged, except as set forth in the
Registration Statement and Prospectus; (vi) no action, suit or proceeding, at
law or in equity, shall have been pending or threatened (or circumstances giving
rise to same) against the Company, or affecting any of its properties or
businesses before or by any court or federal, state or foreign commission, board
or other administrative agency wherein an unfavorable decision, ruling or
finding may adversely affect the business, operations, earnings, position,
value, properties, results of operations, prospects or financial condition or
income of the Company; and (vii) no stop order shall have been issued under the
Act and no proceedings therefor shall have been initiated, threatened or
contemplated by the Commission.
(h) At each of the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus and this Agreement, and that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing
Date or the Option Closing Date, as the case may be, and the Company
has complied with all agreements and covenants and satisfied all
conditions contained in this Agreement on its part to be performed or
satisfied at or prior to such Closing Date or Option Closing Date, as
the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are pending or, to
the best of each of such person's knowledge, are contemplated or
threatened under the Act;
25
<PAGE>
(iii) The Registration Statement and the Prospectus and, if
any, each amendment and each supplement thereto, contain all statements
and information required to be included therein, and none of the
Registration Statement, the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading and neither the Preliminary
Prospectus or any supplement thereto included any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
(a) the Company has not incurred up to and including the Closing Date
or the Option Closing Date, as the case may be, other than in the
ordinary course of its business, any material liabilities or
obligations, direct or contingent; (b) the Company has not paid or
declared any dividends or other distributions on its capital stock; (c)
the Company has not entered into any transactions not in the ordinary
course of business; (d) there has not been any change in the capital
stock or long-term debt or any increase in the short-term borrowings
(other than any increase in the short-term borrowings in the ordinary
course of business) of the Company; (e) the Company has not sustained
any loss or damage to its properties or assets, whether or not insured;
(f) there is no litigation which is pending or threatened (or
circumstances giving rise to same) against the Company or any
affiliated party which is required to be set forth in an amended or
supplemented Prospectus which has not been set forth; and (g) there has
occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(i) are to such documents as amended and supplemented at the date of such
certificate.
(i) By the Closing Date, the Underwriters will have received clearance
from the NASD as to the amount of compensation allowable or payable to the
Underwriters, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Underwriters shall have
received a letter, dated such date, addressed to the Underwriters in form and
substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriters and Underwriters' Counsel, from Schwartz Levitsky Feldman:
26
<PAGE>
(i) confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act
and the applicable Rules and Regulations;
(ii) stating that it is their opinion that the financial
statements and supporting schedules of the Company included in the
Registration Statement comply as to form in all material respects with
the applicable accounting requirements of the Act and the Rules and
Regulations thereunder and that the Representative may rely upon the
opinion of Schwartz Levitsky Feldman with respect to the financial
statements and supporting schedules included in the Registration
Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company, a reading of the latest available minutes of
the stockholders and board of directors and the various committees of
the board of directors of the Company, consultations with officers and
other employees of the Company responsible for financial and accounting
matters and other specified procedures and inquiries, nothing has come
to their attention which would lead them to believe that (A) the
unaudited financial statements and supporting schedules of the Company
included in the Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the Rules and Regulations or are not fairly presented in
conformity with generally accepted accounting principles applied on a
basis substantially consistent with that of the audited financial
statements of the Company included in the Registration Statement, or
(B) at a specified date not more than five (5) days prior to the
effective date of the Registration Statement, there has been any change
in the capital stock or long-term debt of the Company, or any decrease
in the stockholders' equity or net current assets or net assets of the
Company as compared with amounts shown in the __________, 1999 balance
sheet included in the Registration Statement, other than as set forth
in or contemplated by the Registration Statement, or, if there was any
change or decrease, setting forth the amount of such change or
decrease, and (C) during the period from __________, 1999 to a
specified date not more than five (5) days prior to the effective date
of the Registration Statement, there was any decrease in net revenues,
net earnings or increase in net earnings per common share of any of the
Company, in each case as compared with the corresponding period
beginning __________, 1998, other than as set forth in or contemplated
by the Registration Statement, or, if there was any such decrease,
setting forth the amount of such decrease;
(iv) setting forth, at a date not later than five (5) days
prior to the date of the Registration Statement, the amount of
liabilities of the Company taken as a whole (including a break-down of
commercial paper and notes payable to banks);
(v) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and
other financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the general
accounting records, including work sheets, of the Company and excluding
any questions requiring an interpretation by legal counsel, with the
results obtained from the application of specified readings, inquiries
and other appropriate procedures (which procedures do not constitute an
examination in accordance with generally accepted auditing standards)
set forth in the letter and found them to be in agreement;
(vi) statements as to such other matters incident to the
transaction contemplated hereby as the Representatives may request.
27
<PAGE>
(k) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Schwartz Levitsky Feldman a letter, dated
as of the Closing Date or the Option Closing Date, as the case may be, to the
effect that they reaffirm the statements made in the letter furnished pursuant
to subsection (j) of this Section, except that the specified date referred to
shall be a date not more than five (5) days prior to the Closing Date or the
Option Closing Date, as the case may be, and, if the Company has elected to rely
on Rule 430A of the Rules and Regulations, to the further effect that they have
carried out procedures as specified in clause (v) of subsection (j) of this
Section with respect to certain amounts, percentages and financial information
as specified by the Representative and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (v).
(l) On each of the Closing Date and each Option Closing Date, if any,
there shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Securities.
(m) No order suspending the sale of the Securities in any jurisdiction
designated by the Representative pursuant to subsection (e) of Section 4 hereof
shall have been issued on either the Closing Date or the Option Closing Date, if
any, and no proceedings for that purpose shall have been instituted or shall be
contemplated.
(n) On or before the Closing Date, the Company shall have executed and
delivered to the Representative, (i) the Representative's Warrant Agreement
substantially in the form filed as Exhibit 1.2 to the Registration Statement, in
final form and substance satisfactory to the Representative, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
(o) On or before the Closing Date, the Firm Securities and Option
Securities shall have been duly approved for quotation on Amex, subject to
official notice of issuance.
(p) On or before the Closing Date, there shall have been delivered to
the Representative all of the Lock-up Agreements, in form and substance
satisfactory to Underwriters' Counsel.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representative may terminate this
Agreement or, if the Representative so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
28
<PAGE>
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 7 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the Underwriter,
including specifically each person who may be substituted for an Underwriter as
provided in Section 11 hereof), and each person, if any, who controls the
Underwriter ("controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions,
proceedings, investigations, inquiries, suits and litigation in respect
thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any such claim, action, proceeding, investigation, inquiry, suit or litigation,
commenced or threatened, or any claim whatsoever), as such are incurred, to
which the Underwriter or such controlling person may become subject under the
Act, the Exchange Act or any other statute or at common law or otherwise or
under the laws of foreign countries, arising out of or based upon (A) any untrue
statement or alleged untrue statement of a material fact contained (i) in any
Preliminary Prospectus, the Registration Statement or the Prospectus (as from
time to time amended and supplemented); (ii) in any post-effective amendment or
amendments or any new registration statement and prospectus in which is included
securities of the Company issued or issuable upon exercise of the Securities; or
(iii) in any application or other document or written communication (in this
Section 7 collectively called "application") executed by the Company or based
upon written information furnished by the Company in any jurisdiction in order
to qualify the Securities under the securities laws thereof or filed with the
Commission, any state securities commission or agency, Amex or any other
securities exchange; (B) the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading (in the case of the Prospectus, in the light of the
circumstances under which they were made), or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company or any of its officers
delivered pursuant hereto, unless, in the case of clause (A) or (B) above, such
statement or omission was made in reliance upon and in strict conformity with
written information furnished to the Company with respect to any Underwriter by
or on behalf of such Underwriter expressly for use in any Preliminary
Prospectus, the Registration Statement or Prospectus, or any amendment thereof
or supplement thereto, or in any application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition to
any liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company within the meaning of the Act, to the same extent
as the foregoing indemnity from the Company to the Underwriters but only with
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering. The
Company acknowledges that the statements with respect to the public offering of
the Firm Securities and the Option Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in the Prospectus.
29
<PAGE>
(c) Promptly after receipt by an indemnified party under this Section 7
of notice of the commencement of any claim, action, suit, investigation,
inquiry, proceeding or litigation, such indemnified party shall, if a claim in
respect thereof is to be made against one or more indemnifying parties under
this Section 7, notify each party against whom indemnification is to be sought
in writing of the commencement thereof (but the failure so to notify an
indemnifying party shall not relieve it from any liability which it may have
under this Section 7 except to the extent that it has been prejudiced in any
material respect by such failure or from any liability which it may have
otherwise). In case any such claim, action, suit, investigation, inquiry,
proceeding or litigation is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such case
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense of thereof at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense thereof within a reasonable
time after notice of commencement thereof, or (iii) such indemnified party or
parties shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to one or
all of the indemnifying parties (in which case the indemnifying parties shall
not have the right to direct the defense thereof on behalf of the indemnified
party or parties), in any of which events such fees and expenses of one
additional counsel shall be borne by the indemnifying parties. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one claim, action, suit,
investigation, inquiry, proceeding or litigation or separate but similar or
related claims, actions, suits, investigations, inquiries, proceedings or
litigation in the same jurisdiction arising out of the same general allegations
or circumstances. Anything in this Section 7 to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim, action,
suit, investigation, inquiry, proceeding or litigation effected without its
written consent; provided, however, that such consent was not unreasonably
withheld. An indemnifying party will not, without the prior written consent of
the indemnified parties, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit,
investigation, inquiry, proceeding or litigation in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim, action, suit,
investigation, inquiry, proceeding or litigation), unless such settlement,
compromise or consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit, investigation,
inquiry, proceeding or litigation and (ii) does not include a statement as to or
an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
30
<PAGE>
(d) In order to provide for just and equitable contribution in any case
in which (i) an indemnified party makes claim for indemnification pursuant to
this Section 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Firm Securities and the Option Securities or (B) if the allocation provided
by clause (A) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each of the contributing parties, on the
one hand, and the party to be indemnified on the other hand in connection with
the statements or omissions that resulted in such losses, claims, damages,
expenses or liabilities, as well as any other relevant equitable considerations.
In any case where the Company is the contributing party and the Underwriters are
the indemnified party, the relative benefits received by the Company on the one
hand, and the Underwriters, on the other, shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Firm Securities
and the Option Securities (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the Cover Page of the Prospectus. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, or by the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Firm Securities and the Option Securities purchased by the Underwriters
hereunder. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
Section 7, each person, if any, who controls the Company or the Underwriter
within the meaning of the Act, each officer of the Company who has signed the
Registration Statement, and each director of the Company shall have the same
rights to contribution as the Company or the Underwriter, as the case may be,
subject in each case to this subsection (d). Any party entitled to contribution
will, promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subsection (d), notify such
party or parties from whom contribution may be sought, but the omission so to
notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subsection (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution agreement
set forth above shall be in addition to any liabilities which any indemnifying
party may have at common law or otherwise.
31
<PAGE>
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter or the Company, and shall
survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters and the Representative, as the case may be.
9. Effective Date. This Agreement shall become effective at 10:00 a.m.,
New York City time, on the next full business day following the date hereof, or
at such earlier time after the Registration Statement becomes effective as the
Representative, in its discretion, shall release the Securities for sale to the
public; provided, however, that the provisions of Sections 5, 7 and 10 of this
Agreement shall at all times be effective. For purposes of this Section 9, the
Securities to be purchased hereunder shall be deemed to have been so released
upon the earlier of dispatch by the Representative of telegrams to securities
dealers releasing such securities for offering or the release by the
Representative for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the Representative
shall have the right to terminate this Agreement, (i) if any domestic or
international event or act or occurrence has materially adversely disrupted, or
in the Representative's opinion will in the immediate future materially
adversely disrupt, the financial markets; or (ii) if any material adverse change
in the financial markets shall have occurred; or (iii) if trading generally
shall have been suspended or materially limited on or by, as the case may be,
any of the New York Stock Exchange, the American Stock Exchange, the NASD, the
Boston Stock Exchange, the Commission or any governmental authority having
jurisdiction over such matters; or (iv) if trading of any of the securities of
the Company shall have been suspended, or any of the securities of the Company
shall have been delisted, on any exchange or in any over-the-counter market; (v)
if the United States shall have become involved in a war or major hostilities,
or if there shall have been an escalation in an existing war or major
hostilities or a national emergency shall have been declared in the United
States; or (vi) if a banking moratorium has been declared by a state or federal
authority; or (vii) if a moratorium in foreign exchange trading has been
declared; or (viii) if the Company shall have sustained a loss material or
substantial to the Company by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which, whether or not such
loss shall have been insured, will, in the Representative's opinion, make it
inadvisable to proceed with the offering, sale and/or delivery of the
Securities; or (ix) if there shall have been such a material adverse change in
the conditions or prospects of the Company, or such material adverse change in
the general market, political or economic conditions, in the United States or
elsewhere, that, in each case, in the Representative's judgment, would make it
inadvisable to proceed with the offering, sale and/or delivery of the Securities
or (x) if either Jack Berkovits, Daniel Berkovits or Ben Berkovits shall no
longer serve the Company in their respective present capacities.
(b) If this Agreement is terminated by the Representative in accordance
with the provisions of Section 10(a) the Company shall promptly reimburse and
indemnify the Representative for all of its actual out-of-pocket expenses,
including the fees and disbursements of counsel for the Underwriters (less
amounts previously paid pursuant to Section 5(c) above). Notwithstanding any
contrary provision contained in this Agreement, if this Agreement shall not be
carried out within the time specified herein, or any extension thereof granted
to the Representative, by reason of any failure on the part of the Company to
perform any undertaking or satisfy any condition of this Agreement by it to be
performed or satisfied (including, without limitation, pursuant to Section 6 or
Section 12) then, the Company shall promptly reimburse and indemnify the
Representative for all of its actual out-of-pocket expenses, including the fees
and disbursements of counsel for the Underwriters (less amounts previously paid
pursuant to Section 5(c) above). In addition, the Company shall remain liable
for all Blue Sky counsel fees and disbursements, expenses and filing fees.
Notwithstanding any contrary provision contained in this Agreement, any election
hereunder or any termination of this Agreement (including, without limitation,
pursuant to Sections 6, 10, 11 and 12 hereof), and whether or not this Agreement
is otherwise carried out, the provisions of Section 5 and Section 7 shall not be
in any way affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
32
<PAGE>
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities"), the
Representative shall have the right, within 24 hours thereafter, to make
arrangement for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Representative shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the total number of Firm Securities to be purchased on such date,
the non-defaulting Underwriters shall be obligated to purchase the full
amount thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
total number of Firm Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriters (or, if such
default shall occur with respect to any Option Securities to be
purchased on an Option Closing Date, the Underwriters may at the
Representative's option, by notice from the Representative to the
Company, terminate the Underwriters' obligation to purchase Option
Securities from the Company on such date).
No action taken pursuant to this Section 11 shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a termination
of this Agreement, the Representative shall have the right to postpone the
Closing Date for a period not exceeding seven (7) days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements.
12. Default by the Company. If the Company shall fail at the Closing
Date or at any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Securities to be purchased on an Option Closing Date, the
Underwriters may at the Representative's option, by notice from the
Representative to the Company, terminate the Underwriters' obligation to
purchase Option Securities from the Company on such date) without any liability
on the part of any non-defaulting party other than pursuant to Section 5,
Section 7 and Section 10 hereof. No action taken pursuant to this Section 12
shall relieve the Company from liability, if any, in respect of such default.
33
<PAGE>
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at Security Capital Trading, Inc., 520 Madison Avenue, 10th
Floor, New York, New York 10022, Attention: Ronald Heineman, with a copy to
Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103,
Attention: Lawrence B. Fisher, Esq. Notices to the Company shall be directed to
the Company at Netjewels.com, Inc., 1001 Petrolia Road, North York, Ontario,
Canada M3J 2X7, Attention: Jack Berkovits, with a copy to Gersten, Savage, &
Kaplowitz LLP, 101 East 52nd Street, New York, New York, 10022, Attention:
Arthur Marcus, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Securities from any Underwriter shall be deemed to be
a successor by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement and the
Representative's Warrant Agreement constitute the entire agreement of the
parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof. This
Agreement may not be amended except in a writing, signed by the Representative
and the Company.
34
<PAGE>
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
NETJEWELS.COM, INC.
By:_______________________
Name:
Title:
Confirmed and accepted as of
the date first above written.
SECURITY CAPITAL TRADING, INC.
For itself and as Representative of the
several Underwriters named in
Schedule A hereto.
By:________________________________
Name:
Title:
35
<PAGE>
SCHEDULE A
Number of Shares
Name of Underwriters to be Purchased
- -------------------- ---------------
Security Capital Trading, Inc....................
Total............................................
-----------------
2,200,000
=================
<PAGE>
________________________________________________________________________________
NETJEWELS.COM, INC.
AND
SECURITY CAPITAL TRADING, INC.
REPRESENTATIVE'S
WARRANT AGREEMENT
Dated as of ___________, 1999
________________________________________________________________________________
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of _________, 2000
between NETJEWELS.COM, INC., a Delaware corporation (the "Company"), and
SECURITY CAPITAL TRADING, INC. ("Security Capital") (Security Capital is
hereinafter referred to variously as the "Holder" or "Holders" or the
"Representative").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company proposes to issue to the Representative
or its designee(s) warrants ("Warrants") to purchase up to an aggregate 220,000
shares (the "Shares) of common stock, $.01 par value per Share ("Common Stock"),
of the Company; and
WHEREAS, the Representative has agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof between the Company and the several Underwriters listed therein to act as
the Representative in connection with the Company's proposed public offering of
2,200,000 shares of Common Stock at a public offering price of $______ per Share
(the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representative in consideration for, and as
part of the Representative's compensation in connection with, the Representative
acting as the Representative pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment
by the Representative to the Company of an aggregate twenty dollars ($22.00),
the agreements herein set forth and other good and valuable consideration,
hereby acknowledged, the parties hereto agree as follows:
1. Grant. The Representative (or its designees) is hereby
granted the right to purchase, at any time from _____________, 2001 [twelve
months after date of this Agreement], until 5:30 P.M., New York time, on
2
<PAGE>
___________, 2005 [five years after date of this Agreement], up to an aggregate
of 220,000 Shares of Common Stock, at an initial exercise price (subject to
adjustment as provided in Section 8 hereof) of $_____ per Share [120% of initial
public offering price per share of Common Stock], subject to the terms and
conditions of this Agreement.
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A, attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
3. Exercise of Warrant.
3.1 Method of Exercise. The Warrants initially are exercisable
at an aggregate initial exercise price (subject to adjustment as provided in
Section 8 hereof) per Share set forth in Section 6 hereof payable by certified
or official bank check in New York Clearing House funds, subject to adjustment
as provided in Section 8 hereof. Upon surrender of a Warrant Certificate with
the annexed Form of Election to Purchase duly executed, together with payment of
the Exercise Price (as hereinafter defined) for the Shares purchased at the
Company's principal executive offices (presently located at 1001 Petrolia Road,
North York, Ontario, Canada M3J 2X7) the registered holder of a Warrant
Certificate ("Holder" or "Holders") shall be entitled to receive a certificate
or certificates for the shares of Common Stock so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holder thereof, in whole or in part (but not as to fractional shares of the
Common Stock). Warrants may be exercised to purchase all or part of the Shares
represented thereby. In the case of the purchase of less than all the Shares
purchasable under any Warrant Certificate, the Company shall cancel said Warrant
Certificate upon the surrender thereof and shall execute and deliver a new
Warrant Certificate of like tenor for the balance of the Shares purchasable
thereunder.
3
<PAGE>
3.2 Exercise by Surrender of Warrant. In addition to the
method of payment set forth in Section 3.1 and in lieu of any cash payment
required thereunder, the Holder(s) of the Warrants shall have the right at any
time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1 in
exchange for the number of Shares equal to the product of (x) the number of
Shares as to which the Warrants are being exercised, multiplied by (y) a
fraction, the numerator of which is the Market Price (as defined in Section 3.3
hereof) of the Shares minus the Exercise Price of the Shares and the denominator
of which is the Market Price per Share. Solely for the purposes of this Section
3.2, Market Price shall be calculated either (i) on the date on which the form
of election attached hereto is deemed to have been sent to the Company pursuant
to Section 14 hereof ("Notice Date") or (ii) as the average of the Market Price
for each of the five trading days immediately preceding the Notice Date,
whichever of (i) or (ii) results in a greater Market Price.
3.3 Definition of Market Price.
(a) As used herein, the phrase "Market Price of the Shares" at
any date shall be deemed to be the last reported sale price, or, in case no such
reported sale takes place on such day, the average of the last reported sale
prices for the last three (3) trading days, in either case as officially
reported by the principal securities exchange on which the Common Stock is
listed or admitted to trading or by the Nasdaq National Market ("Nasdaq/NM") or
the Nasdaq Small Cap Market ("Nasdaq Small Cap"), or, if the Common Stock is not
listed or admitted to trading on any national securities exchange or quoted by
the National Association of Securities Dealers Automated Quotation System
("Nasdaq"), the average closing bid price as furnished by the National
Association of Securities Dealers, Inc. ("NASD") through Nasdaq or similar
organization if Nasdaq is no longer reporting such information.
4
<PAGE>
(b) If the Market Price of the Common Stock cannot be
determined pursuant to Section 3.3(a) above, the Market Price of the Common
Stock shall be determined in good faith (using customary valuation methods) by
resolution of the members of the Board of Directors of the Company, based on the
best information available to it.
4. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates for shares of Common Stock shall be made
forthwith (and in any event such issuance shall be made within five (5) business
days thereafter) without charge to the Holder thereof including, without
limitation, any tax which may be payable in respect of the issuance thereof, and
such certificates shall (subject to the provisions of Sections 5 and 7 hereof)
be issued in the name of, or in such names as may be directed by, the Holder
thereof.
The Warrant Certificates and the certificates representing the
shares of Common Stock shall be executed on behalf of the Company by the manual
or facsimile signature of the then present Chairman or Vice Chairman of the
Board of Directors or President or Vice President of the Company under its
corporate seal reproduced thereon, attested to by the manual or facsimile
signature of the then present Secretary or Assistant Secretary or Treasurer or
Assistant Treasurer of the Company. Warrant Certificates shall be dated the date
of execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
5. Restriction On Transfer of Warrants. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof; that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the date hereof, except to officers or partners of the
Representative.
5
<PAGE>
6. Exercise Price.
6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each Warrant shall
be 120% of the initial public offering price of the securities to be offered.
The adjusted exercise price shall be the price which shall result from time to
time from any and all adjustments of the initial exercise price in accordance
with the provisions of Section 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall
mean the initial exercise price or the adjusted exercise price, depending upon
the context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933. The
Warrants and the shares of Common Stock underlying the Warrants and the other
securities issuable upon exercise of the Warrants (collectively, the "Warrant
Securities") have been registered under the Securities Act of 1933, as amended
(the "Act") pursuant to the Company's Registration Statement on Form S-1
(Registration No. 333-_____) (the "Registration Statement"). All the
representations and warranties of the Company and the Subsidiary contained in
the Underwriting Agreement relating to the Registration Statement, the
Preliminary Prospectus and Prospectus (as such terms are defined in the
Underwriting Agreement) and made as of the dates provided therein, are hereby
incorporated by reference. The Company agrees and covenants promptly to file
post effective amendments to such Registration Statement as may be necessary to
maintain the effectiveness of the Registration Statement as long as any Warrants
are outstanding. In the event that, for any reason, whatsoever, the Company
shall fail to maintain the effectiveness of the Registration Statement, upon
exercise, in part or in whole, of the Warrants, certificates representing the
shares of Common Stock underlying the Warrants shall bear the following legend:
6
<PAGE>
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act"), and may not be offered, sold, pledged, hypothecated,
assigned or transferred except pursuant to (i) an effective
registration statement under the Act, (ii) to the extent
applicable, Rule 144 under the Act (or any similar rule under
such Act relating to the disposition of securities), or (iii)
an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from
registration under such Act is available.
7.2 Piggyback Registration. If, at any time commencing after
the Closing Date of the public offering hereof and expiring seven (7) years
thereafter, the Company proposes to register any of its securities under the Act
(other than pursuant to Form S-8, S-4 or a comparable registration statement)
the Company will give written notice by registered mail, at least thirty (30)
days prior to the filing of each such registration statement, to the
Representative and to all other Holders of the Warrants and/or the Warrant
Securities of its intention to do so. If the Representative or other Holders of
the Warrants and/or Warrant Securities notifies the Company within twenty (20)
days after receipt of any such notice of its or their desire to include any such
securities in such proposed registration statement, the Company shall afford the
Representative and such Holders of the Warrants and/or Warrant Securities the
opportunity to have any such Warrant Securities registered under such
registration statement.
Notwithstanding the provisions of this Section 7.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
7.3 Demand Registration.
(a) At any time commencing after the Closing Date of the
public offering hereof and expiring five (5) years thereafter, the Holders of
the Warrants and/or Warrant Securities representing a "Majority" (as hereinafter
defined) of such securities (assuming the exercise of all of the Warrants) shall
7
<PAGE>
have the right (which right is in addition to the registration rights under
Section 7.2 hereof), exercisable by written notice to the Company, to have the
Company prepare and file with the Securities and Exchange Commission (the
"Commission"), on one occasion, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for the Representative and Holders, in order
to comply with the provisions of the Act, so as to permit a public offering and
sale of their respective Warrant Securities for nine (9) consecutive months by
such Holders and any other Holders of the Warrants and/or Warrant Securities who
notify the Company within ten (10) days after receiving notice from the Company
of such request.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) Notwithstanding anything to the contrary contained herein,
if the Company shall not have filed a registration statement for the Warrant
Securities within the time period specified in Section 7.4(a) hereof pursuant to
the written notice specified in Section 7.3(a) of a Majority of the Holders of
the Warrants and/or Warrant Securities, the Company shall have the option, upon
the written notice of election of a Majority of the Holders of the Warrants
and/or Warrant Securities to repurchase (i) any and all Warrant Securities at
the higher of the Market Price per share of Common Stock on (x) the date of the
notice sent pursuant to Section 7.3(a) or (y) the expiration of the period
specified in Section 7.4(a) and (ii) any and all Warrants at such Market Price
less the Exercise Price of such Warrant. Such repurchase shall be in immediately
available funds and shall close within two (2) days after the later of (i) the
expiration of the period specified in Section 7.4(a) or (ii) the delivery of the
written notice of election specified in this Section 7.3(c).
8
<PAGE>
(d) In addition to the registration rights under Section 7.2
and subsection (a) of this Section 7.3, at any time commencing after the date
hereof and expiring five (5) years thereafter, any Holder of Warrants and/or
Warrant Securities shall have the right, exercisable by written request to the
Company, to have the Company prepare and file, on one occasion, with the
Commission a registration statement so as to permit a public offering and sale
for nine (9) consecutive months by any such Holder of its Warrant Securities
provided, however, that the provisions of Section 7.4(b) hereof shall not apply
to any such registration request and registration and all costs incident thereto
shall be at the expense of the Holder or Holders making such request.
7.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within thirty (30) days of receipt of any
demand therefor, shall use its best efforts to have any registration
statement declared effective at the earliest possible time, and shall
furnish each Holder desiring to sell Warrant Securities such number of
prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling
commissions), fees and expenses in connection with all registration
statements filed pursuant to Sections 7.2 and 7.3(a) hereof including,
without limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses. The Holder(s) will pay all
costs, fees and expenses in connection with any registration statement
filed pursuant to Section 7.3(d). If the Company shall fail to comply
with the provisions of Section 7.4(a), the Company shall, in addition
to any other equitable or other relief available to the Holder(s), be
liable for any or all incidental or special damages sustained by the
Holder(s) requesting registration of their Warrant Securities,
excluding consequential damages.
9
<PAGE>
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included
in a registration statement for offering and sale under the securities
or blue sky laws of such states as reasonably are requested by the
Holder(s), provided that the Company shall not be obligated to execute
or file any general consent to service of process or to qualify as a
foreign corporation to do business under the laws of any such
jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of
Section 15 of the Act or Section 20(a) of the Securities Exchange Act
of 1934, as amended ("Exchange Act"), against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to
which any of them may become subject under the Act, the Exchange Act
or otherwise, arising from such registration statement but only to the
same extent and with the same effect as the provisions pursuant to
which the Company has agreed to indemnify the Underwriters contained
in Section 7 of the Underwriting Agreement. The Company further
agree(s) that upon demand by an indemnified person, at any time or
from time to time, it will promptly reimburse such indemnified person
for any loss, claim, damage, liability, cost or expense actually and
reasonably paid by the indemnified person as to which the Company has
indemnified such person pursuant hereto. Notwithstanding the foregoing
provisions of this Section 7.4(d) any such payment or reimbursement by
the Company of fees, expenses or disbursements incurred by an
indemnified person in any proceeding in which a final judgment by a
court of competent jurisdiction (after all appeals or the expiration
of time to appeal) is entered against the Company or such indemnified
person as a direct result of the Holder(s) or such person's gross
negligence or willful misfeasance will be promptly repaid to the
Company.
10
<PAGE>
(e) The Holder(s) of the Warrant Securities to be sold
pursuant to a registration statement, and their successors and
assigns, shall severally, and not jointly, indemnify the Company, its
officers and directors and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to
which they may become subject under the Act, the Exchange Act or
otherwise, arising from information furnished by or on behalf of such
Holders, or their successors or assigns, for specific inclusion in
such registration statement to the same extent and with the same
effect as the provisions contained in Section 7 of the Underwriting
Agreement pursuant to which the Underwriters have agreed to indemnify
the Company. The Holder(s) further agree(s) that upon demand by an
indemnified person, at any time or from time to time, they will
promptly reimburse such indemnified person for any loss, claim,
damage, liability, cost or expense actually and reasonably paid by the
indemnified person as to which the Holder(s) have indemnified such
person pursuant hereto. Notwithstanding the foregoing provisions of
this Section 7.4(e) any such payment or reimbursement by the Holder(s)
of fees, expenses or disbursements incurred by an indemnified person
in any proceeding in which a final judgment by a court of competent
jurisdiction (after all appeals or the expiration of time to appeal)
is entered against the Company or such indemnified person as a direct
result of the Company or such person's gross negligence or willful
misfeasance will be promptly repaid to the Holder(s).
11
<PAGE>
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the
initial filing of any registration statement or the effectiveness
thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any
registration statement filed pursuant to Section 7.3 hereof, or permit
any other registration statement to be or remain effective during the
effectiveness of a registration statement filed pursuant to Section
7.3 hereof, without the prior written consent of the Holders of the
Warrants and Warrant Securities representing a Majority of such
securities (assuming the exercise of all of the Warrants).
(h) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart,
addressed to such Holder or underwriter, of (i) an opinion of counsel
to the Company, dated the effective date of such registration
statement (and, if such registration includes an underwritten public
offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated
the date of the closing under the underwriting agreement) signed by
the independent public accountants who have issued a report on the
Company's financial statements included in such registration
statement, in each case covering substantially the same matters with
respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public
offerings of securities.
12
<PAGE>
(i) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within
15 months thereafter, make "generally available to its security
holders" (within the meaning of Rule 158 under the Act) an earnings
statement (which need not be audited) complying with Section 11(a) of
the Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(j) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and
memoranda described below and to the managing underwriter, if any,
copies of all correspondence between the Commission and the Company,
its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the registration statement
and permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or
omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the
NASD. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such Holder or
underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement
with the managing underwriter selected for such underwriting by
Holders holding a Majority of the Warrant Securities requested to be
included in such underwriting, which may be the Representative. Such
agreement shall be satisfactory in form and substance to the Company,
each Holder and such managing underwriter, and shall contain such
representations, warranties and covenants by the Company and such
other terms as are customarily contained in agreements of that type
used by the managing underwriter. The Holders shall be parties to any
underwriting agreement relating to an underwritten sale of their
Warrant Securities and may, at their option, require that any or all
of the representations, warranties and covenants of the Company to or
for the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make
any representations or warranties to or agreements with the Company or
the underwriters except as they may relate to such Holders and their
intended methods of distribution.
13
<PAGE>
(l) In addition to the Warrant Securities, upon the written
request therefor by any Holder(s), the Company shall include in the
registration statement any other securities of the Company held by
such Holder(s) as of the date of filing of such registration
statement, including without limitation, restricted shares of Common
Stock, options, warrants or any other securities convertible into
shares of Common Stock.
(m) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrants or Warrant Securities shall mean
in excess of fifty percent (50%) of the then outstanding Warrants or
Warrant Securities that (i) are not held by the Company, an affiliate,
officer, creditor, employee or agent thereof or any of their
respective affiliates, members of their family, persons acting as
nominees or in conjunction therewith and (ii) have not been resold to
the public pursuant to a registration statement filed with the
Commission under the Act.
8. Adjustments to Exercise Price and Number of Securities.
8.1 Subdivision and Combination. In case the Company shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
14
<PAGE>
8.2 Stock Dividends and Distributions. In case the Company
shall pay dividend in, or make a distribution of, shares of Common Stock or of
the Company's capital stock convertible into Common Stock, the Exercise Price
shall forthwith be proportionately decreased. An adjustment made pursuant to
this Section 8.2 shall be made as of the record date for the subject stock
dividend or distribution.
8.3 Adjustment in Number of Securities. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Section 8, the number
of Warrant Securities issuable upon the exercise at the adjusted Exercise Price
of each Warrant shall be adjusted to the nearest whole number by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
8.4 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended or restated as of the date hereof, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value.
8.5 Merger or Consolidation or Sale.
(a) In case of any consolidation of the Company with, or
merger of the Company with, or merger of the Company into, another corporation
(other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common Stock), the corporation
formed by such consolidation or merger shall execute and deliver to the Holder a
supplemental warrant agreement providing that the holder of each Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such Warrant, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation, merger, sale or transfer by a holder of the number of shares
of Common Stock of the Company for which such Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in this Section 8. The above provision of
this subsection shall similarly apply to successive consolidations or mergers.
15
<PAGE>
(b) In the event of (i) the sale by the Company of all or
substantially all of its assets, or (ii) the engagement by the Company or any of
its affiliates in a "Rule 13e-3 transaction" as defined in paragraph (a)(3) of
Rule 13e-3 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended, or (iii) a distribution to the Company's stockholders
of any cash, assets, property, rights, evidences of indebtedness, securities or
any other thing of value, or any combination thereof, the Holders of the
unexercised Warrants shall receive notice of such sale, transaction or
distribution twenty (20) days prior to the date of such sale or the record date
for such transaction or distribution, as applicable, and, if they exercise such
Warrants prior to such date, they shall be entitled, in addition to the shares
of Common Stock issuable upon the exercise thereof, to receive such property,
cash, assets, rights, evidence of indebtedness, securities or any other thing of
value, or any combination thereof, on the payment date of such sale, transaction
or distribution.
8.6 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made if the amount of said adjustment
shall be less than ten cents (10(cent)) per Warrant Security, provided, however,
that in such case any adjustment that would otherwise be required then to be
made shall be carried forward and shall be made at the time of and together with
the next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least ten cents (10(cent)) per Warrant Security.
16
<PAGE>
9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company, for a
new Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Shares in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock upon the exercise of the Warrants, it being the intent of the parties that
all fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of shares of Common Stock, or other securities, properties
or rights.
11. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants,
such number of shares of Common Stock or other securities, properties or rights
as shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all shares of Common Stock and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any stockholder. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Warrants to be listed (subject to
official notice of issuance) on all securities exchanges on which the Common
Stock issued to the public in connection herewith may then be listed and/or
quoted on Nasdaq National Market or Nasdaq Small Cap Market.
17
<PAGE>
12. Notices to Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital
stock of the Company, or any option, right or warrant to subscribe
therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least twenty (20) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
18
<PAGE>
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, return
receipt requested:
(d) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(e) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice
to the Holders.
14. Supplements and Amendments. The Company and the
Representative may from time to time supplement or amend this Agreement without
the approval of any Holders of Warrant Certificates (other than the
Representative) in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Representative may deem
necessary or desirable and which the Company and the Representative deem shall
not adversely affect the interests of the Holders of Warrant Certificates.
19
<PAGE>
15. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
16. Termination. This Agreement shall terminate at the close
of business on __________, 2005. Notwithstanding the foregoing, the
indemnification provisions of Section 7 shall survive such termination until the
close of business on _____________, 2010.
17. Governing Law, Submission to Jurisdiction. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State without giving effect to the
rules of said State governing the conflicts of laws.
The Company, the Representative and the Holders hereby agree
that any action, proceeding or claim against it arising out of, or relating in
any way to, this Agreement shall be brought and enforced in the courts of the
State of New York or of the United States of America for the Southern District
of New York, and irrevocably submits to such jurisdiction, which jurisdiction
shall be exclusive. The Company, the Representative and the Holders hereby
irrevocably waive any objection to such exclusive jurisdiction or inconvenient
forum. Any such process or summons to be served upon any of the Company, the
Representative and the Holders (at the option of the party bringing such action,
proceeding or claim) may be served by transmitting a copy thereof, by registered
or certified mail, return receipt requested, postage prepaid, addressed to it at
the address as set forth in Section 14 hereof. Such mailing shall be deemed
personal service and shall be legal and binding upon the party so served in any
action, proceeding or claim. The Company, the Representative and the Holders
agree that the prevailing party(ies) in any such action or proceeding shall be
entitled to recover from the other party(ies) all of its/their reasonable legal
costs and expenses relating to such action or proceeding and/or incurred in
connection with the preparation therefor.
20
<PAGE>
18. Entire Agreement; Modification. This Agreement (including
the Underwriting Agreement to the extent portions thereof are referred to
herein) contains the entire understanding between the parties hereto with
respect to the subject matter hereof and may not be modified or amended except
by a writing duly signed by the party against whom enforcement of the
modification or amendment is sought.
19. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
21. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Representative and any other registered Holder(s) of the Warrant
Certificates or Warrant Securities any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole and exclusive
benefit of the Company and the Representative and any other Holder(s) of the
Warrant Certificates or Warrant Securities.
22. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall to either constitute but one and
the same instrument.
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
NETJEWELS.COM, INC.
By:___________________________________________
Name:
Title:
Attest:
________________________________
Secretary
SECURITY CAPITAL TRADING, INC.
By:___________________________________________
Name:
Title:
22
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
(ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION
OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, ________, 2005
No. W-01 220,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that __________, or
registered assigns, is the registered holder of __________ Warrants to purchase
initially, at any time from ____________, 2001 [one year from the effective date
of the Registration Statement] until 5:00 p.m. New York time on ____________,
2005 [five years from the effective date of the Registration Statement]
("Expiration Date"), up to 220,000 Shares of common stock, $.01 par value
("Common Stock") of NETJEWELS.COM, INC., a Delaware corporation (the "Company"),
at the initial exercise price, subject to adjustment in certain events (the
"Exercise Price"), of $_____________ [120% of the public offering price per
Share] per Share upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, or by surrender of this
Warrant Certificate in lieu of cash payment, but subject to the conditions set
forth herein and in the warrant agreement dated as of _________________, 2000
between the Company and Security Capital Trading, Inc. (the "Warrant
Agreement"). Payment of the Exercise Price shall be made by certified or
official bank check in New York Clearing House funds payable to the order of the
Company or by surrender of this Warrant Certificate.
No Warrant may be exercised after 5:00 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
<PAGE>
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such Warrant.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of ___________, 2000
NETJEWELS.COM, INC.
[SEAL] By:___________________________________________
Name:
Title:
Attest:
_________________________________
Secretary
3
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase _____________ Shares
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of S.M.A. Real Time
Inc. in the amount of $__________, all in accordance with the terms of Section
3.1 of the Representative's Warrant Agreement dated as of ___________, 2000
between Netjewels.com, Inc. and Security Capital Trading, Inc. The undersigned
requests that certificates for such securities be registered in the name of
_______________ whose address is __________________________ and that such
certificates be delivered to ______________________________ whose address is
____________________________.
Dated:
Signature_________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
__________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase ____________ Shares
all in accordance with the terms of Section 3.2 of the Representative's Warrant
Agreement dated as of ______________, 2000 between Netjewels.com, Inc. and
Security Capital Trading, Inc. The undersigned requests that certificates for
such securities be registered in the name of __________________ whose address is
_______________________ and that such certificates be delivered to
_____________________ whose address is ____________________________________.
Dated:
Signature_________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
__________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _____________ hereby sells, assigns and
transfers unto
________________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ________________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated:______________________________ Signature:________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
__________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
6
<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.
1
<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.
2
<PAGE>
(c) Except as otherwise provided by statute, the Certificate
of Incorporation, or 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 date for the
adjourned meeting.
3
<PAGE>
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
4
<PAGE>
his or her ability. The inspectors shall have the duties prescribed by the
General Corporation Law of the State of Delaware. 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.
5
<PAGE>
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.
6
<PAGE>
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.
7
<PAGE>
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.
8
<PAGE>
(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 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 person so removed.
9
<PAGE>
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 assignment separate from the
10
<PAGE>
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 acquire under any statute, provision of the
Certificate of Incorporation, these Bylaws, agreement, vote of stockholders or
Directors or otherwise.
11
<PAGE>
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
determined by resolution of the Board of Directors.
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
12
<PAGE>
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved 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.
13
<PAGE>
Exhibit 5.1
January __, 2000
NetJewels.com, Inc.
1001 Petrolia Road
North York, Ontario M3J 2X7
Gentlemen:
We have acted as counsel to NetJewels.com, Inc. (the "Company") in
connection with its filing of a registration statement on Form S-1 (Registration
No. 333-90201, the "Registration Statement") covering 2,750,000 shares of common
stock $.001 par value (the "Common Stock") to be sold by the Company.
In our capacity as counsel to the Company, we have examined the
Company's Certificate of Incorporation and By-laws, as amended to date, and the
minutes and other corporate proceedings of the Company.
With respect to factual matters, we have relied upon statements and
certificates of officers of the Company. We have also reviewed such other
matters of law and examined and relied upon such other documents, records and
certificates as we have deemed relevant hereto. In all such examinations we have
assumed conformity with the original documents of all documents submitted to us
as conformed or photostatic copies, the authenticity of all documents submitted
to us as originals and the genuineness of all signatures on all documents
submitted to us.
On the basis of the foregoing, we are of the opinion that:
The shares of Common Stock covered by this Registration
Statement have been validly authorized and will when sold as contemplated by the
Registration Statement, be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference made to us under the caption "Legal
Matters" in the prospectus constituting the Registration Statement.
Very truly yours,
/s/ GSK
Gersten, Savage & Kaplowitz, LLP
<PAGE>
CONFIDENTIAL
SHOPPING CHANNEL PROMOTIONAL AGREEMENT
This Agreement, dated as of March 10, 1999 (the "Effective Date"), is
made and entered into by and between America Online, Inc. ("AOL"), a Delaware
corporation, with its principal offices at 22000 AOL Way, Dulles, Virginia 20166
and DG Jewellery -XiteJewelry.com ("MERCHANT") an Ontariocorporation, with its
principal offices at 1001 Petrolia Rd. Toronto, Ontario M3J2x7(each a "Party"
and collectively the "Parties").
INTRODUCTION
AOL owns, operates and distributes the AOL Canada(R) brand commercial
online service (the "AOL Service"), the Canadian version of its primary website
marketed under the AOL.CA(R) brand ("AOL.CA") and CompuServe for Canadians(R).
MERCHANT wishes to secure a promotional placement (the "Promotion") within the
shopping channel of the AOL Service, AOL.CA and CompuServe for Canadians (as
specified in Exhibit A) (each channel, a "Shopping Channel") which, when
activated, will provide access to MERCHANT's site on the World Wide Web or its
area on the AOL (as the case may be) (the "Merchant Site") where MERCHANT offers
content, products and/or services for sale.
TERMS
1. MERCHANT PROGRAMMING. MERCHANT will make available through the Merchant
Site the certain products, content and/or services specified in Exhibit A
(the "Products") in accordance with the Standard Shopping Channel Terms and
Conditions set forth on Exhibit B.
2. PROMOTIONAL OBLIGATIONS.
2.1 AOL Promotion of MERCHANT. Commencing on a date to be mutually
agreed promptly following execution hereof, AOL will provide
the Promotion(s) set forth in Exhibit A. Except to the extent
expressly described in Exhibit A, the specific form,
placement, positioning, duration and nature of the
Promotion(s) will be as determined by AOL in its reasonable
discretion (consistent with the editorial composition of the
applicable screens) and the nature of the Promotion being
purchased by MERCHANT, as reflected in Exhibit A and in any
placement fee specified in Section 3 below). The specific
content to be contained within the Promotions (including,
without limitation, within any advertising banners or
contextual promotions) will be determined by MERCHANT, subject
to AOL's technical limitations, the terms of this Agreement
and AOL's then-applicable policies relating to advertising and
promotions. Each Promotion will link only to the Merchant Site
and will promote only Products in the category directly
relating to the Shopping Channel department for which the
Promotion is being purchased by MERCHANT. MERCHANT
acknowledges that the sole obligation of AOL is to display the
Promotion(s) in the Shopping Channel(s) in accordance with the
terms and conditions hereto.
1
<PAGE>
2.2 MERCHANT Cross-Promotion. Within each Merchant Site, MERCHANT
shall include a prominent promotional banner ("AOL Promo")
appearing "above the fold" on the first screen of the Merchant
Site, to promote such AOL products or services as AOL may
reasonably designate (for example, the AOL Canada(R) brand
service, the AOL.CA(R) site and the CompuServe for Canadians
brand service); AOL will provide the creative content to be
used in the AOL Promo (including designation of links from
such content to other content pages). MERCHANT shall post (or
update, as the case may be) the creative content supplied by
AOL (within the spaces for the AOL Promo) within a
commercially reasonable period of time from its receipt of
such content from AOL. Without limiting any other reporting
obligations of the Parties contained herein, MERCHANT shall
provide AOL with monthly written reports specifying the number
of Impressions to the pages containing the AOL Promo during
the prior month. In MERCHANT's television, radio, print and
"out of home" (e.g., buses and billboards) advertisements and
in any publications, programs, features or other forms of
media over which MERCHANT exercises at least partial editorial
control, MERCHANT will include specific references or mentions
(verbally where possible) of the availability of the
Merchant's Site through the America Online(R) brand service,
which are at least as prominent as any references that
MERCHANT makes to any other MERCHANT online or Internet site
(by way of site name, related company name, URL or otherwise).
Without limiting the generality of the foregoing, MERCHANT's
listing of the "URL" for any Merchant online site will be
accompanied by an equally prominent listing of the "keyword"
term on AOL for Merchant's Site.
3. PAYMENTS; REPORTS.
3.1 Placement Fees. MERCHANT will pay AOL $25,000.00 net cdn for
displaying the Promotion on the AOL Service, AOL.CA and
CompuServe for Canadians. The total amount of $25,000.00 will
be payable in, with the first such payment to be made upon the
Effective Date and subsequent quarterly payments to be made on
the first day of each subsequent quarter. MERCHANT agrees
that, except as specified herein, once the Promotion is
installed, there will be no refunds or proration of rates if
MERCHANT elects to discontinue display of the Promotion prior
to expiration of the Term. Should AOL fail to display the
Promotion in accordance with the terms of this Agreement due
to MERCHANT's failure to comply with any requirement of this
Agreement, MERCHANT will remain liable for the full amount
indicated above.
3.2 Reports. AOL will provide MERCHANT with monthly usage
information related to the Promotion in substance and form
determined by AOL. MERCHANT may not distribute or disclose
usage information to any third party without AOL's prior
written consent. AOL makes no guarantees regarding the
accuracy, reliability or completeness of any usage information
provided to MERCHANT. MERCHANT will provide AOL with monthly
reports, in a form reasonably satisfactory to AOL, which
detail the number of daily items, orders and gross sales
through the Merchant Site on the AOL Service, AOL. (as
applicable).
2
<PAGE>
4. TERM. Unless otherwise rightfully terminated pursuant to the terms
hereto, the term of this Agreement will be for a period of twelve (12)
months commencing on the Effective Date (the "Term").
5. GENERAL TERMS. The general legal terms and conditions set forth on
Exhibit C attached hereto are hereby made a part of this Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the Effective Date.
<TABLE>
<CAPTION>
AMERICA ONLINE, INC. DG JEWELLERY - XiteJewelry.com
<S> <C>
By: __/S/ Bruno Lepps By: _____/S/ Jack Berkovits_____
Print Name: ___Bruno Lepps___________ Print Name: ___Jack Berkovits___
Title: __Director Business Development_____ Title: __President______
Date: _____March 17, 1999___________ Date: _____March 17, 1999_
Tax ID/EIN#: _______________________
</TABLE>
3
<PAGE>
EXHIBIT A
Description of Products:
The only categories of Products to be sold through the Merchant Site are as
listed below.
Product List: [MERCHANT to provide detailed, specific list; AOL sales person to
submit list for review by AOL Business Affairs]
Products. MERCHANT will make available through the Merchant Site the
comprehensive offering of Products and other related Content specifically
described above.
Impressions:
The screens on which the promotions appear on each of the AOL Service, AOL.CA
and CompuServe for Canadians will receive a minimum of 250,000 Impressions in
the aggregate, subject to the remainder of this paragraph. In the event there is
(or will be in AOL's reasonable judgment) a shortfall in Impressions as of the
end of the Initial Term (a " Shortfall"), AOL will provide MERCHANT, as its sole
remedy, with advertising placements through reasonably comparable advertising on
AOL properties (determined by AOL) which has a total value, based on AOL's
then-current advertising rate card, equal to the value of the Shortfall
(determined by multiplying the percentage of Impressions that were not delivered
by the total, guaranteed payment provided for in Section 3 of the Agreement).
For purposes of this Agreement, "Impression" shall mean user exposure to the
department level screen containing the applicable promotion or advertisement, as
such exposure may be reasonably determined and measure by AOL in accordance with
its standard methodologies and protocols. Notwithstanding the foregoing, no
representation is made with respect to impressions in conjunction with the More
Stores Plus Package described below.
Description of Specific Promotion(s):
Please check the box next to the Promotion(s) that MERCHANT is purchasing.
4
<PAGE>
X ANCHOR PROMOTION
MERCHANT will become an "Anchor" in the Beauty & Accessories department(s) of
the Shopping Channel on the AOL Service, AOL.CA and CompuServe for Canadians. As
an Anchor in a department, MERCHANT will be entitled to the following:
Principal Exposure on the AOL Service, AOL.CA and CompuServe for Canadians:
o One continuous (24/7) 130 x 90 button with corporate brand or logo on the
department front screen of the AOL Service.
o One continuous (24/7) 120 x 70 button with corporate brand or logo on the
department front screen of AOL.CA.
o One continuous (24/7) 120 x 60 button with corporate brand or logo on the
department front screen of the CompuServe Service.
Additional Promotion on the AOL Service and CompuServe for Canadians Shopping
Channel:
o One continuous (24/7) two-line text field with featured product to promote
store product offerings on the corresponding department screen.
o Product listing availability through the AOL Service Shopping channel
search screen. Web MERCHANT search links to storefront.
o Up to three (3) AOL Keywords(TM)for use from the AOL Service, for
registered MERCHANT trade name or trademark (subject to the other
provisions contained herein).
o Twenty percent (20%) discount from the then-current rate card on purchases
of additional advertising banners or buttons on the AOL Service, AOL.CA
and CompuServe for Canadians, subject to availability for the period
requested (with such purchases to be made in accordance with the
then-applicable Standard Advertising Insertion Order for the property in
question).
o Eligibility to participate in the following AOL Shopping promotional
programs (the "Program Areas"):
o Seasonal Catalogs or Special Events areas (e.g., Christmas Shop)
o Order from Print Catalogs
o Gift Reminder
o Newsletters
o AOL's Checkout
All additional Promotions on AOL.CA not specified herein will be determined at
AOL's reasonable and sole discretion; provided that the additional, standard
Promotions to be provided to the MERCHANT within the Shopping areas on AOL.CA
will be comparable in nature to the additional, standard Promotions provided to
other similarly situated MERCHANTs in the same category (i.e. Anchor, Tenant or
More Stores).
5
<PAGE>
EXHIBIT B
Standard Shopping Channel Terms & Conditions
1. Merchant Site. MERCHANT will work diligently to develop and implement the
Merchant Site, consisting of the specific Product(s) set forth in Exhibit A to
the Shopping Channel Promotional Agreement which has been executed by AOL and
MERCHANT (the "Promotional Agreement," and, collectively with these Standard
Shopping Channel Terms and Conditions, the "Agreement") and any additional
Products agreed upon in writing by the Parties subsequent to the Effective Date.
Except as mutually agreed upon in writing by the Parties, the Merchant Site will
contain only categories of Products, Services and Content that are directly
related to the MERCHANT Products listed in Exhibit A. All sales of Products
through the Merchant Site will be conducted through a direct sales format,
absent the mutual consent of the Parties. MERCHANT will ensure that the Merchant
Site does not in any respect promote, advertise, market or distribute the
products, services or content of any other Interactive Service.
2. Management of Merchant Site. MERCHANT will manage, review, delete, edit,
create, update and otherwise manage all Products available on or through the
Merchant Site, in a timely and professional manner and in accordance with the
terms of this Agreement and AOL's applicable Terms of Service and Privacy Policy
(as set forth on the AOL Service). To the extent that Merchant Site makes online
payment options available, MERCHANT will ensure that AOL Checkout (as defined in
Section 3 of Exhibit B) is of equal placement and promotion prominence to other
available payment options. MERCHANT will ensure that the Merchant Site is
current, accurate and well-organized at all times. MERCHANT warrants that the
Merchant Site and any material contained therein: (i) will conform to AOL's
applicable Terms of Service and Privacy Policy; (ii) will not infringe on or
violate any copyright, trademark, U.S. or Canadian patent or any other third
party right, including without limitation, any music performance or other
music-related rights; and (iii) will not contain any Product which violates any
applicable law or regulation, including those relating to contests, sweepstakes
or similar promotions. AOL will have no obligations with respect to the Products
available on or through the Merchant Site, including, but not limited to, any
duty to review or monitor any such Products; provided, however, that AOL
reserves the right to review and approve any additional Products and any
third-party content, products or services that MERCHANT makes or desires to make
available through the Merchant Site. Upon AOL's request, MERCHANT agrees to
include within the Merchant Site a product disclaimer (the specific form and
substance to be mutually agreed upon by the Parties) indicating that
transactions are solely between MERCHANT and the AOL Users who purchase products
from MERCHANT. MERCHANT will ensure that neither MERCHANT nor any content,
product or service contained within the Merchant Site, linked to the Promotion
or otherwise relating the Agreement shall (i) disparage AOL; (ii) promote a
competitor of AOL; or (iii) state or imply that AOL endorses MERCHANT's
Products.
6
<PAGE>
3. Optimization of Merchant Site. MERCHANT will take all reasonable steps
necessary to conform its promotion and sale of Products through the Merchant
Site to the then-existing commerce technologies made available to MERCHANT by
AOL, including without limitation AOL's "checkout" tool which allows AOL Users
to enter payment and shipping information which is then passed from AOL's
centralized server unit to MERCHANT for order fulfillment ("AOL Checkout").
MERCHANT agrees to fully integrate the AOL Checkout technology and functionality
within Merchant Site, and make AOL Checkout available to AOL Users, no later
than March 31, 1999. For AOL Checkout transactions, MERCHANT agrees to pass all
information necessary to fulfill the transaction, including but not limited to;
product, price, any applicable taxes, shipping fees, shipping address, and any
other transactional information as determined by AOL at its' sole and reasonable
discretion. Collection, storage and disclosure of information which MERCHANT
provides to AOL, will be subject to AOL's privacy policy and all confidentiality
requirements hereunder. AOL reserves the right to review and test the Merchant
Site from time to time to determine whether the site is compatible with AOL's
then-available client and host software and their corresponding networks. AOL
will be entitled to require reasonable changes to the content, features and/or
functionality within any screen or form created using (a) AOL's proprietary form
technology (a "Rainman Area") or (b) HTML-based World Wide Web forms (or any
other forms created using a technology other than AOL's proprietary form
technology) ("Web Forms") to the extent such Rainman Area or Web Forms will, in
AOL's good faith judgment, adversely affect operations of the AOL Service,
AOL.CA and CompuServe for Canadians. MERCHANT agrees to optimize operations of
the Merchant Site consistent with Exhibit D attached hereto.
4. Removal of Content. AOL will have the right to remove, or direct MERCHANT to
remove, any Content in the Merchant Site (including, without limitation, any
features, functionality or technology) which, as reasonably determined by AOL
(i) violates AOL's then-standard Terms of Service or Privacy Policy (as set
forth on the AOL Service), any other standard, written AOL policy or the terms
of this Agreement, (ii) is inconsistent in any manner with the terms of the
Agreement or with the Product description set forth in Exhibit A or (iii) is
otherwise in conflict with AOL's programming objectives or its existing
contractual commitments to third parties. In addition, in the event that AOL
reasonably believes that software, technology or other technical components of
the Merchant Site will materially affect AOL operations, MERCHANT will work in
good faith with AOL to limit access to such components from the AOL Service,
AOL.CA and CompuServe for Canadians. MERCHANT will take all commercially
reasonable steps using MERCHANT's then-available technology to block access by
AOL Users to Content which AOL desires to remove or have removed pursuant to any
of the foregoing. In the event that MERCHANT cannot, through such efforts, block
access to the Content in question, then MERCHANT will provide AOL prompt written
notice of such fact no later than five (5) days after AOL notifies MERCHANT of
AOL's objection to such Content. AOL may then, at its option, either (i)
restrict access by AOL Users to the Content in question using technology
available to AOL or (ii) terminate all links, promotions and advertisements for
the Merchant Site until such time as the Content in question is no longer
displayed. MERCHANT will cooperate with AOL's reasonable requests to the extent
AOL elects to implement any of the foregoing access restrictions.
7
<PAGE>
5. Promotional Placement. MERCHANT acknowledges that the sole obligation of AOL
is to display the Promotion in the Shopping Channel in accordance with the terms
and conditions of the Agreement. The specific positioning of the Promotion on
any screen in the Shopping Channel shall be as determined by AOL, consistent
with the editorial composition of such screen and the nature of the Promotion
being purchased by MERCHANT. AOL reserves the right to reject, cancel or remove
at any time the Promotion for any reason with fifteen (15) days prior notice to
MERCHANT, and AOL will refund to MERCHANT a pro-rata portion of the fee
allocable to the display of the Promotion based on the number of days that the
Promotion was displayed. AOL will not be liable in any way for any rejection,
cancellation or removal of the Promotion. AOL reserves the right to redesign or
modify the organization, navigation, structure, "look and feel" and other
elements of the AOL Service, AOL.CA and CompuServe for Canadians at its sole
discretion at any time without prior notice. In the event such modifications
materially affect the placement of the Promotion, AOL will notify MERCHANT and
will work with MERCHANT to display the Promotion in a comparable location and
manner. If AOL and MERCHANT cannot reach agreement on a substitute placement,
MERCHANT will have the right to cancel the Promotion, upon sixty (60) days
advance written notice to AOL. In such case, MERCHANT will only be responsible
for the pro-rata portion of payments attributable to the period from the
Effective Date through the end of the sixty (60) day notice period. MERCHANT may
not resell, trade, exchange, barter or broker to any third party any promotional
or advertising space which is the subject of this Agreement. MERCHANT will not
be entitled to any refund or proration for delays caused by MERCHANT's failure
to deliver to AOL any materials relating to the Promotion.
6. Product Offering. MERCHANT will ensure that the Merchant Site generally
includes all of the Products and other Content (including, without limitation,
any features, offers, contests, functionality or technology) that are then made
available by or on behalf of MERCHANT through any Additional MERCHANT site.
7. Pricing and Terms. MERCHANT will ensure that: (i) the prices for Products in
the MERCHANT Site generally do not exceed the prices for the Products offered by
or on behalf of MERCHANT through any Additional MERCHANT Channel; and (ii) the
terms and conditions related to Products in the MERCHANT Site are generally no
less favorable in any respect to the terms and conditions for the Products
offered by or on behalf of MERCHANT through any Additional MERCHANT Channel. For
purpose of this Agreement, MERCHANT Channel means any other distribution channel
(e.g., an Interactive Service other than AOL) through which MERCHANT makes
available an offering comparable in nature to the MERCHANT Site.
8. Special Offers. MERCHANT will promote a reasonable number of special offers
through the Merchant Site (e.g., offers enabling AOL Users to purchase specified
Product(s) at a substantial discount from prices offered by MERCHANT through
other sales channels, free gifts to AOL Users upon the purchase of Product(s),
the availability of Product(s) prior to their availability through other sales
channels, and AOL-branded reward or frequent purchaser points to AOL Users for
the purchase of Product(s)) (the "Special Offers"). MERCHANT will provide AOL
with reasonable prior notice of Special Offers so that AOL can market the
availability of such Special Offers in the manner AOL deems appropriate in its
editorial discretion.
8
<PAGE>
9. Customer Service. It is the sole responsibility of MERCHANT to provide
customer service to persons or entities purchasing Products through the AOL
Service, AOL.CA and CompuServe for Canadians ("Customers"). MERCHANT will bear
full responsibility for all customer service, including without limitation,
order processing, billing, fulfillment, shipment, collection and other customer
service associated with any Products offered, sold or licensed through each
Merchant Site, and AOL will have no obligations whatsoever with respect thereto.
MERCHANT will receive all emails from Customers via a computer available to
MERCHANT's customer service staff and generally respond to such emails within
one business day of receipt. MERCHANT will receive all orders electronically and
generally process all orders within one business day of receipt, provided
Products ordered are not advance order items. MERCHANT will ensure that all
orders of Products are received, processed, fulfilled and delivered on a timely
and professional basis. MERCHANT will offer AOL Users who purchase Products
through such the Merchant Site a money-back satisfaction guarantee. MERCHANT
will bear all responsibility for compliance with federal, state and local laws
in the event that Products are out of stock or are no longer available at the
time an order is received. MERCHANT will also comply with the requirements of
any federal, state or local consumer protection or disclosure law. Payment for
Products will be collected by MERCHANT directly from customers. MERCHANT's order
fulfillment operation will be subject to AOL's reasonable review.
10. Launch Dates. In the event that any terms contained herein relate to or
depend on the commercial launch date of the online area or other property
contemplated by this Agreement (the "Launch Date"), then it is the intention of
the Parties to record such Launch Date in a written instrument signed by both
Parties promptly following such Launch Date; provided that, in the absence of
such a written instrument, the Launch Date will be as reasonably determined by
AOL based on the information available to AOL.
9
<PAGE>
11. Merchant Certification Program. MERCHANT will participate in any generally
applicable "Certified Merchant" program operated by AOL or its authorized agents
or contractors. Such program may require merchant participants on an ongoing
basis to meet certain reasonable standards relating to provision of electronic
commerce through the AOL Service, AOL.CA and CompuServe for Canadians and may
also require the payment of certain reasonable certification fees to AOL or its
authorized agents or contractors operating the program. The program also
requires MERCHANT to offer Users who purchase Products through such Merchant
Site payment by the AOL Checkout (as defined in Section 3). MERCHANT agrees to
(i) participate in the BizRate(R) Program, a service offered by Binary Compass
Enterprises, Inc. (BCE), which provides opt-in satisfaction surveys to Users who
purchase Products through such Merchant Site, or such other provider of such
services as AOL may designate or approve from time to time, and (ii) provide a
link to BizRate's then-current standard survey forms, or such other survey forms
offered by any other party that AOL may reasonably designate or approve from
time to time. MERCHANT's participation shall be based upon a separate written
agreement which MERCHANT will enter into with BCE, or other such party
reasonably designated or approved by AOL. MERCHANT hereby authorizes BCE to
provide to AOL any and all reports provided to MERCHANT by BCE, or other third
party providing such services, and agrees to provide written notice of such
authorization to BCE, or such other third party.
10
<PAGE>
EXHIBIT C
Standard Legal Terms & Conditions
1. Production and Technical Services. Unless expressly provided for elsewhere in
the Shopping Channel Promotional Agreement which has been executed by AOL and
MERCHANT (the "Promotional Agreement," and, collectively with these Standard
Legal Terms and Conditions, the "Agreement") Agreement, (i) AOL will have no
obligation to provide any creative, design, technical or production services to
MERCHANT and (ii) the nature and extent of any such services which AOL may
provide to MERCHANT will be as determined by AOL in its sole discretion. The
terms regarding any creative, design, technical or productions services provided
by AOL to MERCHANT will be as mutually agreed upon by the parties in a separate
written work order.
2. AOL Accounts. To the extent MERCHANT has been granted any AOL accounts,
MERCHANT will be responsible for the actions taken under or through its
accounts, which actions are subject to AOL's applicable Terms of Service and for
any surcharges, including, without limitation, all premium charges, transaction
charges, and any applicable communication surcharges incurred by any account
issued to MERCHANT. Upon the termination of this Agreement, all such accounts,
related screen names and any associated usage credits or similar rights, will
automatically terminate. AOL will have no liability for loss of any data or
content related to the proper termination of any such account.
3. Taxes. MERCHANT will collect and pay and indemnify and hold AOL harmless
from, any sales, use, excise, import or export value added or similar tax or
duty not based on AOL's net income, including any penalties and interest, as
well as any costs associated with the collection or withholding thereof,
including attorneys' fees.
4. Promotional Materials/Press Releases. Each Party will submit to the other
Party, for its prior written approval, which will not be unreasonably withheld
or delayed, any marketing, advertising, and all other promotional materials
related to the Merchant Site and/or referencing the other Party and/or its trade
names, trademarks, and service marks; provided, however, that (a) either Party's
use of screen shots of the Merchant Site for promotional purposes and (b) either
Party's reference to the fact of the Parties' contractual relationship relating
to the Shopping Channel will not require the approval of the other Party so long
as, in the case of (a), the AOL Service, AOL.CA and CompuServe for Canadians (as
applicable) is clearly identified as the source of such screen shots. MERCHANT
will not (i) issue any press releases, promotions or public statements
concerning the existence or terms of the Agreement or (ii) use, display or
modify AOL's trademarks, tradenames or servicemarks in any manner, absent AOL's
express prior written approval. Notwithstanding the foregoing, (a) either Party
may issue press releases and other disclosures as required by law or as
reasonably advised by legal counsel without the consent of the other Party and
in such event, prompt notice thereof will be provided to the other Party and (b)
following the initial public announcement of the business relationship between
the Parties in accordance with the approval and other requirements contained
herein, either Party's subsequent factual reference to the existence of a
business relationship between the Parties will not require the approval of the
other Party.
11
<PAGE>
5. Representations and Warranties. Each Party represents and warrants to the
other Party that: (i) such Party has the full corporate right, power and
authority to enter into the Agreement and to perform the acts required of it
hereunder; (ii) the execution of the Agreement by such Party, and the
performance by such Party of its obligations and duties hereunder, do not and
will not violate any agreement to which such Party is a Party or by which it is
otherwise bound; (iii) when executed and delivered by such Party, the Agreement
will constitute the legal, valid and binding obligation of such Party,
enforceable against such Party in accordance with its terms; and (iv) such Party
acknowledges that the other Party makes no representations, warranties or
agreements related to the subject matter hereof that are not expressly provided
for in the Agreement.
6. License. MERCHANT hereby grants AOL a non-exclusive worldwide license to
market, license, distribute, reproduce, display, perform, transmit and promote
the Merchant Site and all content, products and services offered therein or
otherwise provided by MERCHANT in connection herewith (e.g., offline or online
promotional content, Promotions, etc.) through the AOL Service, AOL.CA and
CompuServe for Canadians and through any other product or service owned,
operated, distributed or authorized to be distributed by or through AOL or its
affiliates worldwide through which such Party elects to offer the Merchant Site
(which may include, without limitation, Internet sites promoting AOL products
and services and any "offline" information browsing products of AOL or its
affiliates). Users of the AOL Service, AOL.CA and CompuServe for Canadians (as
applicable) ("AOL Users") will have the right to access and use the Merchant
Site. Subject to such license, MERCHANT retains all right, title to and interest
in the Merchant Site. During the Term, AOL will have the right to use MERCHANT's
trademarks, trade names and service marks in connection with performance of this
Agreement, subject to any written guidelines provided in writing to AOL.
7. Confidentiality. Each Party acknowledges that Confidential Information may be
disclosed to the other Party during the course of this Agreement. Each Party
agrees that it will take reasonable steps, at least substantially equivalent to
the steps it takes to protect its own proprietary information, during the term
of this Agreement, and for a period of three years following expiration or
termination of this Agreement, to prevent the duplication or disclosure of
Confidential Information of the other Party, other than by or to its employees
or agents who must have access to such Confidential Information to perform such
Party's obligations hereunder, who will each agree to comply with this
provision. "Confidential Information" means any information relating to or
disclosed in the course of the Agreement, which is or should be reasonably
understood to be confidential or proprietary to the disclosing Party, including,
but not limited to, the material terms of this Agreement, information about AOL
Users, technical processes and formulas, source codes, product designs, sales,
cost and other unpublished financial information, product and business plans,
projections, and marketing data. "Confidential Information" will not include
information (a) already lawfully known to or independently developed by the
receiving Party, (b) disclosed in published materials, (c) generally known to
the public, (d) lawfully obtained from any third party, or (e) required or
reasonably advised to be disclosed by law.
12
<PAGE>
8. Limitation of Liability; Disclaimer; Indemnification.
a) Liability. UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE OTHER
PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES
(EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES),
ARISING FROM BREACH OF THE AGREEMENT, THE SALE OF PRODUCTS, THE USE OR INABILITY
TO USE THE AOL NETWORK, THE AOL SERVICE, AOL.CA and CompuServe for Canadians, OR
THE MERCHANT SITE, OR ARISING FROM ANY OTHER PROVISION OF THIS AGREEMENT, SUCH
AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS
(COLLECTIVELY, "DISCLAIMED DAMAGES"); PROVIDED THAT EACH PARTY WILL REMAIN
LIABLE TO THE OTHER PARTY TO THE EXTENT ANY DISCLAIMED DAMAGES ARE CLAIMED BY A
THIRD PARTY AND ARE SUBJECT TO INDEMNIFICATION PURSUANT TO PARAGRAPH (C) BELOW.
EXCEPT AS PROVIDED TO PARAGRAPH (C) BELOW, (I) LIABILITY ARISING UNDER THIS
AGREEMENT WILL BE LIMITED TO DIRECT, OBJECTIVELY MEASURABLE DAMAGES, AND (II),
AOL WILL NOT BE LIABLE TO MERCHANT UNDER THE AGREEMENT FOR MORE THAN THE AMOUNTS
THEN PAID TO AOL BY MERCHANT HEREUNDER.
b) No Additional Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THE AGREEMENT,
NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING AOL.CA, THE AOL
SERVICE OR NETWORK, OR THE MERCHANT SITE, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES
ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, AOL SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING
(I) THE PROFITABILITY OF THE MERCHANT SITE, (II) THE NUMBER OF PERSONS WHO WILL
ACCESS OR "CLICK-THROUGH" THE PROMOTION, (III) ANY BENEFIT MERCHANT MIGHT OBTAIN
FROM INCLUDING THE PROMOTION WITHIN THE AOL SERVICE, AOL.CA and CompuServe for
Canadians OR (IV) THE FUNCTIONALITY, PERFORMANCE OR OPERATION OF AOL WITH
RESPECT TO THE PROMOTION.
c) Indemnity. Either Party will defend, indemnify, save and hold harmless the
other Party and the officers, directors, agents, affiliates, distributors,
franchisees and employees of the other Party from any and all third party
claims, demands, liabilities, costs or expenses, including reasonable attorneys'
fees ("Liabilities"), resulting from the indemnifying Party's material breach of
any duty, representation, or warranty of the Agreement, except where Liabilities
result from the gross negligence or knowing and willful misconduct of the other
Party.
d) Claims. If a Party entitled to indemnification hereunder (the "Indemnified
Party") becomes aware of any matter it believes is indemnifiable hereunder
involving any claim, action, suit, investigation, arbitration or other
proceeding against the Indemnified Party by any third party (each an "Action"),
the Indemnified Party will give the other Party (the "Indemnifying Party")
prompt written notice of such Action. Such notice will (i) provide the basis on
which indemnification is being asserted and (ii) be accompanied by copies of all
relevant pleadings, demands, and other papers related to the Action and in the
possession of the Indemnified Party. The Indemnifying Party will have a period
of ten (10) days after delivery of such notice to respond. If the Indemnifying
Party elects to defend the Action or does not respond within the requisite ten
(10) day period, the Indemnifying Party will be obligated to defend the Action,
at its own expense, and by counsel reasonably satisfactory to the Indemnified
Party. The Indemnified Party will cooperate, at the expense of the Indemnifying
Party, with the Indemnifying Party and its counsel in the defense and the
Indemnified Party will have the right to participate fully, at its own expense,
in the defense of such Action. If the Indemnifying Party responds within the
required ten (10) day period and elects not to defend such Action, the
Indemnified Party will be free, without prejudice to any of the Indemnified
Party's rights hereunder, to compromise or defend (and control the defense of)
such Action. In such case, the Indemnifying Party will cooperate, at its own
expense, with the Indemnified Party and its counsel in the defense against such
Action and the Indemnifying Party will have the right to participate fully, at
its own expense, in the defense of such Action. Any compromise or settlement of
an Action will require the prior written consent of both Parties hereunder, such
consent not to be unreasonably withheld or delayed.
e) Acknowledgement. AOL and MERCHANT each acknowledges that the provisions of
this Agreement were negotiated to reflect an informed, voluntary allocation
between them of all risks (both known and unknown) associated with the
transactions contemplated hereunder. The limitations and disclaimers related to
warranties and liability contained in the Agreement are intended to limit the
circumstances and extent of liability. The provisions in paragraphs (a) through
(d) above and this paragraph (e) will be enforceable independent of and
severable from any other enforceable or unenforceable provision of this
Agreement.
13
<PAGE>
9. Solicitation of Subscribers.
(a) MERCHANT will not send unsolicited, commercial e-mail through or into AOL's
products or services, absent a Prior Business Relationship. For purposes of this
Agreement, a "Prior Business Relationship" will mean that the AOL User to whom
commercial e-mail is being sent has voluntarily either (i) engaged in a
transaction with MERCHANT or (ii) provided information to MERCHANT through a
contest, registration, or other communication, which included notice to the AOL
User that the information provided could result in commercial e-mail being sent
to that AOL User by MERCHANT or its agents. More generally, any commercial
e-mail to be sent through or into AOL's products or services shall be subject to
AOL's then-standard restrictions on distribution of bulk e-mail (e.g., related
to the time and manner in which such e-mail can be distributed through the AOL
service in question) and the limitations set forth in Exhibit B.
(b) MERCHANT shall ensure that its collection, use and disclosure of information
obtained from AOL Users under this Agreement ("User Information") complies with
(i) all applicable laws and regulations and (ii) AOL's standard privacy
policies, available on the AOL Service at the keyword term "Privacy".
(c) MERCHANT will not disclose User Information to any third party in a manner
that identifies AOL User as end users of an AOL product or service or use User
Information collected under this Agreement to market an Interactive Service
competitive with AOL; provided that the restrictions in this subsection (c)
shall not restrict MERCHANT's use of any information collected independently of
this Agreement. For the purpose of this Agreement, the term "Interactive Service
Provider" shall mean and refer to an entity offering one or more of the
following: (i) online or Internet connectivity services (e.g., an Internet
service provider); (ii) a broad selection of aggregated third party interactive
content (or navigation thereto) (e.g., an online service or search and directory
service); (iii) communications software capable of serving as the principal
means through which a user creates, sends and receives electronic mail or real
time online messages.
10. AOL User Communications. To the extent MERCHANT sends any form of
communications to AOL Users, MERCHANT will promote the Merchant Site as the
location at which to purchase Products (as compared to any more general or other
site or location). In addition, in any communication to AOL Users or on the
Merchant Site, MERCHANT will not encourage AOL Users to take any action
inconsistent with the scope and purpose of this Agreement, including without
limitation, the following actions: (a) using interactive sites other than the
Merchant Site; (b) bookmarking of other interactive sites; (c) changing the
default home page on the AOL browser; or (d) using any interactive service other
than the AOL.
11. Navigation Tools. The Keyword(TM) online search terms made available on the
AOL Service for use by AOL Members, combining AOL's Keyword(TM) online search
modifier with a term or phrase specifically related to MERCHANT (and determined
in accordance with the terms of this Agreement). Any Keyword Search Terms to be
directed to Merchant's Site shall be (i) subject to availability and (ii)
limited to the combination of the Keyword(TM) search modifier combined with a
registered trademark of MERCHANT. AOL reserves the right at any time to revoke
MERCHANT's use of any Keywords that are not registered trademarks of MERCHANT.
MERCHANT acknowledges that its utilization of a Keyword Search Term will not
create in it, nor will it represent it has, any right, title or interest in or
to such Keyword Search Term, other than the right, title and interest MERCHANT
holds in MERCHANT's registered trademark independent of the Keyword Search Term.
Without limiting the generality of the foregoing, MERCHANT will not: (a) attempt
to register or otherwise obtain trademark or copyright protection in the Keyword
Search Term; or (b) use the Keyword Search Term, except for the purposes
expressly required or permitted under this Agreement. To the extent AOL allows
AOL Users to "bookmark" the URL or other locator for the Merchant Site, such
bookmarks will be subject to AOL's control at all times. Upon the termination of
this Agreement, MERCHANT's rights to any Keywords and bookmarking will
terminate. For purposes of this Agreement, "Keyword Search Terms" shall mean the
Keyword(TM) online search terms made available on the AOL Service for use by AOL
Members, combining AOL's Keyword(TM) online search modifier with a term or
phrase specifically related to MERCHANT (and determined in accordance with the
terms of this Agreement).
14
<PAGE>
12. Miscellaneous. Neither Party will be liable for, or be considered in breach
of or default under the Agreement on account of, any delay or failure to perform
as required by the Agreement (except with respect to payment obligations) as a
result of any causes or conditions which are beyond such Party's reasonable
control and which such Party is unable to overcome by the exercise of reasonable
diligence. MERCHANT's rights, duties, and obligations under the Agreement are
not transferable. The Parties to the Agreement are independent contractors.
Neither Party is an agent, representative or partner of the other Party. Neither
Party will have any right, power or authority to enter into any agreement for or
on behalf of, or incur any obligation or liability of, or to otherwise bind, the
other Party. The failure of either Party to insist upon or enforce strict
performance by the other Party of any provision of the Agreement or to exercise
any right under the Agreement will not be construed as a waiver or
relinquishment to any extent of such Party's right to assert or rely upon any
such provision or right in that or any other instance; rather, the same will be
and remain in full force and effect. Sections 3, 4, 7, 8, 9, 10, 11 and 12 of
these Standard Legal Terms and Conditions, will survive the completion,
expiration, termination or cancellation of the Promotional Agreement. Either
Party may terminate the Agreement at any time with written notice to the other
Party in the event of a material breach of the Agreement by the other Party,
which remains uncured after thirty days written notice thereof. Any notice,
approval, request, authorization, direction or other communication under this
Agreement will be given in writing and will be deemed to have been delivered and
given for all purposes (i) on the delivery date if delivered by electronic mail
on AOL's network or systems (to screenname "[email protected]" in the case of
AOL) or by confirmed facsimile; (ii) on the delivery date if delivered
personally to the Party to whom the same is directed; (iii) one business day
after deposit with a commercial overnight carrier, with written verification of
receipt; or (iv) five business days after the mailing date, whether or not
actually received, if sent by U.S. mail, return receipt requested, postage and
charges prepaid, or any other means of rapid mail delivery for which a receipt
is available. In the case of AOL, such notice will be provided to both the
Senior Vice President for Business Affairs (fax no. 703-265-1206) and the Deputy
General Counsel (fax no. 703-265-1105), each at the address of AOL set forth in
the first paragraph of this Agreement. In the case of MERCHANT, except as
otherwise specified herein, the notice address will be the address for MERCHANT
set forth in the first paragraph of this Agreement, with the other relevant
notice information, including the recipient for notice and, as applicable, such
recipient's fax number or AOL email address, to be as reasonably identified by
AOL. The Agreement sets forth the entire agreement between MERCHANT and AOL, and
supersedes any and all prior agreements of AOL or MERCHANT with respect to the
transactions set forth herein, but makes exception for the continuance of the
terms established in the Addendum to License Star Software which shall remain in
full force and effect for the duration of this Agreement. No change, amendment
or modification of any provision of the Agreement will be valid unless set forth
in a written instrument signed by the Party subject to enforcement of such
amendment. MERCHANT will promptly inform AOL of any information related to the
Merchant Site which could reasonably lead to a claim, demand, or liability of or
against AOL and/or its affiliates by any third party. MERCHANT will not assign
this Agreement or any right, interest or benefit under this Agreement without
the prior written consent of AOL. Assumption of the Agreement by any successor
to MERCHANT (including, without limitation, by way of merger, consolidation or
sale of all or substantially all of MERCHANT's stock or assets) will be subject
to AOL's prior written approval. Subject to the foregoing, this Agreement will
be fully binding upon, inure to the benefit of and be enforceable by the Parties
hereto and their respective successors and assigns. Except where otherwise
specified herein, the rights and remedies granted to a Party under the Agreement
are cumulative and in addition to, and not in lieu of, any other rights or
remedies which the Party may possess at law or in equity. In the event that any
provision of the Agreement is held invalid by a court with jurisdiction over the
Parties to the Agreement, (i) such provision will be deemed to be restated to
reflect as nearly as possible the original intentions of the Parties in
accordance with applicable law and (ii) the remaining terms, provisions,
covenants and restrictions of this Agreement will remain in full force and
effect. The Agreement may be executed in counterparts, each of which will be
deemed an original and all of which together will constitute one and the same
document. The Agreement will be interpreted, construed and enforced in all
respects in accordance with the laws of the Commonwealth of Virginia, except for
its conflicts of laws principles. MERCHANT hereby irrevocably consents to the
exclusive jurisdiction of the courts of the Commonwealth of Virginia and the
federal courts therein in connection with any action arising under this
Agreement.
15
<PAGE>
EXHIBIT D
Operations
1. Capacity. MERCHANT will be responsible for all communications, hosting and
connectivity costs and expenses associated with the Merchant Site. MERCHANT
will provide all hardware, software, telecommunications lines and other
infrastructure necessary to meet traffic demands on the Merchant Site from
the AOL Service, AOL.CA and CompuServe for Canadians, except for the
proprietary client software necessary to access AOL. In the event that
MERCHANT fails to provide the requisite infrastructure, AOL will have the
right to regulate the promotions it provides to MERCHANT hereunder to the
extent necessary to minimize user delays until such time as MERCHANT
corrects its infrastructure deficiencies. In the event that MERCHANT elects
to create a custom version of the Merchant Site in order to comply with the
terms of this Agreement, MERCHANT will bear responsibility for the
implementation, management and cost of such mirrored site.
2. Optimization; Speed. MERCHANT will use commercially reasonable efforts to
ensure that: (a) the functionality and features within the Merchant Site
are optimized for the client software then in use by AOL Users; and (b) the
Merchant Site is designed and populated in a manner that minimizes delays
when AOL Users attempt to access such site. At a minimum, MERCHANT will
ensure that the Merchant Site's data transfers initiate within fewer than
fifteen (15) seconds on average.
3. Service Level Response. MERCHANT agrees to use commercially reasonable
efforts to address material technical problems (over which MERCHANT
exercises control) affecting use by AOL Users of the Merchant Site (a
"MERCHANT Technical Problem") promptly following notice thereof. In the
event that AOL has received substantial AOL Member complaints regarding a
MERCHANT Technical Problem based on MERCHANT's failure to satisfy a site
operating standard specified in this Agreement (and MERCHANT is unable to
promptly resolve such MERCHANT Technical Problem following notice thereof),
AOL will have the right to regulate the promotions it provides to MERCHANT
hereunder until such time as MERCHANT corrects the MERCHANT Technical
Problem at issue).
4. Monitoring. MERCHANT will ensure that the performance and availability of
the Merchant Site is monitored on a continuous basis. MERCHANT will provide
escalation procedures (e.g., contact names and notification mechanisms) for
use in connection with technical problems, as described more fully above.
5. Security. MERCHANT will utilize Internet standard encryption technologies
(e.g., Secure Socket Layer - SSL) to provide a secure environment for
conducting transactions and/or transferring private member information
(e.g. credit card numbers, banking/financial information, and member
address information). MERCHANT will facilitate periodic reviews of the
MERCHANT Site by AOL in order to evaluate the security risks of such site.
MERCHANT will fix any security risks or breaches of security as may be
identified by AOL's Operations Security.
16
<PAGE>
6. Technical Performance.
i. MERCHANT will design the Merchant Site to support the Windows version
of the Microsoft Internet Explorer 3.0 and 4.0 browser, the Macintosh
version of the Microsoft Internet Explorer 3.0, and make commercially
reasonable efforts to support all other AOL browsers listed at:
"http://webmaster.info.AOL.CA/BrowTable.html."
ii. To the extent MERCHANT creates customized pages on the Merchant Site
for AOL Members, MERCHANT will configure the server from which it
serves the site to examine the HTTP User-Agent field in order to
identify the "AOL Member-Agents" listed at: "http://webmaster.
info.AOL.CA/Brow2Text.html."
iii. MERCHANT will periodically review the technical information made
available by AOL at http://webmaster.info.AOL.CA/CacheText.html.
iv. MERCHANT will design its site to support HTTP 1.0 or later protocol as
defined in RFC 1945 (available at
"http://ds.internic.net/rfc/rfc1945.text") and to adhere to AOL's
parameters for refreshing cached information listed at
http://webmaster.info.AOL.CA/CacheText.html.
v. Prior to releasing material, new functionality or features through the
MERCHANT Site ("New Functionality"), MERCHANT will use commercially
reasonable efforts to either (i) test the New Functionality to confirm
its compatibility with AOL Service client software or (ii) provide AOL
with written notice of the New Functionality so that AOL can perform
tests of the New Functionality to confirm its compatibility with the
AOL Service client software.
7. AOL Internet Products Partner Support. AOL will provide MERCHANT with access
to the standard online resources, standards and guidelines documentation,
technical phone support, monitoring and after-hours assistance that AOL makes
generally available to similarly situated web-based partners. AOL support
will not, in any case, be involved with content creation on behalf of
MERCHANT or support for any technologies, databases, software or other
applications which are not supported by AOL or are related to any MERCHANT
area other than the Merchant Site. Support to be provided by AOL is
contingent on MERCHANT providing to AOL demo account information (where
applicable), a detailed description of the Merchant Site's software, hardware
and network architecture and access to the Merchant site for purposes of such
performance and load testing as AOL elects to conduct. As described elsewhere
in this Agreement, MERCHANT is fully responsible for all aspects of hosting
and administration of the Merchant Site and must ensure that the site
satisfies the specified access and performance requirements as outlined in
this Exhibit.
17
<PAGE>
CONSENT TO BINARY COMPASS ENTERPRISES, INC.
------------------------------------------
DG Jewellery - XiteJewelry.com ("Merchant") hereby authorizes Binary
Compass Enterprises, Inc. (BCE) to provide to America Online, Inc.
(AOL) any and all reports provided to Merchant by BCE as part of
Merchant's participation in AOL's Merchant Certification Program.
DG Jewellery - XiteJewelry.com
By: _/S/_Jack Berkovits____________
Print Name: ____Jack Berkovits___
Title: ____President__
Date: __March 17, 1999_
Tax ID/EIN#: _______________________
18
<PAGE>
SUPPLIER AGREEMENT
This Supplier Agreement (this "Agreement') Is made by and between ShopNow.Com
Inc. ("ShopNow"), and title party identified on the signature page below
("Supplier"), and shall be effective from the date accepted by ShopNow on the
signature page below ("Effective Date"), In consideration of the mutual
covenants set forth herein, the parties agree as follows:
1. Initial Covenants. Supplier is the owner/manufacturer or authorized
licensor/distributor of certain products, and desires that ShopNow make those
products listed on Exhibit A (the "Products") available for sale to customers
("Customers") online via one or more ShopNow websites (collectively, the
"Website").
2. Creating the Website. Supplier shall identify each Product and its suggested
retail list price. ShopNow shall use reasonable efforts to develop a Products
presentation on the Website. Supplier shall reasonably assist in this effort by
providing digital images, edited copy, and other materials for each Product that
Supplier is authorized to allow ShopNow to use on the Website. ShopNow may
modify such materials in order to design the Website, and may place the Products
anywhere on the Website. In the event ShopNow is required to modify any of the
above materials to make them conform to ShopNow's specifications, ShopNow shall
invoice Supplier for such modifications according to terms to be mutually agreed
upon. ShopNow can refuse to sell, or discontinue the sale of, any Product in its
sole discretion.
3. Ordering and Shopping. Customers shall order Products directly from ShopNow
and ShopNow shall act as the merchant and collect all payments for the Products.
ShopNow shall be responsible for handling all credit card and payment
processing. ShopNow shall inform Supplier of the Products that have been ordered
and Supplier shall check such information at least once each calendar day. All
communication between ShopNow and Supplier shall follow formats and procedures
designated by ShopNow from time to time. Supplier shall ship each Product
directly to each Customer on behalf of ShopNow within 24 hours after receiving
notice front ShopNow that the Product has been ordered and which packaging shall
contain the trademarks, and/or logos of ShopNow and its licensors (collectively,
the "ShopNow Marks") as designated by ShopNow.
4. Payment/Adjustments. Upon execution of the Agreement, ShopNow shall pay
Supplier, or, at Supplier's direction, a third party chosen by Supplier, the
amount received by ShopNow for each Product and reasonable domestic shipping
charges incurred by Supplier for each product that is ordered from ShopNow and
shipped by Supplier less the Transaction Fee listed on Exhibit A. Payment shall
be made within thirty (30) days of the end of each calendar month, for all sales
of the Products ShopNow has recognized as being shipped by Supplier by its
notification for the previous month. Payments made by ShopNow will be reconciled
to include any refunds, returns, or other amounts owed, All requests for Product
returns or replacement shall initially be directed to ShopNow and shall be
subject to ShopNow's return policy as shall be posted in the Website. Upon
ShopNow's acceptance and approval of a Product return, ShopNow shall provide
Customer with a returned merchandise authorization ("RMA") number to track the
returned Product and Customer shall be directed to return the Product to
Supplier using the assigned RMA number. Supplier shall provide ShopNow, on a
daily basis, a status report on all Product returns. Upon notification from
Supplier that a Product has been returned, ShopNow shall credit Customer's
account. Supplier will invoice ShopNow for reasonable shipping charges incurred
in fulfilling Customer orders.
5. Ownership. Supplier hereby grants to ShopNow a non-exclusive license to use
the trade names, trademarks, logos, service marks and product designations of
Supplier and its licensors (collectively, the "Supplier Marks") in connection
with ShopNow's activities under this Agreement. Supplier hereby agrees that
ShopNow shall retain, and Supplier hereby assigns, all right, title, and
interest in and to the Website (other than the Products and Supplier Marks) and
any intellectual property therein and all modifications and improvements
thereto, including all rights under any applicable patents, copyrights,
trademarks, and trade secrets, including all renewals and extensions thereto.
Supplier shall not reverse engineer, disassemble, decompile, or otherwise
attempt to discover any source code or trade secrets arising out of or relating
to the Website.
6. Warranty. EACH PARTY REPRESENTS AND WARRANTS THAT: (A) IT HAS All NECESSARY
AUTHORITY TO ENTER INTO THIS AGREEMENT AND THE RIGHTS IT HAS GRANTED HEREUNDER
DO NOT BREACH ANY OTHER AGREEMENT TO WHICH IT 18 A PARTY OR BY WHICH IT IS
BOUND; AND (B) THE SOFTWARE AND HARDWARE THAT IT PROVIDES TO, OR USES TO
COMMUNICATE WITH, THE OTHER PARTY SHALL BE YEAR 2000 COMPLIANT AND SHALL NOT BE
ADVERSELY AFFECTED BY THE CHANGE TO THE YEAR 2000. THE PARTIES DISCLAIM ALL
OTHER WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO
THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
OTHER THAN FOR A BREACH OF THIS SECTION (WARRANTY) OR THE NEXT SECTION
(INDEMNIFICATION), IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER OR TO
ANY THIRD PARTY IN TORT, CONTRACT, OR UNDER
1
<PAGE>
ANY OTHER LEGAL THEORY FOR ANY INCIDENTAL, CONSEQUENTIAL, SPECIAL OR INDIRECT
DAMAGES ARISING OUT OF OR RELATED TO THIS AGREEMENT REGARDLESS OF WHETHER IT HAS
BEEN WARNED OF THE POSSIBILITY OF SUCH LOSS.
7. Indemnity. ShopNow shall indemnify and hold Supplier harmless from any
liabilities, damages, and expenses of any nature, including reasonable attorneys
fees and costs, arising out of or relating to any action by ShopNow in
transmitting to Supplier information about a Customer or a Customer's order for
a Product. Supplier shall indemnify and hold ShopNow harmless from any
liabilities, damages, and expenses of any nature, including reasonable
attorneys' fees and costs, arising out of or relating to the Products. The party
claiming right of indemnification shall promptly notify the other party (the
"Indemnifying Party') in writing of the claim and shall allow the Indemnifying
Party to control the defense and all related settlement negotiations.
8. Support. ShopNow will be responsible for providing customer support to assist
Customers, in accordance with ShopNow's then current support policies therefor.
All interaction with Customers shall be via the ShopNow customer service
department. Supplier will provide ShopNow, without charge, such information and
other assistance as is necessary to enable ShopNow to effectively sell the
Products.
9. Confidential Information. Each party acknowledges and agrees that any
information relating to the other party's business, products, or methods of
operation, which is not generally known to the public, is confidential and
proprietary information of the other party (the "Confidential Information").
Each party agrees that it shall not disclose Confidential Information of the
other party except to its agents who need to know such Confidential Information
in order to perform its obligations under this Agreement. Each party agrees that
it shall not use Confidential Information of the other party except to perform
its obligations under this Agreement. The foregoing obligations shall not apply
to Confidential Information that: (a) is or becomes part of the public domain
through no fault of the receiving party; (b) is lawfully received from a third
party without an obligation of confidentiality; (c) is independently developed
by the receiving party without reference to the Confidential Information of the
other party; or (d) is required to be disclosed by applicable law.
Notwithstanding the foregoing, each party may disclose to the public that it has
entered into an agreement with the other party (without disclosing pricing and
other nonpublic details), and that Products are being sold on the Website.
10. Term and Termination. This Agreement shall have an initial term of one
hundred and eighty (180) days from the Effective Date. Thereafter, the Agreement
shall automatically review for successive thirty (30) day periods unless either
party elects not to renew this Agreement by providing the other with thirty (30)
days prior written notice. Either party may terminate this Agreement if the
other breaches any material provision of this Agreement and fails to fully cure
such breach within thirty (30) days of written notice describing the breach.
Upon termination of this Agreement, ShopNow shall promptly remove the Products
from the Website. All provisions of this Agreement that may reasonably be
interpreted or construed as surviving the expiration or termination of this
Agreement shall so survive.
11. Miscellaneous. If any part of this Agreement shall be held invalid or
unenforceable, this Agreement shall be construed as if it did not contain such
portion, and the rights and obligations of the parties shall be construed and
enforced accordingly. This Agreement constitutes the complete and exclusive
agreement and understanding between the parties concerning the subject matter
hereof, and supersedes all previous or contemporaneous negotiations and
agreements, whether oral or written. Neither party shall assign this Agreement
or any rights hereunder without the prior written consent of the other, which
shall not be unreasonably withheld; provided, however, that either party may
assign this Agreement to an entity which is an affiliate of such party or which
succeeds by operation of law to, or otherwise acquires substantially all of the
assets of such party, or into which such party is merged, and which assumes such
party's obligations hereunder. No waiver, modification, amendment, consent or
discharge in connection with this Agreement shall be binding upon either party
unless in writing and signed by authorized representatives of both parties.
Failure or delay on the part of any party to exercise any right, remedy, power
or privilege hereunder will not operate as a waiver. This Agreement shall be
governed by and interpreted under the laws of the State of Washington without
reference to that body of law known as conflicts of law or the Convention on
Contracts for the International Sale of Goods. Except for any claim for
injunctive or equitable relief, any dispute or controversy arising out of or
relating to this Agreement which cannot be amicably resolved by the parties
shall be finally settled by arbitration in King County, Washington, in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA").
2
<PAGE>
INTENDING TO BE LEGALLY BOUND, the parties have executed this
Agreement to be effective as of the Effective Date.
ShopNow.Com Inc. Supplier Name: NetJewels.com
By Ann Savage By Daniel Berkovits
Its Executive Vice President Its CEO
Date November 3, 1999 Date October 28, 1999
Supplier address:
1001 Petrolia Road
Toronto Ontario M3J 2X7
<PAGE>
Auction Agreement
-----------------
This Auction Agreement ("Agreement") is made and, entered into by and
between iDEAL 1nternational, Inc. ("Auction Company") and D.G. Jewellery
("Consignor"), on this 23d day of March, 1999.
Recitals
--------
A. Auction Company is in the business of conducting online auctions of certain
products through the Internet and/or other means of electronic communication.
B. Consignor is a manufacturer and/or reseller of certain products.
C. Auction Company is willing to offer certain of Consignor's products for
sale at its online auctions, and Consignor is willing to provide certain of
its products for sale at the online auctions.
D. Auction Company and Consignor desire to specify the terms and conditions on
which Consignor's products will be offered for sale at Auction Company's
online auctions.
Agreement
---------
NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties agree as
follows:
1. On or before March 23d, 1999, Auction Company and Consignor decided to
use the Platinum Auction Model, which will control and dictate all aspects
of the relationship between Auction Company and Consignor, including the
pricing, quantities, starting prices, invoicing, shipping, and other
auction-related items and issues, as follows:
(a) Auction Set: Auction Company's auctions are based upon a two-week
auction set. Each auction set consists of 6 - 14 separate auctions,
which take place over the course of two weeks.
(b) Product Presentations: Prior to the beginning of each auction set,
compelling product presentations for all products to be auctioned must
be completed by Auction Company and verified by Consignor. Once verified
to the Consignor's complete satisfaction, product presentations are used
for as many auction sets as Consignor carries that particular product.
(c) Merchandising and Auction Lot Decisions: Careful merchandising and
auction lot decision-making are important to maximizing Consignor's
sales and margins and Consignor shall make such decisions. Consignor
shall identify its decisions in a format provided by Auction Company in
advance for each auction set.
(d) Shipment: After the close of each individual auction and after the
winners' credit cards have cleared, Auction Company sends the invoices
to Consignor. Consignor commits to shipping all products within two
business days. Within two business days of shipment, all tracking
numbers must be entered into Auction Company's online-tracking database.
These tracking numbers will be posted online. All refused/returned
merchandise is returned to Consignor.
2. DealBucks(TM) are promotional proprietary cybercurrency that have been
created and patented by Auction Company. Each Consignor may designate a
percentage of the overall winning bid price that can be made up of
DealBucks. IDEAL receives an additional one percent (1%) commission on the
overall winning bid when DealBucks make up a portion of the winning bid.
1
<PAGE>
3. For purposes of this Agreement, "gross proceeds" shall mean the winning bid
sales price, excluding any DealBucks used in the winning bid, that is paid
by the highest bidder(s) for Consignor's product(s). Any credit card fees,
shipping and/or handling costs, sales tax, and auction premium charged
and/or collected by Auction Company shall be included in the gross proceeds
of any sale. "Net proceeds" shall mean the gross proceeds less all charges
which might rightly be deducted.
4. Auction Company shall be responsible for collection of the bid price,
shipping costs, and sales tax from any customer of Consignor's products.
Upon collection of such amounts, Consignor's products will be delivered to
the customer as set forth in this Agreement. Upon delivery of Consignor's
products to the customer, title for the products shall pass from Consignor
to the customer.
5. Auction Company shall be entitled to receive a commission of twenty percent
(20%) of the gross proceeds from the sale of Consignor's products. In
addition to the commission, Auction Company charges $3 for every product
that results in a sale.
Auction Company shall deposit the gross proceeds from the sale of
Consignor's products at any online auction, any applicable taxes, and any
corresponding auction premium into a Depository Trust Account maintained by
Auction Company. After the payment of any applicable sales tax, Auction
Company shall be paid its commission, auction premium, and reimbursable
expenses for each of Consignor's products sold during the auction set.
Auction Company will arrange for the shipment of said products on receipt
of payment. Within 10 business days after the close of the auction set,
Auction Company shall issue a check from the Depository Trust Account to
Consignor for the net proceeds and a complete accounting of all funds
collected and disbursed relating to the sale of consignor's products that
occurred during that specific auction set. The 10 day period is to allow
Auction Company to process all winning bids, perform credit card
verification, denial, and/or re-submission, and to allow for a thorough
accounting.
6. Consignor understands that Auction Company shall use its best efforts to
offer Consignor's products for sale at one or more of its online auctions.
Except for those products for which Consignor has established, and Auction
Company has accepted, a designated reserve price, Auction Company shall sell
Consignor's products to the highest bidder, regardless of price. To the
extent that Consignor has established, and Auction Company has accepted, a
designated reserve price, Auction Company shall sell Consignor's products to
the highest bidder above the designated reserve price. Consignor shall have
no right to confirm or approve a sale to a highest bidder, it being
understood and agreed that all sales by Auction Company to the highest
bidder are final, subject to the customer's timely payment in full of the
bid price.
7. Consignor understands that Auction Company makes no representations or
warranties about (a) whether Consignor's products will be sold during any
online auction or auction set; (b) the price at which Consignor's products
will be sold during any online auction or auction set; or (c) any other
outcome at any online auction or auction set. Consignor understands that
Auction Company acts only to facilitate sales via its website,
www.DealDeal.com, and agrees to indemnify and hold harmless Auction Company,
its officers, directors, shareholders, employees, and agents in the event
that the website is not accessible to Customers and if the purchase price
for Consignor's products do not reach certain levels.
8. Consignor agrees that, except as otherwise provided in this Agreement or as
required by law, Auction Company shall have sole discretion with respect to
all matters relating to the timing and conduct of all online auctions and
auction sets. For example, Auction Company shall have sole discretion to
establish the dates and times for offering all of Consignor's products
during Auction Company's online auctions and auction sets. Similarly,
Auction Company shall have sole discretion to establish the bidding
procedures during any online auction or auction set, including the
eligibility requirements for bidders. Furthermore, Auction Company shall
have sole discretion to offer or sell Consignor's products by piece and to
offer or sell Consignor's products at one or more online auction(s) and
auction set(s).
2
<PAGE>
9. Auction Company and Consignor agree that certain expenses associated with
conducting the online auctions that are not otherwise covered in this
Agreement should be borne by Consignor. These expenses include, most
notably, any returns of merchandise.
10. Consignor agrees that, in the event that a customer desires to return
Consignor's product for a replacement or a credit, Consignor shall be
responsible for handling all returns, replacements, and/or credits
associated with Consignor's products. In general, a customer shall have the
right to return a product for any reason within 5 days after receipt or to
return a product that is received DOA or defective within 30 days;
thereafter, items are only returnable as agreed to by Consignor and/or as
required by law. Consignor agrees to hold Auction Company harmless from any
disputes with customers over the quality, severability, and/or
merchantability of Consignor's products.
11. Consignor represents and warrants that it is the owner of and has and can
convey good and marketable title to the products that it intends to offer
for sale. Consignor also represents and warrants that all such products are
in good and working order and that such products will be in good and working
order when delivered to Auction Company's fulfillment center. Consignor
further represents and warrants that all such products are free and clear of
any lien, security interest, lienhold, or any other kind of encumbrance or
interest of any kind. Consignor shall notify Auction Company in writing if
any lien, security interest, lienhold, or other kind of encumbrance or
interest of any kind comes into being with respect to any of such products
so that Auction Company can, disclose such liens, security interests, and
encumbrances to prospective bidders at the online auctions. Any such liens,
security interests, or encumbrances will be satisfied out of Consignor's
share of the gross proceeds before any money is distributed to Consignor
under this Agreement.
12. Consignor understands and acknowledges that Auction Company is relying on
the foregoing representations, warranties, and covenants in offering
Consignor's products for sale at Auction Company's online auctions.
Consignor agrees to provide Auction-Company with complete and accurate
representations of all of the products that are offered for sale on the
online auction. Consignor agrees that the following shall be grounds for
immediate termination of this Agreement: misleading or false advertising,
the misrepresentation of any product, a pattern of misrepresentations
related to Auction Company, or aiding an unlicensed person to practice as an
auctioneer or auction company. In the event that there is a
misrepresentation of a product, whether it be intentional or unintentional,
Consignor agrees to defend, indemnify, and hold harmless Auction Company,
its officers, directors, shareholders, employees, and agents from and
against any claim, cause of action, liability, or expense asserted against
or incurred by Auction Company that is based on, arising out of, or related
to any breach or alleged breach of any of the foregoing representations,
warranties or covenants or that is otherwise incurred by Auction Company in
connection with the sale of Consignor's products at Auction Company's online
auctions that is due, directly or indirectly, to any negligent, intentional,
or wrongful acts or omissions of Consignor, its officers, directors,
shareholders, employees, or agents, or any misrepresentations or fraud of
Consignor, its officers, directors, shareholders, employees, or agents.
13. Consignor understands and agrees to the following requirements for bidding
at all of Auction Company's online auctions:
(a) Consignor shall not bid on or offer to buy any products at the auction
unless the Consignor discloses the name of the person on whose behalf
the bid or offer is being made;
(b) Consignor shall not use any method of bidding that will allow products
to be purchased in an undisclosed manner on behalf of the Consignor; or
(c) Consignor shall not fictitiously raise any bid, knowingly permit any
person to make a fictitious bid, or employ or use another person to act
as a bidder or buyer.
In the event that there is a violation of these bidding guidelines by
Consignor, whether it be intentional or unintentional, Consignor agrees to
defend, indemnify, and hold harmless Auction Company, its officers,
directors, shareholders, employees, and agents from and against any claim,
cause of action, liability, or expense asserted against or incurred by
Auction Company that is based on, arising out of, or related to any breach
or alleged breach of any of the foregoing representations, warranties or
3
<PAGE>
covenants or that is otherwise incurred by Auction Company in connection
with the sale of Consignor's products at Auction Company's online auctions
that is due, directly or indirectly, to any negligent, intentional, or
wrongful acts or omissions of Consignor, its officers, directors,
shareholders, employees, or agents, or any misrepresentations or fraud of
Consignor, its officers, directors, shareholders, employees, or agents.
14. Consignor agrees that, with respect to Consignor's products for which a
designated reserve price has not been established and accepted, Auction
Company shall have the right to discontinue offering any products that it is
unable to sell within 30 days of it being initially offered for sale.
15. Consignor agrees that, with respect to Consignor's products for which a
designated reserve price has been established and accepted, if Auction
Company is unable to sell any or all of Consignor's products above the
minimum designated reserve price within 30 days of agreeing to auction
Consignor's products and Consignor thereafter refuses Auction Company's
request to reduce the designated reserve price, Auction Company shall have
the right to discontinue offering any products that it is unable to sell
within 30 days of it being initially offered for sale.
16. Consignor agrees that, in the event that Consignor ships any of its products
to Auction Company's fulfillment center, Consignor shall, at its own
expense, maintain and carry liability insurance in a commercially reasonable
amount - including fire, vandalism, burglary, and theft insurance - on
Consignor's products while they are at the fulfillment center. To the extent
that any proceeds are recovered under such insurance coverage, Consignor
shall pay to Auction Company its applicable commission rate under this
Agreement for goods sold but not delivered.
17. All of the terms and conditions of this Agreement shall apply to any and all
subsequent consignments of Consignor's products, provided that Consignor has
provided Auction Company with a written description of the products to be
consigned to Auction Company, and Auction Company has responded in writing
that it is willing to auction Consignor's products subject to all of the
terms and conditions of this Agreement.
18. Consignor agrees not to use any information gained during the course and as
a direct result of its relationship with Auction Company in order to sell
its products with other Vendors/Consignors currently working with Auction
Company. If Consignor does use any of such information to complete a sale
with another Vendor/Consignor, Auction Company is entitled to the full
commission amount specified in Paragraph 5 of this Agreement, and Auction
Company may terminate the existing Agreement with Consignor.
19. Consignor agrees not to use any information gained during the course of its
relationship with Auction Company in order to design and/or create its own
online auction. If Consignor does use any such information to design and/or
create its own online auction, Auction Company reserves the right to
institute a cause of action against Consignor, as set forth in this
Agreement.
20. Either party may terminate this Agreement at any time, with or without
cause, by providing written notice of termination to the other party. Any
termination of this Agreement shall become effective 30 days from receipt of
such written notice. Upon termination of this Agreement, Auction Company
shall return to Consignor all of Consignor's products that were not sold at
online auctions prior to the effective date of the termination. The shipping
expenses for the return of Consignor's products shall be paid by the party
who terminated the Agreement. With respect to Consignor's products sold
prior to the effective date of the termination of the Agreement, the parties
will be entitled to commissions and/or monies relating to such sales and in
accordance with this Agreement. Except for commissions or monies owed under
this Agreement, neither party will be liable to the other for any
compensation or damages solely as a result of the termination of this
Agreement.
21. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Washington. Any claim or dispute arising out of or
related to the terms of this Agreement shall be construed and interpreted
under and in accordance with the laws of the State of Washington. Such
4
<PAGE>
disputes shall be resolved by arbitration, under the laws of the State of
Washington. If suit is instituted, against any party hereto for any cause
or matter arising from or in connection with any rights and/or obligations
of the parties under this Agreement, the sole jurisdiction and venue for
such action shall be in the District or Superior Court of the State of
Washington in and for the County of Pierce.
22. This Agreement shall not be assigned or assignable by Consignor.
23. Both parties acknowledge and agree that any failure on the part of the other
party to enforce at any time, or for any period of time, any of the
provisions of this Agreement shall not be deemed or construed to be a waiver
of such provisions or of the right of said party to thereafter enforce each
and every such provision.
24. In the event that any part of this Agreement is found to be void or
unenforceable, in whole or in part, all other provisions of the Agreement
shall remain in full force and effect.
25. This Agreement represents the sole and entire agreement between the parties
and supersedes all prior agreements, negotiations, and discussions between
the parties with respect to the subject matters covered by this Agreement.
Any amendment to this Agreement must be in writing, signed by the parties or
their duly authorized representatives, and state the intention of the
parties to amend this Agreement. The amendment will take effect at the
beginning of the auction set subsequent to the completion of the amendment.
26. The parties represent and acknowledge that they have had an adequate
opportunity consult and discuss all aspects of this Agreement with an
attorney and that they have carefully read and fully understand all of its
provisions.
27. The parties represent and acknowledge that their decision to enter into this
Agreement has been made voluntarily, knowingly, and without coercion of any
kind.
28. The persons executing this Agreement on behalf of the parties represent,
warrant, and covenant that they have the right, power, legal capacity, and
appropriate authority, corporate or otherwise, to enter into this Agreement
on behalf of the party for which they sign below.
29. This Agreement may be executed in one or more counterparts, each of which
shall be an original but all of which, together, shall constitute a single
document.
IN WITNESS WHEREOF, the parties hereto each execute this Agreement.
<TABLE>
<CAPTION>
<S> <C>
iDEAL International, Inc. ("Auction Company") D.G. Jewellery, Inc. ("Consignor")
By: /S/ Chris Adams By: /S/ Jack Berkovits
Printed Name: Chris Adams Printed Name: Jack Berkovits
Title: Director of Merchant Services Title: President
Date: March 31, 1999 Date: March 31, 1999
</TABLE>
5
<PAGE>
Exhibit 10.13
No. W-001
-----
Warrant to Purchase 100,000 shares of Common Stock
NetJewels.com, Inc.
Common Stock Purchase Warrant
July 1, 1999
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNTIL A REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED
EFFECTIVE UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS
AVAILABLE.
THIS CERTIFIES THAT Jack Berkovits (hereinafter sometimes
called the "Holder"), is entitled to purchase from NetJewels.com, Inc., a
Delaware corporation (the "Company"), at the price and during the period
hereinafter specified, up to 100,000 shares of the Company's common stock, $.001
par value (the "Common Stock").
This Warrant, together with warrants of like tenor, is subject
to adjustment in accordance with Paragraph 7 of this Warrant.
1. The rights represented by this Warrant shall be
exercisable, at any time commencing September 30, 1999, until September 29, 2002
(the "Exercise Period") at a purchase price of $0.10 per share (the "Exercise
Price"), subject to adjustment in accordance with Paragraph 7. After September
29, 2002 the Holder shall have no right to purchase any shares of Common Stock
underlying this Warrant.
2. The rights represented by this Warrant may be exercised at
any time within the Exercise Period above specified, in whole or in part, by (i)
the surrender of this Warrant (with the purchase form at the end hereof properly
executed) at the principal executive office of the Company (or such other office
or agency of the Company as it may designate by notice in writing to the Holder
at the address of the Holder appearing on the books of the Company); and (ii)
payment to the Company of the Exercise Price then in effect for the number of
shares of Common Stock specified in the above-mentioned purchase form together
with applicable stock transfer taxes, if any. This Warrant shall be deemed to
have been exercised, in whole or in part to the extent specified, immediately
prior to the close of business on the date this Warrant is surrendered and
payment is made in accordance with the foregoing provisions of this Paragraph 2,
and the person or persons in whose name or names the certificates for shares of
Common Stock shall be issuable upon such exercise shall become the holder or
holders of record of such shares of Common Stock at that time and date. The
certificate or certificates for the shares of Common Stock so purchased shall be
delivered to such person or persons within a reasonable time, not exceeding
thirty (30) days, after this Warrant shall have been exercised.
<PAGE>
3. Neither this Warrant nor the shares of Common Stock
issuable upon exercise hereof have been registered under the 1933 Act nor under
any state securities law and shall not be transferred, sold, assigned or
hypothecated in violation thereof. If permitted by the foregoing, any such
transfer, sale, assignment or hypothecation shall be effected by the Holder
surrendering this Warrant for cancellation at the office or agency of the
Company referred to in Paragraph 2 hereof, accompanied by an opinion of counsel
satisfactory to the Company and its counsel, stating that such transferee is a
permitted transferee under this Paragraph 3 and that such transfer does not
violate the 1933 Act or such state securities laws.
4. The Company covenants and agrees that all shares of Common
Stock which may be issued upon exercise of this Warrant will, upon issuance, be
duly and validly issued, fully paid and nonassessable and no personal liability
will attach to the Holder thereof. The Company further covenants and agrees that
during the Exercise Period, the Company will at all times have authorized and
reserved a sufficient number of shares of its Common Stock to provide for the
exercise of this Warrant.
5. The Warrant shall not entitle the Holder to any rights,
including, without limitation, voting rights, as a stockholder of the Company.
6. Intentionally left blank.
7. The Exercise Price and Exercise Period in effect at any
time and the number and kind of securities purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the happening of
certain events as follows:
a. If the Company shall (i) declare a dividend or
make a distribution on its outstanding shares of Common Stock in shares of
Common Stock, (ii) subdivide or reclassify its outstanding shares of Common
Stock into a greater number of shares, or (iii) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect at the time of the effective date or record date, as the case
may be, for such sale, dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that it shall
equal the price determined by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such action, and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
b. Whenever the Exercise Price payable upon exercise
of each Warrant is adjusted pursuant to Paragraph 7a. above, the number of
shares of Common Stock purchasable upon exercise of this Warrant shall
simultaneously be adjusted by multiplying the number of shares of Common Stock
initially issuable upon exercise of this Warrant by the Exercise Price in effect
on the date hereof and dividing the product so obtained by the Exercise Price,
as adjusted.
c. Notwithstanding any adjustment in the Exercise
Price or the number or kind of shares of Common Stock purchasable upon the
exercise of this Warrant, certificates for Warrants issued prior or subsequent
to such adjustment may continue to express the same price and number and kind of
shares of Common Stock as are initially issuable pursuant to this Warrant.
2
<PAGE>
d. The Company may, but under no circumstances is
obligated to, modify the terms of this Warrant to provide for an earlier
commencement of the Exercise Period, or to extend the Exercise Period or to
lower the Exercise Price, at any time prior to the expiration of this Warrant.
8. This Agreement shall be governed by and in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, NetJewels.com, Inc. has caused this
Warrant to be signed by its duly authorized officer as of the date set forth on
the first page hereof.
NETJEWELS.COM, INC.
By: /s/ Daniel Berkovits
----------------------------------
Daniel Berkovits
Chief Executive Officer
3
<PAGE>
EXERCISE FORM
To Be Executed by the Holder
in Order to Exercise Warrant
The undersigned Holder hereby irrevocably elects to exercise this
Warrant and to purchase _____ shares of the Company's Common Stock issuable upon
the exercise of such Warrant, and requests that certificates for such securities
shall be issued in name of:
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
(please print or type name and address)
_________________________________________________________________
(please insert social security or other identifying number)
and be delivered:
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
(please print or type name and address)
_________________________________________________________________
(please insert social security or other identifying number)
and if such number of shares of Common Stock shall not be all the shares
evidenced by this Warrant Certificate, that a new Warrant Certificate for the
balance of such shares be registered in the name of, and delivered to, the
Holder.
4
<PAGE>
THIS AGREEMENT made as of the 25th day of June, 1999.
BETWEEN:
NETJEWELS.COM INC., a corporation incorporated
pursuant to the laws of the State of Delaware,
(hereinafter called the "Purchaser")
OF THE FIRST PART
- and -
NETJEWELS.COM INC., a corporation incorporated
pursuant to the laws of the Province of Ontario,
(hereinafter called the "Vendor")
OF THE SECOND PART
WHEREAS pursuant to an agreement made as of the 3rd day of May, 1999,
between Vendor (formerly known as Xitejewelry.com Inc.) and D.G. Jewelry Inc.,
(the "DG Agreement") D.G. Jewelry Inc. sold, transferred and assigned to Vendor
those certain assets described in the DG Agreement (the "Purchased Asset") in
consideration of the sum of One Million and Eight Hundred Thousand Dollars
($1,800,000.00) which amount was paid and satisfied by a demand promissory note
issued by Vendor to D.G. Jewelry Inc. (the "Promissory Note");
AND WHEREAS the Purchaser is a subsidiary of the Vendor;
AND WHEREAS Vendor wishes to sell, transfer and assign to Purchaser and
Purchaser wishes to buy and acquire from Vendor all of Vendor's right, title and
interest in and to the Purchased Asset; and
AND WHEREAS Purchaser wishes to assume all of the obligations of Vendor
owing to D.G. Jewelry Inc. pursuant to the Promissory Note;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
promises and the mutual covenants hereinafter contained, the parties hereto
covenant and agree as follows:
1. Purchaser hereby purchases and acquires the Purchased Asset from Vendor
and Vendor hereby sells and transfers the Purchased Asset to Purchaser
upon the terms herein set forth.
-1-
<PAGE>
2. The Purchaser and the Vendor acknowledge and agree that the purchase
price (the "Purchase Price") for the Purchased Asset shall be One
Million and Eight Hundred Thousand Dollars ($1,800,000.00).
3. In consideration of the Purchase Price for the Purchased Asset,
Purchaser hereby agrees to assume all of Vendor's obligations under the
Promissory Note and the parties hereto acknowledge and agree that the
assumption by Purchaser of Vendor's obligations under the Promissory
Note is in full satisfaction of the Purchase Price for the Purchased
Asset.
4. Purchases hereby agrees to indemnify and save Vendor harmless from all
claims, demands, and liabilities of every nature and kind whatsoever in
connection with the Promissory Note.
5. Vendor covenants and agrees that it shall not alter or in any way amend
the terms of the Promissory Note without the prior written consent of
Purchaser, and any such alterations or amendments made without
Purchaser's prior written consent shall not affect Purchaser's
obligations hereunder.
6. Purchaser represents and warrants to the Vendor as follows:
(a) It has been duly incorporated under the laws of the State of
Delaware and is a validly subsisting corporation; and
(b) It has full authority to enter into and carry out the
provisions of this Agreement.
7. Vendor represents and warrants to the Purchaser as follows:
(a) It has been duly incorporated under the laws of the Province
of Ontario and is a validly subsisting corporation;
(b) It has full authority to enter into and carry out the
provisions of this Agreement;
(c) It has not previously transferred or assigned the Purchased
Asset to any other party or parties; and
(d) It owns the Purchased Asset free and clear of all liens and
encumbrances, and Vendor has taken all necessary steps to
transfer the Purchased Asset to Purchaser in such manner as
may be reasonably required by Purchaser.
8. All representations, warranties and covenants contained in this
agreement shall survive the execution and delivery of this Agreement
and the completion of the transactions contemplated herein.
-2-
<PAGE>
9. Each of the parties hereto shall from time to time execute and deliver
all such further documents and instruments and do all acts and things
as the other parties may reasonably require to effectively carry out or
better evidence or perfect the full intent and meaning of this
Agreement.
10. Time shall be of the essence of this Agreement.
11. This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns.
12. This Agreement shall be governed by and construed in accordance with
the laws of the Province of Ontario.
13. No modification of or amendment to this agreement shall be valid and
binding unless set forth in writing duly executed by the parties
hereto.
14. All dollar amounts referred to in this Agreement are in American funds.
IN WITNESS WHEREOF the parties hereto have executed this agreement.
NETJEWELS.COM INC.
(a Delaware Corporation)
Per:______________________________
Name: Jack Berkovits
Title: President
I/we have authority to bind the Corporation.
NETJEWELS.COM INC.
(an Ontario Corporation)
Per:______________________________
Name: Jack Berkovits
Title: President
I/we have authority to bind the Corporation.
-3-
<PAGE>
THIS AGREEMENT made as of the 3rd day of May, 1999.
BETWEEN:
XITE JEWELRY.COM INC., a corporation incorporated
pursuant to the laws of the Province of Ontario,
(hereinafter called the "Purchaser")
OF THE FIRST PART
- and -
DG JEWELRY INC., a corporation incorporated
pursuant to the laws of the Province of Ontario,
(hereinafter called the "Vendor")
OF THE SECOND PART
WHEREAS Vendor wishes to sell, assign and transfer to Purchaser and
Purchaser wishes to purchase and acquire from Vendor all of Vendor's right,
title and interest in and to all of the third-party site sale and ancillary
agreements described on Schedule "A" hereto (the "Purchased Asset");
AND WHEREAS the Purchaser intends to incorporate a subsidiary
corporation pursuant to the laws of the state of Delaware under the name
Xitejewelry.com Inc. ("Xite Delaware");
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
promises and the mutual covenants hereinafter contained, the parties hereto
covenant and agree as follows:
1. Purchaser hereby purchases and acquires the Purchased Asset from Vendor
and Vendor hereby sells and transfers the Purchased Asset to Purchaser
upon the terms herein set forth.
2. The Purchaser and the Vendor acknowledge and agree that the purchase
price (the "Purchase Price") for the Purchased Asset shall be One
Million and Eight Hundred Thousand Dollars ($1,800,000.00).
3. The Purchase Price for the Purchased Asset shall be paid and satisfied
by a demand promissory note (the "Promissory Note") issued by Purchaser
to Vendor in the amount of One Million and Eight Hundred Thousand
Dollars ($1,800,000.00). The Promissory Note shall not bear interest
and shall be payable on demand following the earlier of: (a) Ninety
-1-
<PAGE>
(90) days following the successful completion of an initial public
offering of approximately 2,200,000 common shares in Xite Delaware; and
(b) the 31st day of December, 2002.
4. Purchaser represents and warrants to the Vendor as follows:
(a) It has been duly incorporated under the laws of the Province
of Ontario and is a validly subsisting corporation;
(b) It has full authority to enter into and carry out the
provisions of this Agreement; and
(c) It is not a "non-Canadian" for the purposes of the Investment
Canada Act.
5. Vendor represents and warrants to the Purchaser as follows:
(a) It has been duly incorporated under the laws of the Province
of Ontario and is a validly subsisting corporation;
(b) It has full authority to enter into and carry out the
provisions of this Agreement;
(c) It has not previously assigned the Purchased Asset to any
other party or parties;
(d) It owns the Purchased Asset free and clear of all liens and
encumbrances, and Vendor has taken all necessary steps to
transfer the Purchased Asset to Purchaser in such manner as
may be reasonably required by Purchaser; and
(e) It is neither a "non-resident" for the purposes of the Act nor
a "non-Canadian" for the purposes of the Investment Canada
Act.
6. All representations, warranties and covenants contained in this
agreement shall survive the execution and delivery of this Agreement
and the completion of the transactions contemplated herein.
7. Each of the parties hereto shall from time to time execute and deliver
all such further documents and instruments and do all acts and things
as the other parties may reasonably require to effectively carry out or
better evidence or perfect the full intent and meaning of this
Agreement.
8. Time shall be of the essence of this Agreement.
9. This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns.
-2-
<PAGE>
10. This Agreement shall be governed by and construed in accordance with
the laws of the Province of Ontario.
11. No modification of or amendment to this agreement shall be valid and
binding unless set forth in writing duly executed by the parties
hereto.
12. All dollar amounts referred to in this Agreement are in American funds.
IN WITNESS WHEREOF the parties hereto have executed this agreement.
XITE JEWELRY.COM INC.
Per:_______________________________
Name: Daniel Berkovits
Title: President
I/we have authority to bind the Corporation.
DG JEWELRY INC.
Per:_______________________________
Name: Jack Berkovits
Title: President
I/we have authority to bind the Corporation.
-3-
<PAGE>
SCHEDULE "A"
THIRD-PARTY AGREEMENTS
1. Agreement between DG Jewelry Inc. and Ubid.com dated the 29th day of
March 1999.
2. Agreement between DG Jewelry Inc. and Bid.com, dated the 22nd day of
January, 1999.
3. Agreement between DG Jewelry Inc. and Dealdeal dated the 23rd day of
March, 1999.
-4-
<PAGE>
THIS AGREEMENT made as of the 29th day of January, 1999.
BETWEEN:
XITE JEWELRY.COM INC., a corporation incorporated
pursuant to the laws of the Province of Ontario,
(hereinafter called the "Assignee")
OF THE FIRST PART
- and -
DG JEWELRY INC., a corporation incorporated
pursuant to the laws of the Province of Ontario,
(hereinafter called the "Assignor")
OF THE SECOND PART
WHEREAS Assignor wishes to transfer and assign to Assignee and Assignee
wishes to acquire from Assignor all of Assignor's right, title and interest in
and to: (1) the domain names "xitejewelry.com" and "xitejewelry.net" (the
"Domain Names"); (2) any and all code used in connection with the operation or
proper functioning of the web-site located at the internet address (the "Web
Site"), including but not limited to, any and all HyperText Markup Language,
computer programming/formatting code, images, files necessary to make image maps
function and any server code written in respect or related to the forms,
buttons, check-boxes and other similar items (the "Code"); (3) all software
utilized in respect of the creation, maintenance or operation of the Web Site
(the "Ancillary Software"); (4) all third party contracts which relate to the
Code and any third party contracts which relate to the operation, maintenance or
hosting of the Domain Names and/or the Web Site including any agreements with
any internet service providers, purchase transaction facilitators or Web Site
traffic or hit tracking services, including but not limited to, any agreements
with Webtrends Corporation, Cybercash Inc. and Paymentech Inc. (the "Ancillary
Contracts"); (5) all intellectual property associated wit the Web Site and
Domain Name (the "Intellectual Property") and (6) any documentation relating to
the Code and the Domain Names, (the Domain Names, Web Site, Code, Ancillary
Software, Ancillary Contracts and Intellectual Property are hereinafter
collectively referred to as the "Assigned Assets");
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
promises and the mutual covenants hereinafter contained the receipt of which and
sufficiency whereof is hereby acknowledged, the parties hereto covenant and
agree as follows:
-1-
<PAGE>
1. Assignor hereby transfers and assigns to Assignee and Assignee hereby
acquires the Assigned Assets from Assignor upon the terms herein set
forth.
2. The Assignee and the Assignor acknowledge and agree that the purchase
price (the "Purchase Price") for the Assigned Assets shall be Five
Dollars ($5.00) which the Assignee has delivered to the Assignor
concurrently with the execution of this agreement.
3. Assignee represents and warrants to the Assignor as follows:
(a) It has been duly incorporated under the laws of the Province
of Ontario and is a validly subsisting corporation;
(b) It has full authority to enter into and carry out the
provisions of this Agreement; and
(c) It is not a "non-Canadian" for the purposes of the Investment
Canada Act.
4. Assignor represents and warrants to the Assignee as follows:
(a) It has been duly incorporated under the laws of the Province
of Ontario and is a validly subsisting corporation;
(b) It has full authority to enter into and carry out the
provisions of this Agreement;
(c) It has not previously assigned the Assigned Assets to any
other party or parties;
(d) It has taken all necessary steps to transfer the Assigned
Assets to Assignee in such manner as may be reasonably
required by Assignee and other than as may be stated above,
the Assigned Assets are transferred and assigned on an `as is,
where is' basis; and
(e) It is neither a "non-resident" for the purposes of the Act nor
a "non-Canadian" for the purposes of the Investment Canada
Act.
5. All representations, warranties and covenants contained in this
agreement shall survive the execution and delivery of this Agreement
and the completion of the transactions contemplated herein.
6. Each of the parties hereto shall from time to time execute and deliver
all such further documents and instruments and do all acts and things
as the other parties may reasonably require to effectively carry out or
better evidence or perfect the full intent and meaning of this
Agreement.
7. Time shall be of the essence of this Agreement.
-2-
<PAGE>
8. This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns.
9. This Agreement shall be governed by and construed in accordance with
the laws of the Province of Ontario.
10. No modification of or amendment to this agreement shall be valid and
binding unless set forth in writing duly executed by the parties
hereto.
11. All dollar amounts referred to in this Agreement are in Canadian funds.
IN WITNESS WHEREOF the parties hereto have executed this agreement.
XITE JEWELRY.COM INC.
Per:_______________________________
Name: Daniel Berkovits
Title: President
I/we have authority to bind the Corporation.
DG JEWELRY INC.
Per:_______________________________
Name: Jack Berkovits
Title: President
I/we have authority to bind the Corporation.
-3-
<PAGE>
Exhibit 10.17
NETJEWELS.COM, INC.
1001 Petrolia Road
North York, Ontario M3J 2X7
_____________, 2000
(Name and Address of Officer and/or Director)
Re: Indemnification
Dear (Officer and/or Director):
In connection with your serving as a member of our board of directors
and as an officer of the company, we hereby agree to indemnify you to the
fullest extent allowed under the General Corporation Law of the state of
Delaware for any acts or omissions occurring as a result of the performance of
your duties as an officer or director of NetJewels.com, Inc.
NetJewels.com, Inc.
Sincerely,
Daniel Berkovits
CEO
<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, LLP
Schwartz Levitsky Feldman, LLP, Chartered Accountants
Toronto, Canada
January 18, 2000
<PAGE>
Exhibit 23.2
CONSENT OF GERSTEN, SAVAGE & KAPLOWITZ, LLP
The undersigned, Gersten, Savage & Kaplowitz, LLP, hereby consents to
the use of our name and of our opinion for NetJewels.com, Inc. (the "Company")
as filed with its Registration Statement on Form S-1, and any amendments
thereto.
January 18, 2000 /s/ Gersten, Savage & Kaplowitz, LLP
------------------------------------
Gersten, Savage & Kaplowitz, LLP
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001098114
<NAME> NETJEWELS.COM, INC.
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUN-30-1999
<PERIOD-END> NOV-30-1999
<CASH> 12,355
<SECURITIES> 0
<RECEIVABLES> 223,321
<ALLOWANCES> 02
<INVENTORY> 0
<CURRENT-ASSETS> 235,676
<PP&E> 1,620,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,855,676
<CURRENT-LIABILITIES> 3,609,614
<BONDS> 0
3,300
0
<COMMON> 0
<OTHER-SE> (1,757,238)
<TOTAL-LIABILITY-AND-EQUITY> 1,855,676
<SALES> 699,051
<TOTAL-REVENUES> 699,051
<CGS> 548,075
<TOTAL-COSTS> 548,075
<OTHER-EXPENSES> 1,555,067
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,404,091)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,404,091)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,404,091)
<EPS-BASIC> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
