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As filed with the Securities and Exchange Commission on January 13, 2000
Registration No. 333-91439
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
____________________________________
AMENDMENT NO. 1 TO
FORM S-1
Registration Statement
Under the Securities Act of 1933
(Exact name of Registrant as specified in its charter)
DELAWARE 7379 13-3911740
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification Number)
organization) Code Number)
6060 RICHMOND AVENUE, HOUSTON, TEXAS 77057, (713) 975-8700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
CHARLES W. SKAMSER
EBASEONE CORPORATION
6060 RICHMOND AVENUE
HOUSTON, TEXAS 77057, (713) 975-8700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
THOMAS C. PRITCHARD OR
CAVAS S. PAVRI
BREWER & PRITCHARD, P.C.
1111 BAGBY, 24TH FLOOR
HOUSTON, TEXAS 77002
PHONE (713) 209-2911
FACSIMILE (713) 209-2921
_____________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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,
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, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
_____________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE BEING OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock to be Resold.......... 4,556,609 $8.00 $36,452,872 $10,134(2)
- ---------------------------------------------------------------------------------------------------------
TOTAL.............................. 4,556,609 $8.00 $36,452,872 $10,134(2)
=========================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457, based on the closing price per share of $8.00 on
November 19, 1999 as reported on the OTC Electronic Bulletin Board.
(2) Previously paid.
_________________________
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 or until the registration statement shall become effective
on such date as the SEC, acting pursuant to said Section 8(a), may determine.
<PAGE>
Subject to Completion, Dated January 13, 2000
Preliminary Prospectus
The information in this prospectus is not complete and may be changed. The
selling stockholders may not sell the common stock covered by this prospectus
until the registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell the common
stock and it is not soliciting an offer to buy the common stock in any state
where the offer or sale is not permitted.
_______________
EBASEONE CORPORATION
RESALE OF 4,206,233 SHARES OF COMMON STOCK
This prospectus relates to the resale of shares of our common stock by the
stockholders listed on page 51, which is not being underwritten. We will not
receive any proceeds from the sale of these shares.
Our common stock trades on the OTC Electronic Bulletin Board under the
symbol EBAS. On January 11, 2000, the last reported bid price of our common
stock was $6.06.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES
ONLY IF YOU CAN AFFORD A COMPLETE LOSS. WE URGE YOU TO READ THE "RISK FACTORS"
SECTION BEGINNING ON PAGE 6 ALONG WITH THE REST OF THIS PROSPECTUS BEFORE YOU
MAKE YOUR INVESTMENT DECISION.
Neither the SEC nor any state securities commission has approved or
disapproved of these securities, or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
___________________________
The date of this prospectus is ________________ , 2000
<PAGE>
TABLE OF CONTENTS
PAGE
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 13
Price Range of Common Stock............................................... 13
Dividend Policy........................................................... 14
Selected Financial Data................................................... 15
Management Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business.................................................................. 22
Management................................................................ 33
Certain Relationships and Related Transactions............................ 41
Principal Stockholders.................................................... 43
Description of Capital Stock.............................................. 45
Shares Available for Future Sale.......................................... 49
Selling Stockholders...................................................... 51
Plan of Distribution...................................................... 54
Experts................................................................... 55
Legal Matters............................................................. 55
Where You Can Find More Information....................................... 55
Financial Statements...................................................... F-1
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained in this prospectus.
To understand this offering fully, you should read the entire prospectus
carefully, including the risk factors beginning on page 6 and the financial
statements. Unless otherwise indicated, this prospectus assumes that no
outstanding options or warrants are exercised.
EBASEONE CORPORATION
We are an application service provider, or ASP. We offer a complete ASP
solution including:
. state-of-the-art computer technology and facilities,
. system engineers,
. systems integration services,
. application experts,
. end-user training,
. best-practices consulting, and
. 24 hour per day customer service.
Our ASP solution is focused on hosting software applications which are
accessible through the Internet or private leased lines. We currently support
two ASP offerings, OneServ(SM) for the small and medium sized business market
and CorServ(SM) for independent software vendors and other third party software
providers.
In today's fast paced and competitive business environment, we believe it
is essential for small and medium sized businesses to utilize leading packaged
software solutions and Internet-based technology to compete. However, we believe
these solutions are often too expensive for many small and medium sized
businesses, as the total cost of ownership typically includes:
. the up-front cost of hardware and software licenses,
. the initial cost of customization,
. installation and training, and
. the ongoing costs of hardware and software maintenance combined with
the ongoing costs of employing technical personnel.
Through our OneServ(SM) offering, we provide an integrated and
comprehensive solution of leading packaged software applications hosted in a
high quality data center all for a flat monthly fee. Under our ASP model, we
believe we enable small and medium-sized businesses to lower the overall total
cost of high-end software application ownership without having to make a large
up-front investment or maintain an expensive information technology staff.
Through our CorServ(SM) offering, we provide state-of-the-art server
technology, technical infrastructure and network connectivity for independent
software vendors and systems integrators to host their applications and to
allow their customers to access them via our high-speed fiber optics network.
We believe our CorServ(SM) offering will allow independent software vendors and
systems integrators to reach a larger market without incurring the expenses of
developing and maintaining a state-of-the-art application delivery
infrastructure.
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We began offering our ASP services in November 1999. Before November 1999,
our revenue came from our software application reseller business provided by
Prime Net, our subsidiary. For the fiscal year ended September 30, 1999, we had
revenues of $653,809 and net losses of $2,248,185. The losses were primarily
the result of our efforts to initiate our ASP services. As of November 1999, we
had consolidated Prime Net's operations into our ongoing operations, and
although we intend to continue to operate Prime Net's reseller business, our
primary business operations will focus on our ASP services.
We maintain a web site at www.ebaseone.com. Information contained on our
web site does not constitute part of this prospectus. Our principal executive
offices are located at 6060 Richmond, Houston, Texas 77057, and our telephone
number is (713) 975-8700. All references to we, our, or us refer to ebaseOne
Corporation, a Delaware corporation, and our subsidiaries.
We have applied for federal registration of the marks OneServ(SM) and
CorServ(SM), but we may not receive these marks. This prospectus also includes
trademarks, service marks, and trade names of other companies.
THE OFFERING
Common stock outstanding 37,905,571 shares.
Common stock to be offered by
our selling stockholders......... 4,206,233 shares, including 1,359,713
shares underlying warrants.
Market for our common stock...... Our common stock currently trades on the
OTC Bulletin Board under the symbol EBAS.
The market for our common stock is highly
volatile. We can provide no assurance that
there will be a market in the future for
our common stock.
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SUMMARY FINANCIAL DATA
The following table contains historical and operating data of ebaseOne for
each of the three fiscal years ended September 30, which is derived from our
consolidated audited financial statements. This data is in the thousands of
dollars, except for per share amounts.
Year Ended September 30,
-----------------------------
1999 1998 1997
------- ------- -------
STATEMENT OF OPERATIONS DATA:
Revenues.............................. $ 654 $ 684 $ 65
Operating Expenses.................... 2,855 1,139 281
Net Loss.............................. (2,248) (472) (225)
Loss Per Share - Basic and Diluted.... $(.08) $(.03) $(.02)
Weighted Average Shares Outstanding
Basic and Diluted.................... 26,967 15,660 12,608
As of September 30,
-----------------------------
1999 1998 1997
------- ------- -------
BALANCE SHEET DATA:
Working Capital (Deficit) (458) 66 (15)
Total Assets.......................... 701 371 97
Stockholders' Equity (Deficit)........ (524) 121 14
Revenues for the year ended September 30, 1999 were derived from our non-ASP
services.
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RISK FACTORS
Any investment in shares of our common stock involves a high degree of
risk. You should carefully consider the following information about these risks,
together with the other information contained in this prospectus, before you
decide to buy our common stock. If any of the following risks actually occur,
our business would likely suffer. In these circumstances, the market price of
our common stock could decline, and you may lose all or part of the money you
paid to buy our common stock.
WE HAVE A LIMITED OPERATING HISTORY FOR YOU TO EVALUATE. YOU WILL HAVE TO MAKE
YOUR INVESTMENT DECISION ON THIS LIMITED OPERATING HISTORY, WHICH MAY NOT BE
REPRESENTATIVE OF OUR FUTURE OPERATIONS.
We have a limited operating history for you to analyze or to aid you in
making an informed judgement concerning the merits of an investment in our
securities. To date, substantially all of our revenue generating activities
have been derived from Prime Net's business. Although we have begun to
implement our ASP business strategy, we have to date conducted no revenue
generating operations in connection with our current ASP business strategy.
Therefore, we can provide no assurance that we will be able to generate revenue
from our proposed operations, or if we do generate revenue, that we will be
profitable.
WE HAVE HAD LOSSES SINCE INCEPTION, WE EXPECT TO CONTINUE TO HAVE LOSSES AT
LEAST UNTIL THE END OF FISCAL 2000, AND WE MAY NEVER BECOME PROFITABLE.
All of our financial disclosures refer to our subsidiary, Prime Net. Since
inception, we have experienced operating losses for each quarterly and annual
period. For the year ended September 30, 1999, we had:
. revenues of $653,809;
. general and administrative expenses of $2,209,269; and
. net losses of $2,248,185.
We anticipate increased expenses as we continue to expand and improve our
infrastructure, invest in additional applications, expand our sales and
marketing efforts, and pursue additional industry relationships. As an early-
stage company, we do not have the operating experience to estimate what the
extent of these expenditures will be at this time, but they will increase as we
expand. As a result, we expect to incur operating losses for our fiscal year
ending September 30, 2000 and beyond. We cannot assure you that we will ever
achieve profitability or, if we ever achieve profitability, that it will be
sustainable.
WE WILL NEED ADDITIONAL CAPITAL TO EXECUTE OUR BUSINESS STRATEGY PAST AUGUST
2000, AND DO NOT HAVE ANY COMMITMENTS FOR CAPITAL AT THIS TIME.
If we are unable to obtain additional capital, we will not be able to fully
execute our business strategy.
We intend to invest heavily in marketing and promotion, technology and
operating infrastructure, and to aggressively seek additional software
providers. To execute our business strategy, we will require more capital than
we currently have or have commitments to receive.
In October and November 1999, we raised $9,445,921 through the sale of
securities, of which $3 million will be funded on the effective date of this
registration statement. This registration statement may never become effective,
and if it does not we will adjust our expenditures to account for the lack of
funding. Assuming that this registration statement becomes effective, we
estimate that we have sufficient cash to fund operations until August 2000,
although this period may be shortened by factors beyond our control.
After August 2000, we will be required to seek additional capital to
continue to fund our business operations. As we have no credit facilities
currently available to us, we will need additional equity capital to fund our
operations and finance our growth, and we may not be able to obtain it on terms
acceptable to us, or at all. Our
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failure to obtain additional capital may result in our ceasing to conduct
business, curtailing operations, or bringing cash flows into balance by some
other method.
THE FINANCIAL INFORMATION IN THIS PROSPECTUS PRIMARILY DESCRIBES PRIME NET'S
SOFTWARE RESELLER BUSINESS. SINCE WE HAVE CHANGED OUR BUSINESS FOCUS TO THE ASP
INDUSTRY, THE HISTORICAL FINANCIAL INFORMATION WILL BE OF LIMITED VALUE TO YOU
IN MAKING AN INVESTMENT DECISION.
The financial information included in this prospectus describes the
historical business of our subsidiary, Prime Net. Although we intend to
continue the software reseller business, we have shifted our primary focus to
the ASP business. As such, the financial information will not help you to
analyze our ongoing ASP business.
OUR FINANCIAL STATEMENTS INCLUDE AN EXPLANATORY PARAGRAPH ABOUT OUR ABILITY TO
CONTINUE AS A GOING CONCERN, WHICH MEANS THAT WE WILL NEED ADDITIONAL CAPITAL TO
CONTINUE OUR OPERATIONS.
The operating losses incurred since our inception raise substantial doubt
about our ability to meet future expected expenditures necessary to fully
develop our business strategy and to continue as a going concern. Our
independent auditors have issued an explanatory paragraph in their opinion in
connection with our financial statements for the year ended September 30, 1999,
about the uncertainty concerning our ability to continue as a going concern. We
will need to raise additional capital in the future to fund our own operations,
and our failure to do so could result in our ceasing to do business.
WE ONLY HAVE A FEW ASP CUSTOMERS AND WE WILL NEED TO SIGN CONTRACTS WITH MANY
ADDITIONAL CUSTOMERS IF WE INTEND TO BECOME PROFITABLE IN THE FUTURE.
We began our ASP operations in November 1999, and as of January 11, 2000,
we had signed a total of three contracts with customers to provide ASP services.
As we have just begun to market our ASP services, we believe that we will
increase our customer base in the future. However, the ASP market is extremely
competitive and we may not be able to increase our customer base at a sufficient
rate to fund operations.
YOU SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY, AND SHOULD NOT CONSIDER ANY
PARTICULAR STATEMENT IN THIS PROSPECTUS OR ON OUR WEB SITE OR ANY PUBLISHED
FINANCIAL PROJECTIONS WITHOUT CAREFULLY CONSIDERING THE RISKS AND OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS.
In two interviews in an Internet periodical, on October 20, 1999 and on
December 1, 1999 and on the "Message from the CEO" section of our web site, our
chief executive officer predicted our revenues would be $500,000 in 1999, $12
million in 2000, and $75 million in 2001, and predicted that we would have 200
customers by the end of 2000 and that we would be a $1 billion company in four
years. These projections are based upon a number of estimates and assumptions
and are inherently subject to significant uncertainties and contingencies,
including the volume and size of customer orders, market penetration, and
competition. These projections were not prepared with a view toward compliance
with published guidelines of the SEC, the American Institute of Certified Public
Accountants, or generally accepted accounting principles. No independent
accountants have expressed an opinion or any other form of assurance on these
projections. Projections are necessarily speculative in nature, and it can be
expected that one or more of the estimates on which the projections were based
will not materialize or will vary significantly from actual results, and these
variances will likely increase over time. We also have a very limited operating
history from which to derive financial projections. Therefore, actual results
during the periods covered will vary from the financial projections, and the
variations may be material and adverse. For these reasons, you should only
consider these projections after carefully evaluating all of the information in
this prospectus, including the risks described in this section and throughout
this prospectus.
We have received, and may continue to receive, media coverage, including
coverage that is not directly attributable to statements made by our officers
and employees. We have not confirmed, endorsed, or adopted any statements that
were not directly made by us and confirmed in this prospectus. To the extent
any statements are inconsistent with, or conflict with, the information
contained in this prospectus, or relate to information not
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contained in this prospectus, they are disclaimed by us. Accordingly, you should
not rely on statements that were not made by us.
WE MAY NOT BE ABLE TO DELIVER OUR SERVICES IF THIRD PARTIES DO NOT PROVIDE US
WITH KEY COMPONENTS OF OUR INFRASTRUCTURE.
We will depend on other companies to supply key components of the
telecommunications and computer equipment, telecommunication services, and
software, which we will use to provide ASP services. Any failure to obtain
needed products or services in a timely fashion and at an acceptable cost could
have a material adverse effect on our business. Moreover, a disruption in
telecommunications capacity, which is provided by third parties, could prevent
us from maintaining the standard of service that we commit to with our clients,
which may cause us to credit clients' accounts, which would reduce our revenues.
Although we have not experienced any significant hardware delivery or
network failures, these failures have occurred in the technology industry. For
example, some computer models have, at times, been placed on back-order due to
component shortages or unanticipated demand in the marketplace. In addition,
although we have not been affected by a network outage, major network outages
have occurred in the past. Were such an outage to affect us, we may not be able
to deliver an adequate level of service to our customers.
OUR ABILITY TO PROVIDE ASP SERVICES DEPENDS ON STRATEGIC RELATIONSHIPS WITH
SOFTWARE VENDORS THAT WE MAY NOT BE ABLE TO OBTAIN OR MAINTAIN.
Our ability to provide cost efficient and reliable ASP services to our
clients is key to our business strategy. We will derive revenues from projects
in which we customize, implement, or host software applications developed by a
variety of software vendors. We are in the process of entering into software
licensing agreements with these software vendors. All the agreements may be
terminated upon a breach of the agreement. We cannot be sure that any of our
agreements with software vendors will be renewed in the future. If any of these
agreements are terminated, not renewed, or we cannot continue to use the
software for any reason, we may have to discontinue services or delay their
introduction unless we can find, license, and package comparable software. In
addition, we can provide no assurance that if we were able to obtain similar
software products, that the terms of the licensing agreement would be favorable,
or that our clients would accept comparable software products as substitutes.
Not only is our success dependent upon the continued popularity of the
product offerings of our current vendors, it is also dependent on our ability
to establish relationships with new vendors in the future. As new software
applications are released, if we are unable to enter into agreements with these
software vendors, we may be unable to compete in the ASP market.
WE HAVE A NEW MANAGEMENT TEAM AND WE DEPEND ON KEY PERSONNEL IN AN INDUSTRY THAT
HAS A SHORTAGE OF QUALIFIED PERSONNEL.
Our success is substantially dependent on the continued service and
performance of our senior management and other key personnel. The majority of
our senior management and technical staff joined ebaseOne in 1999, have not
worked together previously, and are just being integrated as a management team.
As a result, our senior and technical managers may not work effectively as a
team. In addition, due to the competitive nature of our industry, we may not be
able to retain all of our senior managers.
Our performance also depends on our ability to retain and motivate other
key employees. The loss of the services of any of our key management personnel
could have a negative effect on our business. If we do lose any of these
people, we will be required to hire new employees, which is time consuming and
may not be possible due to the shortage of qualified personnel in our industry.
In addition, we do not maintain life insurance policies for any key personnel.
Our future success also depends on our ability to attract, hire, and retain
other highly skilled personnel. Competition for personnel in our industry is
intense, and we may not be able to successfully attract, assimilate, or retain
qualified personnel.
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WE FACE SECURITY RISKS IN CONNECTION WITH OUR ABILITY TO PROTECT OUR HARDWARE
FROM DAMAGE, EITHER PHYSICALLY OR THROUGH COMPUTER VIRUSES, AND WITH OUR ABILITY
TO PROTECT OUR CUSTOMERS' CONFIDENTIAL INFORMATION.
Our success largely depends on the efficient and uninterrupted operation of
our computer and communications hardware systems. All of our computer and
communications hardware is currently located at a leased facility in Houston,
Texas. Our hardware is vulnerable to:
. computer viruses;
. physical or electronic break-ins; and
. physical vulnerability to damage or interruption from fire, flood, long-
term power loss, and telecommunications failures.
These events could lead to delays, loss of data, or interruptions in
service which could subject us to liability and harm our reputation. We do not
presently have a disaster recovery plan, and do not expect to formulate and
complete a disaster recovery plan until the second quarter of our current fiscal
year. We currently do not carry any business interruption insurance to
compensate for losses that may occur.
A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. We rely on
technology to provide the security to secure the transmission of confidential
information. However, we can provide no assurance that advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments will not result in a compromise or breach of the methods used to
protect customer data. If any compromise of our security were to occur, our
reputation and business would suffer. A party who is able to circumvent our
security measures could misappropriate proprietary information or cause
interruptions in our operations or the operations of our customers. We may be
required to expend significant capital and other resources to protect against
security breaches or to alleviate problems caused by security breaches.
OUR FAILURE TO MEET CLIENT EXPECTATIONS OR DELIVER ERROR-FREE SERVICES COULD
RESULT IN LOSSES AND SUBSTANTIAL LIABILITY.
The application hosting services we provide our clients are critical to
their businesses. Any defects or errors in our services or any failure to meet
clients' expectations could result in:
. delayed or lost revenues due to adverse client reaction;
. requirements to provide additional services to a client at no charge;
. limited credits of monthly application hosting fees for failure to meet
service level obligations; and
. claims for substantial damages against us, regardless of our
responsibility for such failure, which may not be limited by the
contractual terms of our engagement.
In addition, we currently do not have any business liability insurance to
compensate for any losses or claims that may arise from our business operations.
THE EXPANSION OF OUR BUSINESS HAS PLACED, AND CONTINUES TO PLACE, A SIGNIFICANT
STRAIN ON OUR MANAGEMENT, OPERATING INFRASTRUCTURE AND RESOURCES AND COULD
SERIOUSLY HARM US.
We expect to expand our operations, and anticipate that further significant
expansion will be required to address potential growth in our customer base and
market opportunities. This expansion may place a significant strain on our
resources. We expect to hire new employees including a number of key
managerial, technical, and
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operations personnel. We also expect to expand our network of data centers and
increase infrastructure. Finally, we will need to improve existing and implement
new operational and financial systems, procedures, and controls.
WE ARE DEPENDING ON THE GROWTH IN DEMAND FOR APPLICATION HOSTING SERVICES, A NEW
AND EVOLVING INDUSTRY. IF THE MARKET DOES NOT GROW AS QUICKLY AS WE ESTIMATE,
OUR REVENUES MAY SUFFER.
Our ability to increase revenues and achieve profitability depends on the
growth in demand for and the acceptance of application hosting services by small
and medium-sized businesses. The market for these services has only begun to
develop and is evolving rapidly. We believe that many potential clients are not
currently aware of the advantages of outsourcing information technology
services. However, it is possible that these solutions may never achieve market
acceptance. If the market for our services does not grow, or grows less rapidly
than we currently anticipate, our revenues will suffer.
WE ARE A NEW ENTRANT IN A HIGHLY COMPETITIVE MARKET AND ANY FAILURE TO COMPETE
IN THIS MARKET SUCCESSFULLY WILL LIMIT OUR ABILITY TO RETAIN OR INCREASE OUR
MARKET SHARE.
The market for application hosting services is new, rapidly evolving, and
highly competitive, and we expect this trend to continue and intensify in the
future. Any failure to enhance our competitive position, both regionally and
nationally, will limit our ability to increase our market share. Most of our
competitors are substantially larger than us, serve larger markets, and have
much greater financial and personnel resources. Furthermore, many of our
competitors have well established and experienced marketing and sales
capabilities and greater name recognition than we have. As a result, our
competitors may be in a stronger position to respond quickly to new or emerging
technologies and changes in client requirements. To increase our competitive
position, we must enhance and improve the responsiveness, functionality, and
features of our services.
OUR ASP CONTRACTS REQUIRE US TO MEET SPECIFIED PERFORMANCE LEVELS. SINCE WE ARE
AN EARLY-STAGE COMPANY WITHOUT SIGNIFICANT OPERATING EXPERIENCE, WE MAY MISJUDGE
THE LEVEL OF PERFORMANCE THAT WE ARE ABLE TO PROVIDE.
We derive the majority of our revenues from contracts where we provide
services and support to clients with the expectation of a specified measured
level and quality of service. If we misjudge the time or the constraints in
which we provide services or are unable to maintain the agreed upon performance
levels, we may have to credit a portion of our application hosting fees to our
clients, which may cause us to incur losses in connection with that client.
Since we are an early-stage company, we may not have the operating experience to
determine if we can consistently achieve the service levels we agree on with our
customers.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY WE MAY LOSE A VALUABLE
ASSET OR COMPETITIVE ADVANTAGE OR INCUR COSTLY LITIGATION TO PROTECT OUR RIGHTS.
If third parties infringe or misappropriate our intellectual property or
our proprietary information, our business could be seriously harmed. We can
give no assurance that the steps we have taken to protect our proprietary
interests will be adequate or that third parties will not infringe or
misappropriate our proprietary interests. Any infringement claims asserted
against us could subject us to significant liability for damages and could
result in invalidation of our proprietary rights and, even if not meritorious,
could be time-consuming and expensive to defend.
OUR BUSINESS IS DEPENDENT ON THE MAINTENANCE AND DEVELOPMENT OF THE INTERNET
INFRASTRUCTURE, WHICH WE DO NOT CONTROL.
Our success will depend, in large part, upon the maintenance of the
Internet infrastructure, as a reliable network backbone with the necessary
speed, data capacity, and security. To the extent that the Internet continues
to experience increased numbers of users and increased requirements of users, we
can provide no assurance that the Internet infrastructure will continue to be
able to support the demands placed on it or that the performance or reliability
of the Internet will not be adversely affected. Furthermore, the Internet has
experienced a variety of
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outages and other delays as a result of damage to portions of its
infrastructure, and these outages and delays could hinder our ability to provide
services.
WE HAVE RESERVED A SIGNIFICANT NUMBER OF SHARES OF OUR COMMON STOCK FOR ISSUANCE
UPON THE EXERCISE OF WARRANTS AND OPTIONS. THE ISSUANCE OF THESE SHARES WILL
HAVE A DILUTIVE EFFECT ON OUR COMMON STOCK AND MAY LOWER OUR STOCK PRICE.
We have reserved a large number of shares to be issued on the exercise of
options and warrants. The majority of the options and warrants have exercise
prices that are below our current market price. The issuance of these shares
will dilute our common stock and may hurt our stock price. As of January 11,
2000, we have reserved 25,142,895 shares of common stock for issuance on the
exercise of outstanding warrants, options issued outside of our stock option
plan. The warrants and options have exercise prices ranging from $0.125 to
$5.18 per share and expire between November 2000 and August 2006. In addition,
as of January 11, 2000, we have reserved 5,000,000 shares of common stock for
issuance under our stock option plan of which we have issued options to purchase
631,300 shares at exercise prices ranging from $0.25 to $2.75 per share, which
expire between April 2009 and November 2009.
In addition to the above warrants, as part of our November 1999 financing
in which we raised $9 million, we issued to each investor a two-year adjustable
warrant that vests and becomes exercisable after February 15, 2000 if our common
stock is trading below $5.31 per share. The purchase price is $.001 per share
and the number of shares underlying the adjustable warrants is based on the
market price of our common stock, and cannot be determined at this time. We may
cancel the adjustable warrants for any future vesting if our stock price is at
least $8.64 per share for 20 consecutive trading days following the effective
date of this registration statement. We have included 21,825 shares underlying
the adjustable warrants in this registration statement. This amount is our good
faith estimate of the number of shares that we believe will need to be issued
under the adjustable warrants at this time. We can provide no assurance that
more shares will need to be issued, and if we are required to issue additional
shares we will be required to file an additional registration statement for
those shares, a process which is costly and time consuming. In addition, since
we may need to issue an indeterminate number of shares, this adjustable warrant
may have a substantial dilutive effect on our common stock.
SEVENTY-FIVE PERCENT OF OUR TOTAL OUTSTANDING SHARES ARE RESTRICTED FROM
IMMEDIATE RESALE BUT MAY BE SOLD INTO THE MARKET AS EARLY AS MAY 2000. THE SALE
OF THESE SHARES COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DROP
SIGNIFICANTLY, EVEN IF OUR BUSINESS IS DOING WELL.
As of January 11, 2000, we have 37,905,571 shares of common stock issued
and outstanding. In May 2000, substantially all of our shares of common stock
will be freely tradeable subject to Rule 144, however, 15,741,958 of these
shares are subject to a lock-up agreement expiring in November 2000, after which
they will become freely tradeable subject to Rule 144. As the restrictions on
resale end and these shares are sold into the market, the price of our common
stock could drop significantly if the holders of these restricted shares sell
them or are perceived by the market as intending to sell them.
OUR STOCK PRICE, LIKE MANY OTHER TECHNOLOGY RELATED COMPANIES, HAS EXPERIENCED
EXTREME VOLATILITY.
The market for our securities is highly volatile. The closing price of our
common stock has fluctuated between $0.39 and $17.50 per share since June 11,
1999, the date our common stock began trading on the OTC Bulletin Board as
ebaseOne Corporation under the symbol EBAS. The stock markets have in general,
and technology companies in particular, experienced extreme stock price
volatility. The stock markets may continue to experience volatility that may
adversely affect the market price and trading volume of our common stock. Stock
prices for many companies in the technology and emerging growth sector have
experienced wide fluctuations that have often been unrelated to their financial
performance. It is likely that the price of our common stock will continue to
fluctuate widely in the future.
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ANY RETURN ON YOUR INVESTMENT IN OUR COMMON STOCK WILL DEPEND ON YOUR ABILITY TO
SELL OUR COMMON STOCK AT A PROFIT AND WILL LIKELY NOT BE FROM THE RECEIPT OF
DIVIDENDS.
Some investors favor companies that pay dividends. We have never declared
or paid any dividends. In addition, we do not anticipate that we will declare
dividends in the near future. Instead, we will retain any earnings for use in
our business. As a result, your return on an investment in our stock will
likely depend on your ability to sell our stock at a profit.
WE COULD BE DE-LISTED FROM THE OTC ELECTRONIC BULLETIN BOARD, WHICH MAY LOWER
THE PRICE OF OUR COMMON STOCK AND DECREASE THE VOLUME IN OUR COMMON STOCK.
We could be de-listed from the OTC Electronic Bulletin Board if we do not
become a company that files reports with the SEC by February 24, 2000. On
January 4, 1999, the SEC approved amendments to the National Association of
Securities Dealer's Rules 6530 and 6540 to limit quotations on the OTC
Electronic Bulletin Board to the securities of companies that report their
current financial information to the SEC. The rules allow for a phase-in period
for compliance with the new rules, and according to the phase-in period we have
until February 24, 2000 to comply. To comply we will have to file a
registration statement with the SEC and have the SEC declare the registration
statement to be effective before our February 24, 2000 deadline. This
prospectus is part of the registration statement that has been filed with the
SEC. If the SEC does not declare our registration statement effective before
our February 24, 2000 deadline, our common stock will no longer trade on the OTC
Electronic Bulletin Board, and will begin trading on the "pink sheets."
Typically, stocks that trade on the pink sheets have limited liquidity. As
such, your ability to sell our common stock could be severely limited, if any
market for our common stock remains at all.
PENNY STOCK REGULATIONS MAY DECREASE YOUR ABILITY TO SELL OUR COMMON STOCK BY
REDUCING THE AMOUNT OF TRADING VOLUME THAT OCCURS IN OUR COMMON STOCK.
The SEC has adopted rules that regulate broker-dealer practices in
connection with transactions in "penny stocks." Penny stocks generally are
equity securities with a price of less than $5.00. The penny stock rules
require a broker-dealer, before a transaction in a penny stock not exempt from
the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the nature and level of risks in the penny
stock market. These disclosure requirements may have the effect of reducing the
level of trading activity in any secondary market for a stock that becomes
subject to the penny stock rules. Our common stock may be subject to the penny
stock rules, and investors purchasing shares under this prospectus may find it
difficult to sell their shares in the future, if at all.
WE MAY NOT BE ABLE TO USE OUR NET OPERATING LOSS CARRYFORWARDS.
As of September 30, 1999, we had $2,708,000 in net operating loss
carryforwards. Although these losses do not begin to expire until 2009, we may
be greatly limited in our use of these carryforwards due to IRS regulations that
limit the use of carryforwards after a change of control. We have not done an
analysis of the possible use of any carryforwards, or to determine if we have
already experienced a change of control, but you should assume that any use will
be greatly limited.
A NOTE ABOUT THE FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS
Some of the statements contained in this prospectus discuss future
expectations, contain projections of results of operations or financial
condition, or state other forward-looking information. These statements are
subject to known and unknown risks and uncertainties that could cause our actual
results to differ materially from those contemplated by the statements. The
forward-looking information is based on various factors and is derived using
numerous assumptions. Important factors that may cause actual results to differ
from projections include:
. the success or failure of our efforts to execute our business strategy;
. our ability to raise sufficient capital to meet operating requirements;
. the uncertainty of demand for our ASP services;
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. our ability to protect our intellectual property rights;
. our ability to compete with major established companies;
. our ability to attract and retain quality employees; and
. other risks which may be described in future filings with the SEC.
We do not promise to update forward-looking information to reflect actual
results or changes in assumptions that could affect those statements.
USE OF PROCEEDS
We will not receive any proceeds from the resale of the common stock
offered under this prospectus. We will receive the proceeds from the exercise
of the warrants discussed in this prospectus. We intend to utilize any proceeds
for general corporate purposes.
PRICE RANGE OF COMMON STOCK
Since June 21, 1999, our common stock has traded on the OTC Electronic
Bulletin Board under the symbol EBAS. Before that time, our stock traded under
the symbol NRSK. The market for our common stock is highly volatile. As of
November 12, 1999, there were approximately 306 holders of record of our common
stock. On January 11, 2000, the closing price of our common stock was $6.062
per share.
The following table provides the range of high and low bid information of
our common stock for the last two fiscal years as reflected by the OTC
Electronic Bulletin Board. Such quotations reflect inter-dealer prices, without
retail mark up, mark down or commission, and may not represent actual
transactions.
FISCAL 1999 HIGH LOW
- ----------- ---- ---
1st Quarter $ 0.125 $ 0.125
2nd Quarter $ 0.50 $ 0.125
3rd Quarter $1.1875 $0.5313
4th Quarter $3.9688 $ 0.39
FISCAL 1998 HIGH LOW
- ----------- ---- ---
1st Quarter $ 4.00 $ 2.00
2nd Quarter $ 3.25 $ 2.25
3rd Quarter $ 4.00 $ 1.00
4th Quarter $0.4375 $ 0.25
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DIVIDEND POLICY
We have not declared or paid cash dividends on our common stock to date.
Our current policy is to retain earnings, if any, to provide funds for operating
and expansion of our business. Such policy will be reviewed by our board of
directors from time to time in light of our earnings and financial position.
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SELECTED FINANCIAL DATA
The following table sets forth historical consolidated financial and
operating data of ebaseOne for each of the three fiscal years ended September
30, 1999, which was derived from our consolidated audited financial statements,
and for each of the two fiscal years ended September 30, 1996, which was derived
from unaudited financial statements of ebaseOne. In the opinion of management,
the unaudited financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
data for such years. This data should be read in conjunction with ebaseOne's
consolidated financial statements, including the notes that are part of the
consolidated financial statement, and "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" included in this prospectus.
These historical results are not necessarily indicative of results to be
expected for any future period.
Years Ended September 30
---------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------ ----
(In thousands, except per share amounts)
STATEMENT OF OPERATIONS DATA:
Revenues............................ $ 654 $ 684 $ 65 $ 133 $146
Cost of Goods Sold - Products....... 357 221 18 0 0
Compensation - Professional Services 288 218 10 38 39
General and Administrative
Expenses........................... 2,209 700 253 91 99
Net Income (Loss)................... (2,248) (472) (225) 4 (16)
Loss Per Share-Basic and Diluted.... $ (.08) $ (.03) $ (.02)
Weighted Average Shares
Outstanding C Basic and Diluted ... 26,967 15,660 12,608 1,039 701
BALANCE SHEET DATA:
Working Capital (Deficit)........... $ (458) $ 66 $ (15) $ 103 $ 4
Total Assets........................ 701 371 97 189 81
Stockholders' Equity (Deficit)...... (524) 121 14 121 28
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
We are an ASP, offering an integrated solution that provides clients the
ability to use leading business software applications through an international
high-speed network connected to the Internet. Since June 1999, we have devoted
substantially all of our efforts to:
. developing our network infrastructure;
. recruiting and training personnel;
. establishing strategic business partnerships with application software
providers; and
. raising capital.
As of September 30, 1999, we had not begun to provide ASP services. We
began providing ASP services in November 1999 and as of January 11, 2000 had
entered into three contracts to provide ASP services. We have incurred a
cumulative net loss since inception and expect to incur additional losses in the
current fiscal year and beyond, due primarily to additional early-stage costs
related to implementation of our services and the continued expansion and
enhancement of our network. As of September 30, 1999, we had an accumulated
deficit of approximately $2,886,383. The operating losses incurred since our
inception raise substantial doubt about our ability to meet future expected
expenditures necessary to fully develop our business strategy and to continue as
a going concern. Our independent auditors have issued an explanatory paragraph
in their opinion in our financial statements for the year ended September 30,
1999 about the uncertainty concerning our ability to continue as a going
concern. Our plan to address this uncertainty is discussed in the "Plan of
operations for fiscal year 2000" section below.
We currently have two non-operating subsidiaries: Synoptech Solutions
Group, Inc., a Nevada corporation and Prime Net Corporation, a Texas
corporation. In May 1999, we acquired substantially all of the outstanding
capital stock of Synoptech Solutions. In August 1998, Synoptech Solutions
acquired substantially all of the outstanding capital stock of Prime Net.
Prime Net specialized in providing computer-based solutions for small and
medium-sized businesses as a software application reseller. As Synoptech
Solutions has no business operations, we acquired it to obtain many of Prime
Net's sales and technical personnel, which we believed would aid us in
establishing our ASP services. In November 1999, we completed the consolidation
of Prime Net's business operations into ebaseOne. Although we have continued
Prime Net's former business operations, we do not intend the operations to be a
material portion of our ongoing operations. As we only began conducting our ASP
operations in November 1999, Prime Net's former business operations have
accounted for substantially all of our revenues. We intend to merge Synoptech
Solutions and Prime Net into ebaseOne in the future since they conduct no
substantial operations.
We currently have no exposure to foreign currency exchange rate
fluctuations, since we have no foreign operations. If we initiate future
foreign operations, we will seek to minimize our exposure to foreign currency
exchange rate fluctuations by requesting that our customers purchase our
products in United States dollars or by entering into transactions to attempt to
hedge some of the risks of foreign currency exchange rate fluctuations.
SIGNIFICANT ACCOUNTING POLICIES
Revenue. We expect that future revenue will be generated primarily from
the delivery of our ASP services, and to a lesser extent from our operations
related to Prime Net's former operations. ASP services consist of providing or
hosting software and other related services through our data center for a flat
monthly fee over the term of the underlying contract. We do not sell software
licenses. Revenue from our ASP services will be recognized on the straight-line
method beginning with the first month in which we begin providing the services
required under the
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contract. Revenues for the year ended September 30, 1999, 1998, and 1997
consisted of training and installation services relating primarily to software
product sold during those years and sales of packaged software. Packaged
software sales during the years ended September 30, 1999, 1998, and 1997
consisted, almost exclusively of sales of two products: Tivoli IT Director and
SalesLogix. Tivoli IT Director is a software package that we have almost always
installed without customization. The SalesLogix package does not requires
customization to be functional, but is generally customized to meet a customer's
requirements. To date, the extent of customization we have done for our
customers has not been complex. Historically, we have not had to develop complex
interfaces with our customers information systems to install either of these
products. At the years ended September 30, 1999, 1998, and 1997, we had no
customer projects open that involved both the selling of software licenses and
the installation of customer services.
We believe our revenue recognition policy for our ASP services complies
with Statement of Position 97-2, entitled Software Revenue Recognition.
Additionally, we believe these two products represent off the shelf software for
purposes of recognizing revenue from software sales as defined Statement of
Position 97-2, entitled Software Revenue Recognition. Accordingly, revenue from
the sale of packaged software is recognized upon delivery. Training and
software installation services are recognized as the services are provided.
Capitalization of Costs and Expenses of ASP Services. We will incur up-
front costs related to the delivery of our ASP services. The costs to operate
our network and data centers will be recognized as period costs. Costs related
to the acquisition of hardware will be capitalized and depreciated over the
estimated useful life of the hardware. Costs related to the acquisition of
software licenses, as well as the costs related to the customization and
implementation of the software will be capitalized and amortized over either:
(a) the shorter of the useful life of the license or the term of the license
agreement, or (b) the term of the individual client contract, depending on the
nature of the software license agreement. Amortization will be based on current
and future revenue from each product, but will not be less than that computed on
a straight-line basis over the remaining useful life. Direct costs related to
the integration of software applications for a client on our network will be
capitalized and amortized over the related contract period.
Concentration of Credit Risk. Financial instruments which potentially
expose us to concentrations of credit risk consist primarily of accounts
receivable. We do not believe a significant credit risk exists at September 30,
1999. We maintain deposits in banks which exceed, at times, the federal deposit
insurance available. We periodically assess the financial condition of the
institutions and believe that any possible deposit loss is minimal.
RESULTS OF OPERATIONS
The results of operations for the years ended September 1997, 1998, and
1999 are based on the former business operations of Prime Net, and do not
reflect our new ASP business operations. In view of the rapidly changing nature
of our business, our recent entrance into the ASP market, and our limited
operating history, we believe that period to period comparisons of our revenue
and operating results are not necessarily meaningful and should not be relied
upon as indications of our future performance.
YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1998
Revenues. For the year ended September 30, 1999, revenues on products sold
increased to $448,523 from $362,008 during the year ended September 30, 1998.
The increase of 24% was attributable to an increase in our sales force and our
marketing campaign. For the year ended September 30, 1999, revenues from
services decreased to $205,286 from $322,011 during the year ended September 30,
1998. The decrease of 36% was attributable to repositioning our business to
focus on the ASP market.
Cost of Sales. For the year ended September 30, 1999, cost of goods sold on
our product sales increased to $357,171 from $220,686 during the year ended
September 30, 1998. The increase of 62% was primarily attributable to an
increase in sales. The increase in cost of sales reduced our gross profit
percentage for products sold to 20% for the year ended September 30, 1999 from
39% for the year ended September 30, 1998. We believe this decrease was due to
an increase in direct selling expenses and lower margins received on product
sales. For the year ended September 30, 1999, the amount of our professional
services associated with our service revenues increased to $288,260 from
$217,823 during the year ended September 30, 1998. The increase of 32% was
primarily attributable to an increase in our sales force.
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General and Administrative Expenses. For the year ended September 30,
1999, general administrative expenses increased to $2,209,269 from $700,192
during the year ended September 30, 1998, an increase of $1,509,077 or 216%.
The primary portions of the increase are discussed below:
. A $521,776 increase in salaries, or 197%. The increase is attributable
to an increase in employees from 11 to 25 during the period. In
addition, $145,407 of the increase is attributable to non-cash
compensation expense.
. A $208,586 increase in legal and accounting fees, or 1452%. The
increase is attributable to our filing of this registration statement,
auditing three years of financial activity, and an increase in our
general business activity.
. A $231,807 increase in consulting fees, or 100%. The increase is
attributable to developing our ASP business model, writing our
business plan, negotiating contracts with business partners, raising
capital, and developing contracts for customers.
. A $84,150 increase in advertising, or 331%, and a $82,000 increase in
recruiting, or 100%. These increases are based on the recent
development of our ASP business.
Net Loss. For the year ended September 30, 1999, our net loss increased to
$2,248,185 from $471,844 during the year ended September 30, 1998. The increase
of 376% was attributable to the increase in general and administrative expenses
and the increase in the cost of sales discussed above.
Our operating activities used net cash of $1,181,208 in fiscal 1999 and
$432,051 in fiscal 1998. Net cash used by operating activities in fiscal 1999
and fiscal 1998 was primarily attributable to net operating losses for both
years, offset in fiscal 1999 by issuing our securities for services rendered,
and increasing our accounts payable and accrued liabilities.
Our investing activities used net cash of $224,126 in fiscal 1999 and
$57,438 in fiscal 1998. Our investing activities consisted primarily of
purchases of furniture and equipment.
Our financing activities provided cash of $1,561,496 in fiscal 1999 and
$611,442 in fiscal 1998. In fiscal 1999, financing activities consisted
primarily of the sale of common stock, the issuance of common stock in
connection with our reorganization, and advances on notes payable, which was
partially offset by the repayment of notes payable. In fiscal 1998, financing
activities consisted primarily of the exercise of warrants, the issuance of
common stock in connection with our predecessor's reorganization, and advances
on notes payable, which was partially offset by the repayment of notes payable.
YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1997
Revenues. For the year ended September 30, 1998, revenues on products sold
increased to $362,008 from $14,948 during the year ended September 30, 1997.
The increase of 2322% was attributable to an increase in contracts related to
our software reseller business. For the year ended September 30, 1998, revenues
from services increased to $322,011 from $49,989 during the year ended September
30, 1997. The increase of 544% was attributable to an increase in contracts.
Cost of Sales. For the year ended September 30, 1998, cost of goods sold on
our product sales increased to $220,686 from $18,153 during the year ended
September 30, 1997. The increase of 1116% was primarily attributable to an
increase in contracts related to our software reseller business. Our gross
profit percentage for products sold was 39% for the year ended September 30,
1998 versus a negative gross profit of 21% for the year ended September 30,
1997. We believe this increase was due to the increase in sales which allowed us
to realize economies of scale. For the year ended September 30, 1998, the amount
of our professional services associated with our service revenues increased to
$217,823 from $10,050 during the year ended September 30, 1997. The increase of
2067% was attributable to an increase in our sales force.
General and Administrative Expenses. For the year ended September 30, 1998,
general administrative expenses increased to $700,192 from $253,216 during the
year ended September 30, 1997. The increase of 177%
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was attributable to the hiring of increased personnel to service the increased
business for the period.
Net Loss. For the year ended September 30, 1998, our net loss increased to
$471,844 from $224,652 during the year ended September 30, 1997. The increase
of 110% was primarily attributable to the increase in general and administrative
expenses, which was not offset by increased revenues for the period.
PLAN OF OPERATIONS FOR FISCAL YEAR 2000
As of September 30, 1999, we had cash and cash equivalents in the amount of
$308,444. In October and November 1999, we sold 475,169 shares of common stock
or common stock equivalents for aggregate gross proceeds of $445,921. In
addition, in November 1999 we sold 2,083,333 shares of common stock for $9
million to a few investors. Of this $9 million investment, we received $6
million on November 15, 1999, and we are to receive $3 million on the effective
date of this registration statement. We intend to use the above proceeds to
further our business plan. Specifically, our business plan requires:
. hiring additional executive, marketing, and technical personnel;
. launching an extensive marketing campaign;
. building our global command center to provide customer support,
application management, and network monitoring; and
. other general corporate expenditures incurred in implementing our
business plan.
At this time, it is difficult to estimate how we will allocate our funds. The
allocation will be based on a variety of business factors that we can not
predict with certainty at this time, including the rate we obtain new customers
and the rate we hire new employees. At this time, we also cannot predict with
certainty what our monthly operating expenditure will be. Keeping these factors
in mind, assuming that this registration statement becomes effective, we
estimate that the proceeds from the sale of securities in October and November
1999, will provide sufficient liquidity until August 2000, although this period
may be shortened by factors beyond our control. These factors could include
increased competition and higher costs associated with hiring necessary
personnel. After August 2000, we will be required to seek additional capital to
continue to fund our business operations.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, we had negative working capital of $458,000 and
had negative cash flows from operations of approximately $1,181,000. We
anticipate incurring losses from operations during the next fiscal year. As a
result, we do not expect to receive cash flow from operations during the next
fiscal year. At the present time we cannot estimate when, or if, our operations
will generate positive cash flows from operations. Assuming this registration
statement becomes effective, and we receive the $3 million portion of the above
financing, we should have sufficient funds to last until August 2000. We do not
have any significant credit facilities available with financial institutions or
other third parties and until we can generate cash flow from operations, we will
be dependent upon external sources of best-efforts financing.
After August 2000, we will likely be dependent upon best efforts equity and
debt financing, of which we have no firm commitments or arrangements, and on the
exercise of outstanding warrants. We can provide no assurance that we will be
successful in any future financing effort to obtain the necessary working
capital to support our operations. If we are unable to obtain necessary
financing from external sources before August 2000, we may need to curtail
operations, sell assets, or bring cash flows in balance by some other method.
Therefore, on a short-term basis, or during calendar year 2000, we will require
additional funding after August 2000. Since we do not expect to generate
positive cash flows from operations, this funding will need to be external
funding. On a long-term basis, or after calendar year 2000, we will also
require additional external financing.
In the $9 million financing, we issued warrants to purchase 833,332 shares
of common stock at an exercise
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price of $5.18 per share. Of these warrants, we are able to redeem warrants to
purchase 624,998 shares if the closing price of our common stock is at least
$10.36 per share for 20 consecutive trading days. If we choose to redeem the
warrants, the warrant holders have the ability to exercise the warrants before
redemption. We intend to redeem the warrants in full, as soon as we are able to,
and if the warrant holders decide to exercise the warrants we will receive
$3,237,490.
As of September 30, 1999, we had long-term notes payable consisting of:
. various notes payable totaling $292,107 to financial institutions due
through October 2004 in monthly installments ranging from $239 to
$1,147 at interest rates ranging from 7.95% to 21.03%;
. a note payable of $23,107 to a stockholder due in October 2002 in
monthly installments of $723 at an interest rate of 9.5%; and
. a note payable of $99,000 to an individual with principal and interest
due in October 2000 at an interest rate of 10%, which has been repaid.
Of the above notes payable, an aggregate of approximately $54,567 is due during
fiscal 2000. In addition, during fiscal 2000 we have capital lease commitments
on equipment totaling $29,982 and lease commitments on office space of $150,305.
As of September 30, 1999, we also had $110,000 of past due short-term debt.
While we believe our current cash position will be sufficient to fund our
obligations through August 2000, such period may be shortened based upon factors
outside of our control.
IMPACT OF YEAR 2000
Even though the date is now past January 1, 2000, and we have not
experienced any immediate adverse impact from the transition to the year 2000,
we cannot provide any assurance that our suppliers and customers have not been
affected in a manner that is not yet apparent. In addition, some computer
programs which were date sensitive to the year 2000 may not have been programmed
to process the year 2000 as a leap year, and any negative consequential effects
remain unknown. As a result, we will continue to monitor our year 2000
compliance and the year 2000 compliance of our suppliers and customers.
The year 2000 posed issues for business and consumer computing,
particularly the functionality of software for two-digit storage of dates and
special meanings for dates such as 9/9/99. The problem exists for many kinds of
software, including software for mainframes, PCs, and embedded systems.
In assessing the effect of the Year 2000 problem, we determined that there
existed three general areas that needed to be evaluated:
. Software applications hosted for customers;
. Internal infrastructure; and
. Supplier/third-party relationships.
A discussion of the various activities related to assessment and actions
resulting from those evaluations is below.
SOFTWARE APPLICATIONS HOSTED FOR CUSTOMERS.
We did not host any software applications or any hardware that were not
declared to be year 2000 compliant by their manufacturers. If, however, the
computer systems that view or utilize our hosted applications are not year 2000
compliant the application may not function properly. As such, the variability
of definitions of
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"compliance" with the year 2000 and of different combinations of software,
firmware, and hardware may lead to lawsuits. The outcomes of any lawsuits and
the impact on us are not estimable at this time.
INTERNAL INFRASTRUCTURE.
Since the inception of our ASP business, we have required that all internal
technology be year 2000 compliant before we purchase the item. The costs
related to these efforts were not material to our business.
SUPPLIERS/THIRD-PARTY RELATIONSHIPS.
We rely on outside vendors for water, electrical, and telecommunications
services as well as climate control, and other infrastructure services. We did
independently evaluate the year 2000 compliance of the systems utilized to
supply these services. We have not received any assurance of compliance from
the providers of these services. Any failure of these third-parties to resolve
year 2000 problems with their systems could have a material adverse effect on
our business.
CONTINGENCY PLANS.
Based on the above actions, we have not developed a formal contingency plan
to be implemented as part of our efforts to identify and correct year 2000
problems affecting our internal systems. However, if we believe it is
necessary, we may take the following actions:
. Short to medium-term use of backup equipment and software;
. Increased work hours for our personnel; and
. Other similar approaches.
If we are required to implement any of these contingency plans, such plans
could have a material adverse effect on our business. Based on the actions
taken to date, and the lack of any problems to date, we are reasonably certain
that we have identified and resolved all year 2000 problems that could hurt our
business.
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BUSINESS
OVERVIEW OF OUR BUSINESS
ebaseOne is an application service provider, or ASP, concentrating on the
market for small and medium-sized businesses. We provide an integrated and
comprehensive solution of leading packaged software applications hosted in a
high quality data center with 24-hour monitoring and customer service for a flat
monthly fee. Under our ASP model, we believe we enable small and medium-sized
businesses to lower the overall cost of high-end software application ownership
and afford a state-of-the-art information technology infrastructure with leading
packaged software solutions without having to make a large up-front investment
or maintain an expensive information technology staff. Our solution includes:
. hosting software applications in a state-of-the-art data center;
. software application installation and customization;
. end-user training and best practices consulting;
. software and hardware upgrades;
. worldwide access to a state-of-the-art fiber optics network;
. leading edge security and 24-hour operation; and
. application monitoring and customer service.
Our initial data center, called the enterprise application center or EAC,
co-located with Level 3 Communications, LLP, became operational in September
1999. Construction of our command center, which will monitor the EAC and house
customer service support personnel is expected to be completed by April 2000.
BUSINESS STRATEGY
Our business strategy is based on our belief that many of the leading
software packages remain too complex and too costly to be effective solutions
for small to medium-sized companies. While many software providers offer
products that are targeted for such markets, implementation of these packages
generally still requires technologically skilled personnel and frequently takes
a long period of time. In addition, we believe the infrastructure required to
support these packages is also beyond the capabilities of many small to medium-
sized businesses. Faced with these costs and time frames, we believe many
companies have decided to forgo the capabilities of leading software packages in
favor of less functional products. We believe that a lower cost, more easily
implemented approach would allow these businesses to capitalize on the
functionality of leading software packages and better position these businesses
against larger competitors. We are initially concentrating on the high-end of
the small to medium-sized business market, or companies with $100 million to
$500 million in revenues or with 100 to 1000 employees. Over time, we intend to
migrate into the lower tier of the large business market and divisions of very
large corporations, or companies with $500 million to $1 billion in revenues or
with 1000 to 4000 employees.
We estimate that as much as 80% of the total cost of ownership of a
packaged software application is the cost associated with human capital. We
believe that recruiting, training, managing, and retaining the technical human
resources necessary to effectively manage these applications has become a real
problem. We believe the shortage in technical professionals has resulted in the
inability of small and medium-sized businesses to compete with larger
corporations for personnel.
As part of our customer service, our OneServ(SM) solution includes a
service level agreement, which we believe initially will be one of the most
comprehensive and flexible service level agreements in the ASP market.
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We believe these agreements are important to the customer because they carry
assurances of our ability to perform. Credits are issued to the customer if
their application is unavailable for a period of time, or if application
response time rises above a predetermined level for too long. We have capped the
total number of credits that may be given in any particular period to a
customer. Our agreements also guarantee a process for escalating trouble
reports, reaching an executive officer within 48 hours for critical problems.
We provide software applications and services for a flat monthly fee,
generally without customers having to pay any amount in advance. In addition to
hosting applications, we provide installation, application tailoring, training,
customer support, maintenance, upgrades, and consulting. Our applications will
initially include sales force automation, customer relationship management,
electronic commerce, financial management, and human resources, although as of
the date of this prospectus we had not entered into agreements with providers
for all of these applications. Our goal is for these applications to be
supplemented by relationships with software publishers offering applications for
other markets not competing with our core software offerings. We believe these
relationships will provide us with added differentiation within the ASP market.
Our pricing model enables customers to pay a flat monthly fee under a
minimum 24 month contract to access and run packaged applications over the
Internet or through secure, high-speed, fiber-optics based, private leased
lines. We do not require customers to purchase or maintain any data or
application hardware or pay for installation, basic customization, or basic
training up- front.
To maintain our pricing model of only charging customers a flat monthly
fee, we are developing subscription-based agreements with the software providers
required to support our model. Under the subscription model, we pay the
software providers a monthly fee for the use of their software as opposed to a
one-time up-front fee plus up-grades. To achieve the same effect with hardware
vendors, we have initiated leases under which we can pay for hardware from our
cash flow.
We consider pricing to be a key competitive advantage in the ASP
marketplace. We believe our price not only represents savings in actual costs,
but also relieves the corporation of:
. installing all the hardware and software;
. recruiting, training, and managing the associated information
technology personnel; and
. upgrading all the hardware and software as vendors release new
versions.
OUR ONESERV(SM) SOLUTIONS
In an ASP, the server-side of the actual software application resides at
the ASP, not on the customer's network or desktop computers. We license the
software from the software company and host the application on our own servers.
Customers rent the services from us on a per-user, per-month basis, without the
up-front hardware costs. We are able to share costs among many customers, which
we believe allows for a much lower cost structure than traditional solutions.
OneServ is our premier ASP-based solution, consisting of a comprehensive
and integrated suite of software for small and medium-sized businesses. The
following list contains the applications that are or will be included in
OneServ(SM), and their current development status:
. Sales force automation -- We use SalesLogix software for this
application. The application is currently commercially available for
use.
. Document distribution -- We use Marimba software for this application.
The application is currently commercially available for use.
. Customer relationship management -- We use SalesLogix software for
this application. The
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application is currently commercially available for use.
. Financial management -- We are currently in negotiations with a
software manufacturer for this application.
. Human resource management -- We are still choosing a software
manufacturer for this application.
. E-commerce -- We use Microsoft's software for this application. The
application is currently commercially available for use.
In addition to hosting these applications, under our OneServ(SM) service we
will:
. consult with the customer and configure the application to best meet
their individual needs;
. implement the application and prepare the application for peak
performance;
. train the client on how to best use the application; and
. provide ongoing help desk support to the customer.
We are currently able to provide all of the above services.
We plan to license each of the individual applications in OneServ(SM) from
top name software vendors and then, over time, integrate them into a single
source solution delivered through an Internet portal.
We believe that an opportunity exists in the small and medium-sized
business market to offer best practices training. This goes beyond traditional
training on the software itself and addresses the business processes that can be
implemented to make the customer successful. We plan to initially offer
training based upon the use of SalesLogix. We will offer training internally
and will also contract with certified third party organizations. As we
integrate additional packaged software applications for customer relationship
management, accounting, and electronic business, we will also create and offer
additional best practices training.
We began offering our OneServ(SM) service in November 1999, and do not have
any contracts for these services at this time.
OUR CORSERV(SM) SOLUTION
Through our CorServ(SM) offering, independent software vendors and system
integrators will be able to host their applications and allow their customers to
access them through our network. We believe this will end the need of
independent software vendors or system integrators to build the technological
infrastructure required. CorServ(SM) will be a basic infrastructure service.
The following list contains the services that are or will be included in
CorServ(SM), and their current development status:
. We will provide the physical facility. This service is commercially
available.
. We provide network connections. This service is commercially
available.
. We provide servers, operating systems, and database software. This
service is commercially available.
. We provide security measures, such as firewall and virus scanning.
This service is commercially available.
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. We provide security measures, such as intrusion detection and 24 hour
monitoring. This service is currently in the planning and testing
stage, and we expect this service to become commercially available in
April 2000.
. We provide administration and management. This service is commercially
available.
. We provide backup. This service is commercially available.
. We provide disaster recovery. This service is currently in the
planning stage, and we expect this service to become commercially
available in April 2000.
. We provide other standard data services such as physical site
security, off site tape storage, software distribution, and automated
inventory. These services are commercially available.
We believe CorServ(SM) will allow independent software vendors or system
integrators to deliver applications to their customers in a secure, reliable,
managed host environment. We will take care of the infrastructure, so that our
clients can concentrate on delivering products that meet the needs of their
customers. We will allow them to deliver a hosted alternative for software
delivery and subscription-based licensing, while still allowing them to focus on
their core competencies. We believe our CorServ(SM) service will provide an
easy way for them to essentially become an ASP and reach smaller businesses
which, taken together, should represent a large new market for their products.
We began providing our CorServ(SM) service in November 1999, and as of,
January 11, 2000, we had signed three contracts to provide our CorServ(SM)
services.
PRIME NET'S FORMER OPERATIONS
In November 1999, we consolidated the operations of our subsidiary Prime
Net into ebaseOne. Although we do not anticipate that these operations will
consist of a material portion of our ongoing revenues, we do intend to continue
Prime Net's former operations. Prime Net specialized in middle-market business
technology solutions for mid-size companies. Its market is businesses that have
outgrown their low-end systems, but do not have the ability to implement newer
systems due to their long implementation periods and the businesses lack of
qualified information technology personnel. Prime Net provided project planning
and management, application design and prototyping, data conversion,
documentation, support and maintenance, and training. During the previous
fiscal year, Prime Net serviced approximately 25 to 30 customers, of which one
customer, International Exhibition, Inc. accounted for over 10% of its
revenues. Many of these customers require one time service and we can provide
no assurance that we will continue to provide services to any of these
customers.
TECHNOLOGY ALLIANCES
The foundation of our technology strategy is to form strategic alliances
with the leading technology infrastructure hardware and software providers in
the industry. Through the utilization and integration of the technology from
these alliances, it is our goal to continually provide the most advanced
packaged software solutions running on the most sophisticated server technology,
network infrastructure, network and application management and monitoring
systems, and security technology available on the market.
Our strategic alliances are described below.
Level 3 Communications. Level 3 is a leading communications and
information services company that is building and reselling bandwidth on the
first international fiber optics network optimized for Internet Protocol
technology. In addition, Level 3 has built approximately 47 state-of-the-art
co-location data centers around the world to house the telecommunications and
other computing equipment for their alliances. Level 3's co-locations provide:
(a) carrier grade data center facilities with raised flooring, (b) sophisticated
computer grade climate control, (c) overhead cable ladders, (d) 24-hour
security, including building wide closed circuit TV, (e) battery
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backup for short-term brown-outs, and (f) diesel powered generators for long-
term power failures. We have arranged an alliance with Level 3 to co-locate our
initial enterprise application center in Level 3's Houston, Texas facility,
expand to other Level 3 facilities, and brand and resell their international
telecommunications bandwidth as an integral part of our solutions.
Based upon our relationship with Level 3, we have access to Internet and
private leased line bandwidth through a direct connection to the SONET ring that
surrounds Houston, and connections to additional smaller rings, as well as long-
haul connections to an international network. Since the bandwidth required for
Internet access is small compared to that required to access applications, we
believe we can reduce the cost of standard Internet access for our customers.
Our current agreement with Level 3 expires in three years with the option to
renew, although we have a verbal commitment to extend the agreement for an
additional seven years. To date, we have not entered into a definitive
agreement to extend the term.
Cisco Systems. Cisco is a worldwide leader in networking for the Internet.
We are forming an alliance with Cisco to join the Cisco Hosted Application
Initiative partnership program or CHAI through the execution of a memorandum of
understanding. To date, we have not entered into a definitive agreement with
Cisco. The CHAI brings together: (a) packaged software application vendors that
have applications suitable for hosting, (b) ASPs to host the applications, (c)
Cisco powered network service providers to install and support Cisco-based
network infrastructures, and (d) customers that can benefit from hosted
solutions. In addition, it includes co-marketing activities such as lead
sharing, joint advertising, co-sponsored seminars highlighting customer success
stories, trade shows, and conferences. This alliance will provide us with
access to Cisco's hosted application development lab, providing integration and
benchmarking services that we believe will help the performance of hosted
applications running on Cisco-based Internet infrastructures. Our EAC utilizes
a Cisco powered network built specifically to deliver high-end packaged software
solutions.
Marimba. Marimba is a leading provider of Internet-based software
management solutions. We have formed a strategic relationship with Marimba to
use their technology, referred to as Castanet, to support key aspects of our ASP
offering, including software distribution, application usage monitoring, remote
desktop management, and an ebaseOne desktop portal. Castanet will enable us to
have an ebaseOne presence on our customer's desktop and install and manage
applications on a customer's desktop over the Internet. We believe it will
reduce the requirement for software engineers at the customer's site, and reduce
the overall cost to our users.
Marimba has agreed to provide ebaseOne with their software to distribute,
manage, and maintain all the software applications and related data that we
intend to offer our clients. Our agreement with Marimba expires in September
2002, but may be renewed year-to-year for up to an additional two years.
In addition, Marimba recently chose us to be the first ASP to host their
new Internet DocService technology. DocService delivers virtually any type of
document simply and easily over the Internet or private leased lines, including
simple text files as well as complex web based documents that include links and
sub-documents aggregated as a single logical document. Current document
delivery mechanisms, such as e-mail, web servers, document management solutions,
or hard copy, each have advantages in specific situations, but we believe they
typically lack DocService's ability to automate the entire delivery and update
process. With DocService, if a document publisher makes a change, that change
can immediately be reflected back through the enterprise, ensuring that everyone
is always working from the latest document version.
Sun Microsystems. Sun is a leading provider of industrial-strength
hardware, software, and services that power the Internet. We have formed an
alliance with Sun to utilize Sun server technology as our Unix platform,
participate as an executive member of the ServiceProvider.Com partnership
program, and ultimately participate in the SunTone certification program.
ServiceProvider.Com is a complete package of products and services as well as
business practices tailored to the needs of providers such as ebaseOne. The
program focuses on three primary objectives: (a) revenue generation, (b)
operating efficiency, and (c) quality of service. SunTone certification is
provided as a way to meet the quality of service objectives in the
ServiceProvider.Com program. The SunTone program is one of the industry's first
collaborative efforts to define and audit service provider infrastructure,
operational practices, hardware, software, and ultimately, overall service
delivery, to ensure guaranteed levels of
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performance, security, availability, and uptime. Our relationship with Sun will
include cooperative marketing activities and access to their worldwide business
partners.
Microsoft. Microsoft is the worldwide leader in software for personal and
business computing. In November 1999, we agreed with Microsoft to participate in
the rollout of their ASP commercial licensing program. Under this agreement, we
can host Microsoft Back Office products such as: (a) Microsoft SQL Server, (b)
Microsoft Exchange, (c) Microsoft Site Server, (d) Microsoft Terminal Server,
and (e) Windows NT Server, as a part of our CorServ(SM) and OneServ(SM)
commercial hosting solutions which enables us to pay Microsoft based on the
number of users on a per month basis as opposed to paying license fees up front.
Our agreement with Microsoft expires in June 2001, but may be extended for up to
two additional years if we have an outstanding agreement with any of our
customers at the expiration date.
Phonoscope. Phonoscope Communications, Ltd. is a wholly owned subsidiary
of Phonoscope, Ltd., a 46 year old Houston business with one of the city's
largest privately owned and operated fiber optic networks. We believe our
alliance with Phonoscope enables us to immediately offer Houston customers a
variety of choices of connections to our EAC.
The initial term of our agreement with Phonoscope is three years, and is
renewable on a year-to-year to basis. We will not be the exclusive reseller of
Phonoscope's fiber optic network. However, Phonoscope has agreed that it will
not offer fiber optic network access at a price lower than the price that we pay
for access. In addition, we have agreed to undertake a joint marketing program
relating to all telecommunications services we have agreed to offer.
SalesLogix. SalesLogix is a leading provider of front office and e-
commerce software for mid-market companies. We have formed an alliance with
SalesLogix to include their full range of sales force automation and customer
relationship management solutions in our OneServ(SM) solution. Under the terms
of the agreement, we will pay SalesLogix a monthly fee based upon the number of
OneServ(SM) users utilizing their products. This subscription based pricing
enables us to pay SalesLogix from the monthly revenues that we receive from our
customers under our ASP pricing model as opposed to paying them license fees up-
front. The agreement expires in October 2002, unless extended by mutual
agreement on a year-to-year basis.
PaperChaser.com. PaperChaser.com is an emerging leader in providing
complete litigation support solutions. At the foundation of PaperChaser's
offering is a electronic document management system. PaperChaser has a flexible
client/server architecture, easy-to-use document capture and coding technology,
powerful database management and full text search and retrieval.
We have entered into a preliminary CorServ(SM) agreement to host
iPaperChaser.com's electronic litigation document management portal.
iPaperChaser.com will enable legal professionals to store their electronic case
documents in a secure and centralized location, and then access and manage these
documents from their desktops and laptops through the Internet or private leased
lines. Under the terms of the agreement, PaperChaser.com will pay us a flat
monthly fee for each customer site and additional monthly fees for each
additional user.
SALES AND MARKETING
Our market
The initial target market for our OneServ(SM) service is small to
medium-sized businesses located within the United States. We consider this
market to include companies that have less than $500 million in annual revenues
and not enough resources to build and maintain complex applications internally.
Therefore, we believe these companies will benefit from the packaged software
solutions we intend to offer. We have designed our sales and marketing strategy
to specifically address our target market.
The market for our CorServ(SM) service is independent software providers
and system integrators. Our
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market is based on the need of these independent software vendors and system
integrators to have access to a quality network for distribution of their
products, but not having the resources to create and maintain such a network.
Our marketing strategy
In connection with our OneServ(SM) services, we intend to support a direct
field sales organization, including both account executives and field sales
engineers. As of January 11, 2000, we have four account executives, and we
intend to hire regional sales managers and additional account executives to
support the major metropolitan areas in the United States during the current
calendar year, although we can provide no assurance that we will have the
funding to do so. In addition, we plan to maintain one field sales engineer for
every three account executives. Further, we intend to support the channel
through our hotline support group and plan to build and maintain a team of
technical experts that will be available to assist our sales partners as
required.
We are aware of potential conflicts with some software publishers that will
not be as willing to give up the up-front commission revenue in exchange for a
subscription-based commission model. We will attempt to educate these
publishers on the benefits of this model. We believe our ASP solution provides
software companies with a new channel to sell their products. As such, we
believe we will not be a competitive product line to software companies, but
instead we will offer a new opportunity to sell to corporations that would not
be able to purchase systems under the software companies existing pricing model.
We believe we will allow companies in the packaged software industry to continue
to write software and sell products to large corporations, while providing a
sales channel to reach small to medium-sized business.
In connection with our CorServ(SM) services, we intend to market our
services directly to independent software vendors and system integrators through
the use of direct mail, tele-marketing, and face-to-face contact with our sales
representatives. In November 1999, we hired a vice president to oversee the
marketing of our CorServ(SM) services. In January 2000, we hired CorServ(SM)
business development personnel covering the northcentral region of the United
States out of a Chicago, Illinois office, the southwest region of the United
States out a Dallas, Texas office. We plan to hire additional CorServ(SM)
personnel to cover additional major metropolitan areas of the United States
during the current calendar year.
FACILITIES
Our headquarters are located in Houston, Texas at a leased facility that is
approximately 8,900 square feet. Our lease expires in April 2002. We believe
our lease rates to be competitive in the market. At the present time, we
consider this space to be adequate to meet our needs.
Our initial EAC, which is co-located with Level 3 Communications is
currently operational. The Level 3 Communications facility is located in
Houston, Texas, and is approximately 50,000 square feet. We lease floor space
from Level 3 Communications under an agreement expiring August 2002, with a
right for ebaseOne to extend until 2009. We believe our lease rates to be
competitive in the market. The EAC houses all of the servers and communications
equipment required to support our clients.
We are in the process of completing our state-of-the-art command center in
Houston, Texas, which we expect to be approximately 18,000 square feet, and
which we expect to be complete by April, 2000. We have entered into lease
agreement, which begins in March 2000 and ending February 2010 for use of the
command center. Our command center will include leading-edge application
management and monitoring software and equipment along with state-of-the-art
backup technology. We will staff the center and provide application monitoring
and hotline support 24 hours per day, 365 days per year.
TECHNOLOGY
Our network will utilize Internet Protocol or IP technology end-to-end. IP
technology is a digital communications protocol, as opposed to a traditional
analog protocol. We believe that in the future the communications industry will
primarily utilize digital technology. As such, we believe that our initial use
of this
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technology will better position us for future growth. Our CorServ(SM) and
OneServ(SM) services include a selection of low-cost Internet access services at
varying capacity levels. We believe the use of an IP network will make it
possible to move information at a much lower cost.
Our network is designed to be continuously ungradable. The network can
evolve as technology changes and customer demand for capacity increases. We
believe our IP-based network will enable business customers to benefit from the
lower cost and service offerings made possible by IP technology.
Customers will access our services through one of three methods:
. Dial-in Service;
. Private Lines; or
. the Internet.
Dial-in Service
Our dial-in service will allow end users to access a high-quality network.
We will provide this service through a dial-in service provider that has
simplified the local Internet dialing network by securing local numbers,
deploying modems in major metropolitan areas, and staffing a full-time
operations center to manage the network and hardware. The service offers the
customer the ability to give their users dial-in connectivity to their private
network. By dialing a local number provided by us, users will send their data
traffic over this dial-in connection to modems housed in the dial-in service
provider's facility, where it is then forwarded to the Level 3 Communication's
network and to our facility where the customer's servers are housed. If needed,
we can also send the users' traffic to the customer's site through a dedicated
connection.
The dial-in service is sold on a per user basis for a flat monthly fee.
The monthly charge includes local dial-in numbers, complete network coverage for
a specific region, modems to collect the incoming traffic, and managed routers.
Private Lines
We can link a customer directly to our EAC to access applications through a
variety of private access methods. Each access method carries different prices
and different advantages and disadvantages for specific situations. The choice
of access method will depend on the customer's physical locations, the demands
of the particular application being hosted, and the customer's preference.
Internet
In addition to the connection to our EAC, we can also provide a secure
high-speed Internet connection through Level 3's network. To ensure reliability
in the case of a Level 3 network outage, this connection will be backed up by
redundant connections supplied by other carriers.
We offer encrypted services through the Internet, thus creating a data
stream between the customer and our EAC that is essentially private even though
the Internet is a public network. Since the data stream is encrypted with keys
that are unique to the specific customer, others with access to the Internet
cannot read the data. Response time is still subject to the overall response
time of the Internet. For those customers that are not satisfied with this
level of security or performance, we have our private line options described
above.
COMPETITION
The ASP market is extremely competitive. The tremendous growth and
potential size of the ASP market
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has attracted many start-ups as well as extensions of existing business from
different industries. Current and prospective competitors include:
. new pure-play ASPs or ASPs that focus solely on providing ASP
services;
. systems integrators;
. national, regional and local Internet service providers;
. hardware and software suppliers; and
. telecommunications companies.
Pure-Play ASPs
A new breed of pure-play ASPs has emerged to capitalize on the ASP market.
We consider ebaseOne to be a pure-play ASP because we focus primarily on
providing ASP services. Unlike ebaseOne, many of the companies in this market
are focused specifically on the high-end of the ASP market. However, if the ASP
market grows, we expect this segment of our competition to grow rapidly, and
many of these pure-play ASP's may target the same market as we have, namely,
small to medium-sized businesses.
System Integrators
National, regional, and local commercial systems integrators who bundle
their services with software and hardware providers and perform a management
outsourcing role are moving into the ASP market. These companies provide
professional consulting services and integration of software applications in
single-project client engagements. Large systems integrators may establish
strategic relationships with software vendors to offer ASP services as well.
Internet Service Providers
Internet service providers with a significant national presence are also
entering the ASP marketplace. These companies could prove to be formidable
competition with significant market presence, brand recognition, established
technical resources, and financial stability.
Hardware and Software Companies
Traditional hardware and software companies are entering the ASP market and
are establishing strategic ASP partnerships in an attempt to hold market share.
Telecommunication Companies
Many of the major telecommunication companies, offer Internet access
services. To address the Internet connectivity requirements of customers of
long distance and local carriers, we believe that there is a move toward
horizontal integration through joint ventures with Internet service providers.
We expect that we will experience increased competition from the traditional
telecommunications carriers.
At this time, we do not believe there is a dominant or a small number of
dominant companies in our market. However, our competitors are well financed
and will be able to devote more resources to sales, marketing, and technology
than we will. In addition, our competitors have better name recognition and
have received more publicity than ebaseOne. We can provide no assurance that we
will be able to compete in this market.
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INTELLECTUAL PROPERTIES
We regard intellectual property rights as essential to our success, and
rely extensively on trademark rights, trade secret protection and
confidentiality agreements, between our alliances, employees, and others, to
protect our proprietary interests. As such, we require all our employees to
sign non-disclosure and confidentiality agreements. We have applied for federal
registration of the marks OneServ(SM) and CorServ(SM), but we can provide no
assurance that we will receive these marks.
If third parties infringe or misappropriate our intellectual property or
our proprietary information, our business could be seriously harmed. We can
give no assurance that the steps we have taken to protect our proprietary
interests will be adequate or that third parties will not infringe or
misappropriate our proprietary interests. Moreover, we can give no assurance
that other parties will not assert infringement claims against us. We plan to
protect our proprietary rights through confidentiality agreements with
employees, consultants, advisors, and others. We can give no assurance that:
. these agreements will provide adequate protection for our proprietary
rights;
. our employees, consultants, advisors, or others will maintain the
confidentiality of our proprietary information; or
. our proprietary information will not become known, or be independently
developed by competitors.
Furthermore, any infringement claims asserted against us could subject us
to significant liability for damages and could result in invalidation of our
proprietary rights and, even if not meritorious, could be time-consuming and
expensive to defend. They also could require us to enter into costly royalty or
licensing agreements.
LEGAL PROCEEDINGS
In November 1998, Prime Net was named as a defendant in a lawsuit filed by
Keith Jordan in the District Court of Harris County, Texas, 295TH Judicial
District. The petition was amended in September 1999 to include ebaseOne and
John Frazier Overstolz. The plaintiff alleged breach of contract, breach of
implied duties of good faith and fair dealing, breach of fiduciary duties,
fraud, conversion, and negligent misrepresentation in connection with denying
him ownership of 769,761 shares of ebaseOne common stock and an additional
19,175 shares of common stock allegedly owed him, along with an alleged failure
to issue plaintiff a warrant to purchase 649,227 shares of common stock for
nominal value. Plaintiff is seeking a cash payment equal to 1,438,163 shares of
common stock times the highest market value of the common stock, $19.75 per
share in intra-day trading in November 1999. Discovery is currently being
conducted by the parties and the parties have agreed to mediation. We intend to
vigorously defend this claim.
We are aware that a wrongful termination lawsuit has been threatened by a
former employee. We believe such claim is wholly without merit and intend to
vigorously defend this claim if litigation is actually initiated.
In December 1999, we were named as defendant in a lawsuit filed by Brewer
Capital Group, LLC in the District Court of Harris County, Texas, 334TH Judicial
District. The plaintiff alleged breach of contract and tortious interference
with business. Plaintiff claims are in connection with a contract between
ebaseOne and Brewer Capital regarding capital formation. Plaintiff claims it is
owed commissions of $356,000 and warrants based on financing opportunities it
arranged. We believe the claim is wholly without merit and intend to vigorously
defend this claim.
EMPLOYEES
As of January 11, 2000, we employed 37 persons, on a full-time basis,
including management, sales, and office employees. No employees are covered by
a collective bargaining agreement. Management considers relations with its
employees to be satisfactory.
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INSURANCE
We believe we have sufficient general liability insurance covering over
headquarters located at 6060 Richmond, Houston, Texas 77057. We do not
currently have any business interruption or business liability insurance.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth our directors and officers and their ages
and positions:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- ---- --------
<S> <C> <C>
John Frazier Overstolz 38 Chairman of the Board
Charles W. Skamser 42 Director, President, Chief Executive Officer, Chief
Financial Officer, and Treasurer
Michael A. Sooley 50 Senior Vice President of Worldwide Business
Development and Secretary
Scott Feuless 39 Chief Technology Officer
Michael M. Rotolo 60 Director
</TABLE>
John Frazier Overstolz is the founder of ebaseOne and has served as chairman
of the board since August 1999 and chief executive officer from May 1999 until
August 1999. Mr. Overstolz previously was the founder and served as chief
executive officer of Prime Net Corporation from 1990 until August 1999, and as
chief executive officer of Synoptech Solutions Group, Inc. from August 1998
until August 1999. Mr. Overstolz has been an entrepreneur and business owner
for over 18 years involved in both start-up and emerging companies. Over the
length of his career, Mr. Overstolz has been involved with both the technology
and investment banking industry, personally handling many acquisitions and
growth-financing projects either as a consultant, principal, or financier. As a
long-time small business advocate, he is a recipient of the District Director's
Award in 1992 by the U.S. Small Business Administration, author, and former
legislative advisor on small business issues. He has extensive experience in
technology and enterprise resource planning systems.
Charles W. Skamser has served as director, president and chief executive
officer since August 1999 after serving as the chief operating officer from May
1999 to August 1999. Since January 2000, Mr. Skamser has served as chief
financial officer, treasurer, and principal accounting officer. Previously, Mr.
Skamser was the founder and managing partner of New Enterprise Solutions, a
consulting firm specializing in strategic business development, marketing and
venture capital funding for high-tech start- up and high growth companies. From
February 1997 through March 1998, Mr. Skamser was president and chief operating
officer of Applied Voice Recognition, Inc., a Houston based public voice
recognition technology company. From January 1991 through October of 1996, Mr.
Skamser was a co-founder and vice president of worldwide business development
for Dynasty Technologies, Inc., a Chicago based software development tools
company. Mr. Skamser currently sits on the board of directors of
PaperChaser.com, Inc., a Houston based electronic document management technology
and services company. Mr. Skamser received his B.A. in political science and
economics from Macalaster College in St. Paul, Minnesota.
Michael A. Sooley has been the senior vice president of worldwide business
development and secretary since December 1999, and served as chief technology
officer from May 1999 until December 1999. Since November 1998, Mr. Sooley has
been a technology consultant. From October 1997 until October 1998, Mr. Sooley
served as executive vice president and chief operating officer of BrightStar
Information Technology Group, Inc. From October 1992 until September 1997, Mr.
Sooley served as director of information systems for Vinson & Elkins, LLP in
Houston, Texas. Mr. Sooley earned his B.S. in engineering from Trinity College,
Hartford, Connecticut and his M.S. in management science from Rensselaer
Polytechnic Institute, Hartford Graduate Center, Hartford, Connecticut.
Scott Feuless has served as chief technology officer since December 1999, and
served as senior vice president of technology operations from August 1999 until
December 1999, after serving as vice president of technology
33
<PAGE>
operations from May 1999 until August 1999 and director of professional services
from March 1999 to May 1999. From December 1997 until March 1999, Mr. Feuless
worked at Co-Counsel, as a director of information systems. From August 1992
until October 1997, Mr. Feuless worked at CDI Engineering Group as a director of
information systems. From June 1991 until August 1992, Mr. Feuless served as
manager of advanced computer technology for the M.W. Kellogg Company. Mr.
Feuless served on technical advisory boards for Borland and Ashton Tate from
1991 to 1992 and holds a B.S. in mechanical engineering from Rice University.
Michael M. Rotolo has served as a director of ebaseOne since May 1999 and as
a director of two predecessor companies since October 1996. Mr. Rotolo has
extensive international and domestic operating and administrative corporate
experience. From April 1988 to December 1995, Mr. Rotolo was an officer with
Chiquita Brands International serving as vice president for government affairs
shortly after the U.S. Treasury Department initiated sanctions against Panama
where he was charged with the responsibility of insuring regulatory compliance
in Chiquita's largest production division, and before that, Mr. Rotolo assumed
responsibility for Chiquita's Panama and Philippine operations. Before joining
Chiquita Brands, Mr. Rotolo's served as corporate vice president responsible for
Dole's beverage and related operations, as well as sugar, edible oils and real
estate. Mr. Rotolo worked at Dole for nearly twenty years in Latin America,
Asia, and the U.S. Mr. Rotolo has an M.B.A. from Loyola University and a B.S.
from the University of Southwestern Louisiana.
All directors will hold office until our next annual meeting. All our
executive officers are chosen by the board of directors and serve at the board's
discretion. There are no family relationships among the officers and directors.
Directors are not paid compensation for attending meetings, other than
reimbursements for expenses incurred in attendance. At this time, we do not
have an audit, compensation, or nominating committee.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid or
accrued for the fiscal year ended September 30, 1999, for the benefit of our
named executive officers. As we were not subject to the SEC reporting
requirements before fiscal 1999, only information for fiscal 1999 has been
included.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
------------------------------------
Annual Compensation Awards
---------------------------------------- ------------------------------------
Securities
Restricted Underlying
Name and Stock Options/ All Other
Principal Positions Year Salary ($) Bonus ($) Award ($) Warrants (#) Compensation ($)
- --------------------- ------------ ----------- ----------- --------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Charles Skamser........... 1999 $37,000 -- -- 10,108,000 --
President, Chief Executive
Officer, and Director
John Frazier Overstolz.... 1999 $93,375 -- -- 7,140,000 --
Chairman of the Board and
Former Chief Executive
Officer
Kyran O'Dwyer............ 1999 -- -- $31,659 3,000 --
Former Chief Executive
Officer
</TABLE>
Mr. O'Dwyer's restricted stock award consists of 30,700 shares of common
stock issued in April 1999 for services rendered. The value is based on the
market price on the date of grant of $1.03125 per share. The shares of common
stock issued to Mr. O'Dwyer were fully vested on issuance. At September 30,
1999, the value of the shares was $69,075 based on the market price on that date
of $2.25 per share.
The table above does not include perquisites and other personal benefits in
amounts of less than 10% of the total annual salary and bonus of the named
executive officer. The table includes information for each individual that
served as our chief executive officer during fiscal 1999. Mr. Skamser has
served as our chief executive officer since August 1999. Before that, Mr.
Overstolz served as our chief executive officer from May 1999 until August 1999.
Before that, Mr. O'Dwyer served as our chief executive officer from October 1998
until May 1999.
EMPLOYMENT AND CONSULTING AGREEMENTS
In August 1999, as amended in October 1999, we entered into an employment
agreement with Mr. Skamser, ending December 31, 2002, which provides for a
monthly base salary of $12,500 until December 31, 1999, and a monthly base
salary of $15,000 until December 31, 2002. The employment agreement provides
for a bonus determined by the board of directors of up to $125,000, payable
before January 31, 2000. The bonus is based on ebaseOne meeting the following
objectives: (a) raise working capital necessary to begin implementation of the
business strategy; (b) build an enterprise center in Houston, Texas; (c) secure
agreements to host packaged software applications under a subscription agreement
or like agreement with one or more vendors for sales force automation, financial
management, customer relationship management, human resource management and
electronic business; (d) hire the necessary personnel to execute the business
strategy; and (e) secure initial customers.
The employment agreement provides for a bonus of up to $180,000, payable
based on objectives achieved before December 31, 2000. The objectives are to be
determined by the board of directors before January 31, 2000.
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<PAGE>
If the board of directors is unable to agree on the objectives, Mr. Skamser
shall receive the bonus if we have net revenues of $12 million for the 12 months
ended December 31, 2000.
The employment agreement grants Mr. Skamser warrants to purchase 10,000,000
shares of our common stock as follows:
. one warrant to purchase 4,000,000 shares of common stock at an exercise
price of $0.38 per share, vesting monthly over a period of 24 months,
expiring August 2004, provided Mr. Skamser's continued employment with
ebaseOne,
. one warrant to purchase 2,000,000 shares of common stock at an exercise
price of $1.00 per share, vesting monthly over a period of 24 months,
expiring August 2004, provided Mr. Skamser's continued employment with
ebaseOne, and
. four warrants each to purchase 1,000,000 shares of common stock at an
exercise prices of $1.50 per share, $2.00 per share, $2.50 per share, and
$3.00 per share, all of which expire August 2006, and all of which vested
on the date ebaseOne's common stock exceeded $5.00 per share for at least
30 consecutive trading days, which occurred on December 17, 1999.
In addition, all of the warrants vest upon a "change of control" of
ebaseOne. A change of control includes the following transactions or
situations:
. A sale, transfer, or other disposition by ebaseOne through a single
transaction or a series of transactions of securities representing 50% or
more of the combined voting power of ebaseOne's then outstanding
securities to any unrelated person or persons acting in concert with one
another.
. A sale, transfer, or other disposition through a single transaction or a
series of transactions of all or substantially all of the assets of
ebaseOne to an unrelated person or persons acting in concert with one
another.
. A change in the ownership of ebaseOne through a single transaction or a
series of transactions so that any unrelated person or persons acting in
concert with one another become the beneficial owner, directly or
indirectly, of securities representing at least 50% of the combined
voting power of ebaseOne's then outstanding securities.
. Any consolidation or merger of ebaseOne with or into an unrelated person,
unless immediately after the consolidation or merger the holders of the
common stock of ebaseOne immediately before the consolidation or merger
are the beneficial owners of securities of the surviving corporation
representing at least 50% of the combined voting power of the surviving
corporation's then outstanding securities.
. During any period of two years, individuals who, at the beginning of such
period, constituted the board of directors of ebaseOne cease, to
constitute at least a majority, unless the election or nomination for
election of each new director was approved by the vote of at least two-
thirds of the directors then still in office who were directors at the
beginning of the period.
. A change in control of ebaseOne of a nature that would be required to be
reported by the SEC's proxy rules, regardless of whether ebaseOne is
subject to the rules.
The employment agreement may be terminated by either party. If Mr. Skamser
terminates the employment agreement voluntarily or if we terminate the agreement
for cause or Mr. Skamser's death or disability, Mr. Skamser is entitled to his
accrued salary and any earned but unpaid bonus. If Mr. Skamser's employment
agreement is
36
<PAGE>
terminated for any other reason, Mr. Skamser is entitled to the greater of:
. his remaining base salary at the then base salary rate for the remainder
of the employment term, or
. the base salary rate for a period of six months, and unreimbursed
expenses, any bonus earned in respect of a prior year and not yet paid,
and the pro-rata portion of any bonus for the current year.
In August 1999, as amended in October 1999, we entered into an employment
agreement with John Frazier Overstolz, ending December 31, 2002, which provides:
(a) for a monthly base salary of $11,500 until December 31, 1999, (b) a monthly
base salary of $12,500 until December 31, 2000, and (c) a monthly base salary of
$18,750 until December 31, 2002. The employment agreement provides for a bonus
determined by the board of directors of up to $28,000, payable before January
31, 2000. The bonus is based on ebaseOne meeting the following objectives: (a)
raise working capital necessary to begin implementation of the business
strategy; (b) build an enterprise center in Houston, Texas; (c) secure
agreements to host packaged software applications under a subscription agreement
or like agreement with one or more vendors for sales force automation, financial
management, customer relationship management, human resource management and
electronic business; (d) hire the necessary personnel to execute the business
strategy; and (e) secure initial customers.
The employment agreement provides for a bonus of up to $75,000, payable
based on objectives achieved before December 31, 2000. The objectives are to be
determined by the board of directors before January 31, 2000. If the board of
directors is unable to agree on the objectives, Mr. Overstolz shall receive the
bonus if ebaseOne has net revenues of $12 million for the 12 months ended
December 31, 2000.
The employment agreement grants Mr. Overstolz warrants to purchase 1,000,000
shares of our common stock at an exercise price of $2.125 per share, expiring in
October 2004, which vest monthly over a period of 24 months, provided Mr.
Overstolz continued employment with ebaseOne. The warrants will vest
immediately upon a change of control of ebaseOne. Please see the description of
Mr. Skamser's employment agreement above for a discussion of what constitutes a
change of control.
The employment agreement may be terminated by either party. If Mr.
Overstolz terminates the employment agreement voluntarily or if we terminate the
agreement for cause or Mr. Overstolz's death or disability, Mr. Overstolz is
entitled to his accrued salary and any earned but unpaid bonus. If Mr.
Overstolz's employment agreement is terminated for any other reason, Mr.
Overstolz is entitled to the greater of:
. his remaining base salary at the then base salary rate for the remainder
of the employment term, or
. the base salary rate for a period of six months, and all unreimbursed
expenses, any bonus earned in respect of a prior year and not yet paid,
and the pro-rata portion of any bonus for the current year.
In May 1999, we entered into a consulting agreement with Michael A. Sooley,
which provided for a monthly base salary of $5,000, and a monthly warrant to
purchase 9,000 shares of common stock at an exercise price of $0.22 per share.
This consulting agreement was canceled and replaced by our November 1999
employment agreement with Mr. Sooley ending December 31, 2002 and provides for a
monthly base salary of $11,250 until December 31, 2000. The employment
agreement provides for a performance bonus up to 75% of his base salary,
determined by the board of directors. The employment agreement grants Mr.
Sooley warrants to purchase 1,000,000 shares of our common stock as follows:
. one warrant to purchase 250,000 shares of common stock at an exercise
price of $2.37 per share, vesting monthly over a period of 24 months,
expiring in November 2004, provided Mr. Sooley's continued employment
with ebaseOne; and
. three warrants each to purchase 250,000 shares of common stock at
exercise prices of $2.50 per share, $2.75 per share, and $3.00 per
share, all of which expire in November 2004, and all of
37
<PAGE>
which vest upon the earlier of the following to occur:
. the date on which the last sales price of ebaseOne's common stock exceeds
$10.00 per share for at least 30 consecutive trading days commencing on
January 1, 2000,
. if ebaseOne obtains net revenues of $12,000,000 for the 12 months ending
December 31, 2000, as determined by its independent auditors, or
. if ebaseOne obtains net revenues of $50,000,000 for the 12 months ending
December 31, 2001, as determined by its independent auditors.
The warrants will vest immediately upon a change of control of ebaseOne. Please
see the description of Mr. Skamser's employment agreement above for a discussion
of what constitutes a change of control.
The employment agreement may be terminated by either party. If Mr. Sooley
terminates the employment agreement voluntarily or if we terminate the agreement
for cause or Mr. Sooley's death or disability, Mr. Sooley is entitled to his
accrued salary and any earned but unpaid bonus. If Mr. Sooley's employment
agreement is terminated for any other reason, Mr. Sooley is entitled to the
greater of:
. his remaining base salary at the then base salary rate for the remainder
of the employment term, or
. the base salary rate for a period of six months, and unreimbursed
expenses, any bonus earned in respect of a prior year and not yet paid,
and the pro rata portion of any bonus for the current year.
In November 1999, we entered into an employment agreement with Scott Feuless
ending December 31, 2002, which provides for a monthly base salary of $9,584
until December 31, 2000. After December 31, 2000, Mr. Feuless' base salary will
be increased at the discretion of the board of directors. The employment
agreement provides for a bonus determined by the board of directors. The
employment agreement grants Mr. Feuless warrants to purchase 750,000 shares of
our common stock as follows:
. one warrant to purchase 187,500 shares of common stock at an exercise
price of $2.37 per share, vesting monthly over a period of 24 months,
expiring in November 2004, provided Mr. Feuless' continued employment
with ebaseOne; and
. three warrants each to purchase 187,500 shares of common stock at
exercise prices of $2.50 per share, $2.75 per share, and $3.00 per share,
all of which expire in November 2004, and all of which vest identically
as Mr. Sooley's set of three warrants described above.
The warrants will vest immediately upon a change of control of ebaseOne. Please
see the description of Mr. Skamser's employment agreement above for a discussion
of what constitutes a change of control.
The employment agreement may be terminated by either party. If Mr. Feuless
terminates the employment agreement voluntarily or if we terminate the agreement
for cause or Mr. Feuless' death or disability, Mr. Feuless is entitled to his
accrued salary and any earned but unpaid bonus. If Mr. Feuless' employment
agreement is terminated for any other reason, Mr. Feuless is entitled to
the greater of:
. his remaining base salary at the then base salary rate for the remainder
of the employment term, or
. the base salary rate for a period of six months, and unreimbursed
expenses, any bonus earned in respect of a prior year and not yet paid,
and the pro rata portion of any bonus for the current year.
None of our other executive officers or directors have employment or
consulting agreements.
STOCK OPTIONS AND WARRANTS
In May 1999, our board of directors approved and our stockholders adopted,
the 1999 incentive stock option plan. The stock option plan allows:
. stock option grants;
38
<PAGE>
. stock appreciation rights or SARs;
. restricted stock awards; and
. performance stock awards.
Our board has reserved 5,000,000 shares of common stock for issuance under
the stock option plan.
Options. The stock option plan provides for grants of incentive stock
options to our employees, including officers and employee directors and non-
statutory stock options to our consultants, including non-employee directors.
The purposes of our stock option plan is to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to our employees and consultants, and to promote the
success of our business. Our board of directors administers our stock option
plan and determines the recipients and the terms of options granted, including
the exercise price, number of shares subject to the option, and the
exercisability of any options. The term of an option granted under the stock
option plan is stated in the option agreement. However, the term of an
incentive stock option may not exceed ten years and, in the case of an option
granted to a recipient who owns more than 10% of our outstanding stock at the
time of grant, the term of an option may not exceed five years. Options granted
under the stock option plan vest and become exercisable according to each option
agreement.
In connection with any person who owns more than 10% of our outstanding
stock, the exercise price of any incentive stock option granted must be at least
110% of the fair market value of our stock on the grant date.
No incentive stock options may be granted to a person, which, when combined
with all other incentive stock options becoming exercisable in any calendar year
that are held by that person, would have an aggregate fair market value in
excess of $100,000.
Stock appreciation rights or SARs. SARs may be included in each option
granted under the stock option plan. A SAR permits the recipient to surrender
that option, or a portion of the part which is exercisable, and receive in
exchange an amount equal to the excess of the fair market value of the stock
covered by the option, over the exercise price of the stock.
Restricted stock awards. The board may issue shares of stock to an eligible
person subject to the terms of a restricted stock agreement. Restricted stock
is subject to restrictions concerning the sale, transfer, or other encumbrance,
and generally will be subject to vesting over a period of time specified in the
restricted stock agreement.
Performance based awards. The board may award shares of stock, without any
payment for the shares, to designated persons if specified performance goals
established by the board are satisfied.
As of January 11, 2000, we had issued options to purchase 1,125,800 shares,
we had not issued any SARs, restricted stock awards, or performance based
awards, and 4,368,700 shares were available for future grants under the stock
option plan. Of the above issued options, in May 1999 we issued an officer a
ten-year option to purchase 214,500 shares of common stock at an exercise price
of $0.25 per share, and the remaining options to purchase 911,300 shares of
common stock were issued to employees at exercise prices ranging from $0.25 to
$7.25 per share.
In addition, during fiscal 1998 and 1997, we issued non-qualified options
outside of our stock option plan to purchase a total of 75,000 shares of our
common stock and in fiscal 1999 we issued non-qualified options outside of our
stock option plan to purchase a total of 25,000 shares of our common stock, at
exercise prices of between $2.00 and $4.00 per share, which expire between
January 2000 and March 2008. Of these non-qualified options, options to purchase
8,500 shares of our common stock were exercised at $2.00 per share.
39
<PAGE>
The following table provides information on the warrants and options granted
to our named executive officers during the fiscal year ended September 30, 1999:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of
Securities % of Total Potential Realizable Value at
Underlying Warrant/Options Exercise Assumed Annual Rates of
Warrants / to Employees in Price Expiration Stock Price Appreciation for
Name Options Granted (#) Fiscal Year ($/Sh) Date Warrant/Option Term
- ------------------------ -------------------- ---------------- -------- ---------- -----------------------------
5% ($) 10% ($)
------------- -------------
<S> <C> <C> <C> <C> <C> <C>
John Frazier Overstolz.. 7,140,000 35.4% $0.125 4/22/04 $246,581 $544,880
Charles W. Skamser...... 108,000 less than 1% $ 0.22 9/30/04 $ 6,564 $ 14,506
4,000,000 19.8% $ 0.38 8/11/04 $419,948 $463,988
2,000,000 9.9% $ 1.00 8/11/04 -- --
1,000,000 5.0% $ 1.50 8/11/04 -- --
1,000,000 5.0% $ 2.00 8/11/04 -- --
1,000,000 5.0% $ 2.50 8/11/04 -- --
1,000,000 5.0% $ 3.00 8/11/04 -- --
Kyran O'Dwyer........... 3,000 less than 1% $ 2.00 4/6/09 -- $ 2,024
</TABLE>
The 5% and 10% assumed rates of appreciation are prescribed by the rules
and regulations of the SEC and do not represent our estimate or projection of
the future trading prices of our common stock. We can provide no assurance that
any of the values reflected in this table will be achieved. Actual gains, if
any, on warrant or option exercises are dependent on numerous factors, including
our future performance, overall market conditions, and the holder's continued
employment with ebaseOne throughout the entire vesting period, if any. These
factors are not reflected in this table.
The potential realizable value is calculated by assuming that the fair
market value of our common stock at the time of grant appreciates at the
indicated rate for the entire term of the warrant or option and that the warrant
or option is exercised at the exercise price and sold on the last day of the
warrant or option term at the appreciated price. The lack of a potential
realizable value in the table above indicates that the exercise price of the
warrant or option will be greater than the price of our common stock before the
expiration date of the warrant or option, if our common stock appreciates at the
indicated rate.
Mr. Overstolz's warrant to purchase 7,140,000 shares of common stock was
granted by a predecessor corporation of ebaseOne, which was not publicly traded
at the time of the warrant grant. The board of directors of the predecessor
corporation determined the exercise price of the warrant to be at fair market
value at the time of the grant.
40
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
Acquired on Value Underlying Unexercised In-the-Money
Name Exercise (#) Realized ($) Options at FY-End (#) Options at FY-End ($)
- -------------------------- ------------- ------------ --------------------------- -------------------------------
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
John Frazier Overstolz.... -- -- 7,140,000 -- $15,172,500 --
Charles W. Skamser........ -- -- 10,108,000 -- $11,199,240 --
Kyran O'Dwyer............. -- -- 3,000 -- $ 750 --
</TABLE>
The table above includes both warrants and options. The values given to
the warrants or options in the table above are based on the differences between
the closing market price of $2.25 as of September 30, 1999 and the aggregate
exercise prices of the warrants or options.
401(K) PLAN
In June 1999, we adopted a retirement savings and investment plan, or the
401(k) Plan, covering our full-time employees. The 401(k) Plan is intended to
qualify under Section 401(k) of the Internal Revenue Code, so that contributions
to the 401(k) Plan by employees or by us and the investment earnings on the
contributions are not taxable to the employees until withdrawn. If our 401(k)
Plan qualifies under Section 401(k) of the Internal Revenue Code, our
contributions will be deductible by us when made. Our employees may elect to
reduce their current compensation by up to 20% and to have those funds
contributed to the 401(k) Plan. The 401(k) Plan permits us, but does not
require us, to make additional matching contributions on behalf of all
participants. For the fiscal year ended September 30, 1999, we had not made any
contributions to the 401(k) Plan on behalf of any of our named executive
officers.
LIMITATION OF DIRECTORS' LIABILITY
Our amended and restated articles of incorporation eliminate, to the
fullest extent permitted by Delaware law, the personal liability of our
directors for monetary damages for breaches of fiduciary duty. However, our
amended and restated articles of incorporation do not provide for the
elimination or limitation of the personal liability of a director for acts or
omissions that involve intentional misconduct, fraud, or a knowing violation of
the law, or unlawful corporate distributions. These provisions will limit the
remedies available to the stockholder who is dissatisfied with a decision of the
board of directors protected by these provisions, and the stockholder's only
remedy may be to bring a suit to prevent the action of the board. This remedy
may not be effective in many situations because stockholders are often unaware
of a transaction or an event before the board's action. In these cases, the
stockholders and ebaseOne could be injured by a board's decision and have no
effective remedy.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As part of the 1990 organization of a predecessor of ebaseOne and for
additional nominal consideration, (a) Mr. Overstolz was issued 6,050,546 shares
of common stock and a warrant, expiring in April 2004, to purchase 8,160,000
shares of common stock at an exercise price of $.125 per share, of which the
right to purchase 1,020,000 shares was assigned concurrently with the issuance,
and (b) Mr. Pritchard was issued 2,706,283 shares of common stock. Mr. Rotolo
purchased 4,437,755 shares of common stock in October 1996 for an aggregate of
$107,450. Brewer & Pritchard, P.C., the law firm of which Mr. Pritchard is an
officer, was issued 280,818 shares of common stock for services rendered during
fiscal 1999.
For services rendered from May 1999 through July 1999, Mr. Skamser was
issued a five-year warrant to purchase 108,000 shares of common stock at an
exercise price of $.22 per share. Mr. Skamser entered into an employment
agreement in August 1999, in which he was issued warrants to purchase an
aggregate of 10,000,000
41
<PAGE>
shares of common stock at exercise prices ranging from $.38 to $3.00 per share.
Mr. Overstolz entered into an employment agreement in August 1999, and in
October 1999 Mr. Overstolz was issued a warrant to purchase 1,000,000 shares of
common stock at an exercise price of $2.125 per share.
In May 1999, Mr. Feuless was issued a ten-year option to purchase 214,500
shares of common stock at an exercise price of $.25 per share. In connection
with Mr. Fueless' employment agreement in November 1999, Mr. Fueless was issued
warrants to purchase an aggregate of 750,000 shares of common stock at exercise
prices ranging from $2.37 to $3.00 per share.
For services rendered from May 1999 through October 1999, Mr. Sooley was
issued a five-year warrant to purchase 45,000 shares of common stock at an
exercise price of $.22 per share. In November 1999, Mr. Sooley was issued
warrants to purchase 1,000,000 shares of common stock at exercise prices ranging
from $2.37 to $3.00 per share.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The table below sets forth, as of January 11, 2000, the beneficial
ownership of common stock of:
. our directors;
. our named executive officers;
. the holders of five percent or more of our common stock; and
. our officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME OF BENEFICIAL OWNERS COMMON STOCK BENEFICIALLY OWNED PERCENTAGE OF OWNERSHIP
- ------------------------- --------------------------------- -------------------------
<S> <C> <C>
John Frazier Overstolz................... 13,357,210 29.5%
Charles W. Skamser....................... 5,608,000 12.9%
Michael M. Rotolo........................ 4,437,755 11.7%
Kent Forrest............................. 3,547,462 9.4%
Thomas C. Pritchard...................... 2,889,890 7.6%
Kyran O'Dwyer............................ 58,700 less than 1%
All officers and directors as a group,
(6) persons............................. 23,717,152 46.4%
</TABLE>
The address of each person listed on the table is 6060 Richmond Avenue, Houston,
Texas 77057, except for:
. Mr. Forrest, whose offices location is 133 Grogan's Point Road, The
Woodlands, Texas 77380;
. Mr. Pritchard, whose office location is 1111 Bagby Street, Suite 2450,
Houston, Texas 77002; and
. Mr. O'Dwyer, whose office location is 55 High Street, Ruislip,
Middlesex, England HAA7AZ.
We have determined beneficial ownership following the rules of the SEC. In
computing the number of shares beneficially owned by a person and the percentage
ownership of that person, we have included the shares of common stock subject to
options or warrants held by that person that are currently exercisable or will
become exercisable within 60 days after January 11, 2000, but we have not
included those shares for purposes of computing the percentage ownership of any
other person. We have assumed, unless indicated below, that the persons and
entities named in the table have sole voting and investment power for all shares
beneficially owned, subject to applicable community property laws.
43
<PAGE>
The beneficial ownership of the persons in the table above includes the
following options or warrants to purchase our common stock that are currently
exercisable or may be exercised by such person within 60 days of January 11,
2000:
SECURITIES EXERCISABLE WITHIN 60 DAYS OF JANUARY 11, 2000
OPTIONS / WARRANTS
-------------------
John Frazier Overstolz.......................... 7,306,664
Charles W. Skamser.............................. 5,608,000
Michael M. Rotolo............................... --
Kent Forrest.................................... --
Thomas C. Pritchard............................. 340,000
Kyran O'Dwyer................................... 3,000
All officers and directors as a group........... 13,228,851
The beneficial ownership for John Frazier Overstolz includes 6,050,546
shares of common stock held by The Overstolz Family Living Trust. Mr. Overstolz
is the trustee and beneficiary of the trust.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
We are authorized to issue 75,000,000 shares of common stock, and
10,000,000 shares of preferred stock.
COMMON STOCK
As of January 11, 2000 there were 37,905,571 shares of common stock issued
and outstanding and:
. 24,702,086 shares are reserved for issuance on the exercise of warrants,
not including the adjustable warrant discussed below;
. 91,500 shares are reserved for issuance on the exercise of options
outside our stock option plan; and
. 1,125,800 shares are reserved for issuance on the exercise of options
issued under our stock option plan.
The holders of shares of common stock are entitled to one vote per share on
each matter submitted to a vote of stockholders. If we our required to go into
liquidation, holders of common stock are entitled to share ratably in the
distribution of assets remaining after payment of liabilities. Holders of
common stock have no cumulative voting rights, and the holders of a majority of
the outstanding shares have the ability to elect all of the directors. Holders
of common stock have no preemptive or other rights to subscribe for shares.
Holders of common stock are entitled to dividends as declared by the board of
directors out of funds legally available. The outstanding common stock is
validly issued and non-assessable.
PREFERRED STOCK
Our board of directors has the authority, without action by our
stockholders, to designate and issue preferred stock in one or more series. Our
board of directors may also designate the rights, preferences, and privileges of
each series of preferred stock, any or all of which may be greater than the
rights of the common stock. It is not possible to state the actual effect of
the issuance of any shares of preferred stock on the rights of holders of the
common stock until the board of directors determines the specific rights of the
holders of the preferred stock. However, these effects might include:
. restricting dividends on the common stock;
. diluting the voting power of the common stock;
. impairing the liquidation rights of the common stock; and
. delaying or preventing a change in control of ebaseOne without further
action by the stockholders.
We have no present plans to issue any shares of preferred stock.
WARRANTS
As of January 11, 2000, we had issued warrants to purchase 24,702,086
shares of our common stock. Our officers and directors hold warrants to purchase
an aggregate of 20,043,000 shares of common stock at exercise prices ranging
from $0.125 to $3.00 per share, and with expiration dates ranging from April
2004 to August 2006. All of the warrants issued to officers and directors may be
exercised on a cash-less basis. Additional warrants grant an aggregate purchase
of 4,659,086 shares of common stock, have exercise prices ranging from $0.125 to
$2.25 per
45
<PAGE>
share, and have expiration dates ranging from September 2001 to April 2004. Of
the warrants not issued to officers and directors, warrants authorizing the
purchase of 1,527,000 shares of common stock are exercisable on a cash-less
basis.
In November 1999, we issued additional warrants in connection with our $9
million financing. We issued warrants to purchase a total of 1,283,332 shares
of common stock at an exercise price of $5.18 per share with expiration dates
ranging from November 2000 to November 2004. In addition, we may redeem
warrants authorizing the purchase of 624,998 shares of common stock, if our
common stock is at or above $10.36 per share for 20 consecutive trading days
after the effective date of this registration statement. The shares underlying
these warrants are included in this registration statement.
In addition to the above warrants, we also issued two-year adjustable
warrants that vest and become exercisable on or after February 15, 2000, if our
common stock is trading below $5.31 per share. The purchase price is $.001 per
share and the number of shares issuable is calculated as follows:
Warrant shares = 2,083,333 x ($5.31 - adjustment price)
------------------------------------------
adjustment price
The adjustment price is the average of our three lowest common stock prices for
any 30 consecutive trading days preceding a vesting date. The number of shares
issuable under these warrants increase if and as the price of the common stock
falls below $5.31. These warrants will cease to vest and become null and void
for shares that have not vested if the closing price of our common stock is at
or above $8.64 per share for 20 consecutive trading days after the effective
date of this registration statement. As there is no limit on the number of
shares issuable under these warrants, the issuance of shares on exercise of
these warrants may have a severe dilutive effect. We have included 21,825
shares underlying these warrants in this registration statement. If we are
required to issue any additional shares under this warrant, we will be required
to register the resale of such shares on a new registration statement.
The following table shows the approximate number of shares of common stock
that the adjustable warrants may be converted into assuming the adjustment price
discussed above is:
. the same as our stock's market price as of January 11, 2000 or $6.06 per
share;
. 25% below our stock's market price as of January 11, 2000 or $4.55 per
share;
. 50% below our stock's market price as of January 11, 2000 or $3.03 per
share;
. 75% below our stock's market price as of January 11, 2000 or $1.52 per
share; and
. $8.63. If our common stock is at or above $8.64 per share for 20
consecutive trading days after the effective date of this registration
statement the warrants become null and void.
NUMBER OF SHARES PERCENTAGE OF SHARES
ADJUSTMENT PRICE ISSUABLE ON EXERCISE ISSUABLE ON EXERCISE
- ---------------- --------------------- ---------------------
$6.06 per share............. 0 0%
$4.55 per share............. 347,985 less than 1%
$3.03 per share............. 1,567,657 4.1%
$1.52 per share............. 5,194,626 13.7%
$8.63 per share............. 0 0%
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<PAGE>
If these warrants are partially exercised and the holders sell the shares
of common stock issued upon exercise into the market, the price of our common
stock may decrease due to the additional shares in the market. If the price of
our common stock decreases, the holders of these warrants will receive a greater
number of shares upon the exercise of their remaining warrants. In addition, if
our stock price decreases, it could encourage short sales by warrant holders or
others, which could cause our stock price to further decrease.
DELAWARE ANTI-TAKEOVER STATUTE AND CHARTER PROVISIONS
Delaware anti-takeover statute. We are subject to the provisions of
Section 203 of the Delaware General Corporation Law, an anti-takeover law.
Subject to some exceptions, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless:
. Before this date, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
. Upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned:
. by persons who are directors and also officers, and
. by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held
subject to the plan will be offered in a tender or exchange
offer; or
. On or after the date the business combination is approved by the board
of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock, which is not owned by the
interested stockholder.
For purposes of Section 203, a "business combination" includes a merger,
asset sale, or other transaction resulting in a financial benefit to the
interested stockholder, and an "interested stockholder" is a person who,
together with affiliates and associates, owns, or within three years before the
date of determination whether the person is an "interested stockholder," did
own, 15% or more of the corporation's voting stock.
Certificate of incorporation. Our certificate of incorporation provides:
. For the authorization of the board of directors to issue, without
further action by the stockholders, up to 10,000,000 shares of preferred
stock in one or more series and to fix the rights, preferences,
privileges and restrictions on the preferred stock; and
. That special meetings of stockholders may be called only by our chairman
of the board, our president, or a majority of the members of our board
of directors.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of our board of directors and in the policies
formulated by our board of directors and to discourage transactions that may
involve an actual or threatened change of control of ebaseOne. These provisions
are designed to reduce the vulnerability of ebaseOne to an unsolicited proposal
for a takeover of ebaseOne. However, these provisions could discourage
potential acquisition proposals and could delay or prevent a change in control
of ebaseOne. These provisions may also have the effect of preventing changes in
the management of ebaseOne.
47
<PAGE>
TRANSFER AGENT
Liberty Transfer Company serves as the transfer agent for our common stock.
48
<PAGE>
SHARES AVAILABLE FOR FUTURE SALE
There is a limited market for our common stock. Future sales of
substantial amounts of common stock in the public market could adversely affect
market prices prevailing from time to time. As described below, as of the date
of this prospectus, only a limited number of shares will be available for sale.
Nevertheless, sales of substantial amounts of our common stock in the public
market in the future could hurt the prevailing market price and our ability to
raise equity capital in the future.
. As of January 11, 2000, we have 37,905,571 shares of common stock issued
and outstanding.
. Of these shares, upon the date of this prospectus, 10,350,247 shares
will be freely tradeable without restriction or further registration
under the Securities Act, unless the shares are held by "affiliates" of
ebaseOne. Affiliates of ebaseOne are people that control or are
controlled by ebaseOne. Among other, this includes our officers,
directors, and large shareholders.
. The 27,555,324 remaining shares outstanding are eligible for public sale
under Rule 144, commencing 90 days after the effective date of this
registration statement, once these shares have been held for one year,
except for 15,741,958 shares subject to a contractual lock-up agreement
expiring on November 30, 2000.
. In addition, 1,359,713 shares underlying warrants are being registered
in this registration statement, and will be freely tradeable when issued
upon exercise of these warrants.
SHARES OWNED FOR AT LEAST ONE YEAR MAY BE SOLD UNDER RULE 144.
In general, under Rule 144, a person who has beneficially owned restricted
shares for at least one year, including a person who may be considered to be our
affiliate, would be entitled to sell, within any three-month period, a number of
shares that does not exceed one percent of the number of shares of our common
stock then outstanding. Rule 144 is available for sales beginning 90 days after
the effective date of this prospectus and substantially all of our restricted
shares will have been held for one year by May 2000, excluding 15,741,958 shares
of common stock subject to a lock-up agreement. Sales under Rule 144 are also
subject to manner of sale provisions and notice requirements and to the
availability of current public information. We are unable to estimate
accurately the number of restricted shares that will be sold under Rule 144
because this will depend in part on the market price of our common stock and the
personal circumstances of the seller.
SHARES OWNED FOR AT LEAST TWO YEARS MAY BE SOLD UNDER RULE 144(k) BY
NON-AFFILIATES OF EBASEONE.
Under Rule 144(k), a person who is not considered to have been an affiliate
of ebaseOne at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years, would
be entitled to sell shares without complying with the manner of sale, public
information, volume limitation, or notice requirements discussed above.
Therefore, unless otherwise restricted, shares may be sold under Rule 144(k)
immediately following completion of the two year holding period without
limitation.
SHARES ISSUED ON CONVERSION OF OPTIONS ISSUED UNDER OUR STOCK OPTION PLAN MAY BE
SOLD UNDER RULE 701.
In general, under Rule 701, any employee, consultant, or advisor of
ebaseOne who purchased shares from us in connection with a compensatory stock or
option plan is eligible to resell the shares 90 days after the effective date of
this prospectus in reliance on Rule 144, by complying with the applicable
requirements of Rule 144, other than the holding period conditions. Ninety days
after the effective date of this offering, options to purchase approximately
1,125,800 shares of common stock will be vested and exercisable and upon
exercise may be sold under Rule 701.
In the future we may file one or more registration statements on Form S-8
under the Securities Act to register additional shares of common stock issued
under our current stock option plan or any other similar plan.
49
<PAGE>
These registration statements may be filed after the effective date of this
prospectus and will automatically become effective upon filing. Therefore,
shares registered under these registration statements will be available for sale
in the open market, unless the shares are subject to vesting or other
restrictions.
LOCK-UP AGREEMENTS.
All directors, all executive officers, and a few stockholders together hold
an aggregate of approximately 18,519,951 shares of common stock, and warrants
and options to purchase 19,444,500 shares of common stock. These stockholders
have signed lock-up agreements that prevent them from selling 15,741,958 of the
their shares of common stock, and 16,527,825 of the shares underlying their
warrants and options until November 30, 2000. Upon expiration of the lock-up
period, all of these shares will be freely tradable, subject to the limitations
described above concerning Rule 144.
50
<PAGE>
SELLING STOCKHOLDERS
On November 15, 1999 Deephaven Private Placement Trading Ltd. and other
investors purchased an aggregate of 2,083,333 shares of our common stock and
acquired warrants to purchase an aggregate of 833,332 shares of our common stock
as well as adjustable warrants to purchase shares of our common stock as more
fully described in the "Description of Capital Stock C Warrants" section of this
prospectus. All of these shares are included in this registration statement,
except for 173,610 shares of common stock, warrants to purchase 69,444 shares of
common stock, and a portion of the adjustable warrants. Each holder of the
warrants and adjustable warrants is prohibited from using them to acquire shares
of our common stock to the extent that such acquisition would result in such
holder, together with any affiliate of such holder, beneficially owning in
excess of 4.999% of the outstanding shares of our common stock following such
acquisition. This restriction may be waived by each holder on not less than 61
days notice to us.
Since the number of shares of our common stock that will be issuable upon
exercise of the adjustable warrants is based upon fluctuations of the market
price of our common stock before any vesting date, the actual number of shares
of our common stock that will be issuable and beneficially owned upon exercise
of the adjustable warrants cannot be determined at this time. Because of this
fluctuating characteristic, we have agreed to register a number of shares of our
common stock that exceeds the number of our shares of common stock currently
beneficially owned by the holders of the adjustable warrants.
The number of shares of our common stock listed in the table below as being
beneficially owned by each of Deephaven Private Placement Trading Ltd. and the
other investors in the November 1999 financing includes the shares of our common
stock that are issuable to it, subject to the 4.999% limitation, upon exercise
of the warrants. However, the 4.999% limitation would not prevent Deephaven
Private Placement Trading Ltd. and the other investors in the November 1999
financing from acquiring and selling more than 4.999% of shares of our common
stock through a series of acquisitions and sales under the warrants while never
beneficially owning more than 4.999% at any one time.
This prospectus relates to the resale of 4,206,233 shares of common stock
by the selling stockholders. The table below sets forth information concerning
the resale of shares of common stock by the selling stockholders. We will not
receive any proceeds from the resale of common stock by the selling
stockholders, although we may receive proceeds from the exercise of warrants,
the underlying common stock of which is registered in this registration
statement. Assuming all of the shares registered below are sold by the listed
selling stockholders, none of the selling stockholders will continue to own any
shares of our common stock.
RESALE OF COMMON STOCK BY SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
STOCKHOLDER OWNED BEFORE RESALE AMOUNT OFFERED OWNED AFTER RESALE
- ----------- ------------------- -------------- --------------------
<S> <C> <C> <C>
Anders, David L. 10,000 10,000 0
Applbaum, Isaac 53,191 53,191 0
Bailey, Michelle M. 3,191 3,191 0
Bhandara Family Living Trust 122,340 122,340 0
Black, F. Darlene 26,596 26,596 0
Black, Marvin 31,019 31,019 0
Buddingh, Robert W. 11,000 11,000 0
Caliber Resources, Ltd. 85,228 85,228 0
</TABLE>
51
<PAGE>
<TABLE>
<S> <C> <C> <C>
CALP II Limited Partnership 170,453 170,453 0
Cardinal Securities, LLC 450,000 450,000 0
Vijay Alim Chandani Family Revocable 25,927 26,139 0
Trust
Deephaven Private Placement Trading, Ltd. 891,201 898,476 0
Dimitry, Theodore 26,000 26,000 0
Franz Jr., A.M. 10,638 10,638 0
Franz, Allan 50,000 50,000 0
House, Vicki L. 10,638 10,638 0
Kahalifa, Mohamed Ghaus 81,018 81,679 0
Kazi, Zubair 184,722 186,230 0
Kerbow, R..B. 15,000 15,000 0
Littleton, Alvin J. 15,957 15,957 0
Marburger, Robert 26,597 26,597 0
Mazda Construction, Inc. 26,596 26,596 0
McCartney, J.W. 15,000 15,000 0
McClendon, III, Sidney 26,000 26,000 0
McKinnon, Ian 42,614 42,614 0
McKinnon, Michelle 42,614 42,614 0
Meehan, John E. 11,000 11,000 0
Milner, Ronnie 30,000 30,000 0
New Crescent Investors, L.L.C. 1,263,887 1,274,204 0
Newall, German 30,300 30,300 0
Owesh, Tajunnisa 226,851 228,703 0
Regency Crossing LLC 63,830 63,830 0
Smith, Douglas P. 6,000 6,000 0
Thomason, Paul 99,000 99,000 0
TOTAL SHARES 4,184,408 4,206,233 0
</TABLE>
The shares above for Cardinal Securities, LLC include 450,000 shares of
common stock underlying a warrant. The persons who have voting and investment
control over the shares above for Cardinal Securities, LLC are Rob Rosenstein,
Scott Cook, and Dave Doherd. The shares above for Marvin Black include 25,000
shares of
52
<PAGE>
common stock underlying a warrant. The shares above for Paul Thomason include
99,000 shares of common stock underlying a warrant. The person who has voting
and investment control over the shares above for Caliber Resources, Ltd. is
Philip Johnson. The entity who has voting and investment control over the shares
above for CALP II Limited Partnership is VMH International, Ltd. Deephaven
Private Placement Trading Ltd. is a private investment fund that is owned by its
investors and that is managed by Deephaven Capital Management LLC, which has
voting and investment control over the share above owned by Deephaven Private
Placement Trading Ltd. Deephaven Capital Management LLC is an indirect
subsidiary of Knight/Trimark Group, Inc. The persons who have voting and
investment control over the shares above for Mazda Construction, Inc. are Feroze
P. Bhandara and Shernaz F. Bhandara. The persons who have voting and investment
control over the shares above for Regency Crossing LLC are Feroze P. Bhandara,
Shernaz F. Bhandara, and Bahram Yazdani. The persons who have voting and
investment control over the shares above for New Crescent Investors, L.L.C. are
Ethan Benovitz, Mark Nordlicht, and Daniel Saks.
53
<PAGE>
PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, assignees, and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market, or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:
. ordinary brokerage transactions and transactions in which the broker-
dealer solicits purchasers;
. block trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as principal
to facilitate the transaction;
. purchases by a broker-dealer as principal and resale by the broker-
dealer for its account;
. an exchange distribution following the rules of the applicable
exchange;
. privately negotiated transactions;
. short sales or sales of shares not previously owned by the seller;
. broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
. a combination of any such methods of sale; and
. any other method permitted under applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling stockholders may also engage in: (a) short sales against the
box, which is making a short sale when the seller already owns the shares, (b)
puts, which is a contract requiring the person buying the contract to sell
shares at a specified price before a specified date, and (c) calls, which is a
contract giving the person buying the contract the right to buy shares at a
specified price before a specified date and other transactions in our securities
or in derivatives of our securities and may sell or deliver shares in connection
with these trades. The selling stockholders may pledge their shares to their
brokers under the margin provisions of customer agreements. If a selling
stockholder defaults on a margin loan, the broker may, from time to time, offer
and sell the pledged shares.
Broker-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders in amounts to be negotiated. If any
broker-dealer acts as agent for the purchaser of shares, the broker-dealer may
receive commission from the purchaser in amounts to be negotiated. The selling
stockholders do not expect these commissions and discounts to exceed what is
customary in the types of transactions involved.
The selling stockholders and any broker-dealers or agents that are involved
in selling the shares may be considered to be "underwriters" within the meaning
of the Securities Act for such sales. An underwriter is a person who has
purchased shares from an issuer with a view towards distributing the shares to
the public. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
considered to be underwriting commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration
of the shares, including fees and disbursements of counsel to the selling
stockholders. We have agreed to indemnify the selling stockholders against some
losses, claims, damages and liabilities, including liabilities under the
Securities Act.
54
<PAGE>
EXPERTS
The financial statements of ebaseOne Corporation appearing in this S-1
registration statement have been audited by Hein + Associates, LLP, independent
auditors, as disclosed in their report appearing elsewhere in this registration
statement and are included in reliance on the report given on the authority of
Hein + Associates, LLP, as experts in accounting and auditing.
LEGAL MATTERS
Legal matters concerning the issuance of shares of common stock offered in
this registration statement will be passed upon by Brewer & Pritchard, P.C.,
Houston, Texas. Principals of Brewer & Pritchard, P.C. beneficially own
3,757,101 shares of common stock.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the SEC for this
offering. In addition, after we complete this offering, we will be required to
file annual, quarterly, and current reports with the SEC. We intend to furnish
our common stockholders with annual reports containing, among other information,
audited financial statements certified by an independent public accounting firm.
This prospectus is part of the registration statement and does not contain
all of the information included in the registration statement and all of its
exhibits. Whenever a reference is made in this prospectus to any material
document of ours, you should refer to the exhibits that are a part of the
registration statement for a copy of the document.
You may read and copy our registration statement and all of its exhibits at
the SEC public reference room located at 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain information on the operation of the SEC public
reference room in Washington, D.C. by calling the SEC at 1-800-SEC-0330. The
registration statement is also available from the SEC's web site at
http://www.sec.gov. The SEC's web site contains reports, proxy and information
statements, and other information about issuers that file electronically.
55
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
EbaseOne Corporation (previously Prime Net Corporation)
Houston, Texas
We have audited the accompanying consolidated balance sheets of EbaseOne
Corporation (previously Prime Net Corporation) as of September 30, 1999 and
1998, and the related consolidated statements of operations, changes in
stockholders' equity (deficit) and cash flows for each of the years in the
three-year period ended September 30, 1999. These consolidated financial
statements are the responsibility of EbaseOne's management. Our responsibility
is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EbaseOne Corporation
(previously Prime Net Corporation) as of September 30, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1999, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that EbaseOne Corporation (previously Prime Net Corporation) will continue as a
going concern. As more fully discussed in Note 10 to the financial statements,
EbaseOne incurred losses of $2,248,185, $471,844, and $224,652 for the years
ended September 30, 1999, 1998 and 1997, respectively. As a result of these
losses, EbaseOne's working capital position and ability to generate
sufficient cash flows from operations to meet its operating and capital
requirements have deteriorated. These matters raise substantial doubt about
EbaseOne's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 10. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Hein + Associates llp
Houston, Texas
October 25, 1999
(except for Note 14, as to which
the date is November 16, 1999)
F-1
<PAGE>
EBASEONE CORPORATION
(PREVIOUSLY PRIME NET CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
-----------------------------------------
1999 1998
----------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 308,444 $ 152,282
Accounts receivable, no allowance for doubtful accounts:
Trade 39,698 126,851
Employee 2,500 1,700
Other current assets - 2,378
----------- ---------
Total current assets 350,642 283,211
INVESTMENT IN MARKETABLE EQUITY SECURITIES, at market 6,000 -
PROPERTY AND EQUIPMENT, net 332,557 81,131
OTHER ASSETS 11,940 6,463
----------- ---------
Total assets $ 701,139 $ 370,805
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 110,000 $ -
Current portion of long-term debt 54,567 26,173
Current portion of capital lease obligation 19,319 2,058
Notes payable to stockholders 5,000 32,150
Trade accounts payable 372,613 132,854
Accrued liabilities 173,637 24,182
Deferred revenue 73,907 -
----------- ---------
Total current liabilities 809,043 217,417
LONG-TERM DEBT, net of current portion 360,095 30,583
CAPITAL LEASE OBLIGATION, net of current portion 56,020 2,066
----------- ---------
Total liabilities 1,225,158 250,066
COMMITMENTS AND CONTINGENCIES (Notes 9 and 10)
STOCKHOLDERS' EQUITY (DEFICIT):
Note receivable from stockholder (8,000) -
Preferred stock, $.001 par value, 10,000,000 shares authorized; none issued - -
Common stock subscribed (279,959 shares) 280 -
Common stock, $.001 par value; 75,000,000 shares authorized; 34,697,704 and
21,642,030 shares issued and outstanding at September 30, 1999 and 1998,
respectively 34,698 21,641
Additional paid-in capital 2,392,086 797,296
Accumulated deficit (2,946,383) (698,198)
Accumulated other comprehensive income 3,300 -
----------- ---------
Total stockholders' equity (deficit) (524,019) 120,739
----------- ---------
Total Liabilities and Stockholders' Equity (Deficit) $ 701,139 $ 370,805
=========== =========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-2
<PAGE>
EBASEONE CORPORATION
(PREVIOUSLY PRIME NET CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------------------------------------------------
1999 1998 1997
----------------- ------------------ ------------------
<S> <C> <C> <C>
REVENUES:
Product sales $ 448,523 $ 362,008 $ 14,948
Service revenue 205,286 322,011 49,989
----------- ----------- -----------
653,809 684,019 64,937
Operating expenses:
Cost of goods
sold - products 357,171 220,680 18,153
Compensation - profession
services 288,260 217,823 10,050
General and administrative
expenses 2,209,269 700,192 253,216
----------- ----------- -----------
2,854,700 1,138,695 281,419
INTEREST, NET 47,294 17,168 8,170
----------- ----------- -----------
NET LOSS $(2,248,185) $ (471,844) $ (224,652)
=========== =========== ===========
NET LOSS PER SHARE - BASIC AND DILUTED $ (.08) $ (.03) $ (.02)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF 26,966,773 15,660,008 12,607,872
COMMON SHARES OUTSTANDING =========== =========== ===========
</TABLE>
See accompanying notes to these consolidated statements.
F-3
<PAGE>
EBASEONE CORPORATION
(PREVIOUSLY PRIME NET CORPORATION)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
AND COMPREHENSIVE INCOME
PERIOD FROM OCTOBER 1, 1996 TO SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Common Stock
Note Subscribed Common Stock
Receivable ------------------- ---------------------------
Stockholder Shares Amount Shares Amount
---------- ------ ------ ---------- --------
<S> <C> <C> <C> <C> <C>
BALANCES, October 1, 1996 (restated) $ - - $ - 11,505,280 $11,506
Common stock issued for cash (restated) - - - 1,725,795 1,725
Exercise of warrants (restated) - - - 479,388 479
Net loss - - - - -
------- ------- ---- ---------- -------
BALANCES, September 30, 1997 (restated) - - - 13,710,463 13,710
Common stock issued for compensation (restated) - - - 119,851 120
Common stock issued for cash (restated) - - - 781,400 782
Exercise of warrants (restated) - - - 1,284,762 1,284
Conversion of notes payable and related accrued - - - 441,554 442
interest due to stockholders (restated)
Issuance of common stock to acquire Vectron - - - 5,304,000 5,304
Net loss - - - - -
------- ------- ---- ---------- -------
BALANCES, September 30, 1998 - - - 21,642,030 21,642
Issuance of common stock to acquire Norske - - - 6,307,357 6,307
Common stock issued for services - - - 113,636 114
Conversion of accounts payable - 159,234 159 121,584 122
Exercise of warrants - - - 2,876,322 2,876
Common stock issued for compensation and cash (8,000) - - 816,000 816
Proceeds from sale of common stock - - - 1,457,139 1,457
Common stock issued for cash - 120,725 121 1,363,636 1,364
Warrants issued for consulting - - - - -
Warrants issued for compensation - - - - -
Comprehensive loss:
Net loss - - - - -
Unrealized gain on marketable equity securities - - - - -
Comprehensive loss - - - - -
------- ------- ---- ---------- -------
BALANCES, September 30, 1999 $(8,000) 279,959 $280 34,697,704 $34,698
======= ======= ==== ========== =======
Accumulated
Additional Other
Paid in Accumulated Comprehensive
Capital Deficit Income Total
---------- ------------ ------------- -----
BALANCES, October 1, 1996 (restated) $ 98,705 $ (1,702) - $ 108,509
Common stock issued for cash (restated) 103,275 - - 105,000
Exercise of warrants (restated) 24,521 - - 25,000
Net loss - (224,652) - (224,652)
---------- ----------- ----------- -----------
BALANCES, September 30, 1997 (restated) 226,501 (226,354) - 13,857
Common stock issued for compensation (restated) 6,107 - - 6,227
Common stock issued for cash (restated) 33,218 - - 34,000
Exercise of warrants (restated) 100,690 - - 101,974
Conversion of notes payable and related accrued
interest due to stockholders (restated) 36,113 - - 36,555
Issuance of common stock to acquire Vectron 394,666 - - 399,970
Net loss - (471,844) - (471,844)
---------- ----------- ------ -----------
BALANCES, September 30, 1998 797,295 (698,198) - 120,739
Issuance of common stock to acquire Norske 632,758 - - 639,065
Common stock issued for services 119,795 - - 119,909
Conversion of accounts payable 43,619 - - 43,900
Exercise of warrants 47,124 - - 50,000
Common stock issued for compensation and cash 80,830 - - 73,646
Proceeds from sale of common stock 144,340 - - 145,797
Common stock issued for cash 411,997 - - 413,482
Warrants issued for consulting 36,567 - - 36,567
Warrants issued for compensation 77,761 - - 77,761
Comprehensive loss:
Net loss - (2,248,185) - (2,248,185)
Unrealized gain on marketable equity securities - - 3,300 3,300
-----------
Comprehensive loss - - - (2,244,885)
---------- ----------- ------ -----------
BALANCES, September 30, 1999 $2,392,086 $(2,946,383) $3,300 $ (524,019)
========== =========== ====== ===========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-4
<PAGE>
EBASEONE CORPORATION
(PREVIOUSLY PRIME NET CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------------------------------------------------
1999 1998 1997
------------------ ------------------ ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,248,885) $(471,844) $(224,652)
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation 54,022 23,131 17,715
Bad debt expense 20,178
Common stock issued for compensation 67,646 6,227 -
Issuance of stock to retire accrued interest to
stockholder - 1,305 -
Common stock issued for services 240,706 - -
Warrant issued for compensation 77,761 - -
Warrant issued for consulting 36,567 - -
Changes in assets and liabilities:
Accounts receivable 66,175 (110,189) 12,683
Deferred revenue 73,907 - -
Trade accounts payable 283,659 96,173 16,281
Accrued liabilities 149,455 24,182 (500)
Prepaid expenses - (7,673) -
Other assets (3,099) 6,637 (7,374)
----------- --------- ---------
Net cash used in operating activities (1,181,208) (432,051) (185,847)
CASH FLOWS FROM INVESTING ACTIVITIES:
Furniture and equipment (221,426) (57,438) (7,184)
Purchase of marketable equity securities (2,700) - -
----------- --------- ---------
Net cash used in investing activities (224,126) (57,438) (7,184)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on demand notes payable from stockholders 5,000 47,400 20,000
Advances on notes payable 617,605 270,420 -
Repayments of notes payable (181,849) (240,599) (20,007)
Repayments of capital lease obligations (12,807) (1,723) -
Proceeds from sale of common stock 444,482 34,000 105,000
Issuance of common stock to acquire Vectron - 399,970 -
Issuance of common stock to acquire Norske 639,065 - -
Exercise of warrants 50,000 101,974 25,000
----------- --------- ---------
Net cash provided by financing activities 1,561,496 611,442 129,993
----------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 156,162 121,953 (63,038)
CASH AND CASH EQUIVALENTS, at beginning of year 152,282 30,329 93,367
----------- --------- ---------
Cash and Cash Equivalents, at end of year $ 308,444 $ 152,282 $ 30,329
=========== ========= =========
Supplemental Cash Flow Information:
Cash paid for interest $ 43,522 $ 15,863 $ 8,220
=========== ========= =========
Equipment acquired under capital leases $ 84,022 $ 5,847 $ -
=========== ========= =========
Notes payable and accrued interest payable to
stockholders converted to common stock $ - $ 36,555 $ -
=========== ========= =========
Account payable converted to common stock $ 43,900 $ - $ -
=========== ========= =========
Note received in exchange for common stock $ 8,000 $ - $ -
=========== ========= =========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-5
<PAGE>
EBASEONE CORPORATION
(PREVIOUSLY PRIME NET CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
organization - Vectron, Inc. was incorporated under the laws of Nevada on
November 7, 1997. On August 18, 1998, Vectron acquired the majority of the
outstanding common stock of Prime Net Corporation and changed its name to
Synoptech Solutions Group, Inc. Norske Energy Corporation was incorporated
under the laws of the state of Delaware on September 15, 1997. On April 22,
1999, Norske acquired all of the outstanding common stock of SSGI and
changed its name to EbaseOne Corporation. Prime Net, a privately held
corporation and operating subsidiary, was incorporated under the laws of the
state of Texas in October 1990 to provide financial services in the small
business arena. In October 1996, Prime Net began developing computer and
business software solutions for small and mid-market companies. In September
1998, Prime Net's business model changed to begin the process of becoming a
high tech business solutions firm while developing an applications data
center. The Company is currently located in Houston, Texas. See Note 2
"Reverse Acquisitions." For accounting purposes, the acquisitions have been
treated as reverse acquisitions. Accordingly, the historical financial
statements prior to May, 1999 are those of Prime Net. No proforma
information giving effect to these transactions has been presented because
Vectron and Norske had no operating activities at the time of the
acquisitions. No goodwill arose from these transactions, and all transaction
costs were expensed as incurred.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of ebaseOne and all of its wholly-owned
subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation.
Revenue Recognition - ebaseOne sells both software deemed to be off the
shelf, as defined by Statement of Position 97-2, and software that is not
deemed to be off the shelf. Revenue from the sale of off the shelf software
is recognized upon delivery. Related services, if any, are recognized as
revenue when provided. To the extent software is sold with implementation
and training services and is not deemed off the shelf software, then the
revenue from both the sale of the software and the related services are
recognized on the percentage of completion method of accounting.
Property and Equipment - Property and equipment is stated at cost, less
accumulated depreciation and amortization. Depreciation is calculated using
the straight-line method over the estimated useful lives of the assets
ranging from 5 to 7 years. Leasehold improvements are amortized using the
straight-line method over the term of the lease. Major improvements are
capitalized; minor replacements, maintenance and repairs are charged to
current operations.
Income Taxes - EbaseOne accounts for income taxes on the liability method
under which the amount of deferred income taxes is based upon the tax
effects of the differences between the financial and income tax basis of
ebaseOne's assets and liabilities and operating loss carryforwards at the
balance sheet date based upon existing laws. Deferred tax assets are
recognized if it is more likely than not that the future income tax benefit
will be realized.
F-6
<PAGE>
EBASEONE CORPORATION
(PREVIOUSLY PRIME NET CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
Long-lived Assets - EbaseOne reviews for the impairment of long-lived
assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment loss would
be recognized when estimated future cash flows expected to result from the
use of the asset and its eventual disposition is less than its carrying
amount. The Company has not identified any such impairment losses.
Cash Equivalents - For purposes of reporting cash flows, cash equivalents
include highly liquid investments purchased with maturity of three months or
less at the date of purchase.
Concentration of Credit Risk - Financial instruments which potentially
expose E Base Onesto concentrations of credit risk consist primarily of
accounts receivable. Management does not believe a significant credit risk
exists at September 30, 1999. EbaseOne maintains deposits in banks which
exceed, at times, the federal deposit insurance available. Management
periodically assesses the financial condition of the institutions and
believes that any possible deposit loss is minimal.
Use of Estimates - The preparation of EBaseOne's financial statements, in
conformity with generally accepted accounting principles, requires
EBaseOne's management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes.
Actual results could differ from those estimates.
Comprehensive Income (Loss) - Comprehensive income is defined as all changes
in stockholders' equity, exclusive of transactions with owners, such as
capital investments. Comprehensive income includes net income or loss,
changes in certain assets and liabilities that are reported directly in
equity such as translation adjustments on investments in foreign
subsidiaries, and certain changes in minimum pension liabilities. The
Company's comprehensive income was equal to its net loss for the year ended
September 30, 1998.
Marketable Securities - EbaseOne's marketable equity securities are
accounted for as available for sale securities. EbaseOne marketable equity
securities are stated at fair value, with unrealized gains and losses
recognized in stockholders' equity. EbaseOne records the purchases and sales
of marketable securities and records realized gains and losses on the trade
date. Realized gains or losses on the sale of securities are recognized on
the specific identification method.
F-7
<PAGE>
EBASEONE CORPORATION
(PREVIOUSLY PRIME NET CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: (continued)
Earnings Per Share - Basic earnings per share is computed based on the
weighted average number of common shares outstanding. Diluted earnings per
share is calculated under the treasury stock method and reflects the
potential dilution that could occur if certain options were exercised. The
dilutive effect of stock options was not calculated in 1999 and 1998 since
the Company incurred a loss in those years.
2. REVERSE ACQUISITION BY PRIME NET:
On August 18, 1998, the shareholders of Prime Net approved a merger with
Vectron. After the completion of the merger, Vectron changed
its name to SSGI. Pursuant to the merger agreement, each outstanding share
of common stock of Prime Net, par value $.01 per share, was converted to the
right to receive .4699 shares of SSGI, par value $.01 per share. For
financial statement purposes, Prime Net is considered the acquiring company,
and this transaction has been treated as a purchase by Prime Net of SSGI.
For legal purposes, however, SSGI remained the surviving entity. The
combined entity retained SSGI's capital structure, and the common stock
transactions prior to the merger have been restated using the .4699
exchange ratio. At the time of the merger, Vectron had total assets of
$399,970, consisting exclusively of cash, and no liabilities.
SSGI assumed Prime Net's existing warrants issued in connection
with certain services provided and various financing transactions. The
number of shares subject to purchase under the warrant agreements was
adjusted by multiplying the number of Prime Net warrant shares by the
exchange ratio of .4699 shares. The exercise price of the warrants was
adjusted by dividing the stated exercise price by the exchange ratio. At the
conclusion of the Merger, the Company had 21,603,678 shares of common stock
outstanding.
On April 22, 1999, the stockholders of SSGI approved a merger with Norske.
Pursuant to the second merger agreement, each outstanding share of common
stock of SSGI, par value $.01 per share, was converted to the right to
receive 4.08 shares of Norske, par value $.001 per share. For financial
statement purposes, SSGI is considered the acquiring company, and this
transaction has been treated as a purchase by SSGI of Norske. For legal
purposes, however, Norske remained the surviving entity. The combined entity
retained Norske's capital structure, and the common stock transactions
before the second merger have been restated using the 4.08 exchange
ratio. At the time of the second merger, Norske had total assets of
$639,065, consisting exclusively of cash, and no liabilities.
F-8
<PAGE>
EBASEONE CORPORATION
(PREVIOUSLY PRIME NET CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. REVERSE ACQUISITION BY PRIME NET: (continued)
Norske assumed SSGI's existing warrants issued in connection
with certain services provided and various financing transactions. The
number of shares subject to purchase under the warrant agreements was
adjusted by multiplying the number of SSGI warrant shares by the exchange
ratio of 4.08 shares. The exercise price of the warrants was adjusted by
dividing the stated exercise price by the exchange ratio. After the
completion of the second merger, Norske changed its name to EbaseOne
Corporation. At the conclusion of the second merger, EbaseOne had
33,220,432 shares of common stock outstanding.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
September 30,
-----------------------------------
1999 1998
---------------- ------------
Furniture and fixtures $ 104,660 $ 49,042
Computer equipment 259,004 108,375
Equipment 18,482 -
Vehicles 45,478 26,915
Leasehold improvements 53,366 6,912
--------- ---------
480,990 191,244
Accumulated depreciation (148,433) (110,113)
--------- ---------
$ 332,557 $ 81,131
========= =========
4. SHORT-TERM BORROWINGS:
At September 30, 1999 and 1998, short-term borrowings consisted of the
following:
1999 1998
-------- -------
Revolving line of credit
with a bank $ 50,000 $ -
Note payable to a company 60,000 -
-------- -----
$110,000 $ -
======== =====
In October 1998, EbaseOne obtained a $50,000 revolving line of credit with a
bank with a maturity date of October 29, 1999, collateralized by bank
accounts at the bank, furniture and fixtures, and accounts receivable.
Interest is payable monthly at prime plus 1, which amounts to 9.25% at
September 30, 1999.
F-9
<PAGE>
EBASEONE CORPORATION
(PREVIOUSLY PRIME NET CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. SHORT-TERM BORROWINGS: (continued)
During July 1999, EBaseOne borrowed $60,000 from an entity, with interest
at 10%. The note, which was due August 30, 1999, is unsecured and is
currently in default. The entity is pursuing legal means to collect on this
indebtedness.
5. LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
September 30,
-------------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Demand note payable to a bank, due in monthly installments of
$1,425 with interest of 9.50% through October 1999, and
collateralized by furniture and equipment. This note is
guaranteed by a significant stockholder of EBaseOne $ 448 $ 15,600
Note payable to a financial institution, due in monthly
installments of $541 with interest of 7.70% through October
2000, and collateralized by a vehicle. - 12,382
Note payable to a stockholder, due in monthly installments of
$723 with interest of 9.50% through October 2002, and
collateralized by equipment. 23,107 28,774
Notes payable to financial institutions due in monthly
installments ranging from $239 to $1,147 with interest ranging
from 7.95% to 21.03% through October 2004, collateralized by a
vehicle, computer equipment, furniture and other equipment. 292,107 -
Convertible note payable to an individual. Principal and
interest at 10% is due October 2000. The note is unsecured and
is convertible into approximately 105,319 shares of
EBaseOne's common stock at any time before October 2002. 99,000 -
-------- --------
414,662 56,756
Less current maturities (54,567) (26,173)
-------- --------
Total long-term debt $360,095 $ 30,583
======== ========
</TABLE>
F-10
<PAGE>
EBASEONE CORPORATION
(PREVIOUSLY PRIME NET CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LONG-TERM DEBT: (continued)
The following are scheduled maturities of notes payable at September 30,
1999:
Years Ending
September 30, Amount
------------- --------
2000 $ 54,567
2001 161,570
2002 72,478
2003 75,834
2004 49,425
Thereafter 788
--------
$414,662
========
6. STOCKHOLDERS' EQUITY:
Common Stock Subscribed - In September 1999, EbaseOne received $113,482
and services totaling $29,000 for 279,959 shares of common stock. As of
September 30, 1999, the shares have not been issued and have been accounted
for as common stock subscribed.
Stock Issuances - EbaseOne sold 1,725,795 shares of common stock to
various individuals during fiscal year 1997 for cash of $105,000. During
1997, warrants were exercised by a stockholder to purchase 479,388 shares of
common stock at an exercise price of approximately $.05.
EbaseOne sold 781,400 shares of common stock to various individuals
during fiscal year 1998 for cash of $34,000. During 1998, the Chairman of
the Board and another stockholder each converted a note payable and accrued
interest totaling $36,555 to 441,554 shares of common stock. EbaseOne
issued 119,852 shares of common stock to various individuals for services
provided to EbaseOne during fiscal 1998. During 1998, warrants were
exercised by two stockholders to purchase 1,246,407 and 38,355 shares of
stock at an exercise price of approximately $.08 and $.05, respectively.
The net assets of Vectron, which totaled approximately $400,000 as of the
merger date, and the 5,304,000 common shares of Vectron outstanding prior to
the merger have been recorded as an increase in common stock and additional
paid-in capital.
F-11
<PAGE>
EBASEONE CORPORATION
(PREVIOUSLY PRIME NET CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. STOCKHOLDERS' EQUITY: (continued)
EbaseOne sold 1,729,815 shares of common stock to various individuals
during fiscal year 1999 for cash of $467,482. During 1999, the chief
financial officer purchased 816,000 shares of common stock for $14,000.
Compensation expense of $6,000 was recorded in connection with this
transaction to reflect the sale of stock below fair value. EbaseOne
issued 121,584 shares of common stock to convert accounts payable totaling
$43,900. One individual purchased 1,457,139 shares of common stock for
$25,000. Consulting expense of $19,714 was recorded in connection with this
transaction to reflect the sale of stock below fair value. During 1999,
warrants were exercised by one stockholder to purchase 2,876,322 shares of
common stock at an exercise price of approximately $.02.
The net assets at Norske, which totaled approximately $639,065 as of the
merger date, and the 6,307,357 common shares of Norske outstanding prior to
the merger have been recorded as an increase in common stock and additional
paid-in capital.
7. RELATED PARTY TRANSACTIONS:
EbaseOne had a convertible note payable to a stockholder of $20,000 as of
September 30, 1997. The note accrued interest at 12% and was due on December
11,1997. This amount was convertible into 38,352 shares, as adjusted for the
reverse acquisition. This note and the related accrued interest were
converted to 77,222 shares of common stock in January 1998. This advance
arose to fund operations. During March 1998, the chairman of the board
advanced EbaseOne $15,250 to fund operations. This note was converted
into 364,332 shares of common stock in August 1998.
EbaseOne had unsecured notes payable to the chairman of the board and
another stockholder of $32,150 as of September 30, 1998, which accrue
interest at 6%. This amount was funded in several advances, which amounts
and related accrued interest are due on demand. These advances arose to fund
operating expenses. As of September 30, 1999, the notes have been paid in
full.
F-12
<PAGE>
EBASEONE CORPORATION
(PREVIOUSLY PRIME NET CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. RELATED PARTY TRANSACTIONS: (continued)
EbaseOne had an unsecured note payable to a stockholder of $5,000 as of
September 30, 1999, which accrues interest at 6% and is due on demand.
EbaseOne had a note payable to a stockholder of $23,107 as of September
30, 1999 (see Note 5).
EbaseOne's former chief executive officer assigned a warrant to acquire
1,020,000 shares of its common stock at $.125 per share to an attorney for
services provided to EbaseOne.
8. INCOME TAXES:
The tax effect of significant temporary differences representing deferred
tax assets and liabilities at September 30, 1999 and 1998, are as follows:
1999 1998
---- ----
Net operating loss
carryforwards $ 874,000 $ 179,000
Valuation allowance (874,000) (179,000)
---------- ----------
Net deferred tax asset $ - $ -
========== ==========
The increase in the valuation allowance during fiscal 1999 of $695,000 is
the result of additional losses incurred during the year.
As of September 30, 1999, EbaseOne had net operating loss carryforwards of
approximately $2,708,000 which begin to expire in 2009. Future utilization
of the net operating loss carryforwards may be limited by changes in the
ownership of EbaseOne under section 382 of the Internal Revenue Code.
The difference between the actual income benefit of zero for fiscal years
1999, 1998 and 1997 and the expected benefit using the statutory income tax
rate of 34% results from the 100% valuation allowance on EbaseOne's net
operating loss deferred tax asset at each year end.
9. COMMITMENTS AND CONTINGENCIES:
Lease Commitments - EbaseOne is obligated under capital leases for
equipment which expire on various dates throughout 2003. The carrying value
of the leased equipment and related accumulated amortization included in
equipment is as follows:
September 30,
-------------------------------
1999 1998
--------------- ----------
Equipment $ 90,263 $ 6,241
Less accumulated amortization (11,942) (1,144)
-------- -------
$ 78,321 $ 5,097
======== =======
F-13
<PAGE>
EBASEONE CORPORATION
(PREVIOUSLY PRIME NET CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. COMMITMENTS AND CONTINGENCIES: (continued)
The future minimum lease payments under EbaseOne's capital leases at
September 30, 1999 are as follows:
Years Ending September 30,
- --------------------------
2000 $ 29,982
2001 27,620
2002 27,620
2003 12,909
--------
Total 98,131
Less: amount representing
interest (22,792)
--------
75,339
Less current portion (19,319)
--------
Capital lease obligations,
net of current portion $ 56,020
========
EbaseOne leases office space and certain equipment under operating leases
which expire on various dates through 2002. Rent expense was $160,098,
$118,000 and $57,000 for the years ended September 30, 1999, 1998, and 1997.
Future minimum lease payments under noncancellable leases with terms in
excess of one year are as follows:
Years Ending September 30, Operating Leases
- -------------------------- ----------------
2000 $150,305
2001 140,057
2002 77,464
--------
$367,826
========
Contingencies - EbaseOne is involved in two legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial condition or results of operations.
EbaseOne has agreed to repurchase hardware from a customer and refund
software costs. Management estimates the loss to be $60,000 and has accrued
that amount in the accompanying financial statements.
F-14
<PAGE>
EBASEONE CORPORATION
(PREVIOUSLY PRIME NET CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. MANAGEMENT'S PLANS:
EBaseOne's losses for the years ended September 30, 1999, 1998 and 1997
amounted to approximately $2,188,000, $472,000, and $225,000. As a result of
these losses, EBaseOne's working capital position and ability to generate
sufficient cash flows from operations to meet its operating and capital
requirements have deteriorated. These matters raise substantial doubt about
EBaseOne's ability to continue as a going concern without a substantial
infusion of equity capital and ultimately achieving profitable operations.
EBaseOne is pursuing other sources of financing, but there is no assurance
any other source of financing will be available.
The losses incurred during the fiscal years ended September 30, 1999 and
1998 are the result of EBaseOne changing its core business. In October
1996, EBaseOne began developing computer and business software solutions
for small and mid-market companies. In September 1998, EBaseOne started
to evolve into an Application Service Provider ("ASP") and plans to begin
leasing software applications in the fiscal year ended September 30, 2000.
The financial statements do not include any adjustments that might result
from these uncertainties.
11. STOCK OPTIONS AND WARRANTS:
Options - EBaseOne's stock option plan authorizes the grant of options to
purchase a maximum of 5,000,000 shares of common stock. The plan provides
for the issuance of incentive stock options or non-statutory stock options,
as defined by the Internal Revenue Code. Pursuant to the terms of the plan,
the exercise price of incentive stock options must not be less than 100% of
the fair market value of the shares of stock on the date the option is
granted or the aggregate par value of the shares of stock on the date the
option is granted. In the case of any 10% stockholder, the exercise price of
incentive stock options shall not be less than 110% of the fair market value
of the stock on the date the incentive option is granted. The exercise price
of non-statutory options may be any amount equal to or greater than the par
value of the shares of stock on the date the option is granted. Vesting
terms vary from immediate at date of grant to five years from date of grant.
The compensation committee of the board of directors determines the vesting
period of each grant. Options have a 10-year life from the date of
grant.
F-15
<PAGE>
EBASEONE CORPORATION
(PREVIOUSLY PRIME NET CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK OPTIONS AND WARRANTS: (continued)
Transactions with regard to incentive options issued pursuant to the plan
are as follows:
WEIGHTED
AVERAGE
TOTAL SHARES PRICE
UNDER OPTION PER SHARE
------------ -------------
Balance - October 1, 1998 - $ -
Granted 741,700 .40
Canceled (275,400) .25
Exercised - -
--------
Balance - September 30, 1999 466,300 $.44
========
As of September 30, 1999, an aggregate of 466,300 incentive stock options
have been issued and are exercisable at option prices ranging from $.25 to
$1.00 per share. The weighted average fair market value on the date of grant
was $.01 per share, the weighted average remaining contract life of these
options is 9.52 years, and the weighted average exercise price is $.49 per
share.
As of September 30, 1999, 100,000 non-qualified stock options have been
issued and are exercisable at option prices ranging from $2.00 to $4.00 per
share. These options had no fair market value on the date of grant. The
weighted average contract life of these options is 7.31 years, and the
weighted average exercise price is $2.10 per share.
Transactions with regard to non-qualified stock options issued are as
follows:
WEIGHTED
AVERAGE
TOTAL SHARES PRICE
UNDER OPTION PER SHARE
------------ -----------
Balance - October 1, 1996 - $ -
Granted 26,000 1.00
Canceled - -
Exercised - -
-------
Balance -September 30, 1997 26,000 1.00
Granted 74,000 2.14
Canceled - -
Exercised - -
-------
Balance - September 30, 1998 100,000 2.10
Granted - -
Canceled - -
Exercised - -
-------
Balance - September 30, 1999 100,000 2.10
=======
F-16
<PAGE>
EBASEONE CORPORATION
(PREVIOUSLY PRIME NET CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK OPTIONS AND WARRANTS: (continued)
Warrants - In connection with the merger with Vectron, EbaseOne issued
warrants to acquire 191,756 shares of common stock to a financing company,
each of which entitles the holder to purchase one share of common stock at
an exercise price of $.52 per share at any time prior to the expiration date
of March 31, 2001. Before the merger transaction, Vectron had issued
warrants to acquire 1,632,000 shares of common stock, each of which entitles
the holder to purchase one share of common stock at an exercise price of
$.25 per share at any time prior to the expiration date of September 5,
2001. These warrants were issued in connection with the sale of Vectron
common stock to certain individuals prior to the merger.
EbaseOne issued a warrant to acquire 8,160,000 shares of common stock to
EbaseOne's former chief executive officer at an exercise price of $.13
per share at any time prior to the expiration date on April 22, 2004.
EbaseOne issued a warrant to acquire 408,000 shares of common stock to
EbaseOne's current chief financial officer at an exercise price of $.25 per
share at any time prior to the expiration date of April 22, 2004.
EbaseOne issued a warrant to acquire 108,000 shares of common stock to the
chief executive officer at an exercise price of $.22 per share. The warrant
may be exercised at any time prior to expiring at various dates through July
31, 2004. EbaseOne issued a warrant to acquire 45,000 shares of common
stock to one individual at an exercise price of $.22 per share at any time
prior to expiration. The warrants expire at various times through September
30, 2004. Warrants were issued to an investor to purchase 340,909 shares of
common stock at an exercise price of $.41 per share at any time prior to
August 31, 2002. These warrants were issued in connection with the sale of
common stock. EbaseOne issued warrants to acquire 6,000,000 shares of
common stock to the chief executive officer at an exercise price ranging
from $.38 to $1.00 per share vesting monthly over 24 months. The warrants
expire August 11, 2004. EbaseOne issued warrants to acquire 4,000,000
shares of common stock to EbaseOne's chief executive officer at an
exercise price ranging from $1.50 to $3.00 per share, vesting once certain
performance objectives are achieved. The warrants expire August 11, 2006.
EbaseOne issued a warrant to acquire 1,000,000 shares of common stock to
the former chief executive officer at an exercise price of $.38 per share,
vesting monthly over 24 months. The warrant expires August 11, 2004.
EbaseOne issued warrants to acquire 2,000,000 shares of common stock to the
former chief executive officer at an exercise price ranging from $1.50 to
$3.00 per share, vesting once certain performance objectives are achieved.
The warrants expire August 11, 2006.
F-17
<PAGE>
EBASEONE CORPORATION
(PREVIOUSLY PRIME NET CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK OPTIONS AND WARRANTS: (continued)
The following table summarizes information about warrants outstanding at
September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------- -------------------------------
Weighted-
Weighted- Average Fair
Average Weighted- Market Weighted-
Range of Number Remaining Average Value on Number Average
Exercise Outstanding Contractual Exercise Date of Exercisable Exercise
Price at 9/30/99 Life Price Grant at 9/30/99 Price
- -------------- ----------- ------------- -------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
$.07 to $.50 15,885,665 3.40 years $ .23 $.03 12,135,664 $ .19
$1.00 to $3.00 8,000,000 6.03 1.94 .02 83,333 1.00
---------- ----------
23,885,665 4.29 .81 .02 12,218,997 .20
========== ==========
</TABLE>
After September 30, 1999, the former chief executive officer
canceled warrants to acquire 3,000,000 shares of common stock and was issued
a warrant to acquire 1,000,000 shares of common stock at an exercise price
of $2.125, vesting monthly over 24 months. The warrant expires October 27,
2004.
Transactions with regard to warrants are as follows:
WEIGHTED
AVERAGE
TOTAL PRICE
WARRANTS PER SHARE
---------- ---------
Balance - October 1, 1997 - $ -
Granted 4,815,131 .16
Canceled - -
Exercised - -
----------
Balance - September 30, 1998 4,815,131 .16
Granted 22,061,909 .85
Canceled (115,053) .43
Exercised (2,876,322) .07
----------
Balance - September 30, 1999 23,885,665 .81
==========
Compensation expense of $77,761 has been recognized in fiscal 1999 for
various options and warrants issued to employees with exercise prices below
the fair value of EbaseOne's common stock on the date of grant.
Consulting expense of $36,567 has been recognized in fiscal 1999 in
connection with a warrant issued to a consultant. Fair value for this
warrant was determined based upon the Black-Scholes option pricing model
using the following assumptions: risk free rate of return of 5.5%;
volatility of 243.05%; no assumed dividend yield; and an expected life of
1.5 years.
F-18
<PAGE>
EBASEONE CORPORATION
(PREVIOUSLY PRIME NET CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK OPTIONS AND WARRANTS: (continued)
Statement of Financial Accounting Standards No. 123, entitled Accounting
for Stock Based Compensation, encourages but does not require companies to
recognize compensation expense for grants of stock, stock options, and other
equity instruments to employees based on fair value. Fair value is generally
determined under an option pricing model using the criteria set forth in
SFAS No. 123.
EbaseOne applies APB Opinion 25, entitled Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its plans. No
compensation cost has been recognized in 1999 or 1998 for its stock option
plans and warrants issued to employees, except as disclosed in the preceding
paragraphs. Had compensation expense for EbaseOne's stock-based
compensation plans been determined based on fair value at the grant dates
for awards under those plans consistent with the method of SFAS No. 123,
EbaseOne's net loss and loss per common share would have been increased to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net loss
As reported $(2,248,185) $(471,844) $(224,652)
Pro forma (2,511,467) (471,844) (224,652)
Net loss per common share
As reported $ (.08) $ (.03) $ (.02)
Pro forma (.09) (.03) (.02)
</TABLE>
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions: risk
free rates of 5.0% to 5.5%; volatility of 86.76% to 243.05% for 1999; no
assumed dividend yield; and expected lives of 1.5 and 2 years.
12. CONCENTRATIONS OF CREDIT RISK:
Sales by EbaseOne to one customer, International Exhibition, Inc., were
approximately $82,000, or 12.5% of revenues, for the year ended September
30, 1999. Trade receivables from International Exhibition, Inc. amounted to
$12,990 at September 30, 1999. No other customer accounted for a material
portion of revenue or trade receivables.
F-19
<PAGE>
EBASEONE CORPORATION
(PREVIOUSLY PRIME NET CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. EMPLOYEE BENEFITS:
In July 1999, EbaseOne established a profit sharing/retirement plan which
provides for an employee salary deferral contribution and company
contributions. Employees are permitted to contribute a percentage of their
compensation as defined by the plan documents. Contributions made by
EbaseOne are based on EbaseOne's performance and are at the discretion of
the board of directors. EBaseOne made no contributions for the period
ended September 30, 1999.
14. SUBSEQUENT EVENTS:
Between October 2, 1999 and November 12, 1999, EbaseOne issued 475,168
shares of common stock at $.94 per share for total proceeds of $445,921.
On November 15, 1999 EbaseOne executed an agreement whereby it agreed to
issue 2,083,333 shares of common stock for $9,000,000, of which EBaseOne
received $6,000,000 ($5,481,200, net of transaction costs) and the remaining
$3,000,000, net of transaction cost will be received on the second trading
day following the date that the registration statement to be filed by
EbaseOne with the Securities Exchange Commission has been declared
effective. The purchasers were issued two warrants each to acquire 416,666
shares of common stock at $5.18 per share. These warrants expire on November
15, 2004. A third adjustable warrant was issued to acquire common stock of
EBaseOne at an exercise price of $.001 per share based upon the following
formula :
2,083,333 X ($5.31 - Per Share Market Value) / Per Share Market Value
The adjustable warrant expires on November 15, 2001.
A warrant was also issued to the placement agent to acquire 450,000 shares
of common stock at $5.18 per share. This warrant expires on November 15,
2004.
F-20
<PAGE>
4,206,233 Shares
ebaseOne Corporation
Common Stock
_________________________
PROSPECTUS
_________________________
_________________________
______________, 2000
_________________________
You should only rely on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The selling security holders are offering to
sell, and seeking offers to buy, shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of common stock.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The amended and
restated articles of incorporation of ebaseOne limit the liability of directors
to ebaseOne or its stockholders to the fullest extent permitted by Delaware law.
Specifically, directors will not be personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the company or its
stockholders, (ii) for acts or omissions not in good faith that constitute a
breach of duty of the director to the company or an act or omission which
involves intentional misconduct or a knowing violation of law, (iii) for an act
or omission for which the liability of a director is expressly provided by an
applicable statute, or (iv) for any transaction from which the director received
an improper personal benefit, whether the benefit resulted from an action taken
within the scope of the director's office.
The inclusion of this provision in the amended and restated articles of
incorporation may have the effect of reducing the likelihood of derivative
litigation against directors, and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duty of
care, even though such an action, if successful, might otherwise have benefitted
the company and its stockholders.
ebaseOne's amended articles of incorporation provide for the
indemnification of its executive officers and directors, and the advancement to
them of expenses in connection with any proceedings and claims, to the fullest
extent permitted by Delaware law. The amended and restated articles of
incorporation include related provisions meant to facilitate the indemnities'
receipt of such benefits. These provisions cover, among other things: (i)
specification of the method of determining entitlement to indemnification and
the selection of independent counsel that will in some cases make such
determination, (ii) specification of certain time periods by which certain
payments or determinations must be made and actions must be taken, and (iii) the
establishment of certain presumptions in favor of an indemnitee. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the company pursuant to
the foregoing provisions, the company has been informed that, in the opinion of
the SEC, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the distribution of the securities being registered. The
expenses shall be paid by the Registrant.
SEC Registration Fee $10,134
Printing and Engraving Expenses *
Legal Fees and Expenses *
Accounting Fees and Expenses *
Miscellaneous *
-------
TOTAL $10,134
=======
* To be provided by amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
As used herein, the term "accredited" is as defined in Rule 501(a)(3)
promulgated under the Securities Act.
In November 1999, seven accredited investors acquired 2,083,333 shares of
common stock for an aggregate purchase price of $9 million, or $4.32 per share.
In connection with the above issuance, the company
II-1
<PAGE>
issued three warrants to each of these investors, plus one other accredited
investor, to purchase an aggregate of 1,283,330 shares of common stock at an
exercise price of $5.18 per share, expiring November 2004. In addition, for the
above transaction, the company issued an adjustable warrant to issue shares of
common stock at an exercise price of $0.001 per share expiring two years from
the effective date of this registration statement. The number of shares issuable
under the warrant is based on the market price of the common stock, and will not
vest unless the stock price is less than $5.31 per share. In October and
November 1999, the company issued 475,168 shares of common stock and a warrant
to purchase 25,000 shares of common stock at an exercise price of $2.25 per
share expiring October 2002 for an aggregate purchase price of $445,921 to 18
accredited investors. In September 1999, the company issued 120,729 shares of
common stock to four accredited investors at a purchase price of $0.94 per
share. In September 1999, the company issued 159,234 shares of common stock to a
accredited third party for services rendered from April 1999 through August 1999
at a value of approximately $0.22 per share. In August 1999, the company issued
an aggregate of 113,636 shares of common stock to two accredited investors for
services rendered valued at approximately $0.22 per share. The company believes
the above transactions were exempt from registration pursuant to Rule 506
promulgated under Section 4(2) of the Securities Act as privately negotiated,
isolated, non- recurring transactions to accredited investors not involving any
public solicitation.
In April and May 1999, the company issued an aggregate of 307,097 shares of
common stock to 13 individuals for services rendered valued at $30,710. The
company believes the above transactions were exempt from registration pursuant
to Section 4(2) of the Securities Act, as the issuances were to sophisticated
persons with specific knowledge of the company and with general expertise in
financial and business matters that they were able to evaluate the merits and
risks of an investment in the company.
In April 1999, the company issued: (a) warrants to purchase 408,000 shares
of common stock to an officer of the company at an exercise price of $.25 per
share for services rendered, no compensation expense was recorded as the fair
market value was deemed to be $.10 per share, and (b) issued 816,000 shares of
common stock to the same officer for a purchase price of $14,000, of which
$8,000 was in the form of a note payable. In September and October 1999, the
company issued warrants to two officers to purchase an aggregate of 145,000
shares of common stock at an exercise price of $.22 and $.25 per share for
services rendered from April 1999 through August 1999. Compensation expense
was recorded of $95,733. In August 1999, the company issued warrants to purchase
an aggregate of 10,000,000 shares of common stock to an officer and director of
the company, with prices ranging from $0.38 to $3.00 per share for services
rendered. No compensation expense was recorded as the fair market value was
deemed to be $.22 per share at the time of issuance. In October 1999, the
company issued warrants to purchase 1,000,000 shares of common stock to a
director of the company at an exercise price of $2.50 per share. No compensation
expense was recorded as the fair market value was deemed to be $.94 per share at
issuance. In November 1999, the company issued warrants to purchase 1,937,500
shares of common stock to two executive officers of the company at exercise
prices ranging from $2.37 to $3.00 per share for services rendered, and
recognized a compensation expense of $3,009,483. The company believes the above
transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act, as the issuances were to accredited investors and, and since the
transactions were non-recurring and privately negotiated.
In May 1999, the company issued warrants to purchase an aggregate of
10,391,756 shares at prices ranging from $0.125 to $0.50 per share in exchange
for warrants held by nine former Synoptech Solutions warrant holders, all of
which were accredited investors. The fair market value at the time of issuance
was deemed to be $.10 per share on issuance. In May 1999, the company issued an
aggregate of 26,940,491 shares of company common stock 34 accredited investors
in exchange for capital stock of Synoptech Solutions. The fair market value at
the time of issuance was deemed to be $.10 per share on issuance. The company
believes the above transactions were exempt from registration pursuant to Rule
506 promulgated under Section 4(2) of the Securities Act as privately
negotiated, isolated, non- recurring transactions to accredited investors not
involving any public solicitation.
In May 1999, the company issued options pursuant to the employee's stock
option plan to purchase an aggregate of 405,850 shares of common stock at
purchase prices ranging from $.25 to $1.00 per share in exchange for options
held by four former Synoptech Solutions option holders, all of which were
employees of the company.
II-2
<PAGE>
From May 1999 to November 1999, the company issued options to purchase an
aggregate of 631,300 shares of common stock at prices ranging from $.25 to $2.25
per share to 18 employees pursuant to the company's employee stock option plan.
In September 1999, the company issued 10,000 shares of common stock at a
purchase price of $1.00 per share to one employee pursuant to an exercise of
such employee's stock option originally issued in May 1999. The company believes
the above transactions were exempt from registration pursuant to Rule 701
promulgated under Section 3(b) of the Securities Act.
In August 1999, the company issued 1,363,636 shares of common stock and a
warrant to purchase 340,909 shares of common stock at an exercise price of
$0.40625 expiring August 2002 to one accredited investor for gross proceeds of
$300,000. In April 1999, an aggregate of 3,500,000 shares of common stock were
issued to 22 individuals and entities who participated in a $600,000 financing.
In July 1997, an aggregate of 115,000 shares of common stock were issued to four
individuals who participated in a $50,000 financing. The company believes the
above transactions were exempt from registration pursuant to Rule 504
promulgated under Section 3(b) of the Securities Act.
ITEM 27. EXHIBITS
DESCRIPTION OF EXHIBITS
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
- ----------- -------------------------
2.1(2) Exchange Agreement between Norske Energy Corporation and
Synoptech Solutions Group, Inc.
3.1(2) Amended and Restated Articles of Incorporation
3.2(2) By-Laws
4.1(2) Form of Specimen of common stock
5.1(1) Legal Opinion
10.1(2) Employment Agreement of John Frazier Overstolz
10.2(2) Employment Agreement of Charles W. Skamser
10.3(1) Employment Agreement of Michael A. Sooley
10.4(1) Employment Agreement of Scott Feuless
10.5(2) 1999 Stock Option Plan
10.6(1) Cooperative Marketing Agreement with Phonoscope
Communications, Ltd.
10.7(1) Securities Purchase Agreement Between ebaseOne Corp. and the
Investors Signatory Hereto Dated as of November 15, 1999
21.1(2) List of Subsidiaries
23.1(1) Consent of Hein + Associates, LLP
23.2(1) Consent of legal counsel (included in Exhibit 5.1)
27.1(1) Financial Data Schedule
___________________
(1) Filed herewith.
(2) Filed previously.
ITEM 28. UNDERTAKINGS
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 Securities Act of 1933; (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. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
II-3
<PAGE>
was registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
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 such information in the registration
statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, 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) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of this chapter at the start of any delayed offering or
throughout a continuous offering. Financial statements and information
otherwise required by Section 10(a)(3) of the Act need not be furnished,
provided that the registrant includes in the prospectus, by means of a post-
effective amendment, financial statements required pursuant to this paragraph
(a)(4) and other information necessary to ensure that all other information in
the prospectus is at least as current as the date of those financial statements.
Notwithstanding the foregoing, with respect to registration statements on Form
F-3, a post- effective amendment need not be filed to include financial
statements and information required by Section 10(a)(3) of the Act or Rule 3-19
of this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Form F-3.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and authorized this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Houston, State of Texas, on the 13th day of January, 2000.
EBASEONE CORPORATION
By: /S/ CHARLES W. SKAMSER,
-------------------------------------------
CHARLES W. SKAMSER, Chief Executive Officer
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/ JOHN FRAZIER OVERSTOLZ Chairman of the Board January 13, 2000
- --------------------------
JOHN FRAZIER OVERSTOLZ
/S/ CHARLES W. SKAMSER Chief Executive Officer, Principal January 13, 2000
- -------------------------- Accounting Officer, Chief Financial
CHARLES W. SKAMSER Officer, President, and Director
/S/ MICHAEL M. ROTOLO Director January 13, 2000
- --------------------------
MICHAEL M. ROTOLO
/S/ MICHAEL A. SOOLEY Senior Vice President of Worldwide January 13, 2000
- -------------------------- Business Development and Secretary
MICHAEL A. SOOLEY
/S/ SCOTT FEULESS Chief Technology Officer January 13, 2000
- --------------------------
SCOTT FEULESS
</TABLE>
II-5
<PAGE>
INDEX OF EXHIBITS
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
- ----------- -------------------------
2.1(2) Exchange Agreement between Norske Energy Corporation and
Synoptech Solutions Group, Inc.
3.1(2) Amended and Restated Articles of Incorporation
3.2(2) By-Laws
4.1(2) Form of Specimen of common stock
5.1(1) Legal Opinion
10.1(2) Employment Agreement of John Frazier Overstolz
10.2(2) Employment Agreement of Charles W. Skamser
10.3(1) Employment Agreement of Michael A. Sooley
10.4(1) Employment Agreement of Scott Feuless
10.5(2) 1999 Stock Option Plan
10.6(1) Cooperative Marketing Agreement with Phonoscope
Communications, Ltd.
10.7(1) Securities Purchase Agreement Between ebaseOne Corp. and the
Investors Signatory Hereto Dated as of November 15, 1999
21.1(2) List of Subsidiaries
23.1(1) Consent of Hein + Associates, LLP
23.2(1) Consent of legal counsel (included in Exhibit 5.1)
27.1(1) Financial Data Schedule
___________________
(1) Filed herewith.
(2) Filed previously.
<PAGE>
EXHIBIT 5.1
January 13, 2000
Board of Directors
ebaseOne Corporation
6060 Richmond Ave.
Houston, Texas 77057
Gentlemen:
As counsel for ebaseOne Corporation, a Delaware corporation ("Company"), you
have requested our firm to render this opinion in connection with the
Registration Statement of the Company on Form S-1 filed under the Securities Act
of 1933, as amended ("Act"), with the Securities and Exchange Commission
relating to the registration of the resale of 4,206,233 shares of Company common
stock.
We are familiar with the registration statement and the registration
contemplated thereby. In giving this opinion, we have reviewed the registration
statement and such other documents and certificates of public officials and of
officers of the Company with respect to the accuracy of the factual matters
contained therein as we have felt necessary or appropriate in order to render
the opinions expressed herein. In making our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents presented to us
as originals, the conformity to original documents of all documents presented to
us as copies thereof, and the authenticity of the original documents from which
any such copies were made, which assumptions we have not independently verified.
Based upon all the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
2. The shares to be issued upon the distribution and resale are validly
authorized and will be validly issued, fully paid and nonassessable.
We consent to the use in the registration statement of the reference to Brewer &
Pritchard, P.C. under the heading "Legal Matters." This opinion is conditioned
upon the registration statement being declared effective and upon compliance by
the Company with all applicable provisions of the Act and such state securities
rules, regulations and laws as may be applicable.
Very truly yours,
BREWER & PRITCHARD, P.C.
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated this 18/th/ day of November 1999, between
ebaseOne Corporation, a Delaware corporation, currently having its principal
place of business at 6060 Richmond Avenue, Houston, Texas 77057 (the "Company"),
and Michael A. Sooley (the "Executive") an individual currently residing in
Houston, Texas. The Company and the Executive may be referred to collectively
as the "Parties."
WHEREAS, the Company desires to employ Executive and Executive desires to
be employed by the Company, as Chief Technology Officer.
WHEREAS, the Executive is willing to enter into an agreement with the
Company upon the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and covenants herein
contained, the parties hereto agree as follows:
1. Term of Agreement. Subject to the terms and conditions hereof, the term of
-----------------
employment of the Executive under this Employment Agreement shall be for the
period commencing on the date hereof (the "Commencement Date") and terminating
on December 31, 2002, unless sooner terminated as provided in accordance with
the provisions of Section 5 hereof. (Such term of employment is herein
sometimes called the "Employment Term.")
2. Employment. As of the Commencement Date, the Company hereby agrees to
----------
employ the Executive as Chief Technology Officer of the Company, and the
Executive hereby accepts such employment and agrees to perform his duties and
responsibilities hereunder in accordance with the terms and conditions
hereinafter set forth.
3. Duties and Responsibilities.
---------------------------
(a) Duties. Executive shall perform such duties as are usually performed by a
Chief Technology Officer of a business similar in size and scope as the
Company and such other reasonable additional duties as may be prescribed
from time-to-time by the Company's board of directors which are reasonable
and consistent with the Company's operations, taking into account
Executive's expertise and job responsibilities. This agreement shall
survive any job title or responsibility change agreed to by Executive.
Executive shall report directly to the Chief Executive Officer of the
Company regarding implementation of all business matters. All actions of
Executive shall be subject and subordinate to the review and approval of
the board of directors. No other person or group shall be given authority
to supervise or direct Executive in the performance of his duties. The
board of directors shall be the final and exclusive arbiter of all policy
decisions relative to the Company's business.
(b) Devotion of Time. During the term of this agreement, Executive agrees to
devote sufficient time and attention during normal business hours to the
business and affairs of the company
1
<PAGE>
to the extent necessary to discharge the responsibilities assigned to
Executive and to use reasonable best efforts to perform faithfully and
efficiently such responsibilities.
4. Compensation and Benefits During the Employment Term:
----------------------------------------------------
(a) Base Compensation. The Executive's base compensation from the Commencement
Date through December 31, 2000, shall be at the rate of $11,250.00 per
month, payable in regular semi-monthly installments in accordance with the
Company's practice for its executives, less applicable withholding for
income and employment taxes as required by law and other deductions as to
which the Executive shall agree. Such base compensation shall be subject to
increases as and when determined by the Company's board of directors in its
sole discretion. In addition, beginning in 2000 and continuing for the term
of this agreement the company agrees to pay the Executive a monthly car
allowance of $1,000 per month.
(b) Bonus Compensation. In addition to The Executive's base compensation,
Executive will be entitled to a performance bonus up to 75% of base salary
for 2000. Performance criteria for said bonus will be determined before
January 31, 2000 by the board of directors, as recommended by the Chief
Executive Officer. Bonus amounts and performance criteria for additional
years under this agreement, shall also be determined by the board of
directors, as recommended by the Chief Executive Officer. In addition to
the Executive's base compensation, Executive will be entitled to a
performance bonus as determined by the board of directors, as recommended
by the Chief Executive Officer.
(c) Warrants. The Executive will be entitled to receive five year warrants to
purchase an aggregate 1,000,000 shares of Company common stock having the
terms set forth in the warrant agreements attached hereto as Exhibit "A."
(d) Expense Reimbursement. The Executive shall be entitled to reimbursement of
all reasonable, ordinary and necessary business related expenses incurred
by him in the course of his duties and upon compliance with the Company's
procedures.
(e) Participation in Employee Benefit Plans. Executive shall be entitled to
participate, subject to eligibility and other terms generally established
by the Company's board or directors, in any employee benefit plan
[including but not limited to life insurance plans, stock option plans,
group hospitalization, hearth, dental care (which health insurance shall
also cover Executive's dependents) profit sharing, pension and other
benefit plans], as may be adopted or amended by the Company from time-to-
time.
5. Termination. Subject to the notice and other provisions of this Section 5,
-----------
the Company shall have the right to terminate the Executive's employment with
the Company, and the Executive shall have the right to resign from such
employment, at any time and for no stated reason.
(a) Disability. The Company shall have the right to terminate the employment
of the Executive under this Agreement for disability in the event Executive
suffers an injury, illness or incapacity as defined in the Company's Long
Term Disability Insurance Policy in effect as of the date hereof for a
period of more than six (6) months provided that during such six month
period the Company shall have given at least ten (10) days written notice
of termination; provided further, however, that if the Executive is
eligible to receive disability payments pursuant to a disability policy
paid for by the Company, the Executive shall assign such benefits to the
Company for all periods as to which he is receiving full payment under this
2
<PAGE>
agreement. If Executive is determined to be disabled, as defined within
the Americans with Disabilities Act, the Company will make reasonable
accommodations, including but not limited to the following: (i) job
restructuring; (ii) modification of work schedules, (iii) job
reassignments, (iv) acquisition of devices to help accommodate an
individual with a disability; and (v) use of interpreters or other support
personnel for an individual with a disability.
(b) Death. This agreement shall terminate upon the death of Executive.
(c) With Cause. The Company may terminate this agreement effective upon
delivery of written notice to Executive given at any time (without any necessity
for prior notice) if any of the following shall occur:
(1) any material breach of Executive's obligations of this Agreement, not
cured after ten (10) days notice from the board of directors;
(2) Executive's gross negligence in the performance of his duties
hereunder;
(3) any material acts or events which may inhibit Executive from fully
performing his or her responsibilities to the Company in good faith,
and upon which the board of directors in the exercise of its reasonable
judgment, determines that the Executive has committed any of the
following: (w) a felony criminal conviction; (x) any other criminal
conviction involving Executive's lack of honesty or moral turpitude;
(y) drug or alcohol abuse; or (z) acts of dishonesty, gross
carelessness or gross misconduct.
In the event Executive's employment with the Company is terminated pursuant
to items 5(a), (b) or (c), Executive or his beneficiary shall be entitled to
receive all base compensation earned by Executive up to the date of termination,
all unreimbursed expenses, and any bonus earned in respect of a prior year and
not yet paid. For a termination by the Company without good cause, Executive
shall be entitled to receive the greater of (i) the remaining base salary at the
then base salary rate for the remainder of the Employment Term or (ii) the base
salary rate for the period of six months, and all unreimbursed expenses, any
bonus earned in respect of a prior year and not yet paid, and the pro rata
portion of any bonus for the current year.
6. Revealing of Trade Secrets, etc. Executive acknowledges the interest of
-------------------------------
the Company in maintaining the confidentiality of information related to its
business and shall not at any time during the Employment Term or thereafter,
directly or indirectly, reveal or cause to be revealed to any person or entity
the supplier lists, customer lists or other confidential business information of
the Company; provided, however, that the parties acknowledge that it is not the
intention of this paragraph to include within its subject matter (a) information
not proprietary to the Company, (b) information which is then in the public
domain, or (c) information required to be disclosed by law, subject to
conditions in paragraph 8.
7. Arbitration. If a dispute should arise regarding this agreement, all
-----------
claims, disputes, controversies, differences or other matters in question
arising out of this relationship shall be settled finally, completely and
conclusively by arbitration of a single arbitrator in Houston, Texas, in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the "Rules"). Arbitration shall be initiated by written demand.
This agreement to arbitrate shall be
3
<PAGE>
specifically enforceable only in the District Court of Harris County, Texas. A
decision of the arbitrator shall be final, conclusive and binding on the Company
and the Executive, and judgement may be entered in the District Court of Harris
County, Texas, for enforcement and other benefits. On appointment, the
arbitrator shall then proceed to decide the arbitration subjects in accordance
with the Rules. Any arbitration held in accordance with this paragraph shall be
private and confidential and no person shall be entitled to attend the hearings
except the arbitrator, Executive, Executive's attorneys, and an designated
representatives of the Company and their respective attorneys. The matters
submitted for arbitration, the hearings and proceedings and the arbitration
award shall be kept and maintained in strictest confidence by Executive and the
Company and shall not be discussed, disclosed or communicated to any persons. On
request of any party, the record of the proceeding shall be sealed and may not
be disclosed except insofar, and only insofar, as may be necessary to enforce
the award of the arbitrator and any judgement enforcing an award. The prevailing
party shall be entitled to recover reasonable and necessary attorneys' fees and
costs from the non-prevailing party.
8. Confidentiality. In the course of the performance of Executive's duties
---------------
hereunder, Executive recognizes and acknowledges that Executive may have access
to certain confidential and proprietary information of Employer or any of its
affiliates. Without the prior written consent of Employer, Executive shall not
disclose any such confidential or proprietary information to any person or firm,
corporation, association, or other entity for any reason or purpose whatsoever,
and shall not use such information, directly or indirectly, for Executive's own
behalf or on behalf of any other party. Executive agrees and affirms that all
such information is the sole property of Employer and that at the termination
and/or expiration of this Agreement, at Employer's written request, Executive
shall promptly return to Employer any and all such information so requested by
Employer.
(a) The provisions of this Section 8 shall not, however, prohibit Executive
from disclosing to others or using in any manner information that:
(i) has been published or has become part of the public domain other than
by acts, omissions or fault of Executive;
(ii) has been furnished or made known to Executive by third parties (other
than those acting directly or indirectly for or on behalf of
Executive) as a matter of legal right without restriction on its use
or disclosure;
(iii) was in the possession of Executive prior to obtaining such
information from Employer in connection with the performance of this
Agreement; or
(iv) is required to be disclosed by law.
4
<PAGE>
9. Covenants Not to Compete.
------------------------
(a) Executive's Acknowledgment. Executive agrees and acknowledges that in
order to assure the Company that it will retain its value as a going concern, it
is necessary that Executive undertake not to utilize his special knowledge of
the business and his relationships with customers and suppliers to compete with
the Company. Executive further acknowledges that:
(i) the Company is and will be engaged in the business;
(ii) Executive will occupy a position of trust and confidence with the
Company prior to the date of this agreement and, during such period
and Executive's employment under this agreement, Executive has, and
will become familiar with the Company's trade secrets and with other
proprietary and confidential information concerning the Company;
(iii) the agreements and covenants contained in this Section 9 are
essential to protect the Company and the goodwill of the business;
and
(iv) Executive's employment with the Company has special, unique and
extraordinary value to the Company and the Company would be
irreparably damaged if Executive were to provide services to any
person or entity in violation of the provisions of this agreement.
(b) Competitive Activities. Executive hereby agrees that for a period
commencing on the date hereof and ending one year following the later of (i)
termination of Executive's employment with the Company for whatever reason, and
(ii) the conclusion of the period, if any, during which the Company is making
payments to Executive, he will not, directly or indirectly, as employee, agent,
consultant, stockholder, director, co-partner or in any other individual or
representative capacity, own, operate, manage, control, engage in, invest in or
participate in any manner in, act as a consultant or advisor to, render services
for (alone or in association with any person, firm, corporation or entity), or
otherwise assist any person or entity (other than the Company) that engages in
or owns, invests in, operates, manages or controls any venture or enterprise
that directly or indirectly engages or proposes in engage in the business of the
manufacturing, distribution or sale of (i) products manufactured, distributed,
sold or licensed by the Company or services provided by the Company at the time
of termination or (ii) products or services proposed at the time of such
termination to be manufactured, distributed, sold, licensed or provided by the
Company within the United States (the "Territory"); provided, however, that
nothing contained herein shall be construed to prevent Executive from investing
in the stock of any competing corporation listed on a national securities
exchange or traded in the over-the-counter market, but only if Executive is not
involved in the business of said corporation and if Executive and his associates
(as such term is defined in Regulation 14(A) promulgated under the Securities
Exchange Act of 1934, as in effect on the date hereof), collectively, do not own
more than an aggregate of two percent of the stock of such corporation. With
respect to the Territory, Executive specifically acknowledges that the Company
has conducted the business throughout those areas comprising the Territory and
the Company intends to continue to expand the business throughout the Territory.
5
<PAGE>
(c) Blue Pencil. If an arbitrator shall at any time deem the terms of this
agreement or any restrictive covenant too lengthy or the Territory too
extensive, the other provisions of this Section 8 shall nevertheless stand, the
restrictive period shall be deemed to be the longest period permissible by law
under the circumstances and the Territory shall be deemed to comprise the
largest territory permissible by law under the circumstances. The arbitrator in
each case shall reduce the restricted period and/or the Territory to permissible
duration or size.
10. Opportunities. During his employment with the Company, and for one year
-------------
thereafter, Executive shall not take any action which might divert from the
Company any opportunity learned about by him during his employment with the
Company (including without limitation during the Employment Term) which would be
within the scope of any of the businesses then engaged in or planned to be
engaged in by the Company.
11. Survival. In the even that this Agreement shall be terminated, then
--------
notwithstanding such termination, the obligations of Executive pursuant to
Sections 6,7,8 9, and 10 of this agreement shall survive such termination.
12. Contents of Agreement, Parties in Interest, Assignment, etc. This
-----------------------------------------------------------
Agreement sets forth the entire understanding of the parties hereto with respect
to the subject matter hereof. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective heirs, representatives, successors and assigns of the parties hereto,
except that the duties and responsibilities of Executive hereunder which are of
a personal nature shall neither be assigned nor transferred in whole or in part
by Executive. This Agreement shall not be amended except by a written
instrument duly executed by the parties.
13. Severability. If any term or provision of this Agreement shall be held to
------------
be invalid or unenforceable for any reason, such term or provision shall be
ineffective to the extent of such invalidity or unenforceability without
invalidating the remaining terms and provisions hereof, and this Agreement shall
be construed as if such invalid or unenforceable term or provision had not been
contained herein.
14. Notices. Any notice, request, instruction or other document to be given
-------
hereunder by any party to the other party shall be in writing and shall be
deemed to have been duly given when delivered personally or five (5) days after
dispatch by registered or certified mail, postage prepaid, return receipt
requested, to the party to whom the same is so given or made:
If to the Company addressed to:
Charles W. Skamser
ebaseOne Corporation
6060 Richmond Avenue
Houston, Texas 77057
6
<PAGE>
with a copy to:
Thomas C. Pritchard
Brewer & Pritchard, P.C.
1111 Bagby, Suite 2450
Houston, Texas 77002
If to Executive addressed to:
Michael A. Sooley
107 S. Meadowmist Circle
The Woodlands, TX 77387
or to such other address as the one party shall specify to the other party in
writing.
15. Counterparts and Headings. This agreement may be executed in one or more
-------------------------
counterparts, each of which shall be deemed an original and all which together
shall constitute one and the same instrument. All headings are inserted for
convenience of reference only and shall not affect the meaning or interpretation
of this agreement.
16. Termination of Prior Agreement. The Parties hereby agree that the
------------------------------
Consulting Agreement entered into between the Parties in May 1999 shall be
terminated as of November 16, 1999.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
EBASEONE CORPORATION
By: /s/ CHARLES SKAMSER
____________________________________
Charles Skamser
Director and Chief Executive Officer
EXECUTIVE
By: /s/ MICHAEL A. SOOLEY
____________________________________
Michael A. Sooley
7
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated this 18/th/ day of November 1999, between
ebaseOne Corporation, a Delaware corporation, currently having its principal
place of business at 6060 Richmond Avenue, Houston, Texas 77057 (the "Company"),
and Scott Feuless (the "Executive") an individual currently residing in Houston,
Texas.
WHEREAS, the Company desires to employ Executive and Executive desires to
be employed by the Company, as Senior Vice President of Technology.
WHEREAS, the Executive is willing to enter into an agreement with the
Company upon the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and covenants herein
contained, the parties hereto agree as follows:
1. Term of Agreement. Subject to the terms and conditions hereof, the term of
-----------------
employment of the Executive under this Employment Agreement shall be for the
period commencing on the date hereof (the "Commencement Date") and terminating
on December 31, 2002, unless sooner terminated as provided in accordance with
the provisions of Section 5 hereof. (Such term of employment is herein
sometimes called the "Employment Term.")
2. Employment. As of the Commencement Date, the Company hereby agrees to
----------
employ the Executive as Senior Vice President of Technology of the Company, and
the Executive hereby accepts such employment and agrees to perform his duties
and responsibilities hereunder in accordance with the terms and conditions
hereinafter set forth.
3. Duties and Responsibilities.
---------------------------
(a) Duties. Executive shall perform such duties as are usually performed by a
Senior Vice President of Technology of a business similar in size and scope
as the Company and such other reasonable additional duties as may be
prescribed from time-to-time by the Company's board of directors which are
reasonable and consistent with the Company's operations, taking into
account Executive's expertise and job responsibilities. This agreement
shall survive any job title or responsibility change agreed to by
Executive. Executive shall report directly to the Chief Executive Officer
of the Company regarding implementation of all business matters. All
actions of Executive shall be subject and subordinate to the review and
approval of the board of directors. No other person or group shall be given
authority to supervise or direct Executive in the performance of his
duties. The board of directors shall be the final and exclusive arbiter of
all policy decisions relative to the Company's business.
(b) Devotion of Time. During the term of this agreement, Executive agrees to
devote sufficient time and attention during normal business hours to the
business and affairs of the company
1
<PAGE>
to the extent necessary to discharge the responsibilities assigned to
Executive and to use reasonable best efforts to perform faithfully and
efficiently such responsibilities.
4. Compensation and Benefits During the Employment Term:
----------------------------------------------------
(a) Base Compensation. The Executive's base compensation from the Commencement
Date through December 31, 2000, shall be at the rate of $9,583.33 per
month, payable in regular semi-monthly installments in accordance with the
Company's practice for its executives, less applicable withholding for
income and employment taxes as required by law and other deductions as to
which the Executive shall agree. Such base compensation shall be subject to
increases as and when determined by the Company's board of directors in its
sole discretion.
(b) Bonus Compensation. In addition to the Executive's base compensation,
Executive will be entitled to a performance bonus as determined by the
board of directors, as recommended by the Chief Executive Officer.
(c) Warrants. The Executive will be entitled to receive five year warrants to
purchase an aggregate 750,000 shares of Company common stock having the
terms set forth in the warrant agreements attached hereto as Exhibit "A."
(d) Expense Reimbursement. The Executive shall be entitled to reimbursement of
all reasonable, ordinary and necessary business related expenses incurred
by him in the course of his duties and upon compliance with the Company's
procedures.
(e) Participation in Employee Benefit Plans. Executive shall be entitled to
participate, subject to eligibility and other terms generally established
by the Company's board or directors, in any employee benefit plan
[including but not limited to life insurance plans, stock option plans,
group hospitalization, hearth, dental care (which health insurance shall
also cover Executive's dependents) profit sharing, pension and other
benefit plans], as may be adopted or amended by the Company from time-to-
time.
5. Termination. Subject to the notice and other provisions of this Section 5,
-----------
the Company shall have the right to terminate the Executive's employment with
the Company, and the Executive shall have the right to resign from such
employment, at any time and for no stated reason.
(a) Disability. The Company shall have the right to terminate the employment
of the Executive under this Agreement for disability in the event Executive
suffers an injury, illness or incapacity as defined in the Company's Long
Term Disability Insurance Policy in effect as of the date hereof for a
period of more than six (6) months provided that during such six month
period the Company shall have given at least ten (10) days written notice
of termination; provided further, however, that if the Executive is
eligible to receive disability payments pursuant to a disability policy
paid for by the Company, the Executive shall assign such benefits to the
Company for all periods as to which he is receiving full payment under this
2
<PAGE>
agreement. If Executive is determined to be disabled, as defined within the
Americans with Disabilities Act, the Company will make reasonable
accommodations, including but not limited to the following: (i) job
restructuring; (ii) modification of work schedules, (iii) job
reassignments, (iv) acquisition of devices to help accommodate an
individual with a disability; and (v) use of interpreters or other support
personnel for an individual with a disability.
(b) Death. This agreement shall terminate upon the death of Executive.
(c) With Cause. The Company may terminate this agreement effective upon
delivery of written notice to Executive given at any time (without any necessity
for prior notice) if any of the following shall occur:
(i) any material breach of Executive's obligations of this Agreement, not
cured after ten (10) days notice from the board of directors;
(ii) Executive's gross negligence in the performance of his duties
hereunder;
(iii) any material acts or events which may inhibit Executive from fully
performing his or her responsibilities to the Company in good faith,
and upon which the board of directors in the exercise of its
reasonable judgment, determines that the Executive has committed any
of the following: (w) a felony criminal conviction; (x) any other
criminal conviction involving Executive's lack of honesty or moral
turpitude; (y) drug or alcohol abuse; or (z) acts of dishonesty,
gross carelessness or gross misconduct.
In the event Executive's employment with the Company is terminated pursuant
to items 5(a), (b) or (c), Executive or his beneficiary shall be entitled to
receive all base compensation earned by Executive up to the date of termination,
all unreimbursed expenses, and any bonus earned in respect of a prior year and
not yet paid. For a termination by the Company without good cause, Executive
shall be entitled to receive the greater of (i) the remaining base salary at the
then base salary rate for the remainder of the Employment Term or (ii) the base
salary rate for the period of six months, and all unreimbursed expenses, any
bonus earned in respect of a prior year and not yet paid, and the pro rata
portion of any bonus for the current year.
6. Revealing of Trade Secrets, etc. Executive acknowledges the interest of
-------------------------------
the Company in maintaining the confidentiality of information related to its
business and shall not at any time during the Employment Term or thereafter,
directly or indirectly, reveal or cause to be revealed to any person or entity
the supplier lists, customer lists or other confidential business information of
the Company; provided, however, that the parties acknowledge that it is not the
intention of this paragraph to include within its subject matter (a) information
not proprietary to the Company, (b) information which is then in the public
domain, or (c) information required to be disclosed by law.
7. Arbitration. If a dispute should arise regarding this agreement, all
-----------
claims, disputes, controversies, differences or other matters in question
arising out of this relationship shall be settled finally, completely and
conclusively by arbitration of a single arbitrator in Houston, Texas, in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the "Rules"). Arbitration shall be initiated by written demand.
This agreement to arbitrate shall be
3
<PAGE>
specifically enforceable only in the District Court of Harris County, Texas. A
decision of the arbitrator shall be final, conclusive and binding on the Company
and the Executive, and judgement may be entered in the District Court of Harris
County, Texas, for enforcement and other benefits. On appointment, the
arbitrator shall then proceed to decide the arbitration subjects in accordance
with the Rules. Any arbitration held in accordance with this paragraph shall be
private and confidential and no person shall be entitled to attend the hearings
except the arbitrator, Executive, Executive's attorneys, and an designated
representatives of the Company and their respective attorneys. The matters
submitted for arbitration, the hearings and proceedings and the arbitration
award shall be kept and maintained in strictest confidence by Executive and the
Company and shall not be discussed, disclosed or communicated to any persons. On
request of any party, the record of the proceeding shall be sealed and may not
be disclosed except insofar, and only insofar, as may be necessary to enforce
the award of the arbitrator and any judgement enforcing an award. The prevailing
party shall be entitled to recover reasonable and necessary attorneys' fees and
costs from the non-prevailing party.
8. Confidentiality. In the course of the performance of Executive's duties
---------------
hereunder, Executive recognizes and acknowledges that Executive may have access
to certain confidential and proprietary information of Employer or any of its
affiliates. Without the prior written consent of Employer, Executive shall not
disclose any such confidential or proprietary information to any person or firm,
corporation, association, or other entity for any reason or purpose whatsoever,
and shall not use such information, directly or indirectly, for Executive's own
behalf or on behalf of any other party. Executive agrees and affirms that all
such information is the sole property of Employer and that at the termination
and/or expiration of this Agreement, at Employer's written request, Executive
shall promptly return to Employer any and all such information so requested by
Employer.
(a) The provisions of this Section 8 shall not, however, prohibit Executive
from disclosing to others or using in any manner information that:
(i) has been published or has become part of the public domain other
than by acts, omissions or fault of Executive;
(ii) has been furnished or made known to Executive by third parties
(other than those acting directly or indirectly for or on behalf of
Executive) as a matter of legal right without restriction on its use
or disclosure;
(iii) was in the possession of Executive prior to obtaining such
information from Employer in connection with the performance of this
Agreement; or
(iv) is required to be disclosed by law.
4
<PAGE>
9. Covenants Not to Compete.
------------------------
(a) Executive's Acknowledgment. Executive agrees and acknowledges that in order
to assure the Company that it will retain its value as a going concern, it is
necessary that Executive undertake not to utilize his special knowledge of the
business and his relationships with customers and suppliers to compete with the
Company. Executive further acknowledges that:
(i) the Company is and will be engaged in the business;
(ii) Executive will occupy a position of trust and confidence with the
Company prior to the date of this agreement and, during such period
and Executive's employment under this agreement, Executive has, and
will become familiar with the Company's trade secrets and with other
proprietary and confidential information concerning the Company;
(iii) the agreements and covenants contained in this Section 9 are
essential to protect the Company and the goodwill of the business;
and
(iv) Executive's employment with the Company has special, unique and
extraordinary value to the Company and the Company would be
irreparably damaged if Executive were to provide services to any
person or entity in violation of the provisions of this agreement.
(b) Competitive Activities. Executive hereby agrees that for a period
commencing on the date hereof and ending one year following the later of (i)
termination of Executive's employment with the Company for whatever reason, and
(ii) the conclusion of the period, if any, during which the Company is making
payments to Executive, he will not, directly or indirectly, as employee, agent,
consultant, stockholder, director, co-partner or in any other individual or
representative capacity, own, operate, manage, control, engage in, invest in or
participate in any manner in, act as a consultant or advisor to, render services
for (alone or in association with any person, firm, corporation or entity), or
otherwise assist any person or entity (other than the Company) that engages in
or owns, invests in, operates, manages or controls any venture or enterprise
that directly or indirectly engages or proposes in engage in the business of the
manufacturing, distribution or sale of (i) products manufactured, distributed,
sold or licensed by the Company or services provided by the Company at the time
of termination or (ii) products or services proposed at the time of such
termination to be manufactured, distributed, sold, licensed or provided by the
Company within the United States (the "Territory"); provided, however, that
nothing contained herein shall be construed to prevent Executive from investing
in the stock of any competing corporation listed on a national securities
exchange or traded in the over-the-counter market, but only if Executive is not
involved in the business of said corporation and if Executive and his associates
(as such term is defined in Regulation 14(A) promulgated under the Securities
Exchange Act of 1934, as in effect on the date hereof), collectively, do not own
more than an aggregate of two percent of the stock of such corporation. With
respect to the Territory, Executive specifically acknowledges that the Company
has conducted the business throughout those areas comprising the Territory and
the Company intends to continue to expand the business throughout the Territory.
5
<PAGE>
(c) Blue Pencil. If an arbitrator shall at any time deem the terms of this
agreement or any restrictive covenant too lengthy or the Territory too
extensive, the other provisions of this Section 8 shall nevertheless stand, the
restrictive period shall be deemed to be the longest period permissible by law
under the circumstances and the Territory shall be deemed to comprise the
largest territory permissible by law under the circumstances. The arbitrator in
each case shall reduce the restricted period and/or the Territory to permissible
duration or size.
10. Opportunities. During his employment with the Company, and for one year
-------------
thereafter, Executive shall not take any action which might divert from the
Company any opportunity learned about by him during his employment with the
Company (including without limitation during the Employment Term) which would be
within the scope of any of the businesses then engaged in or planned to be
engaged in by the Company.
11. Survival. In the even that this Agreement shall be terminated, then
--------
notwithstanding such termination, the obligations of Executive pursuant to
Sections 6,7,8 9, and 10 of this agreement shall survive such termination.
12. Contents of Agreement, Parties in Interest, Assignment, etc. This
-----------------------------------------------------------
Agreement sets forth the entire understanding of the parties hereto with respect
to the subject matter hereof. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective heirs, representatives, successors and assigns of the parties hereto,
except that the duties and responsibilities of Executive hereunder which are of
a personal nature shall neither be assigned nor transferred in whole or in part
by Executive. This Agreement shall not be amended except by a written
instrument duly executed by the parties.
13. Severability. If any term or provision of this Agreement shall be held to
------------
be invalid or unenforceable for any reason, such term or provision shall be
ineffective to the extent of such invalidity or unenforceability without
invalidating the remaining terms and provisions hereof, and this Agreement shall
be construed as if such invalid or unenforceable term or provision had not been
contained herein.
14. Notices. Any notice, request, instruction or other document to be given
-------
hereunder by any party to the other party shall be in writing and shall be
deemed to have been duly given when delivered personally or five (5) days after
dispatch by registered or certified mail, postage prepaid, return receipt
requested, to the party to whom the same is so given or made:
If to the Company addressed to:
Charles W. Skamser
ebaseOne Corporation
6060 Richmond Avenue
Houston, Texas 77057
6
<PAGE>
with a copy to:
Thomas C. Pritchard
Brewer & Pritchard, P.C.
1111 Bagby, Suite 2450
Houston, Texas 77002
If to Executive addressed to:
Scott Feuless
3203 Forrester Drive
Pearland, TX 77584
or to such other address as the one party shall specify to the other party in
writing.
15. Counterparts and Headings. This agreement may be executed in one or more
-------------------------
counterparts, each of which shall be deemed an original and all which together
shall constitute one and the same instrument. All headings are inserted for
convenience of reference only and shall not affect the meaning or interpretation
of this agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
EBASEONE CORPORATION
By: /s/ Charles Skamsrer
----------------------------
Charles Skamser
Director and Chief Executive Officer
EXECUTIVE
By: /s/ Scott Feuless
----------------------------
Scott Feuless
7
<PAGE>
EXHIBIT 10.6
COOPERATIVE MARKETING AGREEMENT
This Cooperation Agreement ("Agreement") is made effective as of this 11
day of November 1999, by and between Phonoscope Ltd. ("Phonoscope"), a Texas
Limited Partnership, and ebaseOne Corporation ("ebaseOne"), a "_________"
corporation.
WHEREAS, Phonoscope is a telecommunications service provider which utilizes
its own extensive fiber optic cable network in the greater Houston area
("Phonoscope Network") to provide various telecommunications services, including
but not limited to private fiber networks, alternate access, and
videoconferencing,
WHEREAS, ebaseOne is an Application Service Provider ("ASP") servicing
business customers, and
WHEREAS, Phonoscope and ebaseOne are interested in cooperating to jointly
market and support the selling of application services.
NOW, THEREFORE, in consideration of the premises and the mutual promises
made herein, and in consideration of the representations, warranties, and
covenants contained herein, the parties agree as follows:
I. DEFINITIONS
1.1 Common Customer. A Common Customer is any end user who receives
application services supported by both Phonoscope and ebaseOne.
1.2 Common Services. Common Services are those services which Phonoscope
and ebaseOne agree to sell on a cooperative basis under the terms of
this Agreement, to specifically include communications transport links
between an ebaseOne Enterprise Application Center (EAC) and end user
locations.
1.3 Competitive Services. All services provided by Phonoscope to any
person, entity or group, directly or indirectly, that are provided to
any Service Provider.
1.4 Phonoscope Services. The transport link between the customer site and
the demarcation interface, which shall be located at the ebaseOne EAC
("Demarc"), plus any other telecommunications services provided by
Phonoscope, now or in the future, to the extent that such services are
not necessary for and included in, and are outside of, the scope of
the Common Services.
1.5 ebaseOne Services. Any application-related services including, but not
limited to application access, database management and storage, e-
mail, web sites, programming, etc. which are outside of the scope of
the Common Services.
1.6 Service Provider. Any person, group or entity that provides services
that are similar to or are in competition with ebaseOne Services.
<PAGE>
II. TERM
2.1 Term. The Agreement will remain in effect for a term (the "initial
term") of three (3) years commencing on the date executed herein,
unless earlier terminated pursuant to the provision of this Agreement,
and shall be extended thereafter for one year periods ("Renewal
Term(s)") unless either party gives written notice of intent not to
renew at least ninety (90) days prior to the expiration of the Initial
Term or the Renewal term(s), as applicable.
2.2 Termination. If either party shall breach a material obligation under
this Agreement, the other party may give written notice of its
intention to terminate this Agreement, describing in reasonable detail
the breach. If the party charged with breach fails to cure the breach
within thirty (30) days after written notice of such breach, or if
such breach (other than one to pay money) is not capable of cure
within thirty (30) days and the party charged with breach fails to
commence cure procedures within such thirty (30) day period and
diligently prosecutes such procedures until the breach is cured, which
cure shall be completed no later than ninety (90) days following the
notice, then the noticing party may, while such failure continues and
in addition to all other remedies at law or in equity, terminate this
Agreement upon written notice.
III. RIGHTS AND OBLIGATIONS
3.1 Phonoscope will provide ebaseOne with full access to Simple Network
Management Protocol (SNMP) interfaces on all routers, gateways,
bridges, switches, and any other SNMP manageable equipment ebaseOne
requires to monitor the network for purposes of identifying problems
on the Phonoscope Network between the Demarc and the premises of the
customer. To the extent that Phonoscope alters, enhances or modifies
any of its network systems, Phonoscope will provide ebaseOne with such
technical information and support for ebaseOne to continue to perform
these activities on the Phonoscope Network between the Demarc and the
premises of the customer.
3.2 Phonoscope will provide all network facilities necessary to provide
the Common Services to the Common Customer from the Common Customer's
site to the Demarc.
3.3 (a) Phonoscope reserves the right to market, service and provide
without any limitations, any Phonoscope Services to any Common
Customer.
(b) Unless specifically required by law or regulation, Phonoscope may
not service or provide (including marketing, whether by solicitation,
promotion or otherwise) Competitive Services to any person, entity or
group to the extent, and if required, only to the extent that a law or
regulation specifically requires Phonoscope to
<PAGE>
service and provide such services and precludes Phonoscope from
entering into an exclusive arrangement with respect thereto. However,
if required by law or regulation, Phonoscope will use its best efforts
not to enter into any direct or indirect arrangement with any Service
Provider or any other person, entity or group pursuant to which it
would (i) offer or sell Competitive Services on terms more favorable
than, or at rates lower than, those provided to ebaseOne under this
Agreement, (ii) receive from or under or by reason of any arrangement
with any Service Provider any revenue sharing, commissions, payment or
other benefits, or (iii) enter into any arrangement that would
preclude ebaseOne from contacting and soliciting any person, entity or
group. Phonoscope shall provide ebaseOne with a list of all persons,
entities and groups to whom it supplies Competitive Services on a
weekly basis, and shall not enter into any agreement that will
preclude it from doing so.
3.4 Customer Billing. For all Phonoscope Services provided to Common
Customers, Phonoscope will provide billing services directly to
ebaseOne, unless those Common Customers were customers actively doing
business with Phonoscope at the time that they became Common Customers
under this agreement. For customers already actively doing business
with Phonoscope at the time of becoming Common Customers, Phonoscope
will provide billing services directly to the Common Customers. If a
Common Customer being billed by both ebaseOne and Phonoscope requests
one billing entity, and if Phonoscope provides approval to ebaseOne in
writing, then ebaseOne will provide all billing services to the Common
Customer and Phonscope will provide billing services only to ebaseOne.
Notwithstanding the above, ebaseOne will provide billing services for
all ebaseOne Services directly to all Common Customers.
3.5 Phonoscope is responsible for all costs associated with performing its
obligations under this Agreement, including (without limitation) any
building use fees necessary to gain access to Common Customers'
premises.
3.6 Phonoscope is responsible for all trouble shooting on the Phonoscope
Network to the Demarc, when and as provided in Section 3.11.
3.7 Phonoscope and ebaseOne will conduct such joint marketing programs
relating to the Common Services, agree to allow the use of their names
and marks in connection therewith, and consult with each other
relating to marketing strategies as may be requested in good faith
from time to time.
3.8 ebaseOne will provide all software support and network management for
systems running within the ebaseOne EAC.
3.9 ebaseOne reserves the right to market, service and provide without any
limitations, any ebaseOne Services to any Common Customer.
<PAGE>
3.10 ebaseOne is responsible for all costs associated with performing its
obligations under this Agreement.
3.11 ebaseOne is responsible for providing customer service and
troubleshooting directly to all Common Customers not being billed by
Phonoscope under the provisions of paragraph 3.4 above. This customer
service is to include the initial customer call, as it relates to the
ebaseOne provided services, a determination about the nature of the
problem, and a commitment to direct the call to the appropriate
personnel at ebaseOne or Phonoscope based on the initial
determination. For those Common Customers being billed by Phonoscope,
ebaseOne will be responsible for all customer service and
troubleshooting not related to the Phonoscope Network up to the
Demarc. Phonoscope will be responsible for all customer service and
troubleshooting related to the Phonoscope Network up to the Demarc,
after the initial determination is made by ebaseOne and the initial
customer call has been routed to Phonoscope.
IV. SEVERABILITY & WAIVER
4.1 Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future law
effective during the term hereof, such provision shall be fully
severable. This Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a
part hereof, and the remaining portions hereof shall remain in full
force and effect, and shall not be affected by the illegal, invalid,
or unenforceable provision or by its severance herefrom.
4.2 Waiver. No failure to enforce any rights hereunder shall constitute a
waiver of such right.
V. ASSIGNABILITY
5.1 Assignability. Neither party may transfer or assign this Agreement
without the prior written consent of the other party, which shall not
be unreasonably withheld, and then only when such transfer can be
accomplished without interruption of services, except as provided
herein. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto, their respective successors and
assigns, it being expressly understood that Phonoscope's interest
herein may be pledged and mortgaged by Phonoscope without ebaseOne's
consent, and that any such lender or assignee shall have the right to
exercise all rights and remedies of Phonoscope herein.
VI. ARBITRATION
6.1 Arbitration. Except for the right of either party to this Agreement
to seek injunctive relief in a court competent jurisdiction, any
dispute or claim under this Agreement shall be settled by arbitration
in accordance with the Commercial
<PAGE>
Arbitration Rules of the American Arbitration Association, which
decision shall be final, conclusive, and binding on both parties. The
judgement on the award determined by the arbitrator(s) may be entered
in any court having jurisdiction thereof. The decision of the
arbitrator(s) must be based on and consistent with the Texas
substantive internal law without regard for the Texas Arbitration Act
or the Federal Arbitration Act. The arbitrator(s) shall award the
recovery of all costs and fees (including reasonable attorney's fees,
administrative fees and arbitrator's(s') fees) to the prevailing party
in any arbitration. This agreement to arbitrate shall be enforceable
only in the District Court of Harris County, Texas.
VII. NOTICE
7.1 Notice. All notices permitted or required hereunder shall be in
writing and shall be deemed to have been duly given on the earlier of
(i) the date received, or (ii) the third Business Day (meaning dates
when banks in Harris County, Texas are generally open for business)
after the same shall have been mailed by United States registered or
certified mail, return receipt requested, adequate postage prepaid,
addressed as follows:
If to ebaseOne: If to PHONOSCOPE:
EbaseOne Corporation Phonoscope Ltd.
6060 Richmond Ave. 6105 Westline Drive
Houston, Texas 77057 Houston, Texas 77036
Attn: Robert Horn Attn: Charles Maricle
Notice given by any other method (including facsimile, electronic
mail, etc.) shall be effective when actually received. Either party
may change its address for notice by notice to the other party in the
manner herein set forth.
VIII. ENTIRE AGREEMENT
8.1 Entire Agreement and Amendments. This Agreement contains the entire
Agreement between the parties respecting the matters set forth and it
shall be construed and enforced in accordance with the law of the
State of Texas. Each party warrants to the other that there is no
other agreement relating to the subject matter hereof. No
modification or amendment of this Agreement may be made except in
writing signed by both parties.
EXECUTED IN MULTIPLE COUNTERPARTS, each of which shall have the force and
effect of an original, by each party on the date set forth beside the signature
of each, the latter of which dates shall be the date of this Agreement.
<PAGE>
PHONOSCOPE LTD.
11/12/99 By: /s/ Dr. Charles E. Maricle
- ---------------------- -------------------------------------
(Date Signed) Dr. Charles E. Maricle
General Manager
Phonescope Communications, Ltd.
EBASEONE CORPORATION
By: /s/ Robert Horn
______________________ -------------------------------------
(Date Signed) Name: Robert Horn
Title: Chief Financial Officer
<PAGE>
EXHIBIT 10.7
================================================================================
SECURITIES PURCHASE AGREEMENT
Between
EBASEONE CORP.
and
THE INVESTORS SIGNATORY HERETO
Dated as of November 15, 1999
================================================================================
<PAGE>
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of November 15,
---------
1999, among EbaseOne Corp., a Delaware corporation (the "Company"), and the
-------
investors signatory hereto (each such investor is a "Purchaser" and all such
---------
investors are, collectively, the "Purchasers").
----------
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchasers and the Purchasers,
severally and not jointly, desire to purchase from the Company, shares of the
Company's common stock, $.001 par value per share (the "Common Stock"), and
------------
certain other securities of the Company as more fully described in this
Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy are hereby acknowledged, the Company and the Purchasers agree as
follows:
ARTICLE I
PURCHASE AND SALE
1.1 The Closing.
-----------
(a) The Closing. (i) Subject to the terms and conditions set forth
-----------
in this Agreement, the Company shall issue and sell to the Purchasers and the
Purchasers shall, severally and not jointly, purchase an aggregate of 2,083,333
shares of Common Stock (the "Shares") for an aggregate purchase price of
------
$9,000,000. The closing of the purchase and sale of the Shares (the "Closing")
-------
shall take place at the offices of Robinson Silverman Pearce Aronsohn & Berman
LLP ("Robinson Silverman"), 1290 Avenue of the Americas, New York, New York
------------------
10104, immediately following the execution hereof or such later date as the
parties shall agree. The date of the Closing is hereinafter referred to as the
"Closing Date."
------------
(ii) At the Closing, the parties shall deliver or shall cause to be
delivered the following: (A) the Company shall deliver to each Purchaser (1) the
number of Shares indicated below each Purchaser's name on the signature page of
this Agreement, registered in the name of each such Purchaser, (2) a Common
Stock purchase warrant, in the form of Exhibit A, registered in the name of such
---------
Purchaser, pursuant to which such Purchaser shall have the right to acquire
shares of Common Stock upon the terms and in such number as set forth therein
(each an "Adjustable Warrant"), (3) two Common Stock purchase warrants, in the
------------------
forms of Exhibit B-1 and Exhibit B-2, respectively, registered in the name of
----------- -----------
such Purchaser, pursuant to which such Purchaser shall have the right to acquire
the number of shares of Common Stock indicated below such Purchaser's name on
the signature page of this Agreement, upon the terms and at the exercise price
set forth therein (collectively, the "Closing Warrants" and together with the
----------------
Adjustable Warrants, the "Warrants"), (4) the legal opinion of Brewer &
--------
Pritchard, outside counsel to the Company, substantially in the form of Exhibit
-------
C, and (5) all other documents, instruments and writings required to be
- -
delivered at or prior to the Closing by the Company pursuant to this Agreement,
including an executed Registration Rights Agreement, dated the date hereof,
among the Company and the Purchasers, in the form of Exhibit D (the
---------
"Registration Rights Agreement"), and an escrow agreement among the Company,
-----------------------------
Cardinal Securities, LLC and The Bank of New York (the "Escrow Agent"), dated
------------
the
<PAGE>
date hereof (the "Escrow Agreement") in the form of Exhibit E; and (B) each
---------------- ---------
Purchaser shall deliver (1) to the Escrow Agent, for delivery in accordance with
the Escrow Agreement, the purchase price indicated below such Purchaser's name
on the signature page to this Agreement in United States dollars in immediately
available funds by wire transfer to an account designated for such purpose,
pursuant to the Escrow Agreement, and (2) to the Company, all documents,
instruments and writings required to have been delivered at or prior to the
Closing Date by such Purchaser pursuant to this Agreement, including an executed
Registration Rights Agreement.
(iii) On the second (2/nd/) Trading Day following the date that
Company notifies the Purchasers that the Underlying Shares Registration
Statement (as defined herein) is first declared effective by the Commission (as
defined herein), (A) the Company will, against delivery of the amounts set forth
in clause (B) in this paragraph, deliver to the Purchasers, the number of Shares
indicated below each Purchaser's name on the signature page of this Agreement,
registered in the name of each such Purchaser, and (B) each Purchaser will
deliver to the Escrow Agent, for delivery in accordance with the Escrow
Agreement, the purchase price indicated below such Purchaser's name on the
signature page to this Agreement in United States dollars in immediately
available funds by wire transfer to an account designated for such purpose,
pursuant to the Escrow Agreement
1.2 Certain Defined Terms. For purposes of this Agreement,"Trading
--------------------- -------
Day" and "Per Share Market Value" shall have the meanings set forth in Exhibit A
- --- ---------------------- ---------
and "Business Day" shall mean any day except Saturday, Sunday and any day which
------------
shall be a federal legal holiday or a day on which banking institutions in the
State of New York or the State of Texas generally are authorized or required by
law or other governmental action to close. A "Person" means an individual or
------
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The
---------------------------------------------------------
Company hereby makes the following representations and warranties to the
Purchasers:
(a) Organization and Qualification. The Company is a corporation
------------------------------
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware, with the requisite corporate power and authority to own and
use its properties and assets and to carry on its business as currently
conducted. The Company has no subsidiaries other than as set forth in Schedule
2.1(a) (collectively, the "Subsidiaries"). Each of the Subsidiaries is an
------------
entity, duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted. Each
of the Company and the Subsidiaries is duly qualified to do business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to
-2-
<PAGE>
be so qualified or in good standing, as the case may be, could not, individually
or in the aggregate, (x) adversely affect the legality, validity or
enforceability of the Securities (as defined below) or any of this Agreement,
the Escrow Agreement, the Registration Rights Agreement or the Warrants
(collectively, the "Transaction Documents"), (y) have or result in a material
---------------------
adverse effect on the results of operations, assets, prospects, or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a whole,
or (z) adversely impair the Company's ability to perform fully on a timely basis
its obligations under any of the Transaction Documents (any of (x), (y) or (z),
a "Material Adverse Effect").
-----------------------
(b) Authorization; Enforcement. The Company has the requisite
--------------------------
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company. Each of
the Transaction Documents has been duly executed by the Company and, when
delivered in accordance with the terms hereof, will constitute the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms. Neither the Company nor any Subsidiary is in violation of any
of the provisions of its respective certificate of incorporation, by-laws or
other charter or organizational documents.
(c) Capitalization. The number of authorized, issued and
--------------
outstanding capital stock of the Company is set forth in Schedule 2.1(c).
---------------
Except as disclosed in Schedule 2.1(c), the Company owns all of the capital
----------------
stock of each Subsidiary. No securities of the Company or any Subsidiary are
entitled to preemptive or similar rights, nor is any holder of securities of the
Company or any Subsidiary entitled to preemptive or similar rights arising out
of any agreement or understanding with the Company or any Subsidiary by virtue
of any of the Transaction Documents. Except as disclosed in Schedule 2.1(c),
---------------
there are no outstanding options, warrants, script rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, except as
a result of the purchase and sale of the Securities, or rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. To the knowledge of
the Company, except as specifically disclosed in the Disclosure Materials (as
defined below) or Schedule 2.1(c), no Person or group of related Persons
---------------
beneficially owns (as determined pursuant to Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), or has the
------------
right to acquire by agreement with or by obligation binding upon the Company,
beneficial ownership of in excess of 5% of the Common Stock.
(d) Issuance of the Securities. The Securities are duly authorized
--------------------------
and, when issued and paid for in accordance with the terms hereof and the
Warrants, shall have been duly and validly issued, fully paid and nonassessable,
free and clear of all liens, encumbrances and rights of first refusal of any
kind (collectively, "Liens"). The Company has reserved a number of duly
-----
authorized number of shares of Common Stock for issuance hereunder upon exercise
of the Warrants that is not less than the sum of (i) the aggregate number of
Shares to be issued hereunder, (ii) the
-3-
<PAGE>
maximum number of Underlying Shares (as defined below) issuable upon exercise of
the Adjustable Warrants during the first Vesting Date (as defined in the
Adjustable Warrant), assuming that on such date, each Purchaser holds the entire
number of Shares purchased by it hereunder and that the Per Share Market Value
utilized to determine the number of such Underlying Shares is 50% of the Per
Share Market Value on the Trading Day immediately preceding the Closing Date,
and (iii) the number of Underlying Shares issuable upon exercise in full of the
Closing Warrants (such number of shares of Common Stock contemplated in (i),
(ii) and (iii), the "Initial Minimum"). The shares of Common Stock issuable
---------------
upon exercise of the Warrants are referred to herein as the "Underlying Shares."
-----------------
The Shares, the Warrants and the Underlying Shares are collectively referred to
herein as, the "Securities."
----------
(e) No Conflicts. The execution, delivery and performance of the
------------
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's or any Subsidiary's certificate of
incorporation, bylaws or other charter documents (each as amended through the
date hereof), or (ii) subject to obtaining the Required Approvals (as defined
below), conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company or a Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), as could not, individually or in the aggregate, have or
result in a Material Adverse Effect. The business of the Company is not being
conducted in violation of any law, ordinance or regulation of any governmental
authority, except for violations which, individually or in the aggregate, could
not have or result in a Material Adverse Effect.
(f) Filings, Consents and Approvals. Neither the Company nor any
-------------------------------
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filings required pursuant to Section
3.10, (ii) the filing with the Securities and Exchange Commission (the
"Commission") of a registration statement meeting the requirements set forth in
----------
the Registration Rights Agreement and covering the resale of the Shares and the
Underlying Shares by the Purchasers (the "Underlying Shares Registration
------------------------------
Statement"), (iii) the application(s) to the OTC Bulletin Board ("OTC") for the
- --------- ---
listing of the Underlying Shares for trading on the OTC (and with any other
national securities exchange, trading facility or market on which the Common
Stock is then listed), (iv) applicable Blue Sky filings, and (v) in all other
cases where the failure to obtain such consent, waiver, authorization or order,
or to give such notice or make such filing or registration could not have or
result in, individually or in the aggregate, a Material Adverse Effect (the
items described in clauses (i)-(v) are collectively, the "Required Approvals").
------------------
-4-
<PAGE>
(g) Litigation; Proceedings. Except as specified in Schedule 2.1(g),
----------------------- ---------------
there is no action, suit, inquiry, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries or any of their respective
properties before or by any court, arbitrator, governmental or administrative
agency or regulatory authority (federal, state, county, local or foreign)
(collectively, an "Action") which (i) adversely affects or challenges the
------
legality, validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, individually or in the aggregate, have or result in a
Material Adverse Effect.
(h) No Default or Violation. Except as specified in Schedule 2.1(h),
----------------------- ---------------
neither the Company nor any Subsidiary (i) is in default under or in violation
of (and no event has occurred which has not been waived which, with notice or
lapse of time or both, would result in a default by the Company or any
Subsidiary under), nor has the Company or any Subsidiary received notice of a
claim that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not such
default or violation has been waived), (ii) is in violation of any order of any
court, arbitrator or governmental body, or (iii) is in violation of any statute,
rule or regulation of any governmental authority, except as could not
individually or in the aggregate, have or result in a Material Adverse Effect.
(i) Private Offering. Assuming the accuracy of the representations
----------------
and warranties of the Purchasers set forth in Sections 2.2(b)-(g), the offer,
issuance and sale of the Securities to the Purchasers as contemplated hereby are
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"). Neither the Company nor any Person acting on
--------------
its behalf has taken or is, to the knowledge of the Company, contemplating
taking any action which could subject the offering, issuance or sale of the
Securities to the registration requirements of the Securities Act including
soliciting any offer to buy or sell the Securities by means of any form of
general solicitation or advertising.
(j) Disclosure Materials; Financial Statements. The Company has
------------------------------------------
provided the Purchasers with copies of (y) its audited financial statements for
the fiscal year ending September 30, 1999 (the "Financial Statements") and (z)
--------------------
certain balance sheets, budgets and projections prepared by the management of
the Company (the "Company Projections" and together with the Financial
-------------------
Statements and the Schedules to this Agreement, the "Disclosure Materials"). To
--------------------
the Company's knowledge, the assumptions underlying the Company Projections are
reasonable and the Company Projections are based upon good faith and diligent
estimates of the anticipated assets and liabilities of the Company as well as
the anticipated operating results, financial conditions and prospects of the
Company following the consummation of the transactions contemplated by this
Agreement. To the Company's knowledge, no event has occurred and no
circumstance has arisen since the date of such Company Projections which would
render such Company Projections or the assumptions underlying the same
misleading or no longer reasonable. None of the Disclosure Materials contain
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved ("GAAP"), except as may be otherwise specified in such
----
financial statements or
-5-
<PAGE>
the notes thereto, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments. Since June 30, 1999, except as specifically
disclosed in the Disclosure Materials, (a) there has been no event, occurrence
or development that has or that could result in a Material Adverse Effect, (b)
the Company has not incurred any liabilities (contingent or otherwise) other
than (x) liabilities incurred in the ordinary course of business consistent with
past practice and (y) liabilities not required to be reflected in the Financial
Statements pursuant to GAAP, (c) the Company has not altered its method of
accounting or the identity of its auditors and (d) the Company has not declared
or made any payment or distribution of cash or other property to its
stockholders or officers or directors (other than in compliance with existing
Company stock or stock option plans) with respect to its capital stock, or
purchased, redeemed (or made any agreements to purchase or redeem) any shares of
its capital stock.
(k) Investment Company. The Company is not, and is not an
------------------
Affiliate (as defined in Rule 405 under the Securities Act) of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(l) Certain Fees. Except as are payable to Cardinal Securities,
------------
LLC, no fees or commissions will be payable by the Company to any broker,
financial advisor or consultant, finder, placement agent, investment banker,
bank or other Person, with respect to the transactions contemplated by this
Agreement. The Purchasers shall have no obligation with respect to any fees or
with respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement. The Company shall indemnify and
hold harmless the Purchasers, their employees, officers, directors, agents, and
partners, and its respective Affiliates, from and against all claims, losses,
damages, costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees, as such fees
and expenses are incurred.
(m) Solicitation Materials. Neither the Company nor any Person acting
----------------------
on the Company's behalf has solicited any offer to buy or sell the Securities by
means of any form of general solicitation or advertising.
(n) Form S-1 Eligibility. The Company is eligible to register its
--------------------
Common Stock for resale under Form S-1 promulgated under the Securities Act.
(o) Listing and Maintenance Requirements. The Company has not, in
------------------------------------
the two years preceding the date hereof received notice (written or oral) from
the OTC or any other stock exchange, market or trading facility on which the
Common Stock is or has been listed (or on which it has been quoted) to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such exchange, market or trading facility. The Company is, and
has no reason to believe that it will not in the foreseeable future continue to
be, in compliance with all such listing and maintenance requirements, provided
the Company becomes a reporting company on or before February 20, 2000.
-6-
<PAGE>
(p) Patents and Trademarks. The Company and its Subsidiaries have,
----------------------
or have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and rights which
are necessary or material for use in connection with their respective business
as described in the Disclosure Materials (collectively, the "Intellectual
------------
Property Rights") and which the failure to so have would have a Material Adverse
- ---------------
Effect. Neither the Company nor any Subsidiary has received a written notice
that the Intellectual Property Rights used by the Company or its Subsidiaries
violates or infringes upon the rights of any Person, to the best knowledge of
the Company. All such Intellectual Property Rights are enforceable and there is
no existing infringement by another Person of any of the Intellectual Property
Rights.
(q) Regulatory Permits. The Company and its Subsidiaries possess
------------------
all certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses as described in the Disclosure Materials, except where the failure to
possess such permits could not, individually or in the aggregate, have or result
in a Material Adverse Effect ("Material Permits"), and neither the Company nor
----------------
any such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.
(r) Title. Except as set forth on Schedule 2.1(r), the Company and
----- ---------------
the Subsidiaries have good and marketable title in fee simple to all real
property and personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all Liens,
except for Liens as do not affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its Subsidiaries. Any real property and facilities held under lease
by the Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such property
and buildings by the Company and its Subsidiaries.
(s) Registration Rights; Rights of Participation. Except as set forth
--------------------------------------------
on Schedule 2.1(s), the Company has not granted or agreed to grant to any Person
---------------
any rights (including "piggy-back" registration rights) to have any securities
of the Company registered with the Commission or any other governmental
authority which has not been satisfied. No Person, has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents.
(t) Absence of Certain Proceedings. Except as described in the
------------------------------
Disclosure Materials, (i) there is no Action pending or, to the knowledge of the
Company, threatened against the Company, in any such case wherein an unfavorable
decision, ruling or finding could have or result in a Material Adverse Effect;
(ii) neither the Company nor any Subsidiary, nor any director or officer
thereof, is or has been the subject of any Action involving (A) a claim of
violation of or liability under federal or state securities laws or (B) a claim
of breach of fiduciary duty; (iii) the Company does not have pending before the
Commission any request for confidential treatment of information and the Company
has no knowledge of any expected such request that would be made prior to the
Effectiveness Date (as defined in the Registration Rights Agreement); and (iv)
there has not been, and to the best of the Company's knowledge there is not
pending or contemplated, any
-7-
<PAGE>
investigation by the Commission involving the Company or any current or former
director or officer of the Company.
(u) Labor Relations. No material labor problem exists or, to the
---------------
knowledge of the Company, is imminent with respect to any of the employees of
the Company.
(v) Disclosure. The Company confirms that neither it nor any Person
----------
acting on its behalf has provided the Purchasers or their agents or counsel with
any information that constitutes or might constitute material non-public
information. The Company understands and confirms that the Purchasers shall be
relying on the foregoing representations in effecting transactions in securities
of the Company. All disclosure provided to the Purchasers regarding the Company,
its business and the transactions contemplated hereby, including the Schedules
to this Agreement, furnished by or on behalf of the Company are true and correct
and do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
2.2 Representations and Warranties of the Purchasers. Each Purchaser
------------------------------------------------
hereby for itself and for no other Purchaser, represents and warrants to the
Company as follows:
(a) Organization; Authority. If such Purchaser is an entity, such
-----------------------
Purchaser is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization with the requisite corporate or
partnership power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. If such Purchaser is an entity, the purchase by such
Purchaser of the Securities hereunder has been duly authorized by all necessary
action on the part of such Purchaser. Each of this Agreement and the
Registration Rights Agreement has been duly executed by such Purchaser, and when
delivered by such Purchaser in accordance with the terms hereof, will constitute
the valid and legally binding obligation of such Purchaser, enforceable against
it in accordance with its terms.
(b) Investment Intent. Such Purchaser is acquiring the Securities
-----------------
as principal for its own account for investment purposes only and not with a
view to or for distributing or reselling such Securities or any part thereof,
without prejudice, however, to such Purchaser's right, subject to the provisions
of this Agreement and the Registration Rights Agreement, at all times to sell or
otherwise dispose of all or any part of such Securities pursuant to an effective
registration statement under the Securities Act and in compliance with
applicable federal and state securities laws or under an exemption from such
registration. Nothing contained herein shall be deemed a representation or
warranty by such Purchaser to hold Securities for any amount of time.
(c) Purchaser Status. At the time such Purchaser was offered the
----------------
Securities, it was, and at the date hereof it is, and at each exercise date
under the Warrants, it will be, an "accredited investor" as defined in Rule
501(a) under the Securities Act.
(d) Experience of such Purchaser. Such Purchaser, either alone or
----------------------------
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.
-8-
<PAGE>
(e) Ability of Purchaser to Bear Risk of Investment. Such
-----------------------------------------------
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.
(f) Access to Information. Such Purchaser acknowledges that it has
---------------------
reviewed the Disclosure Materials and has been afforded (i) the opportunity to
ask such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment. Neither such
inquiries nor any other investigation conducted by or on behalf of such
Purchaser or its representatives or counsel shall modify, amend or affect such
Purchaser's right to rely on the truth, accuracy and completeness of the
Disclosure Materials and the Company's representations and warranties contained
in the Transaction Documents.
(g) General Solicitation. Such Purchaser is not purchasing the
--------------------
Securities as a result of or subsequent to any advertisement, article, notice or
other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement.
(h) Reliance. Such Purchaser understands and acknowledges that (i)
--------
the Securities are being offered and sold to it without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and such Purchaser hereby consents to such
reliance.
The Company acknowledges and agrees that no Purchaser makes or has
made representations or warranties with respect to the sale of the Securities
contemplated hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed of
---------------------
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements of the Securities Act, and in
compliance with any applicable federal and state securities laws. In connection
with any transfer of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein, the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration under the Securities Act.
Notwithstanding the foregoing, the Company, without
-9-
<PAGE>
requiring a legal opinion as described in the immediately preceding sentence,
hereby consents to and agrees to register on the books of the Company and with
any transfer agent for the securities of the Company any transfer of Securities
by a Purchaser to an Affiliate of such Purchaser or to one or more funds or
managed accounts under common management with such Purchaser, and any transfer
among any such Affiliates or one or more funds or managed accounts, provided
that the transferee certifies to the Company that it is an "accredited investor"
within the meaning of Rule 501(a) under the Securities Act and that it is
acquiring the Securities solely for investment purposes (subject to the
qualifications hereof). As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall have the
rights of a Purchaser under this Agreement and the Registration Rights
Agreement.
(b) The Purchasers agree to the imprinting, so long as is required by
applicable law, of the following legend on the Securities:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE EXERCISABLE] HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
Neither Shares nor Underlying Shares shall contain the legend set
forth above nor any other legend at any time when such legend is not required
under the Securities Act (including judicial interpretations and pronouncements
issued by the staff of the Commission). The Company agrees that if any Shares
or Underlying Shares are issued with a legend in accordance with this Section
3.1(b), it will, within three Trading Days after request therefor by a Purchaser
and the surrender by such Purchaser of the certificate representing the
applicable Shares or Underlying Shares, provide such Purchaser with a
certificate or certificates representing such Shares or Underlying Shares, free
from such legend at such time as such legend is no longer required under the
Securities Act.
3.2 Acknowledgment of Dilution. The Company acknowledges that the
--------------------------
issuance of Underlying Shares upon exercise of the Warrants will result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligation to issue Underlying Shares upon exercise of the Warrants
pursuant to the terms thereof is unconditional and absolute regardless of the
effect of any such dilution.
3.3 Furnishing of Information. As long as the Purchasers own Securities,
-------------------------
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. So long as the
Purchasers own Securities, if the Company is not required to file reports
-10-
<PAGE>
pursuant to such laws, it will prepare and furnish to the Purchasers and make
publicly available in accordance with Rule 144(c) promulgated under the
Securities Act such information as is required for the Purchasers to sell the
Securities under Rule 144 promulgated under the Securities Act. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell Underlying Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including the legal opinion referenced
above in this Section. Upon the request of any such Person, the Company shall
deliver to such Person a written certification of a duly authorized officer as
to whether it has complied with such requirements.
3.4 Integration. The Company shall not, and shall use its best efforts
-----------
to ensure that, no Affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers.
3.5 Increase in Authorized Shares. If on any date the Company would be,
-----------------------------
if a notice of exercise were to be delivered on such date, precluded from
issuing the sum of (i) 200% of the number of Underlying Shares then issuable
upon exercise in full of the Adjustable Warrants and (ii) the number of
Underlying Shares issuable upon exercise in full of the Closing Warrants (the
"Current Required Minimum") due to the unavailability of a sufficient number of
------------------------
authorized but unissued or reserved shares of Common Stock, then the Board of
Directors of the Company shall promptly (and in any case, within 30 Business
Days from such date) prepare and mail to the stockholders of the Company proxy
materials requesting authorization to amend the Company's articles of
incorporation to increase the number of shares of Common Stock which the Company
is authorized to issue to at least such number of shares as is reasonably
adequate to enable the Company to comply with its issuance, exercise and
reservation of shares obligations as set forth in this Agreement and the
Warrants (the sum of (x) the number of shares of Common Stock then outstanding
plus all shares of Common Stock issuable upon exercise of all outstanding
options, warrants and convertible instruments other than the Warrants, and (y)
the Current Required Minimum, shall be a reasonable number). In connection
therewith, the Board of Directors shall (a) adopt proper resolutions authorizing
such increase, (b) recommend to and otherwise use its best efforts to promptly
and duly obtain stockholder approval to carry out such resolutions (and hold a
special meeting of the stockholders no later than the earlier to occur of the
60/th/ day after delivery of the proxy materials relating to such meeting and
the 90/th/ day after request by a holder of Warrants to issue the number of
Underlying Shares in accordance with the terms hereof) and (c) within five (5)
Business Days of obtaining such stockholder authorization, file an appropriate
amendment to the Company's articles of incorporation to evidence such increase.
3.6 Listing of Underlying Shares. The Company shall (a) not later than
----------------------------
the fifth (5/th/) Business Day following the Closing Date prepare and file with
the OTC (and such other national securities exchange or market or trading or
quotation facility on which the Common Stock is then listed) an additional
shares listing application covering a number of shares of Common Stock which is
not less than the Initial Minimum, (b) take all steps necessary to cause such
shares of Common Stock to be approved for listing in the OTC (as well as on any
such other national
-11-
<PAGE>
securities exchange or market or trading or quotation facility on which the
Common Stock is then listed) as soon as possible thereafter, and (c) provide to
the Purchaser evidence of such listing, and the Company shall maintain the
listing of its Common Stock thereon. If the number of Underlying Shares issuable
upon conversion in full of the then outstanding Shares, as payment of dividends
thereon, and upon exercise of the then unexercised portion of the Warrants
exceed the number of Underlying Shares previously listed on account thereof with
OTC (and any such other required exchanges), then the Company shall take the
necessary actions to immediately list a number of Underlying Shares as equals no
less than the then Current Required Minimum
3.7 Exercise Procedures. The Transfer Agent Instructions and Form of
-------------------
Election to Purchase under the Warrants set forth the totality of the procedures
with respect to the exercise of the Warrants, including the form of legal
opinion, if necessary, that shall be rendered to the Company's transfer agent
and such other information and instructions as may be reasonably necessary to
enable the Purchasers to exercise the Warrants.
3.8 Notice of Breaches. Each of the Company and the Purchasers shall
------------------
give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement contained in any Transaction
Document, as well as any events or occurrences arising after the date hereof
which would reasonably be likely to cause any representation or warranty or
other agreement of such party, as the case may be, contained therein to be
incorrect or breached as of the Closing Date. However, no disclosure by a party
pursuant to this Section shall be deemed to cure any breach of any
representation, warranty or other agreement contained in any Transaction
Document.
3.9 Subsequent Financing; Right of First Refusal. (a) During the period
--------------------------------------------
commencing on the Closing Date and ending on the later to occur of (x) the
90/th/ day after the date the Underlying Shares Registration Statement is first
declared effective by the Commission (such date, the "Effective Date") (such
--------------
date will be extended by the number of days after the Effective Date during
which a Purchaser is not permitted or unable to utilize the prospectus or
otherwise to resell Shares or Underlying Shares under the Underlying Shares
Registration Statement) and (y) the 180/th/ day after the Closing Date (such
period, the "Restricted Period"), except for (i) the issuance of shares of
-----------------
Common Stock in connection with the acquisition of assets or stock whereby the
Company does not grant any registration rights thereon, (ii) the issuance of
shares of Common Stock at a price greater than $4.32 per share of Common Stock,
and (iii) the granting of options or warrants to employees, consultants
rendering technical services to the Company, officers and directors of the
Company, and the issuance of shares upon exercise of options granted under any
stock option plan heretofore or hereinafter duly adopted by the Company, the
Company shall not, directly or indirectly, without the prior written consent of
the Purchasers, offer, sell, grant any option to purchase, or otherwise dispose
of (or announce any offer, sale, grant or any option to purchase or other
disposition) any of its or its Affiliates' equity or equity-equivalent
securities (including the issuance of any debt or other instrument at any time
over the life thereof convertible into or exchangeable for Common Stock), or any
other transaction intended to be exempt or not subject to registration under the
Securities Act.
(b) During the Restricted Period, the Company shall not issue shares of
Common Stock, at a price per share equal to or in excess of $4.32 per share of
Common Stock (a "Subsequent Placement") unless (A) the Company delivers to the
--------------------
Purchasers a written notice (the "Subsequent
-12-
<PAGE>
Placement Notice") of its intention to effect such Subsequent Placement within
no less than ten (10) Business Days, which Subsequent Placement Notice shall
describe in reasonable detail the proposed terms of such Subsequent Placement,
the amount of proceeds intended to be raised thereunder, the Person with whom
such Subsequent Placement shall be effected, and attached to which shall be a
term sheet or similar document relating thereto and (B) the Purchasers shall not
have notified the Company by 5:00 p.m. (New York City time) on the fifth (5th)
Business Day after their receipt of the Subsequent Placement Notice of their
willingness to cause the Purchasers to provide (or to cause its sole designee to
provide), subject to completion of mutually acceptable documentation, financing
to the Company on the same terms set forth in the Subsequent Placement Notice.
If the Purchasers shall fail to notify the Company of their intention to enter
into such negotiations within such time period, the Company may effect the
Subsequent Placement substantially upon the terms and to the Persons (or
Affiliates of such Persons) set forth in the Subsequent Placement Notice;
provided, that the Company shall provide the Purchasers with a second Subsequent
- --------
Placement Notice, and the Purchasers shall again have the right of first refusal
set forth above in this paragraph (a), if the Subsequent Placement subject to
the initial Subsequent Placement Notice shall not have been consummated for any
reason on the terms set forth in such Subsequent Placement Notice within thirty
(30) Trading Days after the date of the initial Subsequent Placement Notice with
the Person (or an Affiliate of such Person) identified in the Subsequent
Placement Notice. If the Purchasers shall indicate a willingness to provide
financing in excess of the amount set forth in the Subsequent Placement Notice,
then each Purchaser shall be entitled to provide financing pursuant to such
Subsequent Placement Notice up to an amount equal to such Purchaser's pro-rata
portion of the aggregate number of Shares purchased by such Purchaser under this
Agreement, but the Company shall not be required to accept financing from the
Purchasers in an amount in excess of the amount set forth in the Subsequent
Placement Notice.
3.10 Subsequent Registrations. Except for Shares, Underlying Shares and
------------------------
other "Registrable Securities" (as such term is defined in the Registration
Rights Agreement) to be registered, and securities of the Company as set forth
in Schedule 2.1(s) to be registered, in the Underlying Shares Registration
---------------
Statement in accordance with the Registration Rights Agreement the Company shall
not, other than registrations on Form S-8 (as promulgated under the Securities
Act), during the Restricted Period, the Company shall not, without the prior
written consent of the Purchasers, (i) issue or sell any of its or any of its
Affiliates' equity or equity-equivalent securities pursuant to Regulation S
promulgated under the Securities Act, or (ii) file a registration statement for
the issuance or resale of any securities of the Company.
3.11 Certain Securities Laws Disclosures; Publicity. The Company shall:
----------------------------------------------
(i) on the Closing Date, issue a press release acceptable to the Purchasers
disclosing the transactions contemplated hereby and (ii) timely file with the
Commission a Form D promulgated under the Securities Act as required under
Regulation D promulgated under the Securities Act and provide a copy thereof to
the Purchasers promptly after the filing thereof. The Company shall, no less
than one (1) Business Days prior to the filing of any disclosure required by
clause (ii) above, provide a copy thereof to the Purchasers. The Company and
the Purchasers shall consult with each other in issuing any press releases or
otherwise making public statements or filings and other communications with the
Commission or any regulatory agency or stock market or trading facility with
respect to the transactions contemplated hereby and neither party shall issue
any such press release or otherwise make any such public statement, filings or
other communications pertaining to
-13-
<PAGE>
the transactions contemplated hereby without the prior written consent of the
other, which consent shall not be unreasonably withheld or delayed, except that
no prior consent shall be required if such disclosure is required by law and
such consent can not reasonably be expected to be received prior to the time
required to complete such filing or make such statement in accordance with such
applicable law, in which such case the disclosing party shall provide the other
party with prior notice of such public statement, filing or other communication.
Notwithstanding the foregoing and other than in the Underlying Shares
Registration Statement, the Company shall not publicly disclose the name of a
Purchaser, or include the name of a Purchaser in any filing with the Commission,
or any regulatory agency, trading facility or stock market without the prior
written consent of such Purchaser, except to the extent such disclosure (but not
any disclosure as to the controlling Persons thereof) is required by law, in
which case the Company shall provide such Purchaser with prior notice of such
disclosure.
3.12 Transfer of Intellectual Property Rights. Except in connection with
----------------------------------------
the sale of all or substantially all of the assets of the Company, the Company
shall not transfer, sell or otherwise dispose of any Intellectual Property
Rights, or allow any of the Intellectual Property Rights to become subject to
any Liens, or fail to renew such Intellectual Property Rights (if renewable and
it would otherwise lapse if not renewed), without the prior written consent of
the Purchasers.
3.13 Use of Proceeds. The Company shall use the net proceeds from the sale
---------------
of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt (excluding payment of trade
payables in the ordinary course of the Company's business and prior practices),
to redeem any Company equity or equity-equivalent securities or to settle any
outstanding litigation. Pending application of the proceeds of this placement in
the manner permitted hereby, the Company will invest such proceeds in interest
bearing accounts and/or short-term, investment grade interest bearing securities
3.14 Reimbursement. If any Purchaser, other than by reason of its gross
-------------
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation and preparation and travel in
connection therewith) incurred in connection therewith, as such expenses are
incurred. In addition, other than with respect to any matter in which any of
the Purchasers is a named party, the Company will pay such Purchaser the
charges, as reasonably determined by such Purchaser, for the time of any
officers or employees of such Purchaser devoted to appearing and preparing to
appear as witnesses, assisting in preparation for hearings, trials or pretrial
matters, or otherwise with respect to inquiries, hearings, trials, and other
proceedings relating to the subject matter of this Agreement. The reimbursement
obligations of the Company under this paragraph shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same terms
and conditions to any Affiliates of the Purchasers who are actually named in
such action, proceeding or investigation, and partners, directors, agents,
employees and controlling persons (if any), as the case may be, of the
Purchasers and any such Affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives of the
Company, the Purchasers and any such Affiliate and any such Person. The Company
also agrees that neither the Purchasers nor any such Affiliates, partners,
directors,
-14-
<PAGE>
agents, employees or controlling persons shall have any liability to the Company
or any Person asserting claims on behalf of or in right of the Company in
connection with or as a result of the consummation of the Transaction Documents
except to the extent that any losses, claims, damages, liabilities or expenses
incurred by the Company result from the gross negligence or willful misconduct
of the applicable Purchaser or entity in connection with the transactions
contemplated by this Agreement.
3.15 Redemption at the Option of the Company.
---------------------------------------
(a) If (i) during the Vesting Period (as defined in the Adjustable
Warrant), the average Per Share Market Values for any thirty (30) consecutive
Trading Days is lower than $1.00, or (ii) on any Trading Day after the 60/th/
day following the Effective Date, the Per Share Market Value is lower than $4.32
(each an "Optional Redemption Event"), subject to the provisions of this
-------------------------
Section, the Company shall have the right, upon notice to the Purchasers (an
"Optional Redemption Notice" and the date such notice is received by the
- ---------------------------
Purchasers, the "Notice Date"), delivered no later than the 10/th/ Trading Day
-----------
immediately following the Optional Redemption Event, to redeem all or a portion
of the Shares then held by the Purchasers, at a cash price equal to the
Optional Redemption Price (as defined below). The Company may only deliver an
Optional Redemption Notice to the Purchasers if, on the Notice Date: (i) either
there is an effective Underlying Shares Registration Statement pursuant to which
the Purchasers are permitted to utilize the prospectus thereunder to sell Shares
or Shares may be sold without volume restrictions pursuant to Rule 144
promulgated under the Securities Act, as determined by counsel to the Company
pursuant to a written opinion letter, addressed and delivered prior to the
Notice Date to the Company's transfer agent in the form and substance acceptable
to the Purchasers and such transfer agent and (ii) the Common Stock is listed
for trading on the OTC or on a Subsequent Market (as defined in the Adjustable
Warrants). If any of the foregoing conditions shall cease to be in effect
during the period between the Notice Date and the date the Optional Redemption
Payment is paid in full, then the Purchasers subject to such redemption may
elect, by written notice to the Company given at any time after any of the
foregoing conditions shall cease to be in effect, to invalidate ab initio such
---------
redemption, notwithstanding anything herein contained to the contrary. The
Purchasers may sell any portion of the Shares subject to an Optional Redemption
Notice and such Shares shall be included in the Applicable Share Number (as
defined in the Adjustable Warrants) in connection with the vesting of any
Warrant Shares (as defined in the Adjustable Warrants) which take place prior to
the date that the Optional Redemption Price is due and paid in full.
(b) The Optional Redemption Price is due on the tenth (10/th/)
Trading Day following the Notice Date. If any portion of the Optional Redemption
Price shall not be paid by the Company by expiration of such tenth (10/th/)
Trading Day, interest shall accrue thereon at the rate of 18% per annum (or the
maximum rate permitted by applicable law, whichever is less) until the Optional
Redemption Price plus all such interest is paid in full. In addition, if any
portion of the Optional Redemption Price remains unpaid after such date, the
Purchasers subject to such redemption may elect, by written notice to the
Company given at any time thereafter, to invalidate ab initio such redemption,
---------
notwithstanding anything herein contained to the contrary. If a Purchaser elects
to invalidate such redemption the Company shall promptly, and, in any event, not
later than three (3) Trading Days from receipt of such Purchaser's notice of
such election, return to such Purchaser all of the Shares for which the Optional
Redemption Price shall not have been paid in full.
-15-
<PAGE>
(c) The "Optional Redemption Price" for each Share to be redeemed
-------------------------
shall equal the sum of (i) (A) in case of an Optional Redemption Event under
Section 3.15(a)(i), the average of the Per Share Market Value for the five (5)
Trading Days preceding such Optional Redemption Event, or (B) in case of an
Optional Redemption Event Section 3.15(a)(ii), $5.31, and (ii) all other
amounts, costs, expenses and liquidated damages due in respect of such Shares.
3.16 Redemption at the Option of the Purchasers. If the Company shall
------------------------------------------
fail to file the Underlying Shares Registration Statement on of before Filing
Date (as defined in the Registration Rights Agreement), each Purchaser shall
have the right, exercisable at the sole option of such Purchaser at any time on
or after the Filing Date, to require the Company to redeem all of the Shares
issued and sold to such Purchaser on the Closing Date for a redemption price, in
cash, equal to the Mandatory Redemption Price (as defined below). The Mandatory
Redemption Price shall be due and payable within two (2) Trading Days of the
date on which the notice for the payment therefor is provided by a Purchaser.
If the Company fails to pay the Mandatory Redemption Price hereunder in full
pursuant to this Section on the date such amount is due in accordance with this
Section, the Company will pay interest thereon at a rate of 18% per annum (or
the lesser amount permitted by applicable law), accruing daily from such date
until the Mandatory Redemption Price, plus all such interest thereon, is paid in
full. Each Purchaser shall, upon receipt of the entire Mandatory Redemption
Price, return to the Company for cancellation the Shares subject to a redemption
hereunder and the Warrants issued to it on the Closing Date. The "Mandatory
Redemption Price" for each Share to be redeemed shall equal the sum of (i) $4.32
and (ii) all other amounts, costs, expenses and liquidated damages due in
respect of such Shares.
3.17 Limitations on Short Sales. Each Purchaser agrees that it will not
--------------------------
enter into any Short Sales (as hereinafter defined) from the period commencing
on the Closing Date and ending on the second year anniversary of the Closing
Date to the extent that a Short Sale on a Trading Day would exceed the greater
of 15% of (i) the trading volume of the Common Stock on such Trading Day and
(ii) the average of the trading volume of the Common Stock for the five (5)
Trading Days immediately preceding such Trading Day. For purposes of this
Section 3.17, a "Short Sale" by a Purchaser shall mean a sale of Common Stock by
such Purchaser that is marked as a short sale and that is made at a time when
there is no equivalent offsetting long position in Common Stock held by the
Purchaser. For purposes of determining whether there is an equivalent
offsetting long position in Common Stock held by a Purchaser, Warrant Shares
that have not yet been issued on exercise of the Warrants held by a Purchaser
shall be deemed to be held long by such Purchaser.
ARTICLE IV
MISCELLANEOUS
4.1 Fees and Expenses. At the Closing the Company shall reimburse
-----------------
the Purchasers for their legal fees and expenses incurred in connection with the
preparation and negotiation of the Transaction Documents by paying to Robinson
Silverman $30,000 for the preparation and negotiation of the Transaction
Documents. Other than the amounts contemplated in the immediately preceding
sentence, and except as otherwise set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation,
-16-
<PAGE>
execution, delivery and performance of this Agreement. The Company shall pay all
stamp and other taxes and duties levied in connection with the issuance of the
Securities.
4.2 Entire Agreement; Amendments. The Transaction Documents,
----------------------------
together with the Exhibits and Schedules thereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules.
4.3 Notices. Any and all notices or other communications or
-------
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 6:30 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Agreement later than 6:30 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
If to the Company: EbaseOne Corp.
6060 Richmond
Houston, Texas 77057
Facsimile No.: (713) 781-5535
Attn: Charles Skamser
With copies to: Breward & Pritchard
1111 Bagby, 24/th/ Floor
Houston, Texas 77002
Facsimile No.: (713) 659-5302
Attn: Thomas C. Pritchard
If to a Purchaser: To the address set forth under such
Purchaser's name on the signature
pages hereto.
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 Amendments; Waivers. No provision of this Agreement may be
-------------------
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchasers or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver
of any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
-17-
<PAGE>
4.5 Headings. The headings herein are for convenience only, do not
--------
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
4.6 Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Purchasers. Except as set
forth in Section 3.1(a), the Purchasers may not assign this Agreement or any of
the rights or obligations hereunder without the consent of the Company. This
provision shall not limit any Purchaser's right to transfer securities or
transfer or assign rights under the Registration Rights Agreement.
4.7 No Third-Party Beneficiaries. This Agreement is intended for the
----------------------------
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
4.8 Governing Law. The corporate laws of the State of Delaware
-------------
shall govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed
by and construed and enforced in accordance with the internal laws of the State
of New York, without regard to the principles of conflicts of law thereof. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
4.9 Survival. The representations, warranties, agreements and
--------
covenants contained herein shall survive the Closing and the delivery and
exercise of the Warrants.
4.10 Execution. This Agreement may be executed in two or more
---------
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4.11 Severability. In case any one or more of the provisions of this
------------
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining
-18-
<PAGE>
terms and provisions of this Agreement shall not in any way be affecting or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision which shall be a reasonable substitute therefor, and upon
so agreeing, shall incorporate such substitute provision in this Agreement.
4.12 Remedies. In addition to being entitled to exercise all
--------
rights provided herein or granted by law, including recovery of damages, the
Purchasers will be entitled to specific performance of the obligations of the
Company under the Transaction Documents. Each of the Company and the Purchasers
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of its obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be adequate.
4.13 Independent Nature of Purchasers' Obligations and Rights. The
--------------------------------------------------------
obligations of each Purchaser under any Transaction Document is several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert with respect to such obligations or
the transactions contemplated by the Transaction Document. Each Purchaser shall
be entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement or out of the Transaction
Documents, and it shall not be necessary for any other Purchaser to be joined as
an additional party in any proceeding for such purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
EBASEONE CORP.
By:_____________________________________
Name:
Title:
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
<PAGE>
DEEPHAVEN PRIVATE PLACEMENT
TRADING LTD.
By:_____________________________________
Name:
Title:
Warrant Shares underlying each Closing
--------------------------------------
Warrant: 127,314
-------
Payment and Issuance on the Closing Date:
----------------------------------------
Purchase Price: $1,750,000
Number of Shares to be issued: 405,092
Payment and Issuance on the second Trading Day following the
------------------------------------------------------------
Effective Date:
---------------
Purchase Price: $1,000,000
Number of Shares to be issued: 231,481
Address for Notice:
Deephaven Private Placement Trading Ltd.
c/o Deephaven Capital Management LLC
130 Cheshire Lane
Minnetonka, MN 55305
Facsimile No.: (612) 249-5300
Attn: Bruce Lieberman
With copies to:
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630 and (212) 541-1432
Attn: Kenneth L. Henderson, Esq.
Eric L. Cohen, Esq.
<PAGE>
DEEPHAVEN OPPORTUNITY TRADING FUND L.P.
By:_____________________________________
Name:
Title:
Warrant Shares underlying each Closing
--------------------------------------
Warrant: 34,722
-------
Payment and Issuance on the Closing Date:
----------------------------------------
Purchase Price: $625,000
Number of Shares to be issued: 144,675
Payment and Issuance on the second Trading Day following the
------------------------------------------------------------
Effective Date:
--------------
Purchase Price: $125,000
Number of Shares to be issued: 28,935
Address for Notice:
Deephaven Opportunity Trading Fund L.P.
c/o Deephaven Capital Management LLC
130 Cheshire Lane
Minnetonka, MN 55305
Facsimile No.: (612) 249-5300
Attn: Bruce Lieberman
With copies to:
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630 and (212) 541-1432
Attn: Kenneth L. Henderson, Esq.
Eric L. Cohen, Esq.
-22-
<PAGE>
NEW CRESCENT INVESTORS LLC
By:_____________________________________
Name:
Title:
Warrant Shares underlying each Closing
--------------------------------------
Warrant: 180,555
-------
Payment and Issuance on the Closing Date:
----------------------------------------
Purchase Price: $2,625,000
Number of Shares to be issued: 607,639
Payment and Issuance on the second Trading Day following the
------------------------------------------------------------
Effective Date:
--------------
Purchase Price: $1,275,000
Number of Shares to be issued: 295,138
Address for Notice:
New Crescent Investors LLC
c/o WEC Asset Management LLC
One World Trade Center
Suite 4563
New York, New York 10048
Facsimile No.: (212) 775-9311
Attn: Ethan Benovitz
With copies to:
Rosenman & Colin, LLP
575 Madison Avenue
New York, New York 10022
Facsimile No.: (212) 940-8776
Attn: Herman Shtern, Esq.
Elliott Press, Esq.
-23-
<PAGE>
ZUBAIR KAZI
_____________________________________
Warrant Shares underlying each Closing
--------------------------------------
Warrant: 26,389
-------
Payment and Issuance on the Closing Date:
----------------------------------------
Purchase Price: $0
Number of Shares to be issued: 0
Payment and Issuance on the second Trading Day following the
------------------------------------------------------------
Effective Date:
--------------
Purchase Price: $570,000
Number of Shares to be issued: 131,944
Address for Notice:
Zubair Kazi
3671 Sunswept Drive
Studio City, CA 91604
Facsimile No.: (818) 980-9264
-24-
<PAGE>
MOHAMED GHAUS KHALIFA
_____________________________________
Warrant Shares underlying each Closing
--------------------------------------
Warrant: 11,574
-------
Payment and Issuance on the Closing Date:
----------------------------------------
Purchase Price: $250,000
Number of Shares to be issued: 57,870
Payment and Issuance on the second Trading Day following the
------------------------------------------------------------
Effective Date:
--------------
Purchase Price: $0
Number of Shares to be issued: 0
Address for Notice:
Mohamed Ghaus Khalifa
P.O.B. 6129
Sharjah, United Arab Emirates
Facsimile No.: (011-971-6-5) 736 038
-25-
<PAGE>
TAJUNNISA OWESH
_____________________________________
Warrant Shares underlying each Closing
--------------------------------------
Warrant: 32,407
-------
Payment and Issuance on the Closing Date:
----------------------------------------
Purchase Price: $700,000
Number of Shares to be issued: 162,037
Payment and Issuance on the second Trading Day following the
------------------------------------------------------------
Effective Date:
--------------
Purchase Price: $0
Number of Shares to be issued: 0
Address for Notice:
Tajunnisa Owesh
6 Bilal Manzil 5/th/ Main
Jayamahal Extension
Bangalore, Kentaka, India
-26-
<PAGE>
ALIMCHANDANI FAMILY REVOCABLE TRUST
_____________________________________
Warrant Shares underlying each Closing
--------------------------------------
Warrant: 3,704
-------
Payment and Issuance on the Closing Date:
----------------------------------------
Purchase Price: $50,000
Number of Shares to be issued: 11,574
Payment and Issuance on the second Trading Day following the
------------------------------------------------------------
Effective Date:
--------------
Purchase Price: $30,000
Number of Shares to be issued: 6,945
Address for Notice:
Vijay Alim Chandani
1932 Gardenstone Court
Westlake Village, CA 91361
Facsimile No.: (805) 496-4910
-27-
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement of our report dated
October 25, 1999 relating to the consolidated financial statements of EbaseOne
Corporation and to the reference to our Firm under the caption, "Experts", in
this Registration Statement and related Prospectus.
HEIN + ASSOCIATES LLP
Houston, Texas
January 13, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 308
<SECURITIES> 0
<RECEIVABLES> 42
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 351
<PP&E> 481
<DEPRECIATION> 148
<TOTAL-ASSETS> 701
<CURRENT-LIABILITIES> 809
<BONDS> 0
0
0
<COMMON> 35
<OTHER-SE> (559)
<TOTAL-LIABILITY-AND-EQUITY> 701
<SALES> 654
<TOTAL-REVENUES> 654
<CGS> 357
<TOTAL-COSTS> 2,498
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47
<INCOME-PRETAX> (2,248)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,248)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,248)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)
</TABLE>
